SECTION 8. CHILD SUPPORT ENFORCEMENT PROGRAM CONTENTS Background Overview Demographic Trends Program Trends The Federal Role The State Role The Child Support Enforcement Process Locating Absent Parents Establishing Paternity Establishing Orders Reviewing and Modifying Orders Promoting Medical Support Collecting Child Support Interstate Enforcement State Collection and Distribution of Support Payments Bankruptcy and Child Support Enforcement Automated Systems Audits and Financial Penalties Assignment and Distribution of Child Support Collections Funding of State Programs How Effective is Child Support Enforcement? Impact on Taxpayers Impact on Poverty Impact on National Child Support Payments Legislative History Statistical Tables References BACKGROUND Overview In 1950, when only a small minority of children were in mother-only families, the Federal Government took its first steps into the child support arena. Congress amended the Aid to Families with Dependent Children (AFDC) law by requiring State welfare agencies to notify law enforcement officials when benefits were being furnished to a child who had been abandoned by one of her parents. Presumably, local officials would then undertake to locate nonresident parents and make them pay child support. From 1950 to 1975, the Federal Government confined its child support efforts to these welfare children. With this exception, most Americans thought that child support establishment and collection was a domestic relations issue that should be dealt with at the State level by the courts. By the early 1970s, however, Congress recognized that the composition of the AFDC caseload had changed. In earlier years the majority of children needed financial assistance because their fathers had died; by the 1970s, the majority needed aid because their parents were separated, divorced, or never married. The Child Support Enforcement and Paternity Establishment Program (CSE), enacted in 1975, was a response by Congress to reduce public expenditures on welfare by obtaining support from noncustodial parents on an ongoing basis, to help non-AFDC families get support so they could stay off public assistance, and to establish paternity for children born outside marriage so child support could be obtained for them. The 1975 legislation (Public Law 93-647) added a new part D to title IV of the Social Security Act. This statute, as amended, authorizes Federal matching funds to be used for enforcing support obligations by locating nonresident parents, establishing paternity, establishing child support awards, and collecting child support payments. Since 1981, child support agencies have also been permitted to collect spousal support on behalf of custodial parents, and in 1984 they were required to petition for medical support as part of most child support orders. Basic responsibility for administering the program is left to States, but the Federal Government plays a major role in: dictating the major design features of State programs; funding, monitoring and evaluating State programs; providing technical assistance; and giving direct assistance to States in locating absent parents and obtaining support payments. The program requires the provision of child support enforcement services for both welfare and nonwelfare families and requires States to publicize frequently, through public service announcements, the availability of child support enforcement services, together with information about the application fee and a telephone number or address to obtain additional information. Local family and domestic courts and administrative agencies handle the actual establishment and enforcement of child support obligations according to Federal, State, and local laws. The child support program generally does not provide services aimed at other issues between parents, such as property settlement, custody, and access to children. These issues are handled by local courts with the help of private attorneys. Any parent who needs help in locating an absent parent, establishing paternity, establishing a support obligation, or enforcing a support obligation may apply for services. Parents receiving benefits (or who formerly received benefits) under the successor program to AFDC (Temporary Assistance for Needy Families), the federally assisted foster care program, or the Medicaid Program, automatically receive services. Services are free to such recipients, but others are charged up to $25 for services. In the nonwelfare program, States also can charge fees on a sliding scale, pay the fee out of State funds, or recover the fees from the noncustodial parent. In 1996, Public Law 104-193, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, abolished AFDC and related programs and replaced them with a block grant program of Temporary Assistance for Needy Families (TANF). States had to begin TANF by July 1, 1997. Under the new law, each State must operate a CSE Program meeting Federal requirements in order to be eligible for TANF funds. In addition to abolishing AFDC, Public Law 104-193 made about 50 changes to the CSE Program. These changes include requiring States to increase the percentage of fathers identified, establishing an integrated, automated network linking all States to information about the location and assets of parents, requiring States to implement more enforcement techniques, and revising the rules governing the distribution of past due (arrearage) child support payments to former recipients of public assistance. Demographic Trends The need for an effective child support program is clearly supported by a brief review of the demographic trends of the American family. By 1996, there were an estimated 11.7 million single-parent families with children under age 18; about 9.9 million (84 percent) maintained by the mother and roughly 1.9 million maintained by the father. It appears that the rate of growth in the number of single parents has stabilized (Office of Child Support, 1995a, p. 5). The average annual percent increase in the number of one-parent families was 3.9 percent from 1990 to 1994 and 3.4 percent from 1980 to 1990 as compared with 6 percent from 1970 to 1980. In 1996, one-parent families comprised nearly 32 percent of all families. The corresponding share of single-parent families in 1970 was 13 percent. In 1996, about 38 percent of the mothers had never been married, 37 percent were divorced, 21 percent were separated from their spouse, and about 4 percent were widowed (U.S. Bureau of the Census, 1994, p. xviii). Of equal concern, dynamic estimates indicate that at least half of all children born in the United States during the late 1970s and early 1980s will live with a single parent before reaching adulthood. For black children, the projection is about 80 percent (Bumpass, 1984). Currently, nearly one-fourth of the 69 million children under age 18 living in the United States reside in a 1-parent family. Moreover, a 1990 current population survey indicated that about 16 percent of children living in married-coupled families were living with a stepparent. Although the number of families with a mother who has divorced has tripled since 1970, the number with a mother who has never married has increased fifteenfold from 248,000 to 3,829,000. In these latter cases, paternity must be determined before the other parent has a legal obligation to financially support the child. The 3.7 million families maintained by a never-married mother in 1996 represent a major concern because only about one-third of the children in these families have had their paternity established; for the other two-thirds, a child support obligation cannot be established until a paternity determination is made. Poverty is endemic among mother-headed families. In 1995, 41.5 percent of the nearly 8.8 million families maintained solely by the mother with children under 18 had incomes below the poverty threshold. A little more than 13 percent of these families were poor despite the fact that the mother worked year round, full time. Today, an unprecedented number of children live in single-parent homes, nearly half are poor, and many lack adequate or any support from the nonresident parent. Program Trends In response to these demographic trends, the Federal-State child support program grew rapidly. By 1996, about half of all child support eligible families were actually receiving government funded child support services. Most of the information in this chapter applies to the families receiving these government services. Table 8-1 summarizes trends for the child support program since 1978. In 1996, $3 billion was spent by State child support programs to collect $12 billion in child support. The combined Federal-State program had more than 51,600 employees. A sum of $3.93 was collected for every dollar of administrative expense, up by 36 percent from the low point of only $2.89 per dollar of administrative expense in 1982, but down about 2 percent since 1992, the year of peak child support efficiency. In addition, nearly 5.8 million absent parents were located; 717,000 paternities were established; over 1 million support orders were established; 3.5 million cases had collections; 294,000 families were removed from AFDC because of child support collections (not shown in table 8-1, fiscal year 1995 data); and 15.5 percent of AFDC payments were recovered as a result of child support enforcement. These program trends demonstrate that more and more positive child support outcomes are achieved by the Federal- State program. But whether these trends indicate program success is a complex matter. We turn now to a detailed explanation of the Federal-State program and both its achievements and problems. THE FEDERAL ROLE The Federal statute requires the national child support program to be administered by a separate organizational unit under the control of a person designated by and reporting directly to the Secretary of the Department of Health and Human Services (HHS). Presently, this office is known as the Federal Office of Child Support Enforcement (OCSE). The Family Support Act of 1988 required the appointment of an Assistant Secretary for Family Support within HHS to administer a number of programs, including the Child Support Enforcement Program. Currently, this position is entitled the Assistant Secretary for the Administration for Children and Families. A primary responsibility of the Assistant Secretary is to establish standards for State programs for locating absent parents, establishing paternity, and obtaining child support and support for the spouse (or former spouse) with whom the child is living. In addition to this broad statutory mandate, the Assistant Secretary is required to establish minimum organizational and staffing requirements for State child support agencies, and to review and approve State plans. TABLE 8-1.--SUMMARY OF NATIONAL CHILD SUPPORT PROGRAM STATISTICS, SELECTED FISCAL YEARS 1978-96 [Numbers in thousands, dollars in millions] -------------------------------------------------------------------------------------------------------------------------------------------------------- Year Measure ---------------------------------------------------------------------------------------------------------------------- 1978 1980 1982 1984 1986 1988 1990 1991 1992 1993 1994 1995 1996 -------------------------------------------------------------------------------------------------------------------------------------------------------- Total child support collections.. $1,047 $1,478 $1,770 $2,378 $3,246 $4,605 $6,010 $6,886 $7,965 $8,907 $9,850 $10,827 $12,019 In 1996 dollars \1\.......... 2,555 2,882 2,885 3,591 4,609 6,125 7,272 7,919 8,921 9,620 10,441 11,152 12,019 Total AFDC collections \2\....... 472 603 786 1,000 1,225 1,486 1,750 1,984 2,259 2,416 2,550 2,689 2,855 Federal...................... 311 246 311 402 369 449 533 626 738 777 762 821 888 State........................ 148 274 354 448 424 525 620 700 787 847 891 939 1,013 Total non-AFDC collections....... 575 874 984 1,378 2,019 3,119 4,260 4,902 5,705 6,491 7,300 8,138 9,164 Total administrative expenditures 312 466 612 723 941 1,171 1,606 1,804 1,995 2,241 2,556 3,012 3,055 Federal...................... 236 349 459 507 633 804 1,061 1,212 1,343 1,517 1,741 2,095 2,040 State........................ 76 117 153 216 308 366 545 593 652 724 816 917 1,015 Federal incentive payments to States and localities........... 54 72 107 134 158 222 264 278 299 339 407 400 409 Average number of AFDC cases in which a collection was made..... 458 503 597 647 582 621 701 755 836 879 926 976 940 Average number of non-AFDC cases in which a collection was made.. 249 243 448 547 786 1,083 1,363 1,555 1,749 1,958 2,169 2,409 2,564 Number of parents located........ 454 643 779 875 1,046 1,388 2,062 2,577 3,152 3,777 4,204 4,950 5,769 Number of paternities established 111 144 173 219 245 307 393 472 512 554 592 659 717 Number of support obligations established..................... 315 374 462 573 731 871 1,022 \3\ 821 879 1,026 1,025 1,051 1,083 Percent of AFDC assistance payments recovered through child support collections............. NA 5.2 6.8 7.0 8.6 9.8 10.3 10.7 11.4 12.0 12.5 13.6 15.5 Total child support collections per dollar of total administrative expenses......... 3.35 3.17 2.89 3.29 3.45 3.93 3.74 3.82 3.99 3.98 3.86 3.60 3.93 -------------------------------------------------------------------------------------------------------------------------------------------------------- \1\ Adjusted for inflation using fiscal CPI. \2\ AFDC collections are divided into State/Federal shares and incentives are taken from the Federal share thereby reducing the Federal amounts. \3\ Data beginning in 1991 exclude modifications of support orders. NA--Not available. Note.--Data is preliminary for fiscal year 1996. Paternities established do not include the paternities esablished through the In-Hospital Paternity Acknowledgement Program. In fiscal year 1994, 84,411 paternities were established in hospitals; 244,078 paternities were established in hospitals in fiscal year 1995, and 277,274 paternities were established in hospitals in fiscal year 1996. Source: Office of Child Support Enforcement, U.S. Department of Health and Human Services. The statute also requires the Assistant Secretary to provide technical assistance to States to help them establish effective systems for collecting support and establishing paternity. To fulfill this requirement, OCSE operates a National Child Support Enforcement Reference Center as a central location for the collection and dissemination of information about State and local programs. OCSE also provides, under a contract with the American Bar Association Child Support Project, training and information dissemination on legal issues to persons working in the field of child support enforcement. Special initiatives, such as assisting major urban areas in improving program performance, have also been undertaken by OCSE. The Child Support Enforcement Amendments of 1984 (Public Law 98-378) extended the research and demonstration authority in section 1115 of the Social Security Act to the Child Support Enforcement Program. This authority makes it possible for States to test innovative approaches to support enforcement so long as the modification does not disadvantage children in need of support nor result in an increase in Federal AFDC costs. The 1984 amendments also authorize $15 million for each fiscal year after 1986 for special project grants to promote improvement in interstate enforcement. Currently 36 States have waivers which directly impact child support: 23 States have waivers to provide work and training services to noncustodial parents; 14 States have waivers to disregard a portion of child support payments from being counted as income in determining TANF eligibility and benefit amounts; 19 States have waivers that modify cooperation standards and/or penalties; and several States have waivers to provide paternity establishment bonuses, child support assurance payments, custody and visitation mediation and responsible fatherhood services. The Assistant Secretary for Children and Families has full responsibility for the evaluation of the CSE Program. Pursuant to Public Law 104-193, States must annually review and report to the HHS Secretary information adequate to determine the State's compliance with Federal requirements for expedited procedures, timely case processing, and improvement on the performance indicators. To measure the quality of the data reported by States and to assess the adequacy of financial management of the State program, the Secretary must conduct an audit of every State at least once every 3 years and more often if a State fails to meet Federal requirements. Under the penalty provision, a State's TANF Block Grant must be reduced by an amount equal to at least 1 but not more than 2 percent for the first failure to comply substantially with the standards and requirements, at least 2 but not more than 3 percent for the second failure, and at least 3 but not more than 5 percent for the third and subsequent failures. The statute creates several Federal mechanisms to assist States in performing their paternity and child support enforcement functions. These include use of the Internal Revenue Service, the Federal courts, and the Federal Parent Locator Service (FPLS). The Assistant Secretary must approve a State's application for permission to use the courts of the United States to enforce orders upon a finding that either another State has not enforced the court order of the originating State within a reasonable time or Federal courts are the only reasonable method of enforcing the order. Although Congress authorized the use of Federal courts to enforce interstate cases, this mechanism has gone unused, apparently because States view it as costly and complex. Finally, the statute requires the establishment of a Federal Parent Locator Service to be used to find absent parents in order to secure and enforce child support obligations. The role of the FPLS was expanded by Public Law 104-193. For purposes of establishing parentage, establishing, setting the amount of, modifying, or enforcing child support obligations, or enforcing child custody or visitation, the FPLS is to provide information to locate any individual: (1) who is under an obligation to pay child support or provide child custody or visitation rights; (2) against whom such an obligation is sought; or (3) to whom such an obligation is owed. Upon request, the Secretary of HHS must provide to an authorized person the most recent address and place of employment of any noncustodial parent if the information is contained in the records of the Department of Health and Human Services or can be obtained from any other department or agency of the United States or of any State. The Secretary also must make available the services of the FPLS to any State that wishes to locate a missing parent or child for the purpose of enforcing any Federal or State law involving the unlawful taking or restraint of a child or the establishment or maintenance of a child custody or visitation order. THE STATE ROLE The Social Security Act requires every State operating a TANF Program to conduct a Child Support Enforcement Program. Federal law requires applicants for, and recipients of, TANF to assign their support rights to the State in order to receive benefits. In addition, each applicant or recipient must cooperate with the State to establish the paternity of a child born outside marriage and to obtain child support payments. TANF recipients or applicants may be excused from the requirement of cooperation if the CSE agency determines that good cause for noncooperation exists, taking into consideration the best interests of the child on whose behalf aid is claimed. If good cause is found not to exist and if the relative with whom a child is living still refuses to cooperate, then the State must reduce the family's TANF benefit by at least 25 percent and may remove the family from the TANF Program. (Federal law also stipulates that no TANF funds may be used for a family that includes a person who has not assigned child support rights to the State.) Before Public Law 104-193, cooperation could have been found to be against the best interests of the child if cooperation could be anticipated to result in physical or emotional harm to the child or caretaker relative; if the child was conceived as a result of incest or rape; or if legal procedures were underway for the child's adoption. Unlike previous law, Public Law 104-193 provides States rather than the Federal Government with the authority to define ``good cause.'' The law now requires States to develop both ``good cause'' and ``other exceptions'' to the cooperation requirement. The only restriction is that both the ``good cause'' and ``other exceptions'' must be based on the ``best interests of the child.'' In addition to defining good cause and other exceptions, States must establish the standard for proving a claim. States also will have to decide which agency will inform TANF caretaker relatives about the cooperation exemptions, and which agency will make the decision about the validity of a given claim. These responsibilities can be delegated to the TANF agency, the CSE agency, or the Medicaid agency. Each State is required to designate a single and separate organizational unit of State government to administer its child support program. Earlier child support legislation, enacted in 1967, had required that the program be administered by the welfare agency. The 1975 act deleted this requirement in order to give each State the opportunity to select the most effective administrative mechanism. Most States have placed the child support agency within a social or human services umbrella agency which also administers the TANF Program. However, Florida, Massachusetts, Arkansas, and Alaska have placed the agency in the department of revenue and Guam, Hawaii, Texas, and the Virgin Islands have placed the agency in the office of the attorney general. The law allows the programs to be administered either at the State or local level. Ten programs are locally administered. A few programs are State administered in some counties and locally administered in others. States must have plans, approved by the director of OCSE, which set forth the details of their child support program. States must also enter into cooperative arrangements with courts and law enforcement officials to assist the child support agency in administering the program. These agreements may include provision for reimbursing courts and law enforcement officials for their assistance. States also must operate a parent locator service to find absent parents, and they must maintain full records of collections and disbursements and otherwise maintain an adequate reporting