Deeply in debt, state officials took the extraordinary step today of halting funds for thousands of public work projects statewide, including roads, levees, schools and prisons, until the Legislature balances the state budget, and possibly longer.

State Treasurer Bill Lockyer, who joined the unanimous vote, called the action regrettable but necessary to preserve cash as the state General Fund tumbles toward insolvency.

"You can't spend money that you don't have," Lockyer said.

He and other members of the Pooled Money Investment Board predicted that unless the state balances its budget, the funding shutoff will further harm the economy and expose the state to lawsuits.

"The likelihood of contract breaches is probably 98 percent," Lockyer said.

Fellow board member, Michael Genest, the governor's finance director, said the state is trapped until it comes up with a long-term budget solution.

"I don't see anything to suggest we have an alternative, really," Genest said before voting with Lockyer and state Controller John Chiang to shut funding.

The decision is a dramatic reversal from the heady days two years ago when California voters approved tens of billions of dollars in infrastructure bonds and state officials were predicting a renaissance in state public works projects.

But with the economic downturn and budget crisis, the state has been unable to sell bonds to finance projects since June and has no prospects of being able to do so in the new year.

Lawmakers have been unable to agree on a plan to close a $40 billion budget deficit between now and June 30, 2010. Without action that cuts expenses or raises revenue, the state could run out of cash as early as February.

State finance officials admitted they haven't been able to do a full accounting yet of which projects will be affected by the funding shutdown.

Some are in the planning stages, but others, such as the Highway 65 Bypass route around the town of Lincoln in Placer County, already are under construction, and could face stoppage.

Placer officials say they are scrambling for other funds.

Reports from around the state indicate the number is at least 2,000 projects, amounting to $16 billion in infrastructure improvements -- and economic investments in a down economy.

In the Sacramento region, they include rehabilitation work on Sacramento High School, emergency repairs at Walnut Grove Elementary School, emergency center improvements at the University of California Medical Center, the Highway 65 bypass, and carpool lanes on Interstate 80 and Highway 50.

Gov. Arnold Schwarzenegger's office immediately issued a sharp criticism of the Legislature for failing to solve the budget crisis.

"It's outrageous that Republicans and Democrats would continue to play politics while tens of thousands of hard-working Californians face the possibility of being laid off this holiday season," spokesman Aaron McLear said in a press statement. "Californians have seen enough politics and posturing from the legislature, it's time for them to negotiate and reach a compromise."

It also drew dire warnings from construction industry leaders.

"We are headed down a precipice now that in my mind makes the auto industry problem look pretty small," warned Jim Earp of the California Alliance for Jobs, and also a member of the California Transportation Commission.The state's Pooled Money Investment Board voted unanimously this morning to cut off billions in funds for state highway, school and other infrastructure projects.

See a list of the projects here.

Call Tony Bizjak at (916) 321-1059.