Maximizing Collections

  California's child support enforcement efforts are complicated by a wide diversity among the 58 county child support programs and by the need for counties to coordinate efforts.

Federal welfare reforms require the State to centralize some of the task of collecting child support. That change, along with the growing number of state agencies becoming involved in child support, raise the question of whether the child support program should be restructured.

The State Franchise Tax Board provides a valuable service to counties in collecting delinquent child support, but built-in disincentives discourage counties from taking full advantage of this chance to boost collections.







Maximizing Collections

Finding 3: In dividing child support enforcement duties between the counties and the State, the opportunity is being missed to develop efficient and flexible solutions that encourage ongoing innovations that will maximize collections.

Among policy makers and program managers, organizational design is essential to creating an effective, efficient and accountable service delivery system. Too often limited resources force the State to make incremental changes -- no matter how inadequate the existing structure. Too often the optimal design is compromised to preserve the status quo.

Three events are requiring the State to again reconsider the traditional alignment of functions associated with enforcing child support. First, as more agencies have been enlisted to find missing parents and their assets, it has become clear that some of those agencies have the skills and aptitude to better perform some functions than many of the county family support divisions. At the same time, entrepreneurial counties are showing that dramatic progress can be achieved without consolidating functions at the State. And finally, federal reforms require the State to centralize at least a portion of the collections function -- opening the broader issue of how much of the collections and enforcement function should be left to county district attorneys.

The challenge facing California policy makers is how to realign functions in a way that best improves service to custodial parents, non-custodial parents and children. Of equal importance is creating a system that provides flexibility without sacrificing accountability, and capitalizes on the best performers now while encouraging ongoing innovation.

Aligning Proficiency and Responsibility

Child Support Enforcement is a federal program in which the duties have been delegated to the State. In California, the State Department of Social Services is responsible for the program. It has delegated most of the actual functions involved -- finding missing parents, securing court orders for support, collecting and redistributing the support payments -- to the county district attorneys.

As the effort to make parents financially responsible for their children has escalated, a number of other public agencies have been enlisted. Some have been recruited for their expertise, such as the Franchise Tax Board for its collection capabilities. Other agencies have become involved because they provide a public service that policy makers want to deny to parents who shirk their familial responsibilities -- the Department of Motor Vehicles licenses drivers, and now revokes the licenses of California motorists who fall behind in child support payments. Still other agencies have become involved because they have information that helps the counties do their jobs. The Employment Development Department's records have proven invaluable in finding parents and their paychecks.

As this network of involved agencies has grown, California's organizational structure has become increasingly controversial -- as poor coordination stymies success and as some advocates seek to give more authority to those agencies displaying the most competence.

Some of the coordination problems are the result of each county operating unique and distinct enforcement programs. Most of California's metropolitan areas encompass several counties and child support cases multiply in their complexity when either the mother or the father moves across the river, across the bay or down the coast. With more than 2 million cases to juggle in the state, the ones most easily dropped are those that fall in the cracks between county lines: In some cases, county workers do not know that a case has been opened in another county. When they do know another case exists, it can take a year to transfer a case from one county to another. Other times, the involved counties agree to leave a case in the first county so that the support order is not derailed at a critical juncture, preserving the process while confusing the parents.

In any event, the counties have operated with different forms, different procedures, different proficiencies and different priorities. That diversity, while frustrating for parents, has been tolerated as a necessary evil of local control. Allowed to develop their own methods, the theory holds, counties will implement the methods most suitable for their needs.

