Michigan unemployment agency seeks bids to replace troubled computer system

Michigan this month initiated the bidding process to replace its long-troubled computer system in the state’s Unemployment Insurance Agency, planning to spend at least $45 million on a new “customer-centered” approach that should be finalized by fall.

The state outlined requirements that it wants to see in the replacement system on Wednesday when it issued a “request for proposals,” the next step in the quest to overhaul its online platform that it announced in fall 2021.

“We are looking for a modern system that is robust, can handle unemployment claims quickly and securely and is suited for the end-user,”  Nick Assendelft, UIA spokesperson, told Bridge Michigan.

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Gov. Gretchen Whitmer in her Fiscal Year 2023 budget is asking the Legislature to approve $88 million that could be spent on UIA improvements.

Flaws in the system and how it was managed by the agency escalated during the pandemic as claims spiked, resulting in frustrations for many of the 3.7 million state residents who sought to replace lost wages.

Problems in the system were flagged years earlier, yet state officials did not address them, prompting litigation that continues today. 

Experts have told Bridge Michigan that the system, including the  Michigan Integrated Data Automated System, known to users as MiDAS, launched in 2012 with a goal of saving the state money. Instead, the program was designed to catch fraud and slow payments rather than pay benefits, with much of the decision-making about benefits automatically generated without human review, Bridge has reported. That situation led to a false fraud scandal, affecting 20,000 state residents who were inaccurately told they had to return benefits.

The agency also faced legislative and public scrutiny for how it handled benefits during the pandemic. Since March 2020, the agency has paid nearly $40 billion in lost wages to nearly three-fourth of the state’s workforce.  Of that money, about $6.2 billion was from the state’s Unemployment Trust Fund, with the rest of it from federal sources.

​​Rep. Steve Johnson, a Republican from Wayland who as chair of the House Oversight Committee has been critical of the pace of change in the Unemployment Insurance Agency, told Bridge last month that Whitmer’s budget proposal for a new system was “a little late.”

However, Rep. Julie Brixie, a Democrat from Okemos who also sits on the committee, said the software and its problems are legacy from former Republican Gov. Rick Snyder’s administration. She called the software “incredibly insufficient.”

“We definitely need a new system,” Brixie told Bridge Michigan Monday, adding that Whitmer, also a Democrat, postponed replacing it while the agency grappled with unprecedented demand during the pandemic.

Over the past two years as claims skyrocketed, two directors — Steve Gray and Liza Estlund Olson — were replaced. State audits found mishandling of a federal directive on eligibility and hiring as staffing ballooned to handle increased claims, and $8.5 billion was paid to fraudulent and ineligible accounts.

The state is still completing reviews on an undetermined number of outstanding claims. Among more concerns: Thousands of jobless workers have been told they may have to repay up to $5.7 billion in unemployment benefits the state says it paid in error during the pandemic. It’s unclear how many qualify for a repayment waiver.

Seventeen companies responded to a state-issued pre-bidding process in fall 2021 after Olson, the former director, pledged in September to make “user friendly” upgrades to the agency, including the network that she described as “antiquated.”

“(Unemployment) systems are unique, complicated and not off-the-shelf technology that you can install one day and have working seamlessly the next,” Olson told lawmakers gathered for a House Oversight Committee meeting. 

The bidding requirements were determined after the state reviewed “the products that are available in the marketplace for a system that is capable of handling the complexity of our unemployment insurance program,” Assendelft said.

The new system should improve more than the experience for people who file for benefits, he added. The system also processes employer unemployment taxes.

Michigan had approximately 228,000 active employers registered in the unemployment system last year.  UIA assessed and collected over $1 billion in state unemployment tax on these employers.

Bids are due at noon May 4.