Child Support Project

Issue Brief: State Child Support Pass-through Programs

By Teresa A. Myers

What is a Pass-through Program?

Current federal law requires families receiving TANF-funded public assistance to assign their child support rights to the state. Child support collected on behalf of a family that is currently receiving TANF or has previously received TANF is shared between the state and the federal government, with the federal share being based on the state's Medicaid match rate. The state must pay the federal government its share, but it has several options with regard to distribution of the state share. A child support pass-through program is a state distribution plan for child support collections that distributes all or a portion of the state share directly to the family. Under current federal law, a state may give it all to the family, divide the money between the state and family, or retain its entire state share (which is typically designated, at least in part, to support administration of the TANF or child support programs). If a state chooses to operate a pass-through program, the state must bear the full cost of the program.

Between 1984 and 1996, states were required to pass-through the first $50 of child support collected on behalf of TANF or former TANF families and disregard that $50 when calculating the family's eligibility for TANF-funded public assistance. In 1996, the federal government enacted sweeping child support reform legislation as part of welfare reform, including eliminating the pass-through and disregard requirements. As a result, approximately half the states have discontinued their pass-through programs, while others have altered their programs or are currently re-examining their feasibility. For instance, Connecticut has continued its child support pass-through at a $100 level, while Iowa has discontinued its program prospectively, but is continuing a $50 pass-through for TANF families who received it prior to the new federal reforms. The Iowa pass-through program will be available to those families until they no longer receive assistance.

Another difference in state child support pass-through programs is the amount of child support the state will disregard when calculating eligibility for TANF-funded assistance programs. It is possible to pass through child support to families without disregarding the full amount in determining a family's TANF benefits. For example, Wisconsin passes through and disregards the whole amount of child support paid to the family, whereas Vermont passes through the full amount of current child support paid, but only disregards the first $50, and Connecticut passes through all current support and disregards the first $100.

State officials creating a pass-through program with a full disregard also need to set a limit on the pass-through amount, beyond which the family is no longer eligible for TANF. This threshold is to insure that families receiving large child support payments are not also able to draw TANF. For instance, in Wisconsin, if a family exceeds the TANF eligibility for more than two consecutive months, the family is removed from the TANF rolls. Caseworkers are also given discretion to waive the eligibility limit for a one-month increase in family income due to a child support arrearage payment or other unusual circumstance.

Many state legislators are now expressing an interest in expanding or reinstating a significant pass-through program. With TANF rolls declining, state officials and legislators are finding that their public assistance caseloads are more frequently comprised of only the hardest to serve and poorest populations. Recognizing this, they are searching for new initiatives to serve that constituency and promote self-sufficiency. Pass-through programs are being investigated as a means to involve more low-income non-custodial and custodial parents in the child support program, to help parents make the leap off of TANF, and to help low-income families stay off of public assistance.

Some experts suggest that the best introduction of a state pass-through program is to begin with a pilot project in one county or region of a state. They recommend that an interested legislator attempt to secure such a pilot project in his or her district through the same savings demonstrations outlined below in the Wisconsin program. By proving that work and training programs in the district or county had successfully enabled constituents to exit the TANF rolls and thus saved the state in public assistance funds, the legislator could argue that state savings due to the success of those programs should be reinvested in a pilot demonstration. Under this plan, state TANF funds that otherwise would have been appropriated to the county's TANF program should be spent on a pilot program for child support pass-through. Whether such an approach would be successful would obviously depend on a number of factors relative to the state and the district, such as size of TANF caseload, fiscal health of the state budget, political climate, etc.

At the end of the 105^th Congress, Senator Herb Kohl (D-Wisc.) introduced legislation which would have required states to pass-through and disregard all child support collected on behalf of families receiving TANF-funded public assistance. Senator Kohl offered four reasons to support these changes to federal law: 1.) putting more resources into the hands of families; 2.) recognizing that in a world of time-limited benefits, the need to get child support to children takes on even greater importance; 3.) streamlining the cumbersome, resource intensive, administratively complex distribution process contained in current law; and 4.) encouraging non-custodial parents to meet their support obligations. (Congressional Record, October 8, 1998, S 11981-11982.) Senator Kohl plans on introducing similar legislation in the 106^th Congress. State officials and national experts gave Senator Kohl's bill high marks for focusing attention on the relationship between child support and welfare reform, but expressed concern about the cost of the legislation and about imposing further federal mandates at this time. As a result, Senator Kohl's staff is also discussing alternative legislation with states and advocates, including the possibility of a selection of pass-through options from which states could choose. This could give states greater flexibility in shaping their own TANF and child support policies.

A Brief Look at Three States' Pass-through Programs

According to available information, only Wisconsin, Vermont, and Connecticut pass through the entire amount of child support collected on behalf of TANF families.

Wisconsin's Program

Wisconsin's pass-through program is administered as part of their TANF program, called Wisconsin Works or W-2. The program began in October 1997, and is the only one in the country that passes through and disregards the full child support amount collected on behalf of TANF families.

