Capital Projects and Bond Oversight Committee

 

Minutes of the<MeetNo1> 3rd Meeting

of the 2013 Interim

 

<MeetMDY1> March 19, 2013

 

Call to Order and Roll Call

The<MeetNo2> 3rd meeting of the Capital Projects and Bond Oversight Committee was held on<Day> Tuesday,<MeetMDY2> March 19, 2013, at<MeetTime> 1:00 PM, in<Room> Room 169 of the Capitol Annex. Senator Chris Girdler, Chair, called the meeting to order, and the secretary called the roll.

 

Present were:

 

Members:<Members> Senator Chris Girdler, Co-Chair; Representative Kevin Sinnette, Co-Chair; Senators Julian M. Carroll, Bob Leeper, and Christian McDaniel; Representatives Robert R. Damron, and Jim Wayne.

 

Guests: Sandy Williams, Financial Analyst, Kentucky Infrastructure Authority; Scott Aubrey, Director, Division of Real Properties; John Hicks, Deputy Budget Director, Governorís Office of Policy and Management; and Ryan Barrow, Executive Director, Office of Financial Management

 

LRC Staff: Kristi Culpepper, Josh Nacey, and Jennifer Luttrell.

 

Approval of Minutes

Senator Carroll made a motion to approve the minutes of the February 19, 2013, meeting. The motion was seconded by Representative Wayne and approved by voice vote.

 

Information Items

Senator Girdler said there was one information item for members to review. There was a list of legislation related to the committeeís jurisdiction.

 

Lease Report from the Finance and Administration Cabinet

Scott Aubrey, Director, Division of Real Properties, presented a report on the amortization of leasehold improvements for the Energy and Environment Cabinet in Franklin County (PR-4733). The cabinet submitted a request for improvements to be made at the property at 115 Northgate Drive in Frankfort. The improvements include upgrading or replacing the shredding, baling, and dust collection system at the State Recycling Center and adding a sprinkler line to the shredding equipment.

 

The annual rental on the property is $89,500. Building modification costs of $24,290 will be amortized through the lease expiration date of June 30, 2015.

 

No action was required.

 

Kentucky Infrastructure Authority (KIA) Fund A Loan

Sandy Williams, Financial Analyst, KIA, presented six Fund A loan requests to the committee. The first request was for Perry County for an $875,000 Fund A loan to construct an 112,000 gallon per day wastewater treatment plant and collection lines near Chavies, Kentucky (approximately 12 miles north of Hazard). The system currently collects sewage and transports it to the Hazard sewage treatment plant. This project will not change that arrangement.

 

Ms. Williams said 160 new customers will be added to the systemís current 639 customers. Because the system was operating at a loss, a rate increase was enacted that increased the average bill for 4,000 gallons from $26.00 to $31.20. The rate structure after the new plant is operational has yet to be determined. The terms of the KIA loan are 1.00 percent for 20 years at an annual payment of $45,117.

 

In response to a question from Representative Wayne, Ms. Williams replied that KIA makes financing decisions on the loans. The Kentucky Division of Water reviews project plans and specifications to see if they meet environmental criteria and then recommends projects to the KIA Board of Directors. Ms. Williams said that she would find out if this project is related to the coal industry.

 

The second request was for the Lexington-Fayette County Government for five separate Fund A loans totaling $56,742,393 for various projects in Lexington.

 

In 2006, the US Environmental Protection Agency (EPA) and the Kentucky Environmental and Public Protection Cabinet (EPPC) filed suit in federal court against the Lexington-Fayette Urban County Government alleging that the government had violated the Clean Water Act. A consent decree was entered into in January 2011, which requires the Lexington-Fayette Urban County Government to complete extensive studies, sewer improvement projects, and management plans within 13 years. The cost of the remedial measures stipulated in the consent decree is estimated at $500 million. Sanitary sewer rates have been increased and a storm management fee has been adopted in response.

 

The five Fund A loans will finance some of the improvements required under the consent decree.

 

The first loan is for $13,674,302 to replace sanitary sewer trunk lines in the Bob-O-Link and Wolf Run areas of the city with larger lines. Loan proceeds will also be used to construct a 108 million gallon wastewater flow equalization facility on Kilrush Drive. The estimated annual payment is $840,636.

