[House Report 105-272]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-272
_______________________________________________________________________


 
                  CHILD SUPPORT INCENTIVE ACT OF 1997
                                _______
                                

 September 26, 1997.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

   Mr. Archer, from the Committee on Ways and Means,  submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2487]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2487) to improve the effectiveness and efficiency of 
the child support enforcement program and thereby increase the 
financial stability of single parent families including those 
attempting to leave welfare, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
 I. Introduction......................................................9
        A. Purpose and Summary...................................     9
        B. Background and Need for Legislation...................     9
        C. Legislative History...................................    12
II. Explanation of Provisions........................................12
        A. (Sec. 1) Short Title..................................    12
        B. (Sec. 2(a)) Incentive Payments to States..............    13
            1. Amount of Incentive Payment.......................    13
            2. Maximum Incentive Payment.........................    13
            3. Data Used to Calculate Ratios Required to be 
                Complete and Reliable............................    14
            4. State Collections Base............................    15
            5. Determination of Applicable Percentages for 
                Paternity Establishment..........................    15
            6. Determination of Applicable Percentages for Child 
                Support Orders...................................    16
            7. Determination of Applicable Percentage for Current 
                Payment Performance Level........................    17
            8. Determination of Arrearages Payment Performance 
                Level............................................    17
            9. Determination of Cost-Effectiveness Performance 
                Level............................................    18
            10. Treatment of Interstate Collections..............    19
            11. Administrative Provision.........................    19
            12. Regulations......................................    20
            13. Reinvestment.....................................    20
        C. (Sec. 2(b)) Transition Rule...........................    20
        D. (Sec. 2(d)) Studies...................................    21
            1. General Review of New Incentive Payment System....    21
            2. Development of Medical Support Incentive..........    22
        E. (Sec. 2(e)) Elimination of Current Incentive Program..    22
        F. (Sec. 2(f)) General Effective Date....................    22
        Tables 1-2...............................................    24
        Tables 3-4...............................................    25
        Table 5..................................................    26
III.Votes of the Committee...........................................27

IV. Budget Effects of the Bill.......................................27
        A. Committee Estimate of Budgetary Effects...............    27
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures.........................................    27
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    28
 V. Other Matters Required to Be Discussed Under the Rules of the Hou31
        A. Committee Oversight Findings and Recommendations......    31
        B. Summary of Findings and Recommendations of the 
            Government Reform and Oversight Committee............    31
        C. Constitutional Authority Statement....................    31
VI. Changes in Existing Laws Made by the Bill, as Reported...........31
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Child Support Incentive Act of 1997''.

SEC. 2. INCENTIVE PAYMENTS TO STATES.

  (a) In General.--Part D of title IV of the Social Security Act (42 
U.S.C. 651-669) is amended by inserting after section 458 the 
following:

``SEC. 458A. INCENTIVE PAYMENTS TO STATES.

  ``(a) In General.--In addition to any other payment under this part, 
the Secretary shall, subject to subsection (f), make an incentive 
payment to each State for each fiscal year in an amount determined 
under subsection (b).
  ``(b) Amount of Incentive Payment.--
          ``(1) In general.--The incentive payment for a State for a 
        fiscal year is equal to the sum of the applicable percentages 
        (determined in accordance with paragraph (3)) of the maximum 
        incentive amount for the State for the fiscal year, with 
        respect to each of the following measures of State performance 
        for the fiscal year:
                  ``(A) The paternity establishment performance level.
                  ``(B) The support order performance level.
                  ``(C) The current payment performance level.
                  ``(D) The arrearage payment performance level.
                  ``(E) The cost-effectiveness performance level.
          ``(2) Maximum incentive amount.--
                  ``(A) In general.--For purposes of paragraph (1), the 
                maximum incentive amount for a State for a fiscal year 
                is--
                          ``(i) with respect to the performance 
                        measures described in subparagraphs (A), (B), 
                        and (C) of paragraph (1), 0.49 percent of the 
                        State collections base for the fiscal year; and
                          ``(ii) with respect to the performance 
                        measures described in subparagraphs (D) and (E) 
                        of paragraph (1), 0.37 percent of the State 
                        collections base for the fiscal year.
                  ``(B) Data used to calculate ratios required to be 
                complete and reliable.--Notwithstanding subparagraph 
                (A), the maximum incentive amount for a State for a 
                fiscal year with respect to a performance measure 
                described in paragraph (1) is zero, unless the 
                Secretary determines, on the basis of an audit 
                performed under section 452(a)(4)(C)(i), that the data 
                which the State submitted pursuant to section 
                454(15)(B) for the fiscal year and which is used to 
                determine the performance level involved is complete 
                and reliable.
                  ``(C) State collections base.--For purposes of 
                subparagraph (A), the State collections base for a 
                fiscal year is equal to the sum of--
                          ``(i) 2 times the sum of--
                                  ``(I) the total amount of support 
                                collected during the fiscal year under 
                                the State plan approved under this part 
                                in cases in which the support 
                                obligation involved is required to be 
                                assigned to the State pursuant to part 
                                A or E of this title or title XIX; and
                                  ``(II) the total amount of support 
                                collected during the fiscal year under 
                                the State plan approved under this part 
                                in cases in which the support 
                                obligation involved was so assigned 
                                but, at the time of collection, is not 
                                required to be so assigned; and
                          ``(ii) the total amount of support collected 
                        during the fiscal year under the State plan 
                        approved under this part in all other cases.
          ``(3) Determination of applicable percentages based on 
        performance levels.--
                  ``(A) Paternity establishment.--
                          ``(i) Determination of paternity 
                        establishment performance level.--The paternity 
                        establishment performance level for a State for 
                        a fiscal year is, at the option of the State, 
                        the IV-D paternity establishment percentage 
                        determined under section 452(g)(2)(A) or the 
                        statewide paternity establishment percentage 
                        determined under section 452(g)(2)(B).
                          ``(ii) Determination of applicable 
                        percentage.--The applicable percentage with 
                        respect to a State's paternity establishment 
                        performance level is as follows:
      

------------------------------------------------------------------------
``If the paternity establishment performance level is:                  
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
80%..............................  ...................         100      
79%..............................  80%................         98       
78%..............................  79%................         96       
77%..............................  78%................         94       
76%..............................  77%................         92       
75%..............................  76%................         90       
74%..............................  75%................         88       
73%..............................  74%................         86       
72%..............................  73%................         84       
71%..............................  72%................         82       
70%..............................  71%................         80       
69%..............................  70%................         79       
68%..............................  69%................         78       
67%..............................  68%................         77       
66%..............................  67%................         76       
65%..............................  66%................         75       
64%..............................  65%................         74       
63%..............................  64%................         73       
62%..............................  63%................         72       
61%..............................  62%................         71       
60%..............................  61%................         70       
59%..............................  60%................         69       
58%..............................  59%................         68       
57%..............................  58%................         67       
56%..............................  57%................         66       
55%..............................  56%................         65       
54%..............................  55%................         64       
53%..............................  54%................         63       
52%..............................  53%................         62       
51%..............................  52%................         61       
50%..............................  51%................         60       
0%...............................  50%................         0.       
------------------------------------------------------------------------

                        Notwithstanding the preceding sentence, if the 
                        paternity establishment performance level of a 
                        State for a fiscal year is less than 50 percent 
                        but exceeds by at least 10 percentage points 
                        the paternity establishment performance level 
                        of the State for the immediately preceding 
                        fiscal year, then the applicable percentage 
                        with respect to the State's paternity 
                        establishment performance level is 50 percent.
                  ``(B) Establishment of child support orders.--
                          ``(i) Determination of support order 
                        performance level.--The support order 
                        performance level for a State for a fiscal year 
                        is the percentage of the total number of cases 
                        under the State plan approved under this part 
                        in which there is a support order during the 
                        fiscal year.
                          ``(ii) Determination of applicable 
                        percentage.--The applicable percentage with 
                        respect to a State's support order performance 
                        level is as follows:
      

------------------------------------------------------------------------
     ``If the support order performance level is:                       
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
80%..............................  ...................         100      
79%..............................  80%................         98       
78%..............................  79%................         96       
77%..............................  78%................         94       
76%..............................  77%................         92       
75%..............................  76%................         90       
74%..............................  75%................         88       
73%..............................  74%................         86       
72%..............................  73%................         84       
71%..............................  72%................         82       
70%..............................  71%................         80       
69%..............................  70%................         79       
68%..............................  69%................         78       
67%..............................  68%................         77       
66%..............................  67%................         76       
65%..............................  66%................         75       
64%..............................  65%................         74       
63%..............................  64%................         73       
62%..............................  63%................         72       
61%..............................  62%................         71       
60%..............................  61%................         70       
59%..............................  60%................         69       
58%..............................  59%................         68       
57%..............................  58%................         67       
56%..............................  57%................         66       
55%..............................  56%................         65       
54%..............................  55%................         64       
53%..............................  54%................         63       
52%..............................  53%................         62       
51%..............................  52%................         61       
50%..............................  51%................         60       
0%...............................  50%................         0.       
------------------------------------------------------------------------

                        Notwithstanding the preceding sentence, if the 
                        support order performance level of a State for 
                        a fiscal year is less than 50 percent but 
                        exceeds by at least 5 percentage points the 
                        support order performance level of the State 
                        for the immediately preceding fiscal year, then 
                        the applicable percentage with respect to the 
                        State's support order performance level is 50 
                        percent.
                  ``(C) Collections on current child support due.--
                          ``(i) Determination of current payment 
                        performance level.--The current payment 
                        performance level for a State for a fiscal year 
                        is equal to the total amount of current support 
                        collected during the fiscal year under the 
                        State plan approved under this part divided by 
                        the total amount of current support owed during 
                        the fiscal year in all cases under the State 
                        plan, expressed as a percentage.
                          ``(ii) Determination of applicable 
                        percentage.--The applicable percentage with 
                        respect to a State's current payment 
                        performance level is as follows:
      

