A state panel that oversees loans for public works projects voted Wednesday to stop financing nearly all construction in California, halting nearly $4 billion in loans for everything from freeways, levee repairs to school construction.
The three-member Pooled Money Investment Board voted Wednesday not to lend money for an estimated 2,000 infrastructure projects statewide, saying the state's finances are so grim California can no longer afford to fund them.
"We don't have the money to loan, so we're stopping the projects," said state Treasurer Bill Lockyer. "We can't spend money that we don't have."
Lockyer had warned the state Legislature last week that the unprecedented halt in funding would be necessary if lawmakers did not immediately address a $14 billion deficit in the fiscal year that ends in June. The hole is forecast to grow to $42 billion over the next 18 months.
"This is incredibly difficult," said California Controller John Chaing. "We're going to impact the lives of so many people, especially of those who are going to have to suffer job losses during the holiday season. Unfortunately, it is a much needed issue or else we run out of cash in February."
Republicans and Democrats have remained locked in a stalemate over the budget deficit for 42 days. The state's bond rating has dropped to dead last of all 50 states.
California is expected to run out of operating cash in February. That means any money currently in the pooled fund could be needed to shore up the state's finances.
Lockyer estimated previously that the frozen projects could cost California 200,000 jobs and eliminate $12.5 billion in private sector revenue in every part of the state. Officials were still calculating the effect of Wednesday's decision.
The news could hit hardest for the construction industry, which generates 18,000 jobs for every $1 billion spent on infrastructure.
Chiang, a member of the board, noted that the decision came as state officials had hoped to spur the economy through more infrastructure investment, not less.
"This is only going to tear into the heart of California's recovery efforts," he said.
Schwarzenegger's finance director, Michael Genest, the third board member, said he would ask the governor to start freezing any projects that are under his control.
The board agreed to meet again in early January to possibly provide about $500 million to keep the neediest projects going.
The state's community colleges could be in that group.
"We have a pipeline of $2 billion dollars worth of projects," said Mary Justin, who works for the community college districts. "At 62 districts, (we have) 102 campuses, 192 projects."
Wednesday the Democrats pulled a surprise out of their hats by announcing a plan to generate $9 billion in revenue by raising the gasoline tax by 13 cents a gallon. Democrats said they could do it just on a straight majority vote by calling it a fee, not a tax.
The plan also included a hike in the personal income tax by 2.5 percent, and a sales tax hike of half a cent.