SPEAKERS CONTENTS INSERTS Tables
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ADMINISTRATION'S CHILD SUPPORT ENFORCEMENT INCENTIVE PAYMENT PROPOSAL
SUBCOMMITTEE ON HUMAN RESOURCES
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
MARCH 20, 1997
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Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois
BILL THOMAS, California
E. CLAY SHAW, Jr., Florida
NANCY L. JOHNSON, Connecticut
JIM BUNNING, Kentucky
AMO HOUGHTON, New York
WALLY HERGER, California
JIM McCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
Page 3 PREV PAGE TOP OF DOCWES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
BARBARA B. KENNELLY, Connecticut
WILLIAM J. COYNE, Pennsylvania
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM McDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. McNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
KAREN L. THURMAN, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
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Subcommittee on Human Resources
E. CLAY SHAW, Jr., Florida, Chairman
DAVE CAMP, Michigan
JIM McCRERY, Louisiana
MAC COLLINS, Georgia
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
J.D. HAYWORTH, Arizona
WES WATKINS, Oklahoma
SANDER M. LEVIN, Michigan
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
WILLIAM J. COYNE, Pennsylvania
JIM McDERMOTT, Washington
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. The electronic version of the hearing record does not include materials which were not submitted in an electronic format. These materials are kept on file in the official Committee records.
C O N T E N T S
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Advisory of March 13, 1997, announcing the hearing
U.S. Department of Health and Human Services, Hon. David Gray Ross, Deputy Director, Office of Child Support Enforcement, Administration for Children and Families
Library of Congress, Carmen Solomon-Fears, Specialist, Social Legislation, Education and Public Welfare Division, Congressional Research Service
Children's Defense Fund, Nancy Ebb
Department of Social Services, Sacramento, CA, Leslie L. Frye
Institute for the American Family, Stepfamily Association of America, and Children's Rights Council, Michele Delo
National Women's Law Center, Elisabeth Hirschhorn Donahue
SUBMISSION FOR THE RECORD
National Center for Youth Law, San Francisco, CA, Leora Gershenzon; Children Now, Oakland, CA, Amy Dominguez-Arms; and Children's Advocacy Institute, Sacramento, CA, Kathy Dresslar, joint statement and attachment
ADMINISTRATION'S CHILD SUPPORT
ENFORCEMENT INCENTIVE PAYMENT PROPOSAL
THURSDAY, MARCH 20, 1997
House of Representatives,
Page 6 PREV PAGE TOP OF DOCCommittee on Ways and Means,
Subcommittee on Human Resources,
The Subcommittee met, pursuant to notice, at 11:07 a.m., in room B318, Rayburn House Office Building, Hon. E. Clay Shaw, Jr. (Chairman of the Subcommittee), presiding.
[The advisory announcing the hearing follows:]
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HUMAN RESOURCES
CONTACT: (202) 2251025
FOR IMMEDIATE RELEASE
March 13, 1997
Shaw Announces Hearing on the
Page 7 PREV PAGE TOP OF DOCAdministration's Child Support Enforcement
Incentive Payment Proposal
Congressman E. Clay Shaw, Jr., (RFL), Chairman, Subcommittee on Human Resources of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on the administration's child support enforcement incentive payment proposal. The hearing will take place on Thursday, March 20, 1997, in room B318 of the Rayburn House Office Building, beginning at 11:00 a.m.
Oral testimony at this hearing will be from invited witnesses only. Witnesses will include representatives from the administration, national organizations of child support administrators, organizations representing noncustodial parents, and child advocate groups. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Subcommittee and for inclusion in the printed record of the hearing.
The Federal-State child support enforcement program collected about $13 billion in 1996. Enough money was collected from parents of children on welfare to offset nearly 15 percent of the costs of the Aid to Families with Dependent Children program.
In each of the 50 States and territories, child support is financed by 3 streams of money: Federal reimbursement of 66 percent of all valid State expenditures on the State child support program; a share of the child support collections in welfare cases; and incentive payments of up to 10 percent of collections.
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For many years, critics of the child support enforcement program have argued that Federal incentive payments, which now have reached nearly $500 million per year, do not effectively reward high performance by States. The biggest reported flaw in the payment system is that States receive Federal payments of at least six percent of collections regardless of their program's efficiency. Thus, a State that spends $1 million dollars to collect $1 million dollars would still receive an incentive payment of $60,000.
The extensive amendments to the child support program contained in last year's welfare reform legislation (P.L. 104193) required the Secretary of the Department of Health and Human Services (HHS) to study the incentive system and to make recommendations for reform of the system. The Secretary's report will be released this week. Based on preliminary discussions with HHS, it appears that the reforms to be recommended by the Secretary are carefully thought out and should enjoy substantial support.
In announcing the hearing, Chairman Shaw stated: ''The Subcommittee is holding this hearing to expose Members and the public to a broad range of opinions about the administration's recommendations for reforming the incentive system. We have long known that the incentive system is flawed. Now we have a chance to study its flaws, learn about the administration's proposed reforms, and develop a bipartisan consensus to pass legislation. I am intent on moving ahead in a bipartisan fashion so we can more effectively use the $500 million in annual incentive payments to stimulate high performance by State child support programs around the country.''
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS;
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Any person or organization wishing to submit a written statement for the printed record of the hearing should submit at least six (6) copies of their statement and a 3.5-inch diskette in WordPerfect or ASCII format, with their address and date of hearing noted, by the close of business, Thursday, April 3, 1997, to A.L. Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have their statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Human Resources office, room B317 Rayburn House Office Building, at least one hour before the hearing begins.
Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.
1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may not exceed a total of 10 pages including attachments. At the same time written statements are submitted to the Committee, witnesses are now requested to submit their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.
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3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments by the Committee, must include on his statement or submission a list of all clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where the witness or the designated representative may be reached and a topical outline or summary of the comments and recommendations in the full statement. This supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementary material submitted solely for distribution to the Members, the press and the public during the course of a public hearing may be submitted in other forms.
Note: All Committee advisories and news releases are available on the World Wide Web at 'HTTP://WWW.HOUSE.GOV/WAYS_MEANS/'.
The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call 2022251721 or 2022251904 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.
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Chairman SHAW. Good morning. The Subcommittee is at the present time in the midst of a very busy agenda that should allow us to send three excellent pieces of legislation to the House floor by early summer. On April 9, shortly after we return from the coming district work period, we will conduct our Subcommittee markup of the technical corrections bill. We have worked on this bill in very open fashion for several months now, and as a result, the bill enjoys almost universal support and certainly great cooperation from the minority, as well as the White House, I might add.
During that same week, we will conduct a hearing on the Camp-Kennelly adoption bill, another bipartisan effort. Unless something unexpected happens, we will be able to mark up the Camp-Kennelly bill during the week of April 14. We will then have two important and bipartisan bills ready for Full Committee action. It is my intention to bring both products before the Full Committee before the end of April.
Now today we begin work on a third bipartisan effort. In this case, our goal is to improve the Child Support Enforcement Programs by revamping the Federal system of incentive payments. We now pay States almost half a billion dollars each year in incentives. Yet, there is widespread agreement that the incentive system is deeply flawed and does not do an adequate job of enforcing and encouraging the States to be more efficient.
So in last year's welfare reform bill, we asked HHS, the Department of Health and Human Services, to consult with the States and give us a report that included recommendations for a new incentive program. As usual, HHS has done an excellent job of consulting with the States, of writing a thoughtful and clear report, and of presenting us with solid recommendations for legislation. I encourage each of our Members and interested observers to spend the next 2 hours or so carefully examining the administration's proposal and listening intensely to the fine group of people who we have invited to critique the proposal.
Page 12 PREV PAGE TOP OF DOC It is my intention to come to a full understanding of the administration's report and proposal, to consider the various comments about their proposal, and then working with the administration and with Republicans and Democrats on the Subcommittee to develop a bipartisan bill. If all goes well, within a month or so, we should be able to bring a good bill before the Committee. I will now yield to Mr. Levin for any comments he might have.
Mr. LEVIN. Thank you, Mr. Chairman. Why do I not just ask that my statement be entered into the record and say that I very much concur with what you have said. We have made considerable progress in this area, but we have a long ways to go, so let us go.
Chairman SHAW. Sounds like your voice does not have a long way to go.
Mr. LEVIN. No, it does not.
Chairman SHAW. I will enjoy the brevity while it lasts. [Laughter.]
Mr. LEVIN. So will I.
[The opening statements follow:]
INSERT OFFSET FOLIOS 1 TO 2 HERE
[The official Committee record contains additional material here.]
Statement of Hon. E. Clay Shaw, Jr., Chairman, Subcommittee on Human Resources, Committee on Ways and Means
This Subcommittee is in the midst of a very busy agenda that should allow us to send three excellent pieces of legislation to the House Floor by early Summer. On April 9, shortly after we return from the coming District Work Period, we will conduct our Subcommittee markup of the technical corrections bill. We have worked on this bill in very open fashion for several months now. As a result, the bill enjoys almost universal support.
Page 13 PREV PAGE TOP OF DOC During that same week, we will conduct a hearing on the Camp-Kennelly adoption bill, another bipartisan effort. Unless something unexpected happens, we will be able to mark up the Camp-Kennelly bill during the week of April 14. We will then have two important and bipartisan bills ready for full committee action. It is my intention to bring both products before the full committee before the end of April.
Today we begin work on a third bipartisan effort. In this case, our goal is to improve the child support enforcement program by revamping the Federal system of incentive payments. We now pay States almost half a billion dollars each year in incentives. Yet there is widespread agreement that the incentive system is deeply flawed and does not do an adequate job of encouraging states to be more efficient.
So in last year's welfare reform bill, we asked the Department of Health and Human Services to consult with the States and give us a report that included recommendations for a new incentive system. As usual, HHS has done an excellent job of consulting with the States, of writing a thoughtful and clear report, and of presenting us with solid recommendations for legislation.
I encourage our Members and interested observers to spend the next two hours or so carefully examining the Administration's proposal and listening intently to the fine group of people we have invited to critique the proposal. It is my intention to come to a full understanding of the Administration's report and proposal, to consider the various comments about their proposal, and then, working with the Administration and with Republicans and Democrats on the Subcommittee, to develop a bipartisan bill. If all goes well, within a month or so we should be able to bring a good bill before the Subcommittee.
Page 14 PREV PAGE TOP OF DOC Chairman SHAW. I want to thank all the witnesses who are willing to get us started in what I anticipate will be a most productive fashion. I also want to remind each of the witnesses of the 5-minute rule, and it is my intention to bang the gavel or tap the gavel at the end of the 5 minutes. Those of you who have testified before us know, as does Judge Ross, that the green light indicates smooth sailing, the yellow indicates that the gavel is only 1 minute away, and the red indicates that I soon will put down the gavel. If you could cooperate with us as much as you can, I would appreciate it. Your entire written statement will be made a part of the record, and you may summarize as you see fit.
So at this time, I recognize Hon. David Gray Ross, Deputy Director, Office of Child Support Enforcement of the U.S. Department of Health and Human Services. Welcome back to the Subcommittee, Judge Ross.
STATEMENT OF HON. DAVID GRAY ROSS, DEPUTY DIRECTOR, OFFICE OF CHILD SUPPORT ENFORCEMENT, ADMINISTRATION FOR CHILDREN AND FAMILIES, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. ROSS. Thank you, Mr. Chairman, and Members of the Subcommittee. I want to thank you for giving me the opportunity to testify today on the administration's recommendations for revamping the incentive system for Child Support Enforcement Programs. The administration is committed to timely and effective implementation of the new welfare reform law, and we view the incentive report as an important early step in our efforts. I am happy to report that since my last appearance before this Subcommittee in September of last year, our collaborative effort with the States to develop a new incentive funding system for child support enforcement has been successful.
The jointly developed revenue neutral incentive funding proposal is tough and would push States to improve performance. This formula will ensure good outcomes for families and has a broad consensus among the States and other child support enforcement stakeholders. The current incentive funding system is based on maximizing child support collections relative to administrative costs. A minimum incentive payment is made to all States regardless of whether performance is good or poor. Currently, States can run inefficient programs and still receive large amounts of incentives. We all recognize that this does not create a significant incentive for the achievement of program goals. An improved results-based incentive system would take into account other measurable program results such as paternity establishment, order establishment, and collections.
Page 15 PREV PAGE TOP OF DOC Our effort to develop a performance-based incentive system is dovetailed with our thriving State-Federal partnership and our effort to become a results-oriented program, as envisioned by GPRA, the Government Performances and Results Act. Building on this new foundation of partnership with the States, which was forged during the GPRA pilot, we convened a group of State and Federal partners to meet the congressional charge to the Secretary to change the incentive funding system.
The workgroup developed an incentive funding formula that rewards States for their performance in five critical areas: Paternity establishment, support order establishment, collections on current support, collections on arrearages, and cost effectiveness. These measures are consistent with the legislated mission of the program and the strategic plan and related outcome measures. There is full consensus from State partners that these measures represent the appropriate focus of the program.
The workgroup established performance standards for each of these measures, and these standards would determine the amount of incentive a State would receive for a certain level of performance and reward States for maintaining high performance or making substantial gains and improving their performance. The standards are designed to provide tough but reachable targets for performance by rewarding States with higher incentives as they improve.
We recommend the collections of TANF cases and former TANF cases be weighted double. That is to say for every $1 collected, to the collection base is added $2. Counting collections for incentive purposes in this way accomplishes three objectives:
Number one, many States are moving families off welfare and their success is not being recognized because of the cap under the current law. Number two, States would have a strong incentive to pursue action on TANF cases and former TANF cases. For these families, child support is critical to achieving independence and not returning to public assistance roles. Also, of course, there is direct savings to both the State and the Federal Government when these collections are made, not only in the child support collections costs, but also in the cost of such other programs as Medicaid and food stamps.
Page 16 PREV PAGE TOP OF DOC Because this system would for the first time be performance based, some States would naturally lose incentives by moving to the new system. To help States prepare for the new system, we recommend the formula be phased in over 2 years. This would give States more time to adjust their programs, budget for any financial impact, and also to improve their performance.
Finally, in keeping with the mandate that the new incentive funding formula be cost neutral, we have ensured that the new incentive formula would not cost more than the current formula. During the legislative process, if subsequent cost estimates show that the formula is not cost neutral, then adjustments can be made up or down to the system.
Finally, I would say we now have the ground work in place for a more results-oriented management of the National Child Support Enforcement Program. We strongly urge the Congress to pass legislation on the recommended incentive funding to allow the State Child Support Enforcement Program to truly be driven by achieving results for families and children in need of support. Finally, I want to offer my thanks to the Subcommittee for your hard work on behalf of America's children.
[The prepared statement follows:]
Statement of Hon. David Gray Ross, Deputy Director, Office of Child Support Enforcement, Administration for Children and Families, U.S. Department of Health and Human Services
Mr. Chairman and members of the Committee: I want to thank you for giving me the opportunity to testify today on the Administration's recommendations for revamping the incentive system for State child support enforcement programs. The Administration is committed to timely and effective implementation of the new welfare reform law and we view the incentive report as an important early step in our efforts.
The Administration and this Committee are in full agreement that child support is an essential part of welfare reform. It sends a message of responsibility to both parents and is a vital part of moving families toward work and self-sufficiency. Once families have attained independence, child support can keep them from falling back onto public assistance rolls. Child support also acts as a safety net to ensure that single parent families don't need assistance in the first place. We are proud of this Administration's record on child support enforcement and anxiously await the positive results that the new provisions will bring to further meet these critical goals.
Page 17 PREV PAGE TOP OF DOC President Clinton has made improving child support enforcement and increasing child support collections a top priority. Since taking office, President Clinton has cracked down on non-paying parents and strengthened child support enforcement, resulting in record child support collections. In 1993, President Clinton proposed, and Congress adopted, a requirement that States establish hospital-based paternity programs as a proactive way to establish paternity early in a child's life. A series of Presidential directives and executive orders has made the federal government a model employer in the area of child support enforcement, directed the Treasury Department to offset child support debts against most federal payments, and sent a strong message through a variety of means, including ''Wanted Lists'' in Post Offices and Internet links, that failure to pay child support will not be tolerated. In addition, the Justice Department has intensified its efforts to investigate and prosecute those cases which fall under the Federal Child Support Recovery Act, namely, parents who willfully fail to pay court-ordered child support to children living in other States, where the statutory prerequisites are met.
All together, in FY 1996, $12 billion in child support was collected on behalf of the children of America. This amount exceeded the President's Budget projection of $11.5 billion and represented a 50 percent increase in child support collections since FY 1992. Since FY 1992, the number of paying child support cases has increased by 36 percent. These accomplishments are impressive, but projections on the impact of the new provisions tell us they are only the beginning.
The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) includes the tough child support measures President Clinton called for from the start and child support enforcement at the Federal and State levels is being transformed by the these measures. Many States have already taken steps to implement the new federal requirements. Forty-three States have license revocation programs in place. Thirty-five States have recently enacted the Uniform Interstate Family Support Act. And twenty-six States have adopted some form of reporting of new hires.
Page 18 PREV PAGE TOP OF DOC At the Federal level, we have made great progress in making the expanded Federal Parent Locator Service (FPLS) a reality. We have entered into contracts with several nationally recognized and respected vendors to help us design and develop the expanded FPLS, manage the project and enhance our quality assurance efforts, and assist us with providing training and technical assistance to State agency users.
Finally, as required under PRWORA, we worked with the States to develop a new incentive funding structure that rewards results and submitted our Child Support Enforcement Incentive Funding Formula report to Congress last week. That report is the focus of my testimony today.
Child Support Enforcement Incentive Funding
I am happy to report that since my last appearance before this Committee on September 19, 1996, our collaborative effort with the States to develop a new incentive funding system for the child support enforcement program has been successful. The jointly-developed, revenue neutral incentive funding proposal is tough and would push States to improve performance. This formula will ensure good outcomes for families and has a broad consensus among the States and other child support enforcement stakeholders.
The current incentive funding system is based on maximizing child support collections relative to administrative costs. A minimum incentive payment is made to all States regardless of whether performance is good or poor. Currently, States can run inefficient programs and still receive large amounts in incentives. We all recognize that this does not create a significant incentive for the achievement of program goals. An improved results-based incentive system would take into account other measurable program results such as paternity establishment, order establishment, and collections.
Page 19 PREV PAGE TOP OF DOC Our effort to develop a performance-based incentive system dovetailed with our thriving State-Federal partnership and our effort to become a results-oriented program, as envisioned by the Government Performance and Results Act (GPRA) of 1993. OCSE has completed the 2 year pilot phase of its implementation of GPRA during which we forged a Federal-State partnership that has accomplished much. I would like to briefly highlight our accomplishments.
Federal and State partners have developed and reached consensus on a National Strategic Plan with a mission, vision, goals and objectives.
Federal and State partners reached consensus on outcome measures for each of the Strategic Plan goals and objectives so that progress can be tracked.
The majority of States have entered into partnership agreements with ACF Regional Offices that detail performance goals, technical assistance initiatives, and a shared commitment to working together.
OCSE and the association of State child support program directors have entered into a partnership agreement that emphasizes communication, joint planning, and co-responsibility for improving America's child support enforcement program.
Building on this new foundation of partnership with the States forged during the GPRA pilot, we convened a group of State and Federal partners to meet the Congressional charge to the Secretary of HHS to change the incentive funding system. The workgroup included 15 State and local child support directors and 11 Federal central and regional office representatives. The workgroup met November through January. Of the 14 State directors, 10 agreed to represent not only their own States but also other States in their region. After each workgroup meeting, the representatives consulted with the States in their region and brought that feedback to the next meeting to assure the broadest possible consensus. Progress of the workgroup was also shared with the American Public Welfare Association and advocacy groups.
The workgroup developed an incentive funding formula that rewards States for their performance in five critical areas: paternity establishment, support order establishment, collections on current support, collections on support past due (arrearages), and cost effectiveness. These measures are consistent with the legislated mission of the program and the Strategic Plan and its outcome measures. There is full consensus from State partners that these measures represent the appropriate focus for the program.
Page 20 PREV PAGE TOP OF DOC The workgroup also established performance standards for each of the measures. These standards would determine the amount of incentive a State would receive for a certain level of performance and reward States for maintaining high performance or making substantial gains in improving their performance. The standards are designed to provide tough but reachable targets for performance by rewarding States with higher incentives as they improve. The standards for the first four measures include a performance threshold. Under this plan, and unlike the current system, no incentive would be paid unless a State achieves a significant improvement in performance. For the final measure on cost effectiveness, if a State collects less than two dollars for every one dollar expended, no incentive would be paid.
