Businesses Had Say in Report on State Overhaul

By Peter Nicholas

July 31, 2004 12 AM PT

Times Staff Writer

SACRAMENTO — Some of California’s most influential business interests -- including Microsoft, Hewlett-Packard and EDS -- were given easy access to a state commission as it met privately to recommend sweeping government changes, according to disclosure reports and interviews.

Public interest groups, in contrast, complained Friday that they were largely excluded from the five-month study, ordered by Gov. Arnold Schwarzenegger.

A Microsoft sales official met with a top aide that Schwarzenegger appointed to the California Performance Review, and former Michigan Gov. John Engler, now working for Electronic Data Systems, spent about an hour with the review team because “we wanted information about the ... process,” said a spokesman for the Texas-based company, which holds a contract to process Medi-Cal claims.

Other corporations, such as Pitney-Bowes, PricewaterhouseCoopers and Citrix Systems, reported having had dealings with the commission.

Bill Allayaud, state lobbying director for the Sierra Club, strongly criticized the access given to the businesses.

“We weren’t part of this,” Allayaud said. “I don’t know how much influence industry had, but we were not invited to the party. We think this is beyond alarming. The public needs access to the decision-making process. Industry can hire high-paid lobbyists and lawyers to go to Sacramento and fight for their side. The public can’t do that.”

Schwarzenegger has not yet endorsed the plan, which will be formally presented to him on Tuesday. But it is the cornerstone of his promise to “blow up the boxes” of state government -- with the goal of streamlining a bulky bureaucracy and saving billions of dollars.

Prepared by a task force of 275 specially assigned state employees, outside consultants and government officials, it would do away with 118 boards and commissions and centralize power in the governor’s office. It contains thousands of recommendations, many of which are likely to face resistance and could be either amended or dropped before being submitted to the Legislature for approval.

A spokesman said the review team consulted a broad swath of interests.

“The team would try to find as much information as possible for background, and sometimes that meant academics, sometimes it meant going to industry leaders,” said Bob Martinez, spokesman for the review panel. “Some of them apparently were registered lobbyists. But none of that was neither here nor there.”

Some environmentalists did meet with members of the review team. In certain cases, their suggestions made it into the report.

Some of the companies are political supporters of the governor. Hewlett-Packard, based in Palo Alto, gave a $250,000 contribution to a Schwarzenegger political committee in February.

The company, a state contractor, said through a spokeswoman that it did not lobby the California Performance Review for anything “specifically,” but spoke to the commission about “procurement reform” and other issues.

The 2,500-page report itself provides ample documentation of the role played by business interests. It also talks admiringly of some of the corporations that came through the California Performance Review’s office. The tone is consistent with the pro-business philosophy that Schwarzenegger has embraced.

Several times, the report cites Microsoft’s practices as a model that government should emulate, quoting Steve Ballmer, Microsoft’s chief executive, on the importance of hiring well.

Microsoft, based in Redmond, Wash., has 17 contracts with the state at an estimated value of $2.4 million and is negotiating another three worth $1.3 million, according to the report.

The commission endorses a proposal by EDS for a “public-private partnership” in which the company would try to get more Medi-Cal recipients enrolled in the federal Medicare program for the disabled and elderly, thus saving the state money; EDS would receive 10% of any savings.

One of the report’s recommendations is designed to save health maintenance organizations the expense of preparing for state audits. It was put together with advice from executives and lobbyists from Wellpoint, Health Net, Molina Healthcare and the California Assn. of Health Plans, footnotes in the report show.

The report concludes that the state’s medical surveys and audits of HMOs, intended to ensure quality care, create “duplication of work for and significant costs to some health plans, and [are] an inefficient use of state government resources.”

It recommends that the state allow industry accreditation groups to take over the auditing of many routine matters, as 27 other states do. It cannot determine how much, if any, money such actions might save taxpayers, but says there would be “substantial” savings to the health plans, which the report says sometimes have to spend more than $250,000 for each audit.

Daniel Zingale, founding director of the state Department of Managed Health Care under former Gov. Gray Davis, voiced qualms about such moves.

“Taking away the state’s ability to see how HMO finances affect patients is to undermine California patients’ rights,” he said.

The report was prepared amid great secrecy. But as of this week, copies were circulating among business lobbyists in Sacramento. At least one state Senate aide who wanted to see the report said he reviewed a copy in a lobbyist’s office.

Scores of state employees who produced the plan were asked to sign confidentiality agreements in which they pledged not to divulge information about their work. Martinez said that the practice was to extend invitations only to those outside interests whom the panel wanted to see.

“They didn’t ask us; we asked them,” he said in an interview.

In explaining the rationale for confidentiality, Martinez said the task force studying government needed to be able to work without interruption.

“We were trying to create an environment where individuals were given the opportunity to work without encumbrance -- people accessing them and people interfering with their work,” he said.

Not everything proposed ran counter to recommendations the panel received from public interest groups. For example, the commission proposed moving toxicologists who evaluate the risk of pesticides out of the Department of Pesticide Regulation and into the Office of Health Hazard Assessment, a move lauded by environmentalists who have long contended the science done by that unit is more protective of public health.

Mark Murray, executive director of the group Californians Against Waste, said he met with some of the Schwarzenegger administration officials working on the reorganization and advised them to consolidate the agencies overseeing trash programs -- a suggestion that made it into the final report. He said a number of other environmentalists were also present at the meeting, which lasted about two hours.

In contrast to the procedures described by the panel, some companies or industry lobbyists said they went in to meet with the review team on their own initiative, without an invitation.

One lobbyist, speaking on the condition of anonymity, said, “I found the CPR process very transparent and very open, in which you would call in there and you would say, ‘Here’s what we want to talk about.’ And they would set you up with one or more members of the team.”

Yet some environmental advocates and other public interest groups said they did not find the review either open or welcoming. They said they would have liked the chance to exchange views with the commission while the report was being prepared.

“It’s ill-conceived, ill-considered and represents the conspiratorial and secret nature of the way in which it was developed,” said V. John White, an environmental lobbyist.

Environmental groups reacted angrily to the disclosure that many environmental boards and commissions could be scrapped under the recommendations.

Activists said that the environmental boards serve a crucial function, allowing the public and citizen groups to weigh in on government decisions.

They said scrapping or weakening the boards, especially the ones that oversee air and water pollution, would make government decisions more secretive, and would only benefit large industries that can afford to make their case in private by sending lobbyists and lawyers to Sacramento.

Times staff writers Miguel Bustillo, Jordan Rau and Miriam Pawel contributed to this report.