At least $7 million in federal stimulus money intended to provide jobs to unemployed Oregonians instead paid wages to 254 foreign workers, federal investigators have concluded.

The money was for forest clean-up jobs in central Oregon where thousands of experienced workers were idle.

When the contracts were announced in 2009, Oregon had the third-highest unemployment rate in the nation at 11.1 percent, with rates in the state's rural forest counties nearly 15 percent and higher.

Even so, the contractors told federal regulators they could not find enough local workers for the jobs.

That came as a surprise to local officials, who said they often got hundreds of responses to every job opening.

"This is a timber area and we hadn't been cutting trees for years," said state Sen. Chris Telfer, R-Bend. "It really ticked off a lot of people here."

In a report on the investigation this week, the Department of Labor's Inspector General found that contractors who brought in foreign workers violated no laws or regulations, but used legal loopholes to hire foreign workers.

While legal, the hiring practices appear to violate the spirit and purpose of the $840 billion American Recovery and Reinvestment Act of 2009, better known as the stimulus, which was designed to create jobs that would jumpstart the country out of recession.

"The goal of the stimulus bill was to put Americans back to work, not foreign nationals," said Rep. Peter DeFazio, D-Ore., who asked for the investigation in September 2010.

"It is obscene that U.S. companies were rewarded for abusing our American workers and immigration laws to undercut competition and squeeze more profits out of contracts," DeFazio said. "Oregonians have been logging for over a century, our workforce is one of the best in the world, and these contracts should have been awarded to companies that hire Oregon loggers."

The federal investigation looked at 14 contracts to clear federal forests in central Oregon. The contracts were controlled by four Oregon companies: Medford Cutting Edge Forestry, Summitt Forestry, Ponderosa Reforestations, and G.E. Forestry. All hired foreign workers, according to the report, though they didn't all handle hiring in the same way.

The contractors applied for H-2B visas allowing them to hire workers for seasonal jobs, according to the report. In order to get clearance, contractors must prove the jobs can't be filled with local residents and that pay won't dilute local prevailing wages.

But there is a loophole. Under federal rules, notice of the job openings must be made where the job "originates." And while the bulk of the work took place in Oregon, smaller jobs originated in other states.

According to reports by The Bend Bulletin, which revealed the foreign hires in a series of stories last year that triggered DeFazio's call for an investigation, contractors advertised the jobs in tiny newspapers in California and Washington state for several days.

"Employers were not required to recruit U.S. workers in Oregon, and we were provided no evidence that they did," federal investigators said. "Workers in Oregon were likely unaware that these job opportunities were available."

In fact, although 146 U.S. workers were contacted for possible employment, investigators found that none was hired.

Contractors used another regulation to dampen response from Oregon residents, the report said. The visa regulations allowed the contractors to do all their hiring four months before work started. That made unemployed workers who needed jobs immediately reluctant to commit to temporary jobs four months later.

Despite the barriers, 29 U.S. workers learned of the jobs and asked about employment. The report did not say if they were from Oregon.

"We verified with the employers that none of these workers actually began employment with them," the report says.

The reason?

"We spoke with two workers who reported that the employer used discouraging language, such as references to age and inquiries about speaking another language, which are not valid conditions of employment," the report says.

The report does not address the nationality of the workers who were hired.

As required, the employers also notified state workforce agencies of the openings. But just as with obscure newspaper ads, the state postings were far-afield, with the notices sent to Arizona, California, Idaho, Washington and Wyoming.

The Labor Department did not respond to a request for comment, but agency officials have announced plans to revise regulations dealing with H-2B visas.

Congress is likely to act, too. Aides to DeFazio said he is closely monitoring the Labor Department's proposals for fixing the problems and is not ruling out other action. And in the Senate, Oregon Democrat Ron Wyden said he is watching as well.

"Right now there are 14 million job seekers in the U.S. and three million job openings." Wyden said. "Given those numbers, there is absolutely no reason why hard-working Oregonians should be passed over en masse for Oregon jobs in favor of foreign workers."

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