Giving Hope and Support to America's Children

1999 REPORT TO CONGRESS:

Analysis of the Impact on Welfare Recidivism

of PRWORA Child Support Arrears Distribution Policy Changes

U.S. Department of Health and Human Services

Administration for Children and Families

Office of Child Support Enforcement

We take this opportunity to thank the Child Support Enforcement staff from the States that participated in this study analyzing the impact on welfare recidivism of PRWORA child support arrears distribution policy changes. Without their cooperation and assistance in providing both the data and access necessary to perform the computer simulations, this study would not have been possible. Their extensive knowledge and expertise in Child Support Enforcement provided valuable guidance and insight to the authors. In addition, a number of States that have conducted special studies of families leaving welfare have been very willing to share useful information.

This report provides the results of the study conducted by BETAH Associates with Joanne Barnhart as Principal Investigator and Deborah Chassman as Investigator and TRW Inc., to assist OCSE in responding to this statutory requirement.

Table of Contents

List of Tables

List of Figures

Results in Brief

Have PRWORA Policy Changes Regarding the Distribution of Child Support Arrears Increased the Amount of Child Support Paid to Families That Formerly Received Public Assistance?

Overall, the financial impact of the PRWORA changes in distribution policy has been positive for former-assistance families. However, the magnitude of this impact is not consistent across all States nationwide.

Computer models employing historical financial data taken from State child-support computer systems reveal distribution outcomes that differ substantially based upon past State distribution policy. In States that, prior to PRWORA, sought to maximize State reimbursement for past assistance ahead of Custodial Parent-Owed Arrears, families will experience a 25 percent increase in child support income following PRWORA implementation. Further, for States that transitioned to PRWORA using a two-step approach, the bulk of this increase occurred during the first step that began on October 1, 1997. Conversely, in States that historically prioritized Custodial Parent-Owed Arrears first, family income initially will remain unchanged during the first step and then later decrease slightly under full PRWORA implementation. This later decrease occurs because a portion of the Custodial-Parent debt can be satisfied only after all State-Owed Arrears have been fully paid off. Overall, the financial gains for families outweighed the losses.

Does This Increase in Child-Support Income Reduce the Likelihood of Welfare Reentry?

Based on research findings, even small amounts of child-support payments reduce welfare recidivism. Thus, insofar as the new distribution policies provide higher child-support distributions to families, the changes will prevent some welfare recidivism. Further, the importance of child support for families who had exited welfare was reinforced anecdotally by interviews where mothers indicated they depended on child-support payments to make ends meet. This also suggests that distribution policies that increase payments to post-welfare families will contribute to a lower rate of welfare recidivism.

As the residual Temporary Assistance for Needy Families (TANF) caseload decreases over time, it increasingly comprises hard-to-place individuals who face substantial barriers to employment. Based on the anticipated low earning power of these low-skilled women, the relative value of even incremental increases in child support will be greater for the hard to place. Additionally, if these individuals reside in a low-benefit State, the relative replacement value for the TANF grant will be greater. This combination of factors suggests that PRWORA distribution policies that increase child-support payments to these families may have an even greater effect on welfare exits.

Does Increasing the Amount of Child Support That Is Passed Through to Families on Public Assistance and Disregarded for the Purposes of TANF Benefits Also Result in Increased Child-Support Collections?

Custodial-Parent surveys indicate that as long as a family remains on welfare and welfare benefits are reduced by the amount of child support received, many Non Custodial Parents will continue to pay8212and many Custodial Parents will continue to take8212child support 8220under the table.8221 In a controlled State experiment parents receiving a full pass-through received more in child support per month than those who did not. Anecdotal information also suggests that Non Custodial Parents may be more likely to pay child support when they know that the payments are going directly to benefit the family. Assuming this is correct, child support pass-through may increase the amount of child support collected.

Does Receipt of Child Support Enhance the Likelihood of Welfare Exits?

Based on State research results, the potential for child support to increase welfare exits depends not only on the amount of child support received but also on the percentage of welfare benefit that this child support replaces. This means that the same child-support benefit would be more likely to produce welfare exit in a low-benefit State than in a high-benefit State.

Implications for Future Study

Study outcomes indicate that similar8212perhaps even slightly more positive8212gains could be achieved for former-assistance families through a child support arrears distribution policy that simply pays all Custodial Parent-Owed Arrears ahead of State-Owed Arrears. The model further indicates that loss in State child support arrears-related income would be less than 6 percent (or $8.03 per month for each case) overall. This approach would accomplish the family-friendly outcome that Congress intended and, at the same time, could ease implementation difficulties for States.

