Appeals backlog leaves unemployed Kansans hanging

12/17/2011 5:00 AM

12/17/2011 6:49 PM

Layoffs and reorganization at the state Department of Labor have led to a substantial backlog in unemployment appeals, leaving more than 6,500 Kansans waiting months to find out if they’ll qualify for benefits.

The backlog is more than twice what it was three months ago and four times the level in 2010, according to a report from the Legislative Research Department.

Rep. Jim Ward, D-Wichita, who requested the research on the backlog, said the unemployment system wasn’t broken when Gov. Sam Brownback’s administration took it over in January — and appeals were getting done even when the economy and unemployment were worse than they are today.

The problem, Ward said, is that the department laid off too many of the judges who heard appeals.

“Why do we have 5,000 more cases (on the backlog) than we did a year ago? Because they laid off the people who were making the decisions,” Ward said. “The question is, ‘Why?’ They basically don’t have an answer for that.”

Labor Department officials say systemic changes, instituted since Brownback’s administration took office early this year, will create a more efficient system and they’re re-staffing the appeals department to nearly pre-layoff levels.

“Right now it (the wait for an appeal) is running about three months,” said Kathie Sparks, deputy secretary of labor. “We’re doing everything we can to cut that time down, but yeah, it’s too long … There isn’t a person here who doesn’t think that’s too long.”

She acknowledged that Kansas is not meeting federal guidelines for timeliness in completing appeals hearings – but said she doesn’t know a state that is, given the country’s economic problems.

Brownback said he’s not satisfied with the waits for appeals and blamed the problem on his predecessors.

"Unfortunately, the prior administration had spent most of the federal money that runs the Department of Labor — most of it is a federally funded agency," he said. "It’s very little state funding. We had a big reduction in workforce because we had no money — the federal funds to fund it. So then you have these sort of things that start up."

Ward said the people running the program are getting as much money from the federal government as they ever did.

“There is no economic reason for the layoffs (of unemployment judges),” he said. “This isn’t a budget thing.”

He said the appeal backlog is a particular threat to Wichita, because so much of the economy is tagged to the aircraft industry, where layoffs and callbacks are a way of life.

“Even Chamber of Commerce folks will say the most important thing to our aviation industry is our (skilled) workforce,” Ward said. “The unemployment system is how we cushion the ups and downs in that cycle and keep that workforce here during economic downtime.

“We could lose federal money, which is the infrastructure for protecting our economy by keeping workers around, protecting families so they don’t go bankrupt because of economic conditions beyond their control.”

Backlog up even as jobless rate down

The record shows the appeal backlog has grown as the unemployment rate has shrunk.

Unemployment peaked at 7.6 percent in July and August 2009. At that time, the backlog of unemployment appeals was 2,066.

In August 2010, unemployment had dropped to 7 percent and unemployed workers waiting on appeal had dropped to 1,473.

By August of this year, the unemployment rate had dropped again to 6.7 percent. But the appeals backlog had more than doubled to 3,026.

And since August, it’s doubled again. In the last week of November, 6,570 workers were waiting for their appeals to be decided by a state referee.

The Department of Labor started the year with at least 16 appeals judges, stationed around the state.

Layoffs in June and subsequent retirements brought the number down to six.

The layoffs were part of a reorganization of the department to concentrate its appeals staff in Topeka. Almost all of the appeals are heard by telephone.

Although the people hearing appeals had had the working title of judge, state law calls for referees, and the job title was changed to reflect that, said Brett Flachsbarth, the chief of the appeals division.

But the job qualifications also changed. Unlike the former appeals judges, the referees are not required to be attorneys.

The department is filling the positions by promoting lower-level, non-attorney employees whose job is to make the initial determination whether a worker is eligible for benefits.

Instead of people having to have a law degree, people who actually have experience in this area are moving into the job, Sparks said. “Right now we have 11 referees and we’re hiring three more.”

When the new referees take office in January, the department will be only two positions short of where it was at the beginning of the year.

Ward, however, said he’s concerned that the new hires aren’t lawyers. While they may be experienced with labor law and capable of evaluating cases, they aren’t bound by the same rules as lawyers, he said.

“Lawyers have more than one boss in the case of working for the department,” he said. “They have their ethical code, particularly when they’re acting in a judicial manner. Even though the boss may say ‘You need to do this,’ they may say ‘No, I can’t do that.’ ”

Employers fight claims

While unemployment has been slowly and steadily dropping the last two years, the number of appeals has gone up, Sparks said.

During some periods this year, the Labor Department was receiving 500 to 600 appeal filings a week — about twice normal.