------------------------------------------------------------------------
    ``If the current payment performance level is:                      
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
80%..............................  ...................         100      
79%..............................  80%................         98       
78%..............................  79%................         96       
77%..............................  78%................         94       
76%..............................  77%................         92       
75%..............................  76%................         90       
74%..............................  75%................         88       
73%..............................  74%................         86       
72%..............................  73%................         84       
71%..............................  72%................         82       
70%..............................  71%................         80       
69%..............................  70%................         79       
68%..............................  69%................         78       
67%..............................  68%................         77       
66%..............................  67%................         76       
65%..............................  66%................         75       
64%..............................  65%................         74       
63%..............................  64%................         73       
62%..............................  63%................         72       
61%..............................  62%................         71       
60%..............................  61%................         70       
59%..............................  60%................         69       
58%..............................  59%................         68       
57%..............................  58%................         67       
56%..............................  57%................         66       
55%..............................  56%................         65       
54%..............................  55%................         64       
53%..............................  54%................         63       
52%..............................  53%................         62       
51%..............................  52%................         61       
50%..............................  51%................         60       
49%..............................  50%................         59       
48%..............................  49%................         58       
47%..............................  48%................         57       
46%..............................  47%................         56       
45%..............................  46%................         55       
44%..............................  45%................         54       
43%..............................  44%................         53       
42%..............................  43%................         52       
41%..............................  42%................         51       
40%..............................  41%................         50       
0%...............................  40%................         0.       
------------------------------------------------------------------------

                        Notwithstanding the preceding sentence, if the 
                        current payment performance level of a State 
                        for a fiscal year is less than 40 percent but 
                        exceeds by at least 5 percentage points the 
                        current payment performance level of the State 
                        for the immediately preceding fiscal year, then 
                        the applicable percentage with respect to the 
                        State's current payment performance level is 50 
                        percent.
                  ``(D) Collections on child support arrearages.--
                          ``(i) Determination of arrearage payment 
                        performance level.--The arrearage payment 
                        performance level for a State for a fiscal year 
                        is equal to the total number of cases under the 
                        State plan approved under this part in which 
                        payments of past-due child support were 
                        received during the fiscal year and part or all 
                        of the payments were distributed to the family 
                        to whom the past-due child support was owed 
                        (or, if all past-due child support owed to the 
                        family was, at the time of receipt, subject to 
                        an assignment to the State, part or all of the 
                        payments were retained by the State) divided by 
                        the total number of cases under the State plan 
                        in which there is past-due child support, 
                        expressed as a percentage.
                          ``(ii) Determination of applicable 
                        percentage.--The applicable percentage with 
                        respect to a State's arrearage payment 
                        performance level is as follows:
      

------------------------------------------------------------------------
   ``If the arrearage payment performance level is:                     
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
80%..............................  ...................         100      
79%..............................  80%................         98       
78%..............................  79%................         96       
77%..............................  78%................         94       
76%..............................  77%................         92       
75%..............................  76%................         90       
74%..............................  75%................         88       
73%..............................  74%................         86       
72%..............................  73%................         84       
71%..............................  72%................         82       
70%..............................  71%................         80       
69%..............................  70%................         79       
68%..............................  69%................         78       
67%..............................  68%................         77       
66%..............................  67%................         76       
65%..............................  66%................         75       
64%..............................  65%................         74       
63%..............................  64%................         73       
62%..............................  63%................         72       
61%..............................  62%................         71       
60%..............................  61%................         70       
59%..............................  60%................         69       
58%..............................  59%................         68       
57%..............................  58%................         67       
56%..............................  57%................         66       
55%..............................  56%................         65       
54%..............................  55%................         64       
53%..............................  54%................         63       
52%..............................  53%................         62       
51%..............................  52%................         61       
50%..............................  51%................         60       
49%..............................  50%................         59       
48%..............................  49%................         58       
47%..............................  48%................         57       
46%..............................  47%................         56       
45%..............................  46%................         55       
44%..............................  45%................         54       
43%..............................  44%................         53       
42%..............................  43%................         52       
41%..............................  42%................         51       
40%..............................  41%................         50       
0%...............................  40%................         0.       
------------------------------------------------------------------------

                        Notwithstanding the preceding sentence, if the 
                        arrearage payment performance level of a State 
                        for a fiscal year is less than 40 percent but 
                        exceeds by at least 5 percentage points the 
                        arrearage payment performance level of the 
                        State for the immediately preceding fiscal 
                        year, then the applicable percentage with 
                        respect to the State's arrearage payment 
                        performance level is 50 percent.
                  ``(E) Cost-effectiveness.--
                          ``(i) Determination of cost-effectiveness 
                        performance level.--The cost-effectiveness 
                        performance level for a State for a fiscal year 
                        is equal to the total amount collected during 
                        the fiscal year under the State plan approved 
                        under this part divided by the total amount 
                        expended during the fiscal year under the State 
                        plan, expressed as a ratio.
                          ``(ii) Determination of applicable 
                        percentage.--The applicable percentage with 
                        respect to a State's cost-effectiveness 
                        performance level is as follows:
      

------------------------------------------------------------------------
   ``If the cost effectiveness performance level is:                    
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
5.00.............................  ...................         100      
4.50.............................  4.99...............         90       
4.00.............................  4.50...............         80       
3.50.............................  4.00...............         70       
3.00.............................  3.50...............         60       
2.50.............................  3.00...............         50       
2.00.............................  2.50...............         40       
0.00.............................  2.00...............         0.       
------------------------------------------------------------------------

  ``(c) Treatment of Interstate Collections.--In computing incentive 
payments under this section, support which is collected by a State at 
the request of another State shall be treated as having been collected 
in full by both States, and any amounts expended by a State in carrying 
out a special project assisted under section 455(e) shall be excluded.
  ``(d) Administrative Provisions.--The amounts of the incentive 
payments to be made to the States under this section for a fiscal year 
shall be estimated by the Secretary at or before the beginning of the 
fiscal year on the basis of the best information available. The 
Secretary shall make the payments for the fiscal year, on a quarterly 
basis (with each quarterly payment being made no later than the 
beginning of the quarter involved), in the amounts so estimated, 
reduced or increased to the extent of any overpayments or underpayments 
which the Secretary determines were made under this section to the 
States involved for prior periods and with respect to which adjustment 
has not already been made under this subsection. Upon the making of any 
estimate by the Secretary under the preceding sentence, any 
appropriations available for payments under this section are deemed 
obligated.
  ``(e) Regulations.--The Secretary shall prescribe such regulations as 
may be necessary governing the calculation of incentive payments under 
this section, including directions for excluding from the calculations 
certain closed cases and cases over which the States do not have 
jurisdiction.
  ``(f) Reinvestment.--A State to which a payment is made under this 
section shall expend the full amount of the payment--
          ``(1) to carry out the State plan approved under this part; 
        or
          ``(2) for any activity (including cost-effective contracts 
        with local agencies) approved by the Secretary, whether or not 
        the expenditures for which are eligible for reimbursement under 
        this part, which may contribute to improving the effectiveness 
        or efficiency of the State program operated under this part.''.
  (b) Transition Rule.--Notwithstanding any other provision of law--
          (1) for fiscal year 2000, the Secretary shall reduce by \1/3\ 
        the amount otherwise payable to a State under section 458, and 
        shall reduce by \2/3\ the amount otherwise payable to a State 
        under section 458A; and
          (2) for fiscal year 2001, the Secretary shall reduce by \2/3\ 
        the amount otherwise payable to a State under section 458, and 
        shall reduce by \1/3\ the amount otherwise payable to a State 
        under section 458A.
  (c) Regulations.--Within 9 months after the date of the enactment of 
this section, the Secretary of Health and Human Services shall 
prescribe regulations governing the implementation of section 458A of 
the Social Security Act when such section takes effect and the 
implementation of subsection (b) of this section.
  (d) Studies.--
          (1) General review of new incentive payment system.--
                  (A) In general.--The Secretary of Health and Human 
                Services shall conduct a study of the implementation of 
                the incentive payment system established by section 
                458A of the Social Security Act, in order to identify 
                the problems and successes of the system.
                  (B) Reports to the congress.--
                          (i) Report on variations in state performance 
                        attributable to demographic variables.--Not 
                        later than October 1, 2000, the Secretary shall 
                        submit to the Congress a report that identifies 
                        any demographic or economic variables that 
                        account for differences in the performance 
                        levels achieved by the States with respect to 
                        the performance measures used in the system, 
                        and contains the recommendations of the 
                        Secretary for such adjustments to the system as 
                        may be necessary to ensure that the relative 
                        performance of States is measured from a 
                        baseline that takes account of any such 
                        variables.
                          (ii) Interim report.--Not later than March 1, 
                        2001, the Secretary shall submit to the 
                        Congress an interim report that contains the 
                        findings of the study required by subparagraph 
                        (A).
                          (iii) Final report.--Not later than October 
                        1, 2003, the Secretary shall submit to the 
                        Congress a final report that contains the final 
                        findings of the study required by subparagraph 
                        (A). The report shall include any 
                        recommendations for changes in the system that 
                        the Secretary determines would improve the 
                        operation of the child support enforcement 
                        program.
          (2) Development of medical support incentive.--
                  (A) In general.--The Secretary of Health and Human 
                Services, in consultation with State directors of 
                programs operated under part D of title IV of the 
                Social Security Act and representatives of children 
                potentially eligible for medical support, shall develop 
                a performance measure based on the effectiveness of 
                States in establishing and enforcing medical support 
                obligations, and shall make recommendations for the 
                incorporation of the measure, in a revenue neutral 
                manner, into the incentive payment system established 
                by section 458A of the Social Security Act.
                  (B) Report.--Not later than October 1, 1999, the 
                Secretary shall submit to the Congress a report that 
                describes the performance measure and contains the 
                recommendations required by subparagraph (A).
  (e) Technical Amendments.--
          (1) In general.--Section 341 of the Personal Responsibility 
        and Work Opportunity Reconciliation Act of 1996 (42 U.S.C. 658 
        note) is amended--
                  (A) by striking subsection (a) and redesignating 
                subsections (b), (c), and (d) as subsections (a), (b), 
                and (c), respectively; and
                  (B) in subsection (c) (as so redesignated)--
                          (i) by striking paragraph (1) and inserting 
                        the following:
          ``(1) Conforming amendments to present system.--The 
        amendments made by subsection (a) of this section shall become 
        effective with respect to a State as of the date the amendments 
        made by section 103(a) (without regard to section 116(a)(2)) 
        first apply to the State.''; and
                          (ii) in paragraph (2), by striking ``(c)'' 
                        and inserting ``(b)''.
          (2) Effective date.--The amendments made by this section 
        shall take effect as if included in the enactment of section 
        341 of the Personal Responsibility and Work Opportunity 
        Reconciliation Act of 1996.
  (f) Elimination of Predecessor Incentive Payment System.--
          (1) Repeal.--Section 458 of the Social Security Act (42 
        U.S.C. 658) is repealed.
          (2) Conforming amendments.--
                  (A) Section 458A of the Social Security Act (42 
                U.S.C. 658a) is redesignated as section 458.
                  (B) Subsection (d)(1) of this section is amended by 
                striking ``458A'' and inserting ``458''.
          (3) Effective date.--The amendments made by this subsection 
        shall take effect on October 1, 2001.
  (g) General Effective Date.--Except as otherwise provided in this 
section, the amendments made by this section shall take effect on 
October 1, 1999.

