Rule-Making Notices (Hearing Notices)

The notice and hearing requirements in the warrant and execution and levy sections were designed to comply with s. 49.195 (3s), Stats., which requires a hearing or review (1) after a warrant has been issued and before the warrant has been executed; (2) before property is levied under both the warrant and execution and levy procedures; and (3) after levied property is seized and before it is sold. In addition, Section 49.195 (3), Stats., directs that the Department's collection rules include notification procedures similar to those established for child support collections. According to the Legislative Fiscal Bureau summary for 1999 Wisconsin Act 9 (page 1540), this provision means that notification is required at the following points in the collection process: (a) when the Department first determines that an overpayment has been made; (b) after the Department has issued a warrant that acts as a lien upon the person's right, title and interest in all real and personal property located in the county in which the warrant is entered; (c) after issuing an execution of a warrant or enforcing a levy upon a financial account or other personal property; (d) prior to levy upon real property; and (e) prior to issuing an execution to sell the property.

The child care administration rules are also amended to incorporate the general public assistance overpayment rules affecting parents in s. DWD 12.23. The proposed rule provides that a child care administrative agency or the Department shall take all reasonable steps necessary to recover from a parent funds when the parent was not eligible for that level of child care benefit and the overpayment benefited the parent by causing the parent to pay less for child care expenses than the parent otherwise would have been required to pay under child care assistance program requirements, regardless of the reason for the overpayment.

An overpayment to a parent includes excess child care funds paid when there was a change in family eligibility circumstances that was significant enough that it would have resulted in a smaller child care benefit or ineligibility for a child care benefit due to any reason, including the parent failed to report a change within 10 days or the parent was absent from an approved activity without good cause, while the child was in the care of the provider. The child care worker shall determine good cause if the approved activity is unsubsidized employment. A parent's absence from unsubsidized employment shall be considered good cause if the parent is using employer-approved sick time, personal time, or vacation time and the child is in care for no more than the hours authorized.

The rule on collecting overpayments from child care providers is clarified to state that the provider is responsible for the overpayment when the overpayment benefited the provider by causing the provider to receive more child care assistance than otherwise would have been paid on the family's behalf under child care assistance program requirements and the overpayment did not benefit the parent by causing the parent to pay less for child care expenses than the family otherwise would have been required to pay under child care assistance program requirements. Overpayments from providers are collected by making an offset from current or future funds under the Department's control that are payable to the provider of no more than 50% per payment.

Summary of related federal law. Federal AFDC regulations require states to collect any overpayment. Federal public assistance overpayment collection policy regarding benefits provided under the Aid to Families and Children program and programs funded by Temporary Assistance to Needy Families block grants is in the U.S. Department of Health and Human Services, Administration for Children and Families, Program Instruction Transmittal No. TANF-ACF-PI-2000-2 (http://www.acf.dhhs.gov/programs/ofa/pi002.htm). This memo specifies that the requirement for states to recover all remaining AFDC overpayments remains in place and that AFDC overpayments will be recouped from current TANF benefits if the recipient is still receiving cash assistance or through a cash repayment from former recipients. TANF overpayments are also to be recouped from current recipients or through cash repayment from former recipients.

The state child care assistance program receives funding from TANF and the Child Care Development Fund (CCDF). CCDF regulations specifically provide that states shall recover child care payments that are the result of fraud and the payments shall be recovered from the party responsible for committing the fraud. In addition, CCDF regulations provide that any expenditure not made in accordance with statutory provisions, regulatory provisions, or with the approved plan may be disallowed and must be repaid to the federal government. According to staff at the federal Department of Health and Human Services (DHHS), overpayments are not considered to be expended in accordance with the federal CCDF statute or regulations.

In addition, DHHS staff have informed the Department that a similar provision that applies to all federal grant programs also applies to funds received under the CCDF grant. OMB Circular A-87 on Cost Principles for State and Local Governments provides that only costs that benefit a federal grant program may be charged to that program. All overpayments, whether by fraud or error, are not considered to benefit the program and do not meet the federal cost allowability test.

