Judge Denies Governor’s Minimum Wage Order

statecat.pngOn Friday a Sacramento County Superior Court Judge denied Governor Arnold Schwarzenegger’s request to pay state employees minimum wage.  Judge instead is asking for a full hearing in August, which means that state workers will get at least two more months of full pay checks.

On July 2, the 3rd District Court of Appeals upheld a nearly year-and-a-half old ruling that would allow the Governor to order state  workers’ pay reduced to minimum wage until a new budget can be signed into law.  However, Controller John Chiang refused to pay it, and argued that he had legal room to maneuver.

So Governor Schwarzenneger then filed a motion to compel the Controller to follow the order.  The administration officials on Friday downplayed the significance of the decision, suggesting that these were merely technical issues raised and all the judge is going is requiring a full hearing.

In a statement released by the Controller’s office on Friday, John Chiang said, “I am pleased the court ruling today spared taxpayers and California’s economy from further harm.”

He continued, “Every time the Governor and Legislature fail to get a budget deal done, California taxpayers suffer. Playing games with a 40-year-old payroll system does nothing to bridge the budget gap, but could make it worse by exposing California taxpayers to millions, if not billions, of dollars in penalties and fines for violating federal and state labor and contract laws.”

“Californians who play by the rules and pay their bills on time deserve a Governor and Legislature that do the same thing. The most important thing for our fiscal health is a budget that solves for the cash crisis we face this fall,” the controller said.

He concluded, “It is up to the Governor and Legislature to end this political distraction and focus on getting the State a budget.”

The sense is that while scheduling a hearing by the end of August is fairly rapid by the standards of courts, it is also a victory for Controller Chiang as he has been able to stall the implementation of the minimum wage checks for another two months.  That buys him more time for the legislature to eventually pass a budget, although they seem in no hurry to even move in that direction.

Lynelle Jolley, a spokesperson in the Department of Personnel Administration said Friday that the ruling was procedural that will not amount to another.  “We’re still confident we’ll win on the merits.  We already have – twice,” she said.

This is essentially a stalling game that will play out until the legislature is able to agree on a budget. 

In a larger sense this is a political football anyway.  The Governor being able to impose minimum wage is not going to make much of a dent in the state’s monthly obligations.  Moreover, it is a drop in the bucket compared to the broader issue of the $19 billion deficit.

LA Times columnist George Skelton has done the heavy lifting.  The majority of money that flows from the state’s general fund does not go to “state employees” rather 70% of it goes to local governments whether they are schools or cities.  That means that cutting money to everyone affected by the minimum wage is only factoring into the percentage of the 30% remaining of the state budget that goes to employees.

You could fire everyone in state government from the CHP, to everyone who works at the DMV, who works for the parks system, and you would not come close to closing the budget gap.

This all goes back to 2005 when the unions in the state defeated the Governor’s “reform” agenda at the ballot box.  Ever since then he is trying to make them pay for it.  And while dropping their wages to minimum wage will definitely hurt those who rely on those checks for a living, it will definitely impact severely an economy like Davis’ which is based on state employment and government employment, it will not take us even one step closer to solving the overall problem.

On the other hand, as the Sacramento Bee reported on Sunday the Governor’s decision would cost the Sacramento region about $60 million per week.  That is a lot of money to a local economy, but not a lot when the state is looking at a $19 billion (with a “B”) deficit.

To put it into Davis terms, Davis’ General Fund is about $36 million per year.

Then there is the ripple effect.  “The lost wages are enough to support as many as 25,000 jobs – from bankers to bakers – according to figures based on U.S. Bureau of Labor Statistics data,” the Bee reported, but added, “The impact, however, would be minimized if a state budget is passed quickly and the federal minimum-wage cap holds for only a month.”

Under minimum wage, “Average pay for state workers would drop from about $1,200 a week to $300 per week.”  Think about the people who live in Davis, trying to survive on that.

