The Brief

By the first COVID summer, no one knew who was who. In Nigeria, an oil company IT engineer was allegedly filing for unemployment in California and 16 other states with a slew of fake Gmail accounts. At a desert state prison in Imperial County, an inmate used personal data bought on the dark web to funnel unemployment money to his wife for a $71,000 Audi and a down payment on a house. Along the Pacific coast in Carlsbad, Danny Ramos was one of millions of real California workers realizing that something was going very wrong, as weeks or months went by without the unemployment benefits they badly needed.

“It felt,” Ramos said, “like this was just a big old scam.”

As California unemployment claims spiked 2,300% in the early months of 2020, the state’s top labor officials ricocheted from crisis to crisis, internal communications obtained by CalMatters show. Emails and emergency meeting notes detail how the long-troubled California Employment Development Department became the focal point — and then the punching bag — for state efforts to stave off economic collapse while contending with a historic wave of fraud.

“This is bigger than anything we have ever experienced,” then-EDD Director Sharon Hilliard wrote in an email the day before California shut down in mid-March 2020. “Everybody is moving at the speed of light.”

But soon, Bank of America, the EDD’s unemployment debit card contractor, warned that it might not have enough plastic to print the millions of cards that the agency needed. An assistant in Gov. Gavin Newsom’s office emailed the state’s then-Labor Secretary Julie Su asking what to do about someone fraudulently using his Social Security Number to file for unemployment. A staffer for San Francisco Assemblymember Phil Ting pleaded for help for a constituent so distraught about “the runaround” from EDD that she was suicidal.

All across the country, states were dealing with their own versions of this race to prevent a modern-day Great Depression by getting money to laid-off workers, fast. Nowhere was the challenge more daunting — and the fallout more widespread — than in California.

A year-long CalMatters investigation found that the EDD was primed for disaster by years of failing to heed red flags, stalling reforms and abruptly abandoning a pre-pandemic effort to get ahead of exploding online fraud — issues that rose to the top of political agendas and budgets around recessions, but were never really fixed as governors, legislators and federal regulations changed. Once it all boiled over in the spring of 2020, California got the worst of both worlds: tens of billions of dollars lost to fraud, and workers who lost their financial stability, their homes or, in extreme cases, their lives.

“It’s almost like a pendulum, where EDD has opened up the door, and fraud’s happening,” former California Auditor Elaine Howle told CalMatters this summer. “And then, ‘Oops, oh my God, there’s fraud. Let’s freeze all these accounts.’”

Amid these twin failures of rampant fraud and financial harm to real workers, the EDD and top unemployment contractors Bank of America and Deloitte kept raking in millions of dollars from the state’s troubled system. The bank paid the EDD roughly one-third of the nearly half a billion dollars in unemployment debit card revenue generated from March 2020 through December 2022, according to state data requested and analyzed by CalMatters. The bank told state lawmakers that it still lost $178 million on the contract in 2020 due to card fraud and extra call center costs, but refused to provide CalMatters numbers for later years of the pandemic.

No one disputes that other states also struggled to keep up with the deluge, especially when it came to a first-of-its-kind emergency federal program for self-employed workers. States including neighboring Arizona and Nevada at times saw more unemployment claims than they had workers in the state. Despite being home to Silicon Valley, California was one of many states that struggled with decades-old technology, long processing delays and trouble training new workers while triaging a crisis.

Still, California’s system lagged states with much smaller unemployment budgets in several key ways. It is one of only three states that has failed to offer a direct deposit option for jobless benefits, setting the scene for chaos when EDD debit cards briefly became a scammer status symbol. It’s one of four states that has not changed its unemployment tax system since the 1980s, leaving California’s trust fund in the worst shape of any state’s when the pandemic hit — fueling a rapid descent into more than $19 billion of debt to the federal government.

When it comes to heading off fraud, California was in the minority of states that didn’t cross-check unemployment rolls with prisons, state audits found. The EDD was also slower than some other big states to implement new anti-fraud measures — and, once it did, took an approach so broad that state watchdogs say it trapped hundreds of thousands of real workers.

Those inside the EDD during the early days of the pandemic remember the shock as the whole picture came into focus. Job losses quickly blew past all projections for normal recessions, said Greg Williams, the agency’s former deputy director of Unemployment Insurance.

“The best way I can describe it,” Williams said, “is like going to a gunfight with a squirt gun.”

In the decades leading up to the pandemic, tragedy first propelled the EDD from an in-person, paper-based system to a network of call centers and online services that have repeatedly failed under pressure. The agency has lagged federal standards for timely payments and benefit decisions for many years since 2002. An effort to get ahead of online fraud in the 2010s was abandoned even as the risk of cyberattacks mounted across industries.

When the floodgates opened during the pandemic, California took months to tighten application processes, in some cases allowing scammers to more easily file claims than real workers. The EDD cut off benefits for more than 3 million people who didn’t send in requested documents while its offices were piled high with unopened mail. Still, the agency sent out 38 million letters with full Social Security Numbers years after it promised to stop the practice.

The saga set off a political firestorm, adding fuel to the unsuccessful COVID-era campaign to recall Gov. Gavin Newsom. It is still reverberating in a bitter business-versus-labor fight over President Joe Biden’s attempt to make former California labor chief Su his U.S. Secretary of Labor — a move that has drawn fierce partisan opposition. In July, Su, who continues to be the acting Labor Secretary, became the longest unconfirmed nominee whose own party controls the White House and the U.S. Senate.

CalMatters repeatedly attempted to contact Su and Newsom about the state’s pandemic unemployment breakdown, along with former EDD directors Hilliard and Patrick Henning Jr. None of them agreed to an on-the-record interview.

Nancy Farias, Director of the California Employment Development Department, in front of the agency’s offices in Sacramento on Oct. 26, 2023.

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Miguel Gutierrez Jr.

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CalMatters

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Today, EDD Director Nancy Farias maintains that “we’re no different than any other state.” Shifting federal guidelines for emergency unemployment programs complicated the agency’s response, she said. Once California did start using “fraud filters” to scan for suspicious claims in the fall of 2020, Farias told CalMatters that the EDD took other states’ advice and was aggressive, setting its filters “on the high end” of what the technology could do.

Ultimately, state reports have found that 5 million Californians saw unemployment payments delayed during the pandemic, and at least 1 million saw benefits improperly denied. A backlog of unprocessed claims peaked at around 1.6 million. Hundreds of thousands more workers were cut off by debit card freezes that Bank of America and the EDD blamed on each other.

