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Testimony of
Commissioner Richard L. Gregg
Financial Management Service--U.S. Department of the Treasury
before the
Subcommittee on Government Efficiency, Financial Management
and Intergovernmental Relations
House Committee on Government Reform
October 10, 2001
"The Debt Collection Improvement Act of 1996: How Well Is It Working?"

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me to testify this morning to provide an update on the Financial Management Service's (FMS) implementation of the Debt Collection Improvement Act of 1996 (DCIA). Your strong personal support together with the subcommittee's support has helped the Treasury Department in implementing a successful governmentwide debt collection program.

During the three and one-half years I have been at FMS, we have developed an efficient, flexible and expandable debt collection program that maximizes collections for the federal government and meets the needs of our partners. Having successfully followed that strategy, we have collected nearly $12 billion in delinquent debt since enactment of the DCIA. Three factors have contributed to this progress. First, FMS has established a strong program foundation anchored by an effective payment offset program and a growing cross-servicing operation. Second, the FMS staff has successfully expanded the capabilities of the collection systems and has worked with program agencies to improve their debt portfolios. And, third, the amount of delinquent debt that agencies refer to Treasury for collection has steadily increased. Approximately 91 percent of the delinquent debt that is eligible for referral to Treasury for collection has been referred to Treasury.

This morning, Mr. Chairman, I will describe the significant new elements of our program as well as update you on some that are near completion. Before I begin my remarks, I will speak briefly about debt collection and its connection to the advance refund credit payments commonly referred to as the tax rebate program provided for in the tax legislation enacted this past spring. Beginning in mid-July, FMS spearheaded the disbursement of the check payments to taxpayers, a project of major proportion. As the program draws to a close this fall, approximately 100 million payments will have been disbursed. Using a very robust and flexible offset system, FMS offsets the rebate payments through the Treasury Offset Program to collect delinquent federal and state debt. More than $470 million has been collected to date, with over $260 million of that total for the payment of past-due child support obligations.

Program Accomplishments

For Fiscal Year 2001, Treasury has collected over $3.1 billion in delinquent debt using all of our collection tools. Of this amount, $1.6 billion represents collections of past due child support; $1.4 billion represents delinquent federal non-tax debt, and $52 million was collected through cross-servicing. Attached to my statement is a chart showing the progress we have made in debt collection over the last six years. I will now outline several initiatives that have contributed to increased collections.

Benefit Payment Offset

In March 2001, as required by DCIA, FMS began offsetting the payments of Social Security beneficiaries who owe delinquent non-tax debts; however, no benefit payment of less than $750 is offset. We have just completed the phased implementation, and more than $5 million has been collected to date. Mr. Chairman, the smooth implementation of the program is due to the cooperation and support FMS has received from the Social Security Administration (SSA).

Continuous Federal Tax Levy

As authorized by the Taxpayer Relief Act of 1997, FMS and the Internal Revenue Service (IRS) launched the continuous federal tax levy program in July 2000, to collect delinquent federal tax debts from individuals and businesses that receive federal payments. Presently, IRS levies vendors where payment is disbursed by Treasury, individuals receiving Office of Personnel Management (OPM) retirement payments, and travel advance and reimbursement payments to federal travelers. Payments are being reduced continuously by FMS at a rate of 15 percent until the debts are paid, until other satisfactory repayment arrangements are made, or until the expiration of the statutory collection period. To date, more than $16 million has been collected. Our accomplishments and the success of the levy program can be attributed to the excellent working relationship and close cooperation between FMS and IRS.

State Income Tax Debt Collection

At the June 2000 oversight hearing, I reported that seven states were participating in the state income tax debt program to offset federal income tax refunds to collect delinquent state income tax debt. Twenty states now participate in the program, and participation by additional states is expected in the coming months. More than $118 million has been collected thus far, with $94 million having been collected in this calendar year.

Administrative Wage Garnishment

In August, FMS began implementation of the administrative wage garnishment process. Under this process, FMS issues wage garnishment orders directing a private sector employer to withhold amounts from an employee's wages; those amounts are forwarded to FMS and are in turn sent to the federal agency to which a delinquent debt is owed. Private collection agencies under contract with FMS are playing an integral role in the implementation. FMS views this as a tool with much potential and one that should be used in conjunction with other collection tools when those other collection attempts have been unsuccessful. So that agencies can take full advantage of FMS' centralized processes and established safeguards, we encourage them to use administrative wage garnishment through Treasury's cross-servicing program.

Program Expansion/Enhancement

Continuous Federal Tax Levy of Benefit Payments

Earlier I stated that the payments to vendors, federal government retirees, and federal travelers are currently subject to tax levy. In September, the program was expanded to include social security payments. IRS will now begin notifying certain Social Security benefit payment recipients who owe delinquent federal tax debts that their payments will be levied continuously at a rate of 15 percent until their debts are paid, until other satisfactory arrangements are made, or until the expiration of the statutory collection period. In addition to the IRS notice, FMS will send a notice to these recipients each month that a payment is levied. IRS is developing a process to ensure that the tax levy does not cause an undue hardship for lower income SSA recipients.

Centralized Federal Salary Offset

Another important enhancement to our debt collection program, which began last month, is a fully automated system to centralize the offset of federal salary payments. The first payments offset were the salary payments processed by the Department of Agriculture's National Finance Center. The program will be expanded to include the salary payments made by the Department of Interior, Department of Defense, the Postal Service, and Department of Veterans Affairs. In addition to collecting federal non-tax debt and delinquent child support debts, we will also, in the near future, be able to collect tax debt by levying federal salaries.

Offset of Non-Treasury Disbursed Payments

Assisting the Department of Defense in offsetting DOD vendor payments will also enhance debt collection. This feature has great promise, and, working with DOD, we plan to implement this offset program next year.

Delinquent Debtor Database Information Sharing

Barring delinquent debtors from obtaining federal loans and loan guarantees is a high priority for both FMS and for those federal agencies with loan authority. FMS is currently developing a system that will allow lending agencies to access information from the FMS delinquent debtor database so that government loans are not made to previously identified delinquent debtors. The database is designed to complement existing sources of information available to agencies -- to provide an additional tool to bar delinquent debtors from obtaining federal loan assistance. System implementation is expected next year.

Contract for the Services of Private Collection Agencies

I would also note that the current contract with private collection agencies expired September 30, 2001. The awarding of the new contract, that went into effect October 1, is the culmination of many months of meticulous work. FMS followed a very methodical plan that included the solicitation of input from collection agencies, market research, proposal presentations, fee negotiations, and system testing.

Fiscal Year 2000 Report to the Congress -- U.S. Government Debt Collection Activities

Finally, as required by DCIA, the annual report on the debt collection activities of federal agencies was recently submitted to Congress.

Mr. Chairman, this concludes my remarks. I would be happy to answer any questions you or the members of the subcommittee might have.

   Last Updated:  March 14, 2014