Alternative Penalty for States That Fail to Implement State Disbursement Units
DATE: January 19, 2000
TO: STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS APPROVED UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED PARTIES
SUBJECT: Alternative Penalty for States That Fail to Implement State Disbursement Units
Pub. L. 106-113 (Section 807), "The Alternative Penalty Procedure Relating to State Disbursement Units"
Sections 454B, 454(27)(A) and (B)(i), and 455 of the Social Security Act, as amended
OCSE AT-97-13, "Collection and Disbursement of Support Payments"
OCSE AT-97-07, "Instructions for Requesting an Exemption from the Mandatory State Plan Provision in Section 454(27) of the Social Security Act"
PURPOSE: Section 455(a)(5) of the Social Security Act ("the Act"), as added by Public Law 106-113, established an alternative financial penalty to State plan disapproval and loss of all Federal IV-D funding for the failure to meet requirements relating to State Disbursement Units. This alternative penalty may be elected by those States that fail to implement, by the applicable statutory deadlines, State Disbursement Unit requirements of sections 454(27)(A) and (B)(i) of the Act.
BACKGROUND: The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), (Pub. L. 104-193), added a title IV-D State plan requirement under which the State plan must provide that on or after October 1, 1998, the State agency will operate a State disbursement unit (SDU). Section 312(d) of PRWORA allowed States which, as of the enactment of PRWORA, processed child support payments through local clerks of court, until October 1, 1999, to establish an SDU. States that fail to have such units in place by the statutory deadlines face State plan disapproval and loss of all Federal child support funding for the State. In addition, because operating a Child Support Enforcement program under an approved State plan is a prerequisite to a State's receiving funds under the Temporary Assistance for Needy Families (TANF) program, a State's TANF funds also would be jeopardized.
Section 455(a)(5) establishes an alternative penalty associated with a State's failure to meet the deadlines in section 454(27)(A) and (B)(i) of the Act. Under this new provision, the SDU alternative penalty is available to a State which: (1) the Secretary determines has made and is continuing to make a good-faith effort to comply with SDU requirements; and (2) has submitted to the Secretary, not later than April 1, 2000, a corrective compliance plan that describes how, by when, and at what cost the State will achieve such compliance, which has been approved by the Secretary.
States meeting these conditions will be assessed financial penalties as described in Attachment A. The "penalty base" is the amount otherwise payable to the State (Federal share of expenditures) in the preceding fiscal year at the 66% matching rate for child support enforcement (CSE) administrative costs. The amount of the alternative financial penalty is as follows:
4% of penalty base if the State fails to achieve compliance for the first fiscal year in which the failure by the State occurs;
8% of penalty base if the State fails to achieve compliance for the second such fiscal year;
16% of penalty base if the State fails to achieve compliance for the third such fiscal year;
25% of penalty base if the State fails to achieve compliance for the fourth such fiscal year; and
30% of penalty base if the State fails to achieve compliance for the fifth or any subsequent such fiscal year.
These alternative financial penalties will be in lieu of the State plan disapproval process and subsequent termination of all IV-D funds related to a State's failure to meet the deadlines in section 454(27)(A) and (B)(i) of the Act. States which meet the conditions for the alternative penalty will not be in jeopardy of losing TANF funds. However, the State plan disapproval process may be reinstated if a State fails to continue to make a good faith effort to comply with SDU requirements or its corrective compliance plan.
Section 807(b) of P.L. 106-113 made a conforming change to specify that a State will not be subject to an audit penalty under section 409(a)(8) of the Act for failure to meet SDU requirements.
If a State complies with the SDU requirements before April 1, 2000, the Secretary shall waive the alternative penalty. If a State qualifying for an alternative penalty complies with the SDU requirements on or after April 1, 2000, and on or before September 30, 2000, the alternative penalty amount will be 1% of the penalty base.
The SDU alternative penalty applies only to the requirements in section 454(27)(A) and (B)(i) of the Act relating to State disbursement units. These sections state "that on and after October 1, 1998, the State agency will-- (A) operate a State disbursement unit in accordance with section 454B; and (B) have sufficient State staff (consisting of State employees) and (at State option) contractors reporting directly to the State agency to- (i) monitor and enforce support collections through the unit in cases being enforced by the State pursuant to section 454(4) including carrying out the automated data processing responsibilities described in section 454A(g)."
REQUESTING THE ALTERNATIVE PENALTY:
A State which fails to submit a State plan preprint page certifying compliance with section 454(27)(A) and (B)(i) of the Act, will receive a letter of intent to disapprove the State plan from the Secretary. These States may request the alternative penalty under section 455(a)(5). A State desiring to come under this provision must submit to OCSE not later than April 1, 2000, the following two items:
A "corrective compliance plan." The corrective compliance plan must be submitted to the Commissioner and must detail how, by when, and at what cost the State will achieve compliance with SDU requirements.
