In addition to picking up two-thirds of county administrative expenditures, the federal government makes incentive payments to states, designed to encourage them to collect child support. California passes the federal incentive payments to the counties along with additional state incentive payments. In the current state fiscal year (1997-98), counties are expected to receive $192 million ($81 million federal) in incentive payments. These funds are used to supplement other federal, county, and state funds to administer the program.
As discussed in more detail below, a proposed change in the federal formula which allocates funding to the states would significantly reduce these incentive payments to California.
The New Collections Base. Currently, TANF and non-TANF collections are weighted equally when determining the collections base. The new collections base would be the sum of collections on behalf of families who have never received TANF, plus twice the sum of collections on behalf of current and former TANF recipients. Thus, this change would tend to give more weight to TANF collections, compared to the existing system. The new formula would also remove the existing 115 percent cap which, as noted above, limits the amount of non-TANF incentive payments. This change would tend to give more weight to non-TANF collections, but would benefit only those states that have relatively high levels of such collections.
The New Incentive Rate. The incentive rate proposed in H.R. 2487 would be a function of five performance measures:
How the Incentive System Would Work. A state could receive a maximum incentive payment of 2.21 percent of its collections base. The exact amount of a state's incentive payment would depend on its level of performance and rate of improvement in each criterion, according to a specified schedule.
Implementation. The new formula would be phased-in over three years. In FFY 2000, one-third of the state's incentives would be based on the new formula and two-thirds on the current formula. In FFY 2001, two-thirds would be based on the new formula and one-third on the current one. In FFY 2002, only the new formula would be used.
|Federal Incentive Payments Under Current Law and H.R. 2487|
Ten Largest Statesa
Federal Fiscal Year 1996
|(Dollars in Million)|
|Current Law||H.R. 2487||Difference|
|State||Amount||Percent of Nationwide Total||Amount||Percent of Nationwide total||Amount||Percent|
|a As measured by amount of incentive payments.|
This reduction of $42.3 million in incentive payments is the net impact of three components. First, changing the performance-based incentive rate would have reduced California's incentive payments by $22 million, if the proposed system had been in effect in FFY 1996. Although California would earn the maximum incentive rate for paternity establishment, the state would earn no incentives for support order establishment, current support collections, and arrearage collections, and it would earn only 40 percent of the maximum incentive rate for cost-effectiveness. Based on FFY 1996 performance, California's incentive rate "score" would be below 44 other states.
Second, the removal of the 115 percent cap on non-TANF incentive payments would have reduced California's incentive payments by $22.1 million. Removal of the cap favors states that process a larger share of their non-TANF cases through their state child support programs. In California, non-TANF custodial parents can choose not to use the services of the county district attorney. In contrast, Michigan, Ohio, and Pennsylvaniathree states that gain significantly under the proposed incentive systemrequire that all child support payments be disbursed through their state child support enforcement systems.
Third, weighting current and former TANF collections more heavily than collections on behalf of families who have never received TANF would have increased California's incentive payments by $1.8 million. In this instance, the relatively high percentage of TANF collections in California's child support enforcement program works to the state's advantage, but the fiscal impact is small compared to the two prior negative factors.
While this is an important finding, it does not tell us whether the proposed changes would accomplish the primary goal of the proposal: to increase child support collections. To shed some light on this, we conducted a series of statistical analyses, using data from the 58 counties in California.
In our analysis, the only variables we found to be statistically significant in explaining differences in collections among the counties were (1) overall administrative expenditures per case on the program, and (2) cost-effectiveness, as measured by the ratio of collections to administrative costs. Besides cost-effectiveness, we found no statistically significant relationship between the proposed performance variables and collections. Moreover, cost-effectiveness was much less important than administrative expenditures in explaining the variation in collections. This is because some counties that were good performers on the cost-effectiveness scale were relatively low performers in terms of collections. In other words, their cost-effectiveness was more a function of holding down spending than increasing collections.
While we recognize that the proposed performance variables are important components of the child support enforcement process, we also note that they are only part of a network of elements in that process. The issue is whether collections will be enhanced by giving program administrators a fiscal incentive to place greater weight on particular components of the process than they might otherwise; or whether the administrators should be left to make their resource allocation decisions without bias. Our findings suggest that the latter course may be the wiser. Thus, in devising an incentive payment formula we suggest that consideration be given to alternatives that place more weight on the principal outcome measurecollectionsor some combination of collections and administrative effort, rather than on specific input variables.
We will explore this issue in greater detail in our Analysis of the 1998-99 Budget Bill (scheduled for release in February 1998), in response to the requirements of Chapter 926, Statutes of 1997 (SB 936, Burton).
ContactDavid Mancuso, Health and Social Services Section(916) 445-6061
|California Update is published monthlyexcept January and Februaryby the Legislative Analyst's Office (LAO). The LAO is a nonpartisan office which provides fiscal and policy information and advice to the Legislature. The Legislative Analyst's Office is located at 925 L Street, Suite 1000, Sacramento, CA 95814.To request publications call (916) 445-2375. Reports are also available on the LAO's World Wide Web page at http://www.lao.ca.gov.|
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