system. In order to facilitate the collection of support in interstate cases, a State must cooperate with other States in establishing paternity, locating absent parents, and securing compliance with an order issued by another State. States are required to use several enforcement tools. They must use the Internal Revenue Service (IRS) tax refund offset procedure for welfare and nonwelfare families, and they must also determine periodically whether any individuals receiving unemployment compensation owe child support. The State Employment Security Agency (part of the Federal-State Unemployment Insurance System), is required to withhold unemployment benefits, and to pay the child support agency any outstanding child support obligations established by an agreement with the individual or through legal processes. Other enforcement techniques States must use include: 1. Imposing liens against real and personal property for amounts of overdue support; 2. Withholding State tax refunds payable to a parent who is delinquent in support payments; 3. Reporting the amount of overdue support to a consumer credit bureau upon request; 4. Requiring individuals who have demonstrated a pattern of delinquent payments to post a bond or give some other guarantee to secure payment of overdue support; 5. Establishing expedited processes within the State judicial system or under administrative processes for obtaining and enforcing child support orders and determining paternity. These expedited procedures include giving States authority to secure assets to satisfy payment of past-due support by seizing or attaching unemployment compensation, worker's compensation, judgments, settlements, lotteries, asset held in financial institutions, and public and private retirement funds; 6. Withholding, suspending, or restricting the use of driver's licenses, professional and occupational licenses, and recreational licenses of noncustodial parents who owe past-due support; 7. Denying passports to persons owing more than $5,000 in past-due support; 8. Requiring unemployed noncustodial parents who owe child support to a child receiving TANF benefits to participate in appropriate work activities; 9. Performing quarterly data matches with financial institutions; and 10. Voiding of fraudulent transfers of assets to avoid payment of child support. Each State's plan must provide that the child support agency will attempt to secure support for all TANF children. The State must also provide in its plan that it will undertake to establish the paternity of a TANF child born out of wedlock. These requirements apply to all cases except those in which the State finds, in accordance with standards established by the Secretary, the best interests of the child would be violated. For families whose TANF eligibility ends due to the receipt of or an increase in child support, States must continue to provide CSE services without imposing the application fee. Foster care agencies are required to take steps, where appropriate, to secure an assignment to the State of any rights to support on behalf of a child receiving foster care maintenance payments under title IV-E of the Social Security Act. State child support agencies are also required to petition to include medical support as part of any child support order whenever health care coverage is available to the noncustodial parent at a reasonable cost. And, if a family loses TANF eligibility as the result of increased collection of support payments, the State must continue to provide Medicaid benefits for 4 calendar months beginning with the month of ineligibility. In addition, States must provide services to families covered by Medicaid who are referred to the State IV-D agency from the State Medicaid agency. With respect to non-TANF families, States must provide, once an application is filed with the State agency, the same child support collection and paternity determination services which are provided for TANF families. The State must charge non-TANF families an application fee of up to $25. The amount of the maximum allowable fee may be adjusted periodically by the Secretary of the Department of Health and Human Services to reflect changes in administrative costs. States may charge the fee against the custodial parent, pay the fee out of State funds, or recover it from the noncustodial parent. States also have the option of charging a late payment fee equal to between 3 and 6 percent of the amount of overdue support. Late payment fees may be charged to noncustodial parents and are to be collected only after the full amount of the support has been paid to the child. States may also recover costs in excess of the application fee from either the custodial or noncustodial parent. If a State chooses to make recovery from the custodial parent, it must have in effect a procedure whereby all persons in the State who have authority to order support are informed that such costs are to be collected from the custodial parent. Child support enforcement services must include the enforcement of spousal support, but only if a support obligation has been established with respect to the spouse, the child and spouse are living in the same household, and child support is being collected along with spousal support. Finally, each State must comply with any other requirements and standards that the Secretary determines to be necessary to the establishment of an effective child support program. THE CHILD SUPPORT ENFORCEMENT PROCESS The goal of the child support program is to combine these Federal and State responsibilities and activities into an efficient machine that provides seven basic products: locating absent parents, establishing paternity, establishing child support orders, reviewing and modifying orders, promoting medical support, collecting and distributing support, and enforcing child support across State lines. Each of these services deserves extensive discussion. Locating Absent Parents In pursuing cases, child support officials try to obtain a great deal of information and several documents from the custodial parent or other sources. These include the name and address of the noncustodial parent; the noncustodial parent's Social Security number; children's birth certificates; the child support order; the divorce decree or separation agreement; the name and address of the most recent employer of the noncustodial parent; the names of friends and relatives or organizations to which the noncustodial parent might belong; information about income and assets; and any other information about noncustodial parents that might help locate them. Once this information is provided, it is used in strictest confidence. If the Child Support Enforcement Program cannot locate the noncustodial parent with the information provided by the custodial parent, it must try to locate the noncustodial parent through the State parent locator service. The State uses various information sources such as telephone directories, motor vehicle registries, tax files, and employment and unemployment records. The State also can ask the Federal Parent Locator Service (FPLS) to locate the noncustodial parent. The FPLS can access data from the Social Security Administration, the Internal Revenue Service, the Selective Service System, the Department of Defense, the Veterans' Administration, the National Personnel Records Center, and State Employment Security Agencies. The FPLS provides Social Security numbers, addresses, and employer and wage information to State and local child support agencies to establish and enforce child support orders. The FPLS obtains employer addresses and wage and unemployment compensation information from the State employment security agencies. This information is very useful in helping child support officials work cases in which the custodial parent and children live in one State and the noncustodial parent lives or works in another State. Employment data are updated quarterly by employers reporting to their State employment security agency; unemployment data are updated continually from State unemployment compensation payment records. The FPLS conducts weekly or biweekly matches with most of the agencies listed above. Each agency runs the cases against its data base and the names and Social Security numbers that match are returned to FPLS and through FPLS to the requesting State or local child support office. During fiscal year 1995, the FPLS processed approximately 4.3 million requests for information from State and local CSE agencies. Since October 1984, OCSE has participated in Project 1099 which provides State child support agencies access to all of the earned and unearned income information reported to IRS by employers and financial institutions. Project 1099, named after the IRS form on which both earned and unearned income is reported, is a cooperative effort involving State child support agencies, the Federal Office of Child Support Enforcement, and the Internal Revenue Service. Examples of reported earned and unearned incomes include: interest paid on savings accounts, stocks and bonds, and distribution of dividends and capital gains; rent or royalty payments; prizes, awards, or winnings; fees paid directors or subcontractors; and unemployment compensation. The Project 1099 information is used to locate noncustodial parents and to verify income and employment. Project 1099 also helps locate additional nonwage income and assets of noncustodial parents who are employees as well as income and asset sources of self-employed and nonwage earning obligors. In fiscal year 1995, OCSE submitted about 3.9 million cases to the IRS under Project 1099 and over 2.5 million cases were matched (65 percent). To improve the CSE agency's ability to locate absent parents, Public Law 104-193 requires States to have automated registries of child support orders containing records of each case in which CSE services are being provided and each support order established or modified on or after October 1, 1998. Under Public Law 104-193, local registries could be linked to form the State registry. The State registry is to include a record of the support owed under the order, arrearages, interest or late penalty charges, amounts collected, amounts distributed, child's date of birth, and any liens imposed. The registry also will include standardized information on both parents, such as name, Social Security number, date of birth, and case identification number. Beginning October 1, 1997, States are required to establish an automated directory of new hires containing information from employers, including Federal, State, and local governments and labor organizations, for each newly hired employee. The directory must include the name, address and Social Security number of the employee and the employer's name, address, and tax identification number. This information generally is to be supplied to the State new hires directory within 20 days after the employee is hired. Within 3 business days after receipt of new hire information from the employer, the State directory of new hires is required to furnish the information to the national directory of new hires. The new law also requires the establishment of a Federal case registry of child support orders and a national directory of new hires. The Federal directories are to consist of abstracts of information from the State directories and are located in the FPLS. Public Law 104-193 allows all States to link up to an array of data bases and permits the FPLS to be used for the purpose of establishing parentage; establishing, setting the amount of, modifying, or enforcing child support obligations; or enforcing child custody or visitation orders. By May 1, 1998, a designated State agency must directly or by contract conduct automated comparisons of the Social Security numbers reported by employers to the State directory of new hires and the Social Security numbers of CSE cases that appear in the records of the State registry of child support orders. (The new law requires the HHS Secretary to conduct similar comparisons of the Federal directories.) When a match occurs the State directory of new hires is required to report to the State CSE agency the name, date of birth, and Social Security number of the employee, and the name, address, and identification number of the employer. The CSE agency must, within 2 business days, instruct appropriate employers to withhold child support obligations from the employee's paycheck, unless the employee's income is not subject to withholding. There are two exceptions to the immediate income withholding rule: (1) if one of the parties demonstrates, and the court (or administrative process) finds, that there is good cause not to require immediate withholding; or (2) if both parties agree in writing to an alternative arrangement. Public Law 104-193 requires employers to remit to the State disbursement unit income withheld within 7 business days after the employee's payday. States also are required to operate a centralized collection and disbursement unit that sends child support payments to custodial parents within 2 business days. Moreover, Public Law 104-193 expands the scope of the FPLS to provide information on the location of custodial parents. Federal law requires the HHS Secretary to operate a FPLS that contains information on, or that facilitates the discovery of, the location of individuals who are under obligation to pay child support, or against whom such an obligation is sought, or to whom such an obligation is owed. The FPLS also is used to find abducted children and to make or enforce a child custody or visitation determination. Establishing Paternity Paternity establishment is a prerequisite for obtaining a child support order. In 1994, 32.6 percent of children born in the United States were born to unmarried women. According to the OCSE, paternity is established in less than one-third of these cases. Without paternity established, these children have no legal claim on their fathers' income. A major weakness of the child support program is its poor performance in securing paternity for such children. In addition to financial benefits, establishing paternity can provide social, psychological, and emotional benefits and in some cases the father's medical history may be needed to give a child proper care. In the 1980s, legislation was enacted that contained provisions aimed at increasing the number of paternities established. Public Law 98-378, the Child Support Enforcement Amendments of 1984, required States to implement laws that permitted paternity to be established until a child's 18th birthday. Under the Family Support Act of 1988 (Public Law 100- 485), States are required to initiate the establishment of paternity for all children under the age of 18, including those for whom an action to establish paternity was previously dismissed because of the existence of a statute of limitations of less than 18 years. The 1988 law encourages States to create simple civil procedures for establishing paternity in contested cases, requires States to have all parties in a contested paternity case take a genetic test upon the request of any party, requires the Federal Government to pay 90 percent of the laboratory costs of these tests, and permits States to charge persons not receiving AFDC for the cost of establishing paternity. The 1988 law also sets paternity establishment standards for the States and stipulates that each State is required, in administering any law involving the issuance of birth certificates, to require both parents to furnish their Social Security number unless the State finds good cause for not doing so. Congress took additional action to improve paternity establishment in the Omnibus Budget Reconciliation Act of 1993. This law required States to have in effect, by October 1, 1993, the following: 1. A simple civil process for voluntarily acknowledging paternity under which the State must explain the rights and responsibilities of acknowledging paternity and afford due process safeguards. Procedures must include a hospital-based program for the voluntary acknowledgment of paternity during the period immediately preceding or following the birth of a child; 2. A law under which the voluntary acknowledgment of paternity creates a rebuttable, or at State option, conclusive presumption of paternity, and under which such voluntary acknowledgments are admissible as evidence of paternity; 3. A law under which the voluntary acknowledgment of paternity must be recognized as a basis for seeking a support order without requiring any further proceedings to establish paternity; 4. Procedures which provide that any objection to genetic testing results must be made in writing within a specified number of days prior to any hearing at which such results may be introduced in evidence; if no objection is made, the test results must be admissible as evidence of paternity without the need for foundation testimony or other proof of authenticity or accuracy; 5. A law which creates a rebuttable or, at the option of the State, conclusive presumption of paternity upon genetic testing results indicating a threshold probability of the alleged father being the father of the child; 6. Procedures which require default orders in paternity cases upon a showing that process has been served on the defendant and whatever additional showing may be required by State law; and 7. Expedited processes for paternity establishment in contested cases and full faith and credit to determinations of paternity made by other States. The 1993 reforms also revised the mandatory paternity establishment requirements imposed on States by the Family Support Act of 1988. The most notable provision increased the mandatory paternity establishment percentage, which is backed up by financial penalties linked to a reduction of Federal matching funds for the State's TANF Program (see Audits and Financial Penalties section). Legislation passed in 1996 further strengthened the Nation's paternity establishment system. More specifically, Public Law 104-193 streamlines the paternity determination process; raises the paternity establishment requirement from 75 to 90 percent; implements a simple civil process for establishing paternity; requires a uniform affidavit to be completed by men voluntarily acknowledging paternity and entitles such affidavit to full faith and credit in any State; stipulates that a signed acknowledgment of paternity be considered a legal finding of paternity unless rescinded within 60 days and thereafter may be challenged in court only on the basis of fraud, duress, or material mistake of fact; and provides that no judicial or administrative action is needed to ratify an acknowledgment that is not challenged. The new law also requires States to publicize the availability and encourage the use of procedures for voluntary establishment of paternity and child support. Paternity acknowledgments must be filed with the State birth records agency. Public Law 104-193 requires that before a mother or alleged father can sign a paternity acknowledgment, each must be given notice (both orally and in writing) of the alternatives to, legal consequences of, and rights and responsibilities arising from the signed acknowledgment. Moreover, in the case of unmarried parents, the father's name shall not appear on the birth certificate unless he has signed a voluntary acknowledgment or a court has issued an adjudication of paternity. While employing these laws and procedures to establish paternity, States follow a predictable sequence of events. In cases for which paternity is not voluntarily acknowledged (which is still the majority of cases), the child support agency locates the alleged father and brings him to court or before an administrative agency where he can either acknowledge or dispute paternity. If he claims he is not the father, the court can require that he submit to parentage blood testing to establish the probability that he is the father. If the father denies paternity, a court usually decides the issue based on scientific and testimonial evidence. Through the use of testing techniques, a man may be excluded as a possible natural father, in which case no further action against him is warranted. Most States use one or more of several scientific methods for establishing paternity. These include: ABO blood typing system, human leukocyte antigen (HLA) testing, red cell enzyme and serum protein electrophoresis, and DNA testing. Public Law 104-193 mandates that the State CSE agency have the power (without the need for permission from a court or administrative tribunal) to order genetic tests in appropriate CSE cases. These CSE agencies also must recognize and enforce the ability of other State CSE agencies to take such actions. Moreover, genetic test results must be admissible as evidence so long as they are of a type generally acknowledged as reliable by accreditation bodies recognized by HHS and performed by an entity approved by such an accredited body. Finally, in any case in which the CSE agency ordered the tests, the State must pay for the initial tests. The State is allowed to recoup the cost from the father if paternity is established. If the original test result is contested, further testing can be ordered by the CSE agency if the contestant pays the cost in advance. There are two types of testing procedures for paternity cases: (1) probability of exclusion tests, and (2) probability of paternity tests. Most laboratories perform probability of exclusion tests. This type of testing can determine with 90-99 percent accuracy that a man is ``not'' the father of a given child. There is a very high probability the test will exonerate a falsely accused man (Office of Child Support Enforcement, 1985). Since the question of paternity is essentially a scientific one, it is important that the verification process include available advanced scientific technology. Experts now agree that use of the highly reliable deoxyribonucleic acid (DNA) fingerprinting test greatly increases the likelihood of correct identification of putative fathers. DNA tests can be used either to exclude unlikely fathers or to establish a high likelihood that a given man is the father (Office of Child Support, 1990, see pp. 59-74). One expert, speaking at a child support conference, summed up the effectiveness of DNA testing as follows: The DNA fingerprinting technique promises far superior reliability than current blood grouping or HLA (human leukocyte antigen) analyses. The probability of an unrelated individual sharing the same patterns is practically zero. The ``DNA fingerprinting'' test, developed in England in 1985, refines the favorable statistics to an even greater degree, reducing the probability that two unrelated individuals will have the same DNA fingerprint to one in a quadrillion (Georgeson, 1989, p. 568). If