Department of Child Support Services

The Governor’s 2009–10 budget plan includes three significant proposals for the DCSS. All involve additional expenditures intended to result in savings in 2009–10 and future years. We discuss these proposals below.

Augmentation for Local Child Support Agencies

Governor’s Proposal. In general, federal and state funding for LCSAs, which carry out child support collection efforts, has been held flat since 2003–04. Largely because costs for various operations have increased, LCSA staffing has declined during this period by 1,935 positions, or 23 percent of total staffing. The Governor’s budget proposes to stop the decline in staffing by increasing funding for LCSAs by $18.7 million ($6.4 million General Fund) in 2009–10.

As mentioned earlier, all but the first $50 of the child support collected on behalf of families receiving public assistance is deposited in the General Fund. The proposed 2009–10 budget augmentation for LCSAs is intended to retain child support enforcement staff, increase child support collections, and increase deposits into the General Fund to offset public assistance program costs. Specifically, we estimate that nonassistance child support collections will increase by over $70 million while assistance collections will increase by $6.5 million. Because the General Fund augmentation is $6.4 million, we estimate that this proposal results in a net General Fund benefit of about $100,000 ($6.5 million in increased General Fund revenue, less the $6.4 million General Fund augmentation).

Potential Risks. Although the retention of child support case workers would likely have a positive impact on collections to some degree, it is unclear whether this proposal would result in a net General Fund benefit. The proposal is based on several risky assumptions. Our sensitivity analysis of the proposal indicates that even slight changes in the underlying assumptions could result in a negative impact to the General Fund rather than the positive impact estimated by the Governor.

Alternative Approach to Supporting LCSAs. Below, we present an alternative approach which establishes a voluntary matching program for LCSAs wishing to access new funds. Although there may be risks associated with our alternative for increasing funding for LCSAs, we believe that with adequate oversight and a strategic allocation process, a General Fund benefit is probable.

LCSAs Have No Fiscal Stake in the Program. Our 2006 report, Strategies for Improving Child Support Collections in California, found that California has historically performed poorly in the collection of child support compared to other states. Among several findings, the analysis notes that a contributing factor is that LCSAs have no fiscal stake in the program. Specifically, child support enforcement is supported with a combination of state and federal funds without a county share of cost. We found that one way to ensure that counties bear more responsibility for the success of the child support program is to give them a fiscal stake in it though a share of program costs. The rationale behind this recommendation was that a share of cost would provide counties with a fiscal incentive to ensure that funding is spent carefully and targeted toward activities that improve child support collections.

Creating a Voluntary Matching Program. The Governor’s proposed augmentation presents an opportunity to implement a variation on this recommendation from 2006. Specifically, the Legislature could prioritize the proposed augmentation for counties willing to provide matching funds. For example, the Legislature could agree to match each dollar invested by the county with an additional $2 from the augmentation and $6 from the federal government.

Leveraging Additional Federal Funds. By using a combination of state and county funds, additional federal funds beyond those estimated by the Governor would be drawn down. Figure 16 shows how the proposed voluntary matching program would allow the state to use the same amount of General Fund as the Governor to leverage even more federal funds. Although it is hard to quantify, the larger child support collection effort made possible with more federal funding would have a benefit to the state General Fund—potentially as much as $3.6 million. If the Legislature provides an augmentation to LCSAs, we recommend it be done through a matching program, as described above.

Allocation Issues. To implement this proposal, the DCSS would notify the LCSAs of their potential share of these funds and their required match. Those funds not claimed by counties would be made available to other counties. If there were still unspent funds remaining at the end of the year, they would revert back to the General Fund. This allocation methodology would ensure that the counties most interested in improving their child support programs receive the additional funds. We note that the figure above assumes 100 percent county participation.

Mandatory Federal Fee

Background. Currently the state provides child support enforcement services free of charge for both assistance and nonassistance cases. Beginning in January 2008, in accordance with the Federal Deficit Reduction Act of 2005, the federal government began assessing an annual fee on the state of $25 for each child support case for which $500 or more was collected on behalf of those who have never received public assistance. (These are known as “never–assisted” cases.) States were given the option to (1) collect the fee from the custodial parent, (2) collect the fee from the noncustodial parent, or (3) use state funds to cover the fee. Because California was in the middle of implementing a statewide child support computer system at the time, it was determined that it would not be cost–effective to make the automation changes necessary to enable the collection of the fee from the noncustodial or custodial parent. As a result, state funds were used to cover the cost of the fee in 2007–08 ($1.8 million) and 2008–09 ($3.5 million).

Governor’s Proposal. The 2009–10 budget proposes $39,000 General Fund to provide notification to never–assisted families regarding this potential fee, which would commence in 2010–11. The administration’s proposal to collect the fee is slightly different than an approach discussed in a June 2008 cost–benefit report prepared by DCSS regarding this fee collection issue. That report found that it would be cost–effective to collect a $25 fee from all never–assisted families for which over $500 in child support was recovered. Instead of collecting a standard $25 fee, the Governor now proposes a tiered fee structure. Under this proposal, recipients would be charged $25 if over $500 is collected, $50 if over $1,000 is collected, and $75 if over $3,000 is collected on their behalf. This fee structure is likely to generate more revenue than a flat $25 collection, but the automation changes necessary to enable the collection of the fee would also be more sophisticated and, thus, likely more costly. The DCSS is currently working to update the costs and anticipated revenue estimates associated with this proposal. Although the General Fund revenues are unknown, they are likely to exceed the current General Fund costs of paying the fee.

Conclusion. We believe that assessing a fee on never–assisted child support cases has merit. To the extent that the DCSS finds that the required automation changes cost less than the anticipated General Fund fee revenue, we recommend pursuing the collection of this fee.

Child Support Automation

Federal Certification. In November 2008, the California Child Support Automation System (CCSAS) was fully implemented, after eight years and $1.5 billion in costs. The system then received federal certification as a single statewide automation system, ending the threat of federal penalties and lifting the cap placed on federal support for automation costs. The DCSS is responsible for maintaining the functionality of CCSAS and ensuring that the LCSAs have access to the system in order to perform child support enforcement activities.

Budget Requests. For CCSAS, the Governor’s budget proposes expenditures totaling about $118 million ($78 million federal funds and $40 million General Fund) for 2009–10. About $66 million of the total funds is slated for CCSAS maintenance expenses, such as system support staff, software updates, and equipment replacement. The remaining $52 million is for multiple change requests for additional functionality that was previously deferred in order to meet the federal certification deadline. The administration has indicated that further details on these change requests will be forthcoming.

Evaluating the CCSAS Budget. The $66 million for maintenance and upkeep of the CCSAS system appears necessary to maintain current functionality. However, the $52 million in functionality change requests appear to be enhancements to a federally certified system which provides adequate service levels. Given the current fiscal environment, any change requests that seek new functionality should be rejected, unless the administration provides evidence that the new functionality would result in increased child support collections and be more cost–effective than the current operations.

Recommendations. At the time this analysis was prepared, the administration had not provided sufficient justification for the $52 million in change requests. Accordingly, we recommend reducing the CCSAS budget by $52 million ($17 million General Fund). As details of the $52 million change requests become available, we will update our analysis and advise the Legislature of our findings.