New approaches to child support arrears

Across the country, unpaid child support debt is a serious problem. In fact, it appears about one-half of all open child support enforcement cases have accrued debt. Understandably, states are concerned about carrying the accrued debt and the costs of trying to collect it.

There are other compelling reasons for states to be concerned about the problem of unpaid child support debt. One of the performance indicators for the child support program is the number of cases with arrears balances that show some collection activity. Another performance indicator is the percentage of cases paying current support. And although the data do not exist to support this contention, some father advocates maintain that large arrears balances discourage low-income noncustodial parents from paying current child support.

So how are states dealing with unpaid child support debt? To find out, child support enforcement (CSE) representatives from 21 states were interviewed.1 Representatives from states known to be innovative in their child support practices and representatives from states that had developed a program specifically dealing with arrears were targeted for the interview. Here's what was found.

Default Orders and Imputing Income

A default order is one in which the obligor is absent from the process of determining its amount. Federal law requires that states have the ability to establish default orders, but allows them discretion in the use of such orders. Almost all states impute income if the noncustodial parent (NCP) fails to provide income information and is unemployed or underemployed. In some states, the child support agency will set an administrative default order when the potential obligor does not respond to a notice or does not appear for a hearing. In other states, default orders can only be established judicially. Two state agencies that are "heavily administrative" reported that their standard procedure is to initially set an order amount based upon staff research and to send it to the obligor. If there is no response, the proposed amount becomes the amount of the order by default. In all cases, the default order is both valid and enforceable, but also subject to rebuttal.

When entering a default order, agencies employ a variety of resources to establish the person's occupation, income level, and earning capacity, including Department of Labor records and the National Directory of New Hires. A survey conducted by the Office of the Inspector General (OIG) in 2000 showed 35 states attribute the minimum wage at 40 hours per week to noncustodial parents who do not appear and provide income information, or if no information can be found by researching state labor or tax record systems.

Of the states interviewed, Iowa and Washington go the furthest in trying to establish default orders that match NCPs' ability to pay. To ensure orders are accurate, the Washington Division of Child Support puts its administratively established default orders into effect only when NCPs fail to respond to notification. The agency also reviews default orders that are perceived to be set too high and permits NCPs to claim good cause for not responding to a notice or appearing at a hearing and to request another hearing.

Iowa has moved from basing default orders on the annual median income for households in the state to using median income for the IV-D caseload as the basis, noting that obligors within the state IV-D caseload had a much lower median income than the state as a whole. The shift was in response to a 1998 finding that while only 2.5 percent of the orders established per year were default orders based on the median income for households, they resulted in average orders of $383-a significantly higher level than the $250 average for orders based on actual financial information (Iowa Department of Human Services, Bureau of Collections, 1998). This discrepancy was further reflected in the low payment rate for default orders (8 percent) compared to orders set using actual financial information (52 percent). The OIG reached similar conclusions when it found that one-half the cases with imputed income under review showed no payment activity over a 32-month period, as compared with 11 percent of cases with real income data (OIG, 2000).

Past Support and Arrears

When a current order is established, the state has the option to simultaneously set a support award for a prior period of time. Support for a previous time period is variously called past, back, or retroactive support, or accrued arrears. The past support award represents the amount of support that should have been paid during the period between parental separation and the establishment of a formal award. Setting past support is not a federal requirement, however. If states choose to establish a past support award, they must apply the state child support guidelines and "take into consideration either the current earnings and income at the time the order is set, or the obligor's earnings and income during the prior period" (Office of Child Support Enforcement, 1993).

Forty-six states charge noncustodial parents for welfare debt or retroactive support for time prior to establishing the order (OIG, 2000). Most of the surveyed states limit the period of retroactivity to one to five years prior to the date of filing for an order or to the date of application for services. In contrast, Colorado goes back to the birth of the child.