the putative father is not excluded on the basis of the scientific test results, authorities may still conclude on the basis of witnesses, resemblance, and other evidence that they do not have sufficient evidence to establish paternity and, therefore, will drop charges against him. Tests resulting in nonexclusion also may serve to convince the putative father that he is, in fact, the father. If this occurs, a voluntary admission often leads to a formal court order. When authorities believe there is enough evidence to support the mother's allegation, but the putative father continues to deny the charges, the case proceeds to a formal adjudication of paternity in a court of law (McKillop, 1981, pp. 22-23). Using the results of the blood test and other evidence, the court or the child support agency, often through an administrative process, may dismiss the case or enter an order of paternity, a prerequisite to obtaining a court order requiring a noncustodial parent to pay support (U.S. General Accounting Office, 1987). In fiscal year 1996, 717,000 paternities were established, up from 245,000 in fiscal year 1986. While the number of paternities established through child support agencies reached a record high in 1996, huge disparities exist among States. In the previous year (latest available data), for example, the percentage of children in the Child Support Enforcement Program for whom paternity was established averaged 50 percent nationally, but ranged from 14 percent in Wyoming to 91 percent in Georgia. Establishing Orders A child support order legally obligates noncustodial parents to provide financial support for their children and stipulates the amount of the obligation (current weekly obligation plus arrearages, if any) and how it is to be paid. Many States have statutes that provide that, in the absence of a child support award, the payment of TANF benefits to the child of a noncustodial parent creates a debt due from the parent or parents in the amount of the TANF benefit. Other States operate under the common law principle, which maintains that a father is obligated to reimburse any person who has provided his child with food, shelter, clothing, medical attention, or education. States can establish child support obligations either by judicial or administrative process. Judicial and administrative systems The courts have traditionally played a major role in the child support program. Judges establish orders, establish paternity, and provide authority for all enforcement activity. The child support literature generally concludes that the judicial process offers several advantages, especially by providing more adequate protection for the legal rights of the noncustodial parent and by offering a wide range of enforcement remedies, such as civil contempt and possible incarceration. A major problem of using courts, however, is that they are often cumbersome, expensive, and time consuming. The advantages of an administrative process are very compelling. These include offering quicker service because documents do not have to be filed with the court clerk nor await the signature of the judge, eliminating time consuming problems in scheduling court time, providing a more uniform and consistent obligation amount, and saving money because of reduced court costs and attorney fees. The 1984 child support amendments required States to limit the role of the courts significantly by implementing administrative or judicial expedited processes. States are required to have quasi-judicial or administrative systems to expedite the process for obtaining and enforcing a support order. Since 1993, State have been required to extend these expedited processes to paternity establishment. These requirements can be waived--either statewide or in a locality-- if the judicial system is able to process cases expeditiously. Most child support officials view the growth of expedited administrative processes as an improvement in the child support program. An expedited judicial process is a legal process in effect under a State's judicial system that reduces the processing time of establishing and enforcing a support order. To expedite case processing, a ``judge surrogate'' is given authority to: take testimony and establish a record, evaluate and make initial decisions, enter default orders if the noncustodial parent does not respond to ``notice'' or other State ``service of process'' in a timely manner, accept voluntary acknowledgment of support liability and approve stipulated agreements to pay support. In addition, if the State establishes paternity using the expedited judicial process, the surrogate can accept voluntary acknowledgement of paternity. Judge surrogates are sometimes referred to as court masters, referees, hearing officers, commissioners, or presiding officers. The purpose of an expedited administrative process is to increase effectiveness and meet specified processing times in child support cases and, if the State so chose, paternity actions. Federal regulations specify that 90 percent of cases must be processed within 3 months, 98 percent within 6 months, and 100 percent within 12 months. The Federal regulations also contain additional requirements related to the expedited process. Proceedings conducted pursuant to either the expedited judicial or expedited administrative process must be presided over by an individual who is not a judge of the court. Orders established by expedited process must have the same force and effect under State law as orders established by full judicial process, although either process may provide that a judge first ratify the order. Within these broad limitations, each State is free to design an expedited process that is best suited to its administrative needs and legal traditions. Under Public Law 104-193, the expedited procedure rules were broadened to cover modification of support orders. The new law also requires that State tribunals--whether quasi-judicial or administrative--must have statewide jurisdiction over the parties and permit intrastate case transfers from one tribunal to another without the need to refile the case or re-serve the respondent. In addition, once a support/paternity order is entered, the tribunal must require each party to file and periodically update certain information with both the tribunal and the State's child support case registry. This information includes the parent's Social Security number, residential and mailing addresses, telephone number, driver's license number, and employer's name, address and telephone number. Moreover, the 1996 reforms require States to adopt laws that give the CSE agency authority to initiate a series of expedited procedures without the necessity of obtaining an order from any other administrative agency or judicial tribunal. These actions include: ordering genetic testing; issuing subpoenas; requiring public and private employers and other entities to provide information on employment, compensation, and benefits or be subject to penalties; obtaining access to vital statistics, State and local tax records, real and personal property records, records of occupational and professional licenses, business records, employment security and public assistance records, motor vehicle records, corrections records, customer records of utilities and cable television companies pursuant to an administrative subpoena, and records of financial institutions; directing the obligor to make payments to the child support agency in public assistance or income withholding cases; ordering income withholding; securing assets to satisfy judgments and settlements; and increasing the monthly support due to make payments on arrearages. Determining the amount of support orders Before October 1989, the decision of how much a parent should pay for child support was left primarily to the discretion of the court. Typically, judges examined financial statements from mothers and fathers and established awards based on children's needs. The resulting awards varied greatly. Moreover, this case-by-case approach resulted in very low awards. As late as 1991, the average amount of child support received by custodial parents was $2,961, less than $250 per month. In an attempt to increase the use of objective criteria, the 1984 child support amendments required each State to establish, by October 1987, guidelines for determining child support award amounts ``by law or by judicial or administrative action'' \1\ and to make the guidelines available ``to all judges and other officials who have the power to determine child support awards within the State.'' Federal regulations made the provision more specific: State child support guidelines must be based on specific descriptive and numeric criteria and result in a computation of the support obligation. The 1984 provision did not make the guidelines binding on judges and other officials who had the authority to establish child support obligations. However, the Family Support Act of 1988 required States to pass legislation making the State child support guidelines a ``rebuttable presumption'' in any judicial or administrative proceeding and establishing the amount of the order which results from the application of the State- established guidelines as the correct amount to be awarded. --------------------------------------------------------------------------- \1\ Fitzgerald v. Fitzgerald, No. 87-1259 (D.C. Ct. App. October 10, 1989): In October 1989, the District of Columbia Court of Appeals struck down child support guidelines adopted in October 1987 in response to the Federal requirement. The court held that the superior court committee that drafted the guidelines lacked authority to do so. It did not rule on the fairness of the guidelines, which awarded children a fixed fraction of the gross income of the noncustodial parent. --------------------------------------------------------------------------- States generally use one of three basic types of guidelines to determine award amounts: ``Income shares,'' which is based on the combined income of both parents (31 States); ``percentage of income,'' in which the number of eligible children is used to determine a percentage of the noncustodial parents' income to be paid in child support (15 States); and ``Melson-Delaware,'' which provides a minimum self-support reserve for parents before the cost of rearing the children is prorated between the parents to determine the award amount (Delaware, Hawaii, West Virginia). Two jurisdictions (the District of Columbia and Massachusetts) use variants of one or more of these three approaches (Williams, 1994; see table 8-24 below). The income shares approach is designed to ensure that the children of divorced parents suffer the lowest possible decline in standard of living. The approach is intended to ensure that the child receives the same proportion of parental income that he would have received if the parents lived together. The first step in the income shares approach is to determine the combined income of the two parents. A percentage of that combined income, which varies by income level, is used to calculate a ``primary support obligation.'' The percentages decline as income rises, although the absolute amount of the primary support obligation increases with income. Many States add child care costs and extraordinary medical expenses to the primary support obligation. The resulting total child support obligation is apportioned between the parents on the basis of their incomes. The noncustodial parent's share is the child support award (Office of Child Support, 1987, pp. II 67-80). The percentage of income approach is based on the noncustodial parent's gross income and the number of children to be supported (the child support obligation is not adjusted for the income of the custodial parent). The percentages vary by State. In Wisconsin, a highly publicized percentage of income guideline State, child support is based on the following proportions of the noncustodial parent's gross income: one child--17 percent; two children--25 percent; three children--29 percent; four children--31 percent; and five or more children-- 34 percent. There is no self support reserve in this approach nor is there separate treatment for child care or extraordinary medical expenses. The States that use a percentage of income approach are Alaska, Arkansas, Connecticut, Georgia, Illinois, Minnesota, Mississippi, Nevada, New Hampshire, New York, North Dakota, Tennessee, Texas, Wisconsin, and Wyoming. The Melson-Delaware formula starts with net income. \2\ After determining net income for each parent, a primary support allowance is subtracted from each parent's income. This reserve represents the minimum amount required for adults to meet their own subsistence requirements. The next step is to determine a primary support amount for each dependent child. Work-related child care expenses and extraordinary medical expenses are added to the child's primary support amount. The child's primary support needs are then apportioned between the parents. To ensure that children share in any additional income the parents might have, a percentage of the parents' remaining income is allocated among the children (the percentage is based on the number of dependent children). The States that use the Melson-Delaware approach are Delaware, Hawaii, and West Virginia. --------------------------------------------------------------------------- \2\ Net income equals income from employment and other sources plus business expense accounts if they provide the parent with an automobile, lunches, etc., minus income taxes based on maximum allowable exemptions, other deductions required by law, deductions required by an employer or union, legitimate business expenses, and benefits such as medical insurance maintained for dependents. --------------------------------------------------------------------------- Pirog, Klotz, and Buyers (1997) have examined the differences in child support guidelines across States. Their approach was to define five hypothetical cases of custodial mothers and noncustodial fathers that capture a range of differences in income, expenses, and other factors that influence the amount of child support payments computed under the guidelines adopted by the various States. State 1997 guidelines were then applied to each of the five cases to compute the amount of child support that would be due. In each of the five cases, the mother and father are divorced. The father lives alone while the mother lives with the couples' two children, ages 7 and 13. The father pays union dues of $30 per month and health insurance for the children of $25 per month. The mother incurs monthly employment-related child care expenses of $150. The income of the fathers and mothers are: Case A: father--$530; mother--$300 Case B: father--$720; mother--$480 Case C: father--$2,500; mother--$1,000 Case D: father--$4,400; mother--$1,760 Case E: father--$6,300; mother--$4,200 Arguably, the most striking generalization that emerges from table 8-2 is the remarkable differences across States in the amount of the child support obligation established by the guidelines, particularly at the lower income levels. TABLE 8-2.--AMOUNT OF CHILD SUPPORT AWARDED BY STATE GUIDELINES IN VARIOUS CASES ---------------------------------------------------------------------------------------------------------------- Case State ------------------------------------------------------ A B C D E ---------------------------------------------------------------------------------------------------------------- Alabama................................................. $216 $280 $433 $634 (\1\) Alaska.................................................. 38 38 312 546 $1,193 Arizona................................................. (\1\) 75 482 628 1,061 Arkansas................................................ (\1\) 150 305 475 1,025 California.............................................. 236 278 478 770 1,457 Colorado................................................ 231 261 409 610 1,066 Connecticut............................................. 0 0 404 703 1,198 Delaware................................................ 91 91 467 626 1,157 District of Columbia.................................... 50 208 458 821 1,495 Florida................................................. 135 261 463 721 1,186 Georgia................................................. 210 210 383 673 1,607 Hawaii.................................................. 100 100 470 610 1,260 Idaho................................................... 122 166 345 566 913 Illinois................................................ 102 136 294 485 1,020 Indiana................................................. 215 327 692 899 1,462 Iowa.................................................... 50 189 358 566 1,047 Kansas.................................................. 188 227 390 582 1,195 Kentucky................................................ 221 293 445 637 1,017 Louisiana............................................... 207 292 451 667 1,052 Maine................................................... 52 290 437 619 1,031 Maryland................................................ 249 295 449 655 1,060 Massachusetts........................................... (\1\) 137 471 789 (\1\) Michigan................................................ 128 141 468 657 1,078 Minnesota............................................... 62 84 376 606 1,228 Mississippi............................................. 92 124 251 427 908 Missouri................................................ 149 265 447 609 1,032 Montana................................................. 6 15 26 456 908 Nebraska................................................ 50 50 390 677 1,035 Nevada.................................................. 200 180 375 660 1,575 New Hampshire........................................... 50 50 424 667 1,473 New Jersey.............................................. 112 267 452 710 (\1\) New Mexico.............................................. 183 291 468 588 1,095 New York................................................ 25 50 436 699 1,548 North Carolina.......................................... 50 57 463 600 1,012 North Dakota............................................ 68 126 356 582 1,231 Ohio.................................................... 150 278 465 609 1,045 Oklahoma................................................ 171 171 295 415 801 Oregon.................................................. 73 159 343 587 1,027 Pennsylvania............................................ (\1\) 257 415 554 (\1\) Rhode Island............................................ 252 315 480 677 1,170 South Carolina.......................................... 58 183 463 574 1,000 South Dakota............................................ 275 275 486 652 1,032 Tennessee............................................... 153 200 393 665 1,422 Texas................................................... 109 147 298 517 1,114 Utah.................................................... 83 131 447 616 (\1\) Vermont................................................. (\1\) (\1\) 428 642 1,025 Virginia................................................ 231 289 446 641 1,042 Washington.............................................. 50 50 412 641 1,054 West Virginia........................................... 50 117 364 539 1,742 Wisconsin............................................... 133 180 375 660 1,575 Wyoming................................................. 105 200 348 519 882 ---------------------------------------------------------------------------------------------------------------- \1\ In these cases, courts have the discretion to set the amount that seems appropriate to the court. ANote.