oversight

Child Support Enforcement: Effects of Declining Welfare Caseloads Are Beginning to Emerge

Published by the Government Accountability Office on 1999-06-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Chairman, Subcommittee
                  on Human Resources, Committee on
                  Ways and Means, House of
                  Representatives

June 1999
                  CHILD SUPPORT
                  ENFORCEMENT
                  Effects of Declining
                  Welfare Caseloads Are
                  Beginning to Emerge




GAO/HEHS-99-105
          United States
GAO       General Accounting Office
          Washington, D.C. 20548

          Health, Education, and
          Human Services Division

          B-280957

          June 30, 1999

          The Honorable Nancy L. Johnson
          Chairman, Subcommittee on Human Resources
          Committee on Ways and Means
          House of Representatives

          Dear Madam Chair:

          Nearly two-thirds of the 13.7 million American women and men raising
          children alone did not receive any child support in 1995. Many of these
          custodial parents head poor families that receive cash assistance under the
          Temporary Assistance for Needy Families (TANF) program, while others
          care for families not currently receiving cash assistance but who are at
          risk of becoming impoverished. The Child Support Enforcement (CSE)
          program, a federal-state partnership, was designed to

      •   promote parental responsibility for children in welfare and nonwelfare
          families,
      •   help the federal government and states recover their welfare payments to
          needy families by allowing these entities to retain the child support
          payments they collect from noncustodial parents who owe support, and
      •   keep families currently not on welfare from becoming welfare recipients
          by helping them collect child support payments owed to them.

          As a condition of receiving federal TANF funds, states are required to
          operate CSE programs that are approved by the federal Office of Child
          Support Enforcement (OCSE) within the Department of Health and Human
          Services (HHS). TANF families are required to participate in the CSE program.
          Families that do not receive TANF may request CSE services, for which they
          are usually charged a nominal fee.

          The Personal Responsibility and Work Opportunity Reconciliation Act of
          1996 (P.L. 104-193) changed welfare law to help families become less
          dependent on welfare and move them toward self-sufficiency, in part, by
          improving child support collections and limiting to 5 years the amount of
          time families can receive welfare payments. For example, the law required
          that the federal government and states create directories of new employee
          hires to more effectively locate parents who owe child support. It also
          required that families be given priority in receiving past due child support
          payments once they leave welfare. In addition, the law required HHS to
          revise its performance incentive system. As a result, states are now




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    required to reinvest the incentive payments in their CSE programs. Once
    families leave the welfare rolls, they can continue to receive the CSE
    services they need. Such services include locating absent parents,
    establishing paternity and child support orders, and collecting payments
    owed. In fiscal year 1997, child support collections nationwide for welfare
    and nonwelfare families totaled $2.8 billion and $10.5 billion, respectively.

    However, since 1994, an increasing number of states have begun to pay out
    more to operate their CSE programs than they receive back in recovered
    welfare payments and incentive payments.1 Several states attribute this
    change to the decline in welfare caseloads, which began in 1994 and has
    accelerated since the passage of the welfare reform law. This welfare
    caseload decline has meant fewer CSE welfare cases where the federal
    government and the states keep the recovered collections (generally
    referred to as retained collections). At the same time, CSE nonwelfare
    caseloads and collections, which are paid directly to families, have
    increased. Given the overall decline in CSE welfare caseloads, the steady
    growth in CSE nonwelfare caseloads, and the welfare reform changes
    affecting the federal government’s and states’ financing of the program,
    you asked us to address the following questions:

•   How have CSE welfare collections changed since 1994?
•   What have been the net savings/cost experiences of state and federal CSE
    programs?
•   For those states that have experienced declines in CSE welfare collections,
    how have these declines affected their state’s CSE program funding?
•   What are the future implications of caseload declines and welfare reform
    changes for the CSE program?

    To answer these questions, we analyzed annual report data for fiscal years
    1990 through 1996 and preliminary data for fiscal years 1997 and 1998 from
    OCSE.2, 3 We also interviewed CSE officials in the seven states that have
    experienced declines in their retained collections—the portion of welfare


    1
     This is referred to as net cost. Net savings result when a state pays out less to operate its CSE
    program than it receives in recovered welfare payments and incentive payments. The CSE program
    may produce other savings, such as cost avoidance in welfare, Food Stamps, and Medicaid. See Laura
    Wheaton and Elaine Sorensen, “Reducing Welfare Costs and Dependency: How Much Bang for the
    Child Support Buck?” Georgetown Public Policy Review (Fall 1998). These estimated savings are not
    included in OCSE calculations of CSE net savings or costs.
    2
     The preliminary fiscal year 1998 data are not yet complete. Some fiscal year 1998 collections have not
    yet been distributed among the federal government, the states, and families.
    3
     Our analysis covered the 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin
    Islands, herein referred to as states.



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                   collections not given to families or to the federal government—between
                   fiscal years 1995 and 1997. We conducted our work between July 1998 and
                   April 1999 in accordance with generally accepted government auditing
                   standards.


                   Despite significant declines in TANF caseloads and CSE welfare caseloads,
Results in Brief   total state CSE welfare collections nationwide increased 11 percent
                   between fiscal years 1994 and 1997. While declines in CSE welfare cases
                   might have been expected to lower CSE welfare collections for the states
                   and federal government, the CSE program’s ability to intercept more money
                   from delinquent noncustodial parents’ income tax refunds more than
                   offset the effects of the caseload declines. However, collections decreased
                   for some individual states. Seven states (Indiana, Maryland, Missouri,
                   South Carolina, Tennessee, Vermont, and Wisconsin) experienced a drop
                   in the amount of CSE collections that they kept in fiscal year 1997 relative
                   to the amount that they retained in fiscal year 1995.

                   During the period from fiscal year 1994 to fiscal year 1997, a declining
                   majority of states realized net savings from the CSE program while the
                   federal government experienced net costs. In fiscal year 1997, the states
                   collectively spent about $1.1 billion to operate their CSE programs and
                   retained about $1.6 billion in recovered welfare payments and incentive
                   payments. The federal government, on the other hand, spent about
                   $2.3 billion to fund the CSE program and retained about $1 billion in
                   recovered welfare benefits. The differing results for the states and federal
                   government are not surprising since the federal government pays
                   two-thirds of the program’s administrative costs and also awards the states
                   incentive payments from its share of CSE welfare collections. Between
                   fiscal years 1994 and 1997, the numbers of states experiencing net costs
                   increased from 12 to 22 because of increased administrative costs,
                   reduced CSE welfare collections, and declining incentive payments.

                   While declining caseloads have resulted in lower retained collections in
                   seven states, CSE officials in those states said the decline did not negatively
                   affect their CSE program funding. The way a state chooses to finance its CSE
                   program determines its sensitivity to fluctuations in CSE welfare
                   collections. For example, if a state pays for its program from its general
                   fund, its program funding may not be affected by a reduction in retained
                   collections. If, however, a program is at least partially funded from the
                   amounts collected and retained, a reduction in such amounts could have a




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             considerable effect on program funding. Only one of the seven states used
             retained collections as a funding source.

             The effects of TANF caseload declines and welfare reform changes are just
             beginning to emerge. Future caseload declines—evidence of a significant
             reduction in families’ dependence on government cash assistance—are
             likely to reduce retained state and federal CSE welfare collections. At the
             same time, nonwelfare caseloads and costs are likely to increase. The
             welfare reform provision that gives families a greater priority in receiving
             past due payments will also reduce the amount of CSE welfare collections
             retained by the states and federal government. The implementation of a
             new incentive payment program will result in less stable program revenues
             for the states. The welfare reform law, however, also required the federal
             government and the states to create powerful new tools to enforce the
             collection of child support, such as federal and state directories of CSE
             orders and new employee hire information, that may ameliorate the
             expected declines in CSE welfare collections, yet increase states’
             administrative costs. In addition, some states are considering expanding
             their service fees for CSE nonwelfare cases; such fees could serve to defray
             federal and state CSE costs. In this connection, we recommended in 1992
             that the Congress require states to charge a minimum percentage service
             fee for each successful CSE nonwelfare collection. The Congress has
             considered this option, but to date no action has been taken to require
             such fees. We continue to believe that this recommendation has merit.


             The Congress created the federal CSE program as title IV-D of the Social
Background   Security Act in 1975. OCSE in HHS is responsible for providing leadership,
             technical assistance, and standards for state CSE programs. States or local
             offices, under state supervision, deliver CSE services to families. The
             federal government and the states share administrative costs to operate
             the program at the rate of 66 and 34 percent, respectively, and also share
             any recovered costs and fees at the same rate. In fiscal year 1997,
             administrative costs for the program were $3.4 billion and welfare and
             nonwelfare collections totaled almost $13.4 billion.

