The formula used by the federal government to calculate the amount of funds it gives to each state’s IV-D program is, without a doubt, complex. And yet, understanding how it works is not impossible and can yield significant benefits.
Our child support and legal experts have put their heads together to decode this perplexing federal formula. The results we’ve uncovered can help you evaluate your state’s performance and pinpoint areas for improvement – ultimately enabling you to maximize funding for your state’s IV-D program.
Are you ready to crack the code? Let’s do this.
The Three Components of the Federal Funding Formula
First of all, it’s important to realize that as the overall performance and collections from your state’s IV-D program increase, they generate revenues from each of the three components of the federal funding formula. Here’s how:
1. Federal Financial Participation (FFP). The federal government matches 66 percent of every state and local dollar spent on program administration, a match rate of 2:1. FFP is open-ended, meaning there is no limit on the amount of FFP funding available to your state’s IV-D program. FFP can also be used to match retained TANF collections that are reinvested in the IV-D program. And so, as retained TANF collections grow and are invested in the IV-D program, the amount of FFP increases as well.
2. Retained TANF Collections. States keep a portion of the support they collect on behalf of TANF recipients. The portion of retained TANF collections your state can keep is the complement of its federal medical assistance percentage (FMAP) rate. For example, a state with an FMAP rate of 55 percent can keep $0.45 of every retained dollar. Here’s the formula:
(1-FMAP Rate) x (Assigned TANF Collections) = State’s Share of TANF Collections
3. Federal Performance Incentives. If your state has complete and reliable data and meets minimum performance standards, you can earn incentives for performance in five key areas (shown below). Incentives are capped at the national level, so a formula allocates the national incentive pool to your state based on its relative performance and collection levels. (The national incentive pool in FFY 2018 was $575,000,000.) You must reinvest federal incentives in your IV-D program, but they cannot be used to draw down FFP. Your state’s ability to earn and maximize incentives depends on three key factors:
- Your state’s scores in each of the five performance measures
- Your state’s collections base
- Other states’ performance measures and collections bases
The Three Key Factors of the Federal Performance Incentives
The incentive allocation formula is complex and interweaves the three key factors to produce each state’s share of the national incentive pool. As noted above, each state earns its incentives based on three key factors.
1. Five Federal Performance Measures. The first multiplier for determining your state’s share of the incentive pool is your state’s performance in five key areas:
- Paternity establishment
- Support order establishment
- Current support
- Arrears collections
- Cost effectiveness
The first 3 measures are weighted more heavily than the latter 2, which have 75 percent of the weight of the first 3. The highest possible score your state can earn on each measure is 1.0. The table that follows summarizes these measures. Although not shown, financial penalties for performance deficiencies or unreliable data may also be incurred.
2. Collections Base. The second multiplier for determining your state’s share of the incentive pool is your state’s collections base, which is the weighted sum of all child support monies collected by the state. In the collections base, TANF and former TANF collections receive twice the weight of all other collections. Here’s the formula:
2 (Current Assistance + Former Assistance) + All Other Collections = Collections Base
The formula for a state’s incentive base is:
(Collections Base) x [(PEP Score + SEO Score + CS Score) + 0.75 (AP Score + CE Score)] = Incentive Base
As the formula illustrates, increasing the collections base can help increase your state’s incentive base, and potentially lead to more federal incentives.
3. Other States’ Performance. The collections base and the sum of the weighted performance scores are the two multipliers for calculating a state’s incentive base. The amount of incentives your state can earn depends on the performance of other states as well as your state’s own performance. Your state’s percentage of the national incentive pool is determined by comparing its incentive base (numerator) to the national incentive base; that is, the sum of the incentive base amounts for all the states, for that fiscal year (denominator).
Since all states strive to increase their respective shares of the national incentive pool, the national incentive base (denominator) will increase as national performance improves and national collections rise. For this reason, the way your state can maintain or increase its share of the national incentive pool is to increase its numerator (the state incentive base) at a faster rate than the denominator (the national incentive base).
In light of this reality, it’s also important to note that the performance of a single office with a large caseload can significantly affect your state’s overall performance and collection totals.
Cracking the Code
Now that you have some idea of how this all works, it’s time to get down to brass tacks. What could your state’s incentive amount be? Wonder no more! Our handy calculator helps you estimate potential funding in a snap.