Legislative Analyst's Office
February 22, 1995

Aid to Families With Dependent Children (5180)

The Aid to Families with Dependent Children (AFDC) Program provides cash grants to families and children whose incomes are not adequate to meet their basic needs. Families are eligible for the AFDC-Family Group (AFDC-FG) Program if they have a child who is financially needy due to the death, incapacity, or continued absence of one or both parents. Families are eligible for grants under the AFDC-Unemployed Parent (AFDC-U) Program if they have a child who is financially needy due to the unemployment of one or both parents. Children are eligible for grants under the AFDC-Foster Care (AFDC-FC) Program if they are living with a foster care provider under a court order or a voluntary agreement between the child's parent and a county welfare or probation department.

The budget proposes expenditures of $6.4 billion ($1.4 billion General Fund, $1.8 billion county funds, and $3.2 billion federal funds) for the AFDC Program in 1995-96. This is a decrease of 10 percent (57 percent General Fund) below estimated expenditures for the current year. This decrease is due to proposed grant reductions and to the Governor's state and county realignment proposal.

Current-Year Update of AFDC Program

Statutory Changes in 1994-95

Maximum Aid Payments (MAPs) Reduced by 2.3 Percent. The 1994-95 budget trailer bill legislation--Chapter 148, Statutes of 1994 (AB 836, Goldsmith)--reduced AFDC grants by 2.3 percent, effective September 1, 1994. The 1994 Budget Act assumed that the 2.3 percent reduction would generate a nine-month General Fund savings of $56.3 million in 1994-95.

In August 1994, a state superior court ruled (in Welch v. Anderson) that the 2.3 percent grant reduction could not be implemented because it was based on a federal waiver that was invalidated by a previous court decision. The Department of Social Services (DSS) has submitted a revised waiver request, and the budget assumes that the 2.3 percent reduction will be implemented in March 1995. The revised waiver proposes to exempt certain cases (in which children reside with a non-needy caretaker or parents receiving SSI/SSP) from the grant reductions. The budget reflects a General Fund savings of $17.2 million in 1994-95 and $52.8 million in 1995-96 from the 2.3 percent reduction.

Pregnancy Benefits Reduced by One-Third. Current law provides for a monthly special needs payment to all pregnant women who are receiving AFDC. The purpose of this payment is to ensure that these women have adequate resources to support their nutritional and other health needs arising from the pregnancy. Chapter 148 reduced from $70 to $47 the monthly special needs payment, for a General Fund savings of $2.6 million in 1994-95 and $3.3 million in 1995-96.

Work Requirement. Chapter 148 requires adult recipients who have been on AFDC for two years from the date of their GAIN assessment to participate in a work preparation assignment, if made available by the county, unless the recipient is already working at least 15 hours per week. (The Greater Avenues for Independence (GAIN) Program assessment is designed to identify the appropriate mix of services to meet the participant's employment plan.) Recipients affected by the work requirement include those adults required to enroll in GAIN who have had an opportunity to complete training and education. Participants who refused a work preparation assignment would be subject to the current GAIN sanction (a reduction in the family's grant). Implementation of this requirement is subject to approval of a pending federal waiver request.

The budget does not reflect any fiscal effect from this proposal on the assumption that counties will not create additional work slots in 1995-96.

Expansion of Transitional Benefits. Chapter 148 expanded eligibility for transitional child care and health benefits to include families who are no longer eligible for AFDC due to marriage. The budget assumes any AFDC grant savings would be completely offset by child care costs. Implementation of this change is subject to approval of a pending federal waiver request.

Sponsored Aliens. The 1994-95 budget also assumes enactment of federal legislation to prohibit sponsored aliens from receiving Medi-Cal or AFDC benefits for five years. Federal legislation has not been enacted, but the 1995-96 budget assumes enactment of such legislation by October 1995, resulting in General Fund savings of $27 million in the AFDC Program.

Maximum Family Grant. Additional 1994-95 budget legislation--Chapter 196, Statutes of 1994 (AB 473, Brulte)--enacted the Maximum Family Grant Program. This program prohibits increases in any family's AFDC grant due to children conceived while on aid, except in cases of rape, incest, or failure of certain contraceptives, unless there has been a break in aid of at least 24 consecutive months. The department anticipates that implementation of this policy will begin in March 1995, pending approval of a federal waiver request. The budget assumes that this provision will result in General Fund savings of $8.6 million in 1995-96.

