I read this morning that the state legislature is now moving on passing a budget after reaching a “milestone” yesterday of the longest-ever impasse – 79 days, which shattered 2008’s mark of 78. Congrats to all you bureaucrats – you’re making HISTORY!
If a budget is not passed by Sept. 30, however, the state Department of Transportation will have to shut down every construction project under its control for lack of funds. Caltrans has not had the authority to spend any new money since July 1 of this year.
William E. Davis at the Southern California Contractors Association says his group is proposing a call for a limited special session to pass a budget for Caltrans to keep this disaster from happening. In discussions with other industry groups and Caltrans,
Davis says SCCA has three different options for the legislature to consider, including:
Option 1 – Pass a budget for Caltrans on an emergency basis. This option allows the agency the greatest flexibility in dealing with the following issues:
· Continuation of existing projects – $9.88 billion in current work which will have to be shut down Sept. 30 when Caltrans runs out of money, putting 150,000 construction workers on unemployment, forcing thousands of construction companies and their suppliers to shut down ... many may never reopen.
· Award of new projects – $3.5 billion in new work is currently held up, affecting 50,000 jobs, and there are millions of federal highway funds that are programmed for these projects that will suffer rescission (money returned to FHWA for redistribution to other states with active programs).
· Will provide agency full access to all funding sources, which when coupled with the gas-tax swap, means that the state could sell some of the $15.5 billion in Prop. 1B bonds that are languishing on the shelf, since there will be a dedicated funding source for these bonds.
Option 2 – Establish continuous appropriation of Highway User Tax Account (HUTA) funds. While it would not give enough money to reactivate all the new projects on hold, it would at least allow the agency to manage cash flow to keep current work alive. This is the excise tax on motor fuels that has been building up at a rate of 35.3 cents per gallon since July 1 based on the gas tax swap. There still may be a loss of federal funds for new projects, which means they will have to be canceled.
Option 3 – Put Caltrans on a two-year budget cycle. “We didn’t have this problem for the last year and a half because of the 18-month budget solution,” says Davis. “Now that cycle is over and we are facing collapse of the construction industry since all other market segments (residential, commercial, industrial, institutional) are at record low levels. Five years ago construction employed close to one million Californians. Today that number is close to 550,000, most of whom are engaged in public works (transportation, water and sewer projects) totally dependent on the state budget.”
Davis says that if it would make it more palatable to the legislature, Caltrans could exist on its non-general fund resources almost indefinitely. According to the governor's original budget, the agency was only going to receive $83 million in general fund support anyway and “could reduce headcount through attrition to handle this shortfall.”
Meanwhile, Caltrans held an industry-wide conference call Sept. 16 with Mark Leja, chief of construction; Rick Land, chief engineer; and Malcolm Dougherty, interim chief deputy director.
AGC of California reports the following key points were discussed:
If a budget is not passed by Sept. 30, however, the state Department of Transportation will have to shut down every construction project under its control for lack of funds. Caltrans has not had the authority to spend any new money since July 1 of this year.
William E. Davis at the Southern California Contractors Association says his group is proposing a call for a limited special session to pass a budget for Caltrans to keep this disaster from happening. In discussions with other industry groups and Caltrans,
Davis says SCCA has three different options for the legislature to consider, including:
Option 1 – Pass a budget for Caltrans on an emergency basis. This option allows the agency the greatest flexibility in dealing with the following issues:
· Continuation of existing projects – $9.88 billion in current work which will have to be shut down Sept. 30 when Caltrans runs out of money, putting 150,000 construction workers on unemployment, forcing thousands of construction companies and their suppliers to shut down ... many may never reopen.
· Award of new projects – $3.5 billion in new work is currently held up, affecting 50,000 jobs, and there are millions of federal highway funds that are programmed for these projects that will suffer rescission (money returned to FHWA for redistribution to other states with active programs).
· Will provide agency full access to all funding sources, which when coupled with the gas-tax swap, means that the state could sell some of the $15.5 billion in Prop. 1B bonds that are languishing on the shelf, since there will be a dedicated funding source for these bonds.
