False fraud reforms head to Snyder minus victim funding

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — The Michigan Senate on Wednesday unanimously approved a plan to reform the state’s unemployment insurance system following a false fraud scandal that ensnared tens of thousands of jobless residents.

The bipartisan eight-bill package would reduce the state’s highest-in-the-nation penalties for unemployment fraud and delay interest penalties to allow for due process, but it does not require compensation for those wrongly penalized in the past, a point of contention among legislators. It now goes to Republic Gov. Rick Snyder for potential signature.

The Snyder administration was pushing to include a “framework to set up a victims compensation fund” as part of the reform legislation in order to “help those who were adversely affected by the inappropriate fraud determinations,” spokeswoman Anna Heaton said.

That was not included in bills approved Wednesday, but Snyder is “still pleased with the final version” and the administration intends to “work with UIA to address victim compensation funding in the future,” Heaton added.

While Democrats had urged a funding component when the proposal passed the House in November, Senate Appropriations Chairman Dave Hildenbrand, R-Lowell, said it only came up recently in negotiations between Snyder and legislative leaders.

“We didn’t have the time to vet it, and we wanted to get these reform bills done before we break for the holidays,” Hildenbrand said as the Senate prepared to wrap up voting for 2017.

“That piece I’ve committed to the governor’s office — that we’ll look very quickly next year at maybe how to set up a fund and the appropriate amount of money that would go into that fund.”

The state unemployment agency’s automated computer system made nearly 48,000 false fraud accusations against jobless claimants between October 2013 and August 2015, according to a review by the department, which said in August that it was in the process of refunding affected residents more than $20.8 million in penalties.

But wrongly accused residents deserve more than a refund, said state Rep. Kevin Hertel, D-St. Clair Shores, who sponsored one of the reform bills now heading to the governor’s desk.

“At a minimum, they should be given interest on top of that money,” said Hertel, noting other victim costs may be hard to quantify. “There were individuals who lost their homes because money was taken from them and they couldn’t make mortgage payments. We’ve heard stories that the financial hardship it has created caused divorces.”

The legislation approved by the House would allow the UIA to recover full compensation for verified unemployment fraud but cap penalties at 150 percent for a second or subsequent offense. The current 400 percent penalty, believed to be the highest in the country, would only apply to imposters who commit identity theft.

The eight-bill package would also delay interest penalties, prohibit interest on over-payments due to agency mistakes, allow fraud determinations to be reconsidered for up to three years and give those accused of unemployment fraud access to an advocacy assistance program.

The proposal was designed to address agency failures identified by a work group chaired by state Rep. Joseph Graves, R-Argentine Township, that included Democratic legislators and other stakeholders.

Wanda M. Stokes, who was appointed to lead the Michigan Talent Investment Agency in July 2016, has said the bills will “build on the work” the state is already doing to improve the Unemployment Insurance Agency.

“This legislation is a great bi-partisan effort to help improve the unemployment insurance operations on a number of important issues both for the general public and employers,” Stokes said Wednesday in a statement. “I am especially pleased that we will have better tools to combat identity theft.”

Other bills in the package would create a new mechanism for addressing identity theft, require the UIA to report imposter claims each year and clarify eligibility for penalty waivers for residents living in poverty.

Michigan AFL-CIO President Ron Bieber called the package “a big win for Michigan families” but said more work must be done to “make things right” for victims.

“These important bills will make much-needed changes to improve the UIA, and give a helping hand to working people who have lost a job through no fault of their own, so they can continue to support their families while they search for work and get back on their feet,” Bieber said in a statement.