Federal Foster Care Financing: How and Why the Current Funding Structure Fails to Meet the Needs of the Child Welfare Field. The Current Funding Structure is Inflexible, Emphasizing Foster Care


Title IV-E has long been criticized because it funds foster care on an unlimited basis without providing for services that would either prevent the child's removal from the home or speed permanency (see, for example, The Pew Commission on Children in Foster Care, 2004 and McDonald, Salyers and Shaver 2004). Funding sources for preventive and reunification services, primarily the Child Welfare Services Program and the Promoting Safe and Stable Families Program funded under title IV-B of the Social Security Act, are quite small in comparison with those dedicated to foster care and adoption. As shown in Figure 8, foster care funding under title IV-E made up nearly two-thirds (65%) of federal funding dedicated to child welfare purposes in Fiscal Year 2004. Adoption Assistance funding (also authorized under title IV-E) represents another 22%. Funding sources that may be used for preventive services (but which also fund some foster care and adoption related services), including funds from the title IV-B programs and the discretionary programs funded from authorizations in the Child Abuse Prevention and Treatment Act, represent 11% of federal child welfare program funds.

Figure 8.
Federal Child Welfare Funding, FY2004

Figure 8. Federal Child Welfare Funding, FY2004.

Other federal social services programs such as the Social Services Block Grant (SSBG) and Temporary Assistance for Needy Families (TANF) also fund some services for families experiencing or at risk of child welfare involvement, as can Medicaid. These funding streams are not intended primarily for these purposes, however, and, with the exception of SSBG, available program data does not break out spending on child welfare related purposes. (The Fiscal Year 2002 annual expenditure report for the SSBG program (HHS, 2004) shows that states spent a total of $634 million in SSBG funds for child welfare services that year.) Surveys and analysis conducted by private research organizations indicate these funding sources provide considerable funding for child welfare services, though much of that is still concentrated on out-of-home care. Studies conducted by the Urban Institute found that in State Fiscal Year 2002 these non-traditional federal child welfare funding sources (primarily SSBG, TANF and Medicaid) paid for just over $5 billion in child welfare services. Of this total, $2.1 billion was spent on out-of-home placements, $1.3 billion paid for other services including prevention and treatment, $419 million went to administrative activities, and $98 million funded adoption services. States were unable to categorize purposes on which the remainder of funds were spent, nearly $700 million (Scarcella, Bess, Zielewski, Warner and Geen, 2004).

Some have argued that because foster care is an entitlement for eligible children while service funds are limited, title IV-E encourages foster care placement. However, it seems unlikely that caseworkers make placement decisions on the basis of children's title IV-E eligibility, nor is it likely that judges use title IV-E status as a significant factor in their placement rulings. Indeed, caseworkers and judges are often unaware of children's eligibility status. A lack of available family services, however, could plausibly tip caseworkers' decisions toward placement or delay a child's discharge. Quantifying such effects is difficult, however.

Many in the child welfare field believe that with more flexibility in funding States would devote additional resources to preventive and reunification services, and that better outcomes for children and families could be achieved. Since 1996, Child Welfare Demonstration Projects in 17 States have generated evidence about the effects of allowing State and local agencies to use federal foster care funds more flexibly, either for children not normally eligible for title IV-E or for services title IV-E would could not otherwise cover. While most of the States tested a single, specific alternative use for foster care funds, such as guardianship subsidies or improved interventions for parents with substance abuse problems or children with serious mental health conditions, four States are testing broader systems of flexible funding that resemble the Administration's proposal for a Child Welfare Program Option. These demonstrations are operating in Indiana, North Carolina, Ohio, and Oregon. In each case, the State provides counties a fixed allotment of title IV-E funds which then may be used to pay for services to prevent foster care placement, facilitate reunification, or otherwise ensure safe, permanent outcomes for children.

Evaluation results to date are encouraging. While the demonstrations did not always achieve their goals, in no case did outcomes for children deteriorate as a result of increased flexibility. North Carolina found flexible funding contributed to declines in the probability of out-of-home placement following a substantiated child abuse or neglect report. Demonstration counties in Ohio expressed increased support for prevention activities and were more likely than traditionally funded counties to create new or expanded prevention services. And in Oregon, the combination of demonstration funds and the State's System of Care Initiative dramatically improved the likelihood that at-risk children could remain safely in their homes rather than being placed in foster care. It should be noted that demonstration projects did not provide any more title IV-E funds than the State would have received in the absence of a demonstration. The projects were cost-neutral. States were granted only the flexibility to spend funds in broader ways than is normally allowed.

Flexible spending alone will not address the weaknesses in child welfare systems around the country. But such flexibility can allow strong local leaders to implement practice improvements more easily and thereby generate improved outcomes. Among the types of practice changes implemented in flexible funding demonstrations are strengthened family assessments; enhanced visitation; intensive family reunification services; family decision meetings; and improved access to substance abuse and mental health treatment. That nearly half of States have implemented waiver demonstrations indicates widespread interest in more flexible funding for State child welfare programs. Interest in flexible funding has grown now that many States have successfully implemented new service models while enhancing, or at least not compromising, safety, permanency and child well-being.

In recognition that flexibility can produce best results when accompanied by enhanced funding, the Bush Administration has consistently supported funding increases for child welfare. In particular, HHS budgets from FY2002 through FY2005 each included substantial proposed increases for the Promoting Safe and Stable Families Program, in the amount of $1 billion over five years. However, Congress each year appropriated substantially less than the requested amount. For FY2005, the Administration also proposed substantial increases for several key child abuse prevention efforts authorized under the Child Abuse Prevention and Treatment Act which again were not funded by Congress.

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