Call to Order and Roll Call
TheCapital Projects and Bond Oversight Committee met on Tuesday, July 16, 2013, at<MeetTime> 1 p.m., in Room 131 of the Capitol Annex. Senator Chris Girdler, Chair, called the meeting to order and the secretary called the roll.
Guests Testifying Before the Committee: John Covington, Executive Director, Kentucky Infrastructure Authority; Larry Blake, Assistant Vice President for Facilities Management, Northern Kentucky University; Bob Wiseman, Vice President for Facilities Management, University of Kentucky; Scott Aubrey, Director, Division of Real Properties; Ryan Green, Executive Director, Office of Budget and Administration, Department of Workforce Investment; Ryan Barrow, Executive Director, Office of Financial Management; and Andrew Hawes, Senior Director for Multifamily Housing, Kentucky Housing Corporation.
Approval of Minutes
Senator Carroll made a motion to approve the minutes of the June 18, 2013, meeting. The motion was seconded by Senator McDaniel and approved by voice vote.
Chairman Girdler said that the correspondence item was related to action taken by the committee at the June 18, 2013, meeting for the Kentucky Infrastructure Authority (KIA) Fund A loan for the Oldham County Environmental Authority (OCEA) Orchard Grass Regional Wastewater Treatment Plant project.
Senator McDaniel made a motion to reconsider the vote taken at the June 18, 2013, meeting for the KIA Fund A loan. The motion was seconded by Senator Carroll and approved by roll call vote.
John Covington, Executive Director, KIA, said that KIA was informed of a discrepancy between the information submitted and presented at the committee’s June 18, 2013, meeting. A letter clarifying the information was submitted for review.
In response to a question from Representative Wayne, Mr. Covington said the Division of Water (DOW) has received the necessary information from OCEA to approve the facility plan and the plan has been posted by DOW on their website for 30 days for public comment. At the end of 30 days, a public meeting will be held.
In response to a question from Senator Carroll, Mr. Covington said KIA will not enter into the loan until notification from DOW has been received confirming the process has been completed, including the necessary public hearing.
In response to questions from Senator McDaniel, Mr. Covington said that the correct funding information was presented to, and subsequently approved by, the KIA board. The information presented was from an earlier version of the credit analysis.
Senator Carroll made a motion to approve the Fund A loan. The motion was seconded by Senator McDaniel and approved by roll call vote.
Kristi Culpepper, Committee Staff Administrator, said there were seven information items for review. The first information item was Moody’s Investors Service Adjusted Pension Liability Medians for US States report. The report uses Moody’s new pension metric, which among other changes assumes a more conservative discount rate and the fair market value of assets rather than smoothing techniques. According to Moody’s, Kentucky ranks 3rd in the nation in adjusted net pension liabilities to revenues; 4th in pension liabilities to personal income; 4th in pension liabilities as a percent of state GDP; and 8th in pension liabilities per capita.
The second information item was a notice of advertisement for leased space for the Commonwealth Office of Technology in Franklin County.
The third information item was a status report on the Louisville-Southern Indiana Ohio River Bridges project, which is required to be submitted to the committee at least semiannually by statute.
The fourth information item was an article from the Courier-Journal suggesting that the Kentucky State Fair Board has forgiven potentially $7,000,000 that the Louisville Arena Authority was contractually obligated to reimburse the Fair Board for business lost to the new arena. The article suggested this was done to increase funds the Louisville Arena Authority had available to make debt service payments on its outstanding revenue bonds.
The arena’s construction was funded through a combination of conduit revenue bonds issued by the Kentucky Economic Development Finance Authority on behalf of the Louisville Arena Authority and a $75,000,000 state grant, which was authorized by the General Assembly in 2006 HB 380 and paid for by the state’s issuance of General Fund supported bonds.
In response to comments from Representative Wayne and Senator McDaniel, representatives from the Kentucky State Fair Board and Louisville Arena Authority will be asked to attend the August 20, 2013, meeting to answer questions.
Ms. Culpepper said the remaining three information items were quarterly status reports on projects for the Administrative Office of the Courts, the Commonwealth Office of Technology, the Finance and Administration Cabinet, and the universities that manage their own capital construction programs.
Project Report from Northern Kentucky University (NKU)
Mr. Larry Blake, Assistant Vice President for Facilities Management, NKU, reported an emergency repair, maintenance, or replacement project, Steely Library Building Roof Replacement. A roofing consultant determined that leak repairs that have been made were not deterring roof deterioration and recommended immediate replacement of the building’s entire roof system. The scope of the project was $875,000 and will be funded from the university’s agency funds. No action was required.
