BUDGET DAY PLUS 38 -- This week on the Capital Notes Podcast, we look back at the week's rumblings on the state budget impasse... from the governor's moves on state worker pay and a possible tax increase, to why legislators are still stuck.

Capitol Weekly editor Anthony York and I also sneak in some chatting about a big week of speculation about a certain prominent pol and the 2010 race for governor.

Staffers in the office of Controller John Chiang met today with staffers from the state personnel department in the ongoing saga over whether the payroll computer system can actually spit out minimum wage paychecks anytime soon.

Not surprisingly, they still don't know.

The memo sent to Chiang's team from the personnel folks of Governor Schwarzenegger lays out some general ideas, almost none of which make sense to a non-techie. From a new "pay differential" to enacting a "335 transaction," it doesn't sound like the memo resolved much of anything.

"Although we continue to have different interpretations" of the court case that prompted the governor's order, said Chiang spokespeson Hallye Jordan by email, "our staff nonetheless said they would analyze the concepts for feasibility, cost and for potential litigation purposes."

It might be time for Nick Burns.

BUDGET DAY PLUS 37 -- How much is state government saving by laying off a few thousand workers? Get out your calculators.

As you'll recall, Governor Schwarzenegger's executive order triggered pink slips for 10,133 part-time and temporary state workers. It also reduced the pay for as many as 185,000 state positions down to the federal minimum wage of $6.55.

But the minimum wage issue is far from resolved, and has led to a battle of wills between Governor Schwarzenegger and Controller John Chiang over whether the reduction was necessary, and even do-able.

On that latter issue, computer whizzes from the Schwarzenegger administration will meet this afternoon with their tech counterparts in the controller's office. The question: can the state's payroll computer system be reprogrammed in a matter of days to issue smaller paychecks to some 185,000 state employees? Chiang says no; the governor's team has essentially said... oh yeah? Prove it.

But the part-timers have already been axed. And late yesterday, Schwarzenegger's finance team reported that the state will save roughly $19.7 million a month from those layoffs.

Now, some perspective... strictly using the numbers.

In June alone, the last month of official data, total state operations cost almost $1.6 billion. That works out to $53.3 million spent every day of June. That's a little more than $2.2 million an hour, or -- if you prefer -- $6.7 million spent for an eight hour workday.

So... if the part-timers and temps had been laid off for the whole month of June, their salaries would have paid for less than three hours of a regular day of state operations.

Or, if you think it's more fair to use the full 24 hours, the layoffs would have paid for almost nine hours of state ops.

Granted, the number is only a mathematical calculation... and supporters of the governor's decision will likely argue it's not the full picture. Even so, it does give some perspective to what it actually costs to run California's basic government services.

And a footnote... just who were all of these laid off workers? They worked at various state agencies and departments. But a surprisingly large number of them really give new meaning to the term part-time.

After a few phone calls, I found that more than one of every five laid off employee worked only one day a month as an exam proctor. These are the kinds of people who give tests for, say, a cosmetologist license.

They were paid less than $94 a day.

BUDGET DAY PLUS 36 -- He knew he would get the question.

At a late afternoon news conference to discuss the budget, Governor Schwarzenegger attemped to explain his apparent change of heart on whether he'd ever support a tax increase. His answer was complicated... which reflects the reality of the budget mess... even though his earlier statements on the issue were crystal clear.

Foremost on that list of earlier statements: a Schwarzenegger campaign event on August 16, 2006 in Sacramento, where flanked by anti-tax crusaders, the governor removed all earlier doubt about whether he would ever jump on board the Tax Train, as had his Democratic opponent:

Here was his answer last month about the issue at an event in Sacramento:

And here's the governor today, in answering the question I posed to him, suggesting the sales tax increase he reportedly placed on the table was part of a "brainstorming" session:

"Tough decisions have to be made," Schwarzenegger went on to say, also calling for compromises on all sides.

That would seem to be a reasonable request... which is why it's stll so baffling that the governor, up in the polls and the odds-on favorite to beat Democrat Phil Angelides, would have made such an ironclad statement in 2006.

