The 2024‑25 Budget

Child Support

The child support program is a federal-state program that establishes, collects, and distributes child support payments to participating parents with children. These tasks include: locating difficult to find parents; certifying paternity; establishing, enforcing, and modifying child support orders; and collecting and distributing payments. In California, the child support program is administered by 47 county and regional local child support agencies (LCSAs), in partnership with local courts. Local program operations are overseen by the state Department of Child Support Services (DCSS).

This post provides a general overview of the Governor’s budget for DCSS, then turns to focus on a few key DCSS budget areas, providing background, implementation updates, and some comments for the Legislature to consider. Specifically, the budget areas we focus on in this post are: (1) the passthrough of child support collections to former California Work Opportunity and Responsibility to Kids (CalWORKs) families, (2) foster care referrals and enforcement, (3) LCSA funding methodology, and (4) proposed budget language related to overpayments disbursed from the Child Support Trust Fund.

Overview of Proposed Funding

As shown in Figure 1, the Governor’s budget proposes $379.9 million General Fund ($1.2 billion total funds) in 2024-25 for DCSS program costs, which overall is nearly unchanged compared to revised program cost estimates for 2023-24 of $380 million General Fund ($1.2 billion total funds). Similarly, there is little change projected for total child support collections, which DCSS estimates will increase less than 1 percent in 2024-25 compared to 2023-24.

Passthrough of Collections to
CalWORKs Families

Background

Majority of Child Support Cases Are Required to Enter Program as a Result of CalWORKs Participation. Around 75 percent of child support cases are comprised of families who receive or formerly received cash aid from the CalWORKs program. We refer to child support collected for these families as “assistance collections.” Under federal law, when a parent applies for CalWORKs cash aid (and is not living with the other parent), they generally are required to open a child support case and sign over a portion of their child support payments to the state. The state retains this portion as reimbursement toward the total government costs for the cash aid the family received under the CalWORKs program. This process of retaining child support payments to offset CalWORKs costs is referred to as CalWORKs recoupment. The CalWORKs recoupment payments are generally split between the state (roughly 50 percent), counties (roughly 5 percent), and federal government (roughly 45 percent). The state’s share of CalWORKs recoupment is accounted for as General Fund revenue.

Debt Accrues When Child Support Is Not Paid. The child support program collects two main types of monthly payments: (1) current support payments, which are the required monthly payments under an active, current child support order established by a court, and (2) arrears or past-due payments, which are debt payments to pay off previously unpaid current support (plus 10 percent annual interest) that is tracked by the state and collected. The state collects these debt payments regardless of whether a current support order is in effect. When the debt payments are made toward a court order that is no longer active, they are referred to as arrears-only cases.

Current Support and Past-Due Payments for Current CalWORKs Families Are Retained by the Government First. A family who currently receives CalWORKs cash aid (referred to as a current CalWORKs family) typically is required to sign over their child support payments to the state. However, a portion is retained by families. Specifically, up to $100 of the current support payment is directed or “passed through” every month to families with one child (increasing to $200 for families with two or more children). This initial passthrough amount is disregarded in terms of determining what is owed to the government. The remaining portion of the current support payment goes toward CalWORKs recoupment. In addition, any arrears or past-due payments collected first are withheld by the government to pay off past-due CalWORKs costs. Once the government-owed debt is paid in full, arrears payments then are directed to the family to pay off any pre-existing family-owed child support debt (this would be debt incurred from missed child support payments that accrued prior to the family receiving CalWORKs aid).

Federal rules allow states to pass through up to the full amount of monthly child support payments received to currently assisted families. However, to do so, states are required to pay back, or backfill, the federal government for the amount of the passthrough payment that otherwise would have been federally recouped (45 percent of the remaining payment beyond the $100/$200 initial disregarded amount).

Current Support and Past-Due Payments for Former CalWORKs Families Are Directed to Families First. Once a family exits CalWORKs (referred to as a former CalWORKs family), they begin to receive the full amount of current support payments. Additionally, any payments towards past-due amounts are directed first to families to pay off any family-owed debt. Past-due CalWORKs recoupment is paid last (although this portion of past-due payments soon will be passed through to families as well, as described in the next section).

Figure 2 illustrates how current support and past-due payments are directed to the family or government, depending on whether the family is currently receiving, or has ever received, CalWORKs cash aid.

Implementation of New State Passthrough Policy

Recent Policy Change Will Result in Full Arrears Passed Through to Former CalWORKs Families. In the case of former CalWORKs families, the federal government allows the state to pass through to families the permanently assigned arrears—those payments that otherwise would be retained by the government to cover past-due CalWORKs recoupment. (This is the portion of the monthly child support payment illustrated in Figure 2 as part 3 under the “Former CalWORKs Families” column.) In these former CalWORKs cases, the federal government does not require states to backfill the federal recoupment share. Chapter 573 of 2022 (AB 207, Committee on Budget) authorizes DCSS to pass through government-owed arrears to families rather than recouping the funds. The intention of passing these collections through to former CalWORKs families is to boost the income of these often low-income families.

