HD2 - Privatization Study - Division of Child Support Enforcement


Executive Summary:
Background

The 1996 General Assembly enacted an amendment to the Code of Virginia, Chapter 1054, adding section 63.1-249.1 on "Child support enforcement private contracts". The amendment grants the authority, under supervision of the Department of Social Services, to enter into contracts on a pilot basis for fieldwork functions, as well as collection of arrearages. The amendment also requires by July 1, 1997, and annually thereafter, a written report to the Governor and General Assembly with a summary and evaluation of pilot privatization. This report is the first such summary and evaluation.

Methodology

Two child support offices, Chesapeake and Hampton, began operation in May 1994 under a contract with Lockheed Martin IMS. This study examines the first two full fiscal years of this operation, SFY95 and SFY96. In order to provide a meaningful basis of comparison, the combined performance of these two privatized offices has been compared to similar state-operated offices, Fredericksburg and Portsmouth. The offices are compared on a number of performance measures, cost-benefit, and customer perceptions. In a separate section, an evaluation of the Division's separate contract with GC Services for the collection of arrearages is given.

Performance Measures

Collections:

In SFY95 the state-operated offices collected a total of $18,229,896 in child support, $1,390,259 more than the privatized offices which collected a total of $16,839,637. In SFY96 the privatized offices collected $21,271,108 in child support, $1,147,817 more than the state-operated offices which collected $20,123,291. From SFY95 to SFY96 the privatized offices increased total collections by 26% while the state-operated offices increased by 10%.

Because there are some differences in the caseload size, collections were also compared using both a collection per case and a collection per obligated case ratio. Based on collections per case, the state-operated offices had rates for SFY95 and SFY96 of $749 and $772, while the privatized offices had rates of $656 and $749. However, the privatized offices increased collections using this measure from the first year of operation by 14% while the state-operated offices increased by 3%.

Using collections per number of obligated cases (cases with child support orders), the figures for SFY95 and SFY96 for the state-operated offices are $1,459 and $1,481 and for the privatized offices the figures are $1,484 and $1,592. Using this measure, the privatized offices increased collections by 7.30/0 and the state offices by 1.5°%.

For the first ten months of SFY97 (July-April), the privatized offices have collected $20,228,450 and the state-operated offices have collected $18,455,101. The privatized offices collected $1,773,349 more in child support. However, the state-operated offices continued to collect more per case and the privatized offices more per obligated case.

Paternity Establishments:

For SFY95 and SFY96 the privatized offices established 2,368 and 2,116 paternities, while the state-operated offices established 1,737 and 1,584. This represented a 10.6% decrease in the privatized offices and an 8.8% decrease in the state-operated offices. In the analysis of a sample of cases, the privatized offices scored higher in the combined audit criterion, Paternity and Support Obligation, but the state-operated offices had a higher rate of establishment of paternity when the noncustodial parent had been located.

Child Support Order Establishments:

For SFY95 and SFY96 the privatized offices established 2,491 and 2,345 child support orders, while the state-operated offices established 1,885 and 1,932. This represented a 5.8% decrease in the privatized offices and a 2.4% increase in the state-operated offices. In the review of cases, the privatized offices established child support orders at a higher rate when the noncustodial parent was located, but there were more children with paternity as an issue in the cases from the state-operated offices and this was a factor in the difference.

Locations Made:

For SFY95 and SFY96 the privatized offices made 10,648 and 9,571 locations of noncustodial parents, while the state-operated offices made 10,463 and 12,148. This represented a 10% decrease in the privatized offices and a 16% increase in the state-operated offices. For the cases sampled from the offices, the privatized offices initiated locate inquiries in more cases, but there was little difference in the number of successful locates produced. An analysis of the noncompliance reasons cited for the major service criteria revealed that a greater proportion of the reasons in the privatized offices were a failure to complete locate actions at the District Office level.

Enforcement Actions:

The privatized offices scored slightly higher on compliance with Federal Regulations in the latest case review but slightly lower in an earlier case review compared to the combined rating of all state-operated offices. A further analysis of a sample of cases revealed that the state-operated offices initiated actions more frequently and were more likely to collect money on a case when enforcement actions were required.

Cost Benefit:

The total costs for the operation of the offices for SFY95 were: private - $3,771,985, and state - $4,643,579. The cost benefit for this period expressed as dollars corrected for every dollar spent is: private - $4.46, and state - $3.93. The total costs for SFY96 were: private - $3,781,751, and state - $4,278,492. Expressed as dollars collected per dollar spent the figures are: private - $5.62, and state - $4.70. Under the current contract, therefore, the privatized offices are more cost effective than the state-operated offices. Virginia's contract does have one of the lower payment rates in the country and increases in future contract costs could change this conclusion unless there was a corresponding increase in the rate of collections.

Customer Perceptions

Based on a customer survey sent to custodial and noncustodial parents in January 1996, there was no significant difference in customer perceptions of the offices' performance in keeping the customer informed. However, the state-operated offices scored higher in courteousness, correctness of casework, and overall service delivery.

Conclusion

The privatization of full-service child support offices is a viable alternative which should continue to be used on a pilot basis and studied in order to evaluate its value for wider implementation.