Chapter 1. Introduction

In this chapter

1.1 Background
1.2 Purpose of this Study
1.3 Methodology
1.4 Outline of Report

1.1. Background

1.1.1. Legislative History

In recent years, federal and state governments have taken a number of actions to strengthen the nation’s child support system. One chief policy concern is that child support awards, over time, may not keep pace with non-custodial parent earnings or the cost associated with raising a child. For example, Department of Health and Human Services Office of Evaluation and Inspections (OEI) studies from the 1980s demonstrated that many child support orders had been established when the non-custodial parents were young and/or earned little money; once established, these orders were seldom reviewed and adjusted.^[1]

The 1988 Family Support Act (FSA) mandated that states periodically review and adjust child support orders. The rationale behind review and adjustment was to ensure that child support awards were equitable, sufficient, and commensurate with parents’ income. Child support awards are almost always expressed in fixed dollar amounts; over time the needs of the child and the financial circumstances of both parents may change. The FSA required periodic review and adjustment of child support orders administered by state child support enforcement agencies. Specifically, state child support agencies had to review and adjust public assistance cases at least every three years; parents from non-public assistance cases could request reviews. Medical support was to be ordered if the non-custodial parent’s employer made it available.

The federal government widened the scope of the review and adjustment process in 1993. A child support provision—enacted through the Omnibus Budget Reconciliation Act (OBRA) of 1993—allowed parents to request a review and modification under the state’s guidelines at least once every three years without proving a substantial change in circumstances .

In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), which replaced the Aid to Families with Dependent Children program with Temporary Assistance for Needy Families (TANF). PRWORA relaxed the federal requirements for mandatory review and adjustment of child support orders. Under PRWORA, periodic reviews are no longer required. Instead, states must review orders every three years at the request of either parent, or at the request of the state child support agency. States must notify all custodial and non-custodial parents, both TANF and non-TANF cases, of their right to a review every three years. States can also initiate reviews for TANF cases.

1.1.2. Evaluations of Review and Adjustment

Several demonstration projects tested review and adjustment procedures—some before states were required to do so by the FSA. For example:

In the late 1980’s the Wisconsin legislature authorized the Wisconsin Order Revision Project, a pilot project designed to systematically review and revise child support orders more than three years old to ensure their adequacy.^[2]
Just prior to the passage of the FSA, the Office of Child Support Enforcement (OCSE) funded the Oregon Child Support Updating Project to develop and test a strategy for periodic review and adjustment of child support orders.^[3]
Under authorization of the FSA, in early 1990, OCSE funded review and adjustment demonstration projects in four states: Delaware, Colorado, Florida, and Illinois.^[4]

In general, the research showed:

Review did not automatically lead to adjustments. Relatively few cases—between 4% (Florida) and 14% (Oregon)—selected for review were ultimately revised.^[5] Researchers attributed the low levels of revision across states to state staffing levels, case selection criteria, and parental cooperation.
Order adjustments were typically upward. The Oregon study found 81% of adjustments increased the order and 19% decreased the order. In the four FSA demonstration states, researchers estimated that 92% of adjustments were upward, 5% downward, and the balance involved new provisions for medical support and/or immediate wage withholding. Some states did not select for review cases that might have been eligible for downward modifications.
Adjustment was sizeable when orders were revised. Across the studies, average awards for public assistance cases (across both upward and downward adjustments) increased from 68% to 102%. Average awards for non-public assistance cases (across upward and downward adjustments) increased from 54% to 66%.
Findings on order compliance after adjustments were mixed. Averaged across the four FSA evaluation states, researchers estimated that the order compliance rates were the same (65%) before and after the modification; however, they found compliance for Colorado’s AFDC cases increased significantly (from 54% to 65%). In the Oregon study, researchers estimated that the overall compliance rate declined (from 70% to 64%).
Review and adjustment was cost beneficial from a governmental budget perspective. The four-state study estimated that review and adjustment was cost effective; overall, the benefit-cost ratio was 2.71. The benefit-cost ratio compared net reductions in cash assistance transfers attributable to the increase in child support payments to the administrative cost of the review and adjustment process.

It should be noted that these findings on review and adjustment, while illustrative, are now almost a decade old and much has changed in the child support area since their publication. For a number of child support cases examined in these studies, states were applying federally mandated guidelines for the first time during the review process. Today, with guidelines applied almost universally to new orders, the adjustment rates and amounts might be lower than those measured in the studies. Also, the TANF program today is very different from the AFDC program that existed in the early 1990s. Consequently, we would expect that an updated study on review and adjustment would likely yield different budgetary savings estimates than those discussed here.