DCSS Working to Implement Passthrough to Formerly Assisted Families in Current Year. In line with Chapter 573, DCSS currently is completing the required payment system automation updates and intends to begin implementing the passthrough of arrears to former CalWORKs families in May 2024.

Passing Through Funds to Former CalWORKs Families Is Estimated to Reduce General Fund Revenues by Around $90 Million Annually. As shown in Figure 3, actual assistance collections received in 2022-23 totaled $407.1 million. Around $160 million—roughly 40 percent of total assistance collections—was comprised of government-owed arrears payments for former CalWORKs families. Based on these data trends, DCSS estimates the full-year amount of arrears passed through to families will be $160.7 million in 2024-25. This would contribute to an overall increase in the total amount of child support payments going to families by 120 percent compared to 2023-24. Because this $160.7 million will be going to families rather than reimbursing the government, the Governor’s budget recognizes corresponding reductions of $89.1 million General Fund and $71.6 million federal funds. These reductions contribute to the overall decreases of around 50 percent for both General Fund and federal fund recoupment in 2024-25 relative to 2023-24. (Of the General Fund amount, approximately $4 million is estimated to reimburse counties for their share of the lost revenue.)

Under Statute, Administration Will Make Determination Regarding Passthrough to Currently Assisted Families in Spring 2024… Additionally, Chapter 48 of 2022 (SB 189, Committee on Budget and Fiscal Review) expresses legislative intent to provide General Fund resources to implement the full passthrough of child support payments to current CalWORKs families—including the cost of a federal and county backfill—subject to determination by the Department of Finance in spring 2024 that sufficient General Fund dollars would be available to support this policy change over the multiyear forecasts.

…And Submit Report to Legislature on Unintended Consequences. Budget language (Chapter 573) also requires the Department of Social Services (DSS), in conjunction with DCSS, to convene a stakeholder workgroup to discuss unintended consequences of enacting a full passthrough of child support payments to current CalWORKs beneficiaries. The language further requires DSS and DCSS to submit a report to the Legislature, on or before April 1, 2024, that, among other things, summarizes the conversations with workgroup participants, and includes proposed mitigation strategies for preventing unintended consequences of a full passthrough of child support payments to families currently receiving CalWORKs benefits. Unintended consequences could include, for example, the recipient family becoming ineligible for CalFresh or other means-tested programs due to the additional income received from the child support payment.

LAO Comments

Given Significant Budget Deficit, General Fund Resources Are Not Sufficient to Implement Full Passthrough to Currently Assisted Families. The fiscal impact of implementing the full passthrough to current CalWORKs families is estimated to be hundreds of millions of dollars annually, including reduced General Fund revenues and backfills to the federal and county governments. Given we estimated the Governor’s budget solved a $58 billion budget problem—and revenues continue to deteriorate—the administration likely will not implement the full passthrough to current CalWORKs families as part of the May Revision.

New Language Would Be Needed to Direct Future Determination. Should the Legislature wish to continue to prioritize implementation of a full passthrough to current CalWORKs families in future budget years, new budget language would be needed to provide that direction to the administration. The current statute becomes inoperative July 1, 2024.

Forthcoming Report May Illuminate Additional Areas for Consideration. As noted, in April 2024, DSS and DCSS are required to submit a report to the Legislature on unintended consequences of implementing the full passthrough to current CalWORKs families. Depending on the report’s findings and suggested mitigation strategies, the Legislature may wish to take additional steps in advance of potential future implementation of the passthrough, to help ensure that the goal of financially bolstering low-income families receiving CalWORKs assistance is met.

If Passthrough to Former CalWORKs Families Does Not Occur in May, Some Additional General Fund Revenues Would Accrue. Although the administration currently estimates necessary automation updates will be completed this spring, there previously have been delays to the implementation time line. Ultimately, should additional time be required for automation, these further delays would mean former CalWORKs families would wait longer to begin receiving the full passthrough, but also would result in increased General Fund revenues for that time.

