Spotlight: Unemployment Insurance System Review — New Mexico Legislative Finance Committee

Summary

Spotlight: Unemployment Insurance System Review, a report by the Program Evaluation Unit of New Mexico's Legislative Finance Committee dated May 19, 2021. It reports that the state's unemployment rate peaked at 12.5 percent in July 2020, that a record 197 thousand New Mexicans filed for benefits, and that the trust fund was insolvent by September 2020, with $278 million borrowed from the federal government as of May 2021. LFC staff estimate the state made $250 million in benefit overpayments since the start of the pandemic, and the improper payment rate reached 8.4 percent in FFY20. The report recommends that the Workforce Solutions Department hire contract staff to address backlogs, expand training, boost reemployment services and use federal funding to repay the loan and replenish the fund.

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Spotlight
Program Evaluation Unit
Legislative Finance Committee
May 19, 2021
Unemployment Insurance

Summary
Unemployment Insurance (UI) is a social benefit program that provides temporary economic relief to the
unemployed with the goal of supporting workers who lose their jobs through no fault of their own. Short-
term cash benefits help reduce the negative impacts of unemployment while workers seek new jobs.
With the onset of the pandemic and public health orders restricting
economic activity, the unemployment rate in New Mexico rose to a
peak of 12.5 percent in July 2020, and a record 197 thousand New
Mexicans filed for unemployment insurance benefits. Federal
stimulus funds expanded both benefit amounts and eligibility,
allowing new categories of workers to apply. By September 2020,
the unemployment insurance trust fund from which benefits are
drawn was insolvent; and, as of May 2021, New Mexico had
borrowed $278 million from the federal government to pay claims.
Over the course of the pandemic, the Workforce Solutions
Department (WSD) has distributed an estimated $3 billion in
unemployment insurance benefits. With more unemployment claims
filed in New Mexico than ever before and an over 900 percent increase occurring within just five weeks,
the pandemic created unprecedented pressure on the department.
WSD reassigned staff to help address the surge in claims, contributing to backlogs in investigation of
potentially fraudulent claims. The surge and staffing reassignments exacerbated already rising rates of
improper payments. New federal benefit programs increased improper payment vulnerabilities due to an
inability to verify employment information. LFC staff estimate the state has made $250 million in benefit
overpayments since the start of the pandemic.

Prior to the pandemic, fraud rates were already increasing and are now at the highest level in recent
years. Insufficient staff and training made it challenging for WSD to process claims effectively while also
following new federal requirements. Inadequate interpretation of state law and federal guidance led to
incorrect calculation of employer taxes and benefits.

Additional federal stimulus funds and the state’s decision to continue to waive the work search
requirement contributed to a disincentive to seek reemployment for those on unemployment insurance.
Reduced participation in reemployment services also contribute to high rates of unemployed New
Mexicans who are exhausting benefits. In addition, unemployment insurance taxes paid by employers
will increase if the Legislature does not appropriate federal funds to replenish the trust fund.

WSD should reduce improper payment and fraud risk by hiring additional contract staff to assist in quickly
addressing backlogs and reporting on fraud detection and improper payment activities, increase the
accuracy in interpretation of state law and federal guidance by expanding training, boost the use of
reemployment services, and address the solvency of the trust fund by using federal funding to repay the
loan and replenish the fund.
Growing program risks
contributed to an
estimated $250 million
in overpayments in
unemployment
insurance benefits.

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
Covid-19 Stresses Unemployment Insurance: More
Claims, More Fraud, and Fund Insolvency

The unemployment insurance system, which lessens the negative impact of
unemployment on both the individual and the broader economy, was already
facing increasing improper payments and a civil rights lawsuit when pandemic
closures pushed thousands of suddenly unemployed workers into the system.
New federal programs expanded benefits and eligibility. Unemployment
soared, straining an overtaxed program, opening the door to fraudulent claims,
and draining the unemployment insurance fund.

Background

The Social Security Act and the Federal Unemployment Tax Act (FUTA)
establish broad provisions regarding eligibility, benefits, taxes, and
administrative requirements, while state laws (Chapter 51 NMSA 1978,
Unemployment Compensation Law) and rules (NMAC 11.3.100 – 11.3.500)
define the particulars. Additionally, the federal government allocates grants to
states to fund the administration of their programs and requires oversight
through planning and performance documents, audits, program letters, and
advisories, as well as program integrity, and claims processing requirements
(see Appendix A describing state and federal responsibilities).

Wage history, reason for job loss, and work search determine eligibility
for unemployment insurance. An unemployed person applies for benefits
online, in-person (this option has been unavailable throughout most of the
pandemic), or on the phone. In New Mexico, in federal fiscal year (FFY) 2020
(ending September 30, 2020), 92.2 percent of initial claims were filed online
and 7.8 percent by phone. Once submitted, the claim is processed to determine
eligibility based on whether an individual:

Earned sufficient wages in the first four of the last five completed
calendar quarters (During the Covid-19 pandemic, the state began
allowing those who had reduced hours to claim unemployment
insurance as well.);

Did not voluntarily quit without good cause (i.e. the conditions of the
job separation);

Did not commit misconduct connected with the individual's
employment (i.e. conduct in which employees bring about their own
unemployment);

Did not refuse an offer of suitable work without good cause; and

Is able, available, and actively seeking work.
Using computer algorithms from an IT system updated in 2013, WSD
determines whether the claim has components making it likely to be ineligible,
incorrect, or fraudulent. The agency then provides notice of eligibility to the
claimant and employer and disburses benefits if the claim is found to be
eligible. Benefits are paid from taxes on employer payroll pooled into a trust
fund. Claimants or employers can appeal WSD’s decision with an opportunity
for three levels of appeal. To remain eligible and continue to receive benefits,
Unemployment Insurance:
Brief Overview
1.
Employers pay taxes on
employee payroll.
2.
Taxes are pooled into a trust
fund.
3.
Employees are eligible to
receive limited weekly cash
benefits drawn from the trust
fund.
4.
The
cash
benefit
is
a
temporary and partial wage
replacement
while
the
individual looks for new work.

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
an individual must continue to meet these criteria and certify weekly. Due to
the pandemic, New Mexico waived its weekly work search requirement per
federal suggestion. However, while federal guidance suggests a quick
reinstatement of the requirement once a state determines it is safe to do so,
New Mexico continued the waiver until the week of May 9.

Once eligibility is established, all workers who qualify for benefits must wait
one week before receiving benefits. This rule was also waived based on federal
guidance during the pandemic, but the agency implemented a five-day waiting
period. After the week waiting period, benefits in New Mexico (as in most
states) are typically available for a maximum of 26 weeks. During periods of
high unemployment, extended benefits (EB) are available for up to an
additional 13 weeks. Federal programs extended some benefits to September
due to the pandemic. In 2021, standard unemployment benefit amounts range
from $90 per week to $484 per week (prior to the supplemental benefits
provided through federal economic recovery acts), with the minimum amount
of earnings necessary to be eligible set at $2,186.92 for 2021.1

1 These earnings must have been gained during the first four of the last five
completed calendar quarters before the start date of a claim.
Figure 1. Application Flow Chart for Unemployment Insurance

Note: Eligibility separation is an examination of the circumstances around job loss to ensure the claimant lost their job or left with good cause.
Source: LFC
1. An unemployed New
Mexican applies for UI…
2. …the claim is processed…
When processing claims the
following occurs:
-Eligibility determination
(monetary and separation)
-Improper payment
prevention + detection
-Disbursal
-Weekly Certification (job
search and able and
available for work)
3. … the decision may be
appealed.
Online
In-
person
By
Phone
Taxes are collected
from employers…
And are pooled in
the trust fund.
Reemployment services
may be required or
available.

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
In FY21, WSD’s Unemployment Insurance Division ran the program with
a budget of $10.4 million and 164 FTE. Federal revenues of $8 million
accounted for most of this budget and was primarily used for personnel (see
Appendix B for more detailed sources and uses).

In the decade before the pandemic, the unemployment insurance
system was modernized, a civil rights complaint was filed, and
improper payments began increasing.

In 2013, New Mexico implemented an online unemployment insurance system
that allows for both tax collection and claims processing. The modernized
system created clear efficiencies such as reduced reliance on paper
applications and elimination of obsolete technology but also presented barriers
to individuals with limited English proficiency. In FFY20, the rate at which
the state paid an incorrect or “improper” benefit amount to individuals
applying for unemployment insurance more than doubled from FFY18. These
improper payments result from errors committed during the application
process by individuals, employers, or the agency. These can lead to over-, or
sometimes under-, payment of benefits. Some errors are due to intentional
deception and can result in fraudulent payments. Fraud is therefore a subset of
improper payments.

New Mexico spent $49 million to modernize its unemployment insurance
system in 2013. The purpose of modernization was to streamline processes
and create efficiencies with a new system to collect taxes and process claims,
as well as manage overpayments and other program integrity measures. In
2013, New Mexico was the only state to address both tax collection and claims
processing, and it remains one of 22 states with modernized systems that no
longer rely on obsolete technology. According to a May 2013 presentation
before the Department of Information Technology’s Project Certification
Committee, the entire modernization project cost $48.56 million. Two years
after the state modernized its unemployment insurance system, WSD also
increased its improper payment prevention activities at an expense of $1.3

Source: LFC Files
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
FY16
FY17
FY18
FY19
FY20
FY21
(budgeted)
Chart 1. Unemployment Insurance Program Sources
and Expenditures, FY16 to FY21
(in thousands)
General Fund Transfers
Other Transfers
Federal Revenues
Total Expenditures
The state’s advanced
technology helped
confront increased risks
presented by the
pandemic. Noteworthy
elements include:

Modernized
claims
processing
and
tax
collection system (one of
just 22 states);

Predictive
analytics
to
reduce
application
inaccuracies;

Fraud
checks,
including
cross-checks
with
incarceration
and
death
data; and

Chat bots to help answer
answers.
These proactive measures were
not implemented in some states
that experienced high rates of
fraud and improper payments

Page 5
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
million. These activities included assessing risk associated with individual
claims and the use of predictive analytics to help “nudge” people toward
correct and honest answers to application questions. The Pew Charitable
Trusts and the U.S. Department of Labor (USDOL) highlighted New Mexico’s
innovative use of predictive analytics as a best practice.

In 2016, USDOL found New Mexico’s unemployment insurance system
presented barriers to access for limited English proficient speakers.
Online claims filing systems like New Mexico’s provide convenient access for
people to file claims. However, when designed inadequately, these systems
can create barriers to access, potentially violating federal nondiscrimination
and unemployment insurance laws (e.g., SSC Section 303(a)(1), Title VI of
the Civil Rights Act). Because unemployment insurance benefits are an
entitlement, states are required to ensure eligible individuals have access
regardless of disability, English proficiency, age, race, or membership in other
protected groups. Both intentional discriminatory treatment as well as policies
that appear neutral but have a disproportionate impact on members of some
protected groups are prohibited.