“People did get caught up, and you know, to be fair, it took us a while,” Farias said of the state’s pandemic unemployment backlog. “But we did go through those claims.”

About 130,000 California workers are still fighting long unemployment appeals cases, and several class-action lawsuits are ongoing against the EDD and Bank of America. To this day, no one knows how much money the state lost to pandemic unemployment fraud; government and industry estimates range from around $20 billion to $32 billion. Some officials say it’s unlikely states will ever know how much was lost to fraud or “improper payments” — a broader government term for intentional fraud and other payment errors — let alone be able to claw back more than a fraction of missing funds.

In the absence of clear answers, the agency now planning a historic $1.2 billion overhaul of California’s job safety net has been left to grapple with big questions. How could the EDD have been so good at giving money to scammers, but so bad at getting funds to real workers? Why didn’t the state and contractors who were making money off of the flawed system do more to fix the problems, faster? And now, who will pay for the fallout?

“My whole life just went upside-down,” said Ramos, the San Diego construction worker, who told a state appeals judge he was forced to separate from family and leave the state for a cheaper rental in Tecate, Mexico, while waiting for unemployment benefits that never came. “They say money doesn’t buy happiness, but poverty sure as hell causes grief.”

The COVID unemployment backlog begins

On March 18, 2020, the day before Newsom first ordered Californians to stay home to slow the spread of the coronavirus, his then-Labor Secretary Su wrote an email to EDD Director Hilliard and her own deputies at the state’s higher-ranking Labor and Workforce Development Agency.

She wanted to know if the state’s unemployment system was ready for whatever came next.

“Do we need to do anything to shore it up at this time to prevent problems (delays or worse — system crash)?” Su asked. “I need you to work together to make sure we are ok.”

At first, the EDD was optimistic: “System is performing fantastic,” the agency’s IT director wrote the next day.

Less than 24 hours later, the scale started to sink in. Su and Hilliard exchanged messages on March 20 about the pros and cons of expediting unemployment approvals by waiving some eligibility requirements. Su wanted to know what keeping the checks in place would mean for processing times.

“How long would it take to get payments out,” Su asked, “and what would the backlog situation likely be?”

Hilliard answered: “It would be months if not well into next year…. Makes my (sic) shiver just thinking about it.”

A bigger challenge was still to come.

In May 2020, California rolled out the unprecedented federal Pandemic Unemployment Assistance program for self-employed workers, which the EDD later blamed for 95% of the state’s COVID-era fraud.

“No,” state websites instructed applicants for the new federal program. “You do not need to submit any documents to the EDD.”

This is where federal officials tasked with tracking what happened to trillions of dollars in nationwide COVID relief spending now say things went awry, both in California and elsewhere. There should have been middle ground — at least doing faster and more obvious checks with prison rolls, or sharing claim information between states — said Michael Horowitz, inspector general of the U.S. Department of Justice and chair of a federal Pandemic Response Accountability Committee.

“They set up a false choice between, ‘Get the money out the door as soon as you can send it out,’ versus, ‘Let’s spend a week matching data,’” Horowitz told CalMatters. “Not months, but a week matching data. And that’s the crux of the problem.”

The EDD maintains that the feds did not provide enough guidance at the time, “leaving states to fend for themselves,” Farias later wrote to a U.S. House committee.

Law enforcement agencies around the state announced busts involving EDD debit cards in the early months of the pandemic.

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Photo courtesy of Burbank Police Department

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What happened instead as jobless claims flooded in, state reports would later find, was a fateful split in how they were handled by the EDD. About 60% of claims — including many later suspected to be fraud — sailed through an automated application process, a state EDD task force appointed by Newsom found. The application for the emergency federal program for self-employed workers was particularly fast and easy to game, state audits and district attorneys found (sample successful applicant: “Poopy Britches”).

The other 40% of unemployment claims were flagged for manual review for a wide range of reasons, the task force found: typos, nicknames, language barriers, mismatched dates, hyphenated last names, middle initials instead of full middle names, addresses “too long to fit in the database” used by the EDD and so on.

The catch: It was sometimes easier for scammers to get through the automated process than it was for real people. That’s because real people are prone to human error, especially when typing on mobile phones or using outdated online systems.

More proficient scammers, by comparison, use software to copy precise stolen data and auto-file applications, often passing verification even when applications were checked against other government databases.

“Fraudulent applications using these sources will not get flagged,” EDD task force co-leader Jennifer Pahlka wrote in her recent book “Recoding America”. “The data entered on the application will exactly match the sources the EDD checks against, because it is usually a copy of precisely that data.”

Cashing in on EDD contracts

The fraud panic was just beginning, but the chaos that followed would prove to be a money-maker for EDD contractors. That is, until some of them got targeted by scammers, too.

Deloitte — which the state previously paid more than $152 million for projects including an EDD computer modernization effort that state reports found faltered during the pandemic — won another $118 million in no-bid emergency EDD call center and tech contracts after March 2020.

Deloitte spokesperson Karen Walsh said in a statement that the consulting firm has “successfully modernized dozens of state labor and workforce systems,” and that shifting regulations in the years before COVID “required changes” to its work with EDD that increased the scope, time and financial amount of its contracts. During the pandemic, Walsh said, Deloitte helped “deliver critical federal pandemic benefits to millions of California families.”

Things between the EDD and payment contractor Bank of America, meanwhile, were tense. The state and the bank sparred in the early days of the pandemic over how many benefit debit cards it was physically possible to print and provide customer service for.

“They are telling us their limit to issue new cards is 22,500 per night,” EDD Director Hilliard wrote on March 26, 2020. “Starting this Sunday we expect about 465,000 new claimants that will need a card.”

Su was adamant that the bank do more, replying, “We want NO DELAYS in payment of benefits.”

Weeks of emergency phone calls followed. At one point, a plan was hatched, then scrapped, for Bank of America to mail paper checks. State labor officials asked why the EDD didn’t have direct deposit, or online payments similar to Apple Pay’s digital cards. By May, a bank executive wrote that capacity had increased to up to 300,000 cards per day, and that more than 3.8 million cards were active. The two sides bickered about legal and financial agreements.

“This is painful,” one EDD administrator wrote in a June 2020 thread about contract terms.

Still, the mess was minting money for both parties.

Bank of America collected more than $492 million in EDD debit card fees from March 2020 to December 2022, state financial records provided to CalMatters show. Per the state’s debit card contract, the bank kicked back to the EDD nearly $187 million during that same time, which the EDD said was used to help “offset the cost” of administering the state’s multi-billion-dollar unemployment and disability programs.