We recommend further study of the implications surrounding PRWORA8217s distribution policy. Follow-up activities could include establishing the positive effect on Custodial-Parent behavior, the cost and difficulty of implementing PRWORA changes within State child support enforcement systems, and a more precise cost estimate for this recommended policy simplification.

The Study in Brief

Background

Congressional passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) marked the transformation of welfare from a program that issues benefits to a program that offers self-sufficiency. PRWORA created the Temporary Assistance for Needy Families program (TANF) and mandated numerous and substantial changes in the Child Support Enforcement (CSE) program. Taken together, these changes provided for sweeping reform of the nation8217s approach to welfare. TANF emphasizes the temporary nature of cash public assistance. Congress recognized that the enforcement, collection, and payment of child support would be critically important in helping single-parent families exit the welfare rolls and maintain self-sufficiency. PRWORA continues the requirement that States operate a CSE program meeting Federal requirements in order to be eligible to receive TANF funds.

The CSE provisions in PRWORA require States to adopt of procedures to expedite both the establishment of paternity and the establishment, modification, and enforcement of support orders, and provisions revising the distribution of past-due child support payments to former welfare recipients.

PRWORA required the Office of Child Support Enforcement (OCSE), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), to conduct a study and submit a report to Congress analyzing the effects of the changes in distribution policy. Specifically, the statute required OCSE to separately analyze the impact on welfare recidivism of pre-public assistance and post-public assistance arrears changes, and to provide an assessment of the overall impact of PRWORA 8220on moving people off welfare and keeping them off welfare.8221

Pre-PRWORA Child-Support Distribution Methods

Before PRWORA, when families applied for public assistance, the Custodial Parent was required to assign to the State the right to collect (1) any child support obligations that had accumulated before the family joined welfare and (2) any such support coming due while the family received welfare benefits. During the time the family was receiving welfare, most child-support collections from the Non Custodial Parent generally were distributed between the State and the Federal Government.

Once the family left the welfare rolls, the State had the flexibility to determine whether the Custodial Parent or the State received payment resulting from arrearage collections first. A State often would keep the full amount of arrears collections until the State and Federal Governments had been reimbursed for all welfare payments to the family.

However, Federal law also contained several incentive and protection provisions for families receiving public assistance, including a requirement that the State 8220pass through8221 to the Custodial Parent the first $50 of each monthly current-support collection while the family was on welfare assistance and to pay to the family the difference between the welfare payment for the month and the support obligation collected for the month (referred to as the "monthly excess support payment").

Post-PRWORA Child-Support Distribution Methods

PRWORA provides for several significant changes in child-support distribution methods.

PRWORA eliminates the monthly excess support payment requirement and the $50 pass-through.

PRWORA requires the immediate unassignment of any portion of arrears designated as owed to the State (State-Owed Arrears) that is in excess of the amount needed to reimburse the State for past public assistance to the family.

Under PRWORA, Custodial Parent-Owed Arrears and State-Owed Arrears have been expanded from two to six debt sub-categories.

PRWORA limits State flexibility with regard to distribution practices. The intent of these changes is to improve debt collection for families63719in particular, families of former welfare recipients. The new distribution rules reclassify State-Owed and Custodial Parent-Owed debts at a more detailed level and establish a more defined payoff hierarchy that prevents the State from prioritizing State-Owed debt ahead of debts owed to families. In addition, the statute offers the State the flexibility to select the timing of PRWORA implementation that best meets both State interests and available development resources.

PRWORA establishes the following timeframes relative to implementing the PRWORA changes in distribution policy. These timeframes have the greatest impact on cases where the Custodial Parent formerly received assistance from the State (former-assistance cases).

Pre-PRWORA (before PRWORA became applicable)63719Prior to October 1, 1997
Original Two-Step PRWORA Implementation Mandate (later called "Plan A"):

Step 1 (Resulting in partial PRWORA implementation)8722

160October 1, 19978722September 30, 2000

Step 2 (Resulting in full PRWORA implementation)8722

160October 1, 2000, and beyond.

Plan B (Single-Step PRWORA Implementation Alternative)63719October 1, 1998, and beyond.

Because many States foresaw difficulty in complying with the original PRWORA two-step implementation plan beginning October 1, 1997, an alternative was established by the Balanced Budget Act of 1997 (BBA). "Plan B" offered States the option to defer distribution changes until October 1, 1998, and then to implement distribution changes for former-assistance cases in a single step. With Plan B's one-step implementation, States must fully implement all provisions under PRWORA two full years in advance of the original (now called "Plan A") October 1, 2000, deadline.

The goal of the PRWORA child-support distribution provisions is to create a distribution priority that favors families once they leave the assistance rolls. With States required to adhere to a federally determined distribution hierarchy for former assistance cases, a larger portion of child-support payments should become available to the family. This additional family income should then reduce dependence on public assistance by both promoting exit from TANF and preventing entry and re-entry to TANF.

