Federal Foster Care Financing: How and Why the Current Funding Structure Fails to Meet the Needs of the Child Welfare Field. Background and History of Title IV-E Foster Care


The federal government has, since 1961, shared the cost of foster care services with States. Prior to this time foster care was entirely a State responsibility. Since its very first days foster care funding was intimately linked to federal welfare benefits, then known as the Aid to Dependent Children Program, or ADC. In fact, the federal foster care program was created to settle a dispute with the States over welfare payments to single-parent households. At the time, some States routinely denied welfare payments to families with children born outside of marriage. These States had declared such homes to be morally unsuitable to receive welfare benefits. Following a particularly extreme incident in which 23,000 Louisiana children were expelled from ADC, the federal Department of Health Education and Welfare (HEW), in what came to be known as the Flemming Rule after then-secretary Arthur Flemming, directed States to cease enforcement of the discriminatory suitable homes criteria unless households were actually unsafe for children. If homes were unsafe, States were required to pay families ADC while making efforts to improve home conditions, or place children in foster care. When States protested the added costs of protecting children in unsafe homes, Congress reacted by creating federal foster care funding. In this way, the federal government ensured States would not be disadvantaged financially by protecting children (Frame 1999; Committee on Ways and Means 1992).

From 1961 until 1980, federal foster care funding was part of the federal welfare program, Aid to Families with Dependent Children (AFDC). Since 1980, however, foster care funds have been authorized separately, under title IV-E of the Social Security Act. From 1980 through 1996, States could claim reimbursement for a portion of foster care expenditures on behalf of children removed from homes that were eligible for the pre-welfare reform AFDC program, so long as their placements in foster care met several procedural safeguards. While the underlying AFDC program was abolished in 1996 in favor of the Temporary Assistance for Needy Families Program (TANF), income eligibility criteria for title IV-E foster care continues to follow the old AFDC criteria as they existed just before welfare reform was enacted. States are reimbursed on an unlimited basis for the federal share of all eligible expenses.

It should be noted that while title IV-E eligibility is often discussed as if it represents an entitlement of a particular child to particular benefits or services, it does not. Instead, a child's title IV-E eligibility entitles a State to federal reimbursement for a portion of the costs expended for that child's care.

Title IV-E remained little changed from its inception in 1980 until the passage of the Adoption and Safe Families Act in 1997 (ASFA). With ASFA, Congress responded to concerns that children were too often left in unsafe situations while excessive and inappropriate rehabilitative efforts were made with the family. It also addressed what was at least a perceived reluctance on the part of child welfare agencies and judges to seek terminations of parental rights and adoption in a timely fashion when reunification efforts were unsuccessful. ASFA clarified the central importance of safety to child welfare decision making and emphasized to States the need for prompt and continuous efforts to find permanent homes for children. These permanent homes might be with their birth families if that could be accomplished safely, or with adoptive families or permanent legal guardians if it could not. ASFA, together with related activity to improve adoption processes in many States, is widely credited with the rapid increases in adoptions from foster care in the years since the law was passed.

ASFA's emphasis on permanency planning has contributed to increasing exits from foster care in recent years, both to adoptive placements and to other destinations including reunifications with parents and guardianships with relatives. Combined with relatively flat numbers of foster care entries, the number of children in foster care has begun to decline, the first sustained decrease since the program was established.

State claims under the title IV-E foster care program have always grown more quickly than the population of children served. But the recent declines in the number of children in foster care have substantially curbed the tremendous growth the program experienced during the 1980s and 1990s. The number of children in foster care began declining slowly in 1999 after more than doubling in the preceding decade. Federal foster care program expenditures grew an average of 17 percent per year in the 16 years between the program's establishment and the passage of the Adoption and Safe Families Act (ASFA) in 1997. During that period, in only 3 years did growth dip below 10 percent. However, in the five years since ASFA was enacted, program growth has averaged only 4 percent per year. While some of the growth through 1997 paralleled an increasing population of children in foster care, spending growth far outpaced growth in the number of children served. Improvements in States' ability to claim reimbursement and expanded definitions of administrative expenses in the program also contributed to funding growth. Figure 1 displays the growth in foster care expenditures and the number of children in foster care funded by title IV-E.

Figure 1.
Federal Claims and Caseload History for Title IV-E Foster Care

Figure 1. Federal Claims and Caseload History for Title IV-E Foster Care.

The major appeal of the title IV-E program has always been that, as an entitlement, funding levels were supposed to adjust automatically to respond to changes in need, as represented by State claims. Annual discretionary appropriations were unnecessary to accommodate changing circumstances such as a larger population of children in foster care. The automatic adjustment features of the entitlement structure remain a strength, however, only so long as they respond appropriately and equitably to factors that reflect true changes in need and that promote the well-being of the children and families served. There is little reason to assume this is true at present. Figure 1 shows that funding levels and caseloads have not closely tracked one another for over a decade, and indeed since 1998 have been moving in opposite directions.

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