The 2022-23 Budget: Analysis of Child Support Program Proposals

2022-23 BUDGET The 2022-23 Budget: Analysis of Child Support Program Proposals Summary In this brief, we asses three Governor’s budget proposals related to the state child support program. Allow Full Pass-Through of Past-Due CalWORKs Recoupment Payments to Former CalWORKs Families. Under federal law, when a parent applies for California Work Opportunity and Responsibility to Kids (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. This is because a portion of their monthly support payments are retained by the state as a way to pay back the total government costs for the cash aid the family received under the CalWORKs program. This process of retaining the child support as reimbursement for CalWORKs is referred to as CalWORKs recoupment. The CalWORKs recoupment payments are roughly split between the state (50 percent), counties (5 percent), and federal government (45 percent). The Governor’s budget proposes to allow low-income families who formerly received CalWORKs cash aid to keep the payments (collected by the child support program) that are currently used to pay back the government for the CalWORKs cash aid they previously received. The federal government would not require the state to backfill the lost funds that would have gone to the federal government if the payment had not been passed through to the family. The Governor’s proposal reflects one of many ways the state could pass through additional payments to low-income families. The Legislature may want to select a policy framework that reflects its goals for assisting families participating in the child support program. Alternative policy options include increasing the pass-through amount (up to the full payment amount) for current CalWORKs families, which could be done in addition to the Governor’s budget proposal. Overall, the Legislature may want to consider the amount of additional funding needed to increase pass-through amounts for both current and former CalWORKs families, how quickly could each policy change be implemented, and how changes may possibly impact eligibility for CalWORKs and other state programs. Provide Additional LCSA Administrative Funding. The Governor proposes an additional wave of increased administrative funding for local child support agencies (LCSAs), which is intended to build upon the General Fund increase provided in 2021-22. We recommend the Legislature withhold action on any future LCSA funding increases until the administration revises its funding methodology to maximize program efficiencies and accurately reflect actual LCSA funding needs in light of recent and future program changes. Statutory Changes to Comply With Recent Federal Reforms. The administration proposes language to align child support program rules with recent federal reforms. We provide initial questions and comments to assist the Legislature in assessing the language. GABRIEL PETEK | LEGISLATIVE ANALYST FEBRUARY 2022 www.lao.ca.gov 1 2022-23 BUDGET BACKGROUND What Is the Child Support Program? The child cash aid (and is not living with the other parent), support program is a federal-state program that they generally are required to open a child support establishes, collects, and distributes child support case and sign over a portion of their child support payments to enrolled parents with children. These payments to the state. This is because a portion tasks include locating difficult to find parents; of their monthly support payments are retained by certifying paternity; establishing, enforcing, and the state as a way to pay back the total government modifying child support orders; and collecting and costs for the cash aid the family received under distributing payments. In California, the child support the CalWORKs program. This process of retaining program is administered by 47 county and regional the child support as reimbursement for CalWORKs local child support agencies (LCSAs), in partnership is referred to as CalWORKs recoupment. The with local courts. Local program operations are CalWORKs recoupment payments are generally split overseen by the state Department of Child Support between the state (roughly 50 percent), counties Services (DCSS). (roughly 5 percent), and federal government (roughly Administration Created LCSA Administrative 45 percent). The state’s share of CalWORKs Funding Methodology in 2019-20. In 2019-20, recoupment is deposited into the General Fund as the administration created a new LCSA funding revenue. The administration projects that about methodology. The intent of the administration’s $340 million would be collected for public assistance LCSA funding methodology was to estimate the cases in 2022-23, which under current law would be amount of funding each LCSA needed based on roughly distributed across the state ($170 million), target staffing levels. The administration’s calculation counties ($20 million), and federal government of target staffing levels primarily was based on ($150 million). (The Governor’s budget proposes to averaging enforcement, management, and support distribute a portion of these payments to families staff levels in place as of 2018. A small portion of instead of the government, which we describe in the calculated target staffing levels was informed more detail later in the brief.) by a 2018 workload study conducted in 15 LCSAs. If Currently Owed Support Is Not Paid, Debt Is Those LCSAs with funding below these target levels Created and Tracked. The child support program were considered “underfunded,” while those with collects two main types of monthly payments: current funding above these target levels were considered support payments (required monthly payments under “overfunded.” Since 2019-20, the administration has an active current child support order established by a updated its total funding estimate every year to reflect court) and past-due payments (payments that pay off the most recent caseload levels and LCSA salary and previously unpaid current support [plus 10 percent benefit costs (which are negotiated and established annual interest] that is tracked by the state and by counties). As a result of the methodology, collected, even if a current support order is no longer estimated LCSA funding needs increase (or in effect). Figure 1 shows that whether these two decrease) when caseload or LCSA salary and benefit payments are directed to the family or government levels increase (or decrease). Our initial assessment depends on whether the family is currently, or of the funding methodology is provided in The has ever, received CalWORKs. In general, current 2019-20 Budget: Analysis of Proposed Increase in support and past-due payments are sent to families State Funding for Local Child Support Agencies. first when families do not receive CalWORKs cash Majority of Child Support Cases Are Required aid. However, when a family receives CalWORKs to Enter Program as a Result of CalWORKs cash aid, current support and past-due payments are Participation. In federal fiscal year (FFY) 2020, directed to the government first (with the exception about 75 percent of child support cases generally of a portion of current support payments going to reflected families that currently or formerly received the family with the remaining amount being retained cash aid from the California Work Opportunity and by the government). We describe the payment Responsibility to Kids (CalWORKs) program. Under distribution rules for each type of family in more federal law, when a parent applies for CalWORKs detail below. 