                            I. INTRODUCTION

                         A. Purpose and Summary

    The Committee proposal is designed to improve the current 
system used by the Federal government to reward States for good 
performance in conducting their child support enforcement 
program. Along with other child support reforms enacted in the 
1996 welfare reform law, the new incentive system is expected 
to increase both the effectiveness and efficiency of the child 
support programs conducted by the States. Among other notable 
outcomes, the new system will help families leave welfare and 
maintain their independence from welfare.

                 B. Background and Need for Legislation

    The current child support incentive system has two major 
shortcomings. First, incentive payments are based almost 
exclusively on collections without providing incentive payments 
for the program outcomes--such as paternity establishment--upon 
which collections are based. Second, States receive incentive 
payments that are guaranteed regardless of their efficiency in 
making collections.
    In order to counteract these shortcomings, the Committee 
proposal would replace the current system with a new incentive 
program designed to increase the efficiency of State programs 
and ultimately child support collections made on behalf of 
families with children, including families struggling to get 
off or stay off welfare.
    The following are the major features of the new child 
support incentive system that would be established under the 
Committee proposal:
    Performance Measures. The new system is based on five 
performance measures that create strong incentives for States 
to operate efficient child support programs in keeping with the 
goals of the 1996 welfare reform law:
    Paternity establishment. State performance on paternity 
establishment is calculated as a percentage either of all out-
of-wedlock births in a given year for the entire State for 
which paternity is established or of all out-of-wedlock births 
in the State child support program for which paternity is 
established.
    Support orders. State performance on support orders is 
calculated by dividing the number of cases in the child support 
program for which there is a support order by the total number 
of cases in the program.
    Current payments. State performance on current payments is 
obtained by dividing the total payments on current support in 
cases in the child support program by the total amount owed on 
support in these cases which is not overdue.
    Arrearages payments. State performance on arrearages is 
obtained by dividing the total number of cases with payments on 
past-due child support (but including only those cases in which 
past-due support was distributed to the family) in the child 
support program by the total number of cases with past-due 
support. If collections on arrearages were made through the 
Federal income tax offset program, States can only count the 
case as a case with payment if the State shares a portion of 
the payment with the family.
    Cost-effectiveness. State performance on cost-effectiveness 
is determined by dividing the total amount collected by the 
child support program by the total amount spent by the program 
to make these collections.
    Weighting of Performance Measures. The performance measures 
are weighted as follows: paternity establishment, establishment 
of support orders, and payments on current support receive a 
maximum weight of 0.49 percent; performance on payment of 
arrearages and cost-effectiveness receive a maximum weight of 
0.37 percent. These weights are called the "maximum incentive 
payment" and have been selected so that the Committee proposal 
will be judged by the Congressional Budget Office to be budget 
neutral.
    Determining Performance Scores. State performance on each 
measure calculated as defined above is compared to a table (all 
tables are located at the end of this report) for each measure 
to determine the actual percentage score that is applied to the 
maximum incentive payment. This score is called the 
``applicable percentage''. For example: a performance 
percentage of 77 percent on current payments yields an 
applicable percentage of 94 (see Table 3). Thus, on the current 
payment performance measure, a State with a performance 
percentage of 77 would receive an applicable percentage of 94 
which is then multiplied by the maximum incentive payment of 
0.49 percent to yield the incentive payment amount of 0.46 
percent. The State incentive payment for the year on the 
current payment performance measure is then calculated by 
multiplying 0.46 percent by the State collections base.
    State Collections Base. The State collections base equals 2 
times collections from families that are currently or were 
formerly receiving benefits from the Temporary Assistance for 
Needy Families (TANF) program (or its predecessor program Aid 
to Families with Dependent Children), from Medicaid under Title 
XIX, or from foster care under Title IV-E plus collections from 
families in the State child support program than were never in 
these welfare programs.
    Low Performance on Performance Measures. In the case of 
each performance measure except cost-effectiveness, States with 
a performance level of less than either 40 or 50 percent 
depending on the measure can receive an applicable percentage 
of 50 percent only if they improve their performance over the 
previous year by at least 10 percentage points (in the case of 
paternity establishment) or 5 percentage points (in the cases 
of child support orders, current payments, and arrearages 
payments).
    Total Incentive Payment. States receive total incentive 
payments equal to the sum of their payments on each performance 
measure. The maximum possible total incentive payment for a 
State would be 2.21 percent times the State collections base.
    Treatment of Interstate Collections. Support collected by a 
State at the request of another State is treated as having been 
collected by both States.
    Regulations. The Secretary of Health and Human Services 
must prescribe regulations for the incentive program within 9 
months of the date of enactment.
    Reinvestment. States must spend their child support 
incentive payments to carry out their child support enforcement 
programs, including by passing incentive funds through to local 
agencies, or to conduct activities approved by the Secretary 
which may contribute to improving the effectiveness or 
efficiency of the State child support enforcement program.
    Transition Rule. The new incentive system is phased in over 
3 years beginning in fiscal year 2000. In fiscal year 2000, 1/
3rd of each State's incentive payment is based on the new 
incentive system and 2/3rds on the old system. In fiscal year 
2001, 2/3rds of each State's incentive payment is based on the 
new incentive system and 1/3rd on the old system. The new 
system is fully operational in fiscal year 2002.
    Data Quality. States cannot receive an incentive payment 
for any measure unless the Secretary has determined that the 
data submitted by the State for that measure are complete and 
reliable.
    Review. The Secretary of Health and Human Services must 
conduct a review of the implementation of the new incentive 
system in order to identify problems and successes of the 
program. As part of these reports, the Secretary must analyze 
the impact of demographic or economic differences among the 
States that affect their incentive payments. An interim report 
must be presented to Congress by March 1, 2001 and a final 
report by October 1, 2003. The final report should contain 
recommendations forlegislative changes in the program if the 
Secretary determines that changes are needed.
    Study. The Secretary, in consultation with State child 
support directors, national organizations that represent State 
child support and other welfare programs, and representatives 
of children potentially eligible for medical support, must 
develop a medical support incentive measure based on effective 
performance. A report on this incentive measure must be 
submitted to Congress not later than October 1, 1999.

                         C. Legislative History

Committee bill

    H.R. 2487 was introduced on September 17, 1997 by Chairman 
Shaw and Mr. Levin of the Subcommittee on Human Resources. The 
Subcommittee on Human Resources considered H.R. 2487 and 
ordered it favorably reported to the full Committee, as 
amended, on September 18, 1997 by voice vote. The full 
Committee on Ways and Means considered the Subcommittee 
reported bill on September 23, 1997 and ordered it favorably 
reported, as amended, on Tuesday, September 23, 1997, by voice 
vote.
    The Chairman's amendment in the nature of a substitute, 
making technical and conforming changes to the introduced bill, 
was agreed to by voice vote. Also agreed to by voice vote were 
the Johnson amendment to reward States that share a portion of 
their child support collection with families, and the McCrery 
amendment to allow States to pass through incentive payments to 
local agencies under some circumstances.

Legislative hearings

    The Subcommittee on Human Resources held a hearing on the 
child support incentive payment proposal on March 13, 1997 that 
included testimony from the Administration, national 
organizations of child support administrators, organizations 
representing noncustodial parents, child advocacy groups, and 
the Congressional Research Service. The Subcommittee also held 
a hearing on September 10, 1997, which included testimony from 
the Administration, State child support program directors, 
child advocacy groups, and private companies participating in 
child support enforcement programs.

                     II. EXPLANATION OF PROVISIONS

                        A. (Sec. 1) Short Title

Present law

    No provision.

Explanation of provision

    This Act may be cited as the ``Child Support Incentive Act 
of 1997''.

              b. (sec. 2(a)) incentive payments to states

1. Amount of incentive payment

            Present law
    Each State receives an incentive payment equal to at least 
6 percent of the State's total amount of child support 
collected on behalf of TANF families for the year, plus at 
least 6 percent of the State's total amount of child support 
collected on behalf of non-TANF families for the year. The 
amount of non-TANF collections eligible for the incentive 
payment is capped at 115 percent of TANF collections. (Note: 
P.L. 98-378, the Child Support Enforcement Amendments of 1984, 
stipulates that political subdivisions of a State that 
participate in the costs of support enforcement must receive an 
appropriate share of any incentive payment given to the State. 
P.L. 98-378 also requires States to develop criteria for 
passing through incentives to localities, taking into account 
the efficiency and effectiveness of local programs.)
            Explanation of provision
    The incentive payment for a State equals the sum of the 
applicable percentages of the maximum incentive amount based on 
the five measures of State child support performance defined 
below.
            Reason for Change
    One of the major deficiencies of the incentive system in 
current law is that its rewards are based almost entirely on 
child support collections. The Committee believes that a better 
approach is to reward both collections and State performance on 
the underlying factors on which collections are based. Thus, 
the new system rewards paternity establishment and 
establishment of legal child support orders because these are 
the foundations of collections; without paternity and support 
order establishment, collections are impossible. The new system 
retains a measure of collections on current support (support 
that is not past due) but also adds collections on past due 
support as a performance measure. The Committee has received 
extensive testimony that States are sometimes reluctant to work 
arrearage cases because they are frequently difficult to bring 
to successful completion. Thus, by providing a separate 
performance measure of arrearage payments, we can encourage 
States not to ignore these important cases. Finally, because 
efficiency should be an ingredient of any incentive system, we 
include a measure of the efficiency with which States collect 
payments.

