Federal Foster Care Financing: How and Why the Current Funding Structure Fails to Meet the Needs of the Child Welfare Field. Documenting Eligibility and Claiming Foster Care Funds is Burdensome


In order to receive federal foster care funds, States are required to determine a child's eligibility, and must document expenditures made on behalf of eligible children. This documentation becomes the basis for expenditure reports which are filed quarterly with the federal government. The federal share of eligible expenditures may then be drawn down (i.e. withdrawn from federal accounts) by States. While good estimates of the time and costs involved in documenting and justifying claims are not available, such costs can be significant.

As laid out in law and regulations, there are four categories of expenditures for which States may claim federal funds. Each of these is matched at a particular rate that varies from category to category. In addition, the match rate for foster care maintenance payments varies from State to State and may be adjusted from year to year. These categories are:

  • foster care maintenance payments for eligible children (matched at the Medicaid rate which varies by State and by year, but currently ranges from 50 to 80%)
  • short- and long-term training for State and local agency staff who administer the title IV-E program, including those preparing for employment by the state agency, as well as for foster parents and staff of licensed child care institutions in which title IV-E eligible children reside (75% federal match)
  • administrative expenditures necessary for the proper and efficient administration of the program (50% federal match)
  • costs of required data collection systems (50% federal match)

With so many different categories of expenses, each matched at a different rate, States must accurately track spending in each of these categories and attribute how much of their efforts in each category are being made on behalf of eligible children. States report that doing so is cumbersome, prone to dispute, and does not accomplish program goals. Adding an additional layer of complexity, costs must be allocated to those programs which benefit from the expenditures, a standard practice in federal programs. A State's cost allocation plan is approved by the federal government and distributes expenses that relate to multiple programs and functions.

The categories of administrative and training expenses are typically the most difficult to document and the most often disputed. Federal regulations (45 CFR 1356.60) provide the following examples of allowable administrative expenses:

  • eligibility determination and re-determination, plus related fair hearings and appeals
  • referral to services
  • preparation for and participation in judicial determinations
  • placement of the child
  • development of the case plan
  • case reviews
  • case management and supervision
  • recruitment and licensing of foster homes and institutions
  • rate setting
  • a proportionate share of agency overhead
  • costs of data collection systems

There is an ambiguous dividing line between an administrative expense such as case management and ineligible service costs, such as counseling. Such activities may be performed by the same staff and sometimes in the same session with a client. This makes accurate claiming difficult and gives rise to frequent disputes about allowable expenditures. For this reason, administrative costs are much more frequently the subject of disallowances than are other funding categories.

The ability of States to claim title IV-E funds spent on training activities is confounded by statutory and regulatory provisions that are mismatched with how State agencies currently operate their programs. For instance, while many States now contract with private service providers for administrative functions such as those listed above, they receive lower rates of federal reimbursement of their costs for training these workers to perform these functions. Only costs incurred by the State in the training of State and local agency workers and those preparing for employment with the state agency can be reimbursed under title IV-E at the enhanced, 75 percent match rate (rather than the 50 percent match rate for administrative expenses). Furthermore, only public funds or expenditures can be used to match title IV-E training funds. It is common practice to consider the staff time and other resources of a state university as match for federal funds when training child welfare agency employees. However, this practice disadvantages States that utilize private colleges and universities for training and limits the training resources available, particularly in rural States where the number of State universities and colleges are limited and at great distances from those people requiring the training.

Just as claiming rules are complex, requirements for children's title IV-E eligibility are also cumbersome. Several eligibility requirements must be met in order to justify the title IV-E claims made on a child's behalf. These are described in the text box below. Some of these apply at the time a child enters foster care, while others must be documented on an ongoing basis. Most of these are procedural requirements intended to protect children from potential harm caused by inattentive agencies and systems. It is unclear, however, that they function reliably as eligibility criteria. For example, the fact that judicial determinations routinely include reasonable efforts and contrary to the welfare determinations may represent a judge's careful consideration of these issues, or may simply appear because prescribed language has been automatically inserted into removal orders. These process requirements were essential when federal oversight was limited to assuring the accuracy of eligibility determinations. However, now that the Child and Family Review process (discussed in some detail in a later section) provides comprehensive assessments of States' child welfare programs, some of what are currently individual eligibility criteria could be addressed more effectively as part of the systemic assessment process.

