In 1975, the Congress created the federal child support enforcement program as title IV-D of the Social Security Act. The program’s purpose is to strengthen state and local child support enforcement efforts for obtaining child support for families who receive Aid to Families With Dependent Children (AFDC) benefits and for any non-AFDC individuals who apply for services. Services provided to these clients include locating noncustodial parents, establishing paternity and child support orders, and collecting support owed. Appendix II contains a glossary of child support enforcement services. Child support enforcement is a joint federal and state responsibility. Within the federal government, OCSE, in the Department of Health and Human Services (HHS), is responsible for providing leadership, technical assistance, and standards for effective state programs. States or local offices under state supervision deliver child support services to families. The federal government and the states share program costs, including contract costs, at the rate of 66 percent and 34 percent, respectively. In 1995, administrative costs for the program were $3.1 billion and collections totaled $10.8 billion. About 19 percent of the cases in the child support program nationwide received a payment in 1995. To help meet the demands of growing caseloads in an environment of resource constraints and increasing federal requirements, some states have turned to privatization. In our November 1995 report to you, we provided information on states’ privatization of child support enforcement services and identified 37 states that had privatized or planned to privatize portions of their child support caseloads. Some of these states chose to augment their public programs by privatizing particular services, such as locating noncustodial parents or collecting support owed, while 12 others looked to private sector contractors to assume all local child support services. Under full-service privatization, states contract out all or most of the services traditionally performed by a local public entity, usually a county or judicial district. Additionally, since our November 1995 report, Ohio, South Carolina, and West Virginia have initiated full-service privatization efforts. Figure 1 shows the states in which we have identified fully privatized local offices as of September 1996. Appendix III provides further information on each of these fully privatized offices, including the local jurisdictions they serve, the contractor, and the contract length and its payment terms. Most contracts for full-service privatization provide for the contractor to be paid an amount equal to a percentage of the collections generated. Therefore, as a contractor’s collections increase or decrease, the contractor’s payment—or the administrative costs paid to operate the office—rises or falls proportionately. In our November 1995 report, we noted payment rates in effect ranging from about 10 percent to 32 percent of collections. Some contracts provide for variable rates that decline over the life of the contract. In these cases, a higher initial payment rate is intended to help the contractor defray start-up costs. Most contracts provide for 2 to 5 years of service. Overall, officials in the states with full-service privatization efforts most frequently cited a desire to improve the child support services offered, the need to serve their soaring caseloads, and the ability to deploy additional child support staff as reasons why they fully privatized local offices. At two offices, state officials estimated that caseloads had reached about 1,000 per worker, and they could not get the authority to hire additional public staff. Other major reasons cited by officials include the local child support offices’ difficulties in meeting increasing federal program requirements; legislative or executive directives mandating privatization as a way to improve state performance; and local public entities, such as the district attorney, ceasing to provide child support services when faced with rising caseloads, staffing constraints, and additional federal requirements. State officials in the three states we reviewed cited similar rationales for privatizing the four offices we reviewed within their states. In Virginia and Arizona, officials cited the need to serve growing caseloads. Arizona officials also wanted to provide better service to areas previously considered underserved. At both the offices we examined in Tennessee, state officials eventually turned to privatization after the local district attorneys no longer wanted to operate the local child support offices. State officials had been encouraging the district attorney at one office to improve office performance. Both district attorneys believed that, without additional staff, their offices could no longer meet the federal performance standards and, consequently, both terminated their child support services. Faced with the loss of the governmental service providers, the state contracted out the operation of both child support offices. Some states have implemented full-service privatization in a way that minimizes displacement of public employees. In Virginia and Arizona, existing districts were subdivided to create new offices in February and March 1994, respectively. Creating new privatized offices in an existing district is considered easier than replacing an established office because no public workers are displaced, according to state officials. At both Tennessee offices, which were privatized in July 1992 and July 1993, the public workers lost their jobs, but according to state officials, most were offered positions with the private contractor. Our analysis suggests that fully privatized offices can produce performance outcomes comparable to those of public child support programs. In outcome measures such as locating noncustodial parents, establishing paternity and support orders, and obtaining collections for the cases we reviewed, the privatized offices in Arizona and Tennessee performed about as well as their public counterparts and the one in Virginia did significantly better. While performance outcomes show that the privatized offices did at least as well or better than their public counterparts, the cost-effectiveness results were more mixed for the periods reviewed. In Virginia, the privately run office that we studied in Hampton performed as well as or better than the public office in Portsmouth that we compared it with. These offices serve similar client populations in suburban and rural areas in the same part of the Tidewater area of Virginia. As table 1 illustrates, the Hampton office established paternity and support orders and made collections for higher percentages of the selected cases than did the Portsmouth office during our 18-month review period. The difference for collections was statistically significant after controlling for differences in caseload characteristics between the offices, such as the percentage of AFDC cases and the services that cases needed, while the differences for establishing paternity and support orders approached statistical significance. The difference in location rates was not statistically significant. With regard to the cost-effectiveness of the two offices, Hampton’s cost to collect $1 of support was 60 percent lower than that for Portsmouth during the period reviewed. As table 2 shows, the contractor was paid 11.5¢ for each $1 collected, while the public office spent 18.4¢. Also, according to the contract, the contractor’s payment will decline to 9.95¢ per $1 collected in the final year of the 5-year contract. Additionally, to determine whether privatization resulted in disproportionate increases in state costs, we compared administrative costs before and after privatization. In Virginia, the privatized office’s administrative costs did not increase dramatically after privatization. In state fiscal year 1994, the first year of privatization, the privatized office’s administrative costs grew by less than 1 percent over the previous year’s imputed costs. In the second year after privatization, the privatized office’s administrative costs increased by about 22 percent, a growth rate similar to the public office’s 21-percent increase. In Arizona, performance outcomes on our review cases revealed that the privately run office in Yavapai County did about as well as the public office in Mohave County that we compared it with; however, the privatized office was more cost-effective during our 18-month review period. Although some differences in outcomes between the public and private offices appear to exist (see table 3) none of the differences was large enough to be statistically significant either before or after controlling for AFDC status and kinds of services needed. Regarding overall cost-effectiveness, the privatized office had a lower cost per $1 collected during the period reviewed. Mohave County spent 34.8¢ per $1 collected, while the contractor received 29.5¢ per $1 collected for operating the Yavapai County program (see table 4). In addition, under the terms of the contract, the contractor’s payment rate will fall to 24.0¢ for every $1 collected in the final year of the 4-year contract. We were unable to examine the rate of change in the privatized office’s administrative costs before and after privatization and compare it with the public office’s rate of change. Arizona officials could not break out preprivatization administrative costs for Yavapai County only, which had been served at one time by a multicounty unit. Additionally, the officials believed that such a comparison would be inappropriate, because Yavapai’s cases had been underserved before privatization. Performance and cost-effectiveness results were mixed in Tennessee, where we reviewed two privatized offices. In the first privatized office, we did not have a sufficient number of cases to compare the public and privatized offices’ performance in locating noncustodial parents, establishing paternity and support orders, and collecting support owed. However, we were able to compare the offices’ collections and administrative costs for the review period. At this office, our comparison of collections and administrative costs showed that the public Fifth Judicial District office provided services at a lower cost per $1 collected during the 18-month review period (see table 5). The public office cost was 9.9¢ per $1 collected, while the privatized office was paid 15.0¢. Both offices serve rural populations within the Knoxville area. Finally, at the second privatized office we reviewed in Tennessee, where we analyzed performance and cost-effectiveness before and after privatization, the privatized office generally maintained comparable performance and cost-effectiveness while serving a more challenging caseload.