Status of State PRWORA Policy Elections

States were found to be at varying stages of completion in implementing PRWORA changes. Twenty-eight jurisdictions have elected PRWORA implementation under Plan A; and twenty-six have elected PRWORA implementation under Plan B.

Key Factors Affecting the Study

Several key factors affected the conduct of this study:

Delayed State PRWORA Implementation63719Few States have fully implemented the required PRWORA programming changes in their child support enforcement (CSE) automated systems and, among those that have, full compliance has not yet been verified.
Requirement for Extensive Historical Data63719The requirement for an extensive amount of historical statewide data related to financial transactions and debt balances within State CSE automated systems presented a further complicating factor.
Absence of a Control Group63719Although the study was able to produce some quantifiable totals regarding an increase in Custodial-Parent income caused by PRWORA distribution changes, it is limited in its ability to definitively produce conclusions regarding the effects this increased income has had on Custodial-Parent welfare-exit/-reentry behavior. In the absence of a controlled experiment, other studies examining the effects of child support receipt on welfare exit and recidivism were reviewed.

Methodology

Through computer-based modeling, a series of scenarios was established to mirror State behavior before and after PRWORA implementation for each scenario analyzed. The total outstanding arrears balances, the total funds distributed on behalf of these arrears, and the total grant payments issued under TANF were established. These outcomes were contrasted with results prior to the implementation of the PRWORA distribution changes.

Within all scenarios, current-support obligations were always satisfied ahead of arrears debts.

Four distribution policy scenarios were established to distribute arrears:

Scenario 1: Pre-PRWORA State-First Distribution Policy

Under this policy, States satisfied all State-Owed Arrears ahead of any Custodial Parent-Owed Arrears.

Scenario 2: Pre-PRWORA Custodial Parent First Distribution Policy or

Plan A First Step Distribution Policy, Where State Elects To Pay Custodial Parent First

Under this policy, States satisfy all Custodial Parent-Owed Arrears ahead of any State-Owed Arrears.
Scenario 3: Plan-A First-Step Distribution Policy, Where State Elects To Pay State First

Under this policy, States must first satisfy any Never-Assigned Arrears owed to the Custodial Parent, in conformance with PRWORA. If any funds remain, State policy then determines the subsequent payoff sequence.

Scenario 4: Full PRWORA Implementation (Plan-A Second-Step/Plan-B Single-Step) Distribution Policy

Under this scenario, States pay arrears according to a PRWORA-prescribed sequence.

The study began in October 1998 and the collection and analysis of State data was conducted from January through June 1999.

Data for the study were obtained from automated databases of the participating States and from relevant research reports, surveys, and other sources.

1999 REPORT TO CONGRESS:

Analysis of the Impact on Welfare Recidivism

of PRWORA Child Support Arrears Distribution Policy Changes

I.160Introduction

Congressional passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) marked the transformation of welfare from a program that issues benefits to a program that offers self-sufficiency. PRWORA created the Temporary Assistance for Needy Families program (TANF) and mandated numerous and substantial changes in the Child Support Enforcement (CSE) program. Taken together, these changes provided for sweeping reform of the nation8217s approach to welfare. TANF emphasizes the temporary nature of cash public assistance. Congress recognized that the enforcement, collection, and payment of child support would be critically important in helping single-parent families exit the welfare rolls and maintain self-sufficiency. PRWORA continues to require States to operate a CSE program meeting Federal requirements in order to be eligible to receive TANF funds.

The CSE provisions in PRWORA require States to adopt a series of procedures to expedite both the establishment of paternity and the establishment, modification, and enforcement of support orders. These requirements include specified actions State CSE agencies must take in processing cases63719including computer matches with newly established State and Federal databases. Other provisions include the establishment of an automated network to link States to information about parental assets and to assist in locating parents; the introduction of additional enforcement techniques; elimination of the requirement that States pass through the first $50 of child support paid directly to the recipient; and revision of distribution of past-due child support payments to former welfare recipients.

Section 457 of the Social Security Act required the Office of Child Support Enforcement (OCSE), Administration for Children and Families (ACF), U.S. Department of Health and Human Services (HHS), to conduct a study and submit a report to Congress analyzing the effects of the changes in PRWORA distribution policy. Specifically, the statute required OCSE to separately analyze the impact on welfare recidivism of pre-public assistance and post-public assistance arrears changes, and to provide an assessment of the overall impact of PRWORA 8220on moving people off welfare and keeping them off welfare.8221 In addition, the statute directed OCSE to offer any further policy recommendations regarding the implementation of PRWORA distribution-related requirements.

