Despite Court Ruling, Controller Won’t Cut State Worker Pay

Despite a July 2 ruling by a Sacramento appellate court and a written request from Gov. Arnold Schwarzenegger, State Controller John Chiang said he would not reduce the pay of more than 314,000 state workers to the federal minimum wage of $7.25.

In its 43-page ruling, the Third District Court of Appeal said that the law requires Chiang to reduce employee pay if a budget authorizing payment isn’t in place.

“The Department of Personnel Administration has the authority to direct the controller to defer salary payments in excess of federally-mandated minimum wages when appropriations for the salaries are lacking due to a budget impasse,” the court said.

Chiang said he would seek review from the state supreme court.

“I will move quickly to ask the courts to definitively resolve the issue of whether our current payroll system is capable of complying with the minimum wage order in a way that protects taxpayers from billions of dollars in fines and penalties,” Chiang said in a statement.

The issue of lowering state employee pay has been lingering since the record 2008 budget impasse. On July 31, one month into the new fiscal year, the GOP governor issued an executive order directing Chiang to reduce state employee pay. Chiang, a Democrat, refused.

Chiang argued – and continues to in court – that it will be costly and probably infeasible to adjust the state’s antiquated 40-year-old payroll system, scheduled for decommissioning in 2012, to lower pay to the federal minimum. Doing so, Chiang also argues would violate federal labor law.

Schwarzenegger’s executive order applies to state workers covered by the federal Fair Labor Standards Act. There are 314,184 state workers covered by the act and 73,194, California State University employees.

The appellate court upheld a lower court ruling in Schwarzenegger’s favor.             But Chiang noted the court said his “office could be excused from reducing the salaries of some 250,000 employees to minimum wage if it is practically infeasible to do so without violating federal labor laws and the state constitution.”

The state’s out-moded payroll system is being replaced by a $300 million new one. Making the needed adjustments to it to scale back employee pay to the federal minimum wage would be a “waste of taxpayer dollars” and cause “budget and schedule slippage for the modernization project.”

“This is not a simple software problem.  Reducing pay and then restoring it in a timely manner once a 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.

Chiang also cites the impact a steep salary reduction would have on most of the state workforce including the failure to pay mortgages, car loans, tuition, insurance or child support. All of which could lead to credit downgrades.

Without a budget in place on July 1, the state controller can still cut checks for much of state government.

Until the state runs out of cash – estimated to be some time in September — programs required by the federal government will still be funded.

Those include payments made to the state’s low-income aged, blind and disabled and in-home care for California’s elderly poor.

Welfare and Medi-Cal, the state’s health care program for the poor, will also continue to receive appropriations.

Debt service and refund checks for taxpayers will also be covered, as will be payroll for most state employees.

State elected officials, including the Legislature and their appointed staff will not be paid until a budget is signed. Nor will businesses providing services to the state after July 1.

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