AT-98-22, Alternative Penalty for States Which Fail to Implement Statewide Automated Systems

ACTION TRANSMITTAL OCSE-AT-98-22

EFFECTIVE DATE: July 31, 1998

TO: State Agencies Administering Child Support Enforcement Plans Approved Under Title IV-D of the Social Security Act and Other Interested Parties

SUBJECT: Alternative Penalty for States Which Fail to Implement Statewide Automated Systems by the Deadlines Stipulated in Section 454(24) of the Social Security Act

REFERENCES: Pub. L. 105-200, The Child Support Performance and Incentive Act of 1998 Sections 454A and 455 and sections 454(16) and (24) of the Social Security Act, as amended OCSE AT-97-05, "Procedures for Determining that a State IV-D Plan is Disapproved" 45 CFR Subpart 307 and 45 CFR Part 95, Subpart F

PURPOSE: To inform States of alternative financial penalties made available by Pub. L. 105-200, The Child Support Performance and Incentive Act of 1998 (CSPIA). These alternative penalties may be elected by States which fail to implement by the applicable statutory deadlines statewide automated child support enforcement systems meeting the requirements of sections 454(16) and 454A of the Social Security Act ("the Act").

BACKGROUND: Having in place automated child support enforcement systems which meet statutory requirements is a child support enforcement State plan requirement. The Secretary of HHS must disapprove the plans of States which fail to have such systems in place by the dates specified in section 454(24).

Disapproval of a State's plan will result in the cessation of all Federal child support funding for the State. In addition, because operating a child support enforcement program under an approved State plan is a prerequisite to a State's receiving funds under the Temporary Assistance for Needy Families (TANF) program, a State's TANF funds also would be jeopardized.

CSPIA establishes an alternative penalty associated with a State's failure to meet the systems deadlines in section 454(24) of the Act. Under this new provision, the alternative penalty is available to a State which: (1) the Secretary determines has made and is continuing to make a good-faith effort to comply with child support enforcement automated systems requirements; and (2) has submitted to, and had approved by, the Secretary a "corrective compliance plan" that describes how, by when, and at what cost the State will achieve compliance with child support enforcement automated system requirements.

States meeting these conditions will be assessed financial penalties as described in Attachment A. These alternative financial penalties will be in lieu of the State plan disapproval process and subsequent termination of all IV-D funds related to a State's failure to meet the deadlines in section 454(24) of the Act. States which meet the conditions for the alternative penalty will also not be in jeopardy of losing TANF funds. However, the State plan disapproval process may be reinstated if a State fails to continue to make a good faith effort to comply with child support enforcement automated systems requirements. A State will not be subject to an audit penalty under section 409(a)(8) of the Act with respect to its failure to comply with the deadlines in section 454(24) of the Act.

The alternative systems penalty applies only to the requirements in section 454(24) of the Act relating to child support automated systems. The alternative penalty is not available with respect to other requirements of the Act, such as the State Disbursement Unit and child support collection distribution requirements. States which fail to implement these other requirements by the statutory deadlines are subject to State plan disapproval.

Requesting the Alternative Penalty

A State which has missed a deadline in section 454(24) of the Act and desires to come under the alternative penalty provision must submit to OCSE both of the following items:

(1) A "corrective compliance plan." The corrective compliance plan should take the form of an Advance Planning Document Update (APDU) which details how, by when and at what cost the State will achieve compliance with child support enforcement systems requirements, provides time frames for achieving compliance, contains estimates of the costs of achieving compliance, and otherwise meets the requirements of 45 CFR 307.10; and,

(2) A letter from the Chief Executive Officer, (CEO) or his/her designee, requesting that the State be subject to the alternative system penalty in lieu of State plan disapproval.

A number of States may already have submitted to OCSE APDUs which meet the requirements for a corrective compliance plan. In order for the APDU to be considered as the State's corrective compliance plan, the APDU needs to be complete and must have been approved by OCSE. (OCSE's approval of the State's APDU can not have been deferred or conditioned upon subsequent action by to be undertaken by the State.) Depending on the date of the APDU submission and approval, an As-Needed APDU with an updated schedule may be required to meet the criteria for a corrective compliance plan. States contemplating requesting imposition of the alternative system penalty are encouraged to contact their OCSE Regional and Central Office systems analysts to ascertain whether their current APDU can be considered by OCSE to be a corrective compliance plan.