Each State would earn five scores based on performance on each of the five measures. Workgroup members believed all the measures were important, but the first three measurespaternity establishment, support order establishment and collections on current supportwere critical. Paternity establishment and support order establishment are prerequisites of collecting current support, which is essential for family self-sufficiency. Performance on the first three measures could earn a slightly higher incentive than the last two measurescollections on arrearages and cost effectiveness.
The amount of potential incentive payments for each measure available to each State would be based upon a percentage of its own State child support collectionsits ''collections base.'' The collection base includes collections in both Temporary Assistance to Needy Families (TANF) cases and nonassistance cases. The collections base also includes collections made for families who were never on assistance. However, we recommend that collections in TANF cases and former TANF cases be weighted double, e.g., every dollar collected counts as $2. Counting collections for incentives purposes in this way accomplishes three objectives:
States with large former TANF caseloads would no longer be penalized by a cap as in the current formula. Many States are moving families off welfare and their success is not being recognized because of this cap under current law.
Page 21 PREV PAGE TOP OF DOC States would have a strong incentive to pursue action on TANF cases and former TANF cases. For these families, child support is critical to achieving independence and not returning to public assistance rolls.
Direct savings to State and Federal governments result from collecting child support in TANF cases. Costs of other public benefit programs such as Food Stamps and Medicaid could also be avoided by making collections in these cases.
Because this system would for the first time be performance-based, some States would naturally lose incentives by moving to the new system. To help States prepare for the new system, we recommend that the formula be phased in over two years. For FY 2000, a State would earn half of what it would have earned under the old formula and half of what it earns under the new calculation. In FY 2001, the new formula would be fully implemented. This would give States more time to adjust their programs, budget for any financial impact and improve their performance. Of course, the Office of Child Support Enforcement would continue to work with States to assist them during this transition.
The workgroup was concerned that with the enactment of welfare reform, the child support enforcement program is likely to change dramatically in the next few years. Therefore, the report recommends that the child support program's results and effects of the new incentive system should be reviewed periodically. Limited discretion should be granted to the Secretary of Health and Human Services to make appropriate changes, in consultation with the States, based on the program's actual results and effects every three to five years.
The workgroup's report includes recommendations with respect to other aspects of program funding beyond incentives. We have endorsed the workgroup's recommendations with respect to the incentive formula itself, but have reserved judgment on other aspects of the recommendations because further work may be needed on broader program funding issues. For example, we are committed to working with States and the Congress to develop legislation to ensure that State flexibility under TANF does not result in costs to the Federal Government due to the potential loss of child support collections.
Page 22 PREV PAGE TOP OF DOC Finally, in keeping with the mandate that the new incentive funding formula be cost neutral, we have ensured that the new incentive formula would not cost more than the current formula. During the legislative process, if subsequent cost estimates show that the formula is not cost neutral, adjustments up or down can be made. In addition, we have indicated in the report that we will work with the Office of Management and Budget and our State partners to develop an automatic adjustment mechanism to ensure cost neutrality against the current system if the cost estimates prove inaccurate.
We now have the groundwork in place for a more results-oriented management of the National child support enforcement program. We strongly urge Congress to pass legislation on the recommended incentive funding system to allow the child support enforcement program to truly be driven by achieving results for families and children in need of support.
The work accomplished to present this report through State-federal partnership is representative of past collaboration and the future direction that we will take together to strengthen the program and improve the lives of children.
In conclusion, Mr. Chairman, let me restate:
The recommended incentive funding formula, developed in consultation with the States, would reward performance and remain revenue neutral. It is tough but fair and will lead to positive results for families.
The new incentive funding formula would complement the results-oriented State-Federal partnership that has already successfully piloted the Government Performance and Results Act.
The Administration is committed to working with States and the Congress to address TANF maintenance of effort issues which may result in costs to the Federal Government due to the potential loss of child support collections.
Page 23 PREV PAGE TOP OF DOC I want to thank the Committee for your work on behalf of America's children. Their future will be significantly improved because of the new collection tools and other reforms required of States by welfare reform.
Chairman SHAW. Thank you, sir.
Mr. Collins, you may inquire.
Mr. COLLINS. I will pass.
Chairman SHAW. Mr. Levin.
Mr. LEVIN. Thank you, Mr. Chairman. Thank you for your excellent testimony. I think the clarity of it in no way should confuse people as to its importance. Sometimes we think in order for something to be very significant, it has to be very controversial, but I think there will be some controversy on this. So let me just ask you after your excellent testimony, shall we talk for a few minutes about California? You want to say something about
Mr. ROSS. Sure. As I indicated in the prepared testimony, obviously there are States who in the initial phases will be winners and losers. Concerns have been raised by the State of California with regard to their losses which will be incurred in the beginning of the implementation of this program. I would respond by saying that what we have now is not an incentive program. Paying all States, whether they perform well or not, is not sufficient. What we need to do is to move to a program which will improve the lives of children, and I think that is best done with a performance-based program, which will move the program forward and permit States to be rewarded for their performance.
And I have faith that California will be able to improve their performance to the extent that by the time this comes into play, they will be able to benefit fully under the incentive formula.
Page 24 PREV PAGE TOP OF DOC Mr. LEVIN. And you intend to address this by the phase-in that you suggest.
Mr. ROSS. Yes, it's a phased approach. Among the workgroup, there was some pretty heated discussion on whether or not this should begin immediately or whether it should be phased in. The phase-in will help those States that will lose initially under the formula or could lose initially under the formula to prepare themselves, either by improving their performance or by working out their arrangements to catch up with the gap.
Mr. LEVIN. And finally, do you think you state a reasonable expectation of increased collections as a result of this proposal? Do you have any feeling as to what it might mean?
Mr. ROSS. Well, of course, looking at the one chart, we have increased collections in the last 4 years by about 50 percent from approximately $8 billion to $12 billion. So we have done remarkably well. If we look at all the new resources and tools that are available to the child support program and to the States given to it by this Congress, then I would say we are hoping that we will be increasing collections and services to the children of this country at a much greater rate than we are now.
Mr. LEVIN. Thank you very much.
Chairman SHAW. Mr. English.
Mr. ENGLISH. Thank you, Mr. Chairman, and thank you, Judge Ross, for coming here and presenting your report. I noticed given that one of our most important considerations in evaluating any incentive system is whether the performance measures that are utilized are reliable, do you feel comfortable assuring the Subcommittee that all five of the performance indicators you have selected can be reliably measured by every State? And I wonder how you will deal with States that report low quality data?
Mr. ROSS. OK. Data, of course, has been a problem for this program since the early days. The mandate from the Congress is that the automated systems be up and certified by October of this year. I think as those systems do, in fact, fully come online, and as they are certified, the data will be available so that we will be able to truly measure these performance measurements. As problems do arise that by the use of our targeted audits and self-assessments by the States will ensure the data will be far more reliable than it is now.
Page 25 PREV PAGE TOP OF DOC Mr. ENGLISH. In pursuing that a moment, Judge Ross, you have proposed that the new system be in place by October 1, 1999. The baseline data needed to compute the new performance measures would be taken from fiscal year 1999 which begins October 1, 1998, and that is 18 months away. Given all of the trouble the States have had with their automated data systems, do you think it is reasonable for us to expect that system to be up to speed so quickly?
Mr. ROSS. I really do. I think, as I indicated the last time I was here, with regard to the systems, that the fact that a system has not been certified does not mean that it is not very far along. In many of the systems, there are one or two things left to do prior to the certification, but most of the information is available.
Mr. ENGLISH. Judge, I have one final question. Under your proposal, a State will be able to achieve the maximum incentive payment for a paternity establishment rate of 80 percent. As I recall, in our bill last year, we had set a threshold rate of 90 percent. Can you suggest why we should go with the lower standard? Is there a practical reason for doing that, or could you support a 90-percent incentive maximum?
Mr. ROSS. OK. The 90-percent standard is in the statute at the present time, and States must meet that objective. If they are below that, they must increase a relative percentage each year or else they are subject to a penalty. The workgroup in considering this did not want to end up with essentially a double penalty for a State that might be performing well but not well enough to reach the statutory level. This takes place mostly in the higher performing States. Once you are doing pretty well, it is much harder to increase by a certain percentage number. So to that extent, I think that what this is designed to do is to permit the incentive payment to those States and provide a floor that they have to improve by x number before they are eligible for the incentive. I think this is a fair way to do it.
Mr. ENGLISH. Thank you, Judge. Thank you, Mr. Chairman. I have no further questions.
Page 26 PREV PAGE TOP OF DOC Chairman SHAW. Mr. Coyne.
Mr. COYNE. Thank you, Mr. Chairman.
Welcome, Judge Ross. I appreciate your testimony. Section 325 of the welfare reform law calls for States to set up expedited procedures for both paternity establishment and child support enforcement. Will this mean States that have put in procedures for that will be required to put in whole new systems as a result of the legislation?
Mr. ROSS. Certainly not for this purpose. They are required to be moving to administrative process. Pennsylvania is one of the best examples of an administrative process State where the returns are just so much more significant and so much higher as a result of being able to establish and enforce support in a timely fashion. However, this incentive formula does not in any way impact on the current expedited or administrative process requirements.
Mr. COYNE. So States like Pennsylvania would not be affected by what is here?
Mr. ROSS. Oh, certainly not adversely, no, sir.
Mr. COYNE. Yes. OK. The State of Pennsylvania is among the top States in both its cost-to-collection ratio as well as its total collections amount. Will States like Pennsylvania that have good performance experience be penalized under the new system for having been diligent in child support enforcement too early?
Mr. ROSS. I think not. States like Pennsylvania, in fact, will do well. Pennsylvania is one of our better performing States. Allegheny County is an example of perhaps the best county in the Nation because of their administrative process that they use, and certainly using these performance measurements they would meet the standards and not be penalized.
Mr. COYNE. And would not suffer for it?
Mr. ROSS. No, sir.
Page 27 PREV PAGE TOP OF DOC Mr. COYNE. Why does the proposal not address important issues like enforcement of medical support orders when we know that so many children in this country go without health insurance? Is there any reason for that?
Mr. ROSS. Well, that, of course, becomes again one of the difficult issues. There are so many difficult issues in child support with regard to interstate cases and with medical support. It is one of the areas in which our office has just recently announced a new program. A fellow named Nehemiah Rucker, who has joined ushe is a medical service corps officer from the militarywhom we are going to send out essentially to try to work on the problem of medical support. There are so many things we have to do. Medical support often ends up being at the end of the list, and it really needs to be raised in its importance.
Great progress has been made, but the fact is that with regard to rewarding a State with an incentive, it is very difficult in terms of collecting data. I am not sure we would really ever be able to collect necessary data in the near future to determine to be able to pay an incentive.
Mr. COYNE. So is it the inability to collect the data that is holding you back or is it a lack of priority?
Mr. ROSS. Well, no, I would not say it is a lack of priority. I would say it is the impossibility of really having an incentive measurement which we could truly measure. It certainly is a priority, and I do not want to suggest for a moment it is not because it really is. I think we can work on that with State self-assessments and promote it as we have in other areas.
Mr. COYNE. Is there any way a top performing State like Pennsylvania could receive less under the new system than it currently does?
Mr. ROSS. Well, sure, if they become less successful in their performance, I would suggest that would cause them to receive less.
Page 28 PREV PAGE TOP OF DOC Mr. COYNE. But not as a result of the legislation is it?
Mr. ROSS. I do not think as a result of the legislation, no, sir.
Mr. COYNE. Thank you.
Chairman SHAW. Mr. Hayworth.
Mr. HAYWORTH. I thank the Chairman and I thank the judge for appearing before the Subcommittee today. Thank you very much. I would really like to follow up on the line of questioning offered by my colleague from Pennsylvania because we first of all salute you for looking for different policy alternatives but with any changes come other consequences or other situations that may not have been completely explored. To follow up on my colleague from Pennsylvania's questioning, if we acknowledge that some States, Judge, may be adversely affected by the new formula, do you have any idea of what States would be most affected, and do you believe that a decrease in program funding for these particular States is warranted?
Mr. ROSS. Well, it is a two-part question. We have provided to the Subcommittee staff a breakout of how each State would do using current data. The difficulty is we anticipate, of course, that all States will improve. I am personally committed to the concept that once these performance measurements are in place, States will move to ensure their incentive funding is enhanced and to that extent will go forward. But to answer your specific question, with a cost-neutral program like this and the mandate is that it be cost neutral, then obviously with x numbers of dollars, when you change the system, there will be people who will have more in the beginning and who will have less under a new system.
It is all satisfied simply by everyone performing well, and then the entire pot of the money will be divided based on their performance measurements which certainly seems to me the fairest way of doing it.
Mr. HAYWORTH. Judge, your reply also brings up another question. That is in any transition, whether you call it a transitory time or a phase-in time, these challenges present themselves. Could you give me an idea on the rationale behind the selection of a 1-year phase-in period and were other periods of time considered?
Page 29 PREV PAGE TOP OF DOC Mr. ROSS. Oh, sure. Some of the folks in the workgroup wanted it to be much longer. Others wanted it to be phased in immediately, and the compromise the group arrived at was that it be the 1-year period. During that 1-year period, of course, one-half of the incentive would be paid under the old formula and half under the new formula. It was designed to let States have the opportunity to work toward achievement of these performance measurements, and I think that is the compromise the workgroup itself reached, and it certainly seems reasonable.
Mr. HAYWORTH. More the compromise of the calendar with different people and different ideas.
Judge, I thank you very much. I thank the Chair.
Chairman SHAW. Mr. Camp.
Mr. CAMP. No questions.
Chairman SHAW. As usual, you have done a great job.
Mr. LEVIN. Thank you.
Chairman SHAW. We appreciate your testimony and thank you for being here.
Mr. LEVIN. Thank you.
Mr. ROSS. Thank you very much.
Chairman SHAW. Our next panel is made up of Carmen Solomon-Fearsshe is with the Education and Public Welfare Division of the Congressional Research Service at the Library of Congress here in Washington; Nancy Ebb, who is the senior staff attorney with Children's Defense Fund here in Washington; Elisabeth Donahue, counsel, the National Women's Law Center in Washington; Michele Delo, who is the senior policy analyst, the Institute for the American Family, here in Washington; and Leslie Frye, who is the chief, Office of Child Support, the Department of Social Services, in Sacramento, California. We will lead off with Ms. Solomon-Fears.
Page 30 PREV PAGE TOP OF DOC Mr. CAMP. Mr. Chairman.
Chairman SHAW. Excuse me.
Mr. CAMP. Before we begin, I just wanted to compliment Carmen for completing this excellent report while under great pressure, and I wanted to acknowledge that before the Subcommittee. Thank you very much for your extra effort on that.
Chairman SHAW. Thank you. It is, as expected, a job well done. We appreciate it very much.
STATEMENT OF CARMEN SOLOMON-FEARS, SPECIALIST, SOCIAL LEGISLATION, EDUCATION AND PUBLIC WELFARE DIVISION, CONGRESSIONAL RESEARCH SERVICE, LIBRARY OF CONGRESS
Ms. SOLOMON-FEARS. Thank you. Good morning, Mr. Chairman and Members of the Subcommittee. My name is Carmen Solomon-Fears. I am a specialist in social legislation with CRS, the Congressional Research Service, and at the request of Subcommittee staff, I prepared a CRS report on the child support incentive system. The report includes background information on the current system and discusses the administration's recommendations. I was asked to speak to you today about some of the highlights of the report.
The Child Support Enforcement Program, which is operated by the States, is funded with both State and Federal dollars. One source of funding is the extra payment, an incentive payment, that the Federal Government provides the States, to encourage them to increase support collections from noncustodial parents. In fiscal year 1995, the gross Federal share of child support enforcement collections made on behalf of welfare cases was $1.2 billion. From this amount, the Federal Government turned $400 million back to the States in incentive payments. By law, the only measure that is considered in making the incentive payments is the cost effectiveness of the State's effort to enforce collections.
Page 31 PREV PAGE TOP OF DOC For example, under the current incentive system, if a State collects $2.80 in child support on behalf of its welfare caseload for every $1 it spends, it would receive an incentive payment equal to 10 percent of its welfare collections. If a State is very inefficient and only collects 50 cents in child support on behalf of its welfare caseload, the State would still receive an incentive payment of 6 percent of welfare collections.
The main criticism of the current system is that it is not performance based. The administration's recommendations would establish performance measures based on paternity establishment, establishment of child support orders, collection of current support, collection of past-due support, and a revised cost-effectiveness ratio.
Essential program elements not recommended as performance measures in the administration's recommendations include interstate enforcement, enforcement of medical support, and welfare cost avoidance. One question raised by switching to a performance-based system is whether States will be automated to the extent necessary to account for whatever performance measures are adopted. Under the current system, cost effectiveness is measured separately for welfare and nonwelfare cases by comparing collections and administrative costs for each category, but a cap is imposed on incentives paid on nonwelfare collections.
The reason for the cap is to encourage States to continue to collect child support on behalf of the welfare caseload for whom collection is usually harder to obtain because paternity has not been established or the noncustodial parent is unemployed.
Among the more significant recommendations is a proposal that would eliminate the cap on incentive payments for nonwelfare cases. The administration contends that the use of an undifferentiated approach eliminates what they call a perverse incentive of the current formula. Under the current formula, States are financially better off if families stay on public assistance. There is some concern the proposed elimination of the cap would adversely affect the enforcement of welfare cases.
Page 32 PREV PAGE TOP OF DOC On a more general note, one consequence of the child support financing structure is that the Federal Government has lost money on the program every year since 1979 and States have made a profit on the program. In fiscal year 1995, the loss to the Federal Government was $1.3 billion and the gain to the States was $424 million. This has raised the question of whether there is a proper division of costs and benefits. Like the incentive payment system, the open-ended Federal matching rate is not performance based. Thus, States have little incentive to control the cost of the Child Support Enforcement Program and are not financially encouraged to improve specific program activities.
The reason for the Federal loss in the program is because the Federal Government reimburses States 66 percent of their program expenditures, 70 percent if you include the higher matching rate for automation and paternity establishment, and gives States the incentive payment out of their share of collections made on behalf of welfare families.
It has been argued that States should pay more of the overall cost of child support activities. Some assert that a small Federal matching rate for child support expenditures would induce States to operate more efficiently. On the other hand, others argue that the incentive payment structure is ineffective, and that the Federal Government should eliminate it and simply increase its Federal matching rate. Because the Secretary was directed to develop a cost-neutral incentive system, there will be a redistribution among the States with respect to which States gain under the proposal and which States lose, but the historic pattern of Federal deficit and State surplus will continue.
Finally, I want to mention two uncertainties that may impact on the proposed incentive system. Number one, it is feared that some States may reconfigure their TANF Program so as to deny the Federal Government a share of child support collections. Number two, many States are starting to privatize child support enforcement services that traditionally have been handled by county governments. The Secretary's recommendation to phase in implementation of its proposed incentive system would give the Federal Government time to assess the impact of these issues and to make the necessary adjustments.
Page 33 PREV PAGE TOP OF DOC Thank you, Mr. Chairman.
[The prepared statement and attachment follow:]
Statement of Carmen Solomon-Fears, Specialist, Social Legislation, Education and Public Welfare Division, Congressional Research Service, Library of Congress
Good morning Mr. Chairman and members of the subcommittee. I am pleased to be here. At the request of the subcommittee staff, I prepared a CRS report on the Child Support Enforcement incentive payment system. The report includes background information on the incentive payment system and a discussion of the recent Administration recommendations required by the welfare reform legislation of the 104th Congress. I was asked to speak to you today about some of the highlights of the CRS report.
The CSE program, operated by the 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands, is funded with both state and federal dollars. One source of funding is the extra paymentan ''incentive'' paymentthat the federal government provides to states to encourage them to increase support collections from noncustodial parents.
In FY1995, the gross federal share of child support enforcement collections was $1.2 billion. From this amount the federal government turned $400 million back to the states in incentive payments. By law, the only measure of performance that is considered in making the incentive payments is the cost-effectiveness of the state's effort to enforce collections. Cost-effectiveness is measured separately for AFDC and non-AFDC cases by comparing collections and administrative costs for each category, but a cap is imposed on incentives paid for non-AFDC collections. The Administration's recommendations include new performance measures based on paternity establishment, establishment of child support orders, collection of current support, collection of past-due support, and a revised cost-effectiveness ratio.
