For all its efforts to become a technology center with a fully diversified economy, Sacramento remains a government town. Gov. Arnold Schwarzenegger's plan to reduce most state employees to minimum wage on Monday will make that painfully clear.

State employees – all 112,500 of them in Sacramento, including education workers – account for 11 percent of the area's work force. Schwarzenegger's plan could remove $15 million each workday from the area economy, said Jim Zamora, a spokesman for Local 1000 of the Service Employees International Union.

"It's a huge blow to local incomes," said economist Jeff Michael, director of the Business Forecasting Center at the University of the Pacific.

Granted, state employees have been through this drill before. A similar plan was readied five years ago, when the state's deficit topped $30 billion, but a budget was passed and the salaries stayed intact. And the area's credit unions most likely will offer loans to state employees, as they have during previous budget crises.

Nonetheless, the imposition of a minimum wage could have a chilling effect on workers and how they view state employment.

"Government jobs are considered steady paychecks – dependable, right? This could shake that somewhat," Michael said.

That could translate into reduced spending at restaurants, clothing stores and the like, putting even more downward pressure on the region's troubled economy.

"Our members are predominantly homeowners, white-collar homeowners," Zamora said. "The housing market would have tanked even worse if not for all those state salaries."

Depending on how long the minimum-wage order lasts, it could put the brakes on the fragile recovery in the housing market. John Arvanitis, president of Sunrise Vista Mortgage Corp. in Citrus Heights, was skeptical the governor's order actually would get carried out.

But if the salaries are indeed cut to minimum wage, "that's just gasoline on the fire," he said. "I'm sure every (loan) underwriter who's looking at state workers would have to take that into account. How on Earth could you lend under that criteria? You couldn't."

Until a few months ago, state government had been the region's cushion against a catastrophic surge in foreclosures. The state was hiring while the private sector was getting progressively weaker.

But that's been changing. Last fall the state canceled a $520 million office project in Sacramento. In June state payrolls in Sacramento fell by 1,900, helping drive the area's unemployment rate up four-tenths of a point to 6.8 percent. That's the highest in 12 years.

On a statewide basis, state employees are paid $1.57 billion a month before taxes. No local figures are available.

The impact goes beyond employment. The budget merry-go-round also pinches vendors, suppliers and others depending on a check from Sacramento. Although many bills do get paid, the state controller's office estimates it will have to withhold at least $1.25 billion in various payments this month.

Companies are getting paid for work they did prior to June 30, when the old fiscal year ended. But payment for goods and services they're supplying this month is in limbo until there's a new budget.

"We're not going to get paid until the budget gets passed, and we know that," said Al McGorry, president of North Highlands computer hardware and software company Capital Datacorp.

McGorry's 11-employee firm gets about 60 percent of its business from the state, representing hundreds of thousands of dollars a year. He said he anticipates delays every summer and is able to plan for them.

Call The Bee's Dale Kasler, (916) 321-1066.