Schwarzenegger apologized in a news conference for having to take such drastic measures, but said he was forced to do it because of California's severe cash crisis. The state budget is about $15 billion in deficit, and lawmakers can't agree on how to deal with it.
"It is a terrible situation to be in. I don't think any governor wants to be in this situation, but this is really the only way out," he said.
However, his solution cost more than 10,000 of state employees lost their jobs, and another 200,000 saw their pay reduced to the federal minimum wage of $6.55 an hour.
"I think it's disgusting. I can't find the words for it. It's horrendous," said Margo Warren.
Across California, DMV offices were forced to close two hours early on Thursday because of the thousands of part-time and seasonal employees who were laid off.
The executive order was estimated to save the state $80 million a month, but opponents of the order say it will cost the state more in the long run because workers will receive their regular wages plus interest once a state budget is reached.
In East Los Angeles, healthcare workers at a clinic say patients will suffer. Alicia Alyala says she receives outpatient care that will be eliminated.
"I think these programs are so essential," says Ayala, "Because I always tell my sons, 'I don't want to go, and end, my last days of my life, in a nursing home with four beds in the same room.'"
California State Controller John Chiang is also defying the Governor's order. He says he will issue employees their regular paychecks.
"Well, first the Governor should not expose the public servants - the dedicated teachers, the dedicated healthcare workers - to this type of potential financial harm," says Chiang.
At a DMV office in Van Nuys, because of fewer employees, after 3:00 p.m. no one will be seen without an appointment.
Some say these kinds of cuts will hurt other local businesses.
"They canceled my appointment and they couldn't fit me in there, and it was actually their mistake. And they say they are short of people, that's why they cannot fit me in," says Patrick Castillo, owner of a driving school. "It was a big waste of time."