Subject						Section
OVERVIEW OF CAPITALIZED ASSETS						6801
CAPITALIZED ASSETS: ROLES AND RESPONSIBILITIES						6802
CAPITAL OUTLAY VERSUS STATE OPERATIONS AND LOCAL ASSISTANCE						6803
MINOR CAPITAL OUTLAY						6804
CAPITAL OUTLAY BUDGET DEVELOPMENT HIGHLIGHTS						6805
BUDGET PREPARATION AND ENACTMENT TIMELINE						6806
DOCUMENTS REQUIRED TO REQUEST CAPITAL OUTLAY FUNDING						6807
CAPITAL OUTLAY BUDGET CHANGE PROPOSALS (COBCPs)						6808
USE OF CONSULTANTS						6809
PROJECT STUDIES AND BUDGET PACKAGES						6810
TRANSFER OF FUNDS TO THE ARCHITECTURE REVOLVING FUND (ARF)						6811
CAPITAL OUTLAY REAPPROPRIATIONS AND EXTENSION OF THE LIQUIDATION PERIOD						6812
ADMINISTRATION OF THE CAPITAL OUTLAY PROGRAM						6813
METHODS OF PROJECT DELIVERY						6814
STATE PUBLIC WORKS BOARD (PWB) OVERVIEW						6820
MONTHLY PUBLIC WORKS BOARD PROCESS						6821
STANDARD INFORMATION REQUIRED WHEN REQUESTING PWB OR FINANCE ACTION						6822
STARTING CAPITAL OUTLAY PROJECTS						6823
SITE SELECTION AND ACQUISITION						6824
EXERCISE OF EMINENT DOMAIN (CONDEMNATIONS)						6825
ENVIRONMENTAL IMPACT REVIEW PROCESS						6826
PROJECT DUE DILIGENCE						6827
DESIGN-BID-BUILD DEVELOPMENT AND REVIEW						6828
OVERSIGHT OF TRADITIONAL DESIGN-BUILD PROJECTS						6829
EQUIPMENT						6831
PROJECT COMPLETION						6832
AUGMENTATIONS TO CAPITAL PROJECTS, AND RECOGNITION OF PROJECT DEFICITS						6833
SCOPE CHANGES						6834
INMATE/WARD LABOR						6835
LEASE-BASED PROJECT DEVELOPMENT						6836
FINANCING CAPITAL PROJECTS						6841
GENERAL OBLIGATION (GO) BONDS						6842
STATE PUBLIC WORKS BOARD LEASE-REVENUE BOND PROGRAM						6843
LEASE -REVENUE BONDS						6844

OVERVIEW OF CAPITALIZED ASSETS - 6801

(Revised: 02/2025 )

 

The Capitalized Assets sections of SAM reference policies and procedures on budgeting and financial administration of capital outlay projects and—more broadly—on programs for capitalized asset financing. These sections are divided into four parts:

1. An overview of capital outlay and capitalized asset financing (Sections 6801–6804).

2. Budgeting capital projects (Sections 6805–6814).

3. The approval and administrative process for acquisition,  design, and construction of capital projects (Sections 6820–6836).

4. Long-term financing of capitalized assets (Sections 6841–6844).

The Department of Water Resources for the State Water Project and the Department of Transportation for highway-related projects are not subject to the instructions contained in this chapter. In addition, this chapter does not address projects not subject to legislative appropriation, such as higher education’s housing, student union programs, and other auxiliary organizations.

As used in this chapter, the term capitalized assets refers to all processes which may result in the acquisition, new construction, alteration, renovation, or betterment of real property, regardless of character of appropriation for the expenditure. This includes capital outlay projects and budget change proposals, certain leases that meet the definition of a capitalized lease, long-range plans for infrastructure, and financing of projects and capitalized leases.

The term capital outlay refers to a subset of these activities, funded specifically under the capital outlay character of appropriation. See Section 6803 for a discussion of characters of appropriation.

 

CAPITALIZED ASSETS: ROLES AND RESPONSIBILITIES - 6802

(Revised: 02/2025 )

(Revised and Renumbered from 6805.)

The State Public Works Board (PWB), the Department of Finance (Finance), Departments, the Department of General Services (DGS), the Pooled Money Investment Board (PMIB), and the State Treasurer’s Office (STO) all perform key roles in carrying out the state’s infrastructure program.

1. PWB acquires property for the state, must approve the preliminary plans or performance criteria for capital projects, may set reasonable conditions for any project, and may issue debt instruments and authorize interim financing to construct facilities. PWB ensures that projects remain within legislatively approved scope and cost and are carried out in a timely manner and with proper due diligence. PWB has authority to augment projects by up to 20 percent, and may terminate projects under circumstances defined in statute and subject to legislative notification requirements. In addition, the PWB is vested with the power of eminent domain (condemnation authority) for the state entities under its purview. An overview of PWB’s role and responsibilities is presented in SAM Section 6820.
   
   
2. Finance reviews capital outlay budget change proposals (COBCPs) for inclusion in the Governor’s Budget, reviews legislation proposing capital outlay projects and capitalized leases, has authority to adjust the scope of projects subject to legislative reporting requirements, chairs and provides staff to PWB in that board’s oversight of project implementation, and has delegated authority from PWB to carry out certain of the PWB’s tasks. Finance approves preliminary plans, performance criteria, working drawings and proceed to bid, and contract award. Finance also participates in bond sale activities for capital outlay and capitalized lease projects and has the authority to grant requests for General Fund loans for projects needing interim financing before bonds are sold. Additional information on General Fund loans is provided in SAM Section 6844.

    

3. Departments manage the programs for which infrastructure acquisition, construction or improvement is a supporting activity. The department identifies program needs in a strategic plan, determines the related infrastructure requirements, prepares a five-year infrastructure plan, prepares individual capital outlay budget change proposals, works with Finance and may work with DGS to budget and implement the plan. At all stages of a capital outlay project or a capitalized lease project, departments are responsible for justifying program needs, keeping the project within scope and cost, and meeting administrative requirements set forth in statute and SAM.
   
   

   The following departments have authority to design and construct projects, exclusive of the control or oversight of DGS, with certain limitations:

   Departments authorized to manage capital outlay projects

   • 0250 – Judicial Branch
   • 3540 – Department of Forestry and Fire Protection (limited authority)
   • 3790 – Department of Parks and Recreation
   • 5225 – Department of Corrections and Rehabilitation
   • 6870 – California Community Colleges Board of Governors
   • 6610 – California State University
   • 6440 – University of California
   • 8940 – California Military Department (limited authority)
     
     

   Although the above departments have authority to manage capital outlay projects exclusive of DGS’ control and oversight, these departments remain subject to Finance and PWB control and oversight (special rules apply for the universities).
   
   

4. DGS has broad authority for real property acquisition, sales, statewide property inventory, and energy efficiency services for state and K-14 school facilities. Its services are offered on a reimbursable basis. DGS determines whether departments are capable of carrying out minor projects directly, and may delegate the management of minor capital outlay projects to departments. Additional information about minor capital outlay projects is provided in Section 6804. DGS provides advice to PWB for property acquisition as needed.

    

5. PMIB has the authority to grant requests for Pooled Money Investment Account loans for projects needing interim financing before bonds are sold. Additional information on PMIB is provided in SAM Section 6844.
   
   
6. STO is the state’s official agent for the sale of debt instruments. STO chairs the PMIB, and is a member of the PWB (only hearing and deciding matters related to the issuance of bonds). In addition, STO provides (or makes arrangements for) trust services for debt issuances. As agent for sale, STO holds the exclusive right to select financing teams for debt issuances. STO’s agent-for-sale role includes all debt financings of joint powers authorities, regardless of whether the state is a member of the authority. Additional information on STO is provided in SAM Sections 6842–6844.

 

CAPITAL OUTLAY VERSUS STATE OPERATIONS AND LOCAL ASSISTANCE - 6803

(Revised: 04/2025 )

 

The state appropriates funds in three broad classifications—state operations (support), local assistance, and capital outlay—referred to as the character of appropriation. Unless statutory language specifically allows otherwise, once budgeted as one of the three characters, a program or activity must follow that classification’s expenditure rules.  Support appropriations cannot be used to fund capital outlay projects, except as noted below.

Infrastructure management uses all three characters of appropriation, depending on the activity. The general rule is that the acquisition/construction/renovation of real property is classified as capital outlay when the state holds or has the equivalent of fee ownership. Operation and maintenance of state real assets is classified as state operations. State-funded but locally owned infrastructure is classified as local assistance.

Certain types of leases, such as capitalized leases, are funded as state operations, but result in a capital acquisition. As used in this chapter, the term capitalized assets covers both traditional capital outlay as well as capitalized leases.

Exception to the prohibition against using support funds for capital outlay: Section 6.00 of the Budget Act provides a limited exception to the rule that support funds may not be used for capital outlay purposes. This section allows support funds to be encumbered for preliminary plans, working drawings, performance criteria, construction, or design build of any project for the alteration of a state-owned facility upon Finance Approval (Section 6.00 does not apply to leased facilities). This Section includes thresholds for overall project costs and for Legislative notification.

Guidelines for determining character of appropriation: The following discussion and table are intended as a guide to assist departments in determining whether an activity should be budgeted as capital outlay, support, or local assistance.

Capital outlay: is the expenditure of funds for the acquisition of land or other real property, construction, improvements, design, and equipment necessary in connection with a construction or improvement project. Administratively, capital outlay consists of:

1. Any real property acquisition, new construction, or demolition.
2. Any renovation or addition to a state-owned facility that changes capacity or functionality.
3. Fixed and movable equipment associated with a capital outlay project.
4. A capitalized lease agreement (Section 6836). Although the actual lease payments will be budgeted in state operations, the transaction is a capitalized assets acquisition because equity is built as payments are made.
5. Exercising a purchase option on a lease. This action transfers ownership to the state, and would be considered an acquisition of real property.

State operations: The following facility-related expenses are classified as state operations:

1. Projects to acquire or replace equipment that is not associated with a capital outlay project.
2. Standalone special repairs and deferred maintenance projects include projects that extend the useful life of a facility, but do not change functionality or capacity. Examples include, but are not limited to, repainting; re-roofing; electrical rewiring; plumbing repairs; heating, ventilation, and air conditioning system replacement; dredging of river or stream beds to restore original flow capacity; replacing old equipment items; and road repairs.
3. Relocation costs, such as swing space and moving expenses, whether or not related to a capital outlay project. Exceptions to this must be approved by Finance.
4. Lease or rental costs and associated budget requests.
5. Projects to abate hazardous materials or remove architectural barriers (e.g., Americans with Disabilities Act compliance).
6. Projects funded via Section 6.00 of the Budget Act.

