might be preferable, and we would like to work with the staff of the committee on that. [The information requested follows:] ADMINISTRATION PROPOSAL TO EXTEND FEDERAL REIMBURSEMENTS FOR CHILD SUPPORT ENFORCEMENT SERVICES TO NONWELFARE FAMILIES This paper presents specifications for a legislative proposal that would accomplish the Administration's goal of an extension fo Federal financial participation with a cost limitation, explains the rationale for the proposal, gives the impact of the proposal on the States and individuals, and estimates the cost for this proposal for fiscal year 1978. LEGISLATIVE SPECIFICATIONS 1. The State will be required to provide child support enforcement services only to those individuals whose total income does not exceed 200 percent of the standard of need for the State's AFDC program. 2. The State will be required to impose an application fee which shall not exceed $20. The application fee shall be waived if imposing the fee would cause the applicant to be eligible for AFDC. 3. The State will be required to deduct 10 percent of the amount collected in order to recover costs in excess of the application fee. However, the amount deducted may not exceed the average cost of providing child support enforcement services to non-AFDC individuals. The State shall annually review its costs and, if necessary, adjust its deduction below 10 percent. The State shall waive the deduction if making the deduction would cause the applicant to be eligible for AFDC. 4. Federal financial participation shall be provided for non-AFDC cases through September 30, 1979. This proposal will require an amendment of sections 454 (6) and 455 of the Social Security Act. EXPLANATION Limiting child support services to those individuals whose total income does not exceed 20 percent of the State's standard of need will accomplish at least three purposes. First, Federal costs will be reduced by narrowing the eligible population. However, services will still be provided to individuals who are vulnerable to becoming eligible for AFDC. For these individuals the receipt of child support can be essential to maintaining financial independence; for example, child support payments can help pay for child care costs so that the mother can continue to be employed. Second, the provision uses a standard that is readily available to the child support agency through the welfare department. Furthermore, the standard of need is developed by the State itself and therefore reflects the policy and needs of the particular State. It should be noted that the proposal compares total income, rather than net income, with the standard of need. This will avoid what would essentially be an AFDC eligibility determination. We believe such a procedure would be too costly, too burdensome, and perhaps beyond the capability of the child support agency. Third, the limitation on the eligible population should be more palatable to the States. We have been informed by States that they object to the current requirement of providing services to all individuals without regard to income. States have indicated opposition from the private bar to providing free legal services to individuals who can easily afford a private attorney. These States also report that there is no opposition to providing child support services to individuals who fall within the low income range. Since the proposal does not allow for any disregard of income, we have raised the limit from 133 percent of need (mentioned in testimony by the Under Secretary on May 2, 1977) to 200 percent of need. It should be noted that this proposal would not only restrict Federal financial participation, but also limit the State plan requirement of providing services to non-AFDC individuals. We do not believe that it would be appro priate to mandate that services be provided to all non-AFDC cases but provide Federal financial participation for only part of them. This would seem to be inequitable for the States, and could result in almost impossible task of monitoring to assure that claims for Federal financial participation were made only for the eligible non-AFDC cases. The requirement for application fees and recovery of cost in excess of the application fee is a further limitation on costs. Current law makes these two items optional with the State. Federal regulations provide that the application fee either be a flat fee not exceeding $20, or a fee based on income. Most States that have elected a fee charge $20. Therefore, the legislative proposal uses the $20 maximum. The fee based on income would not be appropriate since all applicants would by definition be low income individuals. In order to simplify the recovery of costs from the amount of child support collected, the proposal stipulates a flat percentage deduction of 10 percent. This not only simplifies administration for the States, but also reduces the chance that so much support would be withheld that the family would be eligible for AFDC. The proposal would also require an annual review of costs of providing services to non-AFDC individuals so that the amount of the flat percentage deduction could be lowered so as not to exceed the State's actual costs. The application fee and recovery of costs would be waived if they would result in the family's being eligible for AFDC. It would be self-defeating if the case went on AFDC, resulting in greater costs to both the State and Federal governments. Finally, the proposal calls for an extension of Federal financial participation until September 30, 1979. We believe this is important for several reasons. First, this would make the extension consistent with the Federal fiscal year. More importantly, it would allow adequate time for an evaluation of the non-AFDC program and a determination of whether it can be self-financing. Finally, it would help the State in its planning process by assuring continued Federal financial participation for at least 2 years. IMPACT ON STATES AND INDIVIDUALS The proposal would have the following impact on States: 1. Reduce State share of expenditures; 2. Eliminate or minimize opposition from the private bar, making the program more marketable for the States, and 3. Make the program more manageable for the States by reducing the size of the caseload-the potentially eligible population would be reduced from approximately 3.5 million to approximately 1.4 million. The proposal would have the following impact on individuals who have requested child support services: 1. Prevent access of certain individuals to the services and require them to use private attorneys-the estimated fiscal year 1978 caseload of 486,000 