THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review


Report # 567

Analysis of the Potential for Further Privatization of Mississippi’s Child Support Enforcement Services

Executive Summary

Introduction

In an effort to improve child support enforcement efforts, several states, including Mississippi, have turned to the private sector for assistance. Privatization is government’s use of for-profit and not-for-profit organizations to perform publicly funded activities.

As of May 30, 2012, private sector firms provided various child support enforcement services, including the operation of selected local child support offices, in forty-four states and in the District of Columbia. No state has fully privatized its entire child support enforcement program. At the time of this review, the Mississippi Department of Human Services (MDHS) had contracts with private sector firms to operate the state’s child support call center and to provide various components of other child support services.

In response to a legislative request, the PEER Committee analyzed the potential for saving the state dollars and improving service quality through further privatization of child support enforcement services at MDHS. The legislator who requested this review asked whether documented evidence exists of the success of private sector firms in providing child support enforcement services in other states, and if so, whether any such documented successes could be replicated in Mississippi.

Background

The child support enforcement program is a federally mandated program operated by the states for the primary purpose of enhancing the well-being of children in single-parent households by assisting them in obtaining financial and medical support. By securing such assistance from non-custodial parents, the program also helps to reduce dependency on public benefits such as Temporary Assistance for Needy Families and the Supplemental Nutrition Assistance Program.

MISS. CODE ANN. §43-19-31 et seq. (1972) requires the Department of Human Services to operate a child support unit (established by the department as the Division of Child Support Enforcement [DCSE]) fulfilling federal requirements. The division carries out its child support enforcement responsibilities by carrying out activities in six key service areas: establishment of paternity, establishment of support orders, collections (e. g., issuance of income withholding orders), receipting and disbursement of child support payments, enforcement of orders, and customer service.

Privatization Experience in Other States and in Mississippi

States privatize child support enforcement for a variety of reasons, such as compensating for a lack of expertise, increasing cost-effectiveness, improving customer service, increasing efficiency, complying with new mandates, and addressing performance issues. As of May 30, 2012, states’ most frequently privatized child support enforcement service was operation of the state disbursement unit--i. e., the entity responsible for the receipt of child support payments and the timely disbursement of payments to custodial parents.

As of July 1, 2012, MDHS had seven contracts with six private sector firms to perform various duties related to child support enforcement, including a contract with a temporary staffing agency to provide up to 100 temporary personnel to serve in various capacities in DCSE. Only one of the seven contracts, the contract with YoungWilliams, is for the full privatization of a DCSE service--i. e., the Customer Service Call Center.

Little independent research exists on the effectiveness of privatizing child support enforcement services in reducing service costs or improving service quality. The independent research that does exist indicates mixed results, with examples of both the private sector and the public sector providing more efficient and effective child support enforcement services.

Information and Analysis Needed to Make a Privatization Decision

In order to make a fully informed privatization decision, a government entity must be able to compare its own costs and performance in providing a service to cost and performance levels being offered by the private sector for providing the service. When making the determination to privatize a service, a government entity should conduct an analysis such as a “make-versus-buy” analysis of the service in order to make a fully informed decision prior to contracting.*

A decision to make or buy a service must be based on a clear definition of the service being considered for privatization, including specification of the quantity (outputs) and quality (outcomes) of service expected, as well as a determination of the change in costs to the government over a multi-year period that would result from outsourcing the service. Also, the analysis should factor important non-cost-related issues, such as management issues and service quality and control issues, into the make-versus-buy decision.

PEER found that DCSE does not maintain cost data at the service level and does not sufficiently analyze its child support enforcement performance data, both of which are necessary to making fully informed decisions regarding the privatization of child support enforcement services. Without cost data at the service level, DCSE is not in a position to make an informed privatization decision. While DCSE maintains and reports federally mandated performance data, DCSE has not sufficiently analyzed the data to identify and address, where feasible, the sources of performance problems, including determining whether the problems could better be addressed internally or externally.

Case Study of the Make-versus-Buy Analysis of the Central Receipting and Disbursement Unit

The Central Receipting and Disbursement Unit (CRDU) is Mississippi’s state disbursement unit. The CRDU receipts, processes, and disburses more than six million child support payments each year.

While DCSE does not maintain all of the data needed to make a fully informed privatization decision regarding the CRDU, based on a cost comparison alone (based on the private sector contract costs of operating Kansas’s state disbursement unit), PEER estimates that it would cost MDHS approximately $2.9 million more annually to privatize its CRDU than to continue providing the service in-house. Therefore, even though PEER continues to receive unsolicited complaints from both custodial and non-custodial parents regarding the processing of child support payments, Mississippi’s CRDU might not be a good candidate for privatization given the significant cost differential.

Implications for Further Privatization of Child Support Enforcement Services

To maximize the potential for success of its future privatization efforts, DCSE should collect proper data for a make-versus-buy analysis, improve data collection and reporting, determine whether factors affecting enforcement efforts are external or internal, and work within legal constraints.

DCSE should also immediately begin following best practices for privatization of child support enforcement such as those put forth by the U. S. Department of Health and Human Services, Administration for Children and Families, Office of Child Support Enforcement, in A Guide to Developing Public-Private Partnerships in Child Support Enforcement (1996). These include:

Pages 40 through 46 of the report provide details on each of these best practices.

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*PEER’s discussion of the elements of a make-versus-buy analysis on pages 16 through 20 of the report is based on an article published in the August 2004 issue of the Government Finance Review entitled “Make or Buy? Using Cost Analysis to Decide Whether to Outsource Public Services,” by R. Gregory Michel. The article was adapted from Cost Analysis and Activity-Based Costing for Government (GFOA Budgeting Series) by R. Gregory Michel, published by the Government Finance Officers Association of the United States and Canada, Chicago, Illinois, 2004.

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