An unemployment fraud scheme that duped state government into paying tens of millions of dollars to criminals could become the biggest scam against taxpayers in California history.
It’s also the most recent bad news during a particularly damaging month for Democratic Gov. Gavin Newsom.
First a judge ruled that Newsom abused his power with some pandemic executive orders. Another gave his critics more time to collect signatures for a recall. Then came revelations Newsom attended a birthday party at an exclusive restaurant against his administration’s own public health guidance. Last week, spiking COVID-19 rates prompted him to set a nightly curfew, sparking protests.
Then, on Tuesday, a group of district attorneys announced inmates in California jails and prisons have filed fraudulent unemployment claims for hundreds of millions of dollars during the pandemic, calling on Newsom personally to “turn off the spigot.”
Newsom needs to act quickly to address the issue, or experts say it has the potential to cause lasting political harm.
“If it was isolated by itself in a vacuum, I think it’s all very manageable,” said Republican political consultant Rob Stutzman, who worked in former Gov. Arnold Schwarzenegger’s administration. “But now it’s another layer in what’s building as a difficult period for him.”
The district attorneys who announced the fraud scheme said the perpetrators are exploiting major problems at California’s Employment Development Department, which has been plagued by problems since long before the pandemic began. Sacramento County District Attorney Anne Marie Schubert said neither the department nor Newsom have done enough to stop fraudulent payments.
“We have asked and implored the governor to get involved himself to turn the spigot off because right now there is no cross-matching between the incarceration data and EDD on a routine basis like is done in 35 other states,” she said.
Newsom didn’t create the problem, but he needs to fix it, said Assemblyman David Chiu, a San Francisco Democrat who has been calling out problems at the department for months.
“He inherited it, but it’s happening on his watch,” Chiu said. “He and his administration are responsible for cleaning up the utter mess that is EDD.”
Chiu praised Newsom’s work earlier in the pandemic, when the governor tasked a strike team to fix delays at the department that kept some Californians waiting months for desperately needed unemployment checks. He said Newsom should tackle the fraud problem with a similarly focused strategy and bring the strike team back.
Over the next few days, Chiu said he thinks Newsom should implement a system to cross-check prison and jail rosters with unemployment applications to ensure no more money is paid in incarcerated people’s names.
In a statement, Newsom said his administration is working with the Employment Development Department, the California Department of Corrections and Rehabilitation and the U.S. Department of Labor to “identify the scope of the problem and to hold people accountable.”
“To expedite and strengthen these efforts I have directed the Office of Emergency Services to stand up a task force to coordinate state efforts and support investigations by local District Attorneys,” Newsom said. “We will continue to fully partner with law enforcement and direct as many resources as needed to investigate and resolve this issue speedily.”
His office did not respond to follow-up questions about specifically how his administration is tackling the problems or to respond to criticism from the district attorneys.
For now, the backdrop of the pandemic may work in Newsom’s favor, said Jaime Regalado, a political science professor emeritus at California State University Los Angeles. That’s especially true if Newsom takes clear action to address the fraud issue.
“In times of crisis, what we see is a majority of voters rally around the incumbent unless the incumbent is derelict in duty, and that’s not what we’re seeing,” Regalado said. “We’re seeing a flaw.”
Longer term, the fraud issue could dog Newsom in his reelection bid two years from now. San Diego Mayor Kevin Faulconer, a Republican who says he’s considering running against Newsom, seized on the news Tuesday to criticize the governor.
“In Gov. Newsom’s CA, death row inmates and prisoners have no issue getting $140M in unemployment checks. But hardworking Californians’ benefits are delayed or denied. It’s more than fraud,” he wrote on Twitter. “It’s a failure of this Governor to show he understands life outside The French Laundry.”
The French Laundry incident opened Newsom up to caricature, allowing opponents to paint him as out-of-touch and elite, Stutzman said. That context makes the other issues he’s grappling with more politically harmful and has tarnished his reputation nationally.
Fox News, in particular, has hashed over the event repeatedly.
“It’s like a twilight zone episode run by the Keystone Cops,” opined FOX news host Tammy Bruce last week.
The episode could be significant if Newsom decides to run for president in the future.
That path has become somewhat less clear for Newsom now that fellow San Francisco Democrat Kamala Harris is headed for the vice presidency as the party’s heir apparent, but is still possible for the 53-year-old governor.
“All these things post French Laundry start to potentially damage him politically in ways they wouldn’t have otherwise,” Stutzman said. “This is now what’s largely defined him to the country, so thinking ahead to if he ever wants to run for president down the line, this has been a real unfortunate time for him.”
Newsom will still be a favorite to be reelected, but the unemployment fraud scandal and French Laundry dinner open him up to political attacks, said Dan Schnur, who worked for former Republican Gov. Pete Wilson and now teaches political communication at UC Berkeley and the University of Southern California.
Not only does he have two potential Republican challengers – Faulconer and businessman John Cox, whom Newsom defeated by double digits in 2018 – he could also face a potential challenge from the left. Although most politicians wouldn’t challenge an incumbent from their own party, all it would take is one politician who doesn’t want to wait their turn and sees an opportunity.
“You have convicted murderers making money off the state while law-abiding citizens are going hungry, and at the same time you have the governor of California having a very expensive dinner with lobbyists in the middle of a pandemic. That split screen is not a particularly flattering one,” Schnur said. “That’s the type of attack that could work just as well from his left flank as from his right.”