How is This Program Structured Child Care? A Deep Dive into Federal Foster Care Funding

Executive Summary

The landscape of child care programs, particularly those concerning children removed from their homes due to maltreatment, is significantly shaped by federal funding mechanisms. The federal foster care program, operating under Title IV-E of the Social Security Act, plays a crucial role in this structure. This program allocates approximately $5 billion annually, designed as an open-ended entitlement. This means that states receive partial reimbursement, or matching funds, for any eligible expenditure without a predefined limit, aiming to support structured child care for vulnerable children. This paper provides a comprehensive overview of this program’s funding structure and critically examines its inherent weaknesses, advocating for a more adaptable and effective financing system for structured child care.

One of the primary challenges identified is the burdensome documentation requirements associated with the program. States must navigate four distinct expenditure categories to claim federal funds, each with specific matching rates. Furthermore, stringent statutory eligibility rules dictate which claims are valid for a child, both at the point of entry into foster care and throughout their stay. The sheer volume of paperwork and the administrative costs involved in substantiating these claims place a significant strain on state resources, impacting the efficiency of structured child care provision.

Significant disparities exist in funding distribution across states due to divergent claiming practices. The average annual federal foster care funding per eligible child varies dramatically, ranging from $4,155 to $33,091 (based on a three-year average from FY2001-2003). These variations are unlikely to stem from actual differences in operational costs or varying needs of foster children across states. Such inconsistencies raise questions about the equitable distribution and effectiveness of funding for structured child care.

Critically, the current funding structure has not demonstrably led to high-quality structured child care services. Federal monitoring through Child and Family Services Reviews reveals that state child welfare programs meet standards in a highly variable number of the 14 examined outcomes and systemic factors (median of 6). Widespread weaknesses persist nationwide, yet many necessary improvements fall outside the scope of Title IV-E funding, limiting the potential for enhancing structured child care quality.

A concerning disconnect exists between state Title IV-E claiming and service quality or outcomes. States with both high and low levels of federal claims exhibit varying performance in Child and Family Services Reviews. Moreover, no discernible correlation exists between the amount of Title IV-E funds claimed and the successful achievement of timely permanency for children. This suggests that the current financial incentives within the program are not effectively driving improvements in structured child care outcomes.

The existing funding structure is inherently inflexible and disproportionately emphasizes foster care over preventive measures. Title IV-E provides unlimited funding for foster care but lacks commensurate support for services aimed at preventing family separation or expediting reunification. Foster care funding constitutes the majority (65%) of federal child welfare funds, with adoption assistance accounting for another 22%. Alarmingly, funding avenues for preventive and reunification services represent a mere 11% of the total federal child welfare program funds. This imbalance hinders a holistic approach to structured child care, prioritizing reactive measures over proactive family support.

The financing structure has failed to adapt to the evolving child welfare field. Despite significant shifts in child welfare practices since its inception in 1961, the Title IV-E program’s structure has remained largely unchanged. This has resulted in a funding mechanism that is ill-suited to contemporary program needs. It is heavily process-oriented rather than outcome-driven, thereby constraining agencies’ capacity to achieve improved results for children in structured child care.

The proposed Child Welfare Program Option presents a promising alternative. This option, initially proposed in HHS’s Fiscal Year 2004 budget request and reiterated in the President’s Fiscal Year 2006 budget, would offer states a choice between the current Title IV-E program and a capped, flexible allocation equivalent to projected Title IV-E levels over five years. This innovative approach would empower state and local child welfare agencies to streamline eligibility determination and claiming processes, redirecting resources towards services and activities that directly enhance safety, permanency, and well-being for children and families involved in structured child care.

By moving away from rigid eligibility requirements and narrowly defined allowable costs, the proposed Child Welfare Program Option aims to shift the focus from procedural compliance to achieving tangible outcomes for children and families. This initiative seeks to introduce much-needed flexibility while upholding child protection standards and providing a financial safety net for states during unforeseen crises through access to the TANF Contingency Fund. Ultimately, the goal is to foster a more robust and responsive child welfare system that delivers improved results for vulnerable children and families within structured child care frameworks.

Introduction

The federal government invests approximately $5 billion annually to reimburse states for a portion of their foster care expenditures, recognizing the critical need for structured child care for children in vulnerable situations. Foster care services are designed to offer temporary, secure homes for children who have experienced abuse or neglect. The aim is to provide a safe environment until they can either safely return to their parents or find permanent homes. Funding for federal foster care, authorized under Title IV-E of the Social Security Act, operates as an uncapped entitlement. This structure implies that any qualifying expenditure by a state will be partially reimbursed, or matched, without any upper limit, ensuring consistent support for structured child care programs. The specific definitions of reimbursable expenses are detailed in regulations and policy interpretations, which have accumulated over many years, creating a complex and layered system. While each regulation may have had its own rationale, collectively, they have resulted in a level of complexity and administrative burden that undermines the program’s fundamental objectives: safety, permanency, and child well-being within structured child care.

This paper aims to provide a detailed overview of the current federal foster care funding structure and to highlight its key weaknesses in supporting effective structured child care. Essentially, the analysis demonstrates several critical points:

1. The current financing model is historically linked to the outdated Aid to Families with Dependent Children (AFDC) program, a connection that is more historical than programmatically relevant to contemporary structured child care needs.
2. The administrative burden associated with documenting and claiming federal funds under Title IV-E is excessively cumbersome, diverting resources from direct structured child care services.
3. Current funding levels exhibit significant variability across states, raising concerns about equitable resource allocation for structured child care.
4. Child welfare systems that claim higher amounts of federal funds per child do not consistently demonstrate superior performance or achieve better outcomes for children compared to those claiming less funding for structured child care.
5. The existing funding structure is inflexible and overemphasizes foster care payments, neglecting the crucial role of preventive services in effective structured child care.
6. The financing structure has not adapted to the significant changes within the child welfare field, making it increasingly misaligned with the current needs of structured child care programs.

This paper concludes by discussing the Administration’s proposal to introduce a Child Welfare Program Option. This option would allow states to receive their foster care funds through a fixed, flexible allocation as an alternative to the current financing system, potentially offering a more effective approach to funding structured child care.

