Appeals court affirms Schwarzenegger’s bid to cut state workers’ pay

An appeals court ruled Friday that Gov. Arnold Schwarzenegger can reduce state workers’ pay to the federal minimum wage when the state budget is late.

The ruling, stemming from a 2008 case, came a day after the new fiscal year began without a spending plan and the governor ordered the pay of roughly 200,000 state employees cut to $7.25 an hour until a budget is passed. The state controller, who writes the checks, refused to comply.

The decision from the 3rd District Court of Appeal in Sacramento is a key victory for Schwarzenegger, who for two years has been battling Controller John Chiang over pay-cut orders. But Chiang says he may not implement the latest directive anytime soon. The state’s wheezing payroll system, he says, cannot easily be reprogrammed to make immediate, large-scale salary adjustments.

If the pay reductions do take effect, it will be another hit for state workers after an already difficult 12 months. Their wages fell over the last year as Schwarzenegger forced them to take three unpaid days a month — the equivalent of a 14% cut. The furloughs ended last month, but the governor has warned he may reinstate them.

The next pay period for most state employees comes toward the end of the month. Under the governor’s order, any wages withheld during the budget impasse would be paid once a spending plan was in place.

Friday’s court ruling says the Schwarzenegger administration has “the authority to direct the controller to defer salary payments … due to a budget impasse.”

The ruling could put pressure on lawmakers to step up budget negotiations, which have been faltering. “This underscores the fact that everyone loses when we have a budget impasse,” said Schwarzenegger spokesman Aaron McLear.

The controller said he would seek guidance from the court on how quickly he must act.

“This is not a simple software problem,” Chiang said. “Reducing pay and then restoring it in a timely manner once the budget is enacted cannot be done without gross violations of law unless and until the state completes its overhaul of the state payroll system and payroll laws are changed.”

He said taxpayers risk “billions of dollars in fines and penalties” if his office runs afoul of state and federal labor laws governing when and how people are paid while trying to implement the governor’s order on outdated equipment.

Administration officials ridiculed Chiang’s suggestion that quickly reprogramming the state payroll system was too big an undertaking.

“It is absurd,” said McLear. “He has been in office 3 1/2 years. That is more than enough time for him to have figured out how to do his job. “

Legal experts say the next step may be for the court to set a deadline for Chiang to comply with the governor’s order.

Judges “have answered the abstract legal question of whether the governor has the authority to do this,” said Calvin Massey, a law professor at UC Hastings College of the Law. “Now the question they need to answer is whether the controller is dragging his feet.”

Chiang’s predecessor, Steve Westly, successfully persuaded the courts in 2004 that reducing all state workers to minimum wage was not feasible because of computer programming issues. He said at the time that such salary adjustments would be possible after an overhaul of the state payroll system, which had been scheduled for completion in 2008. That overhaul is still incomplete.

The debate was renewed two years ago, when Schwarzenegger took Chiang to court and obtained a favorable ruling, although it did not come until a budget was already in place. Friday’s ruling came in response to Chiang’s appeal of the first court’s decision.

The appellate judges said Chiang had failed to show that making the salary adjustments would be impossible.