would merge the Tax Refund Offset Program into the Treasury Offset Program (TOP); (3) FMS
and OCSE would work cooperatively to resolve identified issues, and to increase state
participation and the number of delinquent child support debts submitted for offset; (4) Justice
would issue its guidance to federal agencies concerning the minimum due process; and (5) FMS
would add additional payment streams into TOP.

The following accomplishments represent the progress in achieving those plans:

Issuance of Final Rule — On December 30, 1998, FMS issued a final rule governing the
collection of past due support debts through the offset of tax refunds under TOP.

Merger of Tax Refund Offset into TOP - Effective January 1999, FMS and IRS successfully
merged the Tax Refund Offset Program into TOP. This merger created a single system for the
offset of all Treasury disbursed payments. As a result of this merger, HHS now refers past due
child support debts to a single Treasury bureau (FMS) for collection by offset from all eligible
federal payments.

Increased State Participation — State participation in the non-tax federal payments offset
program substantially increased from last year, as a result of FMS and OCSE working together to
resolve identified issues and the successful merger of the Tax Refund Offset Program into TOP.

As of September 1999, there were 30 entities participating in the administrative offset program,
an increase of 15 new entities over last year. Participating entities now include Alabama,
Arkansas, Arizona, California, Connecticut, District of Columbia, Delaware, Florida, Georgia,
Hawaii, Iowa, Idaho, Illinois, Louisiana, Massachusetts, Michigan, Montana, Nebraska, New
Hampshire, New Jersey, Ohio, Oklahoma, Oregon, Puerto Rico, Rhode Island, South Dakota,
Tennessee, Vermont, Washington, and Wyoming.

Consequently, a total of 1,165,015 cases have been submitted to FMS for non-tax federal
payment offset, an increase of 403,646 over last year. The amount of delinquent child support
debts referred to FMS for collection from non-tax federal payments has also increased from $6.8
billion to $9.25 billion. FMS and OCSE continue to work with the states to promote full
participation.

Offsets Taken — In June 1997, FMS began offsetting non-tax federal payments to collect past
due child support obligations. Since the merger of the Tax Refund Offset Program into TOP in
January 1999, FMS has also been offsetting federal tax refund payments to collect past due child
support obligations. The amount of offsets collected under TOP for 1999 totaled $1.31 billion
from tax refund payments and $1 million from non-tax payments, a total increase of more than
$176.4 million over 1998. Of this increase, the offsets of non-tax federal payments increased by
$318,000 and the offsets of federal tax refund payments increased by $176.1 million.

Denial of Federal Financial Assistance — Justice, in consultation with Treasury and HHS, has
issued final guidance for agencies concerning the minimum due process standards to be followed
when denying federal financial assistance. This guidance was distributed to federal agencies on
April 26, 1999.

Annual Report to the President: Implementation of Executive Order 13019 3


Department of Health and Human Services (HHS) — The Office of Child Support
Enforcement (OCSE) manages the Child Support Enforcement Program authorized under Title
IV-D of the Social Security Act. OCSE is responsible for implementing the procedures
necessary to report to the Secretary information on past-due child support claims referred to HHS
by the states.

Department of Justice (Justice) — Justice is responsible for issuing guidance to federal agencies
concerning the minimum due process standards to be followed when federal agencies deny
federal financial assistance to delinquent child support debtors.

States — Child support programs are managed in each of the 50 states, Puerto Rico, the Virgin
Islands, Guam, and the District of Columbia. States and territories are responsible for collecting
delinquent child support claims under federal and state laws and regulations. States and
territories (hereafter referred to as “states”) may, but are not required to, participate in Treasury’s
non-tax federal payment offset program to collect past-due child support. By contrast, states are
required to participate in Treasury’s federal tax refund offset program in order to receive federal
funding under Title IV-D.

INTERAGENCY COOPERATION

Treasury and HHS established the Joint HHS-Treasury Child Support Work Group to coordinate
the activities and implement the provisions of Executive Order 13019. The Work Group meets
monthly to define and resolve issues and to evaluate progress in implementing the program.