Background and History of Title IV-E Foster Care

The federal government’s involvement in sharing the costs of foster care services with states dates back to 1961. Prior to this, foster care was solely a state responsibility. From its inception, federal foster care funding was intrinsically linked to federal welfare benefits, then known as the Aid to Dependent Children Program, or ADC. In fact, the creation of the federal foster care program was a direct response to a dispute with states concerning welfare payments to single-parent households, influencing the early structure of child care programs. At the time, some states routinely denied welfare payments to families with children born outside of marriage, deeming such homes morally unfit to receive welfare benefits.

A pivotal event occurred in Louisiana, where 23,000 children were removed from ADC rolls, prompting federal intervention. The Department of Health Education and Welfare (HEW), under Secretary Arthur Flemming, issued the “Flemming Rule.” This directive instructed states to cease enforcing discriminatory “suitable homes” criteria unless homes were genuinely unsafe for children. If homes were deemed unsafe, states were obligated to provide ADC payments while working to improve home conditions or to place children in foster care, establishing a crucial link between welfare and structured child care. When states protested the increased financial burden of protecting children in unsafe homes, Congress responded by establishing federal foster care funding. This action ensured that states would not be financially penalized for protecting children, marking a significant step in federal support for structured child care.

From 1961 to 1980, federal foster care funding operated as part of the Aid to Families with Dependent Children (AFDC) program. However, since 1980, foster care funds have been authorized separately under Title IV-E of the Social Security Act. From 1980 through 1996, states could claim reimbursement for a portion of foster care expenditures for children removed from homes that met the pre-welfare reform AFDC eligibility criteria, provided their placements in foster care adhered to specific procedural safeguards, further defining the eligibility framework for structured child care funding. While the AFDC program was replaced by the Temporary Assistance for Needy Families Program (TANF) in 1996, income eligibility criteria for Title IV-E foster care continue to be based on the old AFDC criteria as they existed just before welfare reform. States receive unlimited reimbursement for the federal share of all eligible expenses, maintaining the entitlement nature of funding for structured child care.

It is important to note that Title IV-E eligibility is often discussed as if it were an individual entitlement for children to specific benefits or services. However, this is a misinterpretation. A child’s Title IV-E eligibility actually entitles a state to federal reimbursement for a portion of the costs incurred for that child’s care within the structured child care system.

Title IV-E remained largely unchanged from its 1980 inception until the passage of the Adoption and Safe Families Act in 1997 (ASFA). ASFA was Congress’s response to concerns that children were spending excessive time in unsafe situations while agencies focused on lengthy and often ineffective family rehabilitation efforts. It also addressed a perceived reluctance among child welfare agencies and judges to pursue timely terminations of parental rights and adoptions when reunification efforts failed. ASFA underscored the paramount importance of safety in child welfare decision-making and emphasized the need for states to make prompt and sustained efforts to secure permanent homes for children, influencing the long-term goals of structured child care. These permanent homes could be with birth families if safe reunification was possible, or with adoptive families or permanent legal guardians if reunification was not viable. ASFA, coupled with initiatives to streamline adoption processes in many states, is widely credited with the substantial increase in adoptions from foster care in the years following its enactment, demonstrating a shift towards permanency in structured child care outcomes.

ASFA’s emphasis on permanency planning has contributed to a rise in exits from foster care in recent years, both to adoptive placements and to other permanent arrangements, including reunification with parents and guardianships with relatives. Combined with relatively stable foster care entry rates, the number of children in foster care has begun to decline, marking the first sustained decrease since the program’s establishment. This trend signifies a positive shift in the effectiveness of structured child care systems.

State claims under the Title IV-E foster care program have historically grown faster than the population of children served. However, recent declines in the number of children in foster care have significantly slowed the rapid growth experienced during the 1980s and 1990s. The number of children in foster care began a gradual decline in 1999 after more than doubling in the preceding decade. Federal foster care program expenditures grew at an average rate of 17 percent per year in the 16 years between the program’s establishment and the passage of ASFA in 1997. During that period, growth dipped below 10 percent in only 3 years. However, in the five years following ASFA’s enactment, program growth has averaged only 4 percent annually. While some of the growth through 1997 mirrored an increasing population of children in foster care, spending growth significantly outpaced the growth in the number of children served. Improvements in states’ ability to claim reimbursements and expanded definitions of administrative expenses within the program also contributed to funding growth. Figure 1 illustrates the growth in foster care expenditures and the number of children in foster care funded by Title IV-E, highlighting the financial trends in structured child care.

Figure 1. Federal Claims and Caseload History for Title IV-E Foster Care

The primary advantage of the Title IV-E program has always been its entitlement structure, which was intended to automatically adjust funding levels in response to changes in need, as reflected by state claims. Annual discretionary appropriations were deemed unnecessary to accommodate fluctuating circumstances, such as a larger population of children in foster care, ensuring a responsive funding mechanism for structured child care. The automatic adjustment feature of the entitlement structure remains a strength, but only if it responds appropriately and equitably to factors that genuinely reflect changes in need and promote the well-being of the children and families served by structured child care programs. However, there is limited evidence to suggest that this is currently the case. Figure 1 demonstrates that funding levels and caseloads have not closely tracked each other for over a decade, and since 1998, they have moved in opposite directions, raising questions about the program’s responsiveness to actual needs in structured child care.

Documenting Eligibility and Claiming Foster Care Funds is Burdensome

To access federal foster care funds, states must determine a child’s eligibility and meticulously document all expenditures made on behalf of eligible children within structured child care settings. This documentation forms the basis for quarterly expenditure reports submitted to the federal government. States can then draw down the federal share of eligible expenditures from federal accounts. While precise estimates of the time and costs associated with documenting and justifying claims are not readily available, these costs are known to be substantial, diverting resources from the direct provision of structured child care.

Federal law and regulations outline four categories of expenditures for which states can claim federal funds, each with a specific matching rate. Furthermore, the match rate for foster care maintenance payments varies from state to state and can be adjusted annually. These categories are designed to support various aspects of structured child care and related services:

• Foster care maintenance payments for eligible children (matched at the Medicaid rate, which varies by state and year, currently ranging from 50 to 80%). These payments are intended to cover the basic costs of structured child care within foster homes.
• 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 where Title IV-E eligible children reside (75% federal match). This category aims to enhance the quality of structured child care through well-trained professionals and caregivers.
• Administrative expenditures necessary for the proper and efficient administration of the program (50% federal match). This covers the operational costs of managing the structured child care system.
• Costs of required data collection systems (50% federal match). This supports the infrastructure needed for effective monitoring and evaluation of structured child care services.

