EDD Admits $55 Billion Lost in Pandemic… $55 Billion!

The California Employment Development Department admits that $55 billion was lost in the pandemic.

$55 Billion.

That’s what the hapless state unemployment agency – the not at all ironically named Employment Development Department – now admits was its “overpayment” amount during the pandemic response.

Zero. Maybe

That’s what the EDD is hoping, due to a recent ruling, to have to pay back.

As this can get a little convoluted, let’s start at the beginning.  

Despite decades of warnings about how woeful the department was, the EDD and its then-chief – Julie Su, the current federal Department of Labor acting chief – was utterly, completely, and absolutely unprepared for the pandemic.

A customer service philosophy of having no customer service, antiquated steam-powered tech, a workforce that is considered a joke even by other Sacramento bureaucrats, dismal politically-driven leadership, and no need to actually be better – to this day it is not clear if anyone was actually fired for the wave of fraud – the EDD was prime for pandemic pilfering.

And pilfer people did.  From rappers to prisoners to global cybergangs, it now appears that at least a very large percentage of that $55 billion “overpayment” was due to fraud.  Technically, as both the EDD, the Department of Labor, and any other government agency will stress, “overpayment” does not automatically mean “fraud.”  It could be missing paperwork, it could be people dying, it could be due to misclassification, or a number of other things.

Again, technically possible, but highly highly doubtful that makes up a sizable part of the $55 billion.

Put it this way:  California has 12% of the nation’s people.  It got 21% of the federal unemployment money.

In addition, the EDD sent out nine million benefit cards.  There were only 3 million unemployed people in the state.  In other words, one office was tracking unemployment figures while, down the hall, another department was sending out three times that number of cards.  Maybe pick up the phone or chat in the break room?

Those cards carried at least $105 billion dollars already pre-loaded on them, so two-thirds would have carried about $70 billion, a number that is closer to the $55 billion “overpayment” (plus the $7 billion or so in state money lost.)

In testifying before Congress, Su – who has been “acting” labor secretary since she was nominated first last year and will never actually be confirmed by the Senate for the gig full time in part due to her execrable job performance in California – claims she “shut the door” on fraud once she became aware of the problem.

That is a lie – it went on for months before Su, whose progressive natural inclination was to make it easy as possible for people who didn’t deserve them got unemployment benefits, finally outsourced a security system (note – tens of thousands of actually legally benefit eligible Californians were shut out or had to wait months while they navigated the bureaucracy.)

In the past, the EDD has made numerous different fraud loss claims, starting at about $7 billion and most recently claiming it was about $32 billion.  Su herself has also claimed the majority of the fraud involved the federal pandemic relief funds.

Whether or not that is true is unknown, but even if it is true it doesn’t matter.  During the pandemic, there were two buckets of money, regular state and federal money through a trio of programs.  But all of the money – no matter where it came from – flowed through the same EDD spigot, making the claim a distinction without a difference.

In addition to the $55 billion, the EDD owes the feds $20.85 billion it had to borrow during the pandemic just to cover regular state benefits.  It is estimated that at least $6 billion in “state” money was lost to fraud. (note – the $55 billion “owed” is essentially kept “off book” and has no relation to the state’s current massive budget deficit.)

True, almost every state had to borrow to cover regular state benefits, but only New York and California declined to pay their loans back with leftover pandemic-related funds, leaving business owners on the hook for the debt through higher unemployment taxes for up the next ten years.

So, will the $55 billion have to be covered by California businesses and taxpayers?

Probably not.  At least not all of it.

In December, Su’s labor department issued a rule regarding something called “finality.”  In a very rough nutshell,  the feds are letting states follow their own regulations regarding when to declare a claim over and done with. Once an account claim is final – i.e., there is nothing left to do with it – if it owes money it owes it directly to the feds.

In other words, even though the money was handed out by the EDD, the EDD is not necessarily on the hook for the debt – that’s becomes the responsibility of the fraudulent claimant.

In February, the EDD asked – again in a nutshell – for permission to declare at the very least most of the $55 billion done and gone.  In theory, the EDD is meant to continue to hunt for fraudsters even on closed claims – the agency claims it has clawed back about $6 billion in fraudulent payments so far – though the issue of urgency, or lack thereof, will most likely come into play.

Actually, “would” may be too nice a word.  In the request to the feds, EDD director Nancy Farias wrote that the agency “appreciate(s) the opportunity to apply our finality laws to (the federal programs) allowing us to focus more resources on helping to ensure timely payment to eligible claimants.”

According to both the state’s Annual Comprehensive Financial Report and the state auditor’s report on the EDD – a report that was, yet again, a scathing indictment of the agency’s gross incompetence – the $55 billion is divisible into two groups, one of $29 billion and one of $26 billion (maybe – the state auditor wrote that the EDD is having trouble figuring out what claim goes where.)  The EDD claims the $26 billion chunk is completely, well, deductible, and that a large portion of the $29 billion will also meet the appropriate criteria.

The auditor added that due the problems inherent in how the EDD is operated that the figures cannot really be trusted as absolutely correct:

“EDD provided an additional estimate of $29 billion to account for these paid benefits, increasing its overall estimate to $55 billion,” reads the audit.  “However, EDD was unable to provide sufficient information substantiating this additional estimate. Because of these issues, there are possible material misstatements in the beginning balances, liabilities, revenues, and expenditures in the financial reports of the Federal Fund and Governmental Activities.”

The EDD did – this time – respond to a request for comment. It emphasized the non-fraudulent aspect of the “overpayment,” saying that, if said overpayment was “not at fault and did not involve fraud” it is possible said debt could be waived “by showing financial hardship.”

The question, of course, of whether or not Su would have allowed states to “apply finality” if California was not in such bad shape and if the raiding of the EDD had not occurred under Su’s watch, i.e. a self-absolvent of a sin. The Department of Labor did not address that question.

It is also not clear exactly what will happen to the part of the $55 billion that cannot be waived away, though it will not be added to the other $20.85 billion debt.

Around the nation, roughly $215 billion of the $900 billion unemployment benefits paid was lost to fraud and other “overpayments.  It now appears that California was responsible for about 30% of that figure.

You sure did shut the door, Julie.

The auditor’s report can be found here:  https://www.auditor.ca.gov/reports/2022-001.1/index.html 

The annual comprehensive financial report can be found here:  https://www.sco.ca.gov/Files-ARD/ACFR/acfr22web.pdf