From Disrepair to Transformation: How to Revive Unemployment Insurance Information Technology and Infrastructure

Hearing before U.S. House of Representatives, Committee on the Budget, on how COVID-19 has exposed the need for federal investments in technology

TESTIMONY OF REBECCA DIXON, EXECUTIVE DIRECTOR, NELP

Thank you, Chair Yarmouth, Ranking Member Womack, and Members of the Committee, for the opportunity to testify today. I am Rebecca Dixon, Executive Director of the National Employment Law Project. The challenges facing workers seeking to access their unemployment insurance (UI) payments is an issue that NELP has been working to correct structurally for many years, and we continue to do so with a view toward long-term impact and with great urgency in light of the COVID-19 pandemic and long-predicted economic crisis. I appreciate the Committee’s attention to making a commitment to meaningful changes that will help ensure robust access for the millions of workers and jobseekers in need of a critical lifeline—especially underpaid Black, Indigenous, and Latinx people, and workers of color.

The Initial Federal Response to the Pandemic

While I am here today to take a critical look at the infrastructure challenges facing the UI system, it is important to first recognize the major impact of the measures promptly put in place by Congress to help protect unemployed and self-employed workers and their families, which include the $1 billion in state UI administrative funding provided by the Families First Coronavirus Response Act and the critical relief provided by the CARES Act, most notably the $600 boost in weekly unemployment payments and the creation of the Pandemic Unemployment Assistance (PUA) program for self-employed workers and others who do not qualify for regular state UI.

The state UI agencies have processed unemployment insurance for over 30 million workers as a result the federal administrative funding and the CARES Act programs, which has sustained many families hardest hit by the worst economic downturn since the Great Depression and provided the necessary consumption power to help prevent an even more severe economic collapse.

As the Economic Policy Institute recently reported, the $600 in weekly payments (called Pandemic Unemployment Compensation, or PUC) have increased incomes by $842 billion, which represents 14.6 percent of total wages and salary income (or seven times more than the prior record back in 2010).[1] As a result, the PUC program also has the potential to save millions of jobs across the states (ranging from over 800,000 jobs in California to almost 5,000 in Wyoming).[2] Thus, it is critically important that the Senate follow the lead of the House of Representatives and extend the $600 in PUC before it expires at the end of this month and continue the other CARES Act programs until the economy recovers.

Unemployment Insurance Infrastructure in Need of Transformation

Since the start of the pandemic, crashing computer systems and slow claims processing have taken center stage as the struggling unemployment insurance (UI) information technology (IT) systems have proven the nation has not invested the resources needed to pay historically high levels of new claims in a timely manner. The personal computer and the smartphone were invented in the United States; now the government must channel ingenuity for the public good to ensure UI systems are not overwhelmed by the basic task of accepting claims. How did this happen, and what can we do about it?

Seven years ago, I wrote a NELP report called Federal Neglect Leaves State Unemployment Systems in Disrepair. Unfortunately, much of what I wrote remains true today. For example, I pointed out, “The neglected state of the UI system, which has been prominently featured in local press accounts across the country, harshly affects millions of unemployed workers and their families when hard times hit. Yet, the problem persists but has gained little attention from policymakers at the national level, where Congress and the executive branch determine the fate of the program.” It is distressing that I could accurately write that same statement today about the system.

To make matters worse, as Dr. William Spriggs pointed out in his recent testimony to the House Oversight and Reform Committee’s Select Subcommittee on the Coronavirus Crisis, the states slowest to set up the IT infrastructure to pay Pandemic Unemployment Assistance were more often states with higher populations of Black workers. He also analyzed access data from the height of the spike in new claims and found that Black workers were far more likely to be unable to apply. Application rates across races were similar, but Black males were half as likely to receive unemployment compensation as white men, and Black women were about a third as likely to actually receive compensation compared to white women. This is unacceptable in a pandemic that is disproportionately costing Black, Latinx, Indigenous, and other workers of color’s lives.

To be sure, the surge in unemployment this spring poses an unprecedented and monumental challenge. In the past few weeks, more than 22 million people filed initial claims for unemployment insurance, which has broken all records. Most states are handling a workload 20 times the normal size as well as they can under the circumstances, but this is likely just the beginning of an ongoing crush. States are still processing upwards of two million new claims a week, which is more than twice the highest week in history, which was 695,000 in 1982. Workers are understandably frustrated, and many are suffering. At the same time, in 2020, federal administrative funding for UI was $2.14 billion. Back in 2001, that funding was $2.21 billion. Given increases in the cost of living and the growth in the working population, that marks a dramatic reduction over time. Using a simple inflation calculator on the Bureau of Labor Statistics website, the 2001 funding level is roughly $3.2 billion in today’s dollars.

