From days-long waits on hold to months of missing payments, California’s Employment Development Department and its private contractors have come under fire for a wide range of problems while paying out $122 billion in unemployment benefits since last March.

At the center of the mess is a panic over how to handle up to $31 billion in suspected unemployment fraud, which has cut off benefits to legitimate unemployment claimants, jeopardized taxpayer funds and fueled stark law enforcement warnings about organized crime.

“There is no sugarcoating the reality,” said California Labor Secretary Julie Su, President Joe Biden’s nominee for deputy secretary of the U.S. Department of Labor, during a January press conference. “California has not had sufficient security measures in place to prevent this level of fraud, and criminals took advantage of the situation.”

But what, exactly, went wrong? And what does all the talk about fraud have to do with ordinary people stuck waiting for unemployment money? Most importantly, what are the prospects for getting workers help as the pandemic drags on? Here’s a guide to what happened and what might come next for the state’s unemployment program.

How is unemployment paid in California?

In ordinary times, California pays jobless claims with money from an Unemployment Insurance Trust Fund that collects taxes from employers. At the beginning of last year, that trust fund had about $3 billion in it. But by October, the state’s employment agency said in a financial forecast that the fund was poised to plummet to a $48.3 billion deficit by the end of 2021.

To help fill the void, the federal government stepped in with an alphabet soup of new emergency programs: the self-employed worker program Pandemic Unemployment Assistance (PUA); benefit extension program Pandemic Emergency Unemployment Compensation (PEUC); plus the temporary $600-a-week supplemental payment program known in California as Pandemic Additional Compensation (PAC) and others.

States can also borrow from the federal government to fill gaps in unemployment funding. Though California just paid off its unemployment tab from the Great Recession in 2018, it planned to borrow at least another $21 billion from the feds during the pandemic. The big questions now: Will Congress keep writing bigger checks to keep unemployment money flowing? And even if they do, how much will California have to pay back as state and local government agencies face their own pandemic-induced budget uncertainty?

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How far do jobless benefits go?

California has a low unemployment tax rate for businesses, usually maxing out around $400 per worker per year. That makes jobless benefits more regressive and volatile than many other states, according to a recent Stanford Institute for Economic Policy Research report.

For workers, that means less cash in hand. California’s standard unemployment benefits range from $40-450 a week, which tend to cover around 45% of earnings prior to losing a job and can be eaten up quickly by housing and other necessities. The maximum $450 weekly benefit in California is significantly higher than states such as Arizona ($240) and Tennessee ($275), but much lower than locales like Washington ($749) and Minnesota ($717).

Because of the mismatch between benefits and costs of living in California, there’s been more emphasis during the pandemic on the federal government’s temporary $600-a-week and $300-a-week unemployment supplements. When those programs expired, some people out of work had to make impossible decisions about whether to pay rent, buy food or sacrifice their life’s savings.

© 2021 CalMatters

What’s the deal with fraud?

By now you’ve heard about the L.A. rapper who bragged about his alleged unemployment scams on YouTube, the 1-year-old getting paid for lost acting wages and the estimated $1 billion paid out to incarcerated people ineligible for benefits. But the full scale of fraud that appears to have happened during the pandemic is more extreme. “This will be the largest fraud investigation in the history of America,” said Blake Hall, CEO of state identity verification contractor ID.me, “and it won’t even be close.”

So far, the state has confirmed around $11 billion in unemployment fraud — the vast majority involving the less-rigorous federal Pandemic Unemployment Assistance program — with another $19 billion under investigation. That brings the potential total to around $31 billion, or more than the state spends each year on housing, transportation, higher education and environmental protection.

Fraud investigations are ongoing, but cases detailed so far involve a mix of old-school tactics like fraudulently filing for benefits in someone else’s name, the state’s own failure to cross-check unemployment applications with prison rolls, fraudulent charges on unemployment debit cards, and global hacking rings that flooded states across the country with forged applications.

Law enforcement officials emphasize connections to organized crime, drug trafficking and weapons offenses, but recent state audits and cybersecurity experts stress that much of the fraud could have been relatively easily prevented by better vetting applications.

&& © 2021 CalMatters

How much of this is EDD’s fault?

In many ways, the implosion of California’s job safety net was easy to see coming. The Employment Development Department “has been aware of deficiencies with its claim process and call center for years,” a January state audit found. “Nonetheless, in March 2020, EDD had no comprehensive plan for how it would respond if California experienced a recession.”

EDD director Rita Saenz makes opening comments during a budget subcommittee hearing on unemployment insurance on Jan. 26, 2020. Photo by Anne Wernikoff, CalMatters &&

From months-long application backlogs to never-ending customer service calls, outdated technology, high staff turnover and sloppy handling of Social Security numbers, the laundry list of problems under investigation by state officials is still growing.

The biggest challenge during the pandemic, officials have told lawmakers, was balancing how to pay out benefits both quickly and securely, since those two priorities often clash.

© 2021 CalMatters

What does Bank of America have to do with the scandal?

