Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

Department Of Child Support Services (5175)

The Department of Child Support Services (DCSS), created on January 1, 2000, administers California's child support program by overseeing 58 county child support offices. The primary purpose of the program is to collect from absent parents, support payments for custodial parents and their children. Local child support offices provide services such as locating absent parents; establishing paternity; obtaining, enforcing, and modifying child support orders; and collecting and distributing payments.

The 2002-03 Governor's Budget proposes expenditures totaling $995 million from all funds for support of DCSS in the budget year. This is a decrease of $205 million, or 17 percent, from estimated current-year expenditures. The budget proposes $288 million from the General Fund for 2002-03, which is a decrease of $163 million, or 36 percent, compared to 2001-02. Most of this decrease is attributable to the assumption that federal law will be amended to eliminate future automation penalties.

Assumed Federal Law Change Creates a General Fund Risk

Since 1998, California has been subject to penalties for failing to implement a statewide child support automation system. The budget assumes that federal law will be amended to eliminate approximately $181 million in General Fund automation penalties in 2002-03. Because no such legislation has been introduced, this assumption creates substantial risk in the Governor's budget plan.

The federal government usually pays two-thirds of a state's total child support administrative expenditures. However, pursuant to the Child Support Performance and Incentive Act of 1998 (Public Law 105-200), California has been subject to federal automation penalties which are levied in the form of a reduced federal share in these administrative costs. The General Fund has been used to backfill for these reductions in federal financial participation. From 1997-98 through 2001-02, California's child support program will have incurred total General Fund penalties of about $372 million, including $157 million in 2001-02.

Budget Savings Depend on Federal Law Change. The Governor's budget assumes that Congress will enact legislation to provide California relief from the automation penalty, which is estimated to be $181 million from the General Fund in 2002-03. While California, Michigan, and several national organizations have been lobbying at the federal level to change the penalty structure, no such penalty relief legislation had been introduced at the time this analysis was prepared.

The assumption that California's automation penalty will be eliminated creates a substantial General Fund budget risk--up to $181 million in the budget year. We note that penalty reform proposals currently under discussion in Washington include (1) reducing the size of the penalty and (2) allowing states to reinvest a portion of the penalties into the child support program, rather than paying these funds to the federal government. Under these proposals, the penalty would not be entirely eliminated. Thus, even if some penalty relief is provided in 2002-03, the budget may overstate the associated savings.

Increased Revenues Not Reflected in Budget

We recommend an increase of $4.1 million in General Fund revenues because the budget does not reflect these collections attributable to increased child support staff in the Franchise Tax Board's budget. (Increase General Fund revenue by $4.1 million.)

Background. The DCSS collects and distributes most child support payments. However, under Chapter 906, Statutes of 1994 (AB 923, Speier), the Franchise Tax Board (FTB) began collecting delinquent child support on behalf of most California counties. Some of these collections are recouped as General Fund revenues to offset the costs associated with welfare expenditures.

Increased Revenues Not Reflected in the Budget. The Governor's budget proposes expanding the FTB's delinquent child support collection program by 31 positions in 2002-03. According to the administration's estimate, this increase in personnel is expected to result in a net increase of $17 million in child support collected on behalf of families and government. Of this amount, $4.1 million is expected to be recouped by the General Fund to offset welfare expenditures. However, this increase is not reflected in the DCSS estimate of revenues. Accordingly, we recommend an increase of $4.1 million in General Fund revenues, so that the budget will be consistent with its own assumptions.

Withhold Recommendation on Automation Oversight

We withhold recommendation on the redirection of $4.2 million from the Pre-Statewide Interim Systems Management Project to the California Child Support Automation System (CCSAS) Project pending receipt of additional information demonstrating the difference between the Department of Child Support Services' and Franchise Tax Board's oversight activities on the CCSAS Project.

The budget proposes to redirect $4.2 million within the department from the Pre-Statewide Interim Systems Management Project to additional DCSS oversight activities on the CCSAS Project. Chapter 479, Statutes of 1999 (AB 150, Aroner), required FTB to act as DCSS' agent for the procurement, development, implementation, and maintenance of the CCSAS Project.

Of the $4.2 million being redirected, $3.3 million are for activities similar to those already being funded in the FTB for the CCSAS Project. Since it is unclear how the proposed DCSS activities differ from FTB's current activities, we withhold recommendation on the DCSS request pending receipt of additional information (1) demonstrating the difference between the two departments' activities, and (2) the likelihood that the redirection will increase project success.

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