*Interim Report*

Study of the Implementation of the Performance-Based Incentive System

*Prepared for*

Office of Child Support Enforcement

*Prepared by*

The Lewin Group\
Karen Gardiner\
Michael Fishman\
Asaph Glosser

and

ECONorthwest\
John Tapogna

October 2003

Table of Contents

Executive Summary [I](#executive-summary)

A. Purpose of Report [I](#purpose-of-report)

B. Structure of New System [I](#structure-of-new-system)

C. Key Findings [II](#key-findings)

I. Introduction [1](#__RefHeading___Toc26615308)

A. Purpose of Report [1](#purpose-of-report-1)

B. Structure of Report [1](#structure-of-report)

II\. Background on Incentive System [2](#background-on-incentive-system)

A. Development of Original Incentive System
[2](#development-of-original-incentive-system)

B. Development of New System [3](#development-of-new-system)

C. Structure of New System [5](#structure-of-new-system-1)

1\. Performance Areas [5](#performance-areas)

2\. Data Must be Complete and Reliable
[7](#data-must-be-complete-and-reliable)

3\. Incentives are a Function of State Collection Bases and Performance
Standards
[7](#incentives-are-a-function-of-state-collection-bases-and-performance-standards)

4\. Capped Incentive Pool [9](#capped-incentive-pool)

5\. Incentives Must be Reinvested [9](#incentives-must-be-reinvested)

6\. Penalties [10](#penalties)

III\. Incentive Calculations and Payments
[11](#incentive-calculations-and-payments)

A. STATE DATA REPORTING .....11

1\. Data Submission [11](#data-submission)

2\. Audit Process [13](#audit-process)

B. Incentive Calculation Steps [15](#incentive-calculation-steps)

1\. Collection Base [15](#collection-base)

2\. Maximum Incentive Base [16](#maximum-incentive-base)

3\. Applicable Percentage [16](#applicable-percentage)

4\. Calculating the Payment [18](#calculating-the-payment)

C. Payment Steps [19](#payment-steps)

IV\. Program Results and Incentive Payments
[20](#program-results-and-incentive-payments)

A. Performance by Measure [20](#performance-by-measure)

1\. Paternity Establishment [20](#paternity-establishment)

2\. Cases with Orders [23](#cases-with-orders-1)

3\. Percent of Collections on Current Support Due
[23](#percent-of-collections-on-current-support-due)

4\. Percent of Cases Paying toward Arrears
[24](#percent-of-cases-paying-toward-arrears)

5\. Cost-Effectiveness [25](#cost-effectiveness)

B. Percent of Incentives Earned [26](#percent-of-incentives-earned)

C. Data Reliability [27](#data-reliability)

1\. Audit Failures [27](#audit-failures)

2\. Reasons for Failures [28](#reasons-for-failures)

3\. Implications of Audit Failures for Incentive Payments
[29](#implications-of-audit-failures-for-incentive-payments)

D. Incentive Payments [31](#incentive-payments)

1\. National Trends [31](#national-trends)

2\. FY 2000 State Results [31](#fy-2000-state-results)

V. Issues to be Addressed in the Final Report
[32](#issues-to-be-addressed-in-the-final-report)

A. Incentive Structure. [32](#incentive-structure.)

1\. Performance Areas [33](#performance-areas-1)

2\. Capped Incentive Payments [33](#capped-incentive-payments)

3\. Continued Emphasis on Public Assistance Families
[33](#continued-emphasis-on-public-assistance-families)

4\. Applicable Percentages 33

B. Data Issues [34](#data-issues)

1\. Data Submissions [34](#data-submissions)

2\. Data Reliability [34](#data-reliability-1)

3\. Sample Size [34](#sample-size)

C. Budget Issues [35](#budget-issues)

1\. Effect of New Process on Budget Estimates
[35](#effect-of-new-process-on-budget-estimates)

2\. Reinvestment [35](#reinvestment)

D. State Responses to Incentive System
[35](#state-responses-to-incentive-system)

1\. Managing Local Performance [35](#managing-local-performance)

2\. More Emphasis on Results [36](#more-emphasis-on-results)

Appendix a-[1](#appendix) through a-20

# Executive Summary {#executive-summary .unnumbered}

## Purpose of Report

Since 1975, the federal government has paid incentives to state child
support enforcement programs to encourage improvement in collections
through efficient establishment and enforcement techniques. The Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA)
required the Department of Health and Human Services (HHS) to develop,
in consultation with states, a performance-based incentive funding
system through which the federal government would award payments to
state child support enforcement (CSE) programs. The 1998 Child Support
Performance and Incentive Act (CSPIA) created the new structure to
reward states that operated effective CSE programs.

The federal Office of Child Support Enforcement (OCSE) implemented the
new incentive formula over the Fiscal Year (FY) 2000 to 2002 period.
Policymakers called for the gradual phase-in so that state officials
would have time to perfect their measurement of performance and identify
factors that affect the determination of incentives.

CSPIA requires HHS to produce interim and final reports that detail the
implementation of this new system and offer recommendations for its
improvement. This interim report describes the development of the new
incentive system, components of the system, and initial program results.
The final report will explore state experiences implementing the new
system, including problems, successes, advantages, and disadvantages. It
will also report on changes to the new system that were recommended by
the stakeholders.

## Structure of New System

Under CSPIA, key elements of the new incentive structure include:

**Payments are linked to performance in five areas**. The five areas
are:

-   Paternity establishment percentage

-   Percent of child support cases with orders established

-   Current child support collections as a percent of total amount due

-   Percent of cases making payments toward arrears

-   Cost-effectiveness (i.e., total collections divided by total
    administrative costs)

**Data must be reliable and complete**. Data used to calculate
incentives must be complete and reliable, as determined by a data
reliability audit. If an audit finds that data is not complete and
reliable for a given measure, the state receives no payment for that
measure.

**States are paid from a capped incentive pool**. The amount of
incentives available to states was capped at the levels of incentives
projected by the Congressional Budget Office at the time Congress was
considering the legislation. By capping the amount of incentives paid,
Congress ensured total payments would not exceed those anticipated under
the old system. The annual incentive pool increases from \$422 million
in FY 2000 to \$483 million in FY 2008.

**State's share of incentive pool associated with collections base**.
Before taking performance into account, a state's potential share of the
incentive pool is based on a weighted calculation of its total
collections. Specifically, for each state, OCSE multiplies collections
made on behalf of current and former TANF, Foster Care, and Medicaid
recipients by two and adds that product to collections made on behalf of
clients who never received public assistance. This calculation becomes
the state's "collection base." The collection base is an important part
of the incentive calculations.

**Incentives are a function of performance standards**. Rules under the
new system recognize that states will not achieve perfection on the
performance measures, and therefore, policy makers developed distinct
performance thresholds for each measure based on historic trends. For
example, a state that established orders for 80 percent or more of the
cases in its system earns 100 percent of the cases with orders incentive
payment.

**Incentives must be reinvested into state CSE programs**. According to
CSPIA, incentive payments must supplement, and not supplant, other funds
used by the state to carry out CSE activities.

**Penalties are associated with failure to meet or improve performance
for three of the incentive measures, failure to report complete and
reliable data, and failure to substantially comply with IV-D
requirements**. Congress further encouraged strong performance by
establishing penalties for states that failed to meet minimum standards
for the three performance measures deemed most important: paternity
establishment, cases with orders, and current collections. Congress
based the minimum standards for each measure on historical statistical
and financial program data submitted by states. The penalty amounts are
structured similarly for each of the measures. The first time a state
fails the penalty threshold for a particular measure, OCSE may penalize
the state between 1 and 2 percent of TANF funds. For the second failure
on a particular measure, the penalty increases to 2 to 3 percent of TANF
funds, and so forth, up to a maximum of 5 percent of TANF funds. A state
also faces penalties if the data reliability audit finds its data to be
unreliable or incomplete and it fails to correct the deficiencies in the
succeeding year. The law grants states an automatic corrective action
period of one fiscal year immediately succeeding the performance year
before any penalties are imposed. During the period, OCSE allows states
to correct data and performance deficiencies.[^1]

## Key Findings

**OCSE paid FY 2000 incentives based, in part, on state performance.**
As called for in CSPIA, OCSE successfully implemented the
performance-based system in FY 2000. One-third of the FY 2000 payments
were based on the new system---the remaining two-thirds were determined
using the old system. States provided performance data by the December
31, 2000 deadline. OCSE audited the data during the subsequent eight
months and announced official incentive payments in September 2001.

**States face on-going challenges with data reliability, particularly
for the paternity establishment measure.** OCSE audited state
performance data in both FY 1999 and FY 2000, although only the FY 2000
data were used to calculate incentives unless the state needed to show
improvement to meet the data reliability standards. In FY 1999, 23
states failed audits on at least one of the five measures, with six
states failing to produce audit trails for any of their measures. Data
reliability improved slightly in FY 2000---the first year the five
performance measures factored in the incentive calculation. Every state
was able to produce an audit trail; however, 21 states failed audits on
at least one measure. Moreover, three states failed audits on three of
their five measures. Data showed improvements in some areas. Overall,
the number of states failing the paternity establishment audit declined
from 17 to 13. The number of states failing the current collections and
cases paying toward arrears audits dropped from 12 in FY 1999 to 7 in FY
2000. States continued to report accurate data for the cases with orders
measure, with only two states failing the audit. Only one state failed
the cost-effectiveness measure.

Positive trends in data reliability did not extend to FY 2001, partially
due to an increase in the data reliability standard from 90 percent to
95 percent confidence. Overall, 26 states failed an audit on a least one
measure, and 8 of those states failed audits on two or more measures.
One-third of the states electing to use the statewide paternity measure
failed their audit, and 7 states failed the cases with orders audit than
in 2000. Data reliability improved for the current collections measure
and the IV-D paternity establishment measure. Data reliability did not
change for the arrearage measure or the cost-effectiveness measure.

Reasons for unreliable data varied. If a state fails any part of its
audit, OCSE provides an in-depth description of the reasons the data
were found to be unreliable in the audit report. Although the specific
justification for OCSE's finding differs for each state, examination of
the FY 2000 audit reports indicate that the failures are attributable to
a few general reasons. The most common causes for states' failure of the
data reliability audits are programming errors, incomplete or inadequate
audit trails, and clerical, data entry, and conversion errors.

**Incentives as a percent of the maximum available varied widely in
first year of implementation.** If a state reported perfect, or high,
performance on each of the five measures, the state would have earned
100 percent of its *potential* incentive. In 2000, no state achieved the
100 percent standard. The proportion of each state's potential incentive
payments received ranged from 23 percent to 87 percent. States that
received less than 40 percent of their potential incentive payments
typically failed audits on one or more measures.

**Overall, states received higher payments under the new system than
they would have under the old system**. In FY 2000, OCSE paid \$391
million in incentives. By contrast, the old system would have generated
only \$375 million in incentive payments to all states. This is due
largely to the fact that the old system was strongly tied to levels of
TANF collections, and most states have experienced declines in their
TANF caseloads **.**

**The transition to new system created winners and losers in FY 2000.**
While states as a whole fared better under the new system, not all
states were better off. Overall, 35 states received more incentive
payments with the performance-based system partially phased in than they
would have under the old system, and 23 of those states had more than a
10 percent improvement. On the other hand, 16 states fared worse, and 12
of those states saw more than a 10 percent decline relative to the old
rules. Not surprisingly, a state's fiscal outcome is correlated with the
quality of state performance data. The 35 states that benefited from the
new system failed a combined 12 audits on individual measures out of 175
possible audits, for an average of 7 percent of their audits. By
contrast, the 16 losing states failed a combined 18 audits on individual
measures out of a total of 80 possible audits, for an average of 20
percent of their audits. The three states with the least reliable data
all lost money relative to the old system.

**Reports from** **states with reliable data suggest performance
improvement on most measures.** A review of audited FY 1999 to 2001 data
suggests that performance improved in most areas. Median state scores
increased for the IV-D paternity establishment (12 percentage points),
cases with orders (3 percentage points), current support (5 percentage
points), and arrears measures (3 percentage points).[^2] On the other
hand, the statewide paternity[^3] and cost effectiveness measures
declined. The median score on the statewide paternity measure fell 5
percentage points during FYs 1999 to 2001. Median state
cost-effectiveness declined over \$1.00 during the same period.

**A cap on total incentives makes forecasting incentive payments
challenging.** The new incentive system, unlike the previous one, caps
incentive payments. In FY 2001, \$429 million was available; this amount
will increase to \$483 million in FY 2008. The cap creates an
interactive effect. An increase in payments to one state has to be
offset by a decrease in payments to another because the total pool
amount is fixed. The cap makes forecasting incentive payments
challenging. While a state might be able to predict its performance on
the five incentive measures, it cannot predict how other states will
perform. However, many states benefit from the cap because they receive
money that other states did not earn because of unreliable data or poor
performance in one or more measures.

# I. Introduction {#i.-introduction .unnumbered}

## Purpose of Report

The Personal Responsibility and Work Opportunity Reconciliation Act of
1996 (PRWORA) required the Department of Health and Human Services
(HHS), in consultation with states, to develop a performance-based
incentive funding system through which the federal government would
award payments to state child support enforcement (CSE) programs. In
1998, Congress enacted the Child Support Performance and Incentive Act
(CSPIA), to reward states that operated effective CSE programs. Under
this Act, incentive payments are linked to a state's performance in five
areas:

-   Paternity establishment,

-   Establishment of child support orders,

-   Collections on current child support due,

-   Cases with collections on past child support due (arrears), and

-   Cost-effectiveness.

The federal Office of Child Support Enforcement (OCSE) implemented the
new incentive formula over the Fiscal Year (FY) 2000-2002 period.
Policymakers called for the gradual phase-in so that state officials
would have time to perfect their measurement of performance and identify
factors that affect the determination of incentives.

CSPIA requires HHS to produce interim and final reports that detail the
implementation of this new system and offer recommendations for its
improvement. This interim report describes the development of the new
incentive system, components of the system, and initial program results.
The final report will explore state experiences implementing the new
system, including problems, successes, advantages, and disadvantages. It
will also report on changes to the new systems that were recommended by
the stakeholders.

## Structure of Report

The remainder of this report is divided into four additional sections.
Our primary data collection activities were interviews with OCSE central
office staff and analysis of OCSE data.

-   **Section II** provides background on the new incentive system. It
    describes the original incentive system, the development of the new
    system, and the structure of the new system.

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-   **Section III** describes the incentive calculation and payment
    processes under the new system. It details data collection methods,
    the data reliability audit process, the incentive calculation steps,
    and the payment steps.

-   **Section IV** provides information on program results and incentive
    payments for the FY 1999 to FY 2001 period. It describes state
    trends on each of the five performance measures, outlines state
    experiences with the data reliability audits, and explores national
    and state trends in incentive payments.

-   **Section V** explains the next steps for the project. It describes
    the empirical research and the interviews with state officials we
    will conduct for the final report.

-   The **Appendix** provides detailed state-level information on
    performance and incentive payments.

# Background on Incentive System

## Development of Original Incentive System

Since 1975, the federal government has paid incentives to state CSE
programs as, literally, an *incentive* to encourage, at first,
interstate cooperation and, later, improve collections through efficient
establishment and enforcement techniques. Initially, child support
incentives were limited solely to families receiving cash assistance,
then known as Aid to Families with Dependent Children (AFDC). The
initial rationale for this was that families could perhaps leave the
public assistance rolls if they received regular child support payments.
AFDC collections were retained by the state and split between the state
and federal governments. Thus, the state had a fiscal interest in
collecting child support payments for families on welfare. By contrast,
states distributed non-AFDC collections directly to the custodial
parent.

In 1984, Congress passed public law 98-378 that extended incentive
payments to non-AFDC collections. When implementing the law,
policymakers were concerned that states would begin to focus more
heavily on non-AFDC collections as a way to increase incentive payments.
Additionally, linking incentive payments to non-AFDC collections meant
that the federal government would be expending resources without getting
a share of collections in return. Congress addressed these concerns by
capping non-AFDC incentive payments. Between FYs 1986 and 1990, non-AFDC
incentive payments were limited to a percentage of AFDC incentive
payments, starting at 100 percent and increasing to 115 percent, where
it remained through FY 2001.

