State contractors’ payments delayed by budget crisis

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.

The Schwarzenegger administration has urged the regular monthly payments to be made for road and highway projects that receive funding from Proposition 1B. But it is ultimatley up to State Controller John Chiang whether or not to cut the checks for the $33 million the state owes various road and highway contractors.  

The action, disclosed Tuesday by the Schwarzenegger administration, stems from the Dec. 17 decision of the Pooled Money Investment Board, which halted $3.8 billion worth of payments in order to retain funds in the midst of a swelling budget shortage. The first round of interrupted payments affect 39 projects commissioned through Caltrans that have a  mix of money that includes voter-approved Proposition 1B funding. The board is composed of the state’s top fiscal officials — Treasurer Bill Lockyer and Controller John Chiang, both Democrats, and Mike Genest, finance director for Republican Gov. Arnold Schwarzenegger.

“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 thrugh 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.”

A spokeswoman for the controller’s office said the issue was being reviewed, but cited the PMIB’s decision requiring a freeze. “No payments have been delayed — yet,” said Chiang aide Hallye Jordan.

But contractors say payments already have been threatened. They have been hearing for months about the state’s pending cash crunch, and they fear that now the money may actually be drying up. And organized labor says jobs will disappear without a resolution of the budget crisis.

"It's up to him (the governor) now to step forward, negotiate a solution, with cuts and new revenues, to stop what will be a cascade of defaults, bankruptcies, business collapses and job losses," said Bob Balgenorth, president of the State Building and Construction Trades Council, representing 325,000 union workers in the building trades. "This is happening because the Governor is trying to dictate policy, that he could not otherwise enact, by withholding a budget. That's wrong."

 Jim Earp, executive director of the California Alliance for Jobs, noted that the 39 projects are funded under Proposition 1B and are worth a total of $1.3 billion. He said the implications of stopping these projects, for both his industry and the state, could be dire.
“Our industry is suffering 20 percent unemployment, whereas the rest of the state is at 8 percent, which is bad enough,” Earp said. “The only game in town for our industry right now is public works projects. The private work is dead. Nobody’s building homes or commercial projects.”

Once a project is underway, Earp said, it can cost as much or more to shut it down as to continue it. For road projects, he said, the state would incur costs for rerouting traffic and for moving and storing expensive construction equipment, which is prone to theft. The state could also incur liability for breach of contract.

Earp said a good example was the Lincoln bypass project in Placer County. This project would cost $6 million to finish, but $10 million to shut down.

“There’s a lot of projects under Prop 1B in the pipeline, but these have already broken ground,” Earp added.

The impetus for the change came from the Controller’s office last week, when they said they weren’t going to be able to make the payments because they couldn’t sell the bonds. Caltrans, part of the Schwazenegger administration, has apparently pushed back and said they would still make the payments.

“The Department of Finance and Caltrans are encouraging the controller to make these payments,” Kempton noted.

Proposition 1B, a $19.93 billion bond issue, was approved  by voters in 2006 to finance transportation projects. The bond, supported by the Schwarzenegger administration and backed by the state’s General Fund, was part of a $40 billion package to improve the state’s infrastructure.