Local assistance: The following infrastructure-related expense is classified as local assistance:

Grants to local agencies for the operation, maintenance, and acquisition or development of facilities or land, provided the local entity retains ownership after completion of the project.

 

MINOR CAPITAL OUTLAY - 6804

(Revised: 03/2025 )

 

Minor capital outlay is any capital project up to the amount adjusted pursuant to the State Contract Act—Project Cost Threshold Adjustments Budget Letter, which can be found on the Finance public site at www.dof.ca.gov.

Important budgeting points for minor capital outlay projects include:

1. Per Section 3.00 of the Budget Act, the term minor projects includes planning, working drawings, construction, improvements, and equipment projects not specifically set forth in the budget schedule. It does not include any acquisition project, regardless of amount.
   
   
2. Minor projects are budgeted in a single schedule. Any project not scheduled specifically as a minor project, regardless of amount, is a major project.
   
   
3. DGS may delegate the authority to individual departments to carry out a minor project directly.
   
   
4. Per Section 1.80 of the Budget Act, the period of appropriation availability for minor projects is three years, followed by a two-year liquidation period.
   
   
5. A minor project is not subject to PWB oversight. Consequently, PWB will not augment minor projects since they are not subject to the PWB approval processes.
   
   
6. Finance may increase the approved amount of a minor capital outlay project through a redirection within the minor program if the project is not scheduled individually and the amount of the increase does not exceed the minor capital outlay project limit. Substitution of minor projects is permissible with Finance concurrence and based on critical need. A complete COBCP (Section 6808) for the new project is required when requesting the substitution of a minor project along with all other justification.
   
   
7. Minor projects may be subject to provisions of the California Environmental Quality Act (CEQA) as described in Section 6826.
   
   
8. It is not permissible to “piecemeal” larger projects through several minor projects.
   
   

CAPITAL OUTLAY BUDGET DEVELOPMENT HIGHLIGHTS - 6805

(Revised: 03/2025 )

(Revised and Renumbered from 6812.)

No base budget for capital outlay.  Capital outlay budgets are zero-based each year.  This means the department must submit a written capital outlay budget change proposal (COBCP) for each new project or subsequent phase of an existing project.  The requirements for COBCPs are presented in Section 6808.

When COBCPs are due.  In general, COBCPs for major and minor capital outlay projects are due to Finance in late July/early August of each year. The precise due date will be provided in the annual Budget Preparation Guidelines Budget Letter.  See Section 6806 for an overview of the budget enactment timeline.  See Section 6807 for a listing of documents in addition to COBCPs required to request capital outlay funding.

Scope Meetings. Departments may be requested to schedule meetings and/or arrange site visits to help Finance clarify and evaluate project necessity and scope.  Participants usually include Finance capital outlay staff, department staff, and the Department of General Services (DGS).  The scope meeting establishes a common understanding among all parties about project scope and priority.  Scope is defined in Section 6834.

 

When COBCPs are updated.  New project proposals are generally not accepted after initial submittal of the COBCPs and Five-Year Infrastructure Plans in late July/early August.  The precise due date will be provided in the annual Budget Preparation Guidelines Budget Letter.  However, each COBCP submission is evaluated on a case-by-case basis and exceptions can be made to allow for a spring submission if the request is deemed critical and cannot wait until the next fall submission deadline.   Otherwise, all technical updates, including cost updates, will be presented to the Legislature through a Finance Letter. In addition, non-technical proposals, including scope changes to existing projects or new projects justified as urgent, may also be proposed through the Finance Letter process. All COBCP submissions must be made by the deadline established annually for spring Finance Letters, generally in mid-February of each year, and as published in a Finance Budget Letter. Requests made after this deadline are discouraged but may be rolled into the overall May Revision process at the discretion of Finance. An updated or new COBCP must be submitted for policy and technical Finance Letters.

Five-Year Infrastructure Plans are required annually.  Each department submitting a COBCP or Concept Paper must also submit, at the same time, a Five-Year Infrastructure Plan that includes the specific projects it intends to pursue in the following five-year time period.  The requirements for this plan are set out in an annual budget letter (see below). Exceptions to project-level plans must be approved by Finance.

Annual Budget Letters for COBCPs and Five-Year Infrastructure Plans.  Finance releases a Budget Letter annually setting specific due dates for COBCPs and Five-Year Infrastructure Plans, reiterating information requirements, and describing any form or processing changes.  A separate Budget Letter is released after submission of the Governor’s Budget to establish due dates for requests for Finance Letters to make policy or technical changes to capital outlay projects proposed in the Governor’s Budget. 
An additional Budget Letter is released biennially in the spring to provide updated cost indexes used to adjust construction costs for inflation.

Capital Outlay augmentations. If a project is anticipated to exceed its budget, the remedies are a scope reduction (subject to approval by Finance and legislative notification) and/or an augmentation of up to 20 percent (subject to approval by the Public Works Board (PWB) and when required, legislative notification).  If those remedies are insufficient, the remaining options are to terminate the project or halt it while seeking a new or supplemental appropriation.  Augmentations and scope changes are discussed in Sections 6833 and 6834.

No transfer of capital outlay funds between scheduled projects.  The annual Budget Act includes control section language (Sec. 26.00) forbidding the transfer of funds between scheduled projects in a department’s capital outlay item. There may be some exceptions on an item-by-item basis; however, the PWB retains the authority to augment a project’s appropriation, provided there are sufficient resources available in the source fund(s).

California Environmental Quality Act (CEQA) review required.  CEQA requires environmental review of any project undertaken in whole or in part by any public agency.  See Section 6826 for more information.

Process exemptions for certain departments. Some entities, including the University of California, the California State University, California Community Colleges, Judicial Council, High-Speed Rail Authority, some departments within the Natural Resources Agency, and the Department of Corrections and Rehabilitation may manage the design and construction of their own projects without using the services of the Department of General Services. In addition, the Department of Water Resources (for the State Water Project) and the Department of Transportation (for highway-related projects) are not subject to the instructions contained in this chapter.

 

BUDGET PREPARATION AND ENACTMENT TIMELINE - 6806

(Revised: 03/2025 )

(Revised and Renumbered from 6814.)

The following illustration is intended to help departments plan their capital outlay budget submissions.  To meet statutory budget time frames, departments must submit requests for major and minor capital outlay projects in late July/early August. Finance will publish a Budget Letter each year with more detailed instructions and due dates. Late requests will be accepted only with Finance approval.  Departments within agencies must have agency concurrence for their proposals, prior to submittal.  Submission dates indicated are when documents are due to Finance.

References to the Department of General Services in the following table also apply to any department which is authorized to act as its own project manager.  Due dates on the chart below are approximate; actual dates are set by the Budget Letter.

 

July/August	Per the annual Budget Letter instructions from Finance, the last date to submit five-year capitalized assets plans and major/minor capital outlay budget change proposals (COBCPs) for each new or continuing project to Finance.
September-October	Capital outlay meetings with departments and Finance to discuss COBCPs (if necessary).
January 10	Governor's Budget and Budget Bill presented to the Legislature. Five-Year Infrastructure Plan released.
February	Departments submit requests to Finance for technical and policy amendments to capital outlay projects proposed in the Governor's Budget per annual Budget Letter instructions from Finance. A new or updated COBCP is required.
March–June 15	Legislative budget hearings held.
April 1	By statute, any capital outlay Finance Letter of a policy nature (i.e., proposing a scope change) must be submitted to the Legislature by this date. Technical changes may also be submitted as part of the April 1 letter, at the discretion of Finance.
May 1	By statute, any capital outlay Finance Letter proposing a technical adjustment to a capital outlay project must be submitted to the Legislature by this date. However, Finance’s practice is to include all technical adjustments in April 1 finance letters. Therefore, departments must submit technical adjustments on the April 1 timeline.
June 15–June 30	Budget Bill signed by Governor.

 

DOCUMENTS REQUIRED TO REQUEST CAPITAL OUTLAY FUNDING - 6807

(Revised: 03/2025 )

(Revised and Renumbered from 6816.)

A department must make a formal request to Finance, in accordance with the procedures and deadlines established in the annual Budget Letter, to have a major or minor capital outlay project considered for inclusion in the annual Governor's Budget. 

The following documents are required:

1. A capital outlay budget change proposal (COBCP), as described in Section 6808.
2. The department’s five-year infrastructure plan, as described in Section 6805.

The required items must be approved by the appropriate agency secretary before release to Finance. Minor projects included in the five-year infrastructure plan may not exceed the limit established in the State Contract Act-Project Cost Threshold Adjustments Budget Letter.

 

CAPITAL OUTLAY BUDGET CHANGE PROPOSALS (COBCPs) - 6808

(Revised: 04/2025 )

 

A COBCP is required for:

1. Any request for a capital outlay appropriation or reappropriation. Information to determine whether a request is for capital outlay can be found in Section 6803.
   
   
2. Any request for Trailer Bill Language to authorize lease-based development agreements or appropriations to fund one-time costs related to those agreements. Information related to Lease-Based Project Development can be found in Section 6836.
   
   
3. Exercising a purchase option on capital assets. Exercising a purchase option (even if a nominal amount) requires a capital outlay appropriation. This includes exercising a purchase option on trailers and relocatable or modular buildings.

For new capital outlay projects, budget packages should be completed prior to submitting COBCPs.

Although COBCPs are generally submitted for consideration in the annual Governor’s Budget, at Finance’s discretion, COBCPs may be accepted through the April 1 or May 15 Finance Letter process. The guidelines, including timeframes, for submitting COBCPs for the Finance Letter process are included in the annual Finance Budget Change Proposal Budget Letter.  A timetable for budget preparation and enactment is provided in Section 6806.

Instructions to complete a COBCP.  The COBCP form can be found on Finance’s website: Department of Finance | State of California. The COBCP includes, but is not limited to, the following:

• Purpose of project: What is the problem? What is the underlying program need or infrastructure deficiency?
• Relationship of Project to Strategic Plan: Explain the project’s relevancy to the department’s strategic plan. Projects which lack a clear supporting relationship to the department’s strategic plan will be returned.
• Alternatives:
  • Present all reasonable alternatives to solve the problem. Please present more than one alternative that consists of an approach that includes another action other than taking no action at all.
  • For any alternatives that would require swing space, i.e., temporary accommodation during a facility remodel, the anticipated cost should be noted informationally in the alternative.
  • For any options that result in the sale of surplus property, estimated proceeds should be included in the alternative.
• Recommended Solution and Why: Which is the best alternative, and why? Describe the recommended alternative in detail. This description is the basis on which initial scope will be defined.

