Incentive Funding Workgroup

Introduction

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) requires the Secretary of Health and Human Services, in consultation with directors of State Child Support Enforcement (IV-D) programs, to recommend to Congress a new incentive funding system for the States which is to be based on program performance.

This report summarizes the recommendations of the Incentive Funding Work Group, which was convened by the Office of Child Support Enforcement (OCSE) in the Administration of Children and Families (ACF) at the Department of Health and Human Services. The Work Group, which consists of 26 representatives of State and local IV-D programs, HHS regional offices, and the OCSE central office met three times between November, 1996 and January, 1997. Between each of these meetings, the Work Group circulated its decisions and recommendations among all of the other States, region by region, and got feedback and reactions to decisions which were then incorporated into the discussion and recommendations of the following session. This report includes the final recommendations of the Work Group. With the exception of one dissenting State, the group reached consensus on these final recommendations.

The recommendations of the Incentive Funding Work Group were built on the earlier efforts of a joint OCSE-State Performance Measures Work Group, which met between March 1995 and July 1996. These efforts grew out of the work that had been done by OCSE and the States, as part of a pilot program for the Government Performance and Responsibility Act, to develop a five year National Strategic Plan for the Office of Child Support Enforcement and its State partners.

The Incentive Funding Work Group recommends that five key performance measures be used to evaluate each State's performance and measure results in the Child Support Enforcement program. These measures emphasize paternity establishment, support order establishment, collection of current support, collection of arrearages, and cost effectiveness. Incentives would be paid to the States based on each State's weighted scores on each of these measures and calculated and paid as a percentage of the State's child support collections. The details of this formula will be discussed below.

The Incentive Funding Work Group urges that the entire incentive funding formula be viewed as a whole package, of which the individual pieces fit together to achieve a package of desired results. Alteration of any one piece of the formula could shift the entire intended impact of the incentives in an undesirable way. The Work Group stresses that the near total consensus among the partners supporting this formula depends on the adoption of the package as a whole.

There is still work to be done to define each factor in each measure so that all States are counting the same things, whether cases, collections, or expenditures, and counting them consistently. The Work Group will meet again to settle any outstanding definitional issues. Many of these have already been addressed through the work of the OCSE Measuring Excellence Through Statistics (METS) initiative. The Work Group agreed to adopt the definitions contained in the Outcome Measures document, e.g., cases in which there is no jurisdiction should be excluded.

In this report, the principles and constraints that guided the group's decisions are discussed. The general themes that are consistent in all measures are presented. Then each measure is presented in detail. Finally, there is a discussion about the relative importance of each measure and the determination of the collections on which the incentive funding is to be based.

Summary of Recommendations

Measures. The incentive system for State child support programs should measure State performance in five areas: establishment of paternities, establishment of child support orders, collections on current child support due, collection on past child support due (arrears), and cost effectiveness.

Standards. The incentive system should provide additional monetary payments to States based upon State performance for each of the five measures. The amount of incentive for a particular measure should be based upon established standards of performance.

Collection Base. The amount of potential incentive payments available to each individual State should be based upon a percentage of its own State collections - its "collection base." The collection base should include collections in both Temporary Assistance to Needy Families (TANF) cases and non-TANF cases. However, collections in TANF cases and former TANF cases should be given more weight.

Phase In. The new incentive system should be phased in over a one year period beginning in fiscal year 2000.

Reinvestment. Incentive payments received by a State should be reinvested in the State child support program.

Maintain FFP. The Federal Financial Participation (FFP) rate for State program expenditures should remain at 66 percent.

Review Mechanism. The new incentive system should be reviewed on a periodic basis to ensure that it continues to reward program goals.

Principles

In order to develop the incentive funding measures, the Work Group agreed to certain fundamental principles which would guide their discussion and decisions.

The Child Support Enforcement Program will put children first by creating an incentive funding formula that...

• is performance-based, encouraging improved program outcomes;
• helps to achieve the goals articulated in the OCSE National Strategic Plan and avoids unintended consequences;
• continues to respond promptly to improvements in the desired area of performance;
• recognizes maintenance of high performance as well as improvement in performance level;
• requires that incentive dollars and Federal matching funds be invested in the Child Support Enforcement program;
• includes a mechanism that will allow the committee or the Secretary to review and change the formula in the future, if necessary, based on an evaluation of the results;
• treats all children equitably;
• is simple.