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Bank of America unemployment debit card revenue records requested from the EDD by CalMatters

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Under fire for fraud and delays that would plague the system, Bank of America later told the state Senate Banking Committee that, despite the nine-figure revenue, the program was a money-loser, costing $927 million in expenses compared to $687 million in revenue from January 2011 through December 2020. The EDD, the bank argued, was at fault for the system’s security weaknesses.

“The vast majority of fraud occurs when criminals who are ineligible for benefits improperly enroll in the program by creating accounts using false identification or stolen identities,” Brian Putler, a Bank of America government relations executive, wrote to the committee. “The enrollment and cardholder verification processes are controlled by EDD, not by the Bank.”

In mid-2021, the bank went a step further, telling state lawmakers in public statements that it wanted out of its expiring EDD contract; California extended it anyway, in continuity. The following year, the bank was fined $225 million by federal financial regulators for what they called “botched disbursement” of state unemployment funds in California and elsewhere.

The finger-pointing was just starting. In the months that followed, a long-brewing battle would come to a head over whether the state was way too concerned, or not nearly concerned enough, about unemployment fraud.

“The irony is, we went into this pandemic having created a culture in places like EDD of extreme sensitivity to fraud, when in fact it wasn’t that big of a problem,” Pahlka told CalMatters. “And then created the conditions under which we made fraud a really, really big problem.”

A fraud tech boom — then bust

Five years before anyone had heard of COVID, Steve Sheehan discovered a time bomb lurking in the state’s unemployment system.

It was late 2014 when his team of fraud investigators at the EDD started rolling out fraud detection software from a local tech startup called Pondera Solutions.

At his desk at EDD headquarters lofted above the Capitol Mall, Sheehan recalls wading through up to 300 alerts per day for potential unemployment fraud. They flagged possible claims by ineligible prison inmates, on the state’s new unemployment debit cards and applications coming from overseas IP addresses in places like Israel, Uruguay and Pakistan.

“Were we aware that the fraud was out there? Yeah,” said Sheehan, a 30-year EDD veteran who retired in late 2018. “We didn’t put safeguards in place and made California an easier target, so people would come here to do their fraud.”

For a brief period in 2014 and 2015, the EDD used the experimental deal with Pondera as a centerpiece of its effort to finally modernize California’s antiquated unemployment system.

In June 2015, then-EDD Director Henning Jr. gathered with the nation’s top employment officials at a hotel in San Diego to unveil the tech breakthrough: “Fraud Detection As a Service” is what Pondera called the software purchased with a $1.75 million federal grant. Henning Jr., the son of former EDD Director Patrick Henning, was tapped to open the conference, themed “An Ocean of Innovation in Unemployment.”

Within three months, Pondera touted in a case study, the system had flagged $118 million in potential “high value” unemployment fraud cases — a small chunk of the roughly $6 billion California paid out at the time in annual benefits, but which investigators like Sheehan saw as the tip of the iceberg. He advocated to hire more investigators and sign a longer deal for the software, which worked by combing public and private databases to ferret out ineligible applicants and suspicious details, such as recurring addresses and phone numbers.

So it came as a shock, in 2016, when the EDD suddenly pulled the plug.

“It could have been huge,” Sheehan said. “The numbers that we were bringing to the director were in the hundreds of millions, but you need people to pull it out.”

The EDD denied a CalMatters request for documents related to the Pondera contract, stating that it had no such records, despite touting the deal at public events, in press statements and in reports to state lawmakers.

Today, the EDD tells CalMatters in a statement that, “costs were greater than benefits at that time, and the existing system was catching cases flagged by the filters.” It is “not reasonable,” the agency added, to blame states for not predicting a fraud crisis on the scale of the pandemic.

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CalMatters

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El Dorado County District Attorney Vern Pierson, who led a state insurance fraud working group at the time, remembers meeting with Henning Jr. to learn about the new fraud tool. It seemed like something that was working so well it could be applied to other state systems, Pierson recalled.

Wile the state attributes the reversal to a lack of renewed federal funding of around $2 million a year, EDD contracts requested by CalMatters show that, around this same time, the Deloitte EDD tech project more than tripled in budget, to $152 million.

“They blamed it on grant money, but the actual truth of it was that the amount of fraud they were detecting was much higher than they were expecting,” Pierson said. “It was just so overwhelming.”

Deja vu

The agency that would become the EDD was born in 1935. Its mission, like similar state agencies across the U.S., was to dole out federal funds to help stabilize a society still reeling from the Great Depression. By the 1950s, California politicians were already sounding alarms about unemployment fraud and lobbying for more money to investigate, according to a CalMatters review of agency records in the California State Archives.

When recessions struck, such as in the early 1980s, state hearings swung in the other direction, focusing more on the social ripple effects of unemployment: depression, suicide, child neglect.

So goes a cycle of dire situations for unemployed workers, fraud panic and social spending fights still playing out today.

But between then and now, California’s economy and the way the state pays out unemployment has transformed. What used to be a system of local field offices, paper applications and checks morphed into a mostly remote system of online applications, debit cards and call centers.

It was a shift driven not just by digitization, but by bloodshed.

In December 1993, former computer engineer Alan Winterbourne dropped off a box of documents at the Ventura County Star-Free Press detailing his seven-year search for work and unsuccessful EDD appeal. Then, dressed in a trench coat, he drove to the Oxnard EDD office and opened fire with a shotgun, killing four people. Police fatally shot him in the parking lot of another EDD office.

“We don’t get combat pay,” Mary Ramirez, a state employee who was in the Oxnard office, told the Los Angeles Times a few days later. “We need every single office separated, so that no one can get into the work areas.”

EDD offices have been closed for most walk-in unemployment help ever since. The lack of in-person support — which now mirrors other state agencies that have digitized services to save time and money — has ratcheted up frustration for those struggling to reach the agency.

The Great Recession that peaked from 2009 to 2011 previewed issues to come: up to 9 out of every 10 workers trying to call an EDD representative couldn’t get through, a 2011 state audit found. From 2002 to 2010, the audit added, the EDD had failed to meet federal standards for the speed at which it paid initial unemployment claims and made decisions about worker eligibility — failures the agency largely attributed to inconsistent staffing and funding in years when unemployment waned.

A section from the 2011 California State Auditor report on the Employment Development Department.

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CalMatters

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The breakdowns triggered a major effort to overhaul the EDD through the Deloitte modernization contract, the new Bank of America deal to start paying unemployment via debit cards and the Pondera fraud detection pilot.

Audits later found that, despite the expensive upgrades, employees continued using workarounds on patchy old tech systems that were not well integrated. The Bank of America debit cards, meanwhile, were rolled out without the security chips common in most consumer cards, which the bank told the state Senate Banking Committee was the EDD’s call.

