SACRAMENTO — As rising unemployment floods the state with benefit claims, the agency that workers often appeal to for help is in turmoil, with accusations of rampant nepotism, alleged meddling by Gov. Arnold Schwarzenegger's political appointees, the ouster of a top official and a huge backlog of cases.
The tumult at the State Unemployment Insurance Appeals Board has sparked an investigation by the state auditor, a call for legislative hearings and a warning by employees that morale and productivity are suffering at the expense of the public.
The upheaval coincides with California's 6.9% jobless rate, the state's highest since 2003. The board and its administrative law judges handle about 300,000 appeals of state decisions on unemployment and disability insurance claims annually.
"This is the worst possible time for there to be this turmoil," said state Sen. Sheila Kuehl (D-Santa Monica), a member of the Senate labor committee, which monitors the work of the board. "We are very disturbed about it."
The board's problems came to a head last week, when members fired the executive director, saying he had failed to rein in nepotism and wasteful practices and to stem the case backlog.
"Every member of the senior staff but one has had a family member on the payroll at one time or another," complained board chairman Rick Rice, a Schwarzenegger appointee.
The deposed director, Jay Arcellana, had his children serve as agency interns, according to a confidential report prepared for the board. Another senior staffer, the report said, had a spouse and three children working at the agency. One case judge, Cynthia Thornton, was chairwoman of the board when her mother was hired.
In all, board officials identified about 35 employees who had relatives working in the agency. Thornton said the relationships were examined by a state-hired investigator who found no violations of law.
However, the investigator concluded in a report obtained by The Times that "there were several witnesses who mentioned that they hesitated to initiate discipline or complain about an employee because of that employee's relationship to upper-level management."
That situation and claims of favoritism in hiring fostered concern that the agency was being mismanaged.
Rice, in fact, may lose his post next week. With several staff members criticizing his stewardship, the state Senate has refused to hold a confirmation hearing needed for him to continue service. And a second board member appointed by the governor also faces the possible loss of his appointment after drawing opposition from staff members.
Meanwhile, the state auditor has launched an investigation of the board's staff to determine whether nepotism, favoritism and other problems are affecting its ability to serve those who appeal decisions on their unemployment insurance.
In addition, senators are talking about possible hearings on its problems. Some lawmakers, including Kuehl, blame the governor and his political appointees to the board, on whom Schwarzenegger is relying to resolve the problems.
"The governor has not sent good signals to us about how he will fix this," Kuehl added, citing the decision of his board appointees, led by Rice, to fire the executive director before the audit is complete in October.
Schwarzenegger spokeswoman Camille Anderson said in an e-mail that the governor "appoints those best qualified to serve the state and is confident in their abilities to make decisions and implement them."
More than two dozen employees of the agency say the firing of Arcellana will hurt its effectiveness.
"This action will undermine the morale of my office," said Presiding Administrative Law Judge John Martin. He heads the board's Inglewood office, which hears more than 20,000 appeals a year.
Several presiding judges said their staffs have been willing to handle extra caseloads because Arcellana had been pushing for promotions and pay raises to compensate them. But the promotions have been delayed by the board.
Employees say they fear the audit and Arcellana's firing are part of a move by pro-business appointees of the governor to exert control over the independent system of judges who decide the appeals.
Rice said he did not consult with administration officials about sacking Arcellana. He said the final straw for him was learning that Arcellana had delayed the release of some decisions on insurance claims "as a budget gimmick" to help his bottom line, even though "unemployed claimants would have their benefits delayed."
Arcellana said some decisions were delayed by three days to push them into the next fiscal year, helping to prevent budget shortfalls and disruption of services.
He also said the average claim is resolved in 35 days, and the U.S. Department of Labor has approved a plan for reducing the backlog that would ease the shifting of caseloads from one field office to another.