Wisconsin plans to spend $80M in federal funds to update antiquated unemployment system

MADISON, Wisconsin -- Gov. Tony Evers plans to direct up to $80 million in federal COVID funds to update the state's outdated unemployment system after GOP lawmakers rebuffed the governor's multiple requests to pay for upgrades with state taxpayer dollars.

The state Department of Workforce Development on Wednesday announced a $16.5 million contract with Madison-based software development company Flexion Inc. to begin updating the department's decades-old unemployment system, the Wisconsin State Journal reported.

The contract is expected to cost about $4 million annually over four years, excluding any hardware and software needed to support the new system. All told, the state has said full infrastructure updates could cost up to $80 million, with the entirety of that expected to be covered by federal funds.

"To date, these projects have been federally funded and we anticipate being able to complete the modernization effort by using the American Rescue Plan Act funding," DWD Secretary Amy Pechacek said during a call with reporters Wednesday.

Pechacek added that any ongoing maintenance costs associated with the new system would be addressed in the state budgeting process.

The plan to use COVID stimulus funds to cover the state's unemployment modernization project comes after the Democratic governor made multiple requests to Republicans, who control the Legislature, to allocate state dollars to the effort.

GOP leaders in January rejected Evers' call for the Legislature to convene in a special session to spend $5.3 million to begin unemployment system updates. Republicans said at the time Evers had the ability to initiate spending without legislative approval.

On the first day of budget deliberations this summer, the GOP-led budget committee stripped hundreds of items from the governor's proposal, including one to cover system updates. The committee later rejected Evers' proposal to allocate $15 million to DWD for system upgrades, with Republicans again pointing to the governor's access to COVID funds.

"I am glad that the Governor finally took action," said state budget committee co-chair Sen. Howard Marklein, R-Spring Green. "The Legislature has been encouraging him to address the problems with unemployment for more than a year. I look forward to progress on this important issue."

Evers' spokesperson Britt Cudaback said CARES Act funds, which originally had to be spent by the end of 2020 before the deadline for states to use those funds was extended to the end of this year, would not have been a feasible funding source for the modernization project as the effort is expected to take several years to complete.

ARPA funds, which were allocated this spring and provide a longer timeline for use, provide a source of funds to address the modernization effort, she said.

Last month the Evers' administration detailed the governor's planned allocations for the more than $4.5 billion in federal coronavirus stimulus funds received by the state. Cudaback said funds for the modernization project will come out of a pot of $525 million set aside for pandemic response and government operations.

New contract The department's plan to modernize the state's unemployment system, which uses 60-year-old COBOL computing language, is the latest effort by the state to address ongoing concerns surrounding DWD's ability to quickly and effectively process, adjudicate and pay out unemployment claims to Wisconsinites across the state - including some who have reported waiting months for payment.

"With the pandemic, we saw a significant increase day-over-day back in March of 2020 with the sheer volume of claims that came in, and it was exacerbated in our state by the antiquated technology and our inability to process, code and move through just the sheer volume of claims," Pechacek said.

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State officials said Flexion was chosen through a competitive request-for-proposals process that brought in 18 submissions.

Neeraj Kulkarni, DWD chief information officer, said department officials will begin creating an implementation roadmap with Flexion to plan out IT updates and claimants should be able to notice initial changes to the state's unemployment system "very soon."

Pechacek said other changes to the unemployment process include updated call centers, which will launch next week and be fully implemented by February 2022, and a virtual career center that will go live in the coming days that aims to better connect job seekers with prospective employers in the state.

"In terms of guarantees, I think we're putting all of the systems in place to ensure, to the best of our ability, that we are able to respond quickly to any changes we see in the future," Pechacek said.

Pechacek also said the department has increased the number of administrative law judges, who preside over the appeals process for unemployment claims, from 17 before the pandemic to more than 60. She said the department is continuing to recruit additional judges.

Despite those efforts, the department continues to come under fire, particularly from state Republicans, over reported delays in processing claims or settling adjudication needs or appeals.

"(DWD) needs to concentrate now on getting their systems working properly for the people that need it," said Sen. Dan Feyen, R-Fond du Lac. "It's just unacceptable that this is still going on."

DWD reported more than 35,000 weekly unemployment insurance claims and more than 12,500 appeals pending scheduling for the week ending Sept. 18. The average age of appeals that were filed and awaiting a hearing was 55 days.

The department saw more than 94,500 weekly claims and more than 13,800 appeals pending scheduling in the week ending April 17. The average age of appeals that were filed and awaiting a hearing was 78 days.

The state reported earlier this month that preliminary data from the U.S. Bureau of Labor Statistics show the state's unemployment rate remained at 3.9% for the month of August. The state's labor participation rate increased from 66.4% in July to 66.5% last month.

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