Performance Based

The PRWORA legislation mandates that a new incentive funding formula based on performance should be proposed. In each of the five recommended measures, a State's performance in a specific program area (paternity, order establishment, current support collection, arrears collections, and cost effectiveness) is measured using a mathematical formula. All States that achieve performance above a specified minimum score in each ofthe five measures are entitled to some portion of a maximum possible incentive. In four of the measures, the maximum incentive is available to those States scoring above a threshold of 80%. This target recognizes that for each measure there are factors which will make achievement of a perfect 100% score, whether for establishing paternity or collecting on current support, impossible. Some cases are beyond the control of the IV-D agency. In some wage withholding cases, because of the peculiarities of the calendar and payments cycles, payments may be attributed to arrearages. In the last formula, where there is no upper limit, the maximum incentive is achievable at a cost/effectiveness ratio above 5.0 (i.e, $5 of child support is collected for each $1 spent to collect it).

The formulas each have lower limits below which incentives are not paid unless the State makes a large increase over the previous year's performance. These lower limits were set by examining current performance data.

Goals of the Strategic Plan

In February, 1995, the Federal Office of Child Support Enforcement and its State partners achieved consensus on the adoption of a National Strategic Plan for the program. The Plan consists of three major goals, as well as a number of objectives for each of the goals. This effort was a result of OCSE's participating as a pilot program for the Government Performance and Results Act.

After developing the goals and objectives for the Strategic Plan, the next step was to develop performance measures which would be used to measure results and the program's success in achieving the goals and objectives. A representative group, including some members of the Core Team that developed the Strategic Plan, Federal staff and State representatives, met over many months to develop these performance measures, which were agreed to by the States in July, 1996.

The Incentive Funding Work Group based much of its work on the groundwork done by the GPRA Performance Measure Work Group. The paternity establishment measure is derived from Goal I of the Strategic Plan, All Children Have Parentage Established. The order establishment measure comes from Goal II, All Children in IV-D Cases Have Financial and Medical Support Orders. The last three measures on current collections, arrears collections and cost effectiveness derive from Goal III, All Children in IV-D Cases Receive Financial and Medical Support from Both Parents. In this goal, there are several objectives, including "to increase the collection rate" and "to make the process more efficient and responsive." The measures specifically address these objectives.

The Incentive Work Group also worked to ensure that no performance measure would reward negative "unintended consequences." There was an effort to examine all ways aprogram might attempt to improve its score on a measure and to remove any measure that would lead to behavior that would hurt the program. The Group recognizes that it is impossible to anticipate and avoid all unintended consequences and has built in a mechanism for future adjustments in the formula. (See Review Mechanism.)

Prompt Response to Program Improvements

The incentive funds, which will be paid quarterly based on the program performance achieved during the prior Federal fiscal year, recognizes improvements each year. The higher the score on a measure, the higher the proportion of incentive money that can be earned. Furthermore, those States with very low scores can earn a portion of the incentive money if they demonstrate substantial improvement in program performance over the prior year's performance. In most cases, a low scoring State must improve its own performance at least 5% to be eligible for any incentive payment. For the paternity measure, performance in the lower ranges must improve by at least 10%.

Recognizes Maintenance of High Performance

In addition to rewarding a program's improvement, the Work Group felt strongly that those States that were successful at maintaining a high performance level should be rewarded. For this reason, the absolute score a State achieves dictates the proportion of incentive that it can earn at the higher levels, while improvement over the prior year's performance was not a requirement of the formulae at these higher levels. There is a recognition that a State achieving a very high level of performance will have a much harder time improving its performance than will a State at a lower level and must invest substantial resources to maintain the high performance.

Requires Program Reinvestment

The Work Group strongly recommends that States be required to reinvest federal dollars into the Child Support Enforcement program rather than diverting them to other programs, however worthwhile. This will ensure continued improvement, adequate resources, and the maintenance of high performance levels.

