Legislative Analyst's Office Analysis of the 2001-02 Budget Bill

Unallocated Capital Outlay (9860)

The Governor's budget includes $2 million from the General Fund for unallocated capital outlay expenditures. Proposed budget language stipulates that these funds are to be allocated by the Department of Finance (DOF). The funds are to be used to develop project design and cost information for new capital outlay proposals which have not been previously funded by the Legislature but are anticipated to be in the Governor's budgets in 2002-03 or 2003-04, or in the 2003-04 five-year capital outlay plans. The 2000-01 Budget Act included $2 million for similar purposes.

Providing unallocated funds for capital outlay is a long-standing practice. The intent of these funds, however, is to give both the administration and the Legislature better information to evaluate capital outlay projects. These funds have been viewed as "risk money" because it may be spent on projects that may not be (1) included in future budgets or (2) approved by the Legislature.

Unallocated Funds Not Used

We recommend the Legislature delete $2 million from the General Fund proposed for unallocated capital outlay expenditures and reappropriate the unexpended balance from the 2000-01 Budget Act.

According to DOF, a total of $626,000 of the funds appropriated last year have actually been spent to develop information for the 2001-02 capital outlay program. As discussed under various departments' capital programs, the administration has not provided sufficient project scope and cost information for many projects. As a result, the Legislature does not have the information it needs when considering the merits of appropriating requested capital outlay funds.

A significant factor contributing to the lack of information is that DOF does not distribute the unallocated funds until deciding which projects to include in the Governor's budget—that is, almost halfway through the fiscal year. As a result, necessary project information is not available for timely review during the budget process. In order to address this problem, DOF needs to allocate the funds early in the budget year so that appropriate scope and cost information would be available in a more timely manner to the administration and the Legislature.

Regardless of the department's policy, nearly $1.4 million remains unexpended from the $2 million appropriated in the 2000-01 Budget Act. These funds should be spent before additional funds are provided. Consequently, we recommend the Legislature delete the $2 million under Item 9860-301-0001 and reappropriate the balance of the current-year funds.