Congress Hammers EDD: They Really Are That Bad at Their Jobs

Prisoners got $810 million dollars in unemployment benefits from California’s Employment Development Department – don’t let the name fool you; it’s the unemployment agency – during the pandemic.

So many benefit debit cards were sent out the issuer warned they were running out of plastic to make them. Really.

While sending out upwards of $50 billion dollars to fraudsters, the EDD was denying proper claims because of a lack of supporting paperwork, even as it had rooms full of unopened mail, presumably which contained the paperwork the agency demanded from California citizens.

The EDD – twice – misguidedly tried to combat fraud by simultaneously cutting off payments to vast swaths of people, a large portion of which were actually proper claims.  The agency didn’t pay attention to the difference between suspicious and normal, hence its’ leaving millions of legitimate claimants without unemployment benefits for weeks and months.

At the direction of then-California labor secretary Julie Su, now acting federal Secretary of Labor, the EDD adopted a policy of “pay and chase.”  And that means what you think – shove the money out the door and then see if you can get any of it back if the claim was fraudulent.

Gov. Gavin Newsom’s Social Security number was used in at least one fraudulent claim, irking the governor’s office to no end, though not enough to wonder why the EDD let it go through and to try to fix the agency.

And someone named Mr. Poopy Pants got California unemployment benefits.  

Those are just a few of the startling facts sprinkled through a House of Representatives Committee on Oversight and Accountability report on the disaster that was the EDD during the pandemic.

Oh – and Julie Su is proposing that a system eerily similar to the federal pandemic unemployment “extra” pay be instituted on a permanent basis, kicking in (with the need for Congress to act) each time a recession is declared.

Much of this – except the Mr. Poopy Pants specificity – has been either known or very very strongly suspected for years.  Just search “EDD” on the Globe’s website.

But this week’s report does clarify a number of details and shows that not only was the EDD utterly incompetent, the agency also stonewalled federal and state auditors who tried to figure out what was happening.

“Democrats and the Biden-Harris Administration spent trillions of dollars under the guise of pandemic relief and the Oversight Committee’s very first hearing this Congress exposed how this unchecked spending left taxpayer funds, including UI programs, vulnerable to significant waste, fraud, and abuse.”  said Committee Chairman James Comer (R-Ky.). “The report includes a list of comprehensive recommendations to ensure future taxpayer-funded UI programs don’t suffer a similar fate.”

The report is a fascinating (no, really – it’s actually well written) look inside the belly of the bureaucracy beast not just in California but across the nation and does offer a number of potential solutions to current and potentially future problems.

A few of the most basic, hard to imagine they even have to pointed out, recommendations: cross check identities with state and federal prison systems, fix the computer systems so they have at least the processing power of an Apple watch (not exactly, but you get the point,) stop hiring people with prior convictions for identity theft to process claims (that actually happened in California,) extend the statute of limitations for fraud charges, and – here’s one the EDD never thought of –  “require claimants to provide proof of prior work before claims will be reviewed for eligibility. Unemployment insurance should always be tied to work.”

The report also notes that a number of people tied to the EDD itself – current and/or former employees – took part in the defrauding of the system.

The EDD sort of responded when asked for a comment on the report.  Sort of, because it seems they could not understand the idea of putting two questions in one email, the first on the report and the second asking for a comment on certainty that money defrauded from the EDD is being used to fund North Korea’s missile program.   

 Here’s the Globe’s email:  

The House Oversight committee just released a report regarding the edd and the pandemic – here’s the link just in case:  https://oversight.house.gov/wp-content/uploads/2024/09/UI-Report-FINAL.pdf

The report is rather harsh RE the EDD – do you have any comment on any aspect of the report?

Also, separately, it seems that a large chunk of fraudulent payments made by the EDD ended up in North Korea and helped finance its nuclear weapons program – Do you have any comment on that fact?

Here’s EDD’s response:

Thanks for connecting.  Will circle back if we have a comment. Not seeing a single mention of that anywhere in the report???? Without commenting on that, can confirm we’ve worked closely with the federal task forces to empower them to investigate wherever the information may lead.

It seems the EDD press staff does not quite understand the meaning of the word “separately.”

While the EDD answer implies that it will cooperate with all investigations, that has not been its practice in the past.  The report details numerous occasions when the EDD delayed and obfuscated and asked for extensions when it came to responding to federal and auditor requests. 

One instance was almost funny:  

For example, each state is required by the Department of Labor to submit quarterly 227 FPUC (Federal Pandemic Unemployment Compensation) and 227 PEUC (Pandemic Emergency Unemployment Compensation). Reports for the beginning of the 2nd quarter of 2020 were due

August 1, 2020. When California first submitted its 227 reports, it did so on July 28, 2020, a few days before the August 1st deadline. However, according to the document below, California submitted a report with all zeros, which typically indicates that there was no activity in the 2nd quarter of the FPUC and PEUC programs, which is impossible for a state with as large a population as California.

Aside – I think I’ll try the “entering all zeroes” trick on my next tax return…

One aspect of the EDD disaster that the report stresses is how California, unlike every other state except New York, did not repay the federal government for the money it borrowed during the pandemic immediately by using leftover “covid money” every state ended up with (that was that $98 billion dollar surplus a couple of years ago that Newsom spent buying votes.)

Instead, California intentionally put the debt repayment directly on the business community. And that was not even the billions lost to fraud – Julie Su wished that away earlier this year – but just the money the EDD had to borrow from the feds to keep the system operating:

As of August 29, 2024, the states of California and New York still owe outstanding loan balances and accrued interest totaling more than $26 billion and seem to have no urgency to repay the loans they owe or to provide relief to employers (and small businesses) in their states. In fact, the longer that the loans are outstanding, the more the (federal unemployment tax) rates will increase. By avoiding repaying the loans, California and New York are ensuring that even though the employers were not responsible for taking out the loans in the first place.

Underscoring the seriousness of the concern, an audit issued by the Office of the New York State

Comptroller noted:

Borrowing from the federal UI trust fund has serious consequences for the businesses operating in New York State…[u]nless the federal government chooses to abate all or part of the interest incurred or the principal balance amount is repaid with no more interest accrued, businesses will be required to make annual IAS payments until all interest has been fully paid off.

Alternatively, states with outstanding loans could cut state UI benefits until the federal loans are repaid. Surprisingly, the state of California passed legislation to increase UI benefits instead.

While the legislation failed to be enacted, California appears to continue looking for ways out of repaying its obligations.

Looking for a way out, just like so many people who live here.