The amount of incentives paid was determined by the cost-effectiveness
of each state's program---defined as a state's total collections divided
by its total administrative expenditures. Depending upon a state's cost
effectiveness, it could receive an incentive payment between 6 and 10
percent of collections (see ***Exhibit II.1***).

Exhibit II.1: Pre-CSPIA Incentive Structure

+------------------------------------------+----------------------------+
| Collection-to-Cost Ratio                 | Incentive Payment Received |
+------------------------------------------+----------------------------+
| Less than 1.4 to 1                       | 6.0%                       |
|                                          |                            |
| At least 1.4 to 1                        | 6.5%                       |
|                                          |                            |
| At least 1.6 to 1                        | 7.0%                       |
|                                          |                            |
| At least 1.8 to 1                        | 7.5%                       |
|                                          |                            |
| At least 2.0 to 1                        | 8.0%                       |
|                                          |                            |
| At least 2.2 to 1                        | 8.5%                       |
|                                          |                            |
| At least 2.4 to 1                        | 9.0%                       |
|                                          |                            |
| At least 2.6 to 1                        | 9.5%                       |
|                                          |                            |
| At least 2.8 to 1                        | 10.0%                      |
+------------------------------------------+----------------------------+

The following example demonstrates the previous incentive process.
Assume that in a given fiscal year, a state had \$10,000,000 in public
assistance collections and \$20,000,000 in non-public assistance
collections, and the state's collection-to-cost ratio was 3.0. This
state would receive \$2,150,000 in incentives (\$1,000,000 +
\$1,150,000).[^4]

Incentive payments under this system were not contingent on any measure
of data reliability. While audits of state IV-D programs were conducted
at least once every three years to ensure compliance with federal IV-D
requirements, the primary focus of the audits was on administrative
procedures and processes as opposed to performance outcomes and
results.[^5]

## Development of New System

The new performance-based incentive system draws its roots from the
Government Performance and Results Act (GPRA) of 1993, which required
federal programs to set goals and measure results by establishing
strategic plans. In response to GPRA 1993, OCSE and states developed
three key goals for the state-operated child support enforcement
programs as part of OCSE's Strategic Plan:

-   All children have paternity established

-   All children in the IV-D program have financial and medical support
    orders established

-   All children in the IV-D program receive financial and medical
    support from both parents

After developing these broad program goals, OCSE collaborated with the
states to develop specific measures that could be used to gauge states'
progress in meeting the goals. OCSE and the states used the Plan and its
associated measures to recommend an overhaul of the incentive system.

Federal and state policymakers believed that the original incentive
payment structure had two shortcomings. First, the difference between
minimum and maximum incentive payments was only 4 percent, and the
system guaranteed states a minimum of 6 percent of total collections
regardless of their performance or the reliability of their data. To a
degree, these conditions acted as a disincentive for states to actively
attempt to improve the quality of their child support programs. Second,
the system focused only on cost-effectiveness, ignoring other important
aspects of state CSE programs such as paternity establishment, cases
with orders, and amount of collections on current support due.

PRWORA required the HHS Secretary to develop a performance-based,
revenue-neutral incentive system in collaboration with state CSE
directors and report on the new system to the relevant House and Senate
committees by March 1, 1997.[^6]

OCSE convened the Incentive Funding Work Group (work group), which
consisted of 26 representatives from state and local IV-D programs, HHS
regional offices, and the OCSE central office. The work group's final
report recommended to the Secretary of HHS the structure and components
of the new incentive system. The work group met three times between
November 1996 and January 1997. Between each meeting, the decisions and
recommendations reached by the group were circulated to all of the
states for their reactions and feedback. Any comments were discussed at
the following meeting. The final report, issued in January 1997,
incorporated the recommendations of the work group. The primary
recommendations of the work group were as follows:[^7]

-   *Measures*. The incentive system should measure performance in five
    areas: paternity establishment, establishment of child support
    orders, collections on current child support due, collections on
    past support due (arrears), and cost-effectiveness.

-   *Standards*. The amount of the incentive for each measure should be
    based upon established standards of performance. For each measure,
    there should be an upper threshold at which the state receives the
    maximum payment, and a lower threshold below which performance is
    not rewarded unless the state can demonstrate substantial
    improvement.

-   *Collection base*. The amount of potential payments to each state
    should be based upon a percentage of its collections. The collection
    base should include collections from both TANF and non-TANF cases.
    Collections from current and former TANF cases should be given more
    weight than collections for families that have never received TANF.
    The weighting encourages states to make extra efforts to collect
    support for families that are receiving TANF or those that are
    former recipients working toward self-sufficiency.

-   *Phase in.* The new system should be phased in over a one year
    period, beginning in FY 2000.

-   *Reinvestment*. Incentive payments should be reinvested into state
    child support programs.

-   *Maintain FFP*. The Federal Financial Participation rate for state
    program expenditures should remain at 66 percent.

-   *Review mechanism*. The new system should be reviewed periodically
    to ensure that it continues to reward program goals.

## Structure of New System

In 1998, Congress enacted CSPIA, which adopted many---but not all---of
the work group's recommendations. Key elements include:

-   Payments are linked to performance in the five areas identified by
    the work group.

-   Data must be reliable and complete.

-   Incentives are a function of state collection bases and performance
    standards.

-   Incentives must be reinvested into state CSE programs.

-   States are paid from an incentive pool. The pool was capped at the
    levels of incentives projected by the Congressional Budget Office
    (CBO) at the time Congress was considering the legislation. By
    capping the amount of incentives paid, Congress ensured total
    payments would not exceed those anticipated under the old system.

-   Penalties are associated with failure to meet or improve performance
    for paternity establishment and other measures.

Each element will be described below in more detail.

OCSE has implemented the new incentive formula gradually over the FY
2000-2002 period. Payments under the new incentive structure accounted
for one-third of incentive payments to states in FY 2000. In FY 2001,
the ratios were reversed: two-thirds of incentive payments were
determined using the new system, while one-third were calculated under
the old formula. In FY 2002, 100 percent of incentive payments were
calculated using the new system.

### Performance Areas

Under the new system, incentive payments are based on states'
performance in five areas: paternity establishment, cases with orders,
collections on current support due, cases with collections on child
support arrearages, and cost-effectiveness.

**a. Paternity Establishment**.

The first performance measure is based on the Paternity Establishment
Percentage as defined in PRWORA. Under the new incentive formula, states
use one of two measures: (1) a IV-D (or "caseload") paternity
establishment measure (IV-D), or (2) a statewide paternity establishment
measure (statewide). In 2001, states were almost evenly divided, with 24
using the IV-D definition and 27 using the statewide definition.

Paternity establishment is defined as follows:

+-------------------+---+----------------------------------------------+
| Paternity         |   | Total number of children in IV-D caseload in |
|                   |   | the Fiscal Year or, at the option of the     |
| Establishment     |   | State, as of the end of the Fiscal Year who  |
|                   |   | were born out-of-wedlock with paternity      |
| Percentage- IV-D  |   | established or acknowledged                  |
+-------------------+---+----------------------------------------------+
|                   | = | []{.mark}                                    |
+-------------------+---+----------------------------------------------+
|                   |   | []{.mark}                                    |
+-------------------+---+----------------------------------------------+
|                   |   | Total number of children in the IV-D         |
|                   |   | caseload who were born out-of-wedlock as of  |
|                   |   | the end of the prior Fiscal Year             |
+-------------------+---+----------------------------------------------+

+-------------------+---+----------------------------------------------+
| Paternity         |   | Total number of minor children in the state  |
|                   |   | born out-of-wedlock and paternity            |
| Establishment     |   | established or acknowledged during the       |
|                   |   | Fiscal Year                                  |
| Percentage-       |   |                                              |
| Statewide         |   |                                              |
+-------------------+---+----------------------------------------------+
|                   | = | []{.mark}                                    |
+-------------------+---+----------------------------------------------+
|                   |   | []{.mark}                                    |
+-------------------+---+----------------------------------------------+
|                   |   | Total number of children in the state born   |
|                   |   | out-of-wedlock in the previous Fiscal Year   |
+-------------------+---+----------------------------------------------+

#### b. Cases with Orders*.*  {#b.-cases-with-orders. .unnumbered}

The second indicator measures the percentage of cases in the IV-D
caseload that have orders for support. OCSE defines the measure as
follows:

+-------------------+---+----------------------------------------------+
| Percentage of     |   | Number of IV-D cases with orders for support |
| IV-D              |   | during the Fiscal Year                       |
|                   |   |                                              |
| Cases with Orders |   |                                              |
|                   |   |                                              |
| for Support       |   |                                              |
+-------------------+---+----------------------------------------------+
|                   | = |                                              |
+-------------------+---+----------------------------------------------+
|                   |   |                                              |
+-------------------+---+----------------------------------------------+
|                   |   | Number of IV-D cases during the Fiscal Year  |
+-------------------+---+----------------------------------------------+

#### c. Current Collections*.*  {#c.-current-collections. .unnumbered}

The third performance indicator measures the proportion of current
support due that is collected on IV-D cases. The proportion is expressed
by the following formula:

+-------------------+---+----------------------------------------------+
| IV-D Collection   |   | Dollars collected for current support in     |
|                   |   | IV-D cases                                   |
| Rate for Current  |   |                                              |
|                   |   |                                              |
| Support           |   |                                              |
+-------------------+---+----------------------------------------------+
|                   | = |                                              |
+-------------------+---+----------------------------------------------+
|                   |   |                                              |
+-------------------+---+----------------------------------------------+
|                   |   | Dollars owed for current support in IV-D     |
|                   |   | cases                                        |
+-------------------+---+----------------------------------------------+

**d. Cases with Collections on Arrears (Past-due Support).**

The fourth indicator measures state efforts to collect money from cases
with an arrearage. The measure specifically counts paying cases---and
not total arrears dollars collected---because states have different
methods of handling certain aspects of arrears cases. For instance, the
ability to write off bad debt or debt that is deemed uncollectible
differs by state. Some states charge interest on arrears (which is
considered additional arrears) while others do not. The measure is
calculated as follows:

+-------------------+---+----------------------------------------------+
| Percentage of     |   | Number of IV-D cases with at least one       |
| IV-D              |   | payment toward arrears                       |
|                   |   |                                              |
| Cases with        |   |                                              |
| Collections       |   |                                              |
|                   |   |                                              |
| on Arrears        |   |                                              |
+-------------------+---+----------------------------------------------+
|                   | = |                                              |
+-------------------+---+----------------------------------------------+
|                   |   |                                              |
+-------------------+---+----------------------------------------------+
|                   |   | Number of IV-D cases with arrears due        |
+-------------------+---+----------------------------------------------+

#### e. Cost-Effectiveness.  {#e.-cost-effectiveness. .unnumbered}

The fifth measure assesses the total dollars collected by the CSE
program for each dollar spent. Although, cost-effectiveness was used to
determine incentive payments in the past, the new CSPIA measure takes
into account total costs and total collections. Costs and collections
attributed to public assistance and non-public assistance cases are not
separated. The equation for cost-effectiveness is the following:

  -------------------- ---- ----------------------------------------------
  Cost-Effectiveness        IV-D dollars collected

                       =    

                            

                            IV-D dollars expended (federal and state
                            shares)
  -------------------- ---- ----------------------------------------------

### Data Must be Complete and Reliable

Data used to calculate incentives must be complete and reliable, as
determined by a data reliability audit (DRA). If an audit finds that a
state's data is not complete and reliable for a given measure, the state
receives zero payments for that measure. **Section III** describes the
DRA process in more detail.

### Incentives are a Function of State Collection Bases and Performance Standards

**a. Collection Base***.*

Incentive payments for each performance measure are a function of the
state's collection base. The collection base is the sum of:

-   child support collected for current and former public assistance
    cases *multiplied by two*

and

-   child support collections for cases never on public assistance

Each state earns a score based on its performance for each of the five
measures. For the first three measures (paternity establishment, cases
with orders, and current collections) the maximum state score is equal
to 100 percent of its collection base for each of its measures. For the
last two measures (arrears and cost effectiveness), the maximum state
score equals 75 percent of its collection base for each measure. State
and federal policymakers recommended the weighting scheme to place extra
emphasis on the measures associated with getting support to every
family.

####  b. Performance Standards.  {#b.-performance-standards. .unnumbered}

State performance on each measure corresponds to a specified incentive
percentage (see ***Exhibit III.3*** in the following section). For
example, if a state has established orders for 80 percent or more of the
cases in its system, the corresponding incentive percentage would be 100
percent. A state's applicable percentage (100 percent in this example)
is multiplied by the collection base of that measure to determine the
amount of the incentive payment.

However, states do not automatically receive an incentive payment for
every measure. In order to receive a payment, a state must either reach
a certain performance threshold or improve its performance by a
specified amount from the previous year. Each measure has an associated
upper and lower threshold. If a state achieves the upper threshold (80
percent in the example above), it receives the maximum incentive. If its
performance is below the lower threshold (40 or 50 percent, depending on
the measure), it receives no payment unless it improved by 5 or 10
percentage points (also depending on the measure). The one exception is
cost-effectiveness. If a state's cost-effectiveness ratio is less than
\$2.00, it receives no incentive payment, regardless of whether it
improved its performance over the previous year.

***Exhibit II.2*** displays the minimum level a state must reach to
receive a payment, the required increase a state must make if it falls
below the performance level, and the applicable percentage of the
payment a state would get if it met the required increase.

Take the example of paternity establishment. Suppose a state established
45 percent of paternities in FY 2001 and 40 percent in FY 2000. Because
it (1) failed to meet the minimum performance required for the measure
(50 percent), and (2) increased its paternity establishment percentage
only 5 percentage points, the state would not be eligible for an
incentive payment. If this same state established 35 percent of
paternities in FY 2000 and 45 percent in FY 2001, the state would
receive an incentive because it increased performance by the mandated 10
percentage point amount. Thus, this state would receive an incentive
payment as if it had established 60 percent of paternities.

Exhibit II.2: Performance Standards

  ---------------- --------------- ----------------- ----------------------
  **Performance    **Minimum       **Required        **Applicable
  Measure**        Performance to  Increase if Below Percentage for Meeting
                   Receive Pmt**   Minimum**         Increase Requirement**

  Paternity        50%             10%               60%
  establishment                                      

  Cases with       50%             5%                60%
  orders                                             

  Current          40%             5%                50%
  collections                                        

  Collections on   40%             5%                50%
  arrears                                            
  ---------------- --------------- ----------------- ----------------------

### Capped Incentive Pool

Congress capped incentive payments by legislating the total amount of
incentives that states could earn in each fiscal year (see ***Exhibit
II.3***). The capped system creates an interactive effect---an increase
in payments to one state must be matched by a decrease in the payments
to another. As discussed previously, Congress based the levels of the
incentive payment pool on CBO projections of incentive payments at the
time CSPIA was passed.[^8]

Exhibit II.3: Incentive Payment Pool

  ---------------------- -------------------------- ---------------------
  **Fiscal Year**        **Pool Amount**            **Change from
                                                    Previous FY**

  2000                   \$422,000,000              n/a

  2001                   \$429,000,000              2%

  2002                   \$450,000,000              5%

  2003                   \$461,000,000              2%

  2004                   \$454,000,000              (2%)

  2005                   \$446,000,000              (2%)

  2006                   \$458,000,000              3%

  2007                   \$471,000,000              3%

  2008                   \$483,000,000              3%

  Succeeding FYs         Amount of pool from        
                         previous FY multiplied by  
                         percentage (if any) by     
                         which the Consumer Price   
                         Index[^9] for the          
                         preceding FY exceeds the   
                         CPI for the second         
                         preceding FY.              
  ---------------------- -------------------------- ---------------------

As noted above, for FYs 2000 and 2001, state incentive payments were
based on both the old and new systems. Thus, the pool amount distributed
in FY 2000 as part of the new incentive system was \$143 million, or
one-third of the total pool amount. In FY 2001, the pool amount was
\$286 million (two-thirds of the total amount). (Note: Additional issues
surrounding the cap will be further discussed later in the report.)

