Controller freezes payments on transportation projects

State Controller John Chiang refused to make payments Thursday to contractors for work done on more than three-dozen public-works transportation projects. The action, the first of what are likely to be a series of blocked payments, was prompted by the state's unprecedented budget shortage.

The move was required by the Pooled Money Investment Board, which on Dec. 17 ordered a halt to the payments to projects financed with a mix of voter-approved bond funds pending a resolution of the state's fiscal dilemma.

"This decision is required by the PMIB. It is not the controller's discretion. The PMIB ordered a halt to these disubursements," said Hallye Jordan, a spokeswoman for the controller.

The projects are all being handled by Caltrans, which has objected to cutting off the money to the contracts. Some $33 million and 39 public projects are affected.

Chiang's came over the opposition within the Schwarzenegger administration, such as Caltrans, which has urged the controller to keep the payments flowing.

"I got a call from the director of Caltrans this morning," Jim Earp, executive director of the California Alliance for Jobs, told Capitol Weekly. "They're still trying to get it done. They thought they were going to get paid tomorrow, but it's becoming clear that they're not. We're trying to get some information from the Treasurer's office to get some clarification on this."

The decision blocks payments funded at least in part with bond money approved by voters in Proposition 1B of 2006, which provided $19.93 billion for transportation improvement projects.

Chiang's decision follows the December meeting of the PMIB, which approved holding back $3.8 billion in bond-approved funding as the state grappled with a $41.6 billion budget shortage over the next 18 months.

The PMIB's decision is scheduled to be reviewed later this month. The administration reportedly is putting together a list of projects that it wants to exempt from the PMIB's halt-payments ruling. 

Earp said that when the PMIB met in December, there was no discussion of blocking contractors from being paid for work that had already been performed.

"We're a little confused as to why the hatchet is coming down sooner and heavier than we though it was going it," he said.

Gov. Arnold Schwarzenegger's administration has urged that the regular monthly payments be made for road and highway projects that receive funding from Proposition 1B. But it is ultimately it is up to Chiang to decide whether to cut the checks that the state owes to various road and highway contractors.

The PMIB is composed of the state's top fiscal officials — Treasurer Bill Lockyer and Chiang, both Democrats, and Mike Genest, finance director for Republican Schwarzenegger.  All three voted in favor of halting the payments.

Earlier, Caltrans Director Will Kempton said the looming delays in payments was causing problems for contractors.

"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 whether the controller make the payments," he added.

In a Jan. 5 letter to contractors reviewed by Capitol Weekly, Kempton noted that payments for non-bond funded projects have been made for work done through Dec. 20 have been made "as usual," but "progress payment requests for work on projects wholely or partially funded by bonds were transmitted to the state controller's office Tuesday. However, the SCO (controller) may not be able to release these payments in a timely manner."

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