The existence of multiple expense categories, each with different matching rates, necessitates that states accurately track spending within each category and meticulously attribute expenditures to eligible children. States report that this process is cumbersome, often leads to disputes, and does not effectively serve program goals for structured child care. Adding to the complexity, costs must be allocated to the programs that benefit from the expenditures, a standard practice in federal programs. A state’s cost allocation plan, approved by the federal government, distributes expenses that relate to multiple programs and functions, further complicating the financial administration of structured child care.

Administrative and training expenses are typically the most challenging to document and the most frequently disputed categories. Federal regulations (45 CFR 1356.60) provide examples of allowable administrative expenses, which are crucial for the effective delivery of structured child care:

• 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 in appropriate structured child care settings.
• Development of the case plan.
• Case reviews.
• Case management and supervision.
• Recruitment and licensing of foster homes and institutions.
• Rate setting for structured child care providers.
• A proportionate share of agency overhead.
• Costs of data collection systems.

The distinction between an administrative expense, such as case management, and ineligible service costs, like counseling, is often ambiguous. These activities may be performed by the same staff, sometimes even within the same client session. This ambiguity makes accurate claiming difficult and frequently leads to disputes about allowable expenditures, particularly in the context of integrated structured child care services. Consequently, administrative costs are more often subject to disallowances than other funding categories, adding financial uncertainty to structured child care program management.

The ability of states to claim Title IV-E funds for training activities is further complicated by statutory and regulatory provisions that are not aligned with current state agency program operations. For example, while many states now contract with private service providers for administrative functions, they receive lower federal reimbursement rates for training these workers compared to training public employees for similar structured child care roles. Only costs incurred by the state in training state and local agency workers and those preparing for state agency employment are reimbursable under Title IV-E at the enhanced 75 percent match rate (compared to the 50 percent match rate for administrative expenses). Furthermore, only public funds or expenditures can be used to match Title IV-E training funds, limiting the resources available for enhancing expertise in structured child care. The common practice of considering state university staff time and resources as match for federal funds when training child welfare agency employees disadvantages states that utilize private colleges and universities for training. This limitation restricts access to training resources, particularly in rural states where state universities and colleges are fewer and geographically distant from those needing training in structured child care best practices.

Just as claiming rules are complex, the eligibility requirements for children under Title IV-E are also cumbersome. Several eligibility criteria must be met to justify Title IV-E claims made on a child’s behalf, impacting access to structured child care funding. These requirements are detailed in the text box below. Some criteria apply when a child initially enters foster care, while others must be documented continuously throughout their stay. Many of these procedural requirements are intended to protect children from potential harm caused by inattentive agencies and systems, ensuring a level of oversight in structured child care. However, their effectiveness as reliable eligibility criteria is questionable. For instance, the routine inclusion of “reasonable efforts” and “contrary to the welfare” determinations in judicial orders may simply reflect automatic insertion of prescribed language rather than a judge’s genuine consideration of these issues in the context of structured child care appropriateness. These process requirements were crucial when federal oversight was primarily focused on ensuring the accuracy of eligibility determinations. However, with the implementation of the Child and Family Review process (discussed later), which provides comprehensive assessments of state child welfare programs, some of these individual eligibility criteria could be more effectively addressed as part of a broader systemic assessment of structured child care quality and access.

The eligibility criterion most frequently criticized by states and child welfare advocates is the financial need criterion, based on the now-defunct AFDC program. As previously mentioned, this requirement stems from the historical origins of the foster care program as part of the welfare system, rather than a programmatic rationale relevant to contemporary structured child care needs. There is no clear policy justification for the federal government to prioritize children at risk of maltreatment from poor parents over children whose parents have higher incomes, in terms of monetary support for structured child care. This requirement is particularly illogical because the AFDC program was replaced by TANF in 1996. Consequently, the means test used for Title IV-E no longer aligns with the income and asset limits of current welfare programs, creating an outdated barrier to structured child care funding eligibility. Furthermore, because this “look back” provision did not adjust the 1996 income and asset limits for inflation, their real value diminishes over time. As income limits remain static while inflation raises both incomes and the poverty line, fewer children will be eligible for Title IV-E in the future, further restricting access to federal support for structured child care.

Eligibility Requirements for Title IV-E Foster Care Contrary to the welfare determination. A child’s removal from the home must result from a judicial determination that remaining in the home would be detrimental to the child’s welfare, or that foster care placement would be in the child’s best interest. Children in foster care due to a voluntary placement agreement are exempt from this requirement. Reasonable efforts determination. The State agency must obtain a judicial determination within 60 days of a child’s removal from home, confirming that reasonable efforts have been made to maintain the family unit and prevent unnecessary removal, as long as the child’s safety is ensured. Ongoing documentation of reasonable efforts to establish and finalize a permanency plan in a timely manner (every 12 months) is also required. State agency placement and care responsibility. The State child welfare agency must be responsible for the child’s placement and care, typically meaning the child is in state custody. A tribal agency or other public agency may assume this responsibility if there is a written agreement 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 removal, using criteria from 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 state-established standards for full licensure or approval, ensuring quality standards in structured child care. Criminal background checks or safety checks. The State must provide documentation of criminal records checks for prospective foster and adoptive parents and safety checks for child care institution staff, prioritizing child safety within structured child care. Special Requirements in the Case of Voluntary Placements. For children placed in foster care under a voluntary placement agreement, Title IV-E eligibility rules are slightly different. Determinations regarding “contrary to the welfare” and “reasonable efforts” are not initially required. However, if care extends beyond 180 days, a judicial determination indicating continued voluntary placement is in the child’s best interests is required.

The multitude of factors determining each child’s eligibility, some of which are subject to change, makes Title IV-E a program prone to errors. This inherent complexity leads to persistent pressure for accuracy, rigorous procedural scrutiny, and the imposition of disallowances. Conversely, the substantial sums involved mean that disallowances often result in procedural disputes, appeals, and protests from agency directors, legislators, and governors, creating administrative friction in structured child care funding. However, it is not evident that the time and effort spent tracking eligibility criteria translates into improved outcomes for children in structured child care. Despite the complexity of the eligibility process, the number of states found to be out of compliance is relatively low.