The last time California’s unemployment system was pushed to the brink, a decade ago during the Great Recession, $300 billion financial behemoth Bank of America was enlisted to help the state modernize benefit payments with a new electronic debit card system. Other states moved to prepaid debit cards, too, but most also offered alternatives like direct deposit to workers’ own bank accounts.

Bank of America is being sued for failing to provide sufficient protections for unemployment payment debit cards after thousands across California have fallen victim to fraud this year. Image via iStock

Last fall, jobless Californians started to come forward with stories about their state-issued Bank of America unemployment debit cards suddenly being cut off or drained of thousands of dollars. CalMatters obtained the state’s contract with the bank and detailed how the deal had led to legitimate claimants being swept up in fraud crackdowns and unable to access badly needed funds.

In February, CalMatters obtained more public records showing how both the bank and the state were poised to profit from the spike in unemployment claims during the pandemic. Under a little-known agreement to split revenue on merchant fees whenever unemployment debit cards were used to buy something, the Employment Development Department raked in $22.5 million from March-October last year alone. The state says it “does not track” the bank’s revenue. Bank of America declined to comment on how much it made, beyond telling state lawmakers that it lost “hundreds of millions of dollars” on the contract last year.

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How have workers been hurt?

A former tech office worker forced into living in his friend’s car. A furloughed Disney candymaker struggling to pay for her son’s medication. Untold numbers of other jobless Californians left in financial limbo due to a chain of failures after they filed for unemployment.

Amid EDD’s bureaucratic meltdown, the state backlog for processing unemployment applications has stretched up to 1.6 million, and thousands of others have been caught up in mass account freezes to weed out fraud. Many of those whose unemployment debit cards were frozen or who saw credits for fraudulent charges suddenly reversed say they have ping-ponged between the state and Bank of America trying to get their money back.

Now, with tax season just around the corner, another unsuspecting group is being dragged into the mess: those whose identities were stolen by fraudsters to file for unemployment, and who are just now learning they’ve been targeted. So opens another chapter in the state’s unemployment fraud odyssey.

  • Jessica Gallup and her five-and-a-half-month-old daughter Sunny on the balcony of their one bedroom apartment in South San Francisco on August 6, 2020. After she lost an extra $600-a-week federal unemployment supplement, Gallup worried how she would make ends meet. Photo by Anne Wernikoff for CalMatters
  • Delario Woods used to work as a dishwasher at a San Francisco tech office. When the pandemic hit and his unemployment debit card was frozen, he was forced to move into a friend’s car in Oakland. Photo by Anne Wernikoff for CalMatters.
  • Stephanie Moore and her eight-month-old dog, Spooky, in their Lawndale apartment, on Nov. 17, 2020. Moore said she had to choose between staying housed and fighting Bank of America for thousands of dollars in missing unemployment payments. Photo by Tash Kimmell for CalMatters
  • Furloughed Disneyland candymaker Julie Hansen ended up living in her Fiat with her son after a dispute with the state and Bank of America over more than $12,000 drained from her unemployment debit card. Photo courtesy of Julie Hansen.
  • Matt Hoffman plays guitar while on hold with Bank of America at his girlfriend’s house in Escalon on Nov. 13, 2020. Hoffman, who has been unemployed since suffering a stroke last year, said he lost almost $7,000 worth of benefits to fraud. Photo by Anne Wernikoff for CalMatters
  • A photo from the 1980s shows Sandra Huweiler, who passed away during the pandemic at age 79, and her son, Robert, who grieved the loss of his mother, while living on $450 in weekly unemployment benefits. Photo courtesy of Robert Huweiler

© 2021 CalMatters

What’s the state doing to fix it?

Confusion about missing benefit money has led to tense state hearings with officials from EDD and Bank of America, calls to reevaluate the debit card contract with the bank, plus two class-action lawsuits that allege Bank of America acted negligently and proved “either unwilling or unable to stop criminals” from breaching California unemployment accounts.

The employment agency has a new director and executive board, and lawmakers across the political spectrum have proposed a wave of new measures to add a direct deposit option, expand language access, strengthen fraud protections and more. It’s too early to tell which reforms will stick, and the big question is still if, when and how unemployment claimants missing money will be made whole.

As for whether California might evaluate more drastic measures like upping its employer taxes to shore up the state’s unemployment benefit fund? That looks unlikely, given Gov. Gavin Newsom’s pledge not to approve any new taxes during the pandemic.

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Where can I get help?

Trying to resolve complicated unemployment claims can quickly become a full-time job. Many claimants are turning to sites like Reddit, Twitter, Facebook and YouTube for help. In some cases, victims have been refunded or gotten technical assistance after speaking to state elected officials, workers’ rights groups or the media.

When it comes to official customer service channels, the state’s employment agency said last week that it’s hiring another 900 people to staff overwhelmed call centers. Bank of America has also increased its prepaid debit card staffing 20-fold during the pandemic, a spokesman said.

&& © 2021 CalMatters

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