Associated Press Gov. Arnold Schwarzenegger, right, shakes hands with Orange Cove Mayor Victor Lopez, during a water rally held at the Capitol in Sacramento. Schwarzenegger is threatening to defer wages for 200,000 state employees, paying them minimum wage until lawmakers reach a deal on California's overdue state budget.

Democrats and Republicans have so far been unable to compromise on a solution to the state's $15.2 billion budget deficit for the fiscal year that started July 1. As legislative leaders have continued to meet, Schwarzenegger has ratcheted up his rhetoric over the stalled talks.

Spokesman Aaron McLear said the Republican governor is contemplating signing an executive order next week that would pay state workers the federal minimum of $6.55 an hour – $1.45 an hour less than California's minimum wage.

Employees would receive their full salary retroactively once a budget is signed.

“Because the Legislature has failed to produce a budget over a month past their deadline and because we don't have a rainy day fund, the governor is looking at a number of options to make sure the state does not run out of cash,” McLear said.

A draft of the executive order also said state agencies would be prevented from hiring any nonessential employees and would be forced to terminate about 20,000 contracts with temporary workers, interns and contractors. There also would be a ban on most overtime.

The administration estimates that immediately terminating the contracts and suspending overtime would save the state about $100 million a month. The deferred wages would take several weeks to implement, saving the state about $300 million to $400 million a month starting in late August.

State Controller John Chiang, whose office pays state employees, criticized Schwarzenegger's threat as a political ploy that could end up costing the state even more in litigation fees.

“Forcing public servants to involuntarily loan the state cash by foregoing their hard-earned paychecks puts an untenable burden on our teachers, health care workers and those who provide critical public services,” Chiang said in a statement.

“Cutting workers' salaries will do nothing meaningful to improve our cash position or help us make our priority payments.”

The union that represents nearly half the affected workers, the Service Employees International Union, was considering legal action to try to block the move, spokesman Jim Zamora said.

“We're victims of this budget crisis. It's not our fault that the state Legislature and Governor Schwarzenegger can't come together to pass a balanced budget,” he said.

The union represents about 95,000 clerical, office and civilian workers throughout the state.

Emergency, disaster and other critical workers would be exempt from the order.

Legislative leaders in both houses have said they are working to meet an Aug. 1 deadline. Without a spending plan in place by then, the state will have to start negotiating on expensive loans to address a cash shortfall that will affect state coffers by the end of September.

The governor's finance spokesman, H.D. Palmer, said those loans will cost the state hundreds of millions of dollars more than the loans California typically takes out to cover temporary shortfalls at the start of the fiscal year.

A state Supreme Court ruling in 2003 prevents the state from completely suspending workers' pay. Federal labor law requires the state to pay at least the federal minimum wage. Employees who work overtime are entitled to their full pay.

However, political appointees who work for elected officials in the state Capitol are exempt from such laws and already face deferred paychecks for time worked in July. Those workers are accustomed to the temporary paycheck delays, since state lawmakers have had a budget in place by July 1 only a dozen times in the last 30 years.

Democrats are seeking to raise taxes by $8.2 billion, while Republicans want to balance the budget mostly through cuts. Schwarzenegger said Tuesday that he will not sign a budget if it does not include long-term budget reform, such as a rainy day fund to help ease the state through tough economic times.