             The federal and state governments share CSE collections from welfare
             cases by the same percentage as they funded welfare benefits in fiscal year
             1996. The federal government’s share is inversely related to state per
             capita income and ranges from 50 percent in high per capita income states,
             such as California, to about 80 percent in low per capita income states,




             Page 4                                  GAO/HEHS-99-105 Child Support Financing
B-280957




such as Mississippi. The collections that the federal and state CSE
programs keep are referred to as retained collections.

Currently, the federal government awards incentive payments to states
solely on the basis of each state’s cost efficiency in collecting child
support in both welfare and nonwelfare cases.4 Incentive payments are
paid out of the federal government’s share of retained collections. States
can earn incentive payments ranging from 6 to 10 percent of both welfare
and nonwelfare collections, depending upon their cost efficiency.5 The
welfare reform law required HHS and the states to develop a new incentive
program. The Child Support Performance and Incentive Act of 1998 (P.L.
105-200) amended the law to provide that states’ incentive payments be
based upon five performance-based outcome measures.6 Starting in fiscal
year 2000, this new incentive plan will be phased in and will include a
fixed pool of incentive payments for which all states must compete.7

The CSE program unlike most other federal social programs generates
revenue for its federal and state partners. Thus, the program is often
discussed in terms of savings and costs realized. The states’ and federal
government’s net financial savings or costs from the CSE program are
determined by their respective share of (1) retained CSE welfare
collections, (2) performance incentives paid or received for both welfare
and nonwelfare cases, and (3) administrative costs incurred, as illustrated
in figure 1.




4
 Cost efficiency is determined by dividing welfare and nonwelfare collections each by total
administrative costs.
5
 A state’s total nonwelfare incentive payment, however, is limited to 115 percent of its welfare
incentive payment. All but two states reached the 115-percent cap on nonwelfare incentive payments
in fiscal year 1994. Therefore, reductions in welfare collections affect both the welfare and nonwelfare
incentive payments.
6
 GAO recommended that the incentive payment system be aligned with performance-based outcome
goals for collection and noncollection results. See Child Support Enforcement: Families Could Benefit
From Stronger Enforcement Program (GAO/HEHS-95-24, Dec. 27, 1994) and Child Support
Enforcement: Reorienting Management Toward Achieving Better Program Results
(GAO/HEHS/GGD-97-14, Oct. 25, 1996).
7
 The five performance measures are the paternity establishment percentage, the percentage of cases
with support orders, the collection rate for current support, the percentage of cases with collections
on arrears, and the total dollars collected per dollar of expenditures.



Page 5                                                 GAO/HEHS-99-105 Child Support Financing
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Figure 1: State and Federal CSE Savings/Cost Formula


  Federal


                                                                                                        66% of
     Net Child Support
     Savings or Costs
                          =      Share of Retained
                                    Collections          –       Incentive Payments
                                                                      to States               –       Administrative
                                                                                                         Costs




   State

                                                                Incentive Payments                       34% of
      Net Child Support
      Savings or Costs
                           =     Share of Retained
                                    Collections          +        Received From               –        Administrative
                                                                Federal Government                        Costs




                                         The welfare reform law made significant changes in the nation’s welfare
                                         policy and the CSE program. TANF represents a significant departure from
                                         the Aid to Families With Dependent Children (AFDC) program, introducing
                                         a 5-year limit on federal cash assistance to ensure that such assistance is
                                         temporary for most recipients.8, 9 AFDC and its successor program, TANF,
                                         have experienced a 45-percent decline in the numbers of families receiving
                                         cash assistance since the AFDC program reached its all-time high in 1994.
                                         As illustrated in figure 2, the total numbers of families began to decline in
                                         1995, and the decline accelerated in 1996 when the welfare reform law was
                                         enacted. Caseload declines between 1994 and 1998 ranged from about
                                         20 percent in Hawaii to a high of almost 90 percent in Wisconsin and
                                         Wyoming (see app. I).




                                         8
                                          Before the welfare reform law passed in 1996, 14 states were granted waivers under section 1115 of
                                         the Social Security Act, allowing them to experiment with assistance time limits ranging from 18
                                         months to 5 years. While state policies regarding exemptions and extensions varied, these state
                                         waivers were the first efforts to make assistance temporary for a specified period of time.
                                         9
                                          Federal TANF assistance to a family including an adult is limited to 60 months (whether or not they
                                         are consecutive). However, some states, such as Georgia and Utah, adopted shorter time limits as part
                                         of their TANF programs. For families reaching time limits, states may continue to provide aid with
                                         state funds.



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Figure 2: Families Receiving
AFDC/TANF, 1936-98             Families in Millions
                               6




                               5




                               4




                               3




                               2




                               1




                               0
                                    36




                                                           56




                                                                        66




                                                                                     76




                                                                                                   86
                                              46




                                                                                                              19 6
                                                                                                                 98
                                                                                                                 9
                               19




                                                         19




                                                                      19




                                                                                    19




                                                                                                 19
                                            19




                                                                                                              19
                                Year


                               Note: Data for 1998 are as of December 1998.

                               Source: HHS Administration for Children and Families.




                               Because almost every welfare case results in one or more CSE welfare
                               cases, this decline in AFDC/TANF families resulted in a decline in CSE welfare
                               cases and a corresponding increase in CSE nonwelfare cases in most states
                               (see app. II).10 As figure 3 shows, CSE welfare cases began to decline from




                               10
                                 Clients may request a good cause exemption from cooperating with the CSE program if their
                               cooperation could result in physical or emotional harm to the child or the parent. Federal regulations
                               require states to automatically open a CSE nonwelfare case for a former welfare recipient unless that
                               person specifically declines continued services.



                               Page 7                                                 GAO/HEHS-99-105 Child Support Financing
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                                       their all-time highs in fiscal year 1994 while CSE nonwelfare cases
                                       continued to rise.11


Figure 3: Welfare and Nonwelfare CSE
Caseloads, FY 1994-97                   Caseloads in Millions
                                       10


                                        9


                                        8


                                        7


                                        6


                                        5
                                                                      8,189,569




                                                                                                                                                         9,947,678
                                                                                  7,879,725
                                                   7,985,983




                                                                                                                                            6,461,723
                                                                                                             7,379,629


                                                                                                                                9,347,875
                                                                                                 8,783,238



                                        4


                                        3


                                        2


                                        1


                                        0
                                                               1994                       1995                           1996                     1997


                                            Year


                                                   Welfare
                                                   Nonwelfare


                                       Note: Preliminary data from OCSE indicate that this trend continued through fiscal year 1998, with
                                       welfare and nonwelfare caseloads of about 5.7 million and 11 million, respectively.

                                       Source: OCSE data.




                                       11
                                         State administrative actions may also affect caseload declines. For example, Arizona, Georgia,
                                       Illinois, New Mexico, and Puerto Rico reported an increase in the number of CSE case closures in
                                       fiscal year 1995 because of either data clean-up efforts that were necessary for data conversion into
                                       new computer systems or revised criteria for case closure.



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                            States have experienced a sharp decline in the numbers of TANF families
Welfare Child Support       and CSE welfare cases, yet their total CSE welfare collections generally
Collections Have            increased between fiscal years 1994 and 1997. While declining CSE welfare
Risen as TANF               cases would be expected to result in lower CSE welfare collections, total
                            CSE welfare collections rose 11 percent largely because CSE programs have
Caseloads Have              been able to intercept more money from the income tax refunds of
Declined                    delinquent noncustodial parents. The federal and state shares of
                            collections rose even higher because of a welfare law change that allows
                            them to retain a greater share of CSE welfare collections.

                            In designing the 1996 welfare reform legislation, the Congress recognized
                            that one or more of its changes could adversely affect the amount of
                            retained state CSE collections. Therefore, the welfare reform law contained
                            a provision to hold states harmless for declines in their CSE welfare
                            collections. That is, it guaranteed that starting in fiscal year 1997, states
                            would receive a supplemental payment, commonly referred to as a hold
                            harmless payment, if their retained collections dropped below their fiscal
                            year 1995 levels. In fiscal year 1997, seven states were not able to maintain
                            their retained CSE welfare collections at 1995 levels and thus were eligible
                            to receive hold harmless payments from the federal government.


Total Welfare Child         Between fiscal years 1994 and 1997, total CSE welfare collections increased
Support Collections         11 percent. As shown in table 1, CSE welfare collections peaked in fiscal
Generally Increased         year 1996 and declined slightly in fiscal year 1997.12 At the same time, the
                            portion of collections retained by the states and federal government
Between Fiscal Years 1994   increased by 30 percent and 37 percent, respectively, as a result of a
and 1997                    welfare reform provision that allows them to retain a greater share of CSE
                            welfare collections that were formerly paid to welfare families.