Page 34 PREV PAGE TOP OF DOC Essential program elements not recommended as performance measures in the Administration's report include interstate enforcement, enforcement of medical support, and welfare cost-avoidance.
Among the more significant recommendations is a proposal that would eliminate the cap on incentive payments for non-welfare cases. The Administration contends that use of an undifferentiated approach eliminates the ''perverse'' incentive of the current formula. Under the current formula, states are financially better off if families stay on public assistance. The reason for the cap was to encourage states to continue to collect child support on behalf of the welfare caseload, for whom collection generally was harder to obtain (because paternity had not yet been established, or the noncustodial parent was unemployed or underemployed). There is some concern that the proposed elimination of the cap would adversely effect the enforcement of welfare cases. In FY1994, on a nationwide basis, 42.9% of the child support enforcement caseload were AFDC/foster care cases, 13.1% were former welfare cases, and 44% were non-welfare cases. The recommendations would mitigate, to a certain extent, any adverse impact by classifying former welfare cases as ''welfare'' cases.
In addition, a continuous pattern of federal deficits and state surpluses from the Child Support Enforcement program has raised the question of whether there is a proper division of costs and benefits. Like the incentive payment system, the open-ended federal matching rate is not performance-based. Thus, states have little incentive to control the costs of the Child Support Enforcement program and are not financially encouraged to improve specific program activities. It has been argued that states should pay more of the overall costs of child support enforcement activities. Some assert that a smaller federal matching rate for child support enforcement expenditures would induce states to operate more efficiently. On the other hand, others argue that the incentive payment structure is ineffective and that the federal government should eliminate it and simply increase its match of overall child support enforcement expenditures.
Page 35 PREV PAGE TOP OF DOC Finally, I want to mention the unknown impact of the new welfare reform law on child support enforcement activities. It is feared that some states may reconfigure their Temporary Assistance to Needy Families program so as to deny the federal government a share of child support collections. It is argued that states could aid families who are likely to receive child support with state-only funds in a non-TANF program, and thereby reduce the amount of money they would be required to pay the federal government. This means that the net federal share of AFDC collections, which is used to offset federal AFDC expenditures (which amounted to $800 million in FY1995), theoretically could be in jeopardy. The Administration's recommendation to phase-in implementation of its revisions to the incentive payment system beginning in FY2000 would give it time to monitor state activities with respect to this question to ensure that the federal government will continue to receive its appropriate share of child support collections made on behalf of welfare families.
Similarly, to meet the growing demands of monumental workloads, state budgetary constraints, and new federal requirements, many states are starting to privatize child support enforcement services that traditionally have been handled by county governments. In some places, states have contracted with private sector companies to assume all local child support enforcement services. How effective these companies will be is uncertain. The Secretary's recommendation to delay implementation of the proposed incentive system would give the federal government time to assess the impact of this trend, and make the necessary adjustments.
Mr. Chairman, this concludes my remarks. I would be happy to answer any questions.
CRS Report for Congress
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Child Support Enforcement Incentive Payments: Background and Administration's Recommendations
March 17, 1997
Carmen Solomon-Fears, Specialist in Social Legislation, Education and Public Welfare Division
The Child Support Enforcement (CSE) program, operated by the 50 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands, is funded with both state and federal dollars. One source of funding is the extra paymentan ''incentive'' paymentthat the federal government provides to states to encourage them to increase support collections from noncustodial parents.
Two criticisms of the current incentive payment structure are that (1) it focuses only on comparing collections to the cost of making them, while ignoring measures such as paternity and support order establishment, and (2) states currently receive a minimum level of incentive payments regardless of their performance. P.L. 104193 required the Secretary of the Department of Health and Human Services (DHHS), in consultation with the state CSE directors, to develop a performance-based, revenue neutral system of incentive payments, and report to the appropriate Congressional Committees the details of the proposed incentive system by March 1, 1997.
This report, submitted on March 13, responds to the flaws in the current incentive system by recommending that (1) the incentive system provide additional payments to states based on five performance measures related to establishment of paternity and child support orders, collections of current and past-due support payments, and cost-effectiveness; (2) incentive payments available to each state be based on a percentage of the state's collections (with no cap on non-AFDC collections); (3) the incentive system be phased in over a 1-year period beginning in FY2000; (4) incentive payments be reinvested in the state CSE program; (5) the federal government maintain its 66% matching rate of CSE expenditures; and (6) the new incentive system be reviewed on a periodic basis.
Page 37 PREV PAGE TOP OF DOC The report did not include several other program features that might be used to measure performance, namely, interstate enforcement, enforcement of medical support, and accounting for the welfare cost-avoidance role of the CSE program. Some argue that the proposed elimination of the cap on non-AFDC/TANF incentive payments might adversely effect the enforcement of AFDC/TANF cases.
Aside from the matters discussed above, a pattern of federal deficits and state surpluses from the CSE program raises the question of the proper division of costs and benefits. Some note that the federal reimbursement of state administrative expenditures also is financed without regard to performance. Should states pay more of CSE costs? Some assert that a less generous federal matching rate would induce states to operate more efficiently. Others argue that the current incentive system is ineffective and that the federal government should eliminate it and simply increase its federal match of overall CSE expenditures. In addition, it is feared that some states, pursuant to P.L. 104193, may reconfigure their Temporary Assistance to Needy Families (TANF) programs so as to deny the federal government a share of child support collections. It is argued that states could aid families who are likely to receive child support with state-only funds in a non-TANF program, and thereby reduce the amount of money they would be required to pay the federal government.
The Child Support Enforcement (CSE) program, operated by the 50 states, the District of Columbia, Guam, Puerto Rico and the Virgin Islands, is funded with both state and federal dollars. There are potentially four funding sources. One, states spend their own money to operate a CSE program; the level of funding allocated by the state and/or localities determines the amount of resources available to CSE agencies. Two, the federal government reimburses each state 66% (more for certain expenses) of all allowable expenditures on CSE activities. The result of this matching structure is that in FY1995, the federal government paid 70% of total CSE program expenditures. Three, a state collects child support on behalf of families receiving Aid to Families with Dependent Children (AFDC)/Temporary Assistance to Needy Families (TANF)(see footnote 1) to recompense itself (and the federal government) for the cost of AFDC/TANF payments to the family. In FY1995, states were able to recover all of their expenditures with their share of collections for AFDC cases (the state share of CSE expenditures was $917 million, the state share of AFDC collections was $941 millionin contrast, the federal government recovers only a fraction of its expenditures). Four, the federal government also provides states with an extra paymentan ''incentive'' paymentto increase support collections from all parents ordered to support their dependent children.(see footnote 2)
Page 38 PREV PAGE TOP OF DOC
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104193, required the Secretary of the Department of Health and Human Services (DHHS) in consultation with the state CSE directors to develop a new cost neutral (with respect to the federal government) system of incentive payments to states and report to the appropriate congressional committees the details of the new incentive system by March 1, 1997.
This report provides detailed information on the child support incentive payment system and discusses the Administration's recommendations for change required by the welfare reform legislation of the 104th Congress.
Federal CSE Reimbursement/Matching Rate
The federal government currently reimburses each state 66% of the funding required for the state to operate its CSE program. The federal government's funding is ''open ended'' in that it pays its percentage of expenditures by matching the amount spent by state and local governments with no upper limit or ceiling. When the program began in 1975, the federal match was 75%. In 1982, P.L. 97248 reduced the federal match to 70% (FY1983FY1987). In 1984, P.L. 98378 reduced the federal match to 68% in FY1988 and FY1989, and to 66% in FY1990 and years thereafter. These costs include moneys for ''locate'' services, paternity establishment, establishment and modification of child support orders, and enforcement services.
The Senate Finance Committee report on H.R. 4325 (which later was enacted as P.L. 98378) gave these reasons for the gradual reduction in the federal matching rate for the CSE program.
The Committee believes that in a program which assures states of open-end funding on an entitlement basis, it is particularly appropriate for both the federal and state governments to bear a substantial share of the financing requirements. By increasing the State matching share, the committee expects that state responsibility for and interest in the effectiveness of child support enforcement and paternity establishment services will also be increased.
Page 39 PREV PAGE TOP OF DOC In 1975, when the IVD [CSE] program began, it was necessary to have a very high matching rate in order to persuade the states to participate. Now that the program has proved its value, as the testimony on behalf of the National Governors' Association before this committee confirms, it is time to move toward a more equal sharing of the costs. The committee recognizes that in the short run this small change in the federal matching rate will not result in significant federal savings. However, the committee believes that, over time, the increased stake by the states in this program will have the effect of encouraging closer scrutiny of expenditures of scarce dollars.(see footnote 3)
The federal government also pays 90% of state costs of developing and improving CSE automated management information systems, including expenditures on the hardware (i.e., computers) and 8090% of costs attributable to laboratory costs incurred in determining paternity.
Child Support Collected on Behalf of AFDC/TANF Families
Families receiving benefits (or who formerly received benefits) under the AFDC program or the TANF block grant, the federally assisted foster care program, or the Medicaid program, automatically qualify (free of charge) for CSE services.(see footnote 4) Their cases are referred to the CSE agency. Federal law requires AFDC/TANF families (and applicants), as a condition of eligibility for aid, to assign their support rights to the state, to cooperate with the state in establishing the paternity of a child born outside of marriage, and to cooperate with the state in obtaining support payments. The provision requiring the AFDC/TANF applicant or recipient to assign to the state her or his rights to support covers both current support and any arrearages (i.e., past-due support) which have accrued, and lasts as long as the family receives AFDC/TANF. When the family no longer receives AFDC/TANF, the noncustodial parent regains her or his right to collect current support, but if there are arrearages, the state may claim those arrearages (to be divided between itself and the federal government) up to the amount paid out as AFDC/TANF benefits.(see footnote 5)
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Child support payments made on behalf of a child receiving AFDC/TANF are supposed to be paid to the CSE agency rather than directly to the family. If the family's income, including the child support payment, is sufficient to make the family ineligible for AFDC/TANF payments, the family's AFDC/TANF benefits are ended, and future child support payments are paid directly from the noncustodial parent to the family (via the county clerk, the CSE agency, or the state disbursement unit). If the child support collection is insufficient to disqualify the family from receiving AFDC/TANF payments, the family receives its full monthly AFDC/TANF benefit.(see footnote 6) The remainder of that monthly child support payment is distributed to reimburse the state and federal governments in proportion to their AFDC/TANF assistance to the family.
Since federal dollars are used to finance a portion of the state AFDC/TANF payment, states are required to split child support collections from AFDC/TANF cases with the federal government. The rate at which states reimburse the federal government is the federal matching rate (i.e., the federal medical assistance percentage) for the AFDC program, which varies inversely to state per capita income (i.e, poor states have a high federal matching rate, wealthy states have a lower federal matching rate). The federal matching rate is at least 50% and currently ranges to 77.22% (in Mississippi). In a state with a 50% matching rate, the federal government is reimbursed $50 for each $100 collected, while in a state with 70% federal matching, the federal government is reimbursed $70 for each $100 collected. In the first example, the state keeps $50 and in the second example, the state keeps $30.
Incentive Payments to States
History. Before enactment of the CSE program in 1975 (P.L. 93647), when a state or locality collected child support payments on behalf of a family receiving AFDC, the federal government was reimbursed for its share of the cost of AFDC payments to the family. Although local units of government (e.g., counties) often were enforcing child support obligations, because in most states they did not make any financial contributions toward funding AFDC benefit payments, the localities were not eligible for any share of the ''savings'' that occurred when a support collection was made on behalf of an AFDC family. From the debate on the establishment of a CSE program (P.L. 93647), Congress concluded that a fiscal sharing in the results of support collections could be a strong incentive for encouraging the local units of government to improve their CSE activities.
Page 41 PREV PAGE TOP OF DOC P.L. 93647 required that if the collection were made by any locality in the state or by the state for another state, that locality or state was to receive a special bonusincentive paymentbased on the amount of any child support collected to reimburse amounts paid out as AFDC. The incentive payment was equal to 25% of support collected on behalf of AFDC families for the first 12 months and 10% thereafter. In 1977 (P.L. 9530), the incentive payment rate was changed to 15% of child support collections made on behalf of AFDC families. In 1982 (P.L. 97248), the rate was reduced from 15% to 12%. In 1984 (P.L. 98378), the incentive payment system was significantly revised. Instead of making incentive payments to localities and states that collected support payments on another state's behalf, the federal government made the incentive payments directly to the states and each state was required to pass incentive payments through to local CSE agencies if those agencies were financially liable for CSE operating costs.(see footnote 7) Notably, in contrast to previous law, P.L. 98378 made non-AFDC collections eligible for incentive payments. Incentive payments were reset at 6% for both AFDC and non-AFDC collections (i.e., support collected on behalf of AFDC and non-AFDC families). These percentages could rise as high as 10% for each category for cost-effective states, but a state's non-AFDC incentive payments could not exceed its AFDC incentive payments.(see footnote 8)
Purpose. Federal incentive payments to states were designed to encourage states to operate effective CSE programs. The incentive formula also was constructed in such a way as to assure that states provide equitable treatment for both AFDC and non-AFDC families. Under the old formulas, a state that incurred administrative costs to collect support for a non-AFDC family did not receive an incentive payment since incentives were paid only for AFDC collections. Reportedly, this practice generally resulted in the neglect of non-AFDC cases. The current incentive formula aims to remedy that by making payments for non-AFDC collections. Concurrently, it places a limit on non-AFDC incentive payments so as to lessen the possibility that states would merely transfer to the program child support activities which were previously financed out of state and/or local moneys, with no increase in the level of child support services.(see footnote 9)
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Mechanics. The federal government pays for incentive payments to the states from its share of retained child support collections for AFDC/TANF cases.(see footnote 10) Under the incentive payment formula, each state receives a minimum incentive payment equal to at least 6% of the state's total amount of AFDC/TANF support collections for the year, plus at least 6% of the state's total amount of non-AFDC/TANF collections for the year. The amount of the state's incentive payment could reach a high of 10% of the AFDC/TANF collections plus 10% of the non-AFDC/TANF collections, depending on the state's ratio of child support collections to administrative costs (see table 1).(see footnote 11)
There is a limit, however, on the incentive payment for non-AFDC/TANF collections. The incentive payments for such collections may not exceed 115% of incentive payments for AFDC/TANF collections.
Incentives are paid according to the collection-to-cost ratios (ratio of AFDC/TANF collections to total administrative costs and ratio of non-AFDC/TANF collections to total administrative costs) shown in table 1. For purposes of calculating these ratios, interstate collections are credited to both the initiating and responding states.(see footnote 12) In addition, costs associated with demonstration grants to promote improvements in enforcement of interstate cases are to be excluded in computing incentive payments. At state option, laboratory costs (for blood testing, etc.) to establish paternity may be excluded from the state's administrative costs in calculating the state's collection-to-cost ratios for purposes of determining the incentive payment. States also may use fees and cost recovery to help finance the CSE program. Such fees and costs recovered from non-AFDC/TANF cases must be subtracted from the state's total administrative cost before calculating the federal reimbursement amount; this lower administrative cost figure may result in greater federal incentive payments by improving the state's collection-to-cost ratio.
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Data. In FY1995, federal incentive payments to states amounted to $400 million, nearly 33% of the gross federal share of CSE collections. Neither federal law nor regulations dictate how this money may be used. States were free to use their $400 million as they chose. Many states use the incentive payments as part of their match for federal CSE funds. Some use the payments to increase the effectiveness of the program. Some use the payments in other children and family programs. Others use them to meet state budget needs. According to a December 1994 General Accounting Office (GAO) report, in FY1992, about 84% of total CSE administrative costs were reimbursed through federal matching funds and incentive payments.(see footnote 13) GAO also found that most states received incentive payments of 6% to 7% on their AFDC collections. Incentive payments were higher on non-AFDC collections, but most states could not receive the full payment because of the cap.(see footnote 14)
The Administration's Recommendations For A New Incentive System
One criticism of the current incentive payment structure is that it impedes a successful CSE program because it focuses only on comparing collections to the cost of making them. Many policymakers contend that incentive payments should be based on additional measures, such as paternity and support order establishment, and medical support enforcement. Another criticism is that states currently receive 6% of AFDC collections plus 6% of non-AFDC collections (subject to cap) regardless of their performance. Some observers argue that states whose programs are performing poorly should not be rewarded with these federal funds.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104193, required the Secretary of DHHS in consultation with the state CSE directors to develop a revenue neutral system of incentive payments to states that is based on performance, and report to the Committees on Ways and Means and Finance the details of the new incentive system by March 1, 1997. This section describes the Secretary's recommendations, developed in consultation with the states, for a new performanced-based incentive system for the CSE program. It also presents some pro and con arguments associated with the proposals.
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Performance Measures and Standards
The recommended incentive system would be based on the state's performance in five major areas of child support enforcement. The five areas are: establishment of paternities, establishment of child support orders, collections on current child support payments, collections on past-due child support (i.e., arrearages), and cost-effectiveness. Under the recommendation, each of the measures would be translated into a mathematical formula. The amount of incentive payments for a particular measure would be based on established standards of performance. For each standard, there would be an upper threshold. All states that achieve performance levels at or above this upper threshold would be entitled to a portion of a maximum possible incentive for that performance measure. Simultaneously, there would be a minimum level of performance below which states would not be paid an incentive, unless the state made a significant improvement over its previous years' performance.
Although there is widespread agreement that the incentive payment system should be based on performance, there is disagreement on which performance measures to include.(see footnote 15) Some activities that were not covered by the Administration's recommendations include collecting interstate payments, seeking health care coverage, and accounting for the welfare cost avoidance role of the CSE program.(see footnote 16) On the other hand, a December 1994 GAO report suggests that the current incentive payment structure makes it possible for states to shift most, if not all, CSE costs to the federal government. Opponents of the current payment structure argue that incentive funds often supplant rather than supplement state CSE funding. It has been argued that states should pay more of the overall costs of CSE activities. Some assert that a smaller federal matching rate for CSE expenditures would induce states to operate more efficiently. On the other hand, others argue that the incentive payment structure is ineffective and that the federal government should eliminate it and simply increase its match of overall CSE expenditures. It also has been noted that the expectation is that the number of TANF cases will decrease over time as the implementation of welfare reform moves people toward self-sufficiency. The result of this success would be a smaller and smaller number of assistance cases and collections which would result in fewer incentive dollars available to the states.
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Paternity Establishment. The recommended measure for paternity establishment is identical to current law. Under P.L. 104193, states may use either of two methods to derive their paternity establishment percentage. The following are the equations for obtaining the paternity establishment percentage.
(1) CSE paternity establishment percentage: Total number of children in CSE caseload in the fiscal year or, at the option of the state, as of the end of the fiscal year, who were born outside of marriage who have had paternity established or acknowledged as a percent of the total number of children in CSE caseload as of the end of the preceding fiscal year who were born outside of marriage
(2) Statewide paternity establishment percentage: Total number of minor children who have been born outside of marriage who have had their paternity established or acknowledged during the fiscal year as a percent of the total number children born outside of marriage during the preceding fiscal year
Under the recommendation, if a state had a paternity establishment percentage of 80% or higher, the state would be eligible for 100% of the maximum value of the incentive. The maximum incentive would be based on a percentage of the individual state's collections (i.e., the ''collection base,'' discussed later). If a state had a paternity establishment percentage of 49% or lower, the state would have to increase its paternity establishment percentage by at least 10 percentage points over its prior year's performance in order to receive an incentive. If the state made such an improvement it would be eligible for 50% of the maximum incentive.
The Secretary's report indicates that there was a concern about whether states should be subject to penalties and be eligible for incentives at the same time. Some felt that the lack of an incentive payment would make these states doubly penalized by not improving performance. It was decided that states should be eligible for incentives based on performance even if they were subject to penalties because their performance had not improved to the extent required to avoid the penalty.(see footnote 17)
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Establishment of Child Support Orders. The recommended measure to encourage establishment of child support orders would show how much of a state's CSE caseload is subject to enforcement (i.e., if there is no child support order, the CSE agency cannot engage in enforcement activities for that case/child/family). The equation to compute this measure follows.
Number of CSE cases with support orders/ Total number of CSE cases
This measure also would have a sliding scale so that an increased performance would earn a higher level of the incentive payment. Any performance level of 80% or higher would earn the maximum possible incentive. Any performance level equal to 49% or lower would not be eligible for an incentive payment unless the state improved its performance by at least 5 percentage points over the previous year's performance. If the state made such an improvement, it would be eligible for an incentive payment equal to 50% of the maximum incentive.
