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Legislative Analyst's OfficeAnalysis of the 2003-04 Budget Bill |
Funding for capital outlay in the budget year totals almost $2.1 billion. This spending is funded almost exclusively (95 percent) from bond proceeds. Over half of proposed spending is for projects in higher education.
The 2003-04 Governor's Budget proposes about $2.1 billion for capital outlay programs (excluding highway and rail programs, which are discussed in the "Transportation" chapter of this Analysis). This is spending on physical assets—such as college buildings, state parks, and prisons. The Governor's plan would authorize General Fund expenditures of $48 million and issuance of nearly $2 billion of general obligation and lease-revenue bonds. The proposed plan represents an increase of nearly $0.6 billion (37 percent) from current-year spending. Figure 1 summarizes the proposed 2003-04 capital outlay program by general program area. It shows that over half of all budget-year spending would be in the higher education area.
Spending by Department
Figure 2 shows the amounts included in the Governor's budget for each department and the future cost for these projects. As shown in the figure, almost $800 million will need to be appropriated in the future to complete these proposed projects. Thus, the request before the Legislature represents a total cost of nearly $2.9 billion. Of that total, almost two-thirds is for higher education.
Funding Sources for Capital Spending
The Governor's budget proposes funding the capital outlay program primarily from bonds: $1.3 billion from general obligation bonds and $675 million from lease-revenue bonds. Other fund sources include the General Fund, special funds, and federal funds. Figure 3 compares the sources of funds for the 2003-04 capital outlay program to those proposed for 2002-03.
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Figure 3 Sources of Funds for Capital Outlay Program |
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2002-03 and 2003-04 |
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Funds |
2002-03 |
2003-04 |
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General Fund |
$67.9 |
$48.3 |
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General obligation bonds |
876.9 |
1,288.0 |
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Lease-revenue bonds |
465.9 |
675.0 |
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Special funds |
95.0 |
54.5 |
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Federal funds |
5.7 |
6.9 |
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Totals |
$1,511.5 |
$2,072.6 |
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Figure 4 displays the proposed spending for each department, by funding source.
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Figure 4 Proposed 2003-04 Capital Outlay Program |
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(In Thousands) |
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Department |
GO Bonds |
LR Bonds |
General |
Special |
Federal |
Total |
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Legislative,
Judicial, and Executive |
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Office of Emergency |
-- |
-- |
$235 |
-- |
-- |
$235 |
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Board of Equalization |
-- |
-- |
134 |
-- |
-- |
134 |
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State
and Consumer Services |
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General Services- |
-- |
$216,297 |
-- |
-- |
-- |
$216,297 |
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General Services- |
$2,981 |
-- |
-- |
-- |
-- |
2,981 |
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Business,
Transportation, and Housing |
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Transportation |
-- |
-- |
-- |
$200 |
-- |
$200 |
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Highway Patrol |
-- |
-- |
-- |
3,089 |
-- |
3,089 |
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Motor Vehicles |
-- |
-- |
-- |
19,563 |
-- |
19,563 |
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Resources
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Tahoe Conservancy |
$4,517 |
-- |
-- |
$483 |
-- |
$5,000 |
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Conservation Corps |
-- |
$32,753 |
-- |
-- |
-- |
32,753 |
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Forestry and Fire Protection |
-- |
29,557 |
$491 |
-- |
-- |
30,048 |
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Fish and Game |
664 |
-- |
-- |
1,305 |
$1,230 |
3,199 |
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Wildlife Conservation Board |
21,500 |
-- |
21,736 |
-- |
-- |
43,236 |
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Boating and Waterways |
-- |
-- |
-- |
8,659 |
-- |
8,659 |
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Coastal Conservancy |
63,500 |
-- |
-- |
4,000 |
2,000 |
69,500 |
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Parks and Recreation |
93,724 |
-- |
-- |
10,519 |
3,700 |
107,943 |
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Santa Monica Mountains |
21,500 |
-- |
-- |
77 |
-- |
21,577 |
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Water Resources |
-- |
-- |
3,646 |
-- |
-- |
3,646 |
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Health
and Human Services |
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Developmental Services |
-- |
$50,254 |
-- |
-- |
-- |
$50,254 |
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Mental Health |
-- |
46,846 |
$325 |
-- |
-- |
47,171 |
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Youth
and Adult Corrections |
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Corrections |
$7,551 |
$271,710 |
$2,776 |
-- |
-- |
$282,037 |
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Youth Authority |
-- |
-- |
2,750 |
-- |
-- |
2,750 |
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Education
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Department of Education |
-- |
$5,600 |
$117 |
-- |
-- |
$5,717 |
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University
of California |
$310,534 |
$11,000 |
-- |
-- |
-- |
$321,534 |
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Hastings
College |
1,044 |
-- |
-- |
-- |
-- |
1,044 |
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California
State University |
198,194 |
-- |
-- |
-- |
-- |
198,194 |
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Community
Colleges |
562,244 |
-- |
-- |
-- |
-- |
562,244 |
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General
Government |
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Food
and Agriculture |
-- |
$10,961 |
-- |
$6,585 |
-- |
$17,546 |
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Military
|
-- |
-- |
$14,674 |
-- |
-- |
14,674 |
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Veterans
Affairs--Yountville |
-- |
-- |
399 |
-- |
-- |
399 |
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Unallocated
CO |
-- |
-- |
1,000 |
-- |
-- |
1,000 |
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Totals |
$1,287,953 |
$674,978 |
$48,283 |
$54,480 |
$6,930 |
$2,072,624 |
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Bond Funding and Debt Service Payments
As shown in Figure 5 (see next page), the state's General Fund debt service expenditures on bonds are projected to be $2.4 billion in 2003-04, an increase of about 9 percent over current-year costs. The budget-year amount consists of $1.8 billion in general obligation debt expenses, and about $572 million in lease-revenue debt expenses. The 2002-03 and 2003-04 debt service totals reflect the Treasurer's debt service restructuring program. Under this plan, about $2 billion in payments on debt maturing between April 2002 and July 2004 are being deferred through the issuance of refunding bonds. The restructuring program will reduce annual debt service costs by approximately $860 million in the current year and $900 million in 2003-04. The plan will result in higher future debt service costs, as the deferred amounts are repaid, with interest.
Debt Service Ratio to Rise
In evaluating a state's capacity for bonded indebtedness and the impact of debt service costs on the budget, one of the many factors that bond raters and potential investors look at is the state's debt service ratio. This ratio is defined as the share of annual General Fund revenues that are devoted to principal and interest payments on General Fund-backed debt. There is no agreed-upon single ratio that fits all states, and the appropriate ratio for an individual state can vary depending on such factors as its need and preference for new infrastructure. As a general rule, however, a ratio in the range of 6 percent or less has been recognized as a reasonable level for states.
As shown in Figure 6:
Our estimates assume that the state sells roughly $6 billion in bonds annually through the end of the decade and that interest rates average about 5.5 percent.