This report provides the results of the study conducted by BETAH Associates, with Joanne Barnhart as Principal Investigator and Deborah Chassman as Investigator, and TRW Inc. to assist OCSE in responding to this statutory requirement.

In Part II, Background, of this report, we provide the information for understanding the results of the study. We furnish information about the distribution of arrears procedures prior to the changes made by PRWORA, describe the PRWORA arrears distribution procedures as modified by the Balanced Budget Act of 1997 changes in implementation dates, and highlight the differences in the distribution hierarchy.
In Part III, Status of State PRWORA Policy Elections, we provide a table that summarizes State policy decisions related to PRWORA implementation.

In Part IV, Underlying Study Assumptions, the underlying assumptions of the study regarding the anticipated effects of the distribution changes are provided.

In Part V, Key Factors Affecting the Study, we discuss various factors that limit the methodologies available to produce definitive study findings.

In Part VI, Methodology, we describe the methodologies that were selected to develop data for the study, and provide the detailed steps used to capture the monetary impact of the arrears changes.

In Part VII, Study Findings Based on Model Outcomes, we present the actual monetary impacts as determined using computer-based modeling of State child support data.

In Part VIII, Data From Other Research and Evaluation Findings, we discuss findings from other research evaluations, and studies concerning the effects of child support payments on welfare entry, exit, and recidivism.

In Part IX, Data From Custodial-Parent Surveys, we describe the results from Custodial-Parent surveys related to this study.

Finally, in Part X, Research and Study Findings, we present our conclusions about both the impact of the distribution of arrears changes on the amounts of child support distributed to families and how these changes in distribution are likely to affect welfare exit and welfare recidivism.

II.160Background

Essential to design, conduct, and interpretation of the study was an understanding of the differences between pre-PRWORA and post-PRWORA (PRWORA-mandated) child-support arrears distribution methods utilized by the States.

A.160Pre-PRWORA Child-Support Distribution Methods

To properly grasp how welfare reform financially impacts families, the distribution rules that State Child Support Programs previously operated under must first be understood. A useful summary of past practice is contained within the following excerpt from the 1998 Green Book.¹

8220Two parties have claims on child support collections made by the State. The children and Custodial Parent on behalf of whom the payments are made, of course, have a claim on payments by the Non Custodial Parent. However, in the case of families that have received public aid, taxpayers who paid to support the destitute family by providing a host of welfare benefits also have a legitimate claim on the money.

Thus, over the years a series of somewhat complex rules has developed to determine who actually gets the money. It is helpful to think of these rules in two categories. First, there are rules in both Federal and State law that stipulate who has a legal claim on the payments owed by the Non Custodial Parent. These are called assignment rules. Second, there are rules that determine the order in which child support collections are paid in accord with the assignment rules. These are called distribution rules.

As long as families remain on welfare, the distribution of child support is straightforward. When families apply for the Aid to Families with Dependent Children (AFDC), the Custodial Parent must assign to the State the right to collect any child support obligations that accumulated before the family joined welfare as well as support that comes due while the family is receiving welfare benefits. As long as the family remains on welfare, child support collections are generally kept by the State and split with the Federal Government.

Consider a simple example. Suppose that when a given mother signed up for welfare, the child support agency was successful in locating the father, establishing a support order for $200 per month, and collecting the payments. Each month, the State would retain the $200, which in turn would be split with the Federal Government. In addition, the amount of welfare reimbursement owed to the State by the Non Custodial Parent would be reduced by $200 each month. If the AFDC benefit were $300 per month the amount owed to the State by the Non Custodial Parent would increase by only $100 each month rather than the full $300.

Once families leave welfare, the amount of support assigned to the State is the amount that equals total AFDC payments to the family minus any child support paid by the Non Custodial Parent while the family was on welfare. At the moment the family leaves welfare then, the Non Custodial Parent usually owes child support to both the government and the family. The amount owed the family is the amount of payments that accumulated before the family went on welfare plus any amount that accumulated because of non-payment after the family leaves welfare.

The real issue, of course is the order in which child support will be paid against these debts once the family leaves AFDC. The first rule is straightforward: Payments against current support collections always go to the family. In the case above, no matter how long the mother was on welfare, the first $200 of monthly payments is assigned to and distributed to the mother once the family leaves welfare. If the father never pays against arrearages, the government never gets repaid for the AFDC benefits it provided and the mother never gets repaid for arrearages that accrued before or after the family was on welfare.

Now assume that the father begins to make payments in excess of the current support amount of $200. The issue arises of whether the State can keep the amount above the current support as repayment for AFDC benefits or whether the State must give the arrears payments to the family. Here we see that distribution law trumps assignment law under some circumstances; namely, whenever two or more parties have been assigned child support that is past due. Both parties have legal claims; the issue is which one is paid first.