under a simple extension of Federal financial participation would be reduced to 422,000, and 2. Improve the quality of services to eligible individuals by allowing the States to concentrate on a smaller number of cases. COST ESTIMATE The estimated cost of the proposal for fiscal year 1978 is $8.5 million. The estimated cost of an extension of Federal financial participation with no limitation is $29.5 million. The basis for the estimate of the proposal is described below. BUDGET AND CASELOAD IMPACT Estimate of impact of extending Federal financial participation under current provisions: Budget equals $39.3 million total cost fiscal year 1978 (Federal share equals $29.5 million). Caseload equals 486,000 cases for which collection would be made. Source: Federally adjusted States' estimates. Gross Income limitation equals 2 times standards of need for AFDC equals $7,630 per annum. Est. fiscal year 1978 standard of need equals $318/month. Under income limitation, the eligible population would be 1.4 million families. Thus, 11.4 million female-headed families had total household income less than $7,630. Of the 16,772,000 female-headed families, 5,119,000 were headed by a separated or divorced woman. (Source 1975 CPS P-60, No. 100 p. 6) CPS data were unavailable on unmarried female heads of household with children. Therefore, adding separated and divorced to AFDC families in which the father of the children is absent and not married to the mother (1,333,000), we estimate the total of separated, divorced, and unmarried female heads of household at 6,452,000 or 38.4 percent of total female-headed households. Then. .384 X 11.4 million =4.4 million households. Deducting the AFDC families deprived because of the absence of a parent (2.98 million) gives 1.4 million female-headed nonwelfare families in which the head of household is divorced, separated, or was not married to the father. We assume that 30 percent of these female heads of household will apply for child support enforcement services during the year. Thus, costs will be incurred for 422,000 cases. Then caseload will be 87 percent of the estimated caseload with an extension without limitation. Federal costs would be .87 × $29.5 million $25.6 million. Assume that 90 percent of the impact of mandating $20 fee would be in four large States not currently charging fees (California, Michigan, Oregon, and Pennsylvania). These four States report opening 25,000 cases/quarter. Then, the national annual openings impacted by mandated fees is estimated at At $20 fee/opening, fees=$2.28 million. This amount represents 5.7 percent of total costs under current law= Then, assuming that the requirement to charge fees is waived 10 percent of the cases 5.7 X.9 5.1 percent. Thus, we reduce the estimated annual Federal cost of $25.6 million by 5.1 percent to $24.3 million. If recoveries are mandated at 10 percent of collections or actual costs, whichever is less, with a waiver of deduction if the deduction would cause the family to be eligible for AFDC. We assume average annual collections of $1,000/case or $422 million and that in 50 percent of the cases the deduction would be waived. Then $422m times .1 times .5 equals $21.1 million recoveries. The Federal share equals $15.8 million. Thus, we reduce the estimated annual Federal cost of $24.3 million by $15.8 million to $8.5 million. Mr. BOWLER. One of the problems we had is that the subcommittee went along with the administration on that, so that there is no money in the first concurrent resolution for the 1978 budget. That is one problem in dealing with the issue. Also in your proposal on standardizing work expense disregard for AFDC, do you have any information with regard to its impact on present recipients, by State, preferably? Do you know how many recipients would be affected either in having their benefits reduced, or lose eligibility or increase their benefits? Mr. CHAMPION. I will refer that question to Mr. Cardwell. Commissioner CARDWELL. No; we do not have any data on impact by States. We have a rough cost estimate of the total savings, but that is all we have. Mr. BOWLER. To the extent it is possible, I think that kind of information will be very important for the subcommittee. As you know, the subcommittee attempted to deal with this issue last year, and was unable to reach an agreement on it. The last proposal they looked at was very much like the one you are proposing. I might ask what you think has changed that would make it possible for us to reach an agreement this year. Commissioner CARDWELL. Well, we Mr. BOWLER. We need information of the type of information that was requested last year, and that is impact information. Commissioner CARDWELL. It is very difficult to estimate how the States would choose in a range between 15 and 25 percent. It seems to me we ought to build to develop an estimate that shows you what it would be at various percentages, starting at 15 and going up to 25, and we will see what we can do to put together some sort of estimate. Mr. BOWLER. I am sure you are aware that what the subcommittee could be facing with that particular proposal-it is a very difficult proposal, and it goes to the heart of the AFDC program, and deals with the critical issue of how you deal with people who have some earnings. To some extent you are asking the subcommittee to deal with that which could take them several months to resolve, and, then, the President will come down with the welfare reform proposal which would eliminate the AFDC program, and the subcommittee would have to start over, dealing with that same issue with a broader population. Commissioner CARDWELL. Well, it seems to me and I don't think any of us want to get too far out in front of the President's announcement this afternoon-but I would assume we are talking about several years of transition between the program as it exists today and any major reform. In my judgment, good public policymaking suggests that we improve the existing program where we can-this is an area where we think administrative complexity and administrative abuse probably run fairly high, and it seems to us in order that the Congress and the Government should take a look at it. Mr. BOWLER. In closing, we won't be able to move far, I think, unless we do have some sort of impact analysis by States. Commissioner CARDWELL. We will do one for you. Mr. BOWLER. Thank you. [The information requested follows:] EXPECTED FISCAL YEAR 1978 FEDERAL SAVINGS FROM PROPOSAL TO STANDARDIZE AFDC WORK EXPENSE 1 National totals are based on a statistically valid national sample; State savings are shown only for those States for which |