...debt profile looking on what we had outstanding. To touch on that affordability, we spent months of last calendar year working on some type of debt management policy. There's kind of three components to when I started here, I guess a year and three days ago. One of the things I wanted to look at was our debt policy, cash management policy, and our capital improvement plan. We didn't really have formalized or at least updated plans. So we spent quite a bit of time last year working with council on our debt affordability or our debt plan. And what I pulled out of that is in draft form. And I've extracted out of that what we had worked on. What we had worked at. And at the time, based on looking at our comparable cities, based on looking at what the credit agencies supply, and based on actually looking at policies that we have had decades ago and what council has mentioned in numerous meetings, we went with 10% of recurring revenues and 10% of operating expenses, which does, as I mentioned before, put us slightly over what our ideal affordability test would be on our general obligation debt. We've worked in previous presentations on this graph, and again, just putting it in here, but the red at the bottom is what we have outstanding, and I talked previously we had that downward sloping. It's maybe a little high this year, but it does give us future capacity. But what this tells us, we have large, large, large capital needs. The green band in the middle is our five-year capital plan, And we look at that in pretty good detail on a five-year basis. That's where we issue pension bonds as originally proposed by the previous administration. And we have some recurring projects in there. And then that gray band to the top and to the right is just an assumption of $15 million thereafter of projects. So basically anything above the red is what's kind of anticipated over the next several decades. And that black line in there is a key piece of this nuance. It assumes some revenue increases, but that's the 10% of our revenue line. So if you're under that line, based on our debt management plan, we would be what would be considered affordable in terms of our debt. And what this jumps out at me, and we happen to write it on the screen here, is that our capital needs over the next several decades is unsustainable. And I think that that's in some of the comments that the Commissioner of Finance is going to go over later. I think some of that's reflected in the fiscal year 12 budget. I want to transition over. We talked about general obligation debt, full faith and credit of the city. Let's talk about our other kind of component in terms of sewer debt. It's revenue. It's revenue supported, not necessarily tax-based supported. That fund has substantially less. It's a lot lower, but it has about $65 million in there. And then we have some KIA funding, which in my previous life I encouraged clients to pursue vigorously because it is subsidized. It's a subsidized loan, a lot cheaper than what you can borrow in the market. And that's not applicable at this time because we have a couple of projects outstanding. It's roughly $17 million for which we're still drawing on, and that loan has not been amortized yet. The debt service projected in 2011 is roughly just under $8 million. and that we have some assumptions in there for that KIA loan coming on and some additional loans coming on that will put us just over $11 million in terms of debt service payments for the sewer fund. That's substantially different when you look at it on a visual basis. It's what you would call an industry level where it's the same for a few years, steps down, same for a few years. And this gives us additional capacity. But I think the sewer fund, in terms of the large amount of capital that will be required in this fund, is something that we need to spend quite a bit of time on and looking at pro formas and such in this fund. This affordability test is substantially different. It's not a test of total revenues. It's a test, and we actually agree to this in our bond documents, and it's a bond covenant. but it's an actual test of 125% net income and revenues coverage over your maximum annual debt service. So revenue, less expenses, has to be 125% of what your debt payment is. So roughly if your debt payment is $10, you would need $12.50 after you pay all your expenses. And that's what's the affordability test. It's a revenue test. which is substantially different than what you would see on GeoDebt. Thank you. Since I was here at the beginning of this process, I was going to take this part of the presentation. And as Commissioner Driscoll said, we met with the Finance Cabinet and Cabinet for Health and Family Services Capital Projects group yesterday about the Eastern State Hospital conduit financing that Lexington is a part of. And just as a reminder, it was in 2009, Council adopted Ordinance 58-2009 with an MOU, Memorandum of Understanding, that we would be conduit financing for the construction of Eastern State Hospital. And the state authority and responsibility were passed both in 2008 as well as subsequent legislative sessions. And the project was originally to be in these phases, first issue in 2009 of $8 million, second issue and 10 that would take out the first one and replace it with $70 million to finance the construction. That was actually at $65 million. And so that would put us in the position where we would have a third temporary bond to be issued this year until there was final financing later. And what the state has proposed is for us to go ahead and enter into the permanent long-term financing. And this is very advantageous to Lexington because it will become the obligation of the state through a lease agreement and take it off of our