State representatives described a wide range of opinions and policies on past support, with South Carolina the only state declining to collect it. Wisconsin does not classify past support as arrears and does not charge interest on it as long as the obligor keeps current with monthly payments. The Wisconsin respondent explained, "The idea is that you cannot charge interest on a debt for which the person has no knowledge. That is, until the NCP knows what she or he owes, you can't call it a debt and charge interest" And another state rarely seeks retroactive support "unless we know there is income to be collected. It distracts us from focusing on current support, which we believe is more important." Other states, however, pursue past support vigorously.

How is the payment of current support affected by debt and retroactive support obligations? There continues to be debate on this topic. While the OIG (2000) concluded, "the longer the period of retroactivity, the less likely it is that the parent will pay any support," an experiment involving the forgiveness of debt and retroactive support on a random basis in a sample of new child support cases in two Colorado counties showed that dropping debt had no impact on the payment of current support obligations. NCPs in both groups paid about one-third of what they owed on current support over 24 months (Pearson, Thoennes, and Davis, 1999). It will clearly take more research with larger samples of cases over a longer period of time to assess the impact of retroactive burdens on the payment of current support obligations. Approaches to

Minimizing Arrears

In many states, attitudes toward child support obligors are changing, reflecting a nuanced understanding that obligors with arrears are not all the same and that powerful enforcement remedies may not be effective with certain populations of NCPs. As a result, states are testing different approaches to encourage regular payments and contain the growth of arrears.

Default Order and Income Imputation Policies: Selected States

Past Support and Arrears: Selected State Practices

Incentive Programs. One approach to controlling arrears involves offering obligors incentives to make regular payments or pay off their past due support. In Massachusetts, Minnesota, and West Virginia, for example, obligors with arrears who pay their current support or their arrears within a designated time period are not assessed interest and penalties. Other states are suspending prosecution or other types of aggressive enforcement activity. Thus, Oregon is testing the suspension of contempt actions for those who participate in a pilot Welfare-toWork/Non-Custodial Parent Project. As an incentive, it also offers project participants who begin to make child support payments rent subsidies for six to nine months.

Employment Programs. Recognizing that many obligors with large arrears may lack employment, job skills, and training, IV-D agencies are now being encouraged to collaborate with state agencies and other organizations to make welfare-to-work services and training programs available to noncustodial parents (OCSE, 2000). Additionally, the Office of Child Support Enforcement (OCSE) has sponsored responsible fatherhood programs in several states offering

a variety of services to low-income, noncustodial parents to promote their financial and emotional involvement in their children's lives (Pearson, Thoennes, Price, and Venohr, 2000).

The more recent programs stressing jobs and responsible fatherhood often require that CSE collaborate or partner with a variety of community-- based organizations and public agencies. In some cases, temporary suspensions of current support orders or reduction of arrears are used as "carrots"; in other cases, the threat of contempt proceedings is used as a "stick" to encourage participation. The Fathering Court Program of Kansas City, Missouri, for example, tries to address the problems of non-paying obligors through case management, services, and training. Directed by the county CSE prosecuting attorney, this small, diversionary program is offered to NCPs as an alternative to filing criminal charges for nonsupport, and includes monitoring by a commissioner and modifying child support orders to avoid arrears. Colorado's Parent Project in Larimer County offers delinquent NCPs parenting classes and employment help, and avoids the generation of arrears by paying the child support obligation of participants during their successful participation in the project.

Although responsible fatherhood programs have become more popular in recent years, they are by no means prevalent. According to a study by the OIG, "few sampled child support agencies formally link with job programs" and "noncustodial parent participation in such programs is minimal" (OIG, 2000). Several studies are currently underway to determine whether such programs lead to increases in earnings and improved child support payments.

Forgiveness and Debt Compromise Programs. Federal policy distinguishes between arrears owed to the custodial parent and arrears owed to the state for repayment of public assistance. Although the Bradley Amendment does not allow child support orders or arrears to be modified retroactively, states can compromise debts owed to the state.