A 2013 complaint filed with USDOL’s Civil Rights Center claimed New
Mexico’s online unemployment insurance system created significant barriers
for applicants with limited English proficiency, resulting in “racial/national
origin discrimination.” USDOL identified these barriers in letters to WSD in
2016 and February 2020. By September 2020, WSD began updating the tax
and claims system to be fully available in Spanish. USDOL urged WSD to
take action without delay because the pandemic exacerbated barriers to claims
filing. In January 2021, WSD settled the complaint with USDOL by agreeing
to ensure limited English speakers have meaningful access to benefits. The
settlement requires WSD to review its language access plan, provide adequate
interpretation services, train staff, and review and remedy complaints. The
deadlines associated with each element of the settlement agreements extend
from May 2021 through April 2022. (See Appendix C for settlement details,
state action and deadlines.)

System modernization decreased two USDOL core performance
measures related to accuracy and timeliness of benefit decisions.  A
September 2020 report from the Century Foundation, the National
Employment Law Project, and Philadelphia Legal Assistance notes from the
year before (2012) to the year after (2014) modernization, New Mexico’s
program declined in two of five measures of performance (see Appendix D).
The accuracy of decisions concerning job separation decreased and the average
age of appeals increased. The former can result in incorrect payment of
benefits to claimants and the later impacts how quickly correct benefits are
distributed to claimants or issues that impact employers’ tax rates are resolved.
However, in subsequent years performance improved and WSD received
national recognition in 2018 and 2019.

New Mexico’s improper payment rate more than doubled from FFY18 to
FFY20. While New Mexico’s improper payment rates have remained below
the national benchmark of 10 percent since FFY16, in recent years, rates have
been increasing. From FFY18 to FFY19, these rates increased from 3.8 percent

Source: USDOL
14.5%
6.4% 6.2%
3.8%
7.0%8.4%
0%
5%
10%
15%
20%
Chart 2. New
Mexico's Improper
Payment Rate,
FFY15 to FFY20
National Benchmark

Page 6
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
to 7 percent, even before the pandemic presented new risks to improper
payments. In FFY20 (ending September 2020), improper payment rates
reached 8.4 percent. Additionally, over the last three federal fiscal years, New
Mexico's performance compared with other states has declined, falling from
having the third lowest rate in the country in FFY18 to the 17th lowest rate in
FFY20.

During the pandemic, claims spiked, federal programs expanded,
the trust fund was depleted, and fraud risk grew.

In July 2020, both unemployment and claims peaked, with an unemployment
rate of 12.5 percent and 197 thousand total unemployment insurance claims
(both initial and continued) filed for the week of July 18.  This means there
were nearly 21 claims for unemployment benefits per 100 people in the labor
force in New Mexico.  Through the Coronavirus Aid, Relief, and Economic
Security Act (CARES), the federal government created new federally funded
relief programs that required WSD to establish new programs and protocols.
The significant influx of funds, the expanded eligibility for the programs, and
the rush to quickly deliver benefits left states vulnerable to improper payments,
including fraudulent activity.  The increased demand quickly depleted New
Mexico’s trust fund reserves, requiring the state to borrow $278 million (as of
May 2021) from the federal government and allocate $52.9 million in CARES
Act funds to fill the trust fund. Claims will likely stay high until early
September 2021, when extensions of new federal unemployment programs are
due to expire.

Over 197 thousand claims were filed in July 2020, and while volume has
decreased, claims remain 924 percent higher than pre-pandemic levels.
While claims peaked in July and have decreased 44 percent since then, they
remain 942 percent above pre-pandemic levels, with 110,439 total claims filed
in mid-April 2021. This increased demand translated into dramatically
increased workload for WSD. Processes and staffing designed to respond to
lower levels of demand were not adequate to address this new surge, resulting
in agency performance on three of five state measures for the unemployment
insurance program dropping significantly in the first two quarters of FY21.
The timeliness of eligibility determinations and first-time payments and the
accuracy of separation determinations dropped below target levels (see
Appendix E for WSD’s Performance Report Card). The timely delivery of
benefits and the quick resolution of appeals have also been impacted (see
Appendix F). In January 2020, 93 percent of lower authority appeals decisions
were made within 30 days, and by March 2021, this rate had fallen to 2.8
percent.

Source: U.S. Bureau of Labor Statistics
0%
2%
4%
6%
8%
10%
12%
14%
16%
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
Chart 3.
Unemployment Rate
New Mexico vs
United States
NM
US
Improper
payments
result
from errors made during the
application process.

Fraudulent payments result
from intentional deception.

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021

Since the pandemic began, the state received almost $3 billion in federal
funding for unemployment insurance benefits and administration. The
CARES Act created federally funded relief programs for workers who lost
their jobs (see Table 1 for definitions and funding levels). The federal
government provided funding for both the administration of the programs and
the payment of benefits. As of March 2021, these new programs and the
regular unemployment insurance program had received $21.6 million in
administrative funding and $3 billion in funding for benefits.

These federal stimulus supplements to unemployment insurance improved the
spending power of individuals and likely positively impacted state revenues,
through both increased spending and state income tax. According to a National
Bureau of Economic Research analysis, in Illinois, eliminating the $600 per
week Federal Pandemic Unemployment Compensation (FPUC) supplement
would have led to a 44 percent decline in local spending. A reduction of $200
or $400 per week to the FPUC supplement is estimated to result in a reduction
of spending between 12 percent and 28 percent.2  However, the specific
impacts of these stimulus funds have not yet been studied in New Mexico.

2 Casado M.G., Glennon, B., Lane, J., McQuown, D., Rich, D., Weinberg, B.A. (2020).
The Effect of Fiscal Stimulus: Evidence from Covid-19, NBER Working Paper No.
27576, Accessed from:
https://www.nber.org/system/files/working_papers/w27576/w27576.pdf

Source: WSD
10,788
197,012
110,438
0
50,000
100,000
150,000
200,000
250,000
12/1/2019 3/10/2020 6/18/2020 9/26/2020 1/4/2021 4/14/2021
Chart 4. Total Initial and Continued UI
Claims,
January 2020 through March 2021

Page 8
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021

In the face of record high claims, unemployment insurance systems
across the country struggled to maintain a balance between the timely
and accurate delivery of benefit payments. New Mexico, like all states,
must balance the timely delivery of benefits to claimants with the accurate
distribution of those benefits to those eligible. In federal guidance to state
workforce agencies published in an Unemployment Insurance Program Letter
in 2000, USDOL notes it “requires an appropriate balancing of the dual
concerns of promptness and accuracy.” However, federal guidance during the
pandemic encouraged states to quickly deliver benefits.  For instance, the
federal government encouraged states to waive the waiting week and paid for
benefits during that period.  During the pandemic this balance became more
difficult but no less important to strike because of both the urgent need for
benefits to be delivered quickly and the growing fraud risks. New Mexico, like
most states, focused on quickly getting benefits to claimants.

In August, Pew highlighted a number of states that have had to stop or delay
payments to ensure claims are not fraudulent. For instance, Nevada cited fraud
as one reason for a large claims backlog, while Arizona reported that by
August they received 2.7 million applications even though the state only has
3.4 million workers. Pew also mentioned some states that paid unemployment
benefits quickly were later found to be targets for fraud. However, some
individuals also were caught in the fray of increased vigilance against fraud
Table 1. Summary of State and Federal Unemployment Insurance
Programs and Pandemic Related Funding
Description
Federal
Funding for
Administration
Federal
Funding for
Benefits
Standard UI (Unemployment Insurance)

Provides compensation for workers who were fired or
left their jobs with good cause.
$11,677,290
$278,163,848
PUA (Pandemic Unemployment Assistance)

Provides compensation to workers who have typically
not been eligible for UI benefits (e.g., the self-
employed, independent contractors).
$8,346,361
$358,044,279
FPUC (Federal Pandemic Unemployment Compensation)

Provides an additional $600 per week, in addition to
regular state UI benefits and PUA benefits. Both UI and
PUA recipients receive this additional benefit.
American Rescue Plan Act reinstated and lowered the
benefit to $300 per week.
$128,948
$1,756,742,831
PEUC (Pandemic Emergency Unemployment Compensation)

Provides up to an additional 24 weeks of UI benefits
beyond the regular 26 weeks New Mexico provides.
$1,478,121
$287,130,892
Other Federal Programs

LWA: Provides lost wage assistance through FEMA
EB: Federal Extended benefits
MEUC: An additional $100/week for those who are
both self-employed and worked for an employer
Temp Comp: Federal funds for this initial week of UI

$314,842,761
Total
$21,630,720
$2,992,249,521
Note: Standard UI administrative funding is for FFY21 and is the base funding amount. Data collected March
2020. States earn additional funds each quarter for actual UI claims workload above the base. Claims funding
for standard UI comes from the state trust fund that became insolvent, requiring the state to borrow the funds
included in the table. WSD also received $2.43 million for PUA and PEUC fraud prevention and identity theft
activities. The federal funding claims totals are from the week ending 4/18/20 through the week ending
4/17/21. This does not include other federal programs, including TRA, UCX, UCFE.
Source: USDOL and WSD
“Our work over the past
several months has always
been focused on getting
New Mexicans the benefits
and resources to which they
are entitled as quickly as we
can.”

- Former WSD Secretary Bill
McCamley, June 2, 2020

Source: WSD

Page 9
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
and did not receive benefits in a timely manner.

A number of states reported significant fraud since the onset of the pandemic.
In two January 2021 reports published by the California state auditor, lapses
in state practices and failure to keep up with best practices contributed to
approximately $10.4 billion in unemployment benefits fraud associated with
600 thousand accounts. In a December press release from the Maryland
department of labor, over 85 percent of flagged claims were confirmed as
fraudulent.  A fraud investigation report from the Washington state auditor
identified over $647 million in benefits fraud. In a March 2021 report,
Louisiana’s program audit services identified $405 million in payments to
individuals who did not appear eligible for UI programs.  In March 2021,
Rhode Island’s department of labor found 43 percent of claims were suspected
or confirmed to be fraudulent, with $247 million paid out for fraudulent claims.

Increased demand for unemployment insurance depleted otherwise
adequate reserves in New Mexico’s unemployment insurance trust fund.
In September 2020, the trust fund reached insolvency, causing the state to
begin borrowing funds (along with 22 other states and territories) from the
federal government for the first time since at least 1974 to be able to continue
to pay benefits. As of May 2021, New Mexico’s outstanding federal loan stood
at $278 million. New Mexico is now confronted with the dual challenge of
repaying the federal loan and replenishing reserves in the UI trust fund.

-$300
-$150
$0
$150
$300
$450
$600
-$20
-$10
$0
$10
$20
$30
$40
11/15/2019
12/6/2019
12/27/2019
1/17/2020
2/7/2020
2/28/2020
3/20/2020
4/10/2020
5/1/2020
5/22/2020
6/12/2020
7/3/2020
7/24/2020
8/14/2020
9/4/2020
9/25/2020
10/16/2020
11/6/2020
11/27/2020
12/18/2020
1/8/2021
1/29/2021
2/19/2021
3/12/2021
Chart 5. Standard UI Weekly Payments,
Contributions, and Trust Fund Balance
(in millions)
Weekly Payments
Employer Contributions
Trust Fund (Right Axis)
Source: WSD

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
Insufficient Staffing and State and Federal
Noncompliance Contributed to an Estimated $250
Million in Overpayments

Pandemic-driven high unemployment increased UI claims to record levels,
leading to backlogs and increased call volume. WSD diverted staff to assist
with these increases, resulting in a backlog of uninvestigated claims and
contributing to a reduction in the detection of improper payments. From
FFY19 to FFY20, New Mexico’s rate of recovering overpayments fell by more
than half, driven by the increased volume of overpayments. A growing backlog
of uninvestigated claims could take more than a year to address at the agency’s
current pace.

