Call to Order and Roll Call
The10th meeting of the Capital Projects and Bond Oversight Committee was held on Tuesday, October 16, 2012, at 1:00 PM, in Room 169 of the Capitol Annex. Representative Jim Glenn, Chair, called the meeting to order, and the secretary called the roll.
Guests: Robin Brewer, Financial Analyst, Office of Financial Management; Scott Aubrey, Director, Division of Real Properties; Stephen Collins, Director, Bluegrass Station Army Depot.
Approval of Minutes
Representative Rudy moved to approve the minutes of the September 18, 2012 meeting. The motion was seconded by Senator Carroll and approved by voice vote.
Kristi Culpepper, Committee Staff Administrator, said there were five items for members to review. The first three information items were quarterly status reports from the Administrative Office of the Courts, the Commonwealth Office of Technology, and the Finance and Administration Cabinet, including universities that manage their own capital construction programs. The fourth information item was the semi-annual report of the Kentucky Asset/Liability Commission. In response to questions from Representative Wayne, Robin Brewer stated she would report back to the committee on whether the state intends to file a lawsuit related to manipulation of the London Interbank Offered Rate with respect to the state’s four outstanding interest rate swaps and regarding an estimate as to how much the state was underpaid by its counterparties on those contracts.
The final information item was an update on the ratings for the state’s Grant Anticipation Revenue Vehicle (GARVEE) bonds. On September 12, 2012, Fitch downgraded Kentucky’s GARVEE bonds from AA- to A+ and revised its outlook on the bonds’ rating from negative to stable. Moody’s put the same bonds on review for possible downgrade on September 25, 2012. These bonds are supported by federal appropriations for transportation infrastructure. The rating agencies cited uncertainty in federal transportation policy and federal reauthorization risk as reasons for the rating actions.
Lease reports submitted by the Finance and Administration Cabinet
Scott Aubrey presented six items to the committee. The first was an advertisement notice for the potential lease of 45,462 square feet of office space with 4,000 square feet of warehouse space and 225 reserved parking spaces in Frankfort for the Department of Public Advocacy. No action was required.
The second item was the report of an amortization of leasehold improvements for the Department of Public Advocacy in Warren County. The improvements, costing $26,694, are necessary to create four additional offices within the existing leased area. No action was required.
The third item was a report of state leases with square foot modifications for the period of April 2012 through June 2012. Of the eight lease modifications, two resulted in no additional cost to the Commonwealth, one resulted in an increase of $2 annually, and the remaining five modifications increased square footage with a total increased annual cost of $20,628. While the annual cost increased, the cost per square foot on these leases remained the same. In response to a question from Representative Glenn, Mr. Aubrey said the addition of three parking spaces on one of the modifications was due to an expansion of staff. No action was required.
The fourth item was a lease renewal with an annual cost exceeding $100,000. The Cabinet for Health and Family Services renewed its lease in Harlan County at an annual cost of $119,720. Senator Carroll made a motion to approve the lease. The motion was seconded by Representative Wayne and passed unanimously by roll call vote.
The fifth item was also a lease renewal with an annual cost exceeding $100,000. The Office of the Attorney General is renewing its lease at 1024 Capital Center Drive in Frankfort at an annual cost of $447,552. Senator Carroll made a motion to approve the lease. The motion was seconded by Representative Wayne and passed unanimously by roll call vote.
The sixth item was a built-to-suit lease project for the Department of Military Affairs. The Department sought approval for a multi-purpose building to be built at Bluegrass Station. Under a built-to-suit arrangement, a state agency conveys land to a private developer who designs, finances, and builds the project. The developer maintains ownership of the property, which is then leased to the state agency. The 200,000 square foot facility will consist of warehouse and office space for the National Guard’s Consequence Management Support Center. Under the terms of the contract, the Department will pay $3.55 per square foot for an annual rental cost of $710,000. The state can extend the lease for a total of 14.75 years, at which time the cost of the building and appurtenances will be fully amortized. Additionally, the state has an option to purchase the property at the end of any lease term. In response to a question from Senator Carroll, Mr. Aubrey said the average cost per square foot for warehouse space in Fayette County was $5.38 per square foot. This lease will pay $3.55 per square foot for warehouse space. In response to a question from Representative Wayne, Mr. Aubrey said the state would lease the structure once complete, then sublease it to the federal government. He said that the lessor would finance the building of the facility, which is on Commonwealth-owned property, and the $710,000 in lease payments made annually would be made by the federal government to the state, which would than pay the lessor. In response to another question from Representative Wayne, Stephen Collins said the building would be used by the Consequence Management Center, which supports 19 office support teams and 57 rapid support teams who respond to domestic terrorist events. Senator Carroll made a motion to approve the lease project. The motion was seconded by Senator Buford and passed unanimously by roll call vote.
