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Contractors May Stop Work on Roadways

State tells companies they will not be paid after Sunday unless the budget crisis ends.

July 16, 2003|Sharon Bernstein | Times Staff Writer

From pothole repair on Los Angeles freeways to replacing a rotting bridge in Tulare County, contractors throughout the state say they will stop work on dozens of construction projects if the state delays paying them, beginning next week, because of the budget impasse.

Transportation officials have formally notified contractors working on $6.7 billion worth of road construction, repairs and landscaping that, barring settlement of the fractious fight over the state budget, they will not be paid for work performed after Sunday.

This could cost California more than $25 million per month in shutdown costs and penalties and delay or reduce the state's access to $220 million per month in federal assistance, said Jeff Morales, director of the California Department of Transportation.

Widespread shutdowns of state highway projects could lead to layoffs throughout the state, where 200,000 construction workers depend on the continuing cycle of road-building and repair.

"We've been given the options of either working at our own risk of when we'll get paid or shutting the projects down, laying off all our employees and basically sitting tight until they have a budget," said Robert Moseman of Shasta Constructors in Redding. "We're trying to decide what to do."

Most likely, Moseman said, the company would suspend work on most of the 13 bridges it is building for the state, laying off 100 to 125 of its 165 employees until work picks up again. The company would concentrate its effort on a new bridge on Interstate 5 over the Sacramento River in Shasta County. But work replacing a "failing" bridge near Visalia would probably stop, as would work on a new bridge on California 87 near San Jose, he said.

Meanwhile, as officials digested the potential costs of a massive shutdown and contractors weighed their options, federal highway officials notified the state Tuesday that it would not receive federal reimbursement or support for penalties or fees paid as a result of the budget impasse.

"That money is gone forever as far as the federal highway money is concerned," said Diane Teece, financial manager for the Federal Highway Administration's California office.

The loss is significant because California could ordinarily use that money as leverage for a massive grant from the federal government. For each $25 million spent by the state on a qualifying highway project, Washington kicks in about $220 million, according to David Nicol, chief operating officer for the Federal Highway Administration in California.

The state plans to appeal the federal decision not to reimburse California for the construction penalties, but officials privately say that they are not hopeful that the Bush administration will come to the state's rescue.

In Southern California, where Irvine-based Peterson Chase Engineering Construction has $10 million worth of contracts with the state, company Vice President Dick Vogels said the company would probably suspend work on such projects as pothole repair on the Harbor Freeway, sound-wall construction on the 101 Freeway in the San Fernando Valley and medians on the 101 Freeway downtown.

"We would have to temporarily suspend the work and ride out the storm," Vogels said. The company, which does 70% of its business with the state, will try to avoid layoffs by switching workers to other projects, he said.

Deciding whether to shut down or continue is difficult, because there are costs associated with either, said Brian Stopper, vice president of American Civil Constructors West Coast, which is based in the Bay Area suburb of Benicia.

"To shut down a project, it costs a lot of money," Stopper said. "We have equipment sitting idle, and that costs money. It is like losing a job but still making payments on a house."

At the same time, he and others said, contractors would have to borrow money -- and pay it back with interest -- to keep going if state payments stopped.

Jim Burton, executive vice president of the Southern California Contractors Assn., said that several of the group's members had indicated that they would stop work if the state suspended payments.

"It's crazy," Burton said. "We have a congestion problem. Our infrastructure is deteriorating faster than we can get it replaced."

This is certainly not the first time California lawmakers have been late in reaching a budget agreement. But Morales said that, in the past, Caltrans had been able to keep contractors afloat with reserve funds.

This year, however, funds were low, largely because the state had borrowed money that had been set aside for congestion relief, Morales said.

The fund holds about $200 million, Morales said, but the state owes its contractors $200 million to $300 million each month.

Times staff writer Kathleen Nye Flynn contributed to this report.

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