 

The second loan is for $10,194,421 to replace sanitary sewer trunk lines in the areas of Eastgate, Century Hills, West Hickman, and Woodhill. The estimated annual payment is $626,708.

 

The third loan is for $4,657,640 for the Anniston-Wickland project, which involves constructing new storm sewers and appurtenances along Spring Station Drive to Bryan Station, and Various Storm Sewer Management Projects Phase II, which address large-scale flooding issues around the city. Funding for this project also includes $575,000 in local funds. The estimated annual payment is $286,331.

 

The fourth loan is for $21,641,030 for the design and first-phase construction of a multi-phase wastewater storage facility at the Town Branch Wastewater Treatment Plant on Lisle Industrial Avenue. Funding for this project also includes $10,159,970 of local funds. The estimated annual payment is $1,330,395.

 

The fifth loan is for $6,000,000 to construct a pump station, force main, and gravity sewers in the Expansion Area 2A planning region in Lexington. Funding for this project includes a $3,100,000 2010 HB 608 grant. The estimated annual payment is $368,854.

 

In response to questions from Senator McDaniel, Ms. Williams replied that approximately two-thirds of the funds available for this yearís clean water revolving loan funding cycle are going to the Lexington-Fayette County Government and that close to $200 million has been committed to Sanitation District No. 1. She explained that the retained earnings for utilities were mainly for facilities, and typically with older utilities there would be larger retained earnings.

 

In response to questions from Representative Wayne, Representative Damron, and Senator Carroll, Ms. Williams replied that the reason districts choose KIA is because their interest rates are lower than what is available in the bond market. The applications were approved and ranked by the Division of Water based on their environmental benefits. She also stated that the Clean Water State Revolving Fund Program by federal law must retain interest rates at or below market rates, which are 2.75 percent, 1.75 percent, and 0.75 percent for this year. Lexington-Fayette County Government qualified for the 1.75 percent interest rate because the projects addressed consent decree.

 

Senator Carroll made a motion to approve the Fund A loans. The motion was seconded by Senator McDaniel and passed by roll call vote.

 

Kentucky Infrastructure Authority Fund B Loans

Ms. Williams presented one Fund B loan request for The City of Elkton for $320,000 for water line improvements. The first portion of the project includes approximately 1,400 linear feet of older four-inch cast iron line that will be replaced. A portion of the existing line has been taken out of service due to the inability to ensure safe drinking water due to rust deposits and corrosion. The second part of the project includes the construction of approximately 2,800 linear feet of new eight-inch PVC water line. The line will provide water to a new development-ready property, fix an inadequate water pressure problem in the area, and allow for the disconnection of shared lines between the City of Elkton and the Todd County Water District.

 

No new customers will be added to the systemís current 913 customers. The average bill of $36.63 for 4,000 gallons will not change. The terms of the KIA loan are 1.75 percent for 20 years with an estimated annual payment of $19,672.

 

Senator Carroll made a motion to approve the Fund B loan. The motion was seconded by Senator McDaniel and passed by roll call vote.

 

Kentucky Infrastructure Authority Fund F Loans

Ms. Williams presented five Fund F loan requests. The first request was for the City of Barlow for a $200,000 increase to its existing $230,000 Fund F loan. The increase is needed because of a discrepancy between the estimated cost per cubic yard of concrete ($600 per cu. yd.) and the actual bid price of the concrete ($1,000 per cu. yd.) to be used in the construction of the clearwell. The original scope of the project remains unchanged.

 

No new customers will be added to the systemís current 343 customers. The average bill of $21.00 for 4,000 gallons will not increase. The terms of the KIA loan are 1.00 percent for 20 years with an estimated annual payment of $14,910.

 

In response to a question from Senator McDaniel, Ms. Williams replied that the estimate was prepared by the consulting engineer based on the treatment plant project that the engineer had previously bid. The project was rebid.

 

Senator Girdler said the committee would defer taking action on the City of Barlow loan until all questions about the project are answered.