                            12
                              Between fiscal years 1990 and 1993, CSE welfare collections increased 38 percent. This suggests a
                            slowing in the rate of CSE welfare collection growth.



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Table 1: State and Federal Shares of
Total CSE Welfare Collections, FY      Dollars in thousands
1994-97                                                                                                  Fiscal year
                                                                                         1994            1995           1996             1997
                                       Total welfare CSE collections              $2,549,723 $2,689,392 $2,855,066 $2,842,681a
                                       Federal share                                  762,341        821,551         888,258      1,044,288
                                       State share                                    890,717        938,865       1,013,666      1,158,831
                                       Incentive payments to states                   407,242        399,919         409,142        411,527
                                       Payments to families                           457,125        474,428         480,406        157,033b
                                       Medical support payments                        32,299          54,629          63,570           70,683
                                       a
                                        Preliminary data from OCSE for fiscal year 1998 indicate that welfare collections declined to
                                       about $2.6 billion.
                                       b
                                        Payments to families that are no longer required since the passage of the welfare reform law are
                                       not included.

                                       Source: OCSE data.



                                       As the numbers of TANF cases and CSE welfare caseloads have declined,
                                       there has been a corresponding increase in the number of CSE nonwelfare
                                       cases in which collections go directly to families. From fiscal year 1994 to
                                       1997, CSE nonwelfare caseloads increased 21 percent (see fig. 3), and CSE
                                       nonwelfare collections increased 44 percent as families have transitioned
                                       from the welfare rolls (see fig. 4).13




                                       13
                                         Preliminary data from OCSE indicate a higher nonwelfare caseload increase of 34 percent between
                                       fiscal years 1994 and 1998 and a 60 percent increase in nonwelfare collections during the same period.



                                       Page 10                                               GAO/HEHS-99-105 Child Support Financing
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Figure 4: CSE Welfare and Nonwelfare
Collections, FY 1994-97                 Collections in Billions
                                       12

                                                                                                                        10.5

                                       10
                                                                                                   9.2


                                                                              8.1
                                        8
                                                        7.3



                                        6




                                        4
                                                                                          2.9                  2.8
                                                 2.5                 2.7


                                        2




                                        0
                                                   1994                1995                 1996                 1997


                                         Year


                                                 Welfare
                                                 Nonwelfare


                                       Note: Preliminary data from OCSE for fiscal year 1998 indicate that welfare collections declined to
                                       about $2.6 billion while nonwelfare collections increased to about $11.5 billion.

                                       Source: OCSE data.




                                       An increase in the amount of money intercepted from delinquent
                                       noncustodial parents’ federal income tax refunds significantly increased
                                       the amount of total CSE welfare collections. Under the federal income tax
                                       refund offset program, state CSE agencies submit to the Internal Revenue
                                       Service (IRS) the names, Social Security numbers, and amount of past-due




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                          child support of people who are behind in their child support payments.14
                          When IRS processes tax returns, it identifies the returns of those who owe
                          past-due child support. If a tax refund is due, all or part of it is intercepted
                          to offset past-due child support payments.

                          From 1994 to 1997, the amount of money intercepted for CSE welfare cases
                          increased 59 percent from $442 million to $704 million.15 Over this same
                          period, the amount of money intercepted for nonwelfare cases increased
                          72 percent from $181 million to $311 million. Intercepting income tax
                          refunds is the second largest source of CSE collections after wage
                          withholding.

                          In addition to the total increase in CSE welfare collections, the proportion
                          of these collections retained by the states and federal government also
                          increased. The new welfare reform law eliminated the $50 disregard
                          provision, which previously required that the first $50 of support collected
                          each month be passed through to welfare families and not deducted from
                          their welfare cash assistance payment. In fiscal year 1997, this change
                          provided almost $300 million in additional funds to be split between the
                          states and federal government. States were allowed to continue a family
                          pass-through policy if they so chose; however, the federal government no
                          longer helps to finance such a policy. The Center for Law and Social Policy
                          reported that about 23 states have continued some type of disregard
                          policy. As noted in table 1, reported payments to families declined from
                          $480 million in fiscal year 1996 to $157 million in fiscal year 1997.
                          However, fiscal year 1997 statistics do not include state-only payments to
                          families that may be made out of the state share of collections.


Some States Received      In fiscal year 1997, seven states—Indiana, Maryland, Missouri, South
Supplemental Federal      Carolina, Tennessee, Vermont, and Wisconsin—were eligible for hold
Payments Because Their    harmless payments totaling about $14 million because their retained
                          collections dropped below their fiscal year 1995 levels. The hold harmless
CSE Welfare Collections
Declined



                          14
                           Most states have state tax refund offset programs as well. In fiscal year 1997, states intercepted
                          $66 million in state tax refunds for CSE welfare cases and $53 million for nonwelfare cases.
                          15
                           The increase in tax refund collections suggests that more noncustodial parents were working and
                          had reportable income. This increase is somewhat offset by a decline in the amount of unemployment
                          payments intercepted. They declined from $85 million in fiscal year 1994 to $63 million in fiscal year
                          1997.



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                       payments ranged from about $480,000 in Missouri to $5.4 million in
                       Tennessee.16

                       In six of the seven states, CSE officials attributed the decline in CSE welfare
                       collections to the decline in TANF caseloads. In Missouri, collections
                       declined because the state temporarily moved its federal TANF cases into a
                       state-only welfare program to delay the start of welfare recipients’ time
                       limits.

                       The welfare reform law does not require states to use their hold harmless
                       payments to fund CSE programs. However, in four of the seven hold
                       harmless states—Indiana, Missouri, South Carolina, and Tennessee—the
                       hold harmless payment went to the CSE agency. A fifth state, Vermont, is
                       currently seeking legislative authority to reinvest its hold harmless
                       payment in its CSE program. Wisconsin returned the hold harmless
                       payment to its Department of Workforce Development, the agency that
                       houses its CSE program. Finally, in Maryland, the state is investing its hold
                       harmless payment in its TANF program.

                       While fiscal year 1998 statistics are not yet complete, HHS staff estimate
                       that as many as 20 states will be eligible for hold harmless payments as a
                       result of declining retained CSE welfare collections. The Congressional
                       Budget Office estimates that hold harmless payments to states will reach
                       approximately $50 million in fiscal year 2000, gradually declining to
                       $40 million in fiscal year 2004. However, the administration’s proposed
                       budget for fiscal year 2000 calls for the elimination of hold harmless
                       payments.


                       From fiscal year 1994 to fiscal year 1997, states continued to experience
Despite Overall        net savings from the CSE program, while the federal government’s net costs
Savings, More States   continued to rise. Although the federal government has always paid the
Are Joining the        lion’s share of program costs, a growing number of states are beginning to
                       experience net costs from their CSE programs, and individual states’
Federal Government     savings or costs varied widely. Four of the 32 states that continued to
in Experiencing Net    experience net savings also received hold harmless payments because
                       their fiscal year 1997 retained collections fell below their 1995 levels.
Costs                  Although more states are experiencing net costs, they are not permitted to
                       use unspent TANF funds to make up for reductions in their CSE revenues.


                       16
                         Tennessee’s fiscal year 1997 collections were $7.7 million lower than its fiscal year 1995 collections.
                       However, the state’s hold harmless payment was limited to the federal share of collections from that
                       state.



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States Unevenly Share       In 1997, states experienced estimated net savings of $467 million from
Program Savings and Costs   their CSE programs while the federal government experienced an estimated
                            net cost of $1.3 billion. A state’s savings or costs are determined by
                            combining its retained collections and incentive payments and subtracting
                            its one-third share of administrative costs. Federal savings or costs are
                            determined by taking the federal government’s share of retained
                            collections and subtracting the state incentive payments and the federal
                            government’s two-thirds share of administrative costs. Because of this
                            basic financing structure, states have always realized net savings, while
                            the federal government has always experienced net costs. As illustrated in
                            figure 5, this basic pattern continued between fiscal years 1994 and 1997.




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Figure 5: State and Federal Net CSE
Savings or Costs, FY 1994-97            Dollars in Millions
                                        500




                                          0




                                       -500




                                      -1000




                                      -1500
                                                     1994                 1995                 1996                 1997


                                           Fiscal Year


                                                  Total Net Costs
                                                  States' Net Savings

                                                  Federal Net Costs


                                      Note: HHS estimates that overall state savings will continue until fiscal year 2001, when states
                                      overall will begin to show net costs.

                                      Source: OCSE data.




