Federal Foster Care Financing: How and Why the Current Funding Structure Fails to Meet the Needs of the Child Welfare Field. Executive Summary

08/01/2005

The federal foster care program pays a portion of States' costs to provide care for children removed from welfare-eligible homes because of maltreatment. Authorized under title IV-E of the Social Security Act, the program's funding (approximately $5 billion per year) is structured as an uncapped entitlement, so any qualifying State expenditure will be partially reimbursed, or matched, without limit. This paper provides an overview of the program's funding structure and documents several key weaknesses. It concludes with a discussion of the Administration's legislative proposal to establish a more flexible financing system.

The program's documentation requirements are burdensome.  There are four categories of expenditures for which States may claim federal funds, each matched at a different rate. In addition, there are several statutory eligibility rules that must be met in order to justify the title IV-E claims made on a child's behalf. Some of these apply at the time a child enters foster care, while others must be documented on an ongoing basis. The time and costs involved in documenting and justifying claims is significant.

Differing claiming practices result in wide variations in funding among States.  The average annual amount of federal foster care funds received by States ranges from $4,155 to $33,091 per eligible child, based on three year average claims from FY2001 through FY2003. It is unlikely these disparities are the result of actual differences in the cost of operating foster care programs or reflect differential needs among foster children.

The current funding structure has not resulted in high quality services.  Strengths and weaknesses of States' child welfare programs are identified through federal monitoring visits called Child and Family Services Reviews. States reviewed have ranged from meeting standards in 1 to 9 of the 14 outcomes and systemic factors examined (the median was 6). Significant weaknesses are evident in programs across the nation, but many of the improvements needed cannot be funded through title IV-E.

States' title IV-E claiming bears little relationship to service quality or outcomes.  There are States with both high and low levels of federal title IV-E claims at each level of performance on Child and Family Services Reviews. In addition, there is no relationship between the amounts States claim in title IV-E funds and the proportion of children for whom timely permanency is achieved.

The current funding structure is inflexible, emphasizing foster care.  Title IV-E 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. Foster care funding represents 65% of federal funds dedicated to child welfare purposes, and adoption assistance makes up another 22%. Funding sources that may be used for preventive and reunification services represent only 11% of federal child welfare program funds.

The financing structure has not kept pace with a changing child welfare field.  The structure of the title IV-E program has continued without major revision since it was created in 1961, despite major changes in child welfare practice. The result is a funding stream seriously mismatched to current program needs. It is driven towards process rather than outcomes and constrains agencies' efforts to achieve improved results for children.

The proposed Child Welfare Program Option offers substantial benefits.  The Child Welfare Program Option, first proposed in HHS's Fiscal Year 2004 budget request and currently included in the President's Fiscal Year 2006 budget request, would allow States a choice between the current title IV-E program and a five-year capped, flexible allocation of funds equivalent to anticipated title IV-E program levels. It would allow innovative State and local child welfare agencies to eliminate eligibility determination and claiming functions and redirect funds toward services and activities that more directly achieve safety, permanency and well-being for children and families.

The combination of detailed eligibility requirements and complex but narrow definitions of allowable costs within the federal title IV-E foster care program force a focus on procedure rather than outcomes for children and families. 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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