Madam Chair, members of the Subcommittee, thank you very much for the opportunity to testify this afternoon.
I am Robert Geen, a senior research associate at the Urban Institute, where my research focuses on child welfare issues. Based on our past four years of research on child welfare financing, I would like to draw your attention to three critical issues facing the flexible funding demonstrations that have been proposed to this Committee.
First: The existing federal child welfare financing structure is fundamentally flawed. It provides financial incentives that run counter to the goals of the child welfare system and requires states to invest considerable time and money to claim federal reimbursement. The flexible funding proposals correct some but not all of the weakness of the current structure.
Second: Enforcing a maintenance of effort requirement and non-supplantation provision will be very difficult given the variety of federal funding streams states use and the variety of agencies that provide child welfare services.
Third: The flexible funding demonstrations would likely alter states' use and support of relative foster care, or kinship care—a growing source of care for children in the child welfare system.
Let me elaborate on these issues.
Legislation addresses some but not all shortcomings of the current system.
The most basic shortcoming of the present federal child welfare financing structure is that states have little financial incentive to reinforce child welfare goals. For example, if a state saves federal dollars by shortening the time a child spends in foster care, the savings return to the federal government. Both the flexible funding demonstrations and the IV-E waivers address this problem by allowing states to reinvest IV-E savings from shorter foster care stays in other parts of the child welfare system, such as prevention or aftercare services.
The Consolidation of Grants demonstrations would allow states to receive a block grant for foster care funds, adoption funds, or both. By permitting states to receive a block grant for federal foster care funds while leaving adoption an open-ended entitlement, the legislation may have an unintended consequence. States may have a financial incentive to make adoptive placements before making reasonable efforts to reunify children with their families.
A second shortcoming of the current system is that states must spend inordinate amounts of time and money determining what they can claim for federal reimbursement. Currently, IV-E eligibility is based on the eligibility of the child's prior caregiver for Aid to Families with Dependent Children. In our research, one child welfare agency reported that it spent $4 million a year to claim $26 million in federal funds. Another agency reported that they have a staff of 600 to determine eligibility.
While the five states approved for the Consolidation of Grants demonstrations will receive relief from IV-E eligibility determination, states implementing the Transfer of Funds demonstrations or the waivers will not. The historical reasons for linking IV-E eligibility to AFDC are no longer valid. The federal government has an interest in all foster children, not just those from impoverished homes. This Committee could provide relief from IV-E eligibility determination for all states by providing federal reimbursement for all children in state custody and reducing federal matching rates accordingly.
The variety of federal funds used for child welfare makes the maintenance of effort (MOE) requirement problematic.
The flexible funding demonstrations could encourage states to shift child welfare spending to remaining federal entitlements like Medicaid or Supplemental Security Income. After all, IV-E represents less than half of the total federal funds that states expend on child welfare services.1 States always have the incentive to first seek out entitlement funding before expending block grant funds.
Multiple agencies provide a wide variety of services and interventions that may be considered child welfare. In addition, states use a variety of federal funds to support child welfare services. Thus, it is difficult to define what constitutes a state's child welfare budget and even more difficult to ensure that a state maintains its historical investment. States could shift funding from child welfare agencies to other agencies that provide similar services and would likely appear to meet MOE requirements. I want to be clear, however, that this does not negate the need for a MOE requirement. Rather it argues for HHS to develop specific and comprehensive regulations that include a non-supplantation provision.
Block Granting IV-E would likely alter states' use and support of relative foster care.
Approximately 200,000 foster children are in relative foster care and this number is growing due in part to the declining number of nonrelative foster parents. In January, HHS issued regulations for states to implement the Adoption and Safe Families Act. The regulations require states to license relative foster parents based on the same licensing criteria used for nonrelatives in order to receive IV-E reimbursements. Based on an 1999 Urban Institute survey, 31 states and the District of Columbia use different licensing standards to approve at least some relative foster parents.2 Most states provide those relative foster parents with Temporary Assistance for Needy Families grants instead of foster care payments. This would no longer be possible under the flexible funding demonstrations, which would award IV-E protections to both IV-E and non-IV-E eligible children. States that implement flexible funding demonstrations will have two choices:
(1) provide foster payments to all relative foster parents, which could significantly increase IV-E expenditures and/or cut the supply of relative foster parents since not all may be able to meet licensing requirements, or
(2) not maintain protective custody of children placed with relatives, which could make it difficult to ensure the safety of those children.
It is also important to note that states' decisions on whether to include kinship care placements in their IV-E caseloads could significantly affect their baselines. States, at least initially, will have the incentive to move all kinship care placements into their caseloads to increase the size of their block grant.
In conclusion, despite its clear improvements over the current federal financing system for child welfare services, implementing flexible funding for child welfare is not without risk. The main benefit of an entitlement is that states are protected from sudden caseload increases due to factors beyond their control, for example a drug epidemic or a sharp downturn in the economy.
While the Consolidation of Grants demonstrations provide some protection for such a scenario by allowing states to opt out of the block grant in future periods, exiting the demonstration will entail both economic and political costs. In comparison, the Transfer of Funds demonstrations provide greater protection for sudden changes in caseloads since they provide funding flexibility but also maintain the IV-E entitlement.
Thank you again for this opportunity to testify and I am happy to answer any questions you may have.