California Cuts Off $3.8 Billion Funding Over Budget Crisis
By Michael B. Marois and William Selway
Dec. 17 (Bloomberg) -- California officials cut off funding for $3.8 billion of construction on schools, roads and other public works as a political stalemate over how to close a record budget shortfall threatened to drain the state of cash.
The California Pooled Money Investment Board, made up of the controller, the treasurer and the governor’s finance director, took the step to save money a day after the Legislature failed to approve tax increases for a second time. The impasse may hamper the state’s ability to raise funds by selling bonds, and the officials said it may cost tens of thousands of jobs in a state already reeling from the housing market’s collapse.
“California’s fiscal house is burning down,” Treasurer Bill Lockyer said in a statement. “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 lie crippled.”
California, the most-populous U.S. state, will run out of money as soon as February unless lawmakers end an impasse over how to replace revenue lost amid the recession. Governor Arnold Schwarzenegger’s administration has said the state may begin paying bills with IOUs as early as February, a measure used only once since the Great Depresssion.
Without a budget in place, Lockyer has said the state can’t raise money from investors by selling bonds to replace the funds that are being drawn down for construction. By cutting off the funding, the state is preserving money that can be used to pay its bills. Schwarzenegger faulted the Legislature.
“It’s outrageous that Republicans and Democrats would continue to play politics while tens of thousands of hardworking Californians face the possibility of being laid off this holiday season,” said Aaron McLear, a spokesman for the Republican governor. “Californians have seen enough politics and posturing from the Legislature. It’s time for them to negotiate and reach a compromise.”
Last night, Democrats were unable to pass bills to cut $7 billion of spending while raising $11.3 billion with higher taxes on retail sales, oil production and alcoholic beverages. The tax increases, similar to those backed by Schwarzenegger, were blocked by Republicans, a minority that still commands enough power to prevent the two-thirds vote needed to pass a budget.
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