The consensus is that if the pay cuts are short-lived, it would not have a huge impact on the economy.  But if it were to last more than a month, “it would be devastating.”

The Bee article focused on Sacramento obviously, but I would imagine the same applies to Davis.  “That devastation would hit Sacramento particularly hard because of its large state work force. About one in 10 local employees works for the state,” according to the Bee.  “Sacramento already is staggering from a year of furloughs that Michael estimates cost the region about 3,000 private sector jobs.  But the damage wouldn’t be confined to Sacramento; at least $170 million in state wages would temporarily disappear every week from the statewide economy, according to The Bee’s analysis.”

The bottom line here is that while the cumulative effect of such cuts would be minimal in terms of the overall budget problem, the impact on the economy of the Sacramento Region and Davis would be devastating.  The Governor is trying to punish state employees, in so doing, he may end up hurting us all.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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17 Comments

  1. Dr. Wu

    Any savings from the minimum wage would be temporary anyway since the State would have to pay this back eventually when a budget is passed–so there is no savings. Indeed there are many things that could go wrong; there are already lawsuits flying, so its likely that this would cost the State some money.

    On the other hand this would put enormous stress on many families who do not have savings or access to credit lines–in other words lower income workers are more likely to be impacted.

    Our State government is dysfunctional but this is not a solution, its a stunt.

  2. Don Shor

    While I agree with many of the points made here, I have a serious problem with two aspects:
    — the premise of the Controller, that he can’t fulfill the order because his computer system is so old, is absurd. His argument is basically that he isn’t competent to implement a lawful order. He isn’t arguing, AFAIK, that the order is unlawful. He is just saying he can’t do his job.
    — we have taken away from our elected officials nearly every option they might have to deal with both short- and long-term cash flow problems resulting from the lack of implementation of a budget. It isn’t really relevant whether this solves the state’s budget gap. It might solve a temporary liquidity problem. It might reduce the amount of money the state has to borrow to keep operations going. It might actually save the state money in the long run.
    Whether you agree with the governor, or believe he has political motives for his actions (why? he isn’t running again), the idea that we give the state’s executive officer no latitude over cash management simply makes the overall problem worse.
    Controller Chiang is simply stalling. He is likely to lose after the full hearing. The Governor’s authority to manage the state’s finances supercedes the Controller’s. The only job of the Controller is to issue checks. It isn’t a policy-setting position. I don’t even know why we elect the State Controller.
    Like every other aspect of this budget crisis, there will be a ripple effect (and I count myself among those adversely affected by the secondary effects). But the governor does need the ability to deal with the emergencies created by the legislature’s inaction.

  3. Rich Rifkin

    [i]”Our State government is dysfunctional but this is not a solution, its a stunt.”[/i]

    I don’t think anyone, ever, has said this is a solution. As you note, the full back-wages will be paid once the budget is passed. It is a stop-gap to bridge the state’s liquidity crunch, just as the issuance of scrip was last year at this time.

    Whether it is a “stunt” or not depends on whether you believe what the law says: that is, the Guv and his people are saying that the budget act “requires” them to take this action. I have read quite a large number of news stories covering this issue and have not found one of them which quotes the law. They simply quote the governor’s spokesman saying “the budget law requires it.”

    Yet if it really does, then I cannot imagine any courts would deny the governor’s action. And so far, this one has. So maybe the law is just much less clear than the Guv has been saying.

    Looking at this issue from the perspective of state workers who would be affected, it is obvious that almost all of them have good reason to object. They made a contract to perform whatever service it is they do for X number of dollars per month; and now their employer, due to no fault of the worker, cuts their liquid wage to X/4 or so for the time being. They would be paying the price (in liquidity) for someone else not doing his job. On the other hand, state workers who have sufficient liquidity will not bed affected at all by this stop-gap measure.

