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Analysis of the 2004-05 Budget BillLegislative Analyst's Office
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The Department of Child Support Services (DCSS), created on January 1, 2000, administers California's child support program by overseeing 58 county child support offices. The primary purpose of the program is to collect from absent parents, support payments for custodial parents and their children. Local child support offices provide services such as locating absent parents; establishing paternity; obtaining, enforcing, and modifying child support orders; and collecting and distributing payments.
The Governor's budget proposes expenditures totaling $1.3 billion from all funds for support of DCSS in the budget year. This is an increase of 3.5 percent over 2003-04. The budget proposes $499 million from the General Fund for 2004-05, which is an increase of $30.5 million, or 6.5 percent, compared to 2003-04. Most of the increase is attributable to an estimated increase in the federal penalty and increased expenditures for the California Child Support Automation System (CCSAS).
In the 2003-04 Budget Act, DCSS was required to begin making improvements on its county allocation formulas, and its budget methodology and budget display. Since that time, the department has made some progress.
Allocation Workgroup. In the fall of 2003, DCSS convened a large group of stakeholders to examine the current county allocation methodology and recommend changes that would more clearly meet the fund ing requirements of the counties. As part of the work for those meetings, DCSS undertook a substantial statistical review of the performance and collections data available for each county. Through this review, DCSS was able to connect county performance on some outcome measures to the level of funding provided to counties. They were also able to tie expected amounts of child support collections to the level of funding available to administer the program.
Next Steps for Allocation Workgroup. At the time this analysis was prepared, DCSS was working on a final allocation methodology, which would tie county performance on state and federal outcome measures to the amount of funding allocated for their local programs. We recommend that DCSS report at hearings on the status of this effort.
Improving Budget Display. The DCSS was also required to begin work on improving the information provided in its budget documents and improving the methods used to build its budget. The child support budget display for 2004-05 shows significant improvement in terms of the information provided. The department has included auxiliary documents in its budget information, which summarize the amount of the federal child support penalty over time, and which illustrate the spending and collection trends over the last three years. Perhaps more significantly, DCSS's budget tables are beginning to display the detailed funding changes for the program in a clear way. In prior years, all administrative costs were included in one basic line; there was no way to determine which aspects of the program were being augmented or reduced in the budgets proposed by the administration for DCSS. However, in the current budget, changes are being clearly displayed. For example, the amounts budgeted for implementing the new collections enhancements are clearly separated from the basic cost of running the program. Similarly, anticipated collections associated with this enhancement are also displayed separately.
The Governor's budget proposes that counties give up their current 2.5 percent share of assistance collections. This increases General Fund revenues by $39 million and potentially creates a further disincentive for counties to invest in collecting child support payments for families. We recommend allowing those counties that meet state and federal performance measures to keep their share of the assistance collections.
Background. Most child support collections are paid to the custodial parent. However, a portion of the child support dollars collected by the counties are used to pay back the state, federal, and local governments for the cost of grants provided under the California Work Opportunity and Responsibility to Kids (CalWORKs) and the Foster Care programs. (These grants were paid on behalf of the children whose noncustodial parents are now paying child support.) These are known as assistance collections. Under current law, 50 percent of those funds are returned to the federal government, 47.5 percent constitute state General Fund revenue, and the remaining 2.5 percent reimburse the counties for their share of the CalWORKs grants. A small portion of the assistance collections reimburse foster care expenses. That sharing ratio is slightly different.
Governor's Budget Proposal. The Governor's budget proposes that the state retain $39 million in collections that constitutes the counties' share of assistance collections and use it as state General Fund revenue. Along with this $39 million, the Governor's budget also proposes that counties continue to pay 25 percent of the federal child support automation penalty. The estimated county share of the penalty is $55 million for 2004-05. Other than this share of the penalty, there is no county share in the child support program.
Analyst's Recommendation. The child support program is driven in large part by state and federal performance measures. States receive federal incentive funds based on their ability to achieve the federal performance measures, and may be penalized for repeated failure of certain measures. Because of the existence of these measurements, we recommend that the Governor's proposal to keep the county share of collections be modified into an incentive for the counties to improve their performance. Under our recommendation, counties that meet all of the established performance measures would be allowed to retain their share of the assistance collections.
Our analysis indicates that based upon current federal performance measures, about 50 percent of the counties have met or exceeded the statewide average for performance and would therefore be able to retain their share of assistance collections. However, none of the six largest counties is among that group. Adopting this recommendation would reduce General Fund revenue by $12.4 million in 2004-05. However, by providing the counties with a better performance incentive, it should result in more federal incentive funds coming to the state, which will in part offset the loss of General Fund revenues. Further, stronger county performance should help assure that the state will avoid future federal penalties.
We withhold recommendation on estimated child support collections pending the release of the Governor's May Revision because the estimate of collections may be overstated based upon the department's new method of projecting collections.
The DCSS has developed a new methodology for estimating the amount of dollars that can be collected based upon the amount of money invested in the program. However, the Governor's budget does not reflect this relationship. Based upon the department's new estimating methodology, the collection estimates may be overstated. This is because the increase in the collections estimate is not proportional to the amount of administrative funding proposed. We therefore withhold recommendation on the budget's estimate of assistance and nonassistance child support collections pending review of the Governor's May Revision estimates.
