BUDGET DAY PLUS 22 -- If there was ever any doubt that Sacramento is a "company town," then all you needed to hear was the collective Munch-like scream this afternoon after news broke that Governor Schwarzenegger is considering an executive order to slash most state employees pay during the budget impasse to minimum wage.

And not the California minimum wage ($8 an hour)... the federal minimum wage ($6.55 an hour).

"We're angry," said Yvonne Walker, president of SEIU Local 1000, the union that represents a large number of state employees. Walker said both the governor and lawmakers need to get to work, and that Schwarzenegger shouldn't be picking on rank and file workers.

The governor's communications director, Matt David, confirmed by email that the idea is being considered "to make sure we have sufficient cash to cover our costs."

But the person who first issued the warning that the state could run out of cash in a couple of months if a budget deal doesn't come together next week, Controller John Chiang, took aim at the governor's proposal in a written statement:

"I have made it crystal clear that we have, and will continue to have, sufficient cash to make all payments, including state payroll, through September. Cutting workers' salaries will do nothing meaningful to improve our cash position or help us make our priority payments. This is a cynical attempt by a governor who has spent the past few weeks going up and down the state criticizing others for political posturing."

SEIU's Walker said union lawyers are examining whether Schwarzenegger would be inching out on a legal limb by taking such action, which would presumably be predicated on the California Supreme Court ruling that indicates all regular work hours in a budget impasse are only guaranteed to be paid at minimum wage.

Whether or not the governor's idea is real or a head fake, it nonetheless has reinvigorated the chattering class over the state of budget negotiations. Schwarzenegger sat down in several different private meetings with legislative leaders today.

And once again, it seems as though the ball is in their court.

A controversial piece of legislation linking the human rights records of some foreign governments to how and where California's pension funds can invest... has been shelved for the time being.

Several weeks of intense behind-the-scenes debate over new efforts to change how California's two major pension funds invest was supposed to move today to an Assembly committee hearing. At issue are investments made by both CalPERS and CalSTRS in private equity firms, one of the hottest investment sectors on Wall Street.

Assembly Bill 1967, the bill in question, says in order for the state pension funds to invest in a private equity firm, they must make sure that no foreign government that's also invested in that firm has a controversial record on human rights.

First, today's news: the bill got clobbered in a Los Angeles Times op-ed this morning, penned by none other than Governor Schwarzenegger. A few hours later, the bill's author, Assemblymember Alberto Torrico (D-Fremont), pulled it from this morning's committee agenda.

AB 1967's mechanism for ensuring that certain private equity firms would be okay for the pension funds to invest money with: five international treaties covering everything from the rights of women and children to bans on discrimination and torture. If a country hasn't voiced support for those treaties, then any private equity firm in which it's invested would be off limits to CalPERS and CalSTRS.

Click below to hear my story that aired last week on AB 1967.

"In my opinion," said Assemblymember Torrico in a recent interview, "it doesn’t make sense for the state pensions to be profiteering indirectly from rogue nations."

Torrico says his bill is the next logical step to previous pension fund restrictions in the name of doing what's right -- most notably, last year's law requring the two pension funds to cut off more than $3 billion in investments in Iran.

But leaders of the pension funds say the proposal is misguided.

Jack Ehnes, the CEO of CalSTRS, says these countries -- who are investing in private equity firms using their "sovereign wealth funds" -- are almost always passive investors. And regardless, he says, AB 1967 overstates the pension funds' power in the private equity market.

Staff analyses from both CalSTRS and CalPERS project the pension funds could lose more than $7.5 billion combined in just the first five years under AB 1967.

"If you are denied access, by law, to the best performing investment players," says Enhes, "by definition you’re going to start putting your money in mediocre investments."

But it should come as no surprise that there's possibly a political angle at play, too.

For weeks, there have been questions being asked inside the state Capitol about the impetus for the bill, which is mostly the work of the Service Employees International Union, the union that represents more than 200,000 state workers.

"Our members don’t want to see their investment dollars being used in any way to exploit or abuse or in other ways harm workers or the environment around the globe," said SEIU spokesman Jono Shaffer.

But the #1 investment of the pension funds that would be impacted by AB 1967 is the Carlyle Group. SEIU is locked in a fierce battle with Carlyle over the desire to organize workers at some nursing homes owned by the firm, as you can see below:

And so some Capitol denizens have wondered: is the labor union trying to use its political muscle at the state Capitol to put a different kind of pressure on Carlyle?

"That's not the motivation for this," said SEIU's Shaffer. Torrico said he had no knowledge of the SEIU-Carlyle grudge match.

No word on what happens to AB 1967 now. In a written statement issued just before noon, Torrico said he remains committed to "pursuing this issue during this legislative session."