Comparison with rules in adjacent states. Minnesota. All TANF overpayments are recoverable regardless of the reason for the overpayment. All adults are jointly and individually liable. An appeal based on the fact or amount of an overpayment must occur based on the original notice not in an appeal of a recoupment. Recoupment of AFDC and TANF overpayments from current TANF recipients is specifically authorized. AFDC and TANF overpayments, excluding overpayments based on agency error, become judgments by operation of law 90 days following a properly served notice, with the full power of enforcement of a civil judgment. Child care overpayments are recouped from child care assistance or collected through voluntary repayment or civil court action. Child care overpayments are collected regardless of the reason for the overpayment.

Illinois. Recoupment of AFDC and TANF overpayments from current TANF recipients is specifically authorized. Overpayments are collected regardless of reason for overpayment. Child care overpayments are collected by reductions in future payments or public assistance benefits.

Michigan. Overpayments are recouped from benefits of any adults who were a group member when the overpayment occurred or collected through voluntary repayment agreements or court action. All TANF monthly benefit overpayments must be repaid regardless of the reason for the overpayment. A person who is determined to have received child care benefits as a result of the misrepresentation of his or her circumstances may be required to reimburse the agency for any benefits received for which the person was not eligible. A child care provider who bills the agency for more child care than he or she actually provided may be required to reimburse the agency in cash or from current and future provider payments.

Iowa. Overpayments are collected through voluntary repayment, recoupment, and tax intercept. An appeal is allowed based only on the first notice of overpayment. Overpayments are collected regardless of the reason for the overpayment.

Summary of factual data and analytical methodologies. The warrant and execution and levy procedures are outlined in statute and were developed to be similar to the warrant and execution and levy procedures used by the Unemployment Insurance program to collect UI benefit overpayments and delinquent unemployment insurance taxes. The proposed rule adds the required hearings and sets the threshold for use of the procedure. As of September 30, 2004, the total receivables that will be subject to warrant and execution and levy procedures is $25 million, with approximately $20.4 million in AFDC receivables, $1.5 million in general W-2 receivables, and $3.7 million in child care receivables.

The proposed rule provides authority for the Department to recoup AFDC overpayments from a current W-2 participant's grant. Federal policy directs states to collect overpayments in this manner where an AFDC debt is owed by a current TANF recipient. The case Mack v. Department of Health and Family Services also supports the Department's authority to promulgate a rule to allow recoupment even if a statute does not specifically provide for recoupment. Overpayment recovery by recouping from current benefits is the most efficient method of collection. With the implementation of authority to recoup AFDC overpayments from current W-2 participants, $500,000 in receivables will be subject to recoupment.

The proposed rule also provides clear authority for the Department to recoup child care overpayments from a W-2 participant's grant, regardless of the reason for the overpayment. Section 49.161, Stats., currently allows recoupment when the overpayment was caused by intentional program violation. The current s. DWD 56.04 (5)(a) states that a child care administrative agency shall take all reasonable steps necessary to recoup or recover from a parent any child care assistance that the parent was not eligible to receive. The proposed rule clarifies that the recoupment will be from a W-2 participant's monthly grant and not from the child care subsidy payments that are sent to the child care providers.

The Department does not recoup child care overpayments owed by a parent from the subsidy payments sent to the child care provider because collection of the debt that had been owed by the parent to the Department would become the responsibility of the provider to collect from the parent. Recouping debts owed by parents from checks to providers may make providers less willing to care for children of families who receive assistance through the child care program. Approximately 20% of recipients of child care assistance receive a W-2 grant. With implementation of authority to recoup child care overpayments from W-2 grants, $740,000 will be subject to recoupment. Child care overpayments owed by parents who are not receiving a W-2 grant will be collected by voluntary repayment agreements, tax intercept, warrant and execution, and levy.

The proposed rule must require that all overpayments be collected regardless of whether they were caused by administrative error, client error, or intentional program violation because s. 49.195 (3), Stats., directs the Department to collect all public assistance overpayments. An amendment to 1999 Wisconsin Act 9 that would have prohibited the Department from collecting overpayments based on agency error was vetoed by the Governor. In addition, federal policy provides that expenditures not in accordance with program requirements may not be charged against a federal grant.

