In the coming weeks, a flood of interest-free loans from banks and credit unions is likely to flow into the accounts of hundreds of state workers denied their paychecks.

Elected officials and legislators will lose their pay first unless a political miracle occurs and state lawmakers quickly agree on how to close a $38 billion shortfall.

Next, most state workers may see their pay reduced to the state minimum wage -- $6.75 an hour -- starting in late August if the budget impasse continues through summer. Under a recent California Supreme Court ruling, state employees must be paid the minimum wage until a budget is enacted.
Admittedly, this year's budget impasse seems far worse than in prior years. But for Daniel DiCicco, an associate architect for the California Department of Transportation, the annual ritual has grown tiresome.

"I've heard rumors almost every year about what is going to happen with the budget," DiCicco said. "I have learned to ignore them until I receive something personally in writing."

So far, DiCicco says he's never missed a paycheck because of a budget impasse.

But others have.

Norman D. Williams, deputy commissioner for the California Insurance Department, figures he'll turn to Wells Fargo Bank, as he did last year, to replace his lost pay so he can pay his monthly bills.

In mid-2002, when the state's largest credit union, Golden 1 Credit Union, offered low-interest loans, Williams said he jumped on board.

But Golden 1, which offered 3 percent loans with direct deposit and 7 percent without, didn't have the best deal available then.

So when Wells Fargo began its no-interest loan program, Williams quickly repaid Golden 1 and did business with the bank.

This year, the competition to loan those zero-interest dollars has stiffened.

Golden 1 is taking the no-interest approach, and ditto many others, including River City Bank, Washington Mutual, U.S. Bank, Bank of America and multiple credit unions.

For state workers with no pay, or reduced pay, the help will be welcomed. Still, financial institutions note their vision was never to replace state funds.

"We're not the solution to the budget crisis," cautioned Wells Fargo Bank spokeswoman Julie Campbell in Sacramento. "We weren't the solution in the early 1990s, as well. But we're trying to come through for our customers to make this as easy as possible."

Indeed, with a little shopping around, state workers in need will have little trouble finding those zero percent loans this year.

Golden 1 Credit Union, with $4.6 billion in assets, has aggressively marketed its zero percent loans to members who had direct deposit accounts as of the end of last month.

Those loans, said Teresa A. Halleck, president and chief executive, will continue for up to three months to replace any lost pay.

Members who join Golden 1 July 1 or later can still get a deal, Halleck said. Those individuals, provided they have direct deposit, can get loans at an annualized rate of 4.99 percent.

Institutions don't yet know how many loans will be required starting this month, but the potential is huge.

At Golden 1, with more than 500,000 members, some 40,000 account holders were mailed letters outlining the loan programs.

Repayment will occur automatically, said Halleck, noting that immediately after the state releases its payroll and deposits are posted to members' accounts, the credit union will electronically collect.

The story is similar at Schools Financial and SAFE credit unions, where members with direct deposit can receive zero-interest loans for up to 100 percent of net pay.

"When we make it easier for the members to exist, we make it easier for the credit union, and the credit union benefits," said Faith Galati, marketing vice president for SAFE. "After all, the credit union belongs to its members."

At SAFE, assets exceed $1 billion and reserves are high, nearly double the approximately 7 percent recommended by National Credit Union Administration in Washington, D.C.

"We're looking at $117 million in reserves available for this (budget impasse loan) purpose," Galati said.

At the 114,000-member Schools, checking account members without direct deposit can borrow up to 75 percent of the missing net pay. The limit is 50 percent for those who have other types of accounts.

Schools also will allow members, by special arrangement, to take a 60-day hiatus from paying on consumer loans, said Mary Robertson, vice president of marketing. While there will be no penalty for missed payments, interest will accrue.

Robertson said the loan programs, for now, are expected to last no more than three months. But repayment will be somewhat flexible.

Loan repayments are due either 30 days after the state restores pay -- or 90 days from the date the loan was disbursed, whichever is sooner.

For those who don't pay within that period, loans revert to standard signature loans with a 24-month term, currently at an annual rate of 13.9 percent.

Robertson said Schools doesn't track how many of its 114,000 members in the Sacramento metropolitan region are state workers.

But a large share are education system employees, including those who may be affected because they are part of California's state-funded higher education systems.

Even smaller credit unions are getting into the act.

American River HealthPro Credit Union with assets of $180 million has only 25,000 members, and a low percentage of those are state workers.

Still, it is allowing affected members to overdraw their accounts by limited amounts without penalty -- provided they call to alert the credit union, said Patty Moore, executive vice president.

It is making emergency lines of credit loans available and allowing members to skip a month or two of payments on their vehicle loans.

At Washington Mutual, constitutional officers and legislative staffers who opened accounts before July 1 have until Tuesday to establish direct deposit and qualify for zero-interest loans, said Alfredo Padilla, bank spokesman in Los Angeles.

Repayment will be automatic, once the state releases the paychecks.

Zero interest loans
Banks and credit unions offering zero-interest loans to state workers:*
Bank of America: Call the toll-free number on account statement.

Golden 1 Credit Union -- (916) 732-2900

River City Bank -- (916) 567-2600

SAFE Credit Union -- (800) 733-7233

Schools Financial C.U. -- (916) 569-5400

U.S. Bank -- (916) 552-5667

Washington Mutual -- (800) 788-7000

Wells Fargo Bank -- (800) 838-8111

*Terms of zero-interest loans and their repayments vary by institution.