Treasury Offset Program: Your State’s Key to Maximizing Delinquent Debt Collections March 22, 2013

1. Treasury Offset Program: Your State’s Key to Maximizing Delinquent Debt Collections March 22, 2013

2. Who We Are • Debt Management Services (DMS) • Bureau of the Fiscal Service (formerly the Financial Management Service) • United States Department of the Treasury

3. DMS’ Role with the States • Assists state governments in collection of state income tax debts, unemployment insurance compensation debts and other state debts • Provides access to the Do Not Pay program

4. Treasury Offset Program • TOP is a centralized offset process that intercepts federal and state payments of payees who owe delinquent debts to federal agencies and states that have submitted their debt information to FMS. • State agencies submit eligible debts to TOP and certify that debts are valid, delinquent, and legally enforceable, and that all due process prerequisites have been met. • Due process prerequisites include: • 60-day prior notice to the debtor • Opportunity to dispute the debt

5. Treasury Offset Program State Programs TOP Database Child Support Debt Unemployment Insurance Compensation Debt Child Support Child Support SRP UIC Federal Tax Refund Payments State Income Tax Debt Federal Non-Tax Payments (Vendor, Travel, Misc.) SRP State Income Other State Debt SRP State Programs State Payments (Vendor, State Tax Refunds, Other) Federal Non-Tax Debt Federal Programs SRP

6. TOP State Programs

7. State Income Tax • Refer delinquent state income tax debts to TOP for offset against federal tax refund payments. • Special Requirements (26 U.S.C. 6402(e)) • Send 60-day notice via certified mail, return receipt requested • Taxpayers must reside in the state to which the tax obligations is owed

8. Top 10 State Income Tax Participants in CY2012

9. Unemployment Insurance Compensation Debts • Recover overpayments, uncollected contributions, and associated penalties/interest if the UIC debt is due to failure to report earnings or delinquent contributions under regulations from the Department of Labor through the offset of Federal income tax refund payments. • Regulations established by the U.S. Department of the Treasury (26 U.S.C 6402 (f)).

10. Unemployment Insurance CY2012 Collection Totals

11. The State Reciprocal Program • Enter into an agreement with BFS • Refer debts to TOP for collection from vendor payments, AND • Intercept state payments to collect federal non-tax debts • Rule on Administrative Offset Under Reciprocal Agreements with States (31 CFR 285.6)

12. State Reciprocal Program CY2012 Collection Totals NOTE: In return, states recovered $20.5 million for federal agencies.

13. TOP State Success Stories

14. States Participating in Income Tax, SRP, & UIC CY2012 Minnesota joined the State Reciprocal Program (SRP) on May 31, 2012 and the Unemployment Insurance Compensation (UIC) Program on September 7, 2012. †

15. $7.4 Million in Unemployment Fraud Recouped in Seven Days – WLBT: Mississippi News Now WLBT, the Jackson, Mississippi, NBC affiliate, on February, 14, 2012, aired a report concerning the increased collection of unemployment debts from those individuals collecting unemployment benefits fraudulently. WLBT reported that the Mississippi Department of Employment Security had collected $7.4 million in its first week participating in TOP. This means that Mississippi was able to recoup 12% of their UIC debts in just the first seven days of using the program.

16. The State of New York Recovers $50 million of Fraudulently Collected Unemployment Insurance via TOP- http://www.governor.ny.gov Governor Andrew Cuomo announced that $51.2 million in fraudulently-collected unemployment insurance benefits have been returned to New York’s Unemployment Insurance Trust Fund. “Once again, New York is at the forefront of efforts to protect taxpayer dollars through preventing and collecting fraudulently-obtained government payments. Every dollar we recover through this program becomes available to eligible unemployed New Yorkers who are most in need of this vital economic safety net,” Governor Cuomo said. “We will continue to do everything we can to collect fraudulently-obtained benefits from people who don’t deserve them, and who are in fact stealing from their fellow New Yorkers.”

17. State of Maryland Comptroller State Income Tax Program “Maryland is leading the way in collecting back taxes,” said Comptroller Franchot. “Given the fiscal challenges we face, it’s critical we use all available resources to get any money owed the state.” State Reciprocal Program “The offset program we conduct with the federal government is one of the most successful in the nation,” said Comptroller Franchot. “It keeps growing because we’re able to quickly certify more accounts to intercept.”

18. State Challenges Identified

19. Centralization • While centralizing your State’s debt portfolio and payment streams is ideal, it is not a requirement for participation in the program. TOP will work with you to find a way to make the program work for your agency.

20. Legislation • BFS is committed to assisting States with the process of obtaining legislation. We can: • Provide draft legislation • Provide support from the BFS legal team • Host a Legislative Forum for State Attorney Generals • Provide the commitment and support of our BFS Commissioner, the DMS Assistant Commissioner and Deputy Assistant Commissioner for state meetings with officials

21. State Legislation/ Regulation Checklist Essential Items: While states must abide by all the terms of the reciprocal agreement, the following are most often affected by state legislation: • Authority to offset state tax refunds. If the state issues any tax refunds, they must be subject to offset to collect federal debts. • Authority to offset other state payments. Legislative authority should be broad enough to include all state payments specified in the reciprocal agreement. • Authority for appropriate state official to submit state debts to TOP. TOP generally only accepts one or two points of connection with a state; so the authorized official(s) should be the officials that are capable of submitting the debt. • Authority for BFS to deduct a fee from offset collections. Federal law requires that BFS charge a fee to cover its costs of running the TOP program. BFS withholds a portion of each collection it makes from a federal payment for a state as its fee. States are free to add that fee amount to the debt balance, if state law authorizes it. • No authority to charge FMS a fee. Federal law does not permit BFS to pay a fee to the states when the state offsets a payment to collect a federal debt. • Due process. State law cannot require BFS or federal agencies to provide different due process from that set forth in the agreement and in 31 CFR 285.6.

22. State Agencies in TOP as Debtors • TOP will offset a payment when the TIN of a state agency receiving a payment is the same as the TIN of the state agency owing the debt. • TOP sends a letter notifying the payee state agency of the offset, if available. If not, TOP will use the debt address. • Treasury Offset Division (TOD) can provide your state with a report to help identify debts owed by state agencies, and assist you with the resolution and payment of these debts. • A written authorization from your state’s Controller is required for TOD to release this information at the beginning of each month.

23. State Outreach Plan: 2013

24. Identifying Solutions Objective: To identify, recognize, and develop solutions for challenges that States face in participating with SRP. Methodology: • Meetings and Conferences • Partnership Symposium • Legislative Forum for Attorney Generals • DMS Annual Report to the States • Offsets MatterNewsletter

25. Program Expansion Objective: To identify new debt and payment streams from States currently in the SRP and those planning to join. Methodology: • Identify potential debtstreams that may require statutory or regulatory changes • Identify potential payment streams that may require statutory or regulatory change

26. Solicit Feedback Objective: To hear directly from the States about SRP challenges, experiences, and program recommendations. Methodology: • Conference presentations • Targeted state meetings • Pre-Implementation support • Vehicles for shared ideas across states and DMS

27. Why Join SRP?

28. SRP Benefits • An average recovery rate of $4.7 million per year. • Access to Federal Non-Tax Payment offsets for the UIC and State Tax programs. • Recovery of valuable funds for Federally sponsored programs. • Opportunity to maximize States’ debt collection potential.

29. State Program Contact TOP Program Lead David Burgess David.Burgess@fms.treas.gov 202-874-7182