### Incentives Must be Reinvested

According to CSPIA, incentive payments must supplement, and not
supplant, other funds used by the state to carry out CSE activities.
OCSE enforces the reinvestment requirement as follows. OCSE calculated a
"base" child support expenditure for each state, which equals the
state's total expenditures in FY 1998 *minus* the amount of incentive
funds that it received and reinvested during the same year.
Additionally, OCSE allows states to substitute a three-year average for
the FY 1998 amount.[^10]

Going forward, OCSE requires states to maintain the base expenditure.
Moreover, the incentive payments must be in addition to, and not in lieu
of, the base amount.

### Penalties

OCSE encouraged strong child support program performance by establishing
penalties for states that failed to meet minimum standards for the three
performance measures deemed most important: paternity establishment,
cases with orders, and current collections. Minimum standards for each
measure were based on historic performance and trends. The penalty
amounts are structured similarly for each of the measures. The first
time a state fails the penalty threshold, OCSE penalizes the state
between 1 and 2 percent of TANF funds. For the second failure, the
penalty increases to 2 to 3 percent of TANF funds, and so forth, up to a
maximum of 5 percent of TANF funds. States became subject to penalties
for poor performance as of FY 2001. The law grants states an automatic
corrective action period of one fiscal year immediately succeeding the
performance year before any penalties are imposed. During the period,
OCSE allows states to correct data and performance deficiencies.

The penalty provisions work as follows:

#### a. Paternity Establishment.  {#a.-paternity-establishment. .unnumbered}

States that achieve a score of 90 percent or more on the measure need
not demonstrate improvement in the subsequent year (see ***Exhibit
II.4***). States with a score from 75 percent to 89 percent must improve
by 2 percentage points in the subsequent year. If they fail to do so,
OCSE penalizes the state between 1 and 2 percent of its TANF block grant
amount. The required annual improvement increases for low performing
states. For example, states that score 39 percent or less on the measure
must improve performance by 6 percentage points to avoid a penalty.

**Exhibit II.4: Performance Standards for Paternity Establishment**

  ----------------- ---------------------------- ----------------------------
  **Performance**   **Required improved over     **Penalty for first failure,
                    previous year\'s paternity   if not met**
                    establishment percentage**   

  90% or more       None                         No penalty

  75% to 89%        2 percentage points          1-2% of TANF Funds

  50% to 74%        3 percentage points          1-2% of TANF Funds

  45% to 49%        4 percentage points          1-2% of TANF Funds

  40% to 44%        5 percentage points          1-2% of TANF Funds

  39% or less       6 percentage points          1-2% of TANF Funds
  ----------------- ---------------------------- ----------------------------

#### b. Cases with Orders.  {#b.-cases-with-orders.-1 .unnumbered}

States that fail to establish child support orders in at least 40
percent of open cases---or improve their performance by 5 percentage
points over the previous fiscal year---face penalties of 1 to 2 percent
of TANF funds for the first failure. The percentage increases for
subsequent failures, as discussed above (see ***Exhibit II.5***).

Exhibit II.5: Performance Standards for Cases with Orders

  ------------------ ------------------------- ---------------------------
  **Performance**    **Required Increase over  **Penalty**
                     previous year\'s Order    
                     Establishment             
                     Percentage**              

  40% or more        None                      No penalty

  Less than 40%      5 percentage points       1-2% of TANF Funds
  ------------------ ------------------------- ---------------------------

#### c. Current Collections.  {#c.-current-collections.-1 .unnumbered}

States that do not collect at least 35 percent of current support
due---or improve their performance by 5 percentage points over the
previous fiscal year---face penalties of 1 to 2 percent of TANF funds
for the first failure. Again, the percentage increases for subsequent
failures, as discussed above (see ***Exhibit II.6***).

Exhibit II.6: Performance Standard for Current Collections

  -------------------- ----------------------------- ---------------------
  **Performance**      **Required Increase over      **Penalty**
                       previous year\'s Current      
                       Collection Percentage**       

  35% or more          None                          No penalty

  Less than 35%        5 percentage points           1-2% of TANF Funds
  -------------------- ----------------------------- ---------------------

In addition to penalties for poor performance, if a data reliability
audit finds that state data is incomplete or unreliable and the state
fails to correct the deficiencies in the succeeding fiscal year
following the performance year, the state faces a reduction in its IV-A
grant.

Finally, the law allows OCSE to assess penalties if a state fails to
substantially comply with one or more IV-D requirements.

# Incentive Calculations and Payments

## State Data Reporting

Calculating incentives is a multi-stage process*.* Each step will be
described in detail below.

### Data Submission

#### a. OCSE-157 Report.  {#a.-ocse-157-report. .unnumbered}

The incentive process begins with collection of states' 157 reports. The
data reported by states on the line items of the 157 report are used to
calculate four of the five performance measures---paternity
establishment, cases with orders, current collections, and cases paying
towards arrears. ***Exhibit III.1*** describes the line items used to
calculate each performance measure.

Exhibit III.1: 157 Report Line Items

+-------------------------------------+--------------------------------+
| **Line Item**                       | **Performance Measure**        |
+-------------------------------------+--------------------------------+
|                                     |                                |
+-------------------------------------+--------------------------------+
| Line 5: IV-D cases born out of      | Paternity Establishment---IV-D |
| wedlock                             |                                |
|                                     | line 6 ÷ Line 5                |
+-------------------------------------+--------------------------------+
| Line 6: IV-D cases with paternity   |                                |
+-------------------------------------+--------------------------------+
| Line 8: Children born out of        | Paternity                      |
| wedlock statewide                   | Establishment---Statewide      |
|                                     |                                |
|                                     | or Line 9 ÷ Line 8             |
+-------------------------------------+--------------------------------+
| Line 9: Paternity established       |                                |
| statewide                           |                                |
+-------------------------------------+--------------------------------+
| ####  {#section .unnumbered}        | ####  {#section-1 .unnumbered} |
+-------------------------------------+--------------------------------+
| Line 1: Open cases                  | Cases with Orders              |
|                                     |                                |
|                                     | Line 2 ÷ Line 1                |
+-------------------------------------+--------------------------------+
| Line 2: Cases open at end of FY     |                                |
| with order                          |                                |
+-------------------------------------+--------------------------------+
| ####  {#section-2 .unnumbered}      | ####  {#section-3 .unnumbered} |
+-------------------------------------+--------------------------------+
| Line 24: Total child support due    | Collection Rate for Current    |
|                                     | Support                        |
|                                     |                                |
|                                     | Line 25 ÷ Line 24              |
+-------------------------------------+--------------------------------+
| Line 25: Total child support        |                                |
| distributed                         |                                |
+-------------------------------------+--------------------------------+
| ####  {#section-4 .unnumbered}      | ####  {#section-5 .unnumbered} |
+-------------------------------------+--------------------------------+
| Line 28: Cases with arrears         | Cases Paying Toward Arrears    |
|                                     |                                |
|                                     | Line 29 ÷ Line 28              |
+-------------------------------------+--------------------------------+
| Line 29: Cases paying towards       |                                |
| arrears                             |                                |
+-------------------------------------+--------------------------------+

The 157 report is due October 30^th^, one month after the close of
fiscal year. States can make corrections through December 31^st^. Any
corrections made after this date do not affect the incentive
calculation.[^11] Most states send hard copies of the report to OCSE,
although the agency has an electronic system states can use to directly
enter data on the 157. In FY 2001, few states used electronic entry.

Once the data has been submitted, OCSE uses a multi-step verification
process. One staff person inputs the 157 numbers, a second double-checks
the numbers, and a third verifies the numbers before they are used for
incentive calculations. Staff must be careful to use correct numbers
because, given the capped incentive pool, an error in one state's
calculation affects all states.

After the numbers are entered, OCSE creates tables that report
performance on each measure for the 54 jurisdictions (50 states plus the
District of Columbia, Puerto Rico, Guam, and the Virgin Islands). In
mid-year, each state is sent a copy of the preliminary data report and
encouraged to check the accuracy of the numbers. This is only a
preliminary report, and does not incorporate the findings from the data
reliability audit. States' incentive payments are contingent on the
passage of the date reliability audits.

#### b. Other Data Sources: 34A and 396A.  {#b.-other-data-sources-34a-and-396a. .unnumbered}

Two other forms are used in the incentive calculation process: The
OCSE-396A (Child Support Enforcement Program Financial Report) and
OCSE-34A (Child Support Enforcement Program Quarterly Report of
Collections). These reports are used to calculate the cost-effectiveness
measure. The 34A is also used to determine the state collection
base.[^12] While the 157 report is submitted annually, the 396A and 34A
are submitted quarterly. The data from the 396A and 34A forms are input
by OCSE staff at the regional offices, unlike the data from the 157
report, which is input by staff from the OCSE central office.

The 396A form is comprised of three parts. Part I reports quarterly
expenditures and estimates. It is submitted quarterly and due 30 days
following the close of the quarter (January 30, April 30, July 30, and
October 30). Part II reports prior quarter expenditures and adjustments,
and is also submitted quarterly, within 30 days of the close of each
quarter. Part III is the semi-annual budget projection, which is due 30
days after the end of fiscal quarters 2 and 4. The 34A form contains
information on collections and distributions. Like the first two
sections of the 396A, it is due quarterly, within 30 days of the end of
the quarter.

## 2. Audit Process {#audit-process .unnumbered}

The data reliability audits (DRA) determine if each state's data and the
system that produces the data are accurate, complete, reliable, and
secure.

### Audits of 157 Reports. 

The audit process for the 157 report begins at the end of the calendar
year. States provide the assigned OCSE regional audit office with a
universe of cases and audit trails. From this universe, a sample is
selected for the audit. Audits begin in January--- as soon as the
deadline for submitting corrected reports has passed. OCSE auditors
start each audit with an entrance conference, at which time the audit
process is explained to the key state stakeholders. The OCSE auditors
present their results to state CSE staff at an exit conference. Auditors
then compile an audit report. The process is described further below.

*Sample Size*. The auditors need at least 120 open cases to conduct the
audit. Thus, they select a minimum of 150 cases from the state's
universe. The size of the sample depends on the differential between the
size of each state's universe and the number of open cases (Line 1 of
the 157 report). If the universe and number of open cases are equal, the
sample size would be 150. If there were 150,000 cases in the universe
and 100,000 reported on Line 1, then the sample size would be 225 (150
cases \* 1.5 differential). If the universe was twice as large as the
number of open cases, the sample would be 300 (150 \* 2.0 differential).
Analysis of the 2000 audit reports found that the number of cases
sampled ranged from 164 to 555.

As noted above, the 157 report is divided into line items; each
performance measure corresponds to the division of two specific line
items. Our analysis of the 2000 audit reports found that the number of
cases reviewed for each line item (thus performance measure) varied
considerably (see ***Exhibit III.2***). It should be noted that the
number of cases available for sampling gradually decreases after Line 1.

Exhibit III.2: Cases Reviewed for Each Measure

+----------------------------------------+-----------------------------+
| **Line Item**                          | **Cases Reviewed**          |
+----------------------------------------+-----------------------------+
| **Paternity Establishment**            |                             |
+----------------------------------------+-----------------------------+
| Line 5: IV-D cases born out of wedlock | 61-160                      |
+----------------------------------------+-----------------------------+
| Line 6: IV-D cases with paternity      | 48-105                      |
+----------------------------------------+-----------------------------+
| Line 8: Children born out of wedlock   | 50                          |
| statewide                              |                             |
+----------------------------------------+-----------------------------+
| Line 9: Paternity established          | 50                          |
| statewide                              |                             |
+----------------------------------------+-----------------------------+
| #### Cases with O                      | ###                         |
| rders {#cases-with-orders .unnumbered} | #  {#section-6 .unnumbered} |
+----------------------------------------+-----------------------------+
| Line 1: Open cases                     | 139-202                     |
+----------------------------------------+-----------------------------+
| Line 2: Cases open at end of FY with   | 37-165                      |
| orders                                 |                             |
+----------------------------------------+-----------------------------+
| #### Current Collecti                  | ###                         |
| ons {#current-collections .unnumbered} | #  {#section-7 .unnumbered} |
+----------------------------------------+-----------------------------+
| Line 24: Total child support due       | 27-117                      |
+----------------------------------------+-----------------------------+
| Line 25: Total child support           | 14-88                       |
| distributed                            |                             |
+----------------------------------------+-----------------------------+
| #### Cases Paying Toward Arrears {#ca  | ###                         |
| ses-paying-toward-arrears .unnumbered} | #  {#section-8 .unnumbered} |
+----------------------------------------+-----------------------------+
| Line 28: Cases with arrears            | 30-152                      |
+----------------------------------------+-----------------------------+
| Line 29: Cases paying towards arrears  | 10-97                       |
+----------------------------------------+-----------------------------+

States must provide auditors with documentation, through access to state
systems and hard copies of documents for each of the cases used to
review Lines 1, 2, 5, 6, 8, 9, 24, 25, 28 and 29. Auditors determine
whether the data that should have been included on any given line were
included. Thus, for the selected cases, auditors examine the relevant
entries from the audit trail. They then check the state's automated
system to verify the audit trail number. Take the example of current
support paid. The audit trail may show that \$150 in current support was
paid over the course of the year. The auditor looks up the collection
history for the case on the automated system to determine if the \$150
figure is accurate. If an auditor finds an error in a sampled case, he
or she must provide comments, documenting each error. Once the audit is
completed, it is reviewed by an auditor from a different field office.
In addition, OCSE headquarters audit staff also review the audit
findings to ensure that they are supported by the regulations.

*Sample Results***.** The audit results are evaluated using a 95 percent
confidence interval that, according to auditors, is used "to compute the
degree of sampling error associated with the estimate and to present the
range of values within which the true universe parameter being measured
is expected to occur." In order to pass the audit, states must achieve
the high end of the "efficiency rate." Based on the results obtained
from the sample data for each line item reviewed, the upper and lower
confidence limits are calculated at the 95 percent confidence level. For
FY 2000, states had to have an efficiency rate of 90 percent or higher
in order to pass the audit. In practice, this works as follows. If a
state had 87 cases reviewed for the cases with order measure, and 68 of
the cases were reported correctly, the efficiency rate for the measure
would be 78 percent.[^13] Using a 95 percent confidence interval, OCSE
would determine that the actual efficiency rate was between 68 percent
and 86 percent---below the 90 percent threshold. Thus, this state would
receive no incentive payment for the cases with orders measure. The
confidence interval depends on the sample size. In FY 2001, and all
following years, federal regulations called for the efficiency rate to
be increased to 95 percent.

*Audit Reports***.** OCSE sends the state an audit report approximately
one month following the exit conference. It summarizes the auditors'
findings with specific attention paid to data that they deemed
incomplete or unreliable. Upon receipt of the report, states have 14
days to respond. The report is then finalized, including all comments
submitted by the states, and forwarded to the OCSE staff responsible for
calculating the incentive payments. Final audit reports are generally
completed in early Summer.

*Appeals***.** States have a number of opportunities during the audit
process to contest a data issue. If the auditors uncover problems while
on site, the auditor will notify the state and the state can contact the
regional ACF office or OCSE headquarters to clarify definitional issues
before the draft report is issued. During the exit conference, auditors
present their full results and the state can try to resolve the issue.
States are also encouraged to offer their comments and concerns in
response to the draft report.

### Audits of Other Data Sources

The 34A and 396A are used to determine the cost-effectiveness
performance measure. Although the 34A and 396A are submitted quarterly
or semi-annually, they are audited once per year. The auditors compile
the reports for the four quarters that comprise the fiscal year. They
ensure the math is correct (i.e., the numbers check and balance) and
check the numbers against the state systems. Specifically, they try to
ascertain that the relevant data reported on the forms matches the
state's first level of documentation.