Wisconsin's pass-through program was made possible by a federal waiver obtained by state officials. Under this waiver, the state is not required to pay the federal share of child support collections made on behalf of TANF families. Wisconsin obtained this unusual waiver by demonstrating to the federal government that the state's welfare reform initiatives had resulted in considerable savings to the federal government in programs such as Medicaid, food stamps, and AFDC. Basically the federal government funded the waiver through savings achieved by state programs, approximately $80 million. The pass-through program was established as a temporary demonstration project and scheduled to end when the federal "cost" of running the program surpassed $80 million. State officials originally anticipated that the program would last approximately three years, but due to shrinking TANF caseloads (and therefore fewer clients in the pass-through program) state officials now forecast the program to last 12 to 15 years.

As part of the demonstration project waiver, Wisconsin agreed to conduct a longitudinal study of TANF clients receiving the pass-through. The demonstration project study was constructed as formal research study and uses research methods for analysis, including the use of a control group of clients, an experimental group of clients, and a non-experimental group of clients. The state is required to publish an impact study evaluating 11 impact areas of the program, such as the involvement of the non-custodial parents with their children and the incidence of TANF and food stamp benefit receipt and payments. The impact study is scheduled for completion in June 1999.

Vermont's Program

Vermont obtained a federal waiver in April 1993 to operate a pass-through demonstration project, but the state is still required to return the federal share of child support collected for TANF families. The waiver merely granted the state the right to distribute the entire child support amount directly to the family. In July 1994, Vermont began a full pass-through of all child support collected with a disregard policy for the first $50, as part of the state's welfare reform initiatives.

TANF families in Vermont participating in the pass-through program receive two checks each month - a child support check for the full amount paid by the obligor, and a TANF check that reflects the difference in the TANF benefit the family would have received if they did not receive child support, plus an extra $50 due to the disregard. For example, the welfare benefit in Vermont in 1997 for a family of three (one adult and two children) was $636 per month. If the same family received a $200 child support check per month, they would also receive a TANF check for $486 ($436 + $50). The child support checks are issued by the child support division and the welfare checks by the welfare division. Because of this, the state reports that there is no disruption in disbursement of the child support checks when the family leaves public assistance, and there is also no distinction between IV-D and non-IV-D cases in the check processing or issuing system. The state also favors the two-check system because the family can clearly see how much their welfare benefit is each month, and therefore, how much income in addition to child support they would need to attain self-sufficiency.

Vermont's waiver expires June 30, 2001, and the first interim report has recently been published.

Connecticut's Program

One of the earliest states to impose a statewide time limit on families receiving public assistance, Connecticut began operating its Jobs First program under federal waiver in January 1996. Under Jobs First, the family's earned income is disregarded in calculating the family's cash grants so long as their earned income is below the federal poverty level. In addition, the state passes through all current child support paid on behalf of recipient families and disregards the first $100. Any additional support passed through to the family is counted in determining cash benefits. The state's pass-through strategy is designed to complement the "work first" message of the program, to make it easier for families to see how much child support they can expect to include in their budgets and to encourage parents to cooperate with child support enforcement.

An implementation report was recently published, and an interim impact study is scheduled for 1999.

Child support experts around the country are awaiting the outcomes of complete studies of these three programs, acknowledging that the popularity of pass-through initiatives nationwide may depend on the success stories of Wisconsin, Vermont, and Connecticut.

Benefits of a Child Support Pass-through Program

State officials and national experts cite the following benefits to a pass-through program:

Pass-through simplifies distribution of collected child support. A pass-through program, particularly one that passes through the entire amount of collected child support, greatly simplifies the distribution scheme for child support. The current, federally-mandated distribution process is very complicated and costly. It is blamed by some commentators for many of the processing delays and errors encountered by states. In fact, some states have reported families waiting several months after leaving TANF for their first child support check to arrive due to processing delays.

Pass-through simplifies automation needs. Because the distribution process is simplified, the state automated system needn't be as complex as if it were required to process collections through the federal distribution scheme. This could result in significant savings to the state in terms of system structure and customer service complaint resolution.

Pass-through encourages payment by low-income parents and cooperation by TANF recipients. Because child support collected on behalf of a current or former TANF recipient is currently applied to the recipient's TANF "debt" to the state, many low-income non-custodial parents and custodial parents are reluctant to participate in the child support system. Non-custodial parents are discouraged by their perception that they're paying the state, not their family. As a result, they are more willing to provide money or other forms of assistance directly to the custodial parents. The custodial parents recognize this and may try to evade the federally-mandated cooperation requirements to continue to receive contributions and family involvement by the non-custodial parent. Custodial parents feel differently, however, when faced with the possibility of receiving both TANF and child support, and non-custodial parents feel differently about making payments when they know the money will go directly to help their children.

Pass-through helps low-income families stay off TANF. Early research suggests and state officials report that although the child support pass-through does not usually provide enough money to boost families off of TANF immediately, it does help keep them from returning to TANF once they've left. Newer data anticipated from current studies is expected to refute these earlier findings and demonstrate that child support alone may, in fact, be sufficient to end family reliance on public assistance.

