California Budget Showdown Over Wage Cut Defiance

By: Mike_Shedlock

The budget crisis in California continues. In case you missed it, this will catch you up to speed.

California Synopsis

California's deficit is growing by about $1 billion a month.

California has the largest budget deficit in the US, dwarfing New York by a factor of three, and the Schwarzenegger has cut the wages of 200,000 workers to the US minimum wage which is lower than the California minimum wage.

In response, state controller John Chiang sent a letter to Schwarzenegger saying he will defy the order and issue employees their regular paychecks. With that backdrop this might not seem so surprising. ...

California Computers Can't Perform Pay Cut Because of COBOL

The Sacramento Bee is reporting California state computers can't handle pay cut, controller says .
If Gov. Arnold Schwarzenegger wants to issue minimum-wage checks to 200,000 state workers in less than a month, he may want to rehire any semi-retired computer programmers he terminated last week.

The massive pay cut would exhaust the state's antiquated payroll system, which is built on a Vietnam-era computer language so outdated that many college students don't even bother to learn it anymore.

Democratic state Controller John Chiang said Monday it would take at least six months to reconfigure the state's payroll system to issue blanket checks at the federal minimum wage of $6.55 per hour, though Schwarzenegger insists such a change should occur this month.

Experts say Chiang isn't joking when he describes the state's payroll system as a computing relic on par with vacuum tubes and floppy disks.

"It's an example of a number of computer systems in which the state made a large investment decades ago and has been keeping it going the last few years with duct tape," said Michael Cohen, director of state administration with the Legislative Analyst's Office.

The Republican governor signed an executive order last week recommending the cut to minimum wage for most permanent state workers and terminating 10,133 temporary and part-time employees. He believes the state must take drastic steps to preserve cash over the next two months as the state continues to operate without a budget 36 days into the new fiscal year.

Chiang reiterated Monday that he will ignore the order and issue full paychecks to state workers. He disputes Schwarzenegger's legal interpretation of a 2003 California Supreme Court decision, which the governor said mandates that the state pay only minimum wage to employees until a budget is passed.

But even if the governor's legal reasoning proves to be sound, Chiang said, the state cannot logistically retool its payroll system in a matter of weeks as the governor has asked. And if the change eventually were made, Chiang said it would take an additional nine to 10 months to issue back pay to employees when the budget is approved.

"Pragmatically, we just can't get the system to work in a timely manner for us to implement payment of minimum wage," Chiang said.

Fred Klass, chief operating officer for Schwarzenegger's Department of Finance, testifying Monday in a Senate hearing, challenged Chiang's description of his logistical hurdles.

"We have not been provided with the evidence that would show us that this is an impossibility, nor does it answer the question of why aren't we working on this for next time," Klass said.

"To some degree, it's not the point," he added. "The point is the law needs to be adhered to, and the governor is saying we need to follow the law. And if the controller is saying it's inconvenient, I think the controller needs to explain why inconvenience is a reason to ignore the law."

The state payroll system is based on the COBOL, or Common Business Oriented Language, programming language – a code first introduced in 1959 and popularized in the 1960s and 1970s.

"COBOL programmers are hard to come by these days," said Fred Forrer, the Sacramento-based CEO of MGT of America, a public-sector consulting firm. "It's certainly not a language that is taught. Oftentimes, you have to rely on retired annuitants to come back and help maintain the system until you're able to find a replacement."

Schwarzenegger refusing to sign bills

The saga continues today with Schwarzenegger refusing to sign bills .
Gov. Arnold Schwarzenegger announced this afternoon that he is refusing to sign any bills into law until legislators pass a budget.

"There is no excuse for the Legislature's failure to reach a compromise and to send me a budget," Schwarzenegger said at a 2:45 p.m. press conference, more than a month into the new fiscal year. "Until the Legislature passes a budget that I can sign, I will not sign any bills that reach my desk." The move follows Schwarzenegger's order last week to drop to the federal minimum wage the salaries of most of of the state's 235,000 workers. After a budget is passed, they would be repaid.

The governor also laid off more than 10,000 part-time and seasonal workers. Many states have recently announced trouble.

Please consider

• Schwarzenegger Needs To Face Reality: California Is Insolvent
• Schwarzenegger Cuts Wages of 200,000 Workers
• New York Governor Warns Of Economic Crisis
• Eight States In Deep Fiscal Trouble .

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

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