Collections on Current Support. The recommended measure for collections on current support is expressed by the following formula.
Total dollars collected for current support in CSE cases as a percent of the total dollars owed for current support in CSE cases
This measure also would have a sliding scale so that an increased performance would earn a higher level of the incentive payment. Any performance level of 80% or higher would earn the maximum possible incentive. Any performance level equal to 39% or lower would not be eligible for an incentive payment unless the state improved its performance by at least 5 percentage points over the previous year's performance. If the state made such an improvement, it would be eligible for an incentive equal to 50% of the maximum incentive.
Page 47 PREV PAGE TOP OF DOC Collections on Arrearages. The recommended measure to enhance collections of arrearages assesses efforts to collect money from noncustodial parents for overdue support. The equation for this measure follows.
Total number of CSE cases paying towards arrearages as a percent of the total number of CSE cases with arrearages due
This measure also would have a sliding scale so that an increased performance would earn a higher level of the incentive payment. Any performance level of 80% or higher would earn the maximum possible incentive. Any performance level equal to 39% or lower would not be eligible for an incentive payment unless the state improved its performance by at least 5 percentage points over the previous year's performance. If the state made such an improvement, it would be eligible for an incentive equal to 50% of the maximum incentive.
The Secretary's report does not indicate whether any amount of arrearage payment would be included in the number of CSE cases paying toward arrearages. In other words, would a person who owes $4,000 in overdue child support be considered a paying case if he or she paid $10 toward that arrearage?
Cost Effectiveness. The final recommended measure assesses the total dollars collected in the CSE program for each gross dollar spent. The equation for this measure follows.
Total CSE dollars collected/Total CSE dollars expended
Although different from the others, this measure also would have a sliding scale so that an increased performance would earn a higher level of the incentive payment. A state with a cost-effectiveness ratio of $5 or higher would earn the maximum possible incentive. (A cost-effectiveness ratio of $5 means that $5 of child support is collected for each $1 spent.) A state with a cost-effectiveness ratio of $2$2.49 would earn 40% of the maximum possible incentive. Under the recommendations, this is the only measure for which there is no incentive payment given below a specific level of performance. A state with a cost-effectiveness ratio of $1.99 or lower would not be eligible for an incentive payment.
Page 48 PREV PAGE TOP OF DOC This proposed cost-effective measure does not differentiate between TANF collections and non-TANF collections. The Secretary's report says that use of an undifferentiated approach eliminates the ''perverse'' incentive of the current formula. Under the current formula, states are financially better off if families stay on public assistance. With welfare reform, the goal is fewer and fewer TANF cases as people mover toward self-sufficiency. Unlike the current formula, the proposed formula does not subvert this goal.
The recommendation would eliminate incentive payments for states with a very low cost-effectiveness ratio. Moreover, the recommendation does not include an ''improvement'' measure for this category of performance. Some argue that without some minimum level of incentive funding for the poor performance states, the CSE programs in those states would have even less resources to achieve the intended goals. Moreover, states that perform poorly also would argue that they cannot show significant improvement because they do not have the resources.
The Incentive Collection Base
Under the recommendation, the amount of potential incentive payments available to each state would be based on a percentage of the state's collections (i.e., its ''collections base''). The incentive collection base would include collections in both TANF cases and non-TANF cases. However, collections in TANF cases and former TANF cases would be given more weight. The recommended formula for the collections base follows.
2 × (TANF collections + former TANF collections) + non-TANF collections = incentive collection base.
Under this formula, a non-TANF collection does not include collections from former TANF recipients.
Page 49 PREV PAGE TOP OF DOC To limit federal costs and to retain a substantial incentive for AFDC collections, non-AFDC incentive payments were capped as a percentage of AFDC incentive payments. Many states viewed the non-AFDC collections cap as a hinderance. Some states have indicated that when they reach the 115% cap on non-AFDC collections, they spend the rest of their time on AFDC cases. Many argue that the cap has a negative impact on non-AFDC collections. Under the current incentive system, states with higher proportions of non-AFDC/TANF cases are penalized because they cannot count all of their non-AFDC/TANF collections. This may not have been a problem when the cap was first established, but as states are successfully moving people off of assistance, the effect of the cap is aggravated. Additionally, it is possible that the number of assistance cases will decrease over time as the implementation of welfare reform moves people toward self-sufficiency. The result of this success would be a progressively smaller number of incentive dollars available to the states.
On the other hand, states with a large proportion of AFDC/TANF cases maintain that their caseload is harder to serve and use more resources and that by not accounting for this an uncapped system leaves them at a serious disadvantage. The Secretary's report indicates that one state (California) did not agree with the recommendations. Data from the federal Office of Child Support Enforcement show that in FY1995, California represented 11.8% of the CSE caseload, 7.9% of CSE collections (14.9% of AFDC/foster care collections and 5.6% of non-AFDC collections), and 13.1% of CSE expenditures.
Because the recommendations groups former AFDC/TANF cases with current AFDC/TANF cases and gives more weight to these collections, states with a high proportion of AFDC/TANF cases are less adversely impacted by the elimination of the existing cap on non-AFDC/TANF incentive payments.
Weighting the Performance Measures
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Under the recommendation, each state could earn five incentive payments based on performance on each of the five measures. However, the first three measurespaternity establishment, establishment of child support orders, and collections on current supportwere given more importance than the last twocollections on arrearages and cost-effectiveness. For each of the first three measures, a 100% level of performance would earn 1% of the collection base. Lower levels of performance would earn a percentage of the 1%. The last two measures would be worth at maximum 0.75% of the collection base. Lower levels of performance with regard to the last two measures would earn a proportion of the 0.75%.
Added together, the measures represent 4.5% of the incentive collection base. The Secretary's report state that allotting a possible total of 4.5% of the collection base will not cost more than the current incentive payment system (i.e., it will keep the system cost-neutral as mandated by P.L. 104193). The report notes that future changes in the TANF and CSE programs may necessitate adjustments to the proposed incentive system.
Phase-in of the Incentive Payment System
The DHHS Secretary, in consultation with the states, recommended that the proposed incentive system be phased in over a 1-year period beginning in FY2000. Under the recommendation, in FY2000, a state would earn half of what it would have earned under the current incentive system and half of what it would earn under the proposed system. In FY2001, the proposed incentive system would be fully implemented.
The Secretary's report notes that moving to a new incentive system that is based on performance and, at the same time, does not increase federal costs, will result in loss of incentive payments to some states unless they improve their performance. In many states incentive payments are a significant part of funding for CSE activities. Changes in funding generally cause states to undergo massive redirection of resources that take time and money. To protect these resources devoted to the CSE program in those states and to ensure that all states have adequate time to address projected increases or decreases in federal revenue in their budgets, the report recommends a phase-in of the new system.
Page 51 PREV PAGE TOP OF DOC Another benefit of delaying implementation (or providing more lead time) of a new incentive system is that it will provide time to analyze the effects of the new welfare law on state CSE programs. It is feared that some states may reconfigure their TANF programs so that the federal government does not benefit from any child support collections from that caseload. P.L. 104193 requires states to pay the federal government its share of any child support collected on behalf of TANF families. It is argued that states could aid families who are likely to receive child support with state-only funds in a non-TANF program, and thereby reduce the amount of money they would be required to pay the federal government.
Under the recommendation, each state would be required to invest the incentive payments into the CSE program.
Neither federal law nor regulations dictate the use of the state's CSE incentive payments; there are no federal strings attached. Some states have chosen to reinvest child support incentive payments back into the CSE program to increase the quality and effectiveness of the program. Some states use child support savings in other children and family programs. Others use child support savings wherever the state budget indicates the need.
As noted earlier, some argue that ''reinvesting'' incentive payments back into the CSE program is really supplanting funding. In other words, states can thereby use the incentive payments for their share of program expenditures, which is later matched by the federal government.
Maintain Current Federal Matching Rate for the CSE Program
Page 52 PREV PAGE TOP OF DOC It also was recommended that the federal matching rate for state CSE program expenditures remain at 66%.
One consequence of the CSE's financing structure is that the federal government has lost money on the program every year since 1979 and the states have made a profit on the program every year. Before 1989, state profits more than compensated for federal losses resulting in a net savings for taxpayers. However, beginning in 1989, the CSE program has been a net cost for taxpayers. In FY1995, the loss to the federal government was $1.257 billion on the CSE program, the states made a profit of $.431 billion, and the net public loss was $.826 billion. On the other hand, not all the benefits of the program can be measured in government budgetary terms. A large segment of the program, namely the non-AFDC component, by definition, provides no direct savings to the states or the federal government. Many argue that the intangible benefits (e.g., welfare cost avoidance and the prevention/deterrent effect) of the CSE program make it worthwhile, despite considerations of cost-effectiveness.
The continuous pattern of federal deficits and state surpluses from the CSE program has raised the question of whether there is a proper division of costs and benefits. Some maintain that the states should pay more of CSE costs; they assert the 1984 argument that a less generous federal matching rate would induce states to operate more efficiently. Others note that like current incentive payments, the federal reimbursement of state administrative expenditures is financed without regard to performance. Some argue that it is time that the entire CSE financing system was revised.
Under the recommendation, the proposed incentive system would be reviewed on a periodic basis. The Secretary of DHHS would be granted limited discretion to make appropriate changes, in consultation with the states, based on the incentive system's actual results and effects every 3 to 5 years.
Page 53 PREV PAGE TOP OF DOC To meet the growing demands of monumental workloads, state budgetary constraints, and new federal requirements, many states are starting to privatize CSE services that traditionally have been handled by county governments. In some places, states have contracted with private sector companies to assume all local CSE services. This type of trend could have significant impact on the CSE program. The Secretary's report mentions that because of the uncertainties associated with the CSE program (with respect to the new welfare reform law), it was decided that periodic review would be necessary to consider the program's results and examine any unanticipated and/or unintended consequences of the proposed incentive system (and make recommendations based on those actual results).
Chairman SHAW. Thank you.
STATEMENT OF NANCY EBB, SENIOR STAFF ATTORNEY, CHILDREN'S DEFENSE FUND
Ms. EBB. We appreciate the opportunity to testify today. We strongly agree with the Subcommittee and with HHS that it is time to change our current incentive system, which really continues to reward mediocre performance. It is time we provide incentives for the outcomes that really matter for children and that help move child support toward being a regular source of income families can rely on to keep a roof over children's heads and put food on the table.
We strongly agree with the basic recommendations of the workgroup report. The reasons for our agreement are outlined in our written testimony. I would like to take this opportunity in my oral testimony to talk about ways the proposal can be strengthened. We have four basic recommendations.
Page 54 PREV PAGE TOP OF DOC First, there should be a bonus for overall good performance. Second, there should be a bonus, as Mr. Coyne raised, for effective medical support enforcement. We think that is critical to children. Third, the arrearage measure, the measure of success in collecting back support, should be changed to ensure that States put families first in the collection of back support, as Congress said should happen last year in its change in the distribution formula for back support. Fourth, the paternity measure should be strengthened to reward effective performance not just for establishing paternity for newborns, but also for the older cases that have sat unworked in the system often for many years. It should also recognize that paternity may not be established in cases where there is good causedue to threats, for example, of domestic violencefor a mom not to cooperate, and that States should not be penalized in calculations of incentives in those instances.
The workgroup's proposal rewards performance in each of five separate categories. There is nothing that recognizes that a State is doing well overall, so that a State could look good in one performance area but not necessarily across the board. Where States are doing an especially good job in all of the outcomes that matter, we think it is important to include some form of bonus to recognize the effectiveness of those States. So we are recommending there be a bonus for overall good performance on top of incentives in each of the five areas.
We also strongly urge there be an incentive for medical support enforcement, and we would be delighted to work with Judge Ross and his staff to help develop a measure of effective medical support performance. The problem is that none of the other incentive measures take into account at all what States are doing in this critically important area. We know that although Congress has required for many years that States pursue medical support where it is available, that requirement has often been honored only in its breach.
GAO, for example, looked at 27 State medical support enforcement programs and found that 20 were not actively pursuing enforcement of medical support orders, and that this resulted in loss of medical support where it had been ordered and where child support was being collected on behalf of those children in over a quarter of a million cases. So children are really losing out. This is a place where we need to get the attention of the States and to reward good performance.
Page 55 PREV PAGE TOP OF DOC We also think it is important to reconfigure slightly the paternity measure which currently rewards performance for establishment of paternity in cases involving newborns, children born in the preceding fiscal year. It does not look at the success of the States in the older paternity cases, and this is really an issue. Our written testimony outlines a case that flags why this is important. One plaintiff in a case that has now gone to the Supreme Court went to court because the father had voluntarily acknowledged paternity but not signed a formal acknowledgement. His whereabouts were known, she had gone to the child support agency 13 years ago, her case had been lost, misplaced, misfiled. Paternity was still not established. We need something to help those cases to make sure States are paying attention to them as well.
Finally, in the area of collection of back support, the current measure of State success is almost a double reward for States. States can keep back support collected on behalf of former welfare families if it is collected through the Federal income tax intercept. In all other cases, back support goes to the former welfare family because, as Congress decided last year, it was really important to help those families stay afloat when they were off welfare and to make sure they got back support to supplement low earnings.
The arrearage measure does not look at whether States are only using the Federal income tax intercept and therefore keeping the back support or whether they are also making sure that back support goes to families, both former welfare families and nonwelfare families, who never became involved in the assignment of support. We think there needs to be a distinction there to make sure the incentives mirror the Federal policy of putting families first in collection and distribution of back support.
We thank you for your attention to this issue. We think it will genuinely make a difference in reshaping the program so it meets the needs of children, and we look forward to working with you.
[The prepared statement follows:]
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Statement of Nancy Ebb, Senior Staff Attorney, Children's Defense Fund
The Children's Defense Fund (''CDF'') appreciates the opportunity to testify about the need for changes in child support enforcement incentives to states. CDF is a privately supported charity that advocates for the interests of low income children. We work intensively on child support. CDF receives no federal grants or contracts. In my testimony today, I am not representing any entity that receives federal grants or contracts.
We welcome the Subcommittee's interest in improving incentives for state child support enforcement performance. Changing incentives so that they reward positive outcomes for children is the next important step in child support reform. CDF worked hard on child support improvements included in the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). We are proud of many of these changes, and hopeful that they will help move child support enforcement closer to what it must bea regular, reliable source of income for children that helps keep food on the table and a roof over their heads. Today, there is a sobering gap between where most child support systems are and that goal.
We also recognize that the child support enforcement system faces an enormous challenge in the coming years. As welfare parents face time limits, and move into low-wage jobs that arewithout income supplements like child supportoften not enough to support a family, there will be increased pressure on the child support system to perform for welfare families. At the same time, non-welfare families struggling to stay off welfare and to avoid the five-year time limit will turn with even greater urgency to child support as a way of staying off the welfare rolls. Given these new pressures, it is critical that funding for child support enforcement reward good performance and prod poor performers to improve.
Page 57 PREV PAGE TOP OF DOCThe Current System
The current incentive system, based only on a state's cost effectiveness ratio, needs to be replaced. It does not do its part to move states towards better performance. As the Congressional Research Service has noted, ''under the current financing arrangement, states can run inefficient programs and still make a profit from the CSE program.''(see footnote 18) There are significant problems with the current system:
The current system rewards poor performance. Under the current system, incentive payments range from 6 to 10 percent, based on a state's cost-effectiveness. Every state, no matter how dismal its record, gets a minimum 6 percent incentive payment. This system helps perpetuate mediocrity that ill-serves children, since even the poorest performers qualify for incentives.
The current system fails to measure and reward outcomes for children. Today, incentives are based solely on cost-effectiveness: what is collected in child support compared to what is spent to collect it. In a time of scarce resources, it is important that states invest dollars wisely, in efforts that pay off for children.
However, a system that rewards only cost-effectiveness can skew efforts in favor of high-dollar, easy-to-work cases, and away from the harder ones (for example, labor-intensive cases where paternity is contested, or a non-custodial parent is self-employed and hiding income). It does nothing to measure whether states are achieving the outcomes that truly make a difference for children. We should reward states that establish paternity and support obligations where necessary, and that quickly enforce orders so child support is income a custodial parent and child can rely upon. If the system does not make progress towards these outcomes, then no matter how cost-effective it is, it is not succeeding for children.
Page 58 PREV PAGE TOP OF DOC Moreover, because funding does not reflect performance, state legislators have no easy way of overseeing agency performance as they make their own funding decisions. With a more performance-based incentive system, if states lost money based on poor performance, problems would be flagged for concerned legislators. Our work with legislators in the past has reinforced for us how difficult it is for legislators to get a sense of their own state performance. Often they are told about dramatic increases in collections, for example, as a measure of program success. These increases indeed occur, but may reflect the fact that the child support caseload has spiked up (and collections have gone up because there are more cases to collect from) rather than the fact that there has been an improvement in collections for individual families. With more performance-based measures, legislators (as well as advocates and policymakers) may gain more insight into troubled systems, and have more information to push for state-level improvements.
The current system does not reward activities unless they generate cash income. Because the current system looks only at cash child support collections, it encourages states to skimp on activities such as medical support enforcement that are critically important to a child but that do not generate cash that is counted in the cost-effectiveness incentive equation. While these activities do not bring in immediate cash collections, they are essential to children's well-being and to reinforcing parent responsibility. Since 1985, for example, states have been required to pursue health insurance in addition to cash child support (if health insurance for the child is available through the noncustodial parent's employer). These requirements have been steadily strengthened. Yet in 1992, GAO found that ''States are not ensuring that noncustodial parents provide health insurance for their children even when such insurance is available through the noncustodial parents' employers.''(see footnote 19) Certainly, there are many reasons for failure to vigorously pursue medical support. One of them is that it goes not generate cash, and success (or failure) does not have consequences when state cost-effectiveness incentives are calculated.
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The same concern holds true for paternity cases involving young parents, where the father has neither income nor immediate prospects of employment. In the past, these paternity cases often fell to the bottom of the pile, as states focused paternity efforts on cases likely to generate immediate child support. Establishing paternity in cases involving young fathers did not win cost-effectiveness ''brownie points'' for states. Yet research tells us that establishing paternity is in such cases is important because young fathers' income increases over time. Many are ultimately good prospects for paying at least some support. While changes in the paternity establishment performance standard have increased attention to establishing paternity for this young population, the incentives have not changed accordingly. Incentives should help encourage paternity establishment, including in cases that do not produce immediate collections.
Incentives are not required to be reinvested in children. Incentives are funded out of the federal share of child support collected on behalf of children on welfare. This money is raised the hard way: instead of being paid to our poorest children, child support collected on their behalf is split between state and federal governments to fund incentives and to offset welfare costs. When dollars are diverted from such a poor population, there should an especially high standard for looking at where that money is reinvested.
Instead of requiring that state incentive payments be used to expand or improve child support services, there is currently no restriction on how incentive payments can be used. Not all states reinvest incentive payments in the program. Rather, they deposit payments in general revenue funds, where they can be used to fund state costs(see footnote 20)prisons, or highways, for examplethat do not benefit low income children. Other states invest incentive payments in child support, but use the incentive payments to replace state expenditures, rather than to expand services or to demonstrate new approaches to effective enforcement. Id.
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Strengths of the New Proposal
The PRWORA required the Secretary of Health and Human Services, in consultation with directors of state child support programs, to recommend to Congress a new incentive scheme based on program performance. In broad outline, we support the recommendations of the Incentive Funding Work Group made in response to this Congressional directive. Their recommendations take a big step towards a performance-based system that rewards outcomes that make a difference. They help ensure that federal expenditures will hold states accountable and put child support dollars in the pockets of single-parent families.
Our testimony addresses six key components of the proposal:
establishing performance-based measures and standards
lifting the cap on incentives for non-welfare families
phasing in incentives
requiring reinvestment of incentives in child support
keeping base funding at a 66 percent match rate
ongoing review of the incentive system.
Performance Measures and Standards. The new system measures performance in five areas: establishment of paternities, establishment of child support orders, collections on current child support due, collections on back support owed (''arrears''), and cost effectiveness. Each of these measures makes sense, and refocuses incentives on outcomes that will produce income for children.
