Capital planning
and budgeting in
the Commonwealth
of Virginia
 
 
 A presentation to the President's
Commission to Study Capital
Budgeting
 
May 8, 1998
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ronald L. Tillett
Secretary of Finance
Commonwealth of Virginia


Characteristics of exemplary
capital budgeting

Limitation on debt financing

Quality information Integration of capital budgeting with strategic planning Good communications

Characteristics of exemplary
capital budgeting

Long-range planning horizon

Monitoring of performance

Definition of capital outlay

Commonwealth's capital
funding program

The Commonwealth uses both "pay-as-you-go" and "pay-as-you-use" financing techniques for capital expenses

Pay-as-you-go financing



Commonwealth's capital
funding program

Pay-as-you-use (debt) financing



What is debt capacity?

The amount of debt that may be prudently authorized and issued in a given period of time without negatively affecting the credit rating of the issuer.

Rating agencies view control of tax-supported debt as one of four key factors affecting credit quality.

Debt capacity management in Virginia

What is tax-supported debt?

Debt Capacity Management has allowed the Commonwealth to manage its debt burden during times of increasing pressure to use debt financing.

Commonwealth debt financing programs

General Obligation Bonds

Virginia Public Building Authority Virginia College Building Authority Commonwealth Transportation Board Alternative financing methods

Long-range planning process

Master planning

Strategic planning

The state's six-year capital
planning process

Overview of the capital outlay process

Phase one: budget development

                 -- Supplements to projects that have been bid and determined to have insufficient
            & nbsp;       funding, and

            &nb sp;   -- Funding for projects declared by the Governor to be of an emergency nature and/or
            & nbsp;       required for the continued use of existing facilities.

Phase two: legislative review

Phase three: execution

Central review of agency
six-year capital requests                  -- How much space is needed;
            & nbsp;   -- Project budget; and,
            & nbsp;   -- Length of time to design and construct the facility.

Measuring the impact of capital
development on operating budget

Virginia's statewide six-year plan

Inventory of assets

Ongoing requirement to identify and assess capabilities



Monitoring of performance

Appendix 1

Categories of Capital Projects
 

Virginia breaks its capital projects into four categories:

Acquisition

Definition. Acquisition of any interest in land, including improvements of any kind located on the acquired land, except certain utility easements.

Criteria. All acquisitions of real property are subject to the capital project proposal process. This includes capital leases as defined earlier in the instructions. Donations of real property are addressed in the Department of General Services' Directive No. 1 Revised, Real Property Management, dated June 20, 1984.
 

New Construction

Definition. A new construction project is a single undertaking involving construction of one or more facilities. Included in the project are: all work necessary to accomplish a specific purpose and produce a complete and usable new structure; the associated architectural and other technical services; the equipment installed and made part of the facility; and site development and improvements. New construction includes:

Criteria. If a new construction project meets one or more of the following criteria, it is subject to the capital project proposal process: Improvements

Definition. An improvement is defined as all work necessary to produce a complete and usable change to an existing facility or structure, including the associated architectural and other technical services, the fixed equipment installed and made part of the facility or structure, and site development. Improvements include:

Criteria. If an improvement to an existing facility or structure has a cost of $250,000 or greater, it is subject to the capital project proposal process.
 

Equipment

Definition. Equipment is a tangible resource of a permanent or long-term nature used in an operation or activity.

Criteria. No precise criteria exist for the funding of equipment purchases as a stand-alone capital project. Consult with your DPB analyst to determine whether an equipment purchase should be requested in the capital budget. All equipment associated with projects defined as new construction or improvements must be included in the capital budget for these projects. If the equipment is to be financed by revenue bonds, it must be requested in the capital budget.


Appendix 2

Funding for capital expenditures summarized
by funding option
 
 
1992-94 
$ in millions
1994-96 
$ in millions
1996-98 
$ in millions
Current Revenues
291.3
 405.4
461.3
Debt Financing
 1,374.0
 599.6
500.3
TOTAL
$1,665.3
$1,005.6
 $961.6
 
1.    Figures may not add due to rounding.
2.    Current revenues consist of general fund dollars, special funds, higher education operating
       funds, Commonwealth transportation funds, trust & agency funds, dedicated special funds,
       federal trust funds, internal services fund, and enterprise funds.
3.    Represents tax-supported debt authorized during the biennium

Source: Department of Planning and Budget and the Department of the Treasury


 Appendix 3

Biennial Budgeting: Key dates for the six-year capital budget submissions
 
April Odd # Years Agencies notified of which high priority projects in existing six-year plan to prepare detailed narrative justifications and schematic information.
May to August Odd # Years Agencies conduct issue assessments and revise strategic plans.
May Odd # Years Agencies submit six-year capital requirements including maintenance reserve requests and capital leases.
June Odd # Years Agencies submit detailed information for high priority projects authorized in April.
July Odd # Years Agencies (1) notified of other projects in their May six-year plan to prepare detailed narrative justifications and schematic information and (2) submit information on existing capital leases.
August Odd # Years DPB validates maintenance reserve subprojects that meet criteria.
Sept. Odd # Years Agencies submit (1) detailed information for projects authorized in July, (2) annual maintenance reserve plan, and (3) financial feasibility studies for revenue bond projects.
Dec Odd # Years Governor submits executive budget to the General Assembly.
April Even # Years Biennial Budget enacted, effective July 1.
Fall Even # Years Agencies submit capital requests for emergency projects or to supplement projects that have been bid but have insufficient funds.
Dec Even # Years Governor submits executive budget amendments to the General Assembly.
March Odd # Years Amendments to biennial budget enacted, effective upon passage.
 


Appendix 4

Debt authorization by category, 1982-1997

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Total Authorizations: $4,694,634,070
 
 
Source: Department of the Treasury
 
 
 


President's Commission to Study Capital Budgeting