2. Maximum incentive payment

            Present law
    The maximum incentive payment for a State could reach a 
high of 10 percent of child support collected on behalf of TANF 
families plus 10 percent of child support collected on behalf 
of non-TANF families. There is a limit, however, on the 
incentive payment for non-TANF child support collections. The 
incentive payments for such collections may not exceed 115 
percent of incentive payments for TANF child support 
collections.
            Explanation of provision
    The maximum incentive amount for a State is 0.49 percent of 
the collections base for performance on paternity 
establishment, support order establishment, and collections on 
current payments and 0.37 percent for performance on 
collections on arrearages and cost-effectiveness. The total 
maximum incentive payment for a State for a fiscal year is 2.21 
percent of the collections base.
            Reason for change
    Perhaps the greatest shortcoming of the current incentive 
system is that States get a substantial portion of the 
incentive payments without regard to performance. Thus, the new 
system involves a two-step procedure to overcome this 
deficiency. First, the quality of State performance is 
calculated on each measure, usually by calculating a percentage 
that represents the fraction of perfect performance the State 
achieved. To take paternity establishment as an example, the 
calculation is simply the number of out-of-wedlock births in 
which paternity is established divided by the total number of 
out-of-wedlock births. This percentage is then located in a 
table that, based on previous performance by all States on this 
measure, converts this percentage to a second percentage called 
the ``applicable percentage''. This step is necessary to 
convert the absolute percentage performance on each performance 
measure to a relative percentage reflecting quality of 
performance relative to previous performance on each measure by 
the States.
    A notable feature of the tables (see below) is that for 
inferior performance (usually below about 50 percent), States 
would receive no incentive payments unless they substantially 
increase their performance from the previous year. This feature 
of the new system ensures that States that do not achieve at 
least a reasonable level of performance receive either very low 
incentive payments or no incentive payment at all.
    The particular maximum incentive payments for the five 
performance payments (three of which are 0.49 percent and two 
of which are 0.37 percent) were selected primarily to make the 
new incentive system budget neutral. The values are based on 
estimates of how much States will earn in incentive payments 
based on their previous performance and on the requirement to 
assure that the bill is budget neutral.

3. Data used to calculate ratios required to be complete and reliable

            Present law
    No provision.
            Explanation of provision
    The payment on each of the five performance measures is 
zero unless the Secretary determines that the data submitted by 
the State for each measure are complete and reliable.
            Reason for change
    States sometimes report data to the Department of Health 
and Human Services that are incomplete and unreliable. Usually, 
there is little the Federal government can do about this 
problem. However, in the case of the incentive system, the 
Committee bill gives the Secretary the authority to refuse 
incentive payments if the data for the performance measures are 
not complete and reliable. The Secretary can refuse payments on 
one or more measures and award payments on the others. Given 
the substantial sums of money involved, this authority to 
refuse to make payments should ensure high quality data.

4. State collections base

            Present law
    Although the collections base terminology is not used, the 
incentive payment is based on total child support collected on 
behalf of TANF families (i.e., TANF collections) plus total 
child support collected on behalf of non-TANF families (i.e., 
non-TANF collections). Note: Collections made on behalf of 
Title IV-E foster care children are considered TANF collections 
for purposes of the incentive payment.
            Explanation of provision
    The collections base for a fiscal year is the sum of two 
categories of child support collections by the State. The first 
category is collections on cases in the State child support 
welfare caseload. This category includes families that are 
currently or were formerly receiving benefits from TANF (or its 
predecessor program Aid to Families with Dependent Children), 
from Medicaid under Title XIX, or from foster care under Title 
IV-E. Collections from this category are doubled in the State 
collections base calculation. The second category is 
collections from all other families receiving services from the 
State child support enforcement program.
            Reason for change
    Applying the sum of State incentive percentages to the 
collections base has the effect of retaining the most important 
outcome measure--the actual collection of payments--as the 
central and most highly rewarded feature of the new system. In 
effect, collections are counted twice, once under the 
collection performance measures for current support and for 
arrearages and again when the incentive percentages are applied 
to the State collections base. A second notable feature of the 
State collections base is that collections in welfare or former 
welfare cases are doubled. Thus, $1 of collections in welfare 
cases is equivalent to $2 of collections in non-welfare cases. 
The purpose of this approach is to encourage States to 
emphasize collections in cases of the most needy families and 
to avoid the temptation to concentrate their resources on cases 
with the highest potential payments.

5. Determination of applicable percentages for paternity establishment

            Present law
    No provision.
            Explanation of provision
    The paternity establishment performance level for a State 
for a fiscal year is, at the option of the State, either the 
paternity establishment percentage of cases in the child 
support program or the paternity establishment percentage of 
all out-of-wedlock births in the State. In both cases, the 
paternity establishment percentage is obtained by dividing the 
cases in which paternity is established by the total number of 
out-of-wedlock births. The applicable percentage of the maximum 
incentive amount for paternity establishment of 0.49 percent is 
then determined in accord with Table 1 (below).
    Special rule for computing the applicable percentage for 
paternity establishment: If the paternity establishment 
performance level of a State is less than 50 percent but 
exceeds by at least 10 percentage points the paternity 
establishment performance level of the State for the 
immediately preceding fiscal year, then the applicable 
percentage for the State paternity establishment performance 
level is 50 percent.
            Reason for change
    As explained above, an important characteristic of the new 
incentive system is that State performance on several measures 
other than collections is rewarded. As one of the most 
important foundations of child support, paternity establishment 
is included as one of the new performance measures. The special 
rule for States operating at a very low performance level is 
included so that States that perform poorly can receive at 
least a minimum payment if they improve their performance 
substantially. This approach provides even the lowest-
performing States with financial incentives to improve.

6. Determination of applicable percentages for child support orders

            Present law
    No provision.
            Explanation of provision
    The support order performance level for a State for a 
fiscal year is the percentage of cases in the child support 
program for which there is a support order. The applicable 
percentage of the maximum incentive amount for support orders 
of 0.49 percent is then determined in accord with Table 2 
(below).
    Special rule for computing the applicable percentage for 
child support orders: Ifthe support order performance level of 
a State is less than 50 percent but exceeds by at least 5 percentage 
points the support order performance level of the State for the 
immediately preceding fiscal year, then the applicable percentage for 
the State's support order performance level is 50 percent.
            Reason for change
    Like paternity establishment, establishment of support 
orders is one of the foundations of a good child support 
enforcement system. Collections are virtually impossible in 
cases that do not have support orders. Thus, including 
establishment of support orders as a performance measure is 
well justified. As in the case of paternity establishment, a 
special rule for very low performing States is included to 
maintain some incentive for these States to improve their 
performance.

7. Determination of applicable percentage for current payment 
        performance level

            Present law
    No provision.
            Explanation of provision
    The current payment performance level for a State for a 
fiscal year is the total amount of current support collected 
during the fiscal year from all cases in the child support 
program (both welfare and non-welfare cases) divided by the 
total amount owed on support which is not past due. The 
applicable percentage of the maximum incentive amount for 
current payment of 0.49 percent is then determined in accord 
with Table 3 (below).
    Special rule for computing the applicable percentage for 
current payments: If the current payment performance level is 
less than 40 percent but exceeds by at least 5 percentage 
points the current payment performance level of the State for 
the immediately preceding fiscal year, then the applicable 
percentage for the State's current payment performance level is 
50 percent.
            Reason for change
    As the most important outcome measure, collections play a 
central role in the new incentive system. However, the new 
system distinguishes between collections on current support and 
collections on past-due support in order to maintain an 
incentive for States to collect on arrearage cases; arrearage 
cases are more difficult than cases involving current support 
because the parent owing money is often more difficult to 
locate, needed documents are more difficult to locate, and 
parents who owe arrearages are often those who are most 
reluctant to pay support. Again, a special rule is included to 
maintain an incentive for States that perform poorly if they 
substantially improve their performance.

8. Determination of arrearages payment performance level

            Present Law
    No provision.
            Explanation of provision
    The arrearages payment performance level for a State for a 
fiscal year is the total number of cases in the State child 
support program that received payments on past-due child 
support divided by the total number of cases in the State child 
support program in which a payment of child support is past-
due. The applicable percentage of the maximum incentive amount 
for arrearages of 0.37 percent is then determined in accord 
with Table 4 (below). For purposes of determining the number of 
cases in which payments of past-due support were received, in 
the case of former welfare recipients to whom past-due support 
is owed, a State shall count only those cases in which at least 
part of the past-due support was distributed to the family.
    Special rule for computing the applicable percentage for 
arrearages: If the arrearages payment performance level of a 
State for a fiscal year is less than 40 percent but exceeds by 
at least 5 percentage points the arrearages payment performance 
level for the immediately preceding fiscal year, then the 
applicable percentage for the State's arrearages performance 
level is 50 percent.
            Reason for change
    As explained above, collections on past-due support are 
included as a performance measure in order to maintain an 
incentive for States to collect on arrearage cases. The 
Committee bill specifies, however, that States can earn this 
incentive only if they improve and pass on at least some of the 
collections to families, rather than retaining the entire 
amount of the collections at the State level. These cases are 
more difficult than cases involving current support because the 
parent owing money is often more difficult to locate, needed 
documents are more difficult to locate, and parents who owe 
arrearages are often those who are most reluctant to pay 
support. Again, a special rule is included to maintain an 
incentive for States that perform poorly if they substantially 
improve their performance.

9. Determination of cost-effectiveness performance level

            Present law
    Incentive payments are made according to the collection-to-
cost ratios (ratio of TANF collections to total child support 
enforcement administrative costs and ratio of non-TANF 
collections to total child support enforcement administrative 
costs) shown below.
                                                       Incentive payment
        Collection-to-cost ratio                   received (in percent)
Less than 1.4 to 1............................................       6.0
At least 1.4 to 1.............................................       6.5
At least 1.6 to 1.............................................       7.0
At least 1.8 to 1.............................................       7.5
At least 2.0 to 1.............................................       8.0
At least 2.2 to 1.............................................       8.5
At least 2.4 to 1.............................................       9.0
At least 2.6 to 1.............................................       9.5
At least 2.8 to 1.............................................      10.0

    For purposes of calculating these ratios, interstate 
collections are credited to both the initiating and responding 
States. In addition, at State option, laboratory costs (for 
blood testing, etc.) to establish paternity may be excluded 
from the State's administrative costs in calculating the 
State's collection-to-cost ratios for purposes of determining 
the incentive payment.