LFC staff calculated that from April 2020 through April 2021 the state made
overpayments totaling an estimated $250 million.3 This estimate was reached
by multiplying New Mexico’s overpayment and fraud rates for FFY20
reported by USDOL by the total benefit amounts for standard unemployment
insurance, Federal Pandemic Unemployment Compensation, Pandemic
Unemployment Assistance, and temporary compensation paid from the week
ending April 18, 2020 through the week ending April 17, 2021 (See Appendix
G for detailed calculations).

Of the estimated $250 million in overpayments, LFC estimated $133 million
was the result of fraud, and an estimated $15.6 million was related to the
untraditional benefits of PUA. At the same time, WSD reports preventing
$172.9 million in fraud prior to any payment being disbursed due to its
advanced system. Additionally, WSD identified $42.1 million in
uninvestigated potential fraud. In FFY20, New Mexico had the 17th lowest rate
of improper payments. However, since 2018 New Mexico’s rates of improper
payments and fraud have more than doubled. Furthermore, having a low rate
of improper payments may not be sufficient to prevent a state from
experiencing high amounts of improper payments during the pandemic due to
both the surge in claims and increased vulnerability from new programs.

Untimely and unclear federal guidance on new programs exposed states
to additional risks to program integrity. The federal government created the
new Pandemic Unemployment Assistance (PUA) program to provide benefits
to a category of workers who were never before eligible. This meant that states
had to quickly create new policies, procedures and processes to address claims
from these new claimants.  Because of a lack of employer verification, the
PUA program presented additional vulnerabilities to program integrity and
likely became a target for fraudsters. After the enactment of the CARES Act
in March 2020, USDOL was slow to provide guidance to states on PUA, which
may have led to confusion regarding implementation of the program and
increased risk of overpayments in New Mexico and elsewhere. For instance,

3 Overpayment amounts for PUA were calculated using the same overpayment rate
as standard UI of 8.233 percent, as reported by USDOL from New Mexico’s Benefit
Accuracy Measurement analysis. This calculation does not include extended benefits
programs.
Improper payments (both over-
and
underpayments)
result
from
errors
during
the
application process. The three
leading causes are:
 Claimants not meeting work
search requirements;
 Claimants continuing to claim
benefits after their return to
work; and
 Employers failing to provide
timely
and
adequate
information
about
why
an
individual was separated from
their employment.
Fraudulent payments result
from intentional deception.
Source: DOL
Figure 2. Estimated
Overpayments of UI
Benefits in New Mexico,
April 2020 to April 2021

Source: LFC analysis of WSD and
USDOL data
WSD paid an estimated total
of $250 million
in overpayments of UI
benefits…
an estimated
$133 million were
fraudulent payments
an estimated
$15.6 million
were associated
with PUA claims.
...of these...
...of these...

Page 11
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
according to an OIG DOL survey, 55 percent of responding states said their
state identified system vulnerabilities as they handled the high volumes of
claims due to Covid-19 and implementation of PUA. Additionally, the Office
of the Inspector General has issued reports highlighting risks to program
integrity posed by PUA and the role of untimely and unclear federal guidance
in contributing to this risk.

Furthermore, the pandemic stressed unemployment insurance systems across
the country, making them vulnerable to fraudsters seeking to take advantage
of the increased benefits. Cyber criminals using stolen identity information
contributed to the over $10 billion in fraudulent claims paid in California.
Cases of identity theft to steal government benefits such as unemployment
insurance increased more than 500 percent from 2019 to 2020. Poor oversight
and incorrect interpretation of state law and federal guidance led to incorrect
calculation of employer taxes and inaccurate delivery of some benefits.

WSD reassigned staff to address the drastic increase in claims,
contributing to increased risk of improper payments from an
investigation backlog.

The unprecedented high volume of UI claims filed during the pandemic
presented unique challenges, and WSD reassigned staff from various units
from both within and outside the agency to address the surge. USDOL and the
National Association of State Workforce Agencies both stated that New
Mexico’s reallocation of staff impacted program integrity functions.4 Both
improper payments and fraud rates were already increasing in recent years in
New Mexico and rose higher during the pandemic. Reports of identity theft,
both nationally and in New Mexico, posed new challenges for UI systems.
WSD currently does not report to the Legislature on fraud detection and
prevention activities.

WSD reassigned staff from claims adjudication and employment
services to help process claims, slowing detection of improper
payments.  To respond to the deluge of claims, the state reassigned staff from
other duties across WSD, hired new temporary state employees, and contracted
staff. The state paid Deloitte at least $3 million to improve responsiveness
through both technology and call center staffing from November 2020 through
January 2021 and handled 291,722 calls over that period compared with
108,428 over the same period of the prior year, a 2.7-fold increase. According
to National Association of State Workforce Agencies, “WSD has been forced
to allocate resources from various internal and external departments to address
the tremendous increase in claims workload. As a result, integrity functions
focused on benefit overpayment detection and recovery have lagged behind,
creating a backlog of cross-match investigations and audits.”

WSD’s large and growing backlog of uninvestigated claims may take
more than a year to address at the agency’s current pace. WSD submits
UI claims to the State and National Directories of New Hires (a freely available
federal resource) to identify potential improper payments due to claimants not

4 WSD has not contested audit finding #10 in December 2021 USDOL audit.
“The most important thing
that states can do to
prevent
improper
payments … is to take
immediate
steps
when
there is a New Hires cross-
match
‘hit.’
Untimely
investigation of … new
hire
“hits”
halts
the
detection
of
improper
payments and increases
claimant overpayments.”
Source: USDOL

Page 12
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
reporting new employment. Claims that produce matches with these databases
require investigation by WSD staff to resolve. A December 2020 USDOL
audit of WSD found 8,664 claims flagged through cross-matches with these
databases had yet to be investigated due to the increased workload caused by
the pandemic. By March 2021, the backlog of uninvestigated claims increased
45 percent to 12.5 thousand. According to USDOL, the department has never
stopped investigating “hits” but reallocation of staff to respond to the
pandemic workflow left it with only three investigators.

Quickly addressing hits from these databases is crucial because delay can
potentially increase the amount of improper payments. As USDOL stated,
“The most important thing that states can do to prevent improper payments …
is to take immediate steps when there is a New Hires cross-match ‘hit.’”

To address the backlog, WSD added 11 additional staff, three from within the
department and eight contract staff from Deloitte. WSD also prioritized cases
by creating an audit triage team. While WSD’s actions have accelerated the
number of cases being investigated, the increase in speed is not enough to
meaningfully reduce the backlog. In October 2020, staff were investigating 74
claims a week; by March 2021, the weekly average doubled to 149. However,
at this rate, the state will take an estimated 84 weeks, or about 1.5 years, to
clear the backlog. The state needs a different strategy to more quickly reduce
the backlog. One potential solution would be to increase the number of
contracted staff who can quickly clear cases or who can be used to replace
investigators who were allocated to other roles during the pandemic. The
backlog of cases should be monitored regularly until it is fully resolved.

Note: Fraud prevention activities included staffing and technology solutions
Source: LFC analysis of WSD data
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0
50,000
100,000
150,000
200,000
250,000
Univestigated NDNH hits
Initial and Continued Claims
Chart 6. UI Claims and Uninvestigated Hits
Initial and Continued Claims
Uninvestigated NDNH Hits
NM receives $1.2
million for fraud
prevention
NM receives another
$1.2 million for fraud
prevention
Deloitte contract
amended to include
fraud prevention
At the state’s current rate, it
is estimated it will take 84
weeks, or about 1.5 years, to
clear the backlog.

California had a backlog of
unprocessed claims they
addressed by creating a
staffing
and
workload
projection tool.

Page 13
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
A similar situation arose in California where staffing decisions exacerbated a
significant backlog caused by the pandemic. A team created a “staffing and
workload projection tool” that identified 16 areas of work that would help
eliminate its backload within three months (from September 2020 to January
2021). Workload projections embedded in the tool relied not merely on
retrospective analysis of past economic trends (such as seasonality in particular
labor markets) but also forecasted economic trends that might be on the
horizon. New Mexico may want to consider such a tool to address its backlogs.

New Mexico’s recovery rate of overpayments fell to less than 20 percent
in FFY20. In addition to the increase in uninvestigated claims, the recovery
rate of overpayments dropped by more than half from FFY19 to FFY20. Using
USDOL data, the average recovery rate of overpayments from FFY17 to
FFY19 was calculated as 75 percent, with a high of 107 percent in FFY18.
However, recovery rates dropped to 18 percent in FFY20. This relatively low
rate of recovery coupled with a higher rate of improper payments means, at the
close of FFY20, the state had $43 million in outstanding (or unrecovered)
improper payments for the standard unemployment program. PUA recovery
rates are likely to be lower than the state recovery rate, especially because the
state is waiving PUA overpayments for individuals who apply and who are
found to have been overpaid due to no fault of their own.

Fraud rates have more than doubled since 2018. Fraud is a type of
improper payment due to deliberate deception. According to USDOL federal
fiscal year benefit accuracy measurement reports, fraud rates were at the low
level of 1.8 percent and 1.9 percent in FFY16 and FFY18, respectively.
However, the rate more than doubled in FFY19 and increased to 4.4 percent
in FFY20. It should be noted FFY20 data includes information through
September 2020 and, therefore, does not cover all of the pandemic. New
Mexico’s most current fraud rate is at the highest level since at least FFY12.
Additionally, fraud has made up a larger proportion of improper payments in
recent years, constituting 12 percent of improper payments in FY14 and over
50 percent in FFY19 and FFY20 (see Appendix H).

USDOL cautions against comparing fraud rates across states due to differences
in state laws, and it does not provide a benchmark for states to meet. However,
the average fraud rate nationally in FFY20 was 4.3 percent, with a high of 20.9
percent and a low of 0 percent. While these data indicate New Mexico is
performing about average at preventing fraud within the UI system, rising
fraud rates require increased attention by the state.

Identity theft associated with government benefits increased more than
500 percent from 2019 to 2020 in New Mexico. In 2020, fraud of government
documents and benefits rose significantly. This included fraud associated with
UI, Medicaid, and other programs. The Federal Trade Commission (FTC)
found government benefits fraud increased 2,292 percent nationally from 2019
to 2020. However, the analysis did not break out fraud for each specific type
of government benefits.5

5 Federal Trade Commission (2020). Consumer Sentinel Network 2020 Databook.

Note: These rates are for only regular
unemployment insurances. USDOL does
not report on improper payment rates for
federal unemployment insurance programs.
IPPI stands for the Improper Payment
Iniative, which WSD contracted with Deloitte
to complete. The fraud rate captures fraud
due to not reporting earnings (i.e. program
fraud) and not imposter claims (i.e.indentity
theft).
Source: USDOL
4.1%
2.2%
1.8%
2.8%
1.9%
3.8%
4.4%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Chart 8. Fraud Rate,
FFY12 to FFY20

Note: Graph only includes overpayments
from standard unemployment and does
not include federal programs. Recovery
can be over 100 percent if the state
recovers money from a different time
period
or
if
benefit
accuracy
measurements are underestimates.
Source: USDOL data
62%
107%
55%
18%
0%
20%
40%
60%
80%
100%
120%
Chart 7. Rate of
Overpayments
Recovered,
FFY17 to FFY20

Page 14
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
In New Mexico, fraud of government documents and benefits went from
making up roughly 5 percent of identity theft reports to 40 percent of identity
theft reports. According to FTC, in New Mexico there were 140 reports of this
type of identity theft in 2019 and 867 reports in 2020. However, WSD reports
much higher rates of confirmed identity theft, indicating the problem may be
even greater, with the department identifying 3,492 cases of identity theft for
which they stopped payments and withdrew claims. The state likely needs
increased attention to identify theft, particularly related to government
benefits.

