Calling themselves “very alarmed,” leaders of the House Ways and Means Committee have broadened their investigation into claims that Julie Su used her position as acting U.S. secretary of labor to hide her loss of billions of dollars in federal loans to California during her time as that state’s labor secretary.

Appointed by Governor Gavin Newsom to lead California’s Labor & Workforce Development Agency, Su ignored years of warnings from the state’s auditor that her Employment Development Division (EDD) was uniquely vulnerable to unemployment fraud. Su resisted recommendations for stronger eligibility checks; tougher standards, she suggested, would punish marginalized communities.

When billions in federal CARES Act funding flowed into the EDD, California lost as much as $33 billion to international crime organizations, ineligible prison inmates and other fraudsters. The state admits that almost all of that cash is now untraceable.

In a May 16 letter to Su, committee chairman Representative Jason Smith (R., MO) and Repreentative Michelle Steel (R., Calif.) ask Su to explain her department’s determination to waive repayment of federal loans that were intended to shore up collapsing state unemployment-benefits programs during Covid.

During House testimony on May 1, Su denied that she had done anything unusual in offering to waive repayment of the federal loans. Her department’s guidance was aimed at helping “all states . . . still trying to assess exactly what happened during that period of time.”

In fact, just two states — California and New York — and the Virgin Islands remain on the federal government’s list of Covid-loan deadbeats. California, the committee notes, poses the far greater financial challenge.

“California received the largest such loan in U.S. history, at one time totaling $23.8 billion in August 2021,” Smith and Steel say. “With a current loan balance of approximately $18.3 billion, California owes federal taxpayers nearly three times more than the State of New York, at $5.7 billion.”

At the center of the House inquiry is Su’s Department of Labor memo stating that California may no longer have to repay its debt. Smith and Steel, in their House letter, say this is “a serious conflict of interest.”

There are echoes in all of this of the Biden administration’s campaign to “forgive” student loan debt via executive power. In their letter to Su, Smith and Steel ask six questions; the most compelling ponder whether the Biden White House or California officials drove Su to waive California’s debt obligations: “Did states, EDD or otherwise, request this guidance from DOL? Have there been discussions internally or with the White House regarding forgiving California’s federal UI loans incurred during the pandemic totaling $18.3 billion as of May 16, 2024?”

Su’s DOL memo went unnoticed by most until its discovery by California Policy Center’s John Moorlach and Cato’s Marc Joffe in an obscure California financial report published on March 15. (Full disclosure: I’m president of the California Policy Center.) On page 186 of California’s Annual Comprehensive Financial report, California’s controller said her office couldn’t provide an accurate assessment of the state’s 2022 finances because it is

waiting on final federal approval of EDD’s request as indicated in the December 2023 letter before the event can be recognized in the financial statements as a forgiveness of debt. Once federal approval is received, approximately $29.0 billion of potential federal liabilities will be removed from future financial statements in addition to a portion of the remaining $26.0 billion in federal liabilities which would be subject to state finality laws.