Governor's 1995-96 Welfare Proposals

Governor Proposes State/County Realignment

The budget assumes AFDC grant savings from improved county administration of the program. This creates a potential General Fund and county funds shortfall of $128 million if efficiencies do not materialize.

County Share of AFDC Program Costs To Increase. The Governor's Budget contains a major proposal for realigning the relationship between the state and county governments in the funding and administration of social services programs. The proposal increases county shares of cost in the social services programs and balances most of these increased costs with resources transferred to the counties from various funding sources. Specifically, the proposal would increase the counties' share of the nonfederal cost of AFDC (FG&U) grant payments from 5 percent to 50 percent and increase the counties' share of nonfederal AFDC-Foster Care payments from 60 percent to 100 percent.

We discuss the proposal in detail in our companion volume, The 1995-96 Budget: Perspectives and Issues. In this report, we agree that counties should assume full programmatic and financial responsibility for the Foster Care Program; but we do not recommend adoption of the proposal to increase the county share of cost for the AFDC (FG&U) Program.

Assuming Improved County Administration Creates Budgetary Risk. The budget assumes $122 in General Fund AFDC grant savings and $6 million in grant savings to counties from improved program efficiency and reduced fraud resulting from the realignment of the nonfederal grant sharing ratio. In addition, the budget proposes a General Fund augmentation of $20 million for county administration seed money for program enhancements. The administration indicates that the savings would result because of (1) projects implemented with the seed money and (2) the additional incentives counties would have to reduce grant costs because the realignment proposal increases the counties' share of these costs.

We agree that the seed money and additional incentives could have some effect in inducing counties to take administrative actions that would reduce grant costs; but in our judgement, the ability of counties to achieve significant grant reductions by operating more efficiently is rather limited. Thus, we believe that the budget proposal represents a budgetary risk that could result in a combined state/county shortfall of $128 million. Because the budget proposes to increase the county share of the nonfederal AFDC grant costs from 5 to 50 percent, the realignment proposal would increase the counties' share of this risk from $6 million to $64 million if the savings do not materialize.

Budget Proposes AFDC Aid Payment Reductions

The Governor proposes legislation to make several changes that would reduce grants in the AFDC Program, for a net General Fund savings of $254 million in 1995-96. Most of these savings would result from a 7.7 percent grant reduction and an additional 15 percent reduction after six months on aid. We review the Governor's proposals and comment on them.

The Governor's Budget proposes several major changes that would reduce grants in the AFDC Program. As Figure 26 shows, these changes would result in an estimated net General Fund savings of $254 million in 1995-96.

The budget contains four separate proposals that would have the effect of reducing AFDC grants below the levels required by current law for non-exempt cases. (As noted above, exempt cases are those in which children reside with a non-needy caretaker or parents receiving SSI/SSP.) These proposals are (1) a 7.7 percent reduction in the MAP for AFDC recipients, effective September 1, 1995, (2) an additional 15 percent MAP reduction for able-bodied AFDC recipients who have been on aid for more than six months, (3) a requirement that parents under age 18 who receive AFDC live in the home of their parent, legal guardian, or adult relative, and (4) a two-year limit on AFDC eligibility for able-bodied adults.

Budget Proposes to Reduce MAPs by 7.7 Percent. The budget proposes legislation to reduce the MAPs by 7.7 percent for non-exempt AFDC recipients, for a savings of $348 million ($167 million General Fund) in 1995-96. This reduction would require a federal waiver because it would reduce the maximum grant level below the federally required maintenance of effort level. The reduction would be effective September 1, 1995.

Assuming the current-year 2.3 percent reduction in the MAP is in effect, the additional 7.7 percent MAP reduction would reduce monthly grants by $47 for a family of three. These grant reductions would be partially offset by an increase in food stamps of $14. Because the Governor's proposals affect only the maximum aid payment, recipients who have grants below the maximum--due to employment earnings, for example--would experience no grant reduction or only a partial reduction.

Proposal to Reduce MAP by 15 Percent After Six Months. The budget proposes legislation to reduce the MAP by an additional 15 percent for AFDC recipients (with some exceptions) after they have been on aid for six months, for a net savings of $172 million ($87 million General Fund) in 1995-96. This would require a federal waiver due to the federal maintenance of effort requirement.