The letter from the State's CEO or other official must also:

149 Provide sufficient information for OCSE to determine that the State has made and will continue to make a good-faith effort to comply with statutorily mandated systems requirements; and,

149 If the State intends that a previously submitted APDU or as-needed APDU will constitute its corrective compliance plan, the letter from the State's CEO or other designated official must explicitly reference those documents.

Separate requests for election of the alternative system penalty are required with respect to a State's failure to meet either the Family Support Act of 1988 (FSA) or Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) systems deadlines. These deadlines are October 1, 1997 and October 1, 2000, respectively.

A State remains subject to potential State plan disapproval until such time as OCSE makes the required finding either that the State has implemented the required statewide system or that the State is continuing to implement in good faith an automated system that meets statutory requirements and OCSE has approved the State's corrective compliance plan. OCSE intends to proceed with the steps necessary to determine whether a State's plan should be disapproved until such time as the State requests to be subject to the alternative penalty.

Imposition of Alternative Penalty

OCSE will impose the alternative penalty by issuing a negative grant award immediately after notifying the State that, pursuant to its request, OCSE has determined that the State qualifies for the alternative penalty. The amount of the negative grant award will be determined in accordance with methodology described in Attachment A. The base upon which penalties for FY 1998 will be determined is included in this Action Transmittal as Attachment B.

In subsequent years, the penalty will be imposed by reducing the amount of the first grant award payable to the State in that fiscal year.

If a State qualifies for a reduction in the penalty (see below), OCSE will issue an adjusting grant award early in the succeeding fiscal year in an amount equal to 90% of the reduction for the year in which the State achieved compliance.

Waiver of Penalty for FY 1998

CSPIA provides that the Secretary may waive the alternative systems penalty for FY 1998 if:

1. On or before August 1, 1998, the State has submitted a request that OCSE certify the State as meeting FSA functional requirements;

2. OCSE subsequently provides the certification as a result of a timely review conducted pursuant to the State's request; and,

3. The State has not failed such a review.

To meet the requirement for a timely review, the State must submit the documentation necessary for OCSE to conduct the review, including the completed Certification Questionnaire and Financial Distribution Test Deck results, in sufficient time for OCSE to review the material prior to OCSE's on-site review. States should plan that OCSE will attempt to schedule the on-site review within three weeks of receiving the State's request for a review. A State should therefore be prepared to submit the required documentation at the same time as their request for a certification review.

Reduction of Penalty in the Year a State Achieves Compliance

CSPIA provides for the reduction of the alternative penalty imposed for failure to comply with either FSA requirements under section 454(24)(A) of the Act or PRWORA requirements under section 454(24)(B) of the Act. In the year that the State comes into compliance, 90% of the applicable penalty for that year will be forgiven. (Penalties imposed in prior years, if any, are not eligible for reduction.) In accordance with the statute, the adjustment in the grant amount will be made in the succeeding fiscal year.

If, as a result of a certification review, a State must make modifications to its system in order to meet certification requirements, the State will not receive a reduced penalty unless the State completes those modifications necessary for OCSE to certify the State's system and those modifications are reviewable by OCSE prior to the end of the fiscal year in which the State requested the review.

A State's penalty will be reduced even if OCSE's certification is granted after the end of the fiscal year, provided that the State's system was in fact certifiable prior to the end of the fiscal year.

Single Penalty

New paragraph 455(a)(4)(D) of the Act, as added by CSPIA, provides that the Secretary may not impose in a fiscal year an alternative system penalty against a State with respect to that State's failure to comply with section 454(24)(B) of the Act (relating to the PRWORA automated systems deadline) if the Secretary is required to impose a penalty in that fiscal year with respect to the State's failure to comply with section 454(24)(A) of the Act (related to the FSA automated systems deadline.) There are three potential scenarios affected by this provision. The examples below illustrate how this provision will operate:

149 Example 1: A State: (1) did not meet the FSA deadline; and, (2) has not met the FSA deadline by October 1, 2000 (i.e., the PRWORA deadline). This State would be subject to a single 25 percent penalty for FY 2001 (October 1, 2000 to September 30, 2001) assessed with respect to its having failed to meet the FSA deadline.

