By Jesse Bedayn for CalMatters

A musician who lost all her unemployment documents when her home burned in a wildfire. An arborist who filed for unemployment assistance a year before the pandemic began. A tattoo artist who can’t prove he was working because he ran a cash operation.

These are just a few Californians caught in a state dragnet to recover money from fraudulent unemployment claims.

Late last year, California’s Employment Development Department launched a clawback program, requiring some 1.4 million people who received federal pandemic unemployment assistance to retroactively prove they were working or seeking work. That program, which ended in September, was aimed at helping people who don’t usually qualify for unemployment benefits because they are freelancers or small-business owners.

As of Jan. 4, one out of five recipients who received the notice have responded. The state says a majority have been deemed eligible and won’t have to repay, but some are unable to provide documentation, leaving them on the hook to repay benefits that could add up to tens of thousands of dollars. If they can’t pay, the state could collect the money in a variety of ways, such as wage garnishments or taking them to court.

“They are going to want money back from me that I don’t have,” said Donna Casey, a musician who could owe EDD more than $30,000 after losing her home in the August Complex fire in 2020. “What are they going to do to me, put me in jail? At least I’ll have a place to live.”

Policy experts had warned against the clawback program, noting it would hurt poor Californians who were already disproportionately sidelined from the job market by the pandemic. Even former federal prosecutor McGregor Scott, hired by the state to lead a separate investigation into large-scale unemployment fraud, expressed skepticism that the effort would recoup much of some $20 billion lost to fraudulent claims, including millions of dollars of state-approved payments to prison inmates. Advocates suggested letting claimants like Casey keep the money regardless of proof, but the state is holding firm.

That’s left many Californians in a bind.

Some who were contacted by EDD said they are terrified of losing their homes. Many are furious that the responsibility fell on them after they already received the money. And others simply don’t know where to turn for help.

Casey had lost gigs and stopped selling homemade jewelry at festivals when the lockdown began. Then she lost all her documentation when her house in Trinity County burned in a wildfire, just after her daughter died of a lung infection.

Unemployment was a lifesaver as Casey searched for work throughout the pandemic, including applying to an Amazon warehouse. But, at 67-years-old, she couldn’t lift enough to qualify for the job.

Casey, however, never thought she might have to pay back her benefits.

The state’s unemployment agency has noted that the repayment policy is a federal requirement, passed by Congress in the Continued Assistance for Unemployment Workers Act in 2020. The agency pledged to offer waivers if overpayment of benefits was not the recipient’s fault and repayment would cause extraordinary hardship, defined as any single-person household making under $1,351 a month or just over $16,000 a year. 

None of the people CalMatters spoke with, however, were aware of such an option or how to apply for a waiver. They said it wasn’t in any of the agency’s communications to them.

Now living in Berkeley with one of her daughters, Casey has some photos of her old business cards that she’ll send to the agency. She also hopes EDD will speak with the music groups she played with – but she worries that won’t cut it.

Similarly, at the start of the pandemic, Sasha Emery was livingin an RV partly paid for by federal emergency funds after her Paradise home burned down. After finally getting into affordable housing during the pandemic, she signed up for unemployment when the few available jobs didn’t pan out.

When the notice arrived asking for proof or repayment, shock turned into tears. All Emery has to offer are records of her dire situation: food stamps, Medi-Cal documentation and potentially the federal assistance she received after the fire.

If a recipient can’t offer the necessary proof, and cannot repay the funds at once or in installments that could include 3% interest, EDD may seek the money in a number of ways. The agency could put a lien on property, take up to 25% of a recipient’s wages, withhold state and federal tax refunds or lottery winnings, deduct benefits from future unemployment or state disability insurance benefits, or file a lawsuit.

Prasad Krishnamurthy, a debt collection expert and professor of law at UC Berkeley, said the state isn’t bound by the same rules that constrain private collection agencies in pursuing debtors. That makes the government, said Krishnamurthy, “a very powerful and aggressive creditor.”

The debt could push Californians further into poverty, Krishnamurthy said.

Sam, an arborist who asked not to use his full name for fear of retaliation from the state, filed for unemployment at the end of 2018 after losing his San Francisco business. He receivedbenefits for the next seven months. Then in August 2020, the EDD contacted him, telling him that he qualified for a federal extension. “It has been automatically filed for you,” the agency wrote.

At the time, Sam was grateful for the support, which allowed him to care for hismother, who suffered a heart attack at the beginning of the pandemic and has cancer.

In fact, he said, the agency held a virtual hearing to approve his eligibility. After that, he received $4,000 installment payments for benefits going as far back as January 2020. Now, with two ailing parents and no documentation to prove that he lost pay due to the pandemic, Sam may owe close to $30,000 in accrued benefits.

“It just kinda feels like I was set up,” he said.

For others who ran small cashbusinesses, there was never a paper trail.

After Martin Davalos’s tattoo work dried up, Davalos turned to unemployment, which kept him off the streets, he said. Now, however, he has no proof to show EDD. He spent the money on bills, gas, food and rent.

“Sure I would give it back,” Davalos said, “but it’s gone.”

This article is part of the California Divide, a collaboration among newsrooms examining income inequality and economic survival in California.