The additional 15 percent reduction would occur after a family (1) has been on assistance for more than 6 months or (2) went off aid after 6 months and returned to the program within 24 months. This reduction would not occur if all parents or caretaker relatives in the home are age 60 or over, disabled (receiving SSI/SSP or In-Home Supportive Services), pregnant, the caretaker is a non-needy relative, or all parents in the family (assistance unit) are under age 19 and attending high school or other equivalent schooling.

Teen Pregnancy Disincentive. The budget anticipates enactment of state legislation to require parents under age 18 who receive AFDC to live in the home of their parent, legal guardian, or adult relative. The proposal includes exceptions under which the teen could maintain a separate residence, including when the physical or emotional health or safety of the teen and/or her children would be jeopardized by residing with the teen's parents. The budget assumes that savings associated with this proposal would be offset by administrative costs and the cost of investigations by social workers assessing the safety of the teen's living arrangement. This program requirement is optional under the federal Family Support Act of 1988 and would not require any federal approval other than acceptance of an amended state plan.

Proposal to Limit Eligibility to Two Years. The budget proposes legislation to limit AFDC eligibility of able-bodied adults to two years, effective July 1, 1997. This would require a federal waiver. The proposal would also give priority for GAIN services to individuals affected by the time limit.

Under the proposal, able-bodied adults on aid for more than two years would be excluded from the family unit for purposes of calculating the AFDC grant. Their children would continue to be eligible to receive aid, and the adults would still be eligible for Medi-Cal and food stamps. Participants in the GAIN Program subject to the two-year limit would also have their grants reduced but would be able to complete the program. The DSS indicates that adults affected by the time limit could return to AFDC after 24 months. The department estimates that 424,000 able-bodied adult AFDC recipients will be subject to the two-year limit upon implementation of the proposal. We estimate that this proposal would result in annual General Fund savings of about $290 million in AFDC grants, beginning in 1997-98.

Figure 27 summarizes the effect of the Governor's proposals on monthly grants for a family of three persons in the AFDC-Family Group Program. As the figure shows, the impact of the two-year limit would be mitigated by provisions of current law that restore 1992-93 grant reductions and resume cost-of-living adjustments for grants, effective July 1, 1996. Assuming current law requirements, the net effect of the Governor's proposals in 1997-98 on a three-person family subject to the two-year limit would be a reduction of $177, or 30 percent, from current-law monthly grant levels. This reduction would be partially offset by an increase of $53 in food stamps.

Evaluating the Proposals to Reduce AFDC Grants

The Governor's proposed grant reductions will result in significant savings and increase the financial incentives for recipients to work. We conclude that while some families will be able to compensate for the grant reductions through work, others will find this difficult due to low levels of education and employment experience, as well as a potential lack of job opportunities.

In presenting his proposals, the Governor has offered several reasons why these changes are needed, including (1) the need to promote personal responsibility, (2) the need to reinforce the premise that AFDC is a temporary program, and (3) the need to make work an attractive alternative to AFDC. These are reasonable premises; but in evaluating the proposals, the Legislature needs to weigh the identified budgetary savings to government against its policy objectives for the AFDC Program and the potential impact of the proposed changes on needy families.

Fiscal Impact on Government. The budget estimates that the proposed reforms will result in significant savings to the federal, state, and county levels of government. Net General Fund savings are estimated to be $254 million in 1995-96. These savings would increase in subsequent years due to the two-year limit. The savings would be offset, by an unknown amount, to the extent that the reductions in the MAPs lead to a reduction in family incomes, which, in turn, leads to an increase in the use of other public services such as health and foster care.

Impact on Families. The grant reductions proposed by the Governor would reduce the resources available to many families. As discussed, Figure 27 shows how the proposals could affect a family of three--the most common family size. We note that under current law, the combined maximum monthly grant and food stamps benefit ($829) is equal to about 81 percent of the poverty guideline. Those families subject to both the 7.7 percent and additional 15 percent reductions would have their resources reduced to $721, or about 70 percent of the guideline if they do not have other income. Those families subject to the two-year limit would have their resources reduced to $705 if they do not have other income.

