Report 2010-112 Summary - March 2011

Employment Development Department: Its Unemployment Program Has Struggled to Effectively Serve California's Unemployed in the Face of Significant Workload and Fiscal Challenges

HIGHLIGHTS

Our review of the Employment Development Department's (department) administration of the unemployment insurance program (unemployment program), revealed the following:

RESULTS IN BRIEF

The Employment Development Department (department) is responsible for administering the unemployment insurance program (unemployment program), which provides temporary financial assistance to unemployed workers (claimants). As the number of unemployed workers in the State soared in recent years, the department has faced significant fiscal and workload challenges that have contributed to its failure to meet certain core performance measures established by the United States Department of Labor (federal labor department). In June 2007 California's unemployment rate was 5.3 percent; by June 2010 it had risen to 12.3 percent—a 132 percent increase. As a result, the demand for unemployment benefits increased dramatically. For example, the number of initial claims the department processed grew by 148 percent from July 2007 to June 2010. Moreover, federal extensions of unemployment benefits have resulted in individuals receiving benefits for longer periods of time, further contributing to the department's unprecedented workload.

The department's funding struggles have compounded the challenges inherent in this steep rise in unemployment claims. In January 2009 the State's Unemployment Fund became insolvent, requiring the unemployment program to rely on federal loans to pay benefits. The department projects that, absent corrective action from the Legislature, the Unemployment Fund deficit could rise to $13.4 billion by the end of 2011. If the State fails to pay back these loans by November 2011, the federal government may incrementally increase the State's federal unemployment tax rate, which could potentially cost employers in California $325 million in additional taxes in 2012. Moreover, if the State does not repay the loan and fails to pay the interest by September 2011, employers in the State could eventually face $6 billion in higher federal unemployment taxes annually.

In the face of these challenges, the department has struggled to meet certain core performance measures. Specifically, although the department showed improvement in measures related to the quality of its work, its performance in the timeliness measures for promptly issuing initial unemployment payments and making nonmonetary determinations of eligibility for benefits had dropped far below the performance levels the federal labor department considers acceptable (acceptable levels) by performance year 20101 before rebounding in the first reporting quarter of 2011, which includes April through June 2010 as the department began to benefit from increased staffing. In response to its historically poor performance, the federal labor department in April 2010 classified the State as being "At Risk" with regard to its ability to fulfill federal statutory requirements.

The department has generally attributed its poor performance in recent years to its high workload and to staffing shortages resulting from a delay in federal funding. In fact, we found that by increasing staff and allowing them to work overtime, the department processed significantly more claims, and likely improved its performance. Specifically, the number of employment program representatives on staff who process claims and make eligibility decisions peaked in August 2009 at 2,232, which was about 1,000 higher than the number in July 2007. In addition to increasing its staff, the department also increased the average overtime worked by its program representatives from 4.5 hours per employee in July 2007 to a peak of about 36 hours in March 2009. We found that these efforts substantially increased the volume of initial claims it was able to process, from about 173,000 in July 2007 to nearly 429,000 in June 2010, and the increased staff appears to have improved its performance related to federal timeliness measures as well. We also found that the former governor's furlough orders, which affected program representatives, had minimal impact on the department's performance because the average overtime hours worked by program representatives generally exceeded their average number of leave hours.

The results of the department's other efforts to improve its performance have been mixed. Because it has failed to achieve the acceptable levels related to the timeliness measures, the federal labor department requires the department to submit corrective action plans each year detailing the actions it will take to improve its performance. We believe that these corrective action plans are an essential tool in the department's efforts to improve its timely delivery of unemployment payments. However, we found that some of the department's corrective actions will do little to directly improve the timeliness of its performance. For example, the department reported that the Unemployment Insurance Scheduling System would help it conduct timely nonmonetary determinations and thus improve its ability to achieve the acceptable level related to this timeliness measure. However, the impact of this project on the department's performance appears negligible. Other corrective actions that automate the continued claims certification and initial claims filing processes, such as the Continued Claims Redesign and eApply Modernization projects, respectively, have the potential to improve the department's performance. However, these projects have had no impact on the department's performance levels to date because the department has yet to implement them. Additionally, the department's corrective action plans included milestones that were often ill-defined and difficult to measure. Furthermore, the department has not included in its plans sufficient information to effectively gauge the impact of its corrective actions on its goals of achieving the acceptable levels related to the timeliness measures.

