Schwarzenegger orders state pay cut

SACRAMENTO -- Gov. Schwarzenegger signed an executive order Thursday eliminating jobs for an estimated 10,300 temporary state employees and reducing pay for about 200,000 state workers to the federal minimum wage of $6.55 per hour, portraying it as a stopgap measure to ensure that the state can pay its bills without a state budget.

The Republican governor intends to reverse those moves once lawmakers reach a budget compromise, meaning the state would rehire temporary workers and give employees their back pay. The governor's order also imposes a strict hiring freeze and eliminates overtime but exempts workers in health and safety.

Schwarzenegger said the state's financial situation and lack of a signed budget "leaves me with no easy choices."

"I have a responsibility to ensure that our state has enough money to pay its bills. This is not an action that I take lightly," he said.

Schwarzenegger said he understands the action will affect families that are struggling financially.

"I want to apologize to all the state employees for having to do this," he said. "State employees are working very hard. ... But this is the only way out."

California's budget is 31 days late as Democrats and Republicans remain divided over how to bridge a $15.2 billion shortfall in a $101 billion general fund budget. Democrats have proposed $8.2 billion in tax increases, while Republicans are calling for cuts in education and social programs in addition to long-term changes to reduce state spending.

While budget delays have become nearly an annual rite at the Capitol, Schwarzenegger argues that this year calls for drastic steps because the state has less cash because of a sour econ-omy. The move could save roughly $1 billion per month, and the governor said he believes California will not have a sufficient cash reserve in September without the executive order.

But Democratic state Controller John Chiang disputes Schwarzenegger's view of the state's cash situation, insisting that it has enough cash to last through September without borrowing. Chiang has vowed to defy part of the governor's order by paying state workers their full wages, although he cannot help temporary state employees keep their jobs.

There remains a high threshold for the federal minimum wage cut to take effect for 200,000 state workers. Most get paid at the end of the month, so the lawmakers would have to remain in a stalemate through the end of August. Even then, Chiang has said he intends to issue full paychecks, so Schwarzenegger would have to sue the controller to ensure that workers receive the federal minimum wage, a process that could take weeks or months and create image problems for the governor.

Schwarzenegger said he will sue Chiang "if that is what it takes."

Who's exempt from pay cuts?

Agency secretaries and department heads will have leeway to determine which employees can be exempted from receiving federal minimum wage because they serve a crucial health and safety capacity.

The state has withheld paychecks from lawmakers, legislative staff and gubernatorial appointees since July 1, the first day of the fiscal year. They will receive their full pay, and lawmakers will receive their full per diem in addition, once the budget is signed.

Schwarzenegger, whose net worth is more than $100 million, does not accept his $212,179 annual salary as governor.

Banks are preparing to help state employees should they receive the federal minimum wage on a temporary basis. The Golden 1 credit union, for instance, is offering no-interest loans to members who had direct deposit as of June 30. State workers who are not members cannot receive the same deal.

Chiang believes the governor's order may be illegal under a 2003 court decision, White v. Davis, and said the state could incur legal damages if it pays workers the federal minimum wage. But Schwarzenegger has insisted that his move is necessary and fully backed by the same decision.

The Legislature's legal adviser, Diane Boyer-Vine, wrote an opinion last week that said Schwarzenegger could not compel Chiang to pay minimum wage because the controller is a constitutional officer independent of the governor.