Base Year Level of Program Expenditures for Incentive Reinvestment Purposes

DCL-01-33

JUL 6, 2001

TO: ALL STATE IV-D DIRECTORS

RE: Base Year Level of Program Expenditures for Incentive Reinvestment Purposes

Dear Colleague:

On December 27, 2000, final regulations on the incentive payments and audit penalties requirements were published in the Federal Register at Volume 65 FR 82178 and subsequently sent to the States in OCSE-AT-01-01, dated January 3, 2001. Those regulations provide in section 305.35 for the reinvestment of incentives. Those regulations state:

a) A State must expend the full amount of incentive payments received under this part to supplement, and not supplant, other funds used by the State to carry out IV-D program activities or funds for other activities approved by the Secretary which may contribute to improving the effectiveness or efficiency of the State's IV-D program, including cost-effective contracts with local agencies, whether or not the expenditures for the activity are eligible for reimbursement under this part.

(b) In those States in which incentive payments are passed through to political subdivisions or localities, such payments must be used in accordance with this section.

(c) State IV-D expenditures may not be reduced as a result of the receipt and reinvestment of incentive payments.

(d) A base amount will be determined by subtracting the amount of incentive funds received and reinvested in the State IV-D program for fiscal year 1998 from the total amount expended by the State in the IV-D program during the same period. Alternatively, States have an option of using the average amount of the previous three fiscal years (1996, 1997, and 1998) as a base amount. This base amount of State spending must be maintained in future years. Incentive payments under this part must be used in addition to, and not in lieu of, the base amount.

(e) Requests for approval of expending incentives on activities not currently eligible for funding under the IV-D program, but which would benefit the IV-D program, must be submitted to HHS in accordance with instructions issued by the Commissioner of the Office of Child Support Enforcement.

Per 45 CFR Section 305.35(d), the Office of Child Support Enforcement (OCSE) has calculated the base amount of spending for each State using 1998 expenditure data and as an average of the 1996, 1997, and 1998 expenditures. OCSE will use the 1998 expenditure data as a base amount, unless the State notifies OCSE that the State prefers the average amount of the three previous fiscal years. The enclosed tables show two ways of calculating the base amount of program expenditures for incentive reinvestment purposes. The first table shows the 1998 State share of administrative expenditures less actual incentive payments by State. The second table shows the average State share of administrative expenditures for fiscal years 1996, 1997, and 1998 less actual incentive payments for fiscal year 1998.

If you have already notified OCSE, in writing, your desire to use the average base amount, it is not necessary to reply to this notice, unless you wish to change back to the 1998 base. (To date we have received requests from three States -- New Jersey, New York and South Dakota -- requesting the use of the three-year average of expenditures in the calculation of the base amount.) If you have any questions on this matter, please contact Dennis Putze (202) 401-4030.

Sincerely,

Frank Fuentes
Acting Commissioner
Office of Child Support Enforcement

Attachments

Table 1 - 1998 State Share of Administrative Expenditures and Actual Incentive Payments

Table 2 - The Average of FY 1996 - 1998 State Share of Administrative Expenditures