                                      The states’ program savings or costs varied widely in fiscal year 1997, as
                                      shown in appendix III. California led the 32 states experiencing net savings
                                      from their CSE programs, receiving back about $178 million more than its
                                      program cost; Arkansas experienced the largest net costs of about
                                      $6 million. The numbers of states experiencing net program savings




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                                       declined from 42 in 1994 to 32 in 1997 as a result of increased
                                       administrative costs, reduced CSE welfare collections, and declining
                                       incentive payments (see fig. 6). 17,18


Figure 6: Number of States
Experiencing Net Costs or Savings in    Number of States
CSE Programs
                                       50


                                                   43


                                       40                            38

                                                                                         35

                                                                                                              32

                                       30


                                                                                                                       22

                                       20                                                         19
                                                                              16


                                                               11
                                       10




                                        0
                                                        1994           1995                1996                 1997


                                            Year


                                                   Net Savings
                                                   Net Costs


                                       Note: HHS estimates that 30 states experienced net costs in fiscal year 1998.

                                       Source: OCSE data.




                                       17
                                        Hold harmless payments are not considered in OCSE’s calculation of net savings or costs. If hold
                                       harmless payments were considered, the number of states experiencing net savings would increase to
                                       34.
                                       18
                                         Alabama, Alaska, Delaware, Nevada, New Hampshire, and Puerto Rico attributed the increases in
                                       fiscal year 1995 administrative costs to increased expenditures for automated systems.


                                       Page 16                                                GAO/HEHS-99-105 Child Support Financing
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Some States That                      Because the hold harmless payment is based on changes in retained
Experienced Net Savings               collections only and not the entire net savings or costs equation, four
Also Received Hold                    states experienced net savings and were also eligible for hold harmless
                                      payments totaling almost $7 million for fiscal year 1997. These four states
Harmless Payments                     realized total net savings of almost $15 million in fiscal year 1997;
                                      however, this was a decline of $25 million from their fiscal year 1995 net
                                      savings (see table 2). Declines in net savings can occur if retained
                                      collections decline, earned incentive payments decline, or administrative
                                      costs increase (see fig. 1).

Table 2: State Share of Program
Savings or Costs, Fiscal Years 1995                                    FY 1995 program FY 1997 program                       Change, FY
and 1997, for States That Received    State                            saving or (costs) saving or (costs)a                     1995-97
Hold Harmless Payments in Fiscal      Indiana                                $18,261,945             $10,311,881             ($7,950,064)
Year 1997
                                      Maryland                                  4,819,028                (321,631)             (5,140,659)
                                      Missouri                                  7,694,840               1,850,554              (5,844,286)
                                      South Carolina                              190,946                (817,850)             (1,008,796)
                                      Tennessee                                 7,519,056                (947,506)             (8,466,562)
                                      Vermont                                   1,557,276                 745,853                (811,423)
                                      Wisconsin                                12,694,857               1,982,694            (10,712,163)
                                      Total                                    52,737,948             12,803,995             (39,933,953)
                                      a
                                       The calculation of the states’ net program savings or costs do not include the hold harmless
                                      payments the states received for fiscal year 1997.

                                      Source: OCSE data.




Unspent TANF Funds                    Although some states have large unspent balances of state TANF funds, HHS
Cannot Be Used to Offset              has determined that these funds cannot be used to offset reductions in
Reductions in CSE                     states’ CSE revenue. The unspent balances of state TANF funds resulted
                                      from the welfare reform law’s fundamental change in the way the federal
Revenue                               government finances cash assistance to families. The law eliminated the
                                      open-ended entitlement of the AFDC program and replaced it with a
                                      flexible, capped block grant. The amount of each state’s block grant is
                                      based on time periods when welfare caseloads and federal spending were
                                      at historically high levels. From January 1996 to December 1998, however,
                                      the number of families receiving TANF declined by almost 40 percent. While
                                      states must maintain a statutory “maintenance-of-effort” level relative to
                                      their previous spending limits, they are also allowed to carry forward




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                            unused TANF funds without fiscal year limitation.19 Some states have begun
                            to accrue large unspent TANF balances because of declining welfare
                            caseloads and the fixed block grant funding mechanism. As of
                            September 1998, 32 states had accumulated unspent TANF balances totaling
                            $2.7 billion. These balances ranged from about $6 million in Vermont to
                            $606 million in New York (see app. III).

                            With an increasing number of states beginning to experience net costs
                            from their CSE programs, some states have asked whether they can use
                            their unspent TANF funds to offset reductions in their CSE revenues. We
                            asked HHS for its interpretation of section 404(a)(1) of the Social Security
                            Act, which covers this issue, and it provided a written response (see app.
                            V). HHS said that while CSE services are “reasonably calculated” to
                            accomplish the purposes of the TANF program, unspent TANF balances may
                            not be used to pay for required CSE services such as locating noncustodial
                            parents, establishing paternity and support orders, and enforcing support
                            orders.20 However, states may spend TANF funds on supplemental CSE
                            services or activities not required under the CSE program. One example of
                            an allowable supplemental CSE service might be a job-training program for
                            noncustodial parents that could increase their potential for paying child
                            support.


Declining Collections Did   State budgeting practices and policies determine how CSE programs are
Not Affect CSE Funding in   financed and whether CSE revenues are returned to the program. The way
Seven States                a state chooses to finance its program determines the extent to which a
                            decline in collections might affect its CSE program. In the President’s
                            budget for fiscal year 1999, the Office of Management and Budget directed
                            HHS to consult with its state partners and stakeholders and propose a new
                            overall financing structure for the CSE program. As part of this process, HHS
                            contracted with The Lewin Group to develop information on how the
                            states finance their CSE programs and use the retained collections and
                            incentive payments that go to the states. Lewin reported that states have




                            19
                             States are required to maintain at least 75 percent of their historic welfare spending levels.
                            Maintenance-of-effort requirements are based on states’ fiscal year 1994 spending on AFDC, Job
                            Opportunities and Basic Skills (JOBS), and Emergency Assistance programs; related administrative
                            costs; and AFDC-related child care programs such as the AFDC/JOBS child care, Transitional Child
                            Care, and At-Risk Child Care programs. See Welfare Reform: Monitoring Required State Spending
                            Levels (GAO/HEHS-99-20R, Nov. 30, 1998).
                            20
                              HHS also determined that state expenditures for required CSE services could not be claimed toward
                            states’ maintenance-of-effort requirements.



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chosen to fund their CSE programs in one of four ways.21 The method
chosen determines how sensitive a state’s CSE program funding is to
changes in retained collections and incentive payments, from the more
stable financing in category 1 to the least stable financing in category 4.
Figure 7 shows the funding sources that states used to finance their
programs in fiscal year 1997.




21
 The Lewin Group, Inc., ECONorthwest, “State Financing of Child Support Enforcement Programs:
Briefing on Findings” (Briefing prepared for Assistant Secretary for Planning and Evaluation and the
OCSE, HHS, Nov. 23, 1998).



Page 19                                               GAO/HEHS-99-105 Child Support Financing
                                         B-280957




Figure 7: Sources of CSE Funding, by State




                                                                    Category 1: General/Special Funds–10 States

                                                                    Category 2: General/Special Funds and Earmarked
                                                                                Federal CSE Incentives–25 States

                                                                    Category 3: General/Special Funds, Earmarked
                                                                                Federal CSE Incentives, and Retained
                                                                                CSE Welfare Collections–11 States and
                                                                                District of Columbia

                                                                    Category 4: Federal CSE Incentive Payments and
                                                                                Retained CSE Welfare Collections–4 States



                                         Source: The Lewin Group.




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                             The Lewin Group’s work provides a good framework for examining how
                             changes in retained collections and incentive payments might affect a
                             state’s CSE program. For example, a category 1 state CSE program relies on
                             general/special funds and may not be directly affected by changes in
                             retained collections and incentive payments. A category 4 state CSE
                             program, however, would be directly affected if retained collections and
                             incentive payments changed because these are the sole funding sources.
                             State CSE officials in six of the seven hold harmless states said the fiscal
                             year 1997 decline in their CSE welfare collections had little or no effect on
                             their CSE agencies’ funding because they do not use retained collections to
                             fund their CSE programs. Maryland, Tennessee, Vermont, and Wisconsin
                             returned their collections to their welfare agencies as reimbursement for
                             welfare payments; South Carolina placed its collections in a social services
                             discretionary fund; and Indiana deposited its collections in the state’s
                             general revenue fund. Missouri is the only hold harmless state that used
                             retained collections to fund its CSE program. However, state officials said
                             declining CSE collections had no effect on Missouri’s program in fiscal year
                             1997 because the state had sufficient retained CSE collections to cover
                             program costs.22


                             As states implement welfare reform strategies that emphasize finding
Caseload Declines            employment for welfare recipients and helping them to become less
and Welfare Reform           dependent on government cash assistance, further TANF caseload declines
Changes Will Affect          are possible along with reductions in retained state and federal CSE welfare
                             collections. In addition, the new policy that gives families a greater priority
State and Federal            in receiving past due support will result in fewer CSE retained collections,
Child Support                and the new incentive payment program will likely result in less stable CSE
                             program financing. The expected declines in CSE program revenues,
Programs                     however, may be ameliorated as states gain experience with the new
                             enforcement tools mandated under welfare reform. More states may also
                             seek to increase CSE revenues by adopting expanded service fees for CSE
                             nonwelfare cases.