The proposed rule specifically states that liability for an overpayment extends to any parent, nonmarital coparent, or stepparent during the period that he or she is a member of the household. This provision clarifies that Richland County Department of Social Services v. McHone, 95 Wis.2d 108, 288 N.W.2d 879 (Ct. App. 1980) applies only to recovery of aid when an individual receives a windfall under s. 49.195 (1), Stats. The one sentence note following s. 49.195, Stats., that summarizes the case states that “recovery may be had only from a parent who immediately received aid" or the parent whose name was on the benefit check. A reading of the case shows that this holding was based only on the language in sub. (1) that starts “if any parent at the time of receiving aid." This language does not appear in the overpayment collection sections of s. 49.195, Stats., or the proposed rule. Under the proposed rule, in general a parent whose income must be included in determining financial eligibility is jointly and severally liable for an overpayment.

Effect on small business. The proposed rule will affect small businesses that are a third party in possession of or obligated with respect to property or rights to property of a debtor. Generally, this will be an employer served with a levy to garnish a debtor's wages. Section 49.195 (3n) (t), Stats., provides that a third party is entitled to a levy fee of $5 for each levy in any case where property is secured through the levy.

Except as employers of debtors, private W-2 agencies will not be affected by the rule because the additional warrant and execution and levy and recoupment collection procedures in the rule will be implemented by the Department and not W-2 agencies.

The rule adds clarifying language on collecting overpayments from child care providers but the additional language is based on current policy.

Anticipated costs incurred by private sector. The proposed rule will not have a significant fiscal effect on the private sector.

Fiscal Effect

I. Subsection (3) of s. 49.195 of the Statutes directs DWD to promptly recover all overpayments made under the AFDC and W-2 programs, including child-care subsidies available to low-income working parents as well as W-2 participants. In part, this rule more completely implements the portion of s.49.195 (3) directing DWD to promulgate rules to implement that subsection and to include in the rule, “notification procedures similar to those established for child support collections." It is assumed that any increased cost of these notification procedures provided for by this rule is not significantly different than the costs of procedures currently in effect. No separate fiscal effect on revenues received is attributed solely to portions of the rule relating to the basic direction to recover overpayments under these programs, since DWD is already doing that, pursuant to authority in statute, administrative rule, common law, and the conditions of acceptance of the federal funds used for these programs. Much of this rule merely updates and clarifies existing policies, procedures and administrative rules, particular those portions revising DWD 56.04 (5) pertaining to recovery of child-care assistance overpayments (which is the fastest-growing category of collections) and portions of the repeal and recreation of DWD 12.23 relating to recoveries from current W-2 recipients.

II. Section 49.195 also provides DWD authority to 1) create administrative liens against real and personal property that may be executed at the county level by sheriff's sale and, 2) collect public assistance debts and the expenses of their collection by levy against certain assets of a debtor which are in the possession of a third party, typically an employer in a position to withhold them from wages otherwise payable to the debtor. These statutory provisions are not subject to a specific rulemaking requirement except that s. 49.195 (3s) states that DWD shall specify by rule when requests for reviews, hearings, and appeals under the section may be made and describes points in the processes when hearing or review opportunities must be addressed by the rule. Since these lien and levy provisions of the Statutes have not yet been implemented, the costs associated with such requests are unknown. However, also since the lien and levy provisions have not yet been implemented, the fiscal effect of this rule with respect to overpayments collected is assumed to be identical to the revenues associated with implementing the underlying statutory provisions as projected in DWD's 05-07 biennial budget recommendations.

There are two general collection trends for overpayment receivables: AFDC collections are still the largest program category of receivables, but a declining revenue source. This rule will decrease the rate of decline or temporarily increase collections, after which they will eventually taper off. Alternatively, child-care overpayment recoveries have been growing, reflecting growth in appropriations for the subsidy program. As child care collections become a larger proportion of recoveries, the lien and levy collection processes outlined in this rule will become more important because the majority of child-care subsidy recipients are working but not receiving other department-administered funds that could be offset to recover overpayments.

