This week, the House is considering Republican-authored legislation (H.R. 1163, the Protecting Taxpayers and Victims of Unemployment Fraud Act) designed to promote more recovery of fraudulent unemployment checks paid during the pandemic, among other purposes. That’s long overdue, since little of potentially $400 billion in such misspending—including an estimated $60 billion or more in fraud, according to the Government Accountability Office—has been recovered to date.
Yet despite those staggering losses, the Congressional Budget Office (CBO) has offered a discouraging assessment of the potential for recovering more funds, both under current law and the bill if enacted. Either way, CBO suggests, taxpayers shouldn’t expect to recover much federal pandemic money lost to fraud.
That’s despite a key provision in the House bill, which would give states a new financial incentive to recover federal pandemic funds lost to fraud. As a Ways and Means Committee report describes, the legislation would “allow states to retain and spend 25 percent of recovered overpayments that were identified as fraudulent.” That replaces current policies that require states to return all such recoveries from pandemic programs to the feds, which offers states “little incentive to pursue costly investigations and prosecutions,” according to the committee. Under the bill, states must use their share of recovered funds to improve program integrity and modernize the systems that left benefits vulnerable to fraud in the first place.
CBO—basing its thinking on past performance and thus without crediting any effect to the new incentives—foresees the bill resulting in only limited recoveries of the fraud inflicted on an alphabet soup of federal pandemic programs:
Data from DOL shows that by the end of fiscal year 2022, states had identified roughly $3 billion in fraudulent overpayments for FPUC, PUA, and PEUC. States have recovered about $130 million so far. Using that information and the recovery of similar overpayments of temporary unemployment benefits paid from 2008 through 2013, CBO estimates that roughly $100 million will be recovered between 2024 and 2031 and that states would keep (and spend) about $23 million (or 25 percent) of the amounts recovered over the 2023-2033 period.
CBO “expects that allowing states to retain and spend recovered amounts that they otherwise could not use would result in all states undertaking these activities.” But in the end, it sees no increased recoveries resulting from the legislation, since its estimate for recoveries under the bill is simply “based on current data.” Either with or without the bill, according to CBO, recoveries “are likely to be a small percentage of total suspected fraud.” Small indeed. The figures above suggest the scorekeeper expects that at most eight percent of identified losses to pandemic fraud will ever be recovered (that is, the projected total of $230 million recovered through 2031 out of $3 billion in currently identified fraud).
CBO admits there is “significant uncertainty” about “projecting recoverable amounts” from pandemic programs. And its assessment offers at least two challenges to opponents of the House bill, who argue against its pay-for provisions repealing some current funding for the Department of Labor (DOL). First, as CBO’s estimate details, current law efforts will result in minuscule recoveries, which means that doing nothing is not an appealing option. Second, CBO notes that, even if the House bill is enacted, DOL “could provide funding to partially or fully replace the amount of repealed funds.” Both factors suggest that Democrats’ claims the legislation would “undermine current efforts to fight fraud” are oversold. Anyone who thinks the Biden administration wouldn’t “partially or fully replace” these federal funds if given the chance simply hasn’t been paying attention.
The massive scale of taxpayer losses to unemployment fraud during the pandemic demands action, which is long overdue. CBO’s estimate of the tiny fraction of fraudulent claims recovered “based on current data” argues for such action, even if it is unclear how states will respond to the incentives in the House legislation. Incentives involve uncertainty, but states should respond far more aggressively than the nonresponse CBO projects. Here’s hoping they do. Tens of billions of dollars lost to fraud and currently unrecovered are at stake. In the end, federal taxpayers would be far better served receiving 75 percent of any increased recoveries prompted by the bill than 100 percent of the almost nonexistent recoveries expected without it.