House Republicans target state unemployment modernization funding

Republican U.S. House members are attempting to rescind hundreds of millions of dollars in federal funding the Labor Department set aside to help states modernize their unemployment systems and reduce fraudulent benefit claims.

The House Ways and Means Committee on Tuesday approved a bill that would take back unspent federal funds earmarked for states to upgrade their unemployment insurance systems — systems that were put under significant strain during the pandemic, leading to a spike in fraudulent benefits claims.

The U.S. Government Accountability Office estimated in January that at least $60 billion in fraudulent unemployment insurance claims were made during were made between April 2020 and September 2022. The Labor Department’s own inspector general has estimated fraud losses during the pandemic topped $87 billion. Other estimates are even higher.

“It’s time for Congress to go after fraudsters and recover the dollars that have been lost,” Ways and Means Chair Jason Smith, R-Mo., said during a hearing Tuesday.

Smith, who sponsored the bill, said his proposal would recover stolen taxpayer money, help states prevent future fraud and prosecute fraudsters. Democrats on the committee opposed his proposal. 

“The legislation under consideration today does the opposite of what it purports to do,” Rep. Richard Neal, D-Mass, said during the hearing. “Rather than fighting fraud, this legislation would cut off ongoing federal efforts to prosecute criminals while also hurting workers and their families.”

If passed, Smith’s bill would take back unspent pandemic relief funding from the $2 billion Congress has tabbed to improve unemployment systems and reduce fraud since the onset of the COVID-19 pandemic. The Labor Department said last year it would distribute $240 million of these funds to states to support unemployment modernization projects. Smith’s bill would nix a total of $400 million in money that hasn’t been committed yet.

In exchange for rescinding these funds, which Smith said had “proven to be wasteful and ineffective at combating fraud,” the bill proposes states could keep 25% percent of the fraudulent funds they recover and use that money to pay for their upgrades instead.

While Smith said his proposal gives states an incentive to recover funding, Neal said it could leave states more vulnerable to fraudulent claims in the future.

“Instead of reinforcing these vital systems to prevent future errors, the majority has laid their focus on surprise-billing American workers while cutting funding to agencies actively holding those who committed identity theft and fraud accountable,” Neal said.