2 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET • Never Assisted Families Keep All Current • Current Support and Past-Due Payments Support and Past-Due Payments. A family for Current CalWORKs Families Are who never received CalWORKs cash aid Typically Retained by the Government keeps the full amount of current child First. As previously mentioned, a family who support payments. To the extent that the currently receives CalWORKs cash aid (referred current support payment falls below the to as a current CalWORKs family) is required ordered amount, the state tracks this unpaid to sign over their child support payments to amount and continues to seek payment. the state, however, a portion is retained by The family keeps the full amount of all families. Specifically, up to $100 of the current past-due payments. support payment is directed or “passed through” to families with one child every month Figure 1 Payments Collected by Child Support Program Are Distributed Differently Based on Type of Family Monthly payment is collected by child support program and is distributed differently based on type of family. Families Who Never Received CalWORKs Current CalWORKs Families Former CalWORKs Families 1 1a 1 Family keeps first $100/$200 of payment that pays off current Current Support support order. Payments Family keeps full payment that Family keeps full payment that pays off current support order. 1b Government keeps remaining pays off current support order. amount of payment that pays off current support order. 2 2 2 Past-Due Paymentsa Government keeps full payment Family keeps full payment that pays that pays off unpaid CalWORKs off unpaid child support owed to the recoupment owed to the government family from prior months (before from prior months (while enrolled in enrolled in CalWORKs program). Family keeps full payment that pays CalWORKs program). off unpaid child support owed to the 3 3 Government keeps full payment that family from prior months. Family keeps full payment that pays pays off unpaid CalWORKs off unpaid child support owed to the recoupment owed to the government family from prior months (before from prior months (while enrolled in enrolled in CalWORKs program). CalWORKs program). Payments directed to families Payments retained by government a Past-due payments reflect payments that pay off previously unpaid current support orders (plus 10 percent annual interest) that is tracked by the state and collected, even if current support order is no longer in effect. www.lao.ca.gov 3 2022-23 BUDGET (increasing to $200 for families with two or more State Has Discretion Over What Amount children). The remaining portion of the current of Payments Are Passed Through to Current support payment is retained by the government and Former CalWORKs Families. While current as reimbursement for CalWORKs cash aid. CalWORKs families can receive $100 (or $200 for If only a partial payment is made for a current a family with two or more children) of a current support order, the amount of unpaid support is child support payment, the state could choose tracked by the state as government-owed debt to pass through a greater amount of payments or past-due CalWORKs recoupment payment. (up to the full amount of the payment). To do so, Any past-due payments collected by the child California would have to pay back, or backfill, support program (while the family is participating the federal government for the amount of the in CalWORKs) goes to the government first pass-through payment that would have otherwise to pay off past-due CalWORKs recoupment. gone to reimburse the federal share of CalWORKs Once the government-owed debt is paid in full, recoupment (45 percent of the remaining payment). past-due payments are then directed to the (The federal government does not require families to pay off any pre-existing family-owed repayment of its share of the $100/$200 pass child support debt (this would be from missed through.) In the case of former CalWORKs families, child support payments that accrued prior to the the federal government allows the state to fully pass family receiving CalWORKs aid). through to families the payments that would have • Current Support and Past-Due Payments for been retained by the government to cover past-due Former CalWORKs Families Are Directed to CalWORKs recoupment. In these cases, the federal Families First. Once a family exits CalWORKs government would not require the state to backfill (referred to as a former CalWORKs family), the lost funds that would have come if the payment they begin to receive the full amount of current had not been passed through to the family. Despite support payments. Additionally, any payments this allowance, California continues to retain the full towards past-due amounts are first directed amount of payments intended to cover past-due to families to pay off any family-owed debt. CalWORKs recoupment for formerly assisted Past-due CalWORKs recoupment is paid CalWORKs families. (We discuss this in more detail last. Under current law, past-due CalWORKs in a later section.) recoupment payments are fully retained by the government. OVERVIEW OF GOVERNOR’S BUDGET The Governor’s budget proposes $364.7 million estimated $160 million in 2021-22 to $120 million General Fund ($1.2 billion total funds) in 2022-23 in 2022-23). The decrease in the state’s share of for DCSS, which is about a 6 percent increase over primarily CalWORKs recoupment largely is due to estimated 2021-22 funding levels—$344.7 million the Governor’s budget proposal to pass through General Fund ($1.1 billion total funds). This increase payments that otherwise would have been used to is due to the Governor’s proposal to increase cover past-due CalWORKs recoupment to former administrative funding for LCSAs by $20.1 million CalWORKs families instead. Below, we provide General Fund in 2022-23. Additionally, the more detail on each budget proposal and, where Governor’s budget assumes about a $40 million relevant, describe alternative approaches for decrease in the state’s share of primarily Legislative consideration. CalWORKs recoupment in 2022-23 (from an 4 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET ALLOW FULL PASS-THROUGH While states do not have to provide a federal backfill, they still would experience a loss in state OF PAST-DUE CALWORKS (and county) revenue. We understand that currently RECOUPMENT PAYMENTS