The eligibility criterion that is most routinely criticized by States and child welfare advocates is the financial need criteria as was in effect under the now-defunct AFDC program. As noted above, this requirement relates to the historical origins of the foster care program as part of the welfare system. However, there is no policy reason that the federal government should care (in monetary terms) more about children in imminent danger of maltreatment by parents who are poor than it does about children whose parents have higher incomes. The requirement is particularly peculiar because the AFDC program was eliminated in favor of Temporary Assistance for Needy Families in 1996. Therefore the means test used for title IV-E no longer parallels the income and asset limits for existing welfare programs. And since this so-called look back provision did not index the 1996 income and asset limits for inflation, over time their value will be further eroded. Fewer children will be eligible for title IV-E in the future as income limits for the program remain static while inflation raises both incomes and the poverty line.

Eligibility Requirements for Title IV-E Foster Care

Contrary to the welfare determination.  A child's removal from the home must be the result of a judicial determination to the effect that continuation in the home would be contrary to the child's welfare, or that placement in foster care would be in the best interest of the child. Children in foster care as a result of a voluntary placement agreement are not subject to this requirement.

Reasonable efforts determination.  The State agency must obtain a judicial determination within 60 days of a child's removal from the home that it has made reasonable efforts to maintain the family unit and prevent the unnecessary removal of a child from home, as long as the child's safety is ensured. In addition, there must be ongoing documentation that the State is making reasonable efforts to establish and finalize a permanency plan in a timely manner (every 12 months).

State agency placement and care responsibility.  The State child welfare agency must have responsibility for placement and care of the child. Usually this means the child is in the State's custody. A tribal agency or other public agency may have responsibility for the child's placement and care if there is a written agreement to that effect with the child welfare agency.

Pre-welfare reform AFDC eligibility.  The State must document that the child was financially needy and deprived of parental support at the time of the child's removal from home, using criteria in effect in its July 16, 1996 State plan for the Aid to Families with Dependent Children program. Income eligibility and deprivation must be redetermined annually.

Licensed Foster Family Home or Child Care Institution.  The child must be placed in a home or facility that meets the standards for full licensure or approval that are established by the State.

Criminal background checks or safety checks.  The State must provide documentation that criminal records checks have been conducted with respect to prospective foster and adoptive parents and safety checks have been made regarding staff of child care institutions.

Special Requirements in the Case of Voluntary Placements.  If a child is placed in foster care under a voluntary placement agreement, title IV-E eligibility rules apply slightly differently. Determinations that remaining in the home is contrary to the child's welfare and that reasonable efforts have been made to prevent placement are not required in these cases. However, if the child is to remain in care beyond 180 days, a judicial determination is required by that time indicating that continued voluntary placement is in the child's best interests.

That each child's eligibility depends on so many factors, some of which may change from time to time, makes title IV-E a potentially error-prone program to which there is recurrent pressure for accuracy, close procedural scrutiny, and the taking of disallowances. On the other hand, the potentially large sums involved mean that disallowances are met with procedural disputes, appeals, and protests from agency directors, legislators, and governors. Yet it is not at all clear that the time and effort spent tracking eligibility criteria results in better outcomes for children. For all the complexity of the eligibility process, the number of States out of compliance is actually quite low.

