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State judge asked to halt jobless fraud fund spending

Michael Gerstein
The Detroit News

Lansing — A lawyer representing clients suing the state over false insurance fraud accusations is asking a Michigan Court of Claims judge to put a freeze on state money that might be needed for damages related to the lawsuit.

Royal Oak attorney Jennifer Lord will ask Judge Cynthia Stephens on Thursday to issue an order that would stop state lawmakers from using any more money from a fund within the Unemployment Insurance Agency until the lawsuits are resolved.

Republicans in the House and Senate approved separate budget bills last week that use tens of millions of dollars from a penalty and interest fund for the Unemployment Insurance Agency to pay for programs meant to train people who lost jobs or are chronically unemployed.

“They’re using it as their personal piggy bank,” Lord said.

The House budget calls for using more than $73.4 million from the jobless fund to pay for such job training programs and a portion of state salary costs for about 800 employees at the Unemployment Administration Agency. It would help finance the overall $137 million cost of employing 800 people — whose salaries are almost entirely federally funded — who work for the agency across the state, under the House budget bill.

The House plan would spend about $10 million more from the fund than last year, when Lord also criticized the move. Now she’s bringing a lawsuit related to how the money is spent.

The Senate passed a plan to use about $53.6 million from the fund to pay for the same programs.

House Republicans — with Democrats opposing the measure — approved a $55.8 billion state budget last week that uses $24.8 million more than Gov. Rick Snyder recommended in his budget proposal to pay for such job training programs. The Senate plan uses $5 million more from that fund than Snyder recommended.

Republicans defend the move by arguing the state will be able to pay any court-ordered costs if and when they arise. But Democrats slammed Republican lawmakers for planning to spend state money that could instead pay damages to such clients.

House Minority Leader Sam Singh, D-East Lansing, called the move a “smack in the face” to all those who were wrongly accused of unemployment fraud by the state — more than 26,650 people by the state’s latest count.

The job programs would otherwise be paid for by a separate state fund. The shift could save money that would be steered and spent instead on up-front costs for a possible plan to put new Michigan teachers on 401(k)-style retirement benefits, rather than the current hybrid 401(k) and pension plan for new hires.

GOP lawmakers who supported the shift don’t suspect the fraud cases to conclude in 2018, said Gideon D’Assando, a spokesman for House Speaker Tom Leonard, R-Dewitt. If a court were to order damages to be paid, the state will come up with the money, he said.

“If there’s a court order, the state would be bound to act,” D’Assandro said. “The state will have to act by that very specific time line. That money could come from any number of places. We have stuff pop up constantly mid-year.”

Senate Majority Leader Arlan Meekhof, R-West Olive, also said the funds would be appropriately spent.

Both chambers need to agree on the same legislation before it can be sent to Gov. Rick Snyder for a signature, so the budget plans remain tentative and could change. But Democrats say the move is still wrong.

“The people that were wrongfully gone after, a lot of them went into bankruptcy, they lost their house to foreclosures, some of them even committed suicide,” said Sen. Curtis Hertel Jr., D-East Lansing. “With the long-term costs of the state’s grave error in that situation, we should be preparing to pay out of that fund for a while, and I don’t think we should be stealing from it now.”

Lord says the money that GOP lawmakers approved to shift from the jobless fund to spend on job training programs came from wrongfully seizing wages or tax returns from Michigan residents mistakenly accused of unemployment fraud by an automated computer program called the MiDAS system.

The Michigan Unemployment Insurance Agency has been under fire for using that system, which made more than 26,650 false fraud determinations between October 2013 and August 2015 with little human oversight.

An initial batch of 20,000 cases were reviewed in the fall. After that, the agency agreed to review another 28,000 cases, which should be done by July, according to the state.

Michigan may owe another $14 million to people who were wrongly accused of fraud, said to Dave Murray, a spokesman for the Talent and Economic Development department.

But Lord disputes that figure. She says Michigan could owe closer to $500 million in repayments to people wrongly accused, and that does not factor in potential damages.

The average state seizure was $10,000, Lord said. Assuming 46,000 people had that much money seized by the state, the total cost for “out-of-pocket expenses that claimants incurred for things like bankruptcy filings and the money people paid lawyers to attend hearings with them” would be about $500 million, she argued.

The state so far has refunded $6 million.

Stephens this week is presiding over a hearing in Detroit for Jason Doss’s false jobless fraud case against Snyder, the state treasurer, state budget director, director of the Talent Investment Agency and the state’s Unemployment Insurance Agency. Lord is representing Doss in the class-action suit.

mgerstein@detroitnews.com

Staff Writer Jonathan Oosting contributed