The 2026-27 Budget

Child Welfare

Introduction

California’s children and family programs include an array of services to protect children from abuse and neglect and to keep families safely together when possible. This analysis outlines the Governor’s proposed 2026-27 budget for child welfare and foster care programs under the Department of Social Services (DSS), and raises questions and issues for the Legislature to consider.

For background on child welfare and foster care programs—including information about youth/families served by the child welfare system, recent legislative initiatives/reforms, and funding background—please refer to our recent report, California’s Child Welfare System: Addressing Disproportionalities and Disparities.

Overview of Governor’s Budget for Child Welfare Programs

Proposed State General Fund Spending for Child Welfare in 2026-27 Decreases Compared to 2025-26… As shown in Figure 1, General Fund local assistance funding for child welfare is proposed to decrease by around $60 million from the current year to the budget year. There are no new programs proposed, nor any significant discretionary funding expansions or program reductions included in the Governor’s budget. Rather, the General Fund net decrease reflects lower costs primarily due to the expiration of some one-time funding in 2025-26, such as a one-time augmentation for the Bringing Families Home program and one-time patch funding for Foster Family Agencies. The drivers of the General Fund year-to-year net decrease are described more in Figure 2.

…While Proposed Total Funding Increases. Although state funding is proposed to decrease, total funding for child welfare programs—including federal and local funding sources—is projected to increase from the current to the budget year by around $300 million, as shown in Figure 1. The net total increase is driven by assumed growth in ongoing program expenditures, such as higher projected federal and county expenditures for child welfare programs that were realigned in 2011. The drivers of the year-to-year total funding net increase are described more in Figure 2.

Oversight of Recent Augmentations

DSS Continues Implementation of Recent Program Augmentations

No New Child Welfare Programs Proposed for 2026-27. As noted, the Governor’s budget does not propose any new programs or discretionary funding expansions for child welfare in 2026-27. Given our office’s assessment that the budget is roughly balanced based on the administration’s revenue estimates, the budget does not have capacity for new augmentations for child welfare this budget year (without reductions or revenue solutions elsewhere across the budget). Additionally, both our office and the administration project significant budget deficits in future years, meaning the Legislature will need to identify additional budget solutions to keep future expenditures balanced with forecasted revenue growth. Understanding which programs are working well and those areas in need of adjustment is important when considering future budget solutions.

DSS Continues Implementation of a Number of Newer Programs. In recent years, the state has augmented a number of child welfare program areas. Using this year’s budget process to further the Legislature’s oversight of these newer programs/program expansions could prove to be useful in helping the Legislature gain insight into program effectiveness and better position the Legislature to consider its balance of core commitments. Figure 3 provides an overview of child welfare programs that have been newly implemented or augmented in recent years.

Questions for Oversight. Some questions for the Legislature to consider as it oversees these programs include:

• What are the major outputs, outcomes, and impacts of the funding to date? What do youth and families view as the most notable results or effects of the funding?

• What have been obstacles, challenges, or delays to implementation? To what extent and how have DSS and program partners been able to address these issues? Is further Legislative guidance (or anything else) needed to address any remaining barriers?

• For programs that received one-time funding or augmentations, how sustainable are program gains? What will be the impact on youth and families when the funding expires?

• Expenditure authority for some of the temporary augmentations, such as the Emergency Response increases and components of the complex care needs funding, are set to expire in the current year (June 30, 2026). For these programs, have the allocations been fully expended? Should extending the end dates for these augmentations be considered if not?

• Are there policy changes that could continue any recently successful initiatives?

• For the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) program, the implementation status of certain components—the joint behavioral health home visits and the activity funds initiative—is unclear. What is the implementation and funding status for these components of BH-CONNECT?

Tiered Rate Structure Is a Major New Initiative

Overview of Tiered Rate Structure. Continuum of Care Reform (CCR) is a series of state legislation enacted over the past decade making fundamental changes to the way the state cares for youth in the foster care system. As part of implementing CCR, the state developed a new foster care maintenance payment rate structure to replace the previous age-based and group home rate structure. Under CCR, foster care rates must be based on the assessed level of need of individual youth (“level of care,” or LOC), with youth requiring higher levels of behavioral health supports and other more therapeutic and intensive services receiving higher rates. Since 2017, the state has been implementing interim LOC rates for resource families, Short-Term Residential Therapeutic Programs (STRTPs), Foster Family Agencies, Intensive Services Foster Care, and other specialized models of foster care.