Option 2 – Establish continuous appropriation of Highway User Tax Account (HUTA) funds. While it would not give enough money to reactivate all the new projects on hold, it would at least allow the agency to manage cash flow to keep current work alive. This is the excise tax on motor fuels that has been building up at a rate of 35.3 cents per gallon since July 1 based on the gas tax swap. There still may be a loss of federal funds for new projects, which means they will have to be canceled.
Option 3 – Put Caltrans on a two-year budget cycle. “We didn’t have this problem for the last year and a half because of the 18-month budget solution,” says Davis. “Now that cycle is over and we are facing collapse of the construction industry since all other market segments (residential, commercial, industrial, institutional) are at record low levels. Five years ago construction employed close to one million Californians. Today that number is close to 550,000, most of whom are engaged in public works (transportation, water and sewer projects) totally dependent on the state budget.”
Davis says that if it would make it more palatable to the legislature, Caltrans could exist on its non-general fund resources almost indefinitely. According to the governor's original budget, the agency was only going to receive $83 million in general fund support anyway and “could reduce headcount through attrition to handle this shortfall.”
Meanwhile, Caltrans held an industry-wide conference call Sept. 16 with Mark Leja, chief of construction; Rick Land, chief engineer; and Malcolm Dougherty, interim chief deputy director.
AGC of California reports the following key points were discussed:
- Current Projects – Currently, Caltrans has 690 construction projects in progress are valued at $9.8 billion (as the SCCA says). For every $1 billion spent in construction dollars, there are approximately 180,000 jobs (both direct and indirect) impacted.
- Progress Payments – Caltrans is doing everything it can to continue timely progress payments and contractors will be notified immediately should progress payments be delayed. Over the last few weeks, Caltrans has taken steps that will provide timely progress payments through October and are looking at all possible steps to ensure that it can continue to make progress payments.
- Late Payments – Caltrans reviewed its contracts regarding late payments. Payments are not considered late until 30 days after the invoice is submitted. Once the payment is considered late, there is an annual interest rate of 10%. The department will notify the industry if it determines that November progress payments will be delayed or cannot be made.
- Advertising – Advertisements for new construction contracts will remain on schedule and as projects are ready to be advertised.
- Bid Opening – Up until this week Caltrans has held off bid opening dates; then as those dates grew closer (within a week) and without a budget enacted, bid openings were postponed indefinitely. Caltrans stated they will modify contracts through addendums to extend the award period from 30 days to 60 days and continue to open bids for those projects that are already scheduled. At this time, there are approximately 25 bid openings postponed. Projects that have been postponed indefinitely will be rescheduled with the extended award period. In addition, those bid openings will be scheduled as well.
- Award of Projects – With the exception of safety projects, Caltrans cannot award projects for the 2010-11 fiscal year, due to the lack of a state budget. Approximately $3 billion of projects are not going out; of that, $1 billion is tied to last year’s state budget funding and $2 billion is dependent on the new budget. Caltrans is conserving cash by not awarding projects so that it can ensure enough cash is in the State Highway Account (SHA) to pay for ongoing work.
- State Highway Account (SHA) – Legislative appropriation puts money in the SHA. Money is being collected but not transferred from the Highway Users Tax Account (HUTA) to the SHA without a budget or legislation.
- Proposition 1B Funding – Proposition 1B projects will continue as the last bond sale resulted in project funding through March 2011, however, a state budget needs to be in place so that the funding can flow from the General Fund to the Highway Account. New Proposition 1B projects will be treated the same as all other projects impacted by the state budget impasse and will not be awarded.
- Stop Notices – It was restated today, that at this time Caltrans is not planning to issue Stop Notices. At this point, there is not an estimate of the costs associated with project shut downs.
- Federal Funding – As required, all American Reinvestment Recovery Act (ARRA) funds have been obligated. In addition, all federal dollars for this federal fiscal year are obligated as well.
AGC says a letter to the legislators will be released on Monday, Sept. 20. It will include the amount of jobs that will be lost if a budget is not passed.