## Incentive Calculation Steps

Once all state data has been audited, OCSE calculates the incentive
payments. This involves a number of steps. First, staff determine each
state's *collection base* (that is, the sum of child support collected
for current and former public assistance recipients multiplied by two
and collections for cases never on public assistance). Next, staff use
the regulations to determine the *applicable percentage* of the
incentive payment associated with each state's performance level for
each of the reliable measures. The state's *maximum base* is computed
and used to determine the state's share of the overall incentive pool.
Each step will be described briefly below. For illustration purposes, we
will use a hypothetical state with the following characteristics:

+-------------------------------------+------------------+------------+
| **Collections**                     | **Amount**       |            |
|                                     |                  |            |
| -   Current public assistance       | -   \$20,000,000 |            |
|                                     |                  |            |
| -   Former public assistance        | -   \$75,000,000 |            |
|                                     |                  |            |
| -   Never public assistance         | -                |            |
|                                     |    \$120,000,000 |            |
+-------------------------------------+------------------+------------+
| **Performance Measures**            | **Percent        | **Pass     |
|                                     | Incentive**      | Audit?**   |
| -   Paternity establishment         |                  |            |
|     percentage                      | -   57%          | Y          |
|                                     |                  |            |
| -   Cases with orders percentage    | -   80%          | Y          |
|                                     |                  |            |
| -   Current collections percentage  | -   35%          | Y          |
|                                     |                  |            |
| -   Cases paying toward arrears     | -   50%          | N          |
|                                     |                  |            |
| -   Cost-effectiveness ratio        | -   \$4.00       | Y          |
+-------------------------------------+------------------+------------+

### Collection Base 

The state's collection base for a fiscal year is equal to the sum of:

-   Collections for current and former public assistance cases
    multiplied by two

-   Collections for cases never on public assistance

In our example above, the state's collection base would be
\$310,000,000.[^14]

### Maximum Incentive Base 

The maximum incentive base for a state in a fiscal year is 100 percent
of the state collection base for three measures (paternity
establishment, cases with orders, current collections), and 75 percent
of the collection base for the two remaining measures (cases paying
toward arrears, cost-effectiveness). Thus, for our hypothetical state,
the maximum incentive base is \$310,000,000 for the paternity, cases
with orders, and collections measures and \$232,000,000 for the arrears
and cost-effectiveness measures.

### Applicable Percentage 

To determine the incentive payment for each performance measure, the
maximum incentive base is multiplied by the applicable percentage
defined in the legislation. ***Exhibit III.3*** depicts the incentive
payment schedule for four of the five performance measures---paternity
establishment, cases with orders, current collections, and cases paying
toward arrears. ***Exhibit III.4*** shows the applicable percentages for
the cost-effectiveness measure.

**Exhibit III.3: Incentive Payment Rates**

Paternity Establishment, Cases with Orders, Current Collections,
Collections on Arrears

  -----------------------------------------------------------------------
  **If Performance is at Least X, but **The Applicable Percent of Payment
  Less than Y...**                    Is...**
  ----------------------------------- -----------------------------------
  80%                                 100%

  79%..80%                            98%

  78%..79%                            96%

  77%..78%                            94%

  76%..77%                            92%

  75%..76%                            90%

  74%..75%                            88%

  73%..74%                            86%

  72%..73%                            84%

  71%..72%                            82%

  70%..71%                            80%

  69%..70%                            79%

  68%..69%                            78%

  67%..68%                            77%

  66%..67%                            76%

  65%..66%                            75%

  64%..65%                            74%

  63%..64%                            73%

  62%..63%                            72%

  61%..62%                            71%

  60%..61%                            70%

  59%..60%                            69%

  58%..59%                            68%

  57%..58%                            67%

  56%..57%                            66%

  55%..56%                            65%

  54%..55%                            64%

  53%..54%                            63%

  52%..53%                            62%

  51%..52%                            61%

  50%..51%                            60%

  0%..50% (for Paternity              0%, unless state improved
  establishment percentage and cases  performance by 10 percentage points
  with orders)                        over previous year for paternity or
                                      5 percentage points for cases with
                                      orders

  Fail Audit                          0%

  For current collections and arrears 
  measures only:                      

  49%..50%                            59%

  48%..49%                            58%

  47%..48%                            57%

  46%..47%                            56%

  45%..46%                            55%

  44%..45%                            54%

  43%..44%                            53%

  42%..43%                            52%

  41%..42%                            51%

  40%..41%                            50%

  0%..40%                             0%, unless state improved score by
                                      5 percentage points over the
                                      previous year

  Fail audit                          0%
  -----------------------------------------------------------------------

For the hypothetical state, a paternity establishment percentage of 57
percent corresponds to an incentive payment percentage of 67 percent.
The state established orders for 80 percent of cases, so would receive
100 percent of the incentive payment for that measure. A current
collection measure of 35 percent yields no incentive payments, because
the percentage of current support collected is below the minimum
threshold to receive a payment (40 percent).[^15] The state's score of
50 percent of cases paying toward arrears would be associated with 60
percent of the incentive payment for the measure, but because the state
did not pass the audit, it received no payment. Finally, a
cost-effectiveness ratio of \$4.00 corresponds to 80 percent of the
incentive payment amount.

**Exhibit III.4:** Incentive Payment Rates for Cost-Effectiveness

  ----------------------------------- -----------------------------------
  **If Performance is at Least X, but **The Applicable Percent of Payment
  Less than Y...**                    Is...**

  \$5.00                              100%

  \$4.50..\$4.99                      90%

  \$4.00..\$4.50                      80%

  \$3.50..\$4.00                      70%

  \$3.00..\$3.50                      60%

  \$2.50..\$3.00                      50%

  \$2.00..\$2.50                      40%

  \$0.00..\$2.00                      0%

  Fail audit                          0%
  ----------------------------------- -----------------------------------

### Calculating the Payment 

To calculate the actual incentive payment, each applicable incentive
percentage is multiplied by the maximum incentive base for the measure.
As noted above, the maximum base is higher for the paternity
establishment, cases with orders, and current collections measures. For
each measure, the product of the incentive percentage and the maximum
base is the payment. The payments are then summed for each of the five
measures, and this becomes the maximum incentive base for the state.
Consider the hypothetical state:

  -------------------- ----------------- ------------------ -----------------
  **Measure**          **Percent of      **Maximum          **Payment
                       Incentive         Incentive Base**   Amount**
                       Payment**                            

                       \(a\)             \(b\)              \(a\) x (b)

  Paternity            66%               310,000,000        \$204,600,000
  Establishment                                             

  Cases with orders    100%              310,000,000        \$310,000,000

  Current Collections  0%                310,000,000        \$0

  Cases Paying Arrears 0%                232,000,000        \$0

  Cost-Effectiveness   80%               232,000,000        \$185,600,000

  **State's maximum                                         \$700,200,000
  incentive base**                                          
  -------------------- ----------------- ------------------ -----------------

To calculate the incentive payment, OCSE must then determine the state's
proportion of all state maximum incentive bases summed. According to
OCSE administrative data, in FY 2000 the sum of all state incentive
bases was \$83,332,269,494. Our hypothetical state's share of the
incentive pool would be:

> [\$700,200,000]{.underline} [Maximum state incentive base]{.underline}
>
> \$83,332,269,494 Sum of all state maximum incentive bases

The incentive amount, then, would be 0.01 percent of the total incentive
pool. In FY 2000, the pool was \$140,666,667 (one-third of the capped
incentive amount).[^16] Thus, the state's incentive payment for FY 2000
would be \$1,406,666 for the performance-based portion of the payment.
If the new incentive system had been phased-in fully, the state's
incentive payment would be 0.01 percent of \$422,000,000, or
\$4,220,000.

## Payment Steps

The federal government essentially pays incentives on an on-going basis
using state *estimates* of what their incentives will be. Once the
audited performance data become available, OCSE reconciles the amount
actually earned with the amount previously estimated, and retained by,
states. The process works as follows:

Each quarter, states calculate the federal government's share of
TANF-related child support collections and retain one-fourth of this
annual estimate from the federal share of collections. For example, in
FY 2000, in a given quarter, state "X" may calculate that the federal
share of assistance collections is \$10,000,000.[^17] However, the state
officials predict their program will earn \$1,000,000 in incentive
payments for the year. Therefore, state officials retain one-quarter of
the incentive payments (or \$250,000) from the federal share of
collections. Through the process, the state receives the estimated
incentives over the course of the year. By the end of the fiscal year
(September 30^th^), the state has withheld the full \$1,000,000 it
estimated it would receive in payments.

State officials do not learn whether their estimate is accurate until
the DRA is complete and OCSE has calculated each incentive payment after
the conclusion of the fiscal year. OCSE compares the actual incentive
calculation to the state's estimate. An immediate positive or negative
grant award is issued to the state to reconcile the difference.

Under the new system, estimating incentives became more difficult than
it was in the past. Under the old incentive system, state officials
needed to track only three statistics---administrative costs, TANF
collections, and non-TANF collections---to forecast incentives. By
contrast, the current system requires forecasting five distinct
performance measures, as well as the state's collection base. Moreover,
even if a state accurately predicts its own performance, circumstances
beyond its control---performance of other states---affect the amount of
its payment. By capping a single incentive pool, policymakers created a
system that made one state's incentive payment dependent not only on its
own performance, but also on the performance of every other state. In
short, if one state's performance improves markedly, its gain in
incentive payments comes from every other state. Similarly, if another
state's performance weakens or fails an audit, every other state sees an
increase in incentive payments. The interactive nature of the system
makes reliable forecasts of incentives challenging.

OCSE anticipated the difficulty states would encounter with their
incentive forecasts, thus advised states to be conservative in their
forecasts. In FY 2000, states estimated incentives of \$352.7 million
but actually received \$391.2 million. Forty states received positive
adjustments (or payments), while 14 received negative adjustments. Of
the 14 negative adjustments, nine were for less than \$1 million and
five fell between \$1 million and \$2.5 million; two states received
negative adjustments that were large relative to their program size.

# Program Results and Incentive Payments

This section describes state performance for each incentive measure for
three years (FYs 1999-2001), how this performance translates into the
percent of incentives earned for each measure in FY 2000,[^18] and how
data reliability issues affect incentive payments. It presents trends in
incentive payments---nationally and by state.

## Performance by Measure

***Exhibits IV.1 through IV.6*** depict 1999-2001 trends in state
performance by incentive measure for those states that passed data
reliability audits (DRAs) in *both 1999 and 2001*. As the Exhibits show,
there was considerable variation in state performance by measure.

### Paternity Establishment 

As noted above, states can use one of two definitions for the paternity
establishment percentage: statewide or IV-D. The number of states using
the statewide paternity establishment and the IV-D measure are roughly
equal. In FY 2001, 27 states used the statewide measure and 24 used the
IV-D measure. Among states that passed the audit in FY 2001, those using
the statewide measure reported slightly higher levels of paternity
establishment than states using the IV-D definition (a median of 87
percent versus 83 percent). However, states that use the IV-D definition
have been improving at a faster rate. Between FYs 1999 and 2001, the
median state score among states that passed the audit in each year
increased 12 percentage points among the IV-D states (from 71 percent to
83 percent), while it declined 6 percentage points among the statewide
states (from 93 percent to 87 percent). ***Exhibits A.1-A.3*** in the
***Appendix*** provide state-level detail on trends in paternity
establishment performance. As will be discussed further below, states
have had difficulty reporting accurate data for the paternity
establishment measure.

***Exhibit IV.1*** depicts the trend in state performance on the
statewide paternity establishment measure. The median state score among
the 11 states that passed *both* FY 1999 and 2001 audits declined from
92 percent to 88 percent. [^19] The proportion that reported decreases
and increases was roughly equal. Five states reported decreased
performance during the period. The declines ranged from 22 percentage
points to 3 percentage points. Six states reported increased
performance, ranging from 1.5 percentage points to 27 percentage points.

Thirteen states are not included in the trend data analysis because they
did not pass the DRA in FY 1999 and/or 2001. Five states did not pass
the DRA in FY 1999, but proceeded to pass the audit in FY 2001. Three
states failed the audit in both years. Five states that had accurate and
reliable data in FY 1999 failed the DRA in FY 2001. This is due, in
part, to the increase in the audit reliability standard in FY 2001 (to
95 percent). Additionally, three states are excluded because they
shifted from a IV-D to a statewide measure between 1999 and 2001.

######## Exhibit IV.1: Trends in Statewide Paternity Establishment Percentage, FYs 1999-2001 {#exhibit-iv.1-trends-in-statewide-paternity-establishment-percentage-fys-1999-2001 .unnumbered}

![](media/image1.wmf){width="5.125in" height="3.5625in"}

It should be noted that the statewide paternity establishment measure is
more difficult for IV-D agencies to collect than the IV-D paternity
measure. The statewide measure includes cases outside of the IV-D
program, and child support staff have no control over many of these
cases. Thus, there has been more year-to-year fluctuation in the
statewide measure than the IV-D one.

***Exhibit IV.2*** depicts FY 1999 to 2001 trends for the IV-D paternity
establishment measure. Among states that passed the audit in both years,
the median state score for the IV-D paternity establishment measure
increased 14 percentage points, from 72 percent to 86 percent. Of the 11
states that passed the audit in both years, only 2 reported a decrease
in performance, ranging from 2 percentage points to 11. The remaining
nine reported improvements ranging from 1 percentage points to 91.

Twelve states were excluded from the analysis because they did not pass
their audits in FY 1999 and/or 2001. Three states failed in FY 1999 but
had reliable data by FY 2001. Three states failed in both years.
However, six states had reliable 1999 data, only to fail in 2001. In
addition to the states that failed one or more DRAs, one state was
excluded because it switched from the statewide paternity definition to
the IV-D one.

######## Exhibit IV.2: Trends in IV-D Paternity Establishment Percentage, FYs 1999-2001 {#exhibit-iv.2-trends-in-iv-d-paternity-establishment-percentage-fys-1999-2001 .unnumbered}

![](media/image2.wmf){width="5.125in" height="3.5104166666666665in"}

### Cases with Orders 

***Exhibit IV.3*** shows trends for the cases with order measure.
Between FYs 1999 and 2001, the median score for states that passed the
audit in both years increased about three percentage points, from 67
percent to 70 percent. States generally performed well on this measure,
both in terms of improvements and audit results. Of the 43 states with
reliable data in FYs 1999 and 2001, 37 indicated an improvement in the
percent of cases with orders. Gains ranged from less than 1 percentage
point to 17 percentage points. The bulk of the increases were in the 5
to 10 percentage point range. Among the six states with declines in
scores, the drops were generally smaller, ranging from less than one
percentage point to 4.5 points. (See ***Exhibit A.4*** in the
***Appendix*** for detail on state trends in cases with orders.)

Eight states did not pass the audit in one or both years. Five states
failed the audit in FY 1999 but had accurate data in FY 2001. One state
had unreliable data in both years. Two states that passed the audit in
1999 failed in 2001.

######## Exhibit IV. 3: Trends in Percent of Cases with Orders, FYs 1999-2001 {#exhibit-iv.-3-trends-in-percent-of-cases-with-orders-fys-1999-2001 .unnumbered}

![](media/image3.wmf)

### Percent of Collections on Current Support Due 

***Exhibit IV.4*** illustrates state performance on the current
collections measure. The median state performance on this measure among
the 37 states that passed the DRA in FYs 1999 and 2001 increased about 6
percentage points, from 51 percent to 57 percent. Only two states
reported declines in performance between 1999 and 2001; for both, the
decrease was roughly 5.5 percentage points. The other 35 states saw
improvements in collections on current support due, ranging from 0.5
percentage points to 21 points. All but four states increased their
performance between 0 and 10 percentage points. ***Exhibit A.5*** in the
***Appendix*** shows state-level detail on trends in current
collections.

Most of the 14 states that were omitted from the analysis failed the FY
1999 audit but not the FY 2001 one. Three states failed the audits in
both years. Only one passed in 1999 and failed in 2001.

######## Exhibit IV.4: Trends in Collections on Current Support, FYs 1999-2001 {#exhibit-iv.4-trends-in-collections-on-current-support-fys-1999-2001 .unnumbered}

![](media/image4.wmf)

### Percent of Cases Paying toward Arrears 

***Exhibit IV.5*** shows trends for the percent of cases paying toward
arrears measure. Among the 35 states with reliable data in FYs 1999 and
2001, the median score increased 3 percentage points, from 57 percent to
60 percent. Nine states performed more poorly in FY 2001 than FY 1999.
Decreases ranged from 0.3 percentage points to almost 8 points. The
remaining 26 states had improved scores that ranged from 1 percentage
point to almost 24 points. The majority of increases were between 0 and
5 percentage points (17 states). ***Appendix Exhibit A.6*** shows trends
for all states.

