# Budget COW-Revenue - April 26, 2012 > Auto-transcribed civic record · April 26, 2012 - **Permalink**: https://meetings.lexingtonky.news/meeting/2489 - **Source video**: https://lfucg.granicus.com/player/clip/2489?view_id=14&redirect=true - **Date**: 2012-04-26 - **Last revised**: July 17, 2026 - **Length**: 16,668 words > ⚠️ **Auto-generated content.** Audio from the official Granicus video was auto-transcribed with OpenAI's open-source Whisper large-v3-turbo model, run locally by The Lexington Times. Structured facts were extracted with GPT-4o; the narrative summary was written by Anthropic Claude. Verbatim wording may contain errors. See [methodology](https://meetings.lexingtonky.news/about/methodology) or [report a correction](mailto:editor@lexingtonky.news). --- ## Meeting Overview The Fayette County Council met on April 26, 2012, at 3:30 p.m., with the Vice Mayor presiding. The council addressed four agenda items during the session, all of which were approved. The meeting included one motion and vote, and the council heard five public comments. The agenda focused on fiscal planning matters, including discussions of revenue projections, bonding and debt considerations, capital planning, and the FY 13 Council Budget Schedule. ## Attendance The following individuals were present at the meeting on April 26, 2012: **Council Members:** - Council Member Lane - Council Member Blues - Council Member Lawless - Council Member Stenet - Council Member Martin - Council Member Beard - Council Member Kay - Council Member Ellinger - Council Member Henson **Other Officials and Staff:** - Mayor Gray - Commissioner Jane Driscoll - Ken Trosky - Chris Bollinger - Bill O'Meara - Stan Harvey - Connie Underwood No members were absent or late. ## Votes and Decisions The body approved the mayor's proposed FY13 budget with reallocation of bond proceeds by voice vote [timestamp: 02:01:00]. The motion passed. ## Budget and Financial Actions The meeting approved several significant financial actions totaling approximately $39.45 million in appropriations, amendments, and bond issuance. **Public Safety and Capital Improvements** An appropriation of $3,600,000 was approved to fund multiple public safety and operational initiatives, including the Public Safety Operations Center, boiler replacements, body armor, air cylinder replacements, and a GPS pilot project. **Short-Term Financing** A short-term note amendment of $3,600,000 was authorized to fund capital improvement projects. **Streetscape Project Reallocation** The meeting approved an amendment reallocating $3,400,000 in unused bond proceeds from the Streetscape project for other purposes. **Rupp Arena and Arts & Entertainment District** An appropriation of $1,250,000 was approved for feasibility studies and business plan development related to the Rupp Arena and Arts & Entertainment District project. **Pension Bond Issuance** The most substantial financial action was the approval of a $31,000,000 pension bond issuance to address unfunded pension liability. ## Public Comment Council members and the mayor addressed several significant concerns during the meeting. **Pension Fund Sustainability** Council Member Stenet expressed concern about the sustainability of continued pension bond issuance, warning that the practice could limit the city's future borrowing capacity [timestamp: 01:03:15]. Council Member Martin elaborated on this concern, cautioning that borrowing to fund pensions represents a short-term fix that does not address the underlying $250 million unfunded liability and may worsen the city's financial outlook [timestamp: 01:07:38]. **Rupp Arena Project** Council Member Beard raised questions about the Rupp Arena project's timeline and funding, expressing uncertainty about the project's feasibility and whether the city should commit funds without a clear implementation path [timestamp: 01:30:15]. Council Member Kay requested more detailed information on how the proposed $1.25 million allocation for the Rupp Arena business plan would be spent, emphasizing the need for accountability and alignment with the project vision [timestamp: 01:52:57]. Mayor Gray defended the Rupp Arena project as a transformative investment with long-term economic benefits, stressing the importance of conducting due diligence and pursuing public-private partnerships [timestamp: 01:33:30]. The comments reflect a divide between council members focused on fiscal constraints and long-term financial sustainability, and the mayor's emphasis on the strategic value of major development projects. ## Contested Items **Pension Bond Issuance and Long-Term Debt Sustainability** Council members engaged in heated discussion regarding the proposed issuance of $31 million in pension bonds. The primary concern centered on the long-term financial implications of this debt instrument. Members expressed worry about how the bonds would affect the city's future borrowing capacity, particularly given the risk of rising interest rates. A key point of contention was the potential for increased debt service obligations to exceed 12% of general fund revenue, which raised questions about fiscal sustainability and the city's ability to fund other essential services. **Rupp Arena Project Feasibility and Funding Clarity** The proposed $300 million Rupp Arena project became another focal point of heated debate among council members. Several members questioned the administration's readiness to move forward with the project, citing significant gaps in planning and transparency. Specific concerns included the absence of a clear timeline for completion, a detailed and itemized budget, and confirmed funding sources to support the substantial public investment. Council members called on the administration to provide greater transparency and more comprehensive documentation before committing public funds to the project. ## Revenue Projections Discussion Commissioner Jane Driscoll presented an overview of the revenue forecasting model developed in collaboration with UK's Center for Business and Economic Research [timestamp: 00:03:02]. The presentation focused on projecting revenues for fiscal year 2013 using a specialized forecasting approach. **Model Overview** The revenue forecasting model concentrated on two primary revenue sources: employee withholding taxes and net profit taxes. The model utilized national wage and GDP data obtained from the Congressional Budget Office to generate its projections. **Key Projections** The model produced the following revenue estimates for FY13: - Employee withholdings: $162 million - Net profits: $32.97 million **Key Speakers** The discussion involved Commissioner Jane Driscoll, along with Ken Trosky and Chris Bollinger, who participated in the presentation and discussion of the revenue projections. **Outcome** The revenue projections discussion was approved by the body. ## Bonding, Debt and Capital Discussion [timestamp: 01:00:59] The council discussed the city's bonding, debt, and capital financing strategy, with key speakers including Bill O'Meara, Ken Trosky, Council Member Stenet, and Council Member Martin. **Proposals Presented** The discussion centered on two main financial initiatives: * A proposed $31 million pension bond issuance * A $3.6 million short-term note for capital projects **Key Concerns Raised** Council members expressed several concerns about the city's debt management: * Long-term sustainability of pension debt obligations * Interest rate risks associated with the proposed bond issuance * The impact of additional borrowing on the city's future borrowing capacity **Outcome** The bonding, debt, and capital discussion was approved. ## Other Business [timestamp: 01:23:06] The council discussed the reallocation of $3.4 million in unused bond proceeds from the Streetscape project. The funds were proposed to be distributed among several initiatives: PDR (Preservation of Deed Restricted properties), the Arena and Arts & Entertainment District, parks, and public safety radio infrastructure. Key speakers in this discussion included Bill O'Meara, Council Member Stimmit, and Council Member Lane. A central theme of the discussion was the requirement that projects receiving these reallocated funds be "shovel-ready," meaning they must be prepared to begin immediately. The council emphasized the importance of timely spending to ensure the bond proceeds were used efficiently and within appropriate timeframes. The council approved the reallocation of the $3.4 million in unused bond proceeds. ## FY 13 Council Budget Schedule The Council reviewed the fiscal year 2013 budget schedule during this agenda item [timestamp: 01:42:00]. Stan Harvey and Mayor Gray led the discussion on the proposed budget timeline and allocations. The presentation covered several key components: * Timeline for capital improvement planning * The capital improvement project (CIP) process * A proposed $1.25 million allocation for feasibility studies and business plan development for the Rupp Arena and Arts & Entertainment District project The budget schedule was approved by the Council. --- ## Decisions - **Motion** — passed: Approval of the mayor's proposed FY13 budget with reallocation of bond proceeds --- ## Full transcript Music Thank you. Thank you. I'm sorry. And we are convening our second committee of the whole. This is the Council's Budget Meeting on Revenue, Debt, and Capital. Welcome. And, Council members, you should have three different packets, two of which you received in your mailboxes and by e-mail, and one of which is in front of you today. And so who would like to take the podium first? Our first item on the agenda is revenue projections, and that would be Commissioner Jane Driscoll. Hello. Good afternoon. Actually, I just want to go through an overview of everything that we wanted to present to you today, if that was acceptable. That is very good. will you just let council members know which packet and which page? Okay. You should have just received the mayor's proposed budget. I'll go back, and it looks like that. Yes, looks like the screen. And I'm on page one with just the overview. We did want to talk through with you today the process that we worked with UK, the Center for Business and Economic Research in terms of creating a forecasting model that we talked to you about that you graciously allowed us to move forward with in last year's budget. We have Ken Trosky and Chris Bollinger here today to talk through their process and the results of that and ultimately consensus with the forecast for employee withholding and net profit revenues and information about the economy in general. Then we were going to address Bill O'Meara. We'll address the fiscal 13 mayors' proposed budget in terms of the total revenue sources. Then we wanted to, Ryan Barrow was going to address the CIP process that we put into place. Just in summary, form the current debt structure which you asked us to do and the proposed bonding for Fiscal 12 and 13. And then one of the issues that the mayor talked about in his budget speech and that we've talked to you about somewhat in brief discussions is the reallocation of some existing bond proceeds for some projects moving forward into Fiscal 13. So that is our total agenda that we would like to present, and I was going to ask Ken to come up and begin his portion of the presentation. All right. Thank you very much. And Chris, I'm sorry. No, no, no. It's time to keep talking. Not yet. Welcome. Thank you. I think this is my annual appearance before the county council. I appreciate the opportunity to be here. so we want to sort of go over basically the model that we've created in conjunction with the revenue folks from the city and the forecast that we've, the process I just want to sort of give you an overview of the process that we went through to make sure you're sort of comfortable with the process and understand the process and then talk a little bit about the actual forecast One of the things that we did to start with was sort of get 10 years' worth of past data that we were going to use to sort of analyze and see if we could help predict the county revenue. So right there you obviously can see your revenue and how it's changed over the last 10 years. As you can see, you sort of reached a peak in the FY08 period, have seen some declines the last couple of years. At this point, we're kind of close to being back to where you were in FY08. There's the components of your revenue, and that sort of gives you an idea. You can see what's changed over time. Last several years, the big things that have affected your