The proposal would give the greatest weight to three measures: paternity establishment, establishment of support orders, and collections on current support due. We agree. These three measures are the ones that translate most directly into support that helps keep families afloat. The other two, while important, pale in comparison. Giving greater weight to the most important measures encourages states to focus efforts where they matter most, rather than simply picking and choosing measures to focus on based on which are most within reacha likelier outcome if each measure has equal weight.
Page 61 PREV PAGE TOP OF DOC Including a paternity standard is essential because nearly one-third of all children are currently born out of wedlock. Until paternity is legally established, these children cannot enforce their right to child support. Historically, many states have done a mediocre job of paternity establishment. In 1983, for example, the median state child support enforcement agency established 21.5 paternities for every 100 out-of-wedlock births in the state. Increased federal expectations make a difference in paternity performance. Federal child support reforms in 1984 and 1988 increased requirements that states pursue paternity and adopt practices that work. States responded with significant improvements. By 1992, the median state agency established 43.6 paternities for every 100 out-of-wedlock birthsmore than double the 1983 rate.(see footnote 21) Incentives that reinforce the federal penalties should help states make further progress.
Including a standard that measures establishment of support orders is important as well. Without an order, no child support can be collected. Cumulative state performance in this area is disheartening. In FY 1994, comparing the average national number of cases with orders established to the total IVD caseload, HHS data show that only slightly more than half of the cases had an order.
There were wide variations in individual state performance: South Dakota, the national leader, had orders in 88.3 percent of its cases, while Arizona had orders in only 24.9 percent. California, the state with the largest IVD caseload, had orders in only 42.8 percent of its caseload, while other high-caseload states did significantly better: Ohio had orders in 62.5 percent, Pennsylvania had orders in 60.7 percent, and New York had orders in 55.8 percent. These significant differences underscore the importance of encouraging poor performers to catch up with national leaders. Incentives in this area could make a big difference.
Measuring collections on current support is at the heart of child support enforcement. Regular, reliable child support means that a custodial parent has income that can be counted on to pay ongoing expenses. This is critically important because losing a parent from the home is often an economic disaster. One out of every two of the 18.7 million children living in single-parent families in 1994 were poor, compared with only slightly more than one out of every ten children in two-parent families. Reliable child support is a key factor in a welfare parent's decision to seek employment, and a key predictor of her ability to succeed in employment once she leaves the welfare rolls.
Page 62 PREV PAGE TOP OF DOC Including measures for collections on arrears and cost-effectiveness also make sense, even though they merit lesser weight than the top three. States should be encouraged to vigorously pursue arrears. Particularly in cases where the non-custodial parent is self-employed, many of the most effective enforcement techniques are only successful in collecting arrears (for example, liens on bank accounts, and suspension of professional licenses are powerful tools for collecting back support from self-employed parents, but cannot guarantee current support). Rewarding states for success in collecting back support encourages them not to write off such cases. Keeping the cost-effectiveness measure helps keep states fiscally accountable.
Lifting the Cap on Non-welfare Families. Under current law, incentives are calculated on a percentage of total collections for welfare cases. States can also get arrearages based on a percentage of total collections for non-welfare cases. However, states can only count non-welfare collections up to 115 percent of welfare collections. The Work Group proposes to lift this cap on non-welfare collections. It also proposes to encourage continued emphasis on welfare cases by giving double weight to collections on behalf of welfare families. This balance makes sense.
Lifting the cap on non-welfare cases gives states a continuing interest in working on non-welfare cases. Otherwise, once states reach the 115 percent cap, they have no financial interest in working non-welfare cases: they cannot count non-welfare collections above 115 percent in the base used to calculate incentives. Since the law gives equal access to child support services for non-welfare families, incentives should mirror the law's intent.
The history of the child support program supports importance of incentives in giving non-welfare families access to services. Before 1984, there were no incentives for serving non-welfare families. Some states responded by giving short shrift to non-welfare families, or not serving them at all. In North Carolina, for example, the child support agency's manual for workers instructed them to tell applicants that they did not serve non-welfare clients.
Page 63 PREV PAGE TOP OF DOC The federal Child Support Enforcement Amendments of 1984 clarified that non-welfare families had an equal right to child support services and improved state incentives for serving these families. The non-welfare caseload increased from almost 1.7 million in 1983 to 8.2 million in 1994. The caseload is now roughly evenly split between welfare and non-welfare cases. Though other factors also help explain the non-AFDC caseload boom,(see footnote 22) the 1984 federal requirements and the provision of incentive payments to states for serving non-welfare families clearly triggered a profound difference in state behavior.
At the same time that it is important to lift the cap to ensure access for non-welfare families, we agree with the Work Group proposal to give a greater weight to serving welfare cases in calculating the base for incentives. Welfare cases will need child support to succeed when parents leave the rolls for low-wage jobs. They are often harder to work than non-welfare cases, where both custodial parents and their non-custodial counterparts have more income and collecting child support may be easier. Giving extra weight to welfare collections helps keep state efforts focused on the most vulnerable part of the child support caseload.
Maintaining An Adequate Funding Base. Under current law, the federal government pays 66 percent of the administrative cost of child support enforcement. The range of incentive reform proposals has included a proposal to lower this basic administrative match, and put more money in incentive payments. The Work Group indicates its ''strong belief'' that funding should remain at 66 percent so states have the resources and staff to operate effectively. We agree.
Incentives are important to spur better performance. Bad actors should not simply continue to collect federal dollars that do not translate into effective help for children.
At the same time, one of the keys to improving poor performance is investing in the program. The bottom line in child support is that you get what you pay for. When CDF ranked state child support performance using OCSE data, we found a significant relationship between how much states invest per case and how many cases have at least some child support collected. For example, in FY 1992, of the four states with the highest expenditures per case, three led the country in percentage of cases with any collection. Conversely, the four states with the lowest expenditures per case had among the worst collections records. These states ranked 48th, 34th, 46th, and 43rd in the country in percentage of cases with any collection.(see footnote 23) States with lower caseloads per worker tended to do significantly better than cases with high caseloads.
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If the basic match for administrative costs is cut from 66 percent, states with poor records will have even fewer resources to improve. Caseloads will continue to be unmanageable. Even the economies of scale that better automation provide will not make up for resource-poor programs. For this reason, we believe that the basic 66 percent match rate should be retained.
Phasing in Incentives. The Work Group proposes that the new incentive system be phased in over a one year period beginning in fiscal year 2000. This phase-in is desirable. Under the new system, some states will be winners. Poor performers will be losers. The phase-in gives states advance notice of how they must improve their system to avoid losing incentives. It gives them time to benefit from the many program improvements required under the PRWORA before they face the challenge of a performance-based incentive system. This strikes us as a fair balance between the need to move to a performance-based system and the need to give poor performers a chance to improve.
Reinvesting Incentives. The Work Group proposes that incentive payments received by a state must be reinvested in child support. For the reasons discussed above, we agree.
Ongoing Review of the Incentive System. The Work Group proposes to give the Secretary limited power to review the effects of the new incentive system and to make changes every three to five years based on the program's actual results and effects. This kind of ongoing review is desirable. Because changes in welfare and child support laws are likely to generate so many changes in caseloads and performance in the next few years, it is extremely difficult to make accurate forecasts. This is particularly true because states have so much discretion in shaping their welfare programs. We do not yet have good information about what their policies will look like or what caseloads will be by the time new incentives are in place. Setting broad policy outlines, and allowing for interim adjustments, is sensible.
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Concerns with the New Proposal
Overall, we believe that the Work Group's proposal is a sound one. We have some specific recommendations, however, which could strengthen outcomes for children:
There should be a bonus for overall good performance
There should be a reward for effective medical support enforcement
The arrearage measure should be changed to reward states that put families first
The paternity measure should be strengthened to reward establishment in all cases, not just new ones. It should recognize that paternity may not be established in ''good cause'' cases.
Rewarding overall performance. The Work Group's proposal gives states incentives if they meet any of the performance measures. In addition to rewarding states for meeting individual measures, the incentive scheme should encourage states to improve overall performance. States that perform well across the board should receive special recognition and encouragement. These are the states that are genuinely making child support work for children, instead of meeting individual indicators that do not add up to good program performance.
Recommendation: The incentive proposal should include a bonus pool to reward states that qualify for incentives under all of the measures. Alternatively, it could give a bonus to states that qualify for incentives under the measures that receive the greatest weight.
Medical support. The proposal does not measure or reward state pursuit of medical support. We strongly urge that incentives include a measure of state effectiveness in obtaining and enforcing medical support awards. Since 1984, federal law has required that states take steps to obtain an order for medical support as well as for child support where insurance coverage is available through the noncustodial parent. These requirements have been strengthened and clarified over the years.
Page 66 PREV PAGE TOP OF DOC State medical support enforcement has been spotty at best. In FY 1994, according to OCSE data, 58 percent of support orders established included health insurance, up from 46 percent in 1991. However, only 32 percent of orders enforced or modified in FY 1994 included health insurance, down from 35 percent in 1991.
Moreover, obtaining an order does not mean that it is enforcedthat a child actually is enrolled in a health plan so the child can see a doctor or get a prescription filled. According to a GAO report, in 27 reviews of state CSE medical support programs between 1987 and 1991 conducted by OCSE and HCFA, at least 13 state programs were not consistently petitioning to include health insurance in support orders, and 20 were not enforcing orders to provide health insurance.
Aggressive enforcement of medical support is important. Health coverage for children is eroding. In 1994, the percentage of children with private health insurance was 65.6 percentor 46.3 million children. This was the lowest level in the last eight years. The percentage of uninsured children was also at its highest reported level since 198714.2 percent, or 10 million children.(see footnote 24)
At CDF, we are working hard for health reform that will provide coverage to uninsured children. When private coverage is not available, government should step in. But when the child support system can hold parents responsible for health support, it should do so. In 1992, GAO found that failure to aggressively pursue medical support cost the states and the federal government at least $122 million in medical expenditures. In addition, about 285,000 IVD children who did not receive Medicaid had custodial parents who received cash support from the noncustodial parent, but not the health insurance required under the agreement.(see footnote 25)
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Recommendation: An incentive measure should be added to reward states that do a good job of pursuing medical support.
Putting families first in the arrearages incentive. The Work Group gives states an incentive for collections of arrearages. It does not distinguish between arrearages that go to the state to offset past welfare expenditures, and arrearages that go to families. Failure to make this distinction creates an incentive that may reward states for collections that do not benefit families.
Under distribution changes made by the PRWORA, the basic principle in distributing arrearages on behalf of former welfare families is that the law ''puts families first.'' Former welfare families are paid back child support owed to them before the state keeps back child support owed to the state to offset the cost of welfare. The one exception to this policy is that child support collected through the federal income tax intercept on behalf of former welfare families is kept by the state instead of being paid to the family. This was a compromise from the House position, which would have put families first in all cases, regardless of which enforcement technique was used to collect arrears. The danger of this compromise is that states no longer have an incentive to use any arrears enforcement technique other than the federal income tax intercept, since arrears collected through any other mechanism go to families instead of to the state.
The Work Group arrears proposal perpetuates this perverse incentive. Under its proposal, states that rely heavily on the tax intercept may qualify for an incentive even though former welfare families do not see any benefit from arrears collections.
Recommendation: The best solution to this dilemma is to change the distribution scheme, restoring it to the House version in which all arrears go to families first, regardless of the method of collection. It was good policy the first time around. If that is not possible, however, then the arrearage incentive should be changed to distinguish between collections that go to states and collections that go to families. Incentives should be calculated based on collections that go to families. There is no reason to give states a double rewardallowing them to keep arrears instead of passing them on to families, and then paying them an incentive for doing so.
Page 68 PREV PAGE TOP OF DOC Strengthening the paternity incentive. The Work Group proposes that states be allowed to choose one of two measures to qualify for a paternity incentive. One measure takes a one-year ''snapshot'' of state success in establishing paternity on behalf of IVD children born out of wedlock during the preceding fiscal year. The second measure takes a ''snapshot'' of state success in establishing paternity on behalf of all children born out of wedlock in the state during the preceding fiscal yearboth IVD and non-IVD children. Both standards measure state performance on very new caseschildren born during the preceding fiscal year. Neither measures state success in establishing paternity for older, harder-to-work, cases. This means that states do not have an incentive to go back and work on more complex paternity cases.
Given state performance in these older cases, an incentive may be important to spur improvement. The claims of a named plaintiff in a recent Supreme Court case, Freestone v. Cowan, underscore the delays some families face in getting states to respond. In Freestone, the United States Court of Appeals for the Ninth Circuit found that in the case of one named plaintiff, the ''child's father has acknowledged paternity and his name appears on her son's birth certificate, [but the plaintiff] needs a formal declaration of paternity in order to establish a valid child support order ... [She] first applied for DCSE services in 1980. Although the father's whereabouts are known, the agency has failed to establish paternity over a thirteen year period. Rather, it has managed to lose [her] file on multiple occasions, forcing her to reapply for services each time. At the time this action was filed, [her] son was a few months away from reaching majority.''
Recommendation: The failure to include a measure of state performance on older paternity cases can be fixed in two wayseither the addition of an incentive based on timeliness of service, or the addition to the paternity standard of a measure that takes into account paternity establishment in all IVD cases that involve children born out of wedlock. States would have to meet such an overall paternity standard in addition to either of the standards for newborns in order to qualify for incentive. One of these approaches should be incorporated in final incentive guidelines.
Page 69 PREV PAGE TOP OF DOC The paternity measure is also flawed because it does not allow states to exclude ''good cause'' cases from the universe of cases in which paternity must be established in order to qualify for an incentive. Under the PRWORA, states must establish ''good cause'' standards for when parents are excused from cooperating with paternity establishment because cooperation would put a parent or child at risk.
The paternity penalty formula recognizes that when good cause has been found and parents are excused, states should not be penalized if they do not establish paternity in that particular case. This recognition is important for two reasons: it does not penalize states for failure in cases when paternity would be very difficult to establish for reasons beyond the state's control, and it encourages states to be fair in their good cause determinations because no penalty consequences flow from the decision to find a parent has good cause (since good cause cases are taken out of the penalty equation). The incentive formula, however, includes ''good cause'' cases in the caseload against which state paternity performance is measured. This means that states may lose incentives, even if they generally do a good job in establishing paternity, because failure to establish paternity in ''good cause'' cases is held against them. This hurts states, and encourages them to deny ''good cause'' in cases where it should be found.
Recommendation: The paternity incentive formula should be changed to exclude ''good cause'' cases from the total number of cases against which paternity performance is measured.
The Children's Defense Fund appreciates the opportunity to present testimony on a viable incentive scheme. We are grateful for your continuing interest in child support, an area which is as important and compelling as it is detailed and thorny. We look forward to working with you and your staff on ensuring that child support performs for children.
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Chairman SHAW. Thank you. It is nice to be on the same side of an issue with you. [Laughter.]
STATEMENT OF ELISABETH HIRSCHHORN DONAHUE, COUNSEL, NATIONAL WOMEN'S LAW CENTER
Ms. DONAHUE. Mr. Chairman, Members of the Subcommittee, thank you for the invitation to speak before you today on behalf of the National Women's Law Center. You have heard a lot of testimony today about what the incentive report filed by HHS is about, and I would like to focus my remarks on what I think it should accomplish.
In general, the format of the performance-based incentive system, as proposed by HHS, is pretty good. It recognizes five key areas that I think are very important and really go to the heart of the child support system and what it is about. And I think the way this incentive system is structured makes sense in that States that are at the top of their performance level get a higher performance measure incentive payment and States that are at the bottom but are improving get something to keep them moving along.
In addition, I agree with the removal of the cap on the non-IVA cases. That, coupled with the weighting of the IVA and former IVA cases, should put the right incentives in place so that States really are working all cases equally.
What I want to talk about today, though, is how we can make this incentive system proposal a little bit better. One of the major problems I have with what has been proposed is that States at the lowest level, who are really not doing very well, could get a pretty big chunk of incentive money under HHS' proposed system.
While States do have to improve by 5 percent in three of the categories in order to get incentive money, if they improve by 5 percent they get one-half of what they would get if they were doing the best job possible. So that a State that had a 20-percent order establishment rate, for example, and improved to 25 percent would get one-half of the full incentive payment that it would get if it were issuing orders in 80 percent of the cases. In addition, for collection of current support and collection of arrears, States only have to make those incremental improvements until they get to a 40-percent collection rate, and then they get the additional moneys without having to make such big gains in their system. A 40-percent collection rateif you think about what the child support system is really about, collecting supportis not all that terrific for families.
Page 71 PREV PAGE TOP OF DOC My solution would be to give States money for incremental improvements as in the HHS proposed system, but I would give less money. What the center has proposed is that if States improve by 5 percent in the three areas mentioned, plus paternity establishment, they should get one-quarter of their maximum incentive payment, and if they improve by 10 percent, they should get half. In addition, for collection of current support and collection of arrears, States should have to make those kinds of improvements until they hit 50 percent. Again, collecting support is what this program is all about, and we really have to make sure States are emphasizing that.
I would also propose that at some levelas in the cost-effectiveness ratiothere should not be any incentive payment given if a States performance is so low that it really is not serving families. If a State is collecting support in only 15 percent of its cases, for example, or 20 percent of its cases, I do not think it should get an incentive payment until it hits a certain adequate level.
I know there is a lot of concern that some States at the lowest levels will not make the 5-percent increment improvements. To that I would answer that I think what we have to do is really decide what this incentive system is going to be about. States are getting 66 percent of their expenditures reimbursed which is a chunk of change. And the way I see it, the incentive system really should be a bonus. It really should be given to States that are doing well by families. It cannot be just a pot of money that States think they are going to get even if they do not make substantial improvements.
Just quickly, some of my other concerns about the plan are first, there is definitely a need for States, as I believe Mr. English pointed out, to have consistent uniform terms. If we are not measuring the States data reliably, then we are going to be giving incentive money when we are not sure States are performing the way they should. I would suggest a State that produces bad data should not receive an incentive payment based on that data.
Page 72 PREV PAGE TOP OF DOC Second, while the five areas chosen are very good, I want to emphasize that, while these five areas go to the heart of the program and are measurable, there are other requirements in the IVD plan that States still have to follow even though they are not performance measures. And those areas may be best enforced through the audit and penalty system. HHS should use the audit and penalty system to make sure States are adhering to all the other requirements in the IVD program for families. And that is it.
Thank you. I look forward to working with you.
Chairman SHAW. If you need another minute, go ahead.
Ms. DONAHUE. Well, one of the other things I think we need to be careful about is States shifting resources. That is, if States decide there is one area in which they do a stellar job in and another area in which they do not do such a terrific job, you want to ensure they do not shift resources from one area in order to get an incentive payment in another.
One solution to this problem may be a bonus. The otherI guess more mean solutionis to make sure there is a penalty provision for all of the different incentive areas. We need penalty provisions as well so that States face a penalty as well as losing incentive money if they do not do the right thing, and so they will not have any incentive to shift resources.
[The prepared statement follows:]
Statement of Elisabeth Hirschhorn Donahue, Counsel, National Women's Law Center
Mr. Chairman and members of the Subcommittee, I appreciate the invitation to appear before you today on behalf of the National Women's Law Center to discuss the Child Support Enforcement Incentive Funding report submitted to you by the U.S. Department of Health and Human Services (HHS). The Center agrees with the recommendations in the HHS report, with some suggestions for improvement, and urges Congress to adopt HHS's proposed incentive system with the modifications suggested in this testimony.
Page 73 PREV PAGE TOP OF DOC The National Women's Law Center is a non-profit organization that has been working since 1972 to advance and protect women's legal rights. The Center focuses on major policy areas of importance to women and their families, including child support, employment, education, reproductive rights and health, child and adult dependent care, public assistance, tax reform and Social Securitywith special attention given to the concerns of low-income women.
The Center wishes to commend the Subcommittee for its strong leadership on child support issues. We are heartened by many of the improvements made in the federal-state Child Support Enforcement program in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), enacted last summer. These provisions will, for the most part, strengthen the program contained in Title IVD of the Social Security Act, often referred to as the IVD program.
As Congress recognized in enacting the PRWORA, however, improvements still need to be made in the way federal funding is provided to the states for their child support enforcement programs, specifically in the way in which federal ''incentive payments'' are made. In Section 341 of the PRWORA Congress therefore required that HHS, in consultation with state IVD directors, develop a new performance-based incentive system that is cost- neutral, and report to Congress on the new system by March 1, 1997. In response to this mandate, an Incentive Funding Work Group (Work Group) comprised of 15 state or local IVD directors and 11 HHS officials was formed in October, 1996, and a report on a proposed new incentive system was filed with the Secretary of HHS in late January, 1997. Sent to the Congress in March, 1997, this report is the focus of today's hearing.
