Get With the Program

Unemployment fraud costs Pa. taxpayers millions of dollars a year. But that's not the real problem.

by Holly Otterbein

[ desperate times ]

In the past three-and-a-half years, Pennsylvania's unemployment compensation fund has lost a total of $75.6 million to fraudulent claims. Mostly, these bogus claims come from people who've found work after being laid off, but continue to collect benefits, say authorities. But they also consist of Attorney General Tom Corbett's favorite — though much more rare — variety of fraud, in which a Pennsylvanian turns down a suitable job in favor of reaping unemployment benefits.

According to documents from the Pennsylvania Department of Labor & Industry (DLI) obtained by City Paper, money paid out to these fraudulent claims is rising: In 2007, just over $17 million was lost to unemployment fraud; in 2008, when the Great Recession gulped the nation whole, that number rose to almost $21.2 million; in 2009, it rose again, to just under $21.8 million. In the first half of 2010, bogus claims have cost the state $15.6 million. (In the first six months of 2009, fraudulent claims cost $9.7 million.) By requesting via mail that the claimant pay back the fraudulent benefits — and, if necessary, placing liens on property or pressing charges — DLI recoups about half of this money.

It's not that DLI isn't doing its job. Indeed, the price tag of the fraudulent claims amounts to less than 1 percent of the total cost of unemployment benefits. The problem isn't that Pennsylvanians are suddenly lazy; rather, it's a symptom of the recession.

Jef Henninger, a New Jersey-based attorney who represents defendants charged with unemployment fraud across the country, says he usually sees one of two cases: "The first is where the people know they're committing a crime, but they're in a desperate situation because of the economy, or they're used to a certain lifestyle and now it's hard to adjust to the new normal, so they keep collecting benefits after they get a job. The other is people who are downright confused by the whole process. The unemployment system is overburdened now and the same level of customer service isn't there, so they end up accidentally doing this." (DLI says mistakes aren't included in the aforementioned numbers.)

"The number of claims overall has increased during the recession, so of course a subset of those claims" — fraudulent ones — "is also increasing," says David Smith, a DLI spokesman. In 2009, for instance, the state paid out nearly $5 billion in unemployment claims; the portion of that lost to fraud is basically a rounding error. Still, considering that the unemployment funds in Pennsylvania and 30 other states are bankrupt, according to ProPublica, and that this state has had to borrow $3 billion from the federal government to keep its program solvent, the increasing fraud couldn't come at a worse time.

But fraud's not the real problem: These operations simply weren't prepared for a recession. Moreover, the state has not raised the amount that employers pay into the unemployment fund since the 1980s, though benefits have increased by 138 percent in that time. Fortunately, the state has quit procrastinating on the latter issue: This year Pennsylvania increased the average annual unemployment insurance tax on employers from $384 to $432 per worker. The state is also cutting unemployment benefits by 2.3 percent.

Meanwhile, the state legislature has declined to act on House Bill 2400, which would widen unemployment eligibility — thus allowing 30,000 more Pennsylvanians to collect benefits — in return for $273 million in federal stimulus dollars.

According to DLI Secretary Sandi Vito, the federal funds "will pay for the added costs to the [unemployment] fund for the next four years," as she testified before the state House June 17. "I would prefer to be here testifying about an overall strategy to restore the trust fund to solvency ... [but] business association leaders have indicated that they prefer to wait for the next administration to continue those negotiations. So be it."

The next administration, of course, could belong to Corbett, the right-wing Republican who made headlines in July for his pronouncement that many of the 600,000 Pennsylvanians without jobs would prefer to collect unemployment checks in lieu of securing steady work.

HB 2400 has languished in the Labor Relations Committee since April. If it doesn't pass by August 2011, Pennsylvania's allotted stimulus dollars will go elsewhere.

(holly.otterbein@citypaper.net)