LAO Analysis of the 1997-98 Budget Bill
Health and Social Services Departmental Issues 1-b

    1. Department of Mental Health (4440)
        1. New Proposition 98 Funds Should Be Allocated According to Local Education Agency Priorities
        2. Security Plan for Napa State Hospital Is Needed
    2. Employment Development Department (5100)
        1. Federal School-to-Work Grant Should Be Included in Budget
    3. Aid to Families with Dependent Children/Temporary Assistance For Needy Families (5180)
      1. Federal Welfare Reform
        1. Federal Legislation Makes Major Changes to Welfare Programs
      2. Current-Year Update of AFDC/TANF Program
        1. Major Changes in 1996-97
      3. 1997-98 Budget Issues
        1. Caseload Projection is Overstated
        2. Budget Proposes To Continue Past Reductions And Eliminate Grant Reduction Exemptions
        3. Elimination of Statutory Exemptions to Grant Reductions--Budget Internally Inconsistent
      4. Governor's Welfare Reform Initiative
      5. Governor Proposes to Redesign the AFDC/TANF Program
        1. Comments on the Governor's CalTAP Proposal
        2. General Assistance
        3. Governor Proposes Augmentation for County Training
      6. Child Support Enforcement Program
        1. Compliance/Performance Review Process Needs Revision
        2. Need Additional Information on Child Support Commissioner Proposal
        3. Elimination of $50 Child Support Disregard--Budget Internally Inconsistent
      7. AFDC--Foster Care
        1. Budget Proposes Funds for County Juvenile Probation Facilities

Department of Mental Health

(4440)

The Department of Mental Health (DMH) directs and coordinates statewide efforts for the treatment of mental disabilities. The department's primary responsibilities are to (1) administer the Bronzan-McCorquodale and Lanterman-Petris-Short Acts, which provide for the delivery of mental health services through a state-county partnership and for involuntary treatment of the mentally disabled, (2) operate four state hospitals and the Acute Psychiatric Program at the California Medical Facility at Vacaville, and (3) administer community programs directed at specific populations.

The state hospitals provide inpatient treatment services for mentally disabled county clients, judicially committed clients, and mentally disordered offenders and mentally disabled clients transferred from the California Department of Corrections (CDC) and the California Youth Authority.

The budget proposes $1.2 billion from all funds for support of DMH programs in 1997-98, which is an increase of 5 percent over estimated current-year expenditures. The budget proposes $544.7 million from the General Fund in 1997-98, which is an increase of $62.2 million, or 13 percent, above estimated current-year expenditures from this funding source. This increase is primarily due to four budget adjustments: an increase in the Judicially Committed/Penal Code patient population in the state hospitals ($10.7 million); a transfer of administrative responsibility for specialty mental health professional and nursing facility services from the Department of Health Services to the counties, through the DMH ($27.1 million); an increase in funding for managed care to reflect changes in the number of beneficiaries and increased costs ($12.9 million); and expansion of a coordinated service delivery system for children's mental health services ($9.9 million).

New Proposition 98 Funds Should Be Allocated According to Local Education Agency Priorities

We recommend deleting the proposed General Fund augmentation of $3,068,000 ($3 million Proposition 98) for the Early Mental Health Initiative (EMHI) so that Proposition-98 funds can be made available for expenditure according to the priorities of local education agencies. (Reduce Item 4440-102-0001 by $3,000,000 and Item 4440-001-0001 by $68,000.)

We withhold recommendation on the remaining $12 million budgeted to continue the EMHI, pending submission of the statutorily required program evaluation.

The EMHI awards three-year grants to local education agencies for projects that provide school-based early mental health intervention and prevention services for pupils in grades K-3 who are experiencing mild to moderate school adjustment problems. Examples of these problems are "acting-out," withdrawal from school activities, and inattentiveness. The program was established by Chapter 757, Statutes of 1991 (AB 1650, Hansen). It is funded by $12 million from the General Fund (Proposition 98 funds) in the current year to support 217 programs in the schools. The budget proposes a $3 million increase in local assistance from Proposition 98 funds and an increase of $68,000 for state administration in 1997-98 to support an additional 57 programs.

Augmentation from Proposition 98 Funds. In the K-12 education chapter of this Analysis,kÝrecommend that the Legislature delete funds for most new and expanded K-12 categorical programs that do not address a problem that requires state intervention. Giving schools flexibility to meet local educational priorities should take precedence over most increases in state-directed programs. Accordingly, we recommend that the proposed $3 million (Proposition 98) augmentation for expansion of the EMHI Program and the associated administrative costs ($68,000 non-Proposition 98) be deleted from the department's budget. Because the Proposition 98 funds will remain available for expenditure, this will result in a General Fund savings of $68,000.

Program Evaluation. The EMHI's enabling legislation (AB 1650) required an evaluation of the effectiveness of the EMHI grants by June 1994. The act further specifies that the evaluation is to be based on a comparison between the EMHI pupils and a group that does not participate in the program. The evaluation has not been submitted to the Legislature, but the DMH indicates that the report has been completed by the evaluator and is currently being reviewed by the department. We therefore withhold recommendation on the $12 million budgeted to continue the EMHI in 1997-98, pending submission of the program evaluation.

Security Plan for Napa State Hospital Is Needed

We withhold recommendation on $1.4 million requested for 31 additional peace officer positions at Napa State Hospital, pending submission of a security plan that justifies the need for these positions.

The budget proposes $1.4 million from the General Fund in 1997-98 to fund 31 peace officers and related operating expenses, including four patrol cars, at Napa State Hospital (NSH). These staff are to provide security for a projected increase in Judicially Committed/Penal Code (JC/PC) patients. In the past, the JC/PC patients at NSH have been classified as minimum security patients. However, the additional 251 JC/PC patients are expected to be primarily higher security patients. As a result, the department indicates that it will have to upgrade the level of security at NSH. To accomplish this, the DMH proposes to add the additional peace officers and build a high security perimeter fence and other security infrastructure, which would be completed in 1998-99 (please see the Capital Outlay chapter of this Analysis).

While we agree that additional security is necessary at NSH, we note that the request for 31 peace officers is not based on an analysis of the level of security needed to accommodate the increase in the number of JC/PC patients in the budget year. Instead, the department's request is based on half the number of positions needed to staff the 11 guard towers that are proposed to be built and completed in 1998-99. (The department indicates that it will request another 56 peace officer positions in 1998-99.)

We have requested the DMH to provide a security plan that would indicate how the proposed new positions would be used in 1997-98 and how this would be related to the security needs of the hospital during this period when there will be no fence or guard towers. We note that in our analysis of the department's capital outlay budget, we are recommending approval of the fence but not the guard towers. We are also recommending a way to accelerate construction of the fence, although completion of the project still would not occur until after 1997-98. Thus, there is a need for a security plan indicating how peace officers will be deployed during 1997-98, irrespective of the action that is taken on the construction of the fence or, more specifically, the guard towers.

Because we had not received the department's security plan at the time this analysis was prepared, we withhold recommendation on the $1.4 million requested for the 31 additional peace officers.




