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Calif. Stimulus Plans Includes Billions for Public Works

Sun December 21, 2008 - West Edition

SACRAMENTO (AP) One of the critical elements of Gov. Arnold Schwarzenegger’s plan to close California’s growing budget deficit involves jump-starting the economy with billions of dollars in public works spending.

On Dec. 2, Schwarzenegger sought outside help, making a pitch directly to President-elect Barack Obama, who told the nation’s governors he wants to put people to work building roads, schools and bridges.

Schwarzenegger said that while California approved $42 billion in infrastructure bonds two years ago, the state could use more help. The governor’s office estimated the state has $28 billion-worth of projects the incoming Obama administration could fund within its first 120 days.

Across the nation, the National Governors Association estimated there are more than $136 billion in infrastructure projects ready to break ground.

“This is a good opportunity not only because it will build infrastructure but creates great jobs and gets the economy stimulated,’’ Schwarzenegger said at the governors’ meeting in Philadelphia. “That’s exactly what we need.’’

While experts commend Schwarzenegger’s infrastructure campaign as a solid economic strategy for the long-term, they say it will not solve California’s immediate cash shortage. The deficit is projected to hit $28 billion over the next 18 months.

It can take anywhere from two to five years for construction on public works projects to start given the time it takes for planning and design, said Brad Kemp, director of research at Beacon Economics, a California research firm.

Others said the governor’s plan doesn’t solve what they say is the state’s underlying imbalance between annual spending and revenue.

“It’s not about capital expenditures,’’ said Richard Little, director of the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California. “It’ll have some benefits, but it’s not the solution. We need to align revenue and expenditures… That’s the fundamental thing the governor and Legislature need to wrestle with.’’

Schwarzenegger on Dec. 1 declared a fiscal emergency and for the third time this year called lawmakers into special session. He warned that California is in danger of running out of daily operating cash within two months and proposed $4.7 billion in tax increases and $4.4 billion in program cuts.

He also demanded an economic stimulus plan that would include accelerated public works spending: $204 million from water bonds, $1.5 billion for transportation and $106 million for hospital construction.

To speed up those projects, Schwarzenegger proposed suspending environmental review requirements.

His spokesman, Aaron McLear, said the stimulus plan would have an immediate effect on California’s economy. He added that regulatory exemptions must be made in a fiscal crisis to get money flowing quickly to the projects.

“The governor’s proposals are specific and designed to put real dollars into our economy today and to keep jobs here today,’’ McLear said.

Under Schwarzenegger’s plan, the state would streamline the review process for some hospital projects from 10 months to as little as 2 weeks. Expedited bond spending on road and water projects also would lead to construction jobs by the end of June 2009, according to the administration.

The governor also called for making California more attractive for businesses by changing overtime and break rules.

Persuading lawmakers to go along has proven difficult.

Democrats, who proposed an equal mix of tax hikes and spending cuts, said Schwarzenegger’s economic stimulus measures would not provide an immediate fix to the state’s severe budget deficit.

Republican lawmakers remain steadfast in their refusal to raise taxes, yet have not released an alternate proposal to close the $11.2 billion shortfall in the fiscal year that will end June 30.

A few weeks ago, Assembly Minority Leader Mike Villines, R-Clovis, and Senate Minority Leader Dave Cogdill, R-Modesto, sent a letter to Schwarzenegger asking for their own version of an economic stimulus plan — corporate tax cuts.

“Putting Californians back to work is the most important thing we can do for families and to help stimulate our economy during this budget crisis,’’ the GOP leaders wrote.

One economist questioned the GOP proposal. Steve Levy, director of the Center for Continuing Study of the California Economy in Palo Alto, said it’s “curious’’ to give businesses tax breaks when the recession is being driven by a lack of consumers.

“American corporate taxation may well be out of line with international practice, but right now the economy has too much capacity and not enough customers,’’ Levy wrote in a brief released Dec. 2.

Lawmakers’ inability to agree to a midyear budget fix has left the state’s finances growing worse by the day.

Without an agreement, state Treasurer Bill Lockyer said California cannot sell infrastructure bonds — the very long-term investments Schwarzenegger believes will help the state recover.

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