Around the same time, in 2015, Catharine Baker, a former Republican Assemblymember from the East Bay, sent a letter to the EDD about reports that the agency was sending mail with full contact information and Social Security Numbers — sometimes to wrong addresses, sometimes visible through envelopes.

She and other members of a state privacy committee were baffled to hear that three years later, in 2018, the agency still hadn’t fixed the issue, despite withering public hearings and a $3 million budget allocation. Baker asked for a follow-up meeting with then-EDD Director Henning, Jr.

“I remember asking him, ‘If you had all the money that we could give you to do exactly what you want and need to do, how quickly could you do it? Could you do it in 12 months?’” Baker recalled. “He said it would still take five to six years.”

Michael Bernick, who directed the EDD during the dot-com bust of the early 2000s, said the agency always struggled for sustained attention and resources from lawmakers who tend to move on to other priorities when unemployment is low.

“Fraud was never taken seriously,” Bernick said. “Even the fraud that did exist in the early 2000s, you could never get anyone in the Legislature interested.”

The COVID con

Nothing compared to the feeding frenzy once the federal government unleashed $5 trillion in pandemic aid.

In California, Pierson remembers that the initial reports about unemployment fraud were so brazen that some officials wondered if hackers had tapped directly into the EDD’s 1980s-era computer system. The reality, audits and investigations have found, was a more chaotic web of fraud carried out simultaneously by low-level scammers, prison inmates and larger organized criminal groups, plus a few cases of people with connections to the EDD or its contractors.

The most severe national security threats came from hostile nation-state hackers, including the Chinese cyberwar group APT41. By July 2020, the FBI was also warning about so-called “social engineering” schemes, where groups in Nigeria and elsewhere used psychological tactics to try to extract personal information from victims. Amateur scammers everywhere were buying stolen Social Security Numbers on the dark web and social media.

The agency’s best estimates for COVID-era fraud have boomeranged, up to around $30 billion in 2021, then back down to $20 billion. One outside report by government fraud analysts at LexisNexis pegged the figure at more like $32 billion. Comparing how California fared to other states when adjusting for population is difficult, since federal watch dogs have not even published estimates for many states.

As of June 2023, the EDD said in a statement that it had seized or recovered just under $1.9 billion in suspected fraudulently-obtained funds.

“The thing is, it’s every type of fraud under the sun,” said Blake Hall, CEO of identity verification company ID.me, which was hired by the EDD and many other states amid the fraud wave. “You could pinky swear and say that you’re a Lyft driver, and you start collecting, you know, $600-plus a week.”

The EDD and the U.S. Labor Department have clashed over what exactly the agency should have been screening in the early months of the pandemic, internal communications released to CalMatters by the California Labor and Workforce Development Agency show.

In late April 2020, then-EDD Director Hilliard wrote to federal officials about the agency’s decision to suspend its usual requirement that unemployment recipients manually confirm every two weeks that they are still looking for a job.

“Because our benefits system has slowed significantly due to the strain of so many claims and certifications, it has threatened the ability of people to apply for benefits and our ability to pay benefits,” Hilliard wrote, adding that the agency viewed the move to auto-certify approved claims as “consistent with the emergency flexibility that DOL has prescribed for states.”

The feds disagreed: “This is something we expect to be addressed immediately,” a Labor Department division chief responded, calling the waiver a “substantial compliance issue.”

Other states quickly realized there was a problem with the new federal program for self-employed workers. In mid-May, emails show that officials in the state of Washington sent an alert to peers including the EDD saying that they were pausing payments for two days after detecting claims that appeared to use data stolen in a massive 2017 breach at Equifax.

Still, fraud continued to snowball, and California was slow to react.

The agency waited until July 2020 to “make any substantive changes to its fraud detection practices,” the California state auditor found. In late August 2020, the EDD was still processing 120,000 new applications per day, “strongly suggesting automated bulk submissions,” Pahlka wrote. Su has emphasized in congressional hearings that the EDD noticed the spike in August and flagged the practice of automatically backdating claims to federal regulators.

Still, between March and mid-October 2020, the EDD sent roughly 38 million pieces of mail with full Social Security numbers, the state auditor estimated, despite promising to end the practice years earlier.

A section from a letter sent from former California State Auditor Elaine Howle to state legislative leaders in 2020.

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CalMatters

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“There is no sugar coating the reality: California did not have sufficient security measures in place to prevent this level of fraud,” Su said in 2021 — a statement that would later be used against her in the contentious ongoing debate over whether to confirm her as the nation’s top labor official.

As fraud panic escalated, the number of real workers stuck in review or denied benefits also grew — even though Pahlka’s task force found that as few as 0.2% of applicants whose identities were manually verified turned out to be fraud. In 2022, the California Legislative Analyst’s Office wrote that the EDD’s “actions suggest getting payments to workers is not a top priority,” and that the agency “mischaracterized figures… showing far fewer denials” in reports to the Legislature.

Photos of mail returned to the Employment Development Department included in a letter sent from former California State Auditor Elaine Howle to state legislative leaders in 2020.

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CalMatters

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One major concern: The EDD denied benefits to 3.4 million workers for not mailing in required documents, even when photos from the time show stacks of unopened mail.

“Each EDD field office had an estimated 450 pounds of unopened mail,” the Legislative Analyst’s office summarized, “and had no system for processing unopened mail.”

Many pandemic claims were approved by the automated system up front, only to be deemed fraud later when federal officials ordered more scrutiny. Some fraud experts criticize the “pay and chase” approach that EDD and other states took. Instead, they question why the EDD, located in one of the tech capitals of the world, waited so long to act to prevent fraud.

California took six months to start using ID.me technology to verify identities through photos and video calls. In October, 2020, amid mass freezes of Bank of America EDD debit cards, the EDD was forced to stop accepting new claims for two weeks to deal with its backlog. In May 2021, the EDD signed a $3.5 million contract for the updated fraud detection software from Pondera — the same promising pilot it had jettisoned five years earlier. After the EDD did act, state watch dogs found that some of the technology went too far, netting hundreds of thousands of real workers in fraud crackdowns.

Some former EDD officials say “Monday morning quarter-backing” cannot account for just how unprecedented the crisis was.

Others worry that the wrong lessons will be learned, and generalized fraud fears will be prioritized over issues for real workers.

And then there are increasingly hard-to-ignore questions, including what California should do about its $19 billion in outstanding unemployment debt to the federal government. Or if any states will ever know how much was lost to fraud, and what happened to workers caught up in the mess.

