Investigations

Kimberly Iacono lost her job when the Bardstown Cracker Barrel closed its dining room in March.

Kentucky’s unemployment office approved her benefits but deemed her eligible for only $114 a week from the state, far less than she’d normally take home in tips as a server. Iacono has seen that modest check reduced even further because the Kentucky Office of Unemployment Insurance says she owes them $6,570. 

The office alleges she was overpaid eight years ago, and they docked her checks during the pandemic to begin reducing that debt. At one point, they asked Iacono to pay them $600 a month. Iacono was shocked. 

“I’m eligible for $114 a week in unemployment insurance and you’re telling me that you want me to pay $600 a month,” Iacono said. “I mean, that’s absolutely preposterous.”

More people in Kentucky and across the country will likely find themselves in a similar situation. Policy experts and public benefits lawyers say the unemployment crisis has already created a wave of overpayment debts due to the complexity and speed at which state administrators adjusted to the circumstances.

Cali Mills, an executive advisor with the Kentucky Labor Cabinet, which began overseeing the unemployment office in May, said the office is mandated to collect debts, and they will soon start pursuing legal action against fraudulent claims and overpayments alike.

For some unemployed Kentuckians, that could mean a day in court. 

Fraud prosecutions have been limited due to the pandemic, Mills said in an email to KyCIR, “but with the courts beginning to resume a more regular schedule, legal actions will resume.”

Her Debt, But Not Her Fault

Iacono’s debt stems from 2012, when Iacono was allegedly overpaid in unemployment benefits during a stint between jobs. At first, state workers said they couldn’t provide any information about the overpayment besides how much Iacono owed, and that they would withhold $25 a week to put towards the debt.

After KyCIR asked the state about Iacono’s debt, the unemployment office called her with new information: The last time she filed for unemployment, her employer challenged Iacono’s claim and won. But no one told Iacono.

The state kept sending her unemployment checks, though she was no longer eligible, and now, she’ll have to pay that money back. It will likely take a long time: She’s back to work and no longer collecting unemployment, but she’s agreed to a payment plan of $28 a month.

Overpayment debt can pop up years after a person first collected unemployment, says James Maxson, an unemployment insurance lawyer who served as in-house counsel of Kentucky’s Office of Unemployment Insurance from 2008 until 2016.

“If you’ve received benefits and it was later determined that you were ineligible, not only do you stop receiving benefits prospectively, not only do they turn off the tap, but you actually have to pay those benefits back,” Maxson said.

State agencies are required by federal regulations to pursue any overpayment in unemployment benefits, but some states have passed laws allowing them to waive debt that is the result of an agency error, or that causes financial hardship. Kentucky is one of just 10 states that does not allow a waiver of overpayment debt in any circumstances, according to the federal Department of Labor.

“It’s an aspect of Kentucky’s system that I disagree with very much,” Maxson said. “But I’m sure that (overpayments) are beginning to happen and I’m talking to people pretty regularly who say, ‘They told me I’m not eligible and they want me to repay that amount.’”

To recover the overpayment debt, Kentucky’s unemployment office can withhold future benefits, as it did with Iacono, or file a lawsuit. Once that debt turns delinquent, state unemployment agencies are required to turn it over to the federal Treasury as the debt collector of last resort, though often, that happens before any collection attempts.

The Treasury withholds tax returns and other federal payments to offset the debt. This means the feds have been withholding aid to people put out of work by a global pandemic to pay a debt they probably didn’t know about.

The Treasury can withhold up to 50 percent of the $600 weekly payment Pandemic Unemployment Assistance authorized by Congress’ coronavirus relief package. In just the first half of 2020, the Treasury offset program has collected more than $1 million on behalf of Kentucky’s Department of Labor and more than $202 million for state agencies nationwide.

Improper Payments Abound

Unemployment overpayments are fairly common in Kentucky under normal circumstances.

The federal Department of Labor estimates that Kentucky’s unemployment office made nearly $26 million in improper payments last year, including overpayments and underpayments.