Treasury and HHS work together extensively at all levels — management, legal, program,
technical, and operational and in conjunction with federal and state staffs. Efforts include
contacting states to review individual states’ abilities to participate in the program, obtaining
comments on proposed regulations, and conducting regional and national conferences. In the
past year, a series of regional conferences was held in Ft. Lauderdale, Phoenix, St. Louis, and the
District of Columbia, which focused on educating states on the benefits of the program,
encouraging their participation, and discussing processing and programmatic issues.

Treasury, HHS, and Justice participate in an interagency task force led by the Domestic Policy
Council to address child support enforcement issues. This group, which was formed in October
1998, provides a forum to increase coordination among some of the various agencies involved in
child support enforcement and to explore ideas for improving child support enforcement efforts.

Justice worked with Treasury and HHS to develop guidance for federal agencies concerning the
minimum due process standards to be followed when denying federal financial assistance.

ACCOMPLISHMENTS DURING THIS REPORTING PERIOD

Treasury submitted the first report on February 16, 1999, detailing progress in the
implementation of Executive Order 13019, covering the period of September 1996 through
September 1998. In that report, five future plans were discussed: (1) FMS would issue a final
rule governing the offset of tax refunds by FMS to collect past due support; (2) FMS and IRS

Annual Report to the President: Implementation of Executive Order 13019 2


Additional Payment Streams — Delinquent child support obligations are currently matched
against two types of non-tax payments: vendor payments and OPM retirement payments. FMS
is also conducting a pilot to incorporate federal salary payments into TOP. Another potential
payment stream is federal benefit payments (Social Security, Black Lung, and Railroad
Retirement). Currently, federal law does not permit the offset of these benefit payments to
collect delinquent child support obligations. However, legislation pending in the 106" Congress
(H.R. 436) contains a provision that would permit the offset of these payments to collect
delinquent child support obligations. Treasury supports this provision in H.R. 436.

While the impact on non-tax collections is expected to be meaningful if both potential payment
streams are incorporated into the process, we do not expect that the magnitude of collections
through offsets of non-tax payments will approach the amounts collected from the offset of
federal tax refunds.

FUTURE PLANS

e FMS and OCSE will continue to work cooperatively to resolve identified issues. This
cooperative effort is expected to facilitate additional state participation in the non-tax federal
payment offset program and increase the number of delinquent child support debts submitted
for offset.

e FMS will incorporate additional payment streams into the TOP program to increase the
collection of delinquent child support debt through the offset of non-tax federal payments.
Federal salary payments will be added as federal salary paying agencies are converted to the
offset process. Should pending legislation be enacted, Social Security, Black Lung, and
Railroad Retirement payments will also be added to TOP.

e OCSE, in consultation with FMS, will issue updated guidance to states concerning
procedures for submitting past due child support into TOP for offsets of federal tax refund
payments and non-tax federal payments.

e FMS will continue to work with OCSE and states in adding enhancements to TOP to increase
systems’ compatibility and flexibility.

CONCLUSION

Adding payment streams to the offset process and encouraging states’ participation are critical to
the success of Executive Order 13019. These steps will result in additional opportunities to
collect delinquent child support obligations through offset. Treasury and HHS are committed to
improving and enhancing systems and procedures to ensure that the administrative offset
program continues to be an effective tool for collecting delinquent child support debts, as well as
one that will complement the array of enforcement tools already available to state child support
enforcement agencies.

Annual Report to the President: Implementation of Executive Order 13019 4


DEPARTMENT OF THE TREASURY
WASHINGTON, D.C,

SECRETARY OF THE TREASURY

July 3, 2000

MEMORANDUM FOR THE PRESIDENT

FROM: Lawrence H. Summers a } ;
SUBJECT: Implementation of Executive Order 13019 - Supporting Families:

Collecting Delinquent Child Support Obligations

Attached is the second annual report, Implementation of Executive Order 13019 - Supporting
Fumilies: Collecting Delinquent Child Support Obligations. | am pleased to report that
significant progress has been made in implementing the Executive Order.