revenue, the things that always affect your revenue, the biggest components of your revenue, obviously, are the employee withholding or occupation tax and the net profit tax. One of the reasons we're still a little down has been the net profit tax. The employee withholding seems to have recovered a bit since 2007. I should mention when forecasting the revenue we are only going to focus on forecasting the employee withholding and the net profit tax those are sort of the biggest components those are the ones we feel we have the biggest components, the most important to forecast they're the ones that we have the best ability to forecast most of the other changes in most of the other ones are A, difficult to predict and largely due to rules that you adopt. And one of my fundamental principles is I have enough trouble predicting the performance of the economy. I'm not going to predict the decisions of public officials. I just state right there I won't do that. So let's start off by focusing on the occupation tax and the occupation tax base. occupation tax or employee withholding tax receipts are now over $150 million and account for about 55% of total revenue. The occupation tax, as you know, is pretty simple. It's 2.25% of the total wages and salaries paid to people that work in Fayette County. So if we had a good measure, and we actually do have a pretty good measure of total wages and salaries paid to workers in the county, we just take that and multiply it by 2.25%, and you come pretty close to seeing what your revenue is going to be, which means to forecast it, essentially what we're going to try to do is we're going to try to forecast changes in wages and salaries and then use that to forecast what your revenues are going to be. Given that it's just wages and salaries, it's going to be a function of the number of people that are working in the county, the average pay that they get. You take the number of jobs, average pay, multiply those two together, Congratulations, you get wages and salaries in Lexington. So there we go. And let me sort of walk through some of the changes that we've seen in recent years. That's year-over-year growth in employment in the county from first quarter of 2002 through second quarter of 2011. and you can probably see the effect of the recession in these numbers. There was quite a big change in 2009. There was approximately a 5% drop in one quarter in overall employment. It occurred for a couple of quarters, meaning employment fell by about 10% in Fayette County. From a revenue standpoint, one of the things that's important to note is when employers often shed workers, what they do is they do tend to shed low-wage workers. They tend to lay off low-wage workers first. From a revenue standpoint, that means you don't see a decline in average pay. You actually can see an increase in average pay. Since the occupation tax or the employee withholding tax is 2.25% of how much you get paid, Obviously, higher wage workers contribute more into that than low wage workers, a larger dollar figure, which means that the way it's assessed, changes in employment are going to be somewhat offset by changes in average pay so that the change in wage and salary that you'll see is less variable than the overall, say, change in employment. And that's exactly what you see if you look at year-to-year growth in wages and salaries. So in some sense, in a very real sense, the variation in the occupation tax is mitigated simply by the way most employers reduce their workforce. What I've done is I've simply plotted average growth in the occupation tax year over year for a variety of years. and you can see while it does bounce around a bit and you can see the effect of the recession when the occupation tax actually declined by 1.4%, obviously the decline in those receipts was much smaller than the decline in employment. And for the most part, it's not that variable. It sort of does almost always continues to grow with the exception of some severe downturns. So what are we going to do? So occupation tax receipts are heavily dependent on total wages and salaries. As I showed before, what I'm plotting here, too, is I've plotted the Lexington changes in wages and salaries in the Lexington MSA, Fayette County, and also the U.S. And one of the things you can see from this figure is that movements in overall wages and salaries in the U.S. match very closely the movements in wages and salaries in Fayette County. which is good because we have forecasts for how wages and salaries vary at the national level, and we're simply going to use that to then exploit this relationship, this close relationship between growth in wages and salaries at the U.S. level and the Fayette County level, and then use that relationship to sort of predict what occupation taxes are going to be. Okay. So since U.S. total wages and salaries closely tracks the Fayette County wages and salaries, we're simply going to use a regression. We're going to run a regression estimating that relationship between occupation tax revenue and total wages and salaries paid throughout the entire United States. then what we're going to do to sort of guess or forecast what wages and salaries are going to be in the future is we're going to use a national forecast for U.S. wages and salary growth to figure out what we think growth in occupation tax revenue will be in Fayette County. The forecast we're going to use is the forecast produced by the Congressional Budget Office. We chose the CBO forecast for several reasons. First, the Congressional Budget Office produces what most people consider to be a fairly independent agency, produces a fairly independent, politically independent projection of future growth. The other choice would be the Federal Reserve. The advantage of CBO is they actually forecast wage and salary growth, whereas the Federal Reserve doesn't. The other thing that makes me like the CBO forecast is it sort of closely matches my own forecast. So I'm kind of partial to them if they're going to say the same thing I am. So we chose to use the CBO for those reasons. And again, essentially what we're going to do is exploit this relationship that I showed before, this relationship between U.S. changes in wages, salary, and Fayette County, that's essentially what we're going to regress those two on each other and then come up with a forecast of the occupation tax receipts. Hopefully you can see this. The blue line in this figure is actual occupation tax receipts, and the red line is the model's prediction for actual wage and salary receipts. You'll notice that the actual occupation tax receipts, that blue line ends in FY11. That's the last year in which we have complete data. You can see that the prediction very closely matches the actual. And after FY2011, for FY12, 13, and 14, you can see our forecast. We have chosen to sort of provide you bounds. One thing I should tell you right now up front is that our forecast, one thing I know about our forecast, it will be wrong. I hope it's not wrong by a lot, but I can tell you it will be wrong. Maybe a little too low, maybe a little too high, but it won't be exactly right. What we're concerned about is if we're, in general, when doing these types of forecasts, it's typically better to err on the side of being too low than too high, because if the forecast is a little low at the end of the year, you've got extra money. If it's too high at the end of the year, you have to find cuts, and generally cutting is difficult. What we have provided you with is both the model forecast, a pessimistic forecast, and an optimistic forecast. And in consultation with the revenue folks, their actual forecast lies between the pessimistic and the model prediction. Next, we want to look at net profit taxes. At this point, net profit taxes were over $30 million in the last fiscal year, accounting for about 13% of the revenue. Again, as you know, your net profit taxes, if you took net profits of firms operating in Fayette County and multiplied it by 2.25%, you'd come up with your net profit taxes. One of the problems, of course, is unlike we can find plenty of estimates of wages and salaries, we don't have any numbers on net profits of firms, certainly not at the county level. And it turns out that tax revenues tend to be fairly variable, making it a little more difficult to forecast. You can see the variability in your net profit tax receipts. You can see in this figure quite clearly that net profit tax receipts are still below peak and still below the FY08 level, but certainly have recovered in recent periods. And again, to highlight the fact that they're fairly variable, here's how your net profit taxes have changed over the last 10 years. And you can see one year they were up 23%. I should note that 23% is something of an anomaly, and we're going to throw that out. There was a tax amnesty. Was it 2006? Oh, excuse me. The tax amnesty was in 2006. Let me back up. We're going to throw the 2006 year out because you guys had a tax amnesty that year to try to collect some additional revenue. It certainly seems to work if you look back at the graph. You had a pretty big increase in tax revenues that year. But again, it's hard for us to predict amnesty programs. Our model's not going to fit that. So we threw that year out, but we went ahead and predicted, you know, used the other year's worth of data. What did we decide to use in terms of forecasting that would match changes in economic conditions in Fayette County? We're going to use changes in gross domestic product for the entire country. Again, bears a fairly close relationship to changes in net profit taxes and actual changes in net profit tax receipts in Fayette County. There are widely available forecasts of GDP, and so they're easily available. And again, we've chosen to use the forecast produced by the Congressional Budget Office, the CBO, when doing this forecast. there is again what we've plotted is the blue line is the actual net profit tax receipts the red line is the predicted net profit tax receipts the prediction goes through FY11 and then after FY11 we continue to forecast net profit tax receipts for the next three fiscal years and then again provide both a pessimistic and optimistic forecast Our optimistic forecast for FY12 is no change. Based on data so far, it seems like that is a very, excuse me, our pessimistic forecast would be no change in net profits and extra receipts. My understanding in talking to Bill Amara is that that would be a pessimistic forecast. There does seem to be some growth that has been occurring, but we did not incorporate that into our model yet. Okay. So those are our forecasts, and that's how we arrived at them. Thank you so much. Certainly happy to entertain any questions that you have. Council members, will you log in, please, if you have questions? You may get off easy, Ken. Okay. Well, that's fine. I don't see anyone logged in, so thank you very much for being here and making your presentation. Certainly. Appreciate the opportunity. Thank you very much. Do you have a question? It seems our login isn't working. So are there any, before Ken gets completely away, Council Members, does anyone have a question? Council Member Lane. I thought I was going to get up. We thought, yes. Good afternoon, Dr. Trosky. This is a very simple question, on page 19, but I was curious with the pessimistic line, how that started where it did, rather than... Let me... Page 19. Yep, thanks. I'm sorry, yeah, go ahead. So you see the green line? Yes, the green line is the pessimistic one, and the purple line is the optimistic one. Why would you start that below the actual number? No, no, no. Our FY12, that's our guess at FY12. We don't have FY12 since FY12 isn't over yet. We don't know the actual number for FY12. My question was why the starting point, or that's not a starting point. That's just a green line in there. Is that what you're saying? In other words, we had the number for FY11. Oh, let me back. I'm sorry, you're right, for FY11. The model produces a forecast. Okay. Okay. What we've done is we've simply used the guess that the model produced. We have not changed the guess that the model produces based on actual data. That's the guess that the model produces. It turns out the model is pretty close to what actually resulted. but when producing the pessimistic, we just take the guess and then we adjust the guess downwards to produce a pessimistic model, I guess. Good, that answers my question. Thank you very much. Sure. Any other questions? Council Member Blues. Thank you, Vice Mayor. This