New Mexico does not require reporting of fraud detection and prevention
activity to the Legislature. The California Legislature statutorily requires the
state’s Employment Development Department to annually report on its fraud
deterrence and detection activities. The report includes the number of cases
under investigation, number of criminal complaints filed, completed
prosecutions, fraud overpayments established, and fraudulent benefits
prevented from multiple employment programs, including unemployment
insurance, state disability insurance, employment tax collection, and
Workforce Innovation and Opportunity Act programs (see Appendix I for
more detail from California’s report). By providing this information, the
Legislature can determine if the fraud prevention and detection programs are
meeting targeted goals and how to improve them. New Mexico does not
currently require annual fraud detection reports from WSD. However, if the
state required performance measures on fraud detection, it would likely
improve legislative knowledge around the risk to program integrity within
unemployment insurance.

Source: FTC, Consumer Sentinel Network
Reports
0
100
200
300
400
500
600
700
800
900
1000
2016 2017 2018 2019 2020
Chart 9. New Mexico
Reports of
Government
Documents or Benefits
Fraud,
2016 to 2020
Case Study: A Victim of Identity Theft and Available State Resources
On April 15, 2021, a state of New Mexico employee received a text message from
WSD saying, “Your UI account is locked and requires ID verification.” Because the
employee was fully employed and had not filed for benefits, she realized she was
likely the victim of identity theft. On calling WSD’s fraud investigation message line
at 505-24-FRAUD, she was instructed via voicemail to submit relevant information
via email to id.verify@state.nm.us. She found advice from the Federal Trade
Commission to freeze her credit. While her credit remains protected, she does not
know if the issue has been resolved by WSD.

With identity theft on the rise, quickly responding to these cases is both critical and
challenging. In addition to WSD, the New Mexico Attorney General works to combat
identity theft with partners across state agencies and local government by offering
training, education, and victim support services.

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
Inadequate oversight and incorrect interpretations of state law
and federal guidance led to inaccurate calculation of taxes and
benefits.

A December 2020 USDOL audit and a February 2021 audit from the Office of
the State Auditor (OSA) identified accounting and benefit determination errors
made by WSD that were likely caused by not having sufficient staff;
inadequate staff training, poor oversight, and turnover; and incorrect
interpretation of federal guidance. Similar issues contributed to WSD failing
three performance measures required by USDOL. Additionally, the state failed
to fully implement legislation passed during the first special legislative session
in 2020 to hold employer taxes harmless from layoffs that occurred during the
pandemic.

Table 2. Examples of New Mexico Incorrectly Interpreting State Law and
Federal Guidance
State Law
State Action
Layoffs that occurred during a prohibited
period during the pandemic will not be used
to calculate the experience history of the
employer. NMSA 1978, Section 51-1-11 (Q)
For at least eight employers, UI taxes increased
during the prohibited period. WSD identified
roughly 7,000 employers that experienced
increases in their UI taxes
Federal Guidance
State Action
“… the base period to be utilized in
computing the [Disaster Unemployment
Assistance] weekly amount shall be the
most recent tax year.” 20 CFR § 625.6
In April 2020, WSD posted that 2018 and 2019
tax documents could be used to file a PUA
claim.
“… the claim must be backdated to the first
week during the Pandemic Assistance
Period that the individual was
unemployed….” UIPL 16-20, Change 1,
Question 4
WSD choose to not backdate PUA claims to the
date the claimant first became unemployed due
to a Covid-19-related reason in order to deter
fraudulent activity and increase program
integrity. (2020 USDOL audit)
“Recovery of any overpayment of [Disaster
Unemployment Assistance] shall not be
enforced by the State agency until the
determination establishing the overpayment
has become final...” 20 CFR § 625.14
OSA found in 44 of 45 PUA overpayments
tested the overpayment recovery process
began immediately prior to the overpayment
becoming final. (2021 OSA audit).
WSD has submitted a letter to DOL explaining
their overpayment procedures in this
circumstance and is awaiting approval.
Section 2107(e) of the CARES Act does not
permit the establishment of a penalty on
PUA or PEUC.
WSD’s assesses a penalty for overpayment
and fraud determinations for PUA and PEUC.
(2020 USDOL audit). WSD and DOL are in
communication to resolve this issue with some
components still outstanding.
“Employers [must] provide notification of the
availability of UI to employees at the time of
separation from employment.” UIPL 13-20
Each employer…shall post and maintain
printed notices to individuals in its employ
informing them they are covered under the
provisions of the Unemployment Compensation
Law of New Mexico (NMAC 11.3.400.403)

Source: USDOL, OSA, WSD

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
Failure to review claims accurately about half of the time resulted in the
inaccurate delivery of benefits. To qualify for benefits, an unemployed
worker must be involuntarily unemployed or voluntarily unemployed for good
cause. Determinations about the reasons for a job loss impact the timely and
accurate delivery of benefits to eligible workers, as well as tax rates for
employers. According to USDOL, these “nonmonetary separation
determinations” should be accurate at least 75 percent of the time. However,
New Mexico reported an accuracy rate of 43.3 percent in 2020. In its state
quality service plan submitted in October 2020, WSD cited staffing issues as
the reason for the deficiency, including retiring staff, staff leaving for other
agencies, staff promotions, and reallocation of staff to answer phone calls and
other temporary assignments. WSD plans to increase the review of claims and
training to address the issue. While WSD noted additional training will be
provided to adjudication staff, regular updates to its IT system to ensure
maximum automation where possible could also be helpful.

Employer unemployment insurance taxes increased in multiple
instances from 2020 to 2021, potentially violating state law. Funds
deposited in the UI trust fund come from employer taxes. The experience
rating and the reserve factor determine an employer’s tax rate. The experience
rating comes from the history of an employer’s workers filing for
unemployment benefits. The reserve factor relates to the solvency of the
state’s UI trust fund. Action during the first special legislative session in 2020
froze both the experience rating and the reserve factor. This legislation states
any layoffs between March 1, 2020, and June 30, 2021, will not be used to
calculate the experience history of the employer. Additionally, for 2021, the
reserve factor will stay the same as the 2020 level (Section 51-1-11 NMSA
1978).  While the prohibited period began March 2020, the experience factor
is calculated beginning January 2020. Therefore, it is possible an employer’s
taxes could still increase due to layoffs that occurred between January and
March 2020. (See Appendix J for description of employer tax calculations).

LFC staff obtained tax information from a convenience sample of ten
employers that experienced increases in their UI tax rates from 2020 to 2021.
In eight instances, the tax increase was due to employee layoffs charged
against the employer that likely occurred during the protected period. In
another two instances, the causes for these increases require further
investigation by WSD. According to The Santa Fe New Mexican, WSD
identified roughly 7,000 employers that experienced increases in their UI taxes
and 9,000 employers with UI tax rate decreases. WSD has sent a notice to all
employers that experienced a tax increase informing them that their rate
increase is under review and extending quarterly tax payments to allow for
completion of the rate review. For the state to know the extent of the incorrect
implementation of state law, WSD and Office of the State Auditor should
conduct a thorough review of all employer UI tax increases that went into
effect January 2021.

Incorrect interpretation of federal guidance increased risks to program
integrity, including potential over- and underpayments. WSD provided
incorrect guidance on tax information required for Pandemic Unemployment
Assistance (PUA) applications, likely leading to increased overpayments of
Table 3. Employer Tax Rates 2020
to 2021,
Due to Increased Benefits
Charged
Employer
2020
Tax
Rate
2021
Tax
Rate
%
Difference
A
0.33%
0.74%
124%
B
1.18%
5.45%
362%
C
0.33%
0.80%
142%
D
0.33%
1.50%
355%
E
0.33%
0.99%
200%
F
0.33%
0.61%
85%
G
0.33%
2.53%
667%
H
0.33%
3.80%
1052%
Source: Local businesses providing information
from WSD
Source: USDOL
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Chart 10. Quality of
Separation
Determinations,
New Mexico vs
United States,
2016 to 2020
NM
US

Page 17
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
PUA claims. In April 2020, WSD posted that 2018 and 2019 tax documents
could be used to file a PUA claim; however, only 2019 tax documents were
allowed per USDOL. While WSD quickly corrected this mistake, many
individuals filed for PUA and may have received overpayment notices because
they provided the incorrect tax filing information.

WSD also did not ensure backdating for all PUA claims that qualified,
potentially leading to underpayment of some PUA claims. From August 2020
through November 2020, WSD required claimants provide good cause to
backdate PUA claims. This practice was not required by federal rule and, while
it may have decreased overpayments, it likely led to underpayment of claims.
Providing increased training regarding federal guidance could lead to more
accurate interpretation of guidance in the future. One approach would be to
expand the agency’s training modules (or “toolbox talks”), noted as a
promising practice by USDOL.

Inadequate fiscal oversight created inconsistent accounting practices
and untimely reporting, leading to inaccurate and untimely benefit
delivery. In the February 2021 audit, OSA identified turnover within the
accounting department, including the departure of the chief financial officer
(CFO) and accounting complexities and disruptions due to the pandemic as the
cause of inconsistent accounting policies and untimely reporting. According
to the OSA audit, in 44 of 45 tested claims, the overpayment recovery process
began prior to the overpayment becoming finalized, a practice in contradiction
of federal guidance. This could potentially lead to the state owing recovered
overpayments back to claimants. WSD has submitted to DOL an explanation
of their practices and is awaiting response and approval. An acting CFO has
been in place since July 2020. The WSD secretary resigned on April 16, 2021,
and an acting secretary assumed the position.

The December 2020 USDOL audit highlighted three findings with a fiscal
impact likely relating to poor fiscal oversight. The findings stated WSD did
not follow state or federal accounting guidelines regarding CARES Act grant
awards. The issues related to a misclassification of funds, leading to a lack of
transparency, and insufficient documentation on employee time and effort and
records for equipment.

A failure to review system access increased risk for fraud. The OSA audit
also found WSD had not performed a formal user access review of its IT
systems in 2020. This could lead to former employees having access to the
state’s UI system, which increases the state’s risk for fraud. The audit
recommends WSD establish policies, procedures, and controls to comply with
the Department of Information Technology’s requirements to review user
access at least annually. WSD responded it will have policies and procedures
in place by June 2021 to ensure these checks are done each summer.

