Pandemic emptied unemployment trust

New Mexico probably overpaid unemployment insurance benefits by an estimated $250 million during the coronavirus pandemic amid a backlog of investigations into potentially fraudulent claims, the budget and accountability office of the Legislature announced Wednesday in a research report.

Analysts briefed members of the Legislature’s lead budget writing committee on the trajectory of record-setting unemployment claims during pandemic.

New Mexico has paid out more than $3 billion in unemployment claims through the state’s Workforce Solutions Department since the local outset of the pandemic in March 2020. That put the state unemployment trust fund into insolvency and in debt to the federal government.

The Workforce Solutions Department last year reassigned staff to help keep pace with a tide of claims as jobs and personal income dried up and drafted workers from other state agencies to answer phones from people who lost jobs and were desperate to sign up for unemployment payments.

“The surge and staffing reassignments exacerbated already rising rates of improper payments,” financial analysts at the Legislative Finance Committee found. “Staff estimate the state has made $250 million in benefit overpayments since the start of the pandemic.”

Analysts attribute $133 million of the estimated overpayments to fraud, including $16 million linked to support intended for gig workers and self-employed contractors. The remainder was linked to a variety of overpayments not involving intentional deception.

The revelations arrive amid turbulence at the Workforce Solutions Department, where Bill McCamley departed as agency secretary a month ago and a review is underway of inflated tax rates on employers for unemployment insurance.

Acting Workforce Solutions Secretary Ricky Serna said the agency was in a bind as it struggled to keep up with an unprecedented tide of legitimate unemployment claims amid brazen fraud schemes by criminals trying to get payouts. Serna said fraud schemes also tied up phone lines with robocalls and appropriated the identities of state unemployment regulators.

“You don’t have enough time to certify that everyone who applied meets the program requirements because you don’t want those people to wait five or six weeks for their money,” he said. “But then five or six weeks later, after they’ve been receiving their money, you realize that wasn’t right, or this was inaccurate or you didn’t provide this. So we need to revisit eligibility. And to be sure, in some instances, it resulted in overpayments.”

Serna, who is performing double-duty as director of the State Personnel Office, said the challenges of limiting overpayments was compounded by new federal pandemic initiatives.

The federally subsidized program that extended unemployment benefits to previously ineligible gig workers and contractors presented huge challenges in terms of verifying applicants’ past income without the help of employers. And the federal paycheck protection program provided bursts of backpay to people already receiving unemployment benefits.

Serna said two specialists are re-evaluating that agency’s workflow, including the backlog in investigations. He said unemployment officials had an emergency plan in place for a possible economic recession that was overwhelmed by the financial downturn of the pandemic.

The state’s rate of unemployment claims peaked in July 2020 with a record 197,000 applications for assistance in New Mexico, which has a population of about 2.1 million residents.

The state has borrowed $278 million so far from the federal government to meet unemployment insurance obligations.

Lawmakers are wrestling with strategies for paying off the debt and restoring trust balance without triggering a sharp tax increase on employers. More than 100,000 people statewide continue to draw unemployment benefits as the economy gradually reopens.

Gov. Michelle Lujan Grisham in April vetoed a plan to funnel $600 million in new federal pandemic relief to the state’s unemployment payments trust — citing uncertainty about spending restrictions. She allowed a separate $100 million contribution to the trust from the state’s general fund.

The U.S. Treasury is allowing states to replenish unemployment funds to pre-pandemic levels — a $460 million balance in New Mexico’s case.

Lujan Grisham, a Democrat, has not yet provided a specific unemployment trust solvency plan. Serna said the state’s unemployment debt would eventually have a compounding effect on tax rate increases for businesses.

New Mexico last week reinstated a requirement that people receiving unemployment benefits show they are actively searching for work.

The state has no plan to end a $300 weekly federal supplement going to roughly 96,000 jobless residents. A growing number of states are halting the $300 payments.

Sarah Dinces, a program evaluator on income support with the Legislature’s accountability office, said that current unemployment benefits in New Mexico may provide a strong disincentive for people to return to work. That is a consequence low median household incomes and robust wage replacement.

Republican state Rep. Jack Chatfield, a rancher and restaurant owner from Mosquero, said businesses, including his own, are struggling to find workers.

“We just can’t get anybody. We can’t get people to come to work,” he said.

Serna said Workforce Solutions is studying the issues and that some parents still can’t return to work because of a daycare shortages, combined with lingering fears of the contagion.