Federal Foster Care Financing: How and Why the Current Funding Structure Fails to Meet the Needs of the Child Welfare Field. Benefits of the Proposed Child Welfare Program Option


The Child Welfare Program Option would allow innovative State and local child welfare agencies to eliminate eligibility determination and drastically reduce the time now spent to document federal claims. This effort could then be redirected toward services and activities that more directly achieve safety, permanency and well-being for children and families. Investments in preventive services and improved case planning could also reduce foster care needs. States taking child welfare funds through the Option would be held accountable for their programs through Child and Family Services Reviews and standard audit requirements. But these States would no longer be required to document expenditures in the level of detail now required to justify federal matching funds. The flexibility afforded by the Option would allow agencies to direct funds to those activities most closely addressing families' needs. HHS could then focus more fully on partnerships with States to achieve positive outcomes for children and families.

The proposed Child Welfare Program Option (CWPO):

  • Creates Structural Incentives for Better Outcomes.  The CWPO provides incentives for child welfare system improvement because it is through better outcomes that a State would win under the program. With a fixed funding level, States would be better off financially if children either stay at home safely, return home quickly, or are placed in adoptive homes (since Adoption Assistance would remain an entitlement). Since these are also the preferred outcomes for children, the program creates structural incentives that are in line with program goals.
  • Facilitates Quality Improvement.  The CWPO would encourage States to fund service improvements, particularly those called for in their Program Improvement Plans (PIPs) by allowing federal funds to be used for the full range of activities contemplated under the PIPs. In contrast with current law, States operating under the CWPO that are successful in reducing the need for foster care will be able to reinvest their title IV-E funds in other child welfare services rather than losing them to diminished foster care claims.
  • Reduces Burden.  Under the CWPO, the level of documentation required of States in order to receive federal child welfare funds would be reduced dramatically. While States would still be required to spend funds on child welfare services, they would no longer need to justify to the federal government for funding purposes precisely which services were delivered to which children. State and local funding decisions could in turn be made more in line with the needs of children and families without respect to whether the specific activity were reimbursable under title IV-E.
  • Increases Flexibility.  The restrictions in current law regarding which child welfare services may be provided with federal funds constrain State and local decision making regarding service offerings. The increased flexibility afforded by the CWPO will provide officials closest to child welfare cases with additional funding options, potentially leading to a more comprehensive service array for children and families.
  • Promotes Ongoing Programmatic Adaptation and Innovation.  The current system for claiming federal funds encourages status quo programming through its documentation requirements and close scrutiny of categories in which funding levels change significantly from year to year. States risk disallowances if they change how they claim or the services for which they claim federal funds. Alternatively, under current law innovation may be implemented without federal financial participation, a relatively costly option. The CWPO, on the other hand, would enable states to innovate using their federal foster care funds. Funds could be shifted among child welfare functions without concern for artificial expenditure categories or differential matching rates. The result is likely to be increased attention to outcomes for children and an improved ability to focus funding on strategies most likely to result in improved performance.

This paper has described the funding structure of the title IV-E foster care program and documented a number of its key weaknesses. In particular, the combination of detailed eligibility requirements and complex but narrow definitions of allowable costs force a focus on procedure rather than outcomes for children and families. Rules which have built up over the years cumulatively fail to support the program's goals of safety, permanency and child well-being. In addition, the restrictiveness of the federal foster care program prevents States from using these funds, by far the largest source of federal funding dedicated to child welfare activities, to implement many important elements in their Program Improvement Plans. These plans have been required of all States to address weaknesses in their programs detected during Child and Family Services Reviews. The Administration's proposed Child Welfare Program Option is intended to introduce flexibility while maintaining a focus on outcomes, retaining existing child protections, and providing a financial safety net for states in the form of access to the TANF Contingency Fund during unanticipated and unavoidable crises. The result will be a stronger and more responsive child welfare system that achieves better results for vulnerable children and families.

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