Sixteen states were excluded because they failed the DRA in one or both
years. The majority of these states (9) failed the FY 1999 audit but
passed in 2001. Three states failed the audit in both years. Four states
failed audits in FY 2001 for the first time.

######## Exhibit IV.5: Trends in Cases Paying toward Arrears, FYs 1999-2001 {#exhibit-iv.5-trends-in-cases-paying-toward-arrears-fys-1999-2001 .unnumbered}

![](media/image5.wmf){width="5.125in" height="3.0in"}

### Cost-Effectiveness 

Finally, state scores on the cost-effectiveness measure are shown in
***Exhibit IV.6***. Forty-nine states had reliable data for FYs 1999 and
2001. Among these states, the median score declined by \$1.38.
Twenty-seven states experienced declines in their cost-effectiveness
ratios between FYs 1999 and 2001. Most of these states (19) had declines
of \$0.50 or less. The largest decline was \$3.59, the smallest \$0.02.
One state had no change. The remaining 22 states saw improvements in
their cost-effectiveness ratios, ranging from \$0.01 to \$3.29.
***Exhibit A.7*** in the ***Appendix*** shows the FY 1999 to 2001 trends
in cost-effectiveness for all states.

Two states were not included in the analysis because they had unreliable
data. One state failed the audit in FY 1999 and passed in FY 2001; the
other passed in FY 1999 and then failed in 2001.

######## Exhibit IV.6: Trends in Cost-Effectiveness 1999-2001 {#exhibit-iv.6-trends-in-cost-effectiveness-1999-2001 .unnumbered}

![](media/image6.wmf)

## Percent of Incentives Earned

In FY 1999, state performance on all five measures did not factor into
the incentive payment calculation process. Rather, states were paid
using the old incentive formula. Starting in FY 2000, one-third of
incentives were based on state performance in the five incentive areas.
***Exhibit IV.7*** shows the percent of available incentive payments
each state received. If a state registered perfect, or very high,
performance on each of the five measures, the state would have earned
100 percent of its maximum incentive; the state's actual incentive
payment would still depend on the relative performance of other states.
In FY 2000, no state achieved the 100 percent standard. The proportion
of each state's potential incentive payments received ranged from 23
percent to 87 percent. In one state that received 87 percent of its
potential incentive payment, for example, the state earned the maximum
score on two measures (paternity establishment and cases with orders)
and scored 75 percent or higher on each of the other three. By contrast,
the state that received the lowest percentage of its potential incentive
payment failed its audits on three measures (paternity establishment,
current collections, arrearages) and scored relatively low on cases with
orders and cost effectiveness. States that received less than 40 percent
of their potential incentive payments typically failed audits on one or
more measures.

In all, 14 states earned 80 percent or more of their potential incentive
payments. Eighteen states earned between 60 percent and 79.9 percent of
incentives, 10 earned between 50 percent and 59.9 percent, and 9 earned
less than 50 percent. ***Exhibit A.8*** in the ***Appendix*** shows the
percent of incentive payments each state received by performance
measure.

**Exhibit IV.7: Percent of Potential Incentives Earned (FY 2000)**

![](media/image7.wmf){width="5.125in" height="3.0in"}

## Data Reliability

### Audit Failures 

As the previous section indicates, a number of states received no
incentive payments on one or more of their performance measures because
they failed to pass the DRA. ***Exhibit IV.8*** shows the percentage of
states that failed each performance measure in FYs 1999, 2000, and 2001.
(See ***Exhibits A.9 to A.11*** in the ***Appendix*** for detail on
state audit failures for FYs 1999 to 2001.)

As the Exhibit demonstrates, in FY 1999[^20] the most problematic area
from an audit standpoint was paternity establishment. More than 30
percent of states failed the audits of their paternity establishment
data. States that failed were almost evenly divided between those that
used the statewide and IV-D definitions of paternity establishment.
States also had difficulty with the current collections and cases with
payments on arrears measures, with about one-fourth of states failing
each. Data for the cases with orders and cost-effectiveness measures
were more reliable. The only states that failed the cases with orders
measure were the six states that did not have audit trails; 100 percent
of those with audit trails passed the audit for this measure. States
also had reliable data for the cost-effectiveness ratio---only one state
failed this audit in FY 1999.

The FY 2000 data show marked improvements in most areas. Specifically,
only one of the 26 states (3.8 percent) using the statewide paternity
measure failed the audit, compared to 9 the year before. Conversely,
nearly one-half of the states using the IV-D paternity measure failed
the audit (12 of 25). The percent of states failing the cases with
orders measure (4 percent), the current collections measure (14
percent), and the cases paying toward arrears measure (14 percent)
declined. As in 1999, only one state failed the cost-effectiveness
audit.

Positive trends in data reliability did not extend to FY 2001 for two of
the measures. The proportion of states failing the statewide paternity
measure increased to the FY 1999 level (33 percent of states). More
states also failed the cases with orders audit than in 2000 (5 percent).
Data reliability improved for the current collections measure (10
percent of states failed) and the IV-D paternity establishment measure
(37 percent of states failed). Data reliability did not change for the
arrearage measure (14 percent of states failed) or the
cost-effectiveness measure (one state failed). Overall, 23 states failed
at least one line item, thus one audit. One factor that OCSE examined
was the effect of increasing the efficiency rate on performance from 90
percent to 95 percent. Of the states that failed a line item, eight had
lines that would have passed the audit if the 90 percent efficiency rate
was still in effect.

######## Exhibit IV.8: Percent of States Failing Audits, FY 1999-2001 {#exhibit-iv.8-percent-of-states-failing-audits-fy-1999-2001 .unnumbered}

![](media/image8.wmf){width="5.125in" height="3.0in"}

### Reasons for Failures 

If a state fails any part of its audit, OCSE includes an in-depth
description in the audit report of the reasons that the state's data
were found to be unreliable. Although the specific justification for
OCSE's findings differs by state, examination of the FY 2000 audit
reports indicate that the failures were attributable to a few general
reasons. The most common causes for states' failure of the data
reliability audits were:

-   Programming errors and problems relating to automated records
    systems

-   Clerical and data entry errors

-   Incomplete/inadequate audit trails

-   Data inconsistencies and definition errors

*Programming and automated records systems*. Most states use automated
systems to process and calculate their child support data. A number of
the data reliability issues encountered by OCSE auditors were caused by
faulty programming in states' automated systems. These errors often
occurred when the raw data, entered by state child support staff, were
incorrectly converted by these automated programs. For example, one
state failed the audit of its cases with orders measure because the
state child support program's automated system was assigning cases
incorrectly. Whenever the status of the case changed, the system would
assign another case number instead of reassigning the entire case. As a
result, the data showed that the state was underreporting the number of
cases for which the child support program had established orders.
Programming errors of this type, those that stemmed from the inability
of states' systems to re-compute data when the status of a case changed,
were quite common; 17 different states experienced some degree of
problems related to difficulties with their automated systems.

*Data Entry*. Data errors often occurred as a result of state staff
members' failure to enter data into the proper fields. Ten different
states encountered problems in their data reliability audits as a result
of clerical errors by their staffs. Even if the automated system's
programming logic is correct, these errors prevent an accurate portrayal
of the performance of states' child support programs.

*Audit Trails*. OCSE bases its audits on the child support universe and
audit trails submitted by the states. If a state fails to provide an
audit trail, OCSE is unable to assess the reliability of the data within
the state's universe. In 2000, four states failed at least one audit
because they did not submit any audit trail for one or more line items,
or they submitted incomplete audit trails.

*Data Reporting*. OCSE auditors identified data issues in seven states
that stemmed from inconsistencies or inaccuracies of reported data or
the omission of relevant data. The data from four states were deemed
unreliable by auditors due to inconsistencies in reporting by various
counties.[^21] Also, some states did not have complete data from all
counties or regions for all line items available by the deadline for
submitting their universe. Although they were able to provide a sample,
the results found by OCSE auditors were different from those reported
because the sample submitted was not representative of the actual
performance of the states.

### Implications of Audit Failures for Incentive Payments 

Failure to pass the data reliability audit for each performance measure
has an adverse effect on a state's incentive payments. Failure to pass
the audit has increasingly serious implications as the percentage of the
incentive payments determined by the new system increases. The following
example demonstrates the effect of failing the audit for two performance
measures for a hypothetical state. State "X" has the following
characteristics:

  ----------------------- ----------------------- -----------------------
  **Performance Measure** **State Performance**   **Percent of
                                                  Incentive**

  Paternity Establishment 60%                     70%

  Cases with Orders       79%                     98%

  Current Collections     50%                     60%

  Cases Paying Toward     54%                     64%
  Arrears                                         

  Cost-Effectiveness      \$4.00                  80%
  ----------------------- ----------------------- -----------------------

Assume the collection base for this state was \$400 million. Thus, the
maximum incentive base would be \$400 million for three measures
(paternity establishment, cases with orders, current collections), and
75 percent of the collection base, or \$300 million, for two measures
(cases paying toward arrears, cost-effectiveness). Assuming the state
passed all of the audits, its incentive payment would be:

+----------------------+----------------------+-----------------------+
| **Percent of         | **Max Value (Base)** | **Payment**           |
| Incentive**          |                      |                       |
|                      | **(b)**              | **(a \* b)**          |
| **(a)**              |                      |                       |
+----------------------+----------------------+-----------------------+
| 70%                  | \$400,000,000        | \$280,000,000         |
+----------------------+----------------------+-----------------------+
| 98%                  | \$400,000,000        | \$392,000,000         |
+----------------------+----------------------+-----------------------+
| 60%                  | \$400,000,000        | \$240,000,000         |
+----------------------+----------------------+-----------------------+
| 64%                  | \$300,000,000        | \$192,000,000         |
+----------------------+----------------------+-----------------------+
| 80%                  | \$300,000,000        | \$240,000,000         |
+----------------------+----------------------+-----------------------+
| Maximum Base         | (sum all payments)   | \$1,344,000,000       |
+----------------------+----------------------+-----------------------+
| Total of all state   |                      | \$83,332,269,494      |
| bases                |                      |                       |
+----------------------+----------------------+-----------------------+
| State incentive      | (percent of maximum  | 0.016                 |
| amount               | base)                |                       |
+----------------------+----------------------+-----------------------+
| Total pool FY 2000   |                      | \$140,666,667         |
+----------------------+----------------------+-----------------------+
| State payment        | (Incentive amount \* | \$2,268,701           |
|                      | pool)                |                       |
+----------------------+----------------------+-----------------------+

The state incentive payment under the new system would be \$2,268,701
(in addition to payments made under the old system). If the new
incentive system had been fully-phased in for FY 2000, the state's
payment would have been \$6,806,103 (3\*2,268,701).

Now assume that the state failed its audits for paternity establishment
and cases paying toward arrears. The incentive payment would be:

+----------------------+----------------------+-----------------------+
| **Percent of         | **Max Value (Base)** | **Payment**           |
| Incentive**          |                      |                       |
|                      | **(b)**              | **(a \* b)**          |
| **(a)**              |                      |                       |
+----------------------+----------------------+-----------------------+
| 0%                   | \$400,000,000        | \$0                   |
+----------------------+----------------------+-----------------------+
| 98%                  | \$400,000,000        | \$392,000,000         |
+----------------------+----------------------+-----------------------+
| 60%                  | \$400,000,000        | \$240,000,000         |
+----------------------+----------------------+-----------------------+
| 0%                   | \$300,000,000        | \$0                   |
+----------------------+----------------------+-----------------------+
| 80%                  | \$300,000,000        | \$240,000,000         |
+----------------------+----------------------+-----------------------+
| Maximum Base         | (sum all payments)   | \$872,000,000         |
+----------------------+----------------------+-----------------------+
| Total of all state   |                      | \$83,332,269,494      |
| bases                |                      |                       |
+----------------------+----------------------+-----------------------+
| State incentive      | (percent of maximum  | 0.010                 |
| amount               | base)                |                       |
+----------------------+----------------------+-----------------------+
| Total pool FY 2000   |                      | \$140,666,667         |
+----------------------+----------------------+-----------------------+
| State payment        | (Incentive amount \* | \$1,471,955           |
|                      | pool)                |                       |
+----------------------+----------------------+-----------------------+

Because the state failed two audits, its FY 2000 incentive payment under
the new system was about 50 percent lower. Assuming the new incentive
system was fully implemented, the payment under this scenario would be
\$4,415,864, or 54 percent less than what the state would have received
if it passed all of the audits. Failure to pass DRAs has real financial
implications, especially when the new system is fully operational. This
is exacerbated when one considers that reinvested incentives are matched
by the federal government at a rate of 66 percent.

## Incentive Payments

### National Trends

Incentive payments have been an integral part of state child support
programs, and in particular, the financing of those programs during the
past decade. ***Exhibit IV.9*** shows the yearly national incentive
payments since FY 1989. Incentive payments increased from \$235 million
to \$435 million between FYs 1989 and 1997. Then, incentive payments
declined to \$361 million in FY 1999. The Exhibit shows the lines
diverging in FY 2000. The solid line represents payments for the 50
states and District of Columbia under the new system, which totaled
\$389 million. The dashed line represents payments if the old incentive
system had remained in effect. In FY 2000, the old rules would have
generated \$375 million in incentives. Therefore, in FY 2000, states
received \$14 million more under the new system than they would have
under the old system. The \$14 million is composed of individual state
winners and losers, which will be discussed in more detail in the next
subsection. ***Exhibit A.12*** in the ***Appendix*** details state-level
trends in incentive payments between FYs 1989 and 2000.

**Exhibit IV.9: Trends in National Incentive Payments**

![](media/image9.wmf){width="5.125in" height="3.0in"}

### FY 2000 State Results

***Exhibit IV.10*** compares how states fared in FY 2000 under the
partially phased in system to how they would have fared if the old
system had remained in effect. Overall, 35 states received more
incentive payments with the performance-based system partially phased in
than they would have under the old system. Of these, 23 states saw more
than a 10 percent improvement. On the other hand, 16 states fared worse,
and 12 of those states saw more than a 10 percent decline relative to
the old rules.

Not surprisingly, a state's fiscal outcome is correlated with the
quality of state performance data. The 35 states that benefited from the
new system failed a combined 12 audits on individual measures out of 175
possible audits, for an average of 7 percent of audits. By contrast, the
16 losing states failed a combined 18 audits on individual measures out
of 80 possible audits, for an average of 20 percent of audits. The three
states with the least reliable data all lost money relative to the old
system. ***Exhibit A.13*** in the ***Appendix*** provides state by state
detail on FY 2000 incentive payments.

**Exhibit IV.10: Differences in State Incentive Payments Relative to Old
Rules**

![](media/image10.wmf){width="5.125in" height="3.0in"}

# Issues to be Addressed in the Final Report

This interim report describes the elements of the performance-based
incentive process, including payment calculation steps, trends in state
CSE program performance, and incentive payments. Many elements of this
new system were determined by a work group comprised of state
representatives and OCSE officials. While states were able to offer
input into the structure of the new system during the planning stage,
its adoption has still been a cause for concern to many. Since its
implementation, states have offered comments on the system throughout
the process. Additionally, Lewin and ECONorthwest staff have had
preliminary discussions with state officials, child support researchers,
and advocates about the new system. Various stakeholders' concerns
addressed the structure of the incentive process and payments, data
issues, budget issues, and how states have responded to the new system.
These issues merit further study, and will be explored at greater length
in the final report.

## Incentive Structure. 

Comments related to the structure of the incentive system addressed,
among others, the performance areas that are emphasized, the capped
incentive pool, the continued emphasis on public assistance families,
possible effects of external factors on state performance, and the
applicable percentages used to determine incentive amounts for each
performance area.

### Performance Areas 

States have a few years of experience with the five performance
measures. Some federal officials suggested that the final report explore
whether stakeholders believe these are the correct performance areas to
emphasize and whether they are weighted correctly. Moreover, they might
have suggestions for alternate definitions for the measures. Finally,
the work group recommended the possible inclusion of a medical support
measure. States questioned how a new measure would be defined and
weighted, and how the current payment pool would be further subdivided
in accordance with a sixth measure.

