Resources and Publications

Child Support Assurance: A New Opportunity in the Block Grant Structure

May 01, 1997 | Mark Greenberg, Paula Roberts, Steve Savner, and Vicki Turetsky

Introduction

In recent years, there has been increased interest in the idea of providing families which have a child support order with a guaranteed, minimum monthly child support payment. The idea is referred to as "Child Support Assurance."[1] The basic idea is that when a family has cooperated in establishing the child support obligation of a non-custodial parent, government should assure that at least a minimum payment is provided to the family each month if the non-custodial parent does not pay sufficient support to reach the assurance level. At the same time, government will actively pursue the non-custodial parent for the support owed.

One reason for growing interest in this approach is that it may encourage single parents to enter and stay in the paid labor force. Even when parents are working in low wage jobs, the assurance of regular, guaranteed support may significantly reduce the poverty of their families. Moreover, this strategy emphasizes the need for both parents to be contributing to the well-being of their children. Finally, this approach could help many families avoid the need for public assistance, providing an alternative to existing programs. Indeed, a recent evaluation of New York's Child Assistance Program-- which is based on the child support assurance concept- suggests that it could be a cost-effective way to encourage work efforts, supplement wages, increase the number of families with child support orders, and help families minimize their need for public assistance.[2]

Interest in this idea has been heightened by passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). Provisions of this legislation present a significant opportunity for states to draw on the principles and lessons of Child Support Assurance and develop a new system of income support for lower income families with child support orders. This document briefly outlines how such a system might look, and how such a system could be developed consistent with applicable requirements of the new federal structure.

The Legal Framework

Under prior law, all states participated in the Aid to Families with Dependent Children (AFDC) Program. AFDC operated on the basis of federal-state match, i.e., the federal and state governments joined together in the cost of assistance to each eligible family. Match rates varied with state per capita income; the states with highest per capita income had a 50-50 match rate, and the states with lower per capita incomes could have a federal match rate as high as 83%, i.e., 83% of program costs would be borne by the federal government. In the AFDC system, when a state provided aid to a family, the family was required to assign its child support rights to the state, and all support after the first $50 was usually shared between the federal and state governments, to reimburse the cost of AFDC provided to the family.

In the new Temporary Assistance for Needy Families (TANF) block grant structure created by the PRWORA, each state receives a block grant of federal funds, and uses those funds to create a program of assistance to needy families. In order to receive the full block grant, the state must maintain at least 80% (or 75%, if the state meets the law's participation rate requirements) of its historic expenditure level on expenditures for needy families. The state maintenance of effort (MOE) funds may be spent in the TANF Program, but there is no requirement that the state do so; the state need only spend its MOE money on certain qualified expenditures (including cash assistance) for needy families with children.[3] Thus, a state might choose to spend its maintenance of effort funds in the TANF Program or might choose to use the funds to create one or more state programs wholly separate from TANF that serve needy families.[4]

In the new structure, a 60-month time limit applies to months in which families with an adult receive assistance funded with federal TANF dollars. A set of work and participation requirements apply to all families with adults (or minor heads of households) receiving assistance in the state's TANF program. Each family receiving assistance in the state's TANF Program must also assign child support rights to the state. If child support is then collected on the case, the state is required to share that money with the federal government. The amount to be shared is based on the state's Medicaid match rate, e.g., if a state's match rate is 50%, and $200 of child support is collected, the state is required to send $100 to the federal government.

A state might attempt to run a Child Support Assurance Program with federal TANF funds, but there are several difficulties in doing so. All requirements that apply to families receiving "TANF assistance" would be applicable. As a result, families receiving assistance through the program would be subject to TANF time limits and TANF work and participation requirements. In addition, families would be required to assign their child support rights to the state, and the rules about sharing the child support collection with the federal government would apply.

However, these requirements (time limits, work and participation requirements, assignment of support and requirement to send federal share of support to the federal government) do not apply to a separate state program that does not receive any federal TANF funds, even if the program of state-funded assistance is structured so that it counts toward TANF maintenance of effort. The inapplicability of federal requirements to separate state programs creates an opportunity for states to envision and develop a new form of back-up income support for families with child support orders based on the Child Support Assurance idea.