Before the 1996 welfare reform law was enacted, Federal law allowed States to design their own distribution rules to determine who got arrearage collections. States could even keep the entire amount of AFDC benefits and not share any of it with the family. Only when the State and Federal Governments had been repaid the entire amount of AFDC benefits provided to the family were States required to pay arrearage collections to the family.8221

With this flexibility to design their own distribution rules, States split fairly evenly between those that retained arrears collections to reimburse the State for past AFDC benefits and those that elected to pay any arrears collections first to the family.

Prior to the 1996 welfare reform enactment, Federal law also contained several incentives and protection provisions for families. Perhaps the most notable of these provisions was the requirement to 8220pass through8221 to the family the first $50 of each monthly Current Support collection while the Custodial Parent was receiving welfare assistance. This requirement was codified in former Federal Regulations at 45 CFR Section 302.51(b)(1). This incentive encouraged Custodial Parents to cooperate with the State in obtaining and enforcing child support obligations on welfare cases. In situations where a Custodial Parent had children by more than one Non Custodial Parent, resulting in more than one child support case, collections were tallied together for all cases to ensure that only a single $50 monthly maximum pass through was distributed to the Custodial Parent.² This $50 pass-through to families was disregarded for purposes of income testing by the State AFDC agency.

Another provision within the law prevented States from retaining more in current support collections received in any month than the State in turn paid to the family as welfare assistance during the same month. Instead, the State was required to reimburse the family for any portion of the monthly current support collection that exceeded the monthly grant.³ Because this provision was described within paragraph (b)(3) in Section 302.51 of Title 45 of the Code of Federal Regulations, these monthly excess support payments are often referred to as "(b)(3) payments."

Finally, the law contained a provision to prevent States from retaining more in welfare assistance reimbursement from child support collections than the States had actually paid to families as AFDC grants over the entire life of the welfare case.⁴ Because this provision was described within paragraph (b)(5) in Section 302.51 of Title 45 of the Code of Federal Regulations, these monthly excess support payments are often referred to as "(b)(5) payments."

B.160Post-PRWORA Child-Support Distribution Methods

PRWORA provides for several significant changes. First, PRWORA requires the immediate unassignment of any portion of arrears designated as owed to the State (State-Owed Arrears) that is in excess of what was needed to reimburse the State for past public assistance. Next, PRWORA eliminated the Section 302.51 (b)(1) $50 pass-through and (b)(3) monthly excess support payment requirements, as described earlier, in public assistance cases. These incentives were replaced with the option for States to establish State-specific incentive policies, provided that only State funds were used. Finally, under PRWORA, arrears owed to the Custodial Parent and the State have been subdivided. PRWORA limits State distribution flexibility and establishes an arrears payoff hierarchy. These provisions are further described below.⁵

Requirement To Immediately Unassign Arrears63719When a family exits TANF, States may retain arrears to ensure full reimbursement for past welfare assistance. However, when the amount of State-Owed Arrears exceeds the Unreimbursed Assistance Balance (i.e., when the amount of State-Owed Arrears is larger than the amount needed to reimburse the State for past public assistance), under PRWORA, this excess must be immediately unassigned to the family.

The requirement to immediately unassign arrears is intended to improve the financial outcomes of Custodial Parents. With arrears returned to Custodial Parents immediately upon their exit from TANF, Custodial Parents no longer need to wait until the State has been fully reimbursed for its grant payments by the Non Custodial Parent before receiving any distributions on these arrears.

State-Owed Arrears can exist in two forms63719Temporarily Assigned and Permanently Assigned. Temporarily Assigned Arrears represent the portion of State-Owed Arrears that a Custodial Parent was required to assign to the State as a condition of obtaining public assistance. Permanently Assigned Arrears represent the portion of State-Owed Arrears that accrued while the Custodial Parent was receiving public assistance.

Under PRWORA, when both types of State-Owed Arrears exist in the same case, State policy determines which category should first be reduced by the unassignment. This choice is significant because it can impact both the amount of arrears that the family receives and the distribution priority that these arrears are assigned in the payoff hierarchy.

In situations where a Custodial Parent is active in more than one case, State policy (rather than Federal policy) defines the specific methodology used to apportion these unassigned arrears to each case.

Elimination of Section 45 CFR 302.51 (b)(1) and (b)(3) Payments63719PRWORA eliminates the incentives contained within Section 45 CFR 302.51(b)(1) $50 pass-through and (b)(3) monthly excess support payments to TANF families. However, PRWORA preserves the distribution provisions formerly referenced in 45 CFR 302.51(b)(5) to ensure that States never retain more in child support reimbursement than was paid to families under public assistance. The elimination of (b)(1) and (b)(3) payments has, in effect, shifted the authority for setting Custodial Parent incentives and associated costs directly to States, whereas the continuation of (b)(5) maintains Custodial Parent protections.