These challenges have exposed an unemployment insurance system in a state of disrepair— a system that forces laid-off workers already struggling to find work to navigate extensive backlogs, jammed phone lines, and often unreliable online claims systems. These breakdowns threaten to undermine the most basic tenets of the program—accessible, efficient claim-filing and timely eligibility determinations and payments.

UI was established in 1935 on the heels of the Great Depression to help those involuntarily out of work during an economic downturn and to be responsive to mass economic catastrophe in the future. The program was built with white men in mind and excluded a great deal of Black people who were domestic and agricultural workers (as is true of most New Deal programs). The exclusions were geographically targeted to workers in the South and West: Nearly half of all Black men, Mexican American men, and Native American men and women were excluded, plus significant numbers of Asian American workers as well. Significantly, the greatest harm was felt by Black women—9 out of 10 were excluded.

Although many excluded occupations were added to the program later, the program still does not provide equal access to all workers. However, during the pandemic, this program has been especially important for workers of color. According to the Congressional Budget Office, 47 percent of workers receiving UI in July are workers of color. This includes 16 percent of Black workers, 14 percent of Latinx workers, 10 percent of white workers, and 14 percent of other workers.[3] Given the staggering racial wealth gap, delays in payments have a devastating effect on Black families.[4] But it does not have to be that way. With some conscious efforts to build a system that looks at the challenges that the most underserved face, we can build a system that works for everyone, now and into the future.

In late 2018, NELP, The Century Foundation, and Philadelphia Legal Assistance launched a project with funding provided by the Robert Wood Johnson Foundation (RWJF) to study and report on states that have undertaken modernization of their UI IT systems. The project, which will release its final report shortly, seeks to identify the factors that contribute to positive outcomes for unemployed workers and establish sound practices to inform future UI IT projects. Drawing on the lessons learned from this initiative, I recommend some relatively simple steps that states can take to ensure better processing of claims as well as the role that Congress and the federal government can play to ensure that all states develop sustainable and equitable systems. If there ever was a time to do something about the cracks in our unemployment insurance systems, especially in the context of IT systems, that time is now.

The Federal Role Regulating State UI Administration

Revenues generated from the Federal Unemployment Tax Act (FUTA) primarily fund the administration of the state UI programs, including eligibility determinations, tax collections from employers, and the appeals process. Administrative grants are based on the amount of UI claims paid by the state, and so they drop when unemployment drops. As I mentioned earlier, overall funding has eroded dramatically over the past decades, and there is no dedicated funding stream for IT systems. It tends to be the case that Congress appropriates additional funding during economic downturns to supplement this low overall level. Paying attention to the system only during crises is not a way to build in the kinds of sustained reliable systems necessary to kick in during an economic downturn.

During the last recession, funding was provided to states to improve UI administration. Thirty-nine states received a total of $4.5 billion to enact a range of modernization improvements, including upgrades to IT systems.[5] The Department of Labor (DOL) provided funding for IT modernization, but only if states participated in consortia, where multiple states submit a joint plan to modernize their systems. ^[6] Some of these consortia provided bargaining advantages to states with vendors, but several never realized their potential as they disbanded due to changing political leadership in states or differing visions about how best to manage their systems.

In March 2015, the DOL in alliance with the Information Technology Support Center (ITSC) at the National Association of State Workforce Agencies (NASWA) developed a checklist to help states modernize their IT systems.[7] Later that year, it issued critical new guidance clarifying claimant rights to unemployment insurance when due, and states’ responsibility to provide compensation to individuals with limited English proficiency and people with disabilities.[8] Upon recognizing continuing challenges that states faced rolling out new systems, the Employment and Training Administration (ETA) issued additional guidance in 2018 that included a pre-implementation checklist to provide additional help to prevent the widespread service disruptions and delays in processing that many states experienced.[9] Most recently, the ETA issued a further refinement of the pre-implementation checklist on May 31, 2019.[10]

A Government Accountability Office report from 2016 identified that despite extensive work by ITSC and ETA to provide guidance to states in modernizing, states indicated that they could benefit further from additional sharing of best practices across states.[11] In NELP’s work with several states to assess best practices in IT modernization, that sentiment carries forward to the present. Despite the work already done to share this information, negotiating with vendors on the myriad of implementation issues that could arise is a significant and daunting undertaking.

