BILL ANALYSIS
SB 578
Page 1
Date of Hearing: June 23, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 578 (Wright) - As Amended: April 21, 2009
PROPOSED CONSENT (As Proposed to be Amended)
SENATE VOTE : 39-0
SUBJECT: Child support: interest
KEY ISSUE : IN ORDER TO ENCOURAGE CHILD SUPPORT OBLIGORS TO PAY
THEIR SUPPORT TIMELY, SHOULD INTEREST ON ARREARS OWED TO THE
GOVERNMENT BE WAIVED IN ANY MONTH THAT THE MONTHLY COURT-ORDERED
SUPPORT IS PAID FULL?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This bill, sponsored by the Department of Child Support
Services, provides that interest accrual for child support
arrears that have been assigned to the state by recipients of
welfare cash assistance be suspended during those months in
which the obligor has paid the current month's court-ordered
payments of current support and arrears. According to the
author, this bill will encourage consistent and timely child
support payments, critical to helping lift families out of
poverty and off of welfare, as well as help reduce arrears and
improve their management. The bill has no known opposition.
SUMMARY : Effective January 1, 2011, suspends the accrual of
interest on child support arrears owed to the state for any
month that the child support obligor pays the current month's
court-ordered payment of current support and arrears.
Specifically, this bill :
1)Provides that interest accrual for child support arrears that
have been assigned to the state, because the family received
welfare cash assistance, shall be suspended during those
months in which the obligor has paid the current month's
court-ordered payments of current support and arrears.
2)Provides that interest accrual will be suspended on the first
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day of the month following the current payment.
3)Provides that interest accrual will resume on the first day of
the month following the month in which a court-ordered payment
of support and arrears is not received.
4)Requires the Department of Child Support Services to implement
that provision by letters or similar instructions.
5)Becomes operative on January 1, 2011.
EXISTING LAW :
1)Provides that in any action to enforce child support
obligations, interest does not accrue on an obligation for
current child, spousal, family, or medical support due in a
given month until the first day of the following month.
(Family Code Section 17433.5.)
2)Provides that interest accrues at the rate of 10 percent per
annum on the principal amount of a money judgment remaining
unsatisfied. Provides that the Legislature reserves the right
to change the rate of interest for the principle amount of a
money judgment at any time to a rate of less than 10 percent
per annum, regardless of the date of entry of the judgment or
the date any obligation upon which the judgment is based was
incurred. A change in the rate of interest may be made
applicable only to the interest that accrues after the
operative date of the statute that changes the rate. (Code of
Civil Procedure Section 685.010.)
3)Provides that satisfaction of a money judgment for support is
credited as follows: (a) Current month's support; (b) any
remaining money is credited against the principal amount of
the judgment remaining unsatisfied; and (c) any remaining
money shall be credited against the accrued interest that
remains unsatisfied. (Code of Civil Procedure Section
695.221.)
4)Governs the California Work Opportunity and Responsibility to
Kids (CalWORKs) program, which provides temporary financial
assistance and employment focused services to families with
minor children who have income and property below state
maximum limits for their family size. (Welfare & Institutions
Code Section 11200 et seq.)
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5)Provides that, for applications received before October 1,
2009, as a condition of eligibility for CalWORKs, each
applicant shall assign to the state any rights to child and
spousal support. The assignment applies only to support that
accrues during the period of time that the applicant is
receiving CalWORKs assistance, and shall not exceed the total
amount of cash assistance provided to the family. (Welfare &
Institutions Code Section 11477.)
COMMENTS : In 1992, California's child support arrears balance
was $2.5 billion. Today the outstanding support arrears have
grown to approximately $20 billion.
In 2003, when California's cumulative arrears balance was $14.4
billion, the state contracted with the Urban Institute to
conduct a study on the arrears owed in California. The Urban
Institute's study found that 75 percent of the debt was over 2.5
years old; 70 percent of arrears were held by individuals with
incomes below $10,000 per year; 70 percent of the arrears were
owed to the government under public assistance assignment; 27
percent of the debt was interest; and California could
realistically expect to collect 26 percent of the debt over a
10-year period.
The main reason for the high arrears was that orders were not
correctly established in the first place, with support being set
by default using presumed, but not actual, income. That was
then compounded by the charging interest on the inappropriately
established orders that were not paid timely and then requiring
that interest be paid before principal when a collection was
made. (Effective January 1, 2009, pursuant to AB 2669 (Garcia),
Chap. 305, Stats. 2004, collections will be applied to the
principal amount owed before interest.)
