Lansing — Gov. Rick Snyder on Monday signed a new law to plug a state budget hole using $10 million from an unemployment insurance “contingency” fund that critics say is flush with cash because of erroneous penalties paid by Michigan residents.

The bill signing came four days after a staff shakeup at the Michigan Unemployment Insurance Agency, where officials have acknowledged that an automated computer system made more than 20,000 false unemployment fraud claims against Michiganians between October 2013 and August 2015.

Snyder approved the one-time transfer Monday, calling it a “budget implementation” move. The transfer had been agreed to as part of budget negotiations for the current fiscal year, according to the nonpartisan House Fiscal Agency, and shifting $10 million to the general fund will allow the state spend the money on any number of other priorities.

Under the state’s unemployment security law, fraud penalties and interest are deposited into a dedicated contingency fund, along with any solvency taxes or other damages. As of September, the fund balance had ballooned to $154.7 million, up from $3.1 million at the end of 2011.

Jennifer Lord, lead attorney in a class-action lawsuit against the state, said last week it would be “outrageous” for Michigan government to pay its bills using “stolen money” from unemployment claimants who were penalized and wrongly accused of fraud.

It’s not clear what portion of the fund balance came from false fraud claims, but Lord said some claimants were hit with bills as high as $100,000 due to compounding penalties and interest. In some cases, the state seized their income tax refunds or ordered new employers to garnish their wages years after the alleged fraud.

Past administrations also shifted money from the unemployment fund as part of budget agreements, Snyder spokeswoman Anna Heaton said in an email.

“At the time of this bill’s passage, the fund had a balance of more than $160 million. If the balance decreases significantly due to refunds from the reprocessing of claims, reimbursement to the fund would be a potential option in a future budget cycle.”

Snyder on Monday also signed a bill into law that codifies several changes the Unemployment Insurance Agency has already made to address the false-fraud controversy.

The new law prohibits the agency from using a computer system to process a fraud claim without human verification, among other things. It also limits the statute of limitations for the agency to pursue fraud cases from six years to three years.

Former UIA director Sharon Moffett-Massey was reassigned last week, and the agency announced Friday that it will re-examine all remaining fraud cases flagged by the computer program prior to August 2015.

An initial review of 22,427 cases showed that fraud determinations were upheld 1,462 times on appeal, a 93 percent error rate. The agency said it had repaid 2,572 individuals originally fined for alleged fraud. Total repayments topped $5.4 million.

joosting@detroitnews.com

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