Gov. Arnold Schwarzenegger signed an executive order today eliminating jobs for an estimated 10,300 temporary state employees and reducing pay for about 200,000 state workers to the federal minimum wage of $6.55 per hour, portraying it as a stopgap measure to ensure the state can pay its bills without a state budget.

The Republican governor intends to reverse those moves once lawmakers reach a budget compromise, meaning the state would rehire temporary workers and give employees their entire back pay. The governor's order also imposes a strict hiring freeze and eliminates overtime but exempts workers in health and safety fields.

Schwarzenegger said the state's financial situation and the fact that no budget has been signed "leaves me with no easy choices."

"I have a responsibility to ensure that our state has enough money to pay its bills. This is not an action that I take lightly," he said.

Schwarzenegger said he understands that the action will affect families that are already struggling financially. "I want to apologize to all the state employees for having to do this," he said. "State employees are working very hard...But this is the only way out."

California's budget is now 31 days late as Democrats and Republicans remain divided over how to bridge a $15.2 billion shortfall in a $101 billion general fund budget. Democrats have proposed $8.2 billion in tax increases, while Republicans are calling for cuts in education and social programs in addition to long-term changes to reduce future state spending.

While budget delays have nearly become an annual rite in the Capitol, Schwarzenegger argues that this year calls for drastic steps because the state has less cash due to a sour economy. The move could save roughly $1 billion per month, and the governor believes California will not have a sufficient cash reserve in September without the executive order.

But Democratic state Controller John Chiang disputes Schwarzenegger's view of the state's cash situation, insisting the state has enough cash to last through September without engaging in expensive borrowing. Chiang has vowed to defy part of the governor's order by paying state workers their full wages, though he cannot help temporary state employees retain their jobs.

There remains a high threshold for the federal minimum wage cut to take effect for 200,000 state workers. Most get paid at the end of the month, so the lawmakers would have to remain in a stalemate through the end of August. Even then, Chiang has said he intends to issue full paychecks at that time, so Schwarzenegger would have to sue the controller to ensure workers receive the federal minimum wage, a process that could take weeks or months and pose image problems for the governor.

Schwarzenegger said he will sue Chiang "if that is what it takes."

Meanwhile, agency secretaries and department heads will have leeway to determine which employees can be exempted from receiving federal minimum wage because they serve a crucial health and safety capacity. That could reduce the total number of state employees subject to the wage cut below 200,000.

The state already has withheld paychecks from lawmakers, legislative staff and gubernatorial appointees since July 1, the first day of the fiscal year. They receive their full pay -- and lawmakers receive their full per diem in addition -- once the budget is signed. Schwarzenegger, whose net worth is more than $100 million, does not accept his $212,179 annual salary as governor.

Local banks are preparing to help state employees should they ever receive the federal minimum wage on a temporary basis. The Golden 1, for instance, is offering no-interest loans to members who had direct deposit as of June 30, though state workers who are not members cannot receive the same deal.

Chiang believes the governor's order may be illegal under a 2003 court decision, White v. Davis, and said the state could incur legal damages if it pays workers the federal minimum wage. But Schwarzenegger has insisted his move is necessary and fully backed by the same decision.

The Legislature's legal adviser, Diane Boyer-Vine, wrote an opinion last week that said Schwarzenegger could not compel Chiang to pay minimum wage because the controller is a constitutional officer independent of the governor.

Some believe the governor's move is designed to pressure Democrats and Republicans into quick compromise by expanding the real-world impacts of the budget impasse. Democrats and labor groups have charged that the governor is using state workers as political pawns.

The governor's order has sparked daily protests from the Service Employees International Union Local 1000, which represents 94,000 state workers. The labor union on Monday set up 121 cots with placards for each state legislator and Schwarzenegger outside the Capitol as president Yvonne Walker called on Democrats and Republicans alike to move swiftly on a budget deal. The union on Wednesday staged an early morning protest outside the governor's Hyatt Regency suite in downtown Sacramento, using bullhorns to wake up Schwarzenegger, who spent the night in his Brentwood home.

Call The Bee's Kevin Yamamura, (916) 326-5548.