 

USE OF CONSULTANTS - 6809

(Revised: 03/2025 )

(Revised and Renumbered from 6823.)

Technical consultant assistance:  Departments may need professional input from consulting architects, facilities planners, engineers, or contractors in the development of a potential Capital Outlay Budget Change Proposal (COBCP) or the completion of a study/budget package. Such assistance may also be solicited to prepare a needs assessment or facilities plan which examines current and future space and employee data, transportation issues, etc. DGS can assist in preparing such plans.  In addition, the Department of Technology is a resource for technology phases of projects.  Services from both offices are available on a reimbursable basis.

Program management consultants:  For large/complex projects, or a series of related projects which comprise a program, a department may need the services of a program management consultant to provide expertise in the unique needs of the agency.  In this case, the consultant assists in the preparation of a long-range, multiple-year program to:

1. Establish facilities planning criteria and objectives.
2. Develop timelines for designing and constructing the various facilities.
3. Estimate the design, construction, and related costs for each facility.

The consultant may also help prepare a multiple year budget for the total program, work with DGS to obtain the services of design, construction management, and other consultants, and assist in the preparation of construction bid data. 

 

Funding technical or program management consultants:  Technical or program management consultants may be funded from either the department’s state operations appropriation or as a capital outlay project, depending on the timing and scope of the services.  The department should discuss budgeting alternatives with Finance before submitting a support Budget Change Proposal, a COBCP, or using existing support funding.  COBCPs that include funding for these services should clearly identify these costs and provide a cost-benefit analysis.

PROJECT STUDIES AND BUDGET PACKAGES - 6810

(Revised: 03/2025 )

(Revised and Renumbered from 6828.)

After a preliminary review of the department’s Capital Outlay Budget Change Proposals (COBCPs) or Capital Outlay Concept Papers, should a study be needed, Finance may recommend one of three approaches:  (1) a project specific study phase approved via a COBCP, (2) the use of existing department authority, or (3) the use of existing Capital Outlay Planning and Studies funding (BU 9860).  The objective of the study is to understand the project’s feasibility and to refine the project cost estimates.  Finance uses this information along with a revised Project Cost Summary, prepared by DGS, for budgetary decision-making purposes.  The most common type of project study is a budget package.

 

Budget Packages

A budget package is the formal output used to communicate preliminary project information, which is then used by departments to develop the related COBCP.  The completed budget package contains the following:

 

• Executive Summary
• Project Description and Proposed Scope
• Project Cost (Project Cost Summary)
• Schedule Summary
• Technical Specifications
• Proposed Layouts and Adjacencies

Capital Outlay Planning and Studies Funding (BU 9860)
The annual Budget generally includes a small amount of funding for statewide planning and studies. These funds are allocated by Finance to state agencies to develop design and cost information for new projects for which funds have not been appropriated previously, but which are anticipated to be included in future budgets.

 

For departments that need to access capital outlay planning and studies funding, they should reach out to the Finance capital outlay counterpart to demonstrate the need and cost for the study as well as the expected project scope. The agreed upon scope is memorialized in a “Statewide Planning and Study Authorization Request Form” document, which will be provided by Finance staff.

TRANSFER OF FUNDS TO THE ARCHITECTURE REVOLVING FUND (ARF) - 6811

(New: 03/2025 )

 

Section 14957 of the Government Code establishes the Architectural Revolving Fund (ARF) which receives, through transfer, funds for the following related to the betterment and new construction of state-owned buildings: Studies, New construction, Major construction and equipment, Minor construction, Maintenance, Improvements, Equipment, and other building and improvement projects.

 

Transfers to the ARF require approval from Finance. Money in the ARF is available without regard to fiscal year for the purposes for which it was transferred; however, funds in the ARF will revert to the originating fund source if they are not encumbered within three years of being transferred or three months of project completion (Section 6832) in accordance with Government Code section 14959. DGS tracks expenditures from the ARF and generates a Return of Funds Transfer report for any unencumbered balance that remains beyond the earlier of these time frames. Extended availability for funds transferred to the ARF may be requested from Finance.

 

Transfer of non-bond funds: the Public Works Project Authorization and Transfer Request form (Form 22), is used to request the transfer of non-bond funds into the ARF. This form is initiated by DGS when it serves as project manager. This form is available from DGS.

A separate Form 22 is used to request the transfer of funds to ARF for each budgeted phase of a capital outlay project. This type of transaction is approved by the Finance capital outlay analyst for the department.

The Form 22 is also used to transfer support funding for facility special repairs expenses (such as painting or carpet replacement) which are classified as state operations. This type of transfer is approved by the Finance support analyst for the department.

Except as allowed in Section 6.00 of the Budget Act, transfer of support funds to ARF for capital outlay purposes is not allowed (Sections 6803 and 6804). Transfers of support funds to the ARF using Section 6.00 must be approved by both the Finance support analyst and capital outlay analyst.

Due to the volume of proposed Form 22s at the end of the fiscal year, and the potential for incorrect classification of the request, departments must allow extra time for verification by Finance of the nature of—and need for—the transaction. Proposed transfers to the ARF which cannot be verified in the time available will not be approved.

Transfer of Bond Funds: a bond proceeds Public Works Project Authorization and Transfer Request form (Form 220) is used for the same purpose as a Form 22 when projects are bond funded. The form is used to request SCO reserve a portion of the department’s project appropriation authority in a separate account within the appropriate bond fund. This reserve is used to reimburse ARF for actual expenditures. This form is initiated by DGS when it serves as project manager. This form is available from DGS.

All transfer requests from lease-revenue bond funds must be submitted first to Finance’s Capital Outlay unit to determine whether the purpose of the expenditure is lawful under the bond indenture and state/federal tax law. This applies whether or not the transfer is for a support purpose. The Capital Outlay unit will then coordinate the request with the appropriate support unit within Finance.

For budgetary purposes (as distinguished from cash flow purposes), Form 220 is treated as an encumbrance recorded in the fiscal year in which approved by Finance. Departments which manage their own projects do not use Form 220.

STD. 22 and STD. 220 Transfer Request Instructions: Requests to transfer funds to the ARF are initiated by DGS and sent to departments for review prior to submission to Finance for approval. Departments should review forms for completeness and accuracy before signing the request. The description of project section should include information on the scope and phase for capital outlay projects. A clear description of the intended use of funds should be included for support requests. References to items should include schedule and subschedule details where applicable.

 

CAPITAL OUTLAY REAPPROPRIATIONS AND EXTENSION OF THE LIQUIDATION PERIOD - 6812

(Revised: 03/2025 )

(Revised and Renumbered from 6834.)

Finance reviews the need to reappropriate funding or extend liquidation for capital outlay projects during the annual budget development process. Reappropriations and extensions of liquidation are proposed in the annual budget bill.

Appropriations for capital outlay included in the Budget Act are available for expenditure pursuant to Control Section 1.80 of the Budget Act in which the appropriation was made unless otherwise noted.  The department must monitor project status to determine if a project will require reappropriation or extension of liquidation. Departments should consult with DGS or the appropriate project manager to maintain current schedule information and to determine if a request is required.

The Budget Bill provides two mechanism for reappropriating authority or extending liquidation:
(1) Control Section 20.00, or (2) A Budget Bill line item. If a project does not qualify for Control Section 20.00, departments must submit a COBCP (See Section 6808).

 

ADMINISTRATION OF THE CAPITAL OUTLAY PROGRAM - 6813

(Revised: 03/2025 )

(Revised and Renumbered from 6840.)

Sections 6813 to 6835 address policies and procedures related to the fiscal administration of funded capital outlay projects. The primary oversight entities are the State Public Works Board (PWB) and the Department of Finance (Finance).  Although long-term and interim financing for capital outlay projects are part of project implementation, they are addressed in a separate financing portion of the chapter (Sections 6841 et seq.).  An overview of capital outlay is provided in Sections 6801 to 6804. .

METHODS OF PROJECT DELIVERY - 6814

(Revised: 04/2025 )

 

The state generally uses either the design-bid-build or design-build methods of procuring design and construction services for its capital outlay projects. In addition, the state uses various lease methods to obtain the use of facilities. The following discussion briefly outlines standard procurement methods in the building industry and the resulting budget implications.

Design-bid-build.  In the design-bid-build process, preliminary plans, working drawings, and construction are all separate phases; an overview of all typical capital outlay phases is provided in Section 6808.  This approach allows the state to determine the exact product before it begins construction.  Typically, funds are not committed to a phase unless there is a strong assurance that they can be encumbered within a single fiscal year.  Consequently, most design-bid-build projects are budgeted in several phases over two to three years.  Each appropriation requires a COBCP (Section 6808) and must be included in the department’s five-year infrastructure plan (Section 6805).

In addition, PWB and Finance perform an oversight role for design-bid-build projects by reviewing and approving each phase of a project (Sections 6828).  Specifically, in design-bid-build, a department may not begin working drawings prior to PWB approval of preliminary plans, and may not proceed to bid or initiate construction until Finance approves working drawings.

Design-build.  In contrast to design-bid-build, design-build projects are submitted for bid much earlier in the project’s development (Section 6829). This approach allows design work to be performed by the same entity that constructs the project. The department, or DGS on behalf of the department, is responsible for developing a request for proposal (RFP), which for traditional would include performance criteria. The design-build firm uses the RFP as the basis for its proposal. 

As with design-bid-build, design-build projects are typically budgeted in multiple phases over several years.  Each appropriation requires a COBCP (Section 6808) and must be included in the department’s five-year infrastructure plan (Section 6805).  PWB and Finance perform an oversight role for design-build projects by reviewing and approving each phase of an approved project (Section 6829). Specifically, in design-build, a department may not expend funds on the design-build or progressive design-build phases prior to PWB approval of the performance criteria or the guaranteed maximum price. Also, a design-build project for which a capital outlay appropriation is made shall not be put out to design-build solicitation until the bid package has been approved by Finance.

Other Procurement Methods.  Other project delivery methods such as capitalized leases are agreements between a government agency and a private sector.  The private sector may be responsible for providing one or more project development functions, such as selecting and acquiring a site, design, construction, financing, and maintaining or operating the facility, which is leased to the department. Oversight of capitalized leases is discussed in Section 6836.