One of the more significant actions the department has been undertaking to increase the public's timely access to unemployment services has been the development of a new phone system, which it activated at its six primary call centers in December 2010. According to unaudited data the department provided us, its previous phone system did not have the capacity to handle the necessary volume of calls. From fiscal year 2007-08 to 2008-09, the number of blocked call attempts—calls that were unable to access the voice response part of the system—increased from 21 million to 158.6 million. Moreover, the percentage of calls in which the caller attempted to speak with an agent but was unable to do so grew each year, from 48 percent in fiscal year 2001-02 to 91 percent in fiscal year 2008-09, with the percentage remaining high in fiscal year 2009-10 based on department data through May 2010. In addition to added capacity and more robust data on call activity, key features of the new phone system include enhanced voice response options, such as Tele-Cert, which allows claimants to certify for benefits. We performed a capacity analysis, which suggests that the new system should be able to handle a substantially higher volume of calls, allowing most callers to access the voice response system. However, both our capacity analysis, and very early data from the new phone system suggest that access to agents may continue to be a challenge.

In addition to its struggles to improve its performance related to the timeliness measures, the department faces other challenges as it moves forward. For example, in order to qualify for up to $839 million in federal stimulus funds, the State must meet certain federal criteria. The State appears to have met some of these criteria by enacting laws that protect claimants who are looking for part-time work or who are unemployed due to compelling family circumstances as prescribed by law. However, to be eligible to receive any of the federal funds, the department must implement changes to its unemployment claims process so that it can consider wages earned by claimants over two different base periods—the time period a state uses as the basis for deciding whether an individual had sufficient earnings to be eligible for unemployment insurance—as part of the eligibility process. In the past, the department considered wages over only one base period, referred to as the standard base period. The new alternate base period would allow claimants to qualify for unemployment benefits using their earnings from the most recently completed four calendar quarters instead of the first four of the last five calendar quarters used under the standard base period, thus enabling an estimated 26,300 to 65,000 additional claimants to become eligible. However, before the department can implement the alternate base period, it must first complete its conversion of the Single Client Database (client database), which it expects to do by November 2011. Thus, a delay in the schedule of the client database could negatively affect the department's ability to implement the alternate base period. This is troubling, since the department does not expect to implement the alternate base period until April 2012, just five months before the federal deadline in September 2012. If the department does not meet the September 2012 deadline, the State will forfeit $839 million in federal stimulus funds.

Another issue facing the department relates to its administration of the California Training Benefits program (training benefits program). The training benefits program enables eligible claimants who lack competitive job skills to receive unemployment benefits while attending approved training or retraining programs. However, the department has taken an average of four or more weeks to determine the eligibility of claimants trying to qualify for the training benefits program, during which time the claimants did not receive unemployment benefits. This could represent a significant hardship to claimants and could deter them from taking advantage of the program. The department has recently implemented measures to streamline the process for determining eligibility for roughly 20 percent of the training determinations it makes, which we found reduced its average processing time for these claimants to about three days. We based this average on data from the department's Streamline Tracking System, which, although we found it unreliable for a number of reasons, was the most efficient means of identifying this information.

Recent statutory changes should further enable the department to improve the timeliness of its determination process for the training benefits program yet still may not go far enough in addressing the needs of claimants who are enrolled in self-arranged training and represent the majority of the training benefits program determinations made by the department. The department's process for determining the eligibility of these claimants may have been lengthy, and it has eventually found, for the majority of the determinations it made, that the claimants were ineligible for the training benefits program. This raises the concern that some of these claimants who are ultimately found ineligible to receive training benefits while they are in a training program may also have placed themselves in a position where they are ineligible for unemployment benefits.

RECOMMENDATIONS

To further enhance its corrective action planning process as a means of improving the unemployment program, the department should take the following steps:

As part of an overall strategy to limit the number of calls it receives while still providing timely and effective customer service, the department should use existing data and additional data from the new phone system to gain a better understanding of why people request to speak to an agent. Using this information, the department should further develop strategies and measurable goals related to achieving a reduction in call volumes. For example:

To maximize federal funding and provide unemployment benefits to those eligible under the alternate base period, the department should closely monitor its resources and project schedule to avoid any further delays in implementing the client database and ensure that it completes the alternate base period project by the federal deadline.

To help ensure that the department completes the alternate base period project by the federal deadline so that the State preserves its eligibility to receive $839 million in incentive funds, the California Technology Agency should closely monitor the department's progress toward implementing the client database and alternate base period projects and provide assistance to the department, as necessary.

To better track and improve the timeliness of determinations for the training benefits program, and to assist claimants in understanding self-arranged training requirements, the department should do the following:

AGENCY COMMENTS

The California Labor and Workforce Development Agency and the department agreed with our recommendations and indicated that they have begun implementing them. In addition, the California Technology Agency agreed with our recommendation and indicated that it has recently taken actions to implement it.

1 The reporting period for federal performance measures is from April 1 through March 31 of the following year. Because this period is different from the reporting periods for both the federal and state fiscal years, we refer to it as a performance year. For example, in performance year 2002, the reporting period covers April 1, 2001, through March 31, 2002.