Explanation of provision

    The cost-effectiveness performance level for a State for a 
fiscal year is the total amount collected during the fiscal 
year from all cases in the State child support program divided 
by the total amount expended during the fiscal year on the 
State child support program. The applicable percentage of the 
maximum incentive amount for cost-effectiveness of 0.37 percent 
is then determined in accord with Table 5 (below).
            Reason for change
    The current incentive system is based in part on program 
efficiency. Thus, including an efficiency performance measure 
does not represent a change in the new system. Moreover, the 
calculation of efficiency is identical in both the current and 
the proposed incentive systems (total collections divided by 
total administrative expenditures).

10. Treatment of interstate collections

            Present law
    As noted above, in computing incentive payments, child 
support collected by one State at the request of another State 
(i.e., interstate collections) are credited to both the 
initiating State and the responding State. State expenditures 
on special interstate projects carried out under section 455(e) 
of the Social Security Act must be excluded from the incentive 
payment calculation.
            Explanation of provision
    In computing incentive payments, support collected by a 
State at the request of another State is treated as having been 
collected by both States. State expenditures on a special 
interstate project carried out under section 455(e) are 
excluded from incentive payment calculations.
            Reason for change
    The procedure of counting collections in interstate cases 
as collections in both the State collecting the money and the 
State receiving the money is identical to current law.

11. Administrative provision

            Present law
    The Secretary's incentive payments to States for any fiscal 
year are estimated at or before the beginning of such year 
based on the best information available. The Secretary makes 
such payments on a quarterly basis. Each quarterly payment must 
be reduced or increased to the extent of overpayments or 
underpayments for prior periods.
            Explanation of provision
    The Secretary's incentive payments to States are based on 
estimates computed from previous performance by the States. 
Each year, the Secretary must make quarterly payments based on 
these estimates. Each quarterly payment must be reduced or 
increased to the extent of overpayments or underpayments for 
prior periods.
            Reason for change
    The administrative provision in the new bill for payments 
to States is based on current law and represents no change in 
policy.

12. Regulations

            Present law
    Not applicable.
            Explanation of provision
    The Secretary of Health and Human Services must prescribe 
regulations necessary to implement the incentive payment 
program within 9 months of the date of enactment. These 
regulations may include directions for excluding certain closed 
cases and cases over which the State has no jurisdiction.
            Reason for change
    Most new legislation contains instructions for the 
Secretary to issue regulations. Thus, this provision is not a 
change in policy.

13. Reinvestment

            Present law
    No provision.
            Explanation of provision
    States must spend their child support incentive payments to 
carry out their child support enforcement program, including by 
passing through incentive funds to local agencies, or to 
conduct activities approved by the Secretary which may 
contribute to improving the effectiveness or efficiency of the 
State child support enforcement program.
            Reason for change
    Unlike current law, the incentive system proposed by the 
Committee bill requires States to spend all their incentive 
payments on the child support enforcement program. Three 
considerations justify this change. First, it makes little 
sense for Congress to design a child support program that 
provides States with money to build bridges and roads. Second, 
given the modest performance of most States in conducting their 
child support program, there is a great need for States to 
spend more money on building the infrastructure and hiring the 
personnel necessary to improve performance. Third, the agency 
that must carry the burden in improving State child support 
performance is the child support agency. Allowing incentive 
money to be spent by other agencies (other than local agencies 
that share the same mission of improving the State child 
support program), as is often done under the current system, 
can be expected to greatly reduce the impact of performance 
incentive payments.

                     c. (sec. 2(b)) transition rule

Present law

    Not applicable.

Explanation of provision

    The new incentive system is phased in over 3 years 
beginning in fiscal year 2000. In fiscal year 2000, 1/3rd of 
each State's incentive payment is based on the new incentive 
system and 2/3rds on the old system. In fiscal year 2001, 2/
3rds of each State's incentive payment is based on the new 
incentive system and 1/3rd on the old system. The new system is 
fully operational in fiscal year 2002.

Reason for change

    Several States will lose money under the new incentive 
system unless they improve their performance. In order to give 
these States time to make the program adjustments and 
improvements necessary to increase their performance as 
measured under the new system, the Committee wanted to be 
certain that several years elapsed before the new system was 
fully implemented. After discussion, the Committee decided to 
wait untilOctober 1, 1999 to implement the program and then to 
spread the implementation over a three-year period. In effect, this 
approach will provide States with up to 4 years to adjust to the new 
system.

                         d. (sec. 2(d)) studies

1. General review of new incentive payment system

            Present law
    No provision.
            Explanation of provision
    The Secretary of Health and Human Services must conduct a 
study of the implementation of the incentive payment program in 
order to identify problems and successes of the program. As 
part of her reports, the Secretary must analyze the impact of 
demographic or economic differences among the States that 
affect their incentive payments. An interim report must be 
presented to Congress not later than March 1, 2001. By October 
1, 2003, the Secretary must submit a final report. 
Recommendations for changes that the Secretary determines would 
improve program operation should be included in the final 
report.
            Reason for change
    As is the case with any new program, problems with 
implementation are to be expected. Some of these will be solved 
at the State or local level. Others, however, may be due to 
flaws in the way the program was conceived by Congress or in 
the way the statute is written. Given these potential problems, 
it is wise to have the Secretary conduct an unbiased study of 
the new program both during its early stages and after it is 
fully implemented. If there are problems that require 
Congressional action, legislators will have timely information 
to use in taking remedial steps. The Committee included a 
provision requiring the Secretary to study the impact of 
demographic and economic factors on State incentive payments 
because of the striking demographic and economic differences 
between States, especially in factors such as poverty rates, 
rates of out-of-wedlock births, and per capita income, that 
might be expected to play a major role in the potential for 
collecting child support payments. At some point, Congress may 
want to contemplate designing an incentive system that adjusts 
for these demographic and economic differences.

2. Development of medical support incentive

            Present law
    No provision.
            Explanation of provision
    The Secretary, in consultation with State child support 
directors, national organizations that represent State child 
support and other welfare programs, and representatives of 
children potentially eligible for medical support, must develop 
a new medical support incentive measure based on effective 
performance, to enhance the incentives established under this 
bill. A report on this incentive must be submitted to Congress 
not later than October 1, 1999.
            Reason for change
    Several witnesses who appeared before the Committee 
recommended that we consider including medical child support as 
a performance measure. After discussion, the Committee decided 
not to include this measure because of the lack of information 
about the reliability of State data on medical support as well 
as historical information about State performance on the 
measure that could be used to estimate payments. However, 
because medical support is of central importance to a good 
child support system, the Committee decided to ask the 
Secretary to study the feasibility of using medical support as 
a performance measure and to report her findings to Congress.

        e. (sec. 2(e)) elimination of current incentive program

Present law

    No provision. (The current incentive payment system is a 
permanent provision of law.)

Explanation of provision

    The current incentive program under section 458 of the 
Social Security Act is repealed on October 1, 2001. On that 
date, section 458A is redesignated as section 458.

Reason for change

    Once the new system is fully implemented in fiscal year 
2002, the old system is repealed and the statute is rearranged 
so that the number of the old system (section 458) becomes the 
number of the new system (section 458) and the number used for 
the new system (section 458A) during the transition period is 
discontinued.

                 f. (sec. 2(f)) general effective date

Present law

    The current incentive payment system took effect on October 
1, 1985.

Explanation of provision

    Except for the elimination of the current incentive program 
(see item E), the amendments made by this legislation take 
effect on October 1, 1999.

Reason for change

    As explained previously, the Committee intended to allow 
ample time for States to adjust to the new incentive system and 
to improve their collection and reporting of the data on which 
the new system is based. For this reason, the Committee delayed 
the effective date until October 1, 1999 and gave States 3 
years to implement the new system.


                      III. VOTES OF THE COMMITTEE

    In compliance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statements 
are made concerning the votes of the Committee in its 
consideration of the bill, H.R. 2487:

                       Motion To Report the Bill

    The bill, H.R. 2487, was ordered favorably reported, as 
amended, by voice vote on September 23, 1997, with a quorum 
present.

                          Votes on Amendments

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Thomas to extend the transition period 
for shifting from current law to the bill's incentive payment 
system from three years to four years was defeated by a 
rollcall vote of 12 yeas to 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representatives            Yea      Nay      Present      Representatives      Yea     Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Archer......................  .......  X        ...........  Mr. Rangel.........  X       ......  ..........
Mr. Crane.......................  .......  X        ...........  Mr. Stark..........  X       ......  ..........
Mr. Thomas......................  X        .......  ...........  Mr. Matsui.........  X       ......  ..........
Mr. Shaw........................  .......  X        ...........  Mrs. Kennelly......  ......  X       ..........
Mrs. Johnson....................  .......  X        ...........  Mr. Coyne..........  ......  ......  ..........
Mr. Bunning.....................  .......  .......  ...........  Mr. Levin..........  ......  X       ..........
Mr. Houghton....................  X        .......  ...........  Mr. Cardin.........  X       ......  ..........
Mr. Herger......................  X        .......  ...........  Mr. McDermott......  ......  X       ..........
Mr. McCrery.....................  .......  X        ...........  Mr. Kleczka........  X       ......  ..........
Mr. Camp........................  .......  X        ...........  Mr. Lewis..........  X       ......  ..........
Mr. Ramstad.....................  .......  X        ...........  Mr. Neal...........  ......  X       ..........
Mr. Nussle......................  .......  X        ...........  Mr. McNulty........  X       ......  ..........
Mr. Johnson.....................  .......  X        ...........  Mr. Jefferson......  ......  X       ..........
Ms. Dunn........................  .......  .......  ...........  Mr. Tanner.........  ......  X       ..........
Mr. Collins.....................  .......  X        ...........  Mr. Becerra........  X       ......  ..........
Mr. Portman.....................  .......  X        ...........  Mrs. Thurman.......  ......  X       ..........
Mr. English.....................  .......  X        ...........  ...................  ......  ......  ..........
Mr. Ensign......................  .......  X        ...........  ...................  ......  ......  ..........
Mr. Christensen.................  .......  X        ...........  ...................  ......  ......  ..........
Mr. Watkins.....................  X        .......  ...........  ...................  ......  ......  ..........
Mr. Hayworth....................  .......  X        ...........  ...................  ......  ......  ..........
Mr. Weller......................  .......  X        ...........  ...................  ......  ......  ..........
Mr. Hulshof.....................  .......  X        ...........  ...................  ......  ......  ..........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 7(a) of rule XIII of the Rules of 
the House of Representatives, the following statement is made: 
The Committee agrees with the estimate prepared by the 
Congressional Budget Office (CBO) which is included below.

