MICHELE NORRIS, host:
California is facing a $15 billion budget shortfall. Today, California Governor Arnold Schwarzenegger took a controversial step to save money.
Governor ARNOLD SCHWARZENEGGER (Republican, California): Effective for the August payroll, tens of thousands of state employees will be paid the federal minimum wage until a budget is passed. And then, of course, they will get reimbursed the salaries.
NORRIS: John Myers of member station KQED reports on the California budget crisis and the governor's approach to resolving it.
JOHN MYERS: In the early days of his time as governor, Arnold Schwarzenegger seemed to relish the role of attacking legislators. It was the budget impasse of 2004 that was punctuated by Schwarzenegger calling legislators girly men for not agreeing to a new spending plan. But last week at an event in California's Central Valley, the taunting Schwarzenegger of years past had disappeared.
Gov. SCHWARZENEGGER: You know, obviously, I'm not the only one that is running the state. There are 120 legislators. So, we all have to kind of come together. They have good ideas, I have my ideas. And I think if we bring those ideas together, we will come up with a good compromise.
MYERS: That compromise is now a month late. And so, with projections the state could run out of cash in a matter of weeks, this morning the governor took action. He signed an executive order to withhold all but minimum wage from next month's paycheck of as many as 200,000 California state workers and to immediately lay off temporary and seasonal workers.
Gov. SCHWARZENEGGER: It is a very important step. It is my responsibility to make sure that the state keeps running and that we keep paying our bills.
MYERS: Trouble is, state controller John Chiang, the independently elected Democrat who actually writes those paychecks, says he won't comply. He said it seems like political posturing that won't save the state anywhere near enough cash to make a difference.
Mr. JOHN CHIANG (California State Controller): If it's a political issue, then why do we want to put public servants in potential harm's way?
MYERS: The union representing state workers says it's considering legal action because its members would never be able to pay their bills on minimum wage alone. The battle over a cash crunch comes as the political divide inside California's State House is as wide as ever. The legislature's majority Democrats are demanding $8 billion in new taxes. Democrat Don Perata is the president pro tem of the California State Senate.
State Senator DON PERATA (Democrat, California): We do not have enough revenues to adequately cover a basic level of service in education and health care, et cetera.
MYERS: Schwarzenegger said he's against tax increases but has also said cryptically that all options are on the table. But legislative Republicans are adamantly against the tax hike, and the state's requirement of a supermajority vote on the budget means at least a few of them must be placated. They want deeper spending cuts and, says State Assembly Republican Leader Mike Villines, a new restrictive cap of how fast California government spending can grow.
Mr. MIKE VILLINES (California State Assembly Republican Leader): It's the most critical issue to the ongoing fix of our long-term budget problems. And, you know, the - Wall Street is watching our long-term structural fix.
MYERS: Wall Street lenders have often bailed out California's budget problems. This year, Schwarzenegger wants to turn to them again to borrow almost $20 billion paid back with future revenues from the California lottery. Arnold Schwarzenegger was elected governor of California in 2003 after the worst budget crisis in state history. Five years later, the problems persist, no doubt exacerbated by the ailing economy but rooted in a series of legislative and voter-approved decisions that keep state government's expenses growing at a rate faster than revenues. For NPR News, I'm John Myers in Sacramento.