Caseload Declines and        The large decrease in the size of welfare caseloads nationally indicates a
Families First Policy Will   significant reduction in families’ dependence on cash assistance—an
Exert a Negative Influence   intended consequence of the 1996 welfare reform law. As more families
                             leave the welfare rolls, however, more CSE payments collected will be
on Retained Collections

                             22
                               Declines in collections and incentive payments may also have an impact on local CSE programs if a
                             state shares these revenues with them. Our review and analysis did not include the effects of declining
                             CSE welfare collections on local programs.



                             Page 21                                                GAO/HEHS-99-105 Child Support Financing
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                           given directly to the families, resulting in fewer CSE retained welfare
                           collections to be divided between the states and federal government.

                           In addition, the welfare reform law contained a provision that gives
                           families greater priority in receiving arrearage payments once they leave
                           welfare. The implementation of this “families first” policy will also affect
                           the amount of collections retained by the states and federal government.
                           As this policy is phased in between fiscal years 1998 and 2001, more CSE
                           collections will go to families to help them stay off welfare. Conversely,
                           fewer collections will be retained by the states and federal government.


New Incentive Payment      The Child Support Performance and Incentive Act of 1998 amended some
Program Will Bring         welfare reform provisions and required OCSE to base the states’ incentive
Changes to Child Support   payments on five performance-based outcome measures that will be
                           phased in starting in fiscal year 2000. The new measures are likely to
Financing                  change both positively and negatively the incentive payment amounts
                           states receive, depending upon the outcomes under each performance
                           measure. In addition, incentive payments to the states will no longer be
                           open-ended. Rather, a fixed pool of incentive payments, shared by all the
                           states, will be established. Each state’s performance, therefore, will be
                           judged and rewarded in relation to every other state’s performance at the
                           end of the fiscal year, making it harder for states to plan in advance for
                           expected incentive payments.

                           The 1998 act also requires states to reinvest their federal incentive
                           payments in their CSE programs starting in fiscal year 2000. This
                           requirement is not likely to provide substantial amounts of new revenues
                           to the states’ CSE programs. According to the Lewin study, about
                           70 percent of federal incentive payments are already distributed to state
                           and/or local CSE programs. However, states that currently fund their CSE
                           programs solely with general/special funds could experience some funding
                           instability. These states are considered to have the most stable funding
                           because they do not rely upon CSE program revenues, which vary from
                           year to year, to run their programs. If these states use incentive payments
                           to supplant rather than supplement their program funds, as the law
                           requires, they will introduce some uncertainty into their financing streams.
                           Whether more or less money will be available to these programs remains
                           to be seen. However, if these states use the incentive payments to
                           supplement their current funding, the payments will provide increased
                           funding for CSE programs.




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New Enforcement Tools         The welfare reform law included new tools that could help CSE programs
and Adopting Fees Could       increase their efficiency and maintain their collections from a declining
                              CSE welfare caseload. The law required OCSE and the states to create
Offset Effects of Declining
                              federal and state registries of CSE orders, directories of new employee
TANF and CSE Welfare          hires,23 and quarterly wage reports to aid in the location of noncustodial
Caseloads and Revenues        parents and the enforcement of child support orders. In addition, the law
                              established new custodial parent cooperation requirements and penalties
                              to strengthen existing requirements and to simplify the paternity
                              establishment process.24 Finally, the law required states to perform data
                              matches with financial institutions and revoke noncustodial parents’
                              driver’s, professional and occupational, and recreational licenses if they
                              fail to comply with CSE orders.

                              The national new-hire and support order registries offer significant
                              potential for increasing CSE collections, especially those from interstate
                              cases, which constitute about one-third of the total caseload. For example,
                              in fiscal year 1998, its first year of operation, the National Directory of
                              New Hires enabled OCSE to match over 1 million state requests to locate
                              noncustodial parents against its central registry and provide states with
                              information about them. In addition, the new custodial parent cooperation
                              requirements could result in more accurate and more complete
                              noncustodial parent information at the time a welfare case is opened, thus
                              helping states locate noncustodial parents.

                              To help defray rising administrative costs that decrease state child support
                              revenues, CSE programs can collect fees from nonwelfare parents who
                              receive services resulting in successful collections. Parents receiving TANF
                              benefits receive free child support services, but nonwelfare families must
                              pay an application fee of up to $25. For nonwelfare families, states can
                              charge fees on a sliding scale, pay the fees out of state funds, or recover
                              fees from noncustodial parents. As we noted in a previous report and
                              testimony, many nonwelfare parents receiving child support services
                              could afford to pay some of the costs of these services, yet most states had



                              23
                                Employers are required to report identifying information on all new hires to state directories of new
                              hires, where the information is matched against databases of CSE orders so that enforcement
                              activities, such as the implementation of wage withholding orders, can begin. This information, in turn,
                              is forwarded to a national directory of new hires for use by all states.
                              24
                               The welfare reform law moved the determination of custodial parent cooperation from the welfare
                              agency to the CSE agency, and mandated that welfare assistance be reduced by at least 25 percent if a
                              custodial parent does not cooperate with the CSE agency. It also gave the CSE agency the authority to
                              order genetic testing in contested cases, and stipulated that a signed acknowledgement of paternity be
                              considered a legal finding of paternity unless rescinded within 60 days.



                              Page 23                                                GAO/HEHS-99-105 Child Support Financing
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               not collected any significant portion of these costs.25 For example, in 1992
               we reported that of the 617,962 women requesting child support services
               in 1989, 42 percent reported incomes exceeding 200 percent of the poverty
               level and 21 percent exceeded 300 percent. However, 31 states charged an
               application fee of $1 or less, and most of these states paid the fee for the
               nonwelfare family. Also, Lewin noted in its 1998 study that fees constitute
               a small share of state CSE revenues, although Louisiana, North Carolina,
               and Ohio are now considering expanding their service fees.

               We continue to believe that states could significantly offset declining child
               support revenues by charging a percentage service fee. On the basis of our
               past work we found that a 15-percent service fee would have recovered all
               1994 administrative costs incurred by states for nonwelfare parents. A
               percentage fee, ultimately set by the Congress, would not require up-front
               costs to nonwelfare parents as the current application fees do and should
               not discourage them from seeking the child support services they need
               even if collections are not realized. Also, percentage fees would not
               impose a financial burden on parents with limited income because fees
               would be collected only when child support payments are received. States
               could continue to retain the option to pay the fee themselves or pay the
               fee and recover it from the noncustodial parent. Moreover, such fees
               would be easy to administer by state child support offices.

               Citing GAO’s work, the House Budget Committee’s report on the fiscal year
               1996 budget resolution suggested that a percentage service fee on
               nonwelfare collections be considered as a budget savings option.26 To
               date, the Congress has not enacted such fees.


               The expected outcomes of welfare reform are changing the fiscal and
Observations   political environment in which the CSE program operates. Declining
               caseloads—both TANF and CSE welfare—have reduced the revenue some
               states have historically realized from the CSE program. At the same time,
               newly mandated methods for collecting more child support from
               noncustodial parents have increased states’ program responsibilities and
               costs. The federal government, on the other hand, has continued to incur
               program costs primarily because it reimburses states for a two-thirds
               share of their CSE expenditures. Moreover, the federal government’s net


               25
                Child Support Enforcement: Opportunity to Defray Burgeoning Federal and State Non-AFDC Costs
               (GAO/HRD-92-91, June 5, 1992) and Child Support Enforcement: Opportunity to Reduce Federal and
               State Costs (GAO/T-HEHS-95-181, June 13, 1995).
               26
                 H.R. Rep. No. 104-120, at 108 (1995).



               Page 24                                            GAO/HEHS-99-105 Child Support Financing
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                  costs are likely to grow as caseloads shrink and states spend more in
                  administrative costs to implement enforcement tools required by the
                  welfare reform law. Growing net costs for the states and federal
                  government will likely encourage both program partners to (1) reexamine
                  how the CSE program is financed and (2) weigh these new fiscal realities
                  against the program’s social and fiscal benefits of promoting parental
                  responsibility and recovering welfare costs.