### Capped Incentive Payments

The work group was charged with the task of developing a
performance-based, revenue-neutral incentive system. The group's
recommendations to the Secretary of HHS did not include a payment cap.
However, as noted above, CSPIA includes a provision for a capped payment
pool. Some state officials noted that the capped payments encourage
competition between states, which, in the extreme, could provide
disincentives to share best enforcement practices. Additionally, some
suggested that the cap could stifle any motivation to improve
performance because it effectively tells states "this is as good as you
will get---we won't reward you any more." At the same time, states
received payments totaling \$391 million in FY 2000, about \$31 million
more than they received in FY 1999. The amount paid in FY 2000 was also
higher than what would have been awarded if the old incentive structure
was in place, because the old system was heavily weighted toward TANF
collections and TANF caseloads have been falling in most states[^22]so
it appears that states are benefiting from the cap. The final report
will explore whether state-level staff have observed increased
competition and if so, how they have reacted. Also, in terms of the
revenue-neutral issue, the project will ask states whether there are
other ways to ensure the cost of providing incentives remains neutral
without imposing a cap.

### Continued Emphasis on Public Assistance Families 

The incentive payment formula weights collections on current and former
public assistance cases twice as much as collections for cases never on
public assistance. The intention was to continue to encourage states to
work on the more difficult cases. Some state officials suggest that
states with large non-public assistance caseloads will be rewarded under
the new system with higher incentive payments, regardless of whether
that was the intention of the law. Whether states with large current and
former public assistance caseloads perceive they are at a disadvantage
under the new system will be explored in the final report. We will ask
states if they suggest alternative weighting schemes.

### Applicable Percentages

In determining incentive payments, OCSE multiplies a state's collection
base by a percentage that is a function of performance (e.g., if the
state's performance level for cases with orders is at least 80 percent,
the applicable incentive percentage for the measure is 100 percent).
Some state officials felt that CSPIA set unrealistically high standards
and noted that the benchmarks were based on the work group's best
guesses at the time. The final report will explore the benchmark levels
and state experiences with them.

## Data Issues

CSPIA requires that data used to calculate incentives be complete and
reliable. The maximum amount for any performance measure is zero unless
the state passes the audit for that measure. A number of data-related
issues were raised by the experts. For instance, some states have
difficulty submitting data in a timely fashion and passing data
reliability audits. Others have questioned the sample size for the
audit.

### Data Submissions

Audits of state data began in advance of the new incentive system in
order to give states time to get their data systems in order. However,
many states continue to experience problems. States must submit their
final 157 reports by December 31^st^ each year. This is a change from
the previous system, which enabled states to constantly resubmit
corrections throughout the year. Some OCSE officials expressed concern
that not all states are taking this deadline seriously, and note that
states lose incentive payments by missing it. The final report will
examine what issues states face in collecting and reporting data in a
timely manner and how states have educated data staff and line workers
about deadlines and other data collection issues.

### Data Reliability

OCSE officials also noted that states continue to have problems
reporting valid and reliable data. Federal staff have found it difficult
to predict where problems will occur. A state will pass an audit one
year only to fail the next. The final report will explore what steps
state officials have taken to ensure data reliability, such as staff
education and quality control measures.

### Sample Size

In order to perform data reliability audits, OCSE auditors draw a
minimum sample of 150 cases from each state's universe. Some state
officials expressed concern that the audit outcomes were not
representative of the actual performance of states, noting that a state
may pass all of the performance measures in one year and fail them in
the next because of the sample drawn. OCSE staff contend that the sample
drawn is representative of the state's universe. The final report will
explore how states conduct self-assessments (including whether they use
their universe of cases or a sample) and how they would propose altering
the DRA sample size.

## Budget Issues

A 1999 Lewin/ECONorthwest study[^23] explored sources of funding for
state CSE programs and found that nationally, about 25 percent of
financing came from incentive payments. The same study found that about
75 percent of incentive payments were earmarked for the IV-D program at
the state or local level. The final report will examine the degree to
which the new incentive system affects state CSE budgets.

### Effect of New Process on Budget Estimates

OCSE advances payments to states quarterly based on state predictions of
their incentive amounts. At the end of the year, OCSE reconciles any
discrepancy in payments. Under the old system, states only had to
estimate their cost-effectiveness measure. Under the new system, states
must estimate their performance in five areas, leaving more room for
error. Furthermore, even with perfect information about their own
performance, states cannot predict their own payments because the
payments are influenced by the performance and data reliability of the
other states. A few states overestimated their payments by a wide margin
and are now facing a level of fiscal uncertainty. The final report will
ask states whether they have had more difficulty in estimating their
incentive payments, what methodologies they use for estimating
incentives, and whether estimation problems have lead to budget
shortfalls.

### Reinvestment 

The new incentive system requires that states expend the full amount of
incentive payments to supplement, and not supplant, other funds used to
operate their child support programs. Requiring states to reinvest
incentives might change the way in which CSE programs are financed in
some states. Specifically, the share of the child support budget
comprised of incentive payments might increase. The final report could
determine the degree to which states are relying on incentive payments
to fund their programs currently in comparison to past years.

## State Responses to Incentive System

State and federal officials suggested that states are undertaking
activities to improve performance in response to the new incentive
system. These include managing local performance and placing more
emphasis on results.

### Managing Local Performance

There was a great deal of interest among federal and state staff in
exploring the types of measures states are using to assess performance,
such as assessing and tracking the performance of regional and local
staff and educating frontline caseworkers about the incentive system.
Other state activities might include using data warehouses to track
performance or rewarding local performance by passing incentives through
to the local offices. The final report will explore how states have
attempted to manage staff performance.

### More Emphasis on Results

The final report will explore whether the new incentive system has
increased states' focus on results. It will examine specific state
activities to improve performance, such as staff education or policy
changes (e.g., reduction in the use of default orders to improve
performance on arrears scores and current support collected or
aggressive closure of inactive cases).

# Appendix  {#appendix .unnumbered}

Exhibit A.1: Statewide Paternity Establishment Trends

  ----------------------- ---------- ---------- ---------- ---------------
  **State**               **Fiscal                         **Change**
                          Year**                           

                          **1999**   **2000**   **2001**   **1999-2001**

  Alaska                  92.26      99.07      87.77      -4.49

  Colorado                89.14      103.39     103.15     14.01

  D.C                     87.28      65.32      na         na

  Florida                 na         82.93      85.64      na

  Illinois                na         86.14      108.55     na

  Iowa                    101.8      92.7       94.58      -7.22

  Maryland                na         149.86     na         na

  Massachusetts           107.93     106.2      na         na

  Michigan                na         91.92      na         na

  Missouri                na         84.28      86.74      na

  Nebraska                93.6       88.29      90.21      -3.39

  New Jersey              119.3      110.09     na         na

  New Mexico              64.47      99.6       na         na

  New York                100.69     103.37     na         na

  Ohio                    na         109.37     108.89     na

  Oklahoma                73.19      74.74      86.34      13.15

  Oregon                  84.22      89.36      85.73      1.51

  Pennsylvania            na         118.92     na         na

  Tennessee               na         68.1       73.79      na

  Texas                   103.84     104.57     81.81      -22.03

  Utah                    98.4       92.82      99.91      1.51

  Virginia                76.85      83.79      85.97      9.12

  West Virginia           108.97     89.97      89.38      -19.59

  Wyoming                 52.92      na         79.53      26.61

  Median                  92.93      92.7       87.255     1.51
  ----------------------- ---------- ---------- ---------- ---------------

> Note: na indicates that the state failed the DRA.
>
> Numbers are preliminary and may not reflect final figures.

Exhibit A.2: IV-D Paternity Establishment Trends

  ---------------------- ---------- ------------ ---------- ---------------
  **State**              **Fiscal                           **Change**
                         Year**                             

                         **1999**   **2000**     **2001**   **1999-2001**

  Alabama                47.25      56.89        61.89      14.64

  Arizona                22.41      na           na         na

  Arkansas               82.98      na           na         na

  Connecticut            na         76.2         78.63      na

  Delaware               67.79      66.97        na         na

  Hawaii                 na         na           na         na

  Idaho                  72.13      na           na         na

  Indiana                na         na           na         na

  Kentucky               72.39      75.47        70.59      -1.8

  Louisiana              na         na           na         na

  Maine                  90.81      90.95        92.24      1.43

  Mississippi            54.19      65.74        69.22      15.03

  Montana                70.77      105.3        104.3      33.53

  Nevada                 na         na           68.77      na

  New Hampshire          52.97      na           144.56     91.59

  North Carolina         na         na           81.58      na

  North Dakota           74.22      65.89        84.35      10.13

  Rhode Island           57.55      59.14        na         na

  South Carolina         50.97      69.42        76.8       25.83

  South Dakota           73.78      na           116.25     42.47

  Vermont                66.2       101.52       na         na

  Washington             109.48     94.41        98.73      -10.75

  Wisconsin              83.1       69.93        86.57      3.47

  Median                 70.77      69.93        82.965     14.64
  ---------------------- ---------- ------------ ---------- ---------------

> Note: na indicates that the state failed the DRA.

Numbers are preliminary and may not reflect final figures.

Exhibit A.3: Paternity Establishment Trends for States Switching the
Method of Calculation

  ------------------- ----------------- ----------------- -----------------
  **State**           **Fiscal Year**                     

  ** **               **1999**          **2000**          **2001**

  California          179.58            na                na

  Data Used           Statewide         IV-D              Statewide

  Georgia             34.50             na                0.00

  Data Used           IV-D              IV-D              Statewide

  Kansas              na                79.69             77.21

  Data Used           IV-D              Statewide         Statewide

  Minnesota           na                86.46             79.57

  Data Used           Statewide         Statewide         IV-D
  ------------------- ----------------- ----------------- -----------------

> Note: na indicates that the state failed the DRA.
>
> Numbers are preliminary and may not reflect final figures.

Exhibit A.4: Cases with Orders Trends

  --------------------- ---------- ---------- ------------ ---------------
  **State**             **Fiscal                           **Change**
                        Year**                             

                        **1999**   **2000**   **2001**     **1999-2001**

  Alabama               60.23      56.42      59.66        -0.57

  Alaska                77.59      78.48      78.72        1.13

  Arizona               49         57.37      62.49        13.49

  Arkansas              71.01      67.13      73.02        2.01

  California            na         69.09      71.86        na

  Colorado              71.52      78.11      81.63        10.11

  Connecticut           61.69      64.41      64.29        2.6

  Delaware              55.84      59.95      70.35        14.51

  D.C.                  29.12      26.2       na           na

  Florida               48.89      47.46      53.64        4.75

  Georgia               54.1       55.43      na           na

  Hawaii                51.12      na         57.72        6.6

  Idaho                 73.98      77.52      78.71        4.73

  Illinois              31.03      30.01      35.4         4.37

  Indiana               na         51.53      na           na

  Iowa                  85.96      85.9       87.16        1.2

  Kansas                na         na         56.59        na

  Kentucky              64.22      64.74      68.43        4.21

  Louisiana             47.39      50.06      57.98        10.59

  Maine                 87.61      88.64      88.28        0.67

  Maryland              63.62      61.18      65.98        2.36

  Massachusetts         69.82      67.09      65.33        -4.49

  Michigan              72.03      70.49      75.83        3.8

  Minnesota             72.95      74.76      76.8         3.85

  Mississippi           47.78      49.16      49.29        1.51

  Missouri              71.1       73.84      76.13        5.03

  Montana               85.55      83.86      83.27        -2.28

  Nebraska              71.4       74.95      76.34        4.94

  Nevada                na         55.69      63.32        na

  New Hampshire         76.11      78.4       82.92        6.81

  New Jersey            74.49      74.01      77.8         3.31

  New Mexico            26.49      26.37      37.29        10.8

  New York              61.66      65.53      67.55        5.89

  North Carolina        53.86      56.65      65.75        11.89

  North Dakota          75.35      75.78      80.09        4.74

  Ohio                  na         77.82      72.96        na

  Oklahoma              60.42      61.91      63.65        3.23

  Oregon                66.89      66.29      66.74        -0.15

  Pennsylvania          na         78.04      77.06        na

  Rhode Island          53.73      51         51.01        -2.72

  South Carolina        60.25      65.66      65.9         5.65

  South Dakota          90.07      92.59      93.93        3.86

  Tennessee             37.61      43         44.18        6.57

  Texas                 45.08      55.78      62.61        17.53
  --------------------- ---------- ---------- ------------ ---------------

**Exhibit A.4: Cases with Orders Trends (continued)**

  --------------------- ---------- ---------- ------------ ---------------
  **State**             **Fiscal                           **Change**
                        Year**                             

                        **1999**   **2000**   **2001**     **1999-2001**

  Utah                  75.46      79.56      83.63        8.17

  Vermont               86.15      84.94      85.01        -1.14

  Virginia              64.18      67.85      74.54        10.36

  Washington            88.41      89.35      89.89        1.48

  West Virginia         60.35      61.28      65.15        4.8

  Wisconsin             73.01      76.56      76.41        3.4

  Wyoming               67.78      71.01      77.83        10.05

  Median                64.22      67.09      71.105       4.37
  --------------------- ---------- ---------- ------------ ---------------

> Note: na indicates that the state failed the DRA.
>
> Numbers are preliminary and may not reflect final figures.

Exhibit A.5: Collections on Current Support Due Trends

  --------------------- ----------- ----------- ------------ ---------------
  **State**             **Fiscal                             **Change**
                        Year**                               

                        **1999**    **2000**    **2001**     **1999-2001**

  Alabama               33.78       35.15       46.61        12.83

  Alaska                47.99       49.18       51.22        3.23

  Arizona               42.24       44.65       46.73        4.49

  Arkansas              44.84       47.39       48.10        3.26

  California            na          40.02       41.03        na

  Colorado              47.27       50.72       52.82        5.55

  Connecticut           51.44       53.48       55.55        4.11

  Delaware              55.31       58.19       na           na

  D.C.                  55.19       44.35       na           na

  Florida               48.63       49.88       52.11        3.48

  Georgia               47.72       47.51       48.18        0.46

  Hawaii                48.71       49.94       51.03        2.32

  Idaho                 48.80       52.68       53.80        5.00

  Illinois              na          36.48       37.64        na

  Indiana               na          na          46.80        na

  Iowa                  49.47       62.37       57.65        8.18

  Kansas                na          na          54.66        na

  Kentucky              47.48       50.91       53.52        6.04

  Louisiana             53.12       52.39       53.83        0.71

  Maine                 55.73       57.30       59.57        3.84

  Maryland              56.95       58.52       60.29        3.34

  Massachusetts         54.68       58.72       63.55        8.87

  Michigan              65.97       67.25       60.27        -5.70

  Minnesota             66.11       68.25       67.35        1.24

  Mississippi           47.67       49.09       50.02        2.35

  Missouri              43.15       47.83       49.24        6.09

  Montana               51.31       56.80       56.71        5.40

  Nebraska              na          60.63       62.69        na

  Nevada                na          na          45.80        na

  New Hampshire         63.15       65.03       65.94        2.79

  New Jersey            61.62       63.14       64.60        2.98

  New Mexico            37.19       40.36       43.90        6.71

  New York              na          na          na           na

  North Carolina        59.83       59.21       60.38        0.55

  North Dakota          55.00       67.13       69.15        14.15

  Ohio                  na          na          68.01        na

  Oklahoma              42.52       44.32       45.10        2.58

  Oregon                58.94       59.65       59.57        0.63
  --------------------- ----------- ----------- ------------ ---------------

**Exhibit A.5: Collections on Current Support Due Trends (continued)**

  --------------------- ----------- ----------- ------------ ---------------
  **State**             **Fiscal                             **Change**
                        Year**                               

                        **1999**    **2000**    **2001**     **1999-2001**

  Pennsylvania          na          66.57       71.56        na

  Rhode Island          39.67       53.70       61.33        21.66

  South Carolina        na          37.82       na           na

  South Dakota          72.62       67.67       67.01        -5.61

  Tennessee             44.61       44.91       48.34        3.73

  Texas                 50.14       65.10       61.98        11.84

  Utah                  54.57       55.49       56.20        1.63

  Vermont               64.06       65.60       67.32        3.26

  Virginia              53.66       56.50       58.16        4.50

  Washington            57.67       60.29       61.88        4.21

  West Virginia         na          na          60.97        na

  Wisconsin             na          na          na           na

  Wyoming               52.53       55.81       58.33        5.80

  Median                51.44       54.60       56.46        3.73
  --------------------- ----------- ----------- ------------ ---------------

Note: na indicates that the state failed the DRA.

