Statement by
Wade F. Horn, PH.D.
Assistant Secretary for Children and Families
U.S. Department of Health and Human Services
Current State of Child Welfare Financing and the Need for Reform
The Committee on Ways and Means
Subcommittee on Human Resources
U.S. House of Representatives

June 9, 2005

Mr. Chairman and members of the Subcommittee, I am pleased to appear before you today to discuss the current state of child welfare financing and the need for reform. With what we know about weaknesses in the current child welfare financing structure, we are convinced that the reform envisioned by the President’s child welfare program option is critical to achieving better results for vulnerable children and families.

Currently, the Federal Government 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 they can safely return home or be placed in other permanent homes. Federal foster care funds, authorized by the Social Security Act, are paid to States on an uncapped, “entitlement” basis. This means that any qualifying expenditure by a State will be partially reimbursed, or “matched” without limit. Over the years, layers upon layers of regulations and policy interpretation have been developed to define which expenses qualify for reimbursement. Although each may have made sense individually, cumulatively this represents a level of complexity and burden that fails to support the program’s basic goals of safety, permanency and child well being.

I will use my time today to provide a brief overview of the funding structure for the title IV-E Federal foster care program, and share what the Administration believes are key inherent weaknesses of the program and how the President’s proposal to establish a Child Welfare Program Option would address these weaknesses. Additional detail on each of these issues is available in an analysis of Federal foster care financing being released by HHS today.

Background of Title IV-E Foster Care
The Federal Government has, since 1961, shared the cost of foster care services with States. Prior to this time foster care was entirely a State responsibility. From 1961 until 1980, foster care funding was part of the Federal welfare program, Aid to Families with Dependent Children (AFDC), originally known as Aid to Dependent Children (ADC). However, since 1980, foster care funds have been authorized separately, under title IV-E of the Social Security Act.

From 1980 to 1996, States could claim reimbursement for a portion of foster care expenditures on behalf of children removed from homes that were eligible for the pre-welfare reform AFDC program as long as their placements in foster care met several procedural safeguards. While the underlying AFDC program was abolished in 1996 and replaced by the Temporary Assistance for Needy Families Program (TANF), income eligibility criteria for title IV-E foster care continues to follow the old AFDC criteria as it existed prior to the enactment of the TANF program.

The major appeal of the current program has always been that, as an entitlement, funding levels were supposed to adjust automatically to respond to changes in “need.” However, we do not believe that under current conditions – with the link to old AFDC eligibility criteria, these adjustment features respond appropriately and equitably to reflect true changes in need.

Key Weaknesses of Current Funding Structure
There are six key weaknesses that we have identified with the current child welfare financing structure:

  1. The program has evolved to include complex documentation requirements;
  2. There are widely different claiming practices among States;
  3. The current funding structure has not resulted in high quality services;
  4. There seems to be no relationship between State claims and service quality or outcomes;
  5. The current program structure is inflexible and emphasizes foster care over other solutions; and
  6. The current program has not kept pace with best practices in the changing child welfare field.

I would now like to address each of these weaknesses in more detail. First, documenting eligibility and claiming foster care funds is burdensome for States. 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 also must be met in order to justify claims made on a child’s behalf. Some 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. In addition, the process also frequently results in contentious disallowances, appeals, and litigation.

Second, differing claiming practices result in wide variations in funding among States. Based upon three year average claims from FY 2001 through FY 2003, the average annual amount of total Federal foster care funds received by States ranges from $4,155 to $41,456 per title IV-E eligible child, with a median of $15, 914. The range in the maintenance claims was $2,829 to $22,418 per title IV-E eligible child with a median of $6,546. Claims for child placement services and administration ranged from $1,190 to $23,724 per title IV-E eligible child with a median value of $6,909. These figures represent only the Federal share of title IV-E costs; if one were to include the State share in these calculations, the expenditure figures would be substantially higher.

It is unlikely that disparities this large are the result of actual differences in the costs of operating foster care programs or reflect differential needs among foster children. Some States are quite conservative in their claims, counting only children in clearly eligible placements and defining administrative costs narrowly. Other States have more aggressively pursued administrative processes necessary to justify more extensive claims. Variation in States’ claiming practices may be seen most clearly in the relationship between claims for title IV-E maintenance and title IV-E administrative costs. Six States claim less than 50 cents in title IV-E administrative costs for every dollar they claim in title IV-E maintenance, while nine others claim more than two dollars in title IV-E administrative costs per every title IV-E maintenance dollar.