There is broad consensus among federal policy makers, advocates and state child support officials that the current incentive system is broken. Under the current system, in addition to federal reimbursement of part of administrative expenditures,(see footnote 26) states receive a minimum ''incentive payment'' of six percent of the amount of child support they collect, and can receive an additional incentive payment of between 6.5 and 10 percent of the support they collect if their collection programs are cost-effectivethat is, if the money invested in the program sufficiently exceeds the amount of support collected. While there is no limit on the dollar amount that states can earn in incentive payments based on the percentage of child support collections for families receiving assistance under Part IVA of the Social Security Act, there is a cap on the dollar amount states can earn in incentive payments based on the percentage of non-IVA collections. The money for incentive payments to the states is provided by reducing the federal government's share of child support collected from noncustodial parents of children who are receiving or have received IVA assistance.
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Under this incentive system, the initial six percent incentive payment bears no relation to state performancestates that perform badly, making no improvements in their system still receive this money. The additional percentage payment rewards only state performance in collecting child support, ignoring performance in establishing paternity and establishing awards. The cap on non-IVA collections creates a situation in which states are not earning incentive payments on a portion of their non-IVA caseloadleaving them with little incentive to work these very important cases. Adding to state disincentives is the fact that some child support agencies never even see the incentive money they earn; under current law, states are free to use their incentive dollars in any way they see fitreinvesting the money in the child support program, putting it into the IVA welfare program or simply putting the money in the general state treasury. While some states' incentive money is used to better their child support program, that of other states may be used to pave state highways.
In response to these widely accepted problems, the Work Group recommended to HHS a revised incentive system, which HHS endorsed fully in its report to Congress.(see footnote 27) The HHS plan emphasizes performance in areas critical to the success of the child support program and rewards states that make improvements in these areas.
I. Summary of HHS's Child Support Enforcement Incentive Funding Formula Plan
Under the new system proposed by the Work Group in the HHS Report to Congress (hereinafter ''HHS plan''), states would be provided incentive payments based on established state performance in five key areas. States would receive a maximum incentive payment for each area in which they achieve an ''upper'' threshold and would receive a portion of that maximum incentive payment for lower performance levelswith performance defined specifically by HHS in each key area. The maximum incentive payment would range from .75 to one percent of the collection base. The collection base would be roughly the total amount of child support collections, with more weight given to IVA and former IVA collections than to non-IVA collections.
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Under the HHS plan, states would be provided incentive payments based on established state performance in five key areas: establishment of paternities, establishment of child support orders, collections on current child support due, collections on past-due child support (arrears) and cost effectiveness (the money collected in child support measured against the money spent on the program). In each key area, HHS proposes the following measures of performance:
The paternity establishment rate would be either (at state option) 1) the ratio of the total number of children in the IVD caseload (either in the fiscal year or at the end of the fiscal year) who were born out of wedlock and have paternity established to the total number of children in the IVD caseload (as of the end of the preceding fiscal year) who were born out of wedlock; or 2) the total number of children born out of wedlock who have paternity established during the fiscal year to the total number of children born out of wedlock during the preceding fiscal year;
The support order establishment rate would be the ratio of the number of IVD cases with support orders to the total number of IVD cases;
The collection rate for current support would be the ratio of the total dollars collected for current support for IVD cases to the total dollars owed for current support for IVD cases;
The collection rate for arrears would be the ratio of the total number of IVD cases in which arrears are collected to the total number of IVD cases in which arrears are due; and
The equation for cost effectiveness divides total child support dollars collected by total IVD dollars expended.
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Upper and Lower Performance Rates
Under the HHS plan, each key area has a upper and lower performance level and set benchmarks in between which establish the level of incentive payments.
In the first performance area, paternity establishment, if a state has a paternity establishment rate under 50 percent, it must improve its rate over that of the previous year by 10 percent in order to earn 1/2 its maximum incentive payment for that area. If it has a rate of 50 percent it earns 60 percent of its maximum incentive payment. The performance level required and the corresponding percentage of the maximum incentive payment increase gradually until the top performance rate of 80 percent yields the total maximum incentive payment.
In the second performance area, establishment of child support orders, if a state has an order establishment rate under 50 percent, it must improve its rate by five percent in order to earn 1/2 its maximum incentive payment for that area. If it has a rate of 50 percent it earns 60 percent of its maximum incentive payment. The performance level required and the corresponding percentage of the maximum incentive payment increase gradually until the top performance rate of 80 percent yields the total maximum incentive payment.
In the third performance area, collections of current support, if a state has an order establishment rate under 40 percent, it must improve its rate by five percent or reach a rate of 40 percent in order to earn 1/2 its maximum incentive payment for that area. The performance level required and the corresponding percentage of the maximum incentive payment increase gradually until the top performance rate of 80 percent yields the total maximum incentive payment.
In the fourth performance area, collections of past-due support, if a state has an order establishment rate under 40 percent, it must improve its rate by five percent or reach a rate of 40 percent in order to earn 1/2 its maximum incentive payment for that area. The performance level required and the corresponding percentage of the maximum incentive payment increase gradually until the top performance rate of 80 percent yields the total maximum incentive payment.
Page 77 PREV PAGE TOP OF DOC Finally, in the fifth performance area, cost effectiveness, if a state has a cost-effectiveness ratio of below 1.99, it does not receive any incentive payment. If it has a ratio of 2.002.49 it receives 40 percent of its maximum incentive payment, increasing gradually until the top ratio of 5.00 yields the total maximum incentive payment.
Calculating the Incentive Payment
To calculate the incentive payment for each area, the HHS plan assigns a value to each performance measure. For the first three measures (paternity establishment, order establishment and collections of current support), a scoring at the upper threshold level earns the maximum incentive payment of one percent of the collection base (as defined below), while lower scores earn a percentage of the one percent.(see footnote 28) For the last two measures (collections of arrears and cost-effectiveness), a scoring at the upper threshold level earns a maximum incentive payment of .75 percent of the collection base, with lower scores earning a percentage of the .75 percent.(see footnote 29) Added together, the three measures of one percent and the two measures of .75 percent equal 4.5 percent of the collection base.
The collection base roughly equals the total child support collected on behalf of IVA and non-IVA families in the IVD system. While there would no longer be a cap on incentives based on non-IVA child support collections, IVA cases would be given more weight in the calculation of the incentive payment by doubling their worth in the formula. Specifically, the collection base equals two times the IVA and former IVA collections plus the non-IVA collections (2(IVA collections + former IVA collections) + non-IVA collections = collection base).
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Reinvestment in the IVD Program
Under the HHS plan, states would be required to reinvest their incentive payments in the IVD program.
Implementation of the New Incentive System
Under the HHS plan, the new incentive system would be phased in over one year beginning in fiscal year 2000. In fiscal year 2000, a state would receive an incentive payment based on half of what it would have earned under the old incentive system and half of what it would earn under the new incentive system. In fiscal year 2001, the new incentive system would be fully phased in.
II. Analysis of HHS's Child Support Enforcement Incentive Formula Funding Plan
In selecting the five performance areasestablishment of paternities, establishment of child support orders, collections of current child support due, collections of past-due child support and cost effectiveness HHS has correctly identified the major areas that determine the success of the child support program. First, as Congress recognized in the 1993 and the 1996 child support reforms, paternity establishment is important for children born outside of marriage; the large number of children born out of wedlock who do not have paternity established has left many children without the legal ability to secure support from their fathers. Second, IVD agencies must improve their records in obtaining child support ordersthe critical first step to collecting child support for families; in 1994, just over half the IVD caseload had a child support order. Third, collecting current child supportthat is, ensuring that families receive child support in the month it is dueis crucial if families are to count on regular, reliable support. Fourth, collecting arrearsobtaining for a family back-due child supportis important for many families, particularly those trying to leave and stay off welfare. Finally, cost-efficiency helps assure that states yield the greatest results from their investment in the systemparticularly as state governments trim budgets and demand more efficiency in government programs. Only when states significantly improve in these five key areas will child support programs be effective in serving custodial parents and their children.(see footnote 30)
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It is important that HHS has limited the number of key performance areas. If there were too many categories, the incentive money would be spread so thin that states could simply reallocate resources and give up on problematic areas since the money lost from any particular area would not be significant. In fact, even with just five performance areas, states have an incentive to shift resources and obtain incentive payments in areas in which they are strongest. For example, a state that has a very low collection rate for back-due support could decide it is not worth the increased resources to improve in that area since doing so would take resources away from areas in which it could more readily secure an incentive payment. Audit and penalty provisions should be used to counteract any incentive to shift resources; if states not only lose incentive payments but face a penalty as well for poor performance in a certain area, states will be less likely to shift resources. Current law (enacted in 1993 and revised in the PRWORA) contains a provision for auditing and penalizing states that do not meet required performance measures in paternity establishment, and that provision has had some effect in moving states toward higher paternity establishment rates. The technical amendments to the PRWORA, now pending in Congress, would clarify that the Secretary has authority to establish other performance-based standards and to audit and penalize states that do not meet these standards. Congress should adopt these amendments, and HHS should be encouraged to establish other performance standards that help achieve the goals of its proposed incentive payment system.(see footnote 31)
While the performance areas recommended by HHS emphasize the right goals for state IVD agencies, three reforms are needed so that the incentive system better encourages improvements in state performance.
First, the paternity establishment performance area does not adequately take into account that there will be certain children born out of wedlock for whom paternity establishment is inappropriatein particular, those whose mothers are in the IVA system and have requested and been granted ''good cause'' not to cooperate with the state in establishing paternity.(see footnote 32) In the HHS plan, these children are included in the denominator of the paternity establishment ratio. This may lead states to be extraordinarily reluctant to grant good cause, even in worthy cases, since they will, in effect, be held responsible for establishing paternity for these children and will therefore want the mother's cooperation. In contrast, in establishing a penalty for state failure to meet the paternity establishment provision of current law, Congress excluded from the denominator any cases in which good cause has been granted. The incentive structure should do the same.
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Second, in the performance area on collection of current support, under HHS's plan successful enforcement of current support is measured by comparing the amount of current child support dollars collected to the amount of current child support dollars due. This is a better system than comparing the number of cases in which current support is collected to the number of cases in which current support is due since the latter option would ''over count'' cases in which only very low partial payments are made. However, a dollars-based system gives states an incentive to emphasize collections in high-award cases and deemphasize those in low-award cases, although the latter cases often involve custodial parents who are the most dependent on monthly child support payments to meet their children's needs.(see footnote 33) A better performance measure would be case-based, but only count cases in the numerator in which a certain percentage (say, 50 percent) of the current award due is collected in the month due.
Third, as the HHS plan recognizes, there is still work to be done on performance measure standards to assure that all states are using the same measures consistently over time, and that they are collecting the same data to meet the measures. For example, states have routinely defined ''case'' differently: in some states each child in the system is a ''case''; in some states, each family is a ''case''; and in some states each time the child's status changes (AFDC, post-AFDC, arrears-only) counts as a ''case,'' making it virtually impossible to compare the performance of one state to another or to a national standard. Moreover, states do not always use the same definitions in their own systems from year to year, making it hard to measure their own performance over time. The PRWORA recognizes the importance of the states' use of uniform, reliable data in determining whether states have met the statute's audit requirements by requiring HHS to define, and the states to use, uniform terms, and by penalizing states that produce incomplete, unreliable and inconsistent data. A similar solution should be a part of the incentive system. Otherwise, at best, states could produce data for incentive payments that is unreliable; at worst, states could manipulate their data to achieve the desired results. Congress should mandate, therefore, that HHS define, and states use, uniform terms, and forbid states from securing incentive payments based on incomplete, unreliable or inconsistent data.
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Upper and Lower Performance Rates
The HHS plan appropriately recognizes that states should receive higher payments for higher performance levels, but some payment even for less than adequate performance levels if they have sufficiently improved their performance over that of the prior year. First, it is important that at the lower levels states receive something for sufficient improvement, even if they have not achieved HHS's lower threshold. Otherwise states could decide that it is too hard and not monetarily worth allocating the resources to achieve the lower threshold level. For example, a state that only has established child support orders for 25 percent of its caseload could decide that it is not worth the effort and resources to secure orders for 50 percent of its caseload if that is what is necessary to secure any incentive payment. Second, it is important that states in the middle (between lower and upper thresholds) are rewarded for improvements, but are not required to improve as dramatically as states that are below the lower threshold in order to receive incentive payments. Especially as states reach the higher levels of performance, it becomes harder to make dramatic improvements; the easier-to-work cases have been taken care of and the harder-to-work casesparticularly those in which there are factors outside the agency's controlare left. Third, it is appropriate that as long as states continue to meet the upper threshold level they receive the maximum incentive payment.
Although the concept behind the HHS plan is sound, there are problems with the performance rate structure at the lower levels that need to be reformed.
First, the HHS plan unwisely permits states with performance levels below the lower threshold to secure a significant incentive payment (1/2 the maximum payment) even when they have not made serious improvements. While in the area of paternity establishment a state has to improve by 10 percent to receive an incentive payment, in three other areas (child support order establishment, current child support collections and arrears collections), a state only has to improve by five percent. Second, compounding this problem is that in two areas (current child support and arrears collections), there really is no lower performance threshold since states could earn the same amount (1/2 the maximum incentive payment) by having a 40 percent rate without making improvements as they would by having a lower rate and making improvements of five percent.
Page 82 PREV PAGE TOP OF DOC One solution would be to increase the required rate of improvementthat is, in the areas of child support order establishment, current child support collections, and arrears collections, states would have to improve their performance by 10 percent in order to secure an incentive payment. However, rewarding small improvements is valuable in pushing a state along; if the improvements necessary are too large and states are struggling, they are not likely to make a full effort to improve but rather to simply write off that area for an incentive payment. The better solution, therefore, would be to use an improvement rate of five percent for all four areas (including paternity), but pay less incentive money1/4 of the maximum incentive paymentfor achieving that level of improvement. A state would thus have to improve by 10 percent in all four areas in order to receive 1/2 of the maximum incentive payment. In addition, for current child support and arrears collections, 40 percent is too low a lower threshold to be considered adequate. Rather, these two areas should be treated like the first two areas; states should have to make improvements of at least five percent until they reach a 50 percent performance rate in order to earn an incentive payment. Finally, while rewarding states for improvements at the lower levels makes sense, there should be a bottom below which no incentive payment should be made. Just as in the cost-effectiveness area, states must realize that at some level (below 20 percent, perhaps) performance is so bad, even with five percent improvements, that incentive payments should be out of the question.
Calculating the Incentive Payment
The HHS plan appropriately proposes incentive payments to the states that reflect the value of the performance measures. First, the plan gives the most weight to the areas in which it is most important that states improvepaternity establishment, establishment of support orders and enforcement of current support. Second, the plan gives states an incentive to emphasize IVA and former IVA collections by double-weighting this category in determining the collection base. At the same time, it encourages states to continue to secure non-IVA collections by lifting the cap on this category. It is very important that states provide effective child support services to IVA, former IVA and non-IVA families alike; as low-income families face time limits and reduced welfare benefits, child support will become the crucial safety net for many of these families.
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Reinvestment in the IVD Program
The HHS plan appropriately ensures that incentive payments be returned to the child support program rather than put into the general state treasury. Child support programs can only improve if they have the resources to invest in efficient and reliable computer systems and staff. Knowing they will directly reap the benefits of performance improvements may encourage IVD agencies to improve their programs.
Implementation of the New Incentive System
The implementation schedule is designed to ease states into the new incentive program. It is meant to allow states to have as much possible notice to prepare and plan for the new system and work to boost their performance rates. In preparing for the new system, however, HHS must ensure that states do not close large numbers of cases improperly in an effort to clear their caseloads of hard-to-work casescases which could bring down their performance rates once the new system is implemented. In the next few years, as states prepare for the new system, HHS should be required to provide states with guidance about case closing, including detailing which cases are appropriate and inappropriate to close.
HHS has proposed an incentive system designed to encourage states to improve their child support programs. While the premise of the incentive system and its overall structure is basically sound, some of its components should be reworkedparticularly those that reward states for very little effort. The HHS plan is a very good place to start in trying to overhaul the incentive funding system, and we recommend that it be used as the basis for Congress' upcoming work on crafting a new incentive program. We look forward to working with both Congress and the Administration in this very worthwhile effort.
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The National Women's Law Center thanks Joan Entmacher of the Women's Legal Defense Fund and Vicki Turetsky of the Center for Law and Social Policy for their helpful comments in preparing this testimony.
Chairman SHAW. Ms. Delo, please.
STATEMENT OF MICHELE DELO, SENIOR POLICY ANALYST, INSTITUTE FOR THE AMERICAN FAMILY, WASHINGTON, DC; ON BEHALF OF STEPFAMILY ASSOCIATION OF AMERICA, AND CHILDREN'S RIGHTS COUNCIL
Ms. DELO. It is great to be here, and I am sorryMr. McDermott is my own personal representativeI am sorry he is not here today. We are old companions in the environmental wars in Puget Sound. I am speaking for the Stepfamily Association of America, CRC, the Children's Rights Council, and the noncustodial mothers of America, of which I was proud or sorry to number myself one for many years. The concerns we have are a little different so I want to start my testimony by stating where I agree with everyone else and that is in about 85 or 95 percent of what we have to say.
First of all, the incentive program is broken. It needs to be fixed, and we, all of the groups for which I am speaking, concur absolutely in using incentive money strictly for incentives. We voted and allocated this money to use for child support. Let us stop spending it on other things no matter how attractive they might be. We agree we need vastly strengthened and improved paternity programs, and in that area, I would advocate a program that was developed by CRC and implemented by the State of Vermont that talks about parentage with a whole ball of rights and responsibilities to the child's time, their emotional and social development, as well as the financial responsibility. So instead of just looking at paternity as a way to find somebody that we can hit up with a child support order, let us start looking at paternity as part of a whole package that gives the child two parents. That is really the best way to get kids taken care ofhave two actively involved parents in their lives.
Page 85 PREV PAGE TOP OF DOC But I do agree that until we know who the father is, how can we encourage him to be a part of the child's life, and let us get that done. Now there are some things Ms. Donahue expressed very eloquently. That once you define the terms, you are through with the war. And I think one term I want to get into pretty heavily is the collection base or where did this money come from. And this chart over here is a good example of it, it just talks about flat-out dollars that are being collected, and I think something that the Subcommittee needs to understand is that some, not all, but some of these increased collections are not that we are finding people that did not pay before; and they are not that we have gotten paternity orders, although those things contribute too. Part of the problem here is we are just looking at a certain noncustodial parent who used to make a certain amount of money who had an old order to pay a certain amount and with the increases in the child support tables, now they are paying more. We have done a lot with increasing our absolute dollar collections that way, but we can only take that so far, and I think you need to be aware that in a lot of ways we have taken those increases at the same income level and pushed them as high as they are going to realistically go.
You are going to have to look now at finding people that are not paying at all in order to get substantially improved overall dollar figures. Collection bases include arrearages and support orders that never should have been made or that should have been stricken off. Current law makes it very difficult to get rid of arrearages. We have a lot of what you might hear called deadbeat parents that are actually dead, they are in jail, they are disabled, they are homeless, they are mentally ill. Those arrearages are never going to be paid off, and I think in order to look at performance in a real way, we have got to clean up that collection base and say let us be honest about these arrearages that will never get paid.
There are also some ongoing support orders that are never going to get paid. We had a big Boeing strike in Seattle 1 year ago, where 38,000 men, of whom we estimated 40 percent had child support orders, were out of work for a substantial number of months. The child support agency refused to give them temporary abatements on their support and they became in arrears. And their rationale was, these guys could work if they wanted to. If Mr. McDermott were here, he would be laughing with me because in Washington State, which is a strong union State, you do not cross the picket line if you value your life.
Page 86 PREV PAGE TOP OF DOC These men could not work, and the chances of them paying off their arrearages after the strike was over were pretty small. When we create artificial arrearages and artificial deadbeat situations like this, we just make it hard to get the right numbers and look at the collections the way we have to. So I want to caution you to be careful what the numbers really mean.
The last thing I want to talk about is minority community paternity problems. A lot of times when you do not have paternity establishment in a minority community, especially in the inner cities, the reason is not that the mother does not know who the father is or that the father is not helping out; he is helping out. It is that with no job opportunities, with very intrusive support collection procedures and high imputed support awards, the mother and the father both know that it is not in either one of their best interests to get a paternity order and an official child support order.
