SACRAMENTO, Calif. -- California Gov. Arnold Schwarzenegger's bombshell plan to slash the pay of state workers and lay off thousands of other employees to ease a looming cash shortage brought on by the state's budget impasse faces the same obstacle that arose five years ago during a state fiscal crisis: a state controller unwilling to cooperate.While the governor is poised to order the cuts early next week, state Controller John Chiang, who is responsible for disbursing state workers' paychecks, said Thursday that he will refuse to go along with the governor, setting up a political standoff and a possible legal fight."The authority to issue people's paychecks is mine. I have both constitutional and statutory authority," said Chiang, a Democrat. "Frankly, (the governor) is just trying to make me do something that's improper and illegal."But the Republican administration maintained that Schwarzenegger has the legal right to invoke such a controversial plan, under which the pay of about 200,000 state workers would be reduced to the federal minimum wage of $6.55 an hour. Once a new budget is passed, the workers' pay would be restored along with back wages."We are on firm legal standing," said Aaron McLear, a spokesman for the governor. "But if (the controller) wants to challenge the state Constitution and a state Supreme Court decision, he has the right to do that."The dispute over state employee wages is a replay of 2003, when the state Supreme Court issued a precedent-setting ruling during a budget impasse on the watch of Gov. Gray Davis that left some questions unanswered.In a unanimous decision stemming from a 1998 lawsuit by the Howard Jarvis Taxpayers Association, the court said state workers who are paid by the hour and don't work overtime in a particular pay period are legally entitled only to the federal minimum wage if the state enters a new fiscal year without a budget.But the 2003 court decision didn't resolve the argument raised by the state controller at the time, Steve Westly -- reiterated this week by Chiang -- that the controller's office has the authority to continue paying all state employees in full even without a budget because of a series of obstacles to temporarily reducing their wages.Westly continued paying the employees in full until Davis signed the new budget on Aug. 2 of that year.Besides cutting workers' pay, Schwarzenegger's proposal would lay off nearly 22,000 temporary, seasonal and student workers. He also wants to stop all overtime pay and impose a hiring freeze.Lisa Paige, a spokeswoman for Schwarzenegger, said agency secretaries are reviewing how their workers would be affected, adding that the governor's plan won't jeopardize critical areas of state government.At the heart of the governor's proposal is the ongoing budget impasse, which has resulted in California beginning a new fiscal year on July 1 without a spending plan in place. Schwarzenegger and lawmakers in the Democratic-controlled Legislature have not agreed on how to close a $17.2 billion budget gap, which would include $2 billion in cash reserves.To make matters worse, the state may face a cash shortage by September if a budget is not in place, which is one of the reasons Schwarzenegger wants to push legislative leaders into quickly finding a budget compromise.But the governor's order also underscores his desire to push the Legislature to approve his budget reform ideas -- and his plan to borrow against future lottery revenue to help solve California's budget woes -- for the November ballot.In a letter to Schwarzenegger on Wednesday, Secretary of State Debra Bowen said the deadline for new measures to be placed on the supplemental ballot for the November general election is Aug. 16.Schwarzenegger's budget proposal includes borrowing against future state lottery sales and reforms such as a large rainy-day fund, a spending cap based on previous decades' revenues and automatic mid-year spending cuts that the governor could invoke by declaring a fiscal crisis.All four plans would require voter approval.Potential impact on state workers 200,000 workers would see their pay cut to the federal minimum wage of $6.55 an hour.7,923 permanent intermittent employees, including some Caltrans maintenance workers, would be laid off.8,270 seasonal workers, such as state park employees and student assistants, would be laid off.5,662 retired state workers who have been called back to work on specific projects would be laid off.Excluded120 state legislators565 political appointees, from executive staff to commissioners2,164 legislative staffThese employees haven't been paid since July 1, but can receive no-interest bank loans until a budget is passed and they receive back pay.Source: Governor's office, San Francisco Chronicle researchChronicle staff writer Bob Egelko contributed to this report. E-mail Matthew Yi at myi(at)sfchronicle.com.(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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