Compliance with eligibility rules is monitored through Title IV-E Eligibility Reviews, conducted since 2000. By the end of 2003, fifteen of the forty-four states reviewed, along with the District of Columbia and Puerto Rico, were found not to be in substantial compliance with Title IV-E eligibility rules. The remaining states demonstrated minimal errors in their eligibility processes and generally operated within program eligibility rules for structured child care funding. Even among states required to implement corrective action plans, several were close to achieving compliance levels, indicating a degree of adherence to eligibility standards in structured child care.

Among states not in substantial compliance, error patterns varied. The most common problems related to “reasonable efforts” to make and finalize permanency plans, a critical aspect of effective structured child care. Ten states had significant errors in this category, accounting for 44% of all errors, primarily involving late or absent permanency hearings, indicating a failure to meet the timeframes set by the Adoption and Safe Families Act. Four states had frequent licensing problems, typically placing children in unlicensed foster homes (23% of all errors), raising concerns about the quality and safety of structured child care settings. Three states had substantial errors related to applying pre-welfare reform AFDC eligibility criteria (11% of all errors), highlighting the challenges associated with the outdated financial eligibility requirements for structured child care funding. Two states had numerous missing criminal background checks on foster parents (8% of all errors), posing potential risks to child safety within structured child care. Errors related to “contrary to the welfare” determinations, placement and care responsibility, or extended voluntary placements were infrequent. A comprehensive listing of errors documented in eligibility reviews through Fiscal Year 2003 is presented in Table 1, providing a detailed breakdown of compliance issues in structured child care funding.

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 | 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% | |
| Notes:– 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. |

Differing Claiming Practices Result in Wide Variations in Funding Among States

States exhibit significant variations in their approaches to claiming federal funds under Title IV-E, impacting the resources available for structured child care programs. Some states adopt a conservative approach, claiming only for children in placements with clear eligibility and defining administrative costs narrowly. Conversely, other states have become more adept at navigating the administrative processes required to justify more extensive Title IV-E claims, potentially maximizing funding for structured child care. Furthermore, not all states possess the financial resources or budgetary inclination to invest in the full spectrum of foster care-related services for which federal financial participation might be available, leading to variations in service provision within structured child care. These diverse approaches result in a complex and inconsistent pattern of Title IV-E claims, spanning a wide range of funding levels for structured child care across states. However, the disparities in Title IV-E claiming are so pronounced and lack a clear pattern, undermining the rationale for the intricate claiming rules and raising concerns about equitable resource allocation for structured child care.

Figure 2 illustrates the average amount of funds each state claimed from the federal government for Title IV-E foster care during FY2001 through FY2003, presented as dollars per Title IV-E eligible child. This per-child calculation allows for meaningful comparisons across states, reflecting the varying levels of federal support for structured child care. For each state, the three-year average annual federal share in each spending category is divided by the three-year average monthly number of Title IV-E eligible children in foster care, yielding an average annualized cost per child for structured child care. Three-year averages are used to mitigate the impact of claiming anomalies that may occur in a single year due to extraordinary claims or disallowances, providing a more stable representation of funding trends in structured child care.

A wide range exists in the amounts claimed and in the distribution of claims between maintenance payments and the category encompassing child placement services and administration. These represent the two primary claiming categories relevant to structured child care operations. The remaining categories, training and demonstrations, were comparatively small in most states. Spending on State Automated Child Welfare Information Systems (SACWIS) has been excluded because these system development costs can fluctuate significantly from year to year, unrelated (at least in the short term) to direct services for children within structured child care.

Figure 2. States Foster Care Claims Federal Funds (excluding SACWIS) per IV-E Child (average of fiscal years 2001 to 2003)

Total federal claims per Title IV-E child (averaged over three years), excluding SACWIS development funds, ranged dramatically from $4,155 to $33,091. The median value was $15,914, highlighting the substantial variation in federal funding for structured child care across states. The range in maintenance claims was $2,829 to $20,539 per Title IV-E child, with a median of $6,546, indicating significant differences in basic support levels for structured child care. Claims for child placement services and administration ranged from $1,190 to $23,724 per Title IV-E child, with a median value of $6,840, demonstrating wide disparities in funding for essential administrative and placement functions within structured child care systems. These per-child amounts reflect only the federal share of Title IV-E costs, which vary based on the match rates applied to different expense categories. Including the state share would substantially increase the expenditure figures. This discussion focuses on the variation in the federal share to best illustrate and isolate issues related to federal funding rules for structured child care.

Figure 3 shows that the balance between maintenance and administrative claims also varies considerably among states, influencing the allocation of resources within structured child care programs. Claims for child placement and administration range from 10 cents per dollar claimed of maintenance to $4.34. Six states claim less than 50 cents in administration for every maintenance dollar claimed, while 9 states claim more than $2 in administration for every dollar of maintenance. These differences reflect the varying interpretations and applications of wide or narrow definitions of child placement and administrative costs across states in the context of structured child care. Additionally, some states claim administrative expenses for non-IV-E children as Title IV-E candidates over extended periods, even if these children or their placement settings never qualify under eligibility rules. In such states, this practice inflates administrative costs as a proportion of total Title IV-E payments, potentially misrepresenting the actual costs of structured child care. A Notice of Proposed Rulemaking published by HHS on January 31, 2005, proposed to prohibit this practice except in limited circumstances, aiming to improve the accuracy and accountability of administrative cost claims in structured child care funding.

Figure 3. Administrative Dollars Claimed per Dollar of Foster Care Maintenance Varies Widely (calculated on the basis of average claims FY2001 through FY2003)

The quality of child welfare services and other factors are examined in relation to these funding differences across states below. However, it is important to note that the range of claims is far wider than would be expected based on any rationally designed funding formula for structured child care. It is unlikely that such large differences stem from actual variations in the cost of operating a foster care program or from genuine differential needs among foster children across states, suggesting systemic inequities in funding distribution for structured child care.

The Current Funding Structure Has Not Resulted in High Quality Services

If state and local child welfare systems were generally functioning effectively, the significant federal and state/local investments in structured child care might be considered well-spent. However, informed observers struggle to identify systems that are consistently high-performing across all areas. While individual aspects of an agency’s efforts may receive praise, significant weaknesses are often acknowledged in other areas. Furthermore, robust evidence of overall system performance has historically been limited, hindering efforts to improve structured child care quality.

