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Texas Performance Review
Disturbing the Peace Chapter 7
Employee Issues
EI 10: Improve Collection of State Employee Debt

Improve the collection of debt owed the state by its employees.

Background

One subset of debt due the state is the amount owed by state employees. The Comptroller's warrant hold program reports that 10,343 state employees owed the state $44.3 million as of June 1996.[1] (Exhibit 1.) Currently, $28.3 million, or 63.9 percent, is owed through student loan programs. The Texas Guaranteed Student Loan Corporation (TGSLC), which administers the federal guaranteed student loan program in Texas, is owed the largest proportion ($25.5 million, or 57.6 percent, of the total amount).[2] The debt held by TGSLC may be reinsured by the federal government. The Texas Higher Education Coordinating Board's (THECB) Hinson-Hazelwood student loan program is owed $2.7 million, or 6.1 percent of the total amount.[3] Another $13.6 million (30.7 percent) is owed to the Attorney General for child support payments, while the remaining $2.4 million (5.5 percent) is due to the Comptroller's office for delinquent taxes and the Texas Workforce Commission for unemployment tax liability.[4]

Exhibit 1

State Debt Owed by State Employees, June 1996

Source: Texas Comptroller of Public Accounts.


Warrant holds

The Comptroller's warrant hold program offers all state agencies a tool to collect outstanding debts. Fifty-two agencies currently participate. The warrant hold program applies only to non-salary payments and is fairly simple. An agency sends the Comptroller's office a request to participate in the program. The Comptroller's Claims Division asks the agency to identify the source of debt owed the state. The agency submits identification numbers for the debtors (either individuals or organizations) to the Claims Division. From then on, as the Comptroller's office prepares warrants, the debtors' identification numbers are electronically checked against the prepared warrants.

If a state employee to whom a warrant is made payable owes money to an agency participating in the program, the warrant is held by the Comptroller's office, and the agency on whose behalf the warrant was printed is notified that the individual will not receive the warrant. The employee is notified of the withheld warrant, the outstanding debt amount, and the amount of the warrant withheld. If the warrant is to be released, the employee must contact the agency owed and agree upon a payment plan. The agency holding the debt then must contact the Comptroller's office to release the warrant. The agency may choose to collect on a certain portion of the debt before the warrant is released, or to release the warrant as soon as a payment agreement is reached.

If a state employee owes delinquent taxes to the Comptroller's office, the Government Code SS403.055(g) gives the Comptroller the authority to apply the warrant to the total amount that individual owes the state. Taxes can be offset--applying the warrant to the delinquent debt--by warrants other than salary. Taxes and other debts to the state may also be offset by lottery winnings, as authorized by the Government Code SS466.407.

Wage garnishment

In addition to warrant hold, the state also may collect debts through garnishment, a process by which part of an involuntary deduction is made from an individual's wages to repay a debt. Wage garnishment is a severe measure and one that is used only rarely. Under present law, Texas may garnish current wages for only two forms of debt: child support payments and student loans. The Texas Constitution specifically prohibits garnishment except in court-ordered child support cases, but federal law has superseded the constitution in the case of student loan repayment.

The Texas Supreme Court ruled in Orange County, Texas v. Ware, a 1991 decision, that the Texas constitutional prohibition against garnishment of current wages does not apply to an employer's withholding of an employee's compensation until the employee's debt to the employer is paid. The Court ruled that a garnishment occurs only when three parties are involved: the employer, the employee, and the third party creditor. Thus, holding a state employee's paycheck because the employee is indebted to the state would not appear to be an unconstitutional garnishment. It might be possible for the state to hold a salary payment if the applicable laws were changed.

Child support enforcement

Enactment of the federal Child Support Enforcement Act (P.L. 93-647) in 1975 strengthened the public's commitment to address the problem of nonsupport of children, with program administration left to the states. This commitment was further enhanced by the Family Support Act of 1988 (P.L. 100-485) which required states to impose wage withholding on the noncustodial parent in all new or modified child support enforcement program cases. As of January 1, 1994, states were required to provide for immediate wage withholding for all support orders issued, regardless of whether a parent has applied for child support enforcement services.

