Schwarzenegger Orders Unpaid Leave for State Workers

Dec. 19 (Bloomberg) — California Governor Arnold Schwarzenegger today ordered all state workers to take two days of unpaid leave each month to conserve money amid a record budget deficit and a legislative impasse over how to fix it.

The furloughs will begin in February and will last through June 2010, Schwarzenegger said in an executive order. He also ordered all departments to cut 10 percent of their workforce costs, through firings if necessary.

“Every California family and business has been forced to cut back during these difficult economic times, and state government cannot be exempt from similar belt tightening,” Schwarzenegger said in a letter to state workers.

The furloughs came after Schwarzenegger vowed to veto a package of tax increases and spending cuts approved yesterday. Democrats had attempted to find a way around a two-thirds supermajority normally needed for passage of a tax measure as they considered ways to close the $42 billion shortfall that has depressed California bond prices and forced officials to halt $3.8 billion of public-works projects. The deficit also threatens to leave the most-populous U.S. state without enough cash to pay bills by February.

The furloughs would amount to a 10 percent pay cut, Chris Voight, executive director of the California Association of Professional Scientists, a group that represents about 3,000 scientists working for the state. The association and the Service Employees International Union announced they will sue to block the furloughs and any layoffs, which they said would violate collective-bargaining deals.

Regressive Bargaining

“We don’t think it’s right, and we’re prepared to file an unfair practices charge against the governor,” Yvonne Walker, SEIU Local 1000 president said today at a news conference in Sacramento. “We think it’s regressive bargaining. For him to do this outside of existing negotiations is improper.”

Schwarzenegger today also ordered lawmakers into a new special session to grapple with the crisis, the third time he’s done so since Nov. 6.

He again invoked powers granted him in 2004 to declare a fiscal emergency, which gives lawmakers 45 days to close the gap. If they fail to take action by then, they are barred from doing any other legislative work.

The Legislature adjourned the previous special session yesterday after approving the tax increases, which Schwarzenegger then vowed to veto.

Bond Prices

California, the biggest borrower in the municipal-bond market, has $54 billion in general-obligation debt. It’s rated A+ by Standard & Poor’s and Fitch Ratings, the fifth-highest grade, and an equivalent A1 at Moody’s Investors Service.

Last week, Standard & Poor’s said it may cut the rating on $54 billion of California bonds because of the fiscal problems, and investors have pushed down prices on the debt.

A California bond maturing in 2038, which pays 5.25 percent interest, traded at 79.4 cents on the dollar yesterday to yield about 6.89 percent. That’s 1.8 percentage points more than similar trades three months ago, according to Municipal Securities Rulemaking Board trade data.

To contact the reporter on this story: Michael B. Marois in Sacramento, California, at 1612 or

Last Updated: December 19, 2008 20:03 EST
By Michael B. Marois

Source: Bloomberg

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