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with clause 2(l)(3)(B) of rule XI of the 
Rules of the House of Representatives, the Committee states 
that the Committee bill results in no new budget authority and 
no new tax expenditures.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 2(l)(3)(C) of rule XI of the 
Rules of the House of Representatives requiring a cost estimate 
prepared by the Congressional Budget Office (CBO), the 
following report prepared by CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 26, 1997.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2487, the Child 
Support Incentive Act of 1997.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sheila Dacey.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

H.R. 2487--Child Support Incentive Act of 1997

    Summary: H.R. 2487 would change the formula used to grant 
incentive payments to states based on the performance of their 
child support programs. The new formula would base payments on 
a broader set of performance criteria and would increase the 
weight given to states' success in collecting support for non-
welfare recipients. CBO estimates that the bill would lower 
federal costs in 2000 and 2001, by $14 million and $7 million 
respectively, and raise costs in 2002 by $4 million. After 2002 
the cost of the legislation would grow, reaching $147 million 
by 2007 and totaling $439 million over the 1998-2007 period.
    Because it would change the formula for entitlement grant 
awards in the Child Support Enforcement program, H.R. 2487 may 
impose a mandate, as defined in the Unfunded Mandates Reform 
Act of 1995 (UMRA), on some states. However, the costs of this 
potential mandate would fall well below the threshold 
established in the act ($50 million in 1996, adjusted annually 
for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2487 is shown in the following table.

                                 TABLE 1.--ESTIMATED IMPACT ON FEDERAL SPENDING                                 
                                    [By fiscal years, in millions of dollars]                                   
----------------------------------------------------------------------------------------------------------------
                                   1998    1999    2000    2001    2002    2003    2004    2005    2006    2007 
----------------------------------------------------------------------------------------------------------------
Child Support Incentives Under                                                                                  
 Current Law:                                                                                                   
    Estimated Budget Authority..     415     436     439     446     468     479     473     465     478     490
    Estimated Outlays...........     415     436     439     446     468     479     473     465     478     490
Proposed Changes:                                                                                               
    Estimated Budget Authority..       0       0     -14      -7       4      24      61     101     123     147
    Estimated Outlays...........       0       0     -14      -7       4      24      61     101     123     147
Child Support Inventives under                                                                                  
 H.R. 2487:                                                                                                     
    Estimated Budget Authority..     415     436     425     439     472     503     534     566     601     637
    Estimated Outlays...........     415     436     425     439     472     503     534     566     601     637
----------------------------------------------------------------------------------------------------------------

    The costs of this legislation fall within budget function 
600 (Income Security).

Basis of estimate

            Current incentive formula
    Currently, the federal government allows states to retain 
as incentive payments a portion of the amount of child support 
they collect from non-custodial parents. The formula gives each 
state at least 6 percent of its Temporary Assistance for Needy 
Families \1\ (TANF) collections plus 6 percent of its non-TANF 
collections, up to a cap of 115 percent of the incentive 
payment earned for TANF collections. TANF collections are 
collections of child support on behalf of recipients of aid 
under the TANF program that the government retains to reimburse 
itself for past assistance payments. They include collections 
of past-due support on behalf of families that formerly 
received TANF. Non-TANF collections, which are paid directly to 
families, include all other child support collected.
---------------------------------------------------------------------------
    \1\ TANF will be used throughout to refer to both the Temporary 
Assistance for Needy Families program and its predecessor program, Aid 
to Families with Dependent Children (AFDC).
---------------------------------------------------------------------------
    A state that runs a very cost-effective program (measured 
by dollars collected per dollar of administrative spending) can 
earn federal incentive payments equal to more than 6 percent of 
collections, but only about half a dozen states have qualified 
for higher incentives in recent years. Most states have non-
TANF collections that would qualify for incentives 
significantly higher than the 115 percent cap, so increases in 
non-TANF collections do not affect the amount of incentive 
payments states receive. In 1996, states earned a total of $409 
million in incentive payments.
            Proposed Incentive Formula
    The new formula would change both the components of the 
collection base and the percent of the collection base that 
states could receive. The new collection base would equal twice 
the sum of TANF collections and non-TANF collections on behalf 
of former TANF recipients, plus all other non-TANF collections:
        2 x (TANF Collections + Non-TANF Collections on behalf 
        of former TANF recipients) + all other Non-TANF 
        collections
    While the current formula distinguishes only between TANF 
and non-TANF collections, the new formula would give extra 
weight to non-TANF collections on behalf of former TANF 
recipients. Also, the new formula would remove the 115 percent 
cap on non-TANF collections. Based on historical growth rates 
and expected changes in the TANF programs, CBO projects that 
non-TANF collections will grow faster than TANF collections 
over the next ten years. Therefore, we expect that incentive 
payments under the new formula would grow more quickly than 
under the current formula
    The estimate assumes that collections on behalf of former 
TANF recipients are 47 percent of non-TANF collections. This 
percentage is based on data from fourteen states representing 
30 percent of all non-TANF collections..
    While the percent of collections a state can receive under 
current law varies only with its cost effectiveness, the 
proposed formula would vary the percent based on five 
performance criteria:
    1. Paternity establishment.--The state could use several 
alternative measures of paternity establishment. CBO expects 
most states would use the number of children who have been born 
out-of-wedlock and for whom paternity was established or 
acknowledged during the year, divided by the total number of 
children born out-of-wedlock during the preceding fiscal year.
    2. Support order establishment.--The percentage of child 
support cases in which there is a support order during the 
fiscal year.
    3. Current support collection.--The percentage of the total 
support owed during the fiscal year that is collected during 
the fiscal year.
    4. Arrearage collection.--The percentage of child support 
cases in which there is past-due support that is collected 
during the fiscal year and, the case of former recipients of 
TANF, is paid to the family.
    5. Cost-effectiveness.--The total amount of child support 
collected during the fiscal year divided by the total 
administrative expenditures during the fiscal year.
    A state could receive a maximum incentive of 2.21 percent 
of its collection base--a maximum of 0.49 percent of the 
collection base for performance on each of the first three 
criteria and up to 0.37 percent for performance on the latter 
two criteria, depending on its level of performance and rate of 
improvement. For example, if 80 percent or more of a state's 
cases have support orders, then the state would earn the 
maximum incentive of .49 percent for that performance 
criterion. If less than 50 percent of a state's cases have 
orders, then the state would generally earn no incentive for 
that criterion. However, if that low-performing state improved 
its support order establishment by at least 5 percentage 
points, then it could earn the minimum incentive of 60 percent 
of the maximum, or 0.294 percent (0.60 times 0.49).
    Nationally, performance on four of the five proposed 
criteria has been steady over the last five years. The 
paternity establishment percentage is the only measure that has 
shown a clear trend. In 1991 states established paternity for 
about 42 percent of out-of-wedlock births. By 1995 the rate has 
grown to 55 percent.
    Nevertheless, CBO expects that states' performance on these 
five indicators will improve in the coming years. The Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 
provided states with new enforcement tools to improve 
collection, by creating a new hire registry (designed to speed 
the receipt of earning information on non-custodial parents) 
and by requiring states to expedite the process by which they 
seize the assets of non-custodial parents who are delinquent in 
their child support payments. Also, states are now beginning to 
operate new computer systems that will allow for more 
consistent and accurate reporting of their performance on these 
indicators. Several directors of state child support 
enforcement programs and other child support experts surveyed 
by CBO generally agreed that implementation of the new 
enforcement tools and better data reporting would lead the 
states to report moderately improved performance. However, some 
child support directors expected that standardized reporting 
rules would lead their states to report worse performance.

 V. OTHER MATTERS REQUIRED TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the need for this legislation was confirmed by oversight 
hearings of the Subcommittee on Human Resources. The 
Subcommittee on Human Resources held a hearing on the child 
support incentive payment proposal on March 13, 1997 and the 
Subcommittee also held a hearing on September 10, 1997 on child 
support system improvements.

B. Summary of Findings and Recommendations of the Government Reform and 
                          Oversight Committee

    In compliance with clause 2(l)(3)(D) of rule XI of the 
Rules of the House of Representatives, the Committee states 
that no oversight findings or recommendations have been 
submitted to the Committee on Government Reform and Oversight 
regarding the subject of the bill.

                 C. Constitutional Authority Statement

    With respect to clause 2(l)(4) of rule XI of the Rules of 
the House of Representatives, relating to Constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts and excises, to pay the 
debts and to provide for * * * the general Welfare of the 
United States * * *'').