Third, the current structure has not resulted in high quality services. Strengths and weaknesses of States’ child welfare programs are identified through the Child and Family Services Reviews (CFSR). States reviewed have ranged from meeting standards in one to nine of the 14 outcomes and systemic factors examined. Significant weaknesses are evident in programs across the nation.

Fourth, we have been able to document through the CFSR that State title IV-E claims bear 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 these reviews. In addition, there is no relationship between the amounts States claim and the proportion of children for whom timely permanency is achieved. Wide disparities in Federal claims might be viewed in a favorable light if States were achieving better outcomes with higher spending; however, this argument does not hold up to scrutiny in the face of the CFSR results. Average per-child claims did not differ appreciably between the highest and lowest performing states. In fact, the CFSR findings were disappointing even for States with relatively high costs.

Fifth, the current structure is highly inflexible, and places an emphasis on foster care over other solutions and services that would either prevent the child’s removal from the home or speed up permanency efforts. Specifically, foster care funding represents 65 percent of Federal funds dedicated to child welfare purposes, and adoption assistance makes up another 22 percent. In contrast, funding sources that may be used for preventive and reunification services represent only 11 percent of Federal child welfare program funds.

Lastly, the current financing structure has not kept pace with changes in the child welfare field, including the growing role of kinship foster care, the significant extent to which parental substance abuse often underlies the abuse and neglect of children, and the field’s increased emphasis on permanency planning for children in foster care. The result is a funding stream seriously mismatched to current program needs. From complex eligibility criteria based in part on a program (i.e., AFDC) that no longer exists, to intricate claiming rules, it is clear that the current system of title IV-E funding is driven by process rather than outcomes.

Over the last few years, we have made great strides towards re-orienting child welfare programs to be outcomes focused. However, until the funding is structured to support these outcomes, further improvements will be constrained.

Child Welfare Program Option
Given the serious weaknesses of the current structure, the need for child welfare financing reform has never been more evident. In order to assist States in ensuring positive outcomes for children and families, the President’s Fiscal Year 2006 budget once again proposes to create a Child Welfare Program Option that would permit States to choose to administer their foster care programs more flexibly, with a fixed allocation of funds over a five-year period, should this approach better support their unique child welfare needs. This concept was first proposed in FY 2004 and we continue to believe this option offers a number of distinct advantages over both current law and traditional block grants that have been considered in the past.

The Program Option provides States with greater flexibility so they can design more effective ways to strengthen services to vulnerable children and families. States that choose the Program Option would be able to use funds for foster care payments, prevention activities, permanency efforts, training for child welfare staff, and other such service-related child welfare activities. States that choose not to receive funding provided by this option would continue operating under the current title IV-E entitlement program.

While States that choose this option would have much greater flexibility in how they use title IV-E funds, they would continue to be required to maintain the child safety protections under current law, including requirements for conducting criminal background checks and licensing foster care providers, obtaining judicial oversight over decisions related to a child’s removal and permanency, meeting permanency timelines, developing case plans for all children in foster care, and prohibiting race-based discrimination in foster and adoptive placements. The proposal also includes a maintenance-of-effort requirement to ensure that States selecting the new option maintain their existing level of investment in the program.

In addition to providing a new option for States, the President’s proposal includes a $30 million set-aside for Indian Tribes or consortia that can demonstrate the capacity to operate a title IV-E program. Currently Tribes are not eligible to receive title IV-E funding, although some Tribes are able to access funds through agreements with States.

The Administration believes that this proposal would offer a powerful new means for States and Tribes to structure their child welfare services program in a way that supports the goals of safety, timely permanency and enhanced well being for vulnerable children and families.

In closing, I would like to thank the Subcommittee, especially you Congressman Herger, for your ongoing commitment to improving our Nation’s child welfare system and for allowing me to highlight the President’s bold vision for strengthening the system through the Child Welfare Program Option. We look forward to working closely with you on this proposal. I am convinced that the result will be a stronger and more responsive child welfare system that achieves better results for vulnerable children and families.

I would be pleased to answer questions at this time.

Last Revised: June 10, 2005