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Three-year rollout, starting with payroll reports, is planned to replace mainframe dating back to 1993.

COURTESY PHOTO - Oregon Employment Department headquarters in Salem. Acting Director David Gerstenfeld reported a relatively smooth start Sept. 6 to the agency's long-awaited modernization of its computer system, which dates back to 1993. The full rollout is expected to be completed in 2025. The first phase of the new computer system for the Oregon Employment Department has gotten off to a relatively smooth start.

Acting Director David Gerstenfeld says just under 1,000 employers set up accounts for payroll reports on the first day the system went live on Sept. 6, and the total was up to 1,750 when he spoke with reporters on a video conference call Sept. 14.

He credited planning by the staff that anticipated potential problems. About 413 million pieces of data were transferred from the current mainframe system, which dates back to 1993.

Payroll reports enable the Employment Department to help the Oregon Department of Revenue collect employer payroll taxes for the state's unemployment trust fund, benefits from which are paid exclusively from employer contributions.

"The system allows our customers to do dozens of things they were not able to do before," he said, such as changes in contact information and addresses, making payments and requesting refunds.

The new system is named Frances Online, after Frances Perkins, U.S. labor secretary under President Franklin D. Roosevelt (1933-45) and the first woman named to a presidential Cabinet post.

It will be paid for from $89.6 million that the U.S. Department of Labor granted to the state agency back in 2009, and has been sitting in the unemployment trust fund.

States run their own trust funds, which provide 26 weeks of benefits to unemployed workers, but the Department of Labor oversees the funds under an arrangement that goes back more than 80 years to the Great Depression.

The 2021 Legislature added more in the current two-year state budget for startup costs connected with paid family leave — Oregon is one of 10 states with such programs — but that money will be repaid from employer and employee contributions to the program.

"The project remains on schedule and on budget," Gerstenfeld said.

The next phase of the system will start up early in 2023, when the Employment Department begins to collect contributions for the new state fund for paid-leave benefits. Total contributions are capped at 1% of employee wages, split 60% from employees and 40% from employers.

Actual benefits from the new fund will be paid starting Sept. 3, 2023.

Also, the new system will start accommodating the employer payroll tax (0.1% of employee wages) that goes to public transit.

A future phase will start in March 2024, when the system will start accepting claims and paying out unemployment benefits.

"Each part of this system is a monumental undertaking," Gerstenfeld said. "We know that in each phase, there are some challenges and some adjustments we have to make."

Decade of delays

The agency was faulted in 2012 and 2015 audits by the Oregon secretary of state — and an information technology management letter and Legislative Fiscal Office report, both in 2020 — for a lack of progress toward upgrading the computer system. The agency has had four directors in nine years.

Gerstenfeld was thrust into the position of acting director in May 2020 when Gov. Kate Brown fired his predecessor in connection with the huge backlog of claims resulting from the onset of the coronavirus pandemic in spring 2020, when many businesses closed or curtailed operations. Congress approved several new programs, in addition to supplemental federal benefits, that enabled self-employed and gig workers to receive payments for the first time since unemployment benefits were created in 1935.

An audit by the secretary of state released in July said: "Due to limitations in the agency's information technology systems, OED was unable to reprogram its systems to account for new programs created during the pandemic … forcing the agency to implement many of these programs using mostly manual processes."

Despite that, the audit said, Oregon still managed to turn around claims for Pandemic Unemployment Compensation — the temporary federal program of benefits, now ended, for self-employed and gig workers — within an average of 31 days, compared with the national average of 38 days.

Oregon's fraud rate for claims also was relatively low compared with other states.

Oregon was among 39 states that received grants from the U.S. Department of Labor under the American Recovery and Reinvestment Act of 2009 to modernize their employment agency computer systems. Of those states, 15 had completed modernization before the onset of the pandemic in spring 2020; Oregon was among the 24 states that had not. The state audit also reported that a total of 21 states have modern systems; the others do not.

As chairman of the Senate Finance Committee, which oversees employer payroll taxes paid into state unemployment trust funds, Oregon Democrat Ron Wyden has pushed for extra money for states to modernize their computer systems — and an overall plan to overhaul unemployment benefits themselves.

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