Just 11 days ago I wrote Schwarzenegger Needs To Face Reality: California Is Insolvent. Today, Schwarzenegger has decided to act.

In a budget impasse, Schwarzenegger orders cuts amid fiscal crisis.

With California’s cash dwindling and legislators still debating a new budget, Gov. Arnold Schwarzenegger eliminated thousands of part-time and temporary state positions Thursday and ordered that 200,000 state workers receive the federal minimum wage.

“Today I am exercising my executive authority to avoid a full-blown crisis and keep our state moving forward,” Schwarzenegger said. “This is not an action I take lightly.”

Democratic and Republican lawmakers remain divided over how to close a $15.2 billion deficit, with Democrats favoring $8.2 billion in new taxes on corporations and the state’s wealthiest residents. Republicans want a spending cap and oppose tax increases.

Schwarzenegger’s finance team said of that total, just 10,300 would receive pink slips immediately.

Schwarzenegger also cited a 2003 California Supreme Court ruling allowing him to slash the pay of regular full-time employees when the state lacks a budget. By law, those workers must be paid at least the federal minimum wage of $6.55 an hour and will be reimbursed once a budget is approved.

The first paycheck to be affected by the minimum wage order would be the one state employees receive in early September, but state Controller John Chiang, a Democrat, sent a letter to Schwarzenegger on Thursday saying he will defy the order and issue employees their regular paychecks.

He said the governor’s executive order was based on “faulty legal and factual premises.” Chiang said the 2003 Supreme Court ruling did not specify the actual amount of the salary his office could pay state employees during a budget impasse.

The controller and the Republican administration also differ over the state’s financial condition. Chiang maintains that California has enough money to meet all its expenses through September.

Legal Showdown?

Would Chiang really defy an executive order? It is unlikely to come to that. I expect some sort of resolution before September. Sadly Democrats want to raise taxes. The proper solution is to start firing people in mass. My thoughts from early in the year can be found in Mish’s California Budget Proposal.

More recent thoughts can be found in Schwarzenegger To Slash State Workers’ Pay Till Budget Passes.

But given that the legislature is extremely unlikely to do anything sensible, I think voters should take matters into their own hands and lower the salary of the Governor, all the state officers, including the state senate and congress. Another idea would be to float a proposition to increase the size of districts and eliminate 3/4 of the state legislators across the board. Something also needs to be done about “free” education and medical services that is causing California to be flooded will illegal aliens.

When push comes to shove there is always unlimited demand for “free” services. California needs to wake up as to what those services are costing. And leave it up to clowns like Chiang whose “solution” is to borrow more money. Sadly that is the mentality of most in Federal government positions as well.

Two days ago New York Governor Warns Of Economic Crisis.

The most stunning thing about Paterson’s announcement is how rational it is. He is not begging Washington for handouts, asking for higher taxes, or praying for miracles.

The Right Mindset

  • Cutting spending
  • Learning to do with less
  • Austerity
  • Reduce the size of the government workforce
  • Reduce property taxes

It will be interesting to Paterson can follow through, but in California, Controller John Chiang has his head buried in the sand. California collectively has its head buried in the sand and that is why it has the biggest statewide budget mess in the first place.

Mike “Mish” Shedlock
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