general obligation list for our debt and go ahead and enter into that lease as well as issue the long-term financing this summer. To accomplish that, we're talking about a bond of a par amount of $140 million. It would be issued by Lex and Fayette Urban County Government Public Facilities Corporation, which would be authorized by the council, and it would be secured by a ground lease with the state. And as I mentioned, that drastically reduces our financial risk, lowers our outstanding general obligation debt, and the timeline that they have proposed is aggressive. we would bring all of the documents before Council for first reading on May the 12th, second reading May 26th, so that we can conduct the bond sale by June 9th. That would be completed before the end of our fiscal year, and the general obligation notes would then drop off of our consolidated financial statements and be listed as a lease revenue bond as a conduit through the state. And these dates that are proposed are in order to comply with getting it done by the end of our fiscal year and also to coordinate with other bond issues that the state is going to market for. So we wanted to give you that update. I'll tell you that we met with them yesterday morning. There was further e-mails and information that went through the legal side throughout the day, and this is what we think we can get accomplished. And we think it's a great home run for Lexington as well as for the project at Eastern State. The actual construction is well underway. The site work is about 85 percent complete, and most of the major construction has been started. The personal care homes are all under construction. The major patient towers of the main hospital already have the steel up. And then the footings and foundation for the rest of the building are underway. So they feel that they are past the point of major construction delays. And the work is going forward. and it's going to be an energy-efficient LEED Silver certified building. So they're very excited about it. We think this is a great acceleration of the original program and want to recommend it to Council today. It might be appropriate now to have questions on the Eastern State proposal. I presume we're going back to the other packet eventually. So, Council Members, until we get the Granicus fixed, are there any of you? Okay, just raise your hands. Council Member Beard and then Henson. Heaven forbid me saying this, but what happens if the State of Kentucky can't meet their obligations on the lease? The entire credit rating of the State goes with it. I understand, but this is... From what I hear, it's probably already. A one downgrade does not mean it's gone all the way down. I'll let Ryan has professionally worked with these type of arrangements so he can better articulate how it works. In terms of the state, the state has a very low authorization to do general obligation debt, which we do general obligation debt all the time. State finances almost everything they do with a lease appropriation. I've done hundreds of millions of dollars under that structure. The thing is, is in this particular transaction, we have a geo pledge on this right now. We are on the hook for it. If we do this new financing, it's under the lease structure. We take away our geo pledge, say no longer that we back it. And in the state, that's part of the reason we'll do the public facilities corporation. The security on this debt, and you'll be able to read it in the official statement when it's sent out on the 12th or so. So security to the investor is that lease agreement. If that lease agreement doesn't come through, then tough luck to the investor. It's their responsibility. They can go sue the state and under the default provisions in the document. But without this new financing, we would be on the hook. In terms of the question really how it would happen, if the state didn't make good on the lease appropriation, they'd never be able to borrow money in the market again. I don't think the legislators would go that route. But this is how they finance pretty much everything. They've been sold to Phase 1. Phase 1 was an $8 million transaction that was done in 2009. They were sold, and they've been paid off with Phase 2. Okay. So Phase 2 takes care of Phase 1. Yes. And then Phase 3 is eliminated? That's, yes, that's what I'm going to say. We wrestled the state to the ground and we were able to achieve this. But, you know, given our financial situation, this is very advantageous. And we were all very pleased after walking out of the meeting yesterday. So we're proposing getting rid of Phase 3 and going directly to Phase 4 where it's their problem. Okay. So have we began to make payments on those bonds? No. The agreement as agreed, council agreed to this in 2009 to do all four phases. And the intention was to marry the needs of the state with the needs of the city. The city obviously is not servicing the debt on this. So what was proposed was a series of short-term financings, then a long-term financing, for which the interest would be capitalized. So additional money is set aside to service the interest for each transaction. We've never had, nor have we ever intended, to pay any payments for this facility. Okay. Now, lease payments, when do they begin? The first lease payment is 2013, and that will be paid by the state. And we'll have interest-free debt up until that point? We'll do the same mechanism that was done where additional money is set aside to service the interest until the first payment's made in 2013. And it's actually going to be in the budget for health and family services at the state. That's how it'll be paid. They'll service the debt. Okay. And so it'll be, we're just working really almost like an agent. Is that the way I'm?