                  In our previous work we have concluded that individuals who use
Matter for        nonwelfare CSE services should pay some portion of the costs incurred by
Congressional     the states and federal government. We previously recommended that the
Consideration     Congress amend title IV-D of the Social Security Act to require states to
                  charge a minimum percentage service fee for each successful CSE
                  nonwelfare collection in order to defray the cost of providing CSE
                  nonwelfare services. The Congress has considered this option but to date
                  has not enacted such fees. CSE nonwelfare costs continue to rise as CSE
                  welfare caseloads decline, signaling future declines in CSE revenues. The
                  Congress and states may wish to reconsider the option of charging a
                  minimum percentage service fee on CSE nonwelfare collections that would
                  be shared at the same rate the federal government and states share
                  administrative costs—two-thirds and one-third, respectively. This would,
                  to some extent, alleviate the growing financial burden to the federal
                  government and states.


                  We requested comments from HHS on a draft of this report, but none were
Agency Comments   provided.


                  We are sending copies of this report to the Honorable William V. Roth, Jr.,
                  Chairman, and the Honorable Daniel Patrick Moynihan, Ranking Minority
                  Member, Senate Committee on Finance; the Honorable John H. Chafee,
                  Chairman, and the Honorable John B. Breaux, Ranking Minority Member,
                  of the Finance Committee’s Subcommittee on Social Security and Family
                  Policy; the Honorable Donna E. Shalala, Secretary of Health and Human
                  Services; and the Honorable Olivia Golden, Assistant Secretary for
                  Children and Families, HHS. We will also make copies available to others
                  on request.

                  If you or your staff have any questions about this report, please contact
                  Cynthia M. Fagnoni or Karen A. Whiten at (202) 512-7215. Key contributors



                  Page 25                                 GAO/HEHS-99-105 Child Support Financing
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to this assignment were Kevin M. Kumanga, Christopher Morehouse, and
Regina Santucci.

Sincerely yours,




Richard L. Hembra
Assistant Comptroller General




Page 26                              GAO/HEHS-99-105 Child Support Financing
Page 27   GAO/HEHS-99-105 Child Support Financing
Contents



Letter                                                                 1


Appendix I                                                            30

Total AFDC/TANF
Families,
January 1994 Through
December 1998
Appendix II                                                           32

Changes in Average
CSE Welfare and
Nonwelfare
Caseloads, FY 1994-97
Appendix III                                                          34

Selected State
Program Statistics
Appendix IV                                                           36

Estimates of State
CSE Program Savings,
FY 1997
Appendix V                                                            38

HHS Clarification of
Whether TANF Funds
May Be Used to
Support CSE
Programs
Related GAO Products                                                  40




                        Page 28   GAO/HEHS-99-105 Child Support Financing
          Contents




Tables    Table 1: State and Federal Shares of Total CSE Welfare                     10
            Collections, FY 1994-97
          Table 2: State Share of Program Savings or Costs, Fiscal Years             17
            1995 and 1997, for States That Received Hold Harmless Payments
            in Fiscal Year 1997

Figures   Figure 1: State and Federal CSE Savings/Cost Formula                        6
          Figure 2: Families Receiving AFDC/TANF, 1936-98                             7
          Figure 3: Welfare and Nonwelfare CSE Caseloads, FY 1994-97                  8
          Figure 4: CSE Welfare and Nonwelfare Collections, FY 1994-97               11
          Figure 5: State and Federal Net CSE Savings or Costs, FY 1994-97           15
          Figure 6: Number of States Experiencing Net Costs or Savings in            16
            CSE Programs
          Figure 7: Sources of CSE Funding, by State                                 20




          Abbreviations

          AFDC       Aid to Families With Dependent Children
          CSE        Child Support Enforcement
          HHS        Department of Health and Human Services
          IRS        Internal Revenue Service
          JOBS       Job Opportunities and Basic Skills
          OCSE       Office of Child Support Enforcement
          TANF       Temporary Assistance for Needy Families


          Page 29                                GAO/HEHS-99-105 Child Support Financing
Appendix I

Total AFDC/TANF Families, January 1994
Through December 1998


                                                                                               Percentage change
State                  Jan. 1994   Jan. 1995   Jan. 1996   Jan. 1997   Jan. 1998   Dec. 1998    1994-97       1994-98a
Alabama                  51,181      47,376      43,396      37,972      25,123       20,850         (26)          (59)
Alaska                   12,578      12,518      11,979      12,224      10,392        8,388          (3)          (33)
Arizona                  72,160      71,110      64,442      56,250      41,233       36,125         (22)          (50)
Arkansas                 26,398      24,930      23,140      21,549      14,419       12,486         (18)          (53)
California              902,900     925,585     904,940     839,860     727,695     641,359           (7)          (29)
Colorado                 41,616      39,115      35,661      31,288      21,912       15,367         (25)          (63)
Connecticut              58,453      60,927      58,124      56,095      51,132       37,944          (4)          (35)
Delaware                 11,739      11,306      10,266      10,104       7,053        5,087         (14)          (57)
District of Columbia     26,624      26,624      25,717      24,752      22,451       19,751          (7)          (26)
Florida                 254,032     241,193     215,512     182,075     121,006       91,791         (28)          (64)
Georgia                 142,459     141,284     135,274     115,490      84,318       61,475         (19)          (57)
Guam                      1,840        2,124      2,097       2,349       2,213        2,361          28            28
Hawaii                   20,104      21,523      22,075      21,469      23,578       16,562           7           (18)
Idaho                     8,677        9,097      9,211       7,922       1,920        1,502          (9)          (83)
Illinois                238,967     240,013     225,796     206,316     175,445     139,806          (14)          (41)
Indiana                  74,169      68,195      52,254      46,215      37,298       36,866         (38)          (50)
Iowa                     39,623      37,298      33,559      28,931      25,744       22,193         (27)          (44)
Kansas                   30,247      28,770      25,811      21,732      14,595       12,784         (28)          (58)
Kentucky                 79,437      76,471      72,131      67,679      54,491       44,494         (15)          (44)
Louisiana                88,168      81,587      72,104      60,226      46,593       45,401         (32)          (49)
Maine                    23,074      22,010      20,472      19,037      15,526       14,012         (17)          (39)
Maryland                 79,772      81,115      75,573      61,730      49,075       39,014         (23)          (51)
Massachusetts           112,955     104,956      90,107      80,675      68,651       59,154         (29)          (48)
Michigan                225,671     207,089     180,790     156,077     128,892     100,676          (31)          (55)
Minnesota                63,552      61,373      58,510      54,608      48,893       46,322         (14)          (27)
Mississippi              57,689      53,104      49,185      40,919      25,510       18,292         (29)          (68)
Missouri                 91,598      91,378      84,534      75,459      62,872       53,788         (18)          (41)
Montana                  12,080      11,732      11,276       9,644       6,789        5,517         (20)          (54)
Nebraska                 16,145      14,968      14,136      13,492      13,809       11,844         (16)          (27)
Nevada                   14,077      16,039      15,824      11,742      11,263        9,064         (17)          (36)
New Hampshire            11,427      11,018       9,648       8,293       6,489        6,455         (27)          (44)
New Jersey              121,361     120,099     113,399     102,378      89,030       68,522         (16)          (44)
New Mexico               33,376      34,789      34,368      29,984      20,219       25,692         (10)          (23)
New York                449,978     461,006     437,694     393,424     347,536     301,918          (13)          (33)
North Carolina          131,288     127,069     114,449     103,300      78,473       64,470         (21)          (51)
North Dakota              6,002        5,374      4,976       4,416       3,351        3,123         (26)          (48)
Ohio                    251,037     232,574     209,830     192,747     147,093     123,902          (23)          (51)
                                                                                                            (continued)


                                    Page 30                                   GAO/HEHS-99-105 Child Support Financing
                              Appendix I
                              Total AFDC/TANF Families, January 1994
                              Through December 1998




                                                                                             Percentage change
State            Jan. 1994   Jan. 1995      Jan. 1996   Jan. 1997   Jan. 1998    Dec. 1998    1994-97     1994-98a
Oklahoma           47,475          45,936     40,692      32,942        25,860      20,895         (31)        (56)
Oregon             42,695          40,323     35,421      25,874        19,249      16,829         (39)        (61)
Pennsylvania      208,260         208,899    192,952     170,831       140,446    117,828          (18)        (43)
Puerto Rico        59,425          55,902     51,370      48,359        43,474      38,159         (19)        (36)
Rhode Island       22,592          22,559     21,775      20,112        19,242      19,135         (11)        (15)
South Carolina     53,178          50,389     46,772      37,342        27,514      20,205         (30)        (62)
South Dakota        7,027           6,482      6,189       5,324         3,956       3,476         (24)        (51)
Tennessee         111,946         105,948    100,884      74,820        53,837      57,691         (33)        (48)
Texas             285,680         279,911    265,233     228,882       158,252    121,606          (20)        (57)
Utah               18,063          17,195     15,072      12,864        10,931      10,191         (29)        (44)
Vermont             9,917           9,789      9,210       8,451         7,591       6,696         (15)        (32)
Virgin Islands      1,090           1,264      1,437       1,335         1,167       1,139          22           4
Virginia           74,717          73,920     66,244      56,018        44,247      39,295         (25)        (47)
Washington        103,068         103,179     99,395      95,982        82,852      64,933          (7)        (37)
West Virginia      40,869          39,231     36,674      36,805        18,914       9,943         (10)        (76)
Wisconsin          78,507          73,962     65,386      45,586        13,860      10,185         (42)        (87)
Wyoming             5,891           5,443      4,975       3,825         1,340        893          (35)        (85)
Total            5,052,854   4,963,071      4,627,941   4,113,775   3,304,814    2,783,456         (19)        (45)

                              a
                              Through December 1998.




