Dear Sacramento: Tossing Away $500 Million Is Why Your State Is Screwed

Bureaucrats can't get act together enough to recover huge sums in overpaid unemployment benefits.


The bear symbolizes the sounds people make when they read about behavior of state bureaucrats.
Free Grunge Textures—www.freestock.ca / Foter / CC BY

California is billions in debt. Tens of billions of debt. Hundreds of billions of debt if you include state employee unfunded pension liabilities and health care costs. California has borrowed billions from the federal government in order to pay unemployment benefits in the state, because the state's own fund became insolvent in 2009, which makes this news from a state auditor particularly enraging.

A couple of years back, the Treasury Department expanded an offset program to help states recover unemployment overpayments. The Department of Labor calculated that more than $7 billion in unemployment benefits were inappropriately paid across the country in 2013, often times due to fraudulent claims. One might think, given California's dire financial situation, the state would jump at a program that would help them recover this money that should not have been paid out in the first place.

One would be wrong. An audit inspired by a whistleblower at California's Employment Development Department (EDD) determined that the state did not make much more than a superficial effort to try to participate in this recovery program. As a result, the state failed to recover hundreds of millions of dollars it had improperly paid. The state auditor calculated that California could have recovered $516 million between 2011 and 2013 through this program.

The audit notes that the state estimated participating in the program would have cost $322,000 to make modifications to participate in the program – but the program would have brought in around $100 million in the first year, more than covering the costs and helping the state pay down its unemployment debt.

And it wasn't like the state didn't know this program was available. It knew and apparently didn't feel particularly moved to push forward at getting this money back. The state auditor notes:

After being contacted by our investigators regarding EDD's lack of participation in the expanded program, EDD officials developed a plan for participating in the Offset Program to collect unemployment benefit overpayments by May 2014. However, in February 2014, EDD reported that it would not complete the information technology modifications necessary to participate in the expanded program until September 2014.

But at the same time as the EDD is overpaying unemployment claims, they're also accused of improperly denying claims. Another audit has been ordered to figure out why half of the agency's rejections are being overruled by administrative judges. The agency has a terrible reputation for delayed payments and not even answering phone calls. As the Associated Press notes, a recent software upgrade that was supposed to help improve the system did the exact opposite, and temporarily left 150,000 claims unpaid.

Read the auditor's full report here (PDF).