New Mexico does not require employers to notify workers at the time of
separation about unemployment insurance, a practice required by
USDOL. On registering a business with WSD, New Mexico employers, like
most employers across the country, are required to display a workplace poster
with information about unemployment insurance. However, as part of the

Page 18
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
Families First Coronavirus Response Act (FFCR), the federal government
required states to not only post a notice but to also notify separated employees
(by mail, email, text message, or flyer) about their rights to UI benefits. In
guidance to state agencies, USDOL recommended states amend their statute
or regulation, issuing an emergency regulation if necessary, to comply with
this requirement. USDOL provided model language that could be used in the
notice. A November 2020 review of state workforce agency requirements by
Ernst & Young found New Mexico was one of 17 states that did not have
information available online about this new requirement. While failure to
directly notify separated workers about UI does not impact improper payment
rates, it may impact the number of eligible workers who apply for and receive
benefits. (See Appendix K).

Page 19
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
Waived Federal Requirements and Relatively High
Benefits May Contribute to Disincentives to Find
Work

The state has a high rate of unemployment and has not met its targets for
getting workers who lost their jobs back to work, according to data from the
Workforce Innovation Opportunities Act (WIOA) program presented in an
August 2020 LFC Policy Spotlight. WIOA is a federally funded employment
services program that serves dislocated workers, youth, and adults through
career and education programs.  New Mexico was in the bottom 20 percent of
all states for five of the six WIOA performance metrics, including employment
retention and average earnings.

New Mexico’s lower-than-average performance in reemploying workers is
particularly problematic because of the long-term negative impacts of
unemployment. Even prior to the pandemic, from January 2020 through March
2020, 38.4 percent of workers on unemployment insurance in New Mexico
exhausted their benefits, with workers staying on UI an average of 13.5 weeks.
During the pandemic, 75 percent of staff from employment services were
reallocated to help with unemployment insurance.

As of May 2021, there are an estimated 64 thousand jobs available in the state
that need to be filled. By the state continuing to waive the work search
requirement through the beginning of May 2021, it likely contributed to a
disincentive for some claimants to look for work or enroll in training. The state
can help workers through expanding its mandatory case management program
for unemployment recipients.

New Mexicans stay on unemployment longer and tend to exhaust
benefits more than national averages.

New Mexico’s higher than average exhaustion rate –  the share of individuals
staying on unemployment for the full time allowed –  and duration – average
length of time on unemployment – impact the solvency of the unemployment
insurance trust fund because individuals who stay on unemployment longer
draw more money from the trust fund. Prior to the pandemic, exhaustion rates
peaked in 2018 at roughly 42 percent of those receiving unemployment
insurance benefits, while duration rates peaked in 2017. The state may need to
examine how its goals for the unemployment insurance system, the effects of
long-term unemployment, and the costs of exhaustion of benefits impact both
the state and the unemployed.

New Mexico could save at least an estimated $5.1 million by reducing its
rate of exhaustion of unemployment benefits to the national average. In
2019, 38.2 percent of New Mexican workers on UI exhausted their benefits, a
rate 8.8 percent above the national average. If those workers had received
benefits for even one less week, the state would have spent $5.1 million less
from the UI trust fund. Improving trust fund solvency is of particular
importance because New Mexico (like several other states) depleted its trust
fund reserves in 2020 due to the impact of the pandemic. Because New Mexico
Note: Only first quarter data was used
for each year.
Source: USDOL
0
10
20
30
40
50
2016 2017 2018 2019 2020
Chart 11.
Exhaustion Rate of
UI, New Mexico vs
United States,
2016 to 2020
NM
US

Note: Only first quarter data was used for
each year.
Source: USDOL
0
5
10
15
20
2016 2017 2018 2019 2020
Chart 12. Average
Duration on UI, New
Mexico vs United
States,
2016 to 2020
(in weeks)
NM
US

Page 20
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
had unemployment rates 22 percent above the national average in December
2020, and exhaustion rates have been 8 percent above the national average
from 2016 to 2020, the state may need to focus on reemployment.

Lowering exhaustion rates can improve long-term negative impacts of
unemployment. In addition to a fiscal impact, according to the Urban
Institute, long-term unemployment leads to negative social determinants of
health, including lower life expectancy, decreased high school graduation
rates, and increased crime. Given these negative and long-term social,
psychological, and economic impacts of unemployment, and the negative
impact to the state trust fund, the department may need to strengthen programs
that help workers reduce their length of time on UI. Due to the large positive
impact of lowering unemployment exhaustion and duration rates, the state
should regularly monitor and report these rates through performance measures.

The state contributed to a disincentive for claimants to look for
work or enroll in training by waiving the work search
requirement.

As part of WSD’s overall mission, the UI system has a goal to help employ
workers. While ensuring those eligible receive benefits is essential, the state
should also examine how individuals are able to successfully reengage with
the workforce. For some workers, retraining or gaining new skills may be
needed. The disconnect between UI and reemployment services is a problem
nationally, as highlighted in a 2012 Organization for Economic Cooperation
and Development report that stated unemployment insurance would provide
greater value if “offered in tandem with a more ‘active’ set of reemployment
services that can connect job seekers with job opportunities, facilitate job
search, and guide individuals toward training and education.”

One critical way to better connect those receiving UI with the job market is to
require UI claimants to look for work or be enrolled in an approved training
program. During the Covid-19 pandemic, New Mexico, like many states,
waived its work search requirement due to public health concerns. This
requirement remained waived through the first week of May even though the
state had relaxed many public health restrictions. This waiver coupled with
other factors meant that claimants might not have had an external incentive to
look for work or start a training program until they are about to exhaust
benefits. Benefits may be paying more than a claimant would make working,
due to the increased federal benefits that expire in September 2021 and the low
median incomes in New Mexico. Additional barriers to return to work likely
existed including: limited child care, inconsistent school openings and
availability of after care, reduced public transportation and unequal access to
healthcare. As the pandemic recedes and these barriers become less prevalent,
the state should consider how to best address workers’ immediate needs to
replace lost wages while creating meaningful training and job opportunities.

Half of states reinstated the work search requirement before New
Mexico. According to the National Governor’s Association, at least Arkansas
and Missouri reinstated work search requirements in summer 2020. Most
Figure 3. Impact of
Employment Services on UI
Duration

Note: The Reemployment Services and
Eligibility Assessment program is a type of
evidence-based employment service that
provides mandatory case management to
UI recipients.
Source: Adapted from Nevada REA
evaluation
Employment
Services-
RESEA
No
Employment
Services
Length of UI= 31 weeks
Length of UI= 27 weeks
As the country continues
to re-open, states must
revisit
whether
such
waivers are still necessary
to respond to the spread of
COVID-19.
Source: USDOL UIPL 13-21
Long Term
Unemployment:
 Reduces
income
by
40
percent;
 Decreases
reemployment
wages by 5 percent to 15
percent;
 Increases
applications
to
social
security
disability
insurance;
 Increases mortality rates by
10 percent to 15 percent;
 Increases
student
grade
retention;
 Decreases
student
high
school graduation; and
 Increases
arrests
in
a
community by 14 percent.
Source: Urban Institute

Page 21
Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
neighboring states to New Mexico have removed the waiver and as of April
29, 2021, a total of 25 states have done so (see Appendix L for full list of states
with removed work search waiver). New Mexico reinstated the work search
requirement on May 9. In guidance to states, USDOL said the suspension of
the work search requirement is permissible under the federal law only as
needed to respond to the spread of Covid-19 and only on an emergency
temporary basis.

Table 4. Waived Work Search Requirements and
Unemployment Rates
State
Date Work Search Waiver
Ended
Unemployment Rate
March 2021
Colorado
2/2021
6.4%
Texas
11/2020
6.9%
Oklahoma
10/2020
4.2%
Nevada
5/2021
8.1%
New Mexico
5/2021
8.3%
Arizona
Still Waived
6.7%
See Appendix L for complete list of states who have reinstated work
requirements.
Source: BLS, state UI divisions

Federal stimulus payments may disincentivize New Mexicans from
returning to work. According to a paper from the National Bureau of
Economic Research (NBER), between April 2020 and July 2020, 76 percent
of workers on UI nationwide received benefits in amounts higher than their
lost wages, that is “replacement rates” above 100 percent. NBER found high
replacement rates create disincentives to return to work. This may be
particularly true in states with low median household incomes. New Mexico
has the sixth lowest median household income in the country at $51.9 thousand
and has the third highest wage replacement rate in the nation at 162 percent of
lost wages (See Appendix M).

For example, a worker earning the median per capita income of $880 per week
would receive an estimated $467 per week on UI prior to the pandemic and an
estimated $1,067 per week when receiving $600 weekly Federal Pandemic
Unemployment Compensation (FPUC) payments during the first months of
the pandemic. This disincentive to return to work is felt by New Mexico
businesses. According to KRQE, Bernalillo County businesses are reporting
they are having trouble recruiting and hiring, citing the additional
unemployment benefits as a potential reason.

Table 5. States with Highest Replacement Wages and Replacement
Wages in Neighboring States
State
Replacement Rate with FPUC
Replacement Rate without FPUC
State with Highest Replacement Rates
Oklahoma
165%
57%
Georgia
163%
63%
New Mexico
162%
53%
Neighboring states
Texas
153%
53%
Colorado
150%
60%
Arizona
119%
34%
Source: NBER, Gangong et al. 2020
“Why would anybody want
to … start at a minimum
wage job when they are
earning more money … on
unemployment?”
-Albuquerque business
owner
Source: Albuquerque Journal
Montana
is
ending
its
participation in the federal
unemployment program that
provides extra weekly benefit
amounts. Beginning June 27,
unemployed workers in Montana
will no longer receive the extra
$300 in weekly benefits provided
through the Federal Pandemic
Unemployment
Compensation
(FPUC) program. Instead, the
state will launch a new program
that provides a onetime $1,200
bonus to workers who return to
work for four weeks. $15 million
in funding has been set aside for
the program which could provide
bonuses to as many as 12,500
workers. Additionally, the state
will
require
the
unemployed
receiving benefits to return to
actively searching for work, a
requirement that was waived in
Montana at the beginning of the
pandemic.

Recipients of unemployment in
Montana typically can receive
between $151 and $519 and with
the federal boost were receiving
$451 and $810. In New Mexico,
the minimum benefit amount is
$90 and the maximum is $494
and
with
the federal
funds
becomes $390 and $794. In
March 2021, the unemployment
rate in Montana was 3.8 percent
compared with 8.3 percent in
New Mexico.

As
May
2021,
Alabama,
Arkansas,
Mississippi,
South
Carolina, and Tennessee have
also stopped participating in the
federal benefit programs.

Source: CNBC, The Hill

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
However, with the reduction in federal stimulus benefits from $600 to $300
per week, there may be less of an incentive to stay on unemployment (although
this may not be the case for minimum wage jobs.) As the pandemic subsides
and children return to school, fewer workers may have reasons for staying on
unemployment (such as health concerns or needing to care for children at
home).

Participation in an evidence-based reemployment program dropped by
47 percent during the pandemic. The reemployment services and eligibility
assessment (RESEA) program has been found to be effective in reducing
length of time on unemployment and limiting the likelihood an individual
becomes a repeat user of the UI system. The program has a $17 return on
investment for every dollar spent in New Mexico, as mentioned in the August
2020 LFC Workforce Development Policy Spotlight.  According to WSD,
RESEA only serves 6,200 UI claimants, or an estimated 4.2 percent of the
number of individuals who filed an initial claim in the first half of FY21.

