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Public Meeting Minutes

INFORMATIONAL MEETING
FRANCHISE TAX BOARD
MINUTES

August 12, 1999

The Franchise Tax Board met in open session at 10:00 a.m. at the State Board of Equalization, 450 N Street, Hearing Room 121, Sacramento, California. Present were Hon. Kathleen Connell, Jean Alexander representing Hon. Johan Klehs, and Hon. B. Timothy Gage.

Franchise Tax Board
Staff Participating:
Gerald Goldberg, Brian Toman, Ralph Shoemaker, John Vranna, Johnnie Lou Rosas, Debbie Strong, and Katie Horn.
Others Participating:Donna Hershkowitz representing Assembly Judiciary Committee,Doug Cordiner representing Bureau of State Audits, Stanley Trom representing Ventura County, Peggy Jensen representing California Family Support Council, Leora Gershenzon representing National Center for Youth Law, Nora O'Brian representing Association for Children for Enforcement of Support, Curtis Child representing Assemblywoman Aroner's office, Bill Otterbeck representing California District Attorneys Association, Dennis Snapp representing Los Angeles District Attorney's Office, Jill Santos representing herself, Steve Bower representing Shasta County Board of Supervisors, Richard Bennett representing Coalition of Parents Support, and Melanie Snider representing herself.

Discussion Regarding Franchise Tax Board Involvement in Potential Child Support Administration and Programs. 

I. Introductory Remarks by Controller Kathleen Connell

Chair Connell called the meeting to order and introduced Member Gage and Jean Alexander, who was representing Member Klehs. Chair Connell stated that the purpose of the meeting was to clarify and define the Franchise Tax Board's role in child support collections. Discussion will include three-fold core competencies: case management, collections and technology.

Chair Connell informed the audience that the Legislature is working on child support legislation and that there are several child support bills that have moved their way through this process which would have a significant impact on the Franchise Tax Board's role in child support. Chair Connell stated her desire that the Franchise Tax Board not be put in a position that either undermines its core function of being a tax agency or charges it with responsibilities impossible to implement.  

Jean Alexander reported that Member Klehs was sitting as Chair of the Board of Equalization in Culver City today, and that he was very disappointed that he could not attend this meeting.

Member Gage stated that he agreed with Chair Connell in regard to balancing the importance of improving child support collections in this state against insuring that the core mission of the Franchise Tax Board is not jeopardized in any way. Mr. Gage stated that, as the Director of Finance, his chief concern is insuring that the state's financial situation remains solid.

Item II. Child Support Enforcement Program Report Findings by the State Auditor's Office

Doug Cordiner of the Bureau of State Audits reported that the joint legislative audit committee, because of all the pending bills on this issue, had asked the Bureau of State Audits to examine the child support enforcement program to see if the criticisms of it were justified. The auditors found shortcomings at the state, local, and even the federal level. The report identifies the causes of the breakdown in the current state child support system as a failed statewide automated system, lack of technical assistance to the counties from the state, and the fact that the counties have radically different philosophies regarding their responsibility.

Item III. Overview of Current Franchise Tax Board Activities on Child Support

Mr. Goldberg introduced Franchise Tax Board staff and asked John Vranna to speak to the issues raised.

Mr. Vranna explained that the department has been involved in child support collections since 1992 as part of a pilot program suggested by Assemblywoman Speier. Basically, if there is a delinquency in excess of 90 days, the case is referred to the department, which then takes limited collection actions.

Mr. Vranna explained that Assembly Bill 196 and Senate Bill 542 would expand the department's role. Counties would refer cases to the department when they are 60 days in arrears. Also, when court orders are established, if there is an arrearage of more than 30 days and the amount is in excess of one hundred dollars, the case would be referred to the department. Currently, the department has approximately 500,000 cases in its inventory, and staff estimates there are approximately an additional 400,000 arrearage cases currently being managed in the counties. The department receives approximately 190,000 cases per year and staff expects the number of cases to increase. After sending an original notice out, the department holds the case if there is an income tax obligation owed. The department takes no collection actions if there is an income tax owed. Staff culls the case and sends it back to the county.

Under the new legislation, staff's assumption is that the bulk of these 400,000 cases would shift to the department for a more complete collection process, resulting in case inventories of about 900,000. Staff expects significant growth per year as more arrearage cases are identified.

Mr. Vranna stressed that it would be the department's responsibility to manage accounts receivable, not do case management. Chair Connell asked if this meant that, once we get the case from the district attorney's office, we would keep it in perpetuity? Mr. Vranna confirmed this interpretation.

Mr. Goldberg stated that the counties would still have the responsibility for the overall case, key policy decisions would be made by the counties, and only the accounts receivable decisions would be made by the department.

Mr. Vranna explained the current collection process and the fact that child support cases are referred back to the county to be managed there. Under the new legislation, cases would not be referred back. When debtors contact us, it would be the department's obligation to work with the debtor to resolve the arrearage. Discussion ensued concerning contacting the debtor by phone, processes to be used to identify cases for contact, current wage assignments, and the flow of information between the counties and the department.

Chair Connell asked Mr. Goldberg what the department's competency was in regard to collections, case management, and technology. Mr. Goldberg answered that the department has no experience in child support case management but that it has a core competency in collections. In the area of technology, this would be an expansion of our current accounts receivable collection system and quite separate from the Statewide Automated Child Support System (SACSS). Discussion ensued among Chair Connell, Mr. Goldberg, Member Gage, Ms. Alexander, and Mr. Cordiner regarding the flawed SACSS, the Governor's interest in having the Franchise Tax Board take over much of the responsibility that currently resides within the health and welfare data center, and financial penalties associated with the delay associated with the failed SACSS.