TO Wisconsin is the only state that fully passes through FORMER CALWORKS FAMILIES past-due recoupment payments to formerly LAO Bottom Line: Consider Selecting assisted families. Pass-Through Policy Framework That Aligns Governor’s 2022-23 With Legislative Goals. As described earlier, Pass-Through Proposal when a past-due CalWORKs recoupment payment is collected on behalf of a former CalWORKs Governor’s Budget Proposes to Fully Pass family it is fully retained by the government as a Through Past-Due CalWORKs Recoupment reimbursement for previously provided CalWORKs Payments to Former CalWORKs Families. cash aid. The Governor’s budget proposes to fully The Governor’s budget proposes to fully pass pass through these payments to the family instead. through all past-due CalWORKs recoupment The existing pass-through policy for current payments that otherwise would have gone to CalWORKs families would remain unchanged. the government to former CalWORKs families The Governor’s budget proposal reflects one of instead effective January 2023 (or when the many pass-through policies the Legislature could automation can be completed—whichever is later). consider. The Legislature may wish to consider the The administration estimates that this policy change benefits and trade-offs of the various policy options would result in $93.5 million going to some former and select a pass-through policy framework that CalWORKs families in 2022-23 (increasing to aligns with its goals. $187 million in 2024-25 and ongoing). As shown in Figure 2, this reflects the total amount of estimated Background payments that otherwise would have gone to pay off State Collects Payments to Cover Past-Due the state, counties’, and federal government’s share CalWORKs Recoupment in Former CalWORKs of past-due CalWORKs recoupment payments. Cases. As previously mentioned, in the case of Since the state does not have to backfill the former CalWORKs families, when a child support associated federal loss in CalWORKs recoupment payment is made, it is first applied to current payments, the state would only experience a support orders and child support debt owed $47.4 million half-year decrease in General Fund to the family. As a result, past-due CalWORKs revenue in 2022-23 (increasing to $94.9 million recoupment owed to the government is the last annually in 2024-25 and ongoing). Additionally, to be paid. The state continues to seek payment the Governor is proposing to backfill the county on any past-due balance even if a current support order is no longer in effect. Figure 2 Federal Government Allows the State to Fully Estimated Annual Revenues From Redirect Past-Due CalWORKs Recoupment Payments to Former CalWORKs Families. CalWORKs Recoupment Payments for Prior to 2005, if the state chose to pass through Former CalWORKs Casesa past-due CalWORKs recoupment payments to (In Millions) former CalWORKs families, it would have had to use state funding to pay for—or backfill—the federal Revenue Estimates government’s loss of CalWORKs recoupment Federal share $82 dollars (45 percent of the payment). However, in State General Fund share 95 2005, the federal government changed its policy County share 10 and allowed states to pass through the full amount Total Revenue $187 of past-due recoupment payments to formerly a Reflects administration’s 2024-25 cost estimate of Governor’s budget proposal, which is based on actual 2020-21 past-due CalWORKs assisted parents without providing a federal backfill. recoupment collections in former CalWORKs cases. www.lao.ca.gov 5 2022-23 BUDGET loss in CalWORKs recoupment (thereby holding (or higher) if collections in former CalWORKs counties harmless), resulting in a total General Fund cases decrease (or increase). For example, since impact of $52.3 million in 2022-23 ($104.6 million in 2011-12, total CalWORKs recoupment collections 2024-25 and ongoing). have declined, on average, by 3 percent annually. Pass-Through Amount for Current CalWORKs To the extent annual collections continue to Families Would Remain the Same Under decline at a similar rate, the costs associated with Governor’s Budget Proposal. As a part of the Governor’s budget proposal could decrease the 2020-21 budget, the state increased the to roughly $45 million half-year General Fund pass-through amount for current CalWORKs in 2022-23 (roughly $95 million General Fund families from $50 to $100 for a family with one in 2024-25). child and $200 for a family with two or more Governor’s Pass-Through Proposal Aligns children. This change took effect January 1, 2022. With Federal Flexibilities… The current The Governor’s budget proposal would only pass-through policy for current CalWORKs impact former CalWORKs families, meaning that families reflects the maximum amount of the pass-through amount for current CalWORKs CalWORKs recoupment payments the federal families would remain the same. government is willing to pass through to these families without requiring the state to backfill the LAO Assessment federal loss of CalWORKs recoupment. Similar Governor’s Budget Mainly Benefits to the pass-through policy for current CalWORKs Low-Income Former CalWORKs Parents With families (the first $100 or $200), the Governor’s Adult Children. Under the Governor’s proposal, budget proposal would increase the pass-through DCSS estimates that of the total number of amount for former CalWORKs families to reflect about 640,000 former CalWORKs cases, nearly the maximum amount of CalWORKs recoupment 69,000 would receive, on average, about $170 in payment the federal government is willing to pass any given month in past due payments. Based on through to these families (100 percent of payments). our conversations with the administration, the …But Does Not Identify a Clear Reason average profile of the former CalWORKs case to Continue to Have Different Pass-Through that would benefit from the policy change is a Policies for Current and Former CalWORKs low-income, 52-year-old parent who no longer Families. One stated goal of the administration’s has an active child support order. Specifically, proposal is to help low-income families stabilize of the nearly 69,000 former CalWORKs families their financial position. This is similar to the that would benefit from the Governor’s budget broader child support program goal of increasing proposal, the administration estimates that child support collections to children and families. about 25 percent of them still have an active This same rationale could be made for any policy child support order, meaning their child is under that increases the pass-through amount for all 18 years old. The remaining 75 percent of these families—both current and former CalWORKs former CalWORKs cases no longer have an active families. Moreover, while the majority of current child support order, likely because their child has and former CalWORKs families in the child support reached adulthood. program tend to be low income, a full pass-through Governor’s Cost Estimates May