Employment Development Department

(5100)

The Employment Development Department (EDD) is responsible for administering the Employment Services (ES), the Unemployment Insurance (UI), and the Disability Insurance (DI) Programs. The ES Program (1) refers qualified applicants to potential employers; (2) places job-ready applicants in jobs; and (3) helps youth, welfare recipients, and economically disadvantaged persons find jobs or prepare themselves for employment by participating in employment and training programs.

In addition, the department collects taxes and pays benefits under the UI and DI Programs. The department collects from employers (1) their UI contributions, (2) the Employment Training Tax, and (3) employee contributions for DI. It also collects personal income tax withholdings. In addition, it pays UI and DI benefits to eligible claimants.

The budget proposes expenditures totaling $5.8 billion from various funds for support of the EDD in 1997-98. This is a decrease of $165 million, or 2.8 percent, from estimated current-year expenditures, primarily due to a decrease in projected UI and DI benefits. The budget proposes $23.6 million from the General Fund in 1997-98, which represents the same level of funding as in the current year.

Federal School-to-Work Grant Should Be Included in Budget

We recommend that the $43.8 million in federal funds that the state expects to receive from the School-to-Work Program implementation grant in 1997-98 be included in the budget, in order to more accurately reflect spending in the budget year. The department should be prepared to discuss the plan during the budget hearings.

School-to-Work is a federally funded program in which states are awarded grants to prepare students to enter the workforce. The department was notified in November 1996 that California will receive $21.9 million in the current year, $43.8 million in the budget year, and additional funds in subsequent years (for a total of $131.4 million) to implement the program. Most of these funds will be allocated to local entities, through a competitive bid process, for school-to-work projects such as activities that link school-based and work-based learning.

The budget includes the $21.9 million in the current year but not the $43.8 million that is anticipated for 1997-98. In order to more accurately reflect spending in 1997-98, we recommend that the budget be amended accordingly.

We also note that these funds will be expended in accordance with a state plan that has been approved by the federal administration. While this places some limitations on the Legislature's discretion in terms of modifying the department's specific plan for allocating these funds, it is important for the Legislature to be apprized of how these funds might be used and how the School-to-Work projects interact with other vocational and job training programs and issues such as welfare reform. The department should therefore be prepared to discuss this during budget hearings.




Aid to Families with

Dependent Children/

Temporary Assistance For

Needy Families

(5180)

The Aid to Families with Dependent Children (AFDC) program provides cash grants to families and children whose incomes are not adequate to meet their basic needs. Families are eligible for the AFDC-Family Group (AFDC-FG) program if they have a child who is financially needy due to the death, incapacity, or continued absence of one or both parents. Families are eligible for grants under the AFDC-Unemployed Parent (AFDC-U) program if they have a child who is financially needy due to the unemployment of one or both parents. Under federal welfare reform, the AFDC (FG&U) program is referred to as Temporary Assistance for Needy Families, or TANF.

Children are eligible for grants under the AFDC-Foster Care (AFDC-FC) program if they are living with a foster care provider under a court order or a voluntary agreement between the child's parent and a county welfare or probation department.

The budget proposes expenditures of $6.6 billion ($2.5 billion General Fund, $0.8 billion county funds, and $3.3 billion federal funds) for the AFDC program in 1997-98. This is a decrease of 5.5 percent (8.3 percent General Fund) from estimated expenditures for the current year. This decrease is due primarily to proposed grant reductions, proposed changes in the grant structure, and the enactment of federal welfare reform.

Federal Welfare Reform

Federal Legislation Makes Major Changes to Welfare Programs

Federal welfare reform repeals and amends several major public assistance programs in California. We summarize the key features of this legislation.

On August 22, 1996 the President signed into law H.R. 3734--The Personal Responsibility and Work Opportunity Reconciliation Act of 1996. The act consists of nine titles, and we summarize the major provisions.

Title I: Temporary Assistance For Needy Families. Title I of the act eliminates federal requirements in the (1) Aid to Families with Dependent Children (AFDC) program (Family Group and Unemployed Parent components), (2) Job Opportunities and Basic Skills program (the GAIN program in California), and (3) Emergency Assistance Program. Federal funding for these programs is consolidated into a TANF block grant. Major provisions include the following:

Title II: SSI/SSP. Benefits for certain relatively less disabled children are eliminated. Previously, children could be eligible on the basis that an impairment exists that precludes them from performing age-appropriate activities. In California, approximately 10,500 children are likely to lose benefits due to this provision; however, about 75 percent of these children are expected to qualify for AFDC/TANF. (Provisions affecting noncitizens' eligibility for the program are summarized in Title IV.)

Title III: Child Support Enforcement. Title III of the Act includes numerous provisions related to child support enforcement. Major provisions include:

Title IV: Restricting Benefits for Noncitizens. Title IV makes immigrants that arrived before August 22, 1996 (with exceptions for refugees, veterans, asylees and those who have worked for ten years) ineligible for SSI and Food Stamps. States can elect to deny TANF and Social Services Block Grant (Title XX) benefits and non-emergency Medicaid services to such immigrants. Immigrants arriving in the United States after August 22, 1996 (with essentially the same exceptions) are ineligible for all means-tested federal benefits for five years, except for emergency medical services and certain child nutrition and education programs. Figure 19 (see page 76) summarizes the major provisions affecting legal and illegal immigrants.

Title V: Child Protection. Title V extends the period for allowing states to receive enhanced federal matching funds for the development of statewide automated child welfare information systems. This title also requires states to consider giving preference for kinship placements, provided that the relative meets state standards for child protection.

Title VI: Child Care. Title VI reauthorizes the Child Care and Development Block Grant (CCDBG) and consolidates previous AFDC child care programs (AFDC/JOBS Child Care, At-Risk Child Care, and Transitional Child Care) into an expanded CCDBG. Major provisions include:

Title VII: Child Nutrition Programs. Title VII reforms the reimbursement rate structure of the family day care home component of the Child and Adult Care Food Program in order to target benefits to low-income children and to achieve savings. Additionally, it gives the state the option to deny certain child nutrition programs to illegal immigrants and eliminates start-up and expansion grants for school breakfast and summer food service programs.
Figure 19
Federal Welfare Reform (H.R. 3734)

Title IV: Restricting Benefits for Noncitizens

Major Provisions

Restrictions on Federally Funded Programs
Legal noncitizens in U.S. prior to enactment
  • Ineligible (except as noted below) for SSI and Food Stamps.
  • States have the option to deny benefits under the TANF program (formerly AFDC), the Title XX Social Services Block Grant, and nonemergency Medicaid.
Legal noncitizens arriving after enactment
  • Ineligible for all federal means-tested federal benefits for five years. (Certain child nutrition and education programs are excepted from this ban as well as the exceptions noted below.)
Illegal immigrants
  • Ineligible for all federal benefits, except as noted below.
Restrictions on State- and Local-Only Funded Programs
Legal noncitizens
  • States are authorized to deny state-only funded public benefits to legal noncitizens (except as noted below).
Illegal immigrants
  • Ineligible (except as noted below) for all state and local benefits.
  • States may elect to provide eligibility for illegal immigrants through state laws enacted after enactment of H.R. 3734.
Exceptions to Restrictions
Individuals
  • Those serving in the armed forces, veterans, and their respective dependents.
  • Refugees and asylees within the first five years of U.S. residency.
  • Those who have worked 40 quarters.
Programs
  • Emergency medical services, emergency noncash disaster relief, treatment for communicable disease, immunizations, certain housing programs, and other programs specified by the US Attorney General that provide basic in-kind services without a means test, such as soup kitchens.
Sponsorship for Immigrants Arriving After Enactment of H.R. 3734
Sponsorship provisions
  • Extends period of time for deeming sponsor's income until noncitizen has worked 40 quarters or obtained citizenship.
  • Extends deeming provisions to all federal means-tested programs.
  • Eliminates certain deemed income exemptions.
  • Makes sponsorship a legally binding requirement.
  • Authorizes government agencies to recoup from sponsors most governmental benefits paid to immigrants.