> Numbers are preliminary and may not reflect final figures.

Exhibit A.6: Percent Cases Paying Toward Arrears Trends

  ----------------------- ----------- ----------- ----------- ---------------
  **State**               **Fiscal                            **Change**
                          Year**                              

                          **1999**    **2000**    **2001**    **1999-2001**

  Alabama                 51.53       48.72       46.97       -4.56

  Alaska                  63.60       65.11       68.53       4.93

  Arizona                 46.73       50.67       50.98       4.25

  Arkansas                56.67       56.64       na          na

  California              na          53.43       56.26       na

  Colorado                59.03       62.51       64.00       4.97

  Connecticut             40.54       56.13       53.25       12.71

  Delaware                64.58       67.16       67.61       3.03

  D.C.                    30.33       33.17       na          na

  Florida                 79.89       81.81       75.03       -4.86

  Georgia                 70.90       73.22       76.31       5.41

  Hawaii                  na          37.22       35.69       na

  Idaho                   54.30       56.12       59.04       4.74

  Illinois                na          48.86       50.76       na

  Indiana                 na          na          na          na

  Iowa                    60.44       54.76       65.41       4.97

  Kansas                  na          na          60.34       na

  Kentucky                53.75       na          54.90       1.15

  Louisiana               60.62       57.00       57.52       -3.10

  Maine                   67.05       68.67       61.54       -5.51

  Maryland                57.45       59.88       60.60       3.15

  Massachusetts           51.92       55.34       57.02       5.10

  Michigan                na          60.03       58.23       na

  Minnesota               66.85       70.02       81.90       15.05

  Mississippi             56.21       58.90       60.43       4.22

  Missouri                45.26       47.33       47.28       2.02

  Montana                 56.83       66.73       63.17       6.34

  Nebraska                na          56.81       58.14       na

  Nevada                  na          na          60.65       na

  New Hampshire           66.90       64.08       69.92       3.02

  New Jersey              60.66       56.16       58.50       -2.16

  New Mexico              35.16       55.47       56.33       21.17

  New York                37.00       59.82       60.72       23.72

  North Carolina          48.10       70.73       na          na

  North Dakota            63.06       57.81       55.29       -7.77

  Ohio                    na          57.85       na          na

  Oklahoma                55.99       52.18       53.78       -2.21

  Oregon                  56.18       55.49       68.11       11.93

  Pennsylvania            na          na          69.69       na

  Rhode Island            60.06       61.03       na          na

  South Carolina          na          56.57       50.52       na

  South Dakota            63.49       76.31       68.49       5.00

  Tennessee               46.63       47.88       49.67       3.04

  Texas                   63.29       63.44       62.99       -0.30
  ----------------------- ----------- ----------- ----------- ---------------

**Exhibit A.6: Percent Cases Paying Toward Arrears Trends (continued)**

  ----------------------- ----------- ----------- ----------- ---------------
  **State**               **Fiscal                            **Change**
                          Year**                              

                          **1999**    **2000**    **2001**    **1999-2001**

  Utah                    62.08       64.45       65.98       3.90

  Vermont                 74.23       70.24       70.97       -3.26

  Virginia                52.05       54.22       56.49       4.44

  Washington              62.50       64.34       65.19       2.69

  West Virginia           43.76       na          59.76       16.00

  Wisconsin               na          na          na          na

  Wyoming                 56.08       56.88       59.13       3.05

  Median                  56.83       57.41       60.05       3.90
  ----------------------- ----------- ----------- ----------- ---------------

Note: na indicates that the state failed the DRA.

> Numbers are preliminary and may not reflect final figures.

Exhibit A.7: Cost-Effectiveness Trends

  ----------------------- ----------- ----------- ----------- ---------------
  **State**               **Fiscal                            **Change**
                          Year**                              

                          **1999**    **2000**    **2001**    **1999-2001**

  Alabama                 3.85        3.66        4.01        0.16

  Alaska                  4.56        3.89        4.14        -0.42

  Arizona                 3.27        3.72        4.12        0.85

  Arkansas                3.16        3.28        2.83        -0.33

  California              3.07        3.23        2.61        -0.46

  Colorado                3.71        3.23        3.58        -0.13

  Connecticut             3.85        3.75        3.86        0.01

  Delaware                3.32        3.19        2.93        -0.39

  D.C.                    2.82        2.64        2.59        -0.23

  Florida                 3.75        3.45        3.60        -0.15

  Georgia                 4.19        3.72        3.96        -0.23

  Hawaii                  2.87        4.54        6.16        3.29

  Idaho                   5.10        4.32        4.62        -0.48

  Illinois                2.66        2.42        2.50        -0.16

  Indiana                 6.28        7.69        6.34        0.06

  Iowa                    5.29        4.24        5.27        -0.02

  Kansas                  3.23        2.91        2.51        -0.72

  Kentucky                4.08        4.02        4.08        0.00

  Louisiana               4.72        4.92        4.38        -0.34

  Maine                   4.96        4.90        6.01        1.05

  Maryland                4.31        3.60        4.22        -0.09

  Massachusetts           4.77        3.50        5.14        0.37

  Michigan                8.41        5.52        4.82        -3.59

  Minnesota               4.23        4.11        4.13        -0.10

  Mississippi             4.40        4.92        5.96        1.56

  Missouri                3.21        3.37        3.81        0.60

  Montana                 4.37        3.58        3.91        -0.46

  Nebraska                3.77        3.78        3.35        -0.42

  Nevada                  4.73        2.52        3.24        -1.49

  New Hampshire           5.09        4.82        5.40        0.31

  New Jersey              4.91        4.60        5.27        0.36

  New Mexico              1.21        na          na          na

  New York                4.87        4.90        5.07        0.20

  North Carolina          3.31        3.86        4.04        0.73

  North Dakota            5.13        4.61        4.19        -0.94

  Ohio                    5.60        4.82        4.23        -1.37

  Oklahoma                3.88        2.83        2.90        -0.98

  Oregon                  6.10        5.54        6.63        0.53

  Pennsylvania            na          6.05        6.98        na

  Rhode Island            4.51        4.44        4.23        -0.28

  South Carolina          5.75        5.08        4.60        -1.15

  South Dakota            7.40        6.95        7.72        0.32

  Tennessee               4.39        4.85        4.99        0.60

  Texas                   4.53        4.96        5.23        0.70
  ----------------------- ----------- ----------- ----------- ---------------

**Exhibit A.7: Cost-Effectiveness Trends (continued)**

  ----------------------- ----------- ----------- ----------- ---------------
  **State**               **Fiscal                            **Change**
                          Year**                              

                          **1999**    **2000**    **2001**    **1999-2001**

  Utah                    3.47        3.47        3.69        0.22

  Vermont                 4.23        4.02        3.90        -0.33

  Virginia                4.76        5.00        6.12        1.36

  Washington              4.38        4.53        4.55        0.17

  West Virginia           4.40        4.15        4.64        0.24

  Wisconsin               6.41        6.51        6.06        -0.35

  Wyoming                 4.73        4.33        4.09        -0.64

  Median                  4.39        4.13        4.20        -0.10
  ----------------------- ----------- ----------- ----------- ---------------

Note: na indicates that the state failed the DRA.

> Numbers are preliminary and may not reflect final figures.

Exhibit A.8: Weighted Percent of Incentives Earned, by Measure (FY 2000)

  --------------- ----------------- ---------- --------------- ----------- ------------------------ -------------
                  **Paternity       **Cases    **Current       **Cases     **Cost-Effectiveness**   **Average**
                  Establishment**   with       Collections**   with                                 
                                    Orders**                   Payments on                          
                                                               Arrears**                            

  Alabama         66                66         0               58          70                       51

  Alaska          100               96         59              75          70                       81

  Arizona         0                 67         54              60          70                       49

  Arkansas        0                 77         57              66          60                       51

  California      0                 79         50              63          60                       49

  Colorado        100               96         60              72          60                       79

  Connecticut     92                74         63              66          70                       74

  Delaware        75                69         68              77          60                       70

  D.C.            76                0          54              0           50                       37

  Florida         100               0          59              100         60                       62

  Georgia         0                 65         57              86          70                       53

  Hawaii          0                 0          59              0           90                       28

  Idaho           0                 94         62              66          80                       59

  Illinois        100               0          0               58          40                       39

  Indiana         0                 61         0               0           100                      30

  Iowa            100               100        72              64          80                       84

  Kansas          98                0          0               0           50                       30

  Kentucky        90                74         60              0           80                       63

  Louisiana       0                 60         62              67          90                       53

  Maine           100               100        67              78          90                       87

  Maryland        100               71         68              69          70                       76

  Massachusetts   100               77         68              65          70                       77

  Michigan        100               80         77              70          100                      85

  Minnesota       100               88         78              80          80                       86

  Mississippi     75                0          59              68          90                       56

  Missouri        100               86         57              57          60                       74

  Montana         100               100        66              76          70                       83

  Nebraska        100               88         70              66          70                       80

  Nevada          0                 65         0               0           50                       23

  New Hampshire   0                 96         75              74          90                       65

  New Jersey      100               88         73              66          90                       84

  New Mexico      100               0          50              65          0                        44

  New York        100               75         0               69          90                       65

  North Carolina  0                 66         69              80          70                       55

  North Dakota    75                90         77              67          90                       80

  Ohio            100               94         0               67          90                       69

  Oklahoma        88                71         54              62          50                       66

  Oregon          100               76         69              65          100                      82

  Pennsylvania    100               96         76              0           100                      77

  Rhode Island    69                61         63              71          80                       68

  South Carolina  79                75         0               66          100                      62

  South Dakota    0                 100        77              92          100                      71

  Tennessee       78                50         54              57          90                       65

  Texas           100               65         75              73          90                       81
  --------------- ----------------- ---------- --------------- ----------- ------------------------ -------------

**Exhibit A.8: Weighted Percent of Incentives Earned, by Measure (FY
2000) (continued)**

  ------------ ----------------- ---------- --------------- ----------- ------------------------ -------------
               **Paternity       **Cases    **Current       **Cases     **Cost-Effectiveness**   **Average**
               Establishment**   with       Collections**   with                                 
                                 Orders**                   Payments on                          
                                                            Arrears**                            

  Utah         100               98         65              74          60                       81

  Vermont      100               100        75              80          80                       88

  Virginia     100               77         66              64          100                      81

  Washington   100               100        70              74          90                       87

  West         100               71         0               0           80                       51
  Virginia                                                                                       

  Wisconsin    79                92         0               0           100                      55

  Wyoming      0                 82         65              66          80                       57
  ------------ ----------------- ---------- --------------- ----------- ------------------------ -------------

Note: Numbers are preliminary and may not reflect final figures.

Exhibit A.9: DRA Failures by Performance Measure (1999)

+-------+---------+----------+---------+---------+--------+---------+
|       | **Pa    | **P      | **Cases | **      | *      | *       |
|       | ternity | aternity | with    | Current | *Cases | *Cost-E |
|       | E       | Establi  | O       | Collec  | with   | ffectiv |
|       | stablis | shment** | rders** | tions** | Pa     | eness** |
|       | hment** |          |         |         | yments |         |
|       |         | **IV-D** |         |         | on     |         |
|       | **Stat  |          |         |         | Arr    |         |
|       | ewide** |          |         |         | ears** |         |
+-------+---------+----------+---------+---------+--------+---------+
| Total | 9       | 8        | 6       | 12      | 12     | 1       |
| Fa    |         |          |         |         |        |         |
| iling | \(26\)  | \(25\)   | \(51\)  | \(51\)  | \(51\) | \(51\)  |
| Audit |         |          |         |         |        |         |
| (#    |         |          |         |         |        |         |
| st    |         |          |         |         |        |         |
| ates) |         |          |         |         |        |         |
+-------+---------+----------+---------+---------+--------+---------+
| S     | Cal     | Georgia  | Cal     | Cal     | Cali   | Penns   |
| tates | ifornia |          | ifornia | ifornia | fornia | ylvania |
|       |         | Hawaii   |         |         |        |         |
|       | Florida |          | Indiana | I       | Hawaii |         |
|       |         | Indiana  |         | llinois |        |         |
|       | I       |          | Kansas  |         | Il     |         |
|       | llinois | Kansas   |         | Indiana | linois |         |
|       |         |          | Nevada  |         |        |         |
|       | M       | L        |         | Kansas  | I      |         |
|       | aryland | ouisiana | Ohio    |         | ndiana |         |
|       |         |          |         | N       |        |         |
|       | M       | Nevada   | Penns   | ebraska | Kansas |         |
|       | ichigan |          | ylvania |         |        |         |
|       |         | New      |         | Nevada  | Mi     |         |
|       | Mi      | Mexico   |         |         | chigan |         |
|       | nnesota |          |         | New     |        |         |
|       |         | North    |         | York    | Ne     |         |
|       | M       | Carolina |         |         | braska |         |
|       | issouri |          |         | Ohio    |        |         |
|       |         |          |         |         | Nevada |         |
|       | Penns   |          |         | Penns   |        |         |
|       | ylvania |          |         | ylvania | Ohio   |         |
|       |         |          |         |         |        |         |
|       | Te      |          |         | South   | Pennsy |         |
|       | nnessee |          |         | C       | lvania |         |
|       |         |          |         | arolina |        |         |
|       |         |          |         |         | South  |         |
|       |         |          |         | West    | Ca     |         |
|       |         |          |         | V       | rolina |         |
|       |         |          |         | irginia |        |         |
|       |         |          |         |         | Wis    |         |
|       |         |          |         | Wi      | consin |         |
|       |         |          |         | sconsin |        |         |
+-------+---------+----------+---------+---------+--------+---------+

Note: Numbers are preliminary and may not reflect final figures.

Exhibit A.10: DRA Failures by Performance Measure (2000)

+-------+---------+----------+--------+---------+--------+----------+
|       | **Pa    | **P      | *      | **      | *      | **Cost   |
|       | ternity | aternity | *Cases | Current | *Cases | -Effecti |
|       | E       | Establi  | with   | Collec  | with   | veness** |
|       | stablis | shment** | Or     | tions** | Pa     |          |
|       | hment** |          | ders** |         | yments |          |
|       |         | **IV-D** |        |         | on     |          |
|       | **Stat  |          |        |         | Arr    |          |
|       | ewide** |          |        |         | ears** |          |
+-------+---------+----------+--------+---------+--------+----------+
| Total | 1       | 12       | 2      | 7       | 7      | 1        |
| Fa    |         |          |        |         |        |          |
| iling | \(26\)  | \(25\)   | \(51\) | \(51\)  | \(51\) | \(51\)   |
| Audit |         |          |        |         |        |          |
| (#    |         |          |        |         |        |          |
| st    |         |          |        |         |        |          |
| ates) |         |          |        |         |        |          |
+-------+---------+----------+--------+---------+--------+----------+
| S     | Wyoming | Arizona  | Hawaii | Indiana | I      | New      |
| tates |         |          |        |         | ndiana | Mexico   |
|       |         | Arkansas | Kansas | Kansas  |        |          |
|       |         |          |        |         | Kansas |          |
|       |         | Ca       |        | Nevada  |        |          |
|       |         | lifornia |        |         | Ke     |          |
|       |         |          |        | New     | ntucky |          |
|       |         | Georgia  |        | York    |        |          |
|       |         |          |        |         | Nevada |          |
|       |         | Hawaii   |        | Ohio    |        |          |
|       |         |          |        |         | Pennsy |          |
|       |         | Idaho    |        | West    | lvania |          |
|       |         |          |        | V       |        |          |
|       |         | Indiana  |        | irginia | West   |          |
|       |         |          |        |         | Vi     |          |
|       |         | L        |        | Wi      | rginia |          |
|       |         | ouisiana |        | sconsin |        |          |
|       |         |          |        |         | Wis    |          |
|       |         | Nevada   |        |         | consin |          |
|       |         |          |        |         |        |          |
|       |         | New      |        |         |        |          |
|       |         | H        |        |         |        |          |
|       |         | ampshire |        |         |        |          |
|       |         |          |        |         |        |          |
|       |         | North    |        |         |        |          |
|       |         | Carolina |        |         |        |          |
|       |         |          |        |         |        |          |
|       |         | South    |        |         |        |          |
|       |         | Dakota   |        |         |        |          |
+-------+---------+----------+--------+---------+--------+----------+

Note: Numbers are preliminary and may not reflect final figures.

