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Virginia subcommittee warned construction costs have risen and described debt limits, pools and design-first practices
Summary
At a Feb. 2 briefing before the General Government and Capital Outlay Subcommittee, staff outlined how higher construction costs and debt limits shape which capital projects proceed and how they are funded. The presentation highlighted a 35% COVID-era cost increase, DGS inflation assumptions and the state's 5% debt-service ceiling.
RICHMOND — The General Government and Capital Outlay Subcommittee of the House Appropriations Committee heard a staff briefing Feb. 2 on how Virginia budgets and controls costs for capital projects, including limits set by the state’s debt policy and new assumptions about construction inflation.
Miss Peaks, a committee staff member who led the presentation, told members that capital funding differs from operating money because it is typically one-time funding that often carries forward to future years. She summarized debt practice in Virginia and said the policy objective is for total debt service to remain below 5% of state blended revenues over a 10-year period, with recommendations set annually by the Debt Capacity Advisory Committee.
The briefing included statewide figures: roughly $14,100,000,000 in outstanding general-fund-supported capital debt and about $3,700,000,000 authorized but not yet issued, Miss Peaks said. She also said construction costs have not returned to pre-pandemic levels: "that 35% price increase is kind of the new base for construction," she said, describing COVID-era supply and labor pressures that raised project baselines.
To manage those pressures, Miss Peaks outlined three common controls: (1) using pooled authorizations that bundle similar projects and permit limited administrative transfers among planning, construction and FF&E pools; (2) funding design first so the General Assembly votes on construction after more accurate plans and estimates are available; and (3) relying on Department of General Services (DGS) cost reviews that use national comparables and require agencies to pursue value engineering or contribute agency funds if bids exceed the state-funded amount.
Miss Peaks said DGS is using near-term inflation assumptions of roughly 7% for the current fiscal year and about 10% for the following fiscal year when budgeting projects expected to start construction later. Those prefunding assumptions are applied to projects in packages such as House Bill 30, she said, to reduce the risk of later cost overruns.
Delegate Reid asked how close the state is to the 5% debt-service ceiling; Miss Peaks replied that, "within the 5% for the next 2 years, we could issue up to 1.4, almost 1,500,000,000.0 per year and stay within the 5% blended 10-year" metric.
The briefing concluded with a reminder that planning timelines vary by project size and scope and that the General Assembly exercises oversight by prioritizing which projects move forward and holding project owners accountable if projects stall.
The subcommittee did not take votes on capital policy at the session; it moved next to legislative items on its docket.
