Judge Blocks State From Paying Bills Without a Budget

In an unprecedented ruling Tuesday, a Los Angeles judge blocked state Controller Kathleen Connell from paying state workers, issuing welfare payments for 2 million Californians and funding an array of state programs until a new budget is in place.

Connell and unions representing state workers vowed to file a flurry of appeals today, as both houses of the California Legislature planned an emergency session to try to pass legislation allowing Connell to make the payments.

Superior Court Judge Robert H. O’Brien, citing Sacramento’s annual budget impasses, said he based his decision on an often-ignored part of the state Constitution that says the controller cannot spend state money without legislation appropriating it.

Because the state has been operating without a budget since July 1, there is no such appropriation, O’Brien concluded. Employees who show up today for work will essentially be volunteering their time, his opinion stated.

“It is a devastating order,” Connell said. “It will have an immediate and incalculable effect on tens of thousands of families who are completely innocent of the budgetary politics in Sacramento.”

Gov. Pete Wilson and union leaders, apparently caught off guard by the sweep of the ruling, urged employees to continue to show up for work. Wilson late Tuesday called on lawmakers to approve legislation to provide money to keep the state running for two weeks.

“It is high time we get this [budget] done,” Wilson said, calling on the Legislature to “come to terms on the budget so that the people of California do not suffer.”

Craig Brown, Wilson’s finance director, said the administration will support Connell’s appeal and press for urgency legislation allowing her to continue paying for state operations.

The legislation would provide funding until Aug. 5, enough time for a budget deal to be struck, aides to Wilson said.

The ruling threatens the paychecks of more than 200,000 state workers, monthly subsistence checks of more than 2 million people on welfare, including 1.5 million children, state contributions to state employee and teacher pension funds and payments of more than $200 million a month on the state’s long-term bond debt.

“This is an historic order of the court,” Connell said. Noting that she issues billions of dollars in checks each month, the controller added, “This is a substantial economic impact on the state of California. . . . We absolutely have to prevail” on appeal.

Los Angeles County alone will be shorted a staggering $130 million in July if the state cannot meet its obligations, said Sandra Davis, the county’s assistant chief administrative officer.

About $100 million of that is slated for welfare recipients and other participants in the CalWorks welfare-to-work program. The county will borrow from other pots of money to make those payments, on the assumption that the state will soon provide reimbursement, Davis said.

“The longer the state delays in adopting the state budget, the more difficult it becomes not only for L.A. County but for all the counties up and down the state,” she said.

Orange and Ventura county officials also said they will tap other funds to cover upcoming payments to welfare recipients. Larry Leaman, director of the Orange County Social Services agency, said the ruling relegates the counties to being a “puck in the hockey game.”

Suit Brought on Taxpayers’ Behalf

The court’s decision came as the state Department of Social Services issued a directive advising all counties that a 1937 state law obligates them to continue welfare payments even when the state and federal governments cannot pay their share of the costs.

Frank Mecca, executive director of the County Welfare Directors Assn. of California, said he expected most counties to make the payments, although some small ones may not have enough funds.

O’Brien issued the preliminary injunction after reading stacks of written statements and listening to 1 1/2 hours of arguments from lawyers for Connell and various state employee unions. He was acting on a lawsuit brought by Century City attorney Richard I. Fine on behalf of taxpayers, including the Howard Jarvis Taxpayers Assn.

“The Legislature has snubbed their noses at the Constitution,” Fine said. “What has happened is we’ve made government work.”

Fine said vendors who do business with the state don’t get paid without a budget. Among the businesses hurt in budget standoffs are pharmacists and doctors who provide health care to poor people on Medi-Cal. Fine said the ruling ensures that state workers won’t be “super-citizens” who get paid while vendors don’t.

Under O’Brien’s order, state employees, regardless of their pay scale, would receive only the minimum wage of $5.75 an hour from the July 1 start of the 1998-99 fiscal year through July 21, the date of the judge’s ruling. People covered by the ruling range from state doctors, lawyers and scientists to file clerks and janitors.

The reason they would receive the minimum wage, O’Brien held, is that the federal Fair Labor Standards Act requires employees to be paid for time spent on the job, but only at the minimum wage. Starting today, however, O’Brien’s order takes hold, essentially blocking Connell from paying workers until a budget is in place or lawmakers appropriate funds.

Employees Urged to Go to Work

Union officials and Wilson called on state employees to report to their jobs.

“Yes, they should come to work,” the governor said, emerging Tuesday afternoon from another round of budget negotiations with legislative leaders--talks that once again yielded no accord.

The California Correctional Peace Officers Assn., representing more than 22,000 prison workers, including guards, plans to file its own appeal of the judge’s ruling.

Lance Corcoran of that union said officers, like other state law enforcement personnel, cannot walk off the job because they are responsible for public safety.

“The vast majority of them recognize that we protect communities,” he said. “By not showing up for work they would endanger other officers and the communities.”

The ruling is a new blow to unionized state workers who have gone since January 1995 without a new contract or a pay raise. Wilson has been locked in talks with the state employees, offering them raises but only if they agree to give up some long-held Civil Service protections.

“Who knows when an action might take place. This is beyond imaginable,” said Dennis Trujillo, spokesman for several unions representing state engineers, scientists and architects. “Before this occurred, we couldn’t imagine morale getting any worse. We’ve already had state employees call to see if they should show up for work.”

Although Wilson said the judge’s ruling adds pressure to budget negotiations, the closed-door talks lasted only a few hours Tuesday, and less than two hours Monday.