Exhibit A.11: DRA Failures by Performance Measure (2001)

+-------+---------+----------+--------+---------+--------+----------+
|       | **Pa    | **P      | *      | **      | *      | **Cost   |
|       | ternity | aternity | *Cases | Current | *Cases | -Effecti |
|       | E       | Establi  | with   | Collec  | with   | veness** |
|       | stablis | shment** | Or     | tions** | Pa     |          |
|       | hment** |          | ders** |         | yments |          |
|       |         | **IV-D** |        |         | on     |          |
|       | **Stat  |          |        |         | Arr    |          |
|       | ewide** |          |        |         | ears** |          |
+-------+---------+----------+--------+---------+--------+----------+
| Total | 8       | 9        | 3      | 5       | 7      | 1        |
| Fa    |         |          |        |         |        |          |
| iling | \(27\)  | \(24\)   | \(51\) | \(51\)  | \(51\) | \(51\)   |
| Audit |         |          |        |         |        |          |
| (#    |         |          |        |         |        |          |
| st    |         |          |        |         |        |          |
| ates) |         |          |        |         |        |          |
+-------+---------+----------+--------+---------+--------+----------+
| S     | Cal     | Arizona  | D.C.   | D       | Ar     | New      |
| tates | ifornia |          |        | elaware | kansas | Mexico   |
|       |         | Arkansas | G      |         |        |          |
|       | D.C.    |          | eorgia | D.C.    | D.C.   |          |
|       |         | Delaware |        |         |        |          |
|       | M       |          | I      | New     | I      |          |
|       | aryland | Hawaii   | ndiana | York    | ndiana |          |
|       |         |          |        |         |        |          |
|       | Massac  | Idaho    |        | South   | North  |          |
|       | husetts |          |        | C       | Ca     |          |
|       |         | L        |        | arolina | rolina |          |
|       | M       | ouisiana |        |         |        |          |
|       | ichigan |          |        | Wi      | Ohio   |          |
|       |         | New      |        | sconsin |        |          |
|       | New     | Mexico   |        |         | South  |          |
|       | Jersey  |          |        |         | Ca     |          |
|       |         | Rhode    |        |         | rolina |          |
|       | New     | Island   |        |         |        |          |
|       | York    |          |        |         | Wis    |          |
|       |         | Vermont  |        |         | consin |          |
|       | Penns   |          |        |         |        |          |
|       | ylvania |          |        |         |        |          |
+-------+---------+----------+--------+---------+--------+----------+

Note: Numbers are preliminary and may not reflect final figures.

Exhibit A.12: FY 1989-2000 State Incentive Payments (in thousands)

  --------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
  **State**       **1989**   **1990**   **1991**   **1992**   **1993**   **1994**   **1995**   **1996**   **1997**   **1998**   **1999**   **2000**   **Mean**

  Alabama         2541       2718       3097       3159       3148       3012       3343       3548       3598       2576       2926       2622       3024

  Alaska          1388       1671       1841       2252       2190       2504       2660       2973       3233       2733       2683       2578       2392

  Arizona         832        1107       1368       2144       2966       3348       3802       3840       4203       3595       3978       4305       2957

  Arkansas        1978       1928       2237       2594       2519       2516       2743       3195       3248       2554       2073       2054       2470

  California      33271      35336      41595      44451      47756      52631      55526      66752      74628      83629      82936      79844      58196

  Colorado        2251       2771       3197       3611       4045       4627       4953       5590       5864       5023       5378       5329       4387

  Connecticut     4090       3716       4444       4956       5858       5426       6545       7086       7863       7409       7570       6247       5934

  Delaware        735        843        905        968        1062       1070       1088       1112       1058       1008       981        1125       996

  D.C.            637        744        802        935        995        1063       1106       1103       1009       878        829        682        899

  Florida         6700       7863       9177       10955      12337      13021      13856      13501      16075      12150      13486      15144      12022

  Georgia         4846       6468       9505       13946      15981      14170      12058      15110      11009      8732       7400       7169       10533

  Hawaii          899        1210       1135       1197       1304       1436       1633       1758       1688       1678       1524       1330       1399

  Idaho           1000       1185       1193       1527       1548       1790       1936       1961       1849       1563       926        1178       1471

  Illinois        5210       6274       6982       8386       8121       8939       9571       10691      11412      11846      10783      9324       8962

  Indiana         8295       8693       10743      11664      11797      10733      8800       7890       5942       5579       3949       3530       8135

  Iowa            5309       5214       5637       7036       6473       7095       6314       6319       5980       6215       6358       6697       6221

  Kansas          1803       2208       2444       2973       3221       3591       4056       5265       3999       3724       4301       3337       3410

  Kentucky        2507       3088       3789       4813       5092       5285       5441       5514       5576       5390       5070       4893       4705

  Louisiana       2660       2920       3228       3619       3754       3755       3863       4270       3781       3077       2573       2988       3374

  Maine           2979       3076       2718       2714       3579       4614       4891       4907       5733       5052       4353       4654       4106

  Maryland        4290       5460       5144       6373       7123       6741       6700       6540       5048       4121       3487       5419       5537

  Massachusetts   9891       11278      9839       11438      13328      10656      10787      9828       9468       7706       7004       7129       9863

  Michigan        21505      23514      25072      27556      25997      24881      23890      22397      21136      19689      16938      23289      22989

  Minnesota       5622       5958       6469       7298       7725       8512       8979       9017       8971       7906       8417       10214      7924

  Mississippi     1576       1999       2611       2976       3029       3262       3187       3553       3249       2646       1937       1914       2662

  Missouri        4659       5808       5736       8176       7314       8034       8353       9635       7826       8353       5601       7458       7246

  Montana         778        684        780        974        991        977        1204       1326       1389       1261       968        1116       1037

  Nebraska        943        1024       1092       1375       1476       1453       1617       1750       1805       1882       2801       2436       1638

  Nevada          751        899        1203       1661       1814       1902       2070       2279       2709       2314       2049       1780       1786

  New Hampshire   478        551        641        925        1098       1268       1406       1539       1479       1383       1343       1553       1139

  New Jersey      8041       8266       10313      11357      11616      12014      12377      12698      12481      10970      10385      12680      11100

  New Mexico      755        830        957        1139       2206       1967       1425       975        1385       1367       1525       988        1293

  New York        14965      17525      20565      23206      24673      24743      25622      28461      31374      26667      26353      28145      24358
  --------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

**Exhibit A.12: FY 1989-2000 State Incentive Payments (in thousands)\
(continued)**

  -------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
  **State**      **1989**   **1990**   **1991**   **1992**   **1993**   **1994**   **1995**   **1996**   **1997**   **1998**   **1999**   **2000**   **Mean**

  North Carolina 5293       6122       7348       8683       9702       10735      10660      10732      10718      7489       6565       7314       8447

  North Dakota   697        886        1006       1027       992        1021       995        990        973        827        833        860        926

  Ohio           9348       10365      11435      13654      14350      15440      16367      17008      16940      14384      13003      17651      14162

  Oklahoma       1431       1742       2168       2569       2758       3117       3335       3666       3658       3515       3244       3089       2858

  Oregon         2863       3331       3550       4482       5061       5520       5313       5480       5383       4859       4673       5797       4693

  Pennsylvania   13137      13925      15165      17934      18083      17078      18040      18619      16934      15829      12683      17359      16232

  Rhode Island   1350       1368       1596       1722       2574       2360       2660       3262       3646       3487       2889       2172       2424

  South Carolina 2063       2415       2635       3086       3484       3833       3921       4154       3567       2947       2332       2472       3076

  South Dakota   664        603        752        962        955        1099       1207       1399       1151       966        2290       2798       1237

  Tennessee      2829       3624       4702       3420       5626       5107       6779       5328       5431       4607       3886       4666       4667

  Texas          5144       6087       7374       9161       10340      11826      13697      15873      16756      18474      13966      18468      12264

  Utah           1930       2115       2283       2657       2749       2959       3047       3217       3182       3248       3133       3056       2798

  Vermont        647        815        917        969        1226       1029       1155       1346       1182       1202       1177       1290       1080

  Virginia       3201       4061       4970       5677       5942       5308       6152       5988       6061       7006       6332       7490       5682

  Washington     7363       9248       10928      13020      14486      15132      16018      16449      16364      15205      13957      15045      13601

  West Virginia  612        548        920        1299       2298       1663       1823       2065       2180       1874       4224       2273       1815

  Wisconsin      898        8403       8668       9057       9320       12484      12421      10659      8458       7230       5163       7791       8379

  Wyoming        364        456        533        838        757        777        819        647        567        468        634        711        631

  Total          224019     258943     293409     338571     362839     373524     386211     409265     409218     384295     359870     389453     6846
  -------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

Note: Numbers are preliminary and may not reflect final figures.

Exhibit A.13: Payments for FY 2000

  ---------------- -------------- -------------- -------------- ------------
  **State**        **Earned, 2000 **2000         **2000 Old vs. **Audit
                   Incentives     Incentives     New            Failures**
                   Total**        Using Old      Difference**   
                                  System**                      

  Maryland         5,418,662      3,691,385      47%            0

  Pennsylvania     17,359,096     12,343,049     41%            1

  Nebraska         2,436,485      1,775,018      37%            0

  Michigan         23,289,231     17,319,231     34%            0

  Texas            18,467,971     13,752,959     34%            0

  Ohio             17,651,445     13,205,691     34%            1

  New Jersey       12,679,523     9,562,439      33%            0

  Wisconsin        7,791,201      5,928,050      31%            2

  Minnesota        10,214,254     7,885,712      30%            0

  Louisiana        2,988,414      2,373,614      26%            1

  Mississippi      1,914,202      1,528,100      25%            0

  Idaho            1,178,155      941,223        25%            1

  Oregon           5,797,286      4,675,029      24%            0

  Virginia         7,489,972      6,147,893      22%            0

  South Carolina   2,471,869      2,049,888      21%            0

  Alabama          2,622,414      2,201,070      19%            0

  Massachusetts    7,129,319      6,026,117      18%            0

  Delaware         1,124,773      950,930        18%            0

  North Dakota     860,308        735,984        17%            0

  Wyoming          710,503        608,591        17%            1

  Tennessee        4,665,772      4,043,709      15%            0

  Montana          1,116,229      977,376        14%            0

  Washington       15,044,837     13,575,920     11%            0

  North Carolina   7,313,966      6,675,549      10%            1

  Missouri         7,458,028      6,820,254      9%             0

  Florida          15,143,964     13,883,891     9%             0

  Utah             3,056,105      2,866,439      7%             0

  Iowa             6,697,354      6,327,377      6%             0

  New Hampshire    1,552,820      1,470,807      6%             1

  Vermont          1,289,698      1,231,439      5%             0

  Kentucky         4,893,015      4,734,705      3%             1

  Georgia          7,169,140      6,953,096      3%             1

  Oklahoma         3,088,736      3,001,817      3%             0

  Arkansas         2,053,689      1,998,980      3%             1

  Colorado         5,329,326      5,196,632      3%             0

  Alaska           2,577,847      2,637,282      -2%            0

  New York         28,144,549     28,956,275     -3%            1

  Connecticut      6,247,332      6,459,014      -3%            0

  Arizona          4,304,601      4,454,604      -3%            1

  West Virginia    2,272,682      2,367,779      -4%            2
  ---------------- -------------- -------------- -------------- ------------

**Exhibit A.13: Payments for FY 2000 (continued)**

  ---------------- -------------- -------------- -------------- ------------
  **State**        **Earned, 2000 **2000         **2000 Old vs. **Audit
                   Incentives     Incentives     New            Failures**
                   Total**        Using Old      Difference**   
                                  System**                      

  Indiana          3,530,279      3,824,340      -8%            3

  Maine            4,654,351      5,317,406      -12%           0

  D.C.             682,369        783,501        -13%           0

  New Mexico       987,859        1,139,493      -13%           1

  Rhode Island     2,171,661      2,527,611      -14%           0

  Hawaii           1,329,706      1,652,960      -20%           2

  South Dakota     2,798,428      3,480,309      -20%           1

  Kansas           3,336,584      4,151,526      -20%           3

  California       79,843,933     99,619,899     -20%           1

  Illinois         9,323,720      11,834,642     -21%           0

  Nevada           1,779,753      2,339,543      -24%           3
  ---------------- -------------- -------------- -------------- ------------

Note: Numbers are preliminary and may not reflect final figures.

[^1]: The corrective action year also applies to possible penalties for
    not meeting the three penalty performance measures and not
    substantially complying with IV-D requirements.

[^2]: Median calculated using only states that passed the 1999 and 2001
    audits.

[^3]: States have the option of being evaluated by a paternity indicator
    that includes only the children in the child support caseload or all
    children in the state.

[^4]: The share of incentives from public assistance collections is \$1
    million (10 percent of \$10 million); the share from non-public
    assistance collections is \$1.15 million. Ten percent of \$20
    million is \$2 million; because non-public assistance collections
    are capped at 115% of public assistance collections, the non-public
    assistance portion of the incentive payment is \$1.15 million.

[^5]: If a state was not in compliance with the federal requirements,
    audits could occur more often to assess state efforts to comply with
    the rules.

[^6]: Section 341 of Public Law 104-193 states: (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.

[^7]: Information on the recommendations of the work group is drawn from
    *Incentive Funding Work Group: Report to the Secretary of Health and
    Human Services*, January 31, 1997.

[^8]: At that time, CBO predicted declines in TANF caseloads and
    associated TANF collections during FYs 2004-2005, explaining the
    pool's decline in those years.

[^9]: CPI for a FY is the average CPI for the 12-month period ending
    9/30. For example, for fiscal year 2009, if the CPI increases by 1
    percent between FYs 2007 and 2008, then the incentive pool for FY
    2009 will be a 1 percent increase over the \$483,000,000 incentive
    payment pool for FY 2008, or \$487,830,000.

[^10]: OCSE allows states to use the three-year average because
    officials believe it may more closely approximate the amount a state
    has been spending on its IV-D program and will not give undue weight
    to any extraordinary or non-recurring expenditures the state may
    have made in FY 1998.

[^11]: For FY 2001, 10 states submitted 157 report corrections after the
    December 31 deadline. December 31 is the deadline for data and OCSE
    must work with the data submitted prior to this date.

[^12]: The collection base number is not audited.

[^13]: 68 cases divided by 87 cases.

[^14]: 2 x (\$20,000,000 + \$75,000,000) + \$120,000,000 = \$310
    million.

[^15]: If the state had shown marked improvement on this measure from
    the previous year (5 percent), it would still be eligible for the
    minimum incentive payment.

[^16]: The other two-thirds of the incentive payment were calculated
    using the old incentive system and are not reflected here.

[^17]: State and federal governments split the TANF collections because
    they share in the cost of the TANF program. The split differs by
    state and is determined by the Federal Medicaid matching rate.

[^18]: At the time of this writing, 2001 incentive payment data were not
    available.

[^19]: The trend data reported here is slightly different from the trend
    data reported in the introduction to the subsection because it
    includes only states that passed the audit in both 1999 and 2001.

[^20]: FY 1999 was the first year states used the OCSE 157 form for
    reporting information to OCSE.

[^21]: Of the four, three failed to include data used to calculate the
    collection of arrears measure from all counties. The child support
    system of the fourth state is administered by the counties, and its
    unique structure sometimes leads to inconsistencies.

[^22]: We estimate that FY 2000 payments would have been about \$375
    million if the old system remained in place.

[^23]: M. Fishman, K. Dybdal, and J. Tapogna (1999). *State Financing of
    Child Support Enforcement Programs*. Washington, D.C. Assistant
    Secretary for Planning and Evaluation and Office of Child Support
    Enforcement.