Did ‘times of turmoil’ excuse Minnesota government’s delayed, fraud-prone pandemic ‘hero check’ program?

How hard could it be to give away money?

That was the question facing a nine-member task force convened in 2021 to work out the details of a Minnesota plan to give what was then a $250 million pot of federal cash to what were termed “frontline workers” during the COVID-19 pandemic. Sometimes called “hero checks,” the money was from the third cache of money sent to the states by Congress and was one of just four areas where Congress said the money could be spent.

The task: devise a distribution plan to determine how much money should go to which workers. The deadline: end of summer 2021, when a special legislative session could approve the checks in time to be sent out before the holidays.

“I don’t think it will be a problem,” said then-Senate Majority Leader Paul Gazelka, R-East Gull Lake. “I think it will go pretty smoothly.”

It didn’t. DFLers wanted smaller checks to more workers and the GOP wanted bigger checks to fewer people. That led to a MinnPost headline about how the panel — which included three Republicans, three Democrats and three agency commissioners —  “turned ‘Hero Checks’ into zero checks.”

Seven months later, in the spring of 2022, the divided Legislature tried again and stalled again. Ultimately the frontline worker bonus pool — now $500 million — was dependent on a deal that used COVID relief funds rather than employer premiums to refill the unemployment trust fund. The details of the plan emerged from a House-Senate conference committee (DFLers controlled the House, and Republicans held the Senate at the time).

The examination of the bonus check program released this week by the Office of the Legislative Auditor might have focused on the four state agencies that implemented the distribution, but the public scolding began with the legislation itself.

“The establishing law gave agencies the discretion to determine eligibility ‘to the extent possible,’ and directed (the Department of Revenue) to make frontline worker payments ‘as soon as practicable,’” the audit stated. “As a result, agencies told us that in order to implement this program quickly, they relied on self-attestation from the applicants and ‘erred on the side of the applicant.’

“We believe implementing programs quickly and relying on self-attestation to determine eligibility leads to an increased risk of improper payments,” the audit stated.

How’d we get here?

Putting hero-check politics into context is both helpful and difficult. In the spring of 2021, the globe was into the second year of the COVID-19 pandemic, and Minnesota government was filled with angst … and money. The death toll had passed 6,000 (it is 16,000 now), and the state remained in a peacetime state of emergency.

Congress approved three large chunks of aid worth $5.3 trillion, and some of it flowed to the states. Minnesota Management and Budget estimated that $72.7 billion of that came to the state. Most of that — $51 billion — went directly to businesses and individuals, with most-noteworthy amounts going toward paycheck protection program loans ($16.7 billion), stimulus checks ($13.75 billion) and enhanced unemployment compensation ($9.8 billion). Some $3.86 billion went directly to the state.

The state money went to pandemic-related education costs, health care programs, virus testing, vaccinations, food programs and more business relief.

It was a lot of money. In 2021-2022, the state’s two-year budget was $52 billion, but the federal infusion of money is one explanation for the record revenue surplus of $19 billion in 2023.

Hero checks were specifically called out in the March 2021 American Rescue Plan — the third relief law and the only one passed under President Biden. By law, the four uses of money sent to states were infrastructure improvements, providing for government services threatened by declining tax collections, responding to the public health emergency and the negative economic impacts of the pandemic and providing what was called premium pay to workers performing essential services.

Because of the failures of the task force, the 2021 holidays were checkless for eligible workers, but the issue didn’t go away. Still, only an end-of-session deal between DFLers and Republicans that swapped bonus checks for a refilling of the state unemployment trust fund with federal funds rather than employer rates brought it back to life. Because it was part of a trade, DFL priorities won the day — more money, more covered workers.

When the final deal was reached in May 2022, the estimate was that about 667,000 workers would receive about $750 each from the larger pool of $500 million. Income caps were put in place, and a rule was that workers had to have worked at least 120 hours in eligible jobs. They couldn’t have had the option to work from home and had to have worked closely with people outside their household.