“If we don’t understand how the money was lost,” said Hall of ID.me, “then history is doomed to repeat itself.”

The Olympic and Paralympic Games will cost billions of dollars to put on, and lucrative contracts will be up for grabs to provide things like cleaning services, construction, catering, and IT services for the month-long spectacle.

L.A. public officials want that money to stay local, but many of them say a new procurement plan released by Olympic organizing committee LA28 could end up leaving out businesses in the city of Los Angeles.

"You could have a scenario where no L.A. business does any business with LA28," Council President Marqueece Harris-Dawson said at a council committee meeting Tuesday.

That's a problem for the city, which is the official Olympic host and the financial backstop for the Games. City Council members say business owners in the city should benefit the most from the money flowing into the Games. The Olympic contracts are worth up to $4 billion in total, according to LA28.

The dispute is yet another sign that the relationship between city government and the private organizers of the 2028 Olympics is fraying. In recent months, the two sides have clashed over an overdue agreement about what services the city will provide for the Olympic Games, and the city's potential financial exposure.

LA28's plans for Olympic contracts raises the perennial question about the coming Olympic Games: who in the city will actually benefit from the mega-event that will take over the region in the summer of 2028. It also indicates the limits of the city's ability to influence LA28's decision-making.

John Reamer, who leads the city's contracts department, said Tuesday that his staff did not review the procurement plan before it was released, and questioned if the relationship between the city and LA28 was a true "partnership."

"[I believed] that LA28 would allow us to give input, and they would take that input, and we would discuss that input and we would agree upon that input and it would be part of the plan," he said.

City officials want more commitments for L.A. businesses

LA28 says it's aiming to keep 75% of its spending in the Greater L.A. area, and put 25% towards small businesses. The report says it will prioritize "hyperlocal" businesses in the city of L.A., but makes no explicit promises. Instead, it identifies "local" as anywhere in L.A., Orange, Riverside, San Bernardino and Ventura counties.

At a council committee meeting on the Olympics Tuesday, multiple members criticized that plan as too broad — pushing LA28 to instead make guarantees to businesses in the city of L.A.

" Los Angeles stands alone in terms of its commitment, its investment and the amount of risk that we're bearing," Harris-Dawson told LAist. "We think every possible avenue ought to be pursued to make sure you leave the people whole, if not better, off, than they were before this started."

LA28 CEO Reynold Hoover told the council Tuesday that LA28 would give L.A. city businesses preferential treatment when awarding contracts.

"When all else is equal between two competing suppliers, we will prioritize City of L.A. suppliers," he said.

Hoover said that focusing exclusively on businesses in the city of L.A. would limit competition for those contracts — and that he wouldn't commit to a plan that would limit LA28's ability to secure the best contract that would be financially responsible.

"If I focus solely, first and foremost, on the city of L.A. for small business, then I am artificially reducing the pool of competition, placing greater risk on the city taxpayers and placing greater risk on the backstop of the city of L.A.," Hoover said.

Council president Harris-Dawson pushed back.

"We'd rather you pay nominally more to a business in the city, than to save $25," Harris-Dawson said. "If you just go for a straight, 'We want the cheapest person in the five-county area,' I can tell you already, you're going to be using a bunch of businesses where the land is cheap and there's no regulation."

Councilmember Hugo Soto-Martinez echoed those concerns, saying that the minimum wage and cost of living in L.A. are higher — meaning that businesses in Los Angeles may charge more.

"The city of L.A. is the financial back-stop to everything that you are doing. And I don't think that has resonated or permeated through you or this whole board that I just frankly don't trust" he said. "We have to go to our constituents and say that we are fighting for them to make sure that they're going to get as much business as they can out of this event."

Millions on the line for the city

The dispute over opportunities for local businesses represents one of many areas where the city and LA28 are at odds.

An important agreement that will dictate which services the city of Los Angeles will provide and how it will be reimbursed is more than six months late. Last week, city councilmember Monica Rodriguez penned a public letter warning Hoover that the Olympics could "bankrupt" the city if that agreement doesn't include adequate protections for the city.

The major concern is who will pay security costs for the Olympics, including LAPD overtime.

The federal government has allocated one billion dollars to security costs for the mega-event, and has put the Secret Service in charge of security planning. Despite those plans, city officials are concerned about who will be left with the bag if the federal funding doesn't come through, or if it doesn't cover all of the city's security costs.

Rodriguez warned that if it isn't changed, the current draft agreement could leave L.A. vulnerable to spending hundreds of millions even if LA28 turns a profit.

Expensive ticket prices are also a sore spot for the city council. Olympics tickets cost up to $5,500 and the cheap $28 tickets went fast in the locals-only pre-sale. Every ticket included a 24% service fee.

Councilmember Katy Yaroslavsky asked Tuesday how much of the service fee would be going to LA28 — a figure that Hoover said he didn't know.

"The tickets are not affordable," she said. "A dollar, which would have actually helped us do some of the things that we know we need to do to get ourselves ready as a city for the Olympics, feels like a drop in the bucket compared to a 24% surcharge."

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A key tool of the U.S. spy community will expire this month without action from Congress. The government says the intel gathered through the provision — Section 702 of the Foreign Intelligence Surveillance Act, or FISA 702 — underpins a majority of the articles in the president's daily intelligence briefing and is a key asset in international counterterrorism and the fight against trafficking.

But a number of lawmakers, both Republicans and Democrats, are concerned that FISA 702 allows for the federal government to spy on the communications of American citizens without a warrant, violating their constitutional right to privacy.

The looming fight to bolster the law's civil liberties protections is likely to be bruising — and the provision's advocates claim it could jeopardize national security.

What is Section 702 of the Foreign Intelligence Surveillance Act?

Section 702 of FISA empowers U.S. intelligence agencies to collect and review the electronic communications of foreign nationals located outside the United States without obtaining individual court orders.

Sometimes, foreign nationals communicate with people in the United States, leading to incidental collection of Americans' communications.

The Office of the Director of National Intelligence says the government uses the information collected through the program to protect the U.S. and its allies from foreign adversaries — including terrorists and spies — as well as to inform cybersecurity efforts.

"No one denies the immense intelligence value of Section 702," Stewart Baker, former National Security Agency general counsel, told Congress in January.

"The U.S. government recently credited the program with helping to disrupt several terrorist attacks here and abroad, identify the Chinese origins of imported fentanyl precursors, respond to ransomware attacks on U.S. companies, identify Chinese hackers' intrusions into a network used by a key U.S. transportation hub, and disrupt foreign government efforts to carry out kidnappings, assassinations, and espionage on U.S. soil. Those examples just scratch the surface," Baker said.

