Set
Priorities Instead of Allocating Equal Amounts for Capital Outlay in Higher
Education
The
State Needs a Better Planning and Financing Process for Capital Outlay
In recent years the state has relied heavily on the use of bonds for addressing its capital outlay needs. Over the last five years, less than 0.1 percent of General Fund expenditures have been used to fund projects on a "pay-as-you-go" basis. The state needs a better balance between debt financing and pay-as-you-go-financing.
The lack of a predictable funding source and a coordinated set of priorities has meant some high priority projects have been deferred.
We recommend the Legislature dedicate a portion of annual General Fund revenues to provide a pay-as-you-go funding source for capital outlay. (See page H-15.)
Set
Priorities Instead of Allocating Equal Amounts for Capital Outlay in Higher
Education
The administration and the Legislature for the past several years have allocated funds to the segments of higher education based on an equal amount rather than based on relative needs.
We have recommended specific criteria and priorities for the Legislature to use when evaluating
higher education capital outlay across all three segments. (See page H-18.)
The
Legislature Needs a Better Way to Assess Seismic Risk in Higher Education Buildings
The Department of General Services has developed a method for evaluating the relative seismic risk of state buildings that the Legislature has used to fund structural improvements for the highest risk state buildings.
To give the Legislature a common evaluation system, we recommend that the Legislature require the University of California and the California State University to reevaluate their buildings for seismic safety using the Department of General Services' methodology. (See page H-27.)
A
Plan Is Needed for Housing Judicially Committed and Penal Code Patients in State
Hospitals
The number of judicially committed and penal code committed patients in the Department of Mental Health are expected to grow by about 300 each year.
The administration has not developed a long range plan for accommodating this population and instead is proposing to expand Atascadero State Hospital in two 250-bed units.
The Legislature needs to address this need in a comprehensive manner that considers various alternatives including construction of more facilities. We recommend the Legislature not approve additional beds for these patients until a comprehensive plan is presented. (See page H-51.)
The 1998-99 Governor's Budget proposes $958 million for capital outlay programs (excluding highway and rail programs which are discussed in the Transportation section of thisAnalysis).This is spending on physical assets--college lecture halls, parklands, and prisons. (Spending to pay off those assets that have been financed with bonds is discussed later in this section.) The proposed amount is an increase of $200 million (27 percent) over current-year appropriations. Figure 1 compares the amounts appropriated for capital outlay in the current year to the amounts proposed in the budget for each general organizational area. As shown in the figure, the largest increase ($147 million) is in the area of Health and Social Services
.
| Figure 1 | |||
| State Capital Outlay Programs | |||
| 1997-98 and 1998-99
(In Millions) | |||
| 1997-98 | 1998-99 | Difference | |
| Legislative, Judicial, and Executive | $19.8 | $32.7 | $12.9 |
| State and Consumer Services | 79.2 | 55.8 | -23.4 |
| Transportation (excluding highways and rail) | 3.5 | 15.6 | 12.1 |
| Resources | 90.3 | 145.0 | 54.7 |
| Health and Social Services | 18.8 | 165.3 | 146.5 |
| Youth and Adult Corrections | 51.8 | 54.9 | 3.1 |
| Higher Education | 490.4 | 470.8 | -19.6 |
| General Government | 0.6 | 18.2 | 17.6 |
| Totals | $754.4 | $958.3 | $203.9 |
Figure 2 shows the amounts each department requested for capital outlay funding in 1998-99, the amounts approved for inclusion in the Governor's budget, and the future cost for the approved projects. As shown in the figure, an estimated $418 million will need to be appropriated in the future in order to complete these projects. Thus, the request before the Legislature represents a total cost of almost $1.4 billion.
The Governor's budget proposes funding the capital outlay program from bonds, the General Fund, special funds, and federal funds. Figure 3 (see page 8) shows the proposed funding for each department by fund source.
