Wednesday, December 17, 2008

Shut It Down, Shut It All Down

So it begins:

California road, school construction projects could be halted or delayed

Road, levee, school and housing construction projects throughout California are on the verge of being halted or delayed, as state officials prepare to shut off their financing in the most drastic fallout yet from California's cash crisis.

Officials plan to meet today to freeze financing on these projects and about 2,000 others, including park improvements, environmental restoration and repairs to state prisons...

Many of the projects were authorized by voters in 2006 and championed by Gov. Arnold Schwarzenegger in his reelection campaign that year.

All rely on funds that are nearly depleted because the state has been unable to sell the routine bonds it uses to keep cash flowing. Last month, the state failed to sell two-thirds of bonds worth $500 million, according to state Treasurer Bill Lockyer.

Lockyer told legislators last week that halting public-works projects would have a ripple effect through California's economy, costing private companies $12.5 billion and eliminating 200,000 jobs.

The cost of shutting down a project in midstream is enormous, said Jim Earp, executive director of the California Alliance for Jobs, a construction industry-backed nonprofit group that advocates for public-works spending.

"It gives the contractor cause to file suit for damages," he said. "It is incredibly disruptive. It can cause major safety problems. We are going to be putting thousands of people out of work."
The government agencies that I'm aware of are spending money as fast as they can before another freeze is implemented. Meanwhile, hope for a federal bailout is the only plan. Stay tuned.


patient renter said...

A Federal bailout is inevitable. The excuse will be based on California's inability to sell its own debt. As usual, none of the right questions will be asked:

Why is California unable to sell debt? Is this a sign that CA govt. is doing too much? What is the longterm plan to resolve this situation? Will piling more Federally enabled debt on top of existing debt make things better? Will having the Feds sell debt on behalf of California eventually lead to the same problem on a Federal level? What happens then?

Deflationary Jane said...

PR and Max,

The issue is no one believes how bad it is out there. Huge chunks of sky are falling on people's heads but they still wander a round in denial. I'm surrounded by these folks both here and in the Bay Area.

It reminds me of a subset of people who become victims of violent crime - it never happened to them before so the person holding the gun to their head can't be serious. Here's a clue: the situation is as a serious as a sucking chest wound.

Anonymous said...

Speaking of sucking chest wounds, here's another missive on the CALPERS debacle. A 103% loss on residential investments? I'm not even sure how that's possible, but there you have it. Mish goes on to say that:

"The Calpers website fails to point out just just how it guarantees those benefits. The WSJ article spells it out nicely: "California's cities, towns and schools may have to cough up more money to cover the retirement and other benefits the fund provides for 1.6 million state workers."

Here's the deal. CalPERS can and clearly does gamble with pension money. If it loses, California taxpayers will have to pick up the tab.

Is this a great system or what?"

Anonymous said...

CA will find is is cheaper to pay a premium on those bonds than to cancel the contracts and fore go the flow through tax revenues and pay out the unemployment and damage.

What, you say there's funds set aside like they're not co-mingled.


Max said...

Well, it looks like the Dems have found a legal loophole to increase taxes. No big surprise.

patient renter said...

Well, it looks like the Dems have found a legal loophole to increase taxes.

Yea. I'm not a big fan of governing via loopholes.

I know we kinda had this talk already, but I want to re-hash. If our income is X and our spending is Y, why are we incapable of cutting Y down to X instead of cutting a little off of Y and raising fees/taxes to make up the rest? How is this sustainable governing? The next time we're in a crisis and we're stuck with X and Y, do we raise taxes/fees again, then again..?

A lot of people are personally effected by state government cuts, including myself, but I like to take a long term view and recognize that the perpetual expansion of government is not sustainable and needs to be recognized as the primary culprit here, not decreasing revenue.

patient renter said...

Related to this discussion, there's a great little post and chart from Gred Mankiw on the change in size of government in relation to crisis.

Key quote:

"Rahm Emanuel, the new White House chief of staff, is reported to have said, 'You don't ever want to let a crisis go to waste: It's an opportunity to do important things that you would otherwise avoid.' It is not entirely clear what he meant by this. But one interpretation is that he wants to use a temporary crisis as an pretense to engineer a permanent increase in the size of government."

Anonymous said...

I don't know what he said, but here's an example ..... some of the public works jobs impacted by the null bond sales are coming in at 50% of the projected cost.

Soft labor, materials and fuel contribute to these numbers. A small premium on the finance end is a bargain compared to the construction savings.

Now is also a good time to buy right of ways for future projects..... how about renegotiate a few recent ones. (did I mention Natomas School panhandle property?)


Max said...

Soft labor, materials and fuel contribute to these numbers. A small premium on the finance end is a bargain compared to the construction savings.

A small silver lining. These project costs are a drop in the bucket compared to schools, prisons, and welfare.

The action at the capitol yesterday was pretty entertaining. There were dozens of sat trucks parked everywhere, all poised to deliver the "fee" increase news, and Arnold disappointed them all. Nothing will happen until after the first.

Next post title: If most state services shut down in the woods, do the people make a sound?

patient renter said...

Here come the paycuts and the furloughs (paycuts in disguise to those savvy union folks). 10%.