Approximately one-half of the states interviewed allow for debt compromise of state-assigned arrears when it is "in the best interest of the state," or have an informal policy of forgiving a portion of arrears when circumstances warrant it, such as a lump-sum payment. Respondents explained that in all cases, the custodial parent's (CP) consent is needed to forgive arrears or interest owed to the family. Several states-Alabama and Indiana for example-do not allow for the waiver of child support, arrears, or interest by either the CP or the child support agency, however.

Perhaps the most widely advocated and adopted forgiveness policy deals with state arrears owed by low-income parents who marry or remarry (OCSE, 1999; Roberts, 1999). Minnesota, Vermont, Iowa, and Washington have all implemented policies that allow for the suspension of arrears collection if a family reunites. In Minnesota, the NCP must request the suspension annually.

The majority of forgiveness programs are limited to participants in responsible fatherhood or welfare-to-- work programs who adhere to specific payment conditions and are not available to the broader population of obligors. Maryland's State-Owed Debt Leveraging Plan waives debt for unemployed participants in three community-based programs that provide counseling, job search, and placement services. Program participants may have up to 25 percent of their state arrears credited; those who pay their current support for 12 months receive an additional credit of 40 percent; and those who pay fully during months 13 to 24 have 100 percent of their state-owed child support debt waived.

Debt compromise and arrearage forgiveness policies are clearly in their infancy. The OIG's survey concluded, "Most sampled states will not reduce debt owed to the state by the noncustodial parent except in rare cases" (OIG, 2000). To spur states to consider debt compromise as a mechanism for facilitating the routine payment of support, the OIG urged OCSE to support research aimed at assessing the effectiveness of debt-- reduction for low-income parents in exchange for the regular payment of monthly support orders and for reunited families.

Treatment of Arrears by Other Entities

Child support agencies are similar to the Internal Revenue Service and public utilities companies in that none are permitted to select customers based on their previous payment history. Therefore, it is instructive for child support agencies to see how similarly situated tax agencies and utility companies handle the problems of nonpayment and arrearages.

The studies by utility companies centered on low-income customers with sizeable arrears and sought to promote current energy payments through a variety of techniques: arrears forgiveness, rate reductions, educational components, and case management (Browne, 1995; Browne and the Center for Human Investment Policy, 1996; Grosse, 1995; Response Analysis Corporation, 1997; Colton, 1999). The following critical points emerged from the evaluations:

A certain percent of customers (approximately 12 percent) with arrears will pay when threatened with disconnection. Seniors tend to respond to incentives.

There is a population of lowincome customers (particularly families with children) who cannot respond to incentives or to threats to shut off the power with payments because they simply do not have the money to pay their past due bills.

A case management program using social workers provides benefits to the customer, individual departments within the utility, and the utility as a whole by providing relevant counseling and referrals for the customer, resulting in a reduction in the number of disconnections and cases of fraud.

Programs judged to be successful are those that reduce the number of shut-off notices and disconnections (i.e., expenses to the utility), and increase the number of on-time payments (partial or full) made by customers.

The IRS study (Government Accounting Office, 1998) and the studies conducted for child support agencies in Washington (Peters, 1999) and Maryland (Conte, 1998) examined the collectibility of past due debts. One of the most important findings of the Maryland and IRS studies is that collectibility is related to the age of the debt. According to the analysis of child support arrears in Maryland, payments on arrears decrease by 24 percent each year, suggesting that arrears older than four years are "virtually uncollectible" (Come, 1998). The IRS study found the likelihood of full or partial collection decreases from 81 percent to 28 percent after three or more years (Government Accounting Office, 1998).

Strategies to Contain the Growth of Arrears

When asked to reflect on policies and practices that appear to generate accounts receivable in their state, several individuals listed state laws or procedures that were developed when caseloads were small and manageable, such as the lengthy statute of limitations on collecting past due support and the exceedingly slow process to close cases with arrears. One respondent cited guidelines deliberately set high that result in more collections for families, but also generate more arrears. Another noted the lack of timely review and adjustment of child support orders when the circumstances of low-income obligors change.