Change policy generally would have a greater impact on Based on Actual 2022-23 Collection Levels. income levels for current CalWORKs families, We understand that the costs associated with the who tend to report even lower income on average Governor’s budget proposal ($52.3 million General than former CalWORKs families. Specifically, Fund half-year and $104.6 million General Fund based on data from the child support program, in annually) are based on actual 2020-21 past-due FFY 2018, roughly 75 percent of current CalWORKs CalWORKs recoupment collections in former families had reported annual incomes of less than CalWORKs cases. This means that the costs of $10,000 (relative to 57 percent of former CalWORKs the Governor’s budget proposal may be lower families), while roughly 90 percent had reported 6 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET income of less than $20,000 (relative to roughly • Pass-Through Full CalWORKs Recoupment 75 percent of former CalWORKs families). Moreover, Payment to Current CalWORKs Families. a full pass-through policy that is limited to former As previously mentioned, as a result of a CalWORKs families would not maximize the child recent change in law, the first $100 (or $200) support program goal of increasing collections of a current support payment is passed going to children and families relative to if the full through to current CalWORKs families pass-through policy included current CalWORKs with one child (or two or more children). families. This is because current CalWORKs families The remaining amount of the current support have minor children, while the former CalWORKs payment is retained by the government to cases that would benefit from the Governor’s recoup costs associated with CalWORKs cash budget proposal are more likely to have children aid provided to families. The administration that are over the age of 18. projects that the state will collect roughly Governor’s Budget Proposal Represents One $150 million in total CalWORKs recoupment Pass-Through Policy Option. The Governor’s in current CalWORKs cases in 2022-23. budget proposal reflects one way the state could The state could choose to fully pass through pass through a higher amount of payments to current support payments to current low-income families. Figure 3 compares the CalWORKs families instead of retaining a Governor’s budget proposal to other pass-through portion of these payments for government policies that instead target current CalWORKs CalWORKs recoupment purposes. Under this families. These policy options are not mutually policy option, the state would have to backfill exclusive, meaning the state could change the the federal loss of CalWORKs recoupment pass-through amounts for both current and former dollars (45 percent of the payment) above CalWORKs families. (These options could not current pass-through levels. Additionally, this be implemented until 2024-25 at the earliest due policy change would result in a decrease in to information technology-related automation General Fund and county revenue. Assuming changes.) Any changes to the pass-through policy a 2024-25 implementation date, the costs for current CalWORKs families also would need to associated with this policy option would consider whether any changes to how child support depend on the number of current CalWORKs is treated for purposes of determining CalWORKs cases and associated collections in 2024-25. eligibility and any other social services programs Specifically, actual costs could be lower would be required. We describe each policy option (or higher) if current CalWORKs cases and in more detail below. associated collections decrease (or increase) Figure 3 Summary of Various Pass-Through Policy Optionsa Earliest Possible Estimated Annual Description Implementation Dateb General Fund Impactc Options for Former CalWORKs Families Pass through the full amount of past-due CalWORKs recoupment payments January 2023 $105 million to former CalWORKs families (as proposed under Governor’s budget). Options for Current CalWORKs Families Pass through the full amount of CalWORKs recoupment payments to current Sometime in 2024-25 $150 million CalWORKs families. Pass through the nonfederal amount of CalWORKs recoupment payments to Sometime in 2024-25 $80 million current CalWORKs families. a Pass-through options for current and former CalWORKs families are not mutually exclusive, meaning the state could change the pass through policy for both former and current CalWORKs families. b Administration estimates that changes to the pass-through amount provided to current CalWORKs families could not take effect until sometime in 2024-25 as a result of limited opportunities to make automation changes. c These cost estimates generally reflect current payments collected in current and former CalWORKs cases. Actual costs would be higher (or lower) depending on whether caseload and collection trends increase (or decrease) by January 2023 (for former CalWORKs families) or 2024-25 (for current CalWORKs families). Additionally, cost estimates do not include costs for automation changes or impacts to CalWORKs program. www.lao.ca.gov 7 2022-23 BUDGET by 2024-25. If caseload and collection trends to pass-through policies for current CalWORKs remain flat relative to estimated 2022-23 families (sometime in 2024-25 at the earliest). levels, the General Fund costs associated Additionally, the Governor’s budget proposal with this policy change would total roughly would not require that the state backfill the federal $150 million annually in 2024-25. However, share of loss in CalWORKs recoupment. However, we estimate that CalWORKs caseload will implementing a pass-through policy that only increase and be higher in 2024-25 relative to benefits former CalWORKs families would create current caseload levels, meaning that costs a disparity in the amount of payment received by associated with this policy option may be current CalWORKs families. Specifically, families higher than $150 million General Fund. whose child support payments were made while • Pass-Through Nonfederal Share of they participated in CalWORKs would only receive CalWORKs Recoupment Payments to a portion of those funds. In contrast, families whose Current CalWORKs Families. Alternatively, payments were not made while participating in the Legislature could consider adopting CalWORKs would receive the full amount of those a pass-through policy that would only payments if they were made after the family left pass through the full nonfederal (state and CalWORKs. If the Legislature wanted to ensure all county) share of CalWORKs recoupment to low-income families in the child support program current CalWORKs families—allowing the receive the same treatment under its pass-through federal government to continue receiving policy, it could consider supplementing the recoupment for the cost of CalWORKs cash Governor’s proposal with a full pass-through policy aid. This means that the state would continue