[Congressional Record Volume 169, Number 57 (Wednesday, March 29, 2023)]
[House]
[Pages H1538-H1539]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 CALIFORNIA UNEMPLOYMENT INSURANCE FUND

  The SPEAKER pro tempore. The Chair recognizes the gentleman from 
California (Mr. Kiley) for 5 minutes.
  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.

[[Page H1539]]

  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.

                              {time}  1115

  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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