Child Support Collections for Foster Care Cases

Background

Federal Government Requires States to, Where Appropriate, Recoup Title IV-E Costs From Families Through Child Support Program. Historically, similar to CalWORKs cases, the federal government required states to—where appropriate—refer parents whose children have been removed from the home and placed into foster care to the child support program. The purpose of referring these federal Title IV-E (foster care) cases to the state child support program was to recoup child support payments to repay Title IV-E costs. Historically, the federal government required states to determine whether these referrals were appropriate on a case-by-case basis. (This requirement recently was changed, which we describe later in this section.) Under this prior federal guidance and corresponding state law, DSS established regulations directing local child welfare agencies to determine on a case-by-case basis whether it was “in the best interests” of the child to have a case referred to the local child support agency and what factors to consider in making that determination. Specifically, the regulations outlined circumstances when it was not in the best interest of the child that a child support referral be made. In particular, regulations focused on whether referring a family who is actively seeking to reunite with their child—meaning they are receiving family reunification (FR) services—would pose a barrier to reunification efforts.

Updated Federal Guidance Allows States to Establish Automatic and Across-the-Board Exemptions to Referrals to Child Support Program. A growing body of research has found that when low-income families receiving FR services are required to pay child support payments, this could pose a financial barrier negatively impacting the families’ child welfare outcomes, including compromising reunification efforts. In light of the research, in June 2022, the federal government updated its guidance around child support referrals for families involved with Title IV-E programs. Specifically, the federal government withdrew the prior guidance directing Title IV-E agencies to assess cases for referral on a case-by-case basis, replacing it with guidance encouraging child welfare agencies to implement across-the-board policies. The guidance further specifies that states’ policies should require a referral to child support agencies only in very rare circumstances while carefully considering the impact of referring a family when the child is placed out of home and the family is receiving reunification services.

Recent State Law Also Aims to Limit Child Support Referrals for Foster Care Cases. Chapter 755 of 2022 (AB 1686, Bryan) requires DSS to update regulations to instruct local child welfare agencies, in making the determination of whether it is in the best interests of the child to refer a case to the LCSA, to presume that the payment of support by the parent “is likely to” pose a barrier to FR.

Implementation of New State Policy

DSS Updated Policy to Align State Referral Practices With New Federal Guidance and State Law. In March 2023, DSS issued a letter to counties updating the state’s policies. The letter communicated a number of updates:

• Effective January 1, 2023, DSS instructs that counties shall no longer refer parents, whose children have been removed from the home and who are receiving child welfare services, to the state child support program. “Receiving child welfare services” here refers to cases where FR services are being received or have been terminated; a parent has refused reunification services; or cases that are in any other related program, such as family maintenance or legal guardianship.

• The only exception to this new policy is if a parent’s annual income is greater than $100,000 or 400 percent of the federal poverty level, whichever is greater, and the local child welfare agency determines that a referral to the state child support program will not pose a barrier to reunification.

• As of January 1, 2023, active foster care cases will not accrue new debt.

• Although no new debt will accrue for these cases, debt that has already accrued will remain. Former foster care cases with outstanding debts also would remain. DSS will work to provide additional guidance to address the issue of arrears.

DCSS Communicated Updates to LCSAs. Local child welfare agencies are responsible for changing their practices in terms of when they deem it appropriate to refer foster care cases to the state child support program. However, for cases that have been/will be referred by local child welfare agencies to LCSAs, LCSAs are responsible for implementing other parts of DSS’s new guidance. To that effect, DCSS issued a series of letters to LCSAs in August through October 2023 with updated guidance and instructions. Through the letters, DCSS directed LCSAs to review any new foster care case referrals prior to beginning enforcement to ensure they meet DSS’s exemption policy. In addition, DCSS directed LCSAs to cease enforcement of current support orders for cases existing prior to 2023. Regarding those existing cases that previously accrued arrears, DCSS has instructed LCSAs to determine whether or not those debts are collectible. (DCSS anticipates this process may be completed within the next year, but there is no specific time line for making the uncollectible determinations.)

Changes to Foster Care Referrals and Enforcement Will Result in Lower General Fund Revenue of Around $8 Million in 2024-25. DCSS collected $23.7 million in child support collections from approximately 43,000 foster care cases (including Kinship Guardianship Assistance Payment and Approved Relative Caregiver cases) in the 2022 federal fiscal year. As a result of the new state practices around foster care case referrals to child support, DCSS estimates that collections from these cases will ramp down over the next few years. Specifically, DCSS estimates a reduction in the current year of $5.4 million and $16.1 million in the budget year. Of these revenues, approximately half would have been recouped by the state to offset state/local costs of foster care, while half would have been recouped by the federal government. Given that the state’s new policies are in line with the updated federal guidance, the state is not responsible for backfilling the federal share.

LAO Comments

Issue of Arrears Yet to Be Addressed by DSS. As noted above, the March 2023 guidance from DSS does not address how the state intends to handle child support debt for foster care cases that accrued prior to January 1, 2023. (However, as noted above, DCSS has directed LCSAs to begin the process of determining whether these arrears are uncollectible.) The Legislature may wish to provide input around this issue, and/or inquire with the administration as to the anticipated time line for providing any further guidance.

