Committee probes proposed change to cash fund spending rules for capital projects

The House Committee on Corrections & Institutions on Jan. 31 heard an overview of the statute creating the state’s Cash Fund for Capital and Essential Investments and questioned a proposed Budget Adjustment Act (BAA) amendment that would alter how spending authority and encumbrance requirements apply to cash-funded capital projects.

Legislative counsel John Gray walked members through the statutory text (Title 32, Section 1001b) and described two subaccounts in the fund: a capital infrastructure subaccount for long-lived capital projects and a broader “other infrastructure, essential investments and reserves” subaccount added in 2023. Gray told the committee, “This creates a fund for capital and essential investments to be administered by finance and the state treasurer,” and he described permissible uses and limits written into the statute.

Committee members pressed for specifics about how monies get into the accounts and where the cash can be used. Gray explained that the capital infrastructure subaccount may be funded by transfers of up to 4% of the most recently completed fiscal year’s general fund appropriations, “less the amount necessary to fund the state’s general obligation debt service,” and that interest earned on the subaccount remains in that account. He identified a working example from the Governor’s recommendation showing $14,800,000 estimated as available under the formula for the upcoming budget year.

Members asked how flexible those dollars are. Gray said expenditures from either subaccount still require legislative authorization: the statute restricts eligible uses (for the capital subaccount, tangible capital investments with an anticipated lifespan of 20 years or more and associated engineering and architectural costs) and requires the General Assembly to authorize spending. He also noted a statutory timing rule: entities with authorized spending from the cash fund have “not more than two years from the legislative session in which the act authorizing the expenditure was enacted to encumber the funds.” Any unencumbered amounts remain part of the fund.

The committee examined differences between that two‑year encumbrance rule and the Capital Construction Act’s existing provisions (Section 701). Under current capital-bill rules, agencies must report unexpended amounts after two years and amounts unexpended after five years “shall be reallocated.” The BAA proposal before Appropriations would remove the cash‑fund encumbrance language and instead subject cash-funded spending authority to Section 701’s reporting and reallocation framework. Gray warned committee members that changing from an encumbrance requirement to a reallocation/reporting regime would be a substantive operational change, not merely a technical correction.

Members raised practice questions beyond the statute: how regularly Appropriations checks cash balances, which prior cash appropriations have been spent or encumbered, and how shifting more projects to cash (thereby reducing bonded debt) affects this committee’s ability to influence capital priorities. Scott Moore and Joint Fiscal Office staff were asked to identify earlier projects funded from the cash account; committee staff later noted Act 78 (FY23) included cash reserved to provide state matching dollars for certain water and wastewater projects under IHJA.

After discussion the committee’s chair reported that three committee members (the chair, Troy and Mary) had reviewed the BAA change with Gray and recommended asking the Appropriations Committee to hold off including the proposed edit in this round of the Budget Adjustment Act so committees can vet the policy implications. The committee did not take a formal vote; the recommendation was communicated to Appropriations staff and to legislative liaisons for follow-up.

Members said they will seek additional information from Appropriations staff, the Joint Fiscal Office, the Treasurer’s office and relevant agencies on (1) a list of cash appropriations and encumbrance status, (2) how the administration is currently managing and encumbering cash fund dollars, and (3) any projected effects on bonding capacity and the capital bill. The committee agreed to continue the discussion with Appropriations as the session progresses.

Why it matters: the statutory structure and administration of the cash fund determine whether projects that historically would have been bonded can be paid with cash, which affects interest costs, near‑term general fund obligations, and this committee’s practical leverage over capital priorities. The committee’s request to Appropriations for more time means the proposed BAA change will not be treated as an uncontested technical edit, and the issue may be revisited later in the session.

To summarize the committee’s immediate direction: staff and members will compile a clearer record of cash-funded projects and timelines; Appropriations was asked to delay placing the specific Section 78 edit into the BAA pending that review. No formal motion or floor vote on the BAA language occurred during the hearing.