According to 2016-19 data from the Department of Labor, Kentucky overpaid on unemployment insurance benefits roughly 17% of the time. That’s well above the 10 percent improper payment rate the federal government requires states and federal programs to maintain.

Marjorie Arnold, chief of staff at the Kentucky Labor Cabinet, said in an email that recent changes in program administration have lowered overpayment rates to around 9%.

Quarterly payment accuracy reports would reveal how much Kentucky has overpaid since the coronavirus pandemic struck the commonwealth in March, but those were put on hold until July.

Michele Evermore, an unemployment policy expert at the National Employment Law Project, said that the pandemic has without question created a looming overpayment problem.

When the first coronavirus case popped up in Kentucky and businesses closed, the state expanded unemployment to reach independent contractors and the self-employed. The CARES Act followed shortly after, codifying the expansion in federal law and creating another $600 weekly payment under the federal Pandemic Unemployment Assistance.

Kentucky officials rushed to get money to people who desperately needed it. Evermore said the sheer number of people collecting unemployment, along with the new policies states like Kentucky have implemented on the fly, means state agencies are more likely to make mistakes.

“The administration in Kentucky really seems like they are trying their best to adopt whatever best practices they can to get benefits out the door as quickly as they can,” Evermore said. ”Ironically, some of the states that are doing the best at trying to get benefits out might get hit with this a little more.”

The problem isn’t likely to go away, even if state unemployment officials would prefer to avoid collecting overpayments. The Department of Labor Office of Inspector General said in its most recent report to Congress that it is considering auditing state workforce agencies’ efforts to detect and recover overpayments. 

The inspector general said it expects that phase of oversight, including any audits, to be completed by September 2021.

The inspector general’s report focuses on fraud in the unemployment program that can result in overpayments. But more often, overpayments are the result of simple paperwork problems or even administration errors made by the state, according to David Super, a public benefits attorney who teaches at Georgetown Law School.

“There needs to be program integrity and there needs to be serious measures taken (to prevent and punish fraud), but that’s not most of what we’re talking about here,” Super said. “A lot of what we are talking about are people who needed the money and were subsequently eligible for the money, but the paperwork went wrong.”

For example, Kentucky reports the most common “root cause” of overpayments in its unemployment system is that applicants didn’t register for required employment services, to connect them with job leads or training opportunities.

Most unemployed people have no problem doing so, Super said. “But if they are never asked, or the form is never handed to them or it sticks to another form and doesn’t get signed, then that becomes an overpayment,” Super said. 

If programs were properly administered and the application process simplified, he said, fewer people would be caught by paperwork errors.

In fact, Marjorie Arnold, chief of staff at the Kentucky Labor Cabinet, said in an email that the unemployment office has significantly lowered its improper payment rate after loosening the requirements surrounding employment search registration.

‘Broken for many, many years’

Submitted

Kimberly Iacono

The state has withheld hundreds of dollars from Iacono at a time, she said, when every penny counts.

She’s mostly been kept afloat by the $600 per-week in federal Pandemic Unemployment Assistance authorized by the CARES Act. But in July, $300 of that check was withheld, with no warning or explanation. 

Iacono said the unemployment office told her this week that it’s too late to appeal the decision, even though they made a mistake in not cutting her off once her employer successfully challenged her claim. She says she’s planning on talking to an attorney about it.

Iacono knows that, given the state of Kentucky’s unemployment system, things could be worse. The application process was confusing and full of mixed messages even when she filed for unemployment back in 2012, and she knows people who filed claims back in March and who have yet to receive a single check. 

“It’s not working and it’s been broken for many, many years,” Iacono said. “Unfortunately now taking into consideration the events that have caused so many to have to file for benefits, the evidence that it’s broken is even greater.”

Iacono went back to work at Cracker Barrel a few weeks ago. Business has been slow, and she’s worried about getting sick.

She wishes the unemployment office told her about the debt when it supposedly took place, instead of waiting until she was out of a job. “I would have had the opportunity to resolve this eight years ago, and not have this thrown in my face at a time when it’s not exactly ideal to have to contend with this.”

Contact Jared Bennett at jbennett@kycir.org.