Basic Program Design

A state Child Support Assurance system could work something like this:

The state would would operate a TANF program with federal (and if the state wished, state) funds. Consistent with the new law, this program would be available to families with minor children who meet the state's income guidelines and other eligibility requirements established by the state.
The state would also offer qualifying families a separate system of state-funded Child-Support Assurance payments. This program could be available 1) as an alternative to TANF for families with a child support order who have not yet entered the TANF program (a diversion program); and/or 2) as an option for TANF families with a support order who find employment and want to leave TANF (a transition program).[5] Among its benefits, the program would provide TANF-eligible families and those actually participating in TANF with an additional incentive to pursue a support order so that they could get assured child support as an alternative to TANF.
The state would set an assured support level which might vary with the number of children in the family, e.g., $350 per month, or $175 bi-weekly for a family with two children.[6] Then, any eligible family with a support order could opt to participate in the Child Support Assurance (CSA) program. Once a family was in the CSA program, the state's commitment would be to provide supplemental payments when needed so that the combination of a family's actual child support and the supplemental payment did not fall below the assured level. In order to comply with the distribution requirements in the statute for non-public assistance families, CSA payments would be scheduled to follow the dates on which child support was due to be paid. For example, if child support payments were due on the 1st and 15th of the month, the state's system might be designed so that assured payments were issued on the 2nd and 16th. If less than $175 in child support had been paid when due on the 1st, on the 2nd the CSA system would issue the difference between the support paid and the assured level.
In exchange for the assured child support payment, the custodial parent in the family would have to agree to use the state's child support (IV-D) system.[7] Participation in the IV-D system would help the state to keep accurate records of collections and disbursements and allow it to take immediate action to enforce the order if payments were not made. The custodial parent might also be required to agree to let the state retain arrearages applicable to the period when the obligated parent did not pay support, allowing the state to recover or partially recover the cost of the guaranteed payment.[8] In that way, the cost of the program could be kept within reasonable bounds and the obligated parent would not be tempted to simply avoid payment and rely on the state to support his/her family.
In designing its system, the state would need to develop a policy for how or whether assistance phased out as a family's income increased. In New York State's CAP Program, the guarantee level phased out at the rate of $.10 for each dollar of earnings (and with a dollar-for-dollar reduction based on unearned income) until the family reached the poverty line, with a 67% phaseout rate (i.e., assistance reduced by $.67 for each dollar of earnings) after the family reached the poverty level. A state could adopt a similar, more restrictive, or less restrictive approach.

Advantages of a Child Support Assurance Program

Operating a child support assurance program for eligible families offers several significant policy and fiscal advantages to the state over providing assistance to those families through the TANF Program. For example, consider a state with a 50-50 match rate and a $350 per month TANF grant level. Suppose Ms. Smith has two children and a child support order on which $200 a month is normally paid. If Ms. Smith enters the TANF Program, each month, the state will pay Ms. Smith a TANF payment of $350, will collect $200 in child support, and will send $100 (the federal share) to the federal government. Thus, the effective cost to the state of assisting the Smith family through the TANF Program will be $250 (i.e., the $350 grant less $100 in child support retained for reimbursement).

Alternatively, suppose the state initiates a state-funded CSA program. Now, Mr. Smith's $200 child support payment will be directly received by his family. The state will promptly issue a $150 back-up payment, at an effective cost to the state of $150 (rather than the $250 cost when administered through TANF). Thus, the fiscal contrast is compelling: in this instance providing the same level of assistance to the family will cost the state $250 under TANF and $150 under state-funded Child Support Assurance.[9]

The $350 back-up level will likely not be sufficient to support a family, but Ms. Smith will know that if she enters employment, she can count on the $350 assured support payment each month. This could allow her to weather short-term disruptions in work hours and earnings and facilitate her ability to retain a job that does not provide wages adequate to fully support her family.

In this example, the amount of the assured payment is higher than the amount of Ms. Smith's support order. However, in instances where the support order level is higher than the assured level, an assurance payment would only be made in months where the actual amount of support paid fell below the assured level. For example, if the family's support order was for $400 a month, but the assurance level was $350, an assurance payment would only be made in those months where the level of child support paid was below $350. In effect, for families entering or trying to maintain employment, the role of the assured payment would be to ensure that even if there was a temporary interruption in the payment of child support, they would get some support.

