What California’s Elected Controller John Chiang Told the Senate Governmental Organization Committee Hearing on the Governor’s Executive Order on Pay

To reiterate, the governor’s executive order will not allow us to avoid issuing RAWs, or revenue anticipation warrants, which is the expensive external borrowing tool available when there is no budget in place. The Governor’s executive order will not even allow us to delay issuing a RAW.

Because of the uncertainty over how and when a court could rule on the issue of whether we legally can cut state workers’ pay, it would be imprudent of us to recalibrate our schedule for issuing a RAW.

Again, if the July revenues come in stronger than we expected, we may consider a delay in selling the RAWs. But that will be based on our cash situation, not the governor’s executive order.

The Governor claims that in 2003, the Supreme Court in White v. Davis limited my authority to pay state employees only the federal minimum wage during a budget impasse. The Supreme Court has never ruled on the amount of salary that the Controller can lawfully pay workers when there is no budget in place. The Supreme Court declined to specify whether federal minimum wage or full salary is appropriate, opining on page 68 of the decision that “it would be inappropriate to attempt to definitively resolve the claim at this juncture.” What the court did say was that during a budget impasse, state workers must be paid at least at the federal minimum wage rate.

Without a doubt, the Governor’s proposed executive order would only invite more extensive and expensive litigation. Worse, should the courts find that withholding full pay is illegal, the State will be liable for treble damages, and be ordered to pay interest of 10 percent on the amount of pay illegally withheld.

Finally, there will be a negative impact on the families that work for us, and that impact will further hurt our fragile economy. Aside from the expense of costly and lengthy litigation over my authority to pay state workers their full wages, his move would harm thousands of families who already are struggling with mortgages and higher gas, food and energy costs. The loss of their spending dollars will increase the loss in consumer confidence, and further deteriorate California’s fragile economy. The Sacramento Bee reported that the governor’s needless move to defer the pay to an estimated 112,500 state workers in this region would cost the area $15 million a day. The Governor’s proposal may plunge the State into an even more difficult fiscal situation.

Just the rumor that the Governor was considering this costly executive order was enough to disrupt the lives of state employees. Last week, an employee from the Department of Justice told my office that in order for her to be able to purchase the home she wanted, her bank had requested written proof that she would make more than minimum wage this month. Lucky for her, her supportive supervisors intervened and she closed on her new home Thursday.

To work hard every day and have your finances held hostage is deplorable. I will continue to urge the Governor to work with the Legislature to pass a budget, and to work with my office to ensure we have the funds to pay for all our financial obligations. But I will not play a role in penalizing public servants who have nothing to do with the budget impasse.

It is important to remember that one of the main purposes of the Federal Fair Labor Standards Act in creating a minimum wage was to protect vulnerable employees from employer wage exploitation. That is why Congress set a minimum salary level for all employees covered by the Act. And it is important to understand that the FLSA does not, in any way, prevent an employer from paying more than the minimum wage.

In fact, the Governor’s order to pay California state workers only the federal minimum wage would put the State in the awkward position of violating its own labor law. As you know, Senator Florez, since January 1, 2008, California law has required all California employers to pay their workers at least the $8 minimum wage set by the Legislature.

In this case, federal law does not trump State law. The federal Fair Labor Standards Act specifically states that no provision of this Act or any other order “shall excuse noncompliance” with any Federal or State law, or municipal ordinance, establishing a minimum wage that is higher than the minimum wage established under the FLSA.

In other words, the FLSA recognizes that a state law may provide employees greater protection than the FLSA. California’s appellate courts also have ruled that federal law does not control unless it is more beneficial to employees than the state law.

One final point I would like to make. I want to publicly state how offended I am by a comment made by the governor’s economic advisor, David Crane. In a piece published last week, Mr. Crane tried to justify the Governor’s cruel executive order by stating, and I quote: “A dollar devoted today to a non-essential expenditure is a dollar that in a month or two could be used for essential public safety."

I do not see salaries earned by our hard-working public servants as “non-essential expenditures.” And, frankly, neither do the courts. In a ruling handed down in 1948, the California appellate court noted that “it has long been recognized that wages are not ordinary debt, that they may be preferred over other claims and that, because of the economic position of the average worker and, in particular, his dependence on wages for the necessities of life for himself and his family, it is essential to the public welfare that he receives his pay when it is due.”

I have with me from my office Chief Operating Officer Michael Carter, Personnel/Payroll Services Division Chief Don Scheppmann, and my Chief Legal Counsel Rick Chivaro. We also have Tim Schaefer, president of Fieldman/Rolapp, who is the financial advisor for our external borrowing team. They will provide more information and answer any questions you may have.

Thank you.