Project Reports from the University of Kentucky (UK)
Mr. Bob Wiseman, Vice President for Facilities Management, UK, presented three items. The first report involved the purchase of unbudgeted medical equipment. The item purchased was an iE33 Ultrasound System that combines 2D and 3D image quality in the same transducer. This system addresses the clinical needs of managing patients with heart conditions and automates stress exams so that they are faster and more consistent. The cost of the system was $214,592 and was paid from restricted funds. No action was required.
The second item was a lease renewal for the University of Kentucky College of Social Work, Children, and Trauma Program for 11,199 square feet (sq ft) of office space owned by Blazer Parkway Venture, LLC. The lease was renewed under the same terms and conditions for an annual rental cost of $198,782 through June 30, 2015.
Senator McDaniel made a motion to approve the lease renewal. The motion was seconded by Representative Wayne and approved by roll call vote.
The third item was a notification of UK’s intention to use the construction manager-at-risk project delivery method for the Patient Care Facility Fit-Up 8th Floor and Pharmacy project. The Patient Care Facility has involved multiple authorizations across budget cycles dating to the 2002-04 budget. The total scope of the project is approximately $31,500,000. A Request for Proposal has been issued and responses were due July 18, 2013.
In response to a question from Senator McDaniel, Mr. Wiseman said that the construction manager-at-risk project delivery method was used for most projects. The benefits of using this delivery method include the reduction of future change orders, advice in the constructability review process, providing assistance to the architects, and reducing delays in claims during the life of the construction. No action was required.
Ms. Culpepper presented a report from the University of Louisville of the purchase of two pieces of scientific research equipment. The first item was a MicroBrightField integrated microscope image capture system, which will maximize the power of microscopes. The purchase was made using $229,290 of gift and endowment funds.
The second item purchased was an optical coater for research into solar cells, light-emitting diodes, and optical bio-sensors. The purchase was made with $290,000 of federal funds. No action was required.
Lease Reports from the Finance and Administration Cabinet
Mr. Scott Aubrey, Director, Division of Real Properties, presented five items. The first item was for a lease modification and amortization of leasehold improvements for Cabinet for Health and Family Services (CHFS) in Lee County. The amortization of leasehold improvements was to complete security-related improvements to the receptionist area, which included the removal of one door to create a receptionist window with a counter in its place, the installation of that door into a newly-framed wall in a secure corridor, and the addition of an electric strike locking device on the door.
Two estimates were obtained for the improvements and the cabinet recommended accepting the lowest bid of $3,957 from AWI, LLC. The cost will be amortized through the term of the lease, which will expire June 30, 2014. No action was required.
The second item was for a lease modification and amortization of leasehold improvements for Department of Public Advocacy in Campbell County. The department requested the installation of Luxe Vinyl plank tile in the hallways, lobby, and break room. Two estimates were obtained for the improvements and the department recommended accepting the lowest bid of $5,907 from Midwest Flooring Contractors. The cost will be amortized through the term of the lease, which will expire June 30, 2020.
In response to questions from Senators McDaniel and Carroll, Mr. Aubrey said the Department of Advocacy requested the specifications be changed to incorporate this type of plank tile floor covering for all future agency projects. The specifications would be reviewed to ensure the allowance for a vinyl plank tile and not for a specific manufacturer’s brand.
Representatives from the Department of Public Advocacy will be asked to attend the August 20, 2013, meeting to answer questions regarding their request for the specific manufacturer’s brand of flooring to be used for the leasehold improvements and to be incorporated into the specifications. No action was required.
The third item was for a lease modification and amortization of leasehold improvements for CHFS in Pike County. The leasehold improvements included the replacement of two existing sliding glass receptionist windows with burglary-resistant glazing material, voice ports, and pass-through cutouts. Two estimates were obtained and the agency recommended accepting the lowest bid of $1,600 from Cardinal Glass and Door. The cost will be amortized through the term of the lease, which will expire June 30, 2016. No action was required.
The fourth item was for a new lease for CHFS in Fayette County. New space was requested by the agency because the current facility was in receivership. Any future term extensions would not be guaranteed and any significant HVAC system repairs would not be addressed. The lease was for 11,201 sq ft of office space at $17.75 per sq ft, including utilities and janitorial services, for an annual cost of $198,818. The lease will expire June 30, 2015.
In response to a question from Senator McDaniel, Mr. Aubrey said the difference in the actual cost per sq ft and the average cost per sq ft in Fayette County is due to the consideration of leases that have been in place for several years at a lower rate and the state requirement of a 30-day termination clause.
Representative Wayne made a motion to approve the new lease. The motion was seconded by Senator Carroll and approved by roll call vote.
The fifth item was for a new lease for the Department for Workforce Investment in Kenton County. New space was requested by the agency to create a one-stop facility as required by the Workforce Investment Act (WIA). The lease was for 8,356 sq ft of office space at $33.19 per sq ft for an annual cost of $277,336. The lease will expire June 30, 2021.