Other research studies have attempted to simulate how widespread review and adjustment (including cases outside the IV-D system) might affect the size of awards. Barnow^[6] used the National Longitudinal Study of the High School Class of 1972 to estimate the size of child support awards three years post-divorce for three typical guideline structures (percentage of income, income shares, and Melson formula).^[7] We report Barnow’s key findings below.

Percentage of income simulations. The guidelines consider only the income of the non-custodial parent. Assuming the non-custodial parent had a median income and a median income change over three years, the child support award would increase from $283 per month (1990 dollars) to $329. Thirty percent of awards would increase at least $188 per month; 20% by at least $220. About 20% of awards would decrease, 10% by at least $280 per month.
Income shares simulations. An income shares guideline considers the income of both parents. Parents with median incomes at the time of a divorce—and median gains in incomes after their divorce—would see child support awards increase modestly, from $383 to $398 per month.
Melson formula simulations. The guidelines compute a support rate from the non-custodial parent’s income, but also use the custodial parent’s income in determining the amount of support because both parents contribute to child care and the basic needs of the child in proportion to their incomes. The study found custodial and non-custodial parents with median incomes would see a reduction in the child support award after a review (from $445 to $398).

Largely consistent with the findings of the demonstration evaluations, Barnow concluded, “periodic reviews would lead to modest changes in child support in many cases, particularly in income shares states, but for a significant minority of cases there would be a substantial change in the size of the order.”

1.1.3. Current Policy Context

Many states reported difficulty in implementing review and adjustment. Caseworkers had to obtain updated financial information about one or both of the parents, and in many states, also had to explore the families’ child care costs, health insurance premiums, and other child-related costs. State IV-D directors suggested that the mandate was drawing staff away from paternity establishment and enforcement.

As stated above, PRWORA relaxed the requirement that states review and adjust orders. Under PRWORA, states may continue to conduct traditional reviews—as under prior law—by comparing wage and other information to child support guidelines to determine if an adjustment is appropriate. States also have the option of adjusting child support orders using the following methods:

Cost-of-living adjustments (COLA) that alter orders periodically without reviews.
An automated method to identify orders eligible for review and to apply the appropriate adjustment to the orders based on a threshold amount established by the state.

With any of these adjustment methods, the state IV-D agency must notify the affected parties of the proposed change and offer an opportunity to appeal.

As of 1999, state policies on review and adjustment were still evolving. An OEI report provides the most current description of states’ methods of review and adjustment in the post-PRWORA environment.^[8] Conclusions in the report were:

Many states were still determining which methods they will use to review and adjust child support orders.
Thirty-two states discontinued or plan to discontinue the triennial review of TANF cases. Most child support orders will not be reviewed unless a parent requests the review or a IV-D worker elects to initiate a review.
Minnesota, Iowa, and New York used the COLA method to adjust support orders (as of September 1998).^[9]
No states were using PRWORA’s automated review option. Four states, Alaska, Maine, Oklahoma, and Vermont, received grants from the Office of Child Support Enforcement (OCSE) to experiment with methods for the automated review option.

OEI noted that it was too early to know what effect discontinuation of mandatory review and adjustment would have on child support collections. They hypothesized, however, that potential increases in public assistance collections could be forfeited. Also, public assistance clients whose orders are not reviewed and adjusted periodically might have more difficulty attaining self-sufficiency once they leave welfare. Non-custodial parents also could be affected. Small, periodic increases from reviews and adjustments might be easier to comply with than a larger adjustment after a long period of time. Additionally, reviews and adjustments might result in decreased awards for non-custodial parents whose income is not commensurate with the award amount.

1.2. Purpose of this Study

As noted above, given the cost and complexity of traditional reviews, a number of states are considering, or have implemented, one of the two new approaches authorized in PRWORA (i.e., automated methods or a COLA). The automatic adjustment attempts to mimic a traditional review and adjustment by matching child support orders against computerized state data (e.g., tax or wage records) to determine if adjustments are appropriate. A COLA, however, is a very different process, often with different outcomes. COLAs, by definition, increase awards by some designated level of inflation (e.g., the Consumer Price Index for Urban Areas). Usually, COLAs are applied to all orders that reach a given threshold (e.g., two years since last adjustment). Thus, if the CPI increased 6%, the order would increase by that amount. Generally speaking, when compared to traditional reviews and adjustments, COLAs adjust more awards, the adjustments are always upward, but the increases are smaller. COLAs are not intended as a substitute for review and adjustment. Rather, they serve as a device for adjusting awards to keep pace with the increased incomes of parents and expenses of raising a child. In states that adopt a COLA or automated review and adjustment, parents continue to have the right to request a traditional, manual review of an order.