 

The second request was for the City of Harrodsburg for an $80,000 increase to its existing $438,000 Fund F loan. The increase is required to complete the Bellows Mill Road section of the project. When the entire project was originally bid, costs were higher than anticipated due to two road bores and cost increases from the original estimate for some items. Because of this, the city did not pursue the Bellows Mill component until it was certain that there would be no additional cost overruns on the other original project components.

 

The original project involved upgrading approximately 6,400 linear feet of water lines and extending 11 linear feet of water lines to provide adequate connection (looping) of the system, to improve service to customers, and to eliminate old deteriorating lines. These improvements will eliminate leaks, line breaks and improve pressure to customers.

 

No new customers will be added to the systemís current 3,964 customers. The average bill of $20.55 for 4,000 gallons will not change. The terms of the KIA loan are 1.00 percent for 20 years with an estimated annual payment of $19,458.

 

The third request was for the City of Harrodsburg for a $1,688,950 Fund F loan for improvements to water distribution and water storage tanks. The first project involves replacing approximately 24,000 linear feet of water lines in older sections of the system with eight inch PVC. Valves and fire hydrants will also be replaced. The water supply is affected when lines break, thereby creating a risk to public health. The second project involves refurbishing of a storage tank by removing the existing lead-based interior and exterior paint, repainting the tank, and proper disposal of the lead-based residue.

 

No new customers will be added to the systemís current 3,964 customers. The average bill of $20.55 for 4,000 gallons will not increase. The terms of the KIA loan are 1.75 percent for 20 years with an estimated annual payment of $94,206.

 

Senator Carroll made a motion to approve the Fund F loans excluding the City of Barlow project. The motion was seconded by Senator McDaniel and passed by roll call vote.

 

New Bond Issues reported by the Office of Financial Management

Mr. Barrow presented two new bond issues. The first new bond issue was State Property and Buildings Commission (SPBC) Agency Fund Revenue Bonds, Project No. 105. This bond issue will provide permanent financing for the Dam 8 and Locks 1 and 2 projects, fund a debt service reserve and rate stabilization fund, and pay the costs of issuance. Representative Wayne made a motion to approve the bond issue. The motion was seconded by Senator Carroll and passed by roll call vote.

 

The second bond issue was Kentucky Housing Corporation Single Family Housing Revenue Bonds 2013 Series A. This bond issue will refund the outstanding bond series 2009 C-1, C-2, and C-3 for a net present value savings. Senator Carroll made a motion to approve the bond issues. The motion was seconded by Senator McDaniel and passed by roll call vote.

 

Follow-up Report from the Office of Financial Management

Mr. Barrow provided three follow-up reports on previously approved bond issues. The first follow-up report was for the Kentucky Asset/Liability Commission Funding Notes, 2013, General Fund First Series (Taxable). The notes will finance the stateís required contribution to the Kentucky Teachersí Retirement System Medical Insurance Trust Fund for fiscal years 2013 and 2014.

 

In response to questions from Senator McDaniel and Senator Carroll, Mr. Hicks said this would be the final bond issue for this purpose.

 

The second follow-up report was for the Kentucky Higher Education Student Loan Corporation Student Loan Asset-Backed Notes, Series 2013-1. This bond issue will refinance debt that was issued under the corporationís 2008 trust indenture and the corporationís borrowing through the federal Straight-A conduit program.

 

The third follow-up report was for the Northern Kentucky University General Receipts Refunding Bonds, 2013 Series A. This bond issue refunded the universityís Consolidated Education Buildings Bonds, Series L (2004). The issue produced $831,657 (14.565 percent of refunded bonds) in net present value savings.

 

No action was required for these items.

 

New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation

Mr. Barrow said there were two school district bond issues being reported with SFCC debt service participation. One is a refunding and one is for improvements to an elementary and a high school. Neither of the bond issues involves tax increases. Representative Wayne made a motion to approve the bond issues. The motion was seconded by Senator Carroll and passed by roll call vote.

 

New School Bond Issues with 100-Percent Locally-funded Debt Service Participation

Ms. Culpepper said three local school bond issues were being reported. These bond issues have 100 percent local debt service support and involve no School Facilities Construction Commission participation. No action was required.

 

†With there being no further business, the meeting adjourned at 1:58 p.m.