California puts brakes on infrastructure spending

 The state of California will stop spending money on infrastructure projects to preserve cash in the face of a $15 billion fiscal year deficit.

   A state board responsible for doling out tax dollars for infrastructure projects on Wednesday voted to suspend $3.8 billion in financing through June, or until the legislature addresses the budget situation.

   The recession has hit California especially hard in part because of the number of subprime mortgage defaults and foreclosures in the state, and rising unemployment, have resulted in reduced tax revenue and more expenditures. State planners say the budget deficit could reach $41.8 billion by 2010 and that the state could run out of cash by February.

   Nearly 2,000 projects, including highways, schools and prisons, could be delayed or halted, putting thousands of construction jobs at risk. 

   California's fiscal house is burning down. The people still wait for their elected leaders to pull them out of the fire, stop the blaze, and rebuild the house on a solid, lasting foundation. Until that happens, the infrastructure work so vital to getting our economy back on track will lay crippled, State Treasurer Bill Lockyer said in a statement.

   The Pooled Money Investment Board provides loans to infrastructure projects funded by bonds. The board will now loan the money to the general fund to help keep government services such as schools operating.

   Normally, the money the board lends to infrastructure projects gets replenished when the state sells bonds, but the tight credit markets and the state抯 low credit rating have combined to close off access to the bond market. Lockyer said the state will not be able to sell bonds until the government solves its budget crisis.

   The California legislature on Thursday passed an $18 billion budget plan proposed by Democrats, but Gov. Arnold Schwarzenegger said he would veto it because it includes $9.3 billion in tax increases that Republican legislators did not vote on due to procedural maneuvering.

   The Democratic plan includes higher gas, sales and income taxes along with cuts to healthcare and schools. Schwarzenegger said the plan抯 main problem is it doesn't go far enough to stimulate the economy.

   The two parties have been at a stalemate about how to deal with the financial crisis. Republicans oppose new tax increases unless Democrats give in on a number of goals, including establishing strict government spending limits, giving businesses flexibility over work hours to reduce overtime payments, and postponing rules to force companies to emit lower amounts of greenhouse gases. 

Source: American Shipper