Call to Order and Roll Call
The Capital Projects and Bond Oversight Committee met on Tuesday, February 19, 2013, at 12:00 PM, in Room 169 of the Capitol Annex. Representative Kevin Sinnette, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Chris Girdler, Co-Chair; Representative Kevin Sinnette, Co-Chair; Senators Julian M. Carroll, Bob Leeper, and Christian McDaniel; Representatives Robert R. Damron, Steven Rudy, and Jim Wayne.
Guests: Rebecca Weatherford, Kentucky Community and Technical College System (KCTCS); John Hicks, Deputy Budget Director, Governor’s Office of Policy and Management; Scott Aubrey, Director, Division of Real Properties; Sandy Williams, Financial Analyst, Kentucky Infrastructure Authority; Robin Brewer, Financial Analyst, Office of Financial Management; Tom Midkiff, Financial Analyst, Office of Financial Management; Shawn Dyer, Tax Credit Allocation Administrator, Kentucky Housing Corporation.
Approval of Minutes
Senator Carroll made a motion to approve the minutes of the January 22, 2013, meeting. The motion was seconded by Senator Girdler and approved by voice vote.
Ms. Culpepper said there were four information items for members to review. First, there was a list of proposed legislation related to the committee’s jurisdiction.
Second, there was a report from Standard and Poor’s (S&P) explaining that the rating agency had revised the outlook on the state’s appropriation-supported debt from stable to negative. This outlook revision suggests that the state’s credit rating may be downgraded going forward if current trends continue. According to S&P, its negative outlook reflects the rating agency’s concern over pension funding levels, which have declined and are likely to continue declining due to lower-than-actuarially required funding of pension liabilities, and budgetary pressures associated with funding post-retirement benefits.
Third, there was a report from Moody’s Investors Service, another rating agency, which recently revised its outlook on the entire higher education sector from stable to negative.
Finally, there was the committee’s first status report on the Louisville-Southern Indiana Ohio River Bridges project. KRS Chapter 175B established a bi-state authority for this project. The authority is required to report to the committee before the first issuance of bonds and no less than semiannually thereafter. The project is not experiencing any delays and is expected to be complete in December 2016. Bonds are expected to be issued for the project in a few months.
In response to a question from Senator McDaniel, Robin Brewer, Financial Analyst, Office of Financial Management, replied that there was going to be a bill introduced that day that would address the issue of video enforcement of tolls for the Louisville-Southern Indiana Ohio River Bridges project.
Ms. Culpepper said there were two items of correspondence for committee members to review. The first was a letter from the Office of Financial Management (OFM) responding to questions committee members asked at the January meeting. Members wanted to know how much appropriation-supported debt the state has outstanding, what impact banks’ manipulation of the LIBOR rate has had on the state’s debt and investment portfolios, and whether the state has pursued any remedies.
As of December 31, 2012, the state had $8.7 billion of appropriation-supported debt outstanding. The state also had $1.7 billion in authorized but unissued debt. Both figures include debt backed by federal funds.
According to OFM, the Finance and Administration Cabinet has filed claims to participate in out-of-court settlements between UBS and 25 state attorneys general related to three LIBOR-based derivatives contracts: $150,104 for a Turnpike Authority forward delivery agreement associated with the restructuring of a debt service reserve fund in 2001; $218,163 for a cash secured interest rate swap agreement from 2001; and $234,695 for a cash secured interest rate swap agreement for 2002.
The second item of correspondence are letters from the Auditor of Public Accounts certifying that statutory provisions related to the selection of underwriters, bond counsels, and financial advisors for the state’s various debt-issuing authorities had been met.
UK Medical Equipment
Ms. Culpepper said the University of Kentucky had reported the purchase of two pieces of unbudgeted medical equipment from clinical revenues. The first item purchased was a digital mammography unit for $359,220.
The second item purchased was an Eclipse Treatment Planning System for $2,476,000. This piece of equipment will allow physicians to simulate radiation therapy and determine the appropriate treatment parameters, which minimizes the amount of radiation delivered to healthy tissue. These parameters are then used in the actual radiation therapy. No action was required.
Lease Report Submitted by Kentucky Community and Technical College System (KCTCS)
Rebecca Weatherford, Director, Property Management, presented a report of a new lease exceeding $100,000 annually for KCTCS - Kentucky Fire Commission and Kentucky Board of Emergency Medical Services. The lease is located at 118 James Court in Lexington at an annual cost of $173,400. Senator Carroll made a motion to approve the lease. The motion was seconded by Representative Damron and passed unanimously by roll call vote.
