Schwarzenegger to ax thousands

SACRAMENTO — California Gov. Arnold Schwarzenegger is preparing to fire thousands of government workers as an impasse over the state's $42 billion budget shortfall threatens to drain the state of cash.

Schwarzenegger, a Republican, plans to send notices on Friday to 20,000 workers informing them they may be terminated, Aaron McLear, a spokesman for the governor, told reporters in Sacramento Tuesday. The notices will go to about 8 percent of the state's employees, laying the groundwork for the governor's goal of temporarily cutting as many as 10,000 jobs, he said.

"This is not a threat," said McLear. "This is being done out of a sense of reality. The state is running out of cash."

Schwarzenegger previously ordered 200,000 state workers to take two unpaid days off every month. Lawmakers have been unable to resolve the budget crisis over the past four months. Tax collections have fallen because of rising unemployment and consumer spending cutbacks, leaving the state with a $42 billion deficit through June 2010.

California, where pricey real estate once fueled demand for interest-only loans and other mortgages at the root of the U.S. financial crisis, is among states that are being battered by the more than yearlong recession. With less money being paid in taxes, states have been forced to cut spending on everything from schools to public health programs.

The notices in California won't result in any immediate job cuts, and not all the employees that receive them will be let go. Schwarzenegger is also willing to negotiate with unions to minimize the number of fired employees, his spokesman said.

Lynelle Jolley, a spokeswoman for the state's Department of Personnel Administration, said it may take about six months for firings to take effect. During the state's last budget crisis in 2003 and 2004, some 16,000 employees received notices like those Schwarzenegger may send, she said. Of those, only about 1,200 were eventually terminated.

"We have to be prepared for any possibility," she said.

The shortfalls forced California to cut funding for thousands of construction projects in December, a step that state officials said would cost thousands of jobs in a state already reeling from the real-estate market's collapse.

Controller John Chiang also delayed making $3.3 billion of payments due this month, including income-tax refunds and welfare payments for cash-strapped counties.