CA Unemployment Fraud, Backlog Still Dog Newsom
Byer/The Sacramento Bee via AP)
CA Unemployment Fraud, Backlog Still Dog Newsom
Byer/The Sacramento Bee via AP)
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For nearly three decades, Susan Ward has relied on her hair-styling business to support herself. But when California Gov. Gavin Newsom issued COVID lockdown rules last year, forcing her to stay home and forgo seeing clients, she dutifully complied with the shifting restrictions.

The state and the federal government promised tens of thousands of dollars in unemployment funds to compensate Ward and millions like her for the lost work. More than a year ago, Congress passed the Coronavirus Aid, Relief and Economic Security Act to boost these payments, an effort to ease the economic pain for millions of out-of-work individuals and stabilize the pandemic-induced economic free fall.

Republicans on Capitol Hill and numerous economists are now blaming the scaled-up unemployment for creating an incentive for workers to remain at home, instead of going back to work as the economy reopens. The additional $300 a week above normal unemployment compensation that Congress subsequently provided individuals is now creating a nationwide worker shortage, they argue, while small businesses struggle to hire.

But Ward, like so many other self-employed people, returned to work months ago, as soon as restrictions were eased. She is among hundreds of thousands of Californians and millions nationwide still waiting for the unemployment checks they had been promised. Meanwhile, fraudsters have made off with an estimated $200 billion in state and federal unemployment funds during the pandemic, according to some congressional estimates.

California and more than a dozen other states, both red and blue, were unprepared to handle the massive influx of unemployment claims, according to a Labor Department inspector general report released last week. But a lot of the waste and fraud could have been avoided. Forty percent of states did not comply with federal rules requiring basic safeguards — cross-checking of unemployment claimants against a national directory of new hires, as well as a federal database of illegal immigrants, the inspector general found. The report focuses on California, as well as Florida, Georgia, Illinois, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Texas and Washington state for special scrutiny.

“This is probably going to go down in history as the biggest rip-off of taxpayer dollars ever,” Rep. Jackie Walorski of Indiana, told RealClearPolitics. Walorski, the top Republican on the House Ways and Means’ worker and family support subcommittee, says she tried to work with Democrats to fight potential fraud in December’s $1.9 stimulus bill, but Democrats stripped out those provisions.

In California, the nation’s most populous state, unemployment insurance fraud has been so rampant it now has the dishonorable distinction of being the most costly financial scandal in state history. The Employment Development Department, which doles out the unemployment payments, has admitted that one in four payments could have been improperly made — that it paid as much as $31 billion in fraudulent claims, including to nearly 35,000 inmates of the state’s prisons and jails.

More than a year ago, when the fraud first started snowballing, Newsom pledged to take bold steps to fix the overwhelmed system. But the claim backlog has recently ballooned again, along with increased EDD call wait times. The bureaucratic bungling is making daily headlines across the state, handing recall proponents and those running against Newsom easy ammunition.

“EDD kicks Californians already down,” charged an Orange County Register editorial over the weekend. In late May, the California Republican Party hit Newsom for promoting vaccine incentive lotteries and giveaways on “Jimmy Kimmel Live!” while the EDD system remains a mess and the state’s unemployment rate is the second highest in the nation.

“While the nation’s unemployment claims go down, California’s are going up,” the party said in a release. “The unemployment department is a disaster … and the claims pending EDD action have grown for the sixth straight week – all while the EDD made up to $31 billion in fraudulent claims to criminals.”

Nearly 229,400 Californians have been waiting for more than 21 days for the agency to address their claims, according to an EDD website dashboard. Critics say far more cases are pending or under dispute. Susan Ward, who estimates she is owed $15,000 to $20,000, says dealing with the EDD bureaucracy has been a nightmare – that EDD has repeatedly denied her even though she has provided every document the agency requested, including her birth certificate and driver’s license.

