The CSE program makes services available to any parent or other person with custody of a child who has a parent living outside of the home. These services are available automatically for families receiving assistance under the Temporary Assistance for Needy Families (TANF), Medicaid, and Foster Care programs. Other families seeking government child support services can apply through their state agency or one of the tribes running the program. For these families, there is an application fee. Figure 1 illustrates the major services provided by the CSE program. The CSE program is financed by federal and state funds. Federal funds come from three funding streams—the federal match, also known as the federal financial participation; incentive payments; and grants. Generally, federal matching funds reimburse state agencies 66 percent of the administrative costs for their CSE programs. In addition to matching funds, the federal government pays state agencies incentive funds to encourage them to achieve program goals. Incentive funds are capped, and in fiscal year 2004, $454 million were allocated for incentive payments. State agencies must reinvest their incentive funds in the CSE program. Federal funds also are available through grants. Grants for special improvement projects, demonstration projects, and child access and visitation programs are generally awarded annually. OCSE has received an annual appropriation of $1.8 million for special improvement project grants or demonstration projects to promote the program’s overall objectives. Additionally, since fiscal year 1997, OCSE has distributed approximately $10 million per year to state agencies to support child access and visitation grants for activities such as mediation, counseling, education, development of parenting plans, noncustodial parent visitation enforcement (including monitoring and supervision), and development of noncustodial parent visitation and alternative custody guidelines. According to a November 2005 report, state agencies used a number of funding sources to finance their share of CSE program administrative costs. These funding sources included federal incentive payments, child support collected for parents receiving assistance through the TANF program, state general funds, state general funds paid as incentives, county general funds, and fees, along with several other sources that were mentioned less often by state agencies. While state agencies generally used more than one revenue source, they also varied in the combination of the revenue sources they used. For the CSE program, federal and state expenditures are generally offset by certain collections as well as fees and interest payments. Child support collections for families that receive benefits from the TANF and Foster Care programs are deducted from the total federal and state expenditures and paid to these programs as reimbursements. For example, in fiscal year 2004 about $2 billion in child support collections for families that received TANF benefits were deducted from total CSE expenditures—the federal government was reimbursed $1.1 billion, and state agencies were reimbursed about $900 million. In addition, some state agencies collect fees from parents for their services, and such fees are also deducted from total expenditures. Also, expenditures are reduced by interest income that accrues to state agencies for collections deposited in interest-bearing accounts. Over the years, Congress has passed numerous laws that have had an impact on the CSE program, including the following: The Social Security Disability Amendments of 1980 included a provision that gave state agencies 90 percent matching funds for the cost of developing, installing, and enhancing approved automated data systems. In 1997, we reported that state agencies had spent over $2.6 billion since the early 1980s to develop their systems, and the federal government had paid from 66 to 90 percent of the systems’ costs, which amounted to more than $2 billion. The Child Support Enforcement Amendments of 1984 addressed many aspects of the program. For example, this act required that all states provide for the use of mandatory wage withholding procedures and expedited processes for establishing and enforcing support orders. The act made available federal matching funds at the 90 percent rate for the development and installation of automated data systems to facilitate income withholding and other procedures. The act reduced the overall federal matching rate to 68 percent for fiscal years 1988 and 1989, and to 66 percent for fiscal year 1990 and thereafter. Also, the act established procedures for intercepting state income tax refunds, imposing liens against real and personal property, and reporting delinquency information to consumer reporting agencies. The Family Support Act of 1988 established several requirements. For instance, the Secretary of HHS was required to set time limits within which collections must be distributed to families, and state agencies were required to meet federal standards for the establishment of paternity and to provide for wage withholding in accordance with child support orders. Also, this act made it mandatory for states to computerize their CSE programs and required states to have their automated data systems certified by October 1, 1995. