US - CalSTRS and CalPERS have jointly filed a law suit claiming the California governor violated the state constitution when he put in place a three day per month furlough and wage cuts.
In a lawsuit filed August 23 at the California Supreme Court, the California State Teachers' Retirement System and the California Public Employees Retirement System said Governor Arnold Schwarzenegger did not have the right to cut wages.
The two schemes said the order goes against the state constitution's separation of powers doctrine.
The suit says: "The setting of wages for state employees is one of the core functions within the legislative power and, as such, belongs to the legislature alone... As a consequence, the setting of state employee wages is not within the executive power and does not belong to the governor."
In an internal memo sent by CalPERS chief executive Anne Stausboll to staff, and revealed by the Sacramento Bee, Stausboll said the order is "void and of no legal effect".
Schwarzenegger first put the furlough order in place in December 2008 requiring all state employees to take two days off a month, which was meant to reduce wages by 10%. The order was meant to last from 1 February 2009 through to 30 June 2010. In July 2009, the furlough was increased to three days a month and the wage reduction to 15%.(Global Pensions; 6 February 2010)
In July of this year, the state still faced a deficit in the general fund of $19bn. The governor declared a fiscal emergency and said the furloughs and wage cuts would continue indefinitely.
The two schemes claim they cannot carry out their functions if they are forced to take three days a month off.
The suit says: "CalPERS and CalSTRS have hundreds of billions of dollars invested in global markets for millions of their respective members. As fiduciaries, they need to manage their investments more closely and constantly than ever before. With their employees furloughed three days a month indefinitely, they would be hamstrung in undertaking and following through with appropriate management."
The suit continues to say that losses leading to liabilities are ultimately repaid by the state's general fund.
The court is scheduled to hear the case on 8 September.
The governor's office could not immediately be reached for comment.
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