--See text for explanation of cases A, B, C, D, and E. Source: Pirog, Klotz, & Buyers, 1997. Award rates In 1993, of the 11.5 million custodial mothers of children under the age of 21 whose father was not living in the household, only 6.9 million or 60 percent had a child support award. About one-third of the 4.6 million custodial mothers without awards chose not to pursue a child support award. In other cases, custodial parents were unable to locate the noncustodial parent or the noncustodial parent was unable to pay. Never-married custodial parents were the group least likely to have a child support award. Only 44 percent of never- married custodial mothers had support awards compared with 70 percent of divorced custodial mothers. Moreover, black custodial mothers and custodial mothers of Hispanic origin were much less likely than their white counterparts to have child support awards. About 57 percent of whites had child support awards, compared with 46 percent of blacks and 38 percent of Hispanics (U.S. Bureau of the Census, 1997). Unresolved issues As noted by Garfinkel, Melli, and Robertson (1994), there are a host of controversial issues associated with child support awards. These include whether child care costs, extraordinary medical expenses, and college costs are taken into account in determining the support order; how the income of the noncustodial parent is allocated between first and subsequent families; \3\ how the income of stepparents is treated; whether a minimum child support award level regardless of age or circumstance of the noncustodial parent should be imposed; whether income earned as a result of a custodial parent's participation in an AFDC work, education, and training program is taken into account; and the duration of the support order (i.e., does the support obligation end when the child reaches age 18; what happens to arrearages). --------------------------------------------------------------------------- \3\ Traditionally, the courts have taken the position that the father's prior child support obligations take absolute precedence over the needs of the new family. They have disregarded the father's plea that his new responsibilities are a ``change in circumstance'' justifying a reduction in a prior child support award or at least averting an increase. --------------------------------------------------------------------------- Reviewing and Modifying Orders Without periodic modifications, child support obligations can become inadequate and inequitable. Historically, the only way to modify a child support order was to require a party to petition the court for a modification based on a ``change in circumstances.'' What constituted a change in circumstances sufficient to modify the order depended on the State and the court. The person requesting modification was responsible for filing the motion, serving notice, hiring a lawyer, and proving a change in circumstances of sufficient magnitude to satisfy statutory standards. The modification proceeding was a two step process. First the court determined whether a modification was appropriate. Next, the amount of the new obligation was determined. Because this approach to updating orders was so cumbersome, the Family Support Act of 1988 required States both to use guidelines as a rebuttable presumption in all proceedings for the award of child support and to review and adjust child support orders in accordance with the guidelines. These provisions reflected congressional intent to simplify the updating of support orders by requiring a process in which the standard for modification was the State child support guidelines. They also reflect a recognition that the traditional burden of proof for changing the amount of the support order was a barrier to updating. Finally, the 1988 law signaled a need for States to at least expand, if not replace, the traditional ``change in circumstances'' test as the legal prerequisite for updating support orders by making State guidelines the presumptively correct amount of support to be paid (Federal Register, 1992, p. 61560). The Family Support Act also required States to review guidelines at least once every 4 years and have procedures for review and adjustment of orders, consistent with a plan indicating how and when child support orders are to be reviewed and adjusted. Review may take place at the request of either parent subject to the order or at the request of a State child support agency. Any adjustment to the award must be consistent with the State's guidelines, which must be used as a rebuttable presumption in establishing or adjusting the support order. The Family Support Act also required States to review all orders being enforced under the child support program within 36 months after establishment or after the most recent review of the order and to adjust the order in accord with the State's guidelines. Review is required in child support cases in which support rights are assigned to the State, unless the State has determined that review would not be in the best interests of the child and neither parent has requested a review. This provision applies to child support orders in cases in which benefits under the TANF, foster care, or Medicaid Programs are currently being provided, but does not include orders for former TANF, foster care, or Medicaid cases, even if the State retains an assignment of support rights for arrearages that accumulated during the time the family was on welfare. In child support cases in which there is no current assignment of support rights to the State, including former recipients of TANF, foster care, or Medicaid benefits receiving continued child support services, review is required at least once every 36 months only if a parent requests it. If the review indicates that adjustment of the support amount is appropriate, the State must proceed to adjust the award accordingly. The Family Support Act also required States to notify parents in cases being enforced by the State both of their right to request a review at least 30 days before it begins and of any proposed adjustment or determination that there should be no change in the award amount. In the latter case, the parent must be given at least 30 days after notification to initiate proceedings to challenge the proposed adjustment or determination. Public Law 104-193, the 1996 welfare reform law, somewhat revised the review and modification requirements. The mandatory 3-year review of child support orders is slightly modified to permit States some flexibility in determining which reviews of welfare cases should be pursued and in choosing methods of review. States must review orders every 3 years (or more often at State option) if either parent or the State requests a review in welfare cases or if either parent requests a review in nonwelfare CSE cases. States must notify parents of their review and adjustment rights at least once every 3 years. States will be able to use one of three different methods for adjusting orders: (1) the child support guidelines (i.e., current law); (2) an inflation adjustment in accordance with a formula developed by the State; or (3) an automated method to identify orders eligible for review followed by an appropriate adjustment to the order, not to exceed any threshold amount determined by the State. If either an inflation adjustment or an automated method is used, the State must allow either parent to contest the adjustment. The frequency of review and updating of support orders has increased greatly since the 1984 amendments. As a result, several issues have become apparent. When an initial child support amount is established under guidelines, it generally is reasonable to apply the guidelines to later modification. However, when newly adopted guidelines are used to modify old orders, some noncustodial parents may have to pay substantially higher child support. Noncustodial parents who decided to start second families based on financial calculations which assumed the amount of the original order argue that it is unfair for States to use new State-established guidelines to update or revise their preexisting award obligations (Malone, 1989, pp. 31-32). Other issues associated with updating child support awards include the expected increased resources necessary to review and update orders, and the disinclination of child support staff to initiate downward modifications. Another major issue in the modification of awards was that 18 States permitted retroactive modifications. The vast majority of such retroactive modifications had the effect of reducing the amount of child support ordered. Thus, for example, an order for $200 a month for child support, which was unpaid for 36 months, should accumulate an arrearage of $7,200. Yet, if the obligor was brought to court, having made no prior attempt to modify the order, the order might be reduced to $100 a month retroactive to 36 months prior to the date of modification. This retroactive modification would reduce the arrearage from $7,200 to $3,600. Cases such as this, which had serious impacts on custodial parents and their children, convinced Congress to take action. Thus, in 1986 Congress enacted section 9103 of Public Law 99-509 (section 466(a)(9) of the Social Security Act) to change State practices involving modification of child support arrears. The provision required States to change their laws so that any payment of child support, on and after the date due, is a judgment (the official decision or finding of a court on the respective rights and claims of the parties to an action) by operation of law. The provision also requires that the judgment be entitled to full faith and credit in the originating State and in any other State. Full faith and credit is a constitutional principle that the various States must recognize the judgments of other States within the United States and accord them the force and effect they would have in their home State. The 1986 provision also greatly restricts retroactive modification to make it more difficult for courts and administrative entities to forgive or reduce arrearages. More specifically, orders can be retroactively modified only for a period during which there is pending a petition for modification and only from the date that notice of the petition has been given to the custodial or noncustodial parent. Promoting Medical Support Section 16 of Public Law 98-378, enacted in 1984, requires the Secretary of HHS to issue regulations to require that State child support agencies petition for the inclusion of medical support as part of any child support order whenever health care coverage is available to the noncustodial parent at reasonable cost. According to Federal regulations, any employment-related or other group coverage is considered reasonable, under the assumption that health insurance is inexpensive to the employee/noncustodial parent. A 1993 study by Cooper and Johnson that analyzed 1987 data from the Center for Health Expenditures and Insurance Studies indicated that, for low-wage (i.e., poor--income below poverty line) employees with employer-provided family health insurance coverage, 77 percent of the premium was paid for by the employer. On October 16, 1985, OCSE published regulations amending previous regulations and implementing section 16 of Public Law 98-378. The regulations require State child support agencies to obtain basic medical support information and provide this information to the State Medicaid agency. The purpose of medical support enforcement is to expand the number of children for whom private health insurance coverage is obtained by increasing the availability of third party resources to pay for medical care and thereby reduce Medicaid costs for both the States and the Federal Government. If the custodial parent does not have satisfactory health insurance coverage, the child support agency must petition the court or administrative authority to include medical support in new or modified support orders and inform the State Medicaid agency of any new or modified support orders that include a medical support obligation. The regulations also require child support agencies to enforce medical support that has been ordered by a court or administrative process. These regulations also permit the use of child support matching funds at the 66-percent rate for required medical support activities. Before these regulations were issued, medical support activities were pursued by child support agencies only under optional cooperative agreements with Medicaid agencies. Some of the functions that the child support agency may perform under a cooperative agreement with the Medicaid agency include: receiving referrals from the Medicaid agency, locating noncustodial parents, establishing paternity, determining whether the noncustodial parent has a health insurance policy or plan that covers the child, obtaining sufficient information about the health insurance policy or plan to permit the filing of a claim with the insurer, filing a claim with the insurer or transmitting the necessary information to the Medicaid agency, securing health insurance coverage through court or administrative order (when it will not reduce the noncustodial parent's ability to pay child support), and recovering amounts necessary to reimburse medical assistance payments. On September 16, 1988, OCSE issued regulations expanding the medical support enforcement provisions. These regulations require the child support agency to develop criteria to identify existing child support cases that have a high potential for obtaining medical support, and to petition the court or administrative authority to modify support orders to include medical support for targeted cases even if no other modification is anticipated. The child support agency also is required to provide the custodial parent with information regarding the health insurance coverage obtained by the noncustodial parent for the child. Moreover, the regulation deletes the condition that child support agencies may secure health insurance coverage under a cooperative agreement only when it will not reduce the noncustodial parent's ability to pay child support. Before late 1993, employees covered under their employer's health care plans generally could provide coverage to children only if the children lived with the employee. However, as a result of divorce proceedings, employees often lost custody of their children but were nonetheless required to provide their health care coverage. While the employee would be obliged to follow the court's directive, the employer that sponsored the employee's health care plan was under no similar obligation. Even if the court ordered the employer to continue health care coverage for the nonresident child of their employee, the employer would be under no legal obligation to do so (Shulman, 1994, pp. 1-2). Aware of this situation, Congress took the following legislative action in the Omnibus Budget Reconciliation Act of 1993: 1. Insurers were prohibited from denying enrollment of a child under the health insurance coverage of the child's parent on the grounds that the child was born out of wedlock, is not claimed as a dependent on the parent's Federal income tax return, or does not reside with the parent or in the insurer's service area; 2. Insurers and employers were required, in any case in which a parent is required by court order to provide health coverage for a child and the child is otherwise eligible for family health coverage through the insurer: (a) to permit the parent, without regard to any enrollment season restrictions, to enroll the child under such family coverage; (b) if the parent fails to provide health insurance coverage for a child, to enroll the child upon application by the child's other parent or the State child support or Medicaid agency; and (c) with respect to employers, not to disenroll the child unless there is satisfactory written evidence that the order is no longer in effect or the child is or will be enrolled in comparable health coverage through another insurer that will take effect not later than the effective date of the disenrollment; 3. Employers doing business in the State, if they offer health insurance and if a court order is in effect, were required to withhold from the employee's compensation the employee's share of premiums for health insurance and to pay that share to the insurer. The Secretary of HHS may provide by regulation for such exceptions to this requirement (and other requirements described above that apply to employers) as the Secretary determines necessary to ensure compliance with an order, or with the limits on withholding that are specified in section 303(b) of the Consumer Credit Protection Act; 4. Insurers were prohibited from imposing requirements on a State agency acting as an agent or assignee of an individual eligible for medical assistance that are different from requirements applicable to an agent or assignee of any other individual; 5. Insurers were required, in the case of a child who has coverage through the insurer of a noncustodial parent to: (a) provide the custodial parent with the information necessary for the child to obtain benefits; (b) permit the custodial parent (or provider, with the custodial parent's approval) to submit claims for covered services without the approval of the noncustodial parent; and (c) make payment on claims directly to the custodial parent, the provider, or the State agency; and 6. The State Medicaid agency was permitted to garnish the wages, salary, or other employment income of, and to withhold State tax refunds to, any person who: (a) is required by court or administrative order to provide health insurance coverage to an individual eligible for Medicaid; (b) has received payment from a third party for the costs of medical services to that individual; and (c) has not reimbursed either the individual or the provider. The amount subject to garnishment or withholding is the amount required to reimburse the State agency for expenditures for costs of medical services provided under the Medicaid Program. Claims for current or past due child support take priority over any claims for the costs of medical services. These provisions appear to be having an impact on the number of children in single-parent families with medical coverage. According to OCSE data, 67 percent of support orders established in fiscal year 1996 included health insurance, up from 46 percent in fiscal year 1991. Nevertheless, only 34 percent of support orders enforced or modified in fiscal year 1996 included health insurance, down slightly from 35 percent in 1991. These figures indicate that many children still lack coverage. One way to increase medical support may be to require withholding of health insurance premiums in all cases with medical support orders (Gordon, 1994). Under last year's welfare reform legislation (Public Law 104-193), the definition of ``medical child support order'' in the Employee Retirement Income Security Act (ERISA) is expanded to clarify that any judgment, decree, or order that is issued by a court or by an administrative process has the force and effect of law. In addition, the new law stipulates that all orders enforced by the State CSE agency must include a provision for health care coverage. If the noncustodial parent changes jobs and the new employer provides health coverage, the State must send notice of coverage to the new employer; the notice must serve to enroll the child in the health plan of the new employer. Collecting Child Support Local courts and child support enforcement agencies attempt to collect child support when the noncustodial parent does not pay. The most important collection method is wage withholding. Other techniques for enforcing payments include regular billings; delinquency notices; liens on property; offset of unemployment compensation payments; seizure and sale of property; reporting arrearages to credit agencies; garnishment of wages; seizure of State and Federal income tax refunds; revocation of various types of licenses (drivers', business, occupational, recreational) to persons who are delinquent in their child support payments; attachment of lottery winnings and insurance settlements of debtor parents; and Federal imprisonment, fines or both. In addition to approaches authorized by the Federal Government through the child support program, States use a variety of other collection techniques. In fact, States have been at the forefront in implementing innovative approaches. Some States hire private collection agencies to collect child support payments. Some States bring charges of criminal nonsupport or civil or criminal contempt of court against noncustodial parents who fail to pay child support. These court proceedings are usually lengthy because of court backlogs, delays, and continuances. Once a court decides the case, noncustodial parents are often given probation or suspended sentences, and occasionally they are even awarded lower support payments and partial payment of arrearages. To combat problems associated with court delays, the child support statute requires States to implement expedited processes under the State judicial system or State administrative processes for obtaining and enforcing support orders. Given the pivotal role of collections in the child support process, this section now turns to detailed discussion of the most effective collections procedures. Summary data on the effectiveness of four top collection methods are presented in table 8-3. TABLE 8-3.--CHILD SUPPORT COLLECTIONS MADE BY VARIOUS ENFORCEMENT TECHNIQUES, SELECTED FISCAL YEARS 1989-96 [Dollars in millions] -------------------------------------------------------------------------------------------------------------------------------------------------------- Child support collections Percent of total collections Enforcement technique ------------------------------------------------------------------------------------------------------- 1989 1991 1993 1994 1995 1996 1989 1991 1993 1994 1995 1996 -------------------------------------------------------------------------------------------------------------------------------------------------------- Wage withholding................................ $2,144 $3,266 $4,743 $5,429 $6,111 $6,731 40.9 47.4 53.1 55.1 56.9 56.0 Federal income tax offset....................... 411 476 570 623 734 906 7.9 6.9 6.4 6.3 6.8 7.5 State income tax offset......................... 62 72 78 88 97 112 1.2 1.0 0.9 0.9 0.9 0.9 Unemployment compensation intercept............. 54 143 286 223 187 211 1.0 2.1 3.2 2.3 1.7 1.8 Other \1\....................................... 2,570 2,929 3,232 3,506 3,624 4,059 49.0 42.6 36.3 35.5 33.7 33.8 ------------------------------------------------------------------------------------------------------- Total collections......................... $5,241 $6,886 $8,907 $9,869 $10,753 $12,019 100.0 100.0 100.0 100.0 100.0 100.0 -------------------------------------------------------------------------------------------------------------------------------------------------------- \1\ The Office of Child Support Enforcement (OCSE) does not designate the source of most of these collections. According to the OCSE, the majority of collections in the ``other'' category came from noncustodial parents who were complying with their support orders by sending their payments to the child support agency. OCSE officials maintain that reliability of collection data lessen when specified by techniques of collection. Note.