California's COVID-19 unemployment reckoning goes national

A former federal technology official enlisted by Gov. Gavin Newsom to triage California's pandemic unemployment response details in a new book how technical and political failures combined to block payments to workers while enabling fraud.

Jennifer Pahlka, founder of Code for America and a former U.S. deputy chief technology officer, writes that the turmoil at California's Employment Development Department is a prime example of failures that have also plagued other major civic tech efforts, such as the post-Obamacare implosion of healthcare.gov or archaic IT systems at the U.S. Department of Veteran Affairs.

"Of all the tech disasters I've witnessed and tried to help untangle, the one I've come to see as most emblematic of these forces — and the ways we consistently misunderstand them — is the story of California's unemployment insurance in the first year of the pandemic," Pahlka writes in the book "Recoding America: Why Government is Failing In the Digital Age and How We Can Do Better."

Three chapters of the book chronicle Pahlka's time co-leading a "Strike Team" deployed by Newsom in mid-2020, as long benefit delays and outlandish stories of fraud began to dominate headlines. In the months to follow, state officials would find that payments were delayed to some 5 million workers and may have been improperly denied for another 1 million, all while the state lost as much as $32 billion to fraud, according to varied state and industry estimates.

Among the problems and potential solutions detailed in the new book: Why it was easier for scammers to file successful unemployment applications than it was for some workers, how a $100 million-plus tech modernization project by state contractor Deloitte buckled during the pandemic, and why the furor about outdated online systems has more to do with flawed state and federal policy than old software.

"Modernizing technology without rationalizing and simplifying the policy and process it must support seldom works," Pahlka wrote. "Mostly, it results in much the same mess you had before, only now in the cloud."

An EDD spokesperson declined to comment.

The new details come amid a national reckoning over pandemic unemployment failures, including millions in federal funding recently made available for new tech modernization efforts. More than 150,000 workers in the state are still facing long appeals backlogs as they fight for delayed or denied unemployment benefits.

Meanwhile, congressional factions have also dragged jobless benefits back into bitter political fights. Last week, questions about responsibility for EDD woes resurfaced during a contentious U.S. House committee hearing led by Republican lawmakers opposed to President Biden's nomination of ex-California labor chief Julie Su to be the U.S. Labor Secretary.

Nearly three hours into the hearing convened by the House Committee on Education and the Workforce, Rep. Kevin Kiley, a Rocklin Republican, brought out a poster board printed with state auditor findings about how the "EDD did not bolster its fraud detection efforts." The hearing followed months of business-versus-labor campaigning on the nomination of Su, whose role as secretary of the California Labor and Workforce Development Agency placed her at the helm of the state agency that oversaw the EDD during the pandemic.

"Do you accept any responsibility for the $32 billion in unemployment fraud that occurred on your watch in California?" Kiley asked at the hearing last week.

Su responded: "I certainly know that I and many of my colleagues, and others that sat in the same position that I did when the pandemic hit, wish that we had a system that was capable of meeting the need."

What exactly derailed the EDD's computer system — or "grab bag of somewhat connected, somewhat separate systems," as Pahlka wrote in the new book— is far more complicated than popular notions that "EDD staff was just incompetent at technology." Even understanding the agency's layers of antiquated technology, which she likens to an archeological dig, doesn't get to the heart of the issue.

Rather, Pahlka explains, the dysfunction stems from the policy environment at the EDD and the bodies that oversee it. The California Legislature, federal labor regulators and flawed oversight mechanisms have all contributed, she wrote, to ever-growing and often-incompatible regulations, plus a political system that rewards compliance over public access.

"The bureaucratic confusion," Pahlka wrote, "ultimately lands on the people."

Early in the pandemic, this dynamic played out in tandem with an unprecedented wave of online fraud targeting nationwide unemployment systems. California was a particularly big target, fraud analysts say, because of the state's large size and online systems that proved easy to game.

Much of the fraud can be traced back to organized criminal rings that used stolen identity data to file fake unemployment claims in bulk — an approach, Pahlka wrote, that made it easier for scammers to auto-file successful applications with precise stolen data than for some real workers who made minor mistakes, like typos or listing a middle initial instead of a full middle name.

"I am much more likely to get my own Social Security number wrong than a sophisticated criminal enterprise is," Pahlka explains, "especially if I'm fingering it into a wonky, hard-to-see web form on a tiny keyboard on my mobile phone."

The EDD has hired a special prosecutor to investigate fraud, which the agency says has so far recovered about $1.8 billion. In January, EDD leadership also responded to a request for records and more information about fraud from another Republican-led congressional oversight committee by blaming former President Donald Trump for failing to act on nationwide fraud.

"We strongly support a robust and coordinated national response to the sophisticated criminal enterprises that have threatened the integrity of unemployment programs nationwide," the agency wrote in a letter. "Unfortunately, the Trump Administration expressed no interest in establishing such coordinated national response when these programs were initiated in 2020, leaving states to fend for themselves."

Some of the problems cited by Pahlka and state watchdogs have since been addressed, at least in part. The federal Pandemic Unemployment Program that was the biggest target for fraud has since ended. The EDD also went on a tech buying spree during the pandemic for services including call center support from longtime contractor Deloitte and an online identity verification system recommended by Pahlka's Strike Team (which, in turn, spurred different complaints about long waits for some workers). The agency is now working on another nascent tech modernization project called EDDNext.

Still, Pahlka warns, the biggest underlying issues remain harder to address.

"What we need has less to do with updating rigid 1950s code than with updating rigid 1950s thinking," Pahlka wrote. "We need a fundamentally different way of delivering on the promise of policy."

This article was originally published by CalMatters.

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