A re-entry prison slated for Yolo County is on hold indefinitely because of the state's budget crisis and its inability to sell bonds to pay for public works projects.

That includes nearly $1 billion in bonds to fund re-entry prisons – new facilities designed to rehabilitate offenders in their last year of prison.

The goal is to ease overcrowding in the state's correctional system.

The impasse also is holding up $750 million in jail construction funds, including $30 million to expand the county jail in Woodland.

The jail funds were promised to counties that agreed to host re-entry prisons.

But neither the prison nor jail projects will get started anytime soon because financially troubled California is shut out from the credit markets, officials said.

"It would be foolish to predict with any degree of confidence when we can get back into the bond market," said Tom Dresslar, a spokesman for Treasurer Bill Lockyer.

Lockyer and other members of the Pooled Money Investment Board voted on Dec. 17 to shut off the flow of money used to pay for big projects until at least June 2009.

The funds in the Pooled Money Investment Account are loaned out for construction projects and replenished by bonds sales.

Those bond sales aren't happening because investors won't risk money on a state facing a $40 billion budget shortfall over the next 18 months, said H.D. Palmer, a spokesman for the state Department of Finance.

Until a budget plan is passed to cope with the crisis, the credit markets will be locked tight to California, he said.

Meanwhile, the pooled investment funds have been shrinking quickly and may be depleted by February, state officials have warned.

The account shells out about $660 million a month, Palmer said, and also covers the state's day-to-day operating expenses.

Dresslar said Lockyer and his colleagues on the investment board – State Controller John Chiang and Director of Finance Michael Genest – felt it was more important to pay the bills than to start new projects.

Among the estimated 2,000 projects statewide they put on hold are efforts to fix roads, bolster levees and rehabilitate schools.

"We've got a higher duty to make sure the lights stay on," Dresslar said.

The board will meet again in early January and may consider funding some projects already under way, he said.

The re-entry prisons are farther down the list. Corrections officials haven't asked the board for money yet, Dresslar noted.

That's because of a previous problem with the prison and jail bonds.

The state Department of Corrections and Rehabilitation is still waiting for lawmakers to fix flaws in the legislation that authorized the bonds.

Attorney General Jerry Brown has said he can't allow the bonds to be issued without the cleanup language.

But the language is attached to the current budget proposal, which lawmakers and Gov. Arnold Schwarzenegger have been unable to agree on.

Seth Unger, a spokesman for the Department of Corrections and Rehabilitation, said the agency is in the same predicament as other state departments.

"We're kind of in a holding pattern," he said. "We're waiting for our projects that are in the pipeline."

The delays in getting the re-entry prisons off the ground have pleased opponents of the 500-bed facility proposed for a rural site near the tiny town of Madison, in western Yolo County.

But after months of fighting the prison, members of the group Save Rural Yolo County said they don't intend to let their guard down.

They are continuing with a lawsuit.

And they plan to protest at a meeting of the Corrections Standards Authority, which oversees the distribution of jail funds, on Jan. 8 in Galt.

"I don't trust 'em," said Carla Phillips, a resident of Madison. "Maybe it won't happen for a while, but I think they'll just keep moving forward."

Call The Bee's Hudson Sangree, (916) 321-1191.