Other Concept and Design Issues

A state interested in pursuing the Child Support Assurance concept will need to consider numerous factors and design alternatives. Among the major issues are:

Should an order be required for those participating in the system? If there were no exceptions, such a requirement would preclude participation by families whose inability to obtain an order is beyond their control (e.g. non-custodial parent is deceased, using an alias or otherwise deliberately avoiding the IVD system.)
What happens to families when they are no longer TANF eligible? If the state program is limited to TANF eligibles, thought must be given to whether a phase-out of the assured payment should be considered as family income rises. Such a system might help avoid the "cliff effect" inherent in many assistance programs.
Does the IV-D program have the automated capacity to track payments quickly so that accurate assured payments are issued in a timely manner? If not, should the CSA program be initially offered in parts of the state with this capacity and phased in, in other places as the child support system becomes more automated?
What is the proper relationship between the assured payment and the TANF cash benefit? The assurance level could be set at the TANF grant level, above it, or below it, or the state could take a completely different approach (e.g., guarantee only the amount of the order up to a maximum amount). AFDC grants generally varied with family size; should the CSA payment level?
What are the considerations in regard to the state's ability to meet its work participation requirements in TANF if the state offers a separate CSA program?

Weighing HHS Cautions About Separate State Programs

Much of the above discussion turns on the advantages of implementing Child Support Assurance through a separate state program model rather than through using TANF funds. A state considering whether to do so needs to give weight to two additional factors: the possible impact of such a choice on the state's access to the federal "contingency fund" and the recent set of admonitions on this point by the federal Department of Health and Human Services.

States engaged in TANF planning face two distinct MOE requirements. The state must meet the basic requirement (i.e., an 80% level for qualified expenditures for needy families) in order to avoid a TANF penalty. In addition, TANF has available a $2 billion federal contingency fund, subject to state match, for times of economic downturn. A state seeking contingency funds must, in the year in which funds are being sought, attain a state spending level of 100% of the state's historic spending, and only spending in the TANF program counts toward this requirement. Thus, a state electing to spend funds in a separate state program may be impairing its ability to access the contingency fund in a time of need. We do not believe that this is sufficient reason for a state to decline to pursue a significant policy option, but a state should be aware of this issue in deciding how to proceed.

Second, in its recent Policy Announcement, HHS expressly recognized that under the PRWORA, a state can elect to spend its basic MOE dollars in a separate state program and still have such funds count toward basic TANF maintenance of effort requirements.[10] In acknowledging that such an approach was permissible, HHS noted that this flexibility could give States the opportunity to try out some innovative and creative strategies for supporting the goals of work and responsibility. At the same time, HHS expressed concern that States could design programs in an attempt to evade the statutory work requirements or to avoid returning a share of their child support collections to the Federal government. Id. at 3. As to child support, HHS expressly noted:

In assessing the potential budgetary impact of this bill, Congress apparently did not envision major losses in the Federal share of child support collections. We are advising States not to set up separate State programs which retain what would otherwise be the appropriate Federal share of child support collections.

In order to track State practices in this area, as part of the regulatory efforts [described in the Policy Announcement] we will seek to incorporate requirements for States to report child support information for families in State MOE programs, as well as TANF. Likewise, in our legislative proposal on data collection for recipients served outside the TANF program, we will be asking for authority to collect child support data.

We also intend to work with the Governors and the Congress to identify approaches that will ensure that States do not use the flexibility provided to retain Federal dollars in State coffers.[11]

Any state wishing to consider the Child Support Assurance approach outlined in this document will necessarily want to review and analyze the HHS guidance. In engaging in that analysis, we would suggest that the following be kept in mind:

First, we agree with HHS that a state might seek to use the new flexibility either to test innovative and creative strategies, or simply as a mechanism to deny the Federal government the federal share of child support dollars. We believe that Child Support Assurance should be recognized as a genuine attempt to test a new alternative, and not merely as a device to retain federal funds. In fact, the Administration's own welfare reform proposal in 1994 would have expressly funded a set of Child Support Assurance demonstrations.

