With the State struggling to close a $40 billion budget shortfall, the Pooled Money Investment Board (PMIB) decided on Wednesday to essentially shut off financing for more than 1,985 infrastructure projects throughout California through June 2009. This action stops new infrastructure loans, bars increases to existing loans, and generally prohibits agencies from spending any more funds under existing loans (the Pooled Money Investment Account "PMIA" would retain that money). At stake is more than $3.8 billion of loan financing for a wide range of projects: highways; schools; levees; housing; hospitals; fire stations; veterans homes; courts; parks; environmental restoration; pollution cleanup; prison construction and others. The projects could be delayed or halted by a funding cutoff. The affected projects have a combined value of roughly $16.2 billion.
The suspended loans provide the permanent financing for the Multifamily Housing Program, among other programs. This also affects the Urban In-Fill and Transit Oriented Development programs at HCD. On Thursday, HCD released the following statement:
The Pooled Money Investment Board (PMIB) took action today that will affect HCD's bond funded programs. In a unanimous vote the Pooled Money Investment Board voted to freeze disbursements of cash to bond-funded programs until California's budget shortfall is resolved. HCD's bond funded programs rely on Pooled Money Investment Account (PMIA) loans to fund projects, including single-family homes, multifamily rental units, shelter spaces and infrastructure. Until the PMIB begins loaning money again, HCD will have to temporarily suspend Notices of Funding Availability (NOFA).
It is unclear whether existing Prop. 46 and 1C awards will be affected by the loan suspensions. Closings this year appear likely to move forward, because HCD already has the money. Next year's closings, however, may be more precarious--it is all uncertain. On Thursday, December 19, 2008, HCD's executive director hardly clarified the situation by noting that with the PMIA's action:
[t]here will be delays in [HCD's] ability to provide expenditures for HCD bond awarded projects as of December 17th, 2008. At this time, we do not know when we will be able to provide expenditures. We do not expect that prior commitments and awards that have been made will be in jeopardy.
The situation at best is uncertain and may change based upon what the governor and the legislature decide with the just-passed budget bills.
The PMIB manages the State's Pooled Money Investment Account (PMIA). The PMIA provides loans both to bond-funded infrastructure projects and to the State general fund to help meet cash flow needs. The growing budget problem has put the State in a precarious cash-flow position and placed unprecedented demand on the PMIA to lend the general fund money to support crucial public services. Stopping the flow of funds to infrastructure projects would provide the PMIA more resources to keep schools, public safety, health care and other priority services operating as long as possible.
Normally, the money the PMIA lends to infrastructure projects gets replenished when the State sells bonds. Unfortunately, the credit crunch and State budget woes have combined to close the bond market to California. State Treasurer Bill Lockyer has determined the State will not be able to sell bonds until the Legislature and Governor forge a budget solution. With the State unable to sell bonds, the continued lending for infrastructure projects would substantially reduce the resources available to the PMIA to keep the State afloat.
Read the entire PMIA Report from December 17, 2008, the Memo sent HCD Customers and the PMIA Appendix for project information.