Dec. 29 (Bloomberg) -- Illinois Governor Rod Blagojevich’s impeachment inquiry will examine $1.1 billion in state contracts for campaign supporters and his policy decisions after federal prosecutors declared a criminal corruption inquiry off-limits.

A 21-member committee of Illinois lawmakers plans to expand its focus beyond the Chicago Democrat’s Dec. 9 arrest on accusations he tried to auction President-elect Barack Obama’s vacant U.S. Senate seat. Panel members such as Republican state Representative Jim Durkin said they have grounds to recommend impeaching the governor without federal corruption charges.

The committee is reconvening today in the state capital of Springfield for a third week of hearings. Lawmakers are focusing on Blagojevich’s administrative, policy and fundraising practices after U.S. Attorney Patrick Fitzgerald requested they avoid the criminal investigation.

“We have a substantial amount of evidence that indicates the behavior of this governor and whether he warrants being impeached,” state Republican Representative Roger Eddy, a member of the committee, said in an interview.

In a letter released by the committee on Dec. 27, Fitzgerald asked the panel to deny a request from Blagojevich’s attorney, Edward Genson, to subpoena testimony from Obama aides Rahm Emanuel and Valerie Jarrett and U.S. Representative Jesse Jackson Jr. Compelling the trio of Democrats to testify may derail the criminal inquiry, Fitzgerald wrote.

Former Prosecutor

Obama’s transition team said Emanuel and Jarrett had no “inappropriate” discussions with the governor over naming a replacement to the U.S. Senate seat. The governor fills vacant U.S. Senate seats for Illinois.

Jackson, son of civil rights leader Jesse Jackson, said in a Dec. 10 press conference that he didn’t engage in any unlawful or unethical behavior when he asked Blagojevich to appoint him to Obama’s former post.

Genson, of Genson and Gillespie of Chicago, asked the panel last week to subpoena Emanuel, Jarrett and Jackson. Today, he told the committee that the wiretapped telephone conversations revealed nothing more than “unfortunate talk” and no evidence that any crime occurred.

“Nothing happened,” Genson said today. The Obama transition team’s report and Jackson’s public statements “belie the assertion that those people were being sold” a seat.

Recordings Request

Fitzgerald said four intercepted calls in redacted form should be released to the impeachment committee, according to a filing today in federal court. The conversations relate to calls between Blagojevich and “Fundraiser A” about a bill that would direct a percentage of casino revenue to the horse-racing industry, prosecutors said.

Blagojevich, 52, would be the first governor impeached in the 190-year history of the state. A former prosecutor twice elected to the state’s highest office, Blagojevich was charged Dec. 9 with trying to sell the former Senate seat of fellow Democrat Obama for as much as $1.5 million, an ambassadorship, a position in Obama’s Cabinet or a lucrative non-profit job.

The governor was also accused of trying to pressure institutions and companies such as Tribune Co. for campaign cash and other favors. Blagojevich said in a Dec. 19 meeting with reporters that he’s innocent of all charges and decried the impeachment proceedings as a “political lynch mob.”

Until a new U.S. senator is sworn in, the state’s 12.8 million residents are represented in the U.S. Senate by just one of the two seats to which they are entitled. Genson said on Dec. 17 that the governor won’t attempt to fill the post because U.S. Senate President Harry Reid, a Nevada Democrat, has indicated anyone Blagojevich taps will be rejected by the chamber.

Vaccine Project

The committee is investigating a 2004 decision by the governor’s office to attempt to import hundreds of thousands of doses of influenza vaccine from a European supplier amid concern that the state risked a shortage.

The program violated federal law because it lacked required U.S. Food and Drug Administration permission, said William Holland, the state’s auditor general.

Blagojevich’s administration also violated state purchasing rules because the $2.6 million contract to purchase the vaccine wasn’t drawn up until three weeks after the agreement was reached, Holland told the panel on Dec. 18.

When state officials found they were unable to import the medicine because of FDA opposition, they unsuccessfully sought to sell it in Europe.

Imports Blocked

The vaccine was eventually donated to Pakistan, which destroyed the medicine because most of it had already expired, Holland’s audit of the program found.

“It was obviously an error in judgment,” Genson told the panel today. “But it’s certainly not impeachable.”

Blagojevich has decided not to appear before the impeachment panel, Genson said today. The committee will make a “negative inference” based on the governor’s reluctance to answer questions, said David Ellis, the panel’s chief counsel.

The impeachment panel is also looking into $1.1 billion in state contracts and leases awarded to about 125 of Blagojevich’s largest campaign contributors.

A study by the nonpartisan Illinois Campaign for Political Reform found that Blagojevich raised $58.3 million in the past eight years, more than the $31.8 million collected over a decade by his two predecessors, Republicans George Ryan and Jim Edgar, combined. Ryan is serving 6 1/2 years in federal prison for corruption; Edgar retired in January 1999 after serving two terms.

“Rod Blagojevich has raised more money than any politician in this state’s rich history,” Cynthia Canary, director of the ICPR, told the panel on Dec. 22. “We came to see the fund as one of the most aggressive and effective fundraising machines in state history.”

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

Last Updated: December 29, 2008 14:26 EST