                              Page 31                                       GAO/HEHS-99-105 Child Support Financing
Appendix II

Changes in Average CSE Welfare and
Nonwelfare Caseloads, FY 1994-97


                                          Percentage     Percentage change
                                      change in CSE       in CSE nonwelfare
              State                  welfare caseload              caseload
              Alabama                             (27)                   20
              Alaska                                1                    21
              Arizona                             (44)                   17
              Arkansas                            (22)                   20
              California                            4                     6
              Colorado                            (18)                   23
              Connecticut                          (3)                   21
              Delaware                            (14)                    6
              District of Columbia                 (8)                   50
              Florida                             (48)                   31
              Georgia                             (40)                   10
              Guam                                 46                    26
              Hawaii                               24                   (10)
              Idaho                                 4                    87
              Illinois                            (14)                   27
              Indiana                             (48)                    (1)
              Iowa                                (21)                   39
              Kansas                              (23)                   38
              Kentucky                            (24)                   23
              Louisiana                           (36)                   44
              Maine                               (10)                   17
              Maryland                              4                    34
              Massachusetts                       (20)                   37
              Michigan                              5                    26
              Minnesota                           (13)                   43
              Mississippi                         (59)                   82
              Missouri                            (35)                    4
              Montana                             (26)                   15
              Nebraska                            (19)                    (5)
              Nevada                               (2)                   14
              New Hampshire                       (29)                   39
              New Jersey                          (27)                    1
              New Mexico                          (33)                   17
              New York                            (18)                   13
              North Carolina                      (22)                   41
              North Dakota                        (16)                   46
                                                                 (continued)



              Page 32                GAO/HEHS-99-105 Child Support Financing
Appendix II
Changes in Average CSE Welfare and
Nonwelfare Caseloads, FY 1994-97




                                          Percentage     Percentage change
                                      change in CSE       in CSE nonwelfare
State                                welfare caseload              caseload
Ohio                                              (11)                   11
Oklahoma                                          (22)                   34
Oregon                                            (30)                   42
Pennsylvania                                      (20)                    1
Puerto Rico                                       (27)                   26
Rhode Island                                      (15)                  (24)
South Carolina                                    (39)                   31
South Dakota                                      (26)                   33
Tennessee                                         (47)                    (7)
Texas                                             (17)                   44
Utah                                              (21)                   65
Vermont                                           (16)                   34
Virgin Islands                                     15                     3
Virginia                                          (30)                   44
Washington                                        (15)                   19
West Virginia                                     (16)                   72
Wisconsin                                         (66)                   80
Wyoming                                           (68)                  758
Total                                             (19)                   21




Page 33                              GAO/HEHS-99-105 Child Support Financing
Appendix III

Selected State Program Statistics



                                                                                                                 State
                        FY 1995-97 change in                                         Hold                     program
                State share of                     State                        harmless        Unspent        savings Change in
                 AFDC/TANF/          Paid      share of                Net       payment           TANF             or   program
                   foster care incentives,administrative           change,    (if any), FY      balance,      (costs),b  savings,
State              collections     actual        costsa         FY 1995-97           1997        9/30/98       FY 1997 FY 1995-97
Alabama            $1,406,248     $254,839      $3,778,116      $5,439,203                   $37,377,861    ($3,290,905) $5,381,539
Alaska              1,549,948      572,377        (774,700)      1,347,625                                    5,628,650    1,427,751
Arizona             1,990,041      401,145       1,061,566       3,452,752                    34,189,609     (3,344,885)   3,459,585
Arkansas            1,099,101      505,222      (6,924,713)     (5,320,390)                                  (5,641,213) (5,505,745)
California         86,241,904 19,102,159       (35,753,112)     69,590,951                                  177,731,427 66,957,702
Colorado            3,906,439      910,602      (2,329,346)      2,487,695                    81,206,230      8,999,890    1,509,940
Connecticut        12,340,603    1,317,352      (1,728,091)     11,929,864                                   17,120,569 13,444,311
Delaware              285,200      (30,135)     (1,172,726)       (917,661)                                  (1,281,765) (1,097,458)
District of
Columbia              376,200      (97,178)        (66,971)        212,051                    24,406,030       (375,821)     208,989
Florida            11,128,606    2,219,282     (11,872,261)      1,475,627                   252,922,151     11,547,158      (249,731)
Georgia             4,567,643    (1,048,940)    (4,194,014)       (675,311)                   51,695,673      4,950,930    (5,849,793)
Guam                    6,098      (29,219)        (65,834)        (88,955)                                    (727,038)      42,713
Hawaii                721,994       54,440         256,465       1,032,899                      6,100,900     1,645,645    1,106,254
Idaho                  82,314      (86,888)     (1,175,466)     (1,180,040)                   29,502,444       (358,589) (1,023,744)
Illinois           11,386,935    1,841,402     (10,583,405)      2,644,932                                    6,609,567    2,644,931
Indiana            (1,311,594) (2,857,785)      (1,056,205)     (5,225,584)   $1,311,594                     10,311,881    (7,950,064)
Iowa                1,357,125     (333,772)     (2,805,556)     (1,782,203)                   28,873,740     10,173,323    (2,386,677)
Kansas              1,100,482      (56,195)      5,749,025       6,793,312                    21,616,607      3,651,692    6,874,005
Kentucky            1,567,800      134,603      (2,518,813)       (816,410)                   43,885,017      1,691,156    (2,004,980)
Louisiana           1,311,207      (81,541)            14,793    1,244,459                   123,516,902     (1,027,718)   1,070,050
Maine               2,707,889      842,635      (1,179,723)      2,370,801                                   10,146,483    3,787,571
Maryland           (1,155,414) (1,652,711)      (3,195,918)     (6,004,043)    1,155,414      79,856,787       (321,631) (5,140,659)
Massachusetts         912,441    (1,318,675)    (1,763,088)     (2,169,322)                                  22,964,102    (2,503,738)
Michigan            6,743,610    (2,754,507) (17,463,017) (13,473,914)                        89,260,877     32,652,828 (16,903,867)
Minnesota           3,567,047        (8,088)    (5,189,046)     (1,630,087)                  136,927,526     10,559,586    (1,390,253)
Mississippi           920,768       61,855        (211,899)        770,724                                   (2,523,105)     812,430
Missouri             (479,278)    (527,042)     (4,583,311)     (5,589,631)      479,278                      1,850,554    (5,844,286)
Montana               522,931      185,435      (1,275,913)       (567,547)                                    (260,039)     (297,470)
Nebraska            1,063,986      188,222      (3,291,813)     (2,039,605)                   24,624,396     (3,409,424) (2,139,339)
Nevada                725,413      638,492      (4,831,982)     (3,468,077)                                  (4,158,831) (3,257,149)
New
Hampshire             286,055       72,767         (57,355)        301,467                      5,953,212     1,577,606      420,304
New Jersey          5,301,698      104,896      (4,637,177)        769,417                   170,258,386     17,605,878      635,954
New Mexico            492,281      (39,650)     (3,346,118)     (2,893,487)                   30,899,415     (4,074,136) (2,990,814)
                                                                                                                           (continued)


                                             Page 34                                         GAO/HEHS-99-105 Child Support Financing
                                              Appendix III
                                              Selected State Program Statistics