Title VIII: Food Stamps and Commodity Distribution. This title reduces Food Stamp benefits, places limitations on the receipt of Food Stamps for most able-bodied recipients who have no children, and modifies regulations concerning electronic benefit transfer programs. More specifically, the major provisions include:

Title IX: Miscellaneous. This title reduces the Social Services Block Grant (Title XX) by about 15 percent. During 1996-97, California is using its Social Services Block Grant funds primarily to support (1) regional centers, administered by the Department of Developmental Services; and (2) the In-Home Supportive Services program, administered by the Department of Social Services.

Current-Year Update of AFDC/TANF Program

Major Changes in 1996-97

Grant Reductions. The 1996 Budget Act assumed General Fund savings of $137 million from implementation, in October 1996, of the previously enacted 4.9 percent statewide grant reduction and the 4.9 percent regional grant reduction (in the low-cost counties). Implementation of these reductions required either a waiver of federal regulations or a change in federal law providing relief from the federal maintenance-of-effort (MOE) requirement. Federal welfare reform provided the necessary MOE relief, upon federal approval of California's Temporary Assistance For Needy Families state plan. The state plan was approved in November 1996, permitting implementation of the 4.9 percent grant reductions in January 1997. The Governor's budget reflects a revised savings of $83 million in 1996-97 from the statewide and regional 4.9 percent grant reductions.

Budget legislation provides that the statewide 4.9 percent reduction sunsets on October 31, 1997.

Cost-of-Living Adjustment (COLA). Budget legislation extends the suspension of the statutory COLA for AFDC/TANF grants through October 1997. This results in estimated General Fund savings of $10.1 million in 1996-97.

Pregnancy Benefits. Budget legislation limits eligibility for the state-only AFDC/TANF pregnancy benefits to recipients who are eligible for the Cal Learn program (teen parents who have not graduated from high school.) This results in estimated General Fund savings of $10.5 million in 1996-97 and $13.3 million in 1997-98.

1997-98 Budget Issues

Caseload Projection is Overstated

We recommend reducing the General Fund amount budgeted for AFDC/TANF grants by $117 million in 1996-97 and $161 million in 1997-98 because the caseload is overstated. (Reduce Item 5180-101-0001 by $160,905,000.)

The Governor's budget assumes that caseloads will decline by 1.9 percent in 1996-97 and 0.9 percent in 1997-98. In making its projections of the AFDC/TANF caseload in 1996-97 and 1997-98, the department reviewed the trend of actual caseloads through June 1996. We note that during the first five months of 1996-97 (beginning in July 1996), the AFDC/TANF caseload was 3.8 percent below the same period during 1995-96. The downturn in welfare caseloads is due to several factors including an improving economy with lower unemployment, lower birthrates for young women, and a decline in legal immigration to California. Based on this recent information, and using our model for projecting AFDC/TANF caseloads, we estimate that the caseload will decline by 4.2 percent in 1996-97 and 2.1 percent in 1997-98. Based on these projections, we estimate that General Fund expenditures for AFDC/TANF grants are overstated in the budget by $117 million in the current year and $161 million in 1997-98. Accordingly, we recommend that the budget be reduced to reflect these estimates.

Budget Proposes To Continue Past Reductions And Eliminate Grant Reduction Exemptions

The Governor proposes to (1) make permanent the statewide 4.9 percent grant reduction; (2) delete the statutory cost-of-living adjustment' and (3) eliminate exemptions for certain persons from previously enacted grant reductions, resulting in General Fund savings or cost avoidance of $294 million. We review the Governor's proposals and comment on them.

The budget contains three separate proposals that would have the effect of reducing AFDC/TANF grants below the levels required by current state law. These proposals are to (1) make permanent the statewide 4.9 percent grant reduction enacted in 1995-96 and subsequently extended through October 1997; (2) delete the requirement to resume the statutory COLA, which has been suspended since 1991-92; and (3) eliminate exemptions for certain persons from previously enacted grant reductions. As Figure 20 shows, these changes result in combined General Fund savings and cost avoidance of $294 million.
Figure 20
Governor's AFDC/TANF Grant Proposals

General Fund Savings

1997-98

(Dollars in Millions)
Proposal Amount
Make permanent the statewide 4.9 percent grant reduction $160
Delete the requirement to restore the statutory COLA 85
Eliminate grant reduction exemptions:
Statutory exemptions 11
Additional exemptions imposed by DHHS waiver process 38
Total $294


Budget Proposes to Make Temporary Reduction Permanent. Budget trailer bill legislation for 1996-97 (SB 1780, Committee on Budget and Fiscal Review) extended the 4.9 percent statewide grant reduction (enacted in 1995) through October 1997. The Governor proposes to make this reduction permanent, for a General Fund cost avoidance of $160 million in 1997-98.

Budget Proposes Deleting Requirement to Resume Statutory COLA. SB 1780 also extended the suspension of the statutory COLA through October 1997. Deleting the requirement to restore the COLA (estimated at 2.6 percent for 1997-98) would result in a General Fund cost avoidance of $85 million in 1997-98.

Budget Proposes Eliminating All Exemptions to Certain Previously Enacted Grant Reductions. In 1992-93, 1993-94, and 1994-95, budget legislation reduced AFDC grants by 5.8, 2.7, and 2.3 percent respectively. There are two types of exemptions to these grant reductions. First, there are statutory exemptions pursuant to Chapter 307, Statutes of 1995 (AB 908, Brulte). The AB 908 exemptions are for cases in which each adult caretaker is (1) receiving Supplemental Security Income (SSI) or In-Home Supportive Services (IHSS); (2) a non-needy caretaker relative; or (3) disabled and receiving State Disability Insurance, or Workers' Compensation Temporary Disability benefits. The Governor proposes to eliminate these exemptions (about 7 percent of AFDC/FG cases) on January 1, 1998, resulting in General Fund savings of $11 million in 1997-98.

Second, there are additional exemptions that were imposed on California by the federal Department of Health and Human Services in order to obtain federal approval of a waiver request by the state. These expanded exemptions are (1) teen parents in high school, (2) cases in which each adult caretaker has been determined to be temporarily incapacitated, and (3) cases in which the adult caretaker stays home to care for other household members who are ill or incapacitated. Elimination of these exemptions (about 18 percent of AFDC cases) on January 1, 1998 would result in General Fund savings of $38 million in 1997-98.