“One of the big (reasons) was employers had become more sophisticated about the system and more are challenging the determinations,” she said.

When the economy was in better shape, unemployment appeals weren’t as big a deal, Sparks said.

Displaced workers usually could find a new job fairly quickly and employers didn’t have as much at stake.

But with workers receiving benefits longer and money tighter, companies are now devoting more time and resources to fighting claims, she said. Companies with high claims risk having to pay more in unemployment insurance.

“When times are really good, it appears employers don’t pay that much attention,” she said.

Ward said he doesn’t believe that explanation because he’s been in many hearings over many years with many employers who were deeply concerned about unemployment.

“I think Kansas employers do pay attention to the bottom line in good times and in bad times, and they are very cost-sensitive to all programs including unemployment,” he said.

Sparks said another problem with the old system was that it was “paper driven,” with appeal judges scattered throughout the state holding hearings and, in some cases, working out of their homes and sending in their rulings by mail.

“They’d hear the hearing, but the opinion was not getting out for months,” Sparks said.

The department is rolling out a new computerized system and made significant upgrades last week, she said.

Ward said that doesn’t really account for the backlog either.

“The fact that they’re upgrading the technology is great, but that upgrade’s been going on for years,” he said. “And we weren’t getting big backlogs before.”

How the system works

Last year, more than 171,000 Kansans drew unemployment benefits.

That was down slightly from a peak of 179,000 in 2009, but still 70,000 more than in 2008, when the nationwide recession started taking its toll on the labor market.

As of last week, 40,894 displaced Kansas workers were receiving unemployment benefits. The total of recipients for the entire year is not yet available.

The system provides workers with $111 to $400 a week to help them maintain an income while looking for a new job. The amount of benefits is tied to work and salary history.

The first 26 weeks of benefits are paid from a state insurance fund that comes entirely from a tax on Kansas employers.

Benefits beyond 26 weeks, in response to the ongoing economic downturn, are paid by the federal government.

Workers can receive as much as 86 weeks of benefits, although that will almost certainly be reduced to 73 weeks starting Jan. 7, because Kansas’ unemployment rate is no longer high enough for workers to qualify for an additional 13 weeks of federally funded benefits.

But not all unemployed workers are eligible.

Workers who are laid off because their company is cutting costs or doesn’t have work for them are generally eligible to receive benefits.

Workers who voluntarily quit their jobs or are fired for cause are generally ineligible.

When an idled worker applies for unemployment benefits, the Department of Labor sends a letter to his or her last employer to verify details of the job loss.

Disputed claims go to a process called adjudication, in which Labor Department employees gather evidence and issue a determination of whether the unemployed person is eligible for benefits.

Either the unemployed worker or the former employer can appeal the determination.

It’s to the employer’s financial advantage to fight unemployment claims. The more successful claims against a business, the more the business has to pay in unemployment taxes going forward.

For businesses that have put more into the system than the state has paid out to its former workers, the tax rate runs from less than half a percent to 5.4 percent of payroll, Sparks said.

When ex-employees’ claims exceed the amount the business has paid into the system, the tax rate runs from 5.6 percent to as much as 9.4 percent, she said.

Appeals can be gamble

Extended appeals set unemployed workers up for a high-stakes gamble.

If they’re initially determined to be ineligible for benefits, they don’t start receiving any money until their appeal is decided — meaning they have to find some other way to pay living expenses while the system runs its course.

Conversely, if the initial determination is in the worker’s favor, he or she can draw benefits during the appeal process. But if the employer’s appeal is successful, the worker has to pay the money back — a debt that could be thousands of dollars at a time when the person has no income.

Although unemployment is administered by the state, it’s done under federal authority.

Federal regulations require that “all administrative appeals affecting benefit rights are heard and decided with the greatest promptness that is administratively feasible,” according to a U.S. Department of Labor advisory.

A state is deemed to be in compliance when it has “issued at least 60 percent of all first level benefit appeal decisions within 30 days of the date of appeal, and at least 80 percent of all first level benefit appeal decisions within 45 days,” the advisory said.

The federal government can withhold payment from states that fail to provide timely appeals.

Sparks acknowledged that Kansas isn’t meeting the standard. But she said that of the 53 state and other jurisdictions that handle unemployment, she doesn’t know of any that are, because of the recession.

Ward said the department appears to be taking a “cavalier attitude” toward the federal rules.

“They (the state Labor Department) hold employers to the rules, they hold employees to the rules,” Ward said. “The idea that clearly we’re not in compliance with that but we still want what we want wouldn’t work for them. Why should it work for the department?”

Contributing: Brent D. Wistrom of the Eagle Topeka bureau

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