Kentucky Infrastructure Authority (KIA)
Representative Glenn said the committee had received information from KIA on five Infrastructure for Economic Development grants. No action was required.
New Bond Issues
Robin Brewer presented three new bond issues to the committee. The first was for the State Property and Buildings Commission. The $5,354,013 bond issue will advance refund agency fund bonds SPBC issued for the University of Kentucky (tax-exempt and taxable). The transaction is expected to produce a net present value savings of $722,110. In response to a question from Representative Damron, Ms. Brewer said she was not aware of any conditions with respect to these bonds that would cause a problem on the open market and requires these bonds to be sold in a negotiated rather than competitive process. Ms. Brewer said the Office of Financial Management makes the decision to do a competitive or a negotiated sale on a case-by-case basis. Representative Damron said he prefers competitive sales unless there is something about the credit that may cause a problem, and this issue seemed uncomplicated. Ms. Brewer said the bond issue may have been negotiated because these are agency credits. Senator Carroll made a motion to approve the bond issue. The motion was seconded by Senator Leeper and passed with 7 yes votes and one pass.
The second bond issue was also for the State Property and Buildings Commission. The $5,105,124 bond issue will refund agency fund bonds SPBC issued for Eastern Kentucky University (tax-exempt and taxable). The transaction is expected to produce a net present value savings of $640,115. In response to a question from Senator Carpenter, Ms. Brewer said the bond proceeds will be used to refund previously issued bonds for the criminal justice department building and will not be used to finance an energy savings performance contract. Senator Carroll made a motion to approve the bond issue. The motion was seconded by Senator Carpenter and passed with 7 yes votes and one pass.
The third bond issue was also for the State Property and Building Commission. The $47,441,458 bond issue will advance refund agency fund bonds SPBC issued for the Kentucky State Fair Board. In response to a question from representative Glenn, Ms. Brewer said the difference in interest rate on this bond issue when compared to the previous two presented to the committee was likely due to the Fair Board’s credit and the narrower revenue stream compared to the universities and their general receipts pledges. In response to a question from Representative Damron, Ms. Brewer said the bonds were tax-exempt. Ms. Brewer also said this bond sale was structured with a debt service reserve fund built in which may or may not be needed. In response to a question from Senator Carpenter, Ms. Brewer said the bond encompasses the South Wing C renovation and East Wing project. Senator Carroll made a motion to approve the bond issue. The motion was seconded by Representative Rudy and passed with 7 yes votes and one pass.
Bond activity report from the Office of Financial Management
Robin Brewer presented one follow-up report on a previously approved bond issue. The $1,400,000 in Kentucky Housing Corporation Conduit Multifamily Housing Revenue Bonds, Series 2012A and 2012B – Garden Apartments of Bowling Green will be used to acquire, rehabilitate and equip the existing Garden Apartments at 415 Trent Way in Bowling Green. The project includes 48 units, which will be restricted to tenants earning 40 percent or less of the area’s median income. The cost of issuance was $42,500. These bond issues were approved at previous committee meetings, and no further action was required.
New school bond issues with School Facilities Construction Commission (SFCC) debt service participation
Ms. Brewer said there were 12 new school bond issues with School Facilities Construction Commission participation this month. The estimated annual SFCC debt service for these 12 issues is $1,645,597. None of the bond issues involved a tax increase. Senator Buford made a motion to approve bond issues. The motion was seconded by Representative Wayne and passed unanimously by roll call vote.
New school bond issues with 100 percent locally-funded debt service participation
Ms. Culpepper said there were five local school district bond issues with 100 percent locally funded debt service reported to the committee this month: Allen County, Jefferson County, Livingston County, Warren County, and Woodford County. None of the bond issues involved tax increases. No action was required.
With there being no further business, the meeting adjourned at 1:34 p.m.