Include a Late Payment Penalty in Child Support Orders

The Legislature should include a child support late payment penalty in child support orders.


Background
Federal regulations stipulate that state child support programs must make the full range of services available to both Aid to Families With Dependent Children (AFDC) and non-AFDC clients. However, AFDC cases are automatically referred to the Child Support Enforcement (CSE) agency by the AFDC intake worker, while non-AFDC cases must apply to the state for services and may choose which services they wish to receive.

Although the state must serve non-AFDC clients who apply for services, the collections in those cases do not increase the state s revenues or offset any state expenditures. The collections draw only a small federal incentive payment, which is capped based on the state s AFDC collections. Thus, providing services to non-AFDC clients entails adminis trative costs to the state which are in no way offset by collections in those cases.

Federal regulations give states the option of charging either flat fees or percentage-based fees to help recover the administrative costs of serving non-AFDC clients. Florida and Connecticut, among others, have user-fee schedules, which include monthly check processing fees or application fees. Other states, such as Ohio, charge a percentage of collections in each non-AFDC case for ad ministrative cost recovery. Most state s charge nothing. Texas, for instance, charges a $1 CSE application fee, but pays the fee for the client. In all cases, though, the fees are levied on the custodial parent or else the state pays the fees for the custodial parent. 1

The child-support program originally did not stress administrative cost recovery, but instead emphasized serving anyone who requested enforcement services. 2 By providing non-AFDC clients the same level of free services as are provided to the AFDC caseload, though, programs have spread their resources too thin to serve the needs of low-income clients adequately. 3 Consequently, state programs currently serve only a small fraction of the clients needing child support. Furthermore, most states have better success in collecting support in non-AFDC cases than AFDC; Texas percentage of non-AFDC paying cases is twice the AFDC percentage.

In addition to offsetting the costs of enforcing non-AFDC child support cases, administrative cost recovery has the effect of giving priority to AFDC ca ses. Federal regulations require that cases be assigned priority only on the basis of compliance with federal case processing time frames; welfare status and collectability are not allowed to be considerations.

However, Congress intent in providing child support enforcement services to non-AFDC families was to prevent those families from needing welfare in the future. It now appears that in a majority of cases, the states are actually providing free services to families who are economically stable. 4 Fai ling to give AFDC cases priority reduces the chance for the neediest children to escape from poverty and reduces the chance of relieving pressure on the General Revenue Fund, since the state pays about 36 percent of the AFDC grants from the fund. 5 The federal government pays for the remaining 64 percent.

A recent report by the U.S. Government Accounting Office (GAO) criticizes the states for failing to pursue administrative cost recovery. The report recommends that Congress require states to retain between 5 and 15 percent of child-support collections as administrative cost recovery. 6

The disadvantage of the GAO recommendation is that the cost accrues to the children. The cost recovery fee should reflect the costs of enforcing delinquent child support instead. The fee should come from the delinquent obligor rather than being retained ou t of the support amount.

Ideally, administrative cost recovery should be included in support orders as a provision requiring delinquent payments to be subject to an added charge. This charge would represent the costs of enforcing delinquent support and would be enforceable by the same collection strategies, such as liens and wage assignments, as the regular support amount. 7

Texas could also use the administrative cost recovery charge as a vehicle for referring non-AFDC cases to the private sector for enforcement. As the state s CSE caseload grows, private child support collectors are entering the market in increasing numbers. Currently, private collectors charge a percentage off the top of the support they collect, typically between 25 and 35 percent of the past due amount plus a percentage of the first several months of current collections.

Texas cannot afford to discourage non-AFDC parents from seeking private enforcement services when the CSE program is pressured to process its own caseload. However, the state can and should develop an alternative payment structure for private collectors an d prohibit them from reducing the amount of support realized by the family. A lat e payment penalty, collectable as child support, would benefit any agent collecting child support, including the state, private collectors and attorneys and obligees themselves.