is, I guess, a question about the assumptions you operate on. But is it always an operable assumption that unless the economy is growing, unless revenues are always increasing, we're not doing well? I'm not sure I understand the question. Unless revenues are growing, we're not doing well? Yes. I mean, is there such a thing as a kind of a reasonable plateau, and suppose that we hit a certain line and live on it? Maybe with a peak here or there, and then what I'm asking is, is every peak, is every upsurge, does that become the benchmark? Given the way the revenues are collected, and the revenue is simply a percentage of wages and salaries or a percentage of net profits. And again, one of the things you have to recognize is we are simply forecasting the nominal value of wages and salary. We have not adjusted for inflation. So if there is inflation, even if nothing else changes, if there's just inflation, then presumably wages and salaries should be increasing and net profits should be increasing simply due to inflation, which means your revenue should be increasing at the rate of inflation. if there is typically if there is if the city is not growing in terms of size or if in terms of economic activity then you should expect that the real value of your revenues is not going to change over time if the city is growing if there's more economic activity in the in the city if If the jobs that are being attracted, being created in the city, are paying higher and higher wages, then you would expect your revenue to go up. So, I mean, it's not, I don't want to make a statement about whether it's good or bad. I mean, if the city is happy with the current state of the city, that we're in optimal size with an optimal level of economic activity, then you can have a revenue that doesn't change in real dollars over time. I don't see anything wrong with that. But it is an indication of your revenues are a function of the underlying economic activity. And presumably as people get wealthier, which is what happens when their wages go up at a rate that's faster than inflation, They may be demanding more expensive services, different services. That would be sort of natural. So in addition to having the money to pay our bills, it's like taking our temperature every few months. It is, and to the extent that presumably as the city increases the amount of economic activity that's going on in the city, presumably as there's more economic activity, there's more demand for government services. seemingly that as the city grows and you see more economic activity and presumably you have more demand for your services and therefore you need more revenue to provide those services. Well, thank you. Certainly. Thank you, Vice Mayor. You're welcome. Council Member Lawless. Thank you and thank you for your hard work on this. I wish you did have the ability to accurately predict it so you could pick my investments for me. You know, I think if I could do that, I'd pick mine first. No offense. Well, I graduated from the U.K., my undergraduate degree from U.K. College of Business and Economics before it was the Gatton School back in the olden days. One question I had was the insurance premium tax. and an estimated increase over the FY12 projection and budget? No, we did not forecast either. All we forecast were the employee withholdings and net profits. We did not do. On page 22? That's not his. Oh, that's not me. That's not his part. Oh. That's not me. Well, then I won't ask. Okay, good, because I have nothing to do with insurance. We did not try to forecast insurance premiums. Again, the feeling was that that was primarily due to inherently unpredictable events and changes in rules that were more legislative than anything else. Right, that's why I wanted to ask about it. So thank you very much, and as always, thank you for your work. Appreciate it. Are there other questions, council members? All right. Thank you very much, Dr. Ken Trosky. Appreciate it. And Chris Bollinger, thank you for being here also. Now, I think we have up next Bill O'Meara, our Director of Revenue. Welcome. Thank you, Vice Mayor. I was going to recap the major revenue streams, starting with the employee withholdings. So based on our work with the U.K. Economic Department, we're forecasting employee withholdings to be $162 million for FY13 in the mayor's proposed budget. And that's a 3% over our current projection for FY12. It would be a 3.8% increase over the adopted FY12 budget. As Dr. Trotsky talked about, this assumes a gradual recovery in both the employment and the local economy. Our net profit is projected at 32.970, a 4% increase over our projected FY12. That's a 15.4% increase over the adopted FY12 budget. That's correct, FY12 budget. And if you remember right, we had a very, very strong end of the year last year, the April, May, and June. We came with an update showing you that those net profits had strongly recovered in the fourth quarter of last year and would show that recovery blip that Dr. Trotsky had on his slide. The next is the insurance premium tax. We're projecting $23.28 million. It's a 2% increase over what we're projecting FY12 to be. It's a 5.7 increase over the adopted 12 budget. Again, as the recovery comes online, there is more activity in the insurance. We're specifically seeing it in casualty and life insurance activity. What is not in here, which may occur, is any risk premium adopted for the state. I don't have a real great understanding of the insurance business, but there is a review of the risk for the state. And with all of the activities that we had last year in tornadoes and things, even though they weren't in Lexington, they could affect the risk premiums that we're all paying for casualty. insurance for our home and cars, but we did not incorporate that into our projection. The franchise fee is budgeted at $21.1 million, 18% over our projection for FY12, 14% over the adopted budget. I do want to remind you, as I have in the past talking about franchise fee, that some of that is rate. A lot of it is usage. That usage is dependent on weather, whether we have moderate spring, winter, summer, or whether we have very severe weather, either in the warm or the cold months. But it also reflects a proposed 1% increase in the franchise fee for both the gas and electric utility franchises that are up for renewal. We're assuming that that is proposed and accepted and is incorporated in this estimate. It assumes the effective date of September 1, and it would generate about $2.5 million in FY13. And if you will remember in the mayor's proposed budget, that is a proposed transfer to the Urban Service Fund to address the streetlight shortfall. So then moving on to the Urban Service Fund, we have a total revenue of a little over $35 million. That's a half a percent increase from our FY12 projection, 2.4 over the 12 budget. The major revenue source for the Urban Service Fund is property taxes. It reflects the assumption that property tax revenues will be virtually flat from what they're projected to be for FY12. In total revenue, it does show a decrease in intergovernmental and no sale of surplus property. And this is where, not in the revenue side, but in the expense side, the transfer, excuse me, this does reflect the transfer from general fund to $2.5 million for street light. Then going on to the user funds, the sanitary sewer fund, we're predicting $44.5 million. That's a 6.4% decrease from our projection for FY12. It's a 4.2% decrease from our FY budget. It does reflect a conservative projection for the user fee revenues. There are also decreases in intergovernmental and interest income in that fund. The water quality fund is projected at 10.9, 8.4 down from the projection, 5.2 down from the adopted 12 budget, again reflecting a conservative projection for what user fee income will be for next year. and landfill fund which again is a user fee driven fund we have 6.8 million that's about 0.6 from what is projected it's a 6.1 decrease from the FY12 budget we are going to do a final review of the revenue streams in this fund to make sure that there's consistent methodology and revenue estimates for the user fees consistent with what we're doing in the sanitary sewer and the water quality fund. And that's my dance. If anyone has any questions on those sections. I think there are some questions. And just to be sure, you said the water quality fund will be down, but you mentioned user fees, not water quality management fee. Do you want to clarify that? To me, they're both the same thing. So if my terminology is off, I'm talking about those fees. The water quality fee, which is not based on property assessment. No. So are we getting rid of pieces of property? No. Sanitary sewer, water quality, and landfill are going to be billed by the urban county government beginning in September on a unified bill. All of those then will be a collection stream that the urban county government will be managing, and we are projecting a conservative collection rate until we have that process under our belt and have some experience to build on. Okay, so that's totally a reflection of your thinking that we will not collect all the fees. That's correct. Okay, I see. Councilmember Beard. Just a continuation of that conversation. I pushed the button when I saw the decrease and guessed it had something to do with collection rates being impaired somewhat. Why wouldn't they track, though, why wouldn't sewer and water quality, why wouldn't all of those track each other pretty crisply? Well, we think that's a valid question. And the people submitting, the entities responsible for the revenue projections are different for each one of those. And so we want to circle back and make sure everyone was looking at it the same way with the same methodology. So that's why I put that point on the landfill fund. But in actuality, if someone is neglecting to pay one, they're neglecting to pay all, I would think. Well, that's the kind of experience that we don't have yet, and that after next year we will have some to do better projections for the FY14 budget. Okay. Thank you, Bill. Thank you, Vice Mayor. You're welcome. Council Member Lawless. Thank you. When we go to our own collection of these fees, will we have the same leverage to turn off people's water or gas or utilities if they don't pay them? Well, there's a KRS that says that the provider of sanitary sewers can request the water supplier to terminate service for delinquent payment. And that is not the case for the other two fees. Okay. And we are in negotiations with the water utility on how that would work. Okay. I had a question also about the insurance premium tax. Yes, given the new legislation that out-of-state, if the insurance was purchased from an out-of-state vendor, that we couldn't collect the same tax? There's a term that is, it's right there, I can't reach it. Me too. Excess, anyway. Yeah, I can't think of it either. We looked at that with the legislation, and it does not appear to have a material impact on our revenue stream. Okay. And it also seems that with the, you know, kind of looking at everything else being flat, that people would be increasing their purchases of life insurance, which my understanding is the fee for life insurance, whatever that... Insurance premium tax is on the first year premium, not only. It's only on the first year. and when you say increase in casualty, are you talking about property casualty? Yes, home and auto casualty insurance. We're seeing increases in those two lines as well as life insurance. Okay, because it just seemed like a pretty sizable increase with everything else flat. people are going to be buying more life insurance or upping their casualty? As you can see, compared to budget versus what we're projecting, we're already seeing an increase in insurance premium tax revenues. So the question is whether the slope of that line goes up and gets steeper, whether it flattens out or kind of stays the same. we're kind of saying that it flattens a little bit, but it doesn't go off the chart one way or the other. It just seemed inconsistent with some of the other projections, and I'm just curious. Thank you. Council Member Stenet. Thank you, Vice Mayor. What percentage did you use to project collection rates on our own billing? Ninety percent. And what are we currently at? Ninety-nine, ninety-eight, ninety-nine. Okay. And this insurance premium, this is not an increase in it. This is just a projection. No, no, no. This is just talking about activity. The money that we're getting for the streetlights from