RESEA program participation dropped significantly during the pandemic,
from 95 percent of selected participants completing at least one visit to only
50 percent. One likely reason for this drop may be due to the waived work
search requirement. A similar drop occurred with participants in the state’s
Temporary Assistance to Needy Families (TANF) program, where a work
search requirement for its New Mexico Works Program was also waived at the
beginning of the pandemic. According to a National Governor’s Association
memo, many states canceled or changed how they implemented the RESEA
program because of Covid-19. New Mexico paused the program at the onset
of the pandemic and restarted it in the Fall. In January 2021 federal guidance,
USDOL advises RESEA services may need to be adjusted when work search
is waived but continues to state the program is mandatory once a claimant is
notified.

The Legislature appropriated $5 million for an evidence-based job
training program to serve up to 46 thousand New Mexicans, but it was
vetoed. New Mexico may want to increase use of reemployment services,
particularly for those likely to stay on UI for an extended period or for those
who are likely to become repeat users of UI without additional services. Such
programs can reduce repeat use of UI. A 2014 USDOL Bureau of Labor
Statistics article found, in states that used reemployment services (such as
RESEA), those enrolled in the program were less likely to have repeat use of
UI within one year and received between $348 and $424 less total UI benefits.
New Mexico should determine how to fund an expanded RESEA program
because these services are cost beneficial and recovery from the current
economic downturn may last years. The Department of Finance and
Administration could designate American Rescue Plan Act (ARPA) federal
funds be used for this purpose.

WSD, the Higher Education Department and New Mexico Workforce
Connections are introducing a comprehensive plan for assisting workers
with training and reemployment services. This initiative creates a single
statewide system for both individuals and businesses to access training,
education, and employment resources. Through these resources, UI claimants

Note: Used April through December in
both years. Participation is defined as
completing an RESEA meeting.
Source: USDOL
0%
20%
40%
60%
80%
100%
2019
2020
Chart 13. Percent
of Selected
Claimants
Participating in
RESEA,
2019 vs 2020
The Reemployment Services
and Eligibility Assessment
(RESEA)
program
is
a
mandatory
case
management
program
for
those found to be at highest risk
of exhausting UI benefits. It
typically
requires
these
UI
recipients to meet with a case
worker to determine services
needed to help get claimants
reemployed.

Source: HSD
0%
10%
20%
30%
40%
50%
Oct-Dec
2019
Oct -Dec
2020
Chart 14. Percent
of New Mexico
TANF Recipients
Fulfilling 2-Parent
Work Participation
Requirement

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
can both look for work and learn new or advanced skills to get a better job.
The initiative includes professional development workshops and financial aid
resources. A partnership with the state’s higher education institutions allows
schools to create short-term “direct to career” training programs. Because this
is a new program, assessment of it is important to determine whether it leads
to more UI claimants reentering the workforce and whether a similar strategy
should be used in future recessions.

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
U.S. Treasury Affirmed New Mexico’s Legislative
Spending Plan to Address Trust Fund Insolvency

For the first time since at least 1974, New Mexico’s UI trust fund became
insolvent in 2020. The solvency of the trust fund depends on two components:
the amount of money going out through UI benefits being paid to eligible
workers and the amount of money coming in through employer taxes. From
2002 through 2019, the trust fund averaged $369 million in reserve. In the
aftermath of the Great Recession from 2012 through 2014, the trust fund
reserves were less than $100 million. However, the fund reached adequate
levels by 2018. According to the U.S. Department of Labor, the fund received
a strong “green” rating in 2018, 2019, and 2020 (prior to the pandemic), up
from cautious and concerning “yellow” and “red” ratings from 2014 through
2017.

Federal stimulus funds should be used to repay the $278 million
federal
loan
and
supplement
New
Mexico’s
insolvent
unemployment insurance trust fund.

New Mexico will need to address how to regain solvency of its trust fund and
can consider a number of potential options to do so. The primary option is for
the Legislature to appropriate the use of federal stimulus funds from the
American Recovery Plan Act of 2021 (ARPA) to repay the loan and replenish
the fund. If the state does not repay the loan, then the federal government will
impose increased employer taxes.
Table 6. USDOL Rating of
New Mexico Trust Fund
Solvency, 2014 to 2020

Year
USDOL rating of Trust
Fund
2020
green
2019
green
2018
green
2017
yellow
2016
red
2015
red
2014
red
Source: USDOL

Source: US Treasury
$0
$200,000
$400,000
$600,000
$800,000
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Chart 15. Average Unemployment
Insurance Trust Fund Balance,
2002 to 2019
(in thousands)

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021

The state borrowed $278 million from the federal government and
allocated $52.9 million from the CARES coronavirus relief funds to
address trust fund insolvency. During the second special session in 2020,
the state allocated $194 million of CARES Act funds to WSD for additional
unemployment benefits of $1,200 per person. WSD spent $143.6 million and
the unused $50.4 million, as well as $2.5 million of unused funds from other
uses, was deposited in the UI trust fund. Additionally, the state borrowed $278
million from the federal government through a Title XII grant. Beginning
September 2021, the state will be required to pay interest on the federal loan
if the principal has not yet been repaid at an interest rate of 2.2777 percent.
However, the state could take action to defer or delay interest payment.

If New Mexico does not repay its federal loan, the federal government
must recoup it by raising taxes on employers. While state payroll taxes
fund unemployment cash benefits, the Federal Unemployment Tax Act
(FUTA) also supports New Mexico’s unemployment insurance system and
covers a federal share of administering the UI program. FUTA pays for half of
extended unemployment benefits during periods of high unemployment and
provides for a fund from which states can borrow, when necessary, to pay for
benefits. If a state does not repay its federal loan, the federal government must
recoup it by raising UI taxes on employers. The regular FUTA is calculated by
multiplying the first $7,000 earned by an employee by 6 percent. Employers
who paid wages subject to unemployment tax can receive a credit of 5.4
percent and pay only 0.6 percent or $42 (0.006 X $7,000). The credit is reduced
for all employers when a state has an outstanding loan balance, effectively
raising taxes by 0.3 percent for each year the state has not repaid its loan in
full. This would effectively double the tax rate paid by 79 percent of employers
in 2020 who paid the lowest rate of 0.33 percent.

Figure 4. Decisions Involved in Financing Unemployment Insurance Trust Fund Deficits

Source: Adapted from the Urban Institute
Identify
existing or
potential
UI trust
fund deficit
Weigh
options
for
financing
UI trust
fund
Increase
employer
taxes and/or
reduce
benefits
Borrow
Repay
financed
amount
Potential Decision
Making Factors:
• Cost of borrowing
• Economic
conditions
• Legal constraints
• Political factors
• Level of
experience and
comfort with
borrowing options
Use federal
stimulus funds
(ARPA)
Increase
employer
taxes
Use state
general fund

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
LFC staff contend that the Legislature has authority to appropriate
federal funds. An April 2021 Legislative Finance Hearing Brief on the
tracking of federal funds describes the legislative authority to appropriate
federal funds. State law (Section 6-4-2 NMSA 1978) dictates that the State
Treasurer must credit all revenues not otherwise allocated by law to the general
fund, and that expenditures from the general fund shall be made only in
accordance with appropriations authorized by the Legislature.  Moreover,
Article IV, § 30 of the State Constitution dictates that money shall be paid out
of the state treasury only upon appropriations made by the Legislature, and
every law making an appropriation shall distinctly specify the sum
appropriated and the object to which it is to be applied. Despite the vetoes, in
accordance with state law, LFC staff contend that the ARPA money will still
need to be deposited into the general fund and appropriated by the Legislature
before its expenditure.

In March 2021, the Legislature earmarked $600 million of federal stimulus
funds to replenish the trust fund and repay the federal loan; however, the
Governor vetoed the appropriation. Congressional estimates show the New
Mexico state government will receive $1.75 billion of ARPA funds, signed
March 2021, which would be available until the end of 2024. Additionally,
through Senate Bill 377, the Legislature allocated $100 million from the state
general fund to repay the federal loan and the Governor signed the bill. The
aid for the trust fund (as outlined in Table 7) reflects the estimated amount
needed to pay benefits through the end of 2021 and help restore the trust fund
balances to cover future benefit costs. Currently, LFC staff project the amount
of the federal loan to be repaid will be up to an estimated $243 million in FY22.

Table 7. UI Trust Fund Projection Scenario
UI TRUST FUND SOURCES AND USES
(in millions)

2020
2021
2022

2020Q3 2020Q4 2021Q1 2021Q2 2021Q3  2021Q4 2022Q1 2022Q2 2022Q3 2022Q4
BEGINNING BALANCE
$149.39
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00 $22.80 $19.80

REVENUE

Existing UI Tax Revenues*
$51.02 $52.72 $14.90 $65.40 $45.20 $28.70 $21.50 $68.50 $44.80 $29.30
Loan from Federal Gov.
$85.60$121.00 $45.10 $39.60 $22.20 $26.70 $25.00

$6.20
CARES Act Reversion

 $54.00

TOTAL REVENUE
$136.62$173.72$114.00 $105.00 $67.40 $55.40 $46.50 $68.50 $44.80 $35.50

TOTAL BENEFIT EXPENDITURES
$286.01$173.68$114.00 $105.00 $67.40 $55.40 $46.50 $45.70 $47.80 $55.30

ENDING BALANCE
$0.00
$0.03
$0.00
$0.00
$0.00
$0.00
$0.00 $22.80 $19.80
$0.00

DEBT OWED AT END OF QUARTER
$85.60$206.60$251.70 $291.30 $191.30 $218.00$243.00 $243.00 $243.00 $249.20
Repayment of Federal Loans in 2020 Regular Session

$100.00

*Tax revenues are subject to change based on WSD tax implementation. Projections assume the reserve factor will
increase to 4.0 in CY22.
Source: WSD and LFC files

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
Federal guidance from the U.S. Treasury clarifies that states can use
stimulus funds to both pay back the federal loan and backfill the trust
fund to pre-pandemic levels.  U.S. Treasury guidance published on May 10,
2021 outlines that states are allowed to use ARPA relief funds to “make
deposits into the state account of the Unemployment Trust Fund...up to the
level needed to restore the pre-pandemic balances of such account as of
January 27, 2020 or to pay back advances received under Title XII of the Social
Security Act (42 U.S.C. 1321) for the payment of benefits between January
27, 2020 and [May, 2021].”  On January 27, 2020, New Mexico’s trust fund
balance was approximately $460 million and as of May 11, 2011 the federal
loan stood at $278 million. The guidance also states that since New Mexico’s
current unemployment rate is high (i.e. more than two percent higher than the
rate in February 2020), the entire stimulus amount of $1.75 billion is available
in one payment to the state, rather than two.

If 2020 data for payout of benefits is included in reserve factor
calculations, it could impact employer taxes for 25 years. The reserve
factor, which can float between .5 and 4, relates to the solvency of the state’s
UI Trust Fund. It is determined annually by whether there are less than
adequate, adequate or more than adequate reserves in the Fund. For 2020, the
reserve factor was 1.6528, indicating that reserves were slightly less than
adequate.  During the first special legislative session of 2020, the Legislature
held the reserve factor constant for 2021 (Section 51-1-11 NMSA 1978). The
calculation for the reserve factor includes information about the trust fund
balance as well as the average of the five highest years of benefits paid in the
last 25 years (NMAC 1978 11.3.400.427, see appendix N). Given the
historically high amounts of benefits paid in 2020, the reserve factor
calculation would be impacted for up to 25 years.

