California’s unemployment insurance mess laid bare

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The juxtaposition of events this week regarding California’s woebegone Employment Development Department (EDD) could not be more ironic.

On Monday, Julie Su, a veteran labor union leader who heads the California Labor and Workforce Development Agency, publicly acknowledged that EDD, one of the line departments she oversees, had failed miserably to stop rampant fraud in the distribution of pandemic-related unemployment insurance (UI) benefits.

“There is no sugarcoating the reality,” Su told a news conference. “California did not have enough security measures in place.”

At least 10% of the $100-plus billion in state and federal benefits EDD paid out were fraudulent, she said, adding that the final total could be much higher. She laid some of the blame on shoddy rulemaking by federal officials but said those failings “do not excuse EDD for being under-prepared.”

Organized crime rings and prison inmates filed thousands of fraudulent claims for benefits that EDD readily paid. One reason: EDD had cancelled a contract with a firm that flagged suspicious claims, then rehired the contractor only after the rampant fraud became apparent.

As Su spoke, political media reported that President Joe Biden has chosen her for the No. 2 spot in the U.S. Department of Labor. They also predicted rough sledding in her Senate confirmation hearings due to the fraud scandal and EDD’s truly monumental failures in processing legitimate unemployment insurance claims and causing needless stress to jobless workers and their families.

On Tuesday, State Auditor Elaine Howle issued a damning report on the EDD’s failings, while pointing out that they had been evident for many years.

“In mid-March 2020, (unemployment insurance) claims surged to unprecedented levels, and elevated claim levels persisted through October 2020,” Howle told Gov. Gavin Newsom and legislators. “Although it would be unreasonable to have expected a flawless response to such an historic event, EDD’s inefficient processes and lack of advanced planning led to significant delays in its payment of UI claims.”

One passage of Howle’s letter was directed at Su. “In spring of 2020,” it said, “the secretary of the Labor and Workforce Development Agency directed EDD to pay certain claimants UI benefits without making key eligibility determinations and to temporarily stop collecting biweekly eligibility certifications. Although both directives were designed to provide Californians with benefit payments as quickly as possible, the U.S. Department of Labor has not waived these requirements and, consequently, EDD now faces a very large impending workload of eligibility certifications that threatens its ability to operate effectively.”

“Moreover,” Howle said, “EDD struggled to provide claimants assistance with their claims. At the beginning of the claim surge, EDD’s call center answered less than 1% of the calls it received. EDD quadrupled its available call center staff to more than 5,600 people in response to its call center problems, but these staff were often unable to assist callers and only marginally improved the percentage of calls it answered.”

Howle’s report did not delve into the fraud scandal but she will issue another report this week on that aspect and it’s not likely to pull any punches.

Su may not be the only political figure tarnished by the auditor’s twin reports. They generate more ammunition for the nascent recall campaign against Newsom that’s centered on his handling of the pandemic response.

Recall backers, mostly Republican Party leaders and would-be Newsom successors, say they are very close to having enough signatures on petitions to force a recall election. He would be forced to defend why EDD plummeted off the rails, handing out billions of taxpayer dollars to crooks while failing to quickly process legitimate claims.