Assembly Speaker Antonio Villaraigosa (D-Los Angeles) and Senate President Pro Tem John Burton (D-San Francisco) were meeting late Tuesday to determine their next step.

In Sacramento, some lawmakers are pressing for emergency legislation authorizing Connell to make the various payments, a step that would comply with O’Brien’s order. A vote on the bill could come when the Senate and Assembly convene today.

Workers, welfare recipients and other beneficiaries of state checks “shouldn’t be penalized for our inability to come to a quick resolution of this budget,” Villaraigosa said, although he predicted that the budget fight would spill into August. “It is a real legitimate disagreement about the future of California.”

Any urgency legislation requires a two-thirds vote of both houses, and there is significant opposition among Republicans.

“The best budget pressure is to put state spending programs at risk, to have some disruption so there is a consequence to our inaction,” said Assembly Republican Leader Bill Leonard of San Bernardino.

Earlier in the standoff, Wilson signed urgency legislation allowing for payments to state courts.

By law, the Legislature must pass a budget by June 15, and the governor must sign it by the July 1 start of the fiscal year. That constitutional deadline has been missed repeatedly in recent decades.

But according to Fine’s lawsuit, each year the controller continues to pay most state bills, all the while ignoring the provision that formed the basis of O’Brien’s order.

“Money,” the state Constitution says, “may be drawn from the treasury only through an appropriation made by law, and upon a controller’s duly drawn warrant.”

O’Brien went even further than Fine had requested. The lawyer had simply asked the court to direct that layoff notices be sent informing workers they would not be paid after Aug. 21, allowing for the 30 days’ notice required by state law.

But O’Brien said the constitutional provision he based his ruling on outweighs any state statute. He noted that employees could “choose to continue to work with the knowledge” that there is no authority to pay them.

“The employees would simply be volunteers,” O’Brien wrote.

Connell Worried About Bond Market

The judge dismissed Connell’s contention that the law assumes there were so-called continuing appropriations for such payments as those made to state workers’ pension funds, and for bond payments.

“To allow such an interpretation would render [the constitutional provision] an ineffective goal and not, as it is, a constitutional mandate,” O’Brien said in the four-page order. “In each of these examples, and perhaps others, the only solution for those that present emergencies is for the governor to recommend them to the Legislature for payment.”

Connell, a former investment banker, was especially troubled by the implications of the order for the state’s credit rating and future ability to borrow funds.

“It will send a tremor through the municipal bond market,” she said. “I would hope the governor and the Legislature would understand the serious jeopardy the state is under.”

Meanwhile, state retirees expecting their pension funds at the end of the month will probably be unaffected, said Edd Fong, spokesman for the California Public Employees’ Retirement System, which provides benefits to 320,000 state and local retirees.

“The decision speaks to payments from the state treasury,” Fong said. “The pension payments come from a separate trust fund, and this pot of money falls outside of the state treasury.”

Sacramento’s budget fights have been especially intense in the 1990s. During the depths of the recession in 1992, Wilson didn’t sign a budget into law until the beginning of September, when he and lawmakers used accounting ploys and struggled to cut programs to make ends meet.

Last year, when the state was relatively flush with tax revenue, Wilson didn’t sign a budget until Aug. 18. That time, he and lawmakers blamed the delay on a massive overhaul of the state welfare system.

This year, Democrats and Republicans are fighting over a $4.4-billion surplus in a budget that ultimately will reach $76 billion.

Villaraigosa, Burton and other Democrats are blocking efforts by Wilson and the Republicans to win a $3.6-billion cut in the fees Californians pay to register their cars. Democrats are trying to cap the cut at $1 billion.

Contributors to this story included Times staff writers Max Vanzi, Paul Jacobs, Amy Pyle, Dave Lesher and Virginia Ellis in Sacramento, Lorenza Munoz in Orange County, Miguel Bustillo in Ventura County and Tony Perry in San Francisco.

To get more on the state budget debate and participate in an informal survey, go to The Times’ Web site at: https://www.latimes.com/politics

* VARIED REACTION: Workers’ response ranged from confusion to minor panic to assuming all will be well. A12

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Funds at Risk

Superior Court Judge Robert O’Brien has blocked payments for most state programs. Some of those at risk:

* July 28: July paychecks for more than 200,000 state workers, amounting to $720 million. If the checks are held up, expect a blizzard of lawsuits by employees unions seeking back pay plus damages.

* July 29: $1.2-billion payment to county superintendents of schools to keep 993 public schools and 106 community colleges operating.

* July 31: $203-million payment on long-term bonds that finance a variety of state public works projects. Threatens the state’s credit standing and future borrowing ability.

* July 31: $282-million payment to 58 counties for 2 million welfare recipients. Some counties may get loans to make the payments.

* Aug. 1: $245-million payment to state teachers retirement pension fund; a $190-million payment to public employees pension fund. Representatives of both systems are likely to sue if payments are delayed.

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What’s next:

* Controller Kathleen Connell and unions representing state workers will appeal today, seeking a stay of O’Brien’s order from the state Court of Appeal in Los Angeles.

* Legislature will consider as early as today emergency legislation allowing Connell to make payments until a state budget is ready. Democrats favor it; Republicans are split. Gov. Pete Wilson will not say whether he would sign such legislation.

* Wilson and legislative leaders are still negotiating a budget for the 1998-1999 fiscal year that began July 1. Even if they reached a deal today, writing the budget and related bills would take a week. Wilson would take several days to review it before signing or vetoing some or all of it.