for current CalWORKs families (once the necessary to collect the federal share of CalWORKs automation changes could be made). In that case, recoupment (45 percent of the payment) to the Legislature could consider providing any avoid backfilling the federal loss in CalWORKs necessary resources in 2022-23 to begin planning recoupment. Of the roughly $150 million activities to ensure that the automation changes in total CalWORKs recoupment in current needed to implement the pass-through change CalWORKs cases the state is projected for current CalWORKs families are implemented to collect in 2022-23, roughly $80 million as soon as possible in 2024-25. Additionally, the reflects the nonfederal share. If caseload Legislature may want to consider how it would want and collection trends remain flat relative to to address any possible impacts the changes to estimated 2022-23 levels, the General Fund the pass-through amount may have on eligibility for costs associated with this policy change CalWORKs and any other social services programs. would then total roughly $80 million annually in 2024-25. However, we estimate that PROVIDE ADDITIONAL LCSA CalWORKs caseload will increase and be ADMINISTRATIVE FUNDING higher in 2024-25 relative to current caseload LAO Bottom Line: Withhold Future levels, meaning that costs associated with this Funding Augmentations Until LCSA Funding policy option may be higher than $80 million Methodology Maximizes Program Efficiencies General Fund. and Accurately Reflects Funding Needs. Legislature Could Consider Supplementing The Governor’s proposal to increase LCSA Governor’s Proposal With Other Pass-Through administrative funding continues to be based on a Policy Change. Overall, the Legislature may want funding methodology that falls short in exploring to select a pass-through policy (or policies) that ways to control costs through program efficiencies. maximizes current program goals and broader Moreover, given recent and anticipated changes goals the Legislature would like to achieve. to the child support program, we cannot say with For example, the Governor’s budget proposal certainty that the funding methodology accurately reflects the pass-through option that likely could estimates actual funding needs. We recommend the be implemented sooner (January 2023) relative Legislature withhold action on providing any future 8 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET funding augmentations until the administration The $19.1 million General Fund reduction was revises the LCSA funding methodology to implemented in a way where underfunded LCSAs addresses identified shortcomings. We provide experienced a relatively smaller reduction to examples of possible improvements that could be funding levels than overfunded LCSAs. In the made to the LCSA funding methodology, many of 2021-22 budget, however, the state restored the which reflect common funding strategies in other $19.1 million General Fund ongoing augmentation social services programs. and distributed the funds to underfunded LCSAs. LCSAs Are Still Working Towards Fully Background Spending Prior Funding Augmentation. As of 2019-20 LCSA Administrative Funding September 2021, statewide LCSA staffing levels Methodology Structured to Increase General that are used to determine funding needs under Fund Levels Over Three Years. As shown the administration’s funding methodology have in Figure 4, in 2019-20, the administration decreased by 1.2 percent (from about 5,200 staff proposed to increase LCSA administrative funding in June 2021 to 5,135 staff). In the case of by $19.1 million General Fund, ramping up to underfunded LCSAs, only eight (or about one-fourth $57.2 million General Fund over three years, to of underfunded LCSAs) have experienced slight increase staffing levels in LCSAs that did not have net increases in staffing levels since June 2021 enough funding to reach target staffing levels (on average, three new hires since June 2021). (referred to as underfunded LCSAs). Additionally, In a recent report to the Legislature, DCSS noted under the funding methodology, overfunded LCSAs that the decline in staffing levels partially is due to were allowed to maintain excess funds ($17.5 million higher staff turnover (including resignations and General Fund in 2019-20). (If the excess funds were retirements), fewer responses to job postings, and redistributed to underfunded LCSAs, the 2019-20 fewer candidates accepting job offers. If this trend estimate of additional General Fund needed continues through June 2022, the majority of the by underfunded LCSAs would have decreased $19.1 million General Fund provided in 2021-22 from $57.2 million to $39.7 million.) As previously likely will go unspent. mentioned, the administration has updated its calculation of LCSA funding needs under the Governor’s 2022-23 funding methodology every year to reflect most Administrative Funding Proposal recent caseload levels and locally negotiated salary Governor’s Budget Proposes to Increase and benefit costs. LCSA Funding Levels by $20.1 Million to Assist 2019-20 LCSA Funding Augmentation Underfunded LCSAs to Reach Administration’s Was Eliminated but Ultimately Restored in Staffing Goals. The Governor’s budget proposes Recent Budget Cycle. The 2019-20 budget to increase LCSA administrative funding by provided an additional $19.1 million General Fund $20.1 million General Fund in 2022-23. This funding for underfunded LCSAs, increasing total LCSA would be distributed to 31 identified underfunded administrative funding levels from $246.5 million LCSAs. Similar to the 2019-20 estimate of General Fund to $265.6 million General Fund. However, Figure 4 the 2019-20 budget did not Estimate of Total General Fund Levels Under include statutory language that Administration’s LCSA Funding Methodology in 2019-20 automatically ramped this up to General Fund (In Millions) $57.2 million in later years. As a part of the 2020-21 budget, Total Funding Levels… the $19.1 million General Fund ...Prior to Funding …After Implementation Total Funding Increase augmentation provided in 2019-20 Methodology of Funding Under Funding was eliminated (in response to Implementation Methodology Methodology an anticipated budget problem). $246.5 $303.7 $57.2 www.lao.ca.gov 9 2022-23 BUDGET funding needs, this incremental increase reflects LCSAs ($13.8 million General Fund decrease) fully only a portion of the amount needed to reach offsetting the increase in the amount of additional $300 million total General Fund ($871.4 million funding needed by underfunded LCSAs ($10 million total funds) that the LCSA funding methodology General Fund increase). We describe these two estimates is needed to (1) increase staffing levels in components in more detail below. underfunded LCSAs to reach the administration’s • Number of Underfunded LCSAs and staff goals (about 185 cases per staff), and (2) allow Total LCSA Funding Needs Increased overfunded LCSAs to keep existing excess funds. Relative to 