After several years of development and pilot testing, the Children’s Bureau initiated Child and Family Services Reviews (CFSRs) in every state in 2000. These reviews, incorporating a data-driven Statewide Assessment and an onsite review visit by federal and state staff, are designed to systematically identify strengths and weaknesses in state child welfare system performance, including the provision of structured child care. Once areas of weakness are identified, states are required to develop and implement Program Improvement Plans (PIPs) to address these shortcomings and enhance the quality of structured child care. During onsite reviews, teams examine a sample of case files for children with open child welfare cases and interview families, caseworkers, and other involved parties to assess compliance with federal standards in structured child care practices. System stakeholders, such as child advocates and judges, are also interviewed. Beyond examining practice in specific cases, the reviews also evaluate systemic factors, such as the adequacy of state case review systems, training programs, and service arrays in meeting families’ needs within the context of structured child care. Overall, 47 specific factors are rated and aggregated to determine whether substantial conformity with federal requirements is achieved in seven child outcomes and seven systemic factors, providing a comprehensive evaluation of structured child care system effectiveness.

Outcomes and Systemic Factors Examined in Child and Family Services Reviews Outcomes – Children are first and foremost, protected from abuse and neglect within structured child care and family settings. – Children are safely maintained in their homes whenever possible and appropriate, minimizing unnecessary entry into structured child care. – Children have permanency and stability in their living situations, a key goal of effective structured child care. – The continuity of family relationships and connections is preserved for children in structured child care. – Families have enhanced capacity to provide for their children’s needs, reducing the need for structured child care in the long term. – Children receive appropriate services to meet their educational needs, essential for holistic structured child care. – Children receive adequate services to meet their physical and mental health needs, a critical component of comprehensive structured child care. Systemic Factors – Statewide Information System – Case Review System – Quality Assurance System – Training for structured child care professionals – Service Array – Agency Responsiveness to the Community – Foster and Adoptive Parenting Licensing, Recruitment and Retention for structured child care capacity

As described above, there are 14 areas in which a state can be found in or out of substantial compliance during its Child and Family Services Review. Figure 4 shows the distribution of state performance on initial reviews among all 50 states and the District of Columbia. Median state performance was substantial compliance in 6 of 14 areas. States reviewed to date have ranged from meeting standards in only 1 area to as many as 9 areas, indicating significant variability in the quality and effectiveness of structured child care systems across the nation. While simply counting compliance areas offers a generalized and broad approach to evaluating child welfare system quality, it serves to highlight the overall performance landscape. The key takeaway is that most states achieved substantial compliance in fewer than half of the examined areas, and all reviewed systems demonstrated a need for significant improvement in various aspects of structured child care provision. Notably, in the crucial area of permanency and stability in living situations, no state has yet met federal standards, although a few are approaching them. This clearly indicates that the current federal funding structure has not, to date, resulted in a child welfare system that consistently achieves satisfactory outcomes in structured child care.

Figure 4. Summary of Results for Child and Family Services Reviews (for 50 states plus DC)

States’ Title IV-E Claiming Bears Little Relationship to Service Quality or Outcomes

Even if overall quality is not high, one might expect that spending variations among states would correlate with the overall quality of child welfare systems, as indicated by the results of Child and Family Services Reviews, and consequently, better structured child care outcomes. Analyses presented below examine the relationship between variations in claiming patterns among states and child welfare system performance, specifically in the context of structured child care effectiveness.

Figure 5 plots per-child claims against the number of areas measured in the CFSR in which the state was found to be in substantial compliance, providing a visual representation of the correlation between funding and performance in structured child care. The three states with the highest claims per child were in compliance with 3, 5, and 7 areas respectively out of the 14 possible areas of compliance in their initial CFSR. Average per-child claims did not differ significantly between the highest and lowest performing states in terms of structured child care outcomes. The eight states with the fewest compliance areas (1, 2, or 3 of 14) averaged $19,293 in federal funds per Title IV-E child, while the 12 highest performing states (in compliance with 8 or 9 of 14 areas) averaged claims of $19,824 per child. States with relatively high and low federal claims exist at each level of CFSR performance, indicating a weak relationship between funding levels and overall system effectiveness in structured child care.

Figure 5. Child and Family Services Review Compliance Is Only Weakly Related to Levels of Title IV-E Foster Care Funds Claimed Per Eligible Child (data shown for 50 states plus DC)

Claiming levels similarly show little correlation with state performance in achieving permanency for children in foster care, a primary goal of structured child care. Figure 6 plots each state’s federal claims for the Title IV-E foster care program per Title IV-E eligible child against the percentage of children in foster care for whom permanency is achieved. Permanency data from the states’ Child and Family Services Reviews indicates wide variations in states’ success in either reunifying children with parents within one year or finalizing an adoption within two years of foster care entry, key indicators of effective structured child care. Six states achieve permanency within these timeframes for less than one-third of children in foster care, while five either approach or exceed the national standard of 90 percent. Most states perform somewhere in between these extremes. The wide disparities in state performance on this critical child welfare function appear unrelated to the amount of federal funds claimed from the major source of federal child welfare funding, the Title IV-E foster care program, suggesting that current funding mechanisms are not effectively driving improvements in permanency outcomes within structured child care.

Figure 6. Permanency Outcomes Are Unrelated to Levels of State Title IV-E Foster Care Claims (data shown for 50 states plus DC)

If claiming levels are not strongly linked to child welfare system quality or outcomes, what other factors might influence spending variations in structured child care? Variations among states in actual foster care rates paid to families caring for children show only a weak correlation with per-child foster care claims levels (Figure 7). For example, four of six states with basic maintenance payments in 2000 of less than $300 per month for a young child had higher-than-median levels of claims per child. These four states also had higher federal claims per child than four of seven states that paid basic maintenance rates higher than $500 per month for young children in 2000. Patterns of residential care use among states are similarly unrelated to claiming disparities, suggesting that these factors do not fully explain the funding variations observed in structured child care.

Figure 7. Foster Care Maintenance Rates Are Weakly Related to Foster Care Claims

Wide disparities in federal claims might be considered justifiable if states achieving higher spending were also demonstrating better outcomes in structured child care. However, this argument is not supported by the results of Child and Family Services Reviews. The findings of these reviews are concerning even in states with relatively high costs, indicating that increased spending does not automatically translate to improved outcomes in structured child care. Of course, because this analysis focuses on Title IV-E, it primarily examines foster care costs. State spending on other child welfare services may contribute to overall system performance. However, the wide variety of these other potential funding sources and their variability across states make it challenging to examine them consistently in relation to structured child care effectiveness.

