Overcrowded conditions in California prisons have prompted the State to mount an extensive prison construction program; however, currently authorized and available funds for the construction are not adequate to support completion of the planned building program. In an effort to find ways to fund the prison construction, the legislature asked the Department of Corrections to investigate the advisability of using lease or lease-purchase financing arrangements. This report, submitted in compliance with that directive, makes recommendations on this subject based on interviews with representatives of appropriate State agencies as well as with private-sector underwriters and investment banking representatives. State projects previously financed with alternative means were also reviewed. The investigation found that lease-purchase financing arrangements have been successfully applied by the State's use of certificates of participation to finance the construction of State office buildings in San Francisco and Sacramento. Various counties have also used this concept to finance the construction of various facilities. The report recommends that the legislature authorize the Public Works Board to issue certificates of participation, revenue bonds, or other market instruments it deems appropriate to finance prison construction through lease-purchase arrangements. Three footnotes are provided.