Statement of Leslie L. Frye, Chief, Office of Child Support
California Department of Social Services

Testimony Before the Subcommittee on Human Resources
of the House Committee on Ways and Means

Hearing on the Administration's Child Support Enforcement Incentive Payment Proposal

March 20, 1997

I want to thank you, Mr. Chairman and members of the Subcommittee for the opportunity to provide California's perspective on the Secretary's proposed performance-based incentive system for the Child Support Enforcement Program. As we understand it, the proposal goes far beyond the Congressional intent to develop an incentive system that rewards good outcomes and in fact encourages states to recruit middle class families, never dependent on public assistance and never likely to be so, into their programs in order to maximize federal child support incentives.

As you know, the Secretary of the Department of Health and Human Services (DHHS) was directed by Congress in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) to work with state IV-D directors to develop a performance-based incentive system for states' Child Support Enforcement Programs and report on the proposal to Congress by March 1, 1997.

This proposal does outline a broad-based incentive system which focuses on key program outcomes. These outcomes are paternities established, support orders established, current support collected, arrearage collections and cost effectiveness. We agree that these are appropriate outcomes to be measured for the purposes of paying incentives.

However the proposal also changes the way collections are counted for incentive purposes in a manner that is contrary to the principles underlying the PRWORA and that will lead to financial pressures on states to expand their Child Support Enforcement Programs to encompass all cases in the state, including those families who have never had to interact with government in order to pay or receive child support. Indeed, those states which already have near-universal government programs for child support will receive huge windfalls of incentives under the proposal, while states which historically concentrated on poor and near-poor families will lose federal incentive revenue, compared to the current system. California stands to lose two-thirds of its federal incentives, nearly $60 million, if the proposal were implemented this year.

The current incentive system recognizes only one performance factor--cost effectiveness--and limits incentives on "non welfare" collections to an amount equal to 115 percent of "welfare" incentives. The rationale for this limit is to ensure that states will focus on the more difficult, less lucrative work of seeking child support on behalf of the poorest families.

The proposal broadens the relevant performance factors and removes the limit entirely on incentives for "never welfare" families. It does weight collections for welfare and formerly welfare families. Despite this weighting, states with significant proportions of "never welfare" families in their current caseloads will see their collections base, against which the incentive rate will be applied, triple or more overnight. In order to keep the proposal cost neutral overall, the other variable in the equation--the incentive rate itself--must be lowered considerably, and it is this change that hurts states such as California. California will not see its collections base increase to anywhere near the extent of states with high ratios of "never welfare" collections. Therefore, California is hurt by the proposal due to its demographics and program policy to focus this government service on the most needy of its single parent families.

One way that California could mitigate the impact of the Secretary's proposal would be to amend state law to make it increasingly difficult for individuals to opt out of the governmental child support collection program. By recruiting "never welfare" families into the IV-D program, we too could benefit from earning incentives on collections for middle class families, which generally are easier to make and higher than collections for poor families. From a public policy point of view, however, we think this is wrong. We believe that Congress did not contemplate, in the PRWORA, creating a universal Child Support Enforcement Program. The demands on the IV-D program as a partner in helping families reach and sustain self sufficiency are significant, and it is toward these families that we believe our effort and our resources should be directed.

Mixing the issue of removing the limit on "never welfare" collections with the performance-based incentive system skews the results so that some states, notably those with near-universal child support programs, would receive more incentives for poorer performance, while states with greater proportions of welfare or former welfare families in their caseloads may not ever be able to earn incentives at the current rate, no matter how well they perform.

Because the new incentive system must be cost neutral compared with the current system, the rate at which states can earn incentives must be lowered substantially from current levels to accommodate the huge new base of collections eligible for incentives in states that are now affected by the limit on non welfare incentives. Since California does not gain much, if at all, from removing this limit, it only loses revenue due to the reduction of the percentage incentive rate it could achieve under the proposed system.

Only four states are particularly hurt by the removal of the limit on "never welfare" incentives. All have historically collected proportionately more for their welfare dependent customers than have other states. They are California, Connecticut, Maine and Rhode Island. In each of these states, "welfare" collections account for 40 percent or more of total collections. States which stand to gain the most from this proposal are those states where welfare collections account for 20 percent or less of total collections. In a letter to Secretary Shalala dated

February 5, 1997, California Department of Social Services Director Eloise Anderson said, "I cannot support a proposal that has such a disparate and irrational effect on states."

There is a great deal of consensus within the IV-D community for two aspects of the Secretary's proposal: developing a performance-based incentive system and removing the limit on incentives for collections on behalf of former welfare recipients. We share in this consensus. However, the issue of completely removing the limit on incentives for "never welfare" families has not been widely discussed and there is no such consensus. We recommend that this policy issue be thoroughly considered by Congress and within the IV-D community before it is adopted. At a minimum, if Congress believes removing the limit has merit, it should be phased out in order to address cost neutrality. Otherwise, states with higher proportions of welfare collections will be unavoidably hurt so that other states can receive windfalls.

It is our further recommendation that the performance-based system itself be phased in over a period not less than three years. Under the current time frames in the PRWORA, the new incentive system must be in place for Federal Fiscal Year 2000, which begins on October 1, 1999. The base year for developing the data on which incentives would be paid is Federal Fiscal Year 1999, which begins on October 1, 1998--just over 18 months from now. It is extremely doubtful that data definitions and reporting procedures can be standardized fully within that time frame, and it is extremely important that states be measured on a level playing field if the new system is to have integrity. If the new system is phased in over three years, states will have a longer period of time not only to retool their programs to succeed under the new system, but also to work out the disparate definitions and the reporting problems that have plagued the Child Support Enforcement Program for so many years.

In conclusion, I ask that the Subcommittee consider carefully the whole of the Secretary's proposal, including the removal of the limit on incentives for "never welfare" collections. I know that there are always going to be "winners and losers" when an allocation methodology is changed within the constraints of cost neutrality. However, I am concerned that the real losers are likely to be the very families Congress intended to help toward self sufficiency in the landmark legislation passed last summer. It would be a shame if the incentive system for the Child Support Enforcement Program subverted that effort.

I thank you for the opportunity to present our views and I would be happy to answer any questions the Subcommittee members may have.