the franchise fees, is that just going to pay for maintenance, or is that capital going towards capital and maintenance? The 2.5 would cover $300,000 in new investment. Okay. And then, of course, our best guess is one of the major rate hikes in the future is in the electric in our area. So we currently expect that the maintenance cost to increase quite substantially with all other electric rates in the future years. The $300,000 is the, I think what we were told was the average expansion, and we've kind of been in a freeze for 18, 24 months, so it doesn't have additional in there. It has the normal increase in streetlights. Very good. Thank you, sir. All right. Council Member Lane. On the sanitary surf fee, you're showing 6.4% decrease from the 2012 projection and a 4.2 decrease from the 2012 budget. Are those directly related to usage? I think in our sanitary sewer legislation that we had a cost of living increase. Have we been projecting higher revenues because of anticipated higher levels of inflation or CPI index, or has that just happened to be an arbitrary number where we decreased it? We do have a rider that every July 1, the rate for sanitary sewers reflects the 12-month CPI. That has not been measurable the last two years. Right. So it was in the point-something percent. We do have an estimated CPI. I'm not remembering what it is, but it is not significant. But we looked at that as well as volume to come up with gross, and then we looked at collection rate. The reason I ask that question, do you feel that the mayor and the council should take a look at the adjustment in the fee because it was anticipated we would have a small increase each year due to the CPI index. If we're not going to have that, do we need to do something different? Or do you feel like we have adequate cash flows at this time not to worry about it? Yes to all of the above. The major driver for the sanitary sewer rate is the consent decree and the long-term capital investment in the infrastructure. And so we have periodic meetings with Charlie Martin and his people on cash flow needs for the capital. And so we would want to review that and come to council with recommendations of when we need a rate increase in the sanitary sewer to support the capital agreement that we have in the consent decree. So you're saying based on your meetings you probably have an anticipation pretty much in the future when we might have to make an adjustment if the CPI didn't adjust. Is that how I'm interpreting what you're saying? Last year we made a presentation that said in order to invest $600 million over the course of so many years that we would have to have periodic increases in the sanitary sewer fund rate. Okay. And so we're going through that process to see when that cash is needed. Okay. Thank you very much. Are there any other questions from council members? If not, do you want to go ahead and roll on to the CIP process? Mr. Barrow isn't here. He isn't. He had a situation where he had to leave, but I can take over. Very good. I may not be able to do it as well, but I'll give it a shot. The first one is to talk to you about our CIP process, our capital improvement planning process, which we talked to you again at the beginnings of last year, and kind of tell you what progress we were able to make through this year and kind of what we anticipate and would like to do in the future years. We did work with the departments going through a new and different process. We wanted to address in the requests from agencies projects that were costs that were greater than $25,000, went through the CIP. It did not include renewal and replacement items, those smaller items that would typically be in the operating capital. And ultimately, we'd like to see the major replacement and renewal items like vehicles and computers, for example, to have a different process as well to review those and have a replacement fund. Again, this is all in the future, but we're taking steps and making significant progress in the review of our capital needs. We did separate the capital planning process from the budget process this year, so agents, departments gave us information prior to the budget request, so we were able to look at the capital projects. Now, ultimately, again, next year we'd like to be able to share the capital improvement plan with you prior to it being included in the budget so that you will see those earlier as well. But it was our first year working out some kinks in the system, but we did request that and have those reviews separately through our monthly meetings with agencies, et cetera. We did create a common criteria based on the strategic goals of this government, and we ranked all of the city projects in the CIP process. Those criteria are listed here for you, fiscal, economic impact, health and safety, quality of life, implications of deferring a project, what impact would that have, either on increasing the cost of that project in future years or impacting the efficiencies and effectiveness of an agency. So we ask those questions. The impact on other capital projects, as you well know, sometimes some projects will impact progress or replacement, maybe, of some other capital project. And then we also ask for information regarding any funding sources that came outside of our LFUCG monies so that we could leverage and evaluate the leveraging of those dollars. You can't see this. I don't expect you to be able to read it, but this does separate out the questions, the CIP forms. It separates out the capital project questionnaires, and they're separated by those criteria, So there's many questions about the fiscal and economic impact, the return on investment. The criteria, obviously, if a project related to life safety, it should be ranked higher. So you get the gist of the kind of process that the departments went through in terms of providing information to us. We included in the CIP piece of the budget this year, the next couple of pages in your packet, approximately $3.6 million of projects. And we are proposing a short-term note to fund those projects. You might ask why a short-term note. We looked at the life of these projects and determined that it was better suited to funding it with a five-year short-term note as we move forward. The projects are listed in your budget document, but we did list them again the next two pages. but things like the Public Safety Operations Center, which we've talked about, the not broiler replacement, but boiler replacement throughout the government, body armor replacement in the police department, air cylinder replacements within the fire department. And we could go through the list, and I can go individually if you'd like, or if you have specific questions, we could address those. But the largest are the Public Safety Operations Center, the vehicle replacement, and a half million, along with an initiative that Commissioner Hamilton and John Sheed had asked us to consider on GPS units as a pilot project to utilize throughout government to look at the use of vehicles as they go through looking at the right sizing process of the fleet. And that was discussed at the links for those of you that were there this morning in the general services link. We looked at the vast needs in roof replacements, HVAC replacements, and determined that we would propose a fund for roof replacements and HVAC upgrades and that John Sheet and his folks have a list of those priorities, and we can get that detail to you as well. But this is just a small piece, again, of the total request for roofs and HVAC, but we felt like these were the most immediate needs, and we began to make progress on addressing some of these needs. In addition to that, there's some plumbing issues that needed to be immediately addressed. The remediation relates to, again, life safety and replacements with asbestos or lead that are throughout our facilities. Again, John Sheed and Commissioner Hamilton, we can get more detail on these projects as needed, but they are being addressed in the links. The fire suppression system at Phoenix, and then there are both the ADA parks and the playground ball field, again, address safety issues or ADA compliance issues. on the playgrounds ball field. That happens to be the name of that account. But it relates to the surfaces on the playgrounds in terms of the standards that have changed in making those safe surfaces for our citizens as they participate in activities at our playgrounds. So again, it totals $3.6 million on the short-term note. You'd ask us to address the existing debt service. If I could interrupt just a second. Do any council members have questions about the CIP process or any that was just covered? Okay, Council Member Lane. First I'd like to say I like your CHIP form. I think that's a variable tool. Would part of the process on that be that you would provide a copy to the council when you're requesting the budget authorization for a capital improvement? Is that what you had anticipated with that? Because this would be very valuable. It would take less time for a lot of questions if we had the basic data. We can certainly get you the CIP forms in total, or we've got summaries of the projects, which you have in your budget document, actually. So we can get you information however you would like that. Well, I want to congratulate you because the first time I've seen a form like this in our government, I've seen it in other governments, so I think that's very good, and it gives you a rationale why we're spending the money and what the priority for the expenditure is. The only other thing I wanted to mention is on page 31 we're showing $500,000 for vehicle replacement, and the Internal Audit Board just released a report coincidentally today indicating that some of the usage in our fleet is low, and I just wanted to mention that it might be something you'd like to look at. Maybe there will be some savings there for you. Very nice job. Thank you. Councilmember Kay. Thank you, Vice Mayor. I will echo first what Councilmember Lane has said. This is a very valuable process. a couple of maybe a question and a couple of comments on the criteria that list which is on page 29 are they in some order of importance is or was there any attempt made to weight them differentially can you say a little bit more about how you use them I will ultimately yes There will be a waiting, but as we went through, there was a prioritization process, so many points for the criteria. But in the future, we want to look at, again, waiting, going through a more sophisticated waiting process, life safety, federal mandates, local mandates, you know, those kinds. It's not as sophisticated as we want it to be, but it is our first step towards doing that. I have a suggestion, and that might be a process. The setting up of those weights might be a process that would be useful to have council engaged in as well. Certainly. If we understand what the criteria are, we'll be much more sympathetic with the outcome of the process. Thank you. Thank you, Mr. Vice Mayor. Excellent point. Council Member Beard. Thank you, Vice Mayor. A couple of things. At one time, we were anticipating doing something with the Phoenix Building elevators. Now, just what that was, I don't know, but it was going to be a big number, and I don't see that on this list. I believe it was in last year's budget. I need to check the... That's how I think about everything. So I see something. It wasn't the opportunity. Yeah, the $700,000 was budgeted as part of the current fiscal year. About a month and a half ago, the A&E, the architectural and engineering portion of the job, has been awarded. We currently are evaluating the proposals in terms of what are the options available to us for both Phoenix as well as police headquarter elevators. We anticipate to be able to get a package out there and soliciting bids probably within the next two, two and a half months. Due to the fact that these elevators are going to have to be kept operational while we're doing the repairs, there are going to be some sequencing that are going to have to be done. So we anticipate the length of the project will be a little bit longer than we would like for it to be, but we really don't have any other option. I just was looking for it on the list here. I didn't see it. It wouldn't be on this one. So 2012. You have to do the same thing. All right. Next question. Boiler replacement? Where? My understanding is the boilers primarily are dealing with fire department boilers at different firehouses. So I believe there's a lump sum that they have requested