State budget exploits the Unemployment Insurance crisis

Remember when we blogged about the tens of thousands of workers wrongly accused of Unemployment Insurance fraud, with 93% of computer-generated fraud determinations in the initial investigation found to be in error? And how those workers were socked with huge repayment charges and penalties for those instances of fraud they did not actually commit? And how families subsequently had wages garnished, lives disrupted and dreams deferred as a result?

Well, the well-worn self-help adage about turning crisis into opportunity seems to be at play—although in this case it is twisted to mean turning working families’ ongoing crises into an opportunity to free up state dollars in the budget. The House Appropriations Committee decided that the huge increase in penalties paid from the pockets of workers who did no wrong provided an opportunity to supplant some General Fund dollars with that money, and the full House adopted the committee’s proposal. This is not the first time in recent months that this has been done; the Legislature and governor also used $10 million of that money last January to make up for a budget shortfall, and the state is currently being sued to return the money.

When a worker who has received Unemployment Insurance (UI) is determined to have received it fraudulently, they pay back the benefits they wrongly received plus penalties and interest. The repaid benefits are put back into the UI Trust Fund from which they came, and the penalties and interest are put into the UI Contingent Fund’s Penalty and Interest Account (PIA). Money from this account is not used for benefits, but for administration of the UI program, and may also be used for job training programs. The PIA balance swelled from $3.1 million in 2011 to $154.7 million in 2016, largely due to money collected wrongly from workers in response to false fraud determinations.

The current year budget pays for a training program, Going Pro, with $25.6 million from the PIA and $5.3 million from the General Fund. The governor’s proposed 2018 budget continues to fund Going Pro with $25.6 million in PIA dollars, and increases General Fund funding for the program to $15.3 million, to put total funding for the program at $40.9 million. In other words, the governor’s budget continues to draw from the PIA but does not pull any “new” money out of the account to fund the increase for the program.

The House budget proposal, on the other hand, increases funding for Going Pro to the same level as the governor’s proposal but funds it entirely with PIA dollars: $25.6 million equivalent to current funding and $15.9 million in “new” PIA dollars. The House budget also takes another $9.8 million from the PIA to fund another existing training program, Community Ventures, so the House’s total raid on the money taken from penalties and interest on workers is $51.7 million (House budget summary, pages 45-46). The Senate budget also takes “new” dollars out of the PIA to fund training, but at the significantly lower level of $5 million for Going Pro (Senate budget summary, page 15).

The appropriations bills will now go to conference committee, and the conferees (who have not yet been named) will have a choice regarding job training programs and the Unemployment Insurance Penalty and Interest Account:

• Go with the House proposal to take out $51.7 million;
• Go with the Senate proposal to take out $30.6 million;
• Go with the governor’s proposal to take out $25.6 million; or
• Take out a different amount, or none at all.

In normal circumstances, when penalties and interest are taken only from UI claimants that actually committed fraud, it could be argued that using dollars from the account for training programs when the balance is high is defensible—although the ability to do so creates a perverse incentive to collect as much in penalties as possible and that in itself is problematic. In this case, however, it is morally wrong to use money unjustly taken from working families even as those families are still struggling from the fallout of the state’s mistakes. This crisis should not be used as an opportunity to free up dollars in the state budget.

Regarding UI and the high PIA balance, Michigan needs to focus on one thing: making restitution to the tens of thousands of workers and families who were wrongly accused of fraud. We urge the conference committee to refrain from using surplus PIA dollars for any purpose other than restitution for the workers from whom the dollars were wrongly taken in the first place.

One additional point: in addition to the 93% of erroneous determinations in the first investigation, which looked at only computer-generated fraud determinations, an investigation into a more recent batch of fraud determinations that involved some human oversight showed that 44% were wrongly determined to be fraudulent. Because even with human involvement nearly half of claimants determined to be fraudulent were wrongly accused, this problem cannot be blamed solely on computers; it is a far-reaching structural problem in which claimants appear to be “guilty until proven innocent.”