Increasing the Percentage of Recipients Who Work. The impact of the Governor's proposals will depend largely on the degree to which they increase the percentage of recipients who are employed, thereby avoiding the financial loss that would result from the grant reductions. An evaluation of the work incentives from prior years' grant reductions and other policy changes is currently underway. However, as we note later in our analysis of County Administration, it appears that many of the recipients are either unaware or do not understand the current work incentives. In that discussion we provide the Legislature with several options to increase recipients' knowledge of the work incentives that exist in current law.

Increasing the Work Incentive. In the 1991-92 Budget Perspectives and Issues, we concluded that the AFDC Program, as structured at the time, offered relatively little financial incentive to work. There were two main sources of the work disincentives: (1) the grant levels when combined with food stamps often were higher than what could be earned by recipients through low-wage employment and (2) program rules allowed working recipients to retain, at best, only a small part of each increment of income. In addition, recipients who worked were likely to weigh the possible loss of Medi-Cal benefits (after a transition period) if they lost AFDC eligibility. Since then, the combination of grant reductions (14 percent since 1990-91), rule changes, and an increase in the federal earned income tax credit have, to some extent, mitigated these problems; and the additional grant reductions proposed by the Governor could further increase the financial incentive to work.

It is impossible to predict with accuracy, however, the degree to which these proposals will induce more AFDC recipients to work. Those nonworking recipients who do not compensate for the MAP reductions through an increase in earnings will suffer a reduction in their standard of living, which will be significant recognizing that these families' incomes are currently below the federal poverty guidelines. It is therefore important, in assessing the impact of the budget proposal, to consider the extent to which AFDC recipients can obtain employment given their education levels and employment experience.

Are AFDC Recipients Work-Ready? In spite of the increased work incentives provided under the Governor's proposals, AFDC recipients are likely to face several obstacles to employment, including lack of training, low education levels and work experience.

Lack of employment-related skills, including low educational attainment, is often cited as a major impediment to AFDC recipients returning to the labor force. Some studies show that low educational attainment is associated with a higher probability of staying longer on assistance.

The GAIN Program is California's primary employment training program for AFDC recipients. It is a more complex program and is more expensive per participant than most previous programs. The program, however, is not funded at a level sufficient to accommodate all mandatory and voluntary participants.

An independent evaluation of the GAIN Program found it to be the most successful welfare to work program ever studied, both from the standpoint of increasing earnings for long-term AFDC recipients as well as from a cost-benefit perspective. However, the evaluation found that even in the most successful county, 47 percent of the AFDC-FG GAIN participants were still on aid after two years and 37 percent had not been employed at any time during the first two years of the evaluation. (We discuss the GAIN Program and the evaluation later in this Analysis.)

Finally, we note that the economy plays an important role in the ability of AFDC recipients to obtain jobs. The significant loss of jobs and sluggish turnaround in job growth from the recent recession suggests that AFDC recipients may find it difficult to obtain employment if the economy's recovery is not sustained.

In summary, the relatively low level of education and employment experience of the typical AFDC parent, combined with limited job opportunities, suggests that it may not be possible for most nonworking adult AFDC recipients to fully compensate for the proposed MAP reductions by obtaining a job in the private sector.

Comments on Time-Limited Aid Proposal

The Governor's proposed two-year time limit on AFDC would not eliminate a family's eligibility for aid but, in conjunction with his other proposed changes, would reduce grants substantially for those affected.

The Governor's proposal for two-year time-limited aid is essentially an extension of his proposal to reduce grants by 7.7 percent and 15 percent. In other words, the grant would be reduced, not eliminated altogether because only that part of the grant associated with the adult would be eliminated. The reduction would be partially offset by an increase in food stamps. In combination with the other proposed grant reductions, it would result in a substantial loss of income to recipients, unless offset by employment earnings. Because of this, the proposal would tend to increase the financial incentive for recipients to work.

Underlying the concept of time-limited aid proposals is the premise that, after a certain period of time, able-bodied AFDC adults should be able to find employment and earn enough to offset any grant reduction that would be imposed or, ideally, to become self-sufficient. In this respect, it is reasonable to ensure that if such a proposal were to be implemented, recipients are given the opportunity to participate in, and complete, the GAIN Program, as the Governor proposes. This still leaves several questions unanswered, however:

Budget Proposes to Limit Homeless Assistance Benefits

The budget proposes legislation that would (1) limit eligibility for Homeless Assistance (HA) benefits to once in a lifetime and (2) require all benefits to be paid as a voucher, for a net General Fund savings of $10.1 million.