 

STATE PUBLIC WORKS BOARD (PWB) OVERVIEW - 6820

(Revised: 03/2025 )

(Revised and Renumbered from 6842.)

The following summarizes statutory and administrative provisions relating to PWB.

Origin/Role: 

The State Public Works Board (PWB) was created by the Legislature to oversee the fiscal matters associated with construction of projects for state agencies, and to select and acquire real property for state facilities and programs. The PWB is also the issuer of lease-revenue bonds, which is a form of long term financing that is used to pay for capital projects.

The Legislature appropriates funds for capital outlay projects such as acquiring land, planning and constructing new buildings, expanding or modifying existing buildings, and/or purchasing equipment related to such construction. Through review and approval processes, the Board ensures that capital outlay projects adhere to the Legislature’s appropriation intents.

Membership:  Voting members of the PWB are the:

1. Director of Finance, who historically has chaired PWB;

2. Director of Transportation;

3. Director of General Services;

4. State Controller (for lease-revenue bond items only); and

5. State Treasurer (for lease-revenue bond items only).

6. Secretary, Natural Resources Agency (for actions related to property acquisition and project construction for entities within the Natural Resources Agency).

In addition, PWB has the following advisory members:  The Director of the Employment Development Department when PWB is engaged in contingency planning for emergency public works per Government Code Section 15799.2; and non-voting legislative advisors (three Senators appointed by the Senate Rules Committee and three Assembly members appointed by the Speaker).

PWB staff:  Analysts from the Finance Capital Outlay unit serve as staff to the PWB, while Principal Program Budget Analysts serve as Deputy Directors, and the Assistant Program Budget Manager serves as the Executive Director.  The PWB also has a dedicated Executive Secretary.   Collectively, PWB staff administers all necessary functions of the PWB, including the management of semi-annual bond transactions. 

Meetings:  The PWB process, including monthly meetings, is described in Section 6821.

More information about the PWB can be found at: https://spwb.ca.gov.

MONTHLY PUBLIC WORKS BOARD PROCESS - 6821

(Revised: 03/2025 )

(Revised and Renumbered from 6844.)

PWB meetings:  Historically, PWB meets monthly to consider proposed capital outlay actions and approve of certain project milestones.  Meetings are normally held in Sacramento on the second Friday of each month.  The meeting notice  is distributed at least ten days in advance of the board meeting and posted to the PWB website at www.spwb.ca.gov (Government Code Section 11125). The notice must include the meeting date, place, time, and agenda containing a brief description of the items of business to be acted on or discussed. The staff analysis is generally posted approximately two days prior to the meeting and must be available at the meeting along with any briefing materials for each item.  A link to subscribe to the email distribution list can be found on the PWB website.

Meetings may be added or removed from the PWB meeting calendar as determined necessary by PWB.

Annual calendars:  PWB approves an annual calendar showing planned board meetings and key due dates.  The annual calendar and its updates are posted on the PWB website. 

Key monthly timeframes:

1. Proposed PWB actions requiring legislative notification: Legislative notification is required for the following actions: (1) scope changes, (2) augmentations between 10 and 20 percent, and (3) approval of preliminary plans or performance criteria for projects with a deficit in excess of 20 percent. These legislative notifications must be sent to the Legislature twenty calendar days before PWB takes action, and are commonly referred to as “20-day letters.” For requests which require a 20-day letter, departments must submit agenda items at least 50 calendar days in advance of the scheduled PWB meeting.
   
   
2. Proposed PWB actions not requiring legislative notifications: All items except those listed above may be approved by PWB without waiting for a legislative response .These items are due at least 36 calendar days prior to the PWB meeting.
   
   
3. Minutes: Minutes for a given PWB meeting are generally approved at the following month’s PWB meeting and posted online shortly thereafter.

Delegated agenda items (reportables):  By resolution, PWB has delegated to its Executive Director and Deputy Directors certain functions and approvals removing the need for such actions to be heard at a PWB meeting.  Most delegated actions must be reported at the next regularly scheduled PWB meeting. These actions are referred to as “reportables.”  The delegated items include, but are not limited to the following:

1. Site selection for projects meeting specific criteria,
   
   
2. Acquisition of less-than-fee property rights (e.g. easements) provided certain conditions have been met,
   
   
3. Preliminary plans or performance criteria provided certain conditions have been met,
4. Augmentations of less than 10 percent, as described in Section 6833 under the heading “Project Augmentations,”
   
   
5. Establishment or revision of project scope, cost, and schedule provided that no legislative notice is required.
   
   
6. Approve the use of inmate ward labor in accordance with the provisions of Public Contract Code Section 10103.5.

 

STANDARD INFORMATION REQUIRED WHEN REQUESTING PWB OR FINANCE ACTION - 6822

(Revised: 03/2025 )

(Revised and Renumbered from 6845.)

PWB and Finance information needs related to capital outlay projects are very similar. Both require a Request for Approval to Proceed or Encumber Funds (DF-14D), as well as standardized project cost and history information.  In addition, PWB requires an agenda package made up of a specifically-formatted agenda item and additional information depending upon the type of proposed action.

 

Standard information required when requesting PWB of Finance Action:  When submitting a request for one or more actions or approvals by either PWB or Finance, the department must provide completed versions of the following standard reporting forms.

 

1. Request for Approval to Proceed or Encumber Funds (DF-14D):  The requesting department submits this forms to seek approval of a project action by PWB or Finance.  The form can be found at: Budget Forms | Department of Finance under the “Capital Outlay Budget Forms” section at the bottom of the page.
   
   This is the official request document which identifies the project and the requested action(s).  For projects managed by DGS, the "Project Manager" signature is the DGS project manager, otherwise it is the department's project manager. The "Department Director or Designee" signature is the department requesting the action. Finance's signature on the returned form is evidence of PWB/Finance approval of the request. Any conditions of approval will be noted on the document.
   
   
2. Project Cost, Funding, and Schedule Summary:  This summary is a chronological history of costs, funding and schedules.  The initial column reflects the approved COBCP.  Each additional submittal requires a new column with the most recent totals and dates.  The funding data includes all approved appropriations and executive orders, changes included in this request, and future funding requirements.
3. Project Cost Detail Estimate:  The department must provide a cost estimate, often referred to as a three-page estimate, in sufficient detail to communicate and support the request.  The total costs must tie to the Project Cost, Funding and Schedule Summary.

PWB Agenda Package:  When submitting a request for one or more actions or approvals by PWB, the department must submit an agenda package, as follows:

1. Who submits an agenda package: The project manager—either DGS or the department if it is authorized to act as project manager—submits the agenda package. However, if DGS submits the agenda package, the department is responsible for confirming the accuracy of program information, providing all required supporting documents to DGS in a timely manner, and indicating to Finance their concurrence with the requested action (typically by signing the

   DF-14D).  Note that an agenda package is required for items that are to be heard by the PWB as well as those items that can be delegated to staff.
   
   

2. What is the agenda item: An agenda item, which is the legal action the department is asking PWB to take, also known as the Staff Analysis document. Agenda items submitted by departments can be categorized as either action, consent, or bond items .Action items are presented to the PWB at its meeting and are typically reserved for sensitive issues or noteworthy actions. Consent items are summarized for the PWB and are for items that are not considered sensitive .Bond items approve financing activities related to bonds issued by PWB. In some cases, and at the discretion of PWB, some consent items may be approved administratively by PWB staff and listed in the reportables section of the meeting agenda.

The Finance Capital Outlay Unit has developed a PWB Agenda Item Desk Manual that lists the most common actions and provides guidance on appropriate formatting.

 

STARTING CAPITAL OUTLAY PROJECTS - 6823

(Revised: 03/2025 )

(Revised and Renumbered from 6847.)

Capital outlay projects are authorized through the annual Budget Act or other legislation. If the project authorization includes a defined scope and cost, the department submits a Form 22 (or Form 220 if bond funded) or equivalent to Finance to encumber funding necessary to begin the project. If project scope and cost are not defined, the department must submit a request to the PWB to establish project scope, cost, and schedule. 

 

PWB agenda package for establishing project scope, cost, and schedule:

When submitting requests to establish project scope, cost, and schedule, the department provides the following:

1. All information requested in Section 6822, such as the standard fiscal reporting requirements and the agenda package.
2. A description of the scope, cost, and schedule.
3. An explanation of the purpose of the funding.
4. Confirmation that the proposed scope, cost, and schedule meet any legal or policy obligations.
5. If applicable, documentation on any requirements for the program (for example):
1. Authority approved through another state entity, such as an award granted by a department through a competitive Request for Proposals process to allocate fundings based on a set of criteria outlined through law or a regulations package.
2. Action of a non-state governing body to identify the authority and fund source for any required non-state funding match.

 

After the PWB has established project cost, scope, and schedule:  Finance will sign the DF-14D and if applicable, a Form 22, Form 220, or equivalent form, for the initial phase of the project. 

 

SITE SELECTION AND ACQUISITION - 6824

(Revised: 04/2025 )

 

One of the core functions of the capital outlay process is the acquisition of real property for the state, such as obtaining land or exercising purchase options. All acquisitions are subject to Property Acquisition Law (Government Code Sections 15850–15866), other than the exceptions listed in Government Code Section 15853).  For acquisitions subject to Property Acquisition Law, PWB and DGS shall manage the acquisition process on behalf of the departments. Even if a specific site is designated for acquisition by the Legislature, PWB must approve the site before any acquisition activities can begin.

Site Selection

What is Site selection? When acquiring real property, the first component of the acquisition phase is site selection. This phase starts when the Finance transfers the portion of acquisition phase funding dedicated to site selection using a Form 22 or a Form 220. Departments that manage their own acquisition negotiations should use their own equivalent to the Form 22 or Form 220.

During site selection, DGS or the department identified in Government Code Section 15853, will initiate any tasks necessary to identify an appropriate parcel (e.g., due diligence, environmental review, site studies, suitability reports, appraisals).

Department’s role:  The department is responsible for obtaining PWB review and approval of site selection prior to expenditure of appropriated funds for subsequent phases. Timeframes for submitting requests for site selection approval to PWB staff are presented in Section 6821 and can be found on the State Public Works Board Calendar at www.spwb.ca.gov.

PWB’s role related to site selection approval:  PWB approves site selection.