Under PRWORA, States are still permitted to pass through a portion of the State share of arrears collected to TANF families. However, the Federal share of the collections no longer can be used to help pay for these pass-through distributions. Although no Federal financial participation is provided for these pass-throughs, States may count as TANF Maintenance of Effort (MOE) funds the State share of arrears passed through to TANF families and disregarded in determining the amount of TANF benefits.

According to a report released by the Center for Law and Social Policy (CLASP) ⁶, 24 States have adopted a child support pass-through of some amount. Although the approaches vary from State to State, the effect in States that have opted to continue providing a pass-through is to maintain or increase the amount of money available to the TANF families that receive child support payments. Fourteen (14) States provide for a $50 pass-through, and disregard the amount of the pass-through for purposes of determining TANF eligibility and benefits. In addition, Kansas and Nevada provide for pass-throughs of up to $40 and $75, respectively.

Although Connecticut, Vermont, and Wisconsin are the only States that pass through all child support, Delaware, Georgia, Maine, South Carolina, and Tennessee provide for fill-the-gap budgeting that has the effect of passing through significant amounts of child support. However, TANF families who receive child support payments in the 26 States that have eliminated the pass-through have suffered a decrease in available money. It should be noted that because Vermont and Wisconsin are conducting experimental design evaluations, control-group recipients receive only up to $50 of the child support pass-through. Table 1, prepared by CLASP, identifies State practices regarding pass-through provisions as of January 1999.

Table 163719State Policy Re: Pass-Through and Disregard of Current Month8217s Child Support Collected for Families Receiving TANF-Funded Cash Assistance as of January 1, 1999

State	Status
ALABAMA	State retains all support collected.
ALASKA	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
ARIZONA	State retains all support collected.
ARKANSAS	State retains all support collected.
CALIFORNIA	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
COLORADO	State retains all support collected.
CONNECTICUT	State passes through all support to family. Up to $100 disregarded for purposes of eligibility and benefits.
DELAWARE	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
DISTRICT OF COLUMBIA	State retains all support collected.
FLORIDA	State retains all support collected.
GEORGIA	State passes through and disregards some or all support for purposes of fill-the-gap budgeting.
HAWAII	State retains all support collected.
IDAHO	State retains all support collected.
ILLINOIS	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
INDIANA	State retains all support collected.
IOWA	State retains all support collected, except in the case of families which received a $50 pass-through/disregard pre-PRWORA. Those families receive a $50 pass-through/disregard until they no longer receive assistance.
KANSAS	Up to $40 passed-through. Amount disregarded for purposes of eligibility and benefits.
KENTUCKY	State retains all support collected.
LOUISIANA	State retains all support collected.
MAINE	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits. State also uses fill-the-gap budgeting.
MARYLAND	State retains all support collected.
MASSACHUSETTS	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
MICHIGAN	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
MINNESOTA	State retains all support collected.
MISSISSIPPI	State retains all support collected.
MISSOURI	State retains all support collected.
MONTANA	State retains all support collected.
NEBRASKA	State retains all support collected.
NEVADA	Up to $75 passed-through. Amount disregarded for purposes of eligibility and benefits.
NEW HAMPSHIRE	State retains all support collected.
NEW JERSEY	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
NEW MEXICO	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
NEW YORK	Up to $50 passed-through ⁷. Amount disregarded for purposes of eligibility and benefits.
NORTH CAROLINA	State retains all support collected.
NORTH DAKOTA	State retains all support collected.
OHIO	State retains all support collected.
OKLAHOMA	State retains all support collected.
OREGON	State retains all support collected.
PENNSYLVANIA	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
RHODE ISLAND	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
SOUTH CAROLINA	State passes through and disregards some or all support for purposes of fill-the-gap budgeting.
SOUTH DAKOTA	State retains all support collected.
TENNESSEE	State passes through and disregards some or all support for purposes of fill-the-gap budgeting.
TEXAS	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
UTAH	State retains all support collected.
VERMONT	Under Federal waiver, State has an experimental group and control group. Experimentals get all child support collected on their behalf, up to $50 is disregarded for purposes of benefits. Controls get up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
VIRGINIA	Up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
WASHINGTON	State retains all support collected.
WEST VIRGINIA	State retains all support collected. However, TANF grant for those on whose behalf current support is collected is increased by up to $50 a month.
WISCONSIN	Under Federal waiver, State has small control group and large experimental group. For experimental group, State passes through all support to the family. Full amount disregarded for purposes of benefits. Control group gets up to $50 passed-through. Amount disregarded for purposes of eligibility and benefits.
WYOMING	State retains all support collected.

