DATE: February 2, 2001
TO: STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED INDIVIDUALS
SUBJECT: Reinvestment of Child Support Incentive Payments
CONTENT: Section 458A(f) of the Social Security Act (the Act), to be renumbered section 458(f) in fiscal year 2002, says: "A State to which a payment is made under this section shall expend the full amount of the payment to supplement, and not supplant, other funds used by the State-- (1) to carry out the State plan approved under this part; or (2) for any activity (including cost-effective contracts with local agencies) approved by the Secretary, whether or not the expenditures for the activity are eligible for reimbursement under this part, which may contribute to improving the effectiveness or efficiency of the State program operated under this part."
In other words, a State must reinvest incentives earned under the new incentive system, in the State's Child Support Enforcement (CSE) program or may use the funds for other activities, approved by the Secretary of the Department of Health and Human Services (HHS), that will improve the State's CSE program. In addition, State CSE expenditures may not be reduced as a result of the receipt and reinvestment of incentive payments.
On December 27, 2000, final regulations on the incentives and penalties requirements were published in the Federal Register at 65 FR 82178 and subsequently sent to the States in OCSE-AT-01-01. 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 to expend incentive payments 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.
The purpose of this Action Transmittal is to provide specific information on:
In addition, this Action Transmittal gives some examples of non-reimbursable activities that may qualify for funding with incentive payments.
Phase-in. The reinvestment requirement will be phased-in along with the remainder of the incentive system at section 458A of the Act. Therefore, the reinvestment requirement will apply to one-third of incentives earned for fiscal year 2000, two-thirds of the incentives earned for fiscal year 2001, and will apply to all incentives earned for fiscal year 2002 and thereafter.
Political subdivisions. State officials should also be aware that in those States in which incentive payments are passed through to political subdivisions or localities, those payments must also be used in accordance with this notice. States are responsible for ensuring that all components of their CSE programs comply with these requirements, including local or county programs and vendors or other entities that perform child support services under contract or cooperative agreement with the State.
Determining the base amount. In order to determine if incentive payments are used to supplement rather than supplant other amounts used by the State to fund the CSE program, a base-year level of program expenditures is necessary. Therefore, per 45 CFR Section 305.35(d), a base amount of spending will be determined by subtracting the amount of incentive funds received by the State CSE program for fiscal year 1998 from the total amount expended by the State in the 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) for determining the base amount. This base amount of State spending must be maintained in future years. Incentive payments earned under section 458A of the Act must be used in addition to, and not in lieu of, the base amount.
OCSE will calculate the base amount of spending for each State using 1998 expenditure data unless the State notifies OCSE that the State prefers the base amount to be established as an average of the 1996, 1997, and 1998 expenditures.
Requesting permission to use incentive payments for other activities. Legislation allows for State incentive payments to be used for other activities, if these activities will contribute to improving the effectiveness or efficiency of the State's CSE program and are approved by the Secretary of HHS. States wanting to use incentive funds for activities not eligible for reimbursement under the IV-D program must use the following procedures:
When to apply to use incentive funds for other activities. States may apply to OCSE to use incentive funds for other activities at any time before the funds are actually used for the activity. With approval, States may use some or all of the incentive money for these activities.
If the State intends to use incentives to fund the approved activity for more than one year, the State must submit an annual request for approval, including the amount to be expended in the upcoming year and the amount expended on this activity in the preceding year. The follow-up request must be sent to OCSE at the above address.
Examples of other activities on which incentive funds may be used. The type of non-reimbursable activities that may qualify for funding with incentive payments include, but are not limited to:
The requested activity must show a clear connection to and collaboration with the State CSE program.
Consequences of non-compliance. Federal auditors and central and regional office staff will have a role in monitoring State compliance with the reinvestment requirement. Non-compliance could result in disallowances of incentive amounts equal to the amount of funds supplanted.
The approval to use incentive funds for non-IV-D activities, as with other exemptions, is subject to review at any time. If circumstances change, or the activity funded by the State under the exemption proves in practice to be less effective or efficient than claimed, the approval for the alternative use of incentive funds may be revoked by the Commissioner of OCSE. If the approval is revoked, the State must begin using the incentive funds in support of IV-D activities.
RELATED MATERIAL: AT-99-12 AT-01-01
EFFECTIVE DATES: Immediately
INQUIRIES TO: ACF Regional Administrators
Office of Child Support Enforcement