Why is Congress debating this now?

The program's 2024 authorization is set to expire on April 20 — unless Congress votes to renew it. Congress has always attached an expiration date to Section 702, which makes its renewal a recurring fight on Capitol Hill.

Civil liberties-minded legislators of both parties have long been concerned that Section 702 enables illegal, warrantless surveillance of American citizens by the federal government. And unlike most issues in contemporary politics, the issue doesn't break cleanly along party lines.

Prominent critics include Sen. Mike Lee, R-Utah, Sen. Ron Wyden, D-Ore., and Rep. Warren Davidson, R-Ohio.

But, with a change in administration since the last renewal battle, some lawmakers have switched sides.

Rep. Darrell Issa, R-Calif., who previously voted against the renewal because of its lack of a warrant requirement to query information about Americans, told The Hill he thought reforms to the program were working.

Rep. Jamie Raskin, D-Md., is working to rally his colleagues against a renewal — after voting for it in 2024.

President Trump supports an extension with no changes to the program.

"When used properly, FISA is an effective tool to keep Americans safe. For these reasons, I have called for a clean 18-month extension," Trump wrote in a March post on Truth Social. "With the ongoing successful Military activities against the Terrorist Iranian Regime, it is more important than ever that we remain vigilant, PROTECT our Homeland, Troops, and Diplomats stationed abroad, and maintain our ability to quickly stop bad actors seeking to cause harm to our People and our Country."

That position is a major shift for Trump, who railed against the program in the past. Ahead of the last renewal vote in April 2024, during the Biden administration, Trump posted "KILL FISA, IT WAS ILLEGALLY USED AGAINST ME, AND MANY OTHERS."

How is the information actually collected?

A special court, the Foreign Intelligence Surveillance Court (FISC), issues a blanket authorization each year that allows the government to collect information about any targets who fall within certain categories proposed by the attorney general and director of national intelligence.

The National Security Agency, National Counterterrorism Center, Central Intelligence Agency and FBI obtain that information directly from the U.S. companies that facilitate electronic communication such as email, social media or cellphone service.

The National Security Agency also collects communications "as they cross the backbone of the internet with the compelled assistance of companies that maintain those networks."

What role does Section 702 play in the landscape of American intelligence gathering?

A massive amount of information is collected under Section 702 authority: There were 349,823 surveillance targets in 2025, up from about 246,000 in 2022. Targets could each have many records collected — think about the number of emails that hit your inbox each day — leading to a giant database of information.

In 2023, 60% of the president's daily brief items — a daily summary of pressing national security issues prepared for the most senior administration officials — contained Section 702 information, according to a government release.

It is also used extensively to combat weapons and drug trafficking — 70% of the CIA's illicit synthetic drug disruptions in 2023 stemmed from FISA 702 data, the document said.

Can the government search for Americans' information inside the trove of information it has collected under Section 702?

Yes, under certain parameters that have been gradually narrowed over the nearly two-decade lifespan of the legislation.

Here are some of the reasons the government says it might search for Americans, as included in a public report from the Office of the Director of National Intelligence (ODNI):

• "Using the name of a U.S. person hostage to cull through communications of the terrorist network that kidnapped her to pinpoint her location and condition;
• Using the email address of a U.S. victim of a cyber-attack to quickly identify the scope of malicious cyber activities and to warn the U.S. person of the actual or pending intrusion;
• Using the name of a government employee that has been approached by foreign spies to detect foreign espionage networks and identify other potential victims; and
• Using the name of a government official who will be traveling to identify any threats to the official by terrorists or other foreign adversaries."

Does the government need specific permission from a court to search for an American's information?

No, the government does not need — and has resisted reforms that would require — a targeted court order to search for an American's information in corpus of material gathered under Section 702 authority.

Intelligence community and FBI advocates argue that a requirement to obtain a court order to query an American's information would be overly burdensome.

"I am especially concerned about one frequently discussed proposal, which would require the government to obtain a warrant or court order from a judge before personnel could conduct a 'U.S. person query' of information previously obtained through use of Section 702," then-FBI Director Christopher Wray told Congress in 2023, amid the last reauthorization fight.

"A warrant requirement would amount to a de facto ban, because query applications either would not meet the legal standard to win court approval; or because, when the standard could be met, it would be so only after the expenditure of scarce resources, the submission and review of a lengthy legal filing, and the passage of significant time — which, in the world of rapidly evolving threats, the government often does not have. That would be a significant blow to the FBI," Wray said.

What do civil liberties and privacy advocates say about the legislation?

Privacy advocates say that, as written, the FISA statute allows the government to spy on the communications of Americans and others in the U.S. without the permission of a court, in contravention of the privacy guarantees in the Fourth Amendment.

"The FBI — and every other agency that receives Section 702 data — routinely goes searching through that data for the express purpose of finding and using Americans' communications," according to Elizabeth Goitein, senior director of the Brennan Center's Liberty and National Security Program. "The government conducts literally thousands of these backdoor searches every year."

Lawmakers in support of reforming Section 702 share her concern.

"The Foreign Intelligence Surveillance Act is supposed to be about surveilling foreigners overseas. That way the government doesn't need a warrant," Sen. Wyden told The Lever. "But because so many of these targets are going to be talking to Americans, Americans get swept up in these searches, and that's what I want to have some checks and balances on."

Rep. Tim Burchett, a Tennessee Republican, said in a video that his concerns stem from past privacy violations from the government: "The system was abused and they spied on thousands of Americans, violated the Fourth Amendment of the Constitution — and, well, it was a horrible situation."

Has Section 702 information been improperly used to surveil American citizens?

Yes, the Foreign Intelligence Surveillance Court characterized the FBI's violations as "persistent and widespread" in a 2022 court document that recertified the 702 program.

Documented abuses, detailed in congressionally mandated transparency reports from the Office of the Director of National Intelligence, include warrantless searches for a U.S. senator, journalists and political commentators, 6,800 Social Security numbers, 19,000 donors to a congressional campaign and an FBI employee's family member, who the employee's mother suspected of having an extramarital affair. Anti-surveillance advocacy group Demand Progress put together a detailed timeline of major violations by the FBI and intelligence agencies, as identified by the FISC.

What are the current restrictions on queries for Americans' information by federal law enforcement?

FBI agents must receive annual training on FISA and are generally prohibited from searching for information about people in the U.S. if the sole goal of the search is to investigate general criminal activity, rather than find foreign intelligence information, and those searches need approval from a supervisor or an attorney.

