By Patrick McGreevy and Jordan Rau
Los Angeles Times
December 20, 2008

Reporting from Sacramento -- Gov. Arnold Schwarzenegger on Friday ordered mass layoffs and unpaid furloughs for state workers starting in February to address California's growing fiscal crisis.

Under his executive order, 238,000 employees will be forced to take off two unpaid days per month through June 30, 2010. Managers will receive either the furlough or an equivalent salary reduction during the same period.

H.D. Palmer, spokesman for Schwarzenegger's finance department, said the mandatory time off is the equivalent of about a 9% pay cut for affected workers. He said the furloughs would save the state more than $1.2 billion.

It is unclear how many people will lose their jobs. Palmer said each department will have to cut its payroll by 10% and will make its own decisions on how many workers must go.

Schwarzenegger attempted a few months ago to unilaterally reduce the pay of state employees, but his order never took effect. State Controller John Chiang said the state's payroll system was incapable of carrying it out.

Chiang did not comment on the viability of Schwarzenegger's new order, saying in a statement Friday that he had not seen the administration's implementation plan.

The governor's order was condemned by officials of state employee unions, who vowed a legal challenge. Democratic legislative leaders voiced angry disappointment but said they were willing to return to negotiations with the Republican governor to solve the state's financial problems.

A day after Schwarzenegger said he would veto an $18-billion package of cuts and new revenue adopted by the Legislature, he blamed lawmakers for the need to seek layoffs and other measures to reduce spending.

"Our state's fiscal crisis has worsened dramatically in the past few weeks without legislative action to address our budget crisis," Schwarzenegger said in a letter to state employees Friday, after he declared another fiscal emergency and called a new special session of the Legislature.

Lawmakers ended the previous special session Thursday with the passage of the $18-billion package forged by Democrats to shrink a $42-billion budget gap expected by mid-2010.

Schwarzenegger asked the personnel department to work with state agencies to initiate "layoffs, reductions and other efficiencies" starting Feb. 1.

Tens of thousands of employees, those in the bottom 20% of seniority, will receive "surplus" notices within the next month, said personnel officials, but not all who receive them will be laid off.

"I regret having to take these steps," Schwarzenegger wrote in his letter. "We simply have no choice. The emergency steps I am announcing will require sacrifice from everyone, including those in my own office."

Aaron McLear, Schwarzenegger's spokesman, said it was unclear how many of the governor's staff will be laid off.

Employee groups, including the Service Employees International Union Local 1000, said they would file a grievance with the state Public Employment Relations Board, charging that the governor's order is an unfair labor practice because workforce reductions are currently the subject of contract negotiations, according to Yvonne Walker, president of the local.

"The situation is out of control," said Walker, who represents 95,000 people, the largest number of unionized white-collar state workers. "With the state's economy heading towards a cliff, Gov. Schwarzenegger has pushed the state's fiscal crisis into catastrophe."

Walker said the new layoffs will come on top of 10,000 job cuts made in the last year.

The Assn. of California State Supervisors objected that managers were being singled out for potential pay cuts and layoffs on a day when the state unemployment rate rose to 8.4%, the worst in 14 years.

Assembly Majority Leader Alberto Torrico (D-Newark) and other Democratic lawmakers issued a statement condemning the order by the governor, who negotiates state employee contracts.

"Arnold Schwarzenegger may be Hollywood royalty, but that doesn't make California a monarchy," the statement said. "Part of his core responsibility is to negotiate deals with employees."

Schwarzenegger's order prohibits state agencies from entering into new consulting contracts to cover the furloughs and layoffs.

Additionally, he asked agencies not under his direct control, including the University of California, the California State University, California Community Colleges and the Legislature to implement layoffs and furloughs to cut their budgets.

Without these actions, the governor said, the state cash reserve is estimated to be a negative $5 billion in March. California is expected to run out of cash by February.

Democratic legislative leaders said Friday that they were willing to go back to the bargaining table with Schwarzenegger to try to resolve the issues that led the governor to threaten a veto of their financial package.

They believe differences over economic stimulus measures and relaxation of environmental laws for construction projects can be settled.

"We are far too close to let this $18-billion opportunity slip," said Senate President Pro Tem Darrell Steinberg (D-Sacramento). "We want to sit down with the governor as soon as possible."

Assembly Speaker Karen Bass (D-Los Angeles) noted that the legislative package approved Thursday calls for $500 million in savings through unspecified workforce cuts. It would be up to Schwarzenegger to negotiate the cuts with employee unions.

But in vowing to veto the legislation, the governor, she said, is "trying to pass off his responsibility onto us because he doesn't want to take the heat for that. That's not acceptable."

She also objected to Schwarzenegger's demand that lawmakers incorporate every one of his budget ideas.

"It's like a child telling Santa, 'If you don't bring every single item on my list, then stay out of my chimney,' " Bass said.

Steinberg and Bass said they would stay in Sacramento through the holidays to keep negotiations going.

The governor spent Friday in Los Angeles and Fresno.

"He seems to think that we need to be here all the time," Bass said. "He needs to be here and join us."

McLear said Schwarzenegger is ready to keep talking, even by video conference.

"He'll meet with them whenever they want to," McLear said.

patrick.mcgreevy@latimes.com

jordan.rau@latimes.com