[Congressional Record Volume 172, Number 7 (Friday, January 9, 2026)]
[House]
[Pages H612-H614]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
EXAMINING FRAUD IN CALIFORNIA
(Under the Speaker's announced policy of January 3, 2025, Mr. Kiley
of California was recognized for 30 minutes.)
Mr. KILEY of California. Mr. Speaker, I want to take a moment this
morning to examine the biggest fraud scandal in the history of
California and probably in the history of the United States, and that
was the fraud in unemployment benefits that occurred in California
during the COVID years, amounting to a minimum of $32 billion--$32
billion.
It is easy to kind of throw these numbers around and lose sight of
what they really mean, so just to put that in perspective, that was
one-half of the education budget in California at the time, and it is
more than the entire State budget of the vast majority of States in the
country.
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Now, the reason that this scandal bears scrutiny right now is
threefold. First, a State audit just found 2 weeks ago that this
unemployment fraud in California is ongoing to this day continuing to
cost taxpayers billions of dollars.
Second, the Senate still has not passed a bill that we passed in the
House to hold some of these fraudsters accountable by extending the
statute of limitations.
Third, the Newsom administration, perhaps sensing the political peril
following the events in Minnesota, has come out and absurdly tried to
deny responsibility for this scheme, for this scandal, and even more
absurdly tried to blame the Federal Government for it.
I want to go through exactly what happened because I believe it is
important to show why taxpayers were so thoroughly defrauded and to
assure that this does not continue to happen going forward.
The reality is that the fraud that occurred in California took place
despite the repeated warnings of the Federal Government, and it was
uncovered not by State officials but, rather, by local prosecutors.
On November 23, 2020, a group of nine county prosecutors disclosed
what they called the most serious significant fraud of taxpayer funds
in California history. Now, at the time, they said they could only
prove $1 billion. So $1 billion was already the biggest fraud of
taxpayer dollars in California history. Now we know that it was at the
very least $32 billion.
Contrary to what the Newsom administration is trying to say now, at
the time, the district attorney of Sacramento County, Anne Marie
Schubert, said: ``We have asked and implored the Governor to turn the
spigot off.'' She said the Governor's Employment Development Department
was not doing commonsense things, like cross-checking claims with
prison rolls, something that the vast majority of other States were
doing and that the Federal Government had advised.
She said this made the scheme ``relatively easy.'' She called the
Governor's response slow and nonexistent. She advised Governor Newsom
to ``look to other States for solutions.''
The district attorney of Fresno County, Lisa Smittcamp, said:
``(Newsom) did nothing until the elected district attorneys brought it
to the media.'' She added that she did not think the State has a handle
on it. Those were comments made back in November of 2020.
The following January, the State auditor came out with a report that
laid forward in very precise detail exactly how significant the
failures of the Newsom administration were, specifically with their
unemployment office, known as the EDD.
A heading in that audit said: ``Significant Weaknesses in EDD's
Approach to Fraud Prevention Have Led
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to Billions of Dollars in Improper Benefit Payments.'' Among the key
findings: Despite repeated warnings, despite repeated warnings, EDD did
not bolster its fraud detection efforts until months into the pandemic,
and it suspended a critical safeguard.
The audit goes on to list examples of where suspicious addresses were
simply ignored in the claims process. In one case, more than 1,700
claims came from a single address. From one address 1,700 claims, and
yet the checks were issued.
One of the problems, as mentioned, is there was no crossmatch system
to crossmatch the claims against the prison rolls, so you actually had
checks that were being sent to State penitentiaries, the State prisons.
Here is a timeline of the aforementioned warnings that actually came
from the Federal Government. Now, this is significant, again, because
the Newsom administration is now claiming somehow that it was
California that warned the Federal Government when, in fact, it was
exactly the opposite. Other States followed these warnings, but
California didn't.
In April of 2020, the United States Department of Labor sent
instructions for implementing the Pandemic Unemployment Assistance
program and told States to take reasonable steps to deter and detect
fraud, including audits.
The following month, in May of 2020, there was a second notice from
the U.S. Department of Labor, warning the States to maintain the
integrity of the unemployment program.
Later that month, in May, the U.S. Department of Labor requested data
from California, and the Office of the Inspector General warned
California that the State was likely to see at least a billion dollars
in fraud based on new claims for March and April.