Still, legislative disagreements meant money approved by Congress in the spring of 2021 — one year into the pandemic — wouldn’t reach frontline workers until the end of 2022 — 22 months after the first Minnesotan tested positive for the virus. That delay put a premium on speed.

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That, said Legislative Auditor Judy Randall, is one of the issues her staff found with the rollout of the program. But the criteria for eligibility also included factors for which there is no data. The state can look at tax returns to know whether someone earned too much to get a check. But there is no source of information to know whether someone was required to work in person or chose to do so, whether they worked close to people outside their household. That left the state agencies to rely on self-certification by applicants, that is, the applicants claiming that they met the criteria.

The auditors tried to verify claims and were able to confirm eligibility of about 60% of the one million people who received checks. But they either found the rest were not eligible or were unable — through surveying a sampling of recipients — to prove they rightly received a check.

“This does not mean that 40% of paid applicants were ineligible,” Randall told the Legislative Audit Commission Tuesday (video here). “But it also doesn’t mean that 40% were eligible and that auditors are just super nit-picky … the truth lies somewhere in the middle.”

The audit found payments to people who were not eligible, who had died before applications opened or whose applications contained what Randall calls “clear fraud indicators” such as new or temporary email addresses, and multiple applications by the same people. And because the $500 million was a cap and the money was divided by the number of eligible applicants, “each ineligible applicant who received payment necessarily reduced the amount of the payment that eligible applicants received,” she said.

Checks that were expected to total $750 ended up being $487.

Randall was also unhappy that the private contractors hired to run the technical aspects of the program did not retain the data she and her staff would have used to check the integrity of the program. 

That said, the agencies warned lawmakers in 2022 of the risks of relying on applicants attesting to their eligibility and those risks were realized.

“We think it would be prudent in the future for the Legislature to keep in the forefront the balance between expediency and accuracy,” Randall said. As to those who accepted checks despite being ineligible, Randall said the office would be contacting state and federal law enforcement.

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When the legislative auditor spanks government agencies, they are usually expected to say, “thank you, may I have another.” The Commissioner of the Department of Labor and Industries, Nicole Blissenbach, did not do that. Her agency included fraud prevention in its scope of work and prevented many erroneous payments.

“The overarching theme of the findings is that the issue is with the program itself, not how it was implemented,” Blissenbach said. The agency testified during legislative hearings about the risks of the program’s self-certification of applicants and kept the Legislature informed as the program was being put together, she said. Lawmakers knew the agency wouldn’t be checking all facts about employment from employers because it would add time and cost.

“The risk was clearly communicated and understood,” Blissenbach said.

Department of Revenue Commissioner Paul Marquart was in the Legislature in 2022 and voted for the bill. He said his agency did check the income tax returns of 97.3% of applicants but that the law allowed checks to people who hadn’t filed tax returns. Revenue used other means to verify eligibility, such as W-2 forms. 

As to the overall implementation of the program, Marquart said: “We were trying to do something perfect in the imperfect environment we were dealt.”

The audit commission, made up of lawmakers from both the House and Senate, usually gets to sit in judgment of others. Tuesday, however, their own actions were being judged. Rep. Emma Greenman, DFL-Minneapolis, is both a commission member and one of the legislators who was on the conference committee that crafted the law.

“We were in the middle of a pandemic,” she said. More than a year had passed since the first $250 million had been appropriated, only to have the program fall apart in political disagreement.

“There was an urgency to get money out to the folks who needed it quickly and feeling like we’re about a year behind,” Greenman said.

Republicans cited the audit as another example of what they see as indifference to fraud by DFLers and the Walz Administration. More of that will come Thursday with the release of another audit into the school feeding program tied in with the Feeding Our Future scandal and criminal changes.

But Sen. Ann Rest, a DFLer from New Hope, was having none of what she termed “an apologist’s view either of agencies or the carelessness of the Legislature.”

“We were in times of turmoil, but that does not excuse our carelessness with regard to the burden that we were placing on the taxpayer,” Rest said.

Editor’s note: Peter Callaghan wrote this story for MinnPost.com. Callaghan covers state government for MinnPost.

This article first appeared on MinnPost and is republished here under a Creative Commons license.

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