The Legislature's budget analyst on Wednesday recommended that lawmakers go along with Gov. Arnold Schwarzenegger's proposal to cut state employee pay, even without labor unions' consent, saying the state's fiscal distress warrants the action.

The report by Diego Martin and Jason Dickerson of the Legislative Analyst's Office suggests that the state's finances are so grim and Schwarzenegger's bargaining position so weak that the Legislature should use its wage-setting powers to reduce state workers' pay.

"Under the current budget climate, with state employee unions at odds with the governor, and given the unprecedented level of personnel cost cuts sought by the administration, it is virtually impossible for the administration and state employee unions to reach the level of savings assumed in the governor's budget through bargaining," the report concluded.

Schwarzenegger's budget plan envisions a 5 percent payroll cut across the board starting in July that would chop costs by $945 million overall, $530 million of it from the general fund. If the federal government doesn't funnel more money into the state, Schwarzenegger would cut wages another 5 percent.

Normally, unions and the administration bargain over pay and benefits, then the Legislature signs off on those deals.

Now the bargaining atmosphere is "dysfunctional in (an) unprecedented budget climate," the LAO's report said. It noted that the state has little to offer in exchange for union concessions, and Schwarzenegger is in the last year of his term.

The unions can resist concessions "if they think they may have better bargaining prospects with the next governor," the report concluded.

But state Senate leader Darrell Steinberg, D-Sacramento, said he opposes imposing lower wages on the state work force and that labor unions and the administration have to bargain.

"We need to save money in a way that's effective," he said. "That means working with the people on the front lines. Don't go around them."

Schwarzenegger spokesman Aaron McLear said that the administration has approached legislators and the unions to talk about the governor's budget proposal.

"We'll be negotiating on dual tracks," he said.

Schwarzenegger's 2010-11 budget plan would affect about 230,000 state workers paid from various sources.

Without budget cuts, tax increases or a mix of both, the state's general fund, which Schwarzenegger has proposed at $83 billion, is still going to come up short by an estimated $20 billion by the middle of 2011.

About $10 billion from the general fund pays employee wages and benefits. Two-thirds of that pays for staff in the state's prison and parole systems.

Besides cutting pay, the governor's budget plan would require all employees to pay another 5 percent toward their own pensions. That would free the state of a $724 million obligation next year.

Most state workers now put in 5 percent. Highway Patrol officers, firefighters and a few other public safety employee groups contribute 8 percent.

But boosting contributions would be "very risky" the analyst's report said, because the courts have repeatedly turned back attempts to save money by altering pension payments for current employees. The LAO recommended lawmakers reject the pension plan.

The notion of changing the public pension system appears to be gaining traction in some quarters. A Public Policy Institute of California poll released today revealed that 78 percent of likely voters believe state and local government pensions are either a "big problem" or "somewhat of a problem."

Schwarzenegger supports lowering pensions for newly hired public employees, and pension change advocates are collecting signatures for November ballot initiatives to do that.

Unions vehemently oppose any such changes.

The LAO also criticized the governor's plan to reduce salary costs another 5 percent with a "work force cap" that allows each department to figure out how to meet its target.

The administration figures most of the savings would come from erasing budgeted but vacant positions or through attrition. Schwarzenegger has set Monday as the deadline for the 150 or so affected departments to submit budget-cutting plans.

The report questioned the wisdom of unallocated, across-the-board work force cuts that don't weigh priorities.

"We recommend that the Legislature weigh its own priorities, carefully analyze the operations of each program and department," the report concluded, "and either eliminate or reduce the scope of programs, which often would necessitate reductions in the size of the state workforce."

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Call Jon Ortiz, Bee Capitol Bureau, (916) 321-1043.