During this time, the Newsom administration's EDD office had exactly
two staff members who were responsible for reviewing suspicious claims.
Newsom's EDD also allowed the backdating of claims until September of
that year, so if you were a fraudster, you could simply claim that you
had worked a certain number of weeks, previous weeks that had already
passed, and there was no verification needed at all.
The problem of suspicious addresses got even worse. The audit reports
there were 26,000 addresses listed as suspicious, with more than
500,000 associated claims.
The audit concludes: Our review illustrates that EDD continues to pay
claims despite having evidence that they are very likely fraudulent.
Again, this is a finding. This is a talking point. This is not from the
Governor's political adversaries or from people on social media, this
is a report from the nonpartisan California State auditor in January of
2021 saying: ``Our review illustrates that EDD continues to pay claims
despite having evidence that they are very likely fraudulent.''
The audit continues: Between March of 2020 and early January of 2021,
more than 2.2 million claimants did not satisfactorily answer requests
that they provide identity verification. In fact, there was another
problem that then emerged from this that people became victims of
identity theft, and then they ran into issues like they had to pay
taxes on wages they hadn't actually received.
As mentioned, the audit also notes that ``EDD was unprepared to
detect and handle the hundreds of millions of dollars in fraudulent
claims associated with incarcerated individuals.'' I mean, how crazy is
that? That you had claims coming in from State prisons, and those
claims let out hundreds of millions of dollars.
As the auditor says: ``As we describe throughout this report, EDD's
approach to fraud prevention and detection demonstrates the weaknesses
caused by its poor planning and program management.''
Local media reports at the time substantiated all of these claims,
including in publications like The Sacramento Bee and the Los Angeles
Times.
What is even worse is that the criminals who are purloining our State
Treasury of these taxpayer funds in many cases were using those
dollars--I mean, what do you think they are using them for? We talk
about waste, as in this money is just squandered, but it is actually
much worse than that because the criminals who get these funds, they
are not then giving them to charity. They are using them for further
criminal activities.
One example from The Sacramento Bee is about how these funds were
used to buy guns illegally. For example, a report from The Bee reported
that multiple fraudulent EDD cards were discovered along with firearms
in the hands of convicted felons, results that law enforcement
officials say leads them to one conclusion: Criminals are using funds
from the growing EDD fraud scandal to buy weapons. Mind you, this was
at a time when violent crime rates were soaring in California and far
outpaced the rest of the country.
Just to give you a couple examples, the Torrance police found that
more than two dozen people had been arrested in the fall of 2020 for
alleged unemployment benefits fraud and identity theft. The 27 suspects
used stolen identities to obtain over 130 EDD cards. When they
recovered these, the authorities also found $150,000 and four handguns,
including two without serial numbers.
The Glendale police, in early 2021, arrested a man who was in
possession of a so-called ghost gun, along with ammunition, drugs,
several fraudulent EDD cards, and other illicit items.
To summarize, you had the largest fraud of taxpayer dollars, likely
in the history of the United States. The nonpartisan State auditor in
California, along with nonpartisan prosecutors from throughout
California, clearly identified the negligence of the Newsom
administration as enabling this fraud to occur which far outpaced
anything that occurred anywhere else in the country.
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You then had the criminal syndicates and other criminals, more run-
of-the-mill criminals, who obtained these funds and used them to spawn
further criminal activity that victimized even more Californians.
Now, 5 years later, the fraud continues. The administration still
hasn't learned its lesson. The same State auditor just found that EDD
remains one of eight high-risk agencies in California, a number that
has doubled during the Newsom administration, finding that the EDD
continues to allow millions in fraud, alongside millions that are being
lost in fraud in connection with SNAP benefits, with improper Medi-Cal
determinations, not to mention community college fraud and fraud
basically everywhere you look throughout the California government.
Now you have the Governor insisting that no, none of this was his
fault. California did nothing wrong. He has even made up bogus numbers
like he somehow prevented $125 million in fraud.
The concern is this: If the Governor and his administration are
unwilling to admit any responsibility whatsoever despite the clearly
established evidence of their responsibility, how can we expect this
problem to ever be fixed?
I will tell you. I am working in a bipartisan way here in Congress to
bring accountability for the vast fraud that continues to take place in
California so that our taxpayers do not have to see their hard-earned
money going to criminals and can finally start getting a reasonable
return on their investment in our State government.