Bonds. Over 70 percent of all proposed funding for capital outlay ($710 million) is from bonds. This includes $75 million from previously approved general obligation bonds, $450 million from proposed general obligation bonds (for higher education), $11 million in previously issued lease-payment bonds for the California State University, and $174 million from proposed lease-payment bond authorizations. (The debt service on all general obligation and virtually all these lease-payment bonds would be a General Fund obligation.)
Direct General Fund Appropriations. The proposed $152 million from the General Fund is almost four times the General Fund appropriations in the current year for capital outlay.
Special Funds. The $81 million proposed from various special funds are mainly for resources and transportation-related programs. This amount includes $7.5 million from the state's tidelands oil revenues that are placed in the Natural Resources Infrastructure Fund. This fund was created by Chapter 293, Statutes of 1997 (SB 271, Thompson). For a more detailed discussion of all proposed uses of this fund, please see the Crosscutting Issues section of the Resources chapter of this Analysis.
| Figure 2 | ||||
| 1998-99 Capital Outlay Summary | ||||
| All Funds (In Thousands) | ||||
| Governor's Budget | ||||
| Department | Request | Proposed1998-99 | FutureCost | Totals |
| Legislative, Executive, and Judicial | ||||
| Emergency Services | $27,312 | $27,083 | $7,644 | $34,727 |
| Justice | 5,962 | 5,602 | 18,233 | 23,835 |
| State and Consumer Services | ||||
| Franchise Tax Board | $3,945 | -- | -- | -- |
| General Services | 63,497 | $55,834 | -- | $55,834 |
| Business, Housing, and Transportation | ||||
| Transportation | $18,661 | $3,033 | -- | $3,033 |
| Highway Patrol | 12,150 | 140 | -- | 140 |
| Motor Vehicles | 12,474 | 12,474 | $6,452 | 18,926 |
| Stephen P. Teale Data Center | 2,100 | -- | -- | -- |
| Resources | ||||
| Tahoe Conservancy | $16,473 | $16,473 | -- | $16,473 |
| Conservation Corps | 430 | -- | -- | -- |
| Forestry and Fire Protection | 36,802 | 32,286 | $21,051 | 53,337 |
| Fish and Game | 2,050 | 1,789 | -- | 1,789 |
| Wildlife Conservation Board | 25,683 | 24,183 | -- | 24,183 |
| Boating and Waterways | 7,121 | 6,100 | 9,489 | 15,589 |
| Coastal Conservancy | 20,718 | 23,440 | -- | 23,440 |
| Parks and Recreation | 33,658 | 20,892 | 15,296 | 36,188 |
| Santa Monica Mountains Conservancy | 30,165 | -- | -- | -- |
| Coachella Valley Mountains Conservancy | 40 | 40 | -- | 40 |
| Water Resources | 47,558 | 19,760 | 13,360 | 33,120 |
| Health and Social Services | ||||
| Health and Welfare Data Center | $5,236 | $5,236 | -- | $5,236 |
| Health Services | 115,668 | 115,668 | -- | 115,668 |
| Developmental Services | 7,541 | 2,191 | $1,869 | 4,060 |
| Mental Health | 48,000 | 34,262 | 52,222 | 86,484 |
| Employment Development | 8,996 | 7,907 | 2,000 | 9,907 |
| Youth and Adult Corrections | ||||
| Corrections | $47,648 | $40,679 | $52,258 | $92,937 |
| Youth Authority | 38,285 | 14,211 | 21,002 | 35,213 |
| Higher Education | ||||
| University of California | $150,940 | $151,043 | $126,972 | $278,015 |
| California State University | 150,000 | 161,303 | 6,649 | 167,952 |
| Community Colleges | 206,491 | 158,445 | 43,935 | 202,380 |