for replacement of some of the boilers because I know fire station number one is the one that's having some major issues with their boilers. So I think what they're doing, they're pulling that together and got a list that that's going to prioritize which boilers they want to move forward with replacement or repair. Okay, fine. And Commissioner? Well, and that's also something that perhaps our council administration says here. I just wanted to correct that. It was corrections for this particular boiler replacement was at the jail. I know, but it says it's broiler, so are we in the food business on that? That's what I said. It was not broiler, but it's not their kitchen that some of you heard about their kitchen, but it is boiler replacements at the jail. I anticipate it was boiler. Yes. Sorry about that. I think that was Bill O'Mara's spelling. whomever's in the room actually actually generally whoever is out of the room thank you thank you mayor vice mayor welcome councilmember Lane I like to add I like my mistakes medium well I wanted to go back to the chip form just for a second and I was just curious Who initiates the form, prepares the document, and then how is it approved for, I guess goes to the mayor for approval, and then it's submitted to us for authorization or whatever? Do you have a procedure on this? Well, I might add we were lucky to have last summer a U.K. student work with us on a lot of research on different capital improvement planning process and forms. And this was one that we put together from finance, budget, working together, and then actually asked some of our super users like Jamshed to give us input on the form. And we worked through that process and came up with a form. Again, we are open to suggestions in terms of improvements, and we do have, as part of our goals, a more sophisticated weighting system. But these would, again, the departments would fill these out. We would send out, initiate, the budgeting office would initiate the forms out to the agencies. They would be filled out by the agencies, return to budgeting, and then go through the ranking, the simple mathematical ranking process. process. And then, again, in future years, we hope to have this capital plan available to the mayor as he's putting together his budget and then obviously to the council so that you can see all the vast and varied requests throughout the government. All right. Thank you, Ergion. Are there other questions, council members? Seeing none, I think you have debt in front of us. We do. The first table that you have chart shows the general fund existing debt service payments, and we do have them color-coded with the debt issuance to the far right side. I know that that gets tiny, but we do have a budget summary that we can give you as well, the actual numbers and showing you the debt service schedule over the last couple of years. But this is the debt profile, existing general fund debt profile as it stands today. If you move forward to the next, it's hard to read on your screen, but the next table is the existing debt service plus fiscal 12 pension bond, the $31 million bond that we are anticipating issuing in early June. The proceeds will be in the bank by mid-June, and so that adds, you can see that adds that layer on top. And then we gave you the next chart, if I can get it to work, is the existing plus the 12 pension plus the note that we just talked about, the $3.6 million short-term note, which adds about $800,000 in terms of debt service or payment for the year. And if you look at the last chart, you have the existing plus the pension for $12,000, the note for $13,000 with the projects, and then the $34 million pension bond, which is about $2.7 million in debt service. So I think if you look, you can see, if you just scroll through them, I'll scroll through them. If you want to watch the screen, just see how that grows from existing to what all is included in this budget. If I move on to it. Any questions? Yes. Mr. Stinnett? Thank you, Councilman Ellinger. what is again what was the debt service on the 31 million that you plan on doing in june 31 uh 2.5 that's for next year yes and so the the 3.6 was around 800 or 800 000 yes and then the last one was 2.7 2.7 yes so roughly a six million dollar swing from where we're at now how much has fallen off this year? Falling off is $4,500,000. We have about $800,000. It looks like it's more now on the chart, but maybe it's just a perception of it. I've actually got the budget summary chart that shows the change from year to year. So what's the net increase of debt service? The adopted budget in 2012 is $32,700, and the mayor's proposed is $35,580. Okay, so around $3.5 million. Is that right? And then on the pension bonds, if you all feel comfortable making the recommendation to go ahead and bonding pension money until this task force, of which you and I are both on, in fairness, comes out with a recommendation on how to fund these revenues? I think from the perspective as we went through and looked at where we found ourselves and where the pension board, pension task force, was currently the place where we were in terms of moving forward or attempting to move forward with some proposals, that this was a really good faith effort on the administration and hopefully the council approving that the city is, addressing the number one issue that you all said was your number one issue, Mayor's number one issue, beginning to address this pension. It is not the long-term solution. I think we all know that. But we did feel like adding, because we've increased the cash going into the fund, as well as this pension bond, and we felt like that was a really good faith effort in this transition year where we find ourselves. And take a second, but do you all have the cash number we're putting in there too? Do you know what that increase was from last year? I want to say 5.6 or 6 million. It's around there. That's probably not exactly right. It was 5 million? Because I think this is an important piece that this council needs to realize. We haven't bonded, and this is $65 million in bonds. And I don't think we fully understand what impact, if any, because obviously it doesn't have a dollar-for-dollar impact on the pension fund liability of $250 million. Do we know what the net impact of that $65 million bond issue will have on the fund right away? I don't have that with me. But it's arbitrage. I mean, we're hoping to bond at a certain rate and get a certain rate, which that rate we hope to get hasn't been attainable in the last three years. So, you know, this is a very, very risky play to continue down. And I understand the short-term dilemma. I understand I want to show good faith, too. But until we as the task force and we as a body make a little more strides in that good faith on both sides, we need to think long and hard about issuing any more pension bonds right now, given the state of our bonding capacity and given the state of our revenues. I mean, you're increasing about $6 million of cash this year. To me, that's good faith. We haven't increased it by $6 million in cash in a long time, a long time. So I respect what you're trying to do, and I appreciate it. But I think now that it's in the Council's hands, we need to think long and hard. Is this the way we want to proceed? Because $65 million does not equal a $65 million reduction in a liability. Thank you. Thank you, Vice Mayor. You're welcome. Council Member Martin. Thank you, Vice Mayor. how pleased i am that council member stentett stole my thunder that goes without saying commissioner thank you and i appreciate all the work that goes in and how how terribly overwhelmed you all are during budget season uh and i know that a lot of calories a lot of hours go into these. I won't repeat too much what Council Member Stenna said because I agree completely. I sent some articles around about borrowing to get out of pension debt. I will say that the $106 million that we borrowed in 2009 and 2010 is now gone and that the unfunded liability is now $12 million worse than it was before we did that. and so that it's a moving target that the uh we're continuing to incur new shortfalls and the new shortfalls are basically eating up our bonding and so um barring our way out of this uh is i i know it's one of the few things we can do but it's not going to get us out of it it may feel good and i'm not criticizing you at all but i'm not it may feel good for the moment um but but it It is essentially kind of running in place. And so essentially what we have to do is we have to cut this out of our budget, as difficult as it is, either through we need to make this in cash, either through raising taxes, which we're going to have to do, or cutting our budget, which we're going to have to do. And so to borrow it with a 4% or 5% interest cost on that when we're trying to generate 8% just to meet these actuarial projections is impossible. We would have to make 12% and 13% a year in order to both pay the interest on these bonds but also make the 8% rate of return that all these assumptions are built on. Commissioner, this shows FY12 and FY13 numbers. Has the administration projected out the likely bond borrowings, if that's the scenario, if that's further into the future than in one or two years? Again, I think that that's what you saw at the budget retreat, just with some of those assumptions. And so we would agree that borrowing, we cannot continue to borrow to address the pension fund long term. So we would agree there. But we did those assumptions during that budget retreat. I don't have those slides with me, but you remember the chart where our capacity and we were over it if we continued long-term doing this approach. And you and I talked about this at the retreat, and I know you know this, but for the folks at home and folks around the horseshoe, a couple things weren't in that chart as you and I talked about. One of the things is that the fact that the liability is growing for the pension fund itself by about $35 million a year. And so that additional amount is not added into that chart. Is that correct? The assumption of the growth of the pension shortfall. So that's not in there as well. And that's going to make that number even worse. But the second thing is nothing in that chart addressed the other post-employment benefits, the medical costs that we are paying. And what we have now is we talk about the pension. What we don't talk about is the medical benefits. We have saved no money to pay the medical benefits, which is about $225 million. That's what we owe as of the best guess. The latest real number was July 2010, and that number was $212 million, and that number had been going up by about $15 million a year. So we're probably close to $228 million in the medical benefits. I can't frankly wait to see what the new numbers are because the new policies that we put into place and that the mayor instigated as far as our health insurance may affect post-employment obligations. And so that may actually have turned downward for the first time in a while. But all these numbers, we have to project out. And so, Commissioner, I guess I would request that you bring back to us the 10-year projections with the medical benefits put in and with the projected shortfalls that we've been seeing historically, but also the interest expenses and things like that. But I think folks need to see the ugly truth because it is a dark future for Lexington if we don't turn this around. And so I see I'm out of time. Vice Mayor, I appreciate it. You're welcome. Council Member Lane. Well, I guess Council Member Stenet and Council Member Martin took my thunder, too, because I was going to address the same issue. I am very concerned about the Police and Firefighter Pension Fund. and I feel like this is the greatest threat to the future of the Oregon County government because it is spiraling out of control. The costs are escalating rapidly, and we're limited to what we can do because this requires legislation from the state of Kentucky, the Commonwealth of Kentucky, to modify the terms and conditions of our fund, and the changes would only apply to new people that were employed in public safety that were added after the changes were made. It would not go backwards and affect any current employees or retired persons already on the plan. But I wanted to follow up into a couple of other comments on that, too. Do you know at this time, are all of our bond rates are fixed? We don't have any variable rates at all, particularly in the pension fund area. I don't believe so, but I'll