The Current Funding Structure is Inflexible, Emphasizing Foster Care

Title IV-E has long faced criticism for its unlimited funding of foster care while lacking commensurate support for services that could prevent child removal or expedite permanency, hindering a more holistic approach to structured child care. 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 significantly smaller compared to those dedicated to foster care and adoption, creating an imbalance in resource allocation for structured child care. As shown in Figure 8, foster care funding under Title IV-E constituted nearly two-thirds (65%) of federal funding dedicated to child welfare purposes in Fiscal Year 2004. Adoption Assistance funding (also under Title IV-E) represented another 22%. Funding sources that can be used for preventive services (but also fund some foster care and adoption-related services), including funds from Title IV-B programs and discretionary programs authorized by the Child Abuse Prevention and Treatment Act, accounted for only 11% of federal child welfare program funds. This funding distribution underscores the program’s emphasis on reactive foster care over proactive prevention and family support within structured child care.

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), as well as Medicaid, also fund some services for families experiencing or at risk of child welfare involvement, potentially contributing to preventive efforts in structured child care. However, these funding streams are not primarily intended for these purposes, and, except for SSBG, available program data does not specifically break out spending on child welfare-related activities. (The Fiscal Year 2002 annual expenditure report for the SSBG program (HHS, 2004) indicates that states spent a total of $634 million in SSBG funds for child welfare services that year.) Surveys and analyses by private research organizations suggest that these funding sources provide considerable funding for child welfare services, although much of it remains concentrated on out-of-home care rather than preventive structured child care approaches. Studies 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 on other services including prevention and treatment, $419 million on administrative activities, and $98 million on adoption services. States were unable to categorize the purpose of nearly $700 million in remaining funds (Scarcella, Bess, Zielewski, Warner and Geen, 2004).

Some argue that Title IV-E’s entitlement nature for eligible children, while service funds are limited, encourages foster care placement over preventive interventions in structured child care. However, it is unlikely that caseworkers make placement decisions based solely on a child’s Title IV-E eligibility, nor are judges likely to use Title IV-E status as a primary factor in their rulings regarding structured child care placements. Indeed, caseworkers and judges are often unaware of a child’s eligibility status. However, a lack of available family services could plausibly influence caseworkers’ decisions toward placement or delay a child’s discharge from structured child care. Quantifying these effects is challenging, but the imbalance in funding priorities remains a concern.

Many in the child welfare field believe that greater funding flexibility would allow states to allocate additional resources to preventive and reunification services, leading to better outcomes for children and families in structured child care. Since 1996, Child Welfare Demonstration Projects in 17 states have generated evidence on the effects of allowing state and local agencies to use federal foster care funds more flexibly, either for children not typically eligible for Title IV-E or for services not otherwise covered by Title IV-E, exploring innovative approaches to structured child care funding. While most 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 flexible funding systems similar to the Administration’s proposed Child Welfare Program Option. These demonstrations are underway in Indiana, North Carolina, Ohio, and Oregon. In each case, the state provides counties with a fixed allotment of Title IV-E funds that can be used for services aimed at preventing foster care placement, facilitating reunification, or otherwise ensuring safe, permanent outcomes for children, promoting a more proactive approach to structured child care.

Evaluation results to date are promising. While demonstrations did not always achieve all their goals, in no case did outcomes for children worsen as a result of increased flexibility in structured child care funding. North Carolina found that flexible funding contributed to a decrease in the probability of out-of-home placement following a substantiated child abuse or neglect report. Demonstration counties in Ohio reported increased support for prevention activities and were more likely than traditionally funded counties to create new or expanded prevention services, shifting the focus towards early intervention in structured child care. In Oregon, the combination of demonstration funds and the state’s System of Care Initiative significantly improved the likelihood that at-risk children could remain safely in their homes rather than entering foster care, demonstrating the potential of flexible funding to enhance preventive structured child care. It is important to note that demonstration projects did not provide more Title IV-E funds than the state would have received otherwise; they were cost-neutral. States were granted only the flexibility to spend funds in broader ways than normally permitted, highlighting the impact of flexibility alone in improving structured child care approaches.

Flexible spending alone will not solve all weaknesses in child welfare systems nationwide. However, it can empower strong local leaders to more easily implement practice improvements and achieve better outcomes in structured child care. Practice changes implemented in flexible funding demonstrations include strengthened family assessments, enhanced visitation, intensive family reunification services, family decision meetings, and improved access to substance abuse and mental health treatment, demonstrating diverse strategies to enhance structured child care. The fact that nearly half of states have implemented waiver demonstrations reflects widespread interest in more flexible funding for state child welfare programs. This interest has grown as many states have successfully implemented new service models while maintaining or improving safety, permanency, and child well-being, indicating a growing recognition of the benefits of flexible funding in structured child care.

Recognizing that flexibility yields the best results when coupled with enhanced funding, the Bush Administration has consistently supported funding increases for child welfare. Specifically, HHS budgets from FY2002 through FY2005 each included substantial proposed increases for the Promoting Safe and Stable Families Program, totaling $1 billion over five years. However, Congress appropriated significantly less than the requested amount each year. For FY2005, the Administration also proposed substantial increases for several key child abuse prevention efforts authorized under the Child Abuse Prevention and Treatment Act, but these were also not fully funded by Congress, limiting the potential for enhanced preventive structured child care services.

The Financing Structure Has Not Kept Pace with a Changing Child Welfare Field

Significant changes have occurred in the child welfare field since the federal foster care program was established. However, the program initially created in 1961 has persisted without major revisions to its financing structure, resulting in a funding stream that is increasingly mismatched to current program needs in structured child care. The overarching goals of the child welfare system are to improve the safety, permanency, and well-being of children and families served. By requiring that the vast majority of federal funding for child welfare services be spent solely on foster care, the current financing system undermines the achievement of these goals and limits the potential for comprehensive structured child care.