Comments on the Governor's Proposals. As indicated, the Governor's proposals will result in significant savings. To assist the Legislature in evaluating these proposals, we offer the following comments and findings on how the proposals would affect the income of nonworking families and how they would affect the financial work incentives for AFDC/TANF recipients.

Impact on Families. Figure 21 shows how both current law provisions and the Governor's proposals would affect monthly grants for a family of three (assuming the family is not exempt from past grant reductions). As the figure shows, the proposed maximum grant in Region 1 (counties with high rental costs) is $565, or $45 below the level required by current law in 1997-98. Under the Governor's proposal, the combined maximum monthly grant and food stamp allowance is $826 (76 percent of the poverty level), or $31 below the level required by current law ($857, 79 percent of poverty). In Region 2, the proposed grant level is $538, or $42 below the level required by current law. When combined with food stamps, total benefits under the Governor's proposal are $807 (75 percent of poverty), which is $29 less than the level required by current law ($836, 77 percent of poverty).
Figure 21
AFDC/TANF Maximum Monthly Grant

and Food Stamps Family of Three

Current Law and Governor's Proposal

1997-98

Current

Law

Governor's

Proposal

Change From

Current

Law

Region 1: High-cost counties
January 1, 1997 actual grant $565
1997-98 grant assuming:
Make 4.9 percent statewide reduction

permanent and delete statutory COLA

-- $565
Restore 4.9 percent statewide grant

reduction 11-1-97

594 --
Restore COLA (2.56 percent) 11-1-97 610 --
Food Stamps 247 261
Totals $857 $826 -$31
Region 2: Low-cost counties
January 1, 1997 actual grant $538
1997-98 grant assuming:
Make 4.9 percent statewide reduction

permanent and delete statutory COLA

-- $538
Restore 4.9 percent statewide grant

reduction 11-1-97

565 --
Restore COLA (2.56 percent) 11-1-97 580 --
Food Stamps 256 269
Totals $836 $807 -$29


Figure 22 (see page 82) summarizes how both current law and the Governor's proposal would affect monthly grants for a family of three that is exempt from previously enacted grant cuts. Under the Governor's proposal, the combined maximum monthly grant and food stamp allowance would be $80 less than under current law in Region 1 and $77 less than under current law in Region 2. Under the Governor's proposal, recipients would be at about 75 percent of the poverty level. Under current law, recipients would be at about 83 percent of poverty.
Figure 22
AFDC/TANF Monthly Grant and Food Stamps

Family of Three Exempt from Previous Grant Reductions

1997-98

Current

Law

Governor's

Proposal

Change From

Current Law

Region 1: High-cost counties
January 1, 1997 actual grant $631
1997-98 grant assuming:
Eliminate exempt status 1-1-98 -- $565
Restore 4.9 percent statewide grant

reduction 11-1-97

663 --
Restore COLA (2.56 percent) 11-1-97 680 --
Food Stamps 226 261
Totals $906 $826 -$80
Region 2: Low-cost counties
January 1, 1997 actual grant $601
1997-98 grant assuming:
Eliminate exempt status 1-1-98 -- $538
Restore 4.9 percent statewide grant

reduction 11-1-97

631 --
Restore COLA (2.56 percent) 11-1-97 648 --
Food Stamps 236 269
Totals $884 $807 -$77


Impact on the Work Incentive. Under current law, there are two work incentives in the AFDC (FG) grant structure: (1)"fill the gap" and (2) the "$30 and one-third disregard." Under "fill the gap," the difference between the need standard (the benchmark for calculating grants) and the maximum grant represents an amount that recipients can earn without these earnings reducing their grant. For a family of three, this gap is $170 per month (need standard of $735 less the maximum grant of $565). Under the "$30 and one-third disregard" the first $30 of earned income plus one-third of remaining earnings are not counted as offsets to the grant.

Using the 1996-97 grants as the reference point, the effect of current law would be to increase maximum grants. Raising maximum grants could reduce the work incentive because it reduces the "gap." We note, however, that the interim evaluation of the work incentive provisions enacted in 1991-92--a combination of grant reductions and expansion of the $30 and one-third disregard--indicates that these changes in work incentives had no significant impact on the percent of AFDC (FG) parents who worked. Thus, it could be argued that these preliminary results suggest that raising grants (pursuant to current law) may not significantly reduce the percent of AFDC/TANF parents who are working.

Elimination of Statutory Exemptions to Grant Reductions--Budget Internally Inconsistent

We recommend a technical adjustment to reduce proposed General Fund expenditures for AFDC/TANF grants by $10.8 million because the budget does not reflect the savings from the Governor's proposal to eliminate the statutory exemptions from previously enacted grant reductions. We also comment on the proposal. (Reduce Item 5180-101-0001 by $10,822,000.)

As discussed above there are two types of exemptions to previously enacted grant reductions: (1) the statutory exemptions pursuant to AB 908, and (2) the additional exemptions imposed by the federal government in granting a state waiver. In the current year, an exempt family of three receives a monthly grant of $631, compared to $565 for a non-exempt family of three (in the high-cost counties).

The administration proposes to eliminate all exemptions effective January 1, 1998. The budget, however, includes funding for the statutoryexemptions for all of 1997-98. Without regard to the merits of this proposal, we recommend that the amount proposed for AFDC/TANF grants be reduced by $10.8 million (General Fund) in order to make the budget consistent with its own assumptions.

Whether to eliminate the statutory exemptions and/or the additional exemptions imposed by the federal government is a policy issue for the Legislature. The principal rationale for the exemptions is that these cases face substantial barriers to employment and probably would not be able to compensate for grant reductions by working. An assessment of this proposal will involve balancing the benefits of budgetary savings against the adverse effects of lower grants for families who face substantial barriers to employment.

Governor's Welfare Reform Initiative

Governor Proposes to Redesign the AFDC/TANF Program

The Governor proposes to redesign the AFDC/TANF program in California, effective January 1, 1998. The proposal includes: benefit reductions according to specified time limits; a work/education/training requirement; modifications to the grant determination criteria; and paternity establishment requirements and penalties. We review the Governor's proposal and comment on it.

The Governor proposes legislation to replace the existing AFDC/TANF program with the California Temporary Assistance program (CalTAP), effective January 1, 1998, midway through the budget year. Key program changes include:

Program Flow. Following eligibility determination, counties would have the flexibility to meet temporary emergency needs of families (such as rent, car repairs, relocation expenses, or referrals to other assistance programs) for the purpose of diverting a family from aid. (Under current law, qualified applicants are eligible for Medi-Cal and child care benefits if they choose not to go on AFDC/TANF.) Families that go on aid would proceed to job club/job search for approximately three weeks. Adults unable to find employment would be assessed for employment readiness. An individual participation plan would be developed, which specifies how the 32-hour or 35-hour participation requirement would be met. After six months on aid, recipients who are not employed would have their grants reduced by 15 percent. These recipients would continue to receive the reduced grant for six months (eighteen months for those on aid prior to January 1, 1998), at which time they would be transferred to the safety net program.

