BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair


          SB 1391 (Liu) - CalFresh benefits: overissuance.
          
          Amended: April 23, 2012         Policy Vote: Human Services 6-0
          Urgency: No                     Mandate: Yes
          Hearing Date: May 7, 2012       Consultant: Jolie Onodera
          
          This bill meets the criteria for referral to the Suspense File.


          Bill Summary: SB 1391 would establish procedures for recovering 
          CalFresh overissuances for both current and former recipient 
          households. This bill would define minimum thresholds for 
          overissuance establishment and collection caused by 
          administrative error (AE), inadvertent household error (IHE), 
          intentional program violation (IPV) or fraud. This bill would 
          also authorize the Department of Social Services (DSS) to 
          establish a minimum cost-effective threshold for collecting 
          overissuances, as specified. 

          Fiscal Impact: 
              One-time significant costs to modify automation systems, 
              likely in the hundreds of thousands of dollars 
              (Federal/General Fund).
              Annual ongoing state-reimbursable county administration 
              costs for extended collection periods resulting from reduced 
              recoupment rates (General Fund). 
              Potential ongoing administrative cost savings due to 
              raising the overissuance recovery threshold, however, due to 
              county budget constraints, administrative savings may be 
              difficult to realize. Additionally, the conversion to 
              semi-annual reporting (SAR) may result in minimal 
              administrative impact due to increasing the threshold. 
              Potentially significant DSS workload and staffing costs to 
              revise regulations and complete a cost-benefit analysis to 
              submit for federal approval.

          Background: Existing law establishes the CalFresh program, which 
          administers the provision of federal Supplemental Nutrition 
          Assistance Program (SNAP) benefits, formerly food stamps, to 
          families and individuals meeting specified income and 
          eligibility requirements. Existing federal law provides for the 
          collection of fraudulent and non-fraudulent overissuances of 








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          SNAP benefits and authorizes the delegation of collection to 
          appropriate state agencies.
           
          Currently, the structure and processes for collection of 
          CalFresh overissuances are delineated in DSS regulations. Under 
          federal statute, a state agency may opt not to establish and 
          subsequently collect an overpayment that is not cost effective. 
          States are eligible to follow the federal Food and Nutrition 
          Service (FNS) threshold or follow their own cost effectiveness 
          plan subject to federal approval. 

          Under federal statute, states may opt not to establish a claim 
          if the overpayment is $125 or less unless the household is 
          currently participating in CalFresh or the claim has already 
          been established or discovered in a quality control review. 
          Currently, the state's overissuance recovery threshold for 
          overissuances resulting from AE is $35.

          The federal benefit reduction policy is as follows: 
                 For an AE or IHE claim, the amount reduced is limited to 
               the greater of $10 or 10 percent of the household's monthly 
               benefit.
                 For an IPV claim, the amount reduced is limited to the 
               greater of $20 or 20 percent of the household's monthly 
               benefit.

          Pursuant to the Lomeli v. Saenz court case settlement, the state 
          recoups AE claims by reducing monthly benefits by five percent 
          or $10, whichever is greater for up to three years. IHE and IPV 
          claims are collected at the same recoupment rates specified 
          under federal statute.

          Federal law requires 100 percent of recouped benefits due to an 
          AE claim to be returned to the federal government. For IHE 
          claims, the state retains 20 percent (or 35 percent if reducing 
          unemployment compensation benefits) of the amount collected and 
          for IPV claims, the state retains 35 percent. In California, 
          cash collections and benefit reductions are retained at the 
          county level and reconciled quarterly to provide the federal and 
          state portion of collections.
           
          Proposed Law: This bill would provide that current and future 
          CalFresh benefits shall be reduced subject to adequate and 
          timely notice, as specified, and as follows:








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                 For overissuances caused by IHE, IPV, or fraud - monthly 
               benefits shall not be reduced by more than 5 percent of 
               $10, whichever is greater, unless the recipient elects a 
               higher rate.
                 For overissuances caused by AE - monthly benefits shall 
               not be reduced by more than 5 percent or $10, whichever is 
               greater, unless the recipient elects a higher rate. AE 
               claims will only be recovered if required by federal law or 
               if the overissuance exceeds $125 or the threshold 
               established by DSS, whichever is greater.

          For households no longer receiving CalFresh:
                 No overissuance caused by AE shall be established or 
               collected under $125 or the DSS-established threshold, 
               whichever is greater. 
                 Overissuances caused by IHE shall be collected if $35 or 
               greater.
                 Overissuances caused by IPV or fraud shall be collected 
               pursuant to federal law.

          The bill requires reasonable cost-effective methods of 
          collection to be implemented, as defined by the DSS, as well as 
          adequate and timely notice to households. The bill also 
          authorizes DSS to establish a minimum cost-effective threshold 
          for collection, subject to federal approval, if greater than the 
          federally recognized threshold of $125. Counties would be 
          authorized to write-off or terminate overissuances subject to 
          established federal provisions.

          Related Legislation: AB 6 (Fuentes) Chapter 501/2011, among 
          other provisions, changed reporting requirements for CalFresh 
          recipients from quarterly to semi-annual reporting (SAR). SAR is 
          not anticipated to be implemented until Fiscal Year (FY) 
          2013-14.

          Staff Comments: DSS will likely incur one-time significant costs 
          to modify automation systems in order to effectuate the 
          overissuance threshold change as well as reprogram recoupment 
          rates. The exact cost is unknown at this time but could be in 
          excess of several hundred thousand dollars.

          The federal Status of Claims Against Households Report 
          (FNS209-Q1/FFY12) indicated outstanding claims totaling over 
          $440.5 million. Of the $16.3 million in overissuances collected 








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          that quarter, $7.3 million or 45 percent was classified as AE 
          and returned to the federal government. Of the $8.2 million 
          collected for IHE claims, $1.6 million was retained by the 
          state/counties, and for IPV claims, $270,000 of the $772,000 
          collected was retained by the state/counties.
            
          Because the provisions of this bill revise the rates of 
          collection for IHE and IPV claims, the length of time it would 
          take counties to recover payments would be extended, resulting 
          in increased administrative costs. Under current law, IHE claims 
          are collected at a 10 percent rate. As this bill proposes to 
          collect all claims at the rate of 5 percent, the average IHE 
          overissuance claim of $437 could take 10 more months to collect. 
          Currently, IPV claims are collected at a 20 percent rate. By 
          reducing the collection rate to 5 percent, the average IPV claim 
          of $820 could take 15 more months to collect. Further, the 
          lengthier collection periods would result in a reduction in 
          annual ongoing collection revenue to the state and counties.

          It is unknown the degree to which raising the minimum threshold 
          for collection to $125 may impact county administrative costs. 
          To the extent it results in the establishment of fewer claims 
          would result in some degree of county workload relief, however, 
          realizing county administrative cost savings may be difficult. 
          Additionally, with the conversion from quarterly to semi-annual 
          reporting (SAR), the average CalFresh overissuance may increase, 
          thereby mitigating the impact of increasing the minimal 
          threshold.

          It is unclear at this time how the timing of the conversion to 
          SAR and its full implementation, which is projected in FY 
          2013-14, may interact with the implementation of the provisions 
          of this bill and the potential to exacerbate/mitigate potential 
          errors.

          Recommended Amendments: To maintain the collection rates 
          established in existing regulations and avoid extended 
          collection periods as well as delays in revenue recovery, staff 
          recommends an amendment to specify IHE and IPV allotment 
          reduction rates as reflected in current DSS regulations.
           











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