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White House officials say no decision has been made to rescind state's stimulus payment

The Obama administration has taken no action regarding $6.8 billion in funds. The issue centers on the legality of a wage cut for home healthcare workers who belong to a politically powerful union.

May 12, 2009|Peter Nicholas and Evan Halper

WASHINGTON AND SACRAMENTO — The Obama administration said Monday that it has made no decision about whether to rescind $6.8 billion in stimulus money allotted to California in a dispute over the legality of a wage cut for home healthcare workers who belong to a politically powerful union.

The announcement is at odds with what state officials said they had explicitly been told. Gov. Arnold Schwarzenegger's administration said they were notified by senior Obama staff on May 3 that California's plan to cut wages for unionized home healthcare workers violated the law that authorized the stimulus package.

"No final determination has been made. We are continuing to work closely with the state of California, and a legal review of the requirements of the Recovery Act [the stimulus law] with respect to this issue is ongoing," said Nick Papas, a spokesman for the U.S. Department of Health and Human Services.

The governor's office said Monday that messages coming from the Obama administration have been inconsistent. On April 30, officials in the governor's office got a letter from the Obama administration notifying them that the wage cut violated the stimulus law, and spelling out the legal reasoning.

An Obama administration official said Monday the letter was sent out "inadvertently."

Kim Belshe, California Secretary of Health and Human Services, said Monday: "We are encouraged the decision isn't final. . . . We have received mixed signals from Washington. This process has been quite unusual."

The Obama administration's stance has sparked concerns about the influence of the Service Employees International Union. The wages at issue are paid to unionized workers who look after about 440,000 disabled and elderly Californians.

The workers contribute millions of dollars in dues each month to SEIU and the United Domestic Workers.

In an effort to save money and balance the state budget, Schwarzenegger and the Legislature planned to cut the state's contribution to employee wages, effective July 1, from a maximum of $12.10 an hour to a maximum of $10.10, saving the state $74 million.

SEIU opposed the cuts and asked the Obama administration to look into whether they ran afoul of stimulus package provisions.

A phone call between the Obama and Schwarzenegger administrations took place April 15. California officials said they were troubled that the Obama administration invited SEIU officials to participate.

No one from the Obama administration would speak for the record about SEIU's participation in the conference call. But one Obama official, speaking on condition of anonymity, said SEIU was allowed on the call in hopes of creating a dialogue "and in the interest of time and efficiency."

"It was thought that it would be smart to put the parties together so they can discuss these issues and hear responses," the Obama official said. "None of the parties objected to the arrangement when the call took place."

An SEIU spokeswoman, Michelle Ringuette, has called suggestions that the union's involvement was inappropriate "absurd."

SEIU has myriad political ties to the Obama administration.

The union was among President Barack Obama's largest campaign donors, contributing $33 million. The White House political director, Patrick Gaspard, is a former executive vice president of SEIU 1199, and federal lobbying reports show that Gaspard acted as a lobbyist for SEIU 1199 last year on children's health issues.

SEIU's California State Council is actively opposing a May 19 state ballot measure, with help from a consulting firm founded by one of Obama's most trusted advisors. The "No on 1A" campaign paid AKPD Message and Media $230,000 last month for Internet advertising, California campaign finance records show. David Axelrod, an architect of Obama's 2008 victory and now a senior advisor in the White House, founded AKPD.

Axelrod said in January he was selling his stake in the firm. His son Michael is an associate with the firm. Obama's campaign manager, David Plouffe, is now a senior advisor to AKPD. Neither Plouffe nor Michael Axelrod is involved in the California ballot measure, according to John Del Cecato, a partner in the firm.

AKPD's website features pictures of David Axelrod and Plouffe, along with Obama.

Two "No on 1A" officials who signed the committee's campaign finance statements are also on the staff of the SEIU California State Council. "No on 1A" describes itself as "a coalition of teachers, faculty, nurses, healthcare providers, seniors and public employees."

Mike Roth, a spokesman for "No on 1A," dismissed any suggestion that the firm was chosen for its White House ties.

"The notion that there's some connection there with the No on 1A campaign is absurd," Roth said.

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peter.nicholas@latimes.com

evan.halper@latimes.com

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