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) included many provisions related to the CSE program. For example, PRWORA reinstated the 90 percent matching rate through September 30, 1997, to enable state agencies to complete the development and implementation of their automated data systems and extended the deadline for implementation to October 1, 1997. PRWORA also provided a matching rate of 80 percent, capped at $400 million for fiscal years 1996 to 2001, for system development and implementation costs related to automated data processing requirements. In addition, PRWORA provided state agencies with new enforcement tools, such as suspension of licenses, denial of passports, and financial institution data matches, and included procedures for the periodic review and adjustment of support orders by state agencies. Furthermore, PRWORA required audits to assess the completeness, reliability, and security of the data used in calculating performance indicators and audits of the financial management of states’ programs, including assessments of whether federal and other funds were being appropriately expended and properly accounted for. The Child Support Performance and Incentive Act (CSPIA) of 1998 established several new procedures and changed the method for calculating incentive payments. Since 1975, the federal government has paid incentives to state agencies to encourage program improvement. The new incentive system established by CSPIA links incentive payments to performance in five areas: paternity establishment, order establishment, collections of current child support, collections of child support in arrears, and cost effectiveness. CSPIA specifies the percentage of incentive funds that a state agency can receive on the basis of the state agency’s level of performance in each of these areas. For example, the applicable percentage of incentive funds for cost-effectiveness ratios is shown in table 1. The Deficit Reduction Act of 2005 included provisions that will affect CSE program funds. The act reduced the match rate for paternity testing from 90 percent to 66 percent effective October 1, 2006; eliminated the federal match for incentive payments effective October 1, 2007; and required states to impose an annual fee of $25 on each family that never received TANF benefits and for which the program collects $500 a year. The Congressional Budget Office (CBO) estimated that by 2010 the federal share of administrative costs would be reduced by $1.8 billion from eliminating the federal match for incentive payments and by $28 million from the lower match rate for paternity testing. CBO also estimated that the federal government would receive an additional $172 million from the annual fee. Further, CBO estimated that total funding for the program could fall 15 percent by 2010 if states did not adjust their own spending for CSE programs. This act also included provisions that will reduce federal expenditures for several other programs. We have expressed concern about the federal government’s financial condition and the nation’s growing fiscal imbalance. Also, we have reported that if the federal government is to effectively address this concern, it cannot accept all of the existing programs, policies, and activities as givens, and that rethinking the base of existing federal spending is an important step. As the federal partner, OCSE has several responsibilities. OCSE sets policies and standards, provides technical assistance, and evaluates state agency performance. OCSE also collects and reviews expenditure data that state agencies submit using OCSE’s Quarterly Report of Expenditures and Estimates. OCSE maintains these data in the Grants Application Tracking and Evaluation System (GATES) operated by ACF. Furthermore, OCSE is responsible for helping state agencies administer their programs. Routinely OCSE has developed and disseminated to state agencies a compendium of what it considers best practices. Each compendium describes several best practices, provides information on the results of implementing the practices, and identifies a contact person. In transmitting the compendium, OCSE stated that it does not endorse any particular practice, but believes that by providing the state agencies with solutions undertaken at the state and local levels, general program performance can be improved. Overall from fiscal year 2000 to fiscal year 2004, total net federal expenditures for administrative costs increased about 23 percent. Net federal expenditures increased in more than one-half of the state agencies, and the net federal cost per case increased about 36 percent. Also, collections and the nationwide cost-effectiveness ratio have increased. Total net federal expenditures for administrative costs increased about 23 percent, and the net federal median expenditure increased more than 2 percent. From fiscal year 2000 to fiscal year 2004, total net federal expenditures increased from about $2.2 billion to nearly $2.8 billion. While total net federal expenditures increased each year, the largest increase, in nominal dollars, was about 14 percent from fiscal year 2000 to fiscal year 2001. Overall, the median net federal expenditure increased from about $25 million to about $26 million between fiscal years 2000 and 2004. However, the median net federal expenditure for state agencies with state-operated programs decreased about 4 percent from about $20 million in fiscal year 2000, to $19 million in fiscal year 2004, while the median net federal expenditure for state agencies with county-operated programs increased about 11 percent—from about $59 million to about $66 million.