Review Mechanism

There were two major difficulties that faced the Work Group in developing an incentive funding formula for the future. First, the group recognized that it was making arecommendation for a formula that would not be put into effect until FY 2000. With the passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, the Child Support Enforcement program is likely to change dramatically in the next few years. The effects on TANF and non-TANF caseloads are uncertain. This limits the reliability of the data upon which the recommendations of the Work Group are based. Because of these and other uncertainties about the program, the group felt that it was essential to build into the incentive funding formula a mechanism that would allow the Secretary, in consultation with the States, to review the program's results and examine any unanticipated and/or unintended consequences of the proposed formula and recommend changes based on these actual results every three to five years.

The group recommends that in the future a welfare cost avoidance measure be included at such time as a more reliable measure is developed.

It is essential that every effort be made to ensure that the performance data on which incentive payments will be made be reliable. While automation should improve the quality of the data, OCSE's audit staff will need to examine how the States are reporting data and help the States achieve reliable data reporting. This is anticipated under PRWORA, in new responsibilities for Federal audits.

Treat All Children Equitably

The recommended incentive funding formula is intended to continue the Child Support Enforcement program's effort to put children first. It has tried to ensure that children are served equitably and without discrimination by maintaining a balance between emphasizing the needs of TANF recipients, large and small States, interstate and intrastate cases, etc. The Work Group neither expected nor intended there to be any reduced efforts as a result of a State's earning less money based on performance.

Simplicity

The Work Group strived to reach consensus on a formula that would be simple to understand and administer, which at the same time would meet all of the above criteria. By taking a similar approach to each measure, in which outcomes were rewarded proportionately at the upper levels of performance, and substantial improvement was rewarded at the lower performance levels, the group attempted to achieve a degree of consistency and simplicity.

Considerations

At the same time that the Incentive Funding Work Group was guided by some fundamental principles, it tried to keep in mind some realistic constraints and process considerations in its deliberations. They wanted to recommend a formula that could be accepted by all who would be affected. These considerations, listed below, also affected the group's recommendations.

1. The formula recommended should be politically viable. All stakeholders should be considered. Stakeholder concerns were anticipated and addressed at every step of the process. The concerns with respect to each aspect of the formula were addressed and resolved.
2. Some States will lose money under a cost neutral new incentive funding scheme based on performance. Because the current system is not performance-based, each State is guaranteed to receive a minimum of 6% of collections in incentives. By moving to a formula that is based on performance and, at the same time, is cost neutral for the Federal government, some States will certainly lose incentive money in the future unless they improve their performance.
3. There must be built in flexibility to change the system (based on consultation with the States) if it is not working properly. If unintended consequences are discovered, the system should be changed. The world will change dramatically under welfare reform and the proposed formula might need to be changed because of that. Also, in the future, with welfare reform, it is possible that the a measure could be developed to look at cost avoidance.
4. There should be as much advance notice to States as possible to allow for proper preparation, planning, and performance improvement. Advance planning time is necessary for budgeting purposes, for example. States need time to prepare for and achieve data reliability. There will be an incentive for States to clean up their caseloads.
5. The recommended incentive funding system should avoid possibilities of "gaming" the system and should also encourage early implementation by the States.
6. States should fund some part of their Child Support Enforcement program. They are mandated to fund 34% of the program. The Work Group expressed concern about those States that are "making profits" on the Child Support Enforcement program without returning these benefits to the program. The Work Group also felt that it was important to maintain the current level of federal financial participation (FFP) at 66%. Continued funding at the present level is critical to ensure that states have the necessary staff and resources to meet the new requirements and challenges.
7. States should continue to worry about working the "tough" cases and about timeliness of service delivery. There is a critical need to reward success in assistance cases and former assistance cases.

General Themes

As mentioned previously, in order to keep the incentive funding formula relatively simple to understand, explain, and administer, there are certain consistencies in approach across all five measures. Also, there is a logic to the five measures chosen as they emphasize the logical development stages in a child support enforcement case: establishing paternity, establishing a support order, collecting current support due, collecting any arrears owed, and doing all of this in a cost effective manner.

States want their performance to be judged and compared with their own performance in the previous year. These measures are constructed to compare a State's performance to itself, not to a "national average."

