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Child Welfare Financing

Comprised of policymakers, judges, advocates, administrators, academics, foster and adoptive parents, and former foster youth, the national, non-partisan Pew Commission on Children in Foster Care was formed to develop recommendations to improve outcomes for children in the foster care system—particularly to expedite the movement of foster children into safe, permanent, nurturing families, and to prevent unnecessary placements in foster care.

In its recommendations, released in May 2004, the Commission focused on reform in two key areas that underlie many of the problems in child welfare today: a federal financing structure that encourages over-reliance on placement of children in foster care, and a court system that lacks sufficient capacity to move children swiftly out of foster care and into permanent families.

Federal Financing Recommendations

Below, we outline the Commission’s financing recommendations and explain challenges to be overcome to better serve children, youth, and their families.
Preserve federal foster care maintenance and adoption assistance as entitlements and expand them to all children, regardless of their birth families’ income and including Indian children and children in the U.S. territories. (NOTE: The Fostering Connections to Success and Increasing Adoptions Act of 2008 will extend direct IV-E funding to tribes and, over time, will expand eligibility for IV-E adoption assistance. IV-E foster care has not been expanded. To learn more about the law, visit http://www.nacac.org/policy/news.html.)

Currently, the federal government shares in a portion of the cost of foster care for every child whose family income is below the 1996 Aid to Families with Dependent Children income standards. In contrast, states are obligated to provide protection to every abused or neglected child, regardless of family income.
Adoption assistance, like foster care protection, is an important support for children with special needs. Public subsidies help strengthen these new families and enable many foster parents to adopt children already in their care by ensuring that they do not lose support as they transition to adoption. Like foster care payments, federal subsidies are available only to income-eligible children.

Unfortunately, a funding system that ties foster care and adoption assistance to outdated income guidelines has resulted in a system in which far fewer children are eligible for Title IV-E federal support. From 1998 to 2005, the average monthly number of foster children receiving IV-E maintenance payments dropped from 53 percent to 46 percent. In some states, the drop is dramatic. As a result, states and localities must share a greater burden for foster care and adoption. In some states, this has severely limited the amount of funding that can go to prevention—or in some cases, has caused cuts in already limited adoption support.

Every abused and neglected child—not just every poor child—deserves protection from both the federal and state governments. Thus, the costs of foster care and adoption for these children should be a partnership between the states and the federal government.

Provide federal guardianship assistance to all children who leave foster care to live with a permanent legal guardian when they cannot return home or be adopted. (NOTE: The Fostering Connections to Success and Increasing Adoptions Act of 2008 will meet this recommendation. To learn more, visit http://www.nacac.org/policy/news.html.)

Nationally, about 19,250 children live with relative foster parents with no hope of safely returning home or being adopted. And each year thousands of youth age out of care with no legal parents. Many of these children would benefit from subsidized guardianship, which has proven to boost permanency rates, particularly for older children and children of color. Currently, there is no permanent federal funding for guardianship; therefore it is unavailable to many of the children who need it most. Without guardianship, foster children living with relatives are stuck in limbo—unable to sleep over at a friend’s house or get routine medical care without a worker’s permission.

As with adoption assistance, guardianship assistance helps families meet the special needs of children who have been abused or neglected. Children in stable foster placements with relatives and other caregivers would benefit from greater federal support for guardianship, allowing them to leave care, eliminate costly caseworker visits, and reduce unnecessary court oversight.
Help states build a range of services that keep children from entering care, enable them to leave care safely, and support permanence by (1) creating a flexible, indexed Safe Children, Strong Families Grant from the current Title IV-B and the administration and training components of Title IV-E, and (2) allowing states to “reinvest” federal and state foster care funds into other child welfare services if they safely reduce their use of foster care.

The vast majority of federal child welfare funding can only be used once children have been removed from their birth families. States have limited ability to invest in efforts to preserve families because only a small percentage of federal funds may be used for prevention. As a result, there are too many children in care who might have been able to stay at home safely or leave placement sooner if states had been able to use more federal dollars for prevention, treatment, and post-permanency services. States should be granted such flexibility.

Flexibility alone, however, is not enough to enable states to build a continuum of services to meet the needs of children who are abused or neglected. Additional federal funding is needed if states are to invest in proven practices to achieve better child outcomes.

