Gov. Arnold Schwarzenegger's administration sued Democratic state Controller John Chiang on Monday in an effort to cut pay for about 180,000 state employees by the end of August, moving the salary battle from the political arena to the courtroom.

Chiang vowed to defy the Republican governor's pay instructions asking that 150,000 state employees receive the federal minimum wage of $6.55 per hour and 30,000 managers and supervisors receive a salary equal to $11.38 per hour until a state budget is enacted.

Lawmakers remained at odds Monday over how to resolve a $15.2 billion shortfall. Schwarzenegger continues to seek support for a temporary sales tax increase in exchange for lasting improvements in the budget process.

Schwarzenegger believes a 2003 California Supreme Court ruling, White v. Davis, mandates that salary reductions take place, with workers receiving their back pay only when the budget is signed. The governor also said the move is necessary so the state can conserve enough cash to pay its bills in September.

The governor's Department of Personnel Administration alleged Monday that Chiang, by paying full salaries, would violate parts of the state constitution and Government Code that prevent the controller from issuing pay without a budget in place.

"In the absence of a current budget, or other available appropriation, the Office of the State Controller is prohibited by state law from paying state employees their salaries," the suit argues.

Chiang disputes the governor's legal interpretation. He also has said it would take a minimum of six months to reduce pay to the federal minimum wage because of an outdated computer system and numerous individual deductions for each employee.

"Rather than focus on building consensus for a budget that addresses California's long-term fiscal problems, the governor seems adamant on picking a fight over whether state employees are entitled to the wages they have worked for and earned," Chiang said in a statement. "I am confident the court will share my concerns that it will be infeasible for the existing payroll system to reduce the wages of more than 180,000 public servants down to the federal minimum wage in such a short time."

The controller's payroll chief, Don Scheppmann, sent a three-page memo Monday to Schwarzenegger's Department of Personnel Administration asking for more time to analyze the pay cut.

Scheppmann raised several new questions in his letter to DPA, including whether the governor's legal interpretation implies that 55,000 California State University employees also should have their pay reduced to the federal minimum wage. Schwarzenegger's original order exempted the CSU system, but the Controller's Office believes it would be subject to the pay reduction under the governor's plan.

The governor had asked Chiang to comply by Monday. The controller faces an Aug. 21 deadline to begin processing final payroll for the month.

"We can't afford to wait any longer for the State Controller's Office to comply with the 2003 court ruling," said DPA spokeswoman Lynelle Jolley.

The governor has exempted about 50,000 employees from the order because they serve health and safety functions or they are in revenue-producing positions. He believes the 2003 decision allows those employees to receive full pay if they qualify for overtime.

Schwarzenegger also met resistance Monday from a bipartisan group of 17 state senators who demanded that he rescind 1,645 layoffs from the California Department of Corrections and Rehabilitation and salary cuts for the department's 66,000 permanent employees, calling it a "glaring, hazardous threat to public safety."

In a letter, they threatened to hold public hearings Wednesday if he does not reverse his corrections moves. They questioned why he exempted other departments for public safety reasons, but not CDCR. Among the signatories were Senate President Pro Tem Don Perata, D-Oakland, and Senate Republican Leader Dave Cogdill, R-Modesto.

"We believe your order fails to ensure the safety at these prisons, the officers and staff, the 170,000 inmates incarcerated, and anyone who lives within a 50 mile radius," they wrote. "In sum, you have unnecessarily and unarguably placed law abiding, tax paying citizens in proximate physical danger."

The governor's Cabinet secretary, Dan Dunmoyer, said last week that corrections Secretary Matthew Cate would exempt individual units on a case-by-case basis because the department is too large to give a blanket exemption.

"We have and will continue to review exemption requests for public safety and we are also reviewing exemption requests in corrections," said Schwarzenegger press secretary Aaron McLear.

Call Kevin Yamamura, Bee Capitol Bureau, (916) 326-5548.