In response to a question from Representative Wayne, Mr. Aubrey said the reason for the higher cost per sq ft was the necessity to find space that will accommodate multiple agencies to create the one-stop facility under the requirements of the WIA. The additional agencies sharing the space include the Office of Employment and Training, Office for the Blind, and Office of Vocational Rehabilitation. By statute, because the state will not occupy 100 percent of the facility, common areas cannot be included, which tends to inflate the price.
In response to a question from Senator McDaniel, Ryan Green, Executive Director, Office of Budget and Administration, Department of Workforce Investment, said that the rental rates will be paid from federal and state funding sources.
Senator McDaniel made a motion to approve the new lease. The motion was seconded by Representative Rudy and approved by roll call vote.
New Bond Issues Submitted from the Office of Financial Management (OFM)
Mr. Ryan Barrow, Executive Director, OFM, presented two new bond issues. The first bond issue was for Kentucky Higher Education Student Loan Corporation Student Loan Asset-Backed Notes, Series 2013-2 in an amount not to exceed $625,000,000. The bonds were LIBOR floating rate notes and will be used to fund and refinance the corporation’s existing debt.
The estimated date of sale will be August 14, 2013. The costs of issuance will be funded with equity and the estimated interest rate will be one-month LIBOR with a 0.70 percent spread. The notes will have a final maturity date of 2031. This will be a negotiated transaction and Hawkins Delafield & Wood LLP will serve as bond counsel; Bank of America Merrill Lynch as senior underwriter; Kutak Rock LLP as underwriter’s counsel; US Bank National Association as trustee; and OFM as financial advisor. The savings is estimated to be $23,800,000.
Senator Carroll made a motion to approve the new bond issue. The motion was seconded by Representative Wayne and approved by roll call vote.
The second item presented was KHC Conduit Multifamily Housing Revenue Bonds, Sheppard ACD Apartments Project, Series 2013, for the acquisition, construction, and equipping of a multifamily residential rental facility consisting of approximately 129 units. This project is the second phase of a $142,000,000 redevelopment plan.
The anticipated gross proceeds will be up to $14,000,000 and the proposed date of sale will be in July 2013. The estimated interest rate is 0.50 percent with an estimated term of 13 months. It will be a public offering and Peck, Shaffer & Williams LLP will serve as bond counsel; PNC Capital Markets, LLC as underwriter; and Bank of New York Mellon Trust Company, N.A. as trustee.
In response to a question from Representative Wayne, Andrew Hawes, Senior Director for Multifamily Production, Kentucky Housing Corporation, said that local elected officials have been notified.
Senator Carroll made a motion to approve the new bond issue. The motion was seconded by Representative Wayne and approved by roll call vote.
Follow-up Report from the Office of Financial Management
Mr. Barrow presented follow-up reports on two previously approved bond issues. The first report was for $147,120,000 State Property and Buildings Commission (SPBC) Agency Fund Revenue Bonds, Series A Revenue Refunding Bonds, Series B Project No. 106, which will provide permanent financing for $112,000,000 of projects previously authorized by the General Assembly; repayment of the 2012 Asset/Liability Commission Interim Bank Loan from Citibank; refunding of some outstanding SPBC bonds for a net present value savings; and payment for the cost of issuing the bonds.
The transaction closed June 17, 2013 and the final maturity will be October 1, 2033. The true interest cost was 3.534 percent. It was a negotiated transaction and Peck, Shaffer & Williams served as bond counsel; Citi served as underwriter; Frost Brown Todd as underwriter’s counsel; and OFM as financial advisor. The net present value savings on the refunding portion of the issue was $872,424. No action was required.
The second report was for $15,635,000 Murray State University General Receipt Bonds, 2013 Series A to finance the Renovate Hester Hall, Capital Renewal of Housing and Dining Facilities and Upgrading Sprinkler System at College Courts projects, which were authorized in 2013 HB 7.
The date of sale was May 29, 2013, and the closing was on June 19, 2013. The true interest cost was 3.186 percent. It was a competitive bid and Baird was the successful bidder. No action was required.
New School Bond Issues with School Facilities Construction Commission (SFCC) Debt Service Participation
Mr. Barrow reported one school bond issue with SFCC debt service participation with a total par amount of $1,295,000. The state portion of the annual debt service payment was $31,927 and the local contribution was $60,155. The bond issue did not involve a tax increase.
Representative Wayne made a motion to approve the bond issue. The motion was seconded by Senator Carroll and approved by roll call vote.
New School Bond Issues with 100 Percent Locally Funded Debt Service Participation
Ms. Culpepper said three local school bonds have been reported. One issue will construct a new school, one will make improvements to existing facilities, and one will purchase land for a new elementary school. None of the bond issues required tax increases.
With there being no further business, the meeting adjourned at 1:55 p.m.