Title IV-E funding was designed with the intention that program funding would automatically adjust to changes in social need. However, claim levels do not convincingly demonstrate that social need has been the primary driver behind spending patterns that vary so widely across states in structured child care. Service practices appear to have adapted to the funding structure, rather than vice versa. Throughout the program’s history, growth has significantly outpaced changes in the population of children being served. While current growth has slowed considerably, declines in the number of children in foster care have not yet translated into reduced program claims, highlighting the inflexibility of the current funding model for structured child care. However, the recent stabilization of program funding presents an opportune time to re-examine the structure of Title IV-E and assess whether it continues to meet the evolving needs of the child welfare field and the demands of effective structured child care. With the number of children in foster care projected to remain stable or decline in the foreseeable future, the short-term risk associated with potential financing system changes is lower than when needs were rapidly escalating, creating a window for reform in structured child care funding.

Improved preventive and family support services for children and families at risk of foster care placement, therapeutic care and remediation of problems for families with children in foster care, and post-discharge services for families after children leave out-of-home care are all essential for achieving the child welfare system’s goals and enhancing structured child care outcomes. Yet, these are precisely the services that Title IV-E is least equipped to support, leading to child welfare systems that struggle to achieve positive outcomes for children and families. This underperformance has been documented by Child and Family Services Reviews conducted nationwide. As states develop and implement Program Improvement Plans to address identified weaknesses, Title IV-E funds remain largely unavailable to support these critical improvements in structured child care.

From complex eligibility criteria rooted partly in a defunct program to intricate claiming rules that demand meticulous documentation of every caseworker action, Title IV-E is a funding stream driven by process rather than outcomes, hindering the focus on effective structured child care. With the advent of Child and Family Services Reviews and systemic improvements initiated in response to the Adoption and Safe Families Act, Congress and HHS have made significant strides toward reorienting child welfare programs to be outcome-focused. However, until the funding structure is aligned to support these outcomes, improvements may be constrained, limiting the potential for enhancing structured child care quality and effectiveness.

Proposed Child Welfare Program Option Described

The President’s FY2006 budget reiterates the proposal to create a Child Welfare Program Option, offering states a choice between the existing Title IV-E program and a five-year capped, flexible allocation of funds equivalent to anticipated Title IV-E program levels, aiming to modernize funding for structured child care. This concept was initially proposed by the President for FY 2004. While the previous Congress did not finalize child welfare financing reform, the Administration continues to advocate for its consideration, recognizing the need for a more adaptable funding model for structured child care. The President’s proposal offers several distinct advantages over both current law and more traditional block grants previously considered, promising a more effective approach to funding structured child care.

The Child Welfare Program Option would allow states to use Title IV-E funds for a broader range of activities than currently permitted, including foster care payments, prevention activities, training, and other service-related child welfare activities, offering greater flexibility in resource allocation for structured child care. This increased flexibility would empower states to develop child welfare systems that support a continuum of services for families in crisis and children at risk, while reducing the administrative burden imposed by current federal requirements, including the need to determine AFDC eligibility, streamlining the financial administration of structured child care.

Child safety protections under current law would be maintained under the President’s proposal, ensuring continued safeguards within structured child care systems. These protections include requirements for criminal background checks and licensing foster care providers, judicial oversight of decisions related to child removal and permanency, adherence to permanency timelines, development of case plans for all children in foster care, and prohibition of race-based discrimination in foster and adoptive placements.

Unlike some previous flexible funding proposals, the President’s Child Welfare Program Option would be an optional alternative to the current financing system, allowing states to choose the funding model best suited to their needs in structured child care. States desiring the flexibility offered by the option could opt-in during the initial program year for a five-year period. State allocations would be based on historical expenditure levels and calculated to be cost-neutral to the federal government over five years. States could choose to receive accelerated, upfront funding in the early program years to invest in services likely to generate cost savings in later years, promoting strategic investment in structured child care. The proposal includes a maintenance of effort requirement to ensure that states selecting the new option maintain their existing level of investment in the program. States unwilling to accept the risk and embrace the promise of flexibility could continue operating under current program rules, preserving options for diverse state approaches to structured child care funding.

To address concerns that future social crises might create unforeseen and substantial child welfare needs, the President has proposed to allow participating states access to the TANF Contingency Fund if unanticipated emergencies result in funding shortfalls, providing a financial safety net for structured child care systems. Specific criteria would govern the circumstances under which states could access funds from this source, addressing concerns raised in previous child welfare financing discussions and ensuring financial stability for structured child care.

The proposal includes two set-asides within the Child Welfare Program Option. The first would provide some Tribes direct access to Title IV-E funds, empowering tribal self-determination in structured child care. Under current law, Tribes can only receive Title IV-E funds through agreements with states. Through a proposed $30 million set-aside in the CWPO, Tribes demonstrating the capacity to operate foster care programs could receive direct funding and would be subject to similar program requirements as states, promoting culturally responsive structured child care within tribal communities.

A second set-aside would dedicate a relatively small amount of funds to facilitate program monitoring, technical assistance to support state and tribal child welfare program efforts, and to conduct essential child welfare research, supporting continuous improvement in structured child care. These funds would ensure that sufficient resources are available to understand the impact of the new option on child welfare services and outcomes for children and families, and to support states in reconfiguring programs to achieve better results in structured child care.

Benefits of the Proposed Child Welfare Program Option

The Child Welfare Program Option would enable innovative state and local child welfare agencies to eliminate eligibility determination processes and significantly reduce the time currently spent documenting federal claims. This effort could then be redirected toward services and activities that directly enhance safety, permanency, and well-being for children and families involved in structured child care, improving resource allocation and program effectiveness. Investments in preventive services and improved case planning could also reduce the need for foster care, shifting the focus towards proactive structured child care strategies. States utilizing child welfare funds through the Option would remain accountable for their programs through Child and Family Services Reviews and standard audit requirements. However, they would no longer be required to document expenditures with the level of detail currently needed to justify federal matching funds, reducing administrative burden in structured child care funding. The flexibility offered by the Option would allow agencies to direct funds to activities that most effectively address families’ needs, promoting a more needs-based approach to structured child care. HHS could then focus more fully on partnerships with states to achieve positive outcomes for children and families, fostering collaborative improvement in structured child care.