The Current Modernization Situation in the States

Many states are struggling because they rely on antiquated mainframe systems that use COBOL, a computer language invented in 1959, when some “boomers” were still babies. Only 16 states have fully modernized their unemployment insurance systems. Many of those that did modernize, made mistakes along the way that compromised the quality of their service. In addition, as recent examples have shown, when states do move to modernize and upgrade outdated computer systems for their UI programs, or make changes to their phone systems, they often experience significant disruptions of service, systems breakdowns, and further claims backlogs and delays.

While the news has been focused on state IT systems that have not modernized, it is also important to recognize that modernization is not a panacea. After all, one of the states to perform the most poorly in processing claims has a “modernized” system that was built on a foundation of public policy designed to limit access to unemployment insurance. Florida’s long lines for paper unemployment applications made national news when a system designed to fail workers ended up failing workers during the pandemic.[12] The number of workers disqualified because Florida’s Department of Economic Opportunity (DEO) found they were not “able and available for work” or not “actively seeking work” more than doubled in the year following the launch of CONNECT, the state’s updated system, even though weekly claims declined by 20 percent in that same year.[13]

The U.S. Department of Labor’s Civil Rights Center found the system to be uniquely discriminatory following a NELP complaint about the system, filed with Florida advocates. It was particularly inaccessible to claimants with limited English proficiency. Two failed audits later, with few of the issues in either audit addressed, the system failed so badly in this crisis that early on, they resorted to handing out paper applications to the throngs of Floridians unable to file online or reach anyone by phone. Treasury reports as late as mid-April showed increases in the state trust fund dollars because so few payments had been released.[14]

Michigan’s IT system was also uniquely designed to fail after being implemented following historic legislation intended to flag and penalize fraud at unprecedented levels. The MiDAS system flagged more than 40,000 workers for fraud, and it was 93 percent inaccurate. The penalty for fraud in Michigan is four times the amount paid, plus 12 percent interest. As a result of these false flags, innocent claimants lost everything, including homes, and in severe cases, lives. Yet, despite the horrific system design, the new administration demonstrated a commitment to improving systems in a way that ensures access for UI applicants. As a result, Michigan has shifted course and become one of the fastest states in terms of payment processing.[15]

This story of political will shifting outcomes is an important part of the discussion of IT modernization. Few people realize that Florida’s catastrophically failed system was modernized in a consortium with Massachusetts and New Mexico. When the other states in the consortium rolled out the new system and experienced user access problems, complaints, and poor performance, they went back to work with the vendor to improve their systems, and as a result, did not experience the catastrophic failure that Florida did.

During our work with the RWJF project, we visited three states that we identified as having done some positive things in their work to modernize: Washington, Maine, and Minnesota. One of the most important things that these three states had in common was a willingness to continually modernize. While all three states experienced an immediate increase in user confusion, denials, and increased calls, these states remained committed to a continued and sustained effort to keep implementing improvements. These states also engaged in robust community engagement and listened to complaints to work to address them. These three states also all expressed a wariness about automated decision-making and have maintained a high degree of human involvement in the adjudication process. As important as good technology is, we share the view that decisions about whether someone should get unemployment compensation that they are legally entitled to should be made by highly trained merit staff.

The data analysis prepared for the RWJF project identified several additional areas of concern. It showed a systematic connection between modernization and the increasing rates of denials of those who apply for unemployment insurance. In other words, modernization has presented additional challenges for those who make the effort to apply for compensation. For example, denial rates were statistically different between modernized and non-modernized states. Among modernized states, the number of unemployment insurance denials increased over a period of time that they had decreased in non-modernized states. These denials are largely driven by the online automation of state work-search mandates, which can be more difficult for workers to navigate than the phone-based systems that they replaced.

The Current Human Situation

During the course of this pandemic, it has been impossible to ignore the human suffering resulting from workers unsuccessfully attempting to access the UI system. Entire online systems crashed in several states. Workers trying to contact the agency with questions about the online application were simply unable to get through, some reporting calling dozens of times per day. Claimants were confused about how to check on the status of their claim, and anxious to find out whether they were approved, were left in limbo for weeks and months.