Some of the diversity has reached beyond legitimacy. As described in Finding 2, federal auditors have found that counties routinely violate federal guidelines for reporting data and accounting for funds. The auditors believe these discrepancies are the product of a highly decentralized system lacking effective internal management controls.(90)

The solution advocated by some is to eliminate the barriers between the counties and bring uniformity to procedures by consolidating the day-to day-functions at the state level. Some advocates go a step further, to urge that the support order establishment process be taken out of the courts and consolidated in an administrative agency at the state level. The groups are buoyed by efforts in other states to consolidate functions in revenue departments. The Association for Children for Enforcement of Support (ACES) testified that Massachusetts, Arkansas, Alaska and Florida have charged the tax collector with primary program responsibilities:

Both state and county child support enforcement officials bristle at the recommendation. One family support director said the proposal tops his list of worries:

Other county officials argue the essential characteristic of the program is assisting families, and an agency based in Sacramento would not have the compassion to help families in all of the diverse situations presented in California.

The concern among county officials of a "state takeover" of child support enforcement is so strong that some efforts to improve the program have been misshapen by fear. The Statewide Automated Child Support System (SACSS) is used by the counties and DSS as their best defense against efforts to centralize child support enforcement. The computer network, they maintain, will provide uniformity of process and forms, and lower the barriers between counties. Ironically, implementation of the system has been frustrated in part by the diversity among counties. And the adaptability of the system is limited by the small centralized memory node -- which was designed in part to preserve county control of information and case management.

But three important events have occurred while the state has been preoccupied with implementing SACSS: The Franchise Tax Board has displayed enterprise in developing a collections service for delinquent child support, some counties have developed effective and efficient automation on their own, and the federal government decided that all states should have centralized collections units. These three developments provide an opportunity and obligation to realign child support enforcement functions.

FTB Collections

In 1993, the Legislature with AB 3589 (Speier) created a pilot project using the Franchise Tax Board to collect delinquent child support. The pilot project involved six counties, which turned over selected cases to the FTB. During the first 12 months of the project, the FTB collected $34.6 million. This success generated the signing of AB 923 in 1994, which expanded the program so that any county could ask for FTB's help in collecting delinquent support. In the next year, 20 counties took advantage of the board's collection expertise and collections reached $66 million.

One of the surprising results was that FTB actually collected more in welfare-related cases than in non-welfare cases, displaying the board's ability to collect in cases that traditionally were considered uncollectible.

The FTB begins by sending non-paying parents a demand letter, bluntly telling them that the case has been turned over to the FTB and that they have 10 days to pay off the debt before FTB goes after the child support debt with the same persistence that it pursues tax debt. In fiscal year 1995-96, 7 percent of the money collected through the program was generated by the demand letter alone.

The FTB then searches employment records, financial records and tax records. If it finds an employer, it can assign up to 50 percent of the worker's wages. If it finds assets, it seizes them. In both instances, the FTB uses administrative authorities granted to it as the state tax collector to take action quicker than counties could take historically. The FTB also contracts with private collectors -- as it does in its tax cases --- to pursue out-of-state collections.

The FTB attributes the program's success to three factors: political leadership, unrestricted legislation and a hard-forged relationship between the FTB and the county district attorneys.(93)

The program also has a central characteristic not often found in government -- it is truly a voluntary service to its customers. Counties can chose whether to participate in the program, and can decide which cases to send. That dynamic has created an incentive for FTB to meet the needs of its customers -- to develop the working relationship with the counties that it cites for its success. FTB, by linking its tax authorities and its computerized processing, has entrepreneurially done for the counties what they could not do for themselves.

Two-thirds of FTB's administrative costs are paid by federal child support reimbursements, and the balance comes in the form of a commission from the counties. The counties receive a 6 percent incentive bonus on their collections from the federal government, and they split that incentive payment with FTB for money it collects. In fiscal year 1995-96, FTB's share of the incentive money came to $1.4 million. The funding arrangement expires at the end of fiscal year 1998-99.

FTB does not accept cases in which there is a tax liability. Under the law, child support debt receives priority when wage assignments are used to collect debt. If FTB pursues cases where the parent also owed taxes, it may end up having to collect child support debt before satisfying its initial charge of collecting state revenue. In 1995-96, FTB returned one in three cases to the counties -- often to avoid the potential conflict between its child support and its tax collecting responsibilities.

