California delayed or improperly denied unemployment benefits for roughly 6 million people during the pandemic because state policies “do not prioritize getting benefits to workers quickly,” according to a nonpartisan report released Monday by the Legislative Analyst's Office.
The report said payments were delayed for about 5 million people — up to half of all workers who applied for benefits during the height of the pandemic. Meanwhile, the California Employment Development Department denied benefits for 3.4 million workers during that time. Of the 200,000 workers who appealed those denials, nearly 80% of them won their case.
“We believe many of the workers who did not appeal likely were eligible, meaning the state may have improperly denied 1 million additional claims,” said Chas Alamo, principal fiscal and policy analyst for the Legislative Analyst's Office.
The report blamed these failures on the basic design of California's unemployment program, which it said is geared more toward the businesses that fund the program than the workers who benefit from it.
Businesses' tax rates go up each time one of their former workers is awarded unemployment benefits. From 2019 through 2021, more than half of the Employment Development Department's decisions to deny benefits were overturned on appeal. But in other states, less than 25% of denials were overturned on appeal, according to the report.
“State policies and practices formed under this orientation would tend to emphasize holding down business costs potentially at the expense of making sure eligible workers can get benefits easily,” the report said.
Of the 3.4 million workers who had benefits denied during the pandemic, most of them were for not providing necessary documents on time — rules aimed at preventing fraud. But during that time, the report said the Employment Development Department had no system to process unopened mail and answered less than 1% of its phone calls because of overwhelming demand.
The report said California denied some benefits despite the fact that the claimants were clearly eligible. In one case reviewed by the Legislative Analyst's Office, the state denied a claim because the worker was caring for her children while unemployed, thus making her “unavailable for work.” State rules allow parents to look after their children while they are unemployed, as long as they arrange child care once they get a new job.
“Individually, policies and actions aimed at preventing fraud may appear justified and reasonable,” the report said. “Viewed as a whole, however, the collection makes getting benefits unreasonably difficult for eligible workers.”
The Employment Development Department said it will “carefully review the LAO's ideas,” adding that it has already adopted many of its recommendations. Earlier this year, the state Legislature gave the department $136 million for improved call centers, simplifying forms and notices, coming up with new tools to better reveal fraud and upgrading training for workers to get payments approved faster.
“During the pandemic, EDD has paid over $180 billion to Californians in need,” the department wrote in an unsigned email to The Associated Press. “The pandemic tested every benefit system in the country, exposing the need to deliver better systems and modernize operations.”
Michael Bernick, a former director of the Employment Development Department, said the report was unfair because it placed too much blame on the state. Unemployment benefits is a joint program with the federal government. Much of the anti-fraud policies are mandated by federal rules, he said.
At the start of the pandemic, California officials took several steps to speed up the payment of benefits. But soon it was clear the state was the victim of unprecedented amounts of fraud, with state officials estimating as much as $20 billion in unemployment payments going to criminals. Audits revealed hundreds of millions were paid in the names of death row inmates and, in one case, U.S. Sen. Dianne Feinstein.
Nearly all of that fraud came from a special federally funded program aimed at giving unemployment benefits to people who usually are not eligible to receive them because they are either independent contractors or self-employed. That special program, which has now ended, did not include many anti-fraud safeguards that are part of the traditional unemployment program.
In the face of intense criticism, Gov. Gavin Newsom’s administration reacted by installing new identify verification software and making other changes to root out fraud.
“There is a balance between rapid payment and paying out fraudulent or inappropriate claims, and it's not true that EDD has not made getting benefits a priority,” Bernick said.
Assembly member Cottie Petrie-Norris, a Democrat and chair of the Assembly Accountability and Administrative Review Committee, said lawmakers hope to see “major advances in how quickly the department can assess threats and resolve claims.”
Assembly member Jim Patterson, a Republican from Fresno, is skeptical. He noted the state was warned in an audit just before the pandemic that the state was not prepared to handle a large influx of claims.
“They were warned and didn't do anything about it,” he said. “I just don't buy the excuse they were overwhelmed.”