The 2024-25 spending plan amended and added substantial new statutory language establishing the permanent rate structure—referred to as the Tiered Rate Structure—and extending the duration of the interim rate period until permanent rates can be implemented (Chapter 46 of 2024 [AB 161, Committee on Budget]). The Tiered Rate Structure will rely on data collected via the state’s functional assessment tool—the Child and Adolescent Needs and Strengths (CANS) assessment—to determine a youth’s needed level of care and corresponding rate, which will not depend on placement types. (In other words, a youth will be able to receive the same level of financial support and services whether they are placed with a resource family, in an STRTP, or another placement type.)

In addition to restructuring foster care maintenance payments, the 2024-25 statutory changes also added two new foster care programs and corresponding rate components: (1) Strengths Building and Child and Family Determination Program, and (2) Immediate Needs Program. Over the next few years, DSS will work toward implementation—in terms of developing detailed program guidance and taking other necessary steps to prepare for the Tiered Rate Structure—with the new rates slated to begin rolling out to youth and caregivers in 2027-28.

For a fuller overview of the Tiered Rate Structure, refer to our prior budget analysis.

Tiered Rate Structure Will Implement Beginning 2027-28, Subject to Appropriation. The 2025-26 spending plan (Chapter 79 of 2025 [SB 119, Committee on Budget and Fiscal Review]) added language around the Tiered Rate Structure’s implementation timeline to specify that the new care and supervision rates as well as the strengths building and immediate needs components shall become operative on July 1, 2027, or the date after both of the following events have occurred, whichever is later:

• The administration notifies the Legislature that the California Statewide Automated Welfare System can perform the necessary automation to implement the Tiered Rate Structure.

• The Legislature makes an appropriation for the express purpose of implementing the new rates.

Our understanding is that the administration’s budget estimates for future years do not include funding for the Tiered Rate Structure. Essentially, the administration’s default budget assumption is that the Legislature does not make the specified appropriation necessary to implement the new rates in 2027-28. As such, we note that these costs add to out-year deficits identified by the Governor. The administration estimates that implementing the Tiered Rate Structure will cost more than $300 million General Fund in 2027-28, $500 million in 2028-29, and $700 million General Fund in 2029-30 (with some potential growth thereafter and ongoing).

DSS Making Significant Progress Toward Implementation. In spite of this uncertainty around future funding, DSS has been undertaking significant efforts to prepare for implementation to begin in 2027-28. For example, in the current year, DSS is working to build the capacity of local child welfare agencies to conduct timely CANS assessments and Child and Family Team meetings, in alignment with specified criteria for fidelity. DSS also is in the final phases of contracting for the Financial Management Coordinator for the Strengths Building and Child and Family Determination Program. This contracted third-party entity will be responsible for administering payments for foster youth’s activities under the strengths building component of the Tiered Rate Structure. Additionally, DSS engaged with multiple stakeholders over several months to prepare and submit a statutorily required report to the Legislature in January 2026 analyzing the services needs of youth who will be eligible for the immediate needs component of the Tiered Rate Structure.

Questions About Tiered Rate Structure Implementation Within This Context. Given the significant resources DSS is dedicating to preparing for Tiered Rate Structure Implementation while future funding is not guaranteed, the Legislature may wish to ask the administration to provide additional information around the department’s plans going forward. Some questions could include:

• If the Legislature does not make an appropriation to implement the Tiered Rate Structure beginning in 2027-28, the current, interim LOC rate structure for foster care maintenance payments would remain in place. What would be the impact on foster youth, resource families, service providers, and other stakeholders?

• If the Legislature does not make an appropriation to implement the Tiered Rate Structure beginning in 2027-28, how would the department reallocate resources?

• Our understanding is that a number of DSS staff are working exclusively or primarily on Tiered Rate Structure Implementation preparation. Would these positions still be needed?

• What about the contract for the Financial Management Coordinator, and any other externally contracted parties? Would DSS be able to cancel these contracts?

• The most recent cost estimates we have seen assume a phased implementation approach over three years (2027-28 to 2029-30). Has the administration considered a more gradual or differently structured phase-in of the new rates that could reduce costs at least in the early years of implementation?

• What would be the impact on foster youth and families of a different implementation approach—such as implementing only the new foster care maintenance payment rates but holding off on the strengths building and immediate needs components—while the state addresses its structural deficit?