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Labor chief: Forgiving millions in excess unemployment benefits is no easy task

Kristina Nigro makes an eye contact with her dog Bailee. She was asked to pay back her unemployment benefits after receiving them for a year.
Kristina Nigro makes an eye contact with her dog Bailee. She was asked to pay back her unemployment benefits after receiving them for a year.

While lawmakers scramble to assist residents who have been told they must repay millions of dollars in excess unemployment benefits they collected — without fraud — during the pandemic, labor officials cautioned this week the matter is far more complex than many realize.

Two-thirds of the repayment obligations tallied to date are owed to the federal government, Department of Labor Commissioner Dante Bartolomeo told the legislature’s Appropriations Committee this week.

More importantly, the latest projection of what must be recouped — about $30 million — is based on a review of only about 40% of the applications for unemployment benefits filed between March 2020 and September 2021.

“That number will grow, simply because of the volume that we have,” Bartolomeo said.

Coronavirus produced a deluge of jobless claims

The coronavirus hit the state labor agency with an unprecedented deluge of claims in 2020 as hundreds of thousands of residents lost work due to the coronavirus.

In an average year, pre-pandemic, the department pays out state benefits to an average of 40,000 jobless claimants per week.

By June 2020, about three months after COVID-19 struck Connecticut, the weekly caseload peaked at 392,000 — nearly tenfold the normal average.

And while Connecticut has recovered about 70% of the jobs lost since then, the weekly caseload remains above average at 50,000, according to Bartolomeo.

The labor department, like some other state agencies, also has been forced to work with severely outdated technology — in this case, a claims processing system developed in the 1980s that relies on COBOL, a business programming language first created in the late 1950s.

Department leaders reassigned personnel and quadrupled staff assigned to the claims system to develop software upgrades and accelerate claims reviews.

Further complicating matters, Congress authorized several programs to enhance states’ unemployment benefits with federal dollars, and many of those continued through early September of 2021.

Employers, workers caused most overpayments accidentally

Bartolomeo told the committee that the department received about 1.5 million applications for jobless benefits between March 2020 and September of this year.

But the labor department wasn’t the only entity in new territory.

Employers and workers, who also hadn’t experienced a pandemic, had to navigate new programs. The federal CARES [Coronavirus Aid, Relief, and Economic Security] Act alone created three new major forms of federal aid in March 2020.

In some cases, employers who laid off staff only to rehire them after receiving an emergency federally backed Payroll Protection Program loan sometimes forgot to notify the state in a timely manner, Bartolomeo said.

In other cases, workers who lost and then regained jobs made unintentional errors in filing.

Less than 1% of the problem is due to miscalculations or procedural errors by the state, according to labor officials.

Some intentional wrongdoing also has been identified. Bartolomeo said the department established about 115,000 “imposter” applications — which were never paid out.

Still, about 600,000 applications of the nearly 1.4 million remaining after fraud screening have been audited to date. And out of that subset, about 2%, or 13,000 applications, were found to involve non-fraudulent overpayments totaling about $30 million. A final tally, which is still months away, could be significantly larger.

Bartolomeo said about $20 million of the $30 million tallied so far involves enhanced benefits paid for federal dollars. The state legally must recoup those and return them to Washington.

Another $10 million involves benefits paid out of the state unemployment trust.

But leaders of the General Assembly’s Appropriations and Labor committees are worried that forcing all recipients to repay the full $10 million — or more, once all applications have been audited — could cause serious setbacks for thousands of households already suffering.

“People were trying to survive,” said Rep. Toni E. Walker, D-New Haven, House chair of the appropriations panel, who said she suspects most of the extra payments households received were spent on groceries, rent and utilities. “People can’t go back and claw back the food.”

Economists say the overwhelming bulk of jobs lost during the pandemic were in the restaurant and retail industries, both of which typically employ low-paid staff.

But Sen. Craig Miner of Litchfield, ranking GOP senator on appropriations , told Walker that “I have a hard time feeling the same level of passion that you do.”

Even if the people “double-dipped” by accident, Miner said, “somebody’s got to pay this back,” adding that it’s unfair to place that burden on the state. “Let’s let it work itself out.”

CT is bailing out businesses, delinquent taxpayers. Why not households?

But Sen. Cathy Osten, D-Sprague, the Appropriations Committee’s other co-chair, said Connecticut already has committed to share responsibilities of others harmed by the pandemic. It shouldn’t ignore workers who now, unintentionally, owe millions.

“We need all of the numbers, but as long as there is no fraud, I would be open to looking at that,” she said.

Gov. Ned Lamont and the state legislature already have committed to deposit $155 million into the state’s unemployment trust, and some legislative leaders have said the state should consider adding even more.

The trust, which covers the state unemployment benefits, borrowed $700 million to remain fiscally afloat during the pandemic, and another $300 million may be needed before the calendar year’s end, labor officials say.

Replenishing that trust, legally, is the responsibility of Connecticut businesses, who face a special assessment that would be tantamount to a significant tax hike. So any dollars the state puts in effectively amounts to tax relief for businesses.

The state also has a habit of bending the rules — and quite frequently — when it comes to delinquent taxpayers.

Connecticut this week launched its seventh tax amnesty program since 1990. Such programs chiefly benefit high-end earners with major tax obligations, rather than working class households.

The Lamont administration projects Connecticut will collect an extra $40 million next fiscal year and an extra $36 million in 2022-23 by easing penalties on delinquents.

Connecticut entered the year tied with Louisiana and Massachusetts for easing penalties on tax delinquents most frequently over the past three decades, according to the Federation of Tax Administrators, a coalition of states’ top tax offices. Critics of the program charge that by offering amnesty so frequently, the state provides a disincentive for taxpayers with major obligations to pay on time.

Rep. Harry Arora of Greenwich, ranking House Republican on the Labor Committee, said that while he believes strongly in following due process, he also would consider relief for households that received extra state unemployment benefits without committing fraud.

“I don’t think anybody should be harshly treated in a quick manner,” he said, adding the state cannot simply offer blanket relief either. That means waiting until the labor department has a full accounting of over-payments, and then determining which households need assistance the most.

“We have to help our community,” Arora added, “when it is fair and appropriate.”

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