(Download a PDF that summarizes this recommendation.)
Encourage innovation by expanding and simplifying the waiver process and providing incentives to states that (1) make and maintain improvements in their child welfare workforce, and (2) increase all forms of safe permanence.

On March 31, 2006, the federal government ended the child welfare waiver program, which gave states flexible use of federal child welfare funds. Since 1996, 18 states used waivers to implement more than two dozen innovative programs. Innovation and flexibility should be encouraged, and successful waiver programs (such as subsidized guardianship) should be replicated.
The federal government now provides states with incentives to achieve permanence only through adoption. Incentives for reunification and guardianship—also good permanency outcomes for children—would provide states with funds to reinvest in success and innovation. Incentives to improve the conditions of frontline workers, also critical to the success of children and families, would encourage states to make investments in their workforce.

Strengthen the current Child and Family Services Review process to increase states’ accountability for improving outcomes for children.
Currently, the federal Child and Family Services Reviews (CFSRs) are the principal tool for assessing how well states and localities meet the goals of safety, permanency, and well-being for foster children. The Pew Commission recommends that the CFSRs use longitudinal data to produce more complete, accurate assessments of states’ progress. The reviews should also more accurately assess child well-being by reporting on children’s health and education status. A review system such as this would better guide child welfare reform.

Key Child Welfare Financing Facts

Federal spending to place children in foster care far surpasses spending to keep families together, and the gap has only grown wider.
In the United States, only 13 percent of federal child welfare dollars can be spent to keep children with their families. Approximately $644.3 million dollars out of a total of $4.9 billion child welfare dollars are flexible and aimed at keeping families together.
Over the last decade, the more flexible pool of federal dollars (Title IV-B) aimed at keeping families together has remained consistently low, while the funding targeted only for children who have entered foster care has grown.
The Title IV-B authorization is $325 million for Subpart 1 and $545 million for Subpart 2, but appropriations are only $286.7 and $454 million respectively.
Federal spending on child welfare remained fairly stable between 2002 and 2004, while state spending increased 6 percent and local spending increased 10 percent.
In 2004, states spent a total of at least $23.3 billion dollars on child welfare services. Of that amount, $11.7 billion were federal funds, $9.1 billion were state funds, and $2.5 billion were local funds.
More than 19,250 foster children cannot return home and are living safely with relatives. Many do not have the option of subsidized guardianship to help them leave foster care to a permanent family.
Although 38 states and the District of Columbia have subsidized guardianship programs, some are operating under time-limited waivers, many are funded with TANF dollars that are not secure from year to year, and most are not supporting children at a level that fully meets their needs.
States are obligated to provide protection to every abused or neglected child regardless of income, but the federal government will only reimburse states for a portion of this work if the child is considered poor under outdated AFDC eligibility requirements, under which fewer and fewer children qualify. About 5,000 children each year are projected to lose federal support for their care due to this outdated income-eligibility requirement.
In 1998, 53 percent of foster children were eligible for federal support, but by 2005, the percentage had dropped to 46 percent—or 35,000 fewer Title IV-E eligible children. This decrease translates into about a $1.9 billion reduction in federal support to the states.
Approximately 6,500 Native American children are in foster care across the United States, most under the jurisdiction of tribal courts. Native American tribes that administer their own child welfare systems, however, are not eligible for Title IV-E funds unless they have a cooperative agreement with the states.
Temporary Assistance for Needy Families (TANF) and Social Services Block Grant (SSBG) spending for child welfare services decreased between 2002 and 2004 in 40 states. These funding streams are not dedicated or guaranteed for child welfare services.
Medicaid and SSBG are two sources of funding that have been available to support children, but both continue to lose their value for serving children in the child welfare system. In Medicaid, targeted case management services have been severely limited in recent years and authorizations for SSBG have fallen from $2.5 billion in 1995 to $1.7 billion today.
NACAC's Family and Youth Engagement Project

Since 2005, NACAC has been proud to be a part of a team of child advocates working to raise awareness about the valuable reform recommendations made by the Pew Commission. In the videos below, NACAC features the stories of former foster youth, birth parents, adoptive parents, and relative caregivers to highlight the need for reform and way in which the Pew Commission's recommendations could improve outcomes for children, youth, and families. Click here to download a copy of the video companion guide. To request a DVD and a hard copy of the guide, send an e-mail with your name and address to chrstinaromo@nacac.org.

For more information about child welfare financing, download Child Welfare Financing 101, NACAC's research brief on the topic.

Introduction