Friday, December 19, 2008

Lending board freezes money on infrastructure projects

SACRAMENTO — Thousands of projects to improve roads, schools, and public housing were put on hold Wednesday when a state board responsible for financing the projects pulled the plug on nearly $4 billion in loans — including hundreds of millions of dollars designated for the Bay Area.

The choice was between keeping vital public services afloat and pouring scarce dollars into infrastructure improvements, said State Treasurer Bill Lockyer, who heads the three-person Pooled Money Investment Board.

With lawmakers at an impasse over how to fill an 18-month $42 billion deficit, Lockyer said businesses could lose billions of dollars in revenues and will likely have to lay off thousands of workers with the projects on hold.

"Today's action was extremely regrettable, but the responsible and right thing to do," Lockyer said. "We had no other option to keep crucial public services operating as long as possible. ... California's fiscal house is burning down. The people still wait for their elected leaders to pull them out of the fire, stop the blaze, and rebuild the house on a solid, lasting foundation. Until that happens, the infrastructure work so vital to getting our economy back on track will lay crippled."

The dramatic move by the state's lending arm was met with equal drama from Democrats, who devised a new $18 billion deficit cutting plan that would require only a majority vote. It would raise fees, swap taxes and find other Advertisementloopholes and make an end run around the required two-thirds vote — to come up with $9.3 billion in new revenues. They also proposed cuts of $7.3 billion, and a shift of $1.5 billion through accounting maneuvers.

"Desperate times don't call for desperate measures; desperate times call for creative thinking," said Senate Leader Darrell Steinberg, D-Sacramento. "As the majority party, Democrats are responsible for governing the state — by solving $18 billion of the budget deficit, we are showing Californians that we take that responsibility seriously."

If the gambit works, it's not clear whether infrastructure projects would be able to start up any time soon. But, if, as expected, Republicans sue to block the revenue increases, the uncertainty over the projects would remain.

"At least it shows that California is willing to start getting its fiscal house in the shape it needs to be," said Tom Dresslar, spokesman for Lockyer. "But we need a more complete budget solution to get back into the business of selling bonds."

Nearly 2,000 projects with a combined value of $16.2 billion could be delayed or completely halted by the funding cutoff. The projects include highways, schools, levees, housing, hospitals, fire stations, veterans homes, courts, parks, environmental restoration, pollution cleanup, prison construction and others.

The PMIB provides loans to infrastructure projects funded by voter-approved bonds and to the state general fund to help meet cash flow needs. As the state's revenues continue to trickle in weakly, the investment board has had to respond with loans to the state general fund to keep public services going.

"The state is out of money, and the special funds we rely on to tide us over are fast running dry," said John Chiang, the state controller, who also sits on the investment board. "The Legislature must act quickly to resolve the State's structural budget deficit or we face even more fiscal pain."

General Fund revenue was down last month by $1.3 billion more than expected when the budget was signed September 23. In the past four weeks alone the state has come up short by a half-billion dollars.

"There is a lot of talk about what hurts the economy more: cutting programs or raising taxes," Chiang said. "But we know shutting down these infrastructure projects will definitely have an adverse impact. Any time you create turmoil and uncertainty, you are going to hurt the economy and slow its recovery."

The governor's office pinned the blame on lawmakers for failing to see the bigger picture as they maintain their ideological ground on taxes and spending.

"It's outrageous that Republicans and Democrats would continue to play politics while tens of thousands of hardworking Californians face the possibility of being laid off this holiday season," said Aaron McLear, spokesman for Gov. Arnold Schwarzenegger. "Californians have seen enough politics and posturing from the Legislature, it's time for them to negotiate and reach a compromise."

Senate Republican Leader Dave Cogdill, R-Fresno, said the GOP's plan, which called for cutting services for the poor and mentally ill, along with billions of dollars from education, would eliminate much of the deficit and allow the infrastructure projects to move ahead.

"The Republican budget solution would solve the cash crunch facing the state so these vital road, school and levee repair projects can proceed," Cogdill said. "Today's decision by the Pooled Money Investment Board doesn't make the case for raising taxes. Instead, it shows exactly why rebuilding our economy is the responsible way to solve our budget problems."

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