Analysis of the 2005-06 Budget Bill
Legislative Analyst's Office
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 (DSS) 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 ($413 million General Fund) for the Foster Care Program in 2005-06. This represents a 12 percent decrease in General Fund expenditures from the current year. This decrease is primarily attributable to replacing General Fund support for state-only group home costs with Temporary Assistance for Needy Families federal funds, partially offset by caseload increases in certain high-cost components of the program, and an increase in the average grant cost. The total caseload in 2005-06 is estimated to be approximately 75,934, an increase of 1.4 percent compared to the current year.
We recommend reducing the foster care administration budget by 6 percent, so that it corresponds to the projected caseload, resulting in a General Fund savings of $2.3 million. (Reduce Item 5180-141-001 by $2,256,000.)
Current Budget Practice. In developing the administrative budget for the foster care program, DSS uses a statistical model to forecast the monthly caseloads for the program for the current and budget year. The department then adjusts the prior-year base funding for administration by the esti mated caseload growth to determine the budget for foster care administration. That budget is then adjusted for any new program proposals that would affect the administrative costs. Each May and November, the department updates its caseload forecasts with more recent actual data, which generally refines the accuracy of the caseload projection.
Significant Adjustments in the Foster Care Caseload. The 2004-05 foster care caseload has changed considerably since it was first forecast. In November 2003, the department first estimated the caseload to be 80,032. In May 2004, DSS revised the estimate downward to 77,179, and in January 2005, it further reduced the estimate to 74,907. This constitutes a reduction of over 6 percent between November 2003 and January 2005.
No Administrative Savings From Caseload Adjustments. Despite the reduction in foster care caseload and the corresponding reductions for 2004-05 foster care grants, the department did not reduce its foster care administrative budget for 2004-05 from the original November 2003 estimate that provided administrative funding for an average monthly caseload of over 80,000 children. This estimating error resulted in excess funding for county foster care administrative staff of over $6.4 million (total funds).
The 2004-05 overfunding is compounded by the department's decision to not readjust the administrative funding for 2005-06 to correspond with its caseload projections. In fact, DSS slightly increased the funding by 0.2 percent to correspond to its projection of a slight year-over-year