Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill


Overview

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.

 

Figure 1

State Capital Outlay Program

(In Millions)

 

Estimated
2002-03

Proposed
2003-04

Difference

Legislative, Judicial, and Executive

$37.4

$0.4

($37.1)

State and Consumer Services

216.9

219.3

2.4

Business, Transportation, and Housing

131.8

22.9

(108.9)

Resources

470.5

324.9

(145.5)

Health and Human Services

69.1

97.4

28.4

Youth and Adult Corrections

21.4

284.8

263.4

Education

--

5.7

5.7

Higher Education

539.4

1,083.0

543.6

General Government

25.0

33.6

8.6

  Totals

$1,511.5

$2,072.0

$0.6

 

 

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.

 

Figure 2

Summary of Proposed 2003-04 Capital Outlay Program

All Funds (In Thousands)

Department

Proposed
2003-04

Future Cost

Total

Legislative, Judicial, and Executive

Office of Emergency Services

$235

$1,396

$1,631

Board of Equalization

134

--

134

State and Consumer Services

Franchise Tax Board

--

--

--

General Services

$216,297

--

$216,297

General Services (seismic)

2,981

 

2,981

Business, Transportation, and Housing

Transportation

$200

--

$200

Highway Patrol

3,089

--

3,089

Motor Vehicles

19,563

$20,866

40,429

Resources

Tahoe Conservancy

$5,000

--

$5,000

Conservation Corps

32,753

--

32,753

Forestry and Fire Protection

30,048

--

30,048

Fish and Game

3,199

--

3,199

Wildlife Conservation Board

42,620

--

42,620

Boating and Waterways

8,659

$12,428

21,087

Coastal Conservancy

69,500

--

69,500

Parks and Recreation

107,943

59,200

167,143

Santa Monica Mountains Cons.

21,577

--

21,577

Water Resources

3,646

--

3,646

Health and Human Services

Developmental Services

$50,254

--

$50,254

Mental Health

47,171

--

47,171

Youth and Adult Corrections

Corrections

$282,037

--

$282,037

Youth Authority

2,750

--

2,750

Education

Department of Education

$5,717

--

$5,717

Higher Education

University of California

$321,534

$337,824

$659,358

Hastings College

1,044

18,416

19,460

California State University

198,194

18,086

216,280

Community Colleges

562,244

327,715

889,959

General Government

Food and Agriculture

$17,546

--

$17,546

Military

14,674

--

14,674

Veterans Affairs--Yountville

399

--

399

Unallocated Capital Outlay

1,000

--

1,000

  Totals

$2,072,008

$795,931

$2,867,939

 

 

 

Figure 3

Sources of Funds for Capital Outlay Program

2002-03 and 2003-04
(In Millions)

Funds

2002-03

2003-04

General Fund

$67.9

$48.3

General obligation bonds

876.9

1,288.0

Lease-revenue bonds

465.9

675.0

Special funds

95.0

54.5

Federal funds

5.7

6.9

  Totals

$1,511.5

$2,072.6

 

 

Figure 4 displays the proposed spending for each department, by funding source.

 

Figure 4

Proposed 2003-04 Capital Outlay Program

(In Thousands)

Department

GO Bonds

LR Bonds

General

Special

Federal

Total

Legislative, Judicial, and Executive

Office of Emergency
Services

--

--

$235

--

--

$235

Board of Equalization

--

--

134

--

--

134

State and Consumer Services

General Services-
state office buildings

--

$216,297

--

--

--

$216,297

General Services-
seismic

$2,981

--

--

--

--

2,981

Business, Transportation, and Housing

Transportation

--

--

--

$200

--

$200

Highway Patrol

--

--

--

3,089

--

3,089

Motor Vehicles

--

--

--

19,563

--

19,563

Resources

Tahoe Conservancy

$4,517

--

--

$483

--

$5,000

Conservation Corps

--

$32,753

--

--

--

32,753

Forestry and Fire Protection

--

29,557

$491

--

--

30,048

Fish and Game

664

--

--

1,305

$1,230

3,199

Wildlife Conservation Board

21,500

--

21,736

--

--

43,236

Boating and Waterways

--

--

--

8,659

--

8,659

Coastal Conservancy

63,500

--

--

4,000

2,000

69,500

Parks and Recreation

93,724

--

--

10,519

3,700

107,943

Santa Monica Mountains
Conservancy

21,500

--

--

77

--

21,577

Water Resources

--

--

3,646

--

--

3,646

Health and Human Services

Developmental Services

--

$50,254

--

--

--

$50,254

Mental Health

--

46,846

$325

--

--

47,171

Youth and Adult Corrections

Corrections

$7,551

$271,710

$2,776

--

--

$282,037

Youth Authority

--

--

2,750

--

--

2,750

Education

Department of Education

--

$5,600

$117

--

--

$5,717

Higher Education

University of California

$310,534

$11,000

--

--

--

$321,534

Hastings College

1,044

--

--

--

--

1,044

California State University

198,194

--

--

--

--

198,194

Community Colleges

562,244

--

--

--

--

562,244

General Government

Food and Agriculture

--

$10,961

--

$6,585

--

$17,546

Military

--

--

$14,674

--

--

14,674

Veterans Affairs--Yountville

--

--

399

--

--

399

Unallocated CO

--

--

1,000

--

--

1,000

  Totals

$1,287,953

$674,978

$48,283

$54,480

$6,930

$2,072,624

 

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.

 


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