Senators notice the acting labor secretary is trying to ‘shift the consequences of a still unknown amount of federal funds that was lost’ under her leadership.
Senators notice the acting labor secretary is trying to ‘shift the consequences of a still unknown amount of federal funds that was lost’ under her leadership.
P lease excuse acting secretary of labor Julie Su for feeling these are her own bespoke End Times.
Reared in California’s progressive microclimate — where identity politics and powerful government unions are a Patriot missile-defense shield against charges of incompetence and corruption — Su is unaccustomed to tough questions.
That was fine in Sacramento, where Su served as Governor Gavin Newsom’s secretary of labor. Now in Washington, D.C., other than “Tell us how you start your day,” tough questions are just about the only questions Su gets. Congressional Republicans want to know how the hell she lost about $33 billion to criminals, inmates, and international crime gangs while stiffing the federal government on a $20 billion loan to backstop soaring unemployment benefits during Covid.
Su’s troubling week began during a May 1 hearing of the House Committee on Education and the Workforce. That’s when Representative Michelle Steel (R., Calif.) asked Su whether she really intends (as first reported in National Review) to forgive California — and by extension herself — its staggering losses.
That intention is now explicit in Su’s Department of Labor “Unemployment Insurance Program Letter 05-24.” That memo first appeared as something like a footnote in an otherwise obscure California state financial document published late on a Friday, March 15 — the better (one is tempted to speculate) to avoid public notice. But that memo makes clear Su intended to forgive herself for her own bungling — and potentially leave California’s already straitjacketed businesses to pick up the tab through a special, painful payroll tax that could be an unavoidable penalty from the state’s delinquency.
So, Su ought to have answered yes. Instead, she responded by answering a completely different question — whether the memo was an attempt to declare the underlying fraud legal.
“It is absolutely false that the guidance that the Department of Labor put out would forgive any fraud,” she told Steel. “Fraud is never okay. We do not condone it. We should not overlook it. And in fact both our OIG [Office of the Inspector General] and others have been trying to combat the fraud.”
That was her first dodge, and it was followed quickly by a second (as Su tried to blame lax guidance from Congress) and a third (that her federal office had successfully tracked some of the stolen cash to an unnamed foreign country where the funds were used to purchase property).
That was followed quickly by a fourth distraction: “Within the CARES Act there is the ability to waive nonfraudulent overpayments that might have been made to individuals — working people who struggled through the pandemic like everybody else and got overpayments that were not their own fault.”
That might sound perfectly reasonable to the untrained ear. But Steel wasn’t buying it. “Out of the $30 billion from California, how much is just overpayment, not fraud by those criminals?” Steel asked. “How much are we talking about?”
“It’s a good question,” Su replied. “I don’t know the answer to that, ma’am. Because after I left California, there was still work being done.”
Perhaps attempting to fill a space that might otherwise have been filled with gasps, Su immediately added, “and I think all states are still trying to assess exactly what happened during that period of time.”
Su’s implication — that this massive fraud wasn’t limited to California but affected every state — is impressive rhetorical sleight of hand.
But Steel pointed out that total fraud losses of federal funds from all states was about $130 billion. That would make California’s share a remarkable 23 percent of the national total. And federal reporting shows that only two states (New York and California) and the Virgin Islands have failed to repay their Covid loans.
Gavin Newsom might have repaid California’s debt to the federal government from 2022’s $100 billion budget surplus, a bounty he called “historic.” Instead, the governor continued to make it rain, funding, among other luxury items, one-time payments of up to $1,050 each to 23 million Californians. The reason for this populist largesse? “Global inflation. Rising costs. It’s hard out there and we know it,” the governor’s press office explained, revealing that it understands very little about the relationship between inflation and the money supply — or, what’s maybe worse, understanding that relationship quite well.
The enhanced interrogation of Su continues on the Senate side. There a May 8 letter, signed by Bill Cassidy (R., La., ranking member of the Committee on Health, Education, Labor, and Pensions) and Mike Crapo (R., Idaho, ranking member of the Committee on Finance) said Su’s department’s “guidance . . . appears to allow California to shift the consequences of a still unknown amount of federal funds that was lost under your leadership as Secretary of [California Labor & Workforce Development Agency] to the American taxpayer.” The senators have some observations and questions for Su that read like an indictment.
In December, Steel wrote her own letter — a kind of “late payment” or “final notice” to a debtor, in this case Gavin Newsom. California owes the federal government billions, she told Newsom, and “I urge you to address this delinquency promptly and responsibly.” Failing promptitude and responsibility, she said, Newsom was sentencing California employers to a series of draconian hikes in the Federal Unemployment Tax (FUTA):
Employers in states whose unemployment insurance funds have outstanding federal advances for two or more consecutive years, like California, could have their FUTA credit reduced by an additional 0.3 percentage points for each year their outstanding balance is not repaid in full by November 10. Each year the loan continues, it is likely there will be at least a 0.3 percentage point increase in the net FUTA tax rate from the previous year. For outstanding balances of more than 3 years, a second credit reduction applies, and after 5 years, a different FUTA credit reduction calculation kicks in.
“Without prompt repayment, Main Street businesses will face higher taxes that will undercut job creation and drive prices higher even as families and small businesses are already struggling with record-high inflation, sinking confidence in the economy, and crushing interest rates,” Steel concluded. “I urge you and the state’s legislature to prioritize repayment of this outstanding federal loan to prevent any additional economic burden on employers and workers in California.”
Today, 143 days after Steel sent that letter, Newsom has yet to respond.
If Steel’s description of the tax accounting is complex, the impact of stiffing your federal creditor is straightforward: Already straitened California businesses will pay a rising part of their revenues because Su screwed up and because Newsom preferred lavish public spending to repaying a federal debt. What those business owners will pay — and whether they can afford to pay it — will determine whether many of them close their doors for good or join the caravan of California business owners heading eastward over the Colorado River to opportunity.