confirm that. Some of these older. I think if there is, it's very small. We'll get back with you. Okay. That's good because that's another concern we need to have is with the huge deficits the federal government is running and now they're continuing, that could be very inflationary on the U.S. economy and that could cause interest rates to go up in the future. So we have to be looking at that aspect of it also. And then the only other comment I've got is that when we continue to put more bonding to pay for the police and firefighter pension fund, we're taking away future bonding capacity that we won't be able to borrow that much more money. I think that we're going to be somewhere around 11.5% to 12% of our gross revenues in the general fund will be going to bond debt service, and that's getting pretty high also. But here again, and this is not a criticism, I don't want you to misinterpret my comments, I'm saying these things for the benefit of the general public, and to make people aware this is a problem we do need to continue to address. Thank you. Council Member Martin. Thank you, Vice Mayor. I had one or two other questions, and I ran out of time. I apologize. Has the administration projected the shortfall in the pension fund under the new GASB rule that's proposed? We've asked for some different scenarios, and that until that's a little further along, we have not asked for that complete analysis yet. Because you sit on the advisory board for the government. Well, my term is over. Your term is over. But you probably keep up. It's a hobby. Yes. So when are we expecting to see this new rule? I think you will see throughout the summer a lot of public discussion about that, and then it will still take maybe before we would have to implement it two years, two and a half years from now maybe? For the folks at home and for folks here on the council, the Government Accounting Standards Board has, I guess, adopted, but it's in the process of finalizing new rules regarding the accounting of pension shortfalls. And one of the issues is that pension funds have typically selected their own rate of return. And our pension fund has selected, the Police and Fire Pension Fund has selected 8% as their assumed rate of return. And what they do is they figure out how much money do we need that's going to grow at 8% in order to fund all the promises we've made. And they take that number and compare it to what we really got, and that's the shortfall. Well, to the extent that your rate of return is higher, you're going to need less money, and so you don't have to put as much money in the pension fund, and that's sort of the game. The difficult thing is lowering that return from 8 to 3 quarters or 7.5 or even 7 percent. So the question is, what are we going to make, and how is that going to be projected out? The new pension rule, not to get too technical, but the new pension rule is going to require that cities state that assumed rate of return in a more accurate way based on the assets they have, based on whether it's treasury funds or stock or whether it's a shortfall. And so the California Teachers Retirement Fund ran some projections under the new GASB rule, and their unfunded liability doubled. And so that's not to say that ours is going to double, but it is a serious issue that we have to prepare for. Because at some point, when we're required to comply with the new rule, our payments may go up because the liability will be stated at the new level. And that could be much higher than it is. And so that's a great unknown out there. I guess, Commissioner, where I am on this is I feel that we have to better manage our borrowing future. Because the date that I want to know is when will we not be able to borrow any more money. Given the projected borrowings to pay the pensions, at what point will the rating agencies or the bond companies or whatever not let us borrow anymore? And I know that is a function of reducing our rates and our interest rates going higher, but what does that future look like? And I don't see anything that helps us understand that. I think it's a function of many different criteria. It's a function of your outstanding debt, obviously, but it's also a function of how you manage your resources. It's also a function of the flexibility of your revenues. It's a function of some demographics. So there are a lot of variables that go into that rating that would ultimately, as you're saying, if it made it cost prohibitive to borrow. So there are lots of things, and we're addressing building a relationship with our rating agencies in terms of management and how we've gone through with the collective bargaining agreements and working through those and management of deleting personnel costs out of the system, better addressing health insurance. So all of those things are a part of that formula, but we will actually have rating agency calls soon on the current year pension bond, And we're going to have those conversations with them in terms of future borrowings and talk through that issue with them. So there are many factors that go into that rating, but we will, again, revisit that chart for you. I would just say that, just so you all know, to those of you that aren't part of the board, the pension board is looking at currently the rate of return issue and a potential change in that rate of return. based on some recommendations from our consultants. So we are looking at the possibility of lowering that assumption. But that's the board's decision, and they're deliberating on that currently. So there are many moving parts to this picture. I might just reemphasize in terms of it was a tough decision, looking at the council's priority, number one priority being pension, as well as the mayors taking some actual cash in addition to this proposed bond and not spending that cash on something else but putting that cash into the fund. So it was a very serious look at the current situation and also taking into consideration where we are with the task forces, as Council Member Stenet mentioned, where we are in that process and still hoping to make progress on the potential benefit and other source of revenue or making decisions about how we distribute the cash we have. And I'm sorry, Vice Mayor is also on the task force. If you find that date, let me know. Thank you, Vice Mayor. You're welcome. Council Member Stennett. Again, thank you for coming and answering these questions. A lot of our comments are not at you or the mayor for trying to fix this problem. It's more in general. We all have got to work together and get it fixed. When was the last time we met with our credit agencies, the bonding? I've had just one conversation with them since I've been here, and then we do have our rating agency calls next week actually meeting with them because these have been phone conversations. We're looking at potentially doing that this summer. I know it's been a while since 010, since we've actually sat down and been rated. And we actually had a downgrade then, as you know. But we are actually going to visit the rating agencies or have them come here. I'm just curious how they feel about pension bonds. I know even their language has changed, and their outlook on them has changed because of what's happened. And we do have our financial advisors have been doing some research for us in that regard as well. Okay. Thank you. Thank you, Vice Mayor. You're welcome. Are there any other questions? Okay, I think we're ready for bonds. This slide was a display of similar to last fiscal year. we looked at the existing bond projects that are funded with bond proceeds to see if there were areas that, like last year, we were able to identify potential areas for reallocation. So we went through that process. As last year, we did not include it in the budget document because it's really a reallocation of existing funds and the current process to do that through a budget amendment. But we did include, if you recall, last year on our late item list, so it was very clear to everyone the action and approvals that this body was making. So we see that working the same way if you approve these projects. But we looked at all the existing funding, identified the Streetscape project and working with the folks. There was some money, bond proceeds remaining, mainly as a result of we received some grant funding that were able to complete these projects. So it freed up a little over almost $3.4 million, and we are proposing to reallocate those dollars, $1 million to PDR, $1,250,000 to the Arena and Arts and Entertainment District, parks projects, $388,000. And then, as you all know and have gone through long discussions about the radio infrastructure and the radio project for public safety, we have a combination of funds that equal, I believe, $5.5 million currently for the radio infrastructure and the first purchases of the radios, but we still need some additional dollars to finish that phase and have indicated that to you, and we're suggesting the remainder of these dollars go towards that effort. Again, it's the possibility to begin to buy the actual radios where we funded the infrastructure thus far. So that's the reallocation of existing bond proceeds that the mayor spoke about. Now in our last slide, which is sort of a summary slide, as we like to do, there was an increase, although small increase in revenue growth. We did put in place a more formalized capital improvement plan to be able to give you better information and to better evaluate expenditures of capital. We are proposing a short-term note to match the short, useful life of those proposed projects that, again, mostly life safety projects or very basic maintenance needs. We do have a very large backlog of capital infrastructure needs, as you all don't have to tell you that. And then when we looked at the whole capital project in general, we did target the proposed projects, again, based on life safety mandated kinds of changes, leveraging outside dollars. If you look back at these projects, PDR leverages outside dollars. The arena and arts leverages the monies that were included in the state budget. The parks projects are those projects that we've been talking about that are leveraging outside sources. And public safety radios, again, we're hoping to ultimately get some other public safety dollars. We've leveraged our E911 dollars in that regard. So those are just some examples of how we leveraged both outside and inside dollars. And when we looked at these projects, we talked about the importance of investing in the future. Again, basic maintenance, infrastructure needs, and then some of the future investments for the community in terms of PDR, the arena, and entertainment district, et cetera. So that is what we put together for you today, and if you have any additional questions, we'd be happy to answer them. We appreciate very much your presentations, and there are questions. Council Member Stimmit. Thank you, Vice Mayor. Can we get a copy of the FY12 bond reallocations and what their balances are? I want to understand the police radios, because I don't remember if it was $5.5 million. That was a million of E911 monies. There was some reallocation, and then there was some general fund because you proposed that change. Some of that reallocation hasn't been spent. Right. I've got what might be better. It hasn't been spent, but I have a cash flow that those expenditures are going to happen very soon, over the next course of several months. I'd love to see that because some of those projects I know aren't going to happen. So that's why I'm trying. Maybe we have different information, but there were eight of those things we reallocated last year. A couple of them have no intention of speaking. I was speaking to radios specifically. Oh, okay. Radios, we're going to spend all that money and need more probably. But the other projects, we can get you all the projects. Yeah, if you'll give me a list of that and what their balances are for the FY12 that you referenced up here. And then that streetscape, is that the only bond that's unused out there? There are some remaining proceeds, and that was another way we evaluated the capital needs. For example, I think a perfect example is in the computer IT area where there was some requests for dollars to be expended, but we have what I consider significant money in existing projects, and so we asked them to bring us a plan to spend those dollars before we would propose additional dollars from this body. So we went through and looked at balances when we considered what new capital