Recommendation
The Legislature should establish a child support late payment penalty (CSLPP) equal to 20 percent of the monthly support amount.

The child support award guidelines should be amended to require that all new and modified support orders include a provision stating that any part of the support amount not received by t he appropriate county registry within 15 days of its due date must be increased by 20 percent. For example, if the monthly support award were $100, due on the first of the month, the obligor would owe $120 if he or she had not paid by the fifteenth of the month.

In cases of partial payment, the CSLPP would apply to the unpaid balance. For example, if the same obligor had paid only half of the amount due, the balance due would be the remaining $50 plus 20 percent of $50, for a total of $60.

The amount of the CSLPP should be retained by the agent collecting the past due amount to cover the costs of pursuing the collection. Any agent collecting child support should be required by law to accept the amount of the CSLPP as payment in full. Since the CSLPP would be added onto the support amount, it would be subject to wage withholding, IRS intercept and all other remedies for collecting child support.

The agent collecting the past due support should be allowed to negotiate the CSLPP separately from the support a rrears in cases where the past due amount is reduced. The obligor should be able to petition the court to waive, defer or reduce the CSLPP in view of extraordinary circumstances at the time the payment schedule is set for the past due balance.

The custodial parent should be allowed to collect the CSLPP if the parent does not engage a private agent or the state to collect the support.


Implications
The CSLPP would have two primary effects. First, it would return to the state some of the money expended on enforcing support orders in non-welfare cases. Allowing the state to recover administrative costs from delinquent obligors would reduce the strain on taxpayers and give the CSE program additional funding to collect other support due.

Second, the CSLPP would allow more obligees the option of retaining a private collector or attorney to enforce their cases. By sending some non-welfare cases into the private sector, the CSLPP would allow the CSE program to focus more resources on the part icular needs of AFDC cases, especially paternity establishment and location.

A disadvantage to administrative cost recovery would be enforcement in cases where the obligor s resources are already strained.

The main purpose of the CSLPP is not to maximize late fee collections, but to encourage voluntary compliance. The CSLPP should provide an effective incentive for the obligor to make regular payments, thus reducing the need for enforcement services. The amo unt of the penalty is set at 20 percent to encourage voluntary compliance. A lower amount would not be as effective in deterring delinquency. Twenty percent would also provide a fair price to private collectors, who would be prohibited from charging any additional fees.


Fiscal Impact
The CSLPP would generate $4.2 million in fiscal 1994 and $34.2 million for the five-year period. The CSE program could not claim a federal match on the recovered administrative costs because the costs have already been recovered from the obligor. However, the cost recovery from the CSLPP would be higher than the administrative costs of enforcing an average case. The CSE program would net about two-thirds of the CSLPP after recovering average administrative expenses.

Net revenue to the program after administrative costs would be $2.8 million in fiscal 1994 and $22.9 million for the five-year period.

Gain to Net to
Child Support Child Support
Fiscal Retained Administrative Retained Change
Year Collections Account Costs Collections Account in FTEs

1994 $4,199,000 $1,386,000 $2,813,000 0
1995 5,524,000 1,823,000 3,701,000 0
1996 6,849,000 2,260,000 4,589,000 0
1997 8,145,000 2,688,000 5,457,000 0
1998 9,441,000 3,116,000 6,325,000 0



Endnotes
1 Bee Moorhead, State Survey of Innovative Child Support Enforcement Practices (The University of Texas at Austin, September 1992).
2 Ibid.
3 Richard Hoffman, Help in Getting Child Support Must Be Prioritized The Dallas Morning News, August 9, 1992.
4 U.S. Government Accounting Office, Opportunity to Defray Burgeoning Federal and State Non-AFDC Costs (Washington, D.C., June 1992).
5 Ibid.
6 Ibid.
7 Richard Hoffman, Pay Now or Pay More Later, The Dallas Morning News, October 1992.