Child support payments are generated through court orders. Custodial parents failing to receive child support payments may apply for collection services through the Office of the Attorney General (OAG). OAG also may begin collection services if a custodial parent applies for Aid to Families with Dependent Children (AFDC) benefits and is not receiving child support payments. OAG attempts to persuade the non-custodial parent to pay current and past-due child support. If this effort is unsuccessful, OAG then may begin the garnishment process by serving the non-custodial parent's employer with a court order or writ of withholding to turn over a portion of the parent's compensation. OAG may garnish up to 50 percent of the parent's disposable earnings to satisfy the debt. The specific amount is set by the court order or writ.

According to the warrant hold information, $13.6 million is owed the OAG for child support payments--$832,000 of which is owed by employees whose child or children receive AFDC and $12.8 million owed in non-AFDC cases. The federal government reimburses the state 66 percent of the costs related to child support enforcement.[5] In 1995, the state paid about 37 percent of the cost of AFDC and is entitled to the same proportion of the additional AFDC-related child support collections.[6]

Collection of outstanding student loans

In 1991, the federal Emergency Unemployment Compensation Act (P.L. 102-164; 20 U.S.C. SS1095a et seq.) gave TGSLC the ability to garnish up to 10 percent of a debtor's disposable pay. TGSLC may continue to garnish wages until the defaulted loan has been paid in full. TGSLC has established criteria for wage withholding. Wages may be withheld if an employee has at least $400 outstanding, a $12,000 salary, and a collection account that is being worked by a TGSLC collector.[7] TGSLC reports that most state workers with unresolved collection accounts (those in which no payment has been made in at least 60 days) who are candidates for wage withholding do not have large salaries. As of August 1996, 55 percent earned less than $20,000 a year, and 96 percent earned less than $30,000 annually.[8]

June 1996 data from the Comptroller's warrant hold program indicate that almost 5,600 state employees, or about 2.1 percent of total full-time equivalent employees, are in default on student loans. The total amount in default is $28.3 million.[9]

State employees owe TGSLC, THECB, and 20 institutions of higher education student loan debt. Information from the Comptroller's warrant hold program indicates that 4,600 employees owe TGSLC about $25.5 million, an amount representing about 90 percent of the total student loan debt of state employees.

The other state program with a substantial student loan debt is the Texas Higher Education Coordinating Board's Hinson-Hazelwood Program. The agency is due $2.7 million (9.5 percent of the total student loan debt) from state employees, according to data from the warrant hold program. The remaining 20 agencies (which comprise only about 0.5 percent of state employee student loan debt) are institutions of higher education, including the Texas State Technical College System, medical schools, and community colleges.[10]

Limitations to state collection programs

Several limits to the effectiveness of wage garnishment and warrant holds exist. The biggest limit to wage garnishment is that it can be used for only two state-administered programs. A constitutional amendment or a new federal law would be required to expand the program.

The largest limitation in the warrant hold program is that there is not a mandatory usage of the Comptroller's system. Moreover, the warrant hold program is effective only if an employee receives payments other than salary compensation. Debt for a state employee who never or rarely travels, for instance, could remain uncollected.

Another factor is the amount of time needed to collect a debt through warrant hold. A warrant is valid for two years, and the Comptroller's Claims Division reports that a fair number of withheld warrants simply expire. This occurs for any number of reasons; in some cases, the debtor never contacts the agency owed to work out a plan, or the agency owed chooses not to release the warrant. In at least some cases, at any rate, a withheld warrant is not a sufficient motive to prompt debtors to begin paying their debts. Some debtors may consider multiple withheld warrants sufficient cause to begin paying a debt, but generating that number of warrants may take months or even years.

A final limitation on the warrant hold program is that little aggregate information is available regarding collections and debts owed the state. The Comptroller's Claims Division receives information from agencies about outstanding debt to generate warrant holds, but agencies are not obligated to update this information after the initial data have been submitted.

Recommendations

A. State law should be amended to broaden the Comptroller's warrant hold program and require mandatory participation by all state agencies and institutions of higher education.

The Comptroller's warrant hold program applies only to warrants issued by the Comptroller's office. The program could be expanded so that any payments by the state would be withheld until debts owed by people receiving state payments are cleared.