The question now is how to build on FTB's success. FTB believes some counties have not participated because they are unwilling to share the incentives they receive on collections they make. The FTB believes that once connected electronically through SACSS, 51 of California's 58 counties will send at least some of their delinquent cases to the tax collector.

FTB supporters say the program shows the benefits of centralizing functions in agencies with specific competencies needed to improve child support enforcement and believe that all counties should be compelled to turn over delinquent debt to FTB. Some advocates would go even further, to rely on FTB to satisfy federal requirements that the State establish a centralized collection unit by making FTB responsible for all collections, current and delinquent.

Local Automation

Over the last 10 years some of the better-performing county family support divisions have developed their own automation systems -- to organize or process cases, link databases with cases or take enforcement actions.

In that sense, the counties have operated like laboratories, finding new ways to process forms and checks. Many of the counties have incrementally developed and paid for their computer infrastructure: As a function is automated, they become more efficient and earn more in incentives. With the additional funds, they automate another function, becoming more efficient and earning more incentive money.(95)

As explained in greater detail in Finding 4, many of these counties are now reluctant to turn off functioning computer systems and connect to a malfunctioning Statewide Automated Child Support System. But beyond the SACSS dilemma, as enterprising counties have automated they have put pressure on the existing organization structure -- searching for new functions, new authorities and even seeking the business of other counties.

The San Diego County family support division, for example, recently reclaimed functions that had been delegated to other county departments and developed its own automation system. To find missing parents or their assets, it made more extensive use of U.S. Department of Defense databases than other counties or state agencies. To more quickly process payments, it developed check-scanning capabilities that are as efficient as those at the largest banks. San Diego officials are now considering the possibility of contracting their services to other family support divisions.

Other automated counties want to expand their authorities to capitalize on their technological abilities -- arguing that if they had the same authorities as the FTB to administratively tap bank records and attach up to 50 percent of a debtor's wages they could increase collections.(96) To that end, FTB's entrepreneurial spirit has inspired counties to think about new ways to solve perennial child support enforcement problems.

In turn, some counties are willing to become customers of agencies that can perform a function better than they can. Los Angeles County, for instance, is by far FTB's largest customer -- sending the tax collector virtually every case that falls 30 days delinquent. By letting FTB worry about its delinquent cases, the Los Angeles district attorney can focus on ways to improve its order establishment process -- such as helping to automate court procedures so the clerks and judges can keep up with the cases generated by the district attorney's new computer system.

Centralized Collections

The centralization vs. decentralization debate that has waged in Sacramento also has waged in the nation's capital. Congress, persuaded that California and other large states had not seriously considered realigning functions to improve efficiency, in 1996 required states to centralize the functions that have shown to most often deliver economies of scale -- collections and distribution.

Some provisions of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 are definitive. The law requires the centralized unit to be in place by October 1, 1998. It also clearly requires that employers be provided one place to send wage assignments. The law also requires that the disbursement -- at least those for non-welfare parents -- has to be accomplished within two days.

From there, certainty in the law begins to evaporate. While the law seeks to create centralized collections and distribution units, it allows for states to establish a centralized unit by linking local distribution units -- provided that approach will not cost more or take more time to operate.

An even greater ambiguity lies in the role required of the centralized unit in enforcing orders when payments are not made. Some stakeholders have interpreted the law to say that enforcement actions -- which are now delegated to the counties -- must also be centralized. Carried to its logical end, if a state agency is going to collect and distribute child support payments and enforce orders when compliance is not voluntary, then the State will effectively take over management of a case from the moment a support order is established.

No matter how it is interpreted, however, implementing the federal law in California is complicated by the bias against the state operation of child support functions and the decentralized design and operational shortcomings of SACSS.

Currently nearly all of these functions are performed by the local governments. With the exception of tax intercepts, which are collected by the State, child support payments are made to counties, which process the checks and allocate and disburse the funds among parents and government agencies being reimbursed for welfare expenditures.