Lease Reports Submitted by the Finance and Administration Cabinet – Reporting of Pool Projects in excess of $600,000
John Hicks, Deputy State Budget Director, presented two items to the committee.
The first item was the Ross Creek project, which involves the acquisition of 540 acres of land in Lee and Estill Counties and the design costs of a stream mitigation project on Rock Creek near the Kentucky River. The project will be funded with $1,650,000 from the Fish and Wildlife Resources 2012-14 Fees-in-lieu-of Stream Mitigation Projects Pool. Construction costs for the project will be reported at a later date.
The second item was the KCTCS – Versailles Land Acquisition project. KCTCS has acquired two parcels near its central office facility for a potential expansion. The purchase will be funded with $896,100 from KCTCS’ 2012-14 Restricted Fund Property Acquisition Pool. No action was required.
Lease Reports Submitted by the Finance and Administration Cabinet – Lease Renewals
Scott Aubrey, Director, Division of Real Properties, presented three items to the committee. The first item was a report of a lease renewal exceeding $100,000 annually for the Cabinet for Health and Family Services in Fayette County. The department will renew its lease at 1165 Centre Parkway, Lexington, Kentucky, at an annual cost of $439,028.
The second item was a report of a lease renewal exceeding $100,000 annually for the Cabinet for Health and Family Services in Scott County. The department will renew its lease at 100 Mary Lynn Drive, Suite 16, Georgetown, Kentucky, at an annual cost of $216,736.
The third item was a report of a lease renewal exceeding $100,000 annually for the Department of Workers Claims in Fayette County. The department will renew its lease at 2780 Research Park, Lexington, Kentucky, at an annual cost of $141,465.
Representative Damron questioned the cost of the lease for the Cabinet for Health and Family Services in Scott County. The renewal price is 30 percent higher than the average cost per square foot for similar leases in other counties.
Senator Carroll made a motion to approve the lease renewals. The motion was seconded by Senator McDaniel and passed by roll call vote.
Kentucky Infrastructure Authority (KIA) Fund A Loan
Sandy Williams, Financial Analyst, KIA, presented two Fund A loan requests to the committee. The first request was for The City of Frankfort for an $8,000,000 Fund A loan for the Sewer Equalization Facilities project. The project involves the construction of a 10 million gallon equalization basin for the city's sanitary sewer system. The wastewater treatment plant (WWTP) is designed for 9.9 million gallons per day (MGD) of incoming sewer flow but can accommodate 23 MGD for short periods of time. However, during prolonged heavy rain events the WWTP exceeds its capacity, which contributes to combined and sanitary sewer overflows in the collection system. Upon completion, three sanitary sewer systems in or near residential areas are expected to be eliminated.
Completion of the project is a substantial step in the city’s ongoing efforts to achieve compliance with the Kentucky Division of Enforcement’s Consent Judgment and an Environmental Protection Agency (EPA) Administrative Order. The cost to implement the projects necessary to comply with the consent judgment is estimated in excess of $75 million and will take over ten years to complete.
No new customers will be added to the system’s current 13,715 customers. The average monthly bill of $35.88 for 4,000 gallons will not change. The terms of the KIA Loan are 1.75 percent for 20 years at an annual payment of $442,624.
The second request was for the Regional Water Resource Agency (RWRA) for a Fund A loan in the amount of $1,655,565 for the extension of sanitary sewer service to 34 unserved residential properties in the Sunrise Drive area. The extension (approximately 4,000 linear feet of eight inch PVC) will facilitate additional expansion to other unserved areas as funding becomes available. The project also separates and redirects remaining storm flows that exist in the Old Hartford Road East combined sewer system.
This project will add 34 new customers to the system’s current 28,641 customers. The average monthly bill of $19.64 for 4,000 gallons will increase to $23.33. Representative Rudy made a motion to approve the Fund A loans. The motion was seconded by Representative Wayne and passed unanimously by roll call vote.
Kentucky Infrastructure Authority Fund F Loans
Ms. Williams presented three Fund F loan requests. The first request was for the Madison County Utility District (MCUD) for an $856,528 Fund F Loan to construct various waterline improvements. Approximately 24,500 linear feet of older three and four inch ductile iron lines will be replaced with six and eight inch PVC lines. This will fix numerous leaks and service outages and will substantially reduce the number of boil water advisories the district issues. The project will also loop a dead-end line in one location to improve water flow. The areas affected by this request include the Cedar View Hills Subdivision, Charles Norris Road, Bumstark Road, Hacket Pike, and Wild Goose Subdivision.