Federal law requires states to develop statewide child support automation systems. The CCSAS project is intended to be California's federally required child support system. The CCSAS project is currently estimated to cost $1.3 billion ($869 million federal funds and $459 million General Fund) over ten years. Of these costs, $801 million is for a contractor to develop and maintain the system with the remainder for associated state costs. The CCSAS project consists of two phases: (1) Phase I, which will provide a centralized data base and reporting system and (2) Phase II, which will provide a statewide child support enforcement system. The state began developing Phase I of the project in 2003.
Federal Penalty. Federal law requires states to have completed the development and implementation of statewide child support systems by 1997. Since California did not complete its system by that time, the federal government reduces, in the form of penalties, its share of the costs for administering the state's child support program. Through 2002-03, the state incurred penalties totaling approximately $562 million. The penalties for the current and budget years are expected to be $195 million and $220 million, respectively. Thus, through the budget year, federal pen alties will have totaled almost $1 billion. When CCSAS is fully implemented in 2008, the federal penalties should be eliminated.
State Law Requires Franchise Tax Board (FTB) to Manage Project. Chapter 479, Statutes of 1999 (AB 150, Aroner), requires the FTB to act as the agent for DCSS to procure, develop, implement, and maintain the new statewide system. In 1999, the Legislature required FTB to manage the project because (1) FTB had experience procuring and managing large information technology (IT) projects and (2) DCSS would be focusing on implementing the state's newly reformed child support program. The FTB and DCSS staff assigned to CCSAS work together in the same DCSS office building.
State's Child Support Program Implemented. Chapter 479created DCSS as a separate department responsible for the state's child support enforcement program. In addition, administrative responsibility at the local level shifted from county district attorneys to new separate county agencies. The local transition was completed in 2003.
Transferring the California Child Support Automation System from the Franchise Tax Board to the Department of Child Support Services would increase accountability for the project's success. We recommend that the administration report on potential problems and anticipated savings from implementing this option.
Below, we discuss the option of transferring the CCSAS project (including its project management structure) from FTB to DCSS. Such a transfer would offer potential programmatic benefits to both DCSS and FTB. As noted below, a transfer could also offer the opportunity for some budget savings.
Increase DCSS Accountability. The responsibility for success of the CCSAS project is currently shared between FTB and DCSS. The FTB is responsible for the project's technical and management success and DCSS is responsible for the project's program success. Yet, it is difficult to tell where one area of responsibility ends and another area begins. For example, it will be difficult to determine if any problems are due to complex state program requirements or technical problems in the software. By having only DCSS responsible for the success of the CCSAS project, the Legislature can hold DCSS accountable for any problems that the project may experience. Also, by having only one department responsible for CCSAS, it eliminates possible "finger pointing" between the two departments.
Reduce Project Staff. Since the CCSAS project is shared by two departments, both FTB and DCSS have staff dedicated to the project. For the current year, FTB has 113 staff and DCSS has 58 staff approved to work on the project. From a recent FTB analysis of the CCSAS workload, it appears that some of the DCSS and FTB staff are performing similar and possibly duplicative project tasks. For example, during the project's design phase, both departments have staff reviewing and analyzing requirements for the system. The only difference in their tasks appears to be that FTB staff recommends and DCSS staff approves requirements. In most state IT projects, there is no difference between these two tasks. As long as the two departments share responsibility for the project, blurred lines of responsibility are going to result in duplication of effort. If, however, only one department was responsible for the project, workload could be reexamined to increase efficiencies and reduce duplicative staff assignments.
Eliminate Coordination Activities. Both FTB and DCSS have staff coordinating activities between the two departments. For example, FTB staff must keep DCSS staff informed of any budget requests that FTB needs to support the project. After FTB has prepared the request, then DCSS staff must review the request for fund availability and consistency with federal funding requirements. In addition, both FTB and DCSS have staff coordinating technical aspects of the project, such as converting data from the old systems. If the project were transferred to DCSS, these types of coordination activities could be eliminated.
Allow FTB to Focus on Revenue Collections. The FTB's primary responsibility is to administer and collect revenues from the personal income and corporation taxes. The FTB is not the state's child support enforcement agency nor does it have any unusual expertise in this program area. To ensure CCSAS project success, FTB's management has had to devote some of its time to the project. By transferring the CCSAS project to DCSS, FTB's management could refocus on its primary mission of administering and collecting taxes.
In our view, if the Legislature were to transfer the project, any transfer must include the current FTB project staff and the project management structures that FTB has developed and implemented. One of the reasons that the Legislature designated FTB as the CCSAS project manager was FTB's experience at managing large IT projects and its use of "best practices" in managing and implementing automation efforts. The FTB has attempted to implement those same best practices in the contract and risk management on the CCSAS project. Given that the state's child support program is now established and the CCSAS procurement is complete, FTB has already contributed most of the advantages originally sought by the Legislature in designating FTB as the project leader. Transferring the project should not mean losing the staff experience and management techniques already implemented. Since FTB project staff is already colocated with DCSS, the FTB staff could be easily integrated into DCSS and its management structure.
Given that the CCSAS project is the state's largest and most complex state IT project, there is some risk in transferring the system. We believe some of this risk would be minimized if the same project staff and best practices are transferred with the project. We do, however, recommend that the Legislature direct FTB and DCSS to analyze the transfer option and report at budget hearings on potential problems or project disruptions that could occur as a result of such a transfer. In addition, we recommend that DCSS analyze the CCSAS workload and report at budget hearings on the potential savings that could be achieved as a result of the transfer.