San Jose Mercury News (California)

SACRAMENTO — Although he vowed not to lobby the man he helped elect California governor, one of Arnold Schwarzenegger‘s closest political advisers initiated a private meeting between an insurance-industry client and the Republican leader.

During Schwarzenegger’s trip last month to Washington, D.C., veteran strategist Mike Murphy joined members of the American Insurance Association as they urged the governor to overhaul California’s troubled workers’ compensation system.

It was a valuable get-together for industry leaders in the high-stakes reform battle that was organized with Murphy’s prodding.

Murphy suggested to a Schwarzenegger scheduler that the governor sit down with his client and then joined the insurance group in the talks, Schwarzenegger’s press secretary, Margita Thompson, confirmed Wednesday.

The meeting created some concern among protective Schwarzenegger aides who worry that Murphy’s dual role as advocate for both the governor and his business clients could undercut Schwarzenegger’s image as incorruptible.

Along with aiding his insurance-industry client, Murphy has also offered advice to an attorney representing some of the state’s biggest Indian casinos. Now the two sides are in talks over whether to expand California casinos in exchange for a larger state share of the gambling money.

Murphy did not respond Wednesday to messages seeking comment. When asked about his business in January, he defended the operation and said there was a ”near Chinese wall” separating the political consulting and lobbying operations.

”I don’t lobby the governor,” he said in January. ”We disclose every client we have to the governor’s office and I recuse myself if there’s ever a conflict.”

Thompson said the governor had no qualms about his political consultant sitting in on the meeting, held in the Capitol office of GOP Rep. David Dreier of Glendora.

”The governor has told Mike that it is important to him to ensure that there is no perceived conflict of interest,” she said. ”In this case — talking to a major industry group from California that has a legitimate reason to be talking to the governor — there’s not a concern.”

But Doug Heller, executive director of the Foundation for Taxpayer and Consumer Rights, said Murphy is fumbling as he tries to juggle his role as Schwarzenegger adviser and private businessman.

”It’s becoming clear that there is not the fire wall between Mike Murphy as political consultant for Arnold Schwarzenegger and Mike Murphy as lobbyist for special interests,” he said. ”The governor should let him go, because otherwise it looks like the governor has a special interest on the payroll.”

Murphy, who has worked for a string of high-profile Republican candidates including Oliver North, U.S. Sen John McCain and Florida Gov. Jeb Bush, has emerged as one of the governor’s most trusted political advisers.

The widely respected consultant guided Schwarzenegger through the recall and is part of the team spearheading a ballot-measure campaign to revamp worker’s compensation. The governor is using the initiative threat as leverage as he tries to reach a deal with legislators in the next few weeks.

Along with his consulting work for Schwarzenegger, Murphy runs a D.C.-based public-affairs firm, Navigators, that has a broad array of business and political clients.

After the recall, Murphy set up a branch in Sacramento and hired an insurance expert from the legislative staff as the firm’s new lobbyist.

But the company ran into turbulence for hiring the lobbyist and boasting on its Web site that ”Navigators can provide access to the highest-level decision-makers in Washington and Sacramento.”

Navigators took down the charged language after being questioned by the Mercury News and, in a bid to allay concerns, soon announced that it would not lobby the Schwarzenegger administration. Last week, Navigators announced that it was dropping its lobbying operation entirely after its lobbyist decided to leave and launch his own firm.

Since Schwarzenegger’s election, Murphy has been working to beef up his California contacts.

Howard Dickstein, who represents some of the state’s biggest tribal casinos, said Murphy provided him with unpaid counsel about Schwarzenegger’s new team.

Murphy offered them insight into the administration ”mindset” so ”the tribes can plan their own strategy with more accurate information about the ideology and personalities and attitudes so that we’re not operating in a vacuum,” said Dickstein.

Garry South, who had a small list of private clients while he served as chief political strategist for former Democratic Gov. Gray Davis, said it’s a ”tricky” role.

”I don’t think there’s anything illegitimate about having someone advise the governor on the inside and having clients on the outside,” he said. ”But you have to be circumspect about how you function, because there’s a great potential for blow-back on your boss if you’re not.”
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Contact Dion Nissenbaum at dnissenbaum@mercurynews. com or (916) 441-4603.