The father is supporting the child, but he is doing it directly, and as welfare reform and paternity acknowledgement force us to compel more and more of these people to make paternity acknowledgements, we have to look at the fact that in some cases paternity and a support order are not going to be the beginning of payment to a family, they are going to be the end of the payments to the family, and that is a factor you need to look into. With that I want to close and thank you for the opportunity to testify.
[The prepared statement follows:]
Statement of Michele Delo, Senior Policy Analyst, Institute for the American Family, Washington, DC; On Behalf of Stepfamily Association of America, and Children's Rights Council
My name is Michele Delo. Today I will speak for the Stepfamily Association of America, based in Lincoln, Nebraska, with 50 chapters in various states, for the Children's Rights Council, based in Washington DC with chapters in 31 states, for the Institute for the American Family, a shared parenting foundation based in Washington DC, and for Mothers without custody, which represents 2 million noncustodial mothers. Yes, there are two million mothers in America who do not have custody of their children. I was once one of those noncustodial mothers, and it is to their concerns, and the concerns of all those who love and care about their children, but cannot be with them, that I speak today.
Page 87 PREV PAGE TOP OF DOC Before I begin my remarks, I want to acknowledge that not all the changes I would make can be made administratively by the IVD agencies, or by this congress. And I want to affirm that the proposed changes are necessary and will help. But incentives for support of our children are too important to portion out like pieces of apple pie. We must look at the real reasons IVD agencies cannot collect more under the current system, and we must admit that as long as the IVD agencies operate as collection agencies, not child help agencies, the problems will never really get fixed.
In some of their protests that they cannot change laws, agencies are being ingenuous. Agencies routinely lobby for changes they wantso in addition to asking for ever more punitive enforcement tools, agencies should begin asking their states and the federal government for other changes that, while they may not pass more dollars through agency hands, nonetheless result in more money for the support of children. I will begin my remarks with the policy most likely to help the most children over the long run, and thus unfortunately farthest from what the agencies as currently constituted can directly do, and progress to the changes that are smaller in benefit, but closer to agency policy and the incentive program.
Benefits of marriage
The highest and best support order for a child is to live with a married mother and father. Policies aimed at discouraging divorce where children are involved, subsidizing instead of penalizing marriage, and offering counseling, mediation and home-based support to families in crisis would give us the highest percentage returns of ANY conceivable program. Just as most people hearing about welfare reform must at least consider the immediate necessity of changing their thoughts and behaviors, people presented with the cold realities of single parenting, support orders, loss of mobility due to access enforcement and statistics on the diminished wellness of children in single parent homes may well reconsider breaking up, or decide not to form single parent families to start with. Children voluntarily supported at home by two parents need never be a welfare, support or incentive problem. Even IVD agencies, who appear to get involved way too late for this choice, have a role to play. For example, how much would it cost to add language to paternity brochures outlining the benefits of marriage to the child, mother and father?
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Collection bases should be set AFTER uncollectable orders are struck off. The general accounting office reports that in cases where support was unpaid, about 60% of the time the CUSTODIAL parent reported that the money was unpaid because the paying parent just couldn't afford it. The child support books of America are clogged up with orders that never should have been writtenor that should now be stricken off. When the obligors are crippled, substance addicted, homeless, imprisoned, mentally ill or DEAD they are not deadbeats. They are people who need help themselves, and we should strike their orders and arrearages so that collections can be judged against a real base. Only judging against a clean, fair base will allow us to see the real improvements we can expect the states to make.
The HHS report on page eight discusses the disincentives to the states implicit in capping non- TANF collection incentives at 115% of TANF collection incentive levels. Moving families as they are currently constituted off welfare is mentioned as a reason for the projected decline in TANF collection levels. Not discussed is another foreseeable change that will further lower TANF collectionsas the states implement policies to reduce welfare dependence, kinship care will move children in families eligible for TANF to families not eligible. While there may still be (smaller) child support orders for these children, those orders will be in the non-TANF category. This change, which may be greater than anticipated, should be allowed for.
Federal law and state laws and policies have required state IVD agencies to do downward modifications for paying parents. There is ample evidence that these modifications are not always being done as per the regulations. Some of the financial reward for refusing to do these downward modifications would go away, and more realistic support awards with a higher probability of payment would result, if the modifications were done and the change promptly reflected in the collection base, as discussed in the above paragraph.
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Allocation of TANF funds to operation of State Child Support Agencies
The HHS report, on page ten, discusses the Federal share of collections in TANF cases which may be available for funding the incentive program. A potential development in the courts may change this funding balance somewhat. In cases where an obligor is paying more (based on their ''standard of living'') than their child receives in welfare benefits, the states have used the difference to pay the welfare entitlements for the child's other parent, or for other children of the other parent. Recent court challenges to these policies may be successful and would reduce the amount of child support available to be used for non-related children or for program expensesalthough the amount going from parent to child would not decrease.
Incentive money should be used ONLY for child support programs
This provision seems so fair and obvious that I mention it only to place on the record our wholehearted support. Surely money intended to improve the lives of children should not be diverted to highways or artwork or any other purpose, no matter how grand. When the wonderful day arrives that the support agencies do not need every dime we can find for them and more, then we can reconsider. Until then, let's stop cheating the taxpayers and the children. We voted to allocate this money for support enforcement and we should use it for that purpose.
Parentage not paternity
The state of Vermont has adopted a policy recommended by the Children's Rights Council, of establishing ''Parentage'' not just ''Paternity.'' At hospitals, parents both complete forms acknowledging their mutual rights and responsibilities regarding custody, emotional support and financial support. These forms do not establish support, custody, access, or other issues, but do let both parents know they share the rights and responsibilities for the child. The new incentive system we are considering today should require a reworking of the paternity program along similar lines; based on the increased sense of real parenting as opposed to simple financial indebtedness, we could expect increased support in paternity cases. An involved parent is a PAYING parent!
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Declining Returns on Paternity Establishment in Minority Communities
A well documented problem with paternity establishment in urban minority communities is the reluctance of ALL parties to cooperate due to a perceived, if not actual, overall loss to the mother, father, child and community. Since unemployment levels are so high for minority males, welfare is unavailable if the acknowledged father is living in the home, and imputed high support levels coupled with aggressive support collection are more likely to drive the father underground or far away than to achieve payment, the standard operating procedure is for mothers NOT to seek paternity. By ''not knowing'' who the father is, claiming good cause exemptions for not naming the father, or giving the name of a known scoundrel, the mother can receive welfare and the father can continue an unofficial support program of baby-sitting, bags of groceries and clothes, and direct expenditures on the child. This has enabled children to receive help if not official ''child support'' under the old welfare system, but will inevitably break down under TANF and mandatory paternity establishment goals.
The HHS report states on page six, that establishing an order is the first step to collecting support for families. It is important to note that in these cases, establishing paternity and entering official support orders will in fact be the end, not the beginning, of mothers receiving support. Failure of the system to consider job inequities for minority men, alternative ''family'' structures and direct expenditures as child support will virtually guarantee serious problems in minority urban communities.
Treating all children fairly
This problem is mentioned in reference to the potential (and current) differences between collection efforts of TANF and non-TANF cases. However, there are two other inequities partly engendered and partly exacerbated by the child support system. One is the inequity between children in the same familybecause of ''first children first'' policies, the ability of the courts to ignore some of a families' children while setting support for other of the families' children, and aggressive support collection procedures, it is possible for children within the same family to live very different lifestyles. The most discussed case is where the children receiving support live at much lower levels than the children in the second family. While this is a problem that needs attention, a totally unaddressed issue is where children in the household paying support are impoverished. Due to a complex of factors, addressed in my paper: Welfare, Taxes, and the Noncustodial Parent, children in second families may go without necessities while the child support paid by their parents is used to further boost an already adequate lifestyle for the children receiving the support.
Page 91 PREV PAGE TOP OF DOC The second inequity is treatment of the same child in the two households. It is tempting to think of child support money as coming from a parent who never, or rarely, has the child and going to the parent who always has the child. In reality, most child support comes from people who care for the child themselves some part of the time. Most states will not allow credit for this ''residential time'', transferring 100% of the money for the child to one parent and leaving the child unsupported in the paying parent's home part of the time. Residential credits on a day-for-day basis need to be instituted, both to cure this unequal treatment of the child in the two different homes and to correct the collection base. When a parent cares for a child directly in their home they are paying to support that child. We credit the custodial parent for this ''child support'', we need to credit the noncustodial or paying parent for this type of ''child support'' also. Since a typical ''visitation'' schedule is 1520 % of the child's time, we could reduce unpaid support figures by perhaps half that much, (to allow for income disparity between parents) immediatelysimply by crediting BOTH parents for direct expenditures, including ALL residential time.
David Gray Ross has stressed over and over again that ultimately, the only dependable child support payments are the voluntary child support payments. We can use this reworking of the incentive program, and the other changes which will follow hard on the heels of TANF, to move towards a more cooperative system that works to fully involve both parents. We must not further redefine and marginalize one parent as the absent, payor, or obligor parent, giving them enforced obligations but no enforced rights, and then wonder why they will not cheerfully pay up.
Chairman SHAW. Thank you.
Page 92 PREV PAGE TOP OF DOC Ms. Frye.
STATEMENT OF LESLIE L. FRYE, CHIEF, OFFICE OF CHILD SUPPORT, DEPARTMENT OF SOCIAL SERVICES, SACRAMENTO, CALIFORNIA
Ms. FRYE. Thank you, Mr. Chairman and Members of the Subcommittee, for the opportunity to come and share our California perspective on the Secretary's proposal. We, too, fully support the five performance measures that the workgroup developed. We do believe that those are the key outcomes of the Child Support Program. We appreciate very much the comments made here today about medical support. That is also a very important aspect of our program, and we too would like to see that included for one reason: medical support is not tremendously cost effective. In other words, there is quite a bit of work that goes into establishing a medical support order and enforcing it, and without including it in the performance measure system, I am afraid we are not going to be able to give it the priority that you all would like us to do. Because there is no payback, if you will, to the Child Support Program. We are above all rational beings who look at what the funding formula is and who adjusts our behavior appropriately.
And that is why I am particularly concerned about the removal of the cap on incentives for the never-welfare population, and I want to emphasize that California supports consideration in the incentive formula for the former welfare population very strongly, for all of the reasons that have been stated here. As we are successful in welfare reform, we will move more and more families off of welfare, and it is appropriate that the child support system recognize that population through the funding mechanism and encourage us to do the right thing.
We need to drive the perversity out of the incentive formula, and that is one way of doing it. However, I think that to go in the direction of the never-welfare population will create a different kind of perverse incentive and actually encourage States to make their programs near universal, in other words, to make it more and more difficult for private individuals to have child support orders outside the government system. In fact, my concern that I have expressed thisdo I get credit for the beeper time hereone of the concerns that I have expressed is that California can and must perform better in order to win at this new incentive system. However, because we have not concentrated on the middle class, we are starting at a different place than those States who have near universal programs.
Page 93 PREV PAGE TOP OF DOC And my colleagues across the country have already informed me how I can win at this system: recruit the middle class, bring those higher orders into your system, and that way you will be able to benefit like some of the other States from the cap removal on the never-welfare population. However, we think that this would be wrong. We think that the Personal Responsibility and Work Opportunity Act of 1996 said child support programs must work in concert with the IVA or welfare programs to help families achieve self-sufficiency, and we have always believed the population that your 66 percent Federal money and our State funds and the incentive system should be serving are the poor and the near poor. And that, I can give you an example, in California 67 percent of our population is currently on welfare in the Child Support Program, and we estimate 75 to 90 percent of our nonwelfare population was once on welfare.
Almost half our collections are for that 67 percent. In some States, their welfare population is as high as 75 percent, and their collections for that group are less than 20 percent, and it is those States who have proportionately low welfare collections who will win under this incentive formula, and that concerns us. We think that Congress did not ask HHS to look at removing the welfare cap or the nonwelfare cap. We think it creates perverse incentives where some States can actually let their performance slip considerably and still get a windfall of incentives under this new system, and we think this will set up a financial reward for States to bring into the governmental system families that have not needed or asked for their services. I see this driving us toward a universal system in order for us not to lose the amounts of revenue we are looking at losing under this proposal.
In conclusion, I would just reemphasize that we believe in performance incentive systems. We want to be part of this. We like the measures that are on the table, but we think that removal of the cap has not been given adequate discussion or debate and is poorly understood. Most of the testifiers have hinted, including the Secretary's own report, Look out for that behavioral aspect, and that is going after the gold, going after the middle class orders.
Page 94 PREV PAGE TOP OF DOC Thank you.
[The prepared statement follows:]
Statement of Leslie L. Frye, Chief, Office of Child Support, Department of Social Services, Sacramento, California
I want to thank you, Mr. Chairman and members of the Subcommittee for the opportunity to provide California's perspective on the Secretary's proposed performance-based incentive system for the Child Support Enforcement Program. As we understand it, the proposal goes far beyond the Congressional intent to develop an incentive system that rewards good outcomes and in fact encourages states to recruit middle class families, never dependent on public assistance and never likely to be so, into their programs in order to maximize federal child support incentives.
As you know, the Secretary of the Department of Health and Human Services (DHHS) was directed by Congress in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) to work with state IVD directors to develop a performance-based incentive system for states' Child Support Enforcement Programs and report on the proposal to Congress by March 1, 1997.
This proposal does outline a broad-based incentive system which focuses on key program outcomes. These outcomes are paternities established, support orders established, current support collected, arrearage collections and cost effectiveness. We agree that these are appropriate outcomes to be measured for the purposes of paying incentives.
However the proposal also changes the way collections are counted for incentive purposes in a manner that is contrary to the principles underlying the PRWORA and that will lead to financial pressures on states to expand their Child Support Enforcement Programs to encompass all cases in the state, including those families who have never had to interact with government in order to pay or receive child support. Indeed, those states which already have near-universal government programs for child support will receive huge windfalls of incentives under the proposal, while states which historically concentrated on poor and near-poor families will lose federal incentive revenue, compared to the current system. California stands to lose two-thirds of its federal incentives, nearly $60 million, if the proposal were implemented this year.
Page 95 PREV PAGE TOP OF DOC The current incentive system recognizes only one performance factorcost effectivenessand limits incentives on ''non welfare'' collections to an amount equal to 115 percent of ''welfare'' incentives. The rationale for this limit is to ensure that states will focus on the more difficult, less lucrative work of seeking child support on behalf of the poorest families.
The proposal broadens the relevant performance factors and removes the limit entirely on incentives for ''never welfare'' families. It does weight collections for welfare and formerly welfare families. Despite this weighting, states with significant proportions of ''never welfare'' families in their current caseloads will see their collections base, against which the incentive rate will be applied, triple or more overnight. In order to keep the proposal cost neutral overall, the other variable in the equationthe incentive rate itselfmust be lowered considerably, and it is this change that hurts states such as California. California will not see its collections base increase to anywhere near the extent of states with high ratios of ''never welfare'' collections. Therefore, California is hurt by the proposal due to its demographics and program policy to focus this government service on the most needy of its single parent families.
One way that California could mitigate the impact of the Secretary's proposal would be to amend state law to make it increasingly difficult for individuals to opt out of the governmental child support collection program. By recruiting ''never welfare'' families into the IVD program, we too could benefit from earning incentives on collections for middle class families, which generally are easier to make and higher than collections for poor families. From a public policy point of view, however, we think this is wrong. We believe that Congress did not contemplate, in the PRWORA, creating a universal Child Support Enforcement Program. The demands on the IVD program as a partner in helping families reach and sustain self sufficiency are significant, and it is toward these families that we believe our effort and our resources should be directed.
Page 96 PREV PAGE TOP OF DOC Mixing the issue of removing the limit on ''never welfare'' collections with the performance-based incentive system skews the results so that some states, notably those with near-universal child support programs, would receive more incentives for poorer performance, while states with greater proportions of welfare or former welfare families in their caseloads may not ever be able to earn incentives at the current rate, no matter how well they perform.
Because the new incentive system must be cost neutral compared with the current system, the rate at which states can earn incentives must be lowered substantially from current levels to accommodate the huge new base of collections eligible for incentives in states that are now affected by the limit on non welfare incentives. Since California does not gain much, if at all, from removing this limit, it only loses revenue due to the reduction of the percentage incentive rate it could achieve under the proposed system.
Only four states are particularly hurt by the removal of the limit on ''never welfare'' incentives. All have historically collected proportionately more for their welfare dependent customers than have other states. They are California, Connecticut, Maine and Rhode Island. In each of these states, ''welfare'' collections account for 40 percent or more of total collections. States which stand to gain the most from this proposal are those states where welfare collections account for 20 percent or less of total collections. In a letter to Secretary Shalala dated February 5, 1997, California Department of Social Services Director Eloise Anderson said, ''I cannot support a proposal that has such a disparate and irrational effect on states.''
There is a great deal of consensus within the IVD community for two aspects of the Secretary's proposal: developing a performance-based incentive system and removing the limit on incentives for collections on behalf of former welfare recipients. We share in this consensus. However, the issue of completely removing the limit on incentives for ''never welfare'' families has not been widely discussed and there is no such consensus. We recommend that this policy issue be thoroughly considered by Congress and within the IVD community before it is adopted. At a minimum, if Congress believes removing the limit has merit, it should be phased out in order to address cost neutrality. Otherwise, states with higher proportions of welfare collections will be unavoidably hurt so that other states can receive windfalls.
Page 97 PREV PAGE TOP OF DOC It is our further recommendation that the performance-based system itself be phased in over a period not less than three years. Under the current time frames in the PRWORA, the new incentive system must be in place for Federal Fiscal Year 2000, which begins on October 1, 1999. The base year for developing the data on which incentives would be paid is Federal Fiscal Year 1999, which begins on October 1, 1998just over 18 months from now. It is extremely doubtful that data definitions and reporting procedures can be standardized fully within that time frame, and it is extremely important that states be measured on a level playing field if the new system is to have integrity. If the new system is phased in over three years, states will have a longer period of time not only to retool their programs to succeed under the new system, but also to work out the disparate definitions and the reporting problems that have plagued the Child Support Enforcement Program for so many years.
In conclusion, I ask that the Subcommittee consider carefully the whole of the Secretary's proposal, including the removal of the limit on incentives for ''never welfare'' collections. I know that there are always going to be ''winners and losers'' when an allocation methodology is changed within the constraints of cost neutrality. However, I am concerned that the real losers are likely to be the very families Congress intended to help toward self sufficiency in the landmark legislation passed last summer. It would be a shame if the incentive system for the Child Support Enforcement Program subverted that effort.
I thank you for the opportunity to present our views and I would be happy to answer any questions the Subcommittee members may have.
Chairman SHAW. Good point. Thank you and thank all the witnesses. Ms. Delo, I have a question. Toward the end of your testimony you made reference to minority groups within the inner cities, suggesting that maybe we should not be doing paternity establishment.
Page 98 PREV PAGE TOP OF DOC Ms. DELO. No, I am not suggesting that.
Chairman SHAW. Maybe you ought to clarify that for me.
Ms. DELO. Well, it is a very complex issue, but in Washington State while I was a lobbyist there, I had the privilege of working with a woman who is a black actress and singer, is very intelligent and articulate, and who grew up in Harlem, and she pointed out to me, and after she pointed it out, we took a little tour for ourselves of a couple of different big cities in America and talked to some people, and I also talked pretty extensively to the IVA agencies in a couple of different States, and the problem basically boils down to this: We are not dealing with white middle class culture here. We are dealing with a culture that in some cases looks at the system as just another thing to be exploited, and paternity acknowledgement or parentage acknowledgement is a wonderful thing for everyone when it is handled correctly, that is when it entails a whole complex of rights and responsibilities.
But unfortunately the way the paternity program works right now in America in a lot of ways is simply to find some guy that we can extract money out of. He has no realistic choice or chance of getting custody of those children if he is the demonstrably better parent. The rates of fathers who have custody, or shared residential custody of their children, are likely less than 5 percent, and there is a very commonly understood theory out there, especially in urban minority communities, that it is a bad deal for everybody, a bad deal for the guy, a bad deal for the mother, and a bad deal for the kid, to get an official paternity order and get the State involved because the State tends to take fathers, impute the highest possible income to them, enter support orders that are frankly impossible because they like to make their numbers look good.