149 Example 2: Same facts as Example 1, except that the State achieves compliance with FSA requirements during FY 2001, but does not achieve compliance with PRWORA requirements before the end of FY 2001. In this case, the State would receive a 25 percent penalty in FY 2001 with respect to its having failed to meet the FSA deadline. The FY 2001 penalty would be reduced by 90%, as described above under "Reduction of Penalty in the Year the State Achieves Compliance." Because the State is subject to a penalty in FY 2001 assessed with respect to FSA requirements, it would not be assessed a penalty with respect to PRWORA requirements.

149 Example 3: Same facts as Example 2, (State came into compliance with FSA requirements during FY 2001) except the State has not achieved compliance with PRWORA automation requirements as of the end of FY 2002. In this case, the State would be assessed an 8 percent penalty with respect to FY 2002, as FY 2002 is the second year during which the State has failed to comply with PRWORA requirements. This penalty would be in addition to the penalties assessed against the State in prior fiscal years with respect to its having failed to meet FSA requirements.

Appeals

If a State requests that it be subject to the alternative penalty rather than to the State plan disapproval process, the penalty will be imposed without any opportunity for reconsideration or any other administrative appeal procedure.

States which do not request imposition of the alternative penalty will remain subject to State plan disapproval and OCSE will proceed with steps to disapprove those States' plans. Procedures, including hearings and appeals, governing the State plan disapproval process are contained in OCSE AT-97-05 and the regulations cited in that Action Transmittal.

ATTACHMENTS:
A: Description of Alternative Penalty
B: Table Showing Estimated FY 1998 Penalty Base

INQUIRIES: Inquiries may be directed to ACF Regional Administrators, or Norman L. Thompson, Associate Commissioner for Automation and Special Projects, OCSE, at (202) 260-0339

______________________

David Gray Ross
Commissioner
Office of Child Support Enforcement

ATTACHMENT A

DESCRIPTION OF ALTERNATIVE PENALTY PROVISION

The Child Support Performance and Incentive Act of 1998 (CSPIA) provides for alternative financial penalties for States which fail to meet statutory deadlines for implementing child support enforcement systems. These penalties are calculated as a percentage of child support payments made to the State in the year preceding the year in which the penalty is imposed.

States were required to have in place by October 1, 1997 (i.e., Federal fiscal year 1998) systems which met Family Support Act of 1988 (FSA) requirements. States which failed to meet that deadline and which elect to have the alternative penalty imposed would be subject to a penalty for FY 1998 and later years, until such time that the State complied with statutory requirements. Similarly, States are required by October 1, 2000 (Federal fiscal year 2001) to have in place automated systems that meet requirements contained in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). A State which fails to meet this deadline would be subject to a penalty each fiscal year until it came into compliance with PRWORA requirements.

The amount of the annual penalty is as follows:

FSA PRWORA
4% of penalty base FFY 1998 FFY 2001
8% of penalty base FFY 1999 FFY 2002
16% of penalty base FFY 2000 FFY 2003
25% of penalty base FFY 2001 FFY 2004
30% of penalty base FFY 2002 FFY 2005

The "penalty base" is the amount otherwise payable to the State in the preceding fiscal year at the 66% matching rate for CSE administrative costs.

For FY 1998, the penalty base is calculated as 66% of the sum of the amounts on lines 8 and 10 of Form OCSE-396. The penalty base for FY 1998 is calculated from expenditure reports available to ACF as of June 15, 1998; these amounts will not be adjusted if States submit revised expenditure reports after that date.

For FY 1999 and later, calculation of the penalty base will be a two-step process. OCSE will calculate the initial penalty base from expenditure reports received as of the end of the preceding fiscal year. Because States are not required to report actual expenditures for the fourth quarter until well into the next fiscal year, the initial penalty base will normally be based on three quarters of reported actual expenditures and one quarter of expenditures estimated by the State as part of its normal claiming process for child support enforcement funds. The amounts will be calculated in a manner similar to the process for calculating the FY 1998 penalty base, as described in the preceding paragraph. OCSE will issue a grant award reflecting the penalty, calculated using the initial penalty base, at the beginning of the fiscal year.

Upon receipt of reports showing actual expenditures for all four quarters in the preceding fiscal year, OCSE will finalize the penalty base for the fiscal year and will adjust the penalty imposed on a State accordingly. The adjustment will occur only once with respect to a penalty imposed for a fiscal year. This adjustment will normally occur in the second quarter of the fiscal year in which the penalty is taken, based on financial reports received from States by the end of the first quarter. Once adjusted, there will be no subsequent adjustments based on expenditure reports received after the first quarter.