PWB agenda package for site selection:  When submitting requests for approval of site selection, the department provides the following:

1. An agenda item that addresses:
   1. The site is within scope, meets the department’s needs, and no significant concerns are raised about the condition of the property. If the site is not within scope, see Section 6834.
   2. Implied dedication has been considered in the appraised value. Implied dedication refers to a public easement which has been created through a history of use. (Determination of implied dedication is case-specific and based on facts involved in a given situation.) Implied dedications may reduce the value of a property.
   3. The project has complied with CEQA, as described in Section 6826.
   4. If improved property is to be acquired, a relocation study has been prepared and adequate funds are available for relocation costs.
   5. The proposed project location is consistent with the state’s planning priorities in accordance with Government Code Section 65041 et seq.

2. A legal description and title report covering each parcel to be selected.
3. A Summary of Conditions Letter or other document demonstrating the completion of Real Estate Due Diligence (Section 6827).
4. DF-14D (See Section 6822)

It is expected that the department will provide the time and place of the PWB meeting and an agenda to the property owner and other interested parties.

After the PWB has approved site selection: Finance will sign the DF-14D and the appropriate state representative will commence formal acquisition negotiations with the property owner.

Acquisition

What is Acquisition: The purchase of real property by the state. Two main ways by which the state acquires land are: (1) a negotiated sale, or (2) eminent domain (see Section 6825). 

The steps below pertain to a negotiated sale.

After PWB approves site selection, DGS enters into negotiations with the property owner to ensure the property acquired is appropriate for the project and in the best interest of the state. If the settlement price exceeds the appraised value, DGS provides a recommendation on how to proceed, which may include:

1. Approval of the acquisition at the higher settlement amount with appropriate justification (and if necessary, request an augmentation).
2. Approval of the acquisition for a portion of the site selected property if it is determined that a lesser portion of the property is sufficient to meet the objectives of the project (see below – when the total acquisition project cost exceeds the appropriation by more than 20 percent).
3. Eminent domain.

Department’s role:  The department is responsible for obtaining PWB review and approval of acquisition prior to expenditure of appropriated funds for subsequent phases. Timeframes for submitting requests for site selection approval to PWB staff are presented in Section 6821 and can be found on the State Public Works Board Calendar at www.spwb.ca.gov.

Supplemental information to acquire a portion of the site selected property:

Submit this item only if the project is solely an acquisition project, the total project costs exceed 20 percent of the amount appropriated, and the client department believes that a lesser portion of the property is sufficient to meet the objectives of the project approved by the Legislature – see Section 13332.11(i) of the Government Code. This item requires a 20-day Legislative notification.

PWB’s role related to acquisition:  PWB approves acquisition.

PWB agenda package for standard acquisition:  When submitting requests for approval of acquisition, the department provides the following:

1. An agenda item that:
   1. Confirms the information provided during site selection approval remains valid.
   2. Provides the purchase price and confirms it is within the appropriated amounts.
   3. Describes the condition of property, any improvements, and Environmental Site Assessments. Discuss any issues identified and the costs associated with resolving those issues. If any of the issues cannot be resolved, indicate why they cannot be resolved and provide justification for recommendation of the acquisition.
   4. States the anticipated close of escrow.
2. Signed Property Acquisition Agreement with Grant Deed.
3. Signed DF-14D (See Section 6822).

PWB agenda package for acquiring less property pursuant to Government Code Section 13332.11 (g). The agenda package includes:

1. All of the elements specified above for a standard acquisition.
2. A written statement explaining why the purchase of lesser property fulfills the Legislature’s intent; and,
3. A draft notification letter to the Legislature.

PWB agenda package for acquiring property with a settlement price that exceeds the appraisal. The agenda package includes:

1. All of the elements specified above for a standard acquisition.
2. An explanation for the increase in the settlement price and justification for the recommendation of the acquisition.
3. If an augmentation is required, a separate agenda package is not needed but the submittal must include the additional information outlined in Section 6833.

After the PWB has approved acquisition: Finance will sign the DF-14D and the Property Acquisition Agreement.

Interim property management by DGS after acquisition: Until property acquired under the Property Acquisition Law is needed, jurisdiction lies with DGS:

1. The Director of General Services may transfer jurisdiction to the client department, if early transfer is in the best interest of the state (e.g., the department requires interim use for parking).
2. DGS may lease all or any part of the property.
3. DGS may remove or demolish structures.
4. DGS may sell or dispose of the improvements.
5. Rentals received are deposited in a special account in the General Fund and, when appropriated by the Legislature, are available to DGS to maintain, improve or care for the property until needed for the purpose acquired (Government Code Section 15863), with the exception of lands acquired for the State Park System (Public Resources Code 5003.17). However, proceeds of sale of improvements are not deposited in the special account or available for maintenance.

 

EXERCISE OF EMINENT DOMAIN (CONDEMNATIONS) - 6825

(Revised: 03/2025 )

(Revised and Renumbered from 6866.)

Property Acquisition and Eminent Domain: One of the core functions of the PWB is the acquisition of real property for the state (See Section 6824 for additional information on the acquisition process).  Typically, the state acquires property through negotiations with willing sellers, however, under certain circumstances, the state may acquire property through eminent domain.

Eminent domain is the process by which a government may obtain private property for public use, following the payment of just compensation. Government Code Section 15855 establishes the PWB as the only state entity, with some exceptions, that has the authority to exercise the power of eminent domain to acquire property needed by any state agency, for state use. The eminent domain process is used only when a specified property is needed to complete a necessary public project, but the property owner(s) is either unwilling to sell the property, or negotiations to see the property have come to an impasse.

The following discussion outlines the steps involved in the eminent domain process.

Agenda packages for proposed condemnations: When requesting the PWB use eminent domain to acquire a property, the client department (and/or DGS) must provide all the following:

1. All information requested in Section 6822, including the standard fiscal reporting requirements and the agenda package.
2. A statement of the property’s proposed public use.
3. A description of the general location and extent of the property to be taken, with sufficient detail for reasonable identification.
4. An analysis of necessity showing that:
   1. The public interest and necessity require the proposed project.
   2. The proposed project is planned or located in the manner that will be most compatible with the greatest public good and the least private injury.
   3. The property is necessary for the public good.
   4. An offer has been made to the owner or owners of record.
5. Chronology of attempts to purchase the property and/or contact the owner.

PWB Actions: Once PWB staff determines that there is sufficient information to support an eminent domain action, each person whose property interest is being acquired is mailed a Notice of Intent (NOI) letter by the PWB informing them of the intent of the PWB to adopt a resolution that would allow the commencement of an eminent domain proceeding (Resolution of Necessity or “RON”) to acquire their property. The NOI is typically sent at least 15 days prior to the PWB meeting considering the adoption of the RON and provides the property owner(s) with the date and location of the PWB meeting where the matter will be taken under consideration, and also provides the property owner(s) a reasonable opportunity to appear and be heard at the PWB meeting. 

Pursuant to Code of Civil Procedure Section 1245.230, the PWB may adopt a RON if it has found and determined that the following conditions have been met:

• The public interest and necessity require the project;
• The project is planned or located in a manner that will be most compatible with the greatest public good and the least private injury;
• The property sought to be acquired is necessary for the project; and
• An offer required by Government Code section 7267.2 has been made to the owner or owners of record or the offer has not been made because he owner cannot be located with reasonable diligence.

The PWB does not consider issues of compensation for the subject property; all issues related to the compensation to be awarded for the acquisition of the property will be resolved through a court proceeding, after the RON is filed in the superior court where the property is located.  

 

ENVIRONMENTAL IMPACT REVIEW PROCESS - 6826

(Revised: 04/2025 )

 

Departments are responsible for demonstrating how a project complies with the California Environmental Quality Act (CEQA) prior to coming to the Board to request approval of any action for a given project.  Legal statutes and related regulations covering CEQA can be found in Public Resource Code Section 21000 et seq. and its accompanying regulations, California Code of Regulations (CCR) 15000 et seq. Many actions brought before the Board for consideration and approval are “projects” within the definition of CEQA. These statutes and regulations set out the environmental review requirements for such projects.

Key definitions: For assistance on understanding the documents and notices required by CEQA, see the https://www.opr.ca.gov/ceqa/getting-started/. The webpage provides an explanation of the environmental process, definition of many common terms, and link to current guidelines. The following summarizes a few frequently used terms and describes what CEQA documents include:

1. Project per CEQA: The term project per CEQA is defined in CCR Section 15353 and includes, but is not limited to, an activity involving a lease, permit, or license issued to a person or entity.

2. Environmental Impact Report: An environmental impact report (EIR) is a detailed statement describing the significant environmental effects of a project, ways to mitigate or avoid the effects, and reasonable alternatives to the project. An EIR consists of draft and final documents. There are several types of EIR (focused, supplemental, program, etc.). An EIR is required when there is substantial evidence that a project may have a significant effect on the environment.

3. Negative Declaration: A negative declaration is used when the initial study for a project shows no substantial evidence that a project may have a significant effect on the environment. The declaration must include a copy of the initial study supporting the claim of no significant environmental impact or offsetting mitigation resulting in no significant environmental impact.

4. Categorical exemption: A categorical exemption is an exemption from CEQA based on one or more classes of actions/projects established in regulation. Each class of projects has been determined to not have a significant effect on the environment.

Related notices include:

1. Notice of determination: A notice of determination is a brief notice filed by the lead or responsible agency after it approves or determines to carry out a project or action that was subject to CEQA. For state projects, the notice is filed with the State Clearinghouse, Office of Planning and Research. Filing of this notice starts a 30-day statute of limitations. See CCR, Title 14, Division 6, for the contents of this notice. A notice of determination is used for both EIRs and negative declarations.

2. Notice of exemption: A notice of exemption is a brief notice that may be filed by the lead agency after it approves or determines to carry out a project or action that was exempt from CEQA because the project was ministerial, categorically exempt, etc. For state projects, the notice is filed with the State Clearinghouse. Filing of this notice starts a 35-day statute of limitations.

Department’s role: The lead agency has the responsibility for determining whether the project is subject to CEQA and how CEQA requirements are met. Departments must certify to the PWB that CEQA requirements have been met, including the expiration date for the statute of limitations.

Changes in circumstance: The department as lead agency ensures that there have been no changes in the project, site conditions, or other factors that may make it necessary to prepare additional environmental documentation. The need for additional documentation could arise for a variety of reasons, especially if there has been a substantial period between completion of the environmental review process and project submittal to the PWB. For example, if information becomes available that there is an unexpected problem of soil contamination within the project site, the lead agency may need to revise the previously approved environmental document. Other examples include the adoption of new regulatory standards that impose constraints on the project, changes in the setting of the project site such as the reduced availability of on-site utilities (water supplies, sewer service, etc.), increased traffic congestion, or the development of adjacent land uses that conflict with the project.