More senior approval is required when searching for information connected to U.S. political or media figures. Moreover, information from queries cannot be used without court authorization to conduct criminal investigations of people in the U.S., unless the charges pertain to national security, death, kidnapping, serious bodily injury, or a handful of other serious crimes.

According to disclosures from the bureau, the number of searches for Americans has declined dramatically in recent years — from 119,383 queries from December 2021 to November 2022 to 7,413 queries in the same 2024-2025 window. Civil liberties advocates note that the full scale of searches can't be known — an October 2025 Justice Department watchdog report noted that a now-shuttered tool allowed untracked searches.
Copyright 2026 NPR

Progressive California Democrats, who have long fought and failed to raise taxes on the rich, are renewing their push this year in light of a specific threat: The seismic federal cuts to Medi-Cal, the state’s health care program for the poor.

President Donald Trump’s H.R.1, signed into law last July, is estimated to strip tens of billions a year in state Medi-Cal funding and cause 2 million low-income residents to lose coverage. It has prompted progressive lawmakers and health care advocates to call for higher taxes on corporations or billionaires to keep those at risk of losing benefits on the program.

“We know that you are not responsible for these awful cuts, but now the responsibility does lie in your hands,” Judy Mark, executive director of Disability Voices United, an advocacy group for people with disabilities and their families, told state lawmakers at a January rally. “You have the power to increase our revenue so that we don’t have to make such devastating cuts.”

Progressive lawmakers have introduced at least two proposals to tax corporations, including one that would direct funds toward Medi-Cal. Separately, health care advocates are backing a controversial ballot measure to tax billionaire wealth to replace lost federal dollars.

There’s one glaring problem: Any solution to backfill the Medi-Cal funding could add to the state’s already gigantic structural budget deficit, not reduce it.

The deficit could reach $30 billion in future years — so large that the state is already struggling just to sustain the reduced level of care under H.R.1, let alone paying the federal government’s share.

Backfilling the Medi-Cal cuts would make the gap larger, said Keely Martin Bosler, former state finance director with more than two decades of experience in state fiscal policy. To “maintain the same insured level of coverage, those costs are on top of the deficits that exist, and so that would be significant.”

California, in its fourth consecutive year projecting a deficit, will likely see bigger shortfalls in future years as spending continues to outpace revenue. Even if the state spends nothing to backfill federal cuts, the deficit could reach $22 billion in fiscal year 2027-28, according to Gov. Gavin Newsom’s January budget proposal.

Democratic lawmakers, who already cut certain Medi-Cal benefits and froze new undocumented adult enrollment last year to close a $12 billion budget hole, acknowledge that the state should now combine sustainable revenue increases with ongoing program cuts to address the sizable deficit as recommended by the nonpartisan Legislative Analyst’s Office.

Yet it’s likely that no meaningful revenue increases will materialize this year.

The Fair Games Coalition, made up of community leaders, labor organizations and advocates, announce the launch of the Overpaid CEO Tax Initiative in West Hollywood on Jan. 14, 2026.

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Genaro Molina

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Newsom, in his last year as governor, has opposed any wealth tax over concerns that it would drive high-income earners out of California and dampen the tax base. Passing any tax increases would also require a two-thirds vote in each legislative chamber, a high bar even with a Democratic supermajority.

“I don’t think anything is going to happen this year,” said Senate Revenue and Taxation Committee Chair Jerry McNerney, a Stockton Democrat. “So why look at options that are doomed to fail in the first place?”

A $44 billion problem

The state is constitutionally required to direct roughly 50 cents of each dollar in excess general fund revenue toward K-14 education and reserves. That means the state would need roughly $44 billion in new revenue annually to close a $22 billion budget hole.

Existing legislative proposals don’t come close to raising that much.

Progressive Democrats are consolidating behind a pair of tax proposals, including one that would close the “water’s edge” loophole, which allows multinational corporations that opt in to only pay taxes on income made within borders of California. That allows companies to establish subsidiaries offshore to avoid paying taxes on their profits, said bill author Assemblymember Damon Connolly, a San Rafael Democrat.

Connolly told CalMatters his bill would raise $3 to $4 billion annually. But the revenue could swing, and corporations could still find new ways to reduce their California taxes, according to an LAO evaluation of different tax options.

Acknowledging that the amount wouldn’t close the entire structural deficit, Connolly said it’s “a step in the right direction.”

“It’s only one part of the equation. It’s certainly the time to look at potential revenue solutions but also obviously roll up our sleeves and take a hard look at the budget,” Connolly said. He did not specify which areas he’d consider cutting, saying only that protecting health care is where state lawmakers should “draw the line.”

Another bill by Assembly Health Committee Chair Mia Bonta, an Oakland Democrat, would require businesses whose workers rely on Medi-Cal and food stamps to contribute to a fund to “prevent loss of or to restore” health care coverage under H.R.1. There are no details yet on how much the charge would be.

And there’s the 2026 California Billionaire Tax Act proposed by the SEIU-United Healthcare Workers West, which would apply a 5%, one-time tax on billionaires’ wealth and use most of the revenue to backfill federal health care cuts. The initiative would establish a special fund that would exempt the revenue from constitutionally required deposits into education and savings.

Supporters estimate it would generate $100 billion over five years. SEIU-UHW spokesperson Suzanne Jimenez told CalMatters that it would allow the state to temporarily continue providing Medi-Cal coverage at the same level while giving state leaders time to figure out how best to sustain it.

But even if voters approve the tax measure, critics say the funds could get locked up in court from lawsuits by billionaire taxpayers or by education groups, who might argue it skirts the state’s constitutional requirements to benefit schools. And it’s unclear how the state would sustain the funding after the money runs out: An LAO analysis estimates that the measure could drive away billionaires and reduce income tax revenue the state could collect in future years.

“The first step is to pass the billionaire tax so that we have five years to work on that plan. And then, right after Election Day, we will be ready to work with the next governor to figure out a long-term solution,” Jimenez said.

Taxing the rich frenzy faces an uphill battle

While they might do little to address the state’s structural deficit, proposals to tax the rich shrewdly tap into the public anxiety with “rather extraordinary disparity in the distribution of income and wealth,” said Kirk Stark, a professor of tax law and policy at UCLA.

“I think that targeting the rich is understandable, but I don’t think that it’s really the kind of policy that can be expected to durably address very long-term structural fiscal imbalance,” he said.

More than 60% of California’s likely voters support higher taxes on the state’s wealthiest to help with the state’s budget deficit, according to a February survey by the Public Policy Institute of California.