Attachment B shows the penalty base for FY 1998.

The statute places certain limitations on the alternative systems penalty:

149 The penalty for FY 1998 may be waived with respect to States which request a Federal certification review on or before August 1, 1998 and which pass the certification review.

149 States will not receive a penalty for both FSA and PRWORA in the same fiscal year. The penalty associated with the earlier FSA deadline will be assessed.

149 States are forgiven 90% of the penalty in the year that they come into compliance. The statute stipulates that this adjustment will be made in the subsequent Federal fiscal year.

ATTACHMENT B: - PENALTY BASE AMOUNTS FOR FY 1998

This table shows the alternative system penalty "base amount" for each State for FY 1998. These amounts are derived from State expenditure reports for FY 1997 and reflect 66% of amounts shown on lines 8 and 10 of Form OCSE-396. These amounts reflect current quarter claims and prior quarter adjustments. The amounts shown in this table are the final penalty bases for FY 1998; they will not be revised with respect to expenditure reports received by ACF after June 15, 1998.

NOTE: This table includes the alternative penalty base amounts for all States; however, only a few States will actually be subject to the alternative system penalty. At the time this AT was issued, OCSE does not know which States will be subject to the alternative system penalty. This is because: (1) OCSE is still reviewing a number of States' systems and (2) States must request imposition of the alternative system penalty. Also, States which fail to meet the October 1, 2000 systems deadlines imposed by PRWORA may be subject to the alternative systems penalty. While the penalty base would be updated prior to imposition of penalties for later years, inclusion of the FY 1998 base for all States provides a useful point of reference.

DATA AND CALCULATION FOR FY98 PENALTY BASE
(Child Support Enforcement Expenditure Data as of 7/15/98)

State	FY97 Other Admin Expenditures Eligible for 66% Match	FY97 Other ADP Expenditures Eligible for 66% Match	FY97 Total Expenditures Eligible for 66% Match	FY98 PENALTY BASE: Federal Share FY97 Expenditures @ 66%

ALABAMA	$ 34,366,027	$ 3,300,399	$ 37,666,426	$ 24,859,841
ALASKA	17,513,220	812,087	18,325,307	12,094,703
ARIZONA	41,078,284	4,318,031	45,396,315	29,961,568
ARKANSAS	22,858,004	11,233,479	34,091,483	22,500,379
CALIFORNIA	404,210,826	48,973,380	453,184,206	299,101,576
COLORADO	37,346,125	1,262,989	38,609,114	25,482,015
CONNECTICUT	43,974,777	1,547,039	45,521,816	30,044,399
DELAWARE	15,098,416	2,133,687	17,232,103	11,373,188
DISTRICT OF COLUMBIA	3,398,724	22,765	3,421,489	2,258,183
FLORIDA	123,388,252	14,642,084	138,030,336	91,100,022
GEORGIA	62,302,565	8,398,867	70,701,432	46,662,945
GUAM	3,342,935	163,822	3,506,757	2,314,460
HAWAII	12,210,393	-6,302,760	5,907,633	3,899,038
IDAHO	10,349,673	1,853,766	12,203,439	8,054,270
ILLINOIS	105,130,077	12,590,494	117,720,571	77,695,577
INDIANA	22,683,689	4,093,477	26,777,166	17,672,930
IOWA	26,452,290	4,150,563	30,602,853	20,197,883
KANSAS	30,615,233	1,541,329	32,156,562	21,223,331
KENTUCKY	38,251,064	2,401,934	40,652,998	26,830,979
LOUISIANA	32,344,187	-1,913,289	30,430,898	20,084,393
MAINE	14,559,347	1,485,013	16,044,360	10,589,278
MARYLAND	64,171,858	2,099,642	66,271,500	43,739,190
MASSACHUSETTS	52,634,435	3,760,314	56,394,749	37,220,534
MICHIGAN	157,146,437	4,016,762	161,163,199	106,367,711
MINNESOTA	67,938,547	7,273,865	75,212,412	49,640,192
MISSISSIPPI	26,327,319	2,973,913	29,301,232	19,338,813
MISSOURI	61,729,246	3,778,203	65,507,449	43,234,916
MONTANA	9,667,662	1,628,045	11,295,707	7,455,167
NEBRASKA	18,674,024	9,851,499	28,525,523	18,826,845
NEVADA	21,562,381	-5,977,363	15,585,018	10,286,112
NEW HAMPSHIRE	11,554,124	1,925,325	13,479,449	8,896,436
NEW JERSEY	101,034,390	7,724,992	108,759,382	71,781,192
NEW MEXICO	15,398,778	8,279,540	23,678,318	15,627,690
NEW YORK	188,100,228	10,963,531	199,063,759	131,382,081
NORTH CAROLINA	87,049,745	13,086,384	100,136,129	66,089,845
NORTH DAKOTA	5,320,558	-555,211	4,765,347	3,145,129
OHIO	182,266,479	16,732,382	198,998,861	131,339,248
OKLAHOMA	20,739,509	343,759	21,083,268	13,914,957
OREGON	37,095,852	2,928,360	40,024,212	26,415,980
PENNSYLVANIA	98,001,405	7,833,521	105,834,926	69,851,051
PUERTO RICO	20,482,001	3,293,405	23,775,406	15,691,768
RHODE ISLAND	8,072,710	295,576	8,368,286	5,523,069
SOUTH CAROLINA	24,810,537	3,651,686	28,462,223	18,785,067
SOUTH DAKOTA	5,583,936	277,708	5,861,644	3,868,685
TENNESSEE	29,761,971	1,296,856	31,058,827	20,498,826
TEXAS	136,065,099	19,746,900	155,811,999	102,835,919
UTAH	19,766,176	8,548,283	28,314,459	18,687,543
VERMONT	6,397,775	155,617	6,553,392	4,325,239
VIRGIN ISLANDS	1,768,607	-766,745	1,001,862	661,229
VIRGINIA	45,155,783	8,799,284	53,955,067	35,610,344
WASHINGTON	104,300,255	11,263,308	115,563,563	76,271,952
WEST VIRGINIA	19,819,535	3,843,313	23,662,848	15,617,480
WISCONSIN	52,645,330	16,577,779	69,223,109	45,687,252
WYOMING	7,886,683	659,178	8,545,861	5,640,268