Benefit Levels. Figure 23 shows the maximum monthly grant and food stamps allowance for a family of three in Region 1 (high rental-cost counties) and Region 2 (low rental-cost counties). For example, in Region 1, recipients (with no earnings)would have their total benefits reduced by $60 after six months and an additional $64 when they reach their time limit and transition to the safety net. The full safety net benefit--if counties do not reduce benefits to fund their administrative costs--would be approximately 65 percent of poverty in Region 1 and 63 percent of poverty in Region 2.

Support Services. To the extent funding is available, child care, transportation, and other work expenses would be provided to recipients to complete their participation plan. The child care "disregard" (which accounts for child care costs in the grant structure) would be replaced by a system of direct child care payments.

Program Administration. The state would set basic program elements such as eligibility, time limits, and maximum grant levels. Counties would administer the program pursuant to county plans that are subject to state review and approval. Counties would have the option of contracting with private firms for administration of the program but would remain responsible for their share of costs. Beginning in 1998-99, counties would receive funds for administration and employment/training services in the form of a block grant, if they satisfy unspecified maintenance-of-effort (MOE) requirements for local expenditures. Counties would continue to pay their share (5 percent) of non-federal costs for grants. Counties would be able to share in up to 25 percent of program savings. If the federal government assesses a penalty for noncompliance with federal requirements, the penalties would be passed on proportionally to counties that failed to meet the requirement, unless the state concludes that the failure was beyond the county's control.
Figure 23
California Temporary Assistance Program

Maximum Grants and Food Stamps

Family of Three

Region First 6 Months on Aida

After 6 Monthsa
1-Year/2-Year Safety Netb c
Region 1: High-cost counties
Grant $565 $480 $388
Food Stamps 261 286 314
Totals $826 $766 $702
Percent of Poverty 76% 71% 65%
Region 2: Low-cost counties
Grant $538 $457 $369
Food Stamps 269 293 315
Totals $807 $750 $684
Percent of Poverty 75% 69% 63%
aAssumes families meet their 32-hour or 35-hour participation mandate.
bSafety net benefit is paid in vouchers. Amounts shown assume that counties do not reduce benefits to cover administrative costs.
cFamilies on aid prior to January 1, 1998 move on to the safety net after two years on aid. Families coming on aid after January 1, 1998 move to safety net after one year on aid.


Entitlement Status. The administration indicates that the individual entitlement to benefits would be eliminated; however, it is not clear whether any provision would be made to appropriate additional funds in years when the caseload is higher than budgeted.

Fiscal Effects. Figure 24 (see page 88) summarizes the estimated General Fund fiscal effects of the CalTAP components. We note that the department has not provided any fiscal and caseload impact projections beyond the budget year.

Comments on the Governor's CalTAP Proposal

The CalTAP welfare reform initiative would implement time-limited reductions in benefit levels. This would increase the financial incentives for families to work and would result in state and county savings; however, it would appreciably reduce the income of needy families unless they are able to obtain employment within the time limits.
Figure 24
Governor's Proposed California

Temporary Assistance Program

General Fund Costs and Savings

1997-98

(Dollars in Millions)
Program Component Amount
Modified grant structure -$156
Expanded paternity establishment

requirements and penalties

-19
County training 79
Computer reprogramming 13
Employment services (GAIN) augmentation 80
Total -$3


Any welfare reform proposal must address at least three competing goals: provide support for children, establish incentives for parents to work, and control public costs. There are few easy answers in resolving the conflicts among these goals. In January 1997, we presented our approach to welfare reform in our policy brief, Welfare Reform in California: A Welfare-to-Work Approach (reprinted in The 1997-98 Budget: Perspectives and Issues). In the following discussion we describe the Governor's proposal in comparison to our approach and current law, and comment on the CalTAP proposal. Figure 25 summarizes the CalTAP proposal and our approach as they apply to AFDC/TANF recipients (families with children).

Time Limits. Time limits are an important component in both CalTAP and our Welfare-to-Work approach. In both cases, reaching the time limits result in benefit reductions rather than termination of aid; however the time limits are much shorter in the Governor's proposal.

Time limits will result in savings to the government, but these savings may be the result of actions that increase family income (that is, from obtaining employment) or decrease family income (that is, grant reductions from reaching the time limits). A consideration of time limits therefore involves balancing the potential advantages of the behavioral effects of these limits in bringing about increased employment against the potential adverse effects of reducing grants when recipients do not obtain jobs. In this respect, it is important to consider how many recipients might be subject to these time limits. According to the department's October 1995 AFDC Characteristics Survey, about 85 percent of recipients were on aid for more than one year, 70 percent for more than two years, and 35 percent for more than five years. Other studies have estimated that over 40 percent of persons receiving AFDC will eventually accumulate five years on aid.
Figure 25
California Temporary Assistance Program (CalTAP),

Legislative Analyst's Office Approach, and Current Law

AFDC/TANF Recipients (Families with Children)

Current Law CalTAP LAO Welfare-to-Work
Time Limits
  • No limit on eligibility.
  • After two years from commencing GAIN program, recipients must accept work slot (if offered) or their grant is reduced.
  • One year out of any two-year period for recipients entering after January 1, 1998.
  • Two years out of any three-year period for current recipients.
  • Five-year lifetime limit for cash assistance.
  • After time limit, recipients are eligible for noncash safety net described below.

Exemptions from Limit:

  • Non-needy caretaker relatives, minor parents, families with severely disabled parent or child.
  • Work requirement after two years on aid (see "services" below).
  • Five-year limit followed by safety net (described below).
  • Time is not counted when recipient is working 20 hours per week in a non-subsidized job.

Exemptions from Limit:

  • Families with relative or disabled caretaker, adult caretaker is disabled.

Extension when limit reached:

  • If jobs not available or medically verified illness or disability.
Safety Net
  • Not applicable.
  • Amount varies with family size--$388 for a family of three (Region 1). Will be less if counties fund administration from safety net allocation, or county plan calls for lower amount.
  • Non-cash (vouchers).
  • State will fund 100 percent of benefits equivalent to child-only case. Counties may pay for administration from these funds.
  • $300 for family of 2, $375 for family of 3, $450 for family of 4 or more.
  • Cash benefits.
  • Grant costs will be shared 75/25 state/ county.
  • Administrative costs 85/15 state/county.
Employment Preparation/Services
  • Only GAIN participants are required to engage in work-related activities.
  • Recipients must participate in 32 hours (35 hours for two-parent families) of work and/or county-approved education and training activities.
  • Proportional sanction for participation at less than required hours.
  • Family loses entire grant if participation is below 16 hours.
  • For first two years, required to participate in job search, training, education, treatment pursuant to case plan.
  • After two years, recipients must work 20 hours per week. Community service job provided if needed--increases to 25 hours in fourth year and 30 hours in fifth year.
  • Proportional sanction for participation at less than required hours.
Paternity Establishment
  • Recipients must provide all known information to assist in paternity establishment or their grant can be reduced by the portion for the adult.
  • Specific information is not required if applicants attest they do not have it.
  • Paternity must be established before adult can be included in the family's grant.
  • Failure to cooperate with paternity establishment (without good cause) results in ineligibility for entire family.
  • Same as current law.
Grant Structure
  • Families with earnings may "fill the gap" between the need standard and the maximum grant with no grant reduction.
  • About one-third of earnings are disregarded in calculating grants ("$30 and one-third disregard").
  • Eliminates all existing disregards, and replaces it with a new grant structure (lower grant for working recipients but increased incentive to move from part-time to full-time work).
  • Retains "fill the gap", but phases out "$30 and one-third disregard" within first two years of recipient's time in employment.