--Data is preliminary for fiscal year 1996. Source: Office of Child Support Enforcement, U.S. Department of Health and Human Services. Wage withholding The Family Support Act of 1988 greatly expanded wage withholding by requiring immediate withholding to begin in November 1990 for all new or modified orders being enforced by States. Equally important, States were required, with some exceptions, to implement immediate wage withholding in all support orders initially issued on or after January 1, 1994, regardless of whether a parent has applied for child support services. The child support amendments of 1984 also required that States have in effect two distinct procedures for withholding wages of noncustodial parents. First, for existing cases enforced through the child support agency, States were required to impose wage withholding whenever an arrearage accrued that was equal to the amount of support payable for 1 month. Second, for all child support cases, all new or modified orders were required to include a provision for wage withholding when an arrearage occurs. The intent of the second procedure was to ensure that orders not enforced through the child support agency contain the authority necessary to permit wage withholding to be initiated by someone other than the child support agency if and when an arrearage occurs. According to the Federal statute, State due process requirements govern the scope of notice that must be provided to an obligor (i.e., noncustodial parent) when withholding is triggered. As a general rule, the noncustodial parent is entitled to advance notice of the withholding procedure. This notice, where required, must inform the noncustodial parent of the following: the amount that will be withheld; the application of withholding to any current or subsequent period of employment; the procedures available for contesting the withholding and the sole basis for objection (i.e., mistake of fact); the period allotted to contest the withholding and the result of failure to contact the State within this timeframe (i.e., issuance of notification to the employer to begin withholding); and the steps the State will take if the noncustodial parent contests the withholding, including the procedure to resolve such contests. If the noncustodial parent contests the withholding notice, the State must conduct a hearing, determine if the withholding is valid, notify the noncustodial parent of the decision, and notify the employer to commence the deductions if withholding is upheld. All of this must occur within 45 days of the initial notice of withholding. Whether a State uses a judicial or an administrative process, the only basis for a hearing is a factual mistake about the amount owed (current, arrearage or both) or the identity of the noncustodial parent. When withholding is uncontested or when a contested case is resolved in favor of withholding, the administering agency must serve a withholding notice on the employer. The employer is required to withhold as much of the noncustodial parent's wages as is necessary to comply with the order, including the current support amount plus an amount to be applied toward liquidation of any arrearage. In addition, the employer may retain a fee to offset the administrative cost of implementing withholding. Employer fees per wage withholding transaction range from nothing to $3 per pay period to $5 per attachment to $10 per month (Office of Child Support, 1986, p. 7). The Federal Consumer Credit Protection Act limits garnishment to 50 percent of disposable earnings for a noncustodial parent who is the head of a household, and 60 percent for a noncustodial parent who is not supporting a second family. These percentages increase by 5 percentage points, to 55 and 65 percent respectively, when the arrearages represent support that was due more than 12 weeks before the current pay period. Upon receiving a withholding notice, the employer must begin withholding the appropriate amount of the obligor's wages no later than the first pay period that occurs after 14 days following the date the notice was mailed. The 1984 amendments regulate the language in State statutes on the other rights and liabilities of the employer. For instance, the employer is subject to a fine for discharging a noncustodial parent or taking other forms of retaliation as a result of a withholding order. In addition, the employer is held liable for amounts not withheld as directed. In addition to being able to charge the noncustodial parent a fee for the administrative costs associated with wage withholding, the employer can combine all support payments required to be withheld for multiple obligors into a single payment and forward it to the child support agency or court with a list of the cases to which the payments apply. The employer need not vary from the normal pay and disbursement cycle to comply with withholding orders; however, support payments must be forwarded to the State or other designated agency within 10 days of the date on which the noncustodial parent is paid. When the noncustodial parent changes jobs, the previous employer must notify the court or agency that entered the withholding order. The State must then notify the new employer or income source to begin withholding from the obligor's wages. In addition, States must develop procedures to terminate income withholding orders when all of the children are emancipated and no arrearage exists. Federal law provides two exceptions to the income withholding rule: (1) if one of the parents demonstrates, and the court (or administrative process) finds, that there is good cause not to require immediate income withholding or (2) if both parents agree in writing to an alternative payment arrangement. For income withholding purposes, ``income'' means any periodic form of payment due an individual, regardless of source, including wages, salaries, commissions, bonuses, worker's compensation, disability, payments from a pension or retirement program, and interest. As shown in table 8-3, the congressional emphasis on wage withholding has paid off handsomely. Not only has the total amount of support collected through wage withholding increased each year, reaching $6.7 billion in 1996, but the percentage of total collections achieved through wage withholding has also increased steadily, growing from about 41 percent in 1989 to nearly 57 percent in 1995; in 1996, it dropped back slightly to 56 percent. Federal income tax refund offset Under this program, the IRS, operating on request from a State filed through the Secretary of HHS, simply intercepts tax returns and deducts the amount of certified child support arrearages. The money is then sent to the State for distribution. The availability of the IRS collection mechanism for child support was strengthened by the Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35). IRS can now withhold past due support from Federal tax refunds upon a simple showing by the State that an individual owes at least $150 in past due support which has been assigned to the State as a condition of AFDC eligibility. The withheld amount is sent to the State agency, together with notice of the taxpayer's current address. The 1984 amendments created a similar IRS offset program for non-AFDC families owed child support. States must submit to the IRS for withholding the names of absent parents who have arrearages of at least $500 and who, on the basis of current payment patterns and the enforcement efforts that have been made, are unlikely to pay the arrearage before the IRS offset can occur. The law establishes specific notice requirements and mandates that the noncustodial parent and his spouse (if any) be informed of the impending use of the tax offset procedure. The purpose of this notice is to protect the unobligated spouse's portion of the tax refund. The 1988 provision applied to refunds payable after December 31, 1985, and before January 1, 1991. Public Law 101-508, enacted in 1990, makes permanent the IRS offset program for non-AFDC families. In fiscal year 1996, according to IRS, more than 1 million cases were offset. The total amount intercepted was $1 billion, up by a factor of well over three since 1986 ($308 million). State income tax refund offset The child support amendments of 1984 mandate that States increase the effectiveness of the child support program by, among other things, enacting several collection procedures. Among the required procedures is the interception of State income tax refunds payable to noncustodial parents up to the amount of overdue support. As in the case of liens and bonds, this procedure need not be used in cases found inappropriate under State guidelines. The State Tax Intercept Program allows a State to collect overdue child support payments by intercepting State tax refunds due a noncustodial parent. The State tax refund is applied to a support arrearage to reduce or eliminate the debt of an obligor that is owed either to the State or to the custodial parent. In order for the State tax refund offset to work effectively, cooperation between the State's department of revenue and the child support agency is crucial. The names and Social Security numbers of delinquent noncustodial parents are submitted to the department of revenue for matching with tax return forms. If a match occurs and a refund is due, the refund or a portion of it is transferred from the State department of revenue to the child support agency and then credited to the appropriate noncustodial parent to offset his support debt. The child support agency must give advance notice of the impending offset to the noncustodial parent and must also inform him of the process for contesting and resolving the proposed action. If the custodial parent does not respond to the notice, the money is intercepted and forwarded to the child support agency for distribution. In fiscal year 1996, the State Tax Intercept Program collected $112 million (table 8-3). Unlike the Federal program, which requires that States certify a specified amount before the offset can be applied ($150 for AFDC families and $500 for non-AFDC families), States choose their own level for certification. In many States, the amount is the same for both AFDC and non-AFDC families. Although the amounts vary greatly from State to State, the amount in the typical State is about $100. Unemployment compensation intercept Public Law 97-35, the Omnibus Budget Reconciliation Act of 1981, requires State child support agencies to determine on a periodic basis whether individuals receiving unemployment compensation owe support obligations that are not being met. The act also requires child support agencies to enforce support obligations in accord with State-developed guidelines for obtaining an agreement with the individual to have a specified amount of support withheld from unemployment compensation or, in the absence of an agreement, for bringing legal proceedings to require the withholding. The child support agency must reimburse the State employment security agency for the administrative costs attributable to withholding unemployment compensation. The unemployment compensation intercept collected $211 million in fiscal year 1996 (table 8-3). A number of States, especially those with high levels of unemployment (but where the noncustodial parent has had some attachment to the labor force), are finding that the unemployment offset procedure can raise collections significantly. Property liens A lien is a legal claim on someone's property as security against a just debt. The use of liens for child support enforcement was characterized during congressional debate on the child support amendments of 1984 as ``simple to execute and cost effective and a catalyst for an absent parent to pay past due support in order to clear title to the property in question'' (U.S. House, 1983). A Ways and Means Committee report stated that liens would complement the income withholding provisions of the 1984 law and be particularly helpful in enforcing support payments owed by noncustodial parents with substantial assets or income but who are not salaried employees. The 1984 legislation required States to enact laws and implement ``procedures under which liens are imposed against real property for amount of overdue support owed by an absent parent who resides or owns property in the State.'' Liens can apply to property such as land, vehicles, houses, antique furniture, and livestock. The law provides, however, that States need not use liens in cases in which, on the basis of guidelines that generally are available to the public, they determine that lien procedures would be inappropriate. This provision implicitly requires States to develop guidelines about use of liens. Generally, a lien for delinquent child support is a statutorily created mechanism by which an obligee obtains a nonpossessory interest in property belonging to the noncustodial parent. The interest of the custodial parent is a slumbering interest that allows the noncustodial parent to retain possession of the property, but affects the noncustodial parent's ability to transfer ownership of the property to anyone else. A child support lien converts the custodial parent from an unsecured to a secured creditor. As such, it gives the custodial parent priority over unsecured creditors and subsequent secured creditors. In some States a lien is established automatically upon entry of a support order and the first incidence of noncompliance by the obligor. Frequently, the mere imposition of a lien will motivate the delinquent parent to do whatever is necessary to remove the lien (i.e., pay past due support). When this is not the case, it may become necessary to enforce the lien. Liens are not self-executory. They merely impede the debtor's ability to transfer property. If a lien exists, a debtor must satisfy the judgment before the property may be sold or transferred. However, it is not necessary for the obligee to wait until the obligor tries to transfer the property before taking action. The obligee may enforce her judgment by execution and levy against the property if she believes the amount of equity in the property justifies execution. A procedure developed by the IRS, known as Project 1099 (that is, the number of the IRS form used), has helped several States increase their use of liens by identifying individuals who possess appropriate assets. Initiated in 1984 to assist in location efforts, since the fall of 1988 Project 1099 has routinely provided wage and employer information as well as location and asset information on noncustodial parents. The welfare reform legislation passed in 1996 (Public Law 104-193) requires States to have procedures under which liens arise by operation of law against property for the amount of the past-due support. States must grant full faith and credit to liens of other States if the originating State agency or party has complied with procedural rules relating to the recording or serving of lien. These rules, however, cannot require judicial notice or hearing before enforcement of the lien. Bonds, securities, and other guarantees The 1984 child support amendments require States to have in effect and use procedures under which noncustodial parents must post security, bond, or some other guarantee to secure payment of overdue child support. This technique is useful where significant assets exist although the noncustodial parent's income is sporadic, seasonal, or derived from self-employment. As in the case of liens, this procedure need not be used in cases found inappropriate under State guidelines. The State guidelines should define and target assets that can appropriately be sought to secure or guarantee payment without hindering the noncustodial parent from effectively pursuing his livelihood. IRS full collection process Since 1975, Congress has authorized the Internal Revenue Service to collect certain child support arrearages as if they were delinquent Federal taxes. This method is known as the IRS full collection process. It works as follows. The Secretary of HHS must, upon the request of a State, certify to the Secretary of Treasury any amounts identified by the State as delinquent child support. The Secretary of HHS may certify only the amounts delinquent under a court or administrative order, and only upon a showing by the State that it has made diligent and reasonable efforts to collect amounts due using its own collection mechanisms. States must reimburse the Federal Government for any costs involved in making the collections. This full collection process is used only when there is a good chance that the IRS can make a collection and only for cases in which a child support obligation is delinquent and the amount owed has been certified to be at least $750. Use by the States of this regular IRS collection mechanism, which may include seizure of property, freezing of accounts, and use of other aggressive procedures, has been relatively infrequent. In fiscal year 1995, collections were made in 939 cases nationwide, for a total collection of $764,697. Credit bureau reporting The 1984 Federal child support legislation required States to develop procedures for providing child support debt information to credit reporting agencies (sometimes referred to as credit bureaus). The primary purposes for reporting delinquent child support payers to credit reporting agencies are to discourage noncustodial parents from not making their child support payments, to prevent the undeserved extension of credit, and to maintain the noncustodial parent's ability to pay his child support obligation. Other benefits include access by child support agencies to address, employment, and asset information. The 1984 amendments require States to report overdue child support obligations exceeding $1,000 to consumer reporting agencies if such information is requested by the credit bureau. States have the option of reporting in cases in which the noncustodial parent is less than $1,000 in arrears. States must provide noncustodial parents with advance notice of intent to release information on their child support arrearage and an opportunity for them to contest the accuracy of the information. The child support agency may charge the credit bureau a fee for the information. Although some States and counties had agreements in place with credit bureaus to obtain information about the location of absent parents, the 1984 provision requires States to authorize the routine transfer of information concerning overdue child support to credit bureaus on a much broader basis. Moreover, it is in the interest of credit bureaus to request such information because overdue child support adversely affects an obligated parent's ability to pay other debts. Public Law 102-537, the Ted Weiss Child Support Enforcement Act of 1992, amends the Fair Credit Reporting Act to require consumer credit reporting agencies to include in any consumer report information on child support delinquencies. The information is provided by or verified by State or local child support agencies. Public Law 103-432, enacted in October 1994, includes a provision that requires States to periodically report to consumer reporting agencies the name of parents owing at least 2 months of overdue child support, and the amount of the child support overdue. In order to facilitate the access of child support officials to credit information, the 1996 welfare reform legislation states that in response to a request by the head of a State or local CSE agency (or by a State or local government official authorized by the head of a CSE agency), consumer credit agencies must release information if the person making the request makes all of the following certifications: that the consumer report is needed to establish and individual's capacity to make child support payments or determine the level of payments; that paternity has been established or acknowledged; that the consumer has been given at least 10 days notice by certified or registered mail that the report is being requested; and that the consumer report will be kept confidential, will be used solely for child support purposes, and will not be used in connection with any other civil, administrative, or criminal proceeding or for any other purpose. Consumer reporting agencies also must give reports to a CSE agency for use in setting an initial or modified award. These provisions amend the Fair Credit Reporting Act. The new law also requires States to periodically report to consumer reporting agencies the name of any noncustodial parent who is delinquent in the payment of support and the amount of past-due support owed by the parent. Before such a report can be sent, the obligor must have been afforded all due process rights, including notice and reasonable opportunity to contest the claim of child support delinquency. Enforcement against Federal employees The 1975 child support legislation included a provision allowing garnishment of wages and other payments by the Federal Government for enforcement of child support and alimony obligations. The law also provided that moneys payable by the United States to any individual for employment are subject to legal proceedings brought for the enforcement of child support or alimony. The law sets forth in detail the procedures that must be followed for service of legal process and specifies that the term ``based upon remuneration for employment'' includes wages, periodic benefits for the payment of pensions, retirement pay including Social Security, and other kinds of Federal payments. The 1996 welfare reform law substantially revised child support enforcement for Federal employees, including retirees and military personnel. As under prior law, Federal employees are subject to income withholding and other actions taken against them by State CSE agencies. However, every Federal agency is responsible for responding to a State CSE Program as if the Federal agency were a private business. The head of each Federal agency must designate an agent, whose name and address must be published annually in the Federal Register, to be responsible for handling child support cases. The agency must respond to withholding notices and other matters brought to its attention by CSE officials. Child support claims are given priority in the allocation of Federal employee income. Enforcement against military personnel Child support enforcement workers face unique difficulties when working on cases in which the absent parent is an active duty member of the military service. Learning to work through military channels can prove both challenging and frustrating, especially if the child support agency is not near a military base. As a result, military cases are often ignored or not given sufficient attention (Office of Child Support, 1991). Public Law 97-248, the Tax Equity and Fiscal Responsibility Act of 1982, requires allotments from the pay and allowances of any active duty member of the uniformed service who fails to make child or spousal support payments. This requirement arises when the service member fails to make support payments in an amount at least equal to the value of 2 months' worth of support. Provisions of the Federal Consumer Credit Protection Act apply, limiting the percentage of the member's pay that is subject to allotment. The amount of the allotment is the amount of the support payment, as established under a legally enforceable administrative or judicial order. Since October 1, 1995, the Department of Defense has consolidated its garnishment operations at the Defense Finance and Accounting Service in Cleveland, Ohio. Support orders received by the Service are processed immediately and notices are sent to the appropriate military pay center to start payments in the first pay cycle (Office of Child Support, 1995c). As a result of the 1996 welfare reform law, the Secretary of Defense must establish a central personnel locator services, which must be updated on a regular basis, that permits location of every member of the Armed Services. The Secretary of each branch of the military service must grant leave to facilitate attendance at child support hearings and other child support proceedings. The Secretary of each branch also must withhold support from retirement pay and forward it to State disbursement units. Small business loans The 103d Congress passed legislation, the Small Business Administration Reauthorization and Amendments Act of 1994 (Public Law 103-403), which included the requirement that recipients of financial assistance from the Small Business Administration, including direct loans and loan guarantees, must certify that the recipient is not more than 60 days delinquent in the payment of child support. The new law requires the administration to promulgate, no later than 6 months after enactment, regulations to enforce compliance with the provision. Other provisions On February 27, 1995, President Clinton signed an Executive order establishing the executive branch of the Federal Government, including its civilian employees and the uniformed services members, as a model employer in promoting and facilitating the establishment and enforcement of child support. The Executive order states that the Federal Government is the Nation's largest single employer and as such should set an example of