Rich Pedroncelli / Associated Press - The obscure Pooled Money Investment Board talk with reporters after their vote today. At left is Finance Director Mike Genest, with Controller John Chiang and state Treasurer Billl Lockyer, right.
Jordan Rau and Evan Halper, Los Angeles Times Staff Writers
1:24 PM PST, December 17, 2008 - -REPORTING FROM SACRAMENTO -- The state's top three financial officials voted unanimously today to freeze $3.8 billion in financing on road, levee, school and housing construction projects throughout California in the most drastic fallout yet from the state's cash crisis.
Among the efforts that will 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 by state agencies.
complete list of halted projects (search by “Los Angeles Unified” produces 200 hits
The financing moratorium also imperils 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; and a Cal State University library in Monterey Bay.
The delay in one project, an appeals courthouse in Santa Ana now under construction, could leave the judges homeless when the lease of their current court runs out in the spring, a court official told the board. The court had planned to be in its new building by then.
More than 2,000 other projects include park improvements, environmental restoration and repairs to state prisons. Many of them were authorized by voters in 2006 and championed by Gov. Arnold Schwarzenegger in his reelection campaign that year.
All of them rely on funds that are nearly depleted because the state has been unable to sell the routine bonds it uses to keep cash flowing. The state's finance experts said the credit markets will not buy these short-term bonds until the Legislature has agreed on a plan to completely erase the state's budget gap, which is expected to reach $41.8 billion by July 2010.
"Today's action was extremely regrettable but the responsible and right thing to do," state Treasurer Bill Lockyer said after the vote by the obscure Pooled Money Investment Board, which he runs with state Controller John Chiang and Schwarzenegger's finance director, Mike Genest.
"We had no other option to keep crucial public services operating as long as possible," Lockyer said. "But it's now official -- the failure to solve our budget problem has put in grave danger billions of dollars in revenue for our businesses and thousands of jobs on which our workers and families depend."
Halting public-works projects would have a ripple effect through California's economy, costing private companies $12.5 billion and eliminating 200,000 jobs, according to the treasurer.
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."
School districts that have signed construction projects will be legally liable for the costs, and education officials said they fear a rash of lawsuits from contractors and architects. Others will have to dig into their own funds to pick up the expenses.
"They are basically shifting their cash problem onto us," said Sandy Silberstein, executive director for the Riverside County Schools Advocacy Assn.
Schwarzenegger spokesman Aaron McLear said in a statement: "It's outrageous that Republicans and Democrats would continue to play politics while tens of thousands of hard-working Californians face the possibility of being laid off this holiday season. Californians have seen enough politics and posturing from the Legislature, it's time for them to negotiate and reach a compromise."
At this morning's meeting, finance experts from the state treasurer's office laid out a despairing picture of California's financial situation. Paul Rosenthiel, a deputy treasurer, said the troubles in the international credit markets have made investors skittish about all but the safest bonds, making them uninterested in anything the state has to offer.
"In a market where investors are looking for quality, we do not feel they are going to want to buy the bonds of the state of California," Rosenthiel said. "We don't hear from the investment bankers at all these days."
Instead, he said, there is a thriving market in investors betting that the state will go bankrupt. That has driven the interest rates on credit default swaps -- contracts that promise to pay investors off if the bonds become worthless -- from 0.2% to 4%, higher than what similar items fetch in protecting investors in Turkey or Mexico.
"There's an active market in people betting against the state," Rosenthiel told the board.
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