Gov. Arnold Schwarzenegger, expressing frustration with lawmakers’ failure to approve a state budget, ordered his administration Thursday to lay off thousands of part-time employees and moved to temporarily slash the pay of most full-time staff.

The governor, a Republican, apologized to state employees, many of whom, he acknowledged, are already struggling in a difficult economy. But he said he had no choice in the absence of a budget one month into the fiscal year.

“Our state faces a looming cash crisis,” Schwarzenegger said.

Nearly 200,000 employees could have their pay cut to the federal minimum wage of $6.55 an hour, with full salary reimbursed once a budget is signed. More than 10,000 lost their jobs Thursday. Exceptions were made for those deemed too critical to let go for purposes of law enforcement, public health and safety or other crucial services


Schwarzenegger also limited overtime and imposed a hiring freeze.

“I have a responsibility to make sure that our state has enough money to pay its bills,” said the governor, who signed an executive order shortly before noon at a news conference in Sacramento. “It is a terrible situation to be in. I don’t think any governor wants to be in this situation. . . . But this is really the only way out at this point.”

It is far from clear, however, whether the governor can put the salary cuts into effect, or how long it might take. State Controller John Chiang, a Democrat who was elected to his post, suggested that the governor had overstepped his authority and said he would not cooperate. Chiang made his statements in a letter to Schwarzenegger and at a Los Angeles news conference.

Chiang disputed the governor’s interpretation of a 2003 decision by the California Supreme Court that Schwarzenegger says requires most employees to be paid only the federal minimum wage during a budget impasse. And the controller insisted that the state has enough money to pay its bills through September.


Speaking to 100 union members outside the Ronald Reagan State Office Building in Los Angeles, Chiang called them “innocent victims of a political struggle.”

“The state of California, the elected leadership, cannot put the important public servants of California in harm’s way,” he said. “We put people first, we make sure we protect their interests, and that’s why I have to tell the governor, with all due respect, I am not going to comply with this order.”

The workers, members of Service Employees International Union Local 1000, were dressed in purple and chanted in protest against the governor’s move.

“People are going to get put out of their homes,” said Debra Martin, a union steward. “The governor says he’s sorry. . . . We can’t pay with sorry.”


Schwarzenegger said he would file suit against the controller in court “if that’s what it takes.” But the governor also expressed hope of signing a budget within days, which would make a battle unnecessary.

Assembly Speaker Karen Bass (D-Los Angeles), calling Schwarzenegger’s action “most unfortunate,” said she was confident a budget compromise would be reached before the end of August, when most employees would feel the effect in their monthly paychecks.

The budget dispute has broken down along party lines. Democrats have insisted on increasing taxes to help close a $15-billion budget gap. Republicans are banking on cuts in government services and, like Schwarzenegger, have focused on changing the state budget process to create a more secure rainy-day fund.

Both sides have seemed open to compromise in recent days.


“We believe budget reform is an essential element, and we also appreciate there may be some tax loopholes that need to be closed,” said Assemblyman Sam Blakeslee (R-San Luis Obispo). “We’re willing to talk about all those issues.”

An agreement, if one is reached, will have come too late for the 10,300 part-time, seasonal and occasional employees who Schwarzenegger’s aides said received pink slips Thursday, without any guarantee of being rehired later. That is about half of all such state workers.

Derek Pettersen, 21, a student who was working full time this summer for the Commission on Teacher Credentialing in Sacramento, was told not to show up Thursday.

“It’s not my fault that the budget hasn’t been signed yet, and I’m the one paying for it,” said Pettersen, who will forgo $1,600 if he remains unemployed for all of August. “I don’t really understand why I had to lose my job temporarily because someone else isn’t doing their job.”


Jim Herron Zamora, a spokesman for SEIU Local 1000, said the group would file a lawsuit Friday to fight the governor’s use of its members as “pawns” in his dealings with lawmakers.

“We are not pawns,” Zamora said. “We are 95,000 living, breathing human beings.”

Michael Genest, Schwarzenegger’s finance director, said the executive order was needed because cash in the state’s accounts threatens to dip so low by the end of September that reserves could run out and the state’s checks could bounce.

The state also hopes to avoid an expensive type of short-term borrowing that it would be forced to use because it has no budget, were it to need a quick infusion of cash.


Genest said the layoffs could save the state up to $100 million a month. The pay cuts could temporarily save $1.2 billion a month if they were applied to all 200,000 workers subject to federal labor laws.

But many are expected to be declared exempt because they must work overtime for the state police, in prisons, in healthcare or in similar jobs. The governor gave agency secretaries until Friday to produce a list of exempt employees.

Elected officials and their appointees have had their salaries withheld since July 1, because Chiang cannot pay them without a budget in place; many are receiving loans with little or no interest from local banks in the interim.

The dispute between the governor and the controller is over the interpretation of the state Supreme Court’s decision five years ago in White vs. Davis. The governor says that under the decision, when a budget has not been approved the controller has the authority to pay only the federal minimum wage to employees covered by federal labor laws. Only those who earn overtime can be paid their full salaries, the governor argues.


Chiang contends that although he is permitted to pay the minimum wage during a budget impasse, he is also allowed to pay an employee’s full salary. Even if he wanted to comply, Chiang said, it would take 10 months to configure his agency’s outdated computer systems to do what the governor is asking.

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michael.rothfeld@latimes.com

Times staff writers Nancy Vogel, Patrick McGreevy and Joanna Lin contributed to this report.