The budget assumes a General Fund savings of $13.5 million in the AFDC Program in 1995-96 from limiting eligibility for the Homeless Assistance Program. This amount would be offset by increased costs of $3.4 million from the General Fund in the Child Welfare Services Program to investigate the family's homelessness and ongoing case management.

Current law provides that AFDC Program recipients and eligible applicants can receive emergency HA shelter benefits for up to three days, during which time the family's homelessness is verified by the county. (The three day limit can be extended up to a total of 16 days). After verification, regular HA benefits are provided. Eligibility for HA is limited to once every two years. Temporary shelter payments currently average $329 and permanent housing assistance averages $682 in addition to the regular AFDC grant and food stamp allotment.

The budget proposal is based on the contention that many recipients are abusing HA benefits. The department indicates that approximately 35 percent of the recipients are found to be repeat clients who reapply shortly after the expiration of the two-year limit.

Comments on the Remedy for Abuse. The department's data do not permit distinctions between repeat applicants who are abusing the system and those who are not. We note, however, that providing vouchers instead of a lump-sum cash benefit may reduce the incidence of abuse (to the extent that it exists) while still providing recipients with the means to obtain housing. Consequently, we believe that the concept of vouchers has merit.

Budget Funds Full-Year Costs of the Cal Learn Program

The Cal Learn Program, designed for AFDC parents under age 19 who have not completed high school, provides intensive case management, support services such as child care and transportation, and fiscal incentives to stay in school. If these parents remain in school and maintain satisfactory progress, they receive a $100 bonus per report card period, and a $500 bonus upon graduation. However, participants not making satisfactory progress are subject to a sanction of $100 per report card period.

The budget proposes expenditures of $90 million ($45.5 million General Fund) for the program in 1995-96. This is an increase of $39.7 million ($20 million General Fund), or 78 percent above estimated current-year expenditures. The current-year expenditures reflect start-up costs and partial implementation of the program; therefore, a large part of the budget-year increase reflects the full-year effect of the program.

AFDC Caseloads

AFDC-FG Caseload Projection is Overstated

We recommend (1) reducing the General Fund amount proposed for AFDC grants by $13 million, and (2) reducing the proposed transfer of sales tax revenues to the counties for realigning AFDC by $11.7 million, for a net state savings of $24.7 million, because the AFDC-FG caseload is overstated. (Reduce Item 5180-101-001 by $13,014,000 and reduce realignment sales tax transfer by $11.7 million.)

The proposed expenditures for AFDC grants in 1995-96 are based on actual caseloads and costs through June 1994, updated to reflect the department's projections of caseload and the Governor's proposed policy changes. Based on more recent information, our analysis indicates that the department's caseload projections for the current year are overstated by about 1.2 percent. Adjusting for the effect on the 1995-96 projections, we estimate that the proposed General Fund expenditures are overstated by $24.7 million. Because of the interaction with the realignment proposal the resulting state savings would be two-fold: decreased General Fund costs from the lower caseload projection and a reduction in the transfer of sales tax revenues to the counties. Accordingly, we recommend that (1) $13 million from the General Fund be deleted from the budget, and (2) the sales tax revenues transferred to the counties under realignment be reduced by $11.7 million.

Child Support Enforcement Program

Automation Project Will Miss Federal Deadline For Enhanced Funding

We recommend that the department report during budget hearings on the anticipated delay in the implementation of the Statewide Automated Child Support System (SACSS) and how the loss of enhanced federal matching funds will impact the General Fund in 1995-96.

Background. The SACSS is a federal and state mandated automated system to provide a comprehensive, integrated, child support enforcement tracking and monitoring system statewide. The SACSS will interface with a Los Angeles County automated system being implemented according to a federally approved plan. The ten-year project cost is estimated to be $152 million. Under current law, the system must be implemented and certified as meeting all the federal requirements by September 30, 1995. Enhanced federal funding for SACSS development is available at 90 percent until September 30, 1995, after which the project will be funded at the regular sharing ratio of 66 percent federal and 34 percent state-county.

