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State may stop public works projects cold

Unable to sell bonds, officials could freeze funds for school, levee, prison and road work.

December 17, 2008|Jordan Rau and Evan Halper

SACRAMENTO — Road, levee, school and housing construction projects throughout California are on the verge of being halted or delayed, as state officials prepare to shut off their financing in the most drastic fallout yet from California's cash crisis.

Officials plan to meet today to freeze financing on these projects and about 2,000 others, including park improvements, environmental restoration and repairs to state prisons.

Among the efforts that could be idled or postponed are a carpool lane on the 405 Freeway between the 10 and 101 freeways and $373 million in repairs and overcrowding relief for Southern California schools, including emergency repairs at nine Los Angeles Unified School District high schools and five Compton schools, according to lists compiled Tuesday by state agencies.

The financing moratorium also could imperil the construction or relocation of California Department of Forestry and Fire Protection stations throughout forested areas; a new veterans home serving western and northern Los Angeles and Ventura counties; a career center and technical education complex for a school for the deaf in Riverside; an appeals courthouse in Santa Ana, and a Cal State University library in Monterey Bay.

Many of the projects were authorized by voters in 2006 and championed by Gov. Arnold Schwarzenegger in his reelection campaign that year.

All rely on funds that are nearly depleted because the state has been unable to sell the routine bonds it uses to keep cash flowing. Last month, the state failed to sell two-thirds of bonds worth $500 million, according to state Treasurer Bill Lockyer.

Lockyer told legislators last week that halting public-works projects would have a ripple effect through California's economy, costing private companies $12.5 billion and eliminating 200,000 jobs.

The cost of shutting down a project in midstream is enormous, said Jim Earp, executive director of the California Alliance for Jobs, a construction industry-backed nonprofit group that advocates for public-works spending.

"It gives the contractor cause to file suit for damages," he said. "It is incredibly disruptive. It can cause major safety problems. We are going to be putting thousands of people out of work."

Stopping public-works spending also would move California away from what many economists and President-elect Barack Obama are recommending to address the country's deepening recession. They have been arguing that such projects are among the best ways to jump-start the economy.

On Wednesday morning in Sacramento, Lockyer, state Controller John Chiang and Schwarzenegger's finance director, Mike Genest, will meet to vote as members of the obscure Pooled Money Investment Board on a staff recommendation that new loans for construction projects be stopped and public agencies be barred from spending money they have already been given. The staff estimates that $3.8 billion in project funds would be affected.

"Exceptions may be made for specific projects," Lockyer spokesman Tom Dresslar said in an e-mail, if the officials determine that "a financing cutoff would expose the state to unacceptable financial penalties, or prevent the state from paying required loan interest or administrative costs."

The political impasse over how to resolve a budget gap estimated to reach $41.8 billion by mid-2010 continued in the Capitol on Tuesday, as the latest budget plan put forth by Democrats was defeated in the Assembly. The vote fell along party lines, 48 to 27, short of the two-thirds vote needed to pass fiscal measures.

The plan from Assembly Speaker Karen Bass (D-Los Angeles) would have raised $11.3 billion in revenue by raising the state sales tax by 1.5%, adding a tax on oil extraction and increasing taxes on alcoholic drinks -- all ideas Schwarzenegger has proposed. The proposal would have reduced spending on schools and social programs by $6.9 billion.

The plan's reliance on tax increases ensured its rejection by the Republican minority, which has the power to block spending plans. Though GOP lawmakers rejected an earlier proposal that was more evenly balanced between cuts and tax hikes, Bass told reporters she was holding the vote because "if we don't vote on anything, people feel we are doing nothing."

The state Senate is scheduled to convene today. Senate President Pro Tem Darrell Steinberg (D-Sacramento) has been trying to cobble together a budget plan that would raise fees, which require a simple majority vote, rather than taxes to help plug the gap. But questions have been raised about whether such a move would be legal and whether the fees would amount to more than a few billion dollars.

Some experts doubt a budget agreement would fix the public-works problem. Stephen Levy, director and senior economist at the Center for the Continuing Study of the California Economy in Palo Alto, said the state's bigger problem is the frozen credit market.

"The market for these bonds is frozen," he said.

Paul McIntosh, executive director of the California State Assn. of Counties, said the freezing of payments threatens to put some local governments in a bind.

"Counties that have to stop work on a project are still on the hook for what has been done to date," he said. "It puts us between a rock and a hard place."

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jordan.rau@latimes.com

evan.halper@latimes.com

Times staff writer Patrick McGreevy contributed to this report.

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