Pass-through creates savings in other state and federal assistance programs. As low-income non-custodial parents are brought into the child support program, families begin receiving regular child support payments. Once these families have moved off TANF, the child support may provide enough additional financial support to move them off of other public assistance programs as well, such as child care, Medicaid, and food stamps.

Critiques of a Child Support Pass-through Program

Experts evaluating pass-through programs acknowledge several common critiques:

1.) Pass-through is a negative revenue program. The U.S. Department of Health and Human Services has stated that, without changes in federal law, it will not grant a waiver of the federal share to any states in the foreseeable future. As a result, states operating a pass-through program will still have to reimburse the federal government for the federal share of child support collections at the state's Medicaid match rate. Furthermore, if the state chooses to pass-through and disregard the entire amount of child support collected, it will have to reimburse the federal government for the federal share and contribute state funds to support the child support program in lieu of retaining the state share of the child support collections.

This state investment in the program may be counted, however, toward the state's maintenance of effort (MOE) requirement for federal TANF funding. In order to receive their full TANF block grants, federal law requires states to invest a certain amount of funding in programs designed to move low-income families off of TANF-funded public assistance and to promote self-sufficiency. State funds targeting these programs may then be counted as state MOE funds for the purposes of calculating the state's TANF block grant for the following fiscal year. Child support money collected on behalf of TANF families, passed through to the families, and disregarded by the state in determining TANF eligibility for the family may be counted by the state toward its MOE requirement. In this way, child support advocates argue, a state pass-through program may be viewed as a self-sufficiency boost for low-income families and as federal funding insurance for the state.

The state investment may also be decreased by a "follow the clients" distribution plan proposed by some national experts. Under this distribution process, the state would retain child support collected on behalf of families still receiving TANF, but would pass-through all child support collected on behalf of former TANF clients. In this way, the child support would "follow" the client on and off TANF. This distribution plan is particularly attractive to advocates who argue that the TANF "debt" to the state may take many years to repay, during which time the newly self-sufficient family is most in need of the child support.

2.) Pass-through may have less financial impact on families facing extreme poverty. Most low-income custodial parents have children with low-income non-custodial parents, and if those non-custodial parents are indigent or unemployable, their child support payments will likely be small. As a result, pass-through will not, on its own, have much financial impact on the custodial parent and the children. Experts recommend combining pass-through with other work, education, and training programs for non-custodial parents. These "fatherhood programs" are increasingly popular and some are demonstrating measurable results in their communities. Despite these concerns, experts are quick to point out that the psychological benefits to the obligor and recipient of having the child support payment distributed to the family is still present and still significant to all parties. Moreover, research indicates that the consistency of the child support payment to the family has a greater impact on self-sufficiency than the amount of the check.

3.) Pass-through, when disregarded, may be perceived as creating a state subsidy for one class of TANF recipients, but not another. Some critics of pass-through programs assert that the distribution scheme results in two distinct classes of TANF recipients: those receiving TANF and child support and those receiving only TANF. This distinction, they claim, would be particularly acute if the state was disregarding the entire amount of child support. In that situation, a TANF family may receive a check for the full amount of their welfare benefit, plus an additional check for child support, whereas a similar TANF family down the street received only the full welfare check. Since the state operating the pass-through program would be absorbing the cost of the program - the state and federal shares of the child support collected - the pass-through benefit could be characterized as a state "subsidy." Pass-through advocates are quick to point out, however, that even if two classes of TANF recipients did exist, the disparity between the payments would never be greater than a pre-ordained amount due to the fact that large child support payments would cause the custodial parent to be removed from the TANF rolls. Therefore, any disparity that does exist should not be significant.

Although it may be premature for a final verdict on the effectiveness of pass-through policies on a large scale, early research suggests positive impacts for recipients. With this in mind, pass-through is one more tool for state legislators to consider as they create programs to help families achieve and sustain self-sufficiency.

Selected References:

Turetsky, Vicki. "You Get What You Pay For: How Federal and State Investment Decisions Affect Child Support Performance," Center for Law and Social Policy, December 1998.

"State Action Re $50 Pass-Through and Disregard," Center for Law and Social Policy, December 1997.

"The IRP Evaluation of the Wisconsin Works Child Support Waiver Demonstration," Focus, Vol. 19, No. 2, Spring 1998, 61-62.

Roberts, Paula. "Memorandum: Child Support Pass-Through Legislation," Center for Law and Social Policy, October 27, 1998. [Discussion of Senator Kohl's legislation]

Roberts, Paula. "Guidance from the Federal Government on Implementation of the Child Support Related Provisions of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, As Amended by The Balanced Budget Act of 1997 and The Child Support Performance and Incentive Act of 1998," Center for Law and Social Policy, December 1998.

For additional information on state child support enforcement, please contact the Child Support Project at 303/364-7700.