    I think the one person who comes out looking like a total jack*ss in all of this is John Chiang. For two years he has been lying, saying his computers cannot handle such a change. That, obviously, is bullsh**. If it ever was true, he could have fixed the problem. Chiang has ambitions of holding higher office. He knows that if he goes against the public employees he will be a pariah in the Democratic Party. So he is carrying their water on this. It just shows me that Chiang does not deserve to be our state Controller. Moreover, his mendacity has disqualified him from winning an even higher office. All Chiang has won is the affection of the union bosses who have run our state into the ground.

  4. E Roberts Musser

    To Don Shor: What does AFAIK mean? I’m not familiar with this shorthand…

    Also, you make good points above. The real problem seems to be the legislators, who don’t appear to be very concerned about the ramifications of not passing a budget on time. I liken it to an irresponsible person who puts off budgeting their funds, keeps writing checks willy nilly – until cold hard reality sets in when the money runs out and the checks begin bouncing. That seems to be where the state is at – out of money and no budget in place, which seems very irresponsible to me.

  5. craised

    I hate to see anyone lose their job but the state workers have been protected from the recession long enough. Private sector workers (who pay the bills) up until now have been the ones to feel the pain of this severe economic downturn and we may be in for part two of this recession that could last another year or two. California needs to get their financial house in order starting w/a 25% across the board payroll or staffing cut. Socialism is great until you run out of other people’s money to spend.

  6. rusty49

    craised….

    Your post is dead on. This country and state are headed for bankruptcy and until someone has the cahonies to stand up and say “no more” and make the cuts that must be made we’re pretty much screwed.

  7. Dr. Wu

    Can anyone think of a private sector firm that would say: “I’m going to cut your wages substantially now to save money, but in a few months I’ll give it back to you.” Lets also assume this is a big firm with ample access to credit markets (like California) so its not really liquidity constrained. I can’t think of a single example and there is a reason–this is something that wouldn’t help a private business, so analogies to the private sector should look at what the private sector companies would do–layoff people. The furlough program did save money, though only for a short time. If the state cut back on programs/workers or something that might make sense, but this accomplishes none of that. At best it puts a bit more pressure on the legislature to solve the problem though given all that has happened in this State over the past years I am not convinced it does mu.ch.

    So I’d politely suggest that people supporting this move should be calling for harsher action. I still think its a stunt though obviously I am in the minority today. If we;ve learned anything over the past years it is that despite legislation requiring CA (and other states for that matter) to balance its budget every year, we continue to run a huge (structural and cyclical) deficit. No one can perfectly predict the business cycle so some (cyclical) deficits may be difficult to avoid, but that isn;t the case in California. We are spending more than we take in in revenue and should either raise taxes or cut spending or (in my opinion) both.

    I don’t like the State deficit and would like to see it addressed but I am far more concerned with the looming pension crisis at the local and State level (and throw in Medicare and you have the Federal level as well).

    But this is a stunt.

  8. wesley506

    In 2007 California had the 2nd lowest number of full-time equivalent state government employees relative to population among all states. California had 103 state employees for every 10,000 residents while Illinois had the lowest ratio at 97. The U.S. average was 143 state employees per 10,000 residents. California’s ratio of state government employees relative to population was 28% below the national average.

    Maybe we could recruit some talent from some of Wall Streets shining examples of firms that know how to run a business the right way like AIG, WorldCom, Enron, Tyco, Lehman Brothers, or Health South. Maybe we could even petition to have Bernnie paroled early to help us out.

  9. davisite2

    The Governator has a history of “revenge” actions against those who successfully( and legitimately) attempt to thwart his agenda. This is just the latest and most blatant, now that he is unrestrained by any future political life.

  10. craised

    In my opinion, we are wasting a perfectly good recession. We should be thinking outside the box and reinventing our government and how we fund it.

    Would California save money if the UC system was privatized and each school made to stand on its own? If so, how much money would we save? Would competition between the privatized schools make all UC universities prosper and in so doing make them better schools in the long run?

