Gov. Arnold Schwarzenegger has prepared an order to cut the pay of about 200,000 state workers to the federal minimum wage of $6.55 an hour until a budget is signed.

Administration officials said Schwarzenegger was expected to sign the order, a draft of which was obtained Wednesday by The Times, early next week as part of an effort to avert a cash crisis. The deadline for passing a budget was July 1, and without one soon, the officials said, California may be unable to borrow billions of dollars needed to keep the state solvent.

State Controller John Chiang, asserting that the state has enough money on hand, said through a spokesman that he would not implement such an order. Chiang’s office handles payroll for government workers.

The Republican governor’s controversial plan, likely to be challenged in court by public-employee unions if carried out, would allow the state to defer paying about $1 billion a month, administration officials said. Workers would be repaid their lost earnings once a budget was in place.


As drafted, the order also calls for the state to immediately lay off 21,855 part-time workers, stop overtime payments for almost all employees and cease all hiring until a budget is enacted.

“Because the Legislature has failed to pass a budget and our state does not have a rainy-day fund, this is one of a number of options we are considering to make sure we have sufficient cash to cover our costs,” said administration spokesman Matt David.

Until recently, the governor had played a relatively minor role in budget negotiations since offering his revised spending plan in May. As public frustration over Sacramento’s handling of the budget has mounted, much of the blame has fallen on him. His approval rating among voters is 40%, according to a Field Poll released this week, down from 60% in December.

The executive order appears intended to show that Schwarzenegger is taking action and to pressure lawmakers to finish work on the budget. Democrats rely on the major public employee unions to help bankroll their political campaigns, and the public-safety unions that Republicans often look to for support could be affected by his order.


Once the order took effect, most state employees, who are paid once a month, would not see another paycheck until the end of August. If the budget was passed late in that month, their full salaries would still be reflected in that paycheck.

The response to Schwarzenegger’s plan from unions was immediate and angry.

“The governor is turning a budget crisis into a catastrophe,” said Yvonne Walker, president of Service Employees International Union Local 1000, which represents 95,000 state workers. “How can you tell people, ‘We will just pay you this amount and you can catch up later?’

“We are in the middle of a housing crisis, and people are losing their mortgages,” she said. “Are they going to issue a notice to mortgage companies that employees will just catch up later?”


Walker said she believed the governor’s plan was illegal, and union attorneys are already drafting a lawsuit to file if the order is signed.

Chiang, a Democrat, said in a statement that the governor’s order would be unnecessary because the state will have sufficient funds available to cover all its financial obligations through September -- a point on which the administration does not agree.

Officials in Chiang’s office said the controller would not comply with Schwarzenegger’s order.

“I will urge the governor to rethink his proposal,” Chiang’s statement said.


“Cutting workers’ salaries will do nothing meaningful to improve our cash position or help us make our priority payments,” the statement said. He called the order a “poorly devised strategy to put pressure on the Legislature to enact a budget.”

Administration officials contend that state law would require the controller to carry out the governor’s order. A court battle could ensue if Chiang refused.

Lawmakers so far have shown no sign of agreeing on a budget. Democrats continue to rally around their plan to close a $15.2-billion deficit with new taxes on the wealthy and corporations, and Republican lawmakers say they will stick to the pledge almost every one of them has signed to vote against tax hikes.

Democratic lawmakers urged Schwarzenegger not to sign the order.


“I don’t believe the governor would put public servants in the crossfire of this budget battle,” said Assembly Speaker Karen Bass (D-Los Angeles).

Republican legislative leaders issued a statement saying they were working hard to get a budget passed “to avoid drastic measures like the one that is being proposed” by the governor.

The state Supreme Court has declared it legal to drop the pay of even union workers down to the federal minimum wage in the event there is no budget, but not if they work overtime. It is unclear whether the state’s electronic payroll systems are sophisticated enough to sort out which employees would be eligible to have their pay suspended.

Administration officials say they hope to avoid that problem by suspending almost all overtime. Only workers whose jobs are vital to public safety would be exempt from the governor’s order.


Meanwhile, officials at the state treasurer’s office have said California will need to borrow $10 billion sometime in September to have enough cash to make it until the usual flood of tax receipts arrives in the spring.

Securing such a loan takes at least four weeks, they say, and it can’t be done until the budget is enacted.

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evan.halper@latimes.com