projects, if you will, to fund. Sure, and what I'm getting to is we had the habit years ago of bonding things and not spending the money for several years. Now we have a situation where we've reallocated and haven't spent the money, so we need to be very careful when we reallocate. Do they need to be shovel-ready or project-ready? We need to spend it, in other words. And my last question was on the bond for this year, the pension bond, the $1.5 million in debt service. Are you just assuming that rose into any remaining, if any, fund balance for this FY12 year for cash purposes? Because we didn't spend that debt service, obviously. Well, we were looking at putting that into the structure of the bond so that we would spend. So you still want to spend the $1.5 million in June? Yes. Okay. Thank you. Thank you. And on those requests, if you will please send them to all council members. Yes. We would appreciate it. Thank you. Council Member Beard. Thank you, Vice Mayor. I'm jumping off into uncharted waters here. we've got a million and a half dollars allocated for design for the arts and entertainment slash rep arena project to be matched by the state of kentucky by two and a half million is that correct yes it was um the amount we have included in the budget over two fiscal years so yes we've got two fiscal years to match the other one to 1 million 250,000 but do we know if somebody knows if anybody knows I suspect nobody knows whether this thing is going to happen we keep on throwing around we keep on being the public everybody keeps on throwing around the newspapers throws it around the talking heads throw it around $300 million to do what is anticipated to be the full blown thing but I've not yet heard what a timeline that would be Is that over a 30-year period of time to get that done? Is that three weeks? What is it? Because there's no sense in doing this million and a half dollars if, in fact, we can't do the whole thing or some significant portion of it. We still owe $22 million on Rupp Arena and the Civic Center right now that we've got to do something with if we are going to remortgage our souls to do some of the things that are wanted done. And we're kind of in a saddle period here where we've got to put together a budget, but we get in the cockpit and we find out that the helmet's on backwards. I don't know whether any of my colleagues are concerned about this, but I sure as heck am. And I really feel like we've got to get something pinned down as to our direction before we can put together a viable budget and then another one next year and another one next year. I mean, is it a 30-year project? Well, I can tell you that some of the early money is to do just some of the final feasibility studies in terms of financing the sources and uses. We have drafts of those sources and uses. We have a draft timetable where the construction, the issuance of bonds and the commencement of major construction would be in 2014. And the mayor, I believe, would like to say something. The pilot's here with his helmet on forward. Welcome, Mayor Gray. Was that she said, Julian, about jumping out on a limb there? Yeah. Well, Julian, I tell you, I think that the best way to characterize ambitious projects is to look at the history of our city, where we always, in the history of our city, we had to take on ambitious projects. And the best way to illustrate why this project has a lot of merit is to look at what our governor and our legislature had to say about the merits of it in their budget. But the next phase of the project, as Stan Harvey can illustrate, and he's here. I know he is somewhere. Yep, yep. But I have a little bit of understanding of it, too. Because I, like you, have been to a number of the meetings over the last year and have seen 47 people work real hard on this and a lot of consultants and develop a project and a process that was extraordinarily inclusive that examined other cities, that examined revenue streams for a project like this, looked to our west and examined what was done in Louisville, looked at revenue streams up to 14 that will support this project, that will be deeply examined in the next phase of the project. That's what this represents. Like any responsible business, you develop a plan, and it starts with a business plan. And that's exactly what these funds are all about. It's a business plan, not necessarily, I'm sure there's incorporated design, but it's not a design. Well, a part of it has to be because in order to get the business plan together, you've got to have good numbers and you've got to have good engineering for the bricks and mortar. So a piece of it would be for the bricks and mortar. But the business plan itself will be examining the revenue streams associated with the arena itself, the convention center, and it will examine the development potential on the 46 acres, which had been described as an extraordinary asset by none other than the mayor of Columbus, Ohio, who said they had to assemble 76 acres for their arena district and nine property owners and had to spend a lot of money for it, like Louisville did. For seven acres, Louisville had to spend $75 million and move a substation. So each one of these projects, any one of these projects that has this kind of transformative potential, has challenges. They overcome those challenges. That's what the planning is about. mary you're talking to me but you also are talking to close to 300 000 people out there yes sir and they're the ones that are talking to me also i understand okay right um and those are great questions well it's and I think a lot has happened in the last three weeks or so 300 million dollars versus brownouts right that's one thing I hear a lot about it I'm sure you hear your share also or oh yeah and the public doesn't they're they feel like they're adrift to an extent because they can't get their arms around it, they can't conceive of what was a $48 million Rupp Arena that we're talking about. See, everybody goes back to Rupp Arena, and that's about as far as they go. Right. Rupp Arena, and that's the bellwether. Big part of this process, right. Examining the robustness of the business model, the potential of the business model, Comparing it and contrasting it with other cities is a part of this next phase of the project. At this point in time, what we are relying on with a great deal of confidence is what other cities have done, the potential, the possibilities of the brand that we have, you know, that just achieved something pretty extraordinary, the eighth national championship, known internationally, not just once again, but continues to be, and looking at the same issues that President Capilouto has at the university, an infrastructure with this institution that is now almost 40 years old. And in those 40 years, the business model has changed, and the real question to us as a city is, do we stay competitive? do we examine carefully what we have and how it needs to change, and do we have the will to make that kind of investment? And that's what the next step of the project is all about. It will involve, as these projects do, they involve a lot of moving parts, they involve collecting a lot of data, but that's what project management good project management is about off this subject slightly do you have the activities that go on in this room streaming directly into your ear or do you there is a yes there is a monitor right downstairs and you know that stairway that stairway's only got about 30 steps on it so it's convenient i I thought there was a brass pole with a jet pack at the bottom. Well, you know, we realize, you know, Council Member Beard, we sometimes slip up and call all of you all by first names because we all know each other so well. These are all good questions. They're all meaningful questions. They're questions that everyone has, and they will be asked. They should be asked. A bona fide plan is one that is able to respond to these sorts of questions and recognize how an investment in our city has, over time, the potential to build our city, to create in our city, the kind of quality of life that we all talk a lot about, you know, routinely. The quality of life that becomes a compelling imperative for recruiting talented people, good people, good businesses, and jobs, and keeping them in our city, and giving the kind of opportunity through that for young people and others who need jobs, who want jobs, and who want a leg up in life, better jobs. Council Member Beard, does that finish you off? Well, so to speak. He stands here if we need any more granular questions that he can help with. Not really. Do you have anything to add? I think what triggered it was when we threw up the $1.5 million. Well, $1.25, not $1.5 million. $1.2.50. and others, including the Convention and Business Bureau, has already indicated their willingness to step up with $200,000. So this will not be uniquely Lexington's, our government's contribution and participation, but it will be others across the city. Don't forget, you know, let's remember that the private sector itself has already stepped up. with almost $400,000 to demonstrate its support for the project. And, yes, I understand. I'm familiar with that. I've seen that. Right. Yes, sir. Okay. We have a few more. Thank you. Thank you. Anytime we can give you the exercise of running up the stairs. Thank you, Vice Mayor. We appreciate it. There are a few more people with questions. I don't know if they're for you, Mayor, or for the Commissioner. But we have Council Member Lane. Yeah, my question was for the mayor. So we may not let you off the season. This is your lucky day. This is your life. It's like Parliament. This shouldn't be too long, but I thought this would be helpful to sort of paint a picture under the best-case scenario. What would be a window when you can envision that the new rep arena might open? And then the other question we'll tie into that is sort of paint a picture also of what will be the steps, because I think people think we're going to start building it tomorrow when we don't really have any money right now. But you're planning further into the future. Could you sort of reflect upon that? Stan can correct me on some of the details, but when I look at this at the elevator level, at the treetops level, you look at a project as far as Rupp is concerned, the Convention Center and that element of it, and the potential for the amphitheater and the park in the Cox Street area and the revealing of the town branch, the infrastructure associated with that. We've got about a year's worth of solid planning in order to get to 50% documents for construction, good solid construction estimates and engineering. That's what the next phase of the project represents, 12 to 18 months. And that is when a bricks and mortar beginning for a RUP and the Convention Center modifications would occur. So we're looking at a year and a half out. And then with the sequencing of the proposed renovation on RUP, it's about a two-and-a-half to three-year project because it has to be sequenced around the basketball seasons. and around other events. The same way that the benchmark for this and the touchstone for this schedule and this method is the Madison Square Garden project that has been undertaken. One of the nice things about it already is the illumination, if you will, of the brand through the winning of the championship and the fact that that coincided with the revealing of this plan, with the completion of the original plan, it was sort of a little bit of serendipity in that because across the universe of vendors, engineers, architects, construction companies, and importantly, developers, public-private sector projects, there is an interest in the project. Now, we shouldn't get anxious. Nothing's cast in stone today. But the thing that we can be assured of is that we have a project with a lot of potential. and viability it's a major brand in a major city and it's due for change and council member lane you're in the real estate business and you know what that represents right the only uh follow-up question i have then i'm gonna let you go um with regard to financing because, as you know, times are tough. Yeah. But you envision that the funding on this would be through a separate entity not related directly to the urban county government. We might guarantee something on it. But we would have contracts, leases, funds coming in from other sources. And that would be, yes. The short answer on that is yes. there's a short list of models for these as you know Louisville has a model Columbus has one Indianapolis