Virginia owns and operates more than 149 million gross square feet (gsf) of buildings located on nearly 475,000 acres.
In any given year, the state’s ownership portfolio changes through a variety of capital projects that authorize the acquisition, sale, construction, demolition, renovation, expansion, maintenance, and/or upkeep of state properties and lands. These properties include buildings on the campuses of state institutions of higher education, state hospital facilities and clinics, forensic labs, state park campgrounds and cabins, state police headquarters and training facilities, DMV offices, and more. The term “capital outlay” refers to such projects and the funding needed to support them (note: in Virginia, capital outlay does not include transportation projects).
By definition, “capital projects” include: Any acquisition project or improvements to existing facilities and construction of new facilities that cost more than $3.0 million or comprise more than 5,000 square feet. Routine operating and maintenance costs for property, infrastructure, or equipment are not considered capital and are funded out of an agency or institution’s operating budget. The House Appropriations Committee authorizes funding (cash or debt) for capital outlay projects in Part 2 of the state budget.
Budget Overview
Capital outlay is typically the single largest category of one-time spending in the budget. Additionally, capital is one of very few expenses for which debt can be used, so the processes and funding mechanisms for capital differ from those of the operating portions of the budget. Capital projects progress at a varied pace, so while the General Assembly may authorize as much as $1 billion in projects at single time, the actual expenditure of these funds is typically spread over several years. Capital outlay funding, while one-time in nature, is automatically carried forward into future fiscal years until spent or otherwise rescinded. Due to the nature of project design, the exact cost of a capital project starts at ~+/- 20% of estimates.
Since 2008, Virginia has utilized a pool funding process for the authorization and financing of most capital projects. Under this model, a group of projects is authorized under a single total budget, allowing flexibility for individual project cost fluctuation and preserving the state’s ability to garner competitive pricing by preserving specific project cost estimates. Typically, the capital outlay budget may include separate pool authorizations for planning, construction, supplements, and furniture, fixtures, and equipment (FF&E).
A benefit of funding projects via a pool method is the exact project costs are not known up front. Agencies and institutions are required to complete a detailed form (CR-1) when they submit a capital budget request. These forms help narrow down the cost estimates by comparing them to market standards, applying uniform future inflation estimates, and ensuring the project owner has considered all potential project costs. The state capital process includes required best practices, such as value engineering, to ensure cost efficiency. In FY 2024 alone, value engineering efforts conducted on state capital outlay projects saved over $73 million.
Program/Policy Highlights
- Funding a Capital Project from Start to Finish
Depending on a project’s size, scale, scope, and complexity, it may require separate and specific authorizations in the Appropriation Act to advance to the next stage. While not all projects require each stage of authorization, the various stages can include: Preplanning- usually set at $250,000; detailed planning – approximately 5% of a project total estimated cost; acquisition/demolition; construction; furniture, fixtures, & equipment (FF&E); supplements, and scope adjustments.
- Other types of capital funding designations (non-pool)
Projects that are funded outside of the pool include:
Standalone projects (Non-pool): Projects traditionally funded with nongeneral revenue (exs: DMV, VDOT, higher education auxiliary projects); projects funded entirely by 9(c) or 9(d) revenue bonds- usually higher education projects; language/scope changes; or, other projects specifically listed as standalone – often at planning stage.
Umbrella projects: A series of related smaller projects with a set budget (ex: address ADA needs for a school campus) and are not eligible for supplements or cost overruns.
Capital leases: Subject to the capital outlay process if they were entered into prior to Governmental Accounting Standards Board (GASB) Statement 87.
Finally, projects for which specific authority is granted to the Governor to approve outside of the Appropriation Act, include projects that are: supported entirely by NGF revenue, result in a measurable benefit to the Commonwealth and are an emergency, a project for an institution of higher education, a property received as a gift, or a project recommended by TICR or VA Tobacco Settlement Foundation.
- Maintenance Reserve (MR)
The term “maintenance reserve” refers to funding in the capital budget provided to state entities for facility maintenance and upkeep. For the 2024-2026 biennium, $464 million from the general fund was provided for MR. The allocation of these dollars among state entities is based on facility condition data collected by DGS. Should agencies have maintenance projects whose cost or scope exceed the MR cap or vary from the strict uses allowed, they may submit requests to DPB for exceptions for the use of MR.
- The Six-Year Capital Outlay Plan Advisory Committee (the” 6-PAC”)
The 6-PAC serves as the state entity entrusted with overseeing capital projects and recommending and instituting capital processes and procedures. Per the Code, the 6-PAC is comprised of: Staff Director, House Appropriations Committee (HAC); Staff Director, Senate Finance & Appropriations Committee (SFAC); the Secretary of Finance: Director, Department of General Services (DGS); Director, Department of Planning and Budget (DPB); and Director, State Council of Higher Education for Virginia (SCHEV). The 6-PAC meets as needed to review capital project statuses, market and industry trends, project-specific concerns, future capital needs, process alterations, and to authorize, as appropriate, funding transfers from capital pools.
- Department of General Services (DGS)
The Division of Engineering and Buildings (DEB) serves as the state’s Building Official for construction on state property and provides technical oversight and approval of the designs and construction on state property. DEB also plays a critical role in the capital outlay process through its cost review services, which assist both the Department of Planning and Budget (DPB) and the General Assembly with capital budget development and execution.
- Department of Planning and Budget (DPB)
In addition to its role in reviewing and recommending capital outlay projects for inclusion in the Governor’s Introduced Budget, DPB also coordinates closely with DGS to administer the advancement of approved capital projects specifically via approval and execution of capital forms and associated budget allocations.
Reports and Presentations
Resources and Deep Dives
Staff Contact