Compliance with eligibility rules is monitored through Title IV-E Eligibility Reviews that have been conducted since 2000. Fifteen of the forty-four States reviewed by the end of 2003, plus the District of Columbia and Puerto Rico, were found not to be in substantial compliance with IV-E eligibility rules. The remainder had minimal errors in their eligibility processes and were generally operating within program eligibility rules. Even among the States required to implement corrective action plans, several are not far from compliance levels.

Of those States not in substantial compliance, the pattern of errors varied. The most widespread problems relate to reasonable efforts to make and finalize permanency plans. Ten states had large numbers of errors in this category and 44% of all errors involved reasonable efforts violations. In most cases these are cases with late or absent permanency hearings, that is States were not operating within the time frames laid out by the Adoption and Safe Families Act. Four States had frequent licensing problems, usually that children were placed in unlicensed foster homes (23% of all errors). Three States had significant errors related to the application of pre-welfare reform AFDC eligibility criteria (11% of all errors). Two States had quite a few missing criminal background checks on foster parents (8% of all errors). There were very few errors with respect to contrary to the welfare determinations, placement and care responsibility, or extended voluntary placements. A full listing of errors documented in eligibility reviews through Fiscal Year 2003 appears in Table 1.

Table 1.
Distribution of Errors Among States Found Not in Substantial Compliance with Title IV-E Eligibility Rules
State Found Not in Compliance Number Cases Found Ineligible Licensing Problems Lacking Criminal Background Checks Reasonable Efforts Violations Missing Contrary to the Welfare Determinations Child Welfare Agency Lacks Placement and Care Responsibility Extended Voluntary Placement without Court Approval 1996 AFDC Criteria Not Met Disallowance Amount
New Jersey 2000 Initial Primary 44 33 0 14 0 4 3 3 $269,903
Kansas 2000 IP 16 6 0 6 7 0 0 10 $74,265
Maine 2001 1P 24 22 0 3 0 2 0 3 $182,737
Hawaii 2001 IP 25 0 18 1 0 2 1 3 $238,432
Iowa 2001 IP 22 0 3 6 6 0 0 15 $156,915
Vermont 2002 IP 26 2 0 4 7 4 0 14 $312,918
Maryland 2002 IP 37 3 1 36 1 0 0 1 $601,820
Wisconsin 2002 IP 23 3 0 13 4 2 2 1 $206,833
New York 2003 IP 31 0 0 26 7 4 2 5 $806,811
New Jersey 2003 Secondary 56 27 4 36 5 6 7 1 $6,220,853
District of Columbia 2003 IP 54 39 24 19 4 7 1 2 $1,416,169
Puerto Rico 2003 IP 70 17 7 98 7 0 0 26 $271,056
Montana 2003 Primary 22 1 0 28 2 1 1 0 $317,752
West Virginia 2003 P 25 4 0 20 0 0 1 0 $451,305
Alabama 2003 P 23 2 2 19 1 0 1 1 $174,856
Mississippi 2003 IP 10 9 0 3 1 0 0 0 $8,133
Arkansas 2003 IP 10 6 3 0 0 0 0 1 $67,067
Total Cases with Errors 518               $11,777,825
TOTAL ERRORS 757 174 62 332 52 32 19 86  
Percent of all errors   23% 8% 44% 7% 4% 3% 11%  
  • During 2000 to 2003, 50 states plus the District of Columbia & Puerto Rico were reviewed; of these 35 were found to be in substantial compliance and 17 not in substantial compliance.
  • Six states (PA, MA, FL, TN, MN, & MI) have not been reviewed.
  • Six states (KS, NJ, WV, AL, TX, & MT) have had an initial primary plus a primary or secondary review.
  • Substantial compliance is defined as less than 8 errors for an initial primary review or 4 errors in a primary review. In secondary reviews substantial compliance is calculated as a percentage of cases and/or dollars.
  • Ineligible cases may have more than one error reason.
  • Licensing errors were usually children placed in unlicensed homes. In Maine, most errors were foster homes that lacked a fire inspection. Most reasonable efforts violations were late/absent permanency hearings.

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