CA Jobless Fund Goes Broke

APRIL 15, 2011

Because of California’s disastrous unemployment rate — 12.2 percent at last count — the State Unemployment Fund is in a precarious position. It actually went insolvent two years ago, and pays out benefits today only because of federal loans. Assuming the Legislature continues to do nothing to fix the mess, it will rack up a $13.4 billion deficit by the end of this year. Also, the state has until September to start paying interest on those federal loans, and has to pay them off by November.

Failure to pay back the loans and interest will cost California employers more than $6 billion in additional federal taxes in 2012. According to the state Legislative Analysts Office, approximately 30 other states have similar fund deficits.

I learned about this sorry state of affairs from reading the state Auditor’s new report (No. 2010-112) on the Employment Development Department (EDD). Put simply, the agency charged with getting people out of work into jobs is a mess.

This, at a time when the Great Recession and subsequent jobless recovery have seen the numbers of unemployed in the state more than double, from about 1 million in mid-2007 to 2.2 million today. And though the whole world’s economy has been a mess for the last few years, EDD’s troubles apparently go back even further.

A Decade of Deficiencies

“This report concludes that over the last 10 years the department has consistently failed to perform at a level the United States Department of Labor considers acceptable regarding its timely delivery of unemployment benefits,” Auditor Elaine Howle wrote in the report’s introduction. “The department’s attempts to resolve its performance deficiencies have had mixed results.”

The biggest problem is that the agency is just ridiculously slow. For years, the department apparently knew that its phone system was inadequate to handle calls from the increasingly irate jobless wanting to speak to a human being about benefits, but only put in a new system in December 2010. The department still takes four or more weeks to determine if an applicant actually deserves to get unemployment benefits, which means a month goes by before people who actually warrant benefits receive a dime. This has apparently been a problem since 2002, according to the Auditor’s report.

What’s more, while hiring additional staff to process the myriad claims did improve response times, many of the other corrective actions taken by the department — such as increased training for managers and improvements to IT systems — resulted in “negligible” and “minimal” results, states the report.

“In reviewing the corrective action plans the department submitted for federal fiscal years 2008 to 2011, we found that it has not fully implemented certain key corrective actions and that the impact of others has been minimal or remains unclear,” the Auditor determined. “We also found that its corrective action plans have not consistently included milestones that directly relate to specific corrective actions, nor have they included sufficient information to effectively gauge the corrective actions’ impact on the department’s goal of achieving the acceptable levels of performance related to the timeliness measures.”

In its defense, the last couple of years have been abysmal for the EDD. Until 2008, it paid out about $5 billion in unemployment benefits every year. But in 2009, the agency paid out an astonishing $20.2 billion in benefits, according to the official EDD response to the Auditor’s report. The next year was even worse, with $22.9 billion in payouts for 2010.

Four Recommendations

The Auditor ended up making four recommendations, all variations on the same theme: plan better for a future that will, in all likelihood, be pretty bleak for a huge portion of California’s population. That the department agreed with all four recommendations says a lot about how bad things have gotten there.

It also puts yet another nail in the coffin of former Governor Arnold Schwarzenegger’s alleged “legacy.” Every time a new jobs report would come out — each progressively worse than the previous one — Schwarzenegger would repeat his promise to create “jobs, jobs, jobs” as though it were some sort of mystical chant, all the while ignoring the rot that permeated the state agency set up to help people out of work.

-Anthony Pignataro