Failures of the State

The COVID-19 crisis and related economic shutdown has highlighted a number of failures of the state Employment Security Department.

These failures in unemployment systems and department procedures resulted in managers being unable to meet basic levels of service and failing to pay benefits in a timely fashion when the number of claims increased.

ESD systems were overwhelmed, allowing Nigerian scammers and other individuals to steal at least $350 million in benefits from state taxpayers. Meanwhile, legitimate claimants were unable to contact staff or experienced long delays when making unemployment claims.

Ultimately, the process and criteria for claims approval was arbitrarily relaxed to meet backlog reduction goals because of the COVID-19 fraudulent claims.

Reports on the fund balance and outstanding benefit claims were unclear and often weeks out of date. This is despite of a $44 million systems upgrade completed early in 2020 that was supposed to correct system reporting deficiencies and add additional fraud protections.

As a result of these events and the rapid fund depletion, state officials say they plan to raise unemployment tax rates on employers by as much as 700% in 2021. This increase will apply even to employers that historically have had a good employee retention rate and were required by the state to lay off employees.

All this adds up to major change needed.

The agency should adopt new streamlined, properly authenticated systems to enable claims to be made efficiently, automatically, and securely.

Puget Sound is home to two of the largest cloud-hosting companies, Microsoft, and Amazon, that are world leaders in cyber-security. State officials should tap this nearby expertise to build a world class, secure and authenticated, employment benefit system.

For general system improvements, pre-registration of employees and identity verification should be completed when employees are hired rather than when they are laid off. Employers need to be able to more quickly report employees who are leaving.

State officials should reform the unemployment trust fund to minimize the volatility and fraud which has been clearly exposed in the last few months. Lawmakers should legalize individual unemployment accounts to help resolve this issue.

Under the current monopoly system, state workers receive no refund or benefit when they retire. And workers who have remained fully employed receive no benefits at all.

Individual accounts would return fairness and equity to the system. Personal accounts promote individual responsibility, provide workers with an added financial asset, encourage saving for retirement, and would relieve the state of most of the administrative cost, complication, and fraud of the current system.

The Employment Security Department has failed badly in the handling of its core responsibility of managing unemployment benefits during the governor’s shutdown.

Yes, these are exceptional circumstances. But given that state agencies have supposedly long prepared for disasters such as a large earthquake event, which could result in mass unemployment, the agency’s response has been a failure.

The Employment Security Department needs to be better prepared and make significant reforms now to avoid the same situation again in the future and better serve our state’s workers.

— Mark Harmsworth is the Washington Policy Center’s Center for Small Buisness director. Email him at mharmsworth@washingtonpolicy.org.