Oregon Employment Department can forgive more jobless workers’ debts from benefit overpayments

Oregon Gov. Kate Brown signed a bill this week that could let more Oregonians off the hook if the state pays them too much in unemployment benefits.

Senate Bill 172 tweaks the state’s approach to overpayments, which happen when people get jobless benefits they’re not entitled to. Those overpayments turn into debts that must typically be repaid. Overpayments have been common in the pandemic, leaving some unemployed people owing the state thousands of dollars, sometimes through no fault of their own.

The new law gives the Oregon Employment Department more flexibility to waive one type of overpayment — those caused by people’s honest mistakes. The measure does not change the state’s approach to fraud.

When a lifeline becomes a bill

On Jan. 3, Danielle Gradzki went to her mailbox. Inside was a letter from the Employment Department. She read it in her car on the way to the grocery store.

The letter said she had a $16,000 overpayment.

“I had to go home because I had a panic attack,” she said. “I couldn’t breathe. I was crying.”

Something had gone wrong behind the scenes. Gradzki lives in Washington but had worked in Oregon. The Oregon Employment Department paid her benefits, then told her to pay them all back.

“It was horrible,” she said. “It’s been pretty horrible with this looming over my head.”

In the end, Gradzki got relief. The Employment Department granted her request for a waiver — something it has had the authority to do when overpayments are its own fault. Because she had received federal benefits she couldn’t afford to repay, Gradzki’s debt was wiped clean.

The new law, SB 172, gives the agency flexibility to waive more kinds of overpayments. But to understand what the law might do, it also helps to understand the agency’s current practices.

To the Employment Department, waivers have two different meanings, depending on the situation. Some waivers are permanent cancellations of debt and some are just a delay in collections.

What SB 172 does, in detail

There are three basic kinds of overpayments: those caused by fraud, those caused by people’s honest mistakes and those that aren’t considered a person’s fault at all, such as agency or employer error.

The new law takes the second category of “honest mistakes” and treats it a bit more like the third — the overpayments based on errors by the agency.

1. SB 172 creates a waiver process for overpayments caused by people’s unintentional errors. The law allows the Employment Department to completely forgive these overpayments if collecting them would cause economic hardship. Under prior law, the agency could only grant waivers for overpayments that were not considered a person’s fault. (There are no waivers for fraud.)
2. The law puts a five-year cap on the state’s ability to collect overpayments caused by people’s mistakes. That five-year limit applies to payment plans, wage garnishment, the interception of state tax refunds, as well as “offsets” from future unemployment benefits. (That’s when the state deducts money from people’s benefits until their debt is repaid.) There is no time limit for recovering fraudulent overpayments.
3. Some temporary waivers could become permanent down the road. Getting a “waiver” might sound like your debt disappears. But that has not been the Employment Department’s interpretation of its pre-existing waiver authority. Instead, when regular unemployment overpayments aren’t a person’s fault, the agency has been automatically postponing recovery during the pandemic, for six months at a time. SB 172, however, describes waivers as extinguishing all debt. So, temporary waivers could potentially become permanent after the agency approves final rules to implement the new law. (Some overpayments of federal benefits can be wiped out completely right now.)
4. The new law is retroactive, thanks to a late-in-the-game amendment. The changes described above could apply to overpayments detected throughout the pandemic, not just after the law goes into effect.
5. The measure requires that notices of overpayments be written more clearly. The new law says the notices should include the reason for the overpayment, outline the consequences of the overpayment and address the possibility of getting a waiver.

What SB 172 costs

The total revenue impact of SB 172 is unknown, partly because the new waivers will be handled on a case-by-case basis.

With the five-year cap in place, the Employment Department estimates that future overpayment collections will be reduced by $116 million from 2025-2029. That means less money and less accrued interest to support the state’s unemployment insurance trust fund, which pays workers who get laid off.

The money in the trust fund comes from taxes on employers. And when the fund gets low enough, those taxes rise. In the debate over SB 172, some lawmakers worried about changes such as erasing certain overpayment debt after five years.

“Keeping the debt on the record, so that people can make the repayment back to a system that is paid solely by employers, is important,” said Daniel Bonham, R-The Dalles, at a hearing in May, “for the next people that may need the benefits.”

Still, Bonham voted for the passage of SB 172, along with the vast majority of his colleagues.

During the pandemic, the Employment Department says it has “drastically” reduced its collection of overpayments. But the agency plans to gradually resume recovering more overpayments it caused as emergency coronavirus orders lift.

It encouraged people facing financial hardship to continue applying for waivers.