California Unemployment Insurance Fund

Floor Speech

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Mr. KILEY. Madam Speaker, currently, California businesses are facing a significant tax increase, thanks in part to a high-ranking State official who allowed the tax dollars they had already paid to be stolen. It is an incompetence tax, a price private citizens are being forced to pay for their government's failures.

I would like to take a moment to explain how this happened, but I will lead with the punch line: The State official who squandered these funds, allowing a fraud of historic proportions, is somehow now up for a major promotion.

President Biden has nominated Julie Su, former head of the California Labor and Workforce Development Agency, to be the next U.S. Secretary of Labor.

The predicament that small businesses in California now find themselves in--facing double taxation to compensate for the government's singular negligence--is another example of why this nomination is so ill-considered. It is a warning as to what all Americans have in store if Julie Su is confirmed.

Stepping back, the California Unemployment Insurance Fund is the source for paying out unemployment insurance claims honored by California's unemployment office, known as the EDD.

The fund is ordinarily maintained through a tax levied on California businesses. New employers are assigned a 3.4 percent UI rate for 2 to 3 years. After that, a business' contribution tax varies. It is somewhere between 1.5 and 6.2 percent for the current year.

In times of economic duress, when the fund is paying out significantly more than is coming in, the Federal Government has the option of loaning money to States, including California, to cover the payment deficit.

California had to take out such a loan during the COVID business shutdowns and took on by far the most debt of any State. The current debt amounts to $18.8 billion. This was because of the huge volume of claims, yes, but also because of a staggering amount of fraud.

A coalition letter from dozens of Chambers of Commerce in California notes:

The Employment Development Department proved ill-equipped for the rapid increase in claimants. After numerous oversight hearings and analyses of EDD's failings, it is clear that EDD's failings added further to the UI fund's insolvency in two ways: by failing to prevent fraud and, instead, distributing funds to fraudulent claimants; and by mistakenly distributing overpayments to legitimate claimants. Although EDD and local law enforcement have attempted to recover some of these mistaken distributions, recovery rates appear to be less than 10 percent of the mistaken distributions. In other words, these mistakes at EDD added to the UI fund deficit.

The total scale of EDD fraud in California is estimated at $32.6 billion. This unprecedented loss was almost entirely preventable if Julie Su had taken basic fraud prevention measures.

A January 2021 report from the California State auditor notes that the EDD fraud occurred for three main reasons:

First, EDD waited about 4 months to automate a key antifraud measure.

Second, EDD allowed claimants to collect benefits even though they were using suspicious addresses. In one case, over 1,700 claims came from a single address.

Third, EDD removed a key safeguard against improper payments without fully understanding the significance of the safeguard.

Further, the State auditor reports that: ``Despite repeated warnings, EDD did not bolster its fraud detection efforts until months into the pandemic.''

``And it does not reliably track suspicious claims and resolution to determine the effectiveness of its fraud prevention tools.''

By the way, if you are wondering where all this money, $32.6 billion went, the CEO of LexisNexis Risk Solutions has this to say: ``Seventy percent of that money left California. It left this country. It went to transnational criminal groups that have used that money for nefarious purposes to harm our democracy. Some of that money has been used in sex trafficking, child extortion.''

At this point, California is one of only four States in the country that hasn't repaid its debt to the Federal Government. Now, taxpaying businesses are on the hook. In the case of fund insolvency for 2 consecutive years--as is the case with California--Federal law mandates an automatic increase in payroll taxes that amounts to $21 per employee. The tax continues to ratchet up by $21 per employee each year the fund remains insolvent, with a maximum tax increase of $434 per employee per year.

Now, one might ask, why did California not repay its debt to the Federal Government last year when it had a $97.5 billion surplus?

There is no good answer to that question.

I have actually joined with Representative Obernolte to call on California's Governor and legislature to repay the loan so the burden doesn't fall on employers, and I am calling on the United States Senate to consider this a case study in what we don't want for our country.

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