 

The department must also ensure that all projects remain in compliance with the environmental document prepared and adopted for each respective action. In some cases, it may be necessary to provide additional documentation to support the finding that the original environmental process remains valid. Both state and federal environmental review processes provide guidance on when supplemental or revised environmental documentation may be needed subsequent to the approval of a project.

PWB practices: Because resolution of CEQA concerns should generally precede PWB’s approval of state funds for a project, PWB follows these practices:

When processes should be completed: Departments must provide PWB with evidence that the state’s environmental review process has been completed by the lead agency (the public agency with primary authority for carrying out the action) prior to the required PWB action.

• For acquisition, this means prior to acquisition approval and potentially prior to site selection.
• For construction projects, this means prior to approval of preliminary plans or performance criteria.

• For build-to-suit/capitalized leases, this means prior to approval of the lease.

CEQA compliance outside the PWB process: CEQA requirements are not limited to projects reviewed by PWB. Actions not reviewed by PWB, such as minor capital outlay projects or deferred maintenance, may nonetheless constitute “projects” within the definition of CEQA and its accompanying regulations. Again, in each case the lead agency is responsible for determining the application of CEQA to each project and fulfilling the relevant requirements.

 

PROJECT DUE DILIGENCE - 6827

(New: 03/2025 )

 

Real estate due diligence consists of the identification of title, environmental, and site issues, and a determination of whether these issues affect value, desirability, or utility, of a property for a proposed state use.  Departments, or DGS on behalf of departments, are responsible for conducting real estate due diligence for any capital outlay project.  If there are issues identified, the department must explain how these issues will be resolved.  Sections 6824, and 6828 through 6832 indicate when real estate due diligence must be completed, depending on project phase and procurement method.

PWB requires a Summary of Conditions letter or other document outlining all findings of due diligence and identifying any recommendations for the mitigation of any known condition on or off the property that may affect the state’s intended use of the property.

As part of the bond sale for lease revenue bond-funded projects, there may be additional refinements required to the Summary of Conditions letter or other document. Contact your Finance capital outlay budget analyst for additional information.

 

DESIGN-BID-BUILD DEVELOPMENT AND REVIEW - 6828

(Revised: 04/2025 )

OVERSIGHT OF TRADITIONAL DESIGN-BUILD PROJECTS - 6829

(New: 04/2025 )

 

There are two phases to a project using the traditional design-build delivery process:  performance criteria (which includes soliciting for design-builders) and design-build.  Requirements to start and complete each of these phases, as well as the process to award a design-build contract, are described within this section.  The discussion in this section applies to projects that are overseen by PWB and Finance.

Performance Criteria Phase

What are performance criteria?  Performance criteria, defined in Section 3.00 of the Budget Act and Government Code Section 13332.19(a)(6), are the documents prepared by a state-contracted Criteria Team that set forth the scope and stipulated sum of the project.  Section 1.80 of the Budget Act provides one year to encumber performance criteria authority.

Performance criteria are based on the information contained in the COBCP and budget package and includes  project characteristics and specifications that are necessary for establishing minimum requirements and may also include concept drawings which are schematic drawings or architectural renderings that illustrate the state’s needs.  During this phase, a Request for Qualifications (RFQ) is issued in order to evaluate and shortlist potential design-build teams.  The shortlisted teams will then compete for the design-build contract upon release of the RFP.  The performance criteria may include the size, type, and desired design character of the project, and specification for quality of materials, equipment, finishes, and any other information necessary to describe the needs of the department.  The compiled data in the performance criteria becomes the basis for the Request for Proposal (RFP) that is issued to the shortlisted design-build entities. 

Beginning of phase:  If a department contracts with DGS for project management, the performance criteria phase starts with the request to Finance to release funds for performance criteria using a Form 22 or Form 220.  Departments that manage their own projects should use a DF-14D to encumber performance criteria funding if they do not have their own equivalent to the Form 22 or Form 220.  For projects that are not defined in a Budget Act or legislative appropriation, PWB must approve an action to define the cost, scope, and budget of a project prior to the start of performance criteria. 

Client department’s role:  The client department is responsible for obtaining PWB review and approval of performance criteria prior to expenditure of appropriated funds for the design-build phase.  Section 13332.19(c) of the Government Code requires that any appropriated amounts for design-build must be reverted should the design-build phase start prior to the approval of performance criteria.  Time-frames for submitting requests for performance criteria approval to board staff are presented in Section 6821 and can be found on the State Public Works Board Calendar at www.spwb.ca.gov. 

Finance/PWB’s role/restrictions related to performance criteria approval:  Section 13332.19(b) of the Government Code requires PWB to approve performance criteria for all major capital outlay projects to ensure that projects proceeding to the design-build phase are consistent with legislatively approved cost and scope.  Finance approval is required before release of the RFP.  Section 13332.19(h) requires Finance to notify the Legislature with respect to approval of performance criteria if the estimated cost of the project exceeds 20 percent of the amount recognized by the Legislature. 

Best Value, Stipulated Sum, and Enhancements:  Design-build projects are generally awarded based on best value for the state.  Best value is defined in Section 10187.5(a) of the Public Contracts Code as a value determined by evaluation of objective criteria that relate to price, features, functions, life-cycle costs, experience and past performance.  Many design-build projects do not have a competitive price component, but rather rely on a stipulated sum, which is a fixed price for the design-build contract meeting the base requirements specified in the RFP.  The stipulated sum is established by the department, or DGS on behalf of the department for DGS-managed projects, with the concurrence of Finance.  Competing teams would then be evaluated on their design, enhancements to the base requirements, and other RFP responses.

Value engineering:  If a project is expected to exceed project costs based on the performance criteria estimate or comments received from the design-build teams, PWB typically requires value engineering be conducted to determine cost saving strategies to allow the project to meet its stipulated sum. The principle concepts which underlie the value engineering methodology are function, cost, and worth.  The approach is to analyze the functional requirements of a project’s materials, methods, components and subsystems in order to explore alternate solutions which improve project efficiency without reducing program value.  During this process, all expenditures relating to design, construction, maintenance, operation, replacement, etc., are considered to ensure that any value engineering is cost effective and practical for the useful life of the facility. 

PWB agenda package for performance criteria:  When submitting requests for approval of performance criteria, the client department provides the following:

1. All information requested in Section 6822, such as the standard fiscal reporting requirements and the agenda package.
2. A copy of the performance criteria, preferably electronic, along with an executive summary.
3. Notification of the method to be used for selecting the design-build entity (i.e. best-value, low-bid, or a hybrid) as required in Public Contract Code Section 10190.
4. For proposed cost increases, the information required in Section 6833.
5. For proposed scope changes, the information required in Section 6834. 
6. Evidence of CEQA compliance (Section 6826) such as a copy of the filed Negative Declaration or a link to the project within the state clearinghouse at https://ceqanet.opr.ca.gov.
7. A Summary of Conditions Letter or other document demonstrating the completion of Project Due Diligence (Section 6827).
   

Performance criteria presentation meeting:  Client departments must meet with PWB staff to present the performance criteria before PWB staff will consider a request for performance criteria approval.  The purpose of the meeting is to verify that the project, including all value engineering or enhancements, is within scope based on document review.  After the meeting, if the project qualifies, PWB may opt to delegate performance criteria approval.  Otherwise, this meeting should occur prior to the screening meeting for that month’s agenda.

After the PWB has approved performance criteria:  Finance will sign the DF-14D to approve performance criteria, and if design-build authority is available, Finance will also approve the release of the RFP.  Once the performance criteria are approved, Government Code Section 13332.19(c) requires that a substantial change shall not be made without written approval of Finance.

Solicitation of Design-Build Bids or Proposals

Obtaining approval to solicit design-build bids or proposals: Prior to releasing the RFP for the design-build project, the client department must request Finance approval to solicit design-build bids or proposals. This request is generally submitted concurrently with approval of performance criteria, if the design-build funding has been appropriated.  To obtain Finance approval, the client department must:

1.   Have a design-build appropriation:  A design-build appropriation for the project must be authorized (chaptered budget act and/or legislation) prior to advertising the project or issuing the bid. 

2.   Confirm availability of non-state funds:  For any projects that include non-state funds, the client department must provide proof that those funds are either available (local or private partners) or committed (federal), including a reasonable augmentation reserve, typically 20 percent of the non-state share of total project costs. If the non-state funds are from a federal program that restricts augmentations, the client department must specify the nature of the restriction.

3.   Obtain approval of bid alternates:  While the design-build completion is usually based on the best value selection method, in some instances, a low bid may be used as a selection criterion.  In this case, Public Contract Code Section 10126 allows bids to be accepted on additive or deductive alternates up to 10 percent (10%) of the estimated cost of the base project.  Government Code Section 13332.19(c) requires Finance approval of bid alternates.  Bid alternates cannot be so substantial as to create a scope change.  Deductive alternate need to follow the guidelines for value engineering (Section 6828) in which the deduction is cost effective and practical for the useful life of the facility.

The purpose of bid alternates is two-fold.  If a project comes in over budget, deductive alternates can help avoid the need to re-bid the project.  Conversely, if bids come in under budget, additive alternates can allow project improvements.  Bid alternates (which must be bid separately from the main contract) must include all proposed deductive items in priority order followed by all additive items in priority order.  For project relying on a competitive cost component, Finance encourages submittal of at least three deductive alternates to ensure a successful contract award in the event that all bids submitted exceed budget.

4.   Obtain PWB approval for combined bids:  Public Contract Code Section 10127 authorizes DGS to receive bids for the construction of several projects, treated as a single project for bidding purposes as long as those projects are within 100 miles of one another.  PWB must approve any request to combined bids.  Departments are required to assign costs to the various projects and appropriations and to maintain separate cost accounting for each project.

5.   Reporting requirements for approval to solicit design-build bids or proposals: 

a.   Standard fiscal reporting requirements as defined in Section 6822.

b.   If proposed, a list of additive and deductive alternates in priority order.

c.   If the request includes a request for combined bids, an agenda package as defined in Section 6822 and an explanation of the benefits of combined bids in this situation; and

d.   If the request includes non-state funds, proof that those funds are either available (local or private partners) or committed (federal).

After Finance signs the DF-14D, the client department notifies DGS to solicit proposals.