For the nearly 80 percent of employers paying the lowest employer tax rate of
.33 percent in 2020, the impact of removing 2020 data from the reserve factor
Table 8. Reserve
Factor
Less
than
adequate
reserves
=
Between
1.0001
and
4.0000
Adequate
reserves
=
1.0000
More
than
adequate
reserves
=
Between
.5000
and
.9999

Source: WSD

Source: U.S. Employment and Training Administration
0
20,000
40,000
60,000
80,000
100,000
120,000
Chart 16. Unemployment Insurance Continued Claims in
New Mexico,
1987 to 2021
Recessionary Period

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
calculation would likely be minimal.  However, for employers who pay a
higher tax rate due to increased layoffs, the impact of this change would be
greater. For example, an employer that paid a tax rate of 1.18 percent in 2021
could be faced with a tax rate of 1.96 percent in 2022, if 2020 data is included
in the reserve factor calculation, holding all else constant.  WSD should
therefore consider excluding 2020 information in the calculation of the reserve
factor because it was an abnormal year during which benefits paid were more
than double during the Great Recession. While 2021 benefit claims are likely
to be elevated, they do not appear on track to be unusually high compared with
other recessionary years.

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Spotlight: Unemployment Insurance System Review ▪ May 19, 2021
Next Steps

The state can implement a number of strategies to improve the performance of
unemployment insurance. These include strategies that can reduce improper
payments and fraud risk, increase accuracy in interpretation of state law and
federal guidance, increase employment service utilization to reduce exhaustion
rates, and improve the solvency of the trust fund.

To reduce improper payments and fraud risk, the Workforce Solutions
Department should, per Federal USDOL guidance, immediately address
backlogs; consider hiring additional contract staff to assist in quickly
addressing backlogs; regularly monitor the backlog of National Directory of
New Hire hits and include updates regarding when the backlog will be fully
resolved; Refrain from reassigning essential staff to handle increased call
center demands in future periods of high unemployment; In collaboration with
the Legislative Finance Committee and the Department of Finance and
Administration, add a performance measure examining amount of UI fraud
prevented and overpayment rates; consider developing a workload projection
tool to assist in determining appropriate staffing levels; and ensure regular
review of user permissions of its UI system.

To increase accuracy in interpretation of state law and federal guidance, the
Workforce Solutions Department should continue to review and recalculate UI
tax rates for employers to determine extent of inappropriate increases,
crediting employers when necessary; expand promising training practices such
as the “toolbox talks,” and require employers to directly notify separated
employees of UI program.

To increase use of employment services to reduce exhaustion rates, the
Workforce Solutions Department should, in collaboration with the Legislative
Finance Committee and the Department of Finance and Administration, add a
performance measure examining exhaustion and duration rates for the UI
system; expand use of the evidenced-based RESEA program to capture a $17
to $1 return on investment through allocation of federal ARPA funds; and
measure the impact of the new comprehensive plan for assisting workers on
reemployment.6

To improve the solvency of the trust fund, the Legislature should appropriate
ARPA funds to repay the federal loan for UI claims and replenish the state’s
trust fund to pre-pandemic levels; the Workforce Solutions Department should
change rule to exclude 2020 data in reserve factor calculations.

6 In a draft copy of the report sent to WSD a recommendation to remove the work
search waiver was included but during the report review period the agency enacted
the recommendation.
To reduce improper payments
and fraud risk, the Workforce
Solutions Department should:
 Consider
hiring
additional
contract staff to assist in
quickly addressing backlogs;
 Regularly monitor the backlog
of National Directory of New
Hire hits and report when the
backlog will be fully resolved;
 Refrain
from
reassigning
essential
staff
to
handle
increased call center demands
in
future
periods
of
high
unemployment; and
 Collaborate with the Legislative
Finance Committee and the
Department of Finance and
Administration
to
add
performance
measures
on
fraud detection and improper
payment activities;
To
increase
accuracy
in
interpretation of state law and
federal
guidance,
the
Workforce
Solutions
Department should:
 Continue to recalculate UI tax
rates for employers;
 Ensure regular review of user
permissions; and
 Expand the use of training
such as “toolbox talks” to
increase knowledge of federal
guidance;

To
increase
use
of
reemployment
services
to
reduce exhaustion rates, the
Workforce
Solutions
Department should:
 Expand use of the evidence-
based
RESEA
program
through ARPA funding; and
To improve the solvency of the
trust fund:
 The state should use ARPA
funds to repay the federal loan
and replenish the UI trust fund.
 The
Workforce
Solutions
Department
should
change
rule to exclude 2020 data in
reserve factor calculations.

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021

Appendix A: State and Federal Unemployment Insurance Responsibilities

Category
State
Federal
Overall


Design UI program within federal
requirements.

Set operation methods and directly run
the program

Take claims from individuals, determine
eligibility and insure timely payment of
benefits to workers

Determine employer liability and collects
taxes

State statute sets forth benefit structure
(eligibility/disqualification provisions,
benefit amount) and state tax structure
(state taxable wage base and tax rates)
Perform audits of a sample of UI claims to
determine overpayment rate and system
reliability and validity.

Establish broad guidelines

Ensure conformity and substantial compliance of state law,
regulations, rules, and operations with Federal law
1. Benefit and Tax Laws and Rules
Eligibility

A sufficient work history

Good cause for unemployment

Is the individual able to work, available
for work, and actively searching for work?
NMSA 5-1-1-7

Broad categories of workers who must be covered
Benefit amounts
Equal to just over half of one’s salary up to a
maximum cap

Minimum weekly Disaster Unemployment Assistance (DUA)
benefit amounts
Length of time of
benefits

26 weeks

Extended
Benefits (EB)
Periods of high unemployment when EB
benefits kick in defined as exceeding 120
percent of the average rate for the same
period for the preceding two years or equaling
or exceeding five percent. (Section 51-1-48
NMSA 1978)

Method for triggering the EB program

Temporary changes to EB program due to emergencies (i.e.
CARES Act extended EB by 13 weeks and CAA extended EB
for 11 weeks)
Tax structure
Taxable wage base and formula for determine
employer UI taxes
(NMSA 51-1-8-11)

The floor for the highest state unemployment tax rate to be
imposed on employers

Floor for taxable wage base’

Federal Unemployment Tax Act (FUTA) – pays for portion of
EB and serves as a fund for state borrowing when
unemployment is high

Reports are required of states on their tax contributions
operations and tax program activities.
Trust Fund
Unemployment compensation fund defined as
having a clearing account, Trust Fund account
and benefit account. Money collected goes to
the clearing accounts and then deposited in
the treasury of the US in the NM state
account. NMSA 51-1-19

Hold and invest all money in the unemployment Trust Fund
(UTF) until drawn down by states for the payment of
compensation

Title IX, SSA authorizes various components of the federal
Unemployment Trust Fund

Title XII, SSA authorizes loans to insolvent state programs

APPENDICES

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021

2. Funding and Oversight
Funding
FY 21

GF $1,333,400

OSF $968,700

Title III, SSA authorizes state grants for administering state UC
laws
o
Resource Justification Model (RJM) used to
determine base allocations.
o
FY 21 Federal Funds $8,065,000
Planning and
performance
documents

Performance measures

UI State Quality Service Plan (SQSP) – 24-month window to
plan and implement vision to enhance UI and implement
corrective action as needed
Audit

OSA audit

State samples and runs the BAM data,
sending this information to USDOL

Benefit Accuracy Measurement program (BAM) determines the
accuracy of paid and denied claims. NM is required to annually
audit a statistical sample of between 360-480 claims and
submit them to USDOL to estimate accuracy of payment and
to ensure the state is reliably processing claims and meeting
benchmarks. There are ~106 BAM variables collected.


USDOL Audit
Program Letters,
Advisories and
Guidance

States determine how they choose to
enact federal guidance or requirements.

ETA Program Letters on: RESEA grants and performance
measures, emergency program guidance related to fraud,
identity theft and recovering of fraud overpayments,
replacement IT hardware, etc.
Program
Integrity and
Claims
Processing
Requirements

Activities and reports on UI system
integrity and claims processing including
improper payment prevention initiative.

SS Administration cross-match

Systematic Alien Verification for Entitlement

Incarceration cross-matches

Interstate Connection Network (ICON)

Internet Protocol address

Data mining and Data analytics

Connection with Integrity Data Hub and its additional
surveillance capabilities (i.e. Suspicious Actor Repository)

Source: NMSA, USDOL

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021
Appendix B: Unemployment Insurance Division Sources and Uses FY16 -
FY20 (in thousands)

SOURCES
FY21
FY20
FY19
FY18
FY17
FY16
General Fund Transfers
1334.4
1009.3
254.4
1,022.2
566.3
796.8
Other Transfers
968.70
450
1312.7
1,456.3
2,029.2
2,792.2
Federal Revenues
8,065.00
7938.7
66464.2
6,121.2
6,550.1
6,076.7
SOURCES TOTAL
10,367.10
9380.60
8,031.3
8,599.7
9,145.6
9,665.7
USES

Personal Services and Employee Benefits
7,778.2
7,981.20
6,672.2
6,964.6
7,419.8
7,981.2
Contractual Services
546.0
353.5
347.9
389.5
351.2
353.5
Other
2042.9
1,331.00
995.2
1,246.7
1,374.6
1,331.0
TOTAL USES
10,367.1
8,839.7
8,015.3
8,600.8
9,145.6
9,665.7
FTE

Permanent
132
132.0
133.0
131.7
141.7
145.3
Term
32
32.0
50.0
50.0
67.0
66.6
TOTAL FTE POSITIONS
164.0
164.0
183.0
181.7
208.7
211.9

Source: LFC files

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021
Appendix C. WSD Civil Rights Settlement Requirements, Steps Taken, And
Deadlines

Settlement Requirements
Steps Taken
Deadlines
WSD will review its current language
access plan to ensure it provides
meaningful access to the LEP
populations and revise its plan as
needed

WSD completed a detailed review of its
current language access plan and
determined that it provided meaningful
access to the LEP populations and that no
revisions were needed.

On March 16, 2021, WSD submitted to
USDOL a copy of its WSD language
access plan for approvals and/or
comments.

On April 14, 2021, USDOL contacted WSD
and requested additional time to provide
their approval and/or comments on the
submitted language access plan.

WSD will begin
implementation of the
language access plan
fifteen (15) days after it
receives approval and/or
comments from USDOL.

WSD will complete
implementation of the
language access plan 120
days after it receives
approval and/or comments
from USDOL.
WSD will continue to assure that LEP
individuals are afforded meaningful
access to all programs and services
by providing language assistance at
no cost to LEP individuals including
identifying all written or electronic
materials that contain vital information
and ensuring that these vital
documents are translated by a
qualified expert and made available to
the public.

WSD compiled a list of all written or
electronic materials that contained vital
information as well as copies of these vital
documents which have been translated
into Spanish by a qualified expert.

On May 11, 2021, WSD submitted the list
of vital documents along with the
compilation of Spanish documents to
USDOL for approval and/or comments.

USDOL is to provide its
approval and/or comments
on the list of vital
documents and the
Spanish documents by
June 10, 2021 unless
additional time is
requested.