leadership and encouragement in ensuring that all children are properly supported. Among other measures, the order requires the Federal agencies and the uniformed services to cooperate fully in efforts to establish paternity and child support orders and to enforce the collection of child and medical support. The order also requires Federal agencies to provide information to their personnel concerning the services that are available to them and to ensure that their children are provided the support to which they are legally entitled (Office of Child Support, 1995b). The 1996 welfare reform law requires States to implement expedited procedures that allow them to secure assets to satisfy arrearages by intercepting or seizing periodic or lump sum payments (such as unemployment and workers' compensation), lottery winnings, awards, judgments, or settlements. States must also have expedited procedures that allow them to seize assets of the debtor parent held by public or private retirement funds and financial institutions. States also must have the authority to withhold, suspend, or restrict the use of driver's licenses, professional and occupational licenses, and recreational licenses of persons who owe past-due support or who fail to comply with subpoenas or warrants relating to paternity or child support proceedings. The 1996 law also authorizes the Secretary of State to deny, revoke, or restrict passports of debtor parents. Interstate Enforcement The most difficult child support orders to enforce are interstate cases. States are required to cooperate in interstate child support enforcement, but problems arise from the autonomy of local courts. Family law has traditionally been under the jurisdiction of State and local governments, and citizens fall under the jurisdiction of the courts where they live. During the 1930s and 1940s, such laws were used to establish and enforce support obligations when the noncustodial parent, custodial parent, and child lived in the same State. But when noncustodial parents lived out of State, enforcing child support was cumbersome and ineffective. Often the only option in these cases was to extradite the noncustodial parent and, when successful, to jail the person for nonsupport. Extradition is the process used to bring an obligor charged with or convicted of a crime (in this case, criminal nonsupport) from an asylum State back to the State where the children are located. This procedure, rarely used, generally punished the irresponsible parent, but left the abandoned family without financial support. A University of Michigan study (Hill, 1988) of separated parents found that 12 percent lived in different States 1 year after divorce or separation. That proportion increased to 25 percent after 3 years, and to 40 percent after 8 years. Estimates based on the Federal income tax refund offset and other sources suggest that approximately 30 percent of all child support cases involve interstate residency of the custodial and noncustodial parents (Weaver & Williams, 1989, p. 510). According to U.S. Census Bureau data (1991), 20 percent of noncustodial parents lived in a different State than their children, 3 percent lived overseas, and the residence of 11 percent of the noncustodial parents was unknown. Uniform Reciprocal Enforcement of Support Act (URESA) Starting in 1950, interstate cooperation was promoted through the adoption by the States of URESA. This act, which was first proposed by the National Conference of Commissioners on Uniform State Laws in 1950, has been enacted in all 50 States, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands. The act was amended in 1952 and 1958 and revised in 1968. Thus, even though every State has passed some provisions of URESA, many provisions vary greatly from State to State. URESA, in short, is uniform in name only. The purpose of URESA was to provide a system for the interstate enforcement of support orders without requiring the person seeking support to go (or have her legal representative go) to the State in which the noncustodial parent resided. Where the URESA provisions between the two States are compatible, the law can be used to establish paternity, locate an absent parent, and establish, modify, or enforce a support order across State lines. However, some observers note that the use of URESA procedures often resulted in lower orders for both current support and arrearages. They also contend that few child support agencies attempted to use URESA procedures to establish paternity or to obtain a modification in a support order. Long arm statutes Unlike URESA, interstate cases established or enforced by long arm statutes use the court system in the State of the custodial parent rather than that of the noncustodial parent. When a person commits certain acts in a State of which he is not a resident, that person may be subjecting himself to the jurisdiction of that State. The long arm of the law of the State where the event occurs may reach out to grab the out-of- State person so that issues relating to the event may be resolved where it happened. Under the long arm procedure, the State must authorize by statute that the acts allegedly committed by the defendant are those that subject the defendant to the State's jurisdiction. An example is a paternity statute stating that if conception takes place in the State and the child lives in the State, the State may exercise jurisdiction over the alleged father even if he lives in another State. Long arm statute language usually extends the State's jurisdiction over an out-of-State defendant to the maximum extent permitted by the U.S. Constitution under the 14th amendment's due process clause. Long arm statutes may be used to establish paternity, establish support awards, and enforce support orders. Federal courts The 1975 child support law mandated that the State plan for child support require States to cooperate with other States in establishing paternity, locating absent parents, and securing compliance with court orders. Further, it authorized the use of Federal courts as a last resort to enforce an existing order in another State if that State were uncooperative. Section 460 of the Social Security Act provides that the district courts of the United States shall have jurisdiction, without regard to any amount in controversy, to hear and determine any civil action certified by the Secretary of HHS under section 452(a)(8) of the act. A civil action under section 460 may be brought in any judicial district in which the claim arose, the plaintiff resides, or the defendant resides. Section 452(a)(8) states that the Secretary of HHS shall receive applications from States for permission to use the courts of the United States to enforce court orders for support against noncustodial parents. The Secretary must approve applications if she finds both that a given State has not enforced a court order of another State within a reasonable time and that using the Federal courts is the only reasonable method of enforcing the order. As a condition of obtaining certification from the Secretary, the child support agency of the initiating State must give the child support agency of the responding State at least 60 days to enforce the order as well as a 30-day warning of its intent to seek enforcement in Federal court. If the initiating State receives no response within the 30-day limit, or if the response is unsatisfactory, the initiating State may apply to the OCSE Regional Office for certification. The application must attest that all the requirements outlined above have been satisfied. Upon certification of the case, a civil action may be filed in the U.S. district court. Although this interstate enforcement procedure has been available since enactment of the child support program in 1975, there has only been one reported case of its use by a State (the initiating State was California; the responding State was Texas). Interstate income withholding Interstate income withholding is a process by which the State of the custodial parent seeks the help of the State in which the noncustodial parent's income is earned to enforce a support order using the income withholding mechanism. Pursuant to the child support amendments of 1984, income withholding was authorized for all valid instate or out-of-State orders issued or modified after October 1, 1985, and for all orders in child support enforcement (i.e., IV-D) cases regardless of the date the order was issued. Although Federal law requires a State to enforce another State's valid orders through interstate withholding, there is no Federal mandate that interstate income withholding procedures be uniform. Approaches vary from the Model Interstate Income Withholding Act to URESA registration. The preferred way to handle an interstate income withholding request is to use the interstate action transmittal form from one child support agency to another. In child support enforcement cases, Federal regulations required that by August 22, 1988, all interstate income withholding requests be sent to the enforcing State's central registry for referral to the appropriate State or local official. The actual wage withholding procedure used by the State in which the noncustodial parent lives is the same as that used in intrastate cases. In a 1992 report (U.S. General Accounting Office, 1992a, p. 4 & pp. 21-28), GAO indicated that the main reason for the failure of interstate income withholding was the lack of uniformity in its implementation. The 1996 welfare law requires the HHS Secretary, in consultation with State CSE directors, to issue forms by October 1, 1996 that States must use for income withholding, for imposing liens, and for issuing administrative subpoenas in interstate cases. States must begin using the forms by March 1, 1997. Full faith and credit One of the most significant barriers to improved interstate collections is that, because a child support order is not considered a final judgment, the full faith and credit clause of the U.S. Constitution does not preclude modification. Thus, the order is subject to modification upon a showing of changed circumstances by the issuing court or by another court with jurisdiction. Congress could prohibit inter- or intrastate modifications of child support orders, but many students of child support hold that a complete ban on modifications would be unrealistic and unfair. A more likely approach would be one under which States were required to give full faith and credit to each other's child support orders under most circumstances. The Omnibus Budget Reconciliation Act of 1986, Public Law 99-509, took a step in this direction by requiring States to treat past due support obligations as final judgments entitled to full faith and credit in every State. Thus, a person who has a support order in one State does not have to obtain a second order in another State to obtain the money due should the debtor parent move from the issuing court's jurisdiction. The second State can modify the order prospectively if it finds that circumstances exist to justify a change, but the second State may not retroactively modify a child support order. Public Law 103-383, the Full Faith and Credit for Child Support Orders Act (signed into law October 20, 1994), restricts a State court's ability to modify a child support order issued by another State unless the child and the custodial parent have moved to the State where the modification is sought or have agreed to the modification. The full faith credit rules of Public Law 104-193 clarify the definition of a child's home State, make several revisions to ensure that the rules can be applied consistently with UIFSA, and clarify the rules regarding which child support order States must honor when there is more than one order. Commission on interstate child support enforcement The Family Support Act of 1988, Public Law 100-485, included several provisions affecting interstate child support enforcement. The law required States to establish automated statewide, comprehensive case tracking and monitoring systems, which would improve each State's ability to manage interstate cases. But most importantly, the law required the establishment of a 15-member commission to study interstate child support establishment and enforcement. The U.S. Commission on Interstate Child Support's report to Congress, issued in 1992, includes 120 recommendations for improving the Child Support Enforcement Program. The report highlights several recommendations deemed essential to improving interstate enforcement: 1. Establishment of an integrated, automated network linking all States to provide quick access to locate and income information (which would include new hire information based on W-4 forms); 2. Establishment of income withholding across State lines from the person seeking enforcement directly to the income source in the other State; 3. Enactment by States of the Uniform Interstate Family Support Act (UIFSA; which would replace URESA); 4. State use of early, voluntary parentage determination for children born outside marriage and uniform evidentiary rules for contested paternity cases; 5. Universal access to health care insurance for children of separated parents; 6. More emphasis on staff training and increased resources to ensure that all child support cases are processed on a more timely basis; and 7. Revision of child support funding to ensure that action is taken on cases most in need of attention (U.S. Commission on Interstate Child Support, 1992, p. xiii). Federal criminal penalties The Child Support Recovery Act of 1992 imposed a Federal criminal penalty for the willful failure to pay a past due child support obligation to a child who resides in another State and that has remained unpaid for longer than a year or is greater than $5,000. For the first conviction, the penalty is a fine of up to $5,000, imprisonment for not more than 6 months, or both; for a second conviction, the penalty is a fine of not more than $250,000, imprisonment for up to 2 years, or both. In 1995, 748 cases were referred to U.S. attorneys. So far 42 (6 percent) of those cases have resulted in convictions and a total of $1.2 million in restitution. Uniform Interstate Family Support Act (UIFSA) One of the Commission on Interstate Child Support Enforcement's major recommendations to Congress was to replace URESA with UIFSA, the Uniform Interstate Family Support Act, a model State law for handling interstate child support cases. The model law was drafted by the National Conference of Commissioners on Uniform State Laws and approved by the Commissioners in August 1992. UIFSA is designed to deal with desertion and nonsupport by instituting uniform laws in all 50 States and the District of Columbia. The core of UIFSA is limiting control of a child support case to a single State, thereby ensuring that only one child support order from one court or child support agency will be in effect at any given time. It follows that the controlling State will be able to effectively pursue interstate cases, primarily through the use of long arm statutes, because its jurisdiction is undisputed. Many, perhaps most, child support officials believe UIFSA will help eliminate jurisdictional disputes between States and lead to substantial increases in interstate collections. UIFSA allows: (1) direct income withholding by the controlling State without second State involvement; (2) administrative enforcement without registration; and (3) registered enforcement based on the substantive laws of the controlling State and the procedural laws of the registering State. The order cannot be adjusted if only enforcement is requested, and enforcement may begin upon registration (before notice and hearing) if the receiving State's due process rules allow such enforcement. Under UIFSA, the controlling State may adjust the support order under its own standards. In addition, UIFSA includes some uniform evidentiary rules to make interstate case handling easier, such as using telephonic hearings, easing admissibility of evidence requirements, and admitting petitions into evidence without the need for live or corroborative testimony to make a prima facie case. Pursuant to Public Law 104-193, all States must enact UIFSA, including all amendments, before January 1, 1998. States are not required to use UIFSA in all cases if they determine that using other interstate procedures would be more effective. As of early September 1997, 42 States and the District of Columbia had adopted UIFSA. Other procedures that aid interstate enforcement In 1948, the National Conference of Commissioners on Uniform State Laws and the American Bar Association approved the Uniform Enforcement of Foreign Judgments Act (UEFJA), which simplifies the collection of child support arrearages in interstate cases. Revised in 1964 and adopted in only 30 States, UEFJA provides that upon the filing of an authenticated foreign (i.e., out-of-State) judgment and notice to the obligor, the judgment is to be treated in the same manner as a local one. A judgment is the official decision or finding of a court on the respective rights of the involved parties. UEFJA applies only to final judgments. As a general rule, child support arrearages that have been reduced to judgment are considered final judgments and thus can be filed under UEFJA. An advantage of UEFJA is that it does not require reciprocity (i.e., it need only be in effect in the initiating State). A disadvantage is that UEFJA is limited to collection of arrearages; it cannot be used to establish an initial order or to enforce current orders. Summary information on collection methods Table 8-3 shows that 66 percent of the $12 billion in child support payments collected in fiscal year 1996 was obtained through four enforcement techniques: wage withholding, Federal income tax refund offset, State income tax refund offset, and unemployment compensation intercept. The remaining 34 percent is listed as collected by ``other'' means. Federal child support officials informed us that most of these ``other'' collections came from noncustodial parents who comply with their support orders by sending their payments to the CSE agency. The ``other'' category also includes collections from noncustodial parents who voluntarily sent money for their children even though a support order had never been established (about 1 percent of all collections), and enforcement techniques such as liens against property, the posting of bonds or securities, and use of the full IRS collection procedure. Table 8-3 indicates that by fiscal year 1991 wage withholding had become the primary enforcement method, producing nearly 47 percent of all child support collections. By 1996, the percentage had increased even further, reaching 56 percent. STATE COLLECTION AND DISTRIBUTION OF SUPPORT PAYMENTS One of the major child support provisions of the 1996 welfare reform legislation was the requirement that by October 1, 1998, State CSE agencies must operate a centralized, automated unit for collection and disbursement of payments on two categories of child support orders: those enforced by the CSE agency and those issued or modified after December 31, 1993 which are not enforced by the State CSE agency but for which the noncustodial parent's income is subject to withholding. The State disbursement unit must be operated directly by the State CSE agency, by two or more State CSE agencies under a regional cooperative agreement, or by a contractor responsible directly to the State CSE agency. The State disbursement unit may be established by linking local disbursement units through an automated information network if the HHS Secretary agrees that the system will not cost more, take more time to establish, nor take more time to operate than a single State system. All States, including those that operate a linked system, must give employers one and only one location for submitting withheld income. The disbursement unit must be used to collect and disburse support payments, to generate orders and notices of withholding to employers, to keep an accurate identification of payments, to promptly distribute money to custodial parents or other States, and to furnish parents with a record of the current status of support payments made after August 22, 1996. The disbursement unit must use automated procedures, electronic processes, and computer-driven technology to the maximum extent feasible, efficient, and economical. The disbursement unit must distribute all amounts payable within 2 business days after receiving the money and identifying information from the employer or other source of periodic income if sufficient information identifying the payee is provided. The unit may retain arrearages in the case of appeals until they are resolved. States must use their automated system to facilitate collection and disbursement including at least: (1) transmission of orders and notices to employers within 2 days after receipt of the withholding notice; (2) monitoring to identify missed payments of support; and (3) automatic use of enforcement procedures when payments are missed. The collection and disbursement unit provisions go into effect on October 1, 1998. States that process child support payments through local courts can continue court payments until September 30, 1999. Following enactment of this provision in August 1996, there was widespread misunderstanding about its breadth of application. Thus, it is useful to emphasize here that not all child support orders must be a part of the State disbursement unit. First, orders issued before 1994 that are not being enforced by the State Child Support Enforcement Agency are exempt. Second, parents can avoid both wage withholding and involvement in the child support enforcement system if at the time the original order is issued, the judge determines that private payments directly between parents is acceptable. BANKRUPTCY AND CHILD SUPPORT ENFORCEMENT Giving debtors a fresh start is the goal of this country's bankruptcy system. Depending on the type of bankruptcy, a debtor may be able to discharge a debt completely, pay a percentage of the debt, or pay the full amount of the debt over a longer period of time. However, several types of debts are not dischargeable, including debts for child support and alimony (U.S. Commission on Interstate Child Support, 1992, p. 209). The 1975 child support legislation included a provision stating that an assigned child support obligation was not dischargeable in bankruptcy. In 1978 this provision was incorporated into the uniform law on bankruptcy. The bankruptcy law also listed exceptions to discharge including alimony and maintenance or support due a spouse, former spouse, or child. In 1981, a provision stating that a child support obligation assigned to the State as a condition of eligibility for AFDC is not dischargeable in bankruptcy