The plan will identify what SDU efforts are needed to establish and operate the SDU, and provide a plan of action with costs and dates for meeting the requirements and/or correcting the deficiencies. In addition, the corrective compliance plan must document the efforts the State has taken to establish an SDU that meets statutory requirements by the required effective date, such as, proposed or enacted State legislation, employer, public outreach and education, cost benefit analyses, any contracting processes and the results of those efforts, including any efforts to correct problems or deficiencies that occurred, and the status of statewide automated child support enforcement system implementation.
- A letter from the State Chief Executive Officer, (CEO) or his/her designee, requesting that the State be subject to the alternative SDU penalty (Pub. L. 106-113) in lieu of State plan disapproval.
We are requiring that the request for imposition of the alternative SDU penalty be transmitted by the State’s Chief Executive Officer or an official explicitly empowered to bind the State because the request, once approved by OCSE, will result in a reduction in the amount of Federal child support enforcement funding otherwise payable to the State.
A determination of whether the State has made a good faith effort will be based on the reasonableness of the corrective compliance plan submitted, and on input from Regional and Central office personnel responsible for reviewing the corrective compliance plan.
The State’s request must provide sufficient information for OCSE to determine that the State has made and will continue to make a good-faith effort to comply with mandated statutory requirements.
A State remains subject to potential State plan disapproval until such time as OCSE makes the required finding either that the State has implemented an SDU or that the State is continuing good faith efforts to implement an SDU that meets statutory requirements and OCSE has approved the State’s corrective compliance plan.
IMPOSITION OF ALTERNATIVE PENALTY:
OCSE will impose the SDU alternative penalty by issuing a negative grant award in the first quarter after OCSE has determined that the State qualifies for the alternative penalty. The amount of the negative grant award will be determined in accordance with methodology described in Attachment A. Preliminary penalty base amounts for the penalty to be imposed for FY 1999 and FY 2000 are included in Attachment B.
In subsequent years, the penalty will be imposed by reducing the amount of the first grant award payable to the State in that fiscal year.
Waiver of Penalty for States Achieving Compliance before April 1, 2000
The Secretary shall waive all penalties under section 455(a)(5) of the Act if the Secretary determines that the State has achieved compliance with section 454(27)(A) and (B)(i) before April 1, 2000.
Reduction of Penalty for States Achieving Compliance between April 1, and September 30, 2000
If a State achieves compliance with section 454(27)(A) and (B)(i) on or after April 1, 2000, and on or before September 30, 2000, the penalty will be one percent of the penalty base. OCSE will refund the excess amount of the penalty base taken for FY 2000. The adjustment will be made after compliance has been determined.
The Secretary may not impose in a fiscal year an alternative penalty against a State for failure to comply with SDU requirements if the Secretary has approved a State's request for an alternative penalty under section 455(a)(4) of the Act in that fiscal year with respect to the State's failure to comply with Family Support Act (FSA) systems requirements under section 454(24)(A) of the Act. Please note that the single penalty applies only to the alternative systems penalty for a failure to have a statewide CSE system which meets the automation requirements of the Family Support Act of 1988. It is possible that a State might be subject to an alternative penalty for both SDU and PRWORA automation requirements under 454(24)(B) of the Act.
Example 1: A State: (1) is currently receiving a penalty under the FSA systems alternative penalty; and (2) has not met the SDU deadline (either October 1, 1998 or October 1, 1999) and has been approved for the SDU alternative penalty provision. This State would be subject to a single 16 percent penalty under the FSA systems alternative penalty for FY 2000, assessed with respect to its having failed to meet the FSA deadline; it would not be assessed a penalty with respect to the SDU requirements.
Example 2: The State in Example 1 above, (1) meets FSA systems requirement on September 15, 2000 (during FY 2000); and (2) will not come into SDU compliance until FY 2001 or later. This State incurs the FSA systems penalty for FY 2000 and the SDU alternative penalty for FY 2001. The SDU alternative penalty is 8 percent if the State's SDU compliance deadline was October 1, 1999 or 16 percent if the compliance deadline was October 1, 1998.
Example 3: A State (1) is receiving a penalty under the SDU alternative penalty for FY 2001; and (2) has not met the PRWORA automation requirements. This State would be subject to the SDU alternative penalty (8% or 16%) and the PRWORA automation penalty (4 %) for FY 2001.
If a State requests, and the Secretary approves, that it be subject to the alternative penalty rather than to the State plan disapproval process, the penalty will be imposed without any opportunity for reconsideration or any other administrative appeal procedure.
A: Description of Alternative Penalty
B: Table Showing Estimated FY 1999 and 2000 Preliminary Penalty Base Amounts
INQUIRIES TO: ACF Regional Administrators
David Gray Ross
Office of Child Support Enforcement