    How many billions of California taxpayer dollars could we save if we abolished the Davis Bacon Act? With the extra billions, California could put more people to work. We all know what that would mean. MORE TAX MONEY to balance our state budget….

  11. J.R.

    “Maybe we could recruit some talent from some of Wall Streets shining examples of firms that know how to run a business the right way like AIG, WorldCom, Enron, Tyco, Lehman Brothers, or Health South. Maybe we could even petition to have Bernnie paroled early to help us out. “

    You’re trying to be sarcastic, but you have hit upon the problem. In the private sector, Bernie and his cohorts go to jail. In the public sector, they get to retire with oversized pensions.

  12. E Roberts Musser

    craised: “I hate to see anyone lose their job but the state workers have been protected from the recession long enough. Private sector workers (who pay the bills) up until now have been the ones to feel the pain of this severe economic downturn and we may be in for part two of this recession that could last another year or two. California needs to get their financial house in order starting w/a 25% across the board payroll or staffing cut. Socialism is great until you run out of other people’s money to spend.”

    Cutting staff is dangerous – it will put more people out of work who can now not pay taxes. They will also lose homes and have no place to go, with no way to feed their families. You want to keep as many people employed as possible through the recession, like it or not…

  13. wesley506

    How many university professors do you think would stick around if you cut their pay by 25%? How long do you think it would take to get a college education if there were 25% fewer people there to teach? How long do you think it would take to get a license or permit or anything else done if there were 25% fewer govt workers around? How much fraud do you think would take place if suddenly everyone knew there would be no one around to verify if a vendor was actually owed the amount they said they were owed for a service/product sold to the govt. How many people do you think would be signing up for social welfare and other govt benefits if they knew there would be no civil servants to verify their eligibility? How many parolees do you think would make any attempt at staying clean if it was all on the honor system?

    State civil service employees receive a retirement benefit package that was negotiated between their union and the state. Both the legislature and the governor agreed to these contracts and signed off on them before they went into effect. Nobody put a gun to anybody’s head. There is no fraud, extortion, or abuse going on. Every civil servant knows that going forward the compensation package will be significantly reduced. That is why several of the state employee unions have already agreed new contracts that include requirements for employees to pay 5% more of their gross into retirement, reduce their base salary by 5%, add 5 years onto the minimum age for retirement benefits, beginning to partially pre-pay for retirement medical benefits, eliminate 2 paid holidays, and elimination or reduction of holiday pay (time and a half pay) for most other holidays worked

    Over the years more and more govt programs have been put into effect when times were good. Unfortunately they never seem to have a sunset clause, and when they do there are bus loads of advocacy attorneys ready to file suit to keep the gravy train running. Everyone seems to want a free college education, excellent cheap transportation, great law enforcement, wonderful environmental safeguards, and govt sponsored cradle to grave housing/medical and everything else, AND also want lower taxes.

    The solution is going to be a combination of higher taxes, and fewer govt services and less govt support for alot of cherished programs.

  14. craised

    It seems our state legislators are more interested in their own personal expansion of power, increasing taxes and wasting valuable time adopting mindless laws rather than focusing on the economic recovery of California.
    They are not even bothering to address our massive state debt or the even more massive unfunded liabilities. Instead, they simply want to increase taxes and continue to borrow even more money. This, more than anything else is what scares me into thinking we’re in for a long, depressing ride.

    How many university professors do you think would stick around if you cut their pay by 25%? How long do you think it would take to get a college education if there were 25% fewer people there to teach? How long do you think it would take to get a license or permit or anything else done if there were 25% fewer govt workers around?

    With all due respect, if the professors are smart they will hang on to their jobs.
    When someone starts thinking they are irreplaceable it’s time to fire them.

  15. wesley506

    The highly qualified will leave, and the marginally qualified and those who do little more than occupy space and use oxygen will stay.

    I cannot really blame the legislature because all they are doing is what the citizens demand. Nobody gets reelected by saying “no” too many times. If they dare to oppose any special interest group, they will be toast.

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