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California Controller Can Delay Minimum-Wage Order

Arnold Schwarzenegger, governor of California, speaks to the state assembly about his proposed budget in Sacramento, California. Photographer: Ken James/Bloomberg
Arnold Schwarzenegger, governor of California, speaks to the state assembly about his proposed budget in Sacramento, California. Photographer: Ken James/Bloomberg

July 16 (Bloomberg) -- California Controller John Chiang doesn’t have to comply with Governor Arnold Schwarzenegger’s order to pay 200,000 state workers the minimum wage during the state’s budget standoff, a judge ruled.

Sacramento County Judge Patrick Marlette said that Chiang, a first-term Democrat, doesn’t need to immediately begin the process of reprogramming payroll computers so the cut can take effect before checks are issued for the Aug. 1 payday. Schwarzenegger sought an injunction after Chiang refused to comply pending an appeal of a previous court ruling that said he had to follow the governor’s order.

Marlette said during a hearing today that the damage such a pay cut would have on state workers outweighed Chiang’s violation of the law by issuing paychecks without a budget that authorizes such spending. In 2003, the state’s high court ruled that California can withhold salaries during budget impasses as long as it complies with federal law, which requires paying at least the minimum wage, currently $7.25 an hour.

“We are pleased that the judge took into consideration our arguments and looked at the impact the pay cut would have on hundreds of thousands of state workers who worked for those checks and expect full pay,” Hallye Jordan, a spokeswoman for Chiang, told reporters outside the court.

Schwarzenegger, a Republican, issued the order on July 1 after lawmakers failed to send him a budget before the fiscal year began that day. He and the Democrats who control the Legislature are in a stalemate over whether to reduce spending or raise taxes to close a $19.1 billion deficit.

Chiang’s Refusal

Chiang refused to follow the order, saying he would wait until he’s exhausted an appeal of another court’s ruling that he must follow a similar pay cut order from 2008. Chiang has argued that the state’s 1970s-era payroll computer system isn’t equipped to make such complex changes and that doing so would violate federal labor laws requiring employees working overtime to get paid full salary.

There will be another hearing in August in which the judge wants to rule on the issue of whether the controller has to comply with the 2003 ruling.

The pay cut order is seen by Democrats such as Assembly Speaker John Perez as an attempt by Schwarzenegger to pressure lawmakers to capitulate to his budget demands and on Democrat-friendly labor unions to make concessions on pension costs.

“This is purely a negotiating tactic and one that I think has little merit,” Perez, a Democrat from Los Angeles, told reporters yesterday in his Sacramento office.

State’s Authority

Schwarzenegger’s press secretary, Aaron McLear, has rejected that notion and said the state doesn’t have the authority to compensate its workers without a budget.

“The courts have been clear: In the absence of a state budget or other available appropriation, the controller does not have the authority to continue paying regular salaries and wages,” McLear said in a statement July 6.

The 2008 pay cut order came at a time when finance officials such as Chiang were concerned that they wouldn’t have enough cash to pay bills. Schwarzenegger signed the budget Sept. 19 of that year, the latest in California’s history. This time, Chiang has said the state has enough cash to pay bills through September.

Some 37,000 state workers would be exempt from the wage reduction because their unions struck deals with Schwarzenegger’s administration to curb pension benefits as part of new contracts. Included in the contracts is a guarantee that they wouldn’t have their pay cut when there’s no budget. The exemption requires legislation to take effect.

Democrats are pushing legislation that would guarantee workers their full remuneration even when there’s no budget. The legislation, which would need two-thirds approval, passed the Assembly and is pending in the Senate.

To contact the reporters on this story: Michael B. Marois in Sacramento, California, at mmarois@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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