The sentiment especially speaks to progressives, who have made fighting income inequality a core belief. But even the popular idea faces an uphill climb: Some Democrats contend that raising taxes on the state’s highest earners risks driving them away, especially since the state heavily relies on their income tax.

Janitors, nurses, teachers and labor organizers rally at the state Capitol in Sacramento to launch UnRig California on March 11, 2026. The initiative is a multiyear campaign aimed at reforming the state’s economy and tax code.

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Miguel Gutierrez Jr.

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“The wealthiest Californians are also the most mobile Californians,” said former Assembly Budget Chair Phil Ting, a San Francisco Democrat. “They could easily decide to go domicile in some other parts of the country.”

It also could deter businesses and billionaires from moving to California. “Does it signal that California is not a friendly, accommodating jurisdiction for people who want to amass billions upon billions of dollars of wealth?” Stark said.

Other ideas to address the state’s budget needs more systemically could pose even bigger political risks, especially as the state’s revenue is booming thanks to an AI-driven economy.

Stark said the state should examine its three primary revenue sources: income tax, sales tax and property tax. Since taxing income could dampen the incentive to work, and sales tax could discourage consumption, the state’s property tax — capped at 1% of the property value by Proposition 13 in 1978 — “jumps out as a tax reform that needs to happen in California,” he said.

“Not something that’s going to be just a one-time hit on the elite, but a fundamental, structural reconsideration of how the state of California taxes the value of land and structures.”

But any proposal to reform Prop. 13 would likely ignite a fierce political battle, just like the patchwork of ballot initiatives over the past half-century to amend Prop. 13 by carving out tax breaks or loopholes to hike taxes.

It’s even harder now with affordability being top of mind for Californians, Ting said.

“People are very cost-sensitive because they feel that their groceries are going up, their gas is going up, rent is going up, it’s a very difficult time to introduce even further costs in taxes to middle-class Californians.”

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.

A nonprofit organization created by the California State Library to improve childhood literacy has spent more than $1 million in taxpayer money but has yet to put a single book in the hands of a child.

Lawmakers grilled State Librarian Greg Lucas and other officials about the organization’s spending in a contentious three-hour hearing April 7, with one lawmaker saying it raises “serious questions.”

Lucas, however, blamed the shortcomings on the fact that legislators themselves pulled the organization's funding prematurely. After the hearing, he told CalMatters in a statement that “every taxpayer dollar spent on this program is fully accounted for.”

In total, lawmakers allocated $70 million in 2022 to improve children’s love of reading with the intent of giving some of the money to Dolly Parton’s Imagination Library and some of it to a local organization.

The California-based Strong Reader Partnership was formed by the state library as the local partner, and it was originally set to receive $19 million. But in 2024, with very little of the money spent, lawmakers redirected the money to the Dollywood Foundation, which oversees Parton’s Imagination Library. Ultimately, the project has been able to meet many of its goals, the Dollywood Foundation told legislators this year. In all, it has served more than 160,000 children in California and distributed nearly 3 million books. The foundation is administering the program but not donating any money toward the project.

Although the $1 million spent by the Strong Reader Partnership is small, relative to the total project budget, Sen. Sasha Renée Pérez, a Pasadena Democrat, and Sen. Shannon Grove, a Bakersfield Republican, said in the hearing that it’s their job to ensure it was still spent correctly, especially since the money was designated for children.

In the hearing, Pérez and Grove questioned the Strong Reader Partnership’s finances, repeatedly stating that its accounting practices and business activities were ineffective, negligent or potentially in violation of its state contract. Grove pressed Lucas about why he created a separate nonprofit instead of giving the money directly to the Dollywood Foundation, even though she herself required the state library to do so.

In 2022 Grove authored the law that created the program. The bill required “the State Librarian to coordinate with a nonprofit entity, as specified, that is organized solely to promote and encourage reading by the children of the state.” The Dollywood Foundation, which is national and based in Tennessee, was not eligible to be that nonprofit entity.

When CalMatters asked Grove why she is criticizing the state library’s formation of a nonprofit when her bill required it, she responded by email but didn’t answer the question. Instead, she reiterated her criticisms of the Strong Reader Partnership, saying that its money was “squandered away without putting books in kids’ hands.”

Letters to lawmakers 

State lawmakers first questioned the Imagination Library project in 2024, when budget officials, faced with closing a nearly $50 billion state deficit, told lawmakers that most of the money for the program remained unspent nearly two years after its launch. That year, the governor signed a bill keeping the money intact but requiring 90% of it go directly to the Dollywood Foundation instead of the Strong Reader Partnership or any local nonprofit. The foundation did not respond to CalMatters’ questions about its relationship with the Strong Reader Partnership.

Sonya Harris, executive director of the Strong Reader Partnership at the time, spoke out against that 2024 bill and said she sent letters to legislators opposing it.

Lawmakers said speaking about the bill was a violation of her contract. “You're attempting to influence legislation when it's explicitly stated that you are not supposed to use state taxpayer dollars to do so. Do you agree?” asked Pérez during the April 7 hearing. Harris didn’t answer the question.

Also during the hearing, Pérez repeatedly questioned the organization’s financial management, referencing instances when checks bounced, reports were not completed or documents arrived months after lawmakers had requested them. “As far as I can see here, there (were) no local partnerships that you all established in order to facilitate this program over a two-year period,” she said. “We are not able to understand what you did with these dollars and that’s the whole purpose of this hearing.”

Contracting with nonprofits comes with risks

The roughly $1 million in state funds that went to the Strong Reader Partnership is less than a thousandth of 1% of the state’s total spending, but that’s not the point, Pérez said

“Comments have been made about the amount of money that this is, and that it might be small relative to the budget,” she said before closing out the hearing. “But for me, as a public servant, I take this very seriously. We need to ensure that when we're making a commitment to provide something as simple as books to children, that we're actually delivering on that commitment.”

State and local lawmakers routinely sign contracts and grant money to businesses, including many nonprofit organizations, to enact public services or programs. In the process, taxpayers “lose transparency,” said Susan Shelley, vice president of communications for the Howard Jarvis Taxpayer Association, a group that opposes higher taxes. “Why is the state government or the local government turning them over to nonprofits instead of having their massive bureaucracies handle these things where someone is accountable?”

Shelley said the responsibility lies both with the nonprofits and the Legislature, especially in this instance, because Grove’s bill required the California State Library to work with a local nonprofit.

Normally, the Howard Jarvis Taxpayer Association is strongly aligned with Grove. Last year, the organization gave her an A+ based on her voting record on tax-related issues.

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.