State May Be Breaking Law to Pay Workers

By DAN MORAIN

July 24, 1997 12 AM PT

TIMES STAFF WRITER

SACRAMENTO —

While Gov. Pete Wilson and legislative leaders haggle over a new state budget 24 days past their deadline, a review of the state Constitution and various court rulings suggests that the state may be paying as many as 250,000 workers in violation of state law.

The payments are one more example of how California’s top elected officials’ annual failure to adopt a budget on time forces them to bend state law. They face no penalties for doing so.

Legal experts and legislators familiar with the laws involved say the state has little choice but to continue paying its bills, with or without a budget.

They also note that there are political benefits to making sure most bills are paid during budget impasses. If bills weren’t paid, state workers and the public would mount major protests, and that would threaten politicians’ careers.

“Deadlines are only good when there are consequences. The consequences have never been real,” said Assembly GOP Leader Curt Pringle of Garden Grove, one of the main budget negotiators.

One widely cited state constitutional provision is the often-ignored requirement that the Legislature approve a budget by June 15 and the governor sign it by July 1, the start of the new fiscal year.

But buried deeper in the state Constitution is a far less noticed provision that appears to say Controller Kathleen Connell is paying many state bills without the required legislative authorization.

“Money may be drawn from the treasury only through an appropriation made by law,” says the state constitutional provision, Article 16, Section 7.

Given that California has been operating without a budget since the July 1, the Legislature has made no “appropriation” authorizing Connell to pay most of the state’s bills, including checks issued to state workers and others, including welfare recipients.

In an interview, Connell said federal court rulings rendered after the budget impasses of the early 1990s require that she pay state workers on time and in cash, not with IOUs. If the state failed to pay workers on time, federal courts probably would award employees damages amounting to twice their regular pay. That would leave taxpayers as the only big losers.

“I can’t imagine why we would want to pay double the amount of the paychecks, plus interest,” Connell said.

However, a reading of those federal court rulings and interviews with some of the lawyers who argued the cases shows that the federal courts never imposed an outright requirement on the state to pay its workers on time.

Rather, applying the federal Fair Labor Standards Act to the cases from the early 1990s, federal courts said in a series of cases that the state is liable for damages if it fails to pay them on time, and in real money.

“The state Constitution is very clear,” said Robert Shuman, former deputy controller for legal affairs, noting that the controller can’t spend money without authorization. “It’s the Fair Labor Standards Act that suggests the contrary.”

“You could try to walk that fine line and say, ‘We’re going to preserve the state Constitution and wait for an appropriation,’ ” Shuman said. “But the penalty is that we pay double when we do end up paying.”

Arcane though the issue may be, it’s yet another example of how California’s top elected officials must contort state law when they engage in their annual rite of failing to approve a budget on time.

In this case, Connell’s decision to issue roughly $500 million a month in payroll checks raises a question of separation of powers. Essentially, the Legislature is ceding a major part of its authority--its right to decide how to spend money--to the executive branch.

Additionally, the conventional wisdom in the Capitol that the federal courts require that the state pay its workers serves to relieve significant pressure on Wilson and lawmakers to approve a budget on time.

As long as paychecks continue, employees remain on the job. State parks and other highly used services operate, most bills get paid and the public is not inconvenienced.

“As each of these groups that would have been harmed gets exempted, the consequences [of not approving a timely budget] get reduced and nobody feels there is any downside to missing the deadline,” Pringle said.

Indeed, Wilson has signed a budget on time only once in his seven-year tenure. Lawmakers, who regularly survey voter attitudes, say the public is so accustomed to summer budget debacles that they hear virtually no protests.

California could solve the situation by adopting a continuing budget resolution authorizing spending at last year’s level. That’s what lawmakers have done in New York, where the budget is more than 100 days past due. California also could shut down nonessential services, as the federal government did during its budget impasses of 1995 and 1996.

“We all know there’s going to be a budget [at some point], and nobody has any desire to shut down government,” Pringle said.

Instead, California officials simply overlook the state Constitution.

When The Times questioned lawmakers about the requirement that the Legislature actually appropriate money before checks are written, some were taken aback and had no ready answers.

Assemblyman Tom McClintock (R-Northridge) was stirred to submit a letter to the legislative counsel’s office seeking clarification.

“It raises a constitutional question of how money can be appropriated without an act of the state Legislature,” McClintock said. “If checks are being written without constitutional authority, that is a serious problem. That is a question that demands an answer.”

The key ruling on state workers’ pay came on Aug. 12, 1993, when the U.S. 9th Circuit Court of Appeals ruled on a suit by state workers who claimed that the state violated the Fair Labor Standards Act by failing to pay them on their regular payday during a 1990 budget impasse.

The court rejected the state’s contention that it could not pay the workers on time without a budget. But it stopped short of ordering the state to pay its workers on time.

“We do not understand that the state has been ordered to comply with any requirement of the Fair Labor Standards Act,” the judges said. “Like any other employer, however, if it does not do so, the state is exposed to liability.

“To the extent compliance with the [federal] Fair Labor Standards Act interferes with the state budgetary process, that interference is caused by state law, not federal law,” the judges added. “The Fair Labor Standards Act does not require California to pass a budget on time; it only requires California to do what all employers must do--pay its employees the minimum wage on payday.”

Anthony Caso, attorney for the conservative Pacific Legal Foundation, said the issue raises a 10th Amendment question about states’ rights--though the appellate court rejected that argument, saying the U.S. Constitution and federal labor law take precedence over the California Constitution.

“It does raise serious issues,” Caso said. “The federal government is telling the states that they have to spend money, notwithstanding that the state has not decided whether to spend it.”

Added labor lawyer Gary Messing, who represents the California Correctional Peace Officers Assn., “Regardless of all the ins and outs, the bottom line is it is unlikely that the state would fail to pay employees on time, with cash. I don’t think any public entity would think about it. There is a good chance of losing [an employees’ lawsuit] and the stakes are very high.”

While Connell intends to continue paying state employees, she is following in the steps of her predecessor, Lt. Gov. Gray Davis, and says that if no budget is in place by Aug. 1, she will withhold August paychecks to legislators, the governor and other constitutional officers.

Like Davis, she is making the threat even though the state Constitution says lawmakers’ pay cannot be cut during their terms.

“The only leverage we have at this point appears to be their own checks,” Connell said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Missing the Budget Deadline: A Legislative Habit (Southland Edition, A25)

Rarely has the Legislature met the constitutional deadline of June 15 for passing the state budget, thus enabling the governor to sign a budget into law by the required July 1. Lawmakers assess themselves no penalty for their lateness, however. As of today, budget delivery is the fourth-latest in the past 20 years.

1977-78: 9 days late

1978-79: 20 days late

1979-80: 26 days late

1980-81: 31 days late

1981-82: On time

1982-83: 10 days late

1983-84: 34 days late

1984-85: On time

1985-86: 2 days early

1986-87: 3 days early

1987-88: 16 days late

1988-89: 15 days late