Behind the scenes at the state Capitol, California is launching an unprecedented $1.2 billion overhaul of its battered job safety net. Its Employment Development Department – better known as the EDD – is attempting to rebuild its unemployment and disability systems as it recovers from a pandemic that left millions of workers waiting for payments and tens of billions of dollars missing to suspected fraud.

A year-long CalMatters investigation finds that the state was primed for disaster by years of missed red flags and failed reforms. Once COVID hit, public records and interviews reveal that California’s system was initially friendlier to scammers than to many real workers – and then the state got so aggressive that many workers struggled to prove their own identities.

New financial reports requested by CalMatters show that amid the chaos, the EDD and its unemployment payment contractor Bank of America split a half a billion dollars in revenue, though the bank says it ultimately spent more to cover fraud losses. Another large EDD contractor, Deloitte, made more than a quarter of a billion dollars on tech contracts and emergency contracts to build systems that state reports say buckled during the pandemic.

Five years, $1.2 billion. And a new model for government contracting in the tech-challenged home state of Silicon Valley. That is what California officials say it will take to overhaul an employment safety net pushed to the brink by record pandemic job losses, widespread fraud and the political panic that followed.

The biggest-ever attempt to reform California’s Employment Development Department, known as “EDDNext,” officially started late last year. A roughly 100-person team is leading the rebuild, and is already signing multi-million-dollar contracts for Salesforce and Amazon technology, according to interviews and records requested by CalMatters.

At the same time, the EDD is quietly making plans to move on from its turbulent relationship with longtime unemployment payment contractor Bank of America. Between now and 2025, the EDD will begin rolling out new benefit debit cards, and eventually, a direct deposit payment option from a different, yet-to-be-named contractor, the agency said in a statement.

The question for the EDD now: Will history repeat itself, or can California finally lead a nationwide quest to reinvent unemployment?

After the Great Recession, the state paid Deloitte to upgrade several facets of its operation, including part of its claim management systems, in a series of contracts that ballooned to more than $152 million from 2010 to 2018, copies provided to CalMatters show. That system was one of several that state reports later found buckled during COVID, but Deloitte was awarded another $118 million as the state doled out emergency pandemic funds, according to contracts provided to CalMatters.

The irony, as Jennifer Pahlka wrote in her book “Recoding America” is that the money went to the very vendor “which built the ineffectual systems in the first place.”

U.S. Rep. Katie Porter, a Democrat from Orange County who sits on a U.S. House Oversight Committee that has investigated pandemic unemployment fraud, sighed heavily when asked about the past Deloitte “unemployment modernization” project “ a response, she said, to both the contractor in question and a broader lack of oversight on big-budget projects.

“Deloitte has an unfortunate track record of not getting it done here,” Porter said. “If we’re going to contract this and spend our dollars with a private company to do this, we have to hold them accountable for delivering.”

Deloitte defended its work for the EDD in a statement, noting that “many technology constraints highlighted by California elected officials during the pandemic related to functions in EDD systems that Deloitte was not contracted to maintain.”

“California’s vast unemployment insurance system has been under enormous strain since 2020, and employers are paying the price,” the California Chamber of Commerce argued in an August report.

According to the Chamber of Commerce Study “California has among the most generous and “claimant-friendly” laws regarding eligibility and claims processing, and that the state’s unemployment insurance (UI) program has among the most forgiving exceptions for misconduct or fraud in the nation.”