Contractors Starting to Feel Funds Drying Up on Some Projects

Yesterday the Capitol Weekly reported that construction contractors on public works projects were starting to feel the cash crunch that the state is in right now. This includes projects that were financed by bonds approved by voters.

According to the article,

State payments for more than three dozen public works projects are being held up as the state grapples with an unprecedented budget shortage, contractors say. The stopped payments, some $33 million worth, mark the first time that money has been withheld for voter-approved work and signal a delay in the state's planned infrastructure improvements.

"What is creating this angst is that we paid the program payments on work that was not bond-funded first," said Cal-Trans director Will Kempton, who has urged Chiang to make the December payments. "Bond-funded payments came later. We have processed those invoices for payment. The question that has been raised is will the controller make the payments," he added.

Mr, Chiang is in the drivers seat here. I never thought that the State Controller had that much influence over the state, but at times of crisis the roles of our state constitutional officers are defined.

Governor Vetoes New Budget-$42 Billion Deficit and Counting

Even though the Governator said he would veto the proposed budget plan, I did not think he would.

According to the SF Gate:

The 16-bill package went to Schwarzenegger despite his earlier promise to reject it. His veto moved the Legislature back to square one - the state bleeding revenue and expected to run short of cash to pay its bills as early as next month.

"It was wishful thinking on (the Democrats') part," said Aaron McLear, a spokesman for Schwarzenegger. "The governor said three weeks ago that he would veto this budget, and they have sent to him the exact same budget, which he had said he would veto."

He has decided to work for a bipartisan solution. However history has shown he cant get the votes from his party to get to get this mythical bipartisan budget.

Creative Borrowing Hurts Caifornia Cities

The Los Angeles Times recently published an article about some of the dangers of creative financing that many public agencies pursued. Kind of like the pitfalls of subprime mortgages, cities found ways to fund needed improvements, while engaging in risky financing.

California's Office of Planning and Research describes the types of financing that is available to public agencies. The most secure way is to pay for projects from funds collected from taxes. This is the best way for most cities. However Proposition 13 limited the ability for cities to raise property taxes.

Many cities use bonds or incur other debt to finance infrastructure projects. Of course with a bond cities issue debt and pay interest on those bonds. The more risk the higher the cost to the cities. The more that cities have to pay interest on the bonds, the less they have for operations and maintenance of the existing infrastructure.

Lease backs are an end around having to go to the voters to get money, but often have all of the risks of bonds and other financing.

Below is an example of how Oxnard leased themselves in the red.

Oxnard's sale of its streets in December 2007 was a variation on a borrowing technique known as a lease-back.

In a typical example in the private sector, a business sells a property to raise money, then leases it back from the buyer. In the public sector, lease-backs are more a financial sleight of hand. A city council that needs to raise money might sell its city hall to a council-controlled finance authority. The council would then rent, or lease back, the building from the finance authority.

The authority, meanwhile, would issue bonds using the city hall as collateral. It would pay back the bondholders with the "rent" it collects from the city.

The sale of the building is a legal abstraction, a shuffling of paper whose purpose is to keep the debt off the city's books. That way, officials can circumvent the state Constitution's requirement of voter approval for government borrowing.

Oxnard's sale of its streets in December 2007 was a variation on a borrowing technique known as a lease-back.

In a typical example in the private sector, a business sells a property to raise money, then leases it back from the buyer. In the public sector, lease-backs are more a financial sleight of hand. A city council that needs to raise money might sell its city hall to a council-controlled finance authority. The council would then rent, or lease back, the building from the finance authority.

The authority, meanwhile, would issue bonds using the city hall as collateral. It would pay back the bondholders with the "rent" it collects from the city.

The sale of the building is a legal abstraction, a shuffling of paper whose purpose is to keep the debt off the city's books. That way, officials can circumvent the state Constitution's requirement of voter approval for government borrowing.

Funding Freeze Stalls Project as Cal Poly Pomona

So as promised the state has cut off funding for projects that are in the pipeline. This appears to have already started to have ramifications. The projects that were funded by past bond measures are not able to find the state funds promised. This in turn is putting in jeopardy the funds that were privately raised.

According to the San Gabriel Tribune, Cal State Pomona's new business administration building is being delayed by the budget stalemate.

Cal Poly Pomona has been forced to suspend construction on its new Business Administration Building due to a state freeze of $3.8 billion in infrastructure funding.

Construction for the $34 million project was scheduled to break ground Jan. 22. The 75,000 square foot building was slated to be completed by the winter of 2011.

"I am upset about this decision. These bonds were approved years ago," Cal Poly Pomona President Michael Ortiz said. "We have donors waiting for that building."

Donors gave $5 million to help fund the project and match state funds. Since state funds have been locked, the donor contributions are trapped in limbo.

The Pooled Money Investment Board, made up of state legislators, froze nearly the $3.8 billion statewide in an effort to curb spending. All general-obligation bonds and approved capital construction projects in the state have been suspended.

Toll Road Lives Again, This Time Hopefully Not Near the Coast

My local paper the San Diego Union Tribune, reports that the toll road fight is not over. The toll road agency originally wanted to share the pain for their gain, by ruining some of the best open areas in Southern California. However surprisingly the Bush Administration kiboshed the road. Now the agency must look at routes to the east.

They now have to choose between more sprawl in southern Orange County or building a toll road. The new proposed routes may cut through a proposed development in eastern San Clemente. I wish that the transportation authority would not try to couch a benefit for a developer as a regional transportation solution. Next week the backers are going to start to discuss their options.

Above are maps of the new proposed routes. Map by the U-T.

As for the environmental impacts of the previous plan:

On the environmental end, the transportation agency's leaders say building a four-to six-lane highway through the land conservancy and state park is the least ecologically damaging choice. They emphasize mitigation features such as wildlife crossings and efforts to avoid impinging on the famous Trestles surf spot.

But in February, the California Coastal Commission rejected the San Onofre alignment.

“It would be difficult to imagine a more environmentally damaging . . . location for the proposed toll road” and one that's more inconsistent with provisions of the Coastal Act, the commission's staff report said.

I never thought I would see the day that highways would potentially be fighting sprawl.