California Agency Ponders Huge Clawback of Unemployment Payments

California State Auditor Elaine M. Howle has slammed California’s Employment Development Department (EDD) for incompetence and mismanagement in a “scathing report” evaluating its performance during the coronavirus pandemic.

The troubled agency was already in the hot seat for processing billions of fraudulent unemployment claims in what some call the “biggest fraud on taxpayers in California history.”

But the problems may be only just beginning for Californians who received unemployment benefits process by EDD during 2020, including those who filed honest claims. Carolyn Said of the San Francisco Chronicle reports:

The 78-page report’s title summed it up: “EDD’s poor planning and ineffective management left it unprepared to assist Californians unemployed by COVID-19 shutdowns.” EDD knew for years that its claim process and call center were plagued by problems and failed to prepare for an economic downturn, the report said....

The report said some 1.7 million Californians who received $5.5 billion in benefits are at risk of having to repay money because EDD suspended some of its usual requirements from mid-March through early May. EDD notified them over the summer that they needed to retroactively submit certifications by November 21. About 67% of them, or 1.1 million did so, but EDD now needs to process all that paperwork. For the remaining claimants, EDD must investigate their claims and potentially try to recoup overpaid benefits, the report said.

“We’re going to see a huge clawback,” said Assembly Member Jim Patterson, R-Fresno, noting that many legitimate claimants followed the EDD’s directions—and now may have to repay some benefits. “The EDD has been complicit in this failure,” he said.

Making Honest Californians Pay for Bureaucratic Incompetence

KTLA reports that up to 4.1 million Californians could experience a clawback of unemployment benefits they received:

As millions of people filed for unemployment benefits during multiple government-ordered business shutdowns, state officials decided to stop doing some of the time-consuming work necessary to ensure those who applied for benefits were eligible to get them.

Those decisions helped the agency pay claims faster, but it still had to go back later and check that people were eligible. So 10 months after the pandemic began, the Employment Development Department has amassed a massive backlog of those checks. In that total, 2.4 million people might have been ineligible for benefits at all and 1.7 million might have been overpaid. It’s likely some people fall into both categories.

Tallying the Cost of COVID Unemployment Fraud

Meanwhile, estimates of the amount of fraudulent unemployment claims filed in California now exceeds $11 billion. The Sacramento Bee‘s David Lightman and Dale Kasler report:

California has paid out a staggering $11 billion worth of fraudulent unemployment claims since the COVID-19 pandemic began last spring, California Labor Secretary Julie Su said Monday.

The fraudulent payments represent about 10% of all payments for pandemic era unemployment benefits, Su said. The percentage is likely to go higher. Another 17% of the dollars that have been paid out—more than $19 billion—are considered suspicious and “a large number of that could be confirmed fraud as well,” she said.

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

Following the Failure Chain

Following the failure chain, nearly all these problems originate with the multiple state and local government-ordered business shutdowns imposed by California politicians and bureaucrats in 2020. At least some of these measures were imposed without any science-based evidence that they would be effective in preventing the spread of COVID-19 infections during the pandemic.

As a result, many of the resulting layoffs that forced Californians to file for unemployment benefits were unnecessary. Worse, many of these measures proved to be counterproductive. Scientists indicate they contributed to spreading coronavirus infections faster than if they had not been imposed.

These multiple points of failure extend completely through California’s state government, from the top to the bottom. The politicians and bureaucrats responsible for these failures should be held personally accountable to pay for their mistakes. California’s taxpayers deserve no less.

Craig Eyermann is a Research Fellow at the Independent Institute.
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