Funding for LCSAs

Background

LCSA Administrative Funding Methodology Created in 2019-20. The 2019-20 budget included a new methodology to determine the appropriate annual funding amount for each LCSA. The underlying approach of the methodology is to estimate the amount of funding each LCSA needs to achieve staffing levels in line with the target caseload ratio considering local staffing costs. The current target ratio is 185.4 cases per full-time equivalent position statewide. In setting the target staffing level, the administration averaged enforcement, management, and support staff levels in place as of 2018. The target also was informed by a 2018 workload study conducted in 15 LCSAs. Those LCSAs with funding below these target levels are considered “underfunded,” while those with funding above these target levels are considered “overfunded.” Roughly 30 LCSAs have been determined to be underfunded according to the methodology.

Implementation Updates

DCSS Annually Tracks Underfunded LCSAs According to Methodology. Since 2019-20, DCSS has updated its LCSA funding estimates every year to reflect the most recent caseload levels and LCSA salary and benefit costs (which are negotiated and established by counties). As a result of the methodology, estimated LCSA funding needs increase (or decrease) when caseload or LCSA salary and benefit levels increase (or decrease). So far, estimated LCSA funding needs have increased each year.

Cumulative $51.4 General Fund Augmentations Provided to LCSAs Since 2019-20. Since the funding methodology was implemented, DCSS has received a few augmentations for LCSA administrative costs: $19.1 million General Fund ($57.3 million total funds) in 2021-22, $20.1 million General Fund ($59.1 total funds) in 2022-23, and $12.2 General Fund ($35.8 million total funds) in 2023-24. (DCSS also received a 2019-20 augmentation of $19.1 million General Fund for LCSAs, but this was eliminated in 2020-21 due to the anticipated budget shortfall at the onset of the pandemic.) The 2023-24 increase represented only half of DCSS’s annual calculated amount needed for full LCSA funding under the methodology. This lower amount was provided essentially to act as an interim cost-of-living adjustment during a budget year when the state was facing a budget problem.

Governor’s Budget Does Not Propose New Augmentation in 2024-25. Given that the state again faces a significant General Fund budget problem in 2024-25, the Governor’s budget does not include a proposal to provide LCSA administrative funding increases in the budget year.

LAO Comments

No Longer Collecting on Foster Care Payments Reduces Caseload. As a result of implementing the state’s new policy around foster care case referrals to LCSAs, DCSS estimates that LCSAs should receive far fewer new foster care referrals going forward. Ultimately, this could contribute to overall lower caseloads, meaning LCSAs would need fewer staff to reach the target staffing ratios. The full extent of the caseload reduction likely will not be fully realized for a few years, however, and the issue of how to address arrears for foster care cases remains to be determined.

Future Funding Methodology Considerations. The funding methodology is likely to result in increased General Fund support in the future if the Legislature wishes to maintain a standard staffing ratio as well as account for locally bargained wage and benefit increases. In recent years, however, LCSAs have not spent their full allocations. Given the likelihood of continued budget problems in the future, the Legislature may wish to examine what funding level—accounting for recent policy changes—would be warranted.

Budget Language Related to Overpayments

Proposed Language Would Allow DCSS to Address Overpayment of Support. As part of the Governor’s budget proposal, the administration has proposed statutory amendments related to overpayments from the Child Support Trust Fund. Specifically, the language would allow DCSS to adopt regulations around efforts to recover any overpayment of child support collections to CalWORKs families. “Overpayment” according to this language refers to any amount of child support that is disbursed as a result of fraud, an instrument backed by insufficient funds, or other situations wherein the full monthly support amount for a family has not actually been provided by the noncustodial parent making the payment. In these cases, DCSS has indicated the proposed regulations would seek to take back the overpaid amount from the recipient custodial parent. In cases where the recipient does not authorize the return of the overpayment, DCSS would seek to use General Fund savings from other areas of the budget temporarily to backfill the overpaid amount in the Child Support Trust Fund. These actions are intended to allow DCSS to ensure that the Child Support Trust Fund—which is essentially the state’s checking account for child support payments—does not incur a negative balance.

LAO Comments

We are currently working to better understand the Child Support Trust Fund challenges caused by overpayments. In evaluating this proposal, some key questions the Legislature may wish to ask the administration include:

• Are there administration or enforcement costs associated with efforts to recover overpayments? What are those costs?

• What data are available on the reasons for overpayments?

• Are there efforts in place to try to limit overpayments before they occur? What are those efforts?

• If recipients of overpayments are not able to remit those funds, how will DCSS address any remaining shortfall in the Trust Fund?