Credit Crunch Could Hurt California's Public Works

I am still trying to wrap my brain around this whole financial crisis. One thing I have found appalling is how the financial free fall affects California. It hurts both the current operations of the state as well as the long term capital programs we have.

Last week, the Governor announced that he may have to seek a loan from the Federal Government to cover operating expenses as the state can not access bond markets to secure funds. But the bad news does not end there.

But for me the most disturbing concept is the potential long term impacts of borrowing funds for future projects. If the public agencies can not sell their bonds then, they can not build their projects. Many of California's education, water and transportation programs are funded by these voter approved bonds.

According to the LA Daily News:

California voters approved an unprecedented $42 billion in bonds in 2006 to pay for projects ranging from freeway upgrades to new schools to flood-control levees. In addition, dozens of previously approved bonds for parks, water projects and other public facilities still need to be sold. The state had been planning to sell an estimated $2 billion in bonds in November.

Currently, there aren't a lot of buyers of municipal bonds. Those who are buying are demanding high interest rates - which make the infrastructure projects more expensive for taxpayers.

Some government agencies are already paying more because they have variable-rate debt, increasing or decreasing, depending on the market.

The Metropolitan Transportation Authority has sought to restructure some debt tied to rising interest rates. The agency is paying $1million more per month on its existing debt due to recent increases in lending rates, said chief financial services officer Terry Matsumoto.