Information updated based on State survey conducted by Lewin Group.

Change in Distribution Processing

With the intent of improving debt collection for families (in particular, families that are former welfare recipients), PRWORA limits prior State flexibility with regard to distribution practices. The new rules reclassify State-Owed and Custodial Parent-Owed debts at a more detailed level and establish a more defined payoff hierarchy that prevents States from prioritizing State-Owed debt ahead of debt owed to families. Finally, PRWORA rules allow States to select the timing of PRWORA implementation that best meets both State interests and available development resources.

a.160Arrears subclassification. States are now required to subclassify Custodial Parent-Owed and State-Owed Arrears into new subclassification categories. The new subclassifications are designed to help distinguish both the circumstances under which each arrears component was accrued or collected and which component takes priority in the distribution hierarchy. The new subclassifications are as follows:

Permanently Assigned Arrears: The portion of State-Owed Arrears that accrues while the Custodial Parent is receiving public assistance and all pre-October 1, 1997, assigned arrears.

Temporarily Assigned Arrears: The portion of the total State-Owed Arrears remaining after Permanently Assigned Arrears have been removed.

Never-Assigned Arrears: The portion of Custodial Parent-Owed Arrears that accrues following the last period of public assistance.

Unassigned Pre-Assistance Arrears: The portion of Custodial Parent-Owed Arrears that accrues prior to the Custodial Parent8217s last entry into public assistance and that is later unassigned upon exit from public assistance.

Unassigned During-Assistance Arrears:160The portion of Custodial Parent-Owed Arrears that accrues while the Custodial Parent is receiving public assistance and that is unassigned after public assistance ends.

Conditionally Assigned Arrears: Beginning October 1, 2000, for Plan-A (two-step implementation) States, and October 1, 1998, for Plan-B (single-step implementation) States ⁸, States must convert any Temporarily Assigned Arrears to Conditionally Assigned Arrears for all former-assistance cases. Conditionally Assigned Arrears refers to a debt that is owed to the family unless it is collected from the Non Custodial Parent through the Federal Income Tax Refund Offset.

New Subclasses Determine Distribution Hierarchy. A description of the distribution hierarchy for the arrears subclassifications follows in subsection d, Implementation Timeframes.

c.160Requirement To Pay Never-Assigned Arrears First. One of the most visible changes in PRWORA is the requirement that States pay all Never-Assigned Arrears ahead of any State-Owed Arrears. In a former-assistance case, the term 8220Never-Assigned Arrears8221 refers to all arrears that accrue after the end of a family8217s most recent period of assistance.

Implementation Timeframes. As Table 2 indicates, PRWORA established specific timeframes for implementing the changes in distribution policy. These timeframes have the greatest impact on cases where the Custodial Parent formerly received assistance from the State. For these former-assistance cases, PRWORA established three timeframes that impact the distribution of arrears. These timeframes are:

Pre-PRWORA (before PRWORA became applicable)8212

Prior to October 1, 1997
Original two-step PRWORA Implementation Mandate (later called 8220Plan A8221):

Step 1 (resulting in partial PRWORA implementation)8212

October 1, 1997, through September 30, 2000

Step 2 (resulting in full PRWORA implementation)8212

October 1, 2000, and beyond

Plan B (Single-Step PRWORA Implementation Alternative)8212

October 1, 1998, and beyond.

Table 263719Regular (Non-IRS Interrupt) Distribution Payoff-Hierarchy Rules

on Former-Assistance Cases

Prior to PRWORA Implementation:

Priority 163719Monthly current support always paid to family first

Priority 263719Arrears owed to the State and family (specific payoff sequence at State

option).

PRWORA Phase-In Implementation:

8226160Plan A First Step (October 1, 19978722September 30, 2000)

160160Priority 163719Current support to family

160160Priority 263719Never-Assigned Arrears to family

Priority 363719Remaining arrears owed to State and family

(specific payoff sequence at State option).

Full PRWORA Implementation:

8226160Plan A Second Step (October 1, 2000, and beyond)

and

8226160Plan B Single Step Implementation (October 1, 1998, and beyond)

160160Priority 163719Current support to family

160160Priority 263719Never-Assigned Arrears to family

160Priority 363719Unassigned Pre-Assistance Arrears and Conditionally Assigned Arrears to

family (specific payoff sequence at State option)

160160Priority 463719Permanently Assigned Arrears to State

Priority 563719Unassigned During-Assistance Arrears to family, if there is a collection

portion that exceeds the Unreimbursed Assistance balance.

