LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

Foster Care

Foster care is an entitlement program funded by federal, state, and local governments. Children are eligible for foster care grants 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 department. The California Department of Social Services provides oversight for the county-administered foster care system. County welfare departments make decisions regarding the health and safety of children and have the discretion to place children in one of the following: (1) a foster family home, (2) a foster family agency home, or (3) a group home.

The Governor's budget proposes expenditures of $1.7 billion ($470 million General Fund) for the Foster Care Program in 2004-05. This represents an 11 percent decrease in General Fund expenditures from the current year. This decrease is primarily attributable to a foster care reform proposal and using Federal Title XX funds to offset General Fund costs, offset by an increase in both the foster care caseload and the average grant. The caseload in 2004-05 is estimated to be approximately 78,652, an increase of 1.2 percent compared to the current year.

Proposed Foster Care Reforms Lack Necessary Details

The administration assumes savings of $72 million ($20 million General Fund) from unspecified foster care reforms, and indicates that a stakeholders group will be formed to develop the reform proposal. Given the magnitude of the reduction and complexity surrounding any reforms, we believe that savings in 2004-05 will be significantly less than has been budgeted. In order to assist the Legislature, we present a series of options regarding foster care reforms.

Governor's Proposal  

The Governor's budget document indicates that it is the intent of the administration to propose reforms to the Foster Care Program. The administration indicates that the reforms—although yet to be selected—will generate savings of $72 million ($20 million General Fund) in the budget year. According to the administration, a broad variety of options will be considered to reform the Foster Care Program. The reforms will not take the form of grant reductions, according to the administration. The focus will be on better promoting program goals and improving the efficiency of the program. The administration indicates that its goal is to increase permanence of placement for children and generally improve outcomes for both children and families. The Governor's budget document identifies three potential proposals as examples of the types of proposals that will be considered.

At the time this analysis was prepared, the administration indicated that the details of the foster care reform proposals would not be available until the May Revision.

Evaluating the Reform Proposal

$20 Million Savings Unlikely. The administration has stated that the foster care reforms will not take the form of grant reductions. Without rate reductions, the only way to achieve $72 million in savings (all fund sources) is by moving children into less costly placement types or reducing the total number of children entering the foster care system. If children were moved to a less restrictive, less costly form of care rather than somehow removed from the caseload altogether, the necessary caseload shifts would be substantial. For example, at least 30 percent of the children currently residing in group homes would need to be shifted to less expensive foster family agencies in order to achieve the stated savings goal. Further, any placement shifts would require funding for additional social worker time because the social workers would need to find appropriate, less restrictive placements for the children. Therefore, any savings achieved by moving the children to less costly placements would be partially offset by the need for additional social worker funding in Child Welfare Services. Alternatively, in order to achieve savings through reducing the number of children entering the foster care system would necessitate caseload reductions in the range of 20 percent to 33 percent depending on the type of placement. Given the magnitude of the shifts necessary to achieve the savings, we conclude that the reform savings are significantly overstated.

Options for Reforming Foster Care

While the immediate savings associated with foster care reform are likely overstated, we do believe that there is room for reform in the foster care program. If designed properly, foster care reform could improve outcomes for children and families, create efficiencies, and generate savings. However, it is important to note that most significant reforms designed to decrease the number of children in foster care or shift them to less costly types of care, may require some up front funding to be successful.

The administration has stated that it will be consulting the Legislature and stakeholders when developing foster care reforms. To assist the Legislature and stakeholders, we offer the following potential areas of reform.

Foster Family Agencies. Previously, we have offered a foster family agency reform proposal which would reduce the length of time a child stays in FFA homes by increasing the incentives to move children toward permanency placement. Our proposed reforms could save the state $5 million from the General Fund the first year, growing to about $15 million by the second year. (See our Analysis of the 2002-03 Budget Bill for a detailed discussion of this proposal.)

Specialized Care Increments. We would also recommend that the Legislature consider reforms to the current specialized care increment rate structure. The specialized care increments range from zero in some counties to over $2,000 per month in other counties, depending upon the special needs of the child. The amount of the specialized care increment should have some rational connection to the actual needs of the child and family. Variation in increments should reflect state policy, not historical rate structures which vary by county.

Increasing the Supply of Foster Family Homes. Finally, we would suggest the development of a detailed plan, which includes funding sources, to increase the number of available foster family homes. One consideration might be providing some form of subsidized childcare for working foster parents. While this would result in up front additional costs, we believe that it would remove a significant barrier for many potential foster parents, thus creating more affordable, less restrictive placements for children who might otherwise be placed in more expensive group homes. Without additional homes, any reforms designed to shift children to less costly and less restrictive types of care will not succeed.

