4th Kansas Labor Chief In A Year Confronts Unemployment Crisis

Feb. 8—TOPEKA — It was bad enough that Jon Carlson's personal information was used to file a fraudulent unemployment claim in December. Then, a few days ago, the Lawrence resident received a form saying he owed taxes on the benefits.

Carlson, a construction observer and inspector, decided to email Amber Shultz, a former neighbor of his parents in Lawrence who had just been named the new leader of the beleaguered Kansas Department of Labor.

"Ironically, the day you get a new job, I get my 1099-G," Carlson said he wrote.

Shultz, the fourth secretary of labor in a year, is taking over a creaky unemployment operation at a high tide of public anger and frustration. She is leading a staff under extreme pressure — even facing threats — while trying to assist the thousands of Kansans, like Carlson, caught up in the system's bureaucracy.

"I don't think that there's a lot of people that really want this job right now. We all know how unprecedented this is," Shultz said in an interview with The Star. "Walking in, I can't tell you how important it is to me that we get those legitimate claimants paid."

Since the start of the pandemic, KDOL has struggled to stay atop an unprecedented wave of unemployment claims and pay out benefits from a raft of new federal aid programs. Bewildered out-of-work residents have flooded hotlines in a quest to talk to a real person, dialing dozens of times a day but unable to get through.

Thousands of Kansans have had their personal information used to file false claims for benefits, forcing the agency to sort real claims from fraudulent ones.

And in just the past few weeks, KDOL has sent 1099-G tax forms to an unspecified number of fraud victims, wrongly leaving some with the impression they owe taxes. Lawmakers are demanding answers amid a crush of messages from angry constituents.

Shultz, who holds a master's in business administration from the University of Kansas, is walking into the middle of it all. She was Lawrence's manager of municipal services and operations when Gov. Laura Kelly named her secretary of labor on Jan. 29. She took over immediately, but will eventually face Senate confirmation.

She must now hold the agency together until the pandemic ends before overseeing a desperately needed modernization effort to bring the unemployment system, still reliant on 1970s-era technology, into the 21st century.

Her battle plan boils down to rebuilding morale in the overwhelmed agency, using her technology background to solve KDOL's IT problems and working to limit fraud and pay benefits in the short term . She compared its outdated IT systems to a traffic conundrum.

"We are a freeway at the top of an existing freeway that has multiple on ramps and off ramps, each lane is going a separate speed and there are stop and yield signs and all kinds of rainbow colors of traffic signals," Shultz said. "It is probably the most complex ecosystem of information and systems that I've seen throughout my 25 years."

Shultz described herself as an "in the weeds person" when it comes to technology. She lacks a background in labor, but said that would allow her to bring a new perspective to the problem.

"I might not be able to program anymore but I definitely can talk that language," Shultz said. "It's kind of that objective look into things and asking questions that maybe no one else has considered."

Confused by 1099-Gs

The scope of demand on the Kansas Department of Labor is difficult to overestimate.

Since March 2020, more than $2.6 billion in unemployment claims has been paid. Typically, it would take the agency eight years to pay that amount. More than 3.9 million weekly claims have been paid since mid-March.

KDOL has buckled and sometimes broken in the process.

In the first months of the pandemic, the agency struggled with a massive claims backlog. Kelly's first secretary of labor, Delia Garcia, abruptly resigned in June after the agency clawed back duplicate benefit payments, causing some recipients to have their bank accounts overdrafted. This fall, the number of fraudulent unemployment claims soared.

The agency's most recent crisis, however, centers on the 1099-G tax forms sent to Kansans whose personal information was stolen to file bogus unemployment claims.

Kevin Back, a Tonganoxie resident, said his wife, Zoe, had been the victim of a fraudulent claim and recently received the form for some $3,900 of taxes. "Oh shit," Back recalled thinking when he read it.

"I opened it thinking it was for me because being an equipment operator, it happens to me and I go on unemployment occasionally," Back said.

Some have been receiving the forms in the mail in recent days and the agency has been rushing to assure them they don't owe taxes on the fraudulent benefits and urging victims to call the agency.

Lawmakers said last week they have been slammed with messages from constituents seeking help with 1099-G forms and other issues. "I haven't met a single Kansan that has gotten through that call center," said Rep. Sean Tarwater, a Stilwell Republican who chairs the House Commerce Committee.