What occurs during the design-build solicitation process:  For design-build project using the best-value methodology, the process starts with the release of the RFP, and typically a stipend agreement, to each of the shortlisted design-build teams.  Each team develops proposals demonstrating how they will meet the requirements of the RFP, as well as any enhancements outlined in the RFP which will be included in their final proposal.  Once the proposals are submitted, the department, or DGS for DGS-managed projects, will score the proposals to determine which design-build team would provide the best-value for the state.

Design-Build Phase

What is the design-build phase:  The design-build phase is defined in Section 3.00 of the Budget Act and Government Code Section 13332.19(a)(5) as “the period following the award of a contract to a design-build entity in which the entity completes the design and construction activities necessary to fully complete the project in compliance with the terms of the contract.” The design-build phase may also include departmental costs for agency-retained work related to the project.  Section 1.80 of the Budget Act provides three years to encumber design-build authority.

Beginning of phase:  Awarding the contracts initiates the design-build phase.  Should design-build funds be expended prior to the approval of performance criteria, Section 13332.19(c) of the Government Code requires that any appropriated amounts for construction be reverted.

Information requirements to release design-build funds.  After proposals have been received and a winning design-build team is selected, the client department requests Finance to authorize award of the contract.  The client department provides the following information with this request:

1. The standard fiscal reporting requirements specified in Section 6822.
2. Transfer Request (Form 22 or 220).
3. Results of the design competition.
4. Verification that legal requirements have been met for the lowest bidder (this can be included on the bid tabulation).
5. A list of accepted additive or deductive alternates, if applicable.
6. A PWB agenda package for augmentation (Section 6833), if applicable.
7. A PWB agenda package for reversion of bid savings, if applicable. 
   

Steps following release of funds:  Once Finance signs the DF-14D to award the contract, Finance will authorize the encumbrance of the design-build funds.  For DGS managed projects, a Form 22 or 220 is used.  With this approval, an official award of the contract may be made.  Following execution of the contract, the contractor is provided formal notice to proceed with the design-build phase.  Any changes must be by contract amendment, and in some cases, Finance must concur with those changes (see following change orders).  The phase ends when construction is complete and accepted, and DGS or exempt department (Section 6832) files a Notice of Completion.

What are the cost elements of design-build? 

1. Design-build contract: This is the actual amount of the contract award and consists of both direct costs, often referred to as construction hard costs, and indirect costs such as architecture and engineering fees, Division of State Architect fees, and utility permits and connection fees.
   
   1. Change orders are formal contract amendments executed during the course of the design-build phase as required to address issues such as unforeseen site conditions and client department requests. Change orders are typically funded from the contingency line item of the project budget, discussed in the following text. When a proposed change order potentially modifies project scope or would exhaust contingency, thereby requiring a project augmentation, the client department must discuss the desired change with Finance before executing the change order to determine whether or not PWB action is required. (See Section 6833 for augmentations and Section 6834 for scope changes.)
      
2. Contingency: Contingency is a set percentage of the design-build contract amount budgeted for unforeseen costs identified after the design-build phase commences.
   

   Standard design-build contingencies are limited to 3 percent of the construction portion of a design-build estimate/bid.  However, in some cases, a different contingency might be justified.  Any deviation from the standard requires Finance concurrence. A construction contingency is included in the budget so the project can proceed with minimal interruption for non-scope changes or modest cost overruns.  Generally, the project manager approves the use of contingency funds.
   

3. Design-Build Project Administration: The term project administration is applied to all project expenses incurred during the design and construction of the facility, other than costs in the design-build contract or contingency. The major cost items are inspection, construction management, architect/engineer review, technical peer review, building commissioning, stipend agreements, and special consultants—primarily for materials testing and hazardous materials abatement monitoring. Each cost is delineated in the Project Cost Detail Estimate (Section 6822).

Project Completion:  See Section 6832.

 

EQUIPMENT - 6831

(Revised: 03/2025 )

PROJECT COMPLETION - 6832

(Revised: 03/2025 )

AUGMENTATIONS TO CAPITAL PROJECTS, AND RECOGNITION OF PROJECT DEFICITS - 6833

(Revised: 03/2025 )

(Revised and Renumbered from 6861.)

Augmentations to Capital Projects:  The PWB’s authority to augment capital outlay projects, and the appropriations for those augmentations, is set out in Government Code (GC) Sections 13332.11 (for design-bid-build projects), 13332.19 (for design-build projects) and 16352.  The augmentation authority is limited as follows:

1. Augmentations are limited to 20 percent of the amount appropriated.
2. Any single augmentation or cumulative augmentation exceeding 10 percent of the funds appropriated requires a 20-day notification to the Joint Legislative Budget Committee (JLBC) prior to action by the PWB.
3. Augmentations are calculated based on total capital outlay appropriations for the subject project.

4. Augmentations of less than 10 percent may be treated as a delegated item by PWB staff, and at their discretion may be approved prior to the PWB monthly meeting.  In this case, the augmentation approval will be reported as a “reportable” at the PWB meeting.

Recognition of Project Deficits: Pursuant to GC Sections 13332.11 and 13332.19, if the estimated cost of the total project is in excess of 20 percent of the amount recognized by the Legislature, when the department requests PWB to approve the preliminary plans, performance criteria, or the guaranteed maximum price, it must also seek PWB’s recognition of an anticipated deficit.  Finance notifies the JLBC of the anticipated deficit if it exceeds 20 percent of total project costs.

Agenda Packages for Augmentations or Recognition of Project Deficits:  These agenda packages require the following information:

1. All information requested in Section 6822, including the standard fiscal reporting requirements and the agenda package.
2. A draft legislative notification, if required.
3. A narrative description justifying the need for the request, including any supporting documentation as appropriate, such as efforts at value engineering, bid tabulations, alternative solutions, change order logs, etc.

 

SCOPE CHANGES - 6834

(Revised: 03/2025 )

(Revised and Renumbered from 6863.)

What is scope? The scope of a project is what will be constructed (or acquired) and for what purpose. Thus, scope encompasses both the physical characteristics of the project and the intended program use. For projects included in the Budget Act, the scope can typically be found in the COBCP narrative.  For other projects, scope is established through a PWB action (see Section 6823).

Scope changes require Finance approval.

Any substantial changes to a project must be reviewed and approved by Finance.  Finance determines whether the proposal meets the threshold for a scope change based on a review of the facts on a case-by-case basis and in consideration of legislative intent. 

This approval must be granted before the department can make any expenditures to redesign the project or to revise the plans unless those revisions are authorized in the Budget Act or other subsequent legislation.  The consequences of unapproved scope changes can be severe, including project termination.

Sections 13332.11(h)(2) and 13332.19 require Finance to report approved scope changes to the Legislature.  In practice, this restriction and related notification requirement begins with project authorization, even before preliminary plans are considered by PWB.

After Finance approves a scope change and the Legislature has been noticed, the scope change will be considered by PWB at its monthly meeting.

Guidelines to determine which project changes are potentially substantial

A department must discuss the following with its Finance capital outlay analyst to determine whether a proposal results in a scope change:

1. Changes to the approved functionality, which include modifications that would significantly:
   
   
   1. Add a new function that was not approved by the Legislature.
   2. Eliminate space for a function previously approved by the Legislature.
   3. Change capacity for a program activity (examples may include changing the number of students in a classroom building or inmates served in a Department of Corrections and Rehabilitation project).
   4. Alter the ratios in multi-use space.
      
      
2. Significant changes to the physical characteristics of the real asset, such as facility size, shape, and major structural characteristics. Examples include adding or subtracting floors to a building, combining two separate buildings into a single building, or significantly changing square footage or acreage.

Source references for project scope: A project’s scope is defined in the following source documents:

1. For Budget Act projects, the COBCP: A detailed description of project scope is required in the COBCP (Section 6808). This description becomes one of the primary references for later interpretation of potential scope changes.

    

2. For non-Budget Act projects, the scope is defined in a PWB agenda item to establish cost, scope, and schedule.

 Agenda packages for scope changes:  Provide all information requested in Section 6822, including the standard fiscal reporting requirements and the agenda package, and the following additional information:

1. The specific components of the scope change.
2. An explanation describing the need for a scope change.
3. The effects of the scope change, including cost, additional regulatory reviews, CEQA analysis, etc.
   
   

INMATE/WARD LABOR - 6835

(Revised: 03/2025 )

(Revised and Renumbered from 6865.)

Public Contract Code Section 10103.5 provides an exclusion to the State Contract Act for work performed by prisoners pursuant to an order by the Director of the Department of Corrections. If the total cost of a project for the construction of new, previously unoccupied prison facilities or additions to an existing facility exceeds $50,000, use of inmate/ward labor must first be approved by PWB.

PWB Agenda package for inmate/ward labor: The request to use inmate/ward labor for services exceeding $50,000 is normally presented as a sub-item under the request for approval of preliminary plans, although it can be presented later. Assuming inmate/ward labor is concurrent with preliminary plans approval, the department should ensure that the approval of inmate/ward labor is included in the DF-14D. Otherwise, a full agenda package (see Section 6822) is required. A full agenda package is also required if the use of inmate/ward labor is needed for a minor capital outlay project.

 

LEASE-BASED PROJECT DEVELOPMENT - 6836

(New: 03/2025 )

 

There are several project delivery methods that can be used by the state to construct capital assets:  Design-Bid-Build (Section 6828), Design-Build (Section 6829), and Lease-Based Development Agreements.  This section describes the process for pursuing a Lease-Based Development structure.

 

In general, when a new state-owned capital facility is proposed, the state’s preferred approach is to acquire property for the subject project. For this approach, an acquisition phase is funded through the annual budget process, and the appropriate department will engage with the Department of General Services (DGS) to search for suitable sites.  Once a property is acquired, future phases for the project will be funded through the budget process, and the project will be designed and constructed with DGS as the project manager, (or by the appropriate agency for non-DGS managed projects), with oversight by the PWB.  Government Code § 14669 authorizes the DGS to hire, lease, lease-purchase, or lease with the option to purchase any real or personal property for the use of any state agency, subject to specified restrictions.

 

However, in instances where the state is unable to identify and acquire a suitable site that supports a specific capital project, a lease-based development option may be considered. This type of lease structure is generally referred to as a Build-to-Suit Lease.  Under this lease structure, the state is not required to make any payments, including interim financing, until occupancy. 