Ultimately, the program could be expanded so that debtors to the state would be precluded from receiving licenses and permits.

B. State law should be amended to allow the Comptroller's office to promulgate and enforce rules regarding the submission of updated warrant hold information from state agencies and institutions of higher education to ensure accuracy.

C. State law should be amended to allow for the automatic offset of liabilities against warrants issued by the state.

This provision would allow a warrant that is issued and held to be applied against a debt owed the state, treating all debts like taxes are currently treated. This recommendation should not be applicable to salary payments.

D. State law should be amended to require automatic payroll deductions for state employees with delinquent debt payments.

If a state employee becomes delinquent in his or her repayment of debts to the state, the owed agency should be able to set up a payroll deduction automatically to repay the debt. For those deductions not established by federal or state law, the Comptroller's office should use its current statutory authority to establish the priority of deductions.

E. State law should be amended to allow the Comptroller's office to adopt a warrant hold policy relating to state salaries.

Using the Comptroller's warrant hold program to hold a state employee's paycheck because the employee is indebted to the state would not appear to be an unconstitutional garnishment.

Many state employees may not know that they owe a debt to the state until a warrant is issued and held. Notices of delinquency should be sent to all employees owing a debt by the agency owed, along with information regarding repayment procedures. Upon receipt of the notice, the delinquent employee would be responsible for contacting the owed agency to voluntarily set up a payment plan.

If no contact was made by the employee, the owed agency would be obligated to notify the Comptroller's office, the employee, and the employing agency that the employee's paycheck will be held. Arrangements for payment toward the debt would have to be made before the owed agency releases the warrant. As mentioned earlier, the Comptroller's office has the authority to establish the priority of payments for debts that neither federal nor state law address.

Provisions for enforcement would have to be made by the agency owed for those employees who are paid with local funds. The owed agency would have to determine which state employees are paid with local funds, and would then be obligated to establish a payment plan for the delinquent employee. The owed agency would have to notify the employee of the impending deduction and submit the payment plan to the employing agency for enforcement of the deduction.

Fiscal Impact

A stricter approach to collecting debt owed the state by state employees would presumably increase the amount of debt collected by the state. Implementation of these recommendations would require programming changes to the Texas Payee Information System and the Uniform Statewide Personnel/Payroll, incurring some costs which would be absorbed by the Comptroller's office. The cost of this recommendation is negligible.

Footnotes

[1] Texas Comptroller of Public Accounts, Count of State Employees on Hold, June 24, 1996, pp. 1-17. (Statistical report.)

[2] Texas Comptroller of Public Accounts, Count of State Employees on Hold, pp. 9-12.

[3] Texas Comptroller of Public Accounts, Count of State Employees on Hold, pp. 6-8.

[4] Texas Comptroller of Public Accounts, Count of State Employees on Hold, pp. 1-17.

[5] "The 1994 Green Book Overview of Entitlement Programs, Section 11. Child Support Enforcement Program" (http://aspe.os.dhhs.gov/GB/sec11.txt). (Internet document.)

[6] "The 1994 Green Book Overview of Entitlement Programs, Section 10. Aid to Families with Dependent Children and Related Programs (Title IV-A)" (http://aspe.os.dhhs.gov/GB/sec10.txt). (Internet document.)

[7] Texas Guaranteed Student Loan Corporation, "Unresolved Collection Accounts as of August 12, 1996, by whether or not Defaulter meets TGSLC Wage Withholding Criteria; Workers Employed by a State of Texas Agency as of July 31, 1996, Sorted by Agency Name," August 20, 1996, p. 1. (Statistical report.)

[8] Texas Guaranteed Student Loan Corporation, "Unresolved Collection Accounts as of August 12, 1996 by whether or not Defaulter meets TGSLC Wage Withholding Criteria; Workers Employed by a State of Texas Agency as of July 31, 1996, by Annual Salary Range," August 12, 1996, p. 1. (Statistical report.)

[9] Texas Comptroller of Public Accounts, Count of State Employees on Hold, pp. 1-17.

[10] Texas Comptroller of Public Accounts, Count of State Employees on Hold, pp. 1-17.

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