III. In its 2005-07 biennial budget recommendations, DWD estimated that the “gross" additional collections (for all affected programs) attributable to lien and levy implementation would be $375,000 in 2005-06 and $1,000,000 in 2006-07. However, this would be reduced to $357,273 in 2005-06 and $952,727 in 2006-07 without a statutory change to reduce the need to “write off" the amount of reduced recoveries attributable to a current-law provision allowing 3rd parties to retain $5 from the proceeds of a levy. The fiscal effect estimated for this rule uses the lower amount because, unlike the 2005-07 recommendations, it does not include the effect of the proposed statutory change.

IV. While implementation of the lien and levy provisions is planned for November 2005, the gross revenues assumed for 2005-06 are lower than those assumed for 2006-07 due to the assumption that it may be necessary for staff to gain familiarity with the new procedures before their full impact is seen. Therefore, the $952,727 is taken as the starting point for calculating the annualized impact at full implementation for purposes of this estimate. 61% of gross collections was assumed to be AFDC ($581,163) and the remaining 39% ($371,564) W-2 or child-care related. While the majority of the latter is likely to be child-care related, this difference is not important for purposes of this fiscal note because the state retains 100% of the W-2 and child-care recoveries crediting them to the appropriation for federal block-grant aids for re-expenditure on these programs. AFDC recoveries, on the other hand, are split three ways: The federal government receives a share of these revenues paid directly to it. Counties and tribes are allowed by statute to retain 15% of the AFDC overpayments they recover that were not due to administrative error. Those revenues are paid directly to them from the non-federal share of collections, and the net state share, approximately 26% of gross AFDC recoveries, is credited to the program-revenue appropriation at s.20.445 (3) (L): $581,163 X 26% = $151,100 in additional revenue for this appropriation. Neither the county share of AFDC revenues ($581,163 X 15% = $87,200) nor the federal share is reflected as a state revenue or expenditure; only the net state share is reflected as state revenues.

V. W-2 and child-care recoveries do not truly represent “additional" state revenues since they do not increase the block grants Wisconsin receives for these purposes; however, since they are often attributable to expenditures in a previous biennium, they may represent revenues in addition to the block grant amounts budgeted within a particular fiscal year or biennium. Therefore, this fiscal note portrays the annualized fiscal effect as including additional federal revenues. DWD's 2005-07 budget request proposes to recognize that aspect by creating a new appropriation.

VI. Counties are the only level of local government affected by this rule. Clerks of circuit courts may experience increased costs to the extent DWD increases its use of liens, and county sheriffs may experience increased costs to the extent the department proceeds to execute lien warrants by selling real or personal property located within a county. However, s.49.195 (3m) of the Statutes provides for clerks of courts to submit fee amounts to DWD to be added to the amount of the warrant, which should minimize any net cost to a county. In addition, since counties receive 15% of most AFDC collections, they may receive additional offsetting revenues to the extent that this rule increases AFDC collections.

VII. No increased administrative costs are associated with the portion of this rule that merely updates, or places in rule, existing DWD collections policies and procedures. The department has not prepared estimates of the one-time or ongoing increased costs of lien and levy implementation. Since the would be paid from existing appropriations for administration of TANF programs and program revenue from the state share of AFDC collections, it is assumed for purposes of this estimate that the primary net effect is to increase state and county revenues compared to the revenue trends that would occur absent the provisions of this rule.

Contact Information

The proposed rules are available at the web site http://adminrules.wisconsin.gov by typing “public assistance overpayment" in the search engine. This site allows you to view documents associated with this rule's promulgation, register to receive email notification whenever the Department posts new information about this rulemaking order, and submit comments and view comments by others during the public comment period. You may receive a paper copy of the rule by contacting:

Elaine Pridgen

Office of Legal Counsel

Dept. of Workforce Development

201 E. Washington Avenue

P.O. Box 7946

Madison, WI 53707-7946

[phone]

[e-mail]

Written Comments

Written comments on the proposed rules received at the above address, email, or through the http://adminrules.wisconsin.gov web site no later than December 1, 2004, will be given the same consideration as testimony presented at the hearing.

Small Business Regulatory Coordinator

Jennifer Jirschele

[phone]

[e-mail]