States had difficulty reprogramming their systems to provide the new CARES Act expanded unemployment insurance. While states were able to set up the additional $600 Pandemic Unemployment Compensation somewhat quickly, it took some states nearly a month and a half[16] to establish an online application process for the new Pandemic Unemployment Assistance.[17] Only after the new systems are established can workers eligible for these new programs begin to make their way through the system. For underpaid workers, two months can make the difference between surviving this crisis and losing everything.

For example, Rheana from California was furloughed from a small event production company, and the industry won’t be able to return for a long time. She has already had to move to a cheaper apartment and gone through nearly her entire life savings waiting for unemployment and is now worried she will lose her health insurance, home, car, and ability to eat. Yvonne in Florida was about to open a restaurant. Now she’s worried about losing everything: housing, car, health insurance. Unemployment has covered her paying the minimum on her bills and food. She has borrowed some money from family but now they are struggling too.

To make matters worse, a coordinated fraud ring is systemically attacking state UI systems at a time when they are at their greatest stress level.[18] When systems are attacked, people are victimized in three ways. First, there are people whose identities are used to gain access. Second, when a massive fraud ring is identified, states are obliged to flag all users with characteristics matching the scam artists until they can re-verify their identity with the agency. This is a time-consuming process that can result in cutting off claimants’ earned compensation for weeks. Finally, all of the claimants awaiting their original determination end up having to wait even longer while the agency must work to resolve the fraud issue.

Conclusion and Recommendations

Given the indispensable role that the federal government plays in funding and regulating the state UI programs, it is the responsibility of Congress to put in place a new regimen that leads to a short- and a long-term vision for a fully functioning and readily accessible UI program that serves all those who qualify, especially when serious economic downturns hit. Accordingly, we recommend the following federal reforms be immediately prioritized, together with a number of immediate and near-term measures that can be adopted at the state level to help improve performance now and as the economic downturn and the pandemic continue.

Federal Recommendations

We urge Congress to immediately take the following steps, which will help stabilize and ensure greater accountability and transparency over the state IT systems.

1. Fully Fund the States Linked to Strong Accountability Standards:  Most importantly, the federal government must make a sizable commitment to provide dedicated funding of IT modernization and far more adequate levels of basic state UI administration funding. With the additional funding should come strong federal oversight and enforcement, including tangible requirements that the modernization process include input from stakeholders (including workers and their advocates) from beginning to end, and comprehensive user testing that ensures participation from Black people who are faced with the most barriers, and all communities of color; those on the other side of the digital divide; people with limited English proficiency; and people with disabilities.

2. Expand DOL’s IT Expertise and Mandate to Ensure Full Access:  There is extremely limited independent capacity and IT expertise on the part of DOL to actively monitor and enforce the state UI systems. DOL should create a specialized unit devoted to the IT, phone and other state UI agency infrastructure needs. DOL’s new regime should include strong measures of state success and failure (including adequate customer service) that can be assigned a grade that should be prominently featured on the DOL website to provide transparency to the public and compare the operation of programs across the states. For example, DOL should extend the timeliness regulations to ensure that workers are able to successfully reach a claims agent by phone within a reasonable period of time. In addition, DOL’s Center for Civil Rights should also be fully resourced to more promptly investigate and respond to complaints and make the results of their investigations public. DOL should also have the authority to review IT contractor agreements, audit contractors where necessary, and require the states to produce data documenting contractor performance.

3. Federal Commission on Modernization of Federally Funded Benefit Programs:  A federal task force should be immediately created to evaluate the performance of federally funded programs, including UI, and make recommendations for reform related to funding, the creation of robust standards and metrics, contractor accountability, best practices, and the adequacy of federal agency oversight and enforcement, including compliance with civil rights laws. The task force should also explore whether certain administrative and infrastructure functions (especially in response to disasters and public health emergencies) should be federalized, and whether federal agencies should have the authority to negotiate favorable terms with IT and phone system vendors that take advantage of the federal government’s ability to leverage cost savings while also producing more compatible and high-quality state systems. Federalization in whole or part may be the simplest solution. The patchwork of state systems means that each state has to struggle with the modernization process and vendor negotiations. While some states have banded together into consortia to get a better deal, those consortia can dissolve as political leadership shifts in allied states or as states develop different modernization goals, wasting time and money. A federal process could achieve these goals on the largest possible scale.

State Recommendations

The single strongest recommendation generated by the RWJF project is for states to put their customers at the center of a modernization project, from start to finish. The biggest mistake states made was failing to involve their customers—workers and employers—at critical junctures in the modernization process. This led to systems touted as convenient and accessible, but which claimants often found challenging and unintuitive.

