Talk of California is now centered on Governor Arnold Schwarzeneggar's order last week to lay-off many part-time and nonessential state employees while reducing all other state employees to the federal minimum wage of $6.55 per hour. The order also placed a freeze on new hires by the state and stopped overtime. Schwarzenegger made the move to preserve California's cash in the weakened economy and to pressure lawmakers to come to a consensus on the overdue budget.

While the order immediately affected thousands of state workers, many were spared by equally daring power plays by other capitol politicians. Controller John Chiang, an independently voted position, vowed to not follow the order, which was responded to with threat of a lawsuit from Schwarzenegger. Chiang believes the state will have plenty of money to pay for services while the legislature considers the budget, saying the state is within normal borrowing limits. Meanwhile, prison tsar Clark Kelso exempted the order for all of the staff in California state prisons, an announcement that drew criticism from the Governor's office. Kelso defended the move, saying he couldn't risk weakening the prison workforce, as it may result in "losing a prison".

Many suspect that the Governor's move was more political strategizing than fulfilling any fiscal need. It certainly has gotten the attention of the general public, may be no more strongly than in Sacramento. The Capitol City is estimated to have over 100,000 state employees, out of 200,000 statewide.

Layoffs have already taken place, most prominently in the state's Department of Motor Vehicle offices. Wage reduction will not go through until the Governor and the Controller resolve their tussle.

Schwarzenegger's response to the budget stalemate in a down economic time shows his conservative core. While a Democrat would be more careful about reducing so much state financial investment in the economy, the Republican Governor is tightening California's belt, which no doubt will further restrict the shrinking economy. If the wage reductions do go through, and the budget battle lasts longer than expected, California will certainly see a reduction in spending. Time will tell if cash strapped lending organizations will give the no interest loans to state workers, as they have in past budget battles. Will state employees be able to pay for their mortgages, car loans, etc? If all they can do is pay for the essentials, the extra expenses will be cut, and that's bad news for restaurants, theaters, gyms, professional sports, and other quality of life businesses.

Why is the budget late? Well, the Republicans want to cut costs, mostly in Social Services and Education. Democrats want to increase taxes. The two sides are about $15 billion apart. Schwarzenegger's move could save the state about $1 billion. However, considering the possible ramifications on the general economy, the move could easily surpass $1 billion in lost financial activity.