Governor Steve Beshear and top members of his cabinet put the press on the LFUCG council Tuesday to become a "conduit" to fund the construction and relocation of Eastern State Hospital to UK's Coldstream Research Campus.
A much touted project, it would move Eastern State from its current location at the intersection of Newtown Pike and Loudon, where it has been in some of the same buildings since before the days of the Civil War, up Newtown near the I-75 interchange, making room for Bluegrass Community and Technical College to build a new campus on that site.
To accomplish the first part of this mission, the state is asking LFUCG to issue bonds in the amount of $129 million to construct the new buildings for Eastern State, buy new equipment and relocate the facility to start serving patients by July of 2012.
Finance and Administration Cabinet Secretary Jonathan Miller said the method of financing the project through the city while having the state render the debt service would expedite the process and save the state money. "This procedure can be done much more quickly than if we (go through) the biennial appropriations process of the state," Miller said at a press conference following his and the governor's presentation to council.
Miller explained constraints of funding would make this less expensive if the city were to take out the loan and count on the state to pay it off. "Because of the nature of the constitutional way the state can issue bonds and the way the city can issue bonds, under the current market this type of bond vehicle can be done much more inexpensively through this vehicle that we are (proposing) today," Miller said. "So by doing this procedure, we are saving the taxpayers of Kentucky substantial dollars."
This type of financing was used in the construction of the new Circuit and District Courthouses on Limestone that were completed earlier in the decade. But in the current economy Wall Street ratings house Moody's has issued a downgrade nationwide on municipal bonds, which would mean higher rates would have to be paid on any project bonded by Lexington or any city.
Miller said Lexington shouldn't fear a ding to its bond rating by taking on this $129 million debt, because it will be serviced by the state. "The credit rating will not be affected because this is ultimately an obligation of the state," Miller said.
"The way this works is the city is issuing the bonds, but the state through the (Cabinet for Health and Family Services) will be paying off the interest and the principle as debt service payments. And every biennial budget, we will be making the request to the general assembly to make those payments. I can say that there is great assurance that the general assembly will be making those paymentsÖThe general assembly has never defaulted on debt service payments of any kind. If it did it would not only be this project at risk, but our credit rating in the state would be mud."
At its Tuesday work session, council voted unanimously to add the matter to its regular agenda, which will bring about a vote on the proposal.
Mayor Jim Newberry has been a supporter of the idea and often talks of the benefits for Lexington once Eastern State has vacated its current campus and BCTC will be able move in, surrounding the downtown area with three higher education campuses. The community college has received funding to build one new building at their soon-to-be campus as well as to remediate the property that has contained burial grounds for past Eastern State patients. BCTC's current campus on Cooper Drive, adjacent to the University of Kentucky, will be handed over to UK for future expansion after BCTC vacates.