No new customers will be added to the system’s current 10,256 customers. The average bill of $27.85 for 4,000 gallons will not increase.
The second request was for The City of Danville for a $4,000,000 Fund F loan for the Water Treatment Plant and Raw Water Intake project. The project involves the renovation and expansion of the city's water treatment plant and raw water intake, a capacity increase from 10 to 12 MGD and the addition of advanced treatment methods. The design will permit capacity to be increased to 15 MGD if required in the future. The project will ensure compliance with the EPA’s Stage 2 Disinfectants / Disinfection By-Products Rule. The existing plant was constructed in 1924 with subsequent renovations or expansions in 1952, 1957, 1966, 1983, and 1990 and is deteriorating. The project includes the following components: new raw water pump station and intake line; new chemical feed system and storage building; new HVAC system; new clarification system; new filters; a one million gallon clearwell; and granular activated carbon post-filter contactors.
Approximately 26 percent (400 million gallons) of water sold is at an average of $1.61 per thousand gallons to wholesale customers which include the Parksville Water District, Garrard County and Lake Village Water Associations, and Hustonville Water Works. The last wholesale rate adjustment was in the late 1990s. Wholesale rates are expected to increase about 15 percent at the beginning of fiscal 2015.
A cost of service study will be conducted in late fiscal 2014 to determine the final proposed amount which will require Public Service Commission approval. A retail rate increase of approximately 40 percent was effective in July 2011.
No new customers will be added to the system’s current 10,166 customers. The average bill of $17.55 for 4,000 gallons will not increase.
The third was for The City of Vanceburg, for the benefit of the Vanceburg Electric Plant Board, for an $850,000 Fund F loan for the Water Supply Well project. The project involves the construction of a new raw water production well, a Supervisory Control and Data Acquisition (SCADA) system, and the installation of approximately 1,550 radio-read meters. The well will enhance the water supply for the city and facilitate the future proposed interconnection of area water systems. The radio-read meters will be installed at rural customer locations that do not have other city utility services and will eventually reduce contract labor costs by about $18,000 annually. The city uses two wells that are about 50 years old and has recently acquired additional property with the intention of utilizing it as an expansion of their well field.
There are also discussions of consolidating regional water systems with Vanceburg becoming the major supplier of water in the area.
No new customers will be added to the system’s current 2,612 customers. The average bill of $23.04 for 4,000 gallons will not change. Representative Wayne made a motion to approve the Fund F loans. The motion was seconded by Representative Rudy and passed unanimously by roll call vote.
Kentucky Infrastructure Authority Grants
Ms. Williams presented two coal and one non-coal grants. The first coal grant was for Bell County for a water rehabilitation project with a total cost of $643,551.
The second coal grant was for Letcher County for water line extensions for Bull Creek/Elk Creek (Carcassonne area) in the amount of $500,000.
The non-coal grant was for Greenup County for sewer work and renovation in The City of South Shore in the amount of $25,000. No action was required.
New Bond Issues Submitted by the Office of Financial Management
Robin Brewer, Financial Analyst, Office of Financial Management (OFM), Tom Midkiff, Financial Analyst, OFM, and Shawn Dyer, Tax Credit Allocation Administrator, Kentucky Housing Corporation (KHC), reported a new bond issue for the Hillebrand House Project for the acquisition and rehabilitation of a multifamily rental housing development located at 1235 and 1249 South Third Street in Louisville, Kentucky. The par amount of the bonds was $12,630,152. No action was required.
In response to a question from Senator McDaniel, Tom Midkiff replied that conduit bonds are private debt. KHC issues bonds on a conduit basis to provide developers with a tax-exempt interest rate.
New School Bond Issues with School Facilities Construction Commission Debt Service Participation
Ms. Brewer said there were 14 school district bond issues being reported with SFCC debt service participation. Four were refundings and ten were for new school construction and improvements. One of the projects involved a tax increase. Representative Rudy made a motion to approve the bond issues. The motion was seconded by Representative Damron and passed unanimously by roll call vote.
New School Bond Issues with 100-Percent Locally Funded Debt Service Participation
Ms. Culpepper said six local school bond issues were reported to the committee. These bond issues have 100 percent local debt service support. Two bond issues were refundings and four financed improvements at existing facilities. None of the bond issues involved a tax increase. No action was required.
With there being no further business, the meeting adjourned at 12:43 p.m.