States are subject to increasingly detailed guidelines regarding the prioritizing of Custodial Parent-Owed and State-Owed Arrears distribution within each of these timeframes. A correspondingly greater emphasis is placed on satisfying Custodial Parent-Owed Arrears ahead of State-Owed Arrears, as the arrears payoff hierarchy becomes more regimented. States were encouraged to have certain enhanced-processing capabilities in place by October 1, 1997, to comply with the requirements. These enhanced features included the capability of distinguishing between Permanently Assigned and Temporarily Assigned Arrears and between Never-Assigned and Unassigned Arrears.

Because many States found compliance with the PRWORA Plan-A (two-step implementation) deadline to be problematic, an alternative was established on August 5, 1997, in the Balanced Budget Act of 1997 (BBA), PL 105-33. This alternative was labeled "Plan B," with the original PRWORA directive dubbed "Plan A." Section 5532 of the BBA revised assignment section also added Section 457(b)(6) to the Social Security Act, offering States the option of deferring distribution changes until October 1, 1998, and then implementing distribution changes for former-assistance cases in a single step. This implementation extension was a welcome reprieve; however, it posed a significant disadvantage for some States. With Plan B's one-step implementation, States must fully implement all provisions under PRWORA two full years in advance of the original (Plan A's) October 1, 2000, deadline.

Section 454(24)(B) of the Social Security Act specifies that State automated systems must meet PRWORA requirements by October 1, 2000.⁹ However, as described above, distribution and arrears-assignment processing requirements under PRWORA have earlier implementation deadlines. Policy guidance from OCSE specifies that States must meet the specific effective date for each PRWORA requirement.¹⁰

e.160Summary of Hierarchy Changes. Table 2 above sets forth the distribution hierarchy required for former assistance cases under PRWORA implementation Plans A and B during each implementation period. The table also illustrates areas where States continue to have flexibility in prioritizing arrears payoffs within the distribution hierarchy.

Implications for Pre/Post Welfare Exit63719The elimination of the 45 CFR 302.51(b)(1) and (b)(3) payments described in Section 2 above affect individuals receiving welfare. The PRWORA arrears reclassification and distribution hierarchy changes described in Section 3 above affect individuals who have exited welfare.

Therefore, for the purposes of this study analyzing the impact on welfare recidivism of PRWORA distribution policy changes, the primary focus will be on the effects of arrears reclassification and distribution. Because the continuance or termination of (b)(1) and (b)(3) payments may affect a family8217s overall financial well-being and, therefore, its ability to exit welfare, we believe it is important to consider the impact of State practices on Custodial Parent behavior following the elimination of the pass-through requirement. Although under PRWORA States may provide pass-throughs in excess of the $50 previously required, 26 States have eliminated the pass-through.

The goal of the PRWORA child-support distribution provisions is to create a distribution priority that favors families. By eliminating some State discretion in the distribution hierarchy and requiring that States adhere to the federally determined distribution hierarchy, a larger portion of child-support payments should become available to the family. Providing additional income to the family furthers the PRWORA goal of reducing dependence on public assistance by both hopefully promoting exit from TANF and preventing entry and re-entry to TANF.

III.160Status of State PRWORA Policy Elections

The implementation of PRWORA impacted a wide range of modules within each State8217s child support automated system. This impact stemmed from changes that required States to establish and track new debt types, to adjust distribution-processing hierarchies, and to display and report revised financial activity. Because each State automated system differs in the physical implementation of these logical processes and the programming resources available to complete them, States were found to be at varying stages of completion in implementing PRWORA changes. Twenty-eight jurisdictions have elected PRWORA implementation under Plan A and twenty-six have elected PRWORA implementation under Plan B.

Table 3 ¹¹ shows pre-PRWORA and post-PRWORA State distribution practices, as described above. The chart indicates which States have elected Plan A8217s two-step implementation approach and which have elected Plan B8217s single-step approach. The chart also indicates former pre-PRWORA distribution practices for most States.

Table 363719State Status as of May 1999

State	Plan A	Plan B	Pre-PRWORA Policy
Alabama		X	Family 1st
Alaska	X		Family 1st
Arizona ¹²	X		Mixed
Arkansas		X	State 1st
California		X	State 1st
Colorado	X		State 1st
Connecticut	X		Mixed
Delaware		X	Family 1st
District of Columbia		X	State 1st
Florida	X		Mixed
Georgia		X	State 1st
Guam		X	State 1st
Hawaii		X	State 1st
Idaho		X	State 1st
Illinois		X	Family 1st
Indiana		X	Family 1st
Iowa	X		Family 1st
Kansas	X		State 1st
Kentucky	X