California Leads Nation in Outbound U-Haul Rentals
Mr. KILEY of California. Mr. Speaker, U-Haul has just released its
annual growth index for all 50 States, which is a measure of U-Hauls
coming in versus going out. In other words, which States are people
moving out of and which States are people moving into.
For the sixth straight year, 6 years running, California is ranked
50th. In other words, we rank first when it comes to people leaving the
State. This is truly an astonishing fact. The greatest State in the
country, the most beautiful State in the country, has become the most
popular State to leave.
This is reflected in the fact that California lost a Member of
Congress in the 2020 reapportionment and we are projected to lose four
or five in the 2030 reapportionment.
Indeed, for 170 years of California history, our State's population
grew each and every year. It was only during the administration of the
current Governor that that trend reversed itself and the State
continues to lose people.
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It is a very sad thing when you look at the boundless potential of
our State, the unmatched beauty, the incredible people and companies
and culture. We have everything. Yet for too many Californians, it has
become too difficult to get by in California or it is the crime or it
is the homelessness. It is the inability to buy a house. It is the
price of gas or electricity or water. It is the fact that our State
leads the Nation in unemployment, in homelessness, in poverty, in
illiteracy. These are all politically created problems.
The good news is there is a coalition for common sense emerging in
California, and we have started to see progress in circumventing our
State's political class and bringing real change. For example, we
passed a measure in 2024, the voters did, to restore some consequences
for criminal activity. It passed with almost 70 percent of the vote,
despite the Governor and the State legislature's leaders opposing the
measure every step of the way.
We won a decision at the Supreme Court that has restored the ability
of our communities to clear homeless encampments and ensure people get
into shelters and don't wither on our streets. As a result, we are
starting to see some modest improvements in crime and homelessness in
California, but unfortunately, we still have a long way to go in order
to make sure that next year California does not, once again, for a
seventh straight year lead the Nation in outbound U-Haul rentals.
Wealth Tax in California
Mr. KILEY of California. Mr. Speaker, there is currently a proposed
ballot measure in my State of California to impose the Nation's first-
ever wealth tax. In response to this proposal, you are already seeing
an exodus from California because, while the measure won't be presented
until November and won't take effect until next year, the language of
it ensnares anyone who was a resident of California until January 1 of
this year. It would actually try to apply itself to former residents.
Now, California already has the highest income tax of any State in
the country, the highest gas tax, the highest overall tax burden.
However, a wealth tax is something unique because a wealth tax is not
merely the taxation of earned income, it is the confiscation of assets.
They are saying it is just for billionaires. Of course, it starts
with billionaires and then they continue to lower the threshold,
ensnaring more and more people. Even for billionaires, presenting a 5
percent tax on all of your assets is problematic because, number one,
it requires actually having liquid assets amounting to 5 percent of
one's net worth, but number two, what you are already seeing happen is
entrepreneurs and job creators are simply leaving the State to avoid
this unique penalty.
Now, we already have the highest unemployment rate of any State in
the country in California, so it really doesn't help that now the State
is causing even more job creators to leave the State. But what is
especially threatening about this is that our State's tax structure is
essentially a house of cards. Even the Governor acknowledged in his
state of the State yesterday that we have a system that is incredibly
volatile, where the top 1 percent of earners account for 50 percent of
the tax revenue.
If you have this wealth tax that is suddenly going to cause the
highest earners not to want to have anything to do with California, the
State's finances will collapse. The entire house of cards will come
tumbling down.
This is not to mention the myriad constitutional problems with this
proposal, not the least of which is the idea that they are going to try
to apply it to former residents.
It also isn't to mention the problems of administrability, which is
why if you look to other countries that have tried to impose some form
of a wealth tax, they have quickly rescinded the policy because it
turned out to be a disaster.
I will be fighting against this latest, misguided, insane proposal in
every way that I can and that includes using the legislative authority
that we have here in Congress under clauses such as the Commerce Clause
to prevent a renegade proposal like this from, at the very least,
ensnaring taxpayers who have already gone to other States.
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Mr. Speaker, California has for too long gone down the road of
overtaxing its citizens, overregulating its businesses, and
overburdening its citizens. This would simply be a bridge too far.
Mr. Speaker, I yield back the balance of my time.
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