This report focuses principally on COLA adjustments. OCSE funded the Lewin Group and ECONorthwest to review automated systems already in place at the state level. We reviewed the COLA legislative processes, the stakeholders who were involved, the steps the states took to implement their COLA systems, the fiscal outcomes both for the parents and the states, and assessments of the pros and cons of a COLA system. We also examined the proposed automated adjustment in one of the demonstration sites. Specifically, our study reviewed the policies of three states:

Minnesota has incorporated a COLA provision into child-support awards since 1983. The state adjusts most orders on a biennial basis, using CPI figures provided by the Department of Labor.
New York adopted a COLA policy in 1998. The state adjusts orders if the CPI has increased by 10% and at least two years have elapsed since the time the order was established or last adjusted.
Vermont studied the feasibility of automatically adjusting awards. The evaluated approach would draw income information from electronic sources and automatically update orders based on an income-shares model. As an alternative to automated adjustment, Vermont is also evaluating a COLA modeled on New York’s process.

The study outlines a number of key issues and challenges that states face in implementing COLA or automated adjustment systems. The Minnesota and New York chapters provide details on the development, design, and implementation of a COLA process. We discuss the process from the perspectives of each of the key child support stakeholders: custodial and non-custodial parents, the IV-D agency, frontline workers, court personnel, and legislative staff. In describing the Minnesota and New York processes, we provide a road map for states and other parties interested in adopting and implementing a COLA system. We also report the policies’ estimated effect on order levels and collections. The study is not intended to serve as an evaluation of the state COLA programs.

The Vermont chapter summarizes that state’s recent effort to develop an automated adjustment system, which was originally envisioned by designers as being distinct from a COLA. Vermont’s experience highlights the challenges a state might face in attempting to automate the adjustment of orders based on a complex guidelines model.

1.3. Methodology

For this study, we contacted the IV-D directors in Minnesota and New York to explain the purpose of the study and schedule interviews on site. In June and July 2000, we conducted three-day site visits to interview a range of stakeholders:

State IV-D staff
County-level IV-D staff
Court representatives
State legislature staff
Advocates for custodial and non-custodial parents.

We also requested that Minnesota and New York provide estimates of the COLA’s impact on child support orders and collections.

In addition, we conducted phone interviews with officials in the Vermont IV-D office to learn about the status of the state’s automated system demonstration project. We also collected published and unpublished reports from the state’s child support contractor, Policy Studies, Inc.

1.4. Outline of Report

Chapter II explores the COLA process in Minnesota, including methods for COLA calculations and appeals. It also describes policy development, implementation, the role of advocates, and staff workloads. It concludes with staff and advocate perceptions.

Chapter III describes the COLA process in New York including how various parties can appeal the COLA decision. This chapter also describes who advanced the COLA process in the policy arena; what problems, if any, arose during implementation; and the nature of IV-D staff training. Finally, it addresses the perceptions of IV-D and court staff, as well as advocates, about the COLA, and suggested changes.

Chapter IV examines Vermont’s efforts to implement an automated review and adjustment system.

Chapter V highlights the key policy decisions and challenges IV-D directors would face if they elected to implement a COLA or automated adjustment process.

The Appendices provide various COLA-related documents from the states.

^[1] See U.S. Department of Health and Human Services, Office of the Inspector General: Child Support Enforcement Collections on AFDC Cases—Modification of Court Orders (OEI-05-86-00035) and Child Support Enforcement Collection for Non-AFDC Clients (OEI-05-88-00340).

^[2]Kost, Kathleen et al. Revising Old Child Support Orders: The Wisconsin Experience . Institute for Research on Poverty, University of Wisconsin. 1995.

^[3]Price, David et al. Oregon Child Support Updating Project: Final Report . Policy Studies, Inc. 1991.

^[4]Bishop, Sharon. Evaluation of Child Support Review and Modification Demonstrations in Four States: Cross-Site Final Report. Caliber Associates. 1992.

^[5]For public assistance cases, many cases were not revised because of the poor economic circumstances of the non-custodial parents. Many non-public assistance cases were not revised due to a lack of permission to proceed from the custodial parents.

^[6]Barnow, Burt, Aron, Laudan and Daniel Mendelson. Extending Periodic Review and Adjustment to All Child Support Orders: An Assessment of the Evidence . Lewin/ICF. 1993.

^[7]Simulations assumed that the same guidelines were used for establishing and reviewing order.

^[8]See Gibbs Brown, J. Review and Adjustment of Support Orders . DHHS Office of the Inspector General (OEI-05-98-00100). March 1999.

^[9]Unlike Minnesota and New York, the COLA process in Iowa is not automated. The state applies COLAs only at the joint request of the custodial and non-custodial parents. The state allows a COLA request only if two years have passed since the support order's last review. The state applies COLAs only one time in response to each request. If, after the two subsequent years, the parents would like the COLA to be applied again, they must submit a new request.