was reinstated. In 1984, the provision was expanded so that child support obligations assigned to the State as part of the child support program may not be discharged in bankruptcy, regardless of whether the payments are to be made on behalf of an AFDC or a non-AFDC family and regardless of whether the debtor was married to the child's other parent. Some noncustodial parents seek relief from their financial obligations in the U.S. bankruptcy courts. Although child support payments may not be discharged via a filing of bankruptcy, the filing may cause long delays in securing child support payments. Pursuant to Public Law 103-394, enacted in 1994, a filing of bankruptcy will not stay a paternity, child support, or alimony proceeding. In addition, child support and alimony payments will be priority claims and custodial parents will be able to appear in bankruptcy court to protect their interests without having to pay a fee or meet any local rules for attorney appearances. The 1996 welfare reform legislation amends the U.S. Bankruptcy Code to ensure that any child support debt that is owed to a State and that is enforceable under the CSE Program cannot be discharged in bankruptcy proceedings. AUTOMATED SYSTEMS In 1980, Congress authorized 90 percent Federal matching funds on an open-ended basis for States to design and implement automated data systems. Funds go to States that establish an automated data processing and information retrieval system designed to assist in administration of the State child support plan, and to control, account for, and monitor all factors in the enforcement, collection, and paternity determination processes. Funds may be used to plan, design, develop, and install or enhance the system. The Secretary of HHS must approve the State system as meeting specified conditions before matching is available. In 1984, Congress made the 90-percent rate available to pay for the acquisition of computer hardware and necessary software. The 1984 legislation also specified that if a State met the Federal requirement for 90 percent matching, it could use its funds to pay for the development and improvement of income withholding and other procedures required by the 1984 law. In May 1986, OCSE established a transfer policy requiring States seeking the 90 percent Federal matching rate to transfer existing automated systems from other States rather than to develop new ones, unless there were a compelling reason not to use the systems developed by other States. In 1988, Congress required States without comprehensive statewide automated systems to submit an advance planning document to the OCSE by October 1, 1991, for the development of such a system. Congress required that all States have a fully operating system by October 1, 1995, at which time the 90 percent matching rate was to end. The 1988 law allowed many requirements for automated systems to be waived under certain circumstances. For instance, the HHS Secretary could waive a requirement if a State demonstrated that it had an alternative system enabling it to substantially comply with program requirements or a State provided assurance that additional steps would be taken to improve its program. As of September 30, 1995, OCSE had approved the automated data systems of only six States--Delaware, Georgia, Utah, Virginia, Washington, and West Virginia. Most observers agree that States were delayed primarily by the lateness of Federal regulations specifying the requirements for the data systems and by the complexity of getting their final systems into operation. Thus, on October 12, 1995, Congress enacted Public Law 104-35 which extended for 2 years, from October 1, 1995 to October 1, 1997, the deadline by which States are required to have statewide automated systems for their child support programs. On October 1, 1995, however, the 90 percent matching rate was ended; the Federal matching rate for State spending on data systems reverted back to the basic administrative rate of 66 percent. The purpose of requiring States to operate statewide automated and computerized systems is to ensure that child support functions are carried out effectively and efficiently. These requirements include case initiation, case management, financial management, enforcement, security, privacy, and reporting. Implementing these requirements can facilitate locating noncustodial parents and monitoring child support cases. For example, by linking automated child support systems to other State databases, information can be obtained quickly and cheaply about a noncustodial parent's current address, assets, and employment status. Systems can also be connected to the court system to access information on child support orders (U.S. General Accounting Office, 1992b). Under the 1996 welfare reform legislation, States are required to have a statewide automated data processing and information retrieval system which has the capacity to perform a wide variety of functions with a specified frequency. The State data system must be used to perform functions the HHS Secretary specifies, including controlling and accounting for the use of Federal, State, and local funds and maintaining the data necessary to meet Federal reporting requirements in carrying out the CSE Program. The automated system must maintain the requisite data for Federal reporting, calculate the State's performance for purposes of the incentive and penalty provisions, and have in place systems controls to ensure the completeness, reliability, and accuracy of the data. Final regulations for implementation of automated systems must be issued by the Secretary by August 22, 1998. The statutory provisions for State implementation of Federal automatic data processing requirements are revised to provide that, first, all requirements enacted on or before the date of enactment of the Family Support Act of 1988 (i.e., October 13, 1988) are to be met by October 1, 1997. Second, requirements enacted on or before August 22, 1996 must be met by October 1, 2000. The October 1, 2000 deadline is to be extended by 1 day for each day by which the HHS Secretary fails to meet the 2-year deadline for regulations. The Federal Government will continue the 90 percent matching rate for 1996 and 1997 in the case of provision outlined in advanced planning documents submitted before September 30, 1995; the enhanced match also is provided retroactively for funds expended since expiration of the enhanced rate on October 1, 1995. The Secretary must create procedures to cap payments to the States to meet the new requirements at $400 million for fiscal years 1996-2001. The Federal matching rate for the new requirements will be 80 percent. Funds are to be distributed among States by a formula set in regulations which takes into account the relative size of State caseloads and the level of automation needed to meet applicable automatic data processing requirements. AUDITS AND FINANCIAL PENALTIES Audits are required at least every 3 years to determine whether the standards and requirements prescribed by law and regulations have been met by the child support program of every State. If a State fails the audit, Federal AFDC matching funds must be reduced by an amount equal to at least 1 but not more than 2 percent for the first failure to comply, at least 2 but not more than 3 percent for the second failure, and at least 3 but not more than 5 percent for the third and subsequent failures. If a penalty is imposed after a followup review, a State may appeal the audit penalty to the HHS Departmental Appeals Board. Payment of the penalty is delayed while the appeal is pending. The appeals board reviews the written records which may be supplemented by informal conferences and evidentiary hearings. The penalty may be suspended for up to 1 year to allow a State time to implement corrective actions to remedy the program deficiency. At the end of the corrective action period, a followup audit is conducted in the areas of deficiency. If the followup audit shows that the deficiency has been corrected, the penalty is rescinded. However, if the State remains out of compliance with Federal requirements, a graduated penalty, as provided by law, is assessed against the State. The actual amount of the penalty--between 1 and 5 percent of the State's AFDC matching funds (see above)--depends on the severity and the duration of the deficiency. If a State is under penalty, a comprehensive audit is conducted annually until the cited deficiencies are corrected (Office of Child Support, 1994, pp. 14-16). The welfare reform law of 1996 requires States to annually review and report to the HHS Secretary, using data from their automatic data processing system, both information adequate to determine the State's compliance with Federal requirements for expedited procedures and case processing as well as the information necessary to calculate their levels of accomplishment and rates of improvement on the performance indicators. The Secretary is required to determine the amount (if any) of incentives or penalties. The Secretary also must review State reports on compliance with Federal requirements and provide States with recommendations for corrective action. Audits must be conducted once every 3 years, or more often in the case of States that fail to meet Federal requirements. The purpose of the audits is to assess the completeness, reliability, and security of data reported for use in calculating the performance indicators and to assess the adequacy of financial management of the State program. ASSIGNMENT AND DISTRIBUTION OF CHILD SUPPORT COLLECTIONS Two parties have claims on child support collections made by the State. The children and custodial parent on behalf of whom the payments are made, of course, have a claim on payments by the noncustodial parent. However, in the case of families that have received public aid, taxpayers who paid to support the destitute family by providing a host of welfare benefits also have a legitimate claim on the money. Thus, over the years a series of somewhat complex rules has developed to determine who actually gets the money. It is helpful to think of these rules in two categories. First, there are rules in both Federal and State law that stipulate who has a legal claim on the payments owed by the noncustodial parent. These are called assignment rules. Second, there are rules that determine the order in which child support collections are paid in accord with the assignment rules. These are called distribution rules. As long as families remain on welfare, the distribution of child support is straightforward. When families apply for TANF, the custodial parent must assign to the State the right to collect any child support obligations that accumulated before the family joined welfare as well as support that comes due while the family is receiving welfare benefits. As long as the family remains on welfare, child support collections are generally kept by the State and split with the Federal Government. Consider a simple example. Suppose that when a given mother signed up for welfare, the child support agency was successful in locating the father, establishing a support order for $200 per month, and collecting the payments. Each month, the State would retain the $200, which in turn would be split with the Federal Government. In addition, the amount of welfare reimbursement owed to the State by the noncustodial parent would be reduced by $200 each month. If the TANF benefit were $300 per month, the amount owed to the State by the noncustodial parent would increase by only $100 each month rather than the full $300. Once families leave welfare, the amount of support assigned to the State is the amount that equals total TANF payments to the family minus any child support paid by the noncustodial parent while the family was on welfare. At the moment the family leaves welfare, then, the noncustodial parent usually owes child support to both the government and the family. The amount owed the family is the amount of payments that accumulated before the family went on welfare plus any amount that accumulates because of nonpayment after the family leaves welfare. The real issue, of course, is the order in which child support collections will be paid against these debts once the family leaves TANF. The first rule is straightforward: Payments against current support always go to the family. In the case above, no matter how long the mother was on welfare, the first $200 of monthly payments is assigned to and distributed to the mother once the family leaves welfare. If the father never pays against arrearages, the government never gets repaid for the TANF benefits it provided and the mother never gets repaid for arrearages that accrued before or after the family was on welfare. Now assume that the father begins to make payments in excess of the current support amount of $200. The issue arises of whether the State can keep the amount above the current support order as repayment for TANF benefits or whether the State must give the arrearage payments to the family. Here we see that distribution law trumps assignment law under some circumstances; namely, whenever two or more parties have been assigned child support that is past due. Both parties have legal claims; the issue is which one is paid first. Before the 1996 welfare reform law was enacted, Federal law allowed States to design their own distribution rules to determine who got arrearage collections. States could even keep the entire arrearage payment and not share any of it with the family. Only when the State and Federal Governments had been repaid the entire amount of TANF benefits provided to the family were States required to pay arrearage collections to the family. During the 1995-96 welfare reform debate, the Federal policy of allowing States to decide who gets arrearage payments once the family leaves welfare received intense criticism. With the increased emphasis on helping mothers leave welfare and achieve self support, the additional money mothers could receive from past-due child support took on additional meaning. Thus, Federal law on distribution of child support arrearage payments was substantially revised and States were given both mandates and options designed to increase the amount of money received by families, especially after they left welfare. Here is an overview of these new provisions. In the case of families receiving assistance, the new law gives States the option of passing the entire child support payment through to families. If a State elects this option, it must still pay the Federal share of the collection to the Federal Government. In the case of families that have left welfare, current child support payments go to the family as they always have. Payments on arrearages that accrued after the family stopped receiving cash assistance and that are collected before October 1, 1997 are to be paid in accordance with the law in effect before enactment of the 1996 welfare reform law, which means that these arrearage payments generally are to be paid to the State as reimbursement for welfare payments (with appropriate reimbursement of the Federal share of the collection to the Federal Government). However, with respect to arrearages that accrued after the family stopped receiving cash assistance that are collected on or after October 1, 1997 (or at the option of the State, before such date), the arrearage is to be paid to the family unless it is collected through the Federal income tax offset program, in which case it is to be paid to the State (and the State must pay the Federal share). Any remaining money is paid to satisfy arrearages that accrued before the family started receiving cash assistance. If there is still money remaining, the State retains its share of the amount and pays to the Federal Government the Federal share of the collection (to the extent necessary to reimburse amounts paid to the family as cash assistance). Any remaining money is then paid to the family. Arrearages that accrued before the family starting receiving cash assistance and that are collected before October 1, 2000 are to be paid in accordance with the law in effect before enactment of the welfare reform legislation of 1996, which means that these arrearage payments generally are paid to the State to reimburse it for any arrearages owed under the welfare assignment (with appropriate reimbursement of the Federal share of the collection to the Federal Government). Arrearages that accrued before the family starting receiving cash assistance and that are collected on or after October 1, 2000 (or before such date, at the option of the State), must be paid to the family unless it is collected through the Federal income tax offset program, in which case it is paid to the State (and the State pays the Federal share). If any money remains, it is paid to satisfy arrearages that accrued before the family starting receiving cash assistance. If there is still money remaining, the State retains its share of the amount and pays to the Federal Government the Federal share of the collection (to the extent necessary to reimburse amounts paid to the family as cash welfare). If any money remains, it is paid to the family. With respect to any arrearages that accrued while the family received cash assistance, States are given the option of passing the child support arrearage payment through to families. If a State elects this option, it must pay the Federal share of the collection to the Federal Government. As noted above, arrearages collected through the Federal income tax offset program must be paid to the State. The State may only retain arrearages that have been assigned to the State and only up to the amount necessary to reimburse amounts paid to the family as cash welfare. If the amount collected through the tax offset exceeds the amount of cash welfare, the State must distribute the excess to the family. Effective October 1, 2000, the State must treat any support arrearages collected, except for those collected through the Federal income tax offset program, as accruing in the following order: (1) to the period after the family stopped receiving cash assistance, (2) to the period before the family received cash assistance, and (3) to the period while the family was receiving cash assistance. Finally, in the case of families that never received assistance, the entire amount of the child support collection is distributed directly to the family as it always has been. FUNDING OF STATE PROGRAMS The child support program conducted by States is financed by three major streams of money. The first and largest is the Federal Government's commitment to reimburse States for 66 percent of all allowable expenditures on child support activities. Allowable expenditures include outlays for locating parents, establishing paternity (with an exception noted below), establishing orders, and collecting payments. There are two mechanisms through which Federal financial control of State expenditures is exercised. First, States must submit plans to the Secretary of HHS outlining the specific child support activities they intent to pursue. The State plan provides the Secretary with the opportunity to review and approve or disapprove child support activities that will receive the 66 percent Federal reimbursement. Second, as discussed previously, HHS conducts a financial audit of State expenditures. In addition to the general matching rate of 66 percent, the Federal Government provides 90 percent matching for two especially important child support activities. First, the Federal Government pays 80-90 percent of approved State expenditures on developing and improving management information systems. Congress decided to pay this enhanced match rate because data management, the construction of large data bases containing information on location, income, and assets of child support obligors, and computer access to and manipulation of such large data bases were seen as the keys to a cost effective child support system. In spending the additional Federal dollars on these data systems, Congress hoped to provide an incentive for States to adopt and aggressively employ efficient data management technology. Second, Congress also provides 90 percent funding for laboratory costs of blood testing. As in the case of data management systems, Congress justified enhanced funding of blood tests because paternity establishment is an activity vital to successful child support enforcement. Historically, establishing paternity in cases of births outside marriage has proven to be surprisingly difficult. Especially since the 1960s, more and more children have been born outside marriage; today nearly a third of all children are born to unwed mothers, and nearly 50 percent of these babies wind up on welfare. Thus, establishing paternity has become more and more important because a growing fraction of the welfare caseload is children whose paternity has not been established. Congress hopes to stimulate the use of blood tests as a way of improving State performance in establishing paternity, especially given that recent experience in the States shows that many men voluntarily acknowledge paternity once blood tests reveal a high probability of their paternity. In addition to the Federal administrative matching payments, the second stream of financing for State programs is child support collections. As we have seen, when mothers apply for welfare, they assign the child's claim rights against the father to the State. As long as the family receives TANF payments, the State can retain the entire payment. As explained in detail above in the section on distribution of child support payments, States retain the right to pursue repayment for TANF benefits from the parent who owes child support even after the family leaves welfare. Recovered payments are split between the State and the Federal Government in accord with the percentage of Federal reimbursement of Medicaid benefits. In the Medicaid Program, the Federal Government pays States a percentage of their expenditures that varies inversely with State per capita income--poor States have a high Federal reimbursement percentage, wealthy States have a lower Federal reimbursement percentage. Mississippi, for example, one of the poorest States, receives a reimbursement of about 80 percent for its Medicaid expenditures. By contrast, States like California and New York that have high per capita income receive the minimum Federal reimbursement of 50 percent. Since Federal dollars are used to finance a portion of the State TANF payment, States are required to split child support collections from TANF cases with the Federal Government. The rate at which States reimburse the Federal Government is the Federal matching rate in the TANF Program. Thus, Mississippi must send 80 percent of child support collections made on behalf of TANF families to the Federal Government. New York and California send only 50 percent of TANF collections back to Washington. The third stream of child support financing is Federal incentive payments. The current incentive system is designed to encourage States to collect child support from both TANF and non-TANF cases. Under the incentive formula, each State receives a payment equal to at least 6 percent of both TANF collections and of non-TANF collections. States that perform efficiently as indicated by the ratio of collections to administrative expenditures can receive incentive payments of up to 10 percent of collections in both the TANF and non-TANF Programs. The specific incentive percentage between 6 and 10 for which a State qualifies is based on the collections-to- expenditures ratios (see table 8-4). TABLE 8-4.