SPEAKERS CONTENTS INSERTS Tables
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45–437 CC
1998
ADMINISTRATION'S CHILD SUPPORT ENFORCEMENT INCENTIVE PAYMENT PROPOSAL
HEARING
before the
SUBCOMMITTEE ON HUMAN RESOURCES
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
MARCH 20, 1997
Serial 105–12
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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
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WES 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
WITNESSES
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,
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Committee on Ways and Means,
Subcommittee on Human Resources,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11:07 a.m., in room B–318, Rayburn House Office Building, Hon. E. Clay Shaw, Jr. (Chairman of the Subcommittee), presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HUMAN RESOURCES
CONTACT: (202) 225–1025
FOR IMMEDIATE RELEASE
March 13, 1997
No. HR–4
Shaw Announces Hearing on the
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Administration's Child Support Enforcement
Incentive Payment Proposal
Congressman E. Clay Shaw, Jr., (R–FL), 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 B–318 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.
BACKGROUND:
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. 104–193) 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 B–317 Rayburn House Office Building, at least one hour before the hearing begins.
FORMATTING REQUIREMENTS:
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 202–225–1721 or 202–225–1904 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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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 measures—paternity establishment, support order establishment and collections on current support—were 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 measures—collections 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 collections—its ''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.
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• 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.
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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.
Conclusion
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.
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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.
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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.
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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.
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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.
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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.
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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 us—he is a medical service corps officer from the military—whom 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.
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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?
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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-Fears—she 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.
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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.
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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.
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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.
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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 payment—an ''incentive'' payment—that 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.
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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.
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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
Summary
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 payment—an ''incentive'' payment—that 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. 104–193 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.
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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. 104–193, 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.
Background
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 million—in contrast, the federal government recovers only a fraction of its expenditures). Four, the federal government also provides states with an extra payment—an ''incentive'' payment—to increase support collections from all parents ordered to support their dependent children.(see footnote 2)
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The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104–193, 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. 97–248 reduced the federal match to 70% (FY1983–FY1987). In 1984, P.L. 98–378 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. 98–378) 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.
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In 1975, when the IV–D [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 80–90% 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. 93–647), 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. 93–647), 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.
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P.L. 93–647 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 bonus—incentive payment—based 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. 95–30), the incentive payment rate was changed to 15% of child support collections made on behalf of AFDC families. In 1982 (P.L. 97–248), the rate was reduced from 15% to 12%. In 1984 (P.L. 98–378), 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. 98–378 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. 104–193, 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. 104–193, 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.
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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.
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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.
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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 measures—paternity establishment, establishment of child support orders, and collections on current support—were given more importance than the last two—collections 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. 104–193). 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.
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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. 104–193 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.
Program Reinvestment
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
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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.
Periodic Review
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.
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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).
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Chairman SHAW. Thank you.
Ms. Ebb.
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.
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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 cause—due to threats, for example, of domestic violence—for 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.
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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 be—a 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 are—without income supplements like child support—often 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.
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The 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.
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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