April 13, 2024
Department botched jobless-worker benefits during pandemic, allowed massive fraud and still hasn’t fixed its problems

Kevin Kiley, a freshman Republican congressman who represents Sacramento suburbs and parts of the Sierra foothills, posted a characteristic swipe at Gov. Gavin Newsom last week on X, formerly known as Twitter.

Reacting to news that California still owes the federal government $18 billion in loans taken out to pay unemployment insurance benefits during the COVID-19 pandemic, Kiley said, “This is why Newsom is the Deadbeat Governor. After he and Julie Su squandered $30 billion in fraud, he took out a federal loan to make up for it — only now to default on that loan. As a result, California businesses are being taxed to pay it back.”

The posting was about half fact and half falsehood, but the real story is equally damning, not only of Newsom and Su, the one-time Newsom administration official whose nomination as U.S. secretary of labor has been stalled in the Senate, but of California’s decades-long mismanagement of unemployment insurance.

The Employment Development Department, which was part of Su’s managerial portfolio, imploded when millions of Californians suddenly lost their jobs three years ago after Newsom shut down much of the state’s economy.

Naturally, those jobless workers filed for unemployment insurance (UI) benefits but EDD botched the job, adversely affecting the lives of their families. To keep state UI benefits flowing, however haphazardly, the state borrowed about $20 billion from the federal government.

EDD’s managerial breakdown, meanwhile, was compounded when it attempted to administer another pot of federal money that expanded UI benefits to those not ordinarily entitled to them.

Distribution of federal benefits was wracked with tens of billions of dollars in fraud. EDD’s hastily expanded, undertrained staff was under pressure to deliver money and it basically gave it away to anyone who asked — including prison inmates.

EDD was left with a huge mess on the federal benefits and a huge debt to the feds for the state benefits. Kiley — and many other critics — conflate the two, claiming that the state borrowed money to offset the fraud. That’s simply not true; they are two distinct messes.

Many states borrowed money to maintain UI payment during the pandemic, but none even close to California’s total, and all but California and New York have since repaid their loans. New York’s remaining debt is about a third of California’s $18 billion.

When states refuse to pay their UI debts, the federal government raises payroll taxes on their employers to collect its money, but one could argue that the current debt should not fall on employers because the state caused it by shutting down the economy.

When the state was enjoying huge budget surpluses, it could have repaid the debt. It’s now facing budget deficits, so employers are on the hook, and Kiley’s “deadbeat governor” epithet may be justified.

Meanwhile, EDD’s managerial shortcomings also continue. Last week, State Auditor Grant Parks issued an update of issues and agencies that pose high risks of failure and singled out EDD for a particularly harsh appraisal.

“EDD has not taken adequate corrective action to prevent the substantial risk of serious detriment to the state and its residents,” Parks declared. “Corrective action is adequate when it prevents a risk — such as the risk of fraud — from presenting a substantial risk of serious detriment. Because the potentially fraudulent payments have already occurred, have not been fully identified, and have largely not been recovered, EDD’s corrective action is not adequate.”

Kiley’s erroneous posting undercut his own credibility. He could have been accurate and uttered the same criticism of Newsom, whose performance on UI was and is shameful for someone who aspires to national political leadership.

Dan Walters is a CalMatters columnist.

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