A key objective of the Executive Order, which was issued on September 28. 1996. is to collect
delinquent child support obligations through the interception of non-tax federal payments, a
process known as “offset.” The Departments of the Treasury and Health and Human Services
established an interagency working group which works with states and territories to provide
information about procedures and guidelines in referring child support debts to the Treasury
Offset Program (TOP), to encourage their participation in the program, and to assist them in
referring delinquent child support obligations for offset. Furthermore, the group aids states and
territories in resolving system and programmatic issues related to making referrals.

Treasury is strongly committed to collecting delinquent child support obligations through the use
of offset of both federal tax refunds and non-tax payments. In fiscal year 1999, $1.31 billion was
collected by offsetting tax refund payments. However, collections against non-tax payments
remain modest by comparison, due to differences in the size and nature of the non-tax payment
streams that currently are subject to offset and the fact that participation in the offset of non-tax
payments is voluntary for the states. For fiscal year 1999, $1 million was collected by offsetting
non-tax payments.

Collections from non-tax payment offsets are expected to increase further as Executive Order
13019 is implemented fully, through increased state participation and the incorporation of
additional payment streams into TOP. As of September 1999, 28 states, | territory, and the
District of Columbia have referred more than $9.25 billion in delinquent child support debts.
This is an increase of 15 entities and $2.4 billion in delinquent debt referrals over 1998, In the
coming year, Treasury will continue to work toward full implementation of Executive Order
13019 in support of the worthy goal of collecting these past-due obligations.

Attachment

cc: Honorable Donna E. Shalala


ANNUAL REPORT TO THE PRESIDENT

IMPLEMENTATION OF
EXECUTIVE ORDER 13019

SUPPORTING FAMILIES:
COLLECTING DELINQUENT
CHILD SUPPORT OBLIGATIONS

October 1998 — September 1999

Department of the Treasury
March 2000



ANNUAL REPORT TO THE PRESIDENT

IMPLEMENTATION OF EXECUTIVE ORDER 13019 —
SUPPORTING FAMILIES: COLLECTING DELINQUENT
CHILD SUPPORT OBLIGATIONS

October 1998 — September 1999

PURPOSE

This report details the progress in implementing Executive Order 13019 (September 28, 1996) -
Supporting Families: Collecting Delinquent Child Support Obligations during the period
October 1998 through September 1999.

BACKGROUND

Since the early 1980s, the Department of the Treasury (Treasury) has been offsetting federal tax
refund payments to collect delinquent child support obligations, as well as debts owed to the
federal government.

The Debt Collection Improvement Act of 1996 (DCIA), Public Law 104-134 (110 Stat. 1321-
358), enacted into law on April 26, 1996, as part of the Omnibus Consolidated Rescissions and
Appropriations Act of 1996, authorizes Treasury to offset certain non-tax federal payments to
collect delinquent child support debts being enforced by states and territories.

Executive Order 13019 requires the Secretary of the Treasury (Secretary), in consultation with
the Secretary of Health and Human Services, to develop and implement procedures necessary for
the Secretary to collect past-due child support debts through offset of federal non-tax payments.
Executive Order 13019 also establishes a federal policy to deny federal financial assistance to
individuals whose non-tax payments are subject to offset as a result of delinquent child support
obligations.

KEY RESPONSIBILITIES UNDER THE EXECUTIVE ORDER

Treasury — Treasury’s Financial Management Service (FMS) is responsible for developing and
managing a centralized offset process to match federal payments against debts owed to the
federal government, states, and territories. This centralized process, known as the Treasury
Offset Program (TOP), provides for the offset of federal tax refund payments and non-tax federal
payments to collect delinquent child support obligations.

Annual Report to the President: Implementation of Executive Order 13019 1