The proposed Child Welfare Program Option (CWPO) offers several key benefits for structured child care and child welfare systems:

• Creates Structural Incentives for Better Outcomes. The CWPO incentivizes child welfare system improvement because state success under the program is directly linked to achieving better outcomes in structured child care. With a fixed funding level, states would benefit financially if children remain safely at home, return home quickly, or are placed in adoptive homes (as Adoption Assistance would remain an entitlement). As these are also the preferred outcomes for children, the program establishes structural incentives that align with program goals and promote positive outcomes in structured child care.
• Facilitates Quality Improvement. The CWPO would encourage states to fund service improvements, particularly those outlined in their Program Improvement Plans (PIPs), by allowing federal funds to be used for the full range of activities contemplated under the PIPs, supporting comprehensive quality enhancement in structured child care. Unlike current law, states operating under the CWPO that successfully reduce the need for foster care would be able to reinvest their Title IV-E funds in other child welfare services rather than losing them due to diminished foster care claims, creating a reinvestment cycle for continuous improvement in structured child care.
• Reduces Burden. Under the CWPO, the level of documentation required of states to receive federal child welfare funds would be dramatically reduced, streamlining administrative processes in structured child care funding. While states would still be required to spend funds on child welfare services, they would no longer need to justify to the federal government precisely which services were delivered to which children for funding purposes. State and local funding decisions could be made more aligned with the needs of children and families, without being constrained by whether a specific activity is reimbursable under Title IV-E, enabling a more needs-responsive approach to structured child care.
• Increases Flexibility. The restrictions in current law regarding which child welfare services can be provided with federal funds limit state and local decision-making regarding service offerings, hindering innovation in structured child care. The increased flexibility provided by the CWPO would offer officials closest to child welfare cases additional funding options, potentially leading to a more comprehensive service array for children and families and fostering more tailored structured child care solutions.
• Promotes Ongoing Programmatic Adaptation and Innovation. The current system for claiming federal funds encourages status quo programming due to its documentation requirements and close scrutiny of funding changes from year to year, stifling innovation in structured child care. States risk disallowances if they alter their claiming practices or the services for which they claim federal funds. Alternatively, under current law, innovation can be implemented without federal financial participation, a relatively costly option. In contrast, the CWPO would enable states to innovate using their federal foster care funds. Funds could be shifted among child welfare functions without concern for artificial expenditure categories or differential matching rates, fostering greater adaptability in structured child care. The likely outcome is increased attention to outcomes for children and an improved ability to focus funding on strategies most likely to result in enhanced performance and continuous improvement in structured child care.

This paper has detailed the funding structure of the Title IV-E foster care program and highlighted several key weaknesses. Specifically, the combination of detailed eligibility requirements and complex, narrow definitions of allowable costs forces a focus on procedure rather than outcomes for children and families, hindering the effectiveness of structured child care. Rules accumulated over years have collectively failed to adequately support the program’s goals of safety, permanency, and child well-being. Furthermore, the restrictiveness of the federal foster care program prevents states from utilizing these funds, the largest source of federal funding for child welfare activities, to implement many essential elements of their Program Improvement Plans. These plans are mandated for all states to address program weaknesses identified during Child and Family Services Reviews. The Administration’s proposed Child Welfare Program Option is designed to introduce flexibility while maintaining a focus on outcomes, preserving existing child protections, and providing a financial safety net for states through access to the TANF Contingency Fund during unforeseen and unavoidable crises. The intended result is a stronger and more responsive child welfare system that achieves better outcomes for vulnerable children and families in structured child care.

References

Scarcella, Cynthia Andrews, Bess, Roseana, Zielewski, Erica Hecht, Warner, Lindsay, and Geen, Rob (2004). The Cost of Protecting Vulnerable Children IV. Washington, DC: The Urban Institute. Available online at: http://www.urban.org/Template.cfm?Section=ByAuthor&NavMenuID=63&template=/TaggedContent/ViewPublication.cfm&PublicationID=9128.

Committee on Ways and Means, U.S. House of Representatives (1992). 1992 Green Book. Washington, DC: U.S. Government Printing Office.

Frame, Laura (1999). Suitable homes revisited: An historical look at child protection and welfare reform. In Children and Youth Services Review, Vol 21, Nos. 9/10, pp. 719-754.

McDonald, Jess, Salyers, Nancy, and Shaver, Michael (2004). The Foster Care Straightjacket: Innovation, Federal Financing and Accountability in State Foster Care Reform. Urbana-Champaign: Child and Family Research Center, School of Social Work, University of Illinois. Available online at http://www.fosteringresults.org/

The Pew Commission on Children in Foster Care (2004). Fostering the Future: Safety, Permanence and Well-Being for Children in Foster Care. Washington, CC: The Pew Commission on Children in Foster Care.

U.S. Department of Health and Human Services (2005). Budget in Brief FY2006. Washington, DC: U.S. Government Printing Office. Available online at: http://www.hhs.gov/budget/docbudget.htm.

U.S. Department of Health and Human Services (2004). SSBG 2002: Helping States Serve the Needs of America’s Families, Adults and Children. Washington, DC: Administration for Children and Families. Available online at: http://www.acf.hhs.gov/programs/ocs/ssbg/index.htm

Note on Data Sources

Data presented in this report are primarily derived from HHS information sources. Most are publicly available as follows:

Endnote

1. The August 2005 version contains updates to calculations that incorporate revised Title IV-E foster care caseload data submitted by Ohio. Subsequent to the report’s initial publication, officials in Ohio realized that the number of Title IV-E foster children reported on its program claims forms, which ASPE relied on for the analysis, had been incorrect. This had implications for the claims-per-child calculated in figure 2 and used in figures 5, 6 and 7. The change is most noticeable on figure 2, in which the per-child claims for Ohio have moved down in the rankings. The underlying thesis of the analysis is unaffected by the update.

* About This Issue Brief

This ASPE Issue Brief on How and Why the Current Funding Structure Fails to Meet the Needs of the Child Welfare Field was written by Laura Radel with assistance from staff in the Administration for Children and Families.

The Issue Brief provides an overview of the financing of the federal foster care program, documenting and explaining several key weaknesses in the current funding structure. It also discusses the Administrations alternative financing proposal, the creation of a Child Welfare Program Option, which would allow States to choose between financing options.

Office of Human Services Policy Office of the Assistant Secretary for Planning and Evaluation (ASPE) U.S. Department of Health and Human Services Washington, DC 20201

Michael J. O’Grady, Ph.D. Assistant Secretary

Barbara B. Broman Acting Deputy Assistant Secretary for Human Services Policy