We note that these estimates assume a continuation of the AFDC program as it has operated in past years. It is important to keep in mind that welfare reform interventions--such as the GAIN program, community service jobs, and the time limits themselves--are designed with the intent of increasing the number of participants who obtain employment, thereby reducing the number of recipients who actually reach the time limit.

While several states are beginning to implement various forms of time-limited aid, no evaluations have been completed on such provisions. An interim report on Florida's time-limited welfare program should be available soon, but the findings will be preliminary.

After adjusting for the number of families that would be exempt from the time limits, we estimate that about 600,000 families potentially could be affected by a one-year limit, 500,000 by a two-year limit, and 250,000 by a five-year limit. The number that would actually reach these limits in the future depends on the success of the various welfare reform provisions in increasing the level of employment among recipients.

Several factors affect a recipient's prospects of obtaining a job. One of these is job availability. By the end of 1999, approximately 600,000 cases could reach their CalTAP time limit. We estimate that the California economy will create approximately 330,000 new jobs per year for the next three years. Based on the current pattern of job creation, less than half of these jobs (each year) would be at a skill level where most welfare recipients could realistically expect to compete. These data suggest that there will be considerable competition for these and other job openings, and that we cannot expect all existing welfare recipients to obtain jobs without some job loss on the part of others (in other words, an increase in the unemployment rate).

Safety Net. Families reaching the time limit would be eligible for the state-funded, county-administered safety net. Under CalTAP, safety net benefits must be paid in the form of vouchers or other types of non-cash assistance. The state would provide funding equivalent to a child-only case, but would not provide any additional funding for administration. Pursuant to their state-approved CalTAP plan, counties would have the flexibility to set (1) benefit levels lower than the equivalent of the child-only case, (2) income disregards (for working recipients), and (3) participation requirements. We note that by not providing separate funding for administration of the safety net, counties would have a fiscal incentive to reduce the level of aid to recipients in order to cover their administrative costs.

Eliminating cash benefits in the safety net program has two potential advantages. First, it makes the benefit package less attractive to recipients, thus increasing their incentive to work. Second, in cases where parents may have difficulty managing money, it may help to assure that most of the benefit will go toward meeting basic needs such as food and housing. We note, however, that providing benefits in voucher form results in additional administrative costs; and, as noted above, the counties would have a fiscal incentive to further reduce benefits in order to cover these additional administrative costs. We also note that inability to obtain employment within one or two years cannot be equated with inability to manage aid in the form of cash. We believe that most AFDC/TANF recipients are probably capable of handling cash.

The voucher proposal may stem from a concern that adult recipients with substance abuse or other personal problems may not use the grant to benefit their children. In this respect, we note that an alternative approach would be to give case managers the flexibility to provide aid in the form of vouchers in those cases where they believe it is in the best interest of the children.

Modified Grant Structure. The existing grant structure contains the following work incentives: (1) the $30 and one-third disregard, whereby about one-third of work earnings are disregarded in determining the amount of a recipient's income that offsets his or her grant and (2) the "fill-the-gap" grant structure, whereby recipients can earn the "gap" between their grant ($565, family of three) and the need standard ($735, family of three) without having their grant reduced. The Governor proposes to eliminate the current system of disregards and replace them with a single "work incentive." Working recipients would keep 54 percent of every dollar that they earn until they reach an income of $996 per month (full time work at the minimum wage). Earnings above $996 would reduce the grant payment on a dollar for dollar basis.

Compared to current law, the CalTAP provision results in lower levels of family income (grant plus earnings) for working recipients and others with income, regardless of the amount of income. As shown in Figure 26, combined grant and earnings under current law are always greater than under CalTAP. Thus, for welfare recipients who are not working, the CalTAP reduces the work incentive in comparison to current law. However, for recipients who are earning over about $400 per month, the CalTAP provides a greater incentive to earn more money because recipients retain 54 percent of additional earnings, compared to retaining about 33 percent under current law. Thus, for the policy objective of moving recipients into the work force, current law provides the stronger work incentive. However, if the policy objective is to motivate those with half-time earnings to increase hours toward full-time work, then CalTAP has the stronger work incentive for this segment of the caseload. We note, however, that in the latest survey (October 1995), only about 13 percent of AFDC cases reported earned income, and this includes full-time as well as part-time workers.

Services and Participation Requirements. As noted above, CalTAP would require able-bodied adults to participate for 32 hours per week (35 hours for one member of a two-parent family) in some combination of work and/or county-approved education and training activities.

County administrators would determine how this 32-hour or 35-hour requirement breaks down between the number of hours that recipients would be required to work, and the hours required in employment preparation activities. We note that the administration has proposed no guidelines for determining the mix of required work and employment preparation activity in meeting the work component of the requirement. Consequently, counties may vary considerably in how they determine this requirement. The combination of a fixed 32-hour or 35-hour participation requirement and a block grant allocation for services could lead to a situation where the work requirement is primarily a function of the amount of funds a county receives for services, rather than a function of an assessment of the recipient's prospects of obtaining and keeping a job. This could have significant consequences for the recipients, who will be sanctioned for not meeting the 32-hour (or 35-hour) requirement.

In this respect we note that the Governor's budget includes about $140 million in additional funds for employment preparation services in 1997-98, and earmarks $53 million for education of welfare recipients in the community colleges. This would not be sufficient to provide 32 hours of job search and training activities to all eligible recipients, if such activities were provided at a service level comparable to the GAIN program.

Paternity Establishment Provisions. For cases coming on aid after January 1, 1998, paternity must be established before the custodial parent is included in the household for purposes of calculating the family's grant. For a family consisting of a mother and one child, this represents a sanction of approximately 39 percent. For larger families, the sanction is between 10 and 20 percent.

The Department of Social Services estimates that each month 8,800 CalTAP applicants will need paternity establishment and will become subject to this sanction. The department assumes that paternity will be established in an average of seven months in 95 percent of the cases. For the remaining 5 percent, the department assumes that paternity will never be established. The department does not know the comparable rate of paternity establishment currently, but in our judgement 95 percent would be a very significant increase.

We make the following observations regarding this proposal:

  • The sanctions (reduced grants) would be imposed on those parents who are cooperating as well as those who are not cooperating. The sanctions would take effect immediately; whereas the department assumes that it would take seven months, on average, to establish paternity in those cases where the parent is "cooperating."

In summary, an assessment of this proposal will involve balancing the benefits of budgetary savings against the adverse effects of the sanctions on families, including those that are fully cooperating with paternity establishment requirements.