SACSS was designed to reflect this assignment of functions -- retaining at the county level all of the information needed to take in payments and disburse support. The central node of SACSS will make the determination of how to allocate the money.

The Department of Social Services, with the help of a consultant, is developing a plan for satisfying the federal requirement that would retain at the counties some of the collection and disbursement functions, while looking to a centralized unit to collect wage assignments and allocate the money among the different receivers.

In analyzing the options, the department and consultant considered a combination of factors. Some of them relate to efficiency and effectiveness, while others consider political factors such as whether a specific alternative would preserve county control of an important function. As a result, it is difficult to tell from the analysis whether the solutions under consideration represent the best business solution -- and by extension the best solution for California children -- or whether the product will reflect a combination of business and political considerations.

None of the options rely on SACSS to perform all of the collections tasks because its decentralized design prevents it from being easily adapted to take on a centralized role. At the same time, all of the plans considered by the State assume that SACSS will be operating by October 1, 1998 -- an assumption that county family support directors who have worked with the system seriously question.

In addition to deciding the structure of a collections unit, state policy makers will have to decide whether the function will be performed by a public agency or private entity. Among the contenders are the State Controller, the Franchise Tax Board and Lockheed-Martin, the prime contractor for SACSS.

Opportunities and Criteria for Realignment

The success of the Franchise Tax Board's child support program, the success of some local automation efforts, and the requirement to centralize some collections and distribution provides an opportunity for the State to realign the assignments of child support functions.

Traditionally, program managers have been highly protective of the county-based structure -- tolerating a wide disparity in proficiencies in order to preserve local control. Some policy makers and children's advocates, frustrated by the persistent poor performance in some counties, see the current realignment debate as the State's best opportunity to centralize functions.

The realignment debate should be framed by two important questions: If the State is going to take over a function, does it have to perform that function better than all counties are currently performing, or just better than the worst performers? And, if the State takes over a function, how can policy makers ensure that the State agency will constantly improve its performance -- as some counties have demonstrated is possible?

Among the options for realignment:

While driven by contemporary developments, the alternatives reflect long-standing preferences by the interests involved on how to best assign functions. One stumbling block to an effective debate is the lack of an agreed-upon criteria for analyzing the State's options. The potential criteria should satisfy a number of policy concerns.

Among the criteria that should be considered to ensure that state policy makers will make the best long-term decision are:

Expanding the Enforcement Tools

In some instances, creating a better alignment requires granting the necessary authority tocarry out an established function more effectively. Three additional authorities would bolster the functions performed by counties: a felony penalty for failing to pay child support, a statewide property lien registry and an administrative bank lien.

Felony

In California, it is a misdemeanor not to pay child support. California once had a felony provision, but the law was declared unconstitutional because of the way it was crafted. While most child support cases are brought civilly, county prosecutors do bring some misdemeanors. Restoring the felony provision, they assert, would give them a tool for extradicting delinquent parents residing in other states.

In most instances, the DAs are using the misdemeanor criminal statute as a hook, to get the attention of non-complying parents. The threat of jail time works for some who are unfazed by other enforcement hammers. The head deputy of the Los Angeles District Attorney's prosecuting unit explained:

The re-establishment of a felony child support provision has wide support. It is one of the few issues that DSS and family advocates, such as ACES, agree upon. Thirty states have a felony law, according to ACES.

Advocates of a felony provision say it would elevate child support as a public issue. ACES testified:

The more direct legal effect of a felony law would be to allow district attorneys to use federal marshals to bring fugitives back to California under provisions for unlawful flight to avoid prosecution. At least one county has sought the help of federal officials to obtain warrants in misdemeanor criminal child support cases for the same purpose, but no formal process exists for that procedure.