Governor's Budget Understates Savings Associated With Recent Court Decision

The March 2003 Rosales court decision makes many children in "state-only" foster care eligible for federal funding by invalidating the "home of removal" criteria when determining federal eligibility. The Governor's budget in part reflects the fiscal impact of this eligibility change. We estimate however, that a modest investment in foster care redetermination activities will allow California to claim additional federal funding, resulting in a net savings of $5.3 million. (Reduce Item 5180-101-0001 by $5,517,000, and increase Items 5180-141-0001 by $100,000 and 5180-151-0001 by $50,000.)

Background. On March 3, 2003, the Ninth Circuit Court of Appeals fundamentally altered the way in which federal Title IV-E eligibility is determined for foster care children in its ruling in Enedina Rosales and the California Department of Social Services v. Tommy G. Thompson (321 F.3d 835) (Rosales).

Impact on Federal Eligibility. Under the Rosales decision, if a child lived, at any time during the six months prior to removal or at the time of removal with a relative, then that child would be federally eligible for foster care because only the child's income would be taken into account during an Aid to Families with Dependent Children (AFDC) means test. Prior to the court decision, relatives who were caring for children who were deemed ineligible for the federal foster care program were only provided with a California Work Opportunity and Responsibility to Kids (CalWORKs) child-only grant of about $350 per month. Under the new eligibility rules, families will now receive a regular foster care grant (an average of $678 per month).

Budget in Part Reflects Fiscal Impact of Rosales. The eligibility change described above reduces CalWORKs costs and increases foster care costs. Specifically, the Governor's budget reflects a savings of $13 million in Temporary Assistance for Needy Families funding in CalWORKs and a General Fund cost of $8 million in foster care. Further, it recognizes an additional cost of $11 million in foster care costs for counties, reflecting their share of foster care grant payments.

Additional Children Affected by Rosales. Based on our review, we conclude that a portion of the current state-only foster care caseload will now be eligible for federal foster care. This is because many of these state-only foster care children lived with relatives prior to their removal to foster care and would now under the court ruling be considered federally eligible. Further, we believe that a portion of the Adoptions Assistance Program (AAP) state-only caseload will now be eligible for federal AAP for essentially the same reason. The administration, however, did not include in the budget the General Fund savings that would result from shifting these populations to the federally eligible programs. We estimate the savings associated with that shift below. 

Investment Needed to Achieve Savings. The estimated costs and savings as a result of the Rosales decision presented in the Governor's budget are only related to those children who were considered CalWORKs child-only cases and could now be considered federally-eligible foster care cases. However, a study done by the MAXIMUS Corporation in San Bernardino County indicates that a portion of the current state-only foster care population would also now be eligible for Title IV-E federal funding as a result of the Rosales decision. (These results were verified by case file reviews conducted by San Bernardino social workers.) Based on this data, almost 5 percent of the state-only foster care population would meet the new federal eligibility criteria. Although San Bernardino County did not examine their AAP caseload, we believe that the same criteria will apply to this caseload statewide. Children that were once deemed ineligible for federal AAP because of the AFDC means test, will now be eligible under the revised eligibility criteria.

Using the most conservative interpretation of the Rosales decision, our analysis suggests that shifting this portion of the foster care caseload from the state-only program to the federal foster care program would require a minimal investment of about $100,000 to review the eligibility of the state-only cases that were placed in the foster care system after April 1, 2003. This review effort should result in making about 5 percent of the state-only caseload federally eligible. This would result in a General Fund savings of $4.2 million and a county savings of $6.3 million. The AAP savings are smaller. We believe that a review of the AAP program, costing the state approximately $50,000 will lead to a General Fund savings of $1.3 million. This same level of savings for AAP and foster care could be achieved in 2003-04 with a similar level of investment for administration.

The savings noted above only take into account the home the child was living in at the time of their placement in foster care. Looking at the six months prior to placement in foster care for all new cases would probably produce significantly higher savings. We note that the President's budget includes legislation to return foster care eligibility determination to the pre-Rosales rules. 

Analysts Recommendation. We recommend increasing the administrative funding for the Foster Care Program and AAP by $150,000 to fund required county evaluations of the state-only children under the new Title IV-E eligibility standards. This county redetermination process should save the state $5.5 million General Fund as more children are shifted to the federal program. This shift will be invisible to the children and will have no impact on their funding level or current placements. Adopting this recommendation results in a net state savings of $5.3 million.

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