LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session March 10, 1997 TO: Honorable Rodney Ellis, Chair IN RE: Senate Bill No. 416 Committee on Jurisprudence By: Harris Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB416 ( Relating to the private enforcement and collection of child support payments under the Child Support Collection Privatization Council.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB416-As Introduced Implementing the provisions of the bill would result in a net positive impact of $503,380 to General Revenue Related Funds through the biennium ending August 31, 1999. The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. This bill would create a Child Support Privatization Council. This new Council would divide the state into six to ten regions and award collection contracts to a selected attorney in each region to enforce and collect child support on IV-D cases that are not in compliance within 120 days from the date an order or agreement is entered. The bill would require that those eligible to bid on the private contracts be attorneys with not less than 5 years of experience in the legal enforcement of large-scale collections. The term of the collections contracts would be required to be for at least 4 years. The bill would provide that a fee of 15% of the total collections would be paid to the private contractor. The fee would be collectable for 5 years or during the time an obligor remains in material compliance with the order, whichever is shorter. Fiscal Analysis Federal standards for procuring private support enforcement services provide that "all procurement transactions shall be conducted in a manner to provide, to the maximum extent possible, open and free competition" (45 Code of Federal Regulations 74.43). The Office of the Attorney General (OAG) states in their assessment of fiscal implications that "Section 233.006 of this bill likely violates federal regulations relating to competitive procurement and therefore jeopardizes federal financial participation in any payments going to the private contractors." Private contractors handling IV-D cases are required to adhere to federal regulations that are imposed upon the OAG as Texas's IV-D agency, including case-processing time frames and automation requirements. To comply with federal regulations, private collection contractors would have to use the new child support computer system, and an automated two-way case transfer process would need to be developed. Legal actions filed by the private contractor must be recorded on the child support automated system and distinguished from other legal actions of the OAG. Methodolgy In order to estimate a potential impact to state Retained Collections (based on the fee structure outlined in the legislation), the following assumptions were made: * the OAG states that "it is likely that" several provisions of this bill (e.g., length of contract, contractor eligibility, a flat 15 percent fee) do not meet federal competitive procurement regulations and, therefore, federal matching funds for payments to private contractors would not be available. However, this estimate assumes that such funds would be available at the current 66 percent to 34 percent federal-to-state match rate; * 75 percent of referrals would be non-TANF (not receiving public assistance) based on IV-D cases with court orders, i.e., for every 50,000 cases referred, 37,500 would be non-TANF and 12,500 would be TANF; * 50 percent of all cases would average paying $200 a month for total collections of $60,000,000 per year; * fees to private collectors, at 15 percent, would be $9,000,000 per year with the state paying 34 percent of that total (except in FY 1998, where a six-month start-up time was assumed); * state Retained Collections would be 37.7 percent of total TANF collections; * as collections increase on TANF referrals, recipients would move off public assistance, decreasing TANF collections (and state Retained Collections) each year; * the rate of recipients moving off public assistance would increase approximately 10 percent per year (with a six-month start-up time in FY 1998), and reach a 40 percent total "move-off" rate by fiscal year 2000, at which point the rate would remain unchanged in following years; * payments to private contractors would be made from child support retained collections; * the OAG estimates that additional programming to implement the two-way case transfer process would be $539,000 for fiscal year 1998 only. The probable fiscal implications of implementing the provisions of the bill during each of the first five years following passage are estimated as follows: Five Year Impact: Fiscal Year Probable Revenue Probable Gain/(Loss) from Savings/(Cost) General Revenue from General Fund--Child Revenue Support Retained Fund--Child Collections Support Retained Collections 0001 0001 1998 $1,956,630 ($2,069,000) 1998 3,675,750 (3,060,000) 2000 3,393,000 (3,060,000) 2001 3,393,000 (3,060,000) 2002 3,393,000 (3,060,000) Net Impact on General Revenue Related Funds: The probable fiscal implication to General Revenue related funds during each of the first five years is estimated as follows: Fiscal Year Probable Net Postive/(Negative) General Revenue Related Funds Funds 1998 ($112,370) 1999 615,750 2000 333,000 2001 333,000 2002 333,000 Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. No significant fiscal implication to units of local government is anticipated. Source: Agencies: 304 Comptroller of Public Accounts 302 Office of the Attorney General LBB Staff: JK ,BB ,JC