July 6 (Bloomberg) -- Banks and credit unions will offer zero-interest loans and other assistance to the 200,000 California government employees who may see their pay reduced to the minimum wage as a result of the state’s budget stalemate.
The Golden 1 Credit Union, a lender that caters to state workers, will offer zero-interest loans to customers whose pay falls because of the stalled spending plan, according to a July 2 statement. About 1,100 legislative aides and gubernatorial appointees whose pay was stopped on July 1 already have access to so-called budget-impasse loans, said Donna A. Bland, the company’s chief financial officer.
“We’re trying to show our support for our state-employee members,” Bland said in a telephone interview. Golden 1, based in Sacramento, the state capital, describes itself as the sixth-largest credit union in the nation with about $7 billion in assets.
Bank of America Corp., the biggest U.S. lender by assets, will waive fees and offer emergency credit-line increases and mortgage-payment help to customers whose California pay is cut, said Colleen Haggerty, a spokeswoman for the company, based in Charlotte, North Carolina.
“We could survive off our savings for a little while, but it would be a real burden on us,” said Chava Yniquez, a 49-year-old technician in the Senate printing office who has used Golden 1 budget-impasse loans in the past. “It’s a lifeline.”
California’s Republican governor, Arnold Schwarzenegger, and its Democrat-led Legislature are at odds over how to close a $19.1 billion deficit for the fiscal year that began July 1. The state has passed its budget by the start of the fiscal year only 10 times in the past 34 years.
Court Backs Governor
The Schwarzenegger administration won a Sacramento state appellate court decision on July 2 upholding an order compelling state Controller John Chiang to reduce employee pay until a budget is passed. That order affects about 200,000 state employees who work under civil-service contracts, according to the state Personnel Administration Department.
Reducing workers’ wages can’t be done until the state overhauls its payroll system, Chiang, a Democrat, said July 2 in a statement. He is running for re-election in November.
“I will move quickly to ask the courts to definitively resolve the issue of whether our current payroll system is capable of complying with the minimum-wage order,” he said.
Budget-impasse loans have been around since at least 1992, when Golden 1 first offered them. The credit union made the loans available to about 850 customers during the last budget stalemate, in 2008, Bland said.
55,000 Potential Borrowers
Golden 1 said as many as 55,000 of its customers may participate this year, if state-employee pay is cut to the federal minimum wage, currently $7.25 an hour. Flyers that tout the program are being distributed in its 84 offices, carrying a message that says “balancing the state’s budget doesn’t have to affect your own.”
Other institutions offering similar loans include San Francisco-based Wells Fargo & Co., the fourth-largest U.S. bank by deposits, and Sacramento’s Schools Financial Credit Union. The zero-interest loans are available only to current customers whose pay is deposited directly into their accounts, said Nathan Schmidt, vice president of marketing at Schools.
“It’s the philosophy of credit unions helping people,” Schmidt said in a telephone interview. “Eventually the state will pass a budget.”
Impasse lending isn’t limited to the Golden State. PSECU, a credit union based in Harrisburg, Pennsylvania, offered state workers the zero percent loans last year, according to its website. This year, the Pennsylvania Legislature passed its budget on time for the first time in eight years.
“California has a whole lot of experience in this, year in and year out,” Patrick Keefe, a spokesman for the Credit Union National Association in Washington, said in a telephone interview.
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