--INCENTIVE PAYMENT STRUCTURE ------------------------------------------------------------------------ Incentive payment Collection-to-cost ratio received (percent) ------------------------------------------------------------------------ Less than 1.4 to 1...................................... 6.0 At least 1.4 to 1....................................... 6.5 At least 1.6 to 1....................................... 7.0 At least 1.8 to 1....................................... 7.5 At least 2.0 to 1....................................... 8.0 At least 2.2 to 1....................................... 8.5 At least 2.4 to 1....................................... 9.0 At least 2.6 to 1....................................... 9.5 At least 2.8 to 1....................................... 10.0 ------------------------------------------------------------------------ Source: Office of Child Support Enforcement, U.S. Department of Health and Human Services. Incentive payments for non-TANF collections have been controversial since the inception of the child support program, especially given the guarantee of an incentive payment equal to 6 percent of collections (table 8-4). Until fiscal year 1985, nonwelfare (AFDC) collections were not eligible for incentive payments at all. Congress adopted this policy because welfare collections are retained and split between State and Federal Governments while all nonwelfare collections are paid to custodial parents. In 1984 (effective for 1985 and thereafter), Congress extended incentive payments to nonwelfare collections. To limit Federal costs and to retain a substantial incentive for welfare collections, nonwelfare incentive payments were capped as a percentage of welfare incentive payments. The 1984 law (Public Law 98-378) stipulated that nonwelfare incentive payments were not to exceed welfare incentive payments in fiscal years 1986 and 1987, were not to exceed 105 percent of welfare incentive payments in 1988, and were not to exceed 110 percent in 1989. Since 1990, the 1984 law has allowed States to receive incentive payments in the nonwelfare program of up to 115 percent of those in the welfare program. Two criticisms of the current incentive payment structure are that it focuses only on comparing collections to the cost of making them, while ignoring measures such as paternity and support order establishment, and that States currently receive a minimum level of incentive payments regardless of their performance. The 1996 welfare reform law required the HHS Secretary, in consultation with the State CSE directors, to develop a performance-based, revenue neutral system of incentive payments, and report to the appropriate congressional committees the details of the proposed incentive system by March 1, 1997. The Secretary's report, submitted on March 13, responds to the flaws in the current incentive system by recommending that: (1) the incentive system provide additional payments to States based on five performance measures related to establishment of paternity and child support orders, collections of current and past-due support payments, and cost effectiveness; (2) incentive payments available to each State be based on a percentage of the State's collections (with no cap on nonwelfare collections); (3) the incentive system be phased in over a 1-year period beginning in fiscal year 2000; (4) incentive payments be reinvested in the State CSE Program; (5) the Federal Government maintain its 66 percent matching rate of CSE expenditures; and (6) the new incentive system be reviewed on a periodic basis. It is expected that legislation based on the Secretary's recommendations will be introduced and considered during the 105th Congress. Given this overview of the three streams of money that support State CSE Programs, we can now examine the basic financial operations of the child support system. Table 8-5 summarizes both child support income and expenditures for every State. The first three columns show State income from each of three funding streams just described; the fourth column shows State spending on child support. As demonstrated in the fifth column, the sum of the three streams of income exceeds expenditures in some 34 States. In other words, most States make a profit on their child support program. States are free to spend this profit in any manner the State sees fit. TABLE 8-5.--FINANCING OF THE FEDERAL/STATE CHILD SUPPORT ENFORCEMENT PROGRAM, FISCAL YEAR 1996 [In thousands of dollars] ---------------------------------------------------------------------------------------------------------------- State income ---------------------------------------- State Collections- State Federal State share Federal administrative State net to-costs administrative of incentive expenditures ratio payments collections payments (costs) ---------------------------------------------------------------------------------------------------------------- Alabama....................... $31,161 $5,737 $3,548 $46,314 ($5,868) 3.41 Alaska........................ 11,517 8,085 2,973 17,439 5,136 3.31 Arizona....................... 31,177 6,647 3,842 46,909 (5,244) 2.41 Arkansas...................... 19,048 4,163 3,195 28,669 (2,263) 2.77 California.................... 293,731 222,548 66,752 437,991 145,040 2.36 Colorado...................... 25,399 15,001 5,590 38,361 7,628 2.82 Connecticut................... 29,035 12,645 7,086 43,027 5,740 2.91 Delaware...................... 9,941 3,393 1,112 14,168 279 2.50 District of Columbia.......... 7,731 2,526 1,103 11,696 (336) 2.38 Florida....................... 86,999 30,216 13,501 131,363 (647) 3.13 Georgia....................... 45,496 16,780 15,110 68,505 8,881 3.92 Guam.......................... 1,744 289 281 2,624 (310) 2.57 Hawaii........................ 16,113 5,396 1,758 23,907 (640) 2.18 Idaho......................... 12,535 2,942 1,961 18,928 (1,490) 2.32 Illinois...................... 68,905 28,513 10,691 103,803 4,304 2.41 Indiana....................... 21,416 14,186 7,658 30,091 13,170 6.54 Iowa.......................... 19,209 12,911 6,319 29,048 9,391 5.23 Kansas........................ 12,296 10,704 5,265 18,489 9,776 5.82 Kentucky...................... 27,927 9,646 5,514 42,210 877 3.43 Louisiana..................... 23,058 6,266 4,270 34,495 (900) 4.16 Maine......................... 10,224 9,459 4,907 15,435 9,155 4.05 Maryland...................... 43,688 19,120 6,540 66,017 3,332 4.36 Massachusetts................. 40,626 30,494 9,828 61,286 19,662 4.05 Michigan...................... 94,572 60,098 22,323 143,132 33,860 6.63 Minnesota..................... 48,457 25,680 9,017 73,195 9,960 4.36 Mississippi1.................. 9,522 3,959 3,553 29,463 (2,430) 2.87 Missouri...................... 52,173 22,161 9,635 74,419 9,549 3.75 Montana....................... 8,038 2,122 1,326 12,120 (634) 2.42 Nebraska...................... 20,007 3,964 1,750 30,179 (4,457) 3.16 Nevada........................ 14,782 3,737 2,279 22,346 (1,548) 2.53 New Hampshire................. 9,377 4,518 1,539 14,091 1,343 3.42 New Jersey.................... 73,147 39,238 12,698 110,735 14,348 4.52 New Mexico.................... 15,914 1,344 975 21,129 (2,896) 1.43 New York...................... 115,020 79,891 28,461 174,183 49,188 4.03 North Carolina................ 59,282 20,653 10,732 89,147 1,521 2.94 North Dakota.................. 4,352 1,662 990 6,563 441 4.34 Ohio.......................... 106,594 41,141 17,008 161,618 3,125 6.07 Oklahoma...................... 16,968 6,674 3,666 24,040 3,269 3.06 Oregon........................ 21,129 10,544 5,480 31,874 5,278 5.60 Pennsylvania.................. 82,784 49,576 18,619 123,808 27,171 7.74 Puerto Rico................... 19,504 291 372 28,569 (8,401) 4.44 Rhode Island.................. 5,451 6,839 3,262 8,251 7,300 4.31 South Carolina................ 23,296 6,797 4,154 35,100 (853) 3.37 South Dakota.................. 3,173 1,936 1,399 4,770 1,738 5.87 Tennessee..................... 26,165 10,195 5,328 39,342 2,347 4.06 Texas......................... 96,614 32,915 15,873 144,984 418 3.71 Utah.......................... 19,497 5,136 3,217 29,170 (1,321) 2.66 Vermont....................... 4,467 2,602 1,346 6,701 1,714 3.79 Virgin Islands................ 1,597 94 67 2,418 (660) 2.25 Virginia...................... 40,844 18,475 5,988 61,507 3,800 4.18 Washington.................... 76,319 49,348 16,449 115,322 26,795 3.53 West Virginia................. 15,578 3,230 2,065 23,358 (2,484) 3.61 Wisconsin..................... 50,394 19,115 10,659 74,058 6,110 5.94 Wyoming....................... 5,575 1,835 647 8,455 (398) 2.96 -------------------------------------------------------------------------------- Nationwide................. 2,039,569 1,013,437 409,681 3,054,821 407,866 3.93 ---------------------------------------------------------------------------------------------------------------- Note.--The ``State net'' column in this table is not the same as the comparable figure presented in annual reports of the Office of Child Support Enforcement (see for example, 1996, p. 78 and table 8-23 below) because estimated Federal incentive payments are used in the annual reports while final Federal incentive payments were used in this table. Source: Office of Child Support Enforcement, U.S. Department of Health and Human Services. The method of financing child support enforcement has received considerable attention in recent years. Perhaps the most important issue is that States have little incentive to control their administrative spending. The last column of table 8-5 presents a measure of State program efficiency obtained by dividing total collections by total administrative expenses. The table shows the dramatic differences among States in how much child support is collected for each dollar of administrative expenditure--a crude measure of efficiency-- ranging from only $1.43 in New Mexico to $7.74 in Pennsylvania. And yet, most States, including those that spend up to three or four times as much per dollar of collections as more efficient States, still make a profit on the program. Table 8-6 shows one consequence of child support's financing system. The first two columns of the table show the net impact of program financing on the Federal and State governments respectively. The Federal Government has lost money on child support every year since 1979, and the losses have grown almost every year since then. Overall, losses jumped sharply from $43 million in 1979 to $1.257 billion in 1995, and then fell back slightly to $1.152 billion in 1996. State governments by contrast have made a profit on the program every year. In 1979, the first year for which data are available, States cleared $244 million on child support. By 1996, States cleared $407 million (the peak year was 1994, when States cleared $482 million). As Federal losses have mounted, State profits have increased. The last column in table 8-6 portrays an unfortunate historical progression in child support financing. Beginning in the very first year of the child support program and for nearly a decade thereafter, the net impact of Federal losses and State profits was a net savings for taxpayers. Thus, in 1979, although the Federal Government lost money, State savings more than made up for the loses. As a result, from a public finance perspective, taxpayers were ahead by $201 million (see last column). Total Federal and State child support expenditures, in other words, were more than offset by collections from parents whose children had been supported by AFDC payments. These AFDC collections were retained and used to reimburse the Federal and State governments for previous AFDC expenditures. The savings produced in this manner exceeded overall expenditures. TABLE 8-6.--FEDERAL AND STATE SHARE OF CHILD SUPPORT ``SAVINGS,'' FISCAL YEARS 1979-96 [In millions of dollars] ------------------------------------------------------------------------ Federal State share of share of Fiscal year child child Net public support support savings \1\ savings \1\ savings ------------------------------------------------------------------------ 1979............................... -$43 $244 $201 1980............................... -103 230 127 1981............................... -128 261 133 1982............................... -148 307 159 1983............................... -138 312 174 1984............................... -105 366 260 1985............................... -231 317 86 1986............................... -264 274 9 1987............................... -337 342 5 1988............................... -355 381 26 1989............................... -480 403 -77 1990............................... -528 338 -190 1991............................... -586 385 -201 1992............................... -605 434 -170 1993............................... -740 462 -278 1994............................... -978 482 -496 1995............................... -1,274 421 -853 1996 (preliminary)................. -1,152 407 -745 ------------------------------------------------------------------------ \1\ Negative ``savings'' are costs. Source: Office of Child Support Enforcement, Annual Reports to Congress, 1996 and various years. Unfortunately, net public savings declined over the years. A major explanation for the negative public savings was that beginning in 1985, as explained above, new Federal legislation required States to give the first $50 per month of collections in welfare cases to the custodial parent. This $50 passthrough had an immediate impact; in its first year, combined Federal- State savings fell to $86 million from $260 million the previous year. By 1989 the overall ``savings'' in the combined program went negative. For the first time that year, Federal losses exceeded State gains--by $77 million. The net losses have increased almost every year, reaching $853 million in 1995 before declining somewhat to $745 million in 1996. Reflecting on these numbers, two perspectives should be considered. One perspective, the finance perspective, attends simply to the measurable costs and benefits of the child support program. But a second, broader perspective includes more diffuse social benefits of child support that are difficult to measure. From the finance perspective, perhaps the most important question about child support financing is why the Federal Government, which loses money on the program every year, should provide such a high reimbursement level for State expenditures when nearly all States make a profit on their child support program. In the past, this issue has prompted Congress to reduce the basic administrative reimbursement rate on several occasions. As a result, the rate has declined from its original level of 75 percent to 66 percent. But some Members of Congresss have suggested that, because most States are still making a profit while the Federal Government is losing money, Congress should reduce the Federal administrative reimbursement rate below 66 percent. Defenders of child support financing respond by pointing out that allowing States to profit from the program makes it very popular with State policymakers who control funding of the State share of expenditures. Without financing arrangements favorable to State interests, according to this view, the child support program would not have posted the impressive gains that have characterized the program since its inception in 1975. The 66 percent Federal reimbursement of State administrative expenditures raises a second issue of program financing: Why is such a large percentage of State expenditures financed without regard to performance? Even if States spend a great deal of money on activities of dubious value in collecting child support, they can nonetheless count on 66 percent reimbursement from the Federal Government. The flat 66 percent reimbursement rate may provide States with an incentive to spend money inefficiently. A potential solution would be for the Federal Government to provide States with less money based on gross spending and relatively more money based on performance. However, there is widespread criticism of the current incentive system. First, some critics of child support financing question whether incentives should be provided for non-TANF collections. With regard to program financing, there is a striking difference between the TANF and non-TANF Programs; namely, government retains part of TANF collections but non-TANF collections are given entirely to the family. When Congress enacted the Child Support Enforcement Program in 1975, the floor debate shows that members of the House and Senate supported the program primarily because retaining AFDC collections would help offset AFDC expenditures. But program trends since 1975 show that the non-AFDC Program is actually much bigger than the AFDC Program and grows faster each year than the AFDC Program. As shown in table 8-1 above, AFDC collections have grown from about $0.5 billion in 1978 to $2.9 billion in 1996, a growth factor of five. But non- AFDC collections have grown from about $0.6 billion to more than $9 billion over the same period, for a growth factor of nearly 15. The point here is that although TANF collections are growing, non-TANF collections are growing much faster. And since the State and Federal Governments receive virtually no direct reimbursement for non-TANF expenditures, the child support program loses more and more money every year. Why, then, critics ask, should the Federal Government encourage greater expenditures by providing incentives for non-TANF collections. Ignoring for the moment possible social benefits from the non-TANF Program and based entirely on a finance perspective, some critics argue that non-TANF incentives encourage inefficiency. A second issue raised about the current incentive system is that it does not necessarily base rewards on the best measure of performance. Just as the basic 66 percent reimbursement rate ignores efficiency by relying exclusively on expenditures, the incentive system ignores efficiency by relying exclusively on collections. A better measure of efficiency may be one that combines expenditures and collections in a single measure. If incentive payments were based on child support collections per dollar of administrative expenditure, States would have incentive to collect more money while holding down expenditures. An incentive system based just on expenditures or just on collections is at best half an incentive system. Third, the incentive system is also criticized because States receive an incentive payment of 6 percent of collections regardless of program efficiency. One might question whether a system that guarantees substantial payments independent of performance is really an incentive system. A final issue of program financing is whether government should pay such a high percentage of costs in the non-TANF Program. States must charge an application fee that can be no more than $25 for the non-TANF Program, but this amount doesn't even pay the full cost of opening a case file. In 1996, more than 2.5 million non-TANF families received services resulting in child support collections that averaged around $3,600 per case. By collecting this money, government is providing a useful service to millions of families, many of which are not poor. Rather than have taxpayers pick up the cost of this service, some critics argue that families receiving the services should pay more of the costs. Federal law allows States to charge additional fees, but few do so. States argue that, because many of the non-TANF families are poor or low- income, charging them for child support services would decrease their already tenuous financial stability. States also argue that setting up an administrative system to establish and collect the fees would cost more money than the fees actually collected. The account of child support from the finance perspective given above relies on measurable spending and collections. However, defenders of the current child support program argue that it may produce social benefits that are not captured by mere spending and collections data. These program defenders claim that a strong child support program produces ``cost avoidance'' by demonstrating to noncustodial parents who would try to avoid child support that the system will eventually catch up with them. Although there is little evidence that would allow an estimate of the cost avoidance effect, there is nonetheless good reason to believe that at least some noncustodial parents make child support payments in part because they fear detection and prosecution. Even more to the point, a strong child support program may change the way society thinks about child support. As in the cases of civil rights and smoking, a persistent effort over a period of years may convince millions of Americans, both those who owe child support and those concerned with the condition of single-parent families, that making payments is a moral and civic duty. Those who avoid it would then be subject to something even more potent than legal prosecution--social ostracism. To the extent that this reasoning is correct, the public and policymakers may come to regard child support enforcement as a long-term investment similar in many respects to education, job training, and other policies that help families support their children. In each of these cases, there is expectation that society will be better off in the long run because the government invests in helping individuals and families. But the expectation that investments will lead to immediate payoffs, or even that we can devise evaluation methods that adequately capture the long-term payoffs, is much less than the expectation of immediate and measurable payoffs that characterizes the kind of public finance reasoning outlined above. Of course, even if the public is willing to continue paying for child support enforcement as a social investment, Congress and child support administrators may nonetheless find it desirable to intensify their efforts to make the program as efficient as possible.