Carlson, the Lawrence resident, said he's called dozens of times over the past few days without luck. He added that he's had trouble even getting on hold. "They just kick you out," he said.

KDOL officials say call volumes are spiking for several reasons: questions about the additional federal aid contained in the latest COVID relief bill passed late last year, problems with 1099-G forms and the normal winter uptick in unemployment claims from seasonal workers.

"There's a perfect confluence of events right now that are driving an elevated call volume beyond what we normally see," Deputy Secretary Brett Flachsbarth told lawmakers last week.

Federal help sought

But the breadth of the problems facing KDOL isn't entirely known because the agency hasn't always been able to quantify them.

During her interview, Shultz and Ryan Wright, a special adviser to KDOL who was acting secretary for several months last year, couldn't immediately provide the volume of fraudulent claims, their financial impact or how many 1099-G forms had been sent to fraud victims. The agency later said 294,000 forms had been sent in total, to both fraud victims and those who legitimately owed taxes.

As evidence of the problem's breadth, Wright cited the more than one million automated attempts to log in to the system that have been stopped since the state installed a new anti-fraud security system last week.

But he said the long-term fix must come from the federal level.

"We need the new administration to lean into this space and we have no doubt that it will," Wright said. "This has been allowed to go on for too long and it's been left to the states to try and navigate tricky waters."

Fraudsters have primarily targeted the Pandemic Unemployment Assistance program, which provides aid to gig workers and independent contractors who are new to the unemployment system and have fewer established protections against improper claims.

Because of that fraud, Wright said, the state sent out its largest number of 1099-G forms to claimants. The agency, Wright said, stopped the "overwhelming majority" of the forms before they went out but set up a call center as a stop gap.

"We knew that despite all of our best efforts that there were going to be some 1099's that went to victims," Wright said.

Kansans, however, complain of long wait times and inaccessible customer service representatives. Although the department now has 450 people taking calls, Shultz said that doesn't scratch the surface of what is needed.

"In order to answer that call volume, which is upward of 150,000 calls a day, you would need about 1,500 agents answering those phones," Shultz said. An agency spokesman said Monday that the agency actually received more than 250,000 calls a day.

While Shultz said she hoped the security system would reduce calls, Wright added that after the current crisis is passed he doesn't anticipate the department needing to maintain its current level of staffing.

Lawmakers want changes

As Shultz awaits confirmation, lawmakers are pushing bills to fix the unemployment system's woes.

The House is considering legislation that would alter eligibility requirements, create a committee to oversee KDOL and demand the agency finish technology upgrades by the end of 2022.

Shultz said she is still working to understand the resources needed to modernize the unemployment system and wants to quickly begin improvements. But Wright cautions full upgrades could take up to three years.

In response to complaints from the business community, the Legislature is also seeking to determine how widespread fraudulent claims have become and ensure businesses won't be responsible for refilling the depleted coffers of the unemployment insurance funds.

"That money's gone and we need that insurance system as we move forward and our economy recovers to have that safety net," said Natalie Bright of the national council for Human Resource Management in a hearing Thursday.

As lawmakers held several rounds of hearings last week on unemployment, they often bemoaned the fact that Department of Labor officials were not present to testify or did not have immediate answers to their questions.

"No matter who the secretary is. I would request a much higher level of transparency. We can't get an answer to any question we ask, they tell us to get back to us and they never do," Tarwater said.

Rep. Stephanie Clayton, the ranking Democrat on the House Commerce Committee, agreed that legislative solutions were needed but worried that lawmakers was moving too fast without considering consequences.

Shultz, she said, had her work cut out for her following historic under funding of state agencies.

"I hope that she will bring stability because that's what we all crave after the year we've had," Clayton said.

Stabilizing KDOL includes boosting morale among employees who are working in a pressure-cooker environment. In a sign of the public animosity directed at the agency, officials have indefinitely suspended on-camera interviews because of threats.

After repeated changes in agency leadership, Rep. John Barker, an Abilene Republican, said he hopes Shultz has the stamina to see it through.

"I don't envy her," Barker said. "I'm sure she's qualified but I think she's getting into a real mess, it may take her a while."

KDOL officials are choosing to see the crisis as a possible double-edged sword that turns the attention of lawmakers to the troubled agency and gets it the resources it needs to join the modern age.

"Gov. Kelly, she brought me in to find and implement solutions," Shultz said. "We have got to work together."

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