The federal government currently spends approximately $5 billion per year to reimburse States for a portion of their annual foster care expenditures. Foster care services are intended to provide temporary, safe alternative homes for children who have been abused or neglected until such time as they are able to return to their parents' care safely or can be placed in other permanent homes. Federal foster care funds, authorized under title IV-E of the Social Security Act, are paid to States on an uncapped, entitlement basis, meaning any qualifying expenditure by a State will be partially reimbursed, or matched, without limit. Definitions of which expenses qualify for reimbursement are laid out in regulations and policy interpretations which have developed, layer upon layer, over the course of many years. Each may have made sense individually, but cumulatively they represent a level of complexity and burden that fails to support the program's basic goals of safety, permanency and child well-being.
This paper provides an overview of the current funding structure, and documents several key weaknesses. In essence, the paper shows that: (1) The current financing structure is connected to the old Aid to Families with Dependent Children program (AFDC) for historical, rather than programmatic reasons; (2) the administrative paperwork for claiming federal funds under Title IV-E is burdensome; (3) current funding is highly variable across States; (4) child welfare systems claiming higher amounts of federal funds per child do not perform substantially better or achieve better outcomes for children than those claiming less funding; (5) the current funding structure is inflexible and emphasizes foster care payments over preventive services; and (6) the financing structure has not kept pace with a changing child welfare field. The paper concludes with a discussion of the Administration's proposal to establish a Child Welfare Program Option, allowing States to receive their foster care funds in a fixed, flexible allocation as an alternative to the current mode of financing.