TOTAL	$ 2,810,403,483	$ 293,018,767	$ 3,103,422,250	$ 2,048,258,685

Data Source:	Form OCSE396	Form OCSE396	Form OCSE396	Previous
	line 10 col. A + B	line 8 col. A + B	Lines 8 + 10	Column X 66%

FY98 PENALTY BASE
State	FY98 PENALTY BASE: Federal Share FY97 Child Support Expenditures Matched @ 66%

ALABAMA	$ 24,859,841
ALASKA	12,094,703
ARIZONA	29,961,568
ARKANSAS	22,500,379
CALIFORNIA	299,101,576
COLORADO	25,482,015
CONNECTICUT	30,044,399
DELAWARE	11,373,188
DISTRICT OF COLUMBIA	2,258,183
FLORIDA	91,100,022
GEORGIA	46,662,945
GUAM	2,314,460
HAWAII	3,899,038
IDAHO	8,054,270
ILLINOIS	77,695,577
INDIANA	17,672,930
IOWA	20,197,883
KANSAS	21,223,331
KENTUCKY	26,830,979
LOUISIANA	20,084,393
MAINE	10,589,278
MARYLAND	43,739,190
MASSACHUSETTS	37,220,534
MICHIGAN	106,367,711
MINNESOTA	49,640,192
MISSISSIPPI	19,338,813
MISSOURI	43,234,916
MONTANA	7,455,167
NEBRASKA	18,826,845
NEVADA	10,286,112
NEW HAMPSHIRE	8,896,436
NEW JERSEY	71,781,192
NEW MEXICO	15,627,690
NEW YORK	131,382,081
NORTH CAROLINA	66,089,845
NORTH DAKOTA	3,145,129
OHIO	131,339,248
OKLAHOMA	13,914,957
OREGON	26,415,980
PENNSYLVANIA	69,851,051
PUERTO RICO	15,691,768
RHODE ISLAND	5,523,069
SOUTH CAROLINA	18,785,067
SOUTH DAKOTA	3,868,685
TENNESSEE	20,498,826
TEXAS	102,835,919
UTAH	18,687,543
VERMONT	4,325,239
VIRGIN ISLANDS	661,229
VIRGINIA	35,610,344
WASHINGTON	76,271,952
WEST VIRGINIA	15,617,480
WISCONSIN	45,687,252
WYOMING	5,640,268

TOTAL	$ 2,048,258,685