Other interviewees listed factors contributing to the expansion of accounts receivable that were identified in the recent OIG study on state policies to establish child support orders for low-income NCPs. These include routinely charging NCPs for retroactive support; imposing other front-end charges for birth costs and paternity tests; imputing income at unrealistic levels when the noncustodial parent is unemployed or income is unknown; refusing to reduce debt owed to the state no matter what the circumstances are; and failing to link noncustodial parents with job programs and other services aimed at improving their capacity to work and earn (OIG, 1999).

While our interviews tended to focus on ways of addressing arrears once they have developed, preventive strategies are also relevant, especially those dealing with adjusting state child support guidelines for low-- income parents. Although 35 states have minimum support orders (typically $50 per month) and 40 states have a self-support reserve (typically $600 to $700 net per month) that they subtract from NCP income before the order amount is calculated, many states have not modified these provisions to keep up with changes in the poverty level.

Other preventive strategies include speeding up the process of establishing an order, proactively communicating with NCPs who fall behind in monthly payments, and offering incentives to NCPs to stay current with their monthly support.

Recommendations

The passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 [PL.104-- 193], the revisions of the federal incentive system for state IV-D programs, and the national interest in programs fostering responsible fatherhood have changed the landscape for child support agencies. Along with getting more powerful enforcement and locate tools, such as driver's license suspension and the National Directory of New Hires, agencies are being encouraged to develop partnerships with service providers and test programs designed for low-income NCPs who lack job skills and work experience. With the new incentive regulations, they will be measured on how well they collect current support and stimulate at least some partial payment of past-due support.

The results of the survey indicate states are testing or employing a broad array of policies and practices to control the growth and impact of arrears. Child support workers are now more open to the idea that there are different categories of obligors with arrears and that treatments can be shaped to fit the characteristics of each group. This shift in attitude is reflected in the current public discussion on what should be the overriding goal or mission of child support programs: cost recovery, which has been the focus in the past, or developing self-sufficiency for families (Turetsky, 2000).

The management of arrears is necessarily complex. While it is important for states to explore pragmatic approaches to the mounting child support arrears balances, administrators are mindful that states cannot create perverse incentives that have the effect of discouraging responsible behavior. As one child support policymaker writes:

What message does arrearage forgiveness send to the thousands of fathers who pay on time and in full, often at considerable personal sacrifice while they work second jobs and forego vacations and other luxuries-or even second families-often without complaint but because they recognize their paramount duty to their children (Smith, 2000)?

Thus, CSE administrators must balance between applying the rules of child support equitably and deciding when exceptions are appropriate. But the commissioner of the Office of Child Support Enforcement recently emphasized that agencies have flexibility under federal IV-D requirements in setting support obligations for, and securing collections from, low-income NCPs.

While there is clearly no magic formula to curb the growth of child support arrears, there are steps states can take to address the problem. As the various practices and policies discussed above demonstrate, states can:

* Seek alternatives to income imputation;

* Limit the amount of time for which NCPs are subject to debt/retroactive support charges;

* Expand employment programs for low-income NCPs and refer parents who are delinquent in child support programs to them;

* Target some cases for special case management attention; and

* Explore limited amnesty, forgiveness, and debt compromise programs for low-income NCPs who meet their current support obligations.

While the OIG (2000) concluded, "the longer the period of retroactivity, the less likely it is that the parent will pay any support," an experiment involving the forgiveness of debt and retroactive support on a random basis in a sample of new child support cases in two Colorado counties showed that dropping debt had no impact on the payment of current support obligations.

The more recent programs stressing jobs and responsible fatherhood often require that CSE collaborate or partner with a variety of community-based organizations and public agencies. In some cases, temporary suspensions of current support orders or reduction of arrears are used as "carrots"; in other cases, the threat of contempt proceedings is used as a "stick" to encourage participation.

1 This survey was conducted in 2000 by the Center for Policy Research as part of a federally funded OCSE grant awarded to the Division of Child Support Enforcement of the Colorado Department of Human Services.

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