California's 2008-2009 State Budget Stalls

By Loren Faulkner | September 28, 2010

If California is a trend setter, it must have the record for not passing fiscal budgets on time. July 1, 2008 marks the seventh year out of the past 10 that California’s legislature has not been able to approve one on time. Democrats want to help close a record $15.2 billion shortfall by raising taxes by up to $11.5 billion. Republicans are holding their position of wiping out the entire deficit by reducing State spending by the entire deficit amount.

But while they wrangle, institutions and state funded programs must find ways to keep afloat until a budget is approved. If the stand-off continues into the end of summer, hundreds of millions in extra interest payments will burden California’s taxpayers.

The bad news for California infrastructure contractors is this: while the budget is in limbo, prime contractors by law must continue to pay their subcontractors and material suppliers. Some may have those cash funds in reserve, while others will be borrowing short-term to cover payments.

Will Kempton, director of California’s Dept. of Transportation (Caltrans) has sent out the following public letter describing the dilemma:

As you know, California is facing significant financial challenges as we enter the 2008-09 fiscal year. We are looking forward to the conclusion of budgetary deliberations so that we can work with you in delivering projects programmed in 2008-09 and beyond.

While projects programmed in 2008-09 must be deferred until the new budget is enacted, those projects that have already been awarded under the authorized prior-year budget appropriations can proceed. The California Department of Transportation intends to continue to make progress payments for construction work performed on these contracts. We will continue to monitor the situation and will provide you prior notice if cash reserves will be insufficient for us to make timely payments.

I understand the financial uncertainty that a budget impasse will impose on the contracting industry, and I will continue to keep you informed on the status of our funding capacity.

A Bit of Good News

Yesterday, (June 30) Governor Schwarzenegger signed into law AB1252. This bill expedites the release of $300 million to voter-passed Proposition 1C and Proposition 1B bond project. In 2006, both bonds authorized California to borrow $42 billion. The currently released money will go to important infrastructure and housing projects already awarded in the fiscal year 2007-2008 budget.

At the signing ceremony in Sacramento, Governor Schwarzenegger said, "This expedited funding will stimulate our economy, create thousands of jobs and help workers in the construction industry who have been hit especially hard by the mortgage crisis and housing slowdown." He added, "We are not waiting for the economy to pick up - we are taking action to keep California's economy growing, to keep people working and to keep rebuilding our great state."

AB 1252 expedites the following amounts to the Proposition 1C and Proposition 1B bond funds to augment specified appropriations in the 2007-2008 budget:

  • $100 million to augment the Regional Planning, Housing and Infill Incentive Account, 19 new projects;
  • $50 million to augment the Transit-Oriented Development Account, five new projects;
  • $87 million to augment the county portion of the Local Streets and Roads Program; and,
  • $63 million to augment the Grade-Separation program