State unemployment insurance systems were a lifeline during the pandemic, replacing wages for millions of newly jobless workers during a time of record unemployment and deep economic instability. But while the pandemic put the life-saving nature of unemployment insurance (UI) on full display, it also revealed serious vulnerabilities and shortcomings within individual state UI systems and the federal-state system as a whole.
Around the country, understaffed state unemployment agencies utilizing woefully outdated IT systems were incapacitated by the sudden influx of UI claims early in the pandemic, causing many newly jobless people to wait weeks or even months to receive benefits. Meanwhile, criminals were able to seize the moment to siphon billions in fraudulent payments out of state UI coffers.
States rely extensively on Information Technology (IT) to carry out UI program functions like determining claimants’ eligibility for benefits, tracking changes in their work-seeking status, and calculating state-specific weekly and maximum benefit amounts. The problem is that in the majority of states, computer servers built on outdated coding language have severely hindered UI’s functionality and security. Back in 2016, a survey from the Government Accountability Office (GAO) sounded the alarm that 60 percent of states had significant limitations to their IT systems that affected their ability to efficiently process UI claims.
In 2022, the Government Accountability Office (GAO) added the overarching UI system to its “high risk” list—which includes programs and operations that are especially vulnerable to waste, fraud, abuse, mismanagement, or in need of transformation. In the aftermath, the DOL has started to supply states with heftier funding to modernize their UI systems to better protect against fraud, and to make them more accessible and reliable for jobless workers.
In addition to $2 billion in American Rescue Plan Act grants given to states to modernize their UI systems in 2021, the DOL in May 2023 announced the allocation of an additional $653 million to support IT updates. In September 2023, an additional $204 million was allocated to labor departments in 18 states and the U.S. Virgin Islands for projects to improve the capacity, user experience, and reliability of state UI programs.
How did we get here?
Policy researchers and government watchdogs say that the underperformance of state UI systems and unprecedented fraud seen during the pandemic is rooted in the chronic underfunding of state UI agencies, and exacerbated by states’ continued failures to heed warnings about the risks posed by using outdated IT.
It’s important to recognize that the U.S. unemployment insurance system operates as a collaboration between federal and state entities, whereby the federal DOL oversees the distribution of funds to state UI agencies, who then use those funds to design and administer their UI programs. Thus, the U.S. unemployment system is not a single entity, but 53 individual systems—each relying on different technologies and operating with different budgets. That’s particularly important to understand in the context of ongoing UI modernization efforts and the unique needs of each state agency.
“The program was set up to have tremendous cross-state variation,” Robert Moffitt, a professor of economics at Johns Hopkins University told the New York Times. “This makes no sense. It creates tremendous inequities.”
What is the progress of states’ unemployment insurance modernization efforts?
Successfully modernizing the nation’s UI systems is a massive, multi-billion-dollar undertaking that requires ongoing coordination between state and federal agencies and relies largely on contractors. While the DOL says that progress has been made—including an ongoing tiger team effort where experts are dispatched to states to provide recommendations and the rollout of public options for states to verify the identities of applicants—there is still much work to do to ensure UI is better prepared for the next economic downfall.
As of July 2023, a GAO audit tracking the progress of eight states’ modernization efforts confirmed that many states continue to rely on legacy IT systems developed in the 1970s and 1980s. The eight states in GAO’s study—Arkansas, Delaware, Maine, Nevada, Ohio, Pennsylvania, Tennessee, and Texas—were each, as of summer 2023, in varying phases of updating their IT systems, which ranged in age from 7 to about 50 years old. Project timelines for each state’s planned modernization plans range from 2 to 7 years, with estimated costs between $35 to $85 million.
In Texas, IT updates are expected to wrap up next year, while Arkansas, Nevada, and Tennessee are on track to complete their overhauls by 2025. Delaware’s UI modernization effort kicked off in 2022 and is expected to be completed in 2026.
Maine and Pennsylvania have already completed their multi-million dollar UI modernization projects: Pennsylvania’s updated system went live in June 2021, while Maine’s was updated before the pandemic in 2018. So far, the results have been mixed. When Pennsylvania failed to enhance its identity verification process when replacing its decades-old mainframe with a new online filing system, it saw an explosion in fraudulent UI claims almost immediately.
Still, there’s optimism that modernization efforts are helping states process UI claims more efficiently. UI officials in Maine and Pennsylvania report that updating their technology and migrating to cloud computing software helped their agency better manage the increases in call volume during the pandemic, and enabled them to more easily implement pandemic-era UI programs.
On the flip side, nearly all of the states in GAO’s study say there have been serious challenges with implementing their UI modernization projects—the most common issue being a lack of trained staff with the proper expertise and resources to support modernization efforts. In four states, officials said they did not have enough resources to run their UI programs and IT systems while also managing modernization efforts. Dealing with contractors has also presented problems: six states have reported issues including insufficient staff resources from their contractors, difficulties aligning modernization goals with contractors, and problems coordinating when utilizing multiple contractors.
The bigger picture
The significant amount of federal funding given to states for UI modernization is a critical step to improving outdated IT systems—but experts say that there’s more the federal government can do to make state UI agencies more functional, secure, and efficient.
For example, the GAO has continually urged the DOL to improve its oversight over state UI systems by setting federal standards for the tech they use—and then using those standards to measure states’ progress. Until that happens, the DOL “will lack a critical mechanism to measure whether states’ UI IT systems are performing efficiently and effectively,” the GAO says.
Ultimately, policy change via adjusting the funding formulas for UI agencies so that they are better resourced could best enable states to keep up with their modernization efforts, says Andrew Stettner, deputy director for policy at the DOL’s Office of UI Modernization.
“I would be remiss if I didn’t say that we hear … every day that the ongoing investment in this system is insufficient,” Stettner told NextGov. “Things are moving in the right way, but it’s gonna be hard to transform the program unless we deal with some of the systemic challenges.”
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.