2019-20 Estimates. Since (We understand that the administration may request 2019-20, more LCSAs have been identified as to ramp up this ongoing General Fund increase by underfunded under the funding methodology the remaining $14.2 million—reaching $34.3 million (21 LCSAs to 31 LCSAs). As a result, the General Fund—to reach $300 million total General amount of additional General Fund needed Fund in a future year depending on the availability by underfunded LCSAs has increased by of funding.) $10.1 million General Fund—from $39.7 million General Fund to $49.8 million General Fund. LAO Assessment and The increase in the number of underfunded Recommendations LCSAs and overall funding needs primarily Governor’s Budget Proposal Reflects is due to growth in LCSA salary and benefit Updated Calculation of LCSA Funding Needs levels between 2019-20 and 2021-22 Under Funding Methodology. As previously (17 percent) making it more costly for these mentioned, the costs associated with the LCSAs to reach administration’s staffing administration’s LCSA funding methodology goals. (A portion of these costs were offset consist of (1) providing additional funding to by a 10 percent decrease in statewide child underfunded LCSAs to reach target staffing support caseload levels since 2019-20.) levels, and (2) allowing overfunded LCSAs to keep • Recent Reductions to Overfunded LCSA existing excess funds (rather than redistributing Budgets Reduced Additional General Fund these funds to meet funding needs in underfunded Needed Under Administration’s LCSA LCSAs). As shown in Figure 5, the administration’s Funding Methodology. The administration current estimate of additional General Fund could redistribute existing funds from needed above 2018-19 funding levels ($53.5 million overfunded LCSAs to underfunded LCSAs General Fund) is lower than the 2019-20 estimate to help underfunded LCSAs reach target ($57.2 million General Fund). This net decrease in staffing levels. In 2019-20, the administration additional General Fund needed under the LCSA proposed to not redistribute excess funds funding methodology is due to the decrease in in overfunded LCSAs, which increased the excess funds allowed to be kept by overfunded Figure 5 Comparison of Past and Current Estimates of Needed Funding Increase Under Administration’s LCSA Funding Methodology General Fund (In Millions) 2019-20 Estimate Governor’s 2022-23 Budget Difference Additional funding needed by underfunded LCSAs $39.7 $49.8 $10.1 Existing excess funds kept by overfunded LCSAs 17.5 3.7 -13.8 Total Funding Increasesa $57.2 $53.5 -$3.7 a Total funding increase calculated under the LCSA funding methodology would be lower if the existing excess funds in overfunded LCSAs were redistributed to underfunded LCSAs. LCSA = local child support agency. 10 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET costs associated with the LCSA funding LCSA decided to operate a less cost-effective call methodology by $17.5 million General Fund. center, it would have to absorb the costs above its In 2020-21, in response to an anticipated call center allocation. However, the administration statewide budget shortfall, total LCSA ultimately decided not to fully build in this incentive funding levels were reduced by $19.1 million structure. Overall, the Governor’s budget does General Fund. This funding decrease was not propose any changes to the LCSA funding implemented in a way where overfunded methodology that would further incentivize LCSAs LCSAs experienced a greater reduction to to adopt the most cost-effective call center or other funding levels than underfunded LCSAs. program efficiencies. When the $19.1 million General Fund Concern That Governor’s Budget Proposal was restored in 2021-22, funds were only Does Not Accurately Reflect Current and distributed to underfunded LCSAs, meaning Future LCSA Administrative Funding Needs. excess funds in overfunded LCSAs were not As previously mentioned, the administration restored. This essentially had the effect of continues to use the funding methodology redistributing funds from overfunded LCSAs developed in 2019-20 to estimate current and to underfunded LCSAs, which reduced the future LCSA administrative funding needs based overall costs of the administration’s funding on 2018 operation levels. This essentially means methodology. As previously mentioned, that the Governor’s budget proposal assumes that the Governor’s budget proposes to allow LCSA operations and associated staffing needs overfunded LCSAs keep $3.7 million General will continue to reflect 2018 levels. However, the Fund in remaining excess funding. If these COVID-19 pandemic has required LCSAs to existing excess funds were redistributed completely restructure how the child support to underfunded LCSAs, the cost of the program is administered since 2018, relying more Governor’s budget proposal would on electronic and virtual tools to serve families. decrease from $20.1 million General Fund to Some of these program changes reflected $16.4 million General Fund. previously identified program efficiencies, such as electronic signature and filing of program forms. Governor’s Budget Proposal Does Not Maximize Program Efficiencies. Over the years, Given the rise of Omicron as the prevailing the Legislature has required the administration COVID-19 variant, LCSAs likely will continue to to consult with stakeholders and report back operate the program differently in the near term on possible program efficiencies that could relative to pre-COVID-19 levels. Moreover, at this improve customer service, collectability, and time, whether some of the temporary program overall cost-effectiveness. The LCSA funding changes adopted during the pandemic would be methodology could be structured in a way to continued on a permanent basis, and if so, how incentivize the adoption of previously identified the changes would impact ongoing staffing needs program efficiencies as a way to alleviate cost is unclear. For example, during the pandemic, pressures and control overall program costs. many LCSAs transitioned from requiring wet For example, an LCSA can either operate its own signatures on program forms to accepting call center or send its calls to a regional call center electronic signatures. We understand that this operated by another LCSA (which we understand generally had the effect of reducing document generally provide a similar level of service to processing time, improving hearing time lines, families). In developing the original 2019-20 and ultimately freeing up staff time to focus on LCSA funding methodology, the administration other program priorities. As a part of the 2021-22 considered providing LCSAs only with enough budget, the state permanently expanded electronic funding to operate the most cost-effective call signature capacity to all LCSAs, which likely center based on a standard call per employee will reduce ongoing clerical workload relative to ratio and fixed cost per call. To the extent that