The federal Child Support Recovery Act 1992 allows federal prosecutors to take felony action against parents who willfully avoid supporting their children who live in another state. But federal authorities do not have the resources to take on many cases, and the federal law is under fire in the courts. In 1993, the first year the law was in effect, federal authorities brought two cases nationwide. In 1994 they brought 12. In 1995 they brought 80. District courts in three states have found that the law exceeds the federal jurisdiction over interstate commerce, while other courts have found it to be constitutional.(100)

The weakness in the federal law could be bolstered by state law. From a legal standpoint, a felony provision would allow prosecutors to process more interstate cases. In some counties, as many as 30 percent of the cases involve parents who have left the state.(101)

Statewide Property Lien

For 30 years, child support enforcement officials say they have bucked the objections of title companies in an unsuccessful effort to create a statewide property lien. The counties collect millions of dollars by filing liens on real property owned by delinquent parents. The liens at the very least inconvenient non-custodial parents by showing up on credit reports, providing another incentives for parents to pay support. The liens also allow the government to recover funds -- either for welfare reimbursement or to support the family -- out of the proceeds of property sales.

The current procedures, however, require counties to file the liens in individual counties and to know about a sale in order to ensure success. According to the California District Attorneys Association, the individual liens create a heavy burden and expense on the part of child support agencies and the county recorders. As a result of these hurdles, not all of the child support that could be collected with property liens is collected.

The Department of Social Services in 1992 concluded that it was possible to use commercially available data and existing computer infrastructure to create a property record registry. Similarly, the district attorneys have advocated that a central registry for child support orders -- already legislated, but not implemented -- could automatically create liens on property owned by delinquent parents.(102)

Better use of real and personal property liens is considered one way to more effectively reach self-employed parents. The Interstate Child Support Commission concluded: "Liens are not imposed regularly, and one of the major reasons given is the costly and time-consuming nature of the lien imposition process."(103)

The interstate commission encouraged states to routinely place and update liens on title certificates for real and personal property belonging to delinquent non-custodial parents. It also recommended that streamlined procedures be adopted for challenging the validity of liens and releasing liens.

Administrative Bank Liens

County authorities have access to 1099 information, which record interest, dividends and other non-wage income. But they receive that information from the federal child support agency, which receives the information from the Internal Revenue Service. As a result the information can be 10 to 20 months old. When accurate and current, the information can be used to seek a court order to seize bank assets to pay delinquent child support.

One of the tools used by the FTB has been an administrative bank lien, allowing it to quickly seize assets -- accounting for about 9 percent of the money it collects. The federal welfare reform law requires child support agencies to have administrative bank lien authority. Counties that are automated believe they ought to have the same administrative authorities as the FTB.

Summary

When the mail arrives, what matters most to struggling families is that absent parents are held financially responsible for their children. They are not overly concerned with whether the check was processed in Sacramento or in Siskiyou County.

The organizational design of child support enforcement, however, can yield efficiencies that increase the reliability and the effectiveness of the program. Automation, federal requirements and some much needed enterprise on the part of some child support enforcers have given a renewed impetus to the long-standing issue of how to best align enforcement functions. The challenge for policy makers is to make choices that not only provide the highest possible level of child support enforcement now, but that encourage ongoing improvement.

Recommendation 3: The State should centralize functions that it is compelled to by federal law or that it can inherently do more efficiently and effectively than all counties. Otherwise, the State should encourage partnerships and pilot projects that foster competition, innovation and provide counties with options for enforcing orders and collecting support.

Many factors appropriately influence reorganization efforts, such as the collection and disbursement of child support. The system has to be secure, it has to satisfy federal rules and it has to be cost-effective. One dynamic demonstrated by the Franchise Tax Board's collections program is that competition between government agencies can spur improvements just like competition between private-sector businesses. These valid considerations should guide an ongoing reassessment and realignment of child support functions. Preserving a division of labor for the sake of tradition should not be a factor in the debate. Measures the State should take include the following:








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