As an alternative to this policy, the Legislature could provide case managers with greater authority to make sanctions in cases where they have reason to conclude that the custodial parent is not cooperating.

Program Administration. As noted previously, counties would benefit by sharing in program savings, as measured in terms of reduced expenditures. We note that this mechanism rewards counties equally from savings that result from sanctions or time limited grant reductions and savings that result from increased employment.

General Assistance

The Governor proposes to relieve counties of their current obligation to provide General Assistance benefits to indigent persons ineligible for other welfare programs.

Under current law, counties are required to provide General Assistance benefits to indigents who lack an adequate means of support. These are persons not eligible for assistance under the AFDC/TANF program or the Supplemental Security Income/State Supplementary Program (SSI/SSP). Counties pay the entire cost of General Assistance benefits (about $360 million, plus administrative costs). The Governor proposes to relieve counties of this responsibility by eliminating the mandate to provide this aid.

Currently, General Assistance maximum monthly benefits range from about $175 to $345, depending on each county's policy. The Governor's proposals could result in further variation in grant levels. This, in turn, could cause migration effects whereby recipients move from lower paying counties (or counties with no benefits) to counties that offer higher levels of General Assistance. Thus, although this proposal is intended to offer fiscal relief for the counties, it could result in increased costs to some counties from migration of recipients if other counties reduce or eliminate GA. If this occurs, it would give counties a greater incentive to reduce or eliminate the program.

Governor Proposes Augmentation for County Training

The Governor's budget proposes $73 million to provide training for county welfare workers so that one worker will be able to perform both eligibility determination and case management functions.

Currently, most counties maintain separate staffs to (1) determine eligibility and (2) provide welfare-to-work case management in the Greater Avenues for Independence (GAIN) program. As part of CalTAP, the Governor proposes to consolidate these functions so that a recipient's primary contact with the welfare department is through just one worker. In order to implement this approach, the Governor's budget includes one-time funding of $73 million ($69 million General Fund) to provide two weeks of training for each eligibility worker and each GAIN worker.

In evaluating this proposal, we note that there is no analytical basis to assess whether the benefits of the "one-worker" system outweigh the proposed costs for the training. Maintaining the eligibility and case management activities as separate, specialized functions presumably would free up the $73 million for other purposes, such as job search, education, and job training for additional recipients.

Child Support Enforcement Program

The Child Support Enforcement program provides services such as locating absent parents, establishing paternity, obtaining and enforcing child support orders, and collecting payments pursuant to the orders. These services are provided to custodial parents receiving AFDC and, on request, to non-AFDC parents. Child support payments that are collected on behalf of AFDC recipients are used to offset the state, county, and federal costs of the AFDC grants. Collections made on behalf of non-AFDC parents are distributed directly to the parents. The child support enforcement program is administered by the 58 county district attorneys under the supervision of the DSS.

Compliance/Performance Review Process Needs Revision

We recommend that the department develop, prior to the budget hearings, an alternative to its current process for reviewing county performance in child support enforcement because (1) the compliance review component of the process is invalid due to a flaw in the methodology and (2) the performance review component of the process does not show a significant relationship to program outcomes. We present some options for consideration in developing this alternative.

Chapter 1062, Statutes of 1996 (AB 1832, Speier), requires the Legislative Analyst's Office to conduct a study of the child support enforcement program performance and compliance review process--referred to as the Performance Standards Model. Our findings and recommendations are discussed below.

Incentive Payment System. The state allocates federal and state child support incentive payments to the counties in order to encourage better program performance. The amount of the incentive payments allocated to each county is based on a specified percentage of its child support collections, with the percentage depending on the county's rating according to the department's Performance Standards Model.

The Performance Standards Model. The Performance Standards Model was established in 1992 by DSS pursuant to guidelines enacted by Chapter 1647, Statutes of 1990 (AB 1033, Wright). The model is based on a two-tiered incentive payment system. Tier I consists of "base" and "compliance" incentive rates. All counties qualify for the base rate, which currently is set at 6 percent. The compliance rate is an additional 5 percent incentive rate for counties that meet all federal and state mandated activities and achieve a passing score in the department's compliance review. This review looks at whether the county meets particular criteria with respect to various procedures for child support enforcement (for example, meeting specified time lines in the case intake process). Counties that pass the compliance review receive the 5 percent compliance rate; counties that do not pass receive nothing beyond the "base" rate.

Counties that meet all Tier I compliance criteria are eligible for incentive payments under Tier II of the Performance Standards Model. The Tier II incentive rate is based on county performance in two of the components of the child support process--paternity and support order establishment--with an additional small bonus for child support collections above the statewide average. The Tier II incentive rate ranges from 0 to 3 percent. Figure 27 shows the combined Tier I and Tier II incentive payment system.
Figure 27
Child Support Program

Incentive Payments to Counties

Tier I Tier II Totala
Base

Rate

Compliance

Rate

Performance

Rate

6% 0 or 5% 0 to 3% 6 to 14%
aApplied to total child support collections in the county.


The Tier I Compliance Review Methodology Is Flawed. In order to determine whether a county is in compliance with the various child support procedures, the department reviews a sample of the county's child support cases. Our analysis indicates that the results of the department's compliance review are invalid. This is because the sample of cases used by the department to determine county compliance is too small to yield results that are reliable from a statistical standpoint. In fact, the sample of cases typically falls far short of the number required. For example, the sample of cases drawn for the noncustodial parent locate process in Los Angeles County was 117 in the 1994-95 review, whereas the sample required for statistically reliable results would probably be 287 (the exact sample size would require information not available to us at this time). In other words, the results from the compliance review cannot be used to draw any inferences, or conclusions, about the total county caseload for any of the procedures that are reviewed.

In order to draw an appropriate sample for each of the compliance review procedures, the department would have to identify whether each case is applicable to the particular procedure that is being reviewed. Currently, this can only be accomplished on a manual basis, requiring an examination and sorting of each case. As a result, drawing an adequate sample for each of the compliance review procedures would be impractical from the standpoint of administrative costs. We note that this problem will be resolved once the Statewide Automated Child Support System (SACSS) is implemented in each county, which is expected in 1998. In the interim, the department will have to develop an alternative method of distributing incentive payments to the counties. We discuss this later in our analysis of this issue.

The Tier II Performance Review Appears to Have a Weak Relationship to Program Outcomes. In order to assess the Tier II process, we conducted a statistical analysis to determine the strength of the relationship between county performance in the two primary Tier II components--paternity and support order establishment--and child support program outcomes. We used child support collections as our measure of program outcomes. Using both a longitudinal (time-series) and a point-in-time regression analysis, we found little or no correlation between both paternity and support order establishment and total collections. These findings call into question the department's emphasis on paternity and support order establishment as the focal points of performance in determining the amount of incentive payments for the counties.

We recognize that paternity and support order establishment are necessary steps for achieving the ultimate goal of child support enforcement--collecting child support payments. Consequently, it is not clear why county performance in these two components of the process do not show a stronger relationship to collections. In examining this issue, one needs to bear in mind that paternity and support establishment are just two of several activities that comprise the child support enforcement process. For example, once paternity is established and a support order obtained, the support order must be enforced and payments must be collected. Thus, performance in any one single element may not show a strong relationship to the overall program outcome--namely, collections. It is possible that such a relationship would only be evident when all of the program components are viewed in combination with each other.

