The present budget deficit faced by the State of California is around $26 billion and Governor Arnold Schwarzenegger is seeking a solution to bridge this deficit gap through three furlough days a month.  These furloughs have affected at least 215,000 workers employed with the State. Losses incurred by these state employees are equal to a 14% cut of total pay. According to the Governor, these monthly furloughs are absolutely necessary and are expected to save California over $1.3 billion.

This move on the part of the Governor has brought about a mixed reaction among state employees. They are both resigned and angry at having to bear the brunt of the cash crisis. An often ignored fact is that state workers are key contributors to overall consumer spending within the State. Which such large wage losses, it is evident that their reduced spending power has had a negative  economic impact within the State.  Another ironic twist in all this is that the state will collect less in income tax from all the affected workers.

It is pertinent to note that even governments do not benefit entirely from furloughs and actually tend to lose in terms of service levels. For instance, if a State engineer were to take a three-day furlough every month, the amount of work requiring their immediate attention will have to be outsourced. Outsourcing incidentally costs more than actually paying the employee for that day. Instead of reducing expenditures, the State is actually increasing it. In addition to this, where employees of social security go on furlough, it will cause delay in payments, causing more problems for people dependent on such services.

Another dilemma faced by the State is whether to give overtime to an employee who has taken a furlough in the same week. Furloughs cause work to pile up and if there is something that requires urgent attention and the employee has to work overtime in the same week to deliver the job, then what does the State do?  Most likely bring in contractors.

It is clear that the State needs to start making some cuts, but blindly cutting across the board without measuring the impact of each department is foolish and in the long run seems to be costing the State.