Arrears Management: 9 State Study

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Arrears Management 9 State Study

• Elaine Sorensen
• The Urban Institute
• June 4, 2007

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National Child Support Arrears FY 1987 to
FY 2006
Source Office of Child Support Enforcement,
Annual Statistical Reports. Note Data before
and after FY 1999 are not comparable. The
increase in FY 1999 reflects a change in the
reporting instructions to states regarding
arrears to include interest and penalties.
Arrears may be overstated because arrears
associated with interstate cases may be included
in both states  
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Research Questions

• Who Owes the Arrears?
• How Collectible are Arrears?
• Why have Arrears Grown So Rapidly?
• What are States doing to Manage their Arrears?

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The Urban Institute has completed its Analysis
of National Arrears and Arrears in the Following
Nine States   Arizona Florida Illinois Michigan N
ew Jersey New York Ohio Pennsylvania Texas     Stu
dy is funded by the U.S Department of Health and
Human Services, Office of Child Support
Enforcement (OCSE) and Office of the Assistant
Secretary for Planning and Evaluation (ASPE).
Findings presented today are preliminary and
subject to change when final analysis is
complete.
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Who Owes the Arrears?

• Most Arrears are Owed by a Relatively Small
  Percent of the Obligors
• Most Arrears are Owed by Obligors with Little or
  No Reported Income

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Distribution of Obligors and Arrears in Nine
States, by Amount of Arrears Owed
Percent
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Distribution of Obligors and Arrears in Nine
States, by Annual Reported Income
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How Collectible are the Arrears?

• Based on Simulation Models, we Estimate that less
  than half of the Arrears in the Study States are
  Likely to be Collected within 10 years.
• We also Estimate that Arrears will Grow by at
  least 50 over 10 years in these States if
  Policies and Procedures are Not Changed.

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Collectibility Estimates and Arrears Distribution
in Seven States, by Amount of Arrears Owed
Seven States are Arizona, Illinois, Michigan,
New Jersey, Ohio, Pennsylvania, and Texas
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What are the Primary Factors Contributing to
Arrears Growth?

• Interest
• Lack of Compliance with Current Support Orders
• Orders Appear too High for Some Obligors with
  Little or No Reported Income
• Lack of Arrears Payments, Especially Among
  Arrears-Only Cases
• Assessing Retroactive Support

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State Policies Regarding Interest on Arrears

• 19 States Assess Interest on Arrears Routinely
• 18 States Assess Interest on Arrears
  Intermittently
• 14 States do Not Assess Interest on Arrears

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Child Support Arrears, by States Interest
Policy
Routine
Routine
Intermittent
Intermittent
No Interest
No Interest
Source OCSE Annual Statistical Reports
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Total Amount of Current Support Due and Paid in
the Last Year (in Seven States)
Dollars are in Millions
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Median Order and Payments as a Percent of
Reported Income in Seven States
Seven States are Arizona, Illinois,
Michigan, New Jersey, Ohio, Pennsylvania, and
Texas
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Why do some Current Support Orders Appear too
High for Obligors with Little or No Reported
Income?

• Orders are set by Default
• Orders are Based on Imputed Income
• Orders are Rarely Modified Downward

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Characteristics of Obligors by their Type of
Order (Seven States)
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(No Transcript)
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What are the Nine States Doing to Curb Arrears
Growth?

• Setting Realistic Orders
• Using Automated, Verifiable Data to help
  determine orders, such as
• State and National Quarterly Earnings Records
• State Verification and Exchange System (SVES)
• State Income Tax Records
• Setting orders at 50 per month (or less) when no
  income information is available
• Adding Low-Income Provisions to their State
  Guidelines

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What are the Nine States Doing to Curb Arrears
Growth?

• Reducing Default Rates
• Improving service of process
• Using welcoming letters to encourage
• customers to come to the office
• Reducing Use and Length of Retroactive
• Support

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What are the Nine States Doing to Curb Arrears
Growth?

• Implementing Early Intervention
• Utilizing Reminder Calls and Letters
• Working Early on with Non-Payers to avoid
• Large Arrears Accumulation
• Improving Income Withholding Procedures
• - Working with Employers
• - Obtaining accurate employer addresses
• Improving the Automated Process

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What are the Nine States Doing to Curb Arrears
Growth?

• Revising Interest Policy
• Lowering the Interest Rate
• Not assessing interest if obligors pays 90 or
  more of their current support order
• Applying arrears payments to Principal before
  Interest

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What are the Nine States Doing to Curb Arrears
Growth?

• Managing Existing Arrears
• Implementing Arrears Compromise Programs
• - OCSE has made it clear (OCSE PIQ 00-03) that
  federal law allows states to compromise arrears
  that are permanently assigned to the state. Some
  states have responded by setting up programs that
  compromise permanently assigned arrears if the
  arrears appear uncollectible and the obligor is
  willing to enter into a payment plan.
• Reviewing Policies for Arrears-Only Cases
• - Making sure that arrears-only cases have
  orders and that obligors understand that they
  must comply with those orders.
• Targeting Cases for Review that owe the Largest
  Amounts of Arrears

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What are the Nine States Doing to Curb Arrears
Growth?

• Closing Cases
• Federal regulations allow case closure in certain
  circumstances. States are conducting case
  cleanup, especially among arrears-only cases.