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California LAO Report Blasts EDD Pandemic Response

A newly released report from the Legislative Analyst's Office highlights deficiencies in the Employment Development Department’s response to the economic fallout caused by the COVID-19 pandemic.

(TNS) — California’s unemployment insurance agency “caused hardship for unemployed workers and their families” during tough economic times and “mischaracterized” the extent of its problems to the state Legislature, a blistering new report from the state Legislative Analyst’s Office said Monday.

Between $500 million and $1 billion annually went unpaid to beneficiaries in recent years, the findings show.

The report found “several concerning steps taken by EDD in recent years that suggest that ensuring eligible workers get benefits is not among its top priorities.” The Employment Development Department manages the state’s unemployment program.

If it had given different data to the Legislature, it said, and “had getting payments to eligible workers been a top priority, the department could have reported the full scope of claims that were found ineligible — instead of the narrowest scope — to bring the issue to the Legislature’s attention and begin work toward a solution.”

LAO detailed the trouble consumers have had.

“The department’s phone lines were routinely overwhelmed by the number of frustrated callers,” the report said.

“These failures caused hardship for unemployed workers and their families, held back the economic recovery … and spurred frustration among Californians with their state government,” the analyst’s office concluded.

It noted that payments were delayed for about 5 million workers during the COVID pandemic that began in March 2020. An estimated 1 million people had their benefits improperly denied.

Unemployment exploded during the pandemic, reaching 15.9% in California in April 2020. Last month’s rate was 4.2%.

During the pandemic, EDD was tasked with not only managing the state program, but new federal unemployment programs. The maximum state benefit is $450 a week, though that increased during the pandemic because of the federal aid.

The key problem during the pandemic, LAO said, was that the unemployment system’s basic design encouraged the agency to focus on fraud and costs. Key features of that design, LAO said, “have encouraged the state to adopt policies that make getting benefits difficult.”

EDD officials have cited progress in recent years to make the system more efficient. It is upgrading its technology and hiring more workers.

After the report’s release, EDD spokeswoman Loree Levy said that many of the suggestions for improvement in the report, such as limiting improper claim denials and minimizing delays, have been incorporated into EDD actions over the past year.

“EDD appreciates and will carefully review the LAO’s ideas for further simplifying processes and speeding up the delivery of services to Californians,” Levy said. “Many of these ideas, such as limiting improper claim denials and minimizing delays, have been incorporated into EDD actions over the past year.”

She noted that the recently enacted state budget includes $136 million for EDDnext, which Levy termed “a major effort to modernize EDD and further improve the customer experience.“

The money will be used for efforts related to EDD’s benefit systems, such as improving call centers, simplifying forms and notices, including user testing and engagement, developing data analysis tools to continue curbing fraudulent benefit claims. Also included will be upgrading department training and tools to increase the pace of application processing.

“We agree with the LAO that ‘EDD must balance the need to prevent fraud … with the priority to deliver payments in a timely and easy manner.,'” Levy said.

Gov. Gavin Newsom created a “strike team” in July 2020 to take a close look at EDD and recommend ways to make it more responsive. In October, he signed legislation aimed at making the agency more efficient.

The analyst’s office still had concerns.

“Today’s problems do not call for fundamental reforms that could upend longstanding tenets of the state’s labor market,” the report said.

“Instead, targeted changes to state practices could improve the experience unemployed workers have when they need UI.”


Among the problems the analyst’s office found:

▪ Reports to the Legislature. After constituents complaints about delays in receiving claims, the Legislature in 2020 tried keep a closer eye on EDD.

It passed a law directing EDD to issue weekly reports to the Legislature about the UI claim backlog and the number of workers found to be ineligible, including those who had been disqualified.

“From the start of the pandemic to June 30, 2021 (the final report date), the department reported it had disqualified or denied 705,000 UI claims,” LAO found. “Yet during that same period, the department disqualified 3.4 million claims” using one way of measuring.

“When asked about this discrepancy, the department told our office that it interpreted ‘found ineligible’ to mean workers who were ineligible under state and federal eligibility rules but not under state procedural rules,” LAO said.

Because of what the analyst called a “narrow interpretation, the Legislature was unaware of the widespread reliance on procedural denials at a time when the department could not process incoming mail and phone calls.”

Levy said EDD is seeking further clarification from LAO about this item.

▪ Because businesses help fund the unemployment insurance program, “Businesses therefore have an understandable incentive to limit UI claims to help contain their operating costs,” the report said. “Due to their role as program funder, businesses also are EDD’s main customer. As such, the state has formed an explicit partnership with employers to run the UI program.”

▪ Federal government influence. Pressure from the federal government to avoid errors encourages the state to conduct lengthy reviews. “These steps probably catch some mistakes, but make getting benefits challenging and time-consuming for everyone else,” LAO said.

The federal government is the source of funds to administer the unemployment program. “As such, EDD faces pressure to meet the federal government’s goal of upholding ‘program integrity’ by eliminating errors, overpayments, and fraud,” the report said. “This pressure creates an incentive for the state to conduct exhaustive reviews. For example, the state often requests follow-up information to document worker identities or work history.”

▪ Trust fund concerns. The state’s unemployment insurance trust fund “does not build large enough reserves during normal times to weather downturns.”

“Under longstanding state tax and benefit rules, the UI trust fund does not build large enough reserves in normal times to cover the increase in claims during a recession. This imbalance has become more severe in recent years,” the report found. “During the strong economic years leading up to the pandemic, the state trust fund accumulated only minimal reserves each year.”

The unemployment insurance program was plagued with delays and frustrated consumers throughout 2020 and 2021.

The report found that EDD improperly denied many applications for benefits, as more than half the denials are overturned on appeal, a far higher percentage than denials in the rest of the nation.

Claims are often “delayed by weeks and often months, especially during downturns.” The analyst’s office estimated between 30% to 50% of workers faced delays.


EDD’s Levy noted several reforms that have been implemented, including continually improving the mobile phone-ready version of the website “so claimants can file claims and easily access information on their mobile devices including smartphones.”

She also cited other changes to the call center, and a new feature “that allows a caller to hold their place ‘in line’ when contacting the call center, eliminating the need to wait on hold until the Department calls the claimant back.”

EDD, Levy said, will continue monitoring and responding to “customer areas of confusion and trending issues and addressing them with improved public information,” and “posting information through the customer service portal UI Online to let claimants know they could be eligible for a tax credit to lower health insurance costs and housing assistance for renters and landlords.”

There were questions raised about the report, as Michael Bernick, a former EDD director, said it “largely misunderstands how the process operates, misunderstands EDD’s recent activities to improve the process, and the deeper problems with UI that go beyond the issues referenced in the report.”

Bernick, now an employment attorney with Duane Morris LLP, explained that with any state benefit program, “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. “

While the report said EDD is too focused on fraud detection, the unemployment insurance program is a joint federal-state effort, “and much of the anti-fraud activity is required by federal protocols.” Washington relaxed anti-fraud requirements at the start of the pandemic, which helped lead to huge numbers of fraudulent claims.

“The truth,” Bernick said, “is that EDD must balance rapid payout and anti-fraud — a process that has become increasingly difficult with the heightened sophistication of identity theft rings, and the amount of money going through the system.”

This story will be updated.

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