With California’s Employment Development Department (EDD) fraud reaching into the billions of dollars, state lawmakers want effective protections enacted as soon as feasibly possible as the legislature reconvenes this week.
“The appalling mismanagement of the EDD is one of Governor Newsom's most egregious failures,” Susan Shelley, VP, communications with the Howard Jarvis Taxpayers Association (HJTA), told the Northern California Record. “It's totally unacceptable for an agency to pay billions of dollars in fraudulent claims while a backlog of legitimate claims delays payments to Californians who have been thrown out of work by the response to the pandemic. Other states have managed the difficult situation of lockdown-related unemployment claims without the level of fraud that we've seen here.”
In terms of assessing the impact, Shelley noted, “The damage to individual families who are suffering in this situation can't even be calculated.
“But every dollar lost to fraud increases the deficit in the California Unemployment Insurance fund, which collects payroll taxes paid by employers to fund unemployment benefits,” Shelley said. “It has a projected deficit of $48 billion for 2021, and with recurring lockdowns continuing to throw people out of work, the hole is only getting deeper.”
It remains unclear what will be done to mitigate the impact on taxpayers.
“Tax increases would be ruinous to this state,” Shelley said. “Already, so many residents are leaving that California is on the verge of losing at least one congressional seat when new district lines are drawn based on the 2020 Census. Job-creating businesses, even including iconic California names such as Hewlett-Packard and Oracle, are moving out. One reason is that taxes are too high in California. Any new tax proposal that further raises the cost of doing business or living here should be rejected.”
Among the bills proposed to address fraudulent claims is SB 39, urgency legislation for a system to prevent inmate fraud, introduced by Senate Republican Leader Shannon Grove, R-Bakersfield.
“It is unbelievable that the fifth largest economy in the world, home to the Silicon Valley, failed to take action to prevent murderers, rapists, and other convicted felons from receiving hundreds of millions of dollars in unemployment benefits while sitting in prison,” Grove said in an email statement to the Record. “The Newsom Administration was aware of the inadequate action being taken at the unemployment department, yet did not act, and as a result, taxpayers are on the hook for nearly $8 billion in fraudulent claims. The commonsense solution I’ve put forth in Senate Bill 39 would cross-match unemployment claims with prisoner records which would protect taxpayers and employers who are currently on the hook for the state’s negligence.”
Other measures include AB 42, for an advisory committee on unemployment, introduced by Assemblyman Tom Lackey, R-Palmdale, and AB 74, for direct deposit of payments, introduced by Assemblywoman Lorena Gonzalez, D-San Diego, Assemblyman David Chiu, D-San Francisco, and Assemblywoman Cottie Petrie-Norris, D-Laguna Beach.
“AB 42 aims to create an advisory committee within the EDD, which would be helpful, but it's not a substitute for competent and effective oversight,” Shelley said. “AB 74 expresses the Legislature's intent to require the EDD to make benefit payments available through direct deposit, and while this is a good idea on its face, the details matter; any changes to how payments are made should include strong protections against fraud.”
The need for vigilant oversight has become more pronounced amid the COVID-19 health crisis, Shelley said.
“During the pandemic, a tremendous amount of government spending has been rushed out without many of the safeguards that are usually required – from state contracts to unemployment benefits,” Shelley said. “Dropping the safeguards increases the likelihood of fraud. With the pandemic state of emergency entering its tenth month, Californians should call on their state representatives to do more to oversee the agencies that are spending our money.”
Meanwhile, Newsom on Dec. 30 announced the new director of the EDD would be Rita Saenz.
“With more than 40 years of experience in state government and the private sector, Rita Saenz is well-prepared to lead EDD at what is sure to be one of the most difficult moments in the Department’s history,” Newsom said in a news release.