Decoding the Federal Funding Formula to Maximize Funding for Your IV-D Program

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September 14, 2015

The formula used by the federal government to calculate the amount of funds it gives to state IV-D programs is complex. By understanding how it works, however, you can evaluate your state’s performance to identify those activities that could help generate more federal dollars for your IV-D program.

Three Components of the Federal Funding Formula

As overall performance and collections increase, states are able to generate revenues from each of the three components of the federal funding formula:

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 available to a state IV-D program. FFP can also be used to match retained TANF collections that are reinvested in the IV-D program. Therefore, 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 collections that a state can keep is the complement of the state’s 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.
The formula is:
(1-FMAP Rate) X (Assigned TANF Collections) = State’s Share of TANF Collections

3. Federal Performance Incentives.

If states have complete and reliable data and meet minimum performance standards, they can earn incentives under five performance areas (listed below). Incentives are capped at the national level, so a formula allocates the national incentive pool to states based on their relative performance and collection levels. (The national incentive pool in FFY 2013 was $538 million.) States must reinvest federal incentives in the IV-D program, but they cannot be used to draw down FFP. A state’s ability to earn and maximize incentives depends on three key factors:

  • The state’s own scores in each of the five performance measures
  • The state’s collections base
  • Other states’ performance measures and collections bases

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, states earn their incentives based on three key factors:

1. Five Federal Performance Measures

The first multiplier for determining a state’s share of the incentive pool is a state’s performance in five areas:

  • Paternity establishment
  • Support order establishment
  • Current support
  • Arrears collections
  • Cost effectiveness

The first three measures are weighted more heavily than the latter two, which have 75% of the weight of the first three. The highest possible score a state can earn on each measure is 1.0. The table summarizes these measures. Although not shown, financial penalties for performance deficiencies or unreliable data may also be incurred.

Federal Performance Measures

Measure

Weight

Definition

Goal*

Average

Paternity Establishment Percentage (PEP)

 

   1.00

IV-D: Children in the child support caseload with paternity established as proportion of all children in the caseload born out-of-wedlock in prior year   80%   93.1%
Statewide: Children in the state born out-of-wedlock with paternity established as a proportion of all children born out-of-wedlock in the prior year   95.9%

Support Orders Established (SEO)

   1.00

Proportion of cases with child support orders   80%   84.8%

Current Support (CS)

   1.00

Proportion of child support owed in a month that is paid in the same month, averaged for the year   80%   64.3%

Arrearage Payments (AP)

   .75

Proportion of cases in arrears that make at least one payment during the year   80%   62.9%

Cost-Effectiveness (CE)

   .75Ratio of total child support collections to total administrative costs   $5.00   $5.22

Average = National Average FFY 2014
* Percentage Goal to Achieve a Score of 1.0

2. Collections Base

The second multiplier for determining a state’s share of the incentive pool is the 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. The formula is:
2 (Current Assistance + Former Assistance) + All Other Collections =
Collections Base

The formula for a state’s incentive base is: (Collections Base) x (1.0 x PEP Score + 1.0 x SEO Score +1.0 x CS Score + 0.75 x AP Score 0.75 x CE Score) =
Incentive Base

As the formula illustrates, increasing the collections base can help increase a 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 a state can earn also depends on the performance of other states. A state’s percentage of the national incentive pool is determined by comparing the state’s 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 states are striving 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. Therefore, the way a state can maintain or increase its share of the national incentive pool is to increase the state incentive base (numerator) at a faster rate than the national incentive base (denominator).

In light of this reality, the performance of a single office with a large caseload can significantly affect a state’s overall performance and collection totals.

Estimate what your state's incentive amount could be.
 

Maximize Federal Funding for Your State

Many factors contribute to the amount of federal incentives your state can earn. As described above, collections and some performance measures can have greater impacts on a state’s incentive base. With this understanding, you can assess your state’s overall performance and hone in on those areas and programs that can have the greatest impact on your state’s earning potential.

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