Governor Schwarzenegger may have just latched on to an idea for an amendment to the state Constitution that would probably be the easiest to pass in history: no legislative pay for a late budget, and no payback of missed pay... forever.

The governor's late afternoon news conference included a swipe at legislators who are retroactively paid after a budget is enacted (both they and their staffers are not paid during budget impasses).

"They shouldn't get paid, and they should never make that money back," said Schwarzenegger. "We've got to have consequences."

I've heard lots of citizens grumble the same thing over the last few weeks; and if anyone could raise the money to qualify an initiative on the issue and win, it would probably be the guv.

You can hear this morning's edition of The California Report below, and my story on the budget impasse is a couple of minutes into the program.

The battle over Governor Schwarzenegger's executive order reducing the state's payroll is about to get real interesting, real fast.

This afternoon, the Schwarzenegger administration sent Controller John Chiang a letter formally requesting Chiang begin the process of reducing some state worker paychecks down to minimum wage.

There's been no formal response yet from Chiang, a first-term Democrat who until this budget crisis has largely not been in the media spotlight. But the controller has made it abundantly clear in recent days that he will not implement the executive order, arguing both that the payroll computer system can't be reprogrammed in time, and that Schwarzenegger's intepretation of the 2003 court ruling on which the executive order is based is flawed.

If that position holds, then we're headed for a new court case. "Should [Chiang] say that he is not going to work with us," said gubernatorial spokesman Aaron McLear, "the next step for us is to file a lawsuit."

The governor and controller are both elected by the voters, and thus are independent entities. That means only a judge... and probably the justices on the California Supreme Court... can decide who's reading of the law is right.

Stay tuned.

And finally, we now know which departments will be fully exempted from the "minimum wage only" order sought by the governor. The list includes both CHP and CalFire (mentioned earlier), as well as workers at Caltrans, the state Department of Veterans Affairs, the Office of Emergency Services, the Departments of Developmental Services and Mental Health, the Department of Parks and Recreation, and a few more.

No word yet on how much savings the governor now estimates after exempting these employees.

BUDGET DAY PLUS 35 -- As various state agencies continue to decide which workers would, and would not, be exempt from Governor Schwarzenegger's executive order suspending all but minimum wages for their work in August, there's now word that two departments are completely off limits.

Late Monday night, the governor's office confirmed that no employees of either the California Highway Patrol or the California Department of Forestry and Fire Protection would have their paychecks cut back... assuming Schwarzenegger's order ends up going into effect (something that was hotly debated yesterday).

"Employees with critical public safety roles, including all of CalFIRE and CHP, are exempt from the governor's executive order," said gubernatorial spokesman Aaron McLear by email.

Still unclear, however, is how many employees of another public safety entity -- the state Department of Corrections and Rehabilitation -- would be exempt from a minimum wage-only paycheck. The issue of prison employees remains unresolved... in part, after the federal court-appointed receiver for prison health care, Clark Kelso, suggested almost 90% of the department's 66,000 employees should be exempt... due to the critical nature of their jobs.

Kelso's statement drew a quick response last week from Schwarzenegger's top lawyer, Andrea Hoch, who wrote to Kelso that such a determination is "beyond your authority."

Nonetheless, the "who is and who isn't exempt" issue across all state agencies is important... because it has a real impact on whether the governor's payroll actions can actually save the state the money his advisers said it would, money he says is needed to keep from running out of cash.

[UPDATE: For more information, see new posting on "Schwarzenegger v. Chiang?"]

Even someone like me who blogs on news tidbits is amazed at the speed these days with which chatter by various sources can turn into a full blown news story.

Such was the case this afternoon, with two news organizations reporting a possible 1% increase in the state sales tax to close the budget gap, an increase reportedly placed on the negotiating table on Sunday by Governor Schwarzenegger.

Both stories rely on unnamed legislative sources, and state that Schwarzenegger is demanding reform of the budget system in exchange.

Both stories come after the proposal was widely buzzed about in emails, phone calls, and chats all day long.

The governor's office won't comment on the reports, other than to say Schwarzenegger's demand for a budget reform proposal is a big deal.