The first letter of denial she received from California’s Employment Development Department, which RCP reviewed, starts off by listing the wrong Social Security number next to her home address. A second letter in mid-March with the correct Social Security number claimed she had not provided the right identification.

After several failed attempts to call the EDD customer service line, Ward gave up and is now seeking help from state Sen. Pat Bates.

“My concern is that maybe my Social Security number had been hacked because they’re still denying me, and whenever I try to call, I can’t get through to save my life,” she tells
RCP. “It just says the lines are busy and then hangs up – even if I call before 8 in the morning.” 

It’s so difficult to get through on the state’s perpetually jammed EDD phone lines that thousands of Californians are hiring private companies to connect them to the agency by robo-dialing it, the San Francisco Chronicle reported this week. Meanwhile, calls have nearly doubled from 2.7 million in March to 5.12 million in late May with the percentage of calls not answered up to 32.2%, according to EDD figures. Even when callers get through, they are placed on hold,  sometimes for hours.

Inundated by thousands of similar complaints, state legislators say many of their staffers are handling nothing but EDD cases from frustrated constituents.

“When people call my office and a real person answers the phone, some of them just start crying because they’re so happy just to be talking to a real person. It’s heartbreaking,” Senate Republican Leader Scott Wilk told RCP. “Even with the infusion of money [in the latest budget], it’s going to be a minimum of 12 months to get everything back on track.”

Early last month, Assemblyman David Chiu, a Democrat who represents San Francisco, said his office has been flooded with countless calls from constituents, some on the brink of homelessness and some who have even threatened suicide.

“This is just a completely untenable situation for our constituents,” he told the Los Angeles Times.

Over the last month, the legislature has passed a raft of bipartisan bills aimed at overhauling the system, including provisions requiring the agency to cross-check claimants and prison inmate rolls and barring the state from mailing Social Security numbers. In February, the agency started hiring 900 new staff members to work in its overwhelmed call centers. It also stopped printing claimants’ full Social Security numbers on the two highest-volume EDD documents sent out to claimants, a recommendation that was made by the state auditor in March 2019 to stop identify theft and false claims -- but was never followed.

“California’s unemployment-benefit system has been a poster child of ‘what not to do’ nationwide,” Assemblywoman Cottie Petrie-Norris, a Democrat representing parts of Orange County, said last week after her bill aimed at stopping prisoner abuse of the benefit passed. “Without these processes in place, it is ridiculously easy for fraudsters to take advantage and steal millions of dollars.”

Recall proponents argue that the ongoing bureaucratic mess reveals a basic incompetence in the executive branch headed by Newsom. For his part, the governor has been celebrating the state coming out of the pandemic with a surprise budget surplus of $76 billion, and he has a $100 billion plan to get California “roaring back.” As part of that, the government will issue two rounds of $600 stimulus checks to poor and middle-class residents to get the economy moving further, along with $5 billion extra in rental assistance.

Earlier this week, Newsom announced that he is directing an extra $267 million toward fixing the EDD system, but said the funds wouldn’t become available for months, and lawmakers say the agency won’t be able to resolve the backlog completely until next year.

Instead of waiting for the normal budget process to be start in October, Wilk said Newsom could provide a “budget trailer” that would make the funds available within weeks. The governor’s office did not provide a response when RCP asked whether he supports a budget trailer.

Earlier this year, the governor added a multibillion-dollar economic aid and recovery package for small businesses struggling through the pandemic but left out more funds to fix the EDD system until the recent release of his new budget. Republicans are lambasting Newsom’s failure to quickly step in and channel funds to fix EDD while announcing the distribution of $600 stimulus checks to most Californians – a gambit they characterize as pure politics.

“The EDD is not going to get fixed anytime soon, which is why he’s got this Band-Aids and buy-off budget – he’s really trying to invest in himself, not invest in California,” Wilk said. “That’s what this budget is going to be about this year – it’s going to be all about the recall.”

Susan Crabtree is RealClearPolitics' White House/national political correspondent.

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