In each case, there is an upper threshold for each State to achieve, most often set at 80% (and 5:1 ratio of collections to costs for the cost effectiveness measure). Any State that achieves this performance level, or any level above this, is entitled to the full incentive for that measure. The reasons for the 80% vary across the measures, but in general they include a recognition that this is a level that States can realistically strive to achieve. At the same time, the 80% recognizes that there will always be some cases in the caseload which, for a variety of reasons, will be impossible to work successfully.

At the lower end of the scale in each case, there is a minimum level below which the group felt that performance should not be rewarded unless a State demonstrates a substantial improvement over the prior year's performance. The group believes that substantial improvement should be recognized with some incentive funding, though never more than half of the maximum incentive possible. (The cost effectiveness measure is the exception to this rule.) This mechanism allows them some access to funding if the program is moving sufficiently quickly in the right direction.

Paternity Measure

The first measure is based on the Paternity Establishment Percentage as defined in the Personal Responsibility and Work Opportunity Reconciliation Act on 1996. Under PRWORA, States may use either one of the following two measures:

1. IV-D Paternity Establishment Percentage:
   The ratio that the total number of children in the IV-D caseload in the fiscal year or, at the option of the State, as of the end of the fiscal year, who have been born out of wedlock, the paternity of whom has been established or acknowledged bears to the total number of children in the IV-D caseload as of the end of the preceding fiscal year who were born out of wedlock.
   Equation:

   Total # of Children in IV-D Caseload in the Fiscal Year or, at the option of the State, as of the end of the Fiscal Year who were born out of wedlock with Paternity Established or Acknowledged

   divided by (÷)

   Total # of Children in IV-D Caseload as of the end of the preceding Fiscal Year who were Born Out of Wedlock

2. Statewide Paternity Establishment Percentage:

   The ratio that the total number of minor children who have been born out of wedlock and the paternity has been established or acknowledged during the fiscal year, bears to the total number of children born out of wedlock during the preceding fiscal year.

   Equation:

   Total # of Minor Children who have been Born Out of Wedlock and the Paternity has been Established or Acknowledged During the Fiscal Year

   divided by (÷)

   Total # of Children Born Out of Wedlock During the Preceding Fiscal Year

   This measure is unique among the five measures in that, by statute, there are currently penalties based on the paternity measure. States are required to improve their performance by a specific amount or they are subject to penalties. The Work Group considered whether the incentives based on this measure should reflect, in some manner, the penalty scoring system. For example, the penalty system requires that States demonstrate improved performance over the previous year. There was a concern about whether States should be subject to penalties and be eligible for incentives at the same time. Some felt that the lack of incentive would make these States doubly penalized by not improving performance. The group concluded that States should be eligible for incentives based on performance even if they were subject to penalties because their performance had not improved to the extent required to avoid the penalty. An example illustrates the rationale for this. If a State is at an 85% performance level one year, and increases to 86% the following year, it would be subject to a penalty for not achieving a 2% increase in performance. The Incentive Funding Work Group felt that the State should be rewarded for its high level of performance by receiving 100% of the possible incentive to encourage sustained performance. The paternity incentive is an integral part of the recognition and reward of State performance in the range of required program results, and, as such, merits distinction regardless of the potential for a penalty. The scale for the incentive funding on paternity is shown below:

   Paternity Establishment Percentage

   Performance Level	% of Maximum Incentive
   80% and above	100%
   79%	98%
   78%	96%
   77%	94%
   76%	92%
   75%	90%
   74%	88%
   73%	86%
   72%	84%
   71%	82%
   70%	80%
   51% - 69% (increases by 1% increments)	61% - 78% (increases by 1% increments)
   50%	60%
   49% and below	50% if increase by at least 10%

    

   If a State is performing at the 70% level, it is eligible for 80% of the incentive for this measure. If it is performing at the 77% level, it is eligible for 94% of the incentive for this measure. If performance drops from one year at 72% to the next year at 69%, the incentive percentage drops from 84% to 78%, but does not disappear altogether. If a State is at 48%, in order for that State to receive a percentage of incentive, it must have improved at least 10 percentage points over its prior year's performance. That is, the State would have had to have been at or below 38% the previous year in order to receive 50% of the incentive.

