Paul Egan

Detroit Free Press

LANSING — Amid continuing controversy over the state's false fraud allegations against tens of thousands of unemployment insurance claimants, Gov. Rick Snyder on Monday signed into law a bill to divert $10 million from the fund the state is using to repay claimants who had money wrongly seized from them.

Snyder signed Senate Bill 1008, sponsored by Sen. Dave Hildenbrand, R-Lowell, which takes $10 million from the Unemployment Insurance Contingent Fund to help balance the state's budget and was approved by the GOP-controlled Legislature during the lame-duck session in December.

The balance in the fund's penalties and interest account — largely built on money seized from claimants accused of fraud — swelled from $3.1 million in 2011 to about $155 million this October, according to a report from the House Fiscal Agency. The fund is fed by highest-in-the-nation 400% fraud penalties, wage garnishes and other aggressive collection techniques, such as seizure of income tax refunds.

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The state's Unemployment Insurance Agency has acknowledged that an error-prone computer system called the Michigan Integrated Data Automated System (MiDAS) had a 93% error rate between October 2013 and late 2015, during which time it made false fraud allegations against about 27,000 to 50,000 unemployment insurance claimants.

Last week, the director of the UI Agency was re-assigned amid a "top-to-bottom review" of agency operations.

It's not known how much of the contingent fund is composed of money that was wrongly seized, but Jennifer Lord, a Royal Oak attorney who has filed a class-action lawsuit against the UI Agency over the false accusations, alleges that tens of millions of dollars were wrongly seized.

"I am profoundly disappointed that the governor has chosen to misappropriate $10 million from innocent workers," Lord said in an e-mail Monday. "This money was unconstitutionally seized from people wrongly accused of fraud. This is yet another example of why government by spreadsheet fails the citizens of Michigan. We will continue to fight against this injustice in court."

Unemployment insurance premiums are paid into a trust fund and can't be used for other purposes, but the contingent fund isn't under those restrictions. The fund is normally used to pay for administration of the state’s Talent Investment Agency, including the development of workforce training programs.

Dave Murray, a spokesman for the Unemployment Insurance Agency, said in December that the contingent fund has been used to refund about $5.4 million to 2,571 claimants falsely accused of fraud.

"Some people have not yet been reimbursed because the agency doesn’t have accurate contact information," Murray said. "We continue our efforts to contact these people. We continue to review cases to make sure people are treated fairly and are reimbursed if necessary."

Snyder spokeswoman Anna Heaton said a balance transfer from the contingent fund has been used in past administrations as part of the budget agreement. She said the size of the fund has grown further since October, to about $160 million in December.

"If the balance decreases significantly due to refunds from the reprocessing of claims, reimbursement to the fund would be a potential option in a future budget cycle," Heaton said Monday.

Hildenbrand, chairman of the Senate Appropriations Committee, said the legislation developed when he was working on balancing the state budget last year and looking for state funds with large balances that could be tapped.

Hildenbrand said in December he's aware of potential liabilities arising from the false fraud findings, but doesn't believe there will be a problem because the $10 million being withdrawn from the fund is a small portion of its overall balance.

If it did become an issue, "I would work very hard to replenish that fund, so we could meet those obligations," Hildenbrand told the Free Press.

Snyder on Monday also signed House Bill 4982, sponsored by Rep. Roger Victory, R-Hudsonville, preventing the Unemployment Insurance Agency in future from adjudicating a claimant’s case as fraud without human verification. The agency said it stopped the auto-adjudications in 2015.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.