It should be incumbent on a big-spending state like New York to develop a core competency in getting payments right. After all, more dollars spent means more taxpayer funds put at risk of waste, fraud and abuse.

But one lesson of the pandemic is that, as profligate as the Empire State is when it comes to spending money, it has yet to learn to do it well.

As an avalanche of tens of billions of federal and state taxpayer-funded emergency spending surged through the state treasury the past few years, officials struggled to get the dollars out the door expeditiously, while ensuring the correct sums were paid out — and to only eligible beneficiaries. Checks to lawful recipients were delayed for months, while billions of dollars in improper payments were vacuumed up by fraudsters.

During the pandemic, the eligibility rolls expanded for existing federal and state-funded programs like Medicaid and unemployment insurance (UI).  Simultaneously, brand-new funding initiatives were rolled out, such as the Emergency Rental Assistance Program (ERAP), intended to help renters make rental arrears payments they owed due to jobs and income lost during the pandemic.

But the state was ill-prepared to scale up spending rapidly and responsibly. Even today, more than two and a half years since the pandemic’s onset, key payment administration issues remain unresolved.

Within a few months of the pandemic’s arrival in March 2020, two million New Yorkers had lost their jobs. UI claims spiked 3,000 percent. The state’s UI website crashed in March under the initial surge. It crashed again a year later, when many people were trying to re-up their benefits. The website outages along with unanswered phone calls and other screw ups led to lengthy delays in payment to eligible beneficiaries trying to make ends meet due to jobs lost through no fault of their own.

At the same time, an alarming portion of the UI benefits the state did manage to issue went to fraudsters using fake ID. A recent Comptroller’s report estimated that a minimum of $11 billion of the $76 billion in unemployment benefits paid out by New York State during the first twelve months of the pandemic alone was lost to fraud.

The same report describes how a decade before the pandemic, the state was warned its archaic UI computer system would be overwhelmed by an application surge. But only in 2017 did the state Labor Department (Labor) issue an RFP for a new system, and it didn’t award a contract for one until 2019. Caught with its pants down when the pandemic-induced surge in UI claims struck, the agency was forced to use manual work arounds that increased vulnerability to fraud despite requiring heroic manual effort; few Labor employees worked any overtime at all pre-pandemic, but in 2020 more than one-third of agency employees worked overtime, booking a total of nearly 600,000 overtime hours at a cost of $25 million.

Today, the state still lacks a modernized UI computer system; Labor believes the existing contract will result in one going on-line late next year.

In the case of UI, New York failed to replace an outdated payment system until it was too late. With ERAP, the state didn’t have to fix any legacy issues. It had the opportunity to design a new system with the latest technology. Yet, the ERAP operation was from the get-go a slow-rolling fiasco. New York was among the last states to make a payment of the federal funds it had been allocated. And today, the executive branch and a state court justice can’t agree on when to bring it to an end, leaving tenants and landlords alike in purgatory.

The federal government in December 2020 and March 2021 appropriated a collective $46 billion in ERAP funds. Under the program, households can receive up to 12 months of rental arrears payments for rents accrued since March 2020. New York received an initial allocation of $2.4 billion in federal funds, including $304 million for administration. In April 2021, New York enacted CERAP, which charged the state’s Office of Temporary Disability Assistance (OTDA) with administering the federal ERAP funds and any supplemental funds the state contributed (the April budget allocated $800 million for this purpose).

OTDA turned around and awarded a $115 million non-bid contract to Guidehouse, a company that hired a former Cuomo senior advisor shortly after securing the bid. The award was made using then-Governor Cuomo’s emergency pandemic authority to skirt Comptroller review of large contracts — an authority also used questionably under the current Governor.

The application portal Guidehouse initially created didn’t function well or allow applicants to save unfinished applications. By May 31, New York was one of the only states to have made no rent relief payments. Texas had paid out nearly half a billion under the program by that date.

Soon after the funds began to flow, they ran dry, due to the overwhelming volume of applications (more than 500,000 have been filed since the program’s inception).

OTDA decided that in November 2021 it would stop accepting new applications for claims, since it no longer had funds to pay them. But a state court justice ordered a preliminary injunction to keep the portal open (in case more funds materialized). OTDA is now back before the court, arguing the injunction be lifted so it can shut the portal in January.

Why would the Court insist applications be taken for claims that can’t be paid?

The state CERAP law prohibits landlords from evicting tenants who have applied for the program. An FAQ section of OTDA’s ERAP site informs potential applicants, “Once you apply for ERAP you cannot be evicted because your lease has expired, or because you did not pay rent during the Covid-19 pandemic.”

As OTDA Executive Deputy Commissioner Barbara Guinn put it in an affidavit filed last week: “The Court effectively directed OTDA to continue accepting ERAP applications so applicants would receive the benefit of eviction protections despite uncertainty as to whether funds would ever be available to pay the applicants’ landlords.”

The Guinn affidavit says OTDA estimates it lacks the funds to even pay all existing applicants likely to be deemed eligible, and it expects to receive about 15,000 new applications each month going forward if the portal remains open, resulting in new, unfunded program liabilities of $85 million per month.

The current ERAP logjam, then, primarily exists because the Legislature and a state court justice have acted in combination to turn a federal rental arrears assistance program into a backdoor eviction moratorium.

But poor program stewardship has bedeviled New York’s pandemic response. And unless priorities are shifted, such neglect and mismanagement is likely to continue and keep creating costs and anguish for the state’s taxpayers long after the last Covid-19 emergency dollar has been spent.

About the Author

Peter Warren

Peter Warren is the Director of Research at the Empire Center for Public Policy.

Read more by Peter Warren

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