Mr. Vranna explained the ARCS system, to which child support would be added. Adding child support to ARCS would delay adding bank and corporation taxes to the system by 18 months, but would not affect the collection of revenue. He also explained the estimated costs involved: $7 million a year, adding approximately 120 positions to the department's budget, and $5 to $6 million for a one-time capital cost.

Chair Connell, Mr. Shoemaker, Mr. Goldberg, and Member Gage discussed the activities in the technology arena and the department's successful record in technology implementation.

Chair Connell expressed her concerns about the department being asked to undertake developing a new system for which it has no business knowledge and no experience in case management.

Item IV. Discussion of Senate Bill 542 (Burton)/ Assembly Bill 196 (Kuehl)

Donna Hershkowitz from Assemblywoman Kuehl's office stated that these two bills are identical at this point.

Ms. Hershkowitz explained that these child support bills are major structural reform bills. They create a new department of child support services, and transfer responsibility at the local level from the district attorneys' offices to new local child support agencies. Also, once a case is 60 days delinquent as opposed to the current 90 days, that case gets transferred to the Franchise Tax Board for collection of that delinquency. The bills will keep case management at the local child support agency.

Chair Connell asked when the author would like to see the agency in place, and Ms. Hershkowitz answered that the bills envision a new state agency created as of January 1, 2000.

Ms. Hershkowitz explained that under federal law, the state is required to have a single statewide agency responsible for running the child support program. Under these bills that agency would be this new Department of Child Support Services. This new agency would be housed in the Health and Human Service Agency and would be separate from the Department of Social Services. The bills set forth performance measures that the new department is supposed to develop: what is collectible, what is not collectible, and how best to achieve collection. The bills also require the new department to do a study of the best practices statewide and nationwide to figure out what works and what does not, so that a priority system can be set up.

Leora Gershenzon with the National Center for Youth Law explained that the goal of the legislation is to build upon the core competency of the agencies in question, and to create an agency whose sole function is collection of child support. This would be the new State Department of Child Support. Also, one of the things the legislation is attempting to do is to streamline the process to eliminate current overlap. Ms. Gershenzon also explained that one of the unique things about the Franchise Tax Board is its ability to tie into collection agencies in other jurisdictions outside of California, and we may see significantly increased collections due to a much more effective interstate collection system.

Chair Connell discussed the need to have the counties be cooperative. Under these bills, the new local child support agencies would report directly to the State Department of Child Support Services.

There was discussion regarding the average income of custodial and non-custodial parents, the increase in support collected in Massachusetts when the collection responsibility was put in the Department of Revenue, and that it may be an asset just to have the Franchise Tax Board's name involved.

There was further discussion of timeframes regarding implementing an automated statewide program and transferring the current program from the district attorney's office to a local agency.

Item V. Discussion of Assembly Bill 472 (Aroner)

Curtis Child from Assemblywoman Aroner's office explained that this bill would essentially provide that the new state department would provide an informal complaint resolution process that would be consistent across all of the counties. In the event that the complaint resolution process did not achieve a satisfactory resolution of the complaint, the individual would be entitled to a hearing before an administrative law judge at the state level. The language of AB 472 will be revised to make it consistent with AB 196 and SB 542. It will include a provision that any dispute that may arise concerning the Franchise Tax Board will be within the jurisdiction of the local child support agency. Assembly Bill 472 was initially introduced as a one-time amnesty program for parents who owe child support that is due to the state for reimbursement of aid.

Item VI. Discussion of Assembly Bill 150 (Aroner)

Mr. Child commented on the failed SACSS and the federal penalties, which are essentially a deduction from the administrative cost reimbursement that the state receives from the federal government. By the time the state realistically can get automation in place, the penalties would be about $100 million a year. However, in any year in which the state is successful in getting the automation system federally certified it is entitled to a 90-percent reduction in those penalties.

AB 150 was introduced as an urgency measure in May after the state received word from the federal government that it was disapproving the approach that was taken last year, which was to build a consortia system linking various county automation systems to one another, doing an overlay, and then linking them to the statewide distribution unit and to the case registry.

The bill currently has four major components in it. The first is it makes the Department of Social Services responsible for procuring and implementing the single statewide system. The second is that it sets out an industry standard procurement process that would be done in two phases, that would allow multiple vendors to come in and generate preliminary designs, and then one design would ultimately be selected. The third piece is ensuring that the counties are welfare distribution compliant. And the fourth passes on the penalties to the counties, but holds those penalties in abeyance for as long as the counties are cooperating in establishing the single statewide system.

There was discussion concerning the funding for counties for the changes they will have to make to their systems, the cost of putting together a system from scratch, and Y2K compliance.

Item VII. Statements from the Public

Jill Santos related her personal experiences as a custodial parent and the problems she has had with collecting child support. Ms. Santo believes that the county has hindered her case and that the Franchise Tax Board has been helpful.

Steve Bear the Director of the Family Support Division in Shasta County read a letter in which the Shasta County Board of Supervisors went on record in strong opposition to Senate Bill 542 and Assembly Bill 196.

Richard Bennett, President of the Coalition of Parents Support, stated that it is a minority of non-custodial parents who are caught up in the program currently run by the district attorneys. Mr. Bennett went on to state that California has the highest child support guidelines in the country, does not enforce visitation, and, when the Franchise Tax Board collects an arrearage, it automatically attaches 50 percent of the paycheck.

Melanie Snider, a custodial parent, related problems she has had because of a lack of auditing and accounting in the local agencies. Chair Connell expressed appreciation to those attending the meeting.

Mr. Goldberg submitted a statement into the record from Lenny Goldberg on behalf of Children Now.

The meeting was adjourned at approximately 1:44 p.m.