Legislative Analyst's Office, March 1996

Franchise Tax Board:
Child Support Collections Program

Child Support Due

In California, both the father and mother (whether married or unmarried at the time of a child's birth) have an equal responsibility to support their child. Typically, in the case of a divorce (or other cases where support responsibilities have been assigned) the non-custodial parent, either by voluntary agreement or in accordance with a court order, is obligated to support his or her minor child by making a monthly payment to the parent having primary custody of the child. The level of support is determined by the income situation of both parents and the amount of time the child spends with each parent. The Department of Social Services estimates that in California at least $350 million in child support payments (including interest due) are not paid every year.

In California, county district attorneys are responsible for attempting to collect unpaid child support for parents who have notified the county that the non-custodial parent is not making support payments. Jurisdictional boundaries and the lack of easy access to statewide information, however, limit the ability of district attorneys to collect delinquent child support.

These factors can, in turn, affect the state's budget. This is because unpaid child support can result in increased claims for welfare assistance, primarily in the form of Aid to Families With Dependent Children (AFDC). In view of these problems, the Legislature established a state program under the Franchise Tax Board (FTB) to help collect certain delinquent child support.

The Collections Program

The Child Support Collections Program began as a pilot program under the provisions of Ch 1223/92 (AB 3589, Speier). The pilot program involved six volunteer countiesFresno, Los Angeles, Nevada, Santa Clara, Solano, and Venturaand resulted in the collection of nearly $35 million in the first 12 months of the program. In light of the FTB's relative success in collecting these support payments, the Legislature enacted Ch 906/94 (AB 923, Speier) to expand the program to allow all counties in the state to participate in the program on a voluntary basis. To date, 29 counties have joined the program, and 22 other counties are scheduled to join over the next two years. Seven counties (Alpine, Colusa, Imperial, Modoc, San Diego, Tuolomne, and Yuba) have decided not to participate in the program.

Collection Process. If a county's efforts do not succeed in securing delinquent payments, the district attorney may choose to refer cases where payment is delinquent by 30 days or more to the FTB for collection. Using its statewide databases and collection abilities, the FTB operates as the collection agency for participating counties. It uses its automated system to search over 200 million income records on California residents' assets. These records include information on salaries, wages, interest, dividends, and other reportable income, such as rents and royalties. Upon identification of an individual's assets, the FTB can take several steps to collect delinquent child support payments. These steps include: (1) issuing levies on bank accounts, including IRA and Keogh accounts; (2) attaching wages by up to 50 percent of disposable income; and (3) seizing both real and personal property, including vacant land, contents of safe deposit boxes, and vehicles.

If the FTB cannot locate assets through the automated system, FTB staff will use manual search methods to identify assets, such as locating banks in the area of the obligated parent's home or place of employment, utilizing credit report information, calling licensing boards for address information, or checking county property ownership rolls. Because the FTB has limited authority outside of California, the FTB contracts with private collection agencies for out-of-state collections to locate the individual and/or assets and collect the delinquent payments. With county approval, these private agencies can pursue legal action to seize assets.

Results. The FTB program has collected over $87 million in delinquent child support payments since the program began in December 1993. As shown in Figure 1, this $87 million includes $5 million that has been collected but not yet distributed by the counties and $82 million distributed to the following categories of child support recipients:

Three-fourths of total distributed collections have occurred in Los Angeles County.

Figure 1
Franchise Tax Board Child Support Collections by Participating County
December 1, 1993 to March 31, 1996
Collections By Category
Entered Program/CountyAFDCNon-AFDCFoster CareTotal Collections
Pilot Counties
Los Angeles36,16925,5976261,828
Santa Clara1,9696171032,689
Other Counties a
El Dorado2201443367
San Joaquin7023--93
San Bernardino2,71498683,708
San Francisco21--b829
San Mateo27618311470
March collections
not yet distributed
a These counties joined the program between February 1995 and February 1996.
b Amount is less than one thousand dollars.

Impact on State General Fund. As mentioned above, over $87 million in delinquent child support payments had been collected through March 1996. The total cost of the program to the FTB through the end of the current year is estimated to be about $11 million. Reimbursements from the federal government and counties have paid for 93 percent of this cost, and the General Fund has paid for the other 7 percent.

Based on the FTB collections through March 1996, our analysis indicates that the program has resulted in a net savings to the General Fund of over $23 million. This savings is the result of offsetting the state's share of AFDC and Foster Care payments with the amounts of delinquent child support payments collected. Participating counties also experience savings because their share of AFDC and Foster Care payments are offset by the new collections. We note, however, that this estimate may overstate the actual impact of the FTB program because some of these collections may have been made by district attorneys in the absence of the FTB collection program.

Contact -- Sailaja Cherikuri -- (916) 322-8402

Economic and Revenue Developments

The economic recovery remains on track in California, and General Fund revenues continue to exceed the Governor's January Budget forecast.

California wage and salary employment increased by 8,600 jobs between February and March 1996. Although this increase was less than in previous months, the Employment Development Department indicates that harsh weather during the March survey week may have distorted the construction employment figures. Absent the 6,800 decline in construction employment that occurred in March, the underlying employment growth during the most recent month appears to be in line with the recent moderate growth trend.

Over the past year, wage and salary employment has increased by 3.1 percent, the largest increase since the late 1980s. All industrial sectors except finance and government grew during this period.

In other developments, existing home sales continue to rise, although construction of new homes has yet to show signs of strength. California's nonresidential real estate markets have improved significantly in recent months. For example, office vacancy rates in all regions of California except Los Angeles are below the national average. Foreign trade has also been strong, with California exports increasing by 22 percent in 1995.

Revenue Trend Remains Positive

Revenues continued to outperform the Governor's Budget forecast during the pivotal months of March and April. As we indicated last month, final payments for the majority of corporations were due in March, while personal income tax final payments, and quarterly estimated payments toward 1996 taxes, are due in April.

Based on preliminary data for April, it appears that tax receipts during the two -month period are above projections by between $300 million and $400 million. These estimates take into account the bulk of final income tax payments made in April, and partial data for April on other sources such as withholding payments and refunds.

Most of the net revenue increase for March and April is related to higher-than-expected personal income tax payments, although the other major taxes also experienced modest revenue gains.

As indicated in our previous report, total revenues through February were up by about $330 million. Thus, as of late April, total collections are up by between $600 million and $700 million. Unanticipated differences between estimated and actual income tax refunds, or receipts from other taxes late in April, could change the revenue picture somewhat. However, it is clear that the current revenue trend is above the Administration's January budget projections.

Contact -- Brad Williams -- (916) 324-4942

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