                                                                                                                             State
                         FY 1995-97 change in                                               Hold                          program
                 State share of                     State                              harmless           Unspent          savings Change in
                  AFDC/TANF/          Paid      share of                    Net         payment              TANF               or   program
                    foster care incentives,administrative               change,      (if any), FY         balance,        (costs),b  savings,
State               collections     actual        costsa             FY 1995-97             1997           9/30/98         FY 1997 FY 1995-97
New York            22,843,288    5,751,867          (6,878,650)     21,716,505                       605,881,273       63,961,714 20,081,540
North Carolina       5,955,684       58,173          (7,194,608)      (1,180,751)                       93,148,981       1,587,632     (1,265,801)
North Dakota           123,028      (21,444)             (68,021)         33,563                                            821,150          33,563
Ohio                 9,778,686      573,337         (19,095,949)      (8,743,926)                                        (3,674,606) (9,435,284)
Oklahoma             1,255,304      322,315            (926,404)         651,215                      110,238,480        3,150,124          908,697
Oregon                 403,728       70,212          (3,704,582)      (3,230,642)                                        1,767,372     (3,780,388)
Pennsylvania         4,074,539    (1,106,633)        (4,254,637)      (1,286,731)                     245,036,264       30,183,573          (787,286)
Puerto Rico            271,527     (190,599)          2,309,534        2,390,462                                         (7,390,997) (2,228,606)
Rhode Island         2,126,115      985,234            (211,284)       2,900,065                         6,526,593       9,183,961      3,041,709
South Carolina        (717,524)    (354,597)            125,158         (946,963)        717,524        23,810,926         (817,850) (1,008,796)
South Dakota           353,172      (56,571)           (699,623)        (403,022)                        7,981,636       1,098,701          (239,690)
Tennessee           (7,662,533) (1,347,549)            (213,219)      (9,223,301)      5,392,257        48,265,922         (947,506) (8,466,562)
Texas               10,781,476    3,059,596          (8,138,850)       5,702,222                                            410,190    (5,801,427)
Utah                   926,859      134,222          (1,179,215)        (118,134)                       13,550,431       (1,395,212)        130,334
Vermont               (573,318)      27,030               58,451        (487,837)        573,318         5,571,572          745,853         (811,423)
Virgin Islands          75,241       55,263            (536,151)        (405,647)                                          (227,358)        666,655
Virginia             2,030,935      (91,323)            568,582        2,508,194                                         9,215,419      2,116,483
Washington           8,135,630      346,001          (1,086,477)       7,395,154                      141,452,770       33,264,513      7,395,154
West Virginia        1,385,471      357,425            (946,544          796,352                        80,717,433       (1,777,699)        706,014
Wisconsin           (4,452,505) (3,962,831)          (5,094,779) (13,510,115)          4,452,505        49,019,541       1,982,694 (10,712,163)
Wyoming                127,749     (252,810)           (618,290)        (743,351)                                          (681,634)        (767,894)
Total             $219,966,273 $22,841,717 $197,124,556 $439,932,546                $14,081,890 $2,704,275,585c $467,084,559 $45,584,879

                                              a
                                              A negative number represents an increase in costs from FY 1995 to FY 1997.
                                              b
                                                  Hold harmless payments are not included in the calculation of program savings or costs.
                                              c
                                              Total does not include unspent TANF balances for Guam, Puerto Rico, and the Virgin Islands.




                                            Page 35                                                  GAO/HEHS-99-105 Child Support Financing
Appendix IV

Estimates of State CSE Program Savings, FY
1997


                              State share of                     State share of
                       AFDC/TANF/foster care   State incentive   administrative   State program savings
State                            collections        payments     expendituresa               or (costs)b,c
Alabama                            6,275,920        3,598,175       13,165,000                 (3,290,905)
Alaska                             8,661,147        3,232,503        6,265,000                  5,628,650
Arizona                            8,380,583        4,203,232       15,928,000                 (3,344,185)
Arkansas                           4,489,920        3,247,867       13,379,000                 (5,641,213)
California                       263,233,517       74,627,910      160,130,000               177,731,427
Colorado                          16,669,043        5,863,847       13,533,000                  8,999,890
Connecticut                       24,770,770        7,862,799       15,513,000                17,120,569
Delaware                           3,529,167        1,058,068        5,869,000                 (1,281,765)
District of Columbia               2,815,419        1,008,760        4,200,000                   (375,821)
Florida                           42,741,234       16,074,924       47,269,000                11,547,158
Georgia                           18,068,352       11,008,578       24,126,000                  4,950,930
Guam                                 259,905          208,057        1,195,000                   (727,038)
Hawaii                             5,704,850        1,687,795        5,747,000                  1,645,645
Idaho                              2,895,003        1,849,408        5,103,000                   (358,589)
Illinois                          36,523,099       11,412,468       41,326,000                  6,609,567
Indiana                           14,305,146        5,941,735        9,935,000                10,311,881
Iowa                              14,956,569        5,979,754       10,763,000                10,173,323
Kansas                            11,128,194        3,999,498       11,476,000                  3,651,692
Kentucky                          11,148,123        5,576,033       15,033,000                  1,691,156
Louisiana                          6,570,232        3,781,050       11,379,000                 (1,027,718)
Maine                              9,886,078        5,733,405        5,473,000                10,146,483
Maryland                          17,849,696        5,047,673       23,219,000                   (321,631)
Massachusetts                     33,422,193        9,467,909       19,926,000                22,964,102
Michigan                          66,344,288       21,135,540       54,827,000                32,652,828
Minnesota                         28,818,840        8,970,746       27,230,000                10,559,586
Mississippi                        4,342,334        3,248,561       10,114,000                 (2,523,105)
Missouri                          18,583,251        7,826,303       24,559,000                  1,850,554
Montana                            2,373,720        1,389,241        4,023,000                   (260,039)
Nebraska                           4,567,088        1,805,488        9,782,000                 (3,409,424)
Nevada                             4,053,331        2,708,838       10,921,000                 (4,158,831)
New Hampshire                      4,694,002        1,478,604        4,595,000                  1,577,606
New Jersey                        43,625,445       12,481,433       38,501,000                17,605,878
New Mexico                         2,596,841        1,385,023        8,056,000                 (4,074,136)
New York                         100,437,812       31,373,902       67,850,000                63,961,714
North Carolina                    25,947,433       10,718,199       35,078,000                  1,587,632
North Dakota                       1,858,914          973,236        2,011,000                   821,150
                                                                                              (continued)



                                  Page 36                        GAO/HEHS-99-105 Child Support Financing
                            Appendix IV
                            Estimates of State CSE Program Savings, FY
                            1997




                        State share of                                             State share of
                 AFDC/TANF/foster care               State incentive               administrative      State program savings
State                      collections                    payments                 expendituresa                  or (costs)b,c
Ohio                        48,013,415                    16,939,979                    68,628,000                    (3,674,606)
Oklahoma                        7,181,327                   3,657,797                    7,689,000                        3,150,124
Oregon                      10,242,906                      5,383,466                   13,859,000                        1,767,372
Pennsylvania                52,433,761                    16,933,812                    39,184,000                   30,183,573
Puerto Rico                       580,627                     388,376                    8,360,000                    (7,390,997)
Rhode Island                    8,515,395                   3,645,566                    2,977,000                        9,183,961
South Carolina                  5,604,580                   3,566,570                    9,989,000                         (817,850)
South Dakota                    2,059,940                   1,150,761                    2,112,000                        1,098,701
Tennessee                       5,936,304                   5,431,190                   12,315,000                         (947,506)
Texas                       38,248,009                    16,756,181                    54,594,000                         410,190
Utah                            5,366,098                   3,181,690                    9,943,000                    (1,395,212)
Vermont                         1,916,409                   1,182,444                    2,353,000                         745,853
Virgin Islands                    145,576                     112,066                      485,000                         (227,358)
Virginia                    21,701,453                      6,060,966                   18,547,000                        9,215,419
Washington                  54,484,696                    16,363,817                    37,584,000                   33,264,513
West Virginia                   4,154,214                   2,180,087                    8,112,000                    (1,777,699)
Wisconsin                   18,057,573                      8,458,121                   24,533,000                        1,982,694
Wyoming                         1,661,719                     566,647                    2,910,000                         (681,634)
Total                   $1,158,831,461                  $409,926,098               $1,101,673,000                 $467,084,559

                            a
                             OCSE estimate.
                            b
                                Hold harmless payments are not included in the calculation of program savings or costs.
                            c
                             GAO calculation based on preliminary OCSE data.




                            Page 37                                                GAO/HEHS-99-105 Child Support Financing
Appendix V

HHS Clarification of Whether TANF Funds
May Be Used to Support CSE Programs




              Page 38        GAO/HEHS-99-105 Child Support Financing
Appendix V
HHS Clarification of Whether TANF Funds
May Be Used to Support CSE Programs




Page 39                                   GAO/HEHS-99-105 Child Support Financing
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(116021)      Page 40                                GAO/HEHS-99-105 Child Support Financing
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