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 SB 1391 (Liu) Page 1 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: SB 1391 (Liu) Page 2 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 SB 1391 (Liu) Page 3 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. SB 1391 (Liu) Page 4