Project Delayed. The department indicates that the SACSS is experiencing delays in implementation and therefore will not meet the September 30, 1995 implementation date to qualify for enhanced federal funds. At the time this analysis was prepared, a revised timetable for implementation and an estimate of the resulting loss of enhanced federal funding was unavailable because the department was in the process of reviewing additional options to minimize the impact on General Fund costs in 1995-96. Accordingly, we recommend that the department report during budget hearings on the anticipated delay in the implementation of the SACSS and how the loss of enhanced federal matching funds will affect General Fund costs in 1995-96.

GAIN Program

The Greater Avenues for Independence (GAIN) Program provides basic education and job search and training for adults on AFDC. The budget proposes expenditures in 1995-96 of $260 million, including $76.6 million from the General Fund and $20 million from the Employment Training Fund. This is a decrease of $6.5 million, or 2 percent, below estimated expenditures for the current-year. The decrease reflects an adjustment for the loss of enhanced federal funding.

Carry-Over Funds Could Result in Program Expansion

We recommend that the department report at budget hearings on the criteria it will use to allocate carry-over funds that could provide up to $40 million for GAIN Program expansion.

The Budget Bill includes language that would authorize the Department of Finance to augment the GAIN Program from unexpended GAIN funds from prior year budgets, subject to approval of county plans by the DSS. The department indicates that at least $20 million in prior year unexpended General Fund balances would be available in 1995-96. If expended, these funds would be matched by $20 million in federal funds. Thus, up to $40 million could be available for program expansion in 1995-96.

The budget indicates that various recommendations made by the Governor's GAIN Advisory Council, such as early participation in job club and job search activities, will be the basis for approving county plans to receive these additional funds. However, at the time this analysis was prepared, the department had not completed the specific criteria to evaluate the plans. Accordingly, in order to facilitate legislative oversight, we recommend that the department report during budget hearings on the criteria that will be used to allocate these funds.

State Should Be Receiving More Federal Matching Funds for GAIN

We recommend that the department report during the budget hearings on the potential for securing additional federal matching funds for the GAIN Program by reporting state funds currently spent for services to AFDC recipients in adult education programs and the community colleges.

The community colleges and adult education programs provide educational and training services to GAIN participants, and AFDC recipients who are eligible for GAIN but not enrolled in the program because of limited county resources or because they are currently deferred from the program (for example, a mother with a child under age three).

The state currently claims federal matching funds for some of these services. Our analysis indicates, however, that the state could claim additional federal matching funds for these educational and training services provided to GAIN and GAIN-eligible AFDC recipients. Any additional claims would have to satisfy federal maintenance of effort provisions that prohibit the use of these federal funds from supplanting state funds allocated for these purposes. The department indicates that it will attempt to estimate the amount of the state spending that would be eligible for matching federal funds. Accordingly, we recommend that the department report during budget hearings on the extent to which additional federal funds could be obtained.

State-Only Child Care Allocation Not Needed

We recommend eliminating funding for the state-only component of child care for GAIN and Cal Learn Program participants because (1) the federally-supported child care allocation should be sufficient, and (2) this would allocate child care benefits to all AFDC recipients on the same basis, for a General Fund savings of $5.9 million. (Reduce Item 5180-151-001 by $5,899,000.)

In the AFDC Program, funds are provided to working recipients to cover their child care costs up to the 75th percentile of the regional costs for such care. The federal government provides matching funds on a 50 percent basis. In the GAIN and Cal Learn programs, however, the state supplements these allowances by reimbursing costs up to approximately the 93rd percentile.

The DSS and the counties indicate that most GAIN and Cal Learn participants find child care within the 75th percentile. Those participants who obtain such care at a higher cost are reimbursed by the state-only program at a proposed cost of $5.9 million from the General Fund in 1995-96.

While in some of these cases, it may be difficult for the participants to secure child care within the 75th percentile of the regional market, we believe that, given limited state resources, it is reasonable to expect participants who use relatively high-cost care to pay for the extra costs. As indicated previously, we note that the existing system gives preferential treatment to GAIN and Cal Learn participants. Accordingly, we recommend deletion of funding for the state-only program for a General Fund savings of $5.9 million.

GAIN Evaluation Shows Positive Results

A recent evaluation found that an employment-oriented approach adopted by Riverside County was the most effective of the six counties studied. In September 1994, the Manpower Demonstration Research Corporation (MDRC) submitted its final report on a three-year evaluation of the GAIN Program. The evaluation is based on a six-county study. It found that on average for the six counties the program increased employment earnings and reduced AFDC grant payments; however, the program's costs exceeded its savings for the government (federal, state, and county combined).