have one there are there are similar characteristics and structures in all of these one of the things that Jim Host has said recently in terms of financing is that compare today to Five years ago, as you know, when YUM's was financed, financing costs are half what they were five years ago. So as challenging and as difficult as our times are today, as you all know, there are benefits to times like this as well. And seizing the opportunities when those times are available to us is part of the dynamic and part of the challenge today. Stan, do you want to add anything to what I've said? Is that okay? And we have, yes, that's fine, except we have several more people with questions for other items. If you could just take a, do you want to take a minute, Stan, and then we'll go on to. Yeah, I only, and I'll try to be real brief. Good afternoon, Vice Mayor and members of Council. I think there's two underlying questions that I'm hearing from Council Member Beard and from Council Member Lane. and my guess is that you're reflecting questions that are out there in the public, so that's why I wanted to kind of maybe elaborate. One is, what will you do with this money and what's going to happen in the short term? Why is this important? And I think the opportunity to do the due diligence that's necessary over this year and next year is critical. What would that address? The mayor has touched on it. The business plan. That's probably the first and foremost. Getting into these 14 sources, and I feel like we need to keep reiterating, because this is a major recommendation of the task force, the first effort is always going to be looking at private funding and public-private partnerships where it's not the government funding. That's the first and why the business plan is important is a lot of those funding sources are private sources that we think we need to explore fully with our partners, with UK, et cetera. The construction, how we do construction is actually going to be important on a project like this. So part of it is also to start that detailed conversation of how would a project be phased and scheduled, what would be that. Related to both of those are what is the design. We have a concept design, we have a vision, but we don't have detailed, we haven't done detailed surveying or engineering. We're not going to do full-blown detailed design and engineering, but we have to get to a point where we're confident in the number and that we're confident in that number going forward for construction, for financing, et cetera. So those are all real important pieces that need to come out of the next two years, which is why this money is so important. The other question I hear under there is how are we going to pay for this? Do we have a strategy? Is there optimism and ideas about how those 14 funding sources and how they would come together into some bond package? I think the recommendations before you've probably seen the report is, once again, and to leverage private investment that could come both from events that would happen at the arena and convention center, concerts, sporting events, other things, to look at other private equity that could come in around the facility, both private development, which is another major task of the next two years, is to solicit and find out, get into more detail on the private investment that might happen, particularly in the surface parking lots and around there, and what kind of partnerships we could create. So the first focus would be on kind of looking at those funding sources. And then we want to look at, by the end of this period of time, you should have confidence in the design and engineering, which leads to confidence in the budget. You should have confidence in the funding sources and how they might come together in either a bond package or a series of bond packages. It could be that the project is phased in over time as allowable resources would. We're going to continue. I would suggest to advocate to the state, and the partners were very gratified with the governor and the assembly in what they've given the opportunity to take this next step. We want to continue to talk to the state, obviously, as well. But you would have that confidence, and the earliest, as the mayor has alluded to, is the earliest construction could begin, as outlined in the report, is if construction funding could be identified by 2014, construction could begin as early as the end of 2014. But there's a lot of work to be done. That's why these two years or this next 12 months in particular is so important. We all need to have confidence, you all, the public, any others involved, that we have a specific game plan that we can have confidence in, and that's what this money would allow us to do. Councilmember Martin. Thank you, Vice Mayor. I'll be brief. Mayor, there's no question that your vision for Rupp and the incredible team you've assembled has captured the imagination of Lexington. The state legislature has provided some funds for the studies for this initial work. They've asked us to put some money into that as well, which is a lot less than what they're putting into it. And I think you've earned the study. I think we have to come with this at this point in time. I think if we stop investing, if we stop planting the things that we reap tomorrow, I think we as a city will languish. And I think that it's – and I understand the argument that we should put every dime we have into public safety, but public safety alone will not create more jobs. Public safety alone will not create the vibrant, attractive community that creates jobs, that creates tax revenues, that pay for public safety. And so my impression is that this type of project is one that makes the pie bigger, that creates the dynamic churn and investment and tax revenues that make a city vibrant. There's no question. I'm very concerned about our debt, our future bonding, and whether or not we're going to pay for this. But at this point in time, I think you've earned your studies, and so I'm going to support that. And so I appreciate you coming up to talk to us about it. Thank you, Vice Mayor. Council Member K. Thank you, Vice Mayor. I'll also try to be brief. It seems to me that the question before the council is how to spend or whether to spend $1.25 million of our own money, the city money, and $2.5 million of the state money. It's all our money. Some of it's more directly our money. Some of it's less directly our money. But we're still looking at $3.75 million. And I agree. The vision is exciting. and it's important for the city to continue to improve and move forward. I think the only question for me as a council person is a little bit more, and I've heard some today, I think I was going to say some more detail. I think a lot of the detail is in the mayor's head and a lot of the detail is in Stan Harvey's head and then maybe some other heads that it's in. But as an individual council person, it would be helpful for me to look at $3.75 million and how it is going to be actually allocated and what it leads to. Because the vision is exciting, but our responsibility is to determine whether the money is proposed to be spent in a way that actually will lead to the enactment of the vision. So that's where I end up, is a little more specific detail about how the money is actually going to be utilized so that when someone says to me, $3.75 million looks like an awful lot of money to spend on a study, I can say whatever it is that I know about how it's actually going to be used and why it's important to do that at this point. Thank you, Vice Mayor. You're welcome. Does anyone else have questions? I have a couple of questions. And we'll get... Okay, Council Member Ellinger has a question. Thank you, Vice Mayor. By listening to discussion, is the number 3.75 or is it 5 million? Because we heard 1.25 for two years, so I think it's 5 million. Isn't that the actual number? Because then you also talked about 200,000 beyond the 1.25 that people had talked about stepping up in the private sector. So what's the actual number? And that number, the $5 million number is the budget number for developing the business plan and what is called 50% documents, which give us the capacity, 50% design and engineering documents, which give us the ability to put hard numbers to the bricks and mortar costs of the project. So if you think of that in terms of percentages, that's just a little bit more than 1%, a little bit more than 1.5%, close to 2% of the total project value, 300 million estimate. And that takes us then to the next step of the project, which is final documents. But that comes next. That's after the 18-month period that Stan was describing. I think what would be worthwhile would be for us to give you a timeline on this, as Council Member Kaye suggested, and a detailed breakdown on this scope of work. Okay? Is that good? And we can have a meeting to go over that. it is part of the task force report, and I think just illustrating that again, I understand with a project of this significance, as Council Member Kaye said, it's the responsibility to ask these questions, and we appreciate that. It might even be helpful to have a council workshop where more detail could be discovered. I don't think we've done anything like that with the council yet, if you would be amenable. And then I guess, Stan, I'd like to have a conversation with you offline about, and not take time right now because we have a couple more things to cover, about Council Member Beard's question about the current $22 million debt on Rupp Arena renovations and how that fits in and whether those renovations will be re-renovated or, you know, just some detail offline. I don't want to take time right now. And then you mentioned, I thought I heard you say you would be looking at concert and convention revenue. Is Bill Owens in on these conversations for the financial piece? Yes. Because we know that those are what help pay the operations for Lexington Center. That's all part, and that is all part of the business planning phase. Okay. That's what we are discussing the funding for now. Yes. All of those revenue streams, Vice Mayor, are part of the business plan that emerges. Thank you very much. Yes, ma'am. Thank you. I actually have a quick question for Commissioner back on our bonds, of which the Arena Art and Entertainment District is one. Many times bonds are specific for a project. So were all of these bond proceeds for the streetscape not specific to the streetscape? There is some flexibility. We checked the language. There is some flexibility to be able to reallocate the dollars. Okay. Thank you. And then, Council Member Henson, did you have a question? Thank you, Vice Mayor. The only thing I was going, I had my name there, so I thought we need to have a different time for discussion on Rupp Arena, a better understanding of where we are, when we begin, and so forth. So thank you. You're welcome. Any other questions by council members? Okay, this was lively, and I appreciate your presentations and your staff. And then I wanted to ask if Connie Underwood has any comments or reflections, just anything briefly from your perspective since you're helping with the council. Well, I did want to tell you, you all had asked on Tuesday about filled and vacant positions that are funded in the next fiscal year. And right before I came down, I sent everyone a link to two reports. One shows positions funding by division and fund, and the other one actually shows every position title and what the changes were that are proposed for next fiscal year, so you can see those that are filled, vacant, and new. And there were significant vacant positions that are being funded for next year, which is a nice change from the last two years when we didn't fund any of those. In addition, I was asked to give the breakdown on operating over time that was on my slide, and I didn't have comparisons and personnel, and those are both coming to you very shortly when I get back upstairs, actually. I didn't have anything else besides those things. I wanted to let you know they were coming. Those were the questions that I recall from Tuesday. If there was something I missed, please just let me know. If there's anything else you'd like to know about, I can certainly work on that for you as we go along. Okay. Excellent. Thank you very much. Is there anything else for the good of the whole? If not, do I hear a motion to adjourn? Several motions and a second. All those in favor say aye. Aye. Anybody opposed? We are adjourned. Thank you very much to all. Thank you.