| General Government | ||||
| Food and Agriculture | $6,797 | $650 | $6,498 | $7,148 |
| Military | 29,445 | 16,836 | 13,255 | 30,091 |
| Veterans' Home of California | 6,614 | -- | -- | -- |
| Unallocated capital outlay | 831 | 744 | -- | 744 |
| Totals | $1,189,291 | $958,304 | $418,185 | $1,376,489 |
| Figure 3 | |||||
| 1998-99 Capital Outlay Program
Proposed Expenditures by Fund Type | |||||
| (In Thousands) | |||||
| Department | Bonds | General | Special | Federal | Total |
| Emergency Services | $25,841 | $1,242 | -- | -- | $27,083 |
| Justice | -- | 5,602 | -- | -- | 5,602 |
| General Services | 55,834 | -- | -- | -- | 55,834 |
| Transportation | -- | -- | $3,033 | -- | 3,033 |
| Highway Patrol | -- | -- | 140 | -- | 140 |
| Motor Vehicles | -- | -- | 12,474 | -- | 12,474 |
| Tahoe Conservancy | 5,000 | 2,500 | 8,973 | -- | 16,473 |
| Forestry and Fire Protection | -- | 32,286 | -- | -- | 32,286 |
| Fish and Game | 550 | -- | 1,239 | -- | 1,789 |
| Wildlife Conservation Board | -- | -- | 24,183 | -- | 24,183 |
| Boating and Waterways | -- | -- | 6,100 | -- | 6,100 |
| Coastal Conservancy | 850 | 11,590 | 9,000 | $2,000 | 23,440 |
| Parks and Recreation | 1,457 | 5,890 | 12,945 | 600 | 20,892 |
| Coachella Valley Mountains Conservancy | -- | -- | 40 | -- | 40 |
| Water Resources | 1,650 | 18,110 | -- | -- | 19,760 |
| Health and Welfare
Data
Center |
-- | 5,236 | -- | -- | 5,236 |
| Health Services | 115,668 | -- | -- | -- | 115,668 |
| Developmental Services | -- | 2,191 | -- | -- | 2,191 |
| Mental Health | 32,956 | 1,306 | -- | -- | 34,262 |
| Employment Development | -- | -- | 3,000 | 4,907 | 7,907 |
| Corrections | -- | 40,679 | -- | -- | 40,679 |
| Youth Authority | -- | 14,211 | -- | -- | 14,211 |
| University of California | 151,043 | -- | -- | -- | 151,043 |
| California State University | 161,303 | -- | -- | -- | 161,303 |
| Community Colleges | 158,445 | -- | -- | -- | 158,445 |
| Food and Agriculture | -- | 650 | -- | -- | 650 |
| Military | -- | 9,470 | -- | 7,366 | 16,836 |
| Unallocated | -- | 744 | -- | -- | 744 |
| Totals | $710,597 | $151,707 | $81,127 | $14,873 | $958,304 |
Figure 4 compares the five-year estimates with proposed 1998-99 appropriations. (In addition to the programs in Figure 4, we estimate five-year capital outlay needs of about $15.6 billion for highway and rail programs and about $11 billion for K-12 education facilities. These programs are not funded through project-specific appropriations in the budget, however, and thus are not part of our discussion in this chapter of the state capital outlay program.) In aggregate terms, the Governor's budget proposal funds about 9 percent of the identified five-year capital outlay needs. As the figure shows, the budget would fund a significant share of the five-year needs in the areas of Resources; Health and Social Services; and Executive, Legislative, and Judicial. On the other hand, the budget would fund a small portion of the five-year need for Youth and Adult Corrections and Higher Education. The Governor, however, is proposing a total of $1.3 billion in bond funding and federal funds for new prisons through legislation separate from the budget. This would fund nearly 70 percent of the estimated five-year need for Youth and Adult Corrections.
