The most important thing to know about Gov. Arnold Schwarzenegger’s sudden late-July announcement that he wants to pay state workers just a fraction of their salaries until there’s a new state budget is that it’s been tried before - and didn’t work. In fact, when tried before, it eventually cost the state big money in a legal settlement.
That doesn’t faze Schwarzenegger, who appears to seek out gratuitous confrontations with Democrats in the Legislature every couple of years. Remember his promise to “kick their asses,” made in December 2004? Remember his “girlie men” remarks of the next year? These idle insults were followed by some of the governor’s most significant political defeats.
This time, Schwarzenegger challenged Democratic state Controller John Chiang to a legal battle. Chiang, who signs all state checks, contends he has enough money on hand to pay everyone full wages and salaries through September. That includes part-time workers and rehired retirees Schwarzenegger wants to lay off immediately.
No one knows if a governor’s executive order can force the controller not to do what he considers the job he was elected for. Lawyers disagree.
Regardless, Schwarzenegger’s desire to cut state employees back temporarily to the federal minimum wage of $6.55 per hour rehashes what Pete Wilson, a Schwarzenegger adviser and one of this state’s least successful governors, tried in 1992.
Back then; with an $8 billion budget deficit to resolve and no agreement between Democrats who wanted to raise some taxes and Republicans who wanted to do nothing but cut spending, Republican Wilson had the state issue IOUs to employees, rather than paychecks.
It was the first and so far only time since the Great Depression that California paid any of its bills with anything but real money. At first, banks accepted the scrip, but after a few weeks they became reluctant. When Bank of America, Wells Fargo and several others stopped cashing the IOUs state workers filed a lawsuit.
Wilson’s tactic inconvenienced a lot of state workers, but did not influence the legislators it was aimed to pressure. The budget dispute that year dragged on more than a month longer.
Schwarzenegger plainly would like to issue IOUs, just like his pal Wilson did so unsuccessfully 16 years ago. But he can’t. For in 1995, three years after Wilson’s ploy, U.S. District Judge Garland Burrell Jr. of Sacramento ruled that IOUs, formally known as “registered warrants,” are not “cash or its equivalent” and thus do not constitute payment of workers. A year later, Wilson settled the case by giving state workers up to seven additional days of paid leave apiece - costing the state hundreds of millions of dollars.
So much for saving money by refusing to write checks.
Because he can’t issue individual IOUs, Schwarzenegger proposed to pay minimum wage for the moment, with full payment to follow when there’s a budget. So instead of handing out thousands of IOUs, this governor wants to issue a single massive one.
Meanwhile, the legislators Schwarzenegger hopes to pressure show few signs of being affected. The budget deficit they must resolve this year is about twice as big as what lawmakers faced in 1992 and, just as then, Republicans want nothing but cuts and Democrats are willing to accept some cuts as long as there are a few new taxes on the wealthiest California individuals and businesses.
As Wilson did in 1991, a year before the IOUs, Schwarzenegger will most likely have to compromise his “no new taxes” tough talk. Similarly, like former Assembly Speaker Willie Brown, current Speaker Karen Bass will likely have to compromise and accept more cuts than desired by Democrats and the labor unions that provide much of their campaign funding.
The bottom line is there will be a budget. Reaching compromise may take even longer than the 63 days beyond the June 30 legal deadline it finally took to resolve things in 1992. But compromise there will be, because without a budget, Chiang will eventually run out of money for writing checks, even if he’s legally entitled to keep writing them in defiance of an order from Schwarzenegger.
But the lower-paycheck ploy won’t work, any more than IOUs did 16 years ago. And just as that episode helped make Wilson one of the most reviled of past California governors, so too might reduced paychecks take a toll on Schwarzenegger’s remaining two years in office and his eventual place in history.