Customer-centered design and user experience (UX) testing are widely accepted best practices in the private sector, and should be a core part of any UI modernization effort. At the planning, design and implementation stages of the modernization project, special care must be taken to ensure customer feedback, extensive input and training of staff at all levels of responsibility, extensive testing and “sandbox” time for agency staff to become proficient in the new systems, as well as other basic measures that are core to any IT upgrade and implementation project.

Immediate State Fixes:  State systems have been overwhelmed by the basic task of accepting claims, and workers are frustrated. However, there are immediate steps states can take to improve access, even within outdated systems. Some states are already moving to implement these reforms, and others should follow their lead as quickly as possible.

While states are unlikely to be able to fully replace their UI systems in the midst of this crisis, they can and must improve their technology. Several of our recommendations could be immediately implemented.

One of the most obvious considerations is that unemployed workers need 24-7 access to online and mobile services, which not all states provide. We live in a country where you can shop online at any hour of the day. Filing for unemployment shouldn’t be restricted to 9-5 on weekdays.

Similarly, unemployment websites and applications must be mobile-responsive. More people have mobile phones than desktop or laptop computers, and public access to computers has vanished in an era of social distancing. Workers in low-paid jobs and workers of color are particularly likely to rely on their phones for Internet access. While more than 80 percent of white adults report owning a desktop or laptop, fewer than 60 percent of Black and Latinx adults do. States must also allow workers and employers to email in or upload documents from their phones. Believe it or not, some states are still asking workers to fax in documents. Whatever options and support materials state agencies provide to apply for unemployment insurance programs need to account for accessibility and language translation. And according to federal law, states need to offer a way other than online filing if there are technology hurdles that would “interfere with a claimant’s access in applying for benefits.”

As is true for other government IT systems, states should update their password reset protocols. In some states, workers must be mailed a new password; in others, staff cannot process claims because they are busy answering phone calls about password resets. Technology exists for states to implement secure password reset protocols that do not require action by the agency, which saves time for everyone.

Another key consideration is that civil rights laws require that states translate their websites and applications into Spanish and other commonly spoken languages. Right now, an unemployed worker with limited English skills may have no choice but to file an application over the phone with an interpreter. With so many seeking help, workers are stuck on hold for hours when they manage to get past a busy signal. It would be more efficient to translate the online materials and ensure equal access.

There are several small things states could do to relieve particular pain points. For example, it should also be easier for workers to go back to a previous page when they realize they have made an error. Online portals should give claimants a clear picture about what their claim status is—not just for their peace of mind, but also to relieve pressure on phone lines. States should identify common errors that users make and post tutorials or application guides to help avoid mistakes. Sites should autosave applications as of the last page completed and warn users if their session is about to end. All of these small user experience issues could be identified and addressed through robust public engagement strategies.

One thing that many states have been implementing that has helped to address long backlogs in a claimant-friendly manner is to set up callback systems and establish online chat technology to answer basic questions and help people avoid common mistakes. States can also establish triage protocols as a part of their business practices so they can better allocate resources. That way, calls coming in about password resets or claim status can be directed to staff specialized to handle simpler questions, freeing up adjudicative staff time.

Outside of concrete steps, it is important to acknowledge that any new IT system is bound to have glitches during the original “go live” phase, and states should plan for that. Additional staff and call center capacity should be funded and built into the process. Systems should understand that modernization is not a one-time endeavor, but rather an ongoing process.

In recent years, a number of states have released comprehensive audits of their state contracts to upgrade their UI IT systems, which often documented major cost overruns and other serious deficiencies. Additional states should follow their lead, and the U.S. Department of Labor should institute a new regime requiring systematic auditing of the state IT systems. The DOL regime should include basic measures of success and failure (including adequate customer service) that can be assigned a grade that should be prominently featured on the DOL website to provide transparency to the public and compare the operation of programs across the states.

Even if these measures take a number of weeks or months to implement, the investment will be well worth it. This crisis has highlighted gaping holes in accessing unemployment, but it has also created an opportunity. We can build 21^st century systems nimble enough to handle disasters and designed to meet the needs of customers who are depending on access to unemployment insurance in this traumatic time.

Never before have workers so desperately depended on access to unemployment insurance—and never before has our interdependence with workers been so important to our collective survival. Let’s use the technological capacity available in 2020 to deliver the help all workers need during this traumatic time.