BILL ANALYSIS AB 2181 Page 1 Date of Hearing: May 5, 2010 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 2181 (Hagman) - As Amended: April 12, 2010 Policy Committee: Business and Professions Vote: 9-2 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill: 1)Increases the dollar limit for state agency minor capital outlay projects from $400,000 to $800,000. 2)Requires the Department of Finance (DOF) to adjust the minor capital outlay limit every two years based on the change in the California Construction Cost Index (CCCI) over that time period. FISCAL EFFECT Negligible fiscal impact, as the bill only impacts the budgeting and administration of state capital outlay projects. COMMENTS 1)Background . State capital outlay projects are budgeted as either major or minor projects. Major capital outlay projects are those with a total cost exceeding $400,000. Each major capital outlay project is budgeted to an agency as a separate line item and in one or more phases-i.e. land acquisition, preliminary plans, working drawings, construction, and equipment. With the exception of some state agencies that have delegated authority, major capital outlay projects are administered by the Department of General Services (DGS) on behalf of the various state agencies. Minor capital outlay projects are those with total costs of $400,000 or less, and are typically budgeted in a lump sum appropriation to the state agency. For example, in the 2009-10 Budget Act, the AB 2181 Page 2 California Department of Corrections and Rehabilitation (CDCR) minor capital outlay appropriation totaled $3.9 million. In general, state departments can contract directly for minor capital outlay projects without using the DGS's management services. The $400,000 limit for minor capital outlay was established in statute in 2001. 2)Purpose . This bill is sponsored by CDCR. According to a CDCR analysis, due to the rising costs of construction materials and projects at correctional facilities, construction costs for many projects exceed the current minor capital outlay limit. In 2008-09, approximately 28 proposals considered for minor capital outlay projects exceeded the existing limit due to the added costs associated with correctional facility construction. This bill increases the minor capital outlay limit to $800,000, and directs DOF to henceforth adjust the limit biennially based on construction cost inflation. 3)Recommended Amendment . Staff recommends the bill be amended to make the new minor capital outlay limit $600,000 rather than $800,000. CDCR indicates that, adjusting for construction cost inflation alone would bring the limit to $750,000. However, the CCCI has actually increased by only 38% since January 2001, thus adjusting the current limit for this increase yields $560,000. Therefore, a $600,000 limit seems reasonable. Per the bill, this limit would henceforth be increased biennially according to changes in the CCCI. 4)Opposition . According to the California Association of Professional Scientists, "Increasing these cost limits at a time when the state needs to scrutinize every contract entered into to save as much money as possible is, in our opinion, irresponsible." This opposition does not appear to be on point, however, as the bill only affects the budgeting and administration of capital outlay (public works) projects, the construction of which are advertised for bid and awarded to the lowest responsible bidder. Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081 AB 2181 Page 3