California, Pennsylvania become deadbeats to thousands of state workers

When we reported on the likely prospect (which has since become reality) of California handing out IOUs while lawmakers tussled over how to close the state's budget gap, we didn't think "work now, get paid later" was going to become a common way for states to handle short-term cash crunches.

Looks like we were wrong. We're sad to say another state has resorted to making state workers pay the price for its inability to produce a workable budget.

According to, Pennsylvania has frozen the pay of its state workers as of July 1. This means that the paycheck employees got on July 17 only includes the hours they worked in June, while the paycheck they would ordinarily receive on July 31 will be replaced with a big, fat goose egg. Worse yet, whenever they are reimbursed, the state's not even going to throw in any interest for their trouble. (California is at least throwing its creditors a bone with 3.75% interest).

Some 69,000 Pennsylvania workers are being impacted by the state's impasse. As with California, the budget process ground to a halt after Democrats and Republicans couldn't agree on a way to close a budget gap. In California, a smattering of financial institutions -- mostly credit unions -- are accepting the IOUs, but many of the big banks have refused to or else did so for a limited time only. It's too early to tell yet how Keystone State banks will respond, although 29 credit unions are offering low- or no-interest loans to keep workers on their feet until they get their money.

The bottom line is that workers, many of whom perform the essential functions that keep the state functioning properly, are paying the price for lawmakers' failure here. It's doubly unfortunate because many of these workers probably took their jobs with the understanding that, although they might have been able to make more in the private sector, their careers -- not to mention their paychecks -- would be more secure in the hands of the government.

And now, time for a Walletpop PSA: Cases like this and California's IOU handouts illustrate the need for every household to have an emergency fund. Financial planners suggest stashing away a cushion of anywhere from three to six months' worth of expenses. Even if that seems like an impossibly large amount, don't be dissuaded from saving whatever you can. Put it into a high-interest savings account (if you can find one) that you can tap into if the need arises rather than in a CD, where you can be penalized for taking out your money before the term is up. Even if you think your job is secure, stories like this should be a sobering wake-up call.
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