Is California’s beleaguered unemployment benefits agency ready for a recession?

By Grace Gedye, CalMatters

A cascade of tech layoffs, inflationary pressure and the announcement of potentially recession-prone moves by federal bankers could spell tough economic times ahead.

If more people are laid off, more Californians will turn to unemployment benefits to help pay basic expenses while they look for a new job.

It is a process that has yielded under the pressure of the pandemic. Residents sometimes waited months for benefits from the state employment development department, by dialing the department number hundreds of times. On top of that, there was a series of fraud scandals: the claims came from “unemployed” infants and children and according to prosecutors, benefits were paid to tens of thousands of detainees in prison and in prison, which are not eligible. The vast majority of fraud was part of temporary pandemic relief programs funded by the federal government.

The situation has since improved. But how will the system hold up in the event of a recession?

Thanks to the level of test that the pandemic has put on us, we are in such a strong position to deal with a typical economic contraction,” said Gareth Lacy, department communications adviser.

But not everyone is convinced. “There have been major improvements,” said Daniela Urban, executive director of the Center for Workers’ Rights. “But I think we’re not at the point where if a major crisis hit the unemployment system again, the system could work as it should.”

A recession would likely be different from the shocking early months of the pandemic, when claims for new benefits increased tenfold from February to March 2020, according to department data. A point of comparison: there were 20 million jobless claims during the pandemic and just 3.8 million during the Great Recession, according to Lacy. And during the pandemic, the challenge for the department was not just to deal with the influx of claims; it also had to implement new federal aid programs.

The incredible rush of people applying within weeks was “extreme,” says Till von Wachter, a UCLA economics professor. Normal recessions are more gradual, he said, so the number of claims the department has to process per week would likely be lower. “They’ve just been through the test of fire,” von Wachter said. He is optimistic that the department would be able to weather a recession better.

But, if the agency is struggling to meet the demands of a recession, it wouldn’t be the first time. Following the recession that began in 2008, reports emerged that audits were delayed due to outdated computers and exasperated workers were left with busy phone lines.

In the department’s recession plan

In 2021, state legislators obligatory the ministry to develop a recession plan; the result is almost 90 page report.

One change, the report explains, is that the department created a new team to forecast unemployment benefit workloads and determine the number of staff needed. The report also details how the department will adjust if the unemployment rate hits specific levels. California’s unemployment rate is currently around 4%, but if, say, it reaches 6%, the plan includes allowing overtime, reducing vacation slots during peak periods and limiting the approval of part-time requests. If it reaches 8%, the ministry will hire additional staff and “deploy retired pensioners”. If it reaches 12%, it’s time to call on the contractors.

The report says it’s hard to pull this all off because federal funding for the administration of unemployment benefits is tied to an actual — unanticipated — workload.

The agency has made other changes that could make the process of getting benefits easier.

For Californians whose primary language is not English, expanded multilingual services should make it easier to navigate the system. “People who are not fluent in English face insurmountable barriers to receiving help,” a September 2020 “strike team” found report. In a month of February regulation with several advocacy groups, the department has agreed to:

  • Provide real-time spoken and signed language services to workers in the language they need
  • Add dedicated phone lines for Korean, Tagalog, and Armenian speakers in addition to existing lines serving Spanish, Mandarin, Cantonese, and Vietnamese speakers
  • Translate all important unemployment benefits documents into the top 15 non-English languages ​​used in the state by the end of 2022.

A new section of the Unemployment Benefits website now provides translated forms and other information in eight languages, as well as Simplified Chinese. The expansion came after a legislative push to add multilingual services for unemployment benefits.

Another recent change is what happens if you start receiving benefits and then your eligibility comes into question. In the past, if, when filling out forms to prove your continued eligibility, you indicated that you had worked for a day or been sick for a day – two things that could prevent you from receiving benefits – the department would stop sending payments until It determined if you were still eligible, which might require an interview, Urban said.

“At the height of the pandemic, (the department) was so behind on determinations (that) people were waiting 15, 16 weeks or more for those determinations,” and in the meantime they weren’t getting any benefits, Urban said. . . Now, if the agency can’t determine if you’re eligible within 14 days, it will continue to pay benefits while it fixes the issue, Urban said.

There have been other customer service changes over the past couple of years, including the addition of a call back feature to call center phone lines so people don’t have to wait, improvement of the mobile version of the website and the possibility for applicants to upload documents, rather than sending them physically, depending on the department.

The department also launched a multi-year modernization effort, dubbed EDDNext, to improve customer service for unemployment benefits, paid family leave and disability insurance, for which the department received $136 million this year. So far, the department has started designing a new online login that will work for unemployment benefits as well as paid family leave and disability insurance, and designing forms that are easier to read and understand.

If there is a recession, some workers cannot turn to unemployment benefits. That includes the self-employed, who aren’t typically covered by unemployment benefits, said Jenna Gerry, senior attorney at the National Employment Law Project. The federal government created temporary benefits for the self-employed and entrepreneurs during the pandemic, but that ended in 2021.

Another large group that will find themselves without unemployment benefits in a recession are undocumented workers – despite a major push from advocates and a bill passed by the Legislative Assembly. Under federal law, undocumented workers cannot receive traditional unemployment benefits, Gerry said.

This year, worker and immigrant advocates have called for a new pilot program who would have provided unemployment benefits to non-citizen workers – an idea Colorado lawmakers passed this year. But California lawmakers did not fund the program in the state budget, said Sasha Feldstein, director of economic justice policy at the California Immigrant Policy Center. Curiously, they then passed a bill which explained how the program would work, but did not include funding, and Governor Gavin Newsom vetoed the bill, citing, in part, the lack of “a dedicated funding source”.

An 18 billion dollar problem

Another consequence of a recession could be California’s already massive growth unemployment debt.

The state unemployment insurance trust fund ran out of money during the pandemic, after so many laid-off Californians relied on benefits. The federal government loaned California billions to keep benefits flowing, and the state is still obligated to repay about $18 billion.

California’s debt is particularly large. While many states have had to look to the federal government to deliver benefits during the pandemic, at this point only California, New York, Connecticut, Illinois and the Virgin Islands still have debt. California’s debt is roughly double the size of the other four combined.

This is not the first time that the system has gone into debt. In the wake of the Great Recession, the debt reached approximately $10 billion. California didn’t finish paying off until the spring of 2018, according to HD Palmer, a Department of Finance spokesperson, and the state has spent about $1.4 billion in interest on unemployment debt from California. era of the Great Recession, according to Palmer.

Unemployment benefits are funded by employers, and in order to pay off current debt, a federal tax on employers will automatically increase by $21 per employee in 2023, and increase by an additional $21 per employee per year until the loan is repaid. This year, state lawmakers also decided to inject $250 million in public funds for the principal of the loan and $342.4 million to cover interest accrued so far.

But if the state enters a recession, this debt could increase further.

“If there’s a downturn in the economy, we’re completely unprepared to support California workers because of the deficit,” said Rob Lapsley, chairman of the California Business Roundtable, which represents major employers and pleaded for the state to pay $10 billion to repay the principal of the loan. “Congress may not have an interest in bailing out California and New York,” Lapsley said.

But it would be unprecedented for the federal government to let a state’s unemployment system run out of money and stop providing benefits, said Gerry of the National Employment Law Project. “This has never happened in the history of the unemployment insurance program since its enactment in 1935.”

“I don’t think there’s a real threat that any perks won’t be available,” Gerry said. But having a system that repeatedly goes into debt means taxpayers are stuck with an avoidable bill. And, Gerry said, “if we had more money in our trust fund, it would be easier to argue that we could improve benefits.”

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