WSD will begin to
translate all vital
documents into
Vietnamese, a language
spoken by a significant
number of the population,
upon receipt of USDOL’s
approval and/or
comments.

WSD will provide USDOL
with a progress report
every 45 days after it
receives approval and/or
comments from USDOL.

WSD will ensure a
complete translation of all
vital documents into
Vietnamese within 180
days after it receives
approval and/or comments
from USDOL.
WSD will identify and correct any
deficiencies with the provision of
interpretation services to LEP
individuals

WSD is currently conducting a review of its
services, including the UI program and
Wage Claim process, to identify all points
at which employees may have oral
interactions with LEP individuals and is
developing corrective actions for any
deficiencies discovered.

By July 13, 2021 WSD will
report on the identified
deficiencies,

WSD will implement the
corrective measures within
120 days after receiving
USDOL’s approval and/or
comments and will notify
USDOL in writing when all
corrective actions have
been fully implemented.

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021

WSD will provide training to all staff
on language access obligations

WSD reviewed and updated its current
LEP Training, “Properly Serving the LEP
Customer.”

On April 19, 2021, WSD submitted its
training plan and a copy of the updated
LEP Training to USDOL for approval
and/or comments.

WSDWSD

USDOL is to provide its
approval and/or comments
on the training by May 19,
2021 unless additional
time is requested.

WSD will provide initial
LEP Training to all
employees and provide
written documentation that
training has occurred
within 180 days after it
receives approval and/or
comments from USDOL.
WSD will provide notice to customers
regarding language access rights and
the right of individuals with disabilities
to fully participate in WSD programs,
the right to file claims of delay/denial,
and the availability of make-whole
relief.

WSD created a Notice to be displayed in
its Workforce Connection Centers, on the
WSD website and to be mailed to any
identified individuals.

On March 16, 2021, WSD submitted to
USDOL a copy of the proposed Notice, in
English and in Spanish, for approval
and/or comments.

On April 14, 2021, USDOL contacted WSD
and requested additional time to provide
their approval and/or comments on the
submitted Notices

WSDWSD

WSD will mail, post and
publish the approved
Notices and provide
USDOL with
documentation that these
actions have been taken
within 120 days after it
receives approval and/or
comments from USDOL.

WSD will provide
documentation to USDOL
that all claims received
have been processed, or
provide an explanation as
to why the claims have not
been process, within 180
days after it receives
approval and/or comments
from USDOL.
WSD agrees to take steps to address
serving individuals with disabilities
including those that access UI and
engage in wage claims process.

WSD is currently reviewing its policies,
practices and procedures with respect to
the claims-filing process for individuals
with disabilities.

WSD will draft revisions to remedy any
deficiencies found.

By July 13, 2021, WSD
will submit draft revised
policies and practices.

WSD will implement all
revisions within 75 days
after it receives approval
and/or comments from
USDOL.

WSD will perform annual
reviews to ensure that the
policies, practices and
procedures comply with
federal law.
WSD will review claims of
complainants and provide remedies.

No specified deadline
Source: WSD, Settlement with USDOL, 2021

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Appendix D.  Effects of Modernization of Unemployment Insurance Benefits
Systems on Five Program Activities in New Mexico7

7 The impacts of various program activities were measured the year before (2012) and the year after (2014) modernization.
Program Activity
Definition
Improved or Declined
After UI Modernization
First payment
timeliness
The period of time it takes for an eligible claimant to receive their
first payment
Improved
Nonmonetary quality
Non-monetary eligibility criteria are divided into two categories:

1. Separation policies explore the reason for the job loss. To
receive benefits, the worker must be involuntarily unemployed or
voluntarily unemployed for good cause.

2. Non-separation policies examine whether the worker is able
to work, available for work, and in most states, actively seeking
work.
Declined
Nonmonetary
timeliness
Nonmonetary timeliness refers to the period of time with which
separation and non-separation findings are reached
Improved
Quality of appeals
decision
The appeals decision meets the correct parameters.
Improved
Average age of
appeals
The time it takes the state to decide appeals of benefits findings
Declined

Source: Unemployment Insurance Handbook 2017 and “PLA et.al.

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Appendix E. Performance Report Card for WSD FY21Q2

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Appendix F. The Pandemic’s Impact on New Mexico’s Timely Delivery of
Benefits and the Appeals Process

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
New Mexico Lower Authority Appeals Decisions
Issued in 30 Days
Source: DOL
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
First Payment UI Claims Paid in 21 Days
NM
US
National Benchmark
Source: DOL

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Appendix G. Detailed Methodology for Calculating Estimated Overpayment
and Fraud Amounts Associated with Unemployment Insurance Benefits

The LFC calculated that from April 2020 through April 2021 the state made overpayments totaling an estimated
$250 million. This estimate was reached by multiplying New Mexico’s overpayment and fraud rates for FFY20
reported by USDOL from New Mexico’s Benefit Accuracy Measurement (BAM)8 analysis by the total benefit
amounts for standard unemployment insurance, FPUC, PUA, and temporary compensation paid from the week
ending April 18, 2020 through the week ending April 17, 2021.  This timeframe was selected because it represents
a full year from the first week of available data for federal programs enacted due to the pandemic.  The analysis
does not include the following programs: Trade Readjustment Allowances, the UCX program for ex-military service
members, Unemployment Compensation for Federal Employees (UCFE), Mixed Earners Unemployment
Compensation (MEUC), Pandemic Emergency Unemployment Compensation (PEUC), the extended benefits (EB
FED), and Lost Wages Assistance (LWA). These were excluded due to the following reasons: 1. extended benefits
are likely to have a lower rate of overpayment or fraud; 2. the limited number of New Mexicans participating; 3.
established programs not typically included in BAM measurements.

Calculation of UI Overpayment Amounts
UI Benefit
Programs
Benefit Amount From
4/18/21 to 4/17/21
Overpayment
Rate for FFY20
Benefit Amount X
Overpayment Rate
Standard UI
$890,248,265.97

8.233%
$73,294,139.74
FPUC
$1,756,742,831.92
$144,632,637.35
PUA
$358,044,279.87
$29,477,785.56
Temporary
Compensation
$35,030,712.00
$2,884,078.52
TOTAL
$250,288,641.17
Source: LFC analysis of USDOL and WSD data
The estimated potential fraud amount, a subset of the overpayment amount above, was determined as shown
below9:
Calculation of UI Fraud Amounts
UI Benefit
Programs
Benefit Amount From
4/18/21 to 4/17/21
Overpayment
Rate for FFY20
Benefit Amount X
Fraud Rate
Standard UI
$890,248,265.97

4.38%
$38,992,874.05
FPUC
$1,756,742,831.92
$76,945,336.04
PUA
$358,044,279.87
$15,682,339.46
Temporary
Compensation
$35,030,712.00
$1,534,345.19
TOTAL
$133,154,894.73
Source: LFC analysis of USDOL and WSD data

8 BAM calculations are from a sample of cases.
9 This sentence was added on May 21, 2021 to clarify that fraud is a subset of overpayments.

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021
Appendix H. Proportion of New Mexico Improper Payments Characterized
as Fraud, FFY12 to FFY20

Source: USDOL

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FFY12
FFY13
FFY14
FFY15
FFY16
FFY17
FFY18
FFY19
FFY20
Fraud rate
Rate Improper Payments not Due to Fraud

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Appendix I. California’s Fraud Detection Report Table

Source: CA EDD Fraud Deterrence and Detection Activities Report 2020

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021
Appendix J. Employer Unemployment Insurance Tax Rate Calculation

Total Employer UI Contribution rates are determined through four separate components.

These components include: Benefit Ratio, Reserve Factor, Experience History Factor and the Excess Claims Rate.

The Equation for Total Rate is below. There are two steps to determine the total rate as first the contribution rate
is determined. From there an excess claims rate may be added for those employers with particularly high
contribution rates.

Benefit Ratio X Reserve Factor X Experience History Factor = Contribution Rate

Then:
Contribution Rate + Excess Claims Rate = Total Rate

Definitions for Each of these Components are below:

Benefit Ratio: Benefits Charged Against Employer Account (3-year period).

Reserve Factor: Is a measure of trust fund health, and floats between .05 and 4.0. This number may be changed
annually based upon the solvency of the trust fund. For 2021 the reserve factor was frozen at 1.6528.

Experience History Factor: is based on the difference between all of the employer’s previous years’ tax payments
and all the previous years’ benefit charges to the account, divided by the average of the annual taxable payrolls for
the immediately preceding fiscal years, up to a maximum of three years.

Excess Claims Premium: An additional rate employers with contribution rates above 5.4% are required to pay and
is capped at 1% of taxable payroll.

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021
Appendix K. Model Language from USDOL for Employer Notification to
Employees of the Availability of Unemployment Compensation and
Requirement of Notification of Unemployment Insurance Eligibility to
Separated Workers by State

Unemployment Insurance (UI) benefits are available to workers who are unemployed and who meet the
requirements of state UI eligibility laws. You may file a UI claim in the first week that employment stops or work
hours are reduced.

For assistance or more information about filing a UI claim, call 1800-xxx-xxxx or visit www.xxx.ogv [The state
UI agency should insert the options available for filing initial UI claims.]
You will need to provide the state UI agency with the following information in order for the state to process your
claim:
1. Your full legal name;
2. Your Social Security Number; and
3. Your authorization to work (if you are not a U.S. citizen or resident).
To file a UI claim by phone, call: XXXXX
To file a UI claim online, visit: XXXXX
If you have questions about the status of your UI claim, you can call the state UI agency at 1-800-xxx-xxxx or
email xxxx.

Requirement of Notification of UI Eligibility to Separated Workers by State

Source: Ernst & Young

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Spotlight: Unemployment Insurance System review ▪ May 19, 2021
Appendix L. States That Removed the Waiver on Work Search
Requirements and Unemployment Rates

State
Date Work Search
Waiver Ended
Unemployment Rate
March 2021
Arkansas
 6/28/20
4.4%
Missouri
7/5/2020
4.2%
Nebraska
7/12/2020
2.9%
North Dakota
7/26/2020
4.4%
South Carolina
8/2/2020
5.1%
Louisiana
8/9/2020
7.3%
Maine
8/9/2020
4.8%
Mississippi
8/9/2020
6.3%
Wyoming
8/9/2020
5.3%
Utah
8/15/2020
2.9%
Washington
9/1/2020
5.4%
Iowa
9/8/2020
3.7%
Tennessee
10/4/2020
5.0%
Oklahoma
10/25/2020
4.2%
Texas
11/1/2020
6.9%
Ohio
12/5/2020
4.7%
Alabama
1/1/2021
3.8%
Florida
1/2/2021
4.7%
Colorado
2/1/2021
6.4%
Wisconsin
2/6/2021
3.8%
North Carolina
3/14/2021
5.2%
Idaho
 4/25/21
3.2%
Nevada
5/1/2021
8.1%
Kentucky
5/9/2021
5.0%
Virginia
6/7/2021
5.1%

Source: BLS, NCSL

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Appendix M. Median Statutory Replacement Rates by State

Source: Ganong, Noel & Vavra NBER, 2020

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Appendix N. New Mexico Administrative Code Describing the Reserve
Factor Calculation

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