Capital Improvement Program

1. Capital Improvement Program OFFICE OF STATE BUDGET AND MANAGEMENT Annual Conference October 17, 2007

2. Outline • Review of the 2007 Legislative Session • Funding History • 2007-08 Capital Budget • Special Indebtedness & Debt Affordability • Special Indebtedness (COPs) 2004-07 • 2003 Repair & Renovation Cops • Changes to the Executive Budget Act • Capital Improvement Plan and the 2008-09 Budget Process

3. $1,147.7 $1,044.9 $776 $590.2 $259.9 $180 $31.2

6. Capital Improvements & Debt Affordability • CIP impacted by State’s Debt Capacity • Debt ratios and retirement of existing debt • Availability of unallocated reserves • Revenue Projections • Debt Related Considerations • Amount of bond/COPs proceeds required • Economic benefit of the project and revenues generated from project • Balance “Pay-as-go” and debt

7. Debt Affordability Advisory Committee Recommendations • Debt Service/Revenue Target of 4% • Rebuild Unallocated Reserves • Six-year Capital Improvement Plan

8. 2007 COPs Authorized • Total - $669,148,025 • Maximum prior to 7/1/08 - $284,360,750 • Additional 2008-09 - $245,030,900 • Additional 2009-10 - $139,756,375

9. Special Indebtedness - COPs • Legislature authorizes debt • DOA, OSBM, and State Treasurer review and must concur to bring to: • Council of State for Approval • COPS debt sales are scheduled to meet cash flow requirements of the projects and • Stay within Debt Affordability limits

10. Current COPs Projects • 2005- 14 projects including land purchases, total authorization $706 million includ. Prison and Psychiatric Hospital • 2006- 11 total projects; 10 that may begin to requisition funds, including land purchases, total authorization $719,168,700 • 2007-17 projects including 1 project for land and 1 supplement to a prior project. Not yet authorized by Council of State as of 10/17/07.

11. COPs Sales • Initial sale July 2005 for $200 million • 2nd sale Oct 2006 for $201 million • Recent sale Oct 2007 for $200 million • Next sale planned for Spring 2008 • Debt sales are timed based on the cash flow needs provided by the agencies and universities to OSBM.

12. COPs Funding Status • To date $385,606,779 has been expended on 2005 and 2006 projects • 2005-$346,870,936 • 2006- $38,735,843 • The first two projects scheduled to be completed are Prison #6 and the Central Regional Psychiatric Hospital in Butner, which fall under the 2005 projects

13. Reminders for COPs • Private Use- The private use of facilities funded by special indebtedness is greatly restricted as long as the debt is outstanding. Any private use needs OSBM’s approval to verify the percentage used and to make sure the tax-exempt status of the debt is maintained. • Copies of all invoices must be kept for six years after the debt is repaid. If the debt is repaid in 20 years, invoices must be kept for 26 years. • It is the State’s policy that proceeds from special indebtedness cannot be used to compensate or support the salaries of in-house facilities staff or other state employees for services related to completing the projects.

14. Cash Flows • Projected cash needs are essential in timing debt sales, so any updated information on the project and the progress of it is always appreciated. • Updated cash needs will be requested at the beginning of each quarter and should show the cash need per month through the end of the project.

15. 2003 Repair & Renovation COPs • History • In 2003-04, the Legislature authorized special indebtedness of $300 million for R&R • No R&R funds for the previous two legislative sessions

16. 2003 R&R COPs Issuances • COPS Funds Issued • April 2004 - $125,000,000 • August 2006 - $100,000,000 • September 2007 – Final sale of $75,000,000 authorized by Council of State

17. 2003 R&R COPS - Project Status

18. 2003 R&R COPs - Funding Status • Funding Status as of 10/10/07 • $302,024,739 total budget of COPS • $234.2 million allotted to agencies/campuses • $216.5 million expended • $6.9 million average 2007 monthly expenditures • $3.9 million average monthly expenditures by state agencies • $3 million average monthly expenditures by UNC system entities

19. 2003 R&R COPs – State Agencies • State Agency Detail as of 10/10/07. • Expenditures of $99,047,934 • Allocations of $143,407,475 • Allotments of $107,781,159 • Projects are 69% complete

20. 2003 R&R COPs - Universities • University System Entities Detail as of 10/10/07. • Expenditures of $117,467,895 • Allocations of $158,657,204 • Allotments of $126,493,007 • Projects are 74% complete

21. Changes to the Executive Budget Act • CIP – Budget Support Document • Space Analysis • Cash flows • Construction timelines • Maintenance/operating costs or savings for first 5 years • New Reversion Provisions • 1 Year for Planning; 2 Years for Construction • OSBM may grant 12 month extensions • Otherwise, project authorization lapses

22. Changes to the Executive Budget Act • Project Reserve Account • New Capital Project Fund – Excess Capital Appropriations • Budget Director can use for emergency R&R or for cost overruns • Report actions to Gov Ops • C&E Requests • Consultation with Gov Ops no longer required • Council of State approval is still required

23. Capital Planning ProcessLong Session Biennial Budget

24. Capital Planning ProcessShort Session Budget

25. Repair & Renovations Process

26. Conclusions • General Assembly Recognizing Need for Capital Planning and Consistent Capital Funding • Increased use of Debt financing • Multi-Year Funding of projects • Appropriations for Planning/Design • Debt spread over several years for Construction • Within Debt Affordability Guidelines • Change is the Nature of Capital Improvements

27. Contacts: Jim Lora Assistant State Budget Officer (919) 807- 4735 Jim.Lora@ncmail.net Adam Brueggemann Capital Budget Analyst (919) 807- 4712 Adam.Brueggemann@ncmail.net Kristen Crosson Capital Budget Analyst (919) 807- 4738 Kristen.Crosson@ncmail.net Jennifer Wimmer Capital Budget Analyst (919) 807- 4764 Jennifer.Wimmer@ncmail.net (919) 733-0640 (fax) http://www.osbm.state.nc.us