AFDC-FG Participants. Figure 28 shows the impacts on earnings and reduced grants for AFDC-FG participants. On average across all six counties, AFDC-FG participants in the GAIN Program had three-year earnings that were 22 percent ($1,414) higher than the average earnings in the control group. Over the same period, AFDC-FG grant payments per program participant were 6 percent ($961) lower than in the control group. Riverside County experienced the largest impact among the AFDC-FG participants with 49 percent ($3,113) higher average earnings and 15 percent ($1,983) lower grant payments than in the control group. This finding is notable because it provides evidence of the importance of using an employment-focused approach (up-front job search and job development activities), as adopted by Riverside.

AFDC-U Participants. Figure 29 shows the impacts on earnings and reduced grants for AFDC-U participants. The earnings for AFDC-U participants were 12 percent ($1,111) higher than in the control group. Grant payments per AFDC-U program participant were 6 percent ($1,168) lower than in the control group. Again, Riverside County had greater success on balance than the other counties. (Results for AFDC-U participants in Alameda County are not included in the evaluation because of a small sample size.)

Cost-Effectiveness. Figure 30 shows the cost-effectiveness of the program for the six counties combined and individually for each county. The figure shows that overall for every dollar spent on the program, the government saved less than a dollar (as measured by lower AFDC grant payments and increased tax revenues). However, the program generated net benefits to the government in some counties, with Riverside County experiencing the highest returns ($2.84) for every dollar spent for AFDC-FG participants. The higher net benefits, particularly in Riverside, can be attributed to relatively higher earnings and higher AFDC grant savings combined with lower costs per program participant than in the other counties.

Cost-Effectiveness Varies by Level of Government. Subsequent to submission of the report, we requested that the evaluator provide a breakdown of the cost-effectiveness results by level of government. Figure 31 provides this information for AFDC-FG participants, using current program sharing ratios. While the federal government receives a net return ($1.17) for each government dollar spent, the net return to state and county government is less than one dollar. In Riverside County, the net returns to the federal government ($3.31) and the state government ($2.79) exceeded one dollar; but, each dollar spent from county funds generated a net return of less than one dollar.

This finding is significant in that counties are responsible for determining how much of the appropriated state and federal funds they will match with county funds. In fact, counties have not matched all of the available state and federal funds in the program. This suggests that consideration should be given to changing the fiscal structure of the program.

As indicated, even in Riverside the GAIN Program is not cost-effective from the individual perspective of the county. We estimate, however, that the net return in Riverside County is $2.32 for every combined state/county dollar spent on GAIN Program services. Therefore, if the state were to share some of its savings with the county, both levels of government could realize net returns greater than one dollar expended.

In this respect, we note that the DSS has recently initiated a statewide demonstration project testing the ability of counties to increase program performance. Under the demonstration project, counties that (1) operate the GAIN Program cost-effectively or (2) improve program performance, as measured by increased AFDC grant savings, receive a fiscal incentive equivalent to 50 percent of the state savings resulting directly from the county's improved performance. In these counties, the net return on county funds expended would increase.

We also note that the Governor's proposed realignment of the nonfederal AFDC grant costs would significantly increase the net return to the counties from the GAIN Program (and decrease the net return to the state). This would occur because the counties would assume a higher share of the grant costs.

AFDC--Foster Care

State Regulations Discourage Adoption Of Certain Foster Care Children

We recommend that the Legislature direct the Department of Social Services (DSS) to revise foster care regulations to allow continuation of AFDC-FC payments for foster children who are awaiting adoption by their relative foster parents.

Once a relative foster parent initiates adoption procedures, the parental rights of the natural parent are terminated. When this occurs, the foster parent is no longer considered a relative and is therefore subject to state regulations for nonrelative foster parents. This means the home must be licensed for continuation of AFDC-FC payments. In these cases, if the home does not meet licensing standards, counties must either terminate the grant, continue payments with county funds, or remove the children and place them in nonrelative licensed homes until the adoption is finalized. (During the adoption process, the home of the relative foster parent is reviewed by the adoption agency.)

