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09/29/2015

Work underway on new two-year state capital budget bill; few local enhancement projects to be funded

The process of developing the state's next two-year capital improvements budget bill is just getting underway and the state's budget director is already warning that there won't be much in the bill in the way of funding for local community enhancement projects.

Slated for introduction early next year, the bricks-and-mortar legislation was the subject of a planning memorandum recently distributed to state agencies and institutions by the Office of Budget and Management.

Budget Director Tim Keen said the agency will try to mirror the collaborative process of 2014 that led to early agreements for divvying up hundreds of millions in spending on higher education facilities along with a few local priority projects.

The guidance bulletin posted last week by OBM provides further details and spells out a schedule that includes a Nov. 16 deadline for agencies to submit project requests and an early-year rollout of the bill, which historically has been introduced in the House of Representatives.

For the second straight capital biennium, the mostly bond-backed package is expected to include a limited amount of funding for “community projects” such as arts and cultural facilities.

Keen said the administration has determined that the state’s current financial condition will allow for a “small portion” of the appropriations in the bill to be targeted toward “capital projects of local or regional importance.” 

Even that small amount will be more than was provided in capital budgets passed in 2008, 2010 and 2012, when local projects were totally omitted from the capital bill due to the state's strained financial position.

Keen makes it clear in his letter accompanying the guidance documents that local officials should expect to work closely with the administration and their representative lawmakers in proposing projects at the front end of the process.

“While the administration may consider project recommendations from various parties, such recommendations are subject to a collaborative review with the General Assembly during capital bill development,” he wrote. “Capital project proponents are advised to communicate with members of the General Assembly about the merits of their projects. Project proponents are also advised to be mindful of constitutional, statutory and federal tax code provisions that govern whether a project is eligible for state bond funded support.”

The OBM director said it’s too early to tell if the facilities budget will exceed the one enacted in 2014, which included about $2.1 billion in debt backed by the state’s general revenue and another $300 million in cash.

Ohio's Constitution provides that the state's annual bond debt service cannot exceed 5% of anticipated general fund revenues, but Keen said that won’t be a problem.  Prior to the last capital bill the state’s debt load was at 3.77% of estimated future general revenues. The current debt level based on the certification for the most recent bond sale was 3.24%.

“Just because we have the capacity doesn’t mean we’d want to use it,” Keen said. “We ought to fund our capital needs being mindful of the fact that there’s added costs to the operating budget because of debt service over the 20-year period of the bonds that we sell.”

“We’re going to try to be restrained in the size of this capital bill because . . . projects funded through bonds create debt service which translates into spending in the operating bill,” he added.

The agreement was critical given colleges and universities account for a sizeable chunk of the state’s capital out-lay. In 2014, for example, the institutions’ appropriations eventually totaled about $455 million, or nearly a quarter of the GRF-backed debt in the bill.

Traditionally construction projects at the state's institutions of higher education claim the single largest slice of the capital budget bill – $455 million in the $2.1 billion budget passed in 2014.  Two years ago, the state’s public colleges and universities worked together to develop a joint capital request and that process is expected to be repeated in this capital budget cycle.

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