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italics, existing law in which no change is proposed 
is shown in roman):

                          SOCIAL SECURITY ACT

          * * * * * * *

          Part D--Child Support and Establishment of Paternity

          * * * * * * *

                     [INCENTIVE PAYMENTS TO STATES

  [Sec. 458. (a) In order to encourage and reward State child 
support enforcement programs which perform in a cost-effective 
and efficient manner to secure support for all children who 
have sought assistance in securing support, whether such 
children reside within the State or elsewhere and whether or 
not they are eligible for aid to families with dependent 
children under a State plan approved under part A of this 
title, and regardless of the economic circumstances of their 
parents, the Secretary shall, from support collected which 
would otherwise represent the Federal share of assistance to 
families of noncustodial parents, pay to each State for each 
fiscal year, on a quarterly basis (as described in subsection 
(e)) beginning with the quarter commencing October 1, 1985, an 
incentive payment in an amount determined under subsection (b).
  [(b)(1) Except as provided in paragraphs (2), (3), and (4), 
the incentive payment shall be equal to--
          [(A) 6 percent of the total amount of support 
        collected under the plan during the fiscal year in 
        cases in which the support obligation involved is 
        assigned to the State pursuant to section 402(a)(26) or 
        section 471(a)(17) (with such total amount for any 
        fiscal year being hereafter referred to in this section 
        as the State's ``AFDC collections'' for that year), 
        plus
          [(B) 6 percent of the total amount of support 
        collected during the fiscal year in all other cases 
        under this part (with such total amount for any fiscal 
        year being hereafter referred to in this section as the 
        State's ``non-AFDC collections'' for that year).
  [(2) If subsection (c) applies with respect to a State's AFDC 
collections or non-AFDC collections for any fiscal year, the 
percent specified in paragraph (1)(A) or (B) (with respect to 
such collections) shall be increased to the higher percent 
determined under such subsection (with respect to such 
collections) in determining the State's incentive payment under 
this subsection for that year.
  [(3) The dollar amount of the portion of the State's 
incentive payment for any fiscal year which is determined on 
the basis of its non-AFDC collections under paragraph (1)(B) 
(after adjustment under subsection (c) if applicable) shall in 
no case exceed--
          [(A) the dollar amount of the portion of such payment 
        which is determined on the basis of its AFDC 
        collections under paragraph (1)(A) (after adjustment 
        under subsection (c) if applicable) in the case of 
        fiscal year 1986 or 1987;
          [(B) 105 percent of such dollar amount in the case of 
        fiscal year 1988;
          [(C) 110 percent of such dollar amount in the case of 
        fiscal year 1989; or
          [(D) 115 percent of such dollar amount in the case of 
        fiscal year 1990 or any fiscal year thereafter.
  [(4) The Secretary shall make such additional payments to the 
State under this part, for fiscal year 1986 or 1987, as may be 
necessary to assure that the total amount of payments under 
this section and section 455(a)(1)(A) for such fiscal year is 
no less than 80 percent of the amount that would have been 
payable to that State and its political subdivisions for such 
fiscal year under this section and section 455(a)(1)(A) if 
those sections (including the amendment made by section 
5(c)(2)(A) of the Child Support Enforcement Amendments of 1984) 
had remained in effect as they were in effect for fiscal year 
1985.
  [(c) If the total amount of a State's AFDC collections or 
non-AFDC collections for any fiscal year bears a ratio to the 
total amount expended by the State in that year for the 
operation of its plan approved under section 454 for which 
payment may be made under section 455 (with the total amount so 
expended in any fiscal year being hereafter referred to in this 
section as the State's ``combined AFDC/non-AFDC administrative 
costs'' for that year) which is equal to or greater than 1.4, 
the relevant percent specified in subparagraph (A) or (B) of 
subsection (b)(1) (with respect to such collections) shall be 
increased to--
          [(1) 6.5 percent, plus
          [(2) one-half of 1 percent for each full two-tenths 
        by which such ratio exceeds 1.4;
except that the percent so specified shall in no event be 
increased (for either AFDC collections or non-AFDC collections) 
to more than 10 percent. For purposes of the preceding 
sentence, laboratory costs incurred in determining paternity in 
any fiscal year may at the option of the State be excluded from 
the State's combined AFDC/non-AFDC administrative costs for 
that year.
  [(d) In computing incentive payments under this section, 
support which is collected by one State at the request of 
another State, including amounts collected under section 
466(a)(14), shall be treated as having been collected in full 
by each such State, and any amounts expended by the State in 
carrying out a special project assisted under section 455(e) 
shall be excluded.
  [(e) The amounts of the incentive payments to be made to the 
various States under this section for any fiscal year shall be 
estimated by the Secretary at or before the beginning of such 
year on the basis of the best information available. The 
Secretary shall make such payments for such year, on a 
quarterly basis (with each quarterly payment being made no 
later than the beginning of the quarter involved), in the 
amounts so estimated, reduced or increased to the extent of any 
overpayments or underpayments which the Secretary determines 
were made under this section to the States involved for prior 
periods and with respect to which adjustment has not already 
been made under this subsection. Upon the making of any 
estimate by the Secretary under the preceding sentence, any 
appropriations available for payments under this section shall 
be deemed obligated.]

SEC. 458A. \1\ INCENTIVE PAYMENTS TO STATES.

  (a) In General.--In addition to any other payment under this 
part, the Secretary shall, subject to subsection (f), make an 
incentive payment to each State for each fiscal year in an 
amount determined under subsection (b).
---------------------------------------------------------------------------
    \1\ Effective October 1, 2001, this section is redesignated as 
section 458.
---------------------------------------------------------------------------
  (b) Amount of Incentive Payment.--
          (1) In general.--The incentive payment for a State 
        for a fiscal year is equal to the sum of the applicable 
        percentages (determined in accordance with paragraph 
        (3)) of the maximum incentive amount for the State for 
        the fiscal year, with respect to each of the following 
        measures of State performance for the fiscal year:
                  (A) The paternity establishment performance 
                level.
                  (B) The support order performance level.
                  (C) The current payment performance level.
                  (D) The arrearage payment performance level.
                  (E) The cost-effectiveness performance level.
          (2) Maximum incentive amount.--
                  (A) In general.--For purposes of paragraph 
                (1), the maximum incentive amount for a State 
                for a fiscal year is--
                          (i) with respect to the performance 
                        measures described in subparagraphs 
                        (A), (B), and (C) of paragraph (1), 
                        0.49 percent of the State collections 
                        base for the fiscal year; and
                          (ii) with respect to the performance 
                        measures described in subparagraphs (D) 
                        and (E) of paragraph (1), 0.37 percent 
                        of the State collections base for the 
                        fiscal year.
                  (B) Data used to calculate ratios required to 
                be complete and reliable.--Notwithstanding 
                subparagraph (A), the maximum incentive amount 
                for a State for a fiscal year with respect to a 
                performance measure described in paragraph (1) 
                is zero, unless the Secretary determines, on 
                the basis of an audit performed under section 
                452(a)(4)(C)(i), that the data which the State 
                submitted pursuant to section 454(15)(B) for 
                the fiscal year and which is used to determine 
                the performance level involved is complete and 
                reliable.
                  (C) State collections base.--For purposes of 
                subparagraph (A), the State collections base 
                for a fiscal year is equal to the sum of--
                          (i) 2 times the sum of--
                                  (I) the total amount of 
                                support collected during the 
                                fiscal year under the State 
                                plan approved under this part 
                                in cases in which the support 
                                obligation involved is required 
                                to be assigned to the State 
                                pursuant to part A or E of this 
                                title or title XIX; and
                                  (II) the total amount of 
                                support collected during the 
                                fiscal year under the State 
                                plan approved under this part 
                                in cases in which the support 
                                obligation involved was so 
                                assigned but, at the time of 
                                collection, is not required to 
                                be so assigned; and
                          (ii) the total amount of support 
                        collected during the fiscal year under 
                        the State plan approved under this part 
                        in all other cases.
          (3) Determination of applicable percentages based on 
        performance levels.--
                  (A) Paternity establishment.--
                          (i) Determination of paternity 
                        establishment performance level.--The 
                        paternity establishment performance 
                        level for a State for a fiscal year is, 
                        at the option of the State, the IV-D 
                        paternity establishment percentage 
                        determined under section 452(g)(2)(A) 
                        or the statewide paternity 
                        establishment percentage determined 
                        under section 452(g)(2)(B).
                          (ii) Determination of applicable 
                        percentage.--The applicable percentage 
                        with respect to a State's paternity 
                        establishment performance level is as 
                        follows:
      

------------------------------------------------------------------------
 If the paternity establishment performance level is:                   
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
80%..............................  ...................         100      
79%..............................  80%................         98       
78%..............................  79%................         96       
77%..............................  78%................         94       
76%..............................  77%................         92       
75%..............................  76%................         90       
74%..............................  75%................         88       
73%..............................  74%................         86       
72%..............................  73%................         84       
71%..............................  72%................         82       
70%..............................  71%................         80       
69%..............................  70%................         79       
68%..............................  69%................         78       
67%..............................  68%................         77       
66%..............................  67%................         76       
65%..............................  66%................         75       
64%..............................  65%................         74       
63%..............................  64%................         73       
62%..............................  63%................         72       
61%..............................  62%................         71       
60%..............................  61%................         70       
59%..............................  60%................         69       
58%..............................  59%................         68       
57%..............................  58%................         67       
56%..............................  57%................         66       
55%..............................  56%................         65       
54%..............................  55%................         64       
53%..............................  54%................         63       
52%..............................  53%................         62       
51%..............................  52%................         61       
50%..............................  51%................         60       
0%...............................  50%................         0.       
------------------------------------------------------------------------

                        Notwithstanding the preceding sentence, 
                        if the paternity establishment 
                        performance level of a State for a 
                        fiscal year is less than 50 percent but 
                        exceeds by at least 10 percentage 
                        points the paternity establishment 
                        performance level of the State for the 
                        immediately preceding fiscal year, then 
                        the applicable percentage with respect 
                        to the State's paternity establishment 
                        performance level is 50 percent.
                  (B) Establishment of child support orders.--
                          (i) Determination of support order 
                        performance level.--The support order 
                        performance level for a State for a 
                        fiscal year is the percentage of the 
                        total number of cases under the State 
                        plan approved under this part in which 
                        there is a support order during the 
                        fiscal year.
                          (ii) Determination of applicable 
                        percentage.--The applicable percentage 
                        with respect to a State's support order 
                        performance level is as follows:
      

------------------------------------------------------------------------
      If the support order performance level is:                        
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
80%..............................  ...................         100      
79%..............................  80%................         98       
78%..............................  79%................         96       
77%..............................  78%................         94       
76%..............................  77%................         92       
75%..............................  76%................         90       
74%..............................  75%................         88       
73%..............................  74%................         86       
72%..............................  73%................         84       
71%..............................  72%................         82       
70%..............................  71%................         80       
69%..............................  70%................         79       
68%..............................  69%................         78       
67%..............................  68%................         77       
66%..............................  67%................         76       
65%..............................  66%................         75       
64%..............................  65%................         74       
63%..............................  64%................         73       
62%..............................  63%................         72       
61%..............................  62%................         71       
60%..............................  61%................         70       
59%..............................  60%................         69       
58%..............................  59%................         68       
57%..............................  58%................         67       
56%..............................  57%................         66       
55%..............................  56%................         65       
54%..............................  55%................         64       
53%..............................  54%................         63       
52%..............................  53%................         62       
51%..............................  52%................         61       
50%..............................  51%................         60       
0%...............................  50%................         0.       
------------------------------------------------------------------------