These regulations have several negative consequences: they may be (1) administratively cumbersome to the county and disruptive to the foster child (temporary removal from the home), (2) costly to the county (continuation of the grant), or (3) a hardship to the foster parent (loss of the grant until adoption assistance payments begin). Because of these effects, moreover, the regulations could have the effect of discouraging relative foster parents from adopting.

These adverse effects stem more from the technical definition of a relative than from a policy directive. Consequently, in order to allow for eligible children placed with relative foster parents to continue receiving AFDC-FC payments while awaiting adoption, we recommend that the Legislature direct the DSS to revise foster care regulations to allow for continuation of payments. We estimate that our recommendation would result in minor costs, but would allow the receipt of federal matching funds.

Rate Setting System for Foster Family Agencies Should Be Revised

We recommend that (1) legislation be enacted to expand the Intensive Treatment Foster Care pilot program statewide, and (2) the department report during budget hearings on an estimate of savings that would result from program expansion.

We further recommend adoption of supplemental report language requiring the department to convene a working group to develop and recommend a new or revised rate setting system for foster family agencies.

Background. Foster family agencies (FFAs) recruit and certify foster homes and provide training and support services to the foster parents. Their objectives are to provide (1) placement settings for children who have special needs and require a higher level of care than provided in a foster family home and (2) less costly alternative placements to group homes. As of June 1994, there were approximately 173 licensed FFAs with 6,000 certified homes.

Pilot Program Tests Different FFA Rate System. Chapter 1250, Statutes of 1990 (SB 2234, Presley) established the Intensive Treatment Foster Care pilot program in Alameda and Yolo Counties. The program allows children residing in high level-of- care group homes to be placed in FFAs. These FFAs provide intensive support services to the child and foster family. The rates for these FFAs are higher than standard FFA rates and range from about $2,000 to $4,000, based on the level of services provided to the child. If the service level needed by the child changes, the rates are adjusted accordingly. The placements result in savings since the higher rates paid to these FFAs are still less costly than the alternative group homes placements. The pilot program is scheduled to sunset on January 1, 1999.

Our review of the pilot programs indicates that the FFAs have been able to provide a stable, alternative placement to group homes. According to preliminary evaluation findings, most of the children in the program have been able to remain in a family home setting, rather than a group home.

We believe that more children in group home care could be placed in more family-like settings by expanding the Intensive Treatment Foster Care pilot program. Therefore, we recommend that the program be expanded statewide, with county participation voluntary. We further recommend that the department report during budget hearings on an estimate of savings that would result, based on a survey to determine which counties would participate in 1995-96. We note, however, that the pilot program approach, while, it is estimated to result in net savings, has relatively high administrative costs because rates are determined on a case by case basis. As discussed below, we believe that other approaches should be explored to develop a more cost effective rate structure.

Limited Availability of Placement Options. Counties are responsible for the placement of foster care children. The availability of appropriate placement options, however, varies in each county, often resulting in the inefficient use of resources. In some cases, for example, a county may have to decide between placing a child in a group home or an FFA, when neither placement offers the appropriate level of services for the child. In other cases, a county that cannot find an available foster family home may decide to place a child in an FFA that has an available home, even though FFA services are not needed.

Rate Setting System Does Not Support Role of FFAs. Current state regulations require that a foster care child be placed in the least restrictive, most family-like setting. The FFA rate structure, however, does not adequately facilitate this objective. While group home rates range from $1,183 to $5,013 a month, depending on the level of care provided, the FFA rates generally range from $1,283 to $1,515 a month, depending on the age of the child. Therefore, it is difficult for FFAs to meet the needs of children who require the level of services provided in the medium and high cost group homes.

Rate Setting System Could Be Improved. The current FFA rate setting structure could be revised to offer a greater range of placement options for foster children. For example, if FFAs were paid higher rates, they could serve some children who are currently residing in more costly group home placements. In order to provide for a greater range of service levels and foster care placement options through FFAs, we recommend the adoption of the following supplemental report language (in Item 5180-001-001) requiring the department to convene a working group to develop a new or revised rate setting structure for FFAs:

The department shall convene a working group to review and recommend to the Legislature a new or revised rate setting system for foster family agencies, and report its recommendations to the Legislature by March 1, 1996. The working group shall include representatives from the department, counties, providers, consumers, and the Legislature.

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