You may recall that I recently posted a memo describing how States are profiting from the creation of absent parents (see the link below for the original post).

Well, in that post, I only described part of the money picture the States are getting.

And while I’m still working on it, below is copy from an email I recently sent to FatherandFamilies.org that provides a bit more clarity and detail about how The Feds providing financial incentives to States who create absent parents and/or maximize child support payements.

Again, if you feel lost, the original post is linked below.

In any case, here is my understanding of it:

There are three revenue sources for States associated with the collection and administration of child support payments defined under the broad cover of the Social Security Act:

(1) 66% reimbursement for allowable expenditures, which are:

a. Costs for locating parents
b. Costs for establishing orders
c. Costs for collecting child support payments
d. Costs for establishing paternity
e. Any other misc. costs approved by the Secretary for reimbursement.
f.  And exception of 90% matching for the following two expenditures
i.  Improving management information systems
ii. Blood testing

(2) Welfare recovery and matching:

a. Recovered TANF payments are split between the Federal Government and States consistent with Federal reimbursement of medical benefits (I’m still not clear about exactly how this part works in practice.)

(3) Incentive pool (Public Law 105-200, the Child Support Performance and Incentive Act of 1988 ( enacted July 16, 1998 ))
:

With the incentive pool, states must compete for their share of the funds, which I believe currently, is around $530MM to $535MM.

A. The incentive amount = State Incentive Pool (x) State Incentive Share

B. State Incentive Share = Incentive Base Amount For The State (/) Sum of Incentive Base Amounts For All States

C. Incentive Base Amount = Sum Of Applicable Percentages {defined by paragraph 6 of the Act} (x) Corresponding Maximum Incentive Base Amounts for each bonus category:
Bonus Categories Are:
A. Paternity Establishment Performance Level
B. Support Order Performance Level
C. Current Payment Performance Level
D. Arrearage Performance Level
E. Cost Effectiveness Performance Level

D. Maximum Incentive Base Amount = State Collections Base (as measured in performance categories A,B,C) + 75% state collections base ( performance categories D, E).

E. State Collections Base = Sum ( 2 (x) amount collected in which support is assigned to the State (bonus categories A or E), amount of support collected that was at the time of collection, not required to be assigned), total amount of support collected)

Summary of Observations:

If the incentive structure gives you headache, take heart. I’m an econometrician by training, and it gives me one as well. And this is why I wanted to actual figures that I could use to test this stuff out.

In any case, here is how I’m visualizing the incentive program:

Think of it is a pie; we know this is a closed mathematical domain. So, the objective for each state is to maximize their share of the pie (incentive base amounts relative to other states). And in this regard, you’ll note that the Fed’s apply a 25% penalty to the maximum incentive base amounts for two categories: (1) Support collected in arrears, and (2) Support Costs. Number two kind of puzzles me. The only thing that makes sense to me here, is that this deflation is intended to hit those states with particularly high costs per amount collected harder than those who perform better.

Secondly, you’ll note that the Fed’s place double the weight of state administered child support payments assigned to the State for collection; either by order or agreement.

So, with respect to incentive pools, I’m deducing:

(1) An incentive to maximize the amount of child support ordered.
(2) An incentive to maximize the amount of child support collected.
(3) An incentive to avoid high collection costs.
(4) An incentive to assign collections to the State for Administration.
(5) A penalty to incentive base amounts for child support amounts in arrears.

In other words, the name of the game here for States, is to generate the biggest number possible (incentive base amount) constrained by the maximum incentive base amount. Once these numbers are in for the year, shares are created and the pie is split up.

Now, as it relates observation (3), this is why I really wanted the budget data. States already get reimbursed for 66% of their hard costs, and get a little bit of extra in there for a couple of other things. The part that’s concerning, is the allowable expanse for “other” expenses approved by the Secretary. Because as I see it, it would not be all that difficult shore up the remaining 34% with all kinds little creative accounting tactics if the political sentiment supported the behavior – this is a political black box in the accounting (as I see it).

Summary:

(1) States get reimbursed for 66% of the hard costs of collecting and administering child support.

(2) States bonus funds for welfare programs using a formula consistent with Federal medical program reimbursements.

(3) States get bonus funds from a shared incentive pool, in which those incentives are driven by the nominal amount of child support collected and the performance in collecting it. And nowhere in the Act, do I see language that mandates how this incentive money is to be spent by states (as opposed to (1) and (2). In my mind, this makes it a Federal subsidy landing in the discretionary (general) budget of the States. ”

****

A fine group of elected officials we have here.

It really does seem to be all about the “Best interests of the children.”

Not.

~ Michael

Original Memo:

http://loveandiron.com/2012/08/28/the-ugly-truth-why-states-and-courts-dont-want-shared-parenting/