Since the summer of 2021, KCRA 3 has asked Gov. Gavin Newsom to go on camera to talk about the massive fraud that hit California's Employment Development Department.

Many critics put the blame for the issues with the department's poor response to those needing unemployment as well as for fraud perpetrated against the EDD squarely on his desk.

The fraud was so extensive that KCRA produced two documentaries about it. "Easy Money: Fraud, Fortune and Failures" tracked pandemic unemployment fraud. "Easy Money: A New Wave" followed a new fraud, this time against disability claims, as well as efforts to continue reform inside the EDD.

The fraud that hit EDD during the pandemic stands at $20 billion and climbing. That's just, according to a spokesperson at EDD, the Pandemic Unemployment Assistance (PUI) program. EDD has not released a number that reflects UI or disability fraud on top of that.

With no response from the governor, "Easy Money" producer Dave Manoucheri attended the announcement of the state's May revised budget. The budget contains new money for EDD, including $136 million for what's called EDDNext. This is money geared toward the call center, benefit systems and more. The budget said this is a step to modernize the systems within the EDD, something the department has been told to do for decades by the legislature and multiple state audits.

The budget also puts forth roughly $40 million to combat fraud with some money going to investigators and district attorneys across the state over a three-year period.

KCRA 3 began by questioning the governor on paying down the debt the state owes the federal government. The fund used to pay unemployment, the UI fund, ran out of money early so they took loans from the federal government. More than $20 billion is now owed to the fed because of those loans.

The question and answer exchange with the governor, including some notes for context, is below:

Manoucheri: You brought it up in January, you brought it up again today -- the money (just over $3 billion) that you've earmarked to pay down some of the UI fund. That's some, but it's not much in comparison to the UI fund itself that's in the hole. So are there other things that you hope will help these businesses that were also impacted by the pandemic and the shutdowns and all those other things? Whose tax bills are going to come quicker than they expect? At a certain point?

Newsom: I'll remind you all the things we are doing for those businesses. And I'll remind you, not just what we are doing, what we've done. Billions and billions of dollars of grants, fees, fines, waivers, exclusions, specifically, just for example, just all the businesses with alcohol beverage licenses who didn't pay any fees, all the direct grants, billions and billions of direct grants, tax cuts, unprecedented amount of tax cuts. In terms of the early action that we took with the legislature, adding more categories, there's 10 categories now in our grants, specifically for venues that were impacted and shuttered. The $3 billion, not the first time I offered the legislature, the terms of just our priority on UI to pay down last year, they redirected some of that money, you may recall, I'm coming at it again, to put more money in that space, because we have to own up to that unfunded. Well, that commitment that we will have to fund into the future otherwise, again, it will impact payroll taxes. So the answer to your question is yes, very specifically, we put forward many, many proposals.

Manoucheri: I noticed that you have $136 million in funding for EDD for the EDDNext project, and it's a five-year plan to sort of modernize. This is a department that has been told that it needs to modernize for years now. Do you have benchmarks that you want them to meet? What kind of oversight are you going to have in place to make sure that they meet these benchmarks and actually do that modernization that they haven't done for over a decade now?

Newsom: Yeah, I can't make up for what wasn't done before I got here.

[Editor's note: Newsom was part of the Brown administration for eight years prior to becoming governor. During that time, as well, EDD faced a crisis of people unable to get payments and the auditor told them fixes they needed in place -- fixes they did not do.]

And, boy, we were flying a plane and trying to patch together and hold it together. During this pandemic, by the way not unique to any in any way, shape or form to the state of California. I talked to every governor in this country, who has expressed similar frustrations with their systems that were overwhelmed particularly with the PUA program, which was a brand-new novel program. And I'm really proud of California. We engaged with the federal government working very closely with the Biden administration on highlighting, illuminating a lot of those issues and vulnerabilities. And we put together not just a strike team task force, but we have a whole new team at EDD, which you're familiar with, as well.

[Editor's note: A state audit recommended that EDD put a fraud division together. It is now fully staffed, with 12 people]

We have also not been shy about going after all the abuses in terms of the criminal investigations. We put together a team that has already investigated, not just the state by the way. We have partners working on investigations within the state that are not included, 1,500 criminal investigations. We've seen convictions and arrests. In terms of fraud, all of it around rebuilding the system. We hired a former special counsel from the Trump administration, Special Counsel McGregor Scott, to lead these efforts and he's done a magnificent job. I really want to compliment his team. You're correct. We have budgeted more money in January and more in May, on upgrading and implementing reforms at EDD, continuing to build on those reforms, including reimagining it completely. And I appreciate, and I do appreciate your familiarity with EDDNext, which is about that reimagining, revisioning our entire process, not just from an IT perspective, but business process improvements that are required, and the oversight, the new team, the focus on leaving whoever comes after me a better system than the one I received, I assure you is top of mind, not just topical, and something that I'm looking forward to working with the legislature to continue to advance.

Manoucheri: You also have some money earmarked for combating that fraud, $20 billion and counting. I know that there are units inside EDD, but the new unit that the auditor had recommended is 12 people for the 44 million in the state of California. Most of these investigations are being done by local PDs and DAs. I know some of that money is earmarked for them. How much do you think is going to go to these units that are spending 80%-90% of their day investigating EDD fraud when they could be investigating other things?

Newsom: Why ask me? I can give you a response. But who better to ask than a person they hired full-time to focus on this working with our federal, state and local partners. And that's McGregor Scott, who has, as I said, put together a remarkable group of people working with...sheriffs, working with district attorneys, we're funding a lot of those investigations. But I think notably working with the federal government, and that's where we are making tremendous progress as well. We put a lot of new technology, the ID.Me system, we're one of the first, not the first, but one of the first states to implement that new strategy,

[Editor's Note: ID.Me did run into issues in implementation in California. They are also currently under congressional investigation for overstating the amount of fraud they detected nationwide.]

Thomson Reuters, others, (and) working with the federal government (we) actually helped the administration put together a task force in this space, highlighted this with other state governors.

[Editor's Note: Thomson Reuters owns the Pondera Fraud Detection System. EDD had that in place and shut it off, according to EDD employees, because they didn't want to pay the $10 million dollars to run it. EDD now uses the system again at a much higher cost]

We've been probably the most transparent state in the country around this. That's why those numbers are very public, have been for years now. We've not been shy around this in terms of being very forthright about what's going on. So I'm really pleased with their progress. And this budget reflects their asks, in terms of next steps. And to the extent that we feel there's still gaps or the legislature does, I look forward to closing those gaps before we close this budget.

Manoucheri: Do you have any concerns though, that that money that fraudulent money into pandemic unemployment assistance is going to have to get paid back to the federal government? At a certain point that will come out of the state's coffers?

Gov. Newsom: Well, we will pay our obligations, not unique to California. And this is a burden reality for other states. The numbers are so much bigger in California, I think the last time I looked, we were about $180.3 billion. I think that's...just unemployment claims that were administered. So it's a rather extraordinary number. And so it makes California's numbers seem that much larger. But now we collectively, I know we've had a lot of calls with the National Governors Association. It's a big issue for governors and advocacy in the congress to address this issue, all of us are facing.