Texas State Government and Long-Term Obligations Deferred Maintenance for State-Owned Facilities

State governments throughout the U.S. are facing growing backlogs of deferred maintenance due to reduced funding during the Great Recession, and Texas is no exception.

Deferred maintenance is simply the postponement of maintenance activities (such as repairs, retrofitting or replacement) for buildings, equipment and systems, due a lack of sufficient funding. Deferring maintenance is a common tactic in times of tight budgets, but a growing maintenance backlog can lead to inefficiencies, safety hazards, poor customer service and higher eventual costs.

The deferred maintenance backlog reflects the sum of past annual maintenance deficits and the continuous, compounding effect of postponement from one year to the next, similar to interest on debt. When maintenance is postponed, repair and replacement costs become higher in future years due to the accelerated deterioration of known deficiencies, the accumulation of new problems and the rising cost of facility repair and construction.

Challenges

Deferred maintenance capital projects typically require four to five years to complete, while funding is requested on a biennial basis. New deficiencies can arise and the state of current deficiencies can change greatly between the development of an appropriation request and the beginning of a project. Unplanned budget spikes can result if a deferred maintenance item becomes an emergency.

Recent Legislative Efforts

Until recently, the state primarily funded deferred maintenance projects through general revenue appropriations and the issuance of general obligation bonds. Funding for unplanned, emergency projects, by contrast, usually comes from the remaining balances of recently completed projects; interest earned on bond proceeds; utility appropriation balances; and, most commonly, the diversion of funding from planned deferred maintenance projects.

The 2011 Legislature appropriated $110 million in general obligation (GO) bond proceeds for deferred maintenance projects, as well as $8.8 million in general revenue for debt service payments.

In 2013, the Legislature appropriated an additional $142 million in GO bond funding and $38.6 million in general revenue for deferred maintenance, as well as $11.1 million in general revenue for debt service. Smaller amounts were supplied from federal funds ($2.5 million) and the State Highway Fund (nearly $3.7 million).

The 2015 Legislature’s S.B. 2004 established a plan for state facility maintenance and created a special Deferred Maintenance Fund (General Revenue-Dedicated Account 5166) within the General Revenue Fund. This fund received $387.7 million for the 2016-17 biennium.

S.B. 2004 also created a Joint Oversight Committee on Government Facilities to receive quarterly implementation status updates on funded projects by state agencies and annually report the status of these projects to the Legislature.

In all, the 2015 Legislature appropriated $445.1 million for deferred maintenance, including the $387.7 million from Account 5166 and $57.4 million in unrestricted general revenue. Of this total, the Texas Facilities Commission (TFC), which manages facilities space for more than 100 state agencies, received $240 million.

As of Sept. 15, 2016, state agencies had reported more than 1,600 deferred maintenance projects to the committee, with a total estimated cost of $487.7 million (Exhibit 5).⁴⁵ About $26.8 million was expended from Account 5166 and $169.6 million was encumbered (slated for spending on specific projects), leaving a total unfunded deferred maintenance project balance of $291.3 million.

Exhibit 5: Deferred Maintenance Projects, Fiscal 2016 and 2017

Agency	Current Estimated Project Budget	Fiscal 2016 and 2017: Encumbered	Fiscal 2016 and 2017: Expended	Remaining Project Balance	Percent Remaining
Department of Public Safety	$38,778,877	$2,162,778	$1,793,696	$34,822,402	89.8%
Texas Military Department*	$19,562,500	$8,931,737	$943,263	$9,687,500	49.5%
Texas Parks and Wildlife	$91,000,000	$10,624,197	$2,370,519	$78,005,284	85.7%
Texas Department of Criminal Justice	$58,765,393	$32,020,908	$14,055,123	$12,689,362	21.6%
Texas Facilities Commission	$217,156,348	$97,731,599	$5,413,721	$114,011,028	52.5%
Texas Department of Transportation	$62,400,000	$18,103,047	$2,247,514	$42,049,439	67.4%
Totals	$487,663,118	$169,574,266	$26,823,836	$291,265,015	59.7%

* Facilities of the Texas Army National Guard, Texas Air National Guard and Texas State Guard.
Source: Joint Oversight Committee on Oversight Facilities

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Policy Options and Considerations

The most vocal stakeholders for deferred maintenance funding have been the state agencies themselves, particularly TFC. Proponents cite significant risks to operational continuity and occupant health and safety as well as the risk of significantly higher costs in the long term.

The Joint Oversight Committee on Government Facilities made the following recommendations in its October 2016 report to the Legislature:

• fund each agency’s deferred maintenance baseline and exceptional budget requests as funds are deemed available;
• continue the quarterly reporting process for all agencies receiving deferred maintenance funding; and
• approve unexpended balance authority for current deferred maintenance projects funded in the 2016-17 biennium (that is, allow appropriated but unspent funds from the last biennium to be expended in the next without a new appropriation).

In 2015, then-Texas State Senator Kevin Eltife, a member of the Joint Oversight Committee on Government Facilities, proposed creating a state “escrow account” specifically to accumulate funds for deferred and regular maintenance issues as they arise.⁴⁶

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