an 2018 operation levels. www.lao.ca.gov 11 2022-23 BUDGET Additionally, when the public health concerns Figure 7 summarizes changes that could be abate, LCSAs likely will not return to administering made to the LCSA funding methodology to address the program exactly like they did in 2018 due to the the identified shortcomings. Many of these changes adoption of federally required program changes. reflect common funding strategies used in other Specifically, the state is required to adopt new social services programs. We describe each program rules by September 2024 in order to change in more detail below. comply with the federal Flexibility, Efficiency, and • Enhance Fiscal Incentives for LCSAs to Modernization in Child Support Enforcement Adopt Program Efficiencies. The LCSAs Final Rule (referred to as the FEM final rule). As have some level of discretion over executing summarized in Figure 6, the FEM final rule generally program rules in the most cost-effective places a greater emphasis on setting orders based manner. Over the years, the Legislature has on actual earnings in order to collect more reliable required the administration to consult with child support payments. As a part of the Governor’s stakeholders and report back on possible budget, the administration proposes language to child support program efficiencies that could implement the FEM final rule (which we discuss improve customer service, collectability, in more detail in a later section). These proposed and overall cost-effectiveness. Program changes likely would require LCSA staff to perform efficiencies can have the effect of both new tasks or perform existing tasks differently relieving cost pressures and generally relative to 2018 program operations. At this time, maintaining (or in some cases improving) the LCSA administrative funding methodology does customer service and collections for families. not include any costs associated with the possible For example, some LCSAs currently send program changes related to the FEM final rule. As a complex cases (such as international cases) result, even if the existing funding methodology was to specialized units operated by other LCSAs. deemed appropriate in 2019-20, there is no certainty By sending cases to these specialized units, that it accurately measures current and future LCSA LCSAs free up staff time and resources administrative funding needs. Recommend Revising LCSA Administrative Figure 6 Funding Methodology Before 2016 Federal Guidance Prioritizes Providing Any Future Funding Consistency and Ability to Pay Augmentations. We recommend Major Features of the Flexibility, Efficiency and Modernization in Child the Legislature withhold action on Support Enforcement Programs Final Rule, December 2016 any future LCSA funding increases until the administration revises its 9 funding methodology to maximize Set accurate child support obligations based on the noncustodial parents’ ability to pay. program efficiencies and accurately 9 reflect actual funding needs Increase consistent, on-time payments to families. associated with the program in 9 light of the pandemic and the FEM Move nonpaying cases to paying status. final rule. In general, revising the 9 Increase the number of noncustodial parents supporting their children. LCSA funding methodology prior to providing funding increases makes 9 Improve child support collection rates. sense because it is more difficult 9 to make changes to funding levels Reduce the accumulation of unpaid and uncollectible child support debt. after funds have been provided and 9 spent. Additionally, LCSAs may not Incorporate technology and evidence-based standards that support good customer service and cost-effective management practices. immediately need additional funding Source: Overview of Federal Final Rule, Flexibility, Efficiency, and Modernization in Child Support in 2022-23 since LCSAs have not yet Enforcement Programs. used most of the funding provided in 2021-22 to increase staffing levels. 12 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET for other program priorities. Additionally, salary and benefit costs, or the costs of specialized units are able to execute tasks doing business. Salary and benefit levels for associated with complex child support cases LCSAs and other social services programs more quickly and ultimately get payments to are negotiated and established by each families sooner. Overall, the administration county. These upward cost of doing business could modify the LCSA funding methodology adjustments for LCSAs typically outweigh to include funding mechanisms that incentivize the possible General Fund savings resulting the adoption of multiple program efficiencies from declining caseload levels. To control the (similar to how the administration initially amount of General Fund that is used to cover considered incentivizing LCSAs to select the county-controlled salary and benefit cost most cost-effective call center model based increases in the child support program, the on both a standard call per employee ratio and LCSA funding methodology could instead limit fixed cost per call). the cost of doing business adjustment to a • Consider Ways to Incentivize Innovation fixed rate. and Cost Controls at The Local Level. In the child support program, LCSAs have some control Figure 7 over program operations and counties establish LCSA salary Possible Changes to Administration's and benefit levels (the primary LCSA Funding Methodology cost driver in the program today), yet they have very little Enhance Fiscal Incentives for LCSAs to Adopt Program Efficiencies. fiscal incentive to reduce or Program efficiencies can have the effect of both relieving cost pressures control costs. For these reasons, and generally maintaining (or in some cases improving) customer service and collections for families. The administration could modify the LCSA including a fiscal incentive for funding methodology to include funding mechanisms that incentivize the LCSAs to operate the program adoption of multiple program efficiencies. in the most cost-effective way Consider Ways to Incentivize Innovation and Cost Controls at the and control the state’s share of Local Level. In the child support program, LCSAs have some control over program operations and counties negotiate LCSA salary and salary and benefit costs would benefit increases. It would be reasonable to include in the funding be reasonable. A possible fiscal methodology a fiscal incentive for LCSAs to operate the program in the most cost-effective way and for counties to control salary and incentive could be structured benefit costs. in many ways, including the establishment of a county Consider Caps for Administrative Costs. To control the amount of General Fund that is used to cover county-controlled salary and benefit share of cost, limiting the use cost increases in the child support program, the annual cost of doing of additional General Fund to business adjustments provided in funding methodology