Setting aside the veracity of the proposal, it's worth noting the many obstacles in the way of a temporary sales tax increase... not the least of which are the no-new-taxes pledge of legislative Republicans, or for that matter, the same long-standing stance of the governor himself.

A 1% sales tax hike first surfaced in May the governor's revised budget, when he said it was a backup plan if voters failed to approve a lottery bond proposal in November to help close the budget gap. At the time, the Legislative Analyst's Office said the proposal would bring in $6 billion in a full fiscal year.

But given that legislative Democrats have pegged the need for new revenues at about $8 billion, that means you still need more cash.

Futhermore, budget watchers say it's important to remember that a sales tax increase doesn't mean that all of that moolah will go to the state's general needs. Nope... thanks to the school funding guarantee, Proposition 98, a portion of those new tax revenues would go directly to education.

And that's not all. If you know nothing at all about Prop 98 (and hey, who does?), know that Prop 98 funding each year is driven by a formula based on the previous year's funding level.

So what happens when the temporary sales tax hike expires? $6 billion in revenues go away... education spending remains at its higher level based on those one-time tax revenues... and now there are new pressures on finding enough cash for all other state government programs. And this scenario doesn't even deal with criticisms that a sales tax increase would most hurt those who can least afford it.

In other words, it's a lot more complicated... and maybe more risky... than it seems.

BUDGET DAY PLUS 34 -- Today, a reminder of Reason Number 2,332,716 of how state government differs from the private sector: even urgent things happen slowly.

Today, the actual policy issues leading to the budget stalemate have taken a back seat to the headaches of implementing Governor Schwarzenegger's decree to save money on the state employee payroll.

And the news: officials say they still don't know to whom the order applies... and even if they did, others say it can't be implemented in time to actually save the state money.

As you may remember, the governor's executive order on Thursday fired a number of temporary state workers on the spot, and suspended all but federal minimum wage of the salary for permanent workers for the pay period that ends August 31.

But how many workers are we talking about? No one knows.

As of this afternoon, the governor's staff has no final numbers on either the total number of folks given pink slips last week or the total number of folks who could lose all but $6.55 of their salaries by month's end. The original estimate of about 10,000 layoffs has not been updated -- partly, it appears, because various state agencies were allowed to protect temp and intermittent workers who are involved in public safety or other critical services.

[UPDATE, 3:21 pm -- New info from the governor's office pegs the total number of pink slips issued last week at 10,133.]

The governor's order also allowed various agencies to exempt workers from the minimum wage requirement, provided that cabinet secetaries appointed by Schwarzenegger responded with a list of exempt employees by midday Friday.

But the list isn't complete. In fact, some state agencies had managers still feverishly working this past weekend trying to figure out who would get a full salary, and who wouldn't. The lack of specifics was a particular sticking point this morning during a Senate hearing called to assess the governor's money-saving action.

"It hasn't been finalized yet," said Fred Klass of the state Department of Finance when asked the number of employees exempt from the minimum wage order.

"Was there planning for this?" asked Sen. Dean Florez (D-Shafter), the chair of the committee. The answer to the question was yes, but even so it should be noted that while the executive order is officially only four days old, it was publicized in draft form 12 days ago.

Meantime, Schwarzenegger administration officials professed to themselves be perplexed by Controller John Chiang's declaration that the state's payroll system is too antiquated to deal with the temporary salary reductions of thousands of state employees. Chiang's staff told the committee that such reprogramming would take months, not weeks.

And again refuting the governor's rationale for the payroll cuts, Chaing told senators, "We will not run out of money."

Even with all the uncertainty that remains, there are at least two things we do know at this point. First, the governor's staff says that the workers laid off last week were the only ones who will be; the rest of those non-full timers appear to be safe.

And second, the window for a budget deal that avoids Wall Street borrowing is about to close. Both in information provided in an interview last week with Controller Chiang... and confirmed today by the governor's staff... the first step toward borrowing cash through an expensive "revenue anticipation warrant" will have to be taken next week. That's when bankers will want the state to agree to millions of dollars in so-called "credit enhancements" which are necessary to get the actual loan (estimated to be about $10 billion).

And even if the budget is enacted and the loan itself is never taken out, the state would still be on the hook for those early credit fees.