 

Generally, there are two types of Build-to-Suit lease options the state may pursue: 

 

• Capitalized Lease Resulting in Ownership:   Sometimes referred to as an “in-substance purchase” or “Lease-Purchase”, a capitalized lease is one where the private sector is responsible for acquiring, developing, and constructing a facility that is built to state-issued specifications. The lease specifies that ownership of the facility transfers to the state at the end of the lease term. 
• Capitalized Lease with a Purchase Option:  Similar to a capitalized lease as defined above, but the lease gives the lessee the option to purchase the leased asset at a specified value at some point during or at the end of the lease period, sometimes referred to as a “Lease with Option to Purchase”.

Features of a Build-to-Suit Lease:

 

• The state, in collaboration with the developer, completes CEQA.
• The state is responsible for completing real estate due diligence activities. 
• A lease-based project is subject to the typical state design and construction oversight (e.g. Construction Inspections Management Branch of DGS, State Fire Marshal, etc.).
• The state’s sovereign status applies, and a lease-based project should not be subject to local zoning, permitting or inspection.
• Developer costs, and profits are folded into the lease payments. 
• Repair, maintenance and overall operating costs are generally folded into the lease until the lease expires.
• The terms of a capitalized lease should ensure the facility is in good repair at the end of the lease term, through the lease requirement for a Computerized Maintenance Management System.

Requirements for a Financing Lease:  As with lease-revenue bonds, the state’s debt obligations under the lease cannot be structured in a way which would classify them as constitutional debt.  The terms and conditions in the lease must be similar to the lease terms found in a commercial context for similar types of facilities. Features of a financing lease include:

 

• Rental payments are paid only for those periods in which beneficial use and occupancy of the leased property is available to the lessee.
• If there is no annual appropriation for rent when the leased property is available for use and occupancy, the state will be in default under the lease, and remedies may be available against the state.  These remedies may include the vendor’s or lessor’s right to continue the lease in existence and sue the state for each installment of rent as it becomes due. 
• Acceleration of rental payments is not permitted. 
• The obligation to pay rental payments may be from any lawfully available funds of the department. 
• The lease term should not extend beyond the anticipated useful life of the leased property, and fair market rental value should be paid.

Steps in a Build-to-Suit Lease:  After it has been determined that a project site is not available for a specified project, and that a lease structure should be pursued, the following steps must occur:

1. Statutory Authority:  The department submits a Capital Outlay Budget Change Proposal requesting Trailer Bill Language to add statutory authority to pursue a capital project through the capitalized lease structure pursuant to Government Code §14669.  Also, a future appropriation will be necessary to cover the costs of state oversight of construction activities.  For the year construction is expected to be completed, the department submits a Budget Change Proposal for one-time moving costs and rent.
   
   
2. Form 9 and 10:  After a project has statutory authority to enter into a capitalized lease, the client agency works with DGS real estate staff to create a Facilities Design Program that outlines project and program specifications.  The final outcome of this activity is memorialized through a Form 9 “Space Action Request” and Form 10 “Estimate of Occupancy Costs” submittal.  Both Forms 9 and 10 must be approved by Finance.
   
   
3. Solicitation for private development entity: DGS posts a “land ad” on the Cal eProcure website to determine the inventory of available sites in the desired project area owned by private developers.  A “short list” of potential sites is created, and the client agency ranks them based on desirability.   DGS will issue an RFP to developers on the short list.  Once a firm is selected, DGS will negotiate a lease contract that details the terms of the agreement, including a lease payment structure.
   
   
4. Legislative Notification:  DGS is required to notify the legislature prior to entering into a build-to-suit lease, pursuant to GC 13332.10.
   
   
5. PWB approval of Lease:  Although no capital expenditure is made when entering into a capitalized lease, a commitment to a capital acquisition is created.  Therefore, the final lease terms must be approved by the PWB prior to execution.  DGS must also present to PWB the real estate due diligence.  All requisite actions under CEQA must be completed within a reasonable time after PWB approval, as a “Condition Precedent” to the lease agreement.  If CEQA is not achieved, the state has the right to terminate the lease.
   
   
6. Design Development:  Once the final lease is approved, the development team will design the project to the state’s specifications, and will secure all required regulatory reviews and approvals, including those from the Department of State Architect and the State Fire Marshal (SFM).  In addition, the development team will work with local jurisdictions (City and County) to obtain any necessary approvals.
   
   
7. Facility Occupancy:   Once the facility is constructed, the SFM issues a Certificate of Occupancy, and the client agency approves and “accepts” the building for its use and occupancy.  The client agency makes annual payments based on the approved lease terms for the duration of the lease.  During the lease term, the developer is responsible for operating and maintaining the building.
   
   
8. Exercising a Purchase Option:  For leases with a purchase option, a capital outlay appropriation sufficient to fund the purchase of the capital asset and to cover any additional administrative costs will be required.  In addition, PWB’s authorization is necessary to exercise the purchase option.  However, the current standard is for build-to-suit leases to automatically transfer to the state at the end of the lease.
   
   

FINANCING CAPITAL PROJECTS - 6841

(Revised: 03/2025 )

(Revised and Renumbered from 6870.)

Capital projects may be funded by direct appropriation—sometimes called “pay-as-you-go”—or financed over multiple years.  Long-term financing generally follows one of two paths:

1. If the project authority is a General Obligation (GO) bond appropriation, the state issues GO bonds to finance the project.  GO Bonds are approved by voters with debt service paid through the General Fund.
   
   
2. If the project authority is a Public Buildings Construction Fund (lease-revenue bond) appropriation, lease-revenue bonds are issued by the State Public Works Board.  Debt service is paid through a support appropriation in the annual Budget Act.  Lease revenue bonds are not approved by the voters, and are secured through the lease payments made by the departments pursuant to a facility lease. 
   
   

GENERAL OBLIGATION (GO) BONDS - 6842

(Renumbered: 02/2025 )

 

Definition:  General Obligation (GO) bonds are a form of long-term borrowing in which the state issues municipal securities and pledges the full faith and credit of the General Fund for repayment.  Bonds are repaid over many years through semi-annual debt service payments.  The California Constitution requires that GO bonds be approved by a majority vote of the public and sets repayment of GO bond debt before all other obligations of the state except those for the public school system and public institutions of higher education.

 

Key statutory authorities:  Article XVI, Section 1 of the California Constitution prohibits the Legislature from creating debt or liability exceeding $300,000 without a majority vote by the people, except in the case of war. 

 

Government Code, Title 2, Division 4, Part 3 (Section 16650 et seq.) sets out the statutory framework for GO bonds.  The statutes for individual GO bond measures are placed programmatically in the associated codes (e.g., education authorizations are located in the Education Code).

 

Key Highlights

1. GO bond debt is a major component of the overall bond debt burden of the state. The most commonly used measure of debt is annual debt service as a percentage of General Fund revenues.
   
   
2. GO bond debt repayment is continuously appropriated and therefore not included as a separate appropriation in the annual Budget Act.
   
   
3. Debt service consists of both principal and interest payments.
   
   
4. GO bond debt repayment structure is determined by the State Treasurer’s Office (STO) at the time bonds are sold based on a variety of factors including the taxable status of the bonds and bond market conditions.
   
   
5. The California Constitution authorizes GO bonds with up to 50-year maturities, but federal tax requirements and market practice usually dictate that bonds be issued no longer than 30 years. In addition, certain bond acts may further limit maturities.
   
   
6. Finance surveys departments semiannually to determine their projected cash flow needs for GO bond-funded programs.
   
   
7. To meet projected cash flow needs, GO bond Finance committees, created in respective bond acts, must authorize the sale of new money and refunding bonds, as well as the use of interim financing as authorized in law.
   
   
8. The STO is the agent for sale and trustee for state GO bonds.

 

STATE PUBLIC WORKS BOARD LEASE-REVENUE BOND PROGRAM - 6843

(Revised: 02/2025 )

(Revised and Renumbered from 6873)

The State Public Works Board (PWB) is authorized to issue lease-revenue bonds to finance the cost of public buildings, when such projects are authorized by the Legislature, pursuant to Government Code Sections 15802 and 15809.

In a typical project, the PWB will authorize interim financing, and the department will construct the project as PWB’s agent.  When the project is complete, the PWB will issue bonds to pay off the interim financing, and as part of that process, the department will lease the facility to PWB.  PWB will then lease the facility back to the department for a rental fee equal to the amount needed to provide for the debt service on the revenue bonds and associated administrative expenses.  Leases can be for periods up to 35 years, although 15 to 25 years is typical.  The lease term cannot exceed the useful life of the capital asset.

Key participants:

1. The PWB adopts resolutions authorizing bond sales and setting policy guidelines for the issuance of its lease revenue bonds, works with the State Treasurer’s Office (STO) in preparing for the bond sale and sizing the bonds, executes key documents, has responsibility for providing certain disclosure information on an initial and continuing basis, and periodically reviews balances in bond fund accounts to determine surplus status.
2. Finance has general powers of fiscal supervision pursuant to Government Code Section 13070, works with STO in preparing Appendix A (the state’s main fiscal disclosure document), may participate in rating agency meetings, prepares fund condition statements as required for the bond sale and for continuing disclosure.  In addition, Finance includes appropriations in the Governor’s Budget for lease-revenue rental payments based on calculations prepared in coordination with the STO.
3. The State Controller’s Office and the State Auditor participate in the due diligence process and provide certain financial information necessary for General Fund disclosure in Appendix A.
4. The State Attorney General’s Office also participates in the due diligence process and, together with bond counsel, provides a legal opinion for the issuance of the bonds.
5. During a bond sale, departments provide project cost, scope, and schedule information, participate in due diligence meetings, and keep the PWB, Finance, and STO informed of any events with material impact on the project status or budget. The department also manages the facility after construction and it is responsible for obtaining rental interruption, casualty (fire) insurance per facility-lease requirements.  After the bond sale, departments must continue to keep PWB, Finance, and STO informed of any events with material impact on the facility.
   
   
6. The STO is the agent for sale of PWB bonds, with all associated rights and responsibilities including appointment of the underwriter(s), setting the bond sale date, organizing document review meetings and due diligence associated with the sale, securing ratings and bond insurance (if any), and pricing.  The STO coordinates continuing disclosure for PWB issues.  The PWB’s current practice is to use the STO as a trustee of the PWB bonds and allow the STO to select a financial advisor related to sales activities.

Fiscal information generic to lease-revenue bonds is found in Section 6844.  Lease requirements for lease-revenue bonds are described in Section 6836 and in Section 6844.

 

LEASE -REVENUE BONDS - 6844

(Revised: 04/2025 )