Use Private Firms to Assist in Child Support Collections

The Child Support Enforcement program should enlist the help of private collection agents and attorneys to reduce the backlog of cases.


Background
Private sector participation is vital to reducing backlogged state Child Support Enforcement (CSE) caseloads. Despite constant efforts to speed the enforcement process and collect payments from reluctant absent parents, state CSE programs cannot keep up wi th caseload growth. Rapidly increasing Aid to Families with Dependent Children (AFDC) caseloads, increased demand for services from non-AFDC clients and expanding federal mandates on the scope of services are straining states resources. 1

The most time-consuming aspects of child support enforcement paternity establishment and order establishment occur first in the enforcement process. Paternity establishment commonly takes one year to complete, although in some cases it may take five years or more. In cases where paternity is an issue, establishment of the child support order can easily take two years.

CSE programs are under pressure from the public and from the federal go vernment to reduce their backlogged cases and to expedite the enforcement process. Unfortunately, as the backlog of establishment cases grows, CSE programs must also serve rapidly increasing numbers of established cases. The established caseload will conti nue to grow as the federal government adds to the list of clients mandated to receive CSE services.

By increasing mandates on state programs, the federal government intends to reduce AFDC spending by requiring families to increase their income through child support payments. This policy upholds the parental responsibility message of the Family Support Act of 1988. 2 In practice, though, without new federal funds for state CSE programs, the new cases decrease the resources available for helping the most needy families.

With limited resources, CSE programs must make choices about which clients to serve, and what level of service to provide, even though they are mandated to provide the maximum level of service to all clients. Often CSE workers choose to put o ff the most difficult AFDC cases in favor of working a larger number of easier cases.

The Attorney General s Office projects that in 1994 the AFDC caseload will be 470,840 cases, but only 26 percent (122,418) of those cases will have support orders established. The state collects support in less than half of obligated AFDC cases. The CSE pr ogram also projects 648,000 non-AFDC cases; 45 percent of those cases will have orders established, and the state will collect support in about half of those.

Some sta tes have enlisted the help of the private sector as a way to subdivide their CSE caseloads into manageable components. Georgia contracts with private collectors and assigns cases to the private firms if the cases are more than six months delinquent. Idaho and Massachusetts are just beginning to privatize CSE functions. In both of these states, the contracted cases are AFDC cases in arrears. States choose to contract these cases first because the arrears represent past AFDC payments owed to the state. 3

Texas currently contracts with private laboratories to conduct genetic tests in paternity establishment cases. The state CSE program is considering contracting for collections on a limited basis.

Nationally, the sharply increasing public assistance CSE caseload has generated criticism of the practice of providing free enforcement services to non-AFDC cases. Congress mandated that states serve non-AFDC clients so child support payments could help th ese families avoid public assistance. However, recent reports i ndicate states are serving many clients who are economically stable and face no apparent risk of falling into poverty. These non-AFDC cases further strain the resources of the CSE programs, while playing a small role in reducing welfare dependency. 4

Non-AFDC custodial parents have the option of seeking private enforcement services from attorneys or from child support collection businesses. Currently, these private sector providers keep a percentage of the support owed to the family as payment for serv ices. Another issue in this report suggests how Texas can implement a payment mechanism for private child support enforcement agents and prohibit these agents from reducing the support available to children.


Recommendations
A. The Attorney General s office should contract with private firms to handle part of the state AFDC Child Support Enforcement (CSE) caseload.

The CSE program should develop a process for allocating caseloads to private collectors that takes into account each firm s capacity and assure s each contractor a fair case composition, so no contractor would receive a disproportionate number of unworkable cases.

B. The Legislature should also facilitate the use of private child support enforcement services in non-AFDC cases.

The Legislature should provide administrative cost recovery, which is recommended in another part of this report, as a payment mechanism for private collectors to ensure that they do not retain any child support which should be going to children. The Legis lature should amend the Texas Family Code to allow private support-enforcement agents access to all the enforcement tools available to the state.

C. The Legislature should direct the Attorney General s office to develop estimates for cost savings to the state resulting from improved child support enforcement.

The Legislature should ensure that agency appropriations accurately reflect savings resulting from improved enforcement.

D. To realize the savings indicated for the General Revenue Fund in the fiscal impact table, the Legislature should reduce Medicaid appropriations by that amount.

The savings to Medicaid would result from more absent parents providing group health insurance for children to whom they owe support.


Implications
Private sector participation would increase collections in both AFDC and non-AFDC cases, thereby increasing cost avoidance, retained collections, federal incentives and federal matching funds and providing additional support to Texas children.

Using private agents in some non-AFDC case s would increase collections for those cases. This would help to avoid future AFDC and Medicaid costs in those cases by providing financial stability. It also would reduce the backlog of non-AFDC cases in the CSE caseload, allowing CSE staff to work the re maining cases more efficiently. Reducing the state s backlog would decrease the risk of federal audit penalties to CSE and AFDC programs by allowing the state to remain in compliance with federal case-processing time frames.

Ordinarily, privatization can lead to reductions in agency employees. In this case, private firms would be absorbing caseload backlog so that reductions in agency employees would negate the positive effect of private sector involvement and lower collections.

Using private agents in non-AFDC cases would not adversely affect federal funding for the CSE program.

Privatization would require monitoring contracts and regulating private agents. These additional administrative costs associated are estimated to be no more than 10 percent of the private collectors net collections.


Fiscal Impact
Privatization would affect the size of the CSE caseload, the proportion of the caseload with established support orders and the proportion of cases with collections. It would increase CSE program revenues, overall child support collections and federal matc hing funds. Privatization would also save dollars for Texas taxpayers by allowing the Medicaid program to recover funds spent on children who are owed child support.

Altogether privatizing collections would net the state $6.9 million in estimated savings and revenue in 1994, which would accrue to the Child Support Retained Collections Account and the General Revenue Fund.

Over five years, private child support agents would provide $51.4 million in net CSE program income and would save the taxpayers $3.6 million in recovered Medicaid costs. Most importantly, private agents would bring additional support to Texas children. Co ntracting would deliver $118.8 million in increased support for AFDC child support cases over the five- year period, and use of private enforcement services in non-AFDC cases would provide those families an additional $475.2 million.

Gain to Net Gain to
Child Support Child Support Savings to the
Fiscal Retained Administrative Retained General Revenue Change in
Year Collections Account Costs Collections Account Fund 001 FTEs

1994 $ 9,110,000 $2,479,000 $ 6,631,000 $240,000 0
1995 13,440,000 3,657,000 9,783,000 731,000 0
1996 14,730,000 4,008,000 10,722,000 802,000 0
1997 16,020,000 4,359,000 11,661,000 872,000 0
1998 17,310,000 4,710,000 12,600,000 942,000 0



Endnotes
1 Help in Getting Child Support Must be Prioritized, Dallas Morning News (August 9, 1992).
2 Family Support Act of 1988, P.L. 100-485 (H.R. 1720), 100th Congress, 2nd Session.
3 Bee Moorhead, State Survey of Innovative Child Support Enforcement Practices (The University of Texas at Austin, September 1992). (Draft).
4 U.S. General Accounting Office, Child Support Enforcement: Opportunity to Defray Burgeoning Federal and State Non-AFDC Costs, GAO/HRD-92-91 (Washington, D.C., 1992), p.8.