Second, it is understandable that HHS may be troubled by the prospect of loss of federal child support collections if a state elects to operate a separate state program. At the same time, one needs to recognize that this loss of federal collections, if it occurs, is one of the necessary and foreseeable consequences of the flexibility Congress provided to states in the use of state funds. There is an important distinction between HHS' interpretations of the federal statute and HHS' policy preferences, and ultimately, states must decide for themselves which policies can best effectuate the goals of state-based welfare reform. If a Child Support Assurance model is effective in encouraging work and reducing child poverty, it will help to effectuate the goals of welfare reform.

Conclusion

As compared with providing assistance under TANF, the CSA system has the advantage of being less costly to the state, advantageous to the family (because the family does not lose a month of time-limited TANF eligibility), reassuring to the noncustodial parent (since he will see his support payments go directly to the family) and preferable for society, insofar as it is promised on the principle that child-support, when available, should be a primary source of support, and governmental assistance should function as a back-up to that child support.

The initiation of a state-funded child support assurance system could offer a significant opportunity to improve the well-being of families, strengthen the role of the child support system as a primary source of support, and reduce the number of families needing TANF assistance. CLASP is prepared to provide more detailed information and assistance to those interested in pursuing the possibility of developing such a Child Support Assurance system.

NOTES

1. A number of other nations, including Denmark and Austria, provide assured child support to single parent families at all income levels and irrespective of whether they have a child support order. In this country, however, interest has largely been focussed on assisting lower-income families which actually have a support order in place.

2. William Hamilton, Nancy Burstein, et al., THE NEW YORK CHILD ASSISTANCE PROGRAM: FIVE YEAR IMPACTS, COSTS AND BENEFITS, Abt Associates Inc., October 1996. A small (fifty-family) project operating in Virginia also had encouraging results, although it was not formally evaluated.

3. See HHS' discussion contained in TANF-ACF-PA-97-1 (Jan. 31, 1997). More precisely, HHS indicates that State expenditures can count as MOE only if made to or on behalf of families which: have a child living with a parent or other adult relative (or to individuals which are expecting a child); and are needy under the TANF income standards established by the State under its TANF plan. The federal statute does not define "needy" and HHS expressly notes that it will defer to State income standards for both TANF and MOE purposes. Thus, program eligibility could be open to very few people or open to many families under a broader definition of "needy", e.g. those with family incomes less than 200% of the federal poverty line.

4. For a more detailed discussion of alternative models of spending state MOE funds, including issues presented by separate state programs, see Savner and Greenberg, The New Framework (CLASP, March 1997).

5. As a policy matter, a state might wish to make Child Support Assurance available to families that were not TANF recipients or TANF-eligibles. However, an expenditure for assistance could only count toward TANF MOE if the expenditures was for a family which was "needy" under the state's TANF income standards.

6. The back-up level used here reflects the level of the CAP payment in Monroe County in New York State's CAP Program; a $350 back-up level is somewhat below the median AFDC grant for three in 1996 (which was $377) and is used for purposes of suggesting how the program might work as an alternative to AFDC or the state's new TANF program. A state would be free to set a different level which might take into account on such factors as the typical levels of support ordered under the state's child support guidelines, the relationship between this payment and the actual TANF grant level, and the extent of available funds for the back-up program.

7. Because they would not be TANF recipients, families receiving Child Support Assurance payments would be treated as non-IV-A cases by the IV-D Program. Families leaving TANF for the CSA program would already be in the IV-D system and eligible to continue participation. Other families would have to apply for IV-D services. Depending on state policy in this area, issues of fees and costs for IV-D services would have to be worked out.

8. While states can not require assignment as a condition of eligibility for child support (IV-D) services, there appears to be no reason to preclude assignment as a condition of receiving assistance under a state CSA program. Anyone not wishing to make an assignment would still get child support services, but not the assurance guarantee.

9. While the policy issues are the same, the fiscal advantages of implementing this approach will be even stronger for states with more favorable federal match rates. For example, suppose in the above example, the matching rate for the state was 75% federal, 25% state. Suppose the TANF grant was $350, and child support paid for the family was $200. If assistance were provided under TANF, the state would need to send the federal government the federal share, which would be $150. Thus, the effective cost to the state of raising the family's income to $350 under TANF would be $300 (i.e., $350 TANF payment, less child support reimbursement to state of $50), while the effective cost of doing so through a state-funded child support back-up system would be $150.

10. See HHS Policy Announcement TANF-ACF-PA-97-1 (January 31, 1997).

11. Id. at 5.