| Figure 4 | ||
| Five-Year Capital Outlay Plans
Compared to Budget Bill Proposal | ||
| (In Millions) | ||
| Five-Year Total a | Budget Bill Amounts | |
| Legislative, Judicial, and Executive | $64 | $33 |
| State and Consumer Services | 609 | 56 |
| Transportation (excluding highways and rail) | 134 | 15 |
| Resources | 736 | 145 |
| Health and Social Services | 359 | 165 |
| Youth and Adult Corrections | 1,944b | 55 |
| Higher Education | 6,484 | 471 |
| General Government | 176 | 18 |
| Totals | $10,506 | $958 |
| a1998-99 through 2002-03. Total does not include estimated five-year needs of $15.6 billion for highway and rails programs and $11 billion for K-12 education facilities. | ||
| bIncorporates Legislative Analyst's Office estimate for new prison construction. | ||
For higher education, the budget includes about 7 percent of the identified five-year need. The Governor's proposed $1 billion bond measure ($100 million would be set aside to match federal hazard mitigation funds) for higher education--from which the segments' 1998-99 program would be funded--would cover less than 15 percent of the estimated need. This five-year total may be overstated, however. Last year, the California Community Colleges (CCC) reported a five-year need of $750 million, which was based on an assumed future funding level of $150 million each year. This year the CCC indicates a five-year need of $3.6 billion. As discussed in our review of the CCC's capital outlay program (later in this chapter), this amount probably overstates the segment's need over the next five years.
| Figure 5 | |
| Governor's General Obligation Bond Proposal for 1998 Elections | |
| (In Millions) | |
| Program | Amount |
| K-12 Schools | $2,000 |
| Higher Education | 1,000 |
| Local Juvenile Facilities | 350 |
| Infrastructure Bank | 200 |
| Water | 1,300 |
| Watershed, Wildlife, and Parks
Improvement |
800 |
| Total | $5,650 |
| Figure 6 | |
| Governor's Proposed
1998 Lease-Payment Bonds | |
| (In Millions) | |
| Department/Project(s) | Amount |
| Department of Corrections | |
| New state prisons | $1,024a |
| California Youth Authority | |
| Security housing units | 33a |
| Department of Health Services | |
| Richmond Laboratory, Phase II | 116 |
| Office of Emergency Services | |
| Headquarters facility | 26 |
| Department of Mental Health | |
| Atascadero State Hospital addition | 33 |
| Unspecified projects | 300
b |
| Total | $1,532 |
| aThe administration indicates that a final decision has not been made as to whether these will be general obligation or lease-payment bonds. In calculating the fiscal effect of the $13.7 billion in bonds on the state's debt service costs, however, the Department of Finance assumed lease-payment financing for these bonds. | |
| bAuthorization in 1998 and/or 1999. | |
Debt service for lease-payment bonds is becoming a greater portion of total debt-service costs, as shown in Figure 7. For example, lease-payment debt service was 13 percent of total debt service in 1990-91 and will increase to 21 percent in the budget year.
As currently authorized bonds are sold, debt-service payments will increase to $2.8 billion in 2000-01 and decline thereafter if no new bonds are authorized. If the Governor's proposed $13.2 billion in additional general obligation and lease-payment bond are authorized, we estimate that debt payments would increase to $3.5 billion by 2004-05 and decline thereafter.
Figure 8 also shows the impact on the debt ratio if the Governor's proposed $13.2 billion in general obligation and lease-payment bonds are authorized. We estimate that, as these bonds are sold over the next decade or so, the debt ratio would peak at 5.1 percent in 2001-02. After that time the debt ratio would gradually decline.
The Department of Finance has indicated that sales of the proposed bond would increase the debt ratio to a peak of 5.9 percent--as compared to our estimated peak of 5 percent. There are two reasons for this difference. First, the department's calculations included General Fund revenue estimates that in future years are less than our estimates. Second, the department assumed--contrary to historical experience--that a much greater share of the proposed bonds would be sold within two years after receiving voter approval.
For 1998-99, the Governor's budget is taking a very positive step in addressing these problems by including the following increases in maintenance-related funding:
Though in some cases these increases are modest in relation to the overall need, the
administration's effort to improve the condition of state and K-12 school facilities is encouraging.
A key element to providing this funding, however, is an assurance from each agency that these
funds, as well as other maintenance funds in their budget, will be used for these purposes.