                        Notwithstanding the preceding sentence, 
                        if the support order performance level 
                        of a State for a fiscal year is less 
                        than 50 percent but exceeds by at least 
                        5 percentage points the support order 
                        performance level of the State for the 
                        immediately preceding fiscal year, then 
                        the applicable percentage with respect 
                        to the State's support order 
                        performance level is 50 percent.
                  (C) Collections on current child support 
                due.--
                          (i) Determination of current payment 
                        performance level.--The current payment 
                        performance level for a State for a 
                        fiscal year is equal to the total 
                        amount of current support collected 
                        during the fiscal year under the State 
                        plan approved under this part divided 
                        by the total amount of current support 
                        owed during the fiscal year in all 
                        cases under the State plan, expressed 
                        as a percentage.
                          (ii) Determination of applicable 
                        percentage.--The applicable percentage 
                        with respect to a State's current 
                        payment performance level is as 
                        follows:
      

------------------------------------------------------------------------
     If the current payment performance level is:                       
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
80%..............................  ...................         100      
79%..............................  80%................         98       
78%..............................  79%................         96       
77%..............................  78%................         94       
76%..............................  77%................         92       
75%..............................  76%................         90       
74%..............................  75%................         88       
73%..............................  74%................         86       
72%..............................  73%................         84       
71%..............................  72%................         82       
70%..............................  71%................         80       
69%..............................  70%................         79       
68%..............................  69%................         78       
67%..............................  68%................         77       
66%..............................  67%................         76       
65%..............................  66%................         75       
64%..............................  65%................         74       
63%..............................  64%................         73       
62%..............................  63%................         72       
61%..............................  62%................         71       
60%..............................  61%................         70       
59%..............................  60%................         69       
58%..............................  59%................         68       
57%..............................  58%................         67       
56%..............................  57%................         66       
55%..............................  56%................         65       
54%..............................  55%................         64       
53%..............................  54%................         63       
52%..............................  53%................         62       
51%..............................  52%................         61       
50%..............................  51%................         60       
49%..............................  50%................         59       
48%..............................  49%................         58       
47%..............................  48%................         57       
46%..............................  47%................         56       
45%..............................  46%................         55       
44%..............................  45%................         54       
43%..............................  44%................         53       
42%..............................  43%................         52       
41%..............................  42%................         51       
40%..............................  41%................         50       
0%...............................  40%................         0.       
------------------------------------------------------------------------

                        Notwithstanding the preceding sentence, 
                        if the current payment performance 
                        level of a State for a fiscal year is 
                        less than 40 percent but exceeds by at 
                        least 5 percentage points the current 
                        payment performance level of the State 
                        for the immediately preceding fiscal 
                        year, then the applicable percentage 
                        with respect to the State's current 
                        payment performance level is 50 
                        percent.
                  (D) Collections on child support 
                arrearages.--
                          (i) Determination of arrearage 
                        payment performance level.--The 
                        arrearage payment performance level for 
                        a State for a fiscal year is equal to 
                        the total number of cases under the 
                        State plan approved under this part in 
                        which payments of past-due child 
                        support were received during the fiscal 
                        year and partor all of the payments 
were distributed to the family to whom the past-due child support was 
owed (or, if all past-due child support owed to the family was, at the 
time of receipt, subject to an assignment to the State, part or all of 
the payments were retained by the State) divided by the total number of 
cases under the State plan in which there is past-due child support, 
expressed as a percentage.
                          (ii) Determination of applicable 
                        percentage.--The applicable percentage 
                        with respect to a State's arrearage 
                        payment performance level is as 
                        follows:
      

------------------------------------------------------------------------
    If the arrearage payment performance level is:                      
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
80%..............................  ...................         100      
79%..............................  80%................         98       
78%..............................  79%................         96       
77%..............................  78%................         94       
76%..............................  77%................         92       
75%..............................  76%................         90       
74%..............................  75%................         88       
73%..............................  74%................         86       
72%..............................  73%................         84       
71%..............................  72%................         82       
70%..............................  71%................         80       
69%..............................  70%................         79       
68%..............................  69%................         78       
67%..............................  68%................         77       
66%..............................  67%................         76       
65%..............................  66%................         75       
64%..............................  65%................         74       
63%..............................  64%................         73       
62%..............................  63%................         72       
61%..............................  62%................         71       
60%..............................  61%................         70       
59%..............................  60%................         69       
58%..............................  59%................         68       
57%..............................  58%................         67       
56%..............................  57%................         66       
55%..............................  56%................         65       
54%..............................  55%................         64       
53%..............................  54%................         63       
52%..............................  53%................         62       
51%..............................  52%................         61       
50%..............................  51%................         60       
49%..............................  50%................         59       
48%..............................  49%................         58       
47%..............................  48%................         57       
46%..............................  47%................         56       
45%..............................  46%................         55       
44%..............................  45%................         54       
43%..............................  44%................         53       
42%..............................  43%................         52       
41%..............................  42%................         51       
40%..............................  41%................         50       
0%...............................  40%................         0.       
------------------------------------------------------------------------

                        Notwithstanding the preceding sentence, 
                        if the arrearage payment performance 
                        level of a State for a fiscal year is 
                        less than 40 percent but exceeds by at 
                        least 5 percentage points the arrearage 
                        payment performance level of the State 
                        for the immediately preceding fiscal 
                        year, then the applicable percentage 
                        with respect to the State's arrearage 
                        payment performance level is 50 
                        percent.
                  (E) Cost-effectiveness.--
                          (i) Determination of cost-
                        effectiveness performance level.--The 
                        cost-effectiveness performance level 
                        for a State for a fiscal year is equal 
                        to the total amount collected during 
                        the fiscal year under the State plan 
                        approved under this part divided by the 
                        total amount expended during the fiscal 
                        year under the State plan, expressed as 
                        a ratio.
                          (ii) Determination of applicable 
                        percentage.--The applicable percentage 
                        with respect to a State's cost-
                        effectiveness performance level is as 
                        follows:
      

------------------------------------------------------------------------
    If the cost effectiveness performance level is:                     
-------------------------------------------------------  The applicable 
            At least:                 But less than:     percentage is: 
------------------------------------------------------------------------
5.00.............................  ...................         100      
4.50.............................  4.99...............         90       
4.00.............................  4.50...............         80       
3.50.............................  4.00...............         70       
3.00.............................  3.50...............         60       
2.50.............................  3.00...............         50       
2.00.............................  2.50...............         40       
0.00.............................  2.00...............         0.       
------------------------------------------------------------------------

  (c) Treatment of Interstate Collections.--In computing 
incentive payments under this section, support which is 
collected by a State at the request of another State shall be 
treated as having been collected in full by both States, and 
any amounts expended by a State in carrying out a special 
project assisted under section 455(e) shall be excluded.
  (d) Administrative Provisions.--The amounts of the incentive 
payments to be made to the States under this section for a 
fiscal year shall be estimated by the Secretary at or before 
the beginning of the fiscal year on the basis of the best 
information available. The Secretary shall make the payments 
for the fiscal year, on a quarterly basis (with each quarterly 
payment being made no later than the beginning of the quarter 
involved), in the amounts so estimated, reduced or increased to 
the extent of any overpayments or underpayments which the 
Secretary determines were made under this section to the States 
involved for prior periods and with respect to which adjustment 
has not already been made under this subsection. Upon the 
making of any estimate by the Secretary under the preceding 
sentence, any appropriations available for payments under this 
section are deemed obligated.
  (e) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary governing the calculation of 
incentive payments under this section, including directions for 
excluding from the calculations certain closed cases and cases 
over which the States do not have jurisdiction.
  (f) Reinvestment.--A State to which a payment is made under 
this section shall expend the full amount of the payment--
          (1) to carry out the State plan approved under this 
        part; or
          (2) for any activity (including cost-effective 
        contracts with local agencies) approved by the 
        Secretary, whether or not the expenditures for which 
        are eligible for reimbursement under this part, which 
        may contribute to improving the effectiveness or 
        efficiency of the State program operated under this 
        part.
          * * * * * * *
                              ----------                              


    SECTION 341 OF THE PERSONAL RESPONSIBILITY AND WORK OPPORTUNITY 
                       RECONCILIATION ACT OF 1996

SEC. 341. PERFORMANCE-BASED INCENTIVES AND PENALTIES.

  [(a) Development of New System.--The Secretary of Health and 
Human Services, in consultation with State directors of 
programs under part D of title IV of the Social Security Act, 
shall develop a new incentive system to replace, in a revenue 
neutral manner, the system under section 458 of such Act. The 
new system shall provide additional payments to any State based 
on such State's performance under such a program. Not later 
than March 1, 1997, the Secretary shall report on the new 
system to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate.]
  [(b)] (a) Conforming Amendments to Present System.--Section 
458 (42 U.S.C. 658) is amended--
          (1) * * *
          * * * * * * *
  [(c)] (b) Calculation of Paternity Establishment 
Percentage.--
          (1) * * *
          * * * * * * *
  [(d)] (c) Effective Dates.--
          [(1) Incentive adjustments.--
                  [(A) In general.--The system developed under 
                subsection (a) and the amendments made by 
                subsection (b) shall become effective on 
                October 1, 1999, except to the extent provided 
                in subparagraph (B).
                  [(B) Application of section 458.--Section 458 
                of the Social Security Act, as in effect on the 
                day before the date of the enactment of this 
                section, shall be effective for purposes of 
                incentive payments to States for fiscal years 
                before fiscal year 2000.]
          (1) Conforming amendments to present system.--The 
        amendments made by subsection (a) of this section shall 
        become effective with respect to a State as of the date 
        the amendments made by section 103(a) (without regard 
        to section 116(a)(2)) first apply to the State.
          (2) Penalty reductions.--The amendments made by 
        subsection [(c)] (b) shall become effective with 
        respect to calendar quarters beginning on or after the 
        date of the enactment of this Act.

                                
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