By K.C. Karnes

The answer varies. Let’s compare AIG and the state of California.

It was announced this week by Treasury Secretary Timothy Geithner, that based on lawyer’s advice, he could not stop the $165 million in bonuses that AIG was handing out to hundreds of employees. They were signed in early 2008, before the company was fast losing money. The AIG employees had a contract based on performance and profitability. Unfortunately, based on their performance, there was no profitability. Now 80% of AIG is owned by the taxpayers.

In February the state of California announced “furlough Fridays” with more than 200,000 state workers expected to stay home without pay amid the state’s fiscal crisis. Governor Schwarzenegger ordered the two-day-a-month furlough, reducing the average state worker’s salary by 9.2%, as state officials try to solve the state’s $42 billion budget shortfall. Schwarzenegger’s administration estimated that cutting workers hours could save the state $1.3 billion over the next 18 months.

It would appear that the government does have the power to override contracts. State workers are being forced to take pay cuts to bring down the state’s debt and make up for the financial shortfalls. These are not executives making millions of dollars a year, they are average citizens doing what’s right to make a living.

At the state Department of Transportation, a handful of engineers showed up to work without pay because they didn’t want to get behind on projects they said were important to public safety.

Their contracts aren’t being honored, but at least they have an 80% stake in AIG.