Breaking Down State UI Stimulus: Does $2 Billion Move the Needle?

It had to be good news for IT-challenged states when President Biden last week signed the $1.9 trillion COVID stimulus bill that includes a somewhat surprising $2 billion funding award to the Department of Labor (DoL) to help with state unemployment insurance (UI) program improvement. The plan’s UI package was first reported by MeriTalk on March 1.

But given the magnitude of help that states need – and reading through the fine print of the stimulus bill – it remains an open question how big of an impact the new funding may have.

The Fine Print

It’s nice to think that the $2 billion will go primarily to modernize the state UI systems that have suffered from dramatic online processing failures, call center collapses and historic fraud incidents.

However, the bill’s official wording portends that it is intended to cover a multitude of other sins. Those include legal enforcement of fraud investigations and prosecutions, and equitable access. In fact, the bill specifically spells out “transfers” to the DoL Office of the Inspector General, the Department of Justice, and other agencies to support such matters.

As we have written before, a study by the National Association of State Chief Information Officers (NASCIO) last year indicated that nearly half of the states were still operating their UI systems on 40-60 year old legacy applications. With so many states facing UI modernization challenges, and the heavy financial burden inherent in these case management systems themselves – often reaching to nine figures – that $2 billion won’t go very far anyway.

Historical Lessons

In one sense, however, this funding shortcoming may be a blessing – or at least a warning – in disguise. I recall as California CIO in the late 1990s, the Golden State and many others were in the depths of intense developments of new child support systems to track down “deadbeat dads.”

At that time, states around the country were taking advantage of new Department of Health and Human Services (HHS) Administration for Families and Children (AFC) funding which financed 80-90 percent of total project costs. As was to be expected, there was keen participation as states scrambled to take advantage of the Federal largess before it was all spoken for – jump starting dozens of statewide automated child support systems or SACSS projects, as there were known.

This scenario fostered a series of unforeseen consequences whereby so many new SACSS projects were in development at the same time that the limited and esoteric industry experience and capabilities in this subject area were soon exhausted. In addition, in a well-intentioned effort to keep costs down with a systems replication scheme, AFC required states to utilize systems already financed in other states as a “transferred” application engine for their own jurisdictions.

The results were predictable – particularly as they usually are – in hindsight. Vendor SACSS project teams looked very good on paper and particularly on proposals. However, the often- applied tendency of industry firms to include their best qualified and experienced teams as key personnel on multiple and concurrent proposals meant that many state projects were shortchanged.

As for AFC’s systems replication scheme, in California’s case, their SACSS project was required to be a transferred system used in New Hampshire. The Granite State’s system serving a state with just three percent of California’s population proved fundamentally unscalable.

These two factors, a rush by states to begin their SACSS projects and claim their share of Federal funding, plus a bizarre Federal transfer system stipulation proved the downfall for many state projects – and provided a lesson.

It’s true that many states are continuing to utilize and maintain unemployment insurance systems nearing their half-century lifecycle. However, they are also faced with similar challenges for many other legacy case management systems in the social and health-related fields which – as in the case of UI systems – are similarly federal funded.

Plus, there are huge, enterprise administrative systems like payroll and finance that are also staggering along with only the support of chewing gum, baling wire and retired annuitants.

Modernization of all these systems – including ones with specific Federal funding incentives – is in everyone’s best interests especially to avoid the tragedy surrounding the UI system failures, or other mission-critical benefit applications.

However, to avoid the failures of the past, this effort must be undertaken with careful consideration, and close collaboration among the Biden Administration, Congress and especially the states. The $2 billion of funding for UI system improvements is a great move – but not one that is going to move the needle too much absent a much more comprehensive view of the problem.