ATLANTA — Kentucky’s public colleges and universities may soon be able to issue revenue bonds for capital projects in their own name, giving them more flexibility in funding those capital needs.

That’s due to legislation HB 111, which was accepted by the Senate’s appropriations and revenue committee this week. It was passed by the state’s House last week.

If the legislation becomes law, it would also benefit the state. That’s because the debt issued by these public postsecondary institutions would no longer be included in the state’s debt ratios and it would not affect the state’s bond rating.

Kentucky does not issue general obligation debt, but instead issues appropriation-backed debt through several agencies. Among the state agencies that issue the debt for the state are the Kentucky Asset/Liability Commission, Kentucky Higher Education Student Loan Corp., Kentucky Housing Corp., Kentucky Infrastructure Authority, and the Kentucky State Property & Buildings Commission.

There is about $5 billion of debt outstanding through all of these agencies

The state has an issuer rating of Aa2 from Moody’s Investors Service and AA-minus from Standard & Poor’s. Fitch Ratings does not assign an issuer ratings to the state.

HB 111 was introduced by Rep. Bob Damron, D-Nicholasville. According to legislative reports, he’s filed similar legislation to HB111 in three previous sessions, but those bills died in committee.

The legislation provides that the postsecondary institutions can use the proceeds of their deals to fund capital projects, such as construction of dorms and research buildings, without relying on the state to cover the bond debt. The debt would have to be authorized by the General Assembly. The governing board of the postsecondary education institution would have to provide the legislature with certification that it will have sufficient revenues to cover the debt service and financing costs for the project.

The bill makes it clear that the governing board that issues the debt under this proposed bill shall not request an appropriation from the state’s general fund to pay debt service or the costs of financing the bonds.

A financial adviser in Louisville, who has worked on higher ed projects in Kentucky before, said he has been following this legislation and he’s spoken to some university officials who hope the bill will become law for the simple reason that they can issue debt when they wanted to. The fact they would still have to get approval from the General Assembly is not viewed as a problem, he said. He declined to comment on the universities he’s been in contact with.

There is a cap of $600,000 to cover the cost of financial analysis and project development before a project is authorized by the General Assembly, according to the bill language.

Also, the institutions’ boards can choose their own expenses of the transaction, such as for underwriters, financial advisers, and bond counsel. The the bill does not put a cap on how much debt can be issued.

This bill has the backing of Gov. Steve Beshear. This week, during his budget address, he noted that several projects had not been approved during the last session that would have benefited from this bill. He wants them to move forward now and this legislation would allow for that.

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