White House cuts $400 million in aid for state unemployment systems

The White House is terminating $400 million in funds for states meant to modernize their unemployment insurance systems.Why it matters: These systems fell apart when unemployment soared in the pandemic, leading to rampant fraud and delays for beneficiaries.Without updates, similar problems could be on tap for the next recession.Zoom out: Congress authorized the money in the $1.9 trillion coronavirus relief bill passed in 2021. Congress allocated $2 billion for the efforts, later cutting that funding in half.Those funds were wasted on equity projects, but only a fraction of the money appears to have been devoted to such measures, according to the Labor Department, which sent a notification letter to Congress last week to let lawmakers know "these grants are being terminated."About 28% of the funds granted to states, $219 million, were used specifically for equity, as outlined in a Labor Department report.In this case, "equity" is a term meant to describe efforts to make the unemployment insurance system easier for people to use and access, perhaps not what is typically considered DEI.Efforts to promote equitable access to unemployment insurance "include eliminating administrative barriers to benefit applications, reducing state workload backlogs, improving the timeliness of UC payments to eligible individuals, and ensuring equity in fraud prevention, detection, and recovery activities," according to the report.Follow the money: $204 million was awarded for IT modernization, $134 million for fraud detection, and $93 million for system integrity, such as combating fraud and strengthening ID verification.The IT funds have been spent more slowly while states get projects underway, says Andrew Stettner, who led the modernization efforts during the Biden administration."When I left in December, states had spent about $100 million of the $219 million specifically for equity but only $2 million of the $204 million for IT," says Stettner, who is now director of economy and jobs at the Century Foundation. 18 states are working on updates to their systems, he says.Pulling this aid will be devastating for the states just getting started on these projects. "States were in the middle of all the planning and procurement. Now they're really holding the bag for finishing," Stettner says.The other side: The grants were "squandered" on "bureaucratic and wasteful projects that focused on equitable access rather than advancing access for all Americans in need," the Labor Department says in an emailed statement to Axios."We're committed to ensuring our unemployment system is free from fraud and abuse, and we look forward to partnering with state workforce agencies on real solutions that meet the needs of American workers."The bottom line: In an effort to combat fraud, the Labor Department has pulled back money from states meant to help combat fraud.

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