State Suggests Union May Have Tried to Block Federal Funds

May 13, 2009— -- Federal authorities this week bristled at a suggestion by California officials that an influential union may be pushing the Obama administration to withhold billions of federal stimulus dollars from the state if Gov. Arnold Schwarzenegger follows through on a plan to cut home health-care workers' wages.

As first reported in the Los Angeles Times, California officials have said that representatives of the Service Employees International Union were given unprecedented access to an April 15 conference call between federal and state officials in which the state was made to justify its plan to slash $74 million from its budget by cutting health aids' maximum salaries by $2 an hour.

State officials, speaking on background, said the cuts were essential to balancing the budget and were surprised that representatives of the SEIU -- one of the country's largest labor unions, and one of President Obama's biggest campaign contributors -- were present on the call.

Sources from all three parties said much of the conference call revolved around the legalities of whether the state could force counties to change their wage rules and still be eligible for the $6.8 billion California wants from Washington.

"This is an unusual situation," said Amy Palmer, spokeswoman for the California Department of Health and Human Services, about having a third party present on an intergovernmental call. "It is incredibly unusual in our experience to have stakeholders on a call like this."

The union's $33 million contribution to the president's campaign and their access to the call led to an LA Times headline that read the "SEIU may be linked to [an] ultimatum on withholding stimulus funds."

A federal official with information about the call, speaking on background, said there was no quid pro quo with the SEIU and no ultimatum.

The union, the official said, was included for practical reasons and "[the call] brought together stakeholders in the interest of time and efficiency."

A representative for the U.S. Department of Health and Human Services said everything about the call was legal and above board. He said a decision had yet to be made about allocating the stimulus money.

"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 with respect to this issue is ongoing. This decision, like all decisions made by HHS on these issues, will be based solely on the law," said DHHS spokesman Nick Pappas in an e-mailed statement.

In February, state lawmakers passed a budget that would trim a multi-billion dollar program intended to provide in-home care to elderly and disabled Californians and keep them out of nursing homes. Under the proposed budget cut slated to kick in July 1, the state would decrease the maximum contribution to home health workers' pay from $12.10 per hour to $10.10. The cuts would affect some 240,000 health-care workers represented by the union.

The administration -- and the union -- say the cuts violate the rules of receiving stimulus money because it puts the burden of paying wages on already strapped county governments.

The union says its workers have binding contracts with the counties, which preclude them from cutting wages, leaving the burden on the county governments to cover the lost hourly wages. The union was on the call just to make that point, said SEIU spokeswoman Michelle Ringuette.

"The call was very much about simple legal issues. It's very clear within the guidelines about receiving federal stimulus funds that the states can't shift the burden onto the counties," she said.

Ringuette did not know whether including interested third parties in these discussions was standard but, she said, the Obama administration has taken a markedly different approach from its predecessors.

"The Bush administration didn't want to hear from advocates or people speaking for workers. Obama is seismically different. We filed a letter on this issue. When it came time for a call, all the parties involved were included. This is an example of transparency," she said.

"The state is in regular communication on this issue with the administration. There was nothing discussed that had not already been discussed," Ringuette said.

According to the LA Times, federal officials sided with the state during the April 15 call. But on April 30, California authorities received a letter from the U.S. Department of Health's Center for Medicare and Medicaid Services informing them the wage cut must be rescinded.

If California moves forward with the pay cut it might jeopardize the $6.8 billion in federal funding.

Amending the budget would require a two-thirds vote of the state legislature. Gov. Schwarzenegger has appealed the administration's order to rescind the cut to U.S. Secretary of Health and Human Services Kathleen Sebelius.