In Budget Showdown, Schwarzenegger Threatens Minimum Wage for State Employees

SAN FRANCISCO—The Governator appears to have had enough. After months of watching Democrats and Republicans in California's state legislature squabble over how best to close a $15.2 billion budget deficit, Gov. Arnold Schwarzenegger is ready to put his foot down. According to a draft copy of an executive order leaked yesterday to the Sacramento Bee, Schwarzenegger plans next week to slash the pay of more than 200,000 state government employees to the federal minimum wage of $6.55 per hour, saving the state an estimated $1.2 billion a month—and putting a huge amount of pressure on recalcitrant lawmakers to finally come to an agreement on the budget.

Gov. Arnold Schwarzenegger pauses for a question as he leaves a news conference.

In the order, which has not yet been officially released, Schwarzenegger acknowledges that the pay cut is a drastic measure, but he seems to believe push has finally come to shove. The legislature here was required to pass the more than $100 billion state budget by July 1, but legislators have been at loggerheads ever since, with Democrats demanding tax increases to close the shortfall and Republicans insisting on spending cuts. In the last week, negotiations between the two sides have largely broken down. Schwarzenegger, with this new order, is giving both sides a powerful nudge—and bringing what would normally be the late stages of a humdrum budget negotiation process into the political spotlight. "As a result of the late state budget, there is a real and substantial risk that the state will have insufficient cash to pay for state expenditures," the order reads. The governor's staff has so far refused to comment on Schwarzenegger's plans.

Needless to say, the prospect of almost a quarter-million state employees receiving a drastic pay cut has sent the political establishment in the nation's most populous state into a frenzy. Schwarzenegger has been trying to reform the state's perennial budget problems since he took office. In January, he proposed a dramatic 10 percent cut to all state agencies, including trimming $4 billion from the K-12 budget. This spring, he softened his approach, suggesting the state instead borrow against its future lottery proceeds to close the deficit. Schwarzenegger threatened to raise taxes if he didn't get his way. "Our crisis is real and it's very serious," he warned at a press conference announcing the proposal. "We need additional revenues, and we've got to get creative without raising taxes."

State legislators, though, have refused to follow his lead. Republicans in the State Assembly called the lottery plan dead on arrival because of its proposed tax hikes, and Democrats have defied the governor—and their colleagues across the aisle—by coming up with a budget that includes more than $10 billion in tax increases. The state's budget deadline came and went 24 days ago with no sign of progress, and lawmakers have watched their approval ratings sag. According to a poll released this week, 3 in 5 Californians say they disapprove of the job the state legislature is doing. Nearly half disapprove of Schwarzenegger. More than two thirds say the state is now "seriously off track."

With this new move, Schwarzenegger has embraced a policy of mutually assured destruction—and turned the budget battle into a political cage match. While there is some question about whether or not he could actually push through his proposed pay cut—the state controller insists the state has enough cash to make payments through September—there's no doubt that Schwarzenegger is on firm legal ground. In 2003, the California Supreme Court ruled that the state may cut workers' salaries to the federal minimum in the absence of a state budget. Once the budget is passed, workers' salaries would return to their normal levels, and they would receive back pay, as well.

For now, Schwarzenegger's brawling tactics appear to be having the desired effect. Lawmakers in Sacramento yesterday were quick to display their willingness to return to the negotiating table. "I don't believe the governor would put public servants in the crossfire of this budget battle," said Karen Bass, the Democratic speaker of the State Assembly. "But this action would speak to the need for all us—including the governor—to negotiate a balanced, responsible budget that protects our schools and the safety net before we run out of cash." GOP leaders also seemed chastened: "Republicans understand the urgency of getting the budget done as soon as possible, which is our main focus right now," Dave Cogdill, the Senate Republican leader, and Mike Villines, the party's Assembly leader, said in a joint statement. "We are working very hard to avoid drastic measures like the one that is being proposed."

As lawmakers haul themselves back to their budget talks, experts say there is no guarantee they will be able to bridge their differences. This state, after all, has a long history of political gridlock: In 1992, Gov. Pete Wilson paid 93,000 state workers with IOUs during a then-record 64-day budget impasse. Today's state workers, meanwhile, are girding themselves for the worst. As one told the Bee: "I guess people will start working on Monday like they're making $6.55 an hour."