Cases with Support Orders

The second measure looks at the percentage of cases in the IV-D caseload that have orders for support. The equation to compute the incentive is as follows:

Again, this measure has a sliding scale so that an increased performance earns a higher level of the incentive. Any score above 80% earns the maximum possible incentive. Any score below 49% requires an improvement of at least 5% over the previous year's performance. The table below illustrates the scoring on this measure:

Collections on Current Support

The third measure focuses on the proportion of current support due that is collected on IV-D cases. This measure was felt to be very important because it gets to the crux of the program: regularly and dependably collecting support money that is due families.

The proportion of current support collected is expressed by the following formula:

The scoring for this measure is very similar to the one used for the first and second measures. However, the lower threshold is 39% for this measure, as opposed to 49% for the previous measure. This lower threshold is based on an examination of current collection data.

Collections on Arrears

The fourth measure assesses efforts to collect money from those cases with an arrearage due. While the group wanted to emphasize the importance of collecting regularly the current support due to a family, they felt that it was important to include a measure that assessed the efforts to collect arrears owed.

This measure focuses on how well States are doing at collecting some amount of money on those cases having an arrearage. The measure specifically counts paying cases, and not total arrears dollars collected, because States have very different methods of handling certain aspects of arrears cases, such as their ability to write off bad debt or debt which is almost certainly "uncollectible." Some States aggressively seek judgments for unreimbursed assistance under State law. They also have different policies on case closure. Additionally, some States charge interest on arrears, which is considered additional arrearages, while others do not. In many cases, large arrearages already exist when an individual applies for assistance or seeks services under the program. Given these differences in practice, the group found no tenable method for completely leveling the playing field among the States. The measure selected comes as close as possible. In this measure, the group recognized the strong expectation of policy makers that inroads be made on the collection of the mounting arrearage.

The equation for this measure is below:

The scoring on this measure is similar to the previous two measures. However, there is a lower bottom threshold on this measure because of the difficulty in collecting on arrears cases, as seen evident in current performance data.

Cost Effectiveness

The final measure assesses the total dollars collected in the Child Support Enforcement program for each dollar expended. Currently, cost effectiveness is the only measure on which States are being judged. However, in the new incentive formula, unlike in current practice, total costs and collections are measured: there is no provision for separating assistance versus non-assistance collections over costs.

There are a number of reasons for looking at all costs together in the future. The greatest reason is the need to avoid continuing the perverse incentive in the current formula. States are better off under the current formula if families stay on public assistance. With welfare reform, the goal is fewer and fewer TANF cases as people move toward self-sufficiency. The formula should support, not subvert, this goal. It is also very difficult, and sometimes arbitrary, to reward these efforts separately.

The equation for cost effectiveness is as follows:

The incentives would be based on the scoring in the table below:

This is the only measure for which there is no incentive given below a specific score, even if significant improvement occurs. The group felt that if the cost effectiveness ratio falls below 1.99, the State should earn no incentive because performance below that level is unacceptable.

Weighting the Measures

Each State will earn five incentives based on performance on each of the five measures. However, there was a strong feeling among members of the Work Group that the measures were not of equal importance and should not carry an equal weight. After much discussion, the decision was reached to count the first three measures (paternity and order establishment and collections on current support) slightly more heavily than the last two (collections on arrears and cost effectiveness). For each of the first three measures, a 100% score earns 1% of the "expanded collections" as defined below. Lower scores earn a proportion of the 1%. The last two measures are worth at a maximum .75% of the "expanded collections." Lower scores, again, earn a lower proportion of this .75%. The choice of 1% and .75% derive from the necessity of using a cost-neutrality factor that, will ensure that the amount of incentive money paid out under the new formula approximates the amount that would be paid under the current system. Minor adjustments can be made in the percentages chosen, if necessary, when final CBO projections are made.

It should be noted that the weighting of the measures is one of the areas that people felt might need revisiting after the program is in effect for a few years. At that time, simplicity may dictate giving all measures an equal weight. Or, on the other hand, the Child Support Enforcement program may seek to emphasize one aspect of the program over others. Shifting the weights of the measures accomplishes that aim.