could be limited to a fixed rate. support the implementation of cost-effective program Align Funding Needs Based on Desired Staffing Model. Under the changes, or requiring a county administration's target staffing levels, more staff are dedicated to the back-end enforcement phase than the front-end case opening and match for LCSAs to draw down establishment phase. Depending on the Legislature’s goal for the future General Fund increases. child support program, the funding methodology could be changed to support a different staffing model. Overall, the structure of the fiscal incentive would need to Create Ongoing Mechanism to Rightsize Budgets of Overfunded adhere to state mandate laws. LCSAs. Currently, there is no ongoing process to rightsize the budgets of overfunded LCSAs. The funding methodology could include such a • Consider Caps for process in which the budgets of overfunded LCSAs are incrementally reduced over a certain time period. Administrative Costs. Under the current LCSA funding LCSA = local child support agency. methodology, the amount of General Fund is adjusted to reflect the full growth in LCSA www.lao.ca.gov 13 2022-23 BUDGET • Align Funding Needs Based on Desired receive additional General Fund for future salary Staffing Model. As previously mentioned, the and benefit increases. Overall, a revised LCSA existing LCSA funding methodology is based funding methodology could include an ongoing on a 2018 calculation of total staffing needs. process in which the budgets of current and Based on this calculation, the administration future overfunded LCSAs are incrementally estimated that about half of program staff would reduced over a certain time period. Additionally, need to consist of management and support given that many LCSAs may not fully spend their staff (such as clerical, training, and financial funding allocations due to declining staffing employees). Moreover, about 40 percent of levels, it may be possible to rightsize some or all program staff would need to provide back-end overfunded LCSAs in 2022-23 without reducing enforcement services, while only 7 percent their current staffing levels. of staff would need to provide front-end case opening and establishment services. This target STATUTORY CHANGES TO COMPLY staffing model does not fully align with the WITH RECENT FEDERAL REFORMS FEM final rule, which emphasizes the need to provide more front-end services as a way to LAO Bottom Line: Initial Questions and better engage both parents, establish orders Comments to Assist Legislature’s Review of FEM that reflect ability to pay, and increase overall Final Rule Compliance TBL. The administration collections to families. Depending on the proposes trailer bill language (TBL) to bring the state Legislature’s goal for the child support program, into compliance with the FEM final rule. For example, the LCSA funding methodology could be the FEM final rule requires the state to expand the changed to support a different staffing model number of variables it considers when establishing a that better aligns with those goals. child support order to better reflect a parent’s ability to pay, including income history, health issues, and • Create Ongoing Mechanism to Rightsize educational attainment. In general, the state must Budgets of Overfunded LCSAs. As previously comply with the FEM final rule by September 2024. mentioned, overfunded LCSAs were We are still in the process of completing our review of significantly rightsized as a result of a one-time the proposed TBL. Below, we provide initial questions 2020-21 funding reduction to LCSA funding and comments to assist the Legislature in assessing levels. The administration estimates that the language. We will provide any necessary updates 16 LCSAs continue to be overfunded by to our questions and comments once we complete $3.7 million total General Fund ($10.9 million our review of the proposal. total funds). The LCSA funding methodology does not include an ongoing process in which • Consider Establishing Important overfunded LCSA budgets are rightsized Implementation Details in Statute. and the excess funding is redistributed to We understand that in 2019-20, similar changes underfunded LCSAs. This essentially maintains needed to comply with the FEM Final Rule a funding disparity in which some LCSAs were being considered through the policy receive excess funds that can be used for process (AB 3334 [Weber]). At the time, the program costs and activities beyond what is policy bill defined many components of the deemed necessary under the administration’s FEM final rule at a high level and left many of the LCSA funding methodology. The administration implementation details up to the administration expects the budgets of overfunded LCSAs to and possibly individual LCSAs and courts. naturally right-size over time. This would occur One thing we are considering in our review by LCSA salary and benefit costs continuing to of the TBL is if the Legislature may want to increase to a point where overfunded LCSAs consider adopting more detailed language and can no longer afford to keep staffing levels uniform processes in statute to ensure similarly above target staffing levels. At that point, these situated parents and families are treated LCSAs would be deemed underfunded and equitably across LCSAs and courts. 14 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET • Request Summary of Stakeholder • Consider Whether Proposed Changes Feedback. DCSS received input from Should Be Considered Through Policy stakeholders (including LCSAs and courts) Process. As previously mentioned, similar on the proposed program changes. changes to comply with the FEM final rule The Legislature may want to request a were being considered through the policy summary of stakeholder feedback and process in 2019-20. According to the whether the proposed TBL addresses any administration, if the state is not in compliance significant concerns. by September 2024 it may be at risk of • Request Information on How Proposed incurring federal fiscal penalties (possibly Changes Will Change Current Practice $700 million in reduced federal matching funds for Each Program Actor. Both LCSAs and if the state’s child support plan is denied by courts play important roles in establishing the federal government due to FEM final rule and enforcing child support orders. noncompliance). Overall, the Legislature may The Legislature may want to request additional want to consider to what extent the proposed information on how the proposed changes changes are better suited to be considered will impact the roles and responsibilities of through the policy process relative to the all entities involved in administering the child budget process. support program, including courts. www.lao.ca.gov 15 2022-23 BUDGET LAO PUBLICATIONS This report was prepared by Jackie Barocio, and reviewed by Ginni Bella Navarre and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 16 LEGISLATIVE ANALYST’S OFFICE