Legislative report details state labor agency's 'storm' during pandemic

May 19—A federal loan of $278 million that needs to quickly be reimbursed.

An overpayment of $250 million in unemployment claim benefits.

An increase in unemployment fraud and identify theft rates over the past year.

Those are just three of the many problems facing the beleaguered state Department of Workforce Solutions, the agency tasked with dealing with a record number of unemployment claims filed during the COVID-19 pandemic.

Department Acting Secretary Ricky Serna pinned much of the blame for Workforce Solutions' myriad problems on the pandemic during a Legislative Finance Committee presentation Wednesday, eliciting words of concern though little outrage from lawmakers.

Serna said the cascade of unemployment claims stemming from the pandemic overwhelmed the department and prompted the deluge of complaints that have plagued Workforce Solutions though much of 2020 and into 2021.

"A sudden influx of calls and claims hit very quickly and it was that sudden impact that really did prompt the storm that caused us to be short on a number of fronts," said Serna, who replaced former department secretary Bill McCamley a month ago.

Incoming calls swamped the center at an unheard-of rate, Serna told the committee. In February 2020, a month before Gov. Michelle Lujan Grisham declared a state of emergency for New Mexico, Serna said the agency received 7,500 calls. By April, that figure had jumped to 75,000 calls per day.

The sudden climb in claims was steep: in February 2020 the department handled about 14,000 unemployment claims. By June, that number was at 200,000, Serna said.

McCamley, who led the department during the pandemic, stepped down in mid-April. He did not return a call seeking comment Wednesday.

Sen. Pat Woods, R-Broadview, said after the presentation he was "very surprised" by some components of the report.

"I knew there had to be something going on when the secretary left, but I didn't know what it was," Woods said. "When you start trying to push money out that fast and everybody is telling you to push it out, you're going to not comply with some of the programs."

The unsparing 49-page report, written by Legislative Finance Committee analysts, highlighted the many ways the department failed New Mexicans as tens of thousands fell into joblessness.

Among the problems cited in the report:

—Due to inadequate staffing and noncompliance with state and federal guidelines, the department paid out $250 million more in claims that it needed to — money the state may never get back.

—$133 million of that money may be related to fraud claims.

—As the department reassigned existing staff to deal with incoming claims, a backlog of potentially fraudulent claims piled up. It could take the state more than a year to address them.

—In September, the state's $450 million unemployment insurance fund ran out, prompting the state to borrow $278 million from the federal government to shore it up. The state has until September to pay that loan back.

The report recommends the state utilize incoming American Rescue Plan Act funds to pay off the debt to the federal government. New Mexico is expected to receive $1.75 billion in those funds.

Nora Meyers Sackett, a spokeswoman for Lujan Grisham, wrote in an email Wednesday "allocating federal funds to replenish and strengthen the state UI fund is a priority."

Woods and Rep. Ryan Lane, R-Aztec, said the state should do just that.

"We have to," added Sen. George Muñoz, D-Gallup and chairman of the Senate Finance Committee.

Though federal funds may help in filling the financial gap, Workforce Solutions still has much work to do to address the many problems spotlighted in the report.

Catherine Dry, an LFC analyst who worked on the report, said the pandemic changed things "significantly" for the agency.

"Claims spiked, federal programs expanded, fraud risk grew and the trust fund was depleted," she said.

Both the report and Serna, in his responses to the committee members, said untimely, unclear and ever-changing federal guidelines for implementing federally supported unemployment programs added to the mess.

Serna painted a portrait of those rules being implemented slowly, causing potential recipients anxiety — and then being updated quickly, leading to fast-moving efforts to ensure the department was up to code when it came to reviewing and awarding benefits.

Woods said when he discovered New Mexicans could apply for several different unemployment programs at once, he recalled thinking, "If you are not compliant with one of those programs you might not be compliant with the other two."

Serna said his agency had to balance getting money to needy New Mexicans while adhering to those guidelines. "In some cases it resulted in overpayment," he said.

Serna said his department managed to identify and report 4,216 cases of attempted fraud, stopping payouts of nearly $173 million in the process.

Responding to a recommendation in the report, Serna said Workforce Solutions' staffing has increased from 103 at the start of the pandemic to 270.

Some lawmakers expressed concern the state may never recover overpayments. Serna said it is possible, but added his department, which is still seeking a permanent replacement for McCamley, needs more time to determine how to handle that.

Some on the committee seemed empathetic to the department's plight. "What you have been through at Workforce Solutions is nothing less than a war," said Rep. Tara Lujan, D-Santa Fe.

Muñoz said after the presentation he did not want to blame an individual for the agency's problems.

"You could blame everybody and blame everything but you can also blame the perfect storm," he said.

"The key point to me is they thought their system was recession-proof," he added. "It proved not to be recession-proof during COVID."

Muñoz said he primary concern is "how do we fix the system and how do we recover that money? I don't think we're going to get a whole lot of it back."

Other lawmakers asked whether some New Mexicans chose to remain on unemployment because of the many available assistance programs and a state waiver allowing residents to draw unemployment money even if they were not looking for a job.

Serna said that could be the case. He said between state and federal benefits, some low-wage New Mexicans took home almost $1,100 in weekly unemployment funds.

"Divide that by a 40-hour work week and see how that would compare to earning normal wages if they were employed," he said.

"I think the big policy question is, why do individuals make more when they're unemployed than when they're employed, especially in critical occupations?" he added.

Rep. Patty Lundstrom, D-Gallup, expressed displeasure to learn that the bulk of unemployed New Mexicans work in the tourism and hospitality industry.

Noting lawmakers had doubled the Department of Tourism's budget this year in the hope of wooing back visitors as the pandemic subsides, she said efforts to "market the heck out of this state" could fail because "there's nobody working."