This bill, sponsored by the Department of Child Support Services
(DCSS), seeks to address the issue of growing child support
arrears and encourage child support obligors to pay their
court-ordered support timely, which is critical to the financial
security of children in California, by suspending interest
accrual on state-assigned child support arrears during months in
which an obligor is current on support and arrears payments.
In support of the bill, the author states:
To encourage consistent and timely support payments as
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well as improve arrears management and reduction, this
legislative proposal will suspend the accrual and
assessment of interest on . . . government-owed . . .
owed arrears for noncustodial parents who meet their
full monthly obligation towards current child,
medical, and spousal support. The suspension of
interest would apply until a payment is missed and/or
the full monthly obligation is not met. Interest
would accrue and be assessed prospectively from the
point a payment is missed but would not be charged
retroactively as a result of non-compliance.
Interest accrual on arrears would only be suspended for arrears
that have been assigned to the state . In response to federal
welfare reform legislation, the Legislature created the CalWORKs
program, enacted by Chap. 270, Stats. 1997 (AB 1542, Ducheny,
Ashburn, Thompson, and Maddy). Like its predecessor, Aid to
Families with Dependent Children (AFDC), the new program
provides cash grants and welfare-to-work services to families
whose incomes are not adequate to meet their basic needs.
When a custodial parent applies for and receives CalWORKs cash
benefits, a child support case is opened. As a condition of
receiving CalWORKs benefits, the custodial party automatically
assigns all rights to child, spousal, and medical support to the
state up to the amount of aid paid. This includes all current
and past-due support and continues as long as a family is
receiving aid. Any current child support payments which exceed
the amount of aid paid is sent to the custodial parent.
Currently, interest on non-welfare arrears is not suspended or
waived unless the custodial parent to whom the arrears are owed
has provided written consent to do so. As introduced, this bill
would have applied to all arrears, including those cases where
families are not recipients of CalWORKs. However, interest
accrued on support arrears are the custodial parent's private
property, and that automatic suspension of interest accrual via
statute in non-welfare cases would interfere with this property
right. Accordingly, this bill was amended to only suspend
interest accrual on arrears that have been assigned to the state
in cases where the family is receiving CalWORKs benefits. Once
a family discontinues public assistance, the only arrearage type
eligible for interest suspension would be the arrears that
accrued during the period of time the family received cash aid.
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California's Child Support Automation System would automatically
track and calculate accrual and suspension of interest . In
2008, DCSS completed the statewide transition of California's 52
county and regional child support agencies to the new single
statewide child support automation system. The California Child
Support Automation System (CCSAS) combines statewide case
management capabilities with centralized child support
collection and payment processing through the State Disbursement
Unit (SDU). According to DCSS, a minor system modification to
CCSAS will provide the functionality to automatically suspend
and resume interest per case when appropriate. The enhanced
system functionality will recognize when interest should or
should not be assessed based on the obligor's payment record for
the prior month. The system will also recognize when a family
is no longer receiving cash assistance from the state, and
ensure the suspension of interest only applies to arrears that
have been permanently assigned to the state.
DCSS will be required to implement bill's provisions via child
support services letters . This bill provides that DCSS
implement the bill's provisions by means of child support
services (CSS) letters or similar instructions, without taking
any further regulatory action. Thereafter, DCSS would be
authorized to adopt regulations, as necessary to implement this
section in accordance with state law governing administrative
regulations and rulemaking. DCSS currently utilizes CSS letters
to, among other things, inform local child support agencies and
their directors, County Administrative Officers, and Boards of
Supervisors of new policies imposed by new statutes or changes
in existing policies. CSS letters are posted on the DCSS Web
site and are available for public view.
Technical Amendment : In order to ensure that the suspension of
interest is only available when the obligor has paid all of his
or her court-ordered monthly payment, the author has agreed to
amendment the bill by adding the following language:
On page 2, line 16, after "paid" insert: ", in full,"
On page 2, line 23, after "received" insert: "in full"
Prior Legislation : AB 2669 (Garcia) Chap. 305, Stats. 2004,
requires that effective January 1, 2009, after the date of full
implementation of the California Child Support Automation
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System, money collected to satisfy a child support judgment
shall be credited first to the amount due for the current month,
then to the principal amount of the judgment that remains
unsatisfied, and third to outstanding accrued interest.
REGISTERED SUPPORT / OPPOSITION :
Support
Department of Child Support Services (sponsor)
Family Law Section of the State Bar of California
Opposition
None on file
Analysis Prepared by : Leora Gershenzon / JUD. / (916)
319-2334