Already on the endangered list due to Ohio’s fiscal squeeze, state-backed bond funding for special local projects like theaters, arts and sports facilities appears headed for extinction in Governor John Kasich’s first capital appropriations measure.

The elimination of “community project” funding from the upcoming measure was detailed in the capital bill planning guidance  issued by the Office of Budget and Management on Tuesday to state agencies, boards and commissions.

If followed through by the legislature, the change would be a further blow to local governments that saw the historic revenue-sharing arrangement with the state cut considerably in the biennial budget (HB153) – to the tune of hundreds of millions of dollars.

While general revenue appropriations have become scarce in the last few capital bills, policymakers have still provided in the neighborhood of $100 million for community projects as part of the bond-funded package.

OBM Director, Tim Keen, said in a memorandum to directors and fiscal officers that such considerations would not be part of the governor’s plan.

“Capital bill appropriations directly impact operating budgets via debt service payments on the bond issuances used to support capital expenditures. Therefore, consistent with Governor Kasich’s commitment to restrain government spending, it is imperative that the FYs 2013-2014 capital bill also be restrained in size,” Mr. Keen wrote in the memo, which was part of the budget guidance documents.

“Accordingly, the bill will focus on necessary maintenance and upkeep of the state’s current capital assets with an extremely high threshold that would have to be met in order to fund new construction. Under these circumstances, the bill will contain no community projects. Thus, all state agencies, colleges, and universities should use the preparation of their six-year capital plan and their two-year capital funding request as an opportunity to carefully review their capital needs and only request funding for those projects that are most essential.”

Senate President, Tom Niehaus (R-New Richmond) said Tuesday in an interview that he has yet to read the capital bill guidance but agrees with an approach of fiscal restraint.

“We must be cognizant of the fact that we are in very difficult economic times right now and so any spending that we do based on borrowed funds we just need to review carefully,” he said. “But this is a process and this the very beginning of the process and so I’m sure that we will have vigorous debate over the coming months.”

The disappointment is likely to extend to the more traditional beneficiaries of the debt-backed measure, such as higher education institutions and state agencies, in part because whatever appropriation levels are ultimately approved will not cover what the agencies missed when the prior administration and legislature opted to not enact a biennial bricks-and-mortar budget for the first time in recent memory.

Sen. Niehaus said he has already heard from various constituencies with capital needs.

“We have heard from entities around the state that there is a need for capital investment and they are looking for assistance from taxpayers through the state capital bill,” he said. “That’s why we have a process to have the hearings and determine what those needs are.”

Before the fiscal year 2011-2012 capital biennia, colleges and universities alone were receiving roughly $500 million in funding for buildings and improvements every two years.

The only bond-backed capital appropriations approved by the General Assembly during that period, about $1 billion provided under various other measures, went mainly to the Ohio School Facilities Commission, the Public Works Commission, and Development-related projects. Included in that total is $50 million in emergency capital funds authorized in the current state operations budget.

Due to the juxtaposition of economic and political factors, former Gov. Ted Strickland and subsequently Gov. Kasich opted to not seek a separate capital bill in the current two-year cycle. As a result, the $1 billion in total capital appropriations in FY 2011-2012 was far less then the prior three biennia.

Including the capital bill and other measures, the legislature appropriated about $1.75 billion for projects in the FY 2009-2010 capital biennium, $3.46 billion during the prior two years and about $2.48 billion in the FY 2005-2006 period, according to the Senate GOP Finance Office.

OBM said in the guidance documents that all agency capital requests are due to the budget office by Dec. 16. The budget office will spend the next three months or so planning the bill for a spring rollout, with legislative hearings to ensue.