Incentives based on Collections

The current incentive system is based on total TANF collections and non-TANF collections capped at 115% of TANF collections. Non-TANF collections, as currently defined, includes collections from former TANF cases. There are several problems that States are experiencing with this formula which will be exacerbated in the future. First, those States for whom a large percentage of the caseload is non-TANF are being penalized because they cannot count all of their non-TANF collections. This may not have been a problem when the cap was first established, but as States are successfully moving people off of assistance, the penalty continues. Additionally, it is possible that the number of assistance cases will decrease over time as the implementation of welfare reform moves people toward self-sufficiency. The result of this success would be a smaller and smaller number of assistance cases and collections which would result in fewer incentive dollars available to the States. Another result of capping the non-TANF collections is that States have less incentive to work non-TANF cases once the State has reached the cap. The Work Group felt that States ought to be rewarded and encouraged to work all cases. Therefore, the incentive base ought to include all non-TANF cases without a cap.

The Work Group felt that it was especially important to ensure that States had significant incentives to work TANF cases and former TANF cases. Collection of child support for these groups is especially important to assist TANF recipients to leave welfare and to help them achieve self sufficiency so that they do not return to welfare. Sincecollection in TANF and former TANF cases is generally more difficult than in non-TANF cases, and non-TANF collections are rising at a faster rate, it is sensible to provide a heavier emphasis on collection in TANF and former TANF cases. In addition, collections in TANF cases provides direct savings to the State and Federal governments. Therefore, the Work Group recommends adding collections made on former TANF cases to collections made on TANF cases and doubling these collections in the formula to give them extra emphasis. This has the added benefit of mitigating the impact of the change from the current incentive system with its cap on the non-TANF collections so that the potential collection base would be more equitable to States. The formula that the Work Group recommends is as follows:

Phase In

There is no question that certain States will lose money by using the new incentive funding formula, which is required to be cost neutral. To migrate from a system that guarantees a minimum incentive to everyone, regardless of performance, to a system that is based on rewarding performance, some States will receive lower incentives. To mitigate the loss of incentive funds that have been used to fund the program over the years, the group recommends that the new formula be phased in over a one year period. To accomplish this, for fiscal year 2000, a State would earn half of what it would have earned under the old incentive formula and half of what it earns under the new proposed formula. In fiscal year 2001, the new formula would be fully implemented.

Example

To illustrate the way the incentive funding formula would work, we will take the hypothetical case of the State of Xanadu. Let's assume that for Xanadu, the incentive funding base as defined previously is $50,000,000. The incentive funding base is multiplied by the maximum values established for the measures, e.g., 1% for the first three measures and .75% for the last two measures. The product of that calculation is found in column B below. The following table illustrates the scores that Xanadu received on the five performance measures and their maximum value derived from standards tables for the five measures. Given these scores, the next step would be to multiply each score by the maximum value of the measure to get a total incentive amount.

Conclusion

This report of the Incentive Funding Workgroup to the Secretary of Health and Human Services to the Congress recommends a new incentive funding formula for the child support enforcement program that recognizes a range of critical services. The recommended incentive funding formula, developed in partnership with States, rewards performance and is cost neutral. This formula will, in tandem with the strong child support provisions of PRWORA, greatly improve the support provided to America's children into the 21st century.

Appendices

The Social Security Act

Sec. 458. Incentive payments to States

1. Purpose; requirement; quarterly payments

   In order to encourage and reward State child support enforcement programs which perform in a cost-effective and efficient manner to secure support for all children who have sought assistance in securing support, whether such children reside within the State or elsewhere and whether or not they are eligible for assistance under a program funded under part A, and regardless of the economic circumstances of their parents, the Secretary shall, from support collected which would otherwise represent the Federal share of assistance to families of noncustodial parents, pay to each State for each fiscal year, on a quarterly basis (as described in subsection (e) of this section) beginning with the quarter commencing October 1, 1985, an incentive payment in an amount determined under subsection (b) of this section.