The issue is whether the counties should be left to determine how to allocate their resources among the various components of the process, or whether the state should intervene to give the counties an incentive to allocate more of their resources to two particular components. The Tier II model encourages counties to allocate more of their limited resources to paternity and support order establishment than they might otherwise do. We find no empirical basis for structuring incentive payments in this manner. While our analysis is not conclusive, we believe that it warrants a review of the Tier II process adopted by the department.

Department Should Develop Alternatives. At a minimum, the department must find an alternative to the compliance review component of the process until the statewide automation system is fully implemented. We also believe that the department should explore alternatives to its current performance review process, given the absence of any clear relationship between how well counties perform in paternity and support order establishment and how well they do in collecting child support. Accordingly, we recommend that the department develop such alternatives and report its recommendations during the budget hearings.

In order to facilitate this review, we present two options for consideration by the department and the Legislature. Both of these options focus on the principal program outcome in the child support enforcement process--collections.

  • Calculate Incentive Payments as a Fixed Percentage of Each County's Total Collections.This is a relatively simple approach, and is similar to the method used to distribute incentive payments prior to 1992. In effect, it extends the "base" payment in the current process to all incentive payments. Based on the amount proposed for incentive payments in the budget for 1997-98, this would amount to a formula allocation to the counties of 12.5 percent of total collections.
  • Base Incentive Payments on a New Measure of County Performance. For example, county performance could be measured according to the following variables: AFDC recoupment rate (AFDC child support collections as a percent of AFDC grant expenditures), non-AFDC child support collections per case, and "administrative effort" (administrative expenditures per case) with each variable weighted equally. The recoupment rate reflects county performance in child support collections for AFDC cases as well as benefits to the government from AFDC child support collections (which act as an offset to AFDC grants). Administrative effort reflects the amount that the counties allocate toward their child support enforcement program. In a previous statistical analysis, we found a high correlation between administrative effort and child support collections.

The Department Can Continue to Conduct Compliance Reviews. We note that the methodological problem in the department's compliance review process does not mean that the reviews have no benefit in terms of assisting the counties to improve their procedures. The department points out that the compliance reviews help counties identify procedural problems and implement corrective action plans. Thus, the department could continue to conduct compliance reviews, but without rating the counties for purposes of distributing incentive payments.

Conclusion. In summary, we find that the department will have to revise its procedures for the compliance review process because of the methodological problems that we described. With regard to the performance review process, we find no analytical basis for concluding that the system devised by the department will lead to an improvement in program outcomes.

Need Additional Information on Child Support Commissioner Proposal

We withhold recommendation on $38.7 million ($13.2 million General Fund) proposed for support of the new statewide commissioner-based child support court system, pending receipt of caseload standards to be developed by the Judicial Council.

Currently, most child support cases referred to the courts are heard by judges. In some counties, however, court commissioners hear some of the cases. Chapter 957, Statutes of 1996 (AB 1058, Speier) established a statewide system in which court commissioners are dedicated specifically to the establishment of child support paternity and support orders. When implemented, the new system will include streamlined procedures, support staff, automation, and information and guidance for parents in the system. Chapter 957 requires that the commissioners be in place by July 1, 1997. The 1996-97 budget includes $7.6 million to begin implementation of the system.

The budget proposes $38.7 million ($13.2 million General Fund) in 1997-98 for DSS to fully implement the program, assuming funding for 50 commissioners (including support staff) and 58 information centers that provide education, information, and assistance to parents with child support issues. The budget also proposes $472,000 for the Judicial Council for five positions at the council.

The estimate of 50 commissioners is based on a workload survey conducted in 1994. Chapter 957, however, requires the Judicial Council to establish caseload, case processing, and staffing standards for the child support commissioners on or before April 1, 1997. These standards should provide better information on the number of commissioners needed and the projected costs per commissioner. Thus, we withhold recommendation on the $38.7 million for the commissioner system, pending receipt of the caseload standards.

Elimination of $50 Child Support Disregard--Budget Internally Inconsistent

We recommend a technical adjustment to reduce proposed General Fund expenditures for AFDC/TANF grants by $20.9 million because the budget does not reflect the savings from the Governor's proposal to eliminate the $50 child support disregard on January 1, 1998. We also comment on the proposal. (Reduce Item 5180-101-0001 by $20,941,000.)

Under current law, a custodial parent on AFDC/TANF receives the first $50 of monthly child support collections, without any reduction in the family's grant. Collections above the $50 threshold are used to offset government costs of AFDC/TANF grants. The enactment of federal welfare reform ended federal financial participation for this child support disregard, effective October 1, 1996. States may retain the disregard, but must pay the entire cost.

The administration proposes to eliminate the child support disregard, effective January 1, 1998. The budget, however, includes funding for the disregard for all of 1997-98. Without regard to the merits of this proposal, we recommend that the amount proposed for AFDC/TANF grants be reduced by $20.9 million (General Fund) in order to make the budget consistent with its own assumptions.

The administration also proposes to change the way child support is distributed to the parent. As indicated, currently the parent receives the first $50, and the remainder is retained to offset AFDC/TANF grant expenditures. The grant itself is not changed. The administration proposes to transfer all child support collections directly to the custodial parent, and reduce the grant by a corresponding amount.

Whether to eliminate the $50 child support disregard is a policy issue for the Legislature. Ending the disregard results in state savings because the state will offset the grant costs by the $50 payments; however, these savings will be offset (by an unknown amount) due to increased costs for administration (the need to adjust the AFDC/TANF grant each month to reflect the child support payments) and a potential decline in child support collections because of the reduced incentive for the noncustodial parent to pay child support. The incentive is reduced because under current law, the $50 is a direct benefit to the AFDC/TANF custodial parent and child, whereas under the Governor's proposal, the entire payment is used to offset the grant.

AFDC--Foster Care

Budget Proposes Funds for County Juvenile Probation Facilities

The budget proposes to provide $141 million in TANF federal block grant funds for county juvenile probation facilities.

Prior to 1996, counties used federal Emergency Assistance funds to support juvenile probation placement costs. The federal Department of Health and Human Services ended this practice on January 1, 1996. Emergency Assistance funds that had been allocated for juvenile probation costs, however, were included in the calculation of California's TANF block grant.

The Governor's budget proposes to allocate $140.9 million in TANF block grant funds to the counties for their juvenile probation facilities. In effect, these funds would replace the federal Emergency Assistance funds that counties received prior to 1996. (For a discussion of a related issue, please see the Department of the Youth Authority in the Judiciary and Criminal Justice Section of this Analysis.)

The issue of whether to spend TANF block grant funds on juvenile probation facilities, rather than in the AFDC/TANF program for needy families with children, is a policy decision for the Legislature. (We also note in this respect, that the Governor's proposal to use General Fund savings that result from increased federal TANF block grant funds--$288 million in 1997-98--to support other General Fund needs represents a similar policy decision.)





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