They want to have lots of money coming in. That is how they get incentives. That is how they get raises. That is how they hang on to their jobs. But the problem is since the men cannot pay, all we have done is to drive him out of the community. He will go underground, he will work, he will start his own business and hide income or he will just plain evaporate and take advantage of the interstate problems, which we all know are horrible. Enforcing orders across the State lines are very difficult. And so the family instead of gaining, loses. You take a father who was able to be there and bring around bags of groceries and be there for the kids and a mother who is able to get welfare because there is no established father, and you turn that into a mother who never sees the father, does not get a child support order either, and a child who has lost a father who was at least somewhat involved in their lives.
Page 99 PREV PAGE TOP OF DOC Now, I do not want to overplay this problem because it is a small part of the puzzle, but it is a part, and as TANF forces higher paternity acknowledgement rates, we are going to be looking at some fallout from this.
Chairman SHAW. Mr. Levin.
Mr. LEVIN. Ms. Frye, I think we need to take into account your testimony and the other excellent testimony, and we cannot write the bill here today. I hope, Mr. Chairman, that we will have a process, I am sure, that you will engender so that we can pull in these ideas and look at them. I am not sure how much input you had in the process up to this point. As far as my part, I am not aware of it. But let me ask you, Ms. Frye, Is California's record on collection of support from the father of a child on welfare, is that an excellent record?
Ms. FRYE. Mr. Levin, I do not think that we could say it is an excellent record. I think we know we could do a lot better, and we particularly could do a lot better in instances where the custodial parent will provide us sufficient information to identify who that father is. We have a tremendous number of cases that come to us through the welfare system where the custodial parent has provided nothing more than a first and last name, and I would submit to you that it is very difficult to establish paternity, let alone an order, in that circumstance.
Mr. LEVIN. But see the implication of your testimony is that this system would penalize California because you are doing so much better than most States in collection of support payments where the father is of a child who is on welfare. That is what you are saying in simple English; is it not?
Ms. FRYE. Let me say this, and I am not sure I am saying it quite that way. I see what your point is. What I am saying is that in our program in California, we collect out of total collections a larger proportion for the welfare population vis-a-vis our caseload distribution than do many other States. And because we would not gain as much from a removal of the cap in terms of the expansion of the collection base as some other States would, and because this must be a zero sum gamein other words, if one State's collection base triples, someone has to pay for thatit is in that mathematical formula that my concern lies, and I think that then creates, it skews and softens, mitigates the true effect of a performance system. That is my concern.
Page 100 PREV PAGE TOP OF DOC Mr. LEVIN. All right. Thank you. Thank you very much.
Chairman SHAW. Mr. McCrery.
Mr. MCCRERY. I just want to thank all the witnesses, Mr. Chairman. They presented excellent testimony and we appreciate their being here. We will continue to look at this issue and probably continue to call on them as we get closer to it.
Chairman SHAW. We will. We continue to welcome your further observations. I think each and every one of you are going to be involved in some way in the drafting of this legislation, and your input has been very, very valuable.
Thank you so much for being here. We are adjourned.
[Whereupon, at 12:10 p.m., the hearing was adjourned.]
[A submission for the record follows:]
Statement of Leora Gershenzon, Directing Attorney, Child Support Project, National Center for Youth Law, San Francisco, CA; Amy Dominguez-Arms, Director of Policy, Children Now, Oakland, CA; and Kathy Dresslar, Director of Policy Advocacy, Children's Advocacy Institute, Sacramento, CA
The National Center for Youth Law (''NCYL'') is a San Francisco-based private non-profit organization providing legal assistance on issues affecting poor children. NCYL's top priorities include assuring adequate economic support for children and their families. Child support is a vital source of income for many children living in or near poverty, helping custodial families meet their children's needs and attain economic self-sufficiency.
Children Now is a nonpartisan policy and advocacy organization for children. One of its top priorities is to promote children's healthy growth and development. Adequate financial support is necessary to meet children's nutritional, housing, health, and other basic needs. For millions of children nationwide, child support determines both their present quality of life as well as their future prospects.
Page 101 PREV PAGE TOP OF DOC The Children's Advocacy Institute (''CAI'') is a nonpartisan, non-profit organization which advocates on behalf of children in the Legislature, in regulatory agencies and before the courts. CAI's top priority is to protect California children from further impoverishment as California implements welfare reform. A critical first step is to improve California abysmal child support collection record.
We are very pleased that Congress and this Subcommittee are serious about improving child support enforcement in the United States. Improved child support enforcement is a key component of welfare reform, by helping ensure that both parents are supporting their children, not the government and not just one parent alone. With a national collection rate of less than 20%, improving the child support program must be a top priority for the United States and for the states.
We are particularly pleased with the Subcommittee's desire to improve the incentive structure of the child support system to make it more performance based. An incentive structure that rewards states for improving children's lives through increased child support collections will help encourage states to improve their programs.
We have reviewed the Child Support Enforcement Incentive Funding Report of the Department of Health & Human Services. With some suggestions for improvement, discussed below, we strongly agree with the recommendations of the report and urge its adoption. The proposal rewards performance which will give states the needed financial incentive to improve their child support programs and improve children's lives.
We understand that the California Department of Social Services (CDSS) has raised many concerns about the incentive proposal. As children's advocates in California, we know first hand the problems faced by children in California when the child support system fails to perform effectively. California continues to operate a substandard child support program, collecting support for only 13% of the 3.5 million children who depend upon the program for needed financial security. Despite some of the toughest enforcement laws of any state in the nation, the program continues to struggle to keep up with caseload growth, and children suffer the consequences. Improving the child support system is more important than ever as welfare reform is implemented and families will no longer be able to rely upon guaranteed support from the government.
Page 102 PREV PAGE TOP OF DOC A federal incentive that rewards performance is exactly what California and its children need. The proposed incentive plan will push California to do the right thing: take real steps to improve its support enforcement program and improve outcomes for children. Children's advocates certainly want California to have adequate resources with which to conduct its program. However, incentive payments must be tied to real improvement. We believe that, if the incentive proposal is adopted, the State and the counties will indeed take the steps necessary to obtain the incentives and improve their programs. Far from losing incentive payments, the State will gain a well run child support program and the children of this State will gain needed support from both parents.
CDSS also contends that the proposed incentive structure would punish California for its ''program policy to focus this government service on the most needy of its single families,'' by paying incentives on all collections, including welfare, post-welfare and non-welfare support collections. The State, however, has made no such policy decision to focus solely on welfare and post-welfare cases, nor in fact could CDSS make such a decision since federal law requires that states work all their child support cases, including welfare, post-welfare and non-welfare cases where families have requested enforcement services from the state. California does have a higher percentage of welfare and post-welfare cases than do most other states. However, one main factor is that California runs a poor program and those who are not forced into the system tend to avoid it: What is the point of trying to get services from a system with a 13% collection rate? Without improved performance, many California families are better off staying out of the IVD system today. If California were genuinely to improve its performance, many more families who have never received welfare benefits would go to the State for help. By improving performance, California will be eligible for more incentives and more families will turn to the State for assistance, thus further increasing incentive payments.
The State of California has requested that the new incentive system be phased in for a period of not less than three years. However, the State has failed to consider that the new incentive system will not even begin to be effective until the year 2000. In addition, there is a one-year phase in after that. Four years should be more than enough time for California to improve its child support program sufficiently to be rewarded through the new incentive system. Additionally, California's plea for additional time fails to consider that time-limited welfare benefits have already begun. There is no extension of the welfare timeframes if the state's child support program is performing poorly, whether failing to establish paternity or support orders or failing to collect on those orders. Extending the phase-in would be detrimental to children who need their child support now and will need them even more when their welfare benefits terminate.
Page 103 PREV PAGE TOP OF DOC For the sake of the 3.5 million children who depend on California's child support program, the State must improve its program, and we believe the incentive proposal is the best way to do it.
We have several modest recommendations to improve the proposed incentive program:
1. Pay Incentives Only on Support Paid to Families. There is no reason to pay states an extra incentive for collecting money that they end up keeping to reimburse themselves for welfare expenditures. States already have sufficient incentive to collect these funds by virtue of being able to retain them. Moreover, the goal of the performance-based incentive proposal is to reward outcomes for children and their families. Welfare recoupment benefits the state and the federal government, but does not benefit children per se. Therefore, we recommend that incentives be paid out only on support paid to families.
2. Raise the Lower Threshold to Help Improve Outcomes for Children. The lower threshold to receive incentive payments should be sufficiently high and require sufficient improvement to ensure that states are only rewarded for truly helping children and their families. The concept behind the proposed incentive system correctly seeks to do this, but the threshold for collecting incentive payments is not sufficiently high enough to push states. Under the proposal, a state is eligible for a significant portion of the incentive (50%) even if its performance is well below the desired level, as long as the state demonstrates only modest improvement in its program performance. We support the proposed improvements outlined in the testimony of the National Women's Law Center, whereby states would receive only 1/4 of the maximum incentive rate if their performance is well below the desired level and their improvements have been only modest at best. If states fall below that floor, they should receive no incentive payment. This would have two beneficial results. First, it would encourage states to improve their performance faster, by not rewarding states who continue to perform well below par and fail to improve their performance significantly. Second, it would free up additional incentive funds to increase the reward to the better performing states, thus increasing states' incentive to attain and maintain high performance levels for children and families.
Page 104 PREV PAGE TOP OF DOC 3. Include Both Old and New Cases in Paternity Measurement. The proposed paternity incentive measurement allows states to choose one of two possible measurements, both of which look only at children born to unmarried parents in the prior year. Neither measurement considers the backlog of children awaiting paternity establishment. Today in California, over a half a million children are awaiting IVD agency action to establish paternity. No support can be collected for these children until they have paternity established. States must be given sufficient incentive to work these backlogged cases. The paternity measurement should be changed to include all children in the IVD program awaiting paternity establishment, either as a additional measurement or by changing the paternity measurement to compare children in the IVD system who have had paternity established in the prior year with children in the IVD program awaiting paternity establishment.
4. Exclude Good Cause Cases from the Paternity Measurement. The paternity measurements fails to exclude cases in which the custodial parent has ''good cause'' for not cooperating with the child support program. Good cause exceptions to cooperation are necessary to protect custodial parents and their children from harm, such as domestic violence. States should not be punished for adequately protecting them. The paternity incentive measurement should be changed to exclude cases where there is ''good cause'' not to cooperate from the total number of cases needing paternity established.
5. Add a Category to Measure Medical Support Orders. In addition to obtaining support orders, child support agencies are required to obtain health insurance for children. Ensuring that children have adequate health insurance is crucial for their well-being and even for their very survival. The proposed incentive scheme fails to reward states for obtaining health insurance; and therefore, fails to encourage them adequately to obtain these necessary benefits for children. We strongly urge that an additional category be added to measure the number of children for whom health insurance has been obtained by the child support agency against the number of children in the child support program who require health insurance.
Page 105 PREV PAGE TOP OF DOC We appreciate the opportunity to comment on the proposed performance-based incentive program for the child support program. As children's advocates in California, we are not asking the State to do the impossible. We are simply asking California to be held accountable for the performance of its child support program. The only way to improve a system as massive as California's child support system, with its long history of poor performance, is through a performance-based incentive system that truly rewards successful state programs.
[The attached report is being retained in the Committee's files.]
(Footnote 1 return)
P.L. 104193, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (enacted August 22, 1997), requires states to replace their AFDC programs with the TANF program by July 1, 1997. As of February 24, 1997, DHHS had certified the TANF plans of 38 states.
(Footnote 2 return)
States do not have to use incentive payments to fund their CSE programs (discussed later).
(Footnote 3 return)
U.S. Congress. Senate. Committee on Finance. Child Support Enforcement Amendments. Report to Accompany H.R. 4325. Senate Report 98387, 98th Cong., 2d Sess. Washington, GPO, 1984. p. 23.
(Footnote 4 return)
Other families also are eligible if they apply for services; they are charged up to $25 for CSE services. Some states charge the full $25, some less, and others use state funds to pay the fee or seek collection from the noncustodial parent. In addition, CSE agencies are allowed to recover the actual costs of their services to non-welfare families from either the custodial parent or the noncustodial parent, once current support payments have been collected.
(Footnote 5 return)
Under P.L. 104193, once a family goes off AFDC/TANF, child support arrearage payments that are collected through the federal income tax offset program are to be paid to the state (and federal government) and any arrearage payments collected by other methods are to be paid to the family.
(Footnote 6 return)
P.L. 104193 eliminated the $50 ''pass through'' payment. Under previous law, the first $50 of current monthly child support payments collected on behalf of an AFDC family was given to the family and disregarded as income to the family so that it did not affect the family's AFDC eligibility or benefit status.
(Footnote 7 return)
Moreover, the Office of Child Support Enforcement, DHHS, urged states to pay incentives to localities that operate efficient and effective CSE programs but do not participate in funding the administrative cost of the CSE program costs to ensure the localities' continued level of performance. Federal Register, v. 50, no. 90, May 9, 1985. p. 19639.
(Footnote 8 return)
P.L. 98378 (enacted in 1984) stipulated that non-AFDC incentive payments were not to exceed AFDC incentive payments in FY1986 and FY1987, were not to exceed 105% of AFDC incentive payments in FY1988, and were not to exceed 110% in FY1989. Since FY1990, the 1984 law has allowed states to receive incentive payments based on non-AFDC cases of up up to 115% of those based on AFDC cases.
(Footnote 9 return)
Some states encompass all, or the majority of, child support cases in their non-AFDC CSE caseload, usually through cooperative agreements with family courts. Under these agreements, an application for routine family court services is designated as an application for CSE services, even though many custodial parents are unaware of the fact. Thus, the CSE non-AFDC caseload in some states includes all divorce cases in the state involving children and any other case where the family applies to the court for the establishment or enforcement of a support order. In some of these cases, the CSE agency may not be providing any services beyond those that were provided by the court or state before the enactment of the CSE program. See Maximus, Inc. Evaluation of the Child Support Enforcement Program, Final Report. Prepared for U.S. Dept. of Health and Human Services, Social Security Administration, Office of Research and Statistics, Contract No. 600820089, Apr. 1983. p. ES6.
(Footnote 10 return)
For example, in FY1995, the gross federal share of CSE collections was $1.224 billion, incentive payments to states amounted to $400 million, thus the federal government retained $824 million in CSE collections which thereby reduced federal AFDC expenditures by $824 million.
(Footnote 11 return)
In many states, much of the actual work of CSE is funded and performed by local governments, through courts, district attorneys, or other entities. The 1984 CSE amendments (P.L. 98378) allow political subdivisions of the state that participate in the costs of support enforcement to receive an appropriate share of any incentive payment given to the state. The 1984 amendments require the states to develop criteria for passing through incentives to localities, taking into account the efficiency and effectiveness of local programs.
(Footnote 12 return)
Before 1984, a state that initiated a successful action to collect child support from another state generally did not receive an incentive payment. Rather, the jurisdiction that made the collection received the incentive payment. P.L. 98378 provides that both states involved in an interstate collection be credited with the collection for purposes of computing incentive payments. This ''double-counting'' is intended to encourage states to pursue interstate cases as energetically as they pursue intrastate cases. States now will pay incentives for interstate cases to themselves out of the federal share of collections they distribute.
(Footnote 13 return)
In FY1995, about 83% of total CSE administrative costs were reimbursed through federal matching funds and incentive payments.
(Footnote 14 return)
U.S. General Accounting Office. Child Support Enforcement: Families Could Benefit from Stronger Enforcement Program. GAO/HEHS9524. p. 4750.
(Footnote 15 return)
Since incentive payments are designed to encourage program development, the Commission on Interstate Enforcement's 1992 report, President Clinton 1994 welfare reform package, and many bills introduced in Congress during the early 1990s proposed that the incentive payment system be based on performance.
(Footnote 16 return)
The Secretary's report notes that flexibility is needed to consider different or additional measures, such as one that looks at how child support collections avoid costs in other public benefit programs.
(Footnote 17 return)
Federal CSE law requires states to meet federal standards for the establishment of paternity. If an audit finds that the state CSE program has not substantially complied with those standards, the state is subject to a penalty. In accordance with this penalty, the DHHS Secretary must reduce a state's TANF block grant payment by not less than 1% nor more than 2% for the first failure to comply; by not less than 2% nor more than 3% for the second consecutive failure to comply; and by not less than 3% nor more than 5% for the third or subsequent consecutive failure to comply.
(Footnote 18 return)
The Child Support Enforcement Program: Policy and Practice, U.S. Congress, House Committee on Ways and Means, Subcommittee on Human Resources (report prepared by the Congressional Research Service), 101st Cong., 1st sess., 1989, Committee Print WMCP 10119.
(Footnote 19 return)
GAO/HRD9280, Medicaid: Ensuring that Noncustodial Parents Provide Insurance Can Save Costs, June 1992 at 1, 78.
(Footnote 20 return)
GAO, Child Support Enforcement: Families Could Benefit From Stronger Enforcement Program, GAO/HEHS9524, December 1994 at 46.
(Footnote 21 return)
Ebb, Enforcing Child Support: Are States Doing the Job?, June 1994 at 13.
(Footnote 22 return)
Some of the increase, for example, is attributable to increased publicity about the availability of services and decisions by some states to provide services through the state child support agency to non-welfare families they were already serving through other systems.
(Footnote 23 return)
Ebb, Enforcing Child Support: Are States Doing the JOB?, June 1994 at 8. See also Sonenstein, Holcomb, and Seefeldt, ''What Works Best in Improving Paternity Rates?,'' APWA Public Welfare, Fall 1993 at 33.
(Footnote 24 return)
GAO, Health Insurance for Children: Private Insurance Coverage Continues to Deteriorate, GAO/HEHS96129, June 1996 at 6.
(Footnote 25 return)
GAO, Medicaid: Ensuring that Noncustodial Parents Provide Insurance Can Save Costs, GAO/HRD9280, June 1992 at 8.
(Footnote 26 return)
The current base match rate (Federal Financial Participation or FFP) is 66 percent; that is, for every $1.00 the state spends on the IVD program, the federal government will reimburse it $ .66.
(Footnote 27 return)
The Work Group also recommended that the current FFP of 66 percent be maintained. HHS reserved judgement on this and other funding issues raised by the Work Group, expressing a commitment to work with Congress on these issues. The Center believes that a base match of at least 66 percent must be maintained. Without it, poor-performing statesthe ones that need funding to improve but will not earn much in incentive paymentswill not have the necessary resources to improve their programs.
(Footnote 28 return)
A state that had a collection base of $160 million, for example, would collect $1.6 million in incentive dollars if it achieved the upper level in one of the first three categories, while it would collect $800,000 if it was below the lower level but made the required improvements.
(Footnote 29 return)
A state with a collection base of $160 million would collect $1.2 million in incentive payments (1 percent of .75 percent of collections) if it achieved the upper level in one of the last two categories, and would earn $600,000 if its performance was below the lower level but the state made the required improvements.
(Footnote 30 return)
While these five categories are good measures of state performance, they are not all-inclusive. Indeed, there are requirements in the law that states must meet and are important to families, but are not easily measured in a performance-based system. For example, states must provide timely service as required by the case processing standards, ensure that medical support orders are part of awards when appropriate and enforce such orders, and review and modify orders upon parents' request. States must comply with these, and other requirements of the IVD law even if the requirements are not measured in a performance-based incentive system.
(Footnote 31 return)
There is an anomaly in the HHS plan in the area of paternity establishment. Beginning at the 50 percent threshold, states could receive both an incentive payment for paternity establishment and a penalty for failure to meet the paternity establishment percentage (PEP) of current law. The two provisions should be modified to work together rather than at cross-purposes.
(Footnote 32 return)
Under the PRWORA, as a condition of IVA assistance, custodial parents must cooperate with the IVD agency in establishing paternity and in establishing and enforcing a support order unless they are found to have ''good cause'' not to cooperate. ''Good cause'' cases could include, for example, cases in which the mother's cooperation would put the mother and/or child in danger of harm by the noncustodial parent or cases in which the child is the product of incest or rape.
(Footnote 33 return)
For example, a state that is trying to enforce a $100 order and a $1,000 order would have a better collection rate based on dollars received to dollars owed if it collected the $1,000 but ignored the $100 order. If the state collected the $1,000 order but ignored the $100 order, it would have collected 91 percent of the dollars due; if the state collected the $100 order but ignored the $1,000 order, it would have collected just 9 percent of the dollars due.