2. Incentive formula

   1. Except as provided in paragraphs 2, 3, and (4), the incentive payment shall be equal to--
      1. 6 percent of the total amount of support collected under the plan during the fiscal year in cases in which the support obligation involved is assigned to the State pursuant to section 608(a)(3) or section 671(a)(17) of this title (with such total amount for any fiscal year being hereafter referred to in this section as the State's title IV-A collections'' for that year), plus
      2. 6 percent of the total amount of support collected during the fiscal year in all other cases under this part (with such total amount for any fiscal year being hereafter referred to in this section as the State's "non-title IV-A collections" for that year).
   2. If subsection (c) of this section applies with respect to a State's title IV-A collections or non-title IV-A collections for any fiscal year, the percent specified in paragraph (1)(A) or (B) (with respect to such collections) shall be increased to the higher percent determined under such subsection (with respect to such collections) in determining the State's incentive payment under this subsection for that year.
   3. The dollar amount of the portion of the State's incentive payment for any fiscal year which is determined on the basis of its non-title IV-A collections under paragraph (1)(B) (after adjustment under subsection (c) of this section if applicable) shall in no case exceed--
      1. the dollar amount of the portion of such payment which is determined on the basis of its title IV-A collections under paragraph (1)(A) (after adjustment under subsection (c) of this section if applicable) in the case of fiscal year 1986 or 1987;
      2. 105 percent of such dollar amount in the case of fiscal year 1988;
      3. 110 percent of such dollar amount in the case of fiscal year 1989; or
      4. 115 percent of such dollar amount in the case of fiscal year 1990 or any fiscal year thereafter.
   4. The Secretary shall make such additional payments to the State under this part, for fiscal year 1986 or 1987, as may be necessary to assure that the total amount of payments under this section and section 655(a)(1)(A) of this title for such fiscal year is no less than 80 percent of the amount that would have been payable to that State and its political subdivisions for such fiscal year under this section and section 655(a)(1)(A) of this title if those sections (including the amendment made by section 5(c)(2)(A) of the Child Support Enforcement Amendments of 1984) had remained in effect as they were in effect for fiscal year 1985.
       

3. Increase in percentage; laboratory costs

   If the total amount of a State's title IV-A collections or non-title IV-A collections for any fiscal year bears a ratio to the total amount expended by the State in that year for the operation of its plan approved under section 654 of this title for which payment may be made under section 655 of this title (with the total amount so expended in any fiscal year being hereafter referred to in this section as the State's "combined title IV-A/non-title IV-A administrative costs" for that year) which is equal to or greater than 1.4, the relevant percent specified in subparagraph (A) or (B) of subsection (b)(1) of this section (with respect to such collections) shall be increased to--
   1. 6.5 percent, plus
   2. one-half of 1 percent for each full two-tenths by which such ratio exceeds 1.4;
   3. except that the percent so specified shall in no event be increased (for either title IV-A collections or non-title IV-A collections) to more than 10 percent. For purposes of the preceding sentence, laboratory costs incurred in determining paternity in any fiscal year may at the option of the State be excluded from the State's combined combined title IV-A/non-title IV-A administrative costs for that year.
       

4. Support collected on behalf of individuals residing in another State

   In computing incentive payments under this section, support which is collected by one State at the request of another State shall be treated as having been collected in full by each such State, and any amounts expended by the State in carrying out a special project assisted under section 655(e) of this title shall be excluded.

5. Estimates by Secretary; quarterly payments

   The amounts of the incentive payments to be made to the various States under this section for any fiscal year shall be estimated by the Secretary at or before the beginning of such year on the basis of the best information available. The Secretary shall make such payments for such year, on a quarterly basis (with each quarterly payment being made no later than the beginning of the quarter involved), in the amounts so estimated, reduced or increased to the extent of any overpayments or underpayments which the Secretary determines were made under this section to the States involved for prior periods and with respect to which adjustment has not already been made under this subsection. Upon the making of any estimate by the Secretary under the preceding sentence, any appropriations available for payments under this section shall be deemed obligated.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996

[Public Law 104-193]

SEC. 341. PERFORMANCE-BASED INCENTIVES AND PENALTIES.

(a) DEVELOPMENT OF NEW SYSTEM.--The Secretary of Health and Human Services, in consultation with State directors of programs under part D of title IV of the Social Security Act, shall develop a new incentive system to replace, in a revenue neutral manner, the system under section 458 of such Act. The new system shall provide additional payments to any State based on such State's performance under such a program. Not later than March 1, 1997, the Secretary shall report on the new system to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate.