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Jobless Aid Ripe for New Delays if Stimulus Talks Stall (1)

July 20, 2020, 1:09 PMUpdated: July 20, 2020, 6:58 PM

State unemployment agencies are bracing for a processing nightmare if Congress lets expanded weekly benefits expire this month and then enacts a new model—a situation that would require overburdened systems to be reprogrammed twice and almost certainly delay payments to jobless workers.

Lawmakers returned to Capitol Hill on Monday to face an incredibly difficult task of brokering a deal with the White House on a new virus-relief package before the $600 weekly boost to jobless aid authorized by the $2.2 trillion CARES Act lapses next week.

Failure to quickly resolve partisan differences and hash out another massive stimulus bill would require state agencies to adjust their unemployment processing systems to remove the $600 weekly benefit, which is now being paid to recipients of regular jobless benefits as well as independent contractors and others who qualify for the new Pandemic Unemployment Assistance.

That’s a tall order in itself, especially after most states experienced significant logistical challenges and delays in processing the unprecedented volume of claims during the pandemic’s first months and in setting up the new PUA system on the fly. And once Congress reaches a compromise, states will be on the hook for another system reboot if the legislation makes further changes to pad unemployment checks for struggling workers.

By delaying formal negotiations until several days shy of the expiration of expanded unemployment assistance—formal talks aren’t expected to kick off until Republicans debut their proposal this week—Congress is putting state workforce agencies and the jobless workers they serve in a predicament.

“In a perfect world, which we don’t live in, this decision would’ve been made in advance so that people can plan for it,” said Carl Van Horn, a public policy professor at Rutgers University and director of the school’s Heldrich Center for Workforce Development. “It’s going to create enormous problems and further delays because this is a stop-start-stop-start kind of situation, and that’s not the right way to do it. So people are going to have to reapply and go through the process again.”

Great Recession Redux?

States struggled to manage a stop-start process during the economic recovery from the Great Recession, when multiple lapses in unemployment benefits and retroactive processing fixes required by congressional updates taxed state information technology systems.

“I foresee the same problem,” Bill Starks, who ran Utah’s unemployment insurance division under two GOP governors from 2005-2014, said.

Now, absent a breakthrough deal on Capitol Hill this week, state unemployment agencies will be federally mandated to de-program their software systems to halt the $600 weekly payments starting the week of July 26-Aug. 1. The only outlier is New York, where the unemployment insurance reporting period is July 27-Aug. 2.

But a second reprogramming could be even more complicated if the presumptive bipartisan compromise deviates from the $600-per-week bonus payments, particularly if it provides a varying amount based on workers’ previous wages.

The pressure to deliver an unemployment fix in time to avoid significant state-level complications is one of numerous issues weighing on lawmakers from both sides of the aisle. The Labor Department reported Thursday that 1.3 million Americans filed first-time jobless claims during the week ending July 11, signaling a slowing labor-market rebound as Covid-19 cases surge and business re-openings are paused or reversed in some states.

“Now, we’ve said the number one issue is we have to finish the technical fix on enhanced unemployment,” Treasury Secretary Steven Mnuchin said Monday at the White House after discussing virus relief with President Donald Trump and congressional Republican leaders. He said the administration and GOP leaders are “committed” to passing legislation “by the end of this month ... so that we can protect Americans that are unemployed.”

But the odds of lawmakers and the administration swiftly reaching a compromise are long, with the coming talks complicated by White House demands for a cost ceiling of $1 trillion and inclusion of a payroll tax cut—which Trump described Monday as “very important.” Democrats and Republicans are far apart on the question of whether to expand unemployment benefits, and the GOP priority of virus liability protections for employers is another major partisan flashpoint.

Democrats are calling for the $600 weekly boost to remain in place, while Republicans contend the payments are overly generous and disincentivize people from accepting job offers.

“We’re going to make sure that we don’t pay people more money to stay home than go to work,” Mnuchin said Monday, adding that the administration and GOP leaders support “tax credits that incentivize businesses to bring people back to work.”

“The longer they wait, the harder this is going to be for the states to administer,” added Starks, who later joined the National Association of State Workforce Agencies, a trade group that advises states on unemployment benefits. “That’s exactly why some of these states struggled to pay the initial CARES Act benefits.”

Options and Alternatives

Some lawmakers agree that state systems and unemployed workers will be in major trouble if administrators are forced to end the current expanded benefits, only to restart under a new program at a later date, staffers in several congressional offices told Bloomberg Law.

Members of both parties are mulling alternatives while trying to strike a balance between the need for a fast response and a proposal nuanced enough to account for differences between states.

“Of course the goal is to avoid a lapse. That’s going to require good faith from both sides during negotiations,” said Michael Zona, a spokesman for Senate Finance Chairman Chuck Grassley (R-Iowa). The panel has jurisdiction over unemployment insurance.

Democrats continue to advocate for terms of the House-passed HEROES Act, which would extend the $600 weekly boost through March 2021.

Sen. Rob Portman (R-Ohio) introduced a proposal previously that would give workers claiming unemployment a $450 weekly bonus if they return to work before the end of July, creating a model Senate Republicans want to see included in the next stimulus package. Portman “is open to an extension of UI benefits but believes it should be paired with incentives to encourage individuals to safely return to work,” said spokeswoman Meghan Dugan.

The U.S. Chamber of Commerce called for yet another option, in a letter Thursday to the White House, House Speaker Nancy Pelosi, and Senate Majority Leader Mitch McConnell. The nation’s largest business lobby encouraged a variable supplement to state unemployment benefits that would be designed to replace 80% to 90% of individuals’ prior covered wages, up to a maximum federal benefit of an additional $400 per week.

Retroactivity on Tap?

But a varying total would be met with resistance from state administrators due to processing difficulties.

“Say they went from a $600 supplement to a $300 or $400 one—that would be a fairly simple change for the states in most cases,” Starks said. “But if they create some type of a formula based on each claimant’s individual earnings, that would really put in jeopardy paying the benefits timely.”

If the expanded benefits sunset on July 25-26, another option being discussed on Capitol Hill is to pay benefits retroactively as part of the next relief bill, a Senate Republican staffer and a business community lobbyist said.

House Ways and Means Committee Chairman Richard Neal (D-Mass.), whose panel has oversight of the federal-state unemployment system, “believes that providing benefits retroactively is better than not providing them at all, but it is no substitute for Congress doing its work on time,” spokeswoman Erin Hatch said.

But retroactive benefits would pose further implementation hurdles for states, said Indivar Dutta-Gupta, co-executive director of the Georgetown Center on Poverty and Inequality.

“That programming was really a mess,” Dutta-Gupta said, referring to retroactive extensions in the 2010s. “And it’s quite financially ruinous to people who are living week-to-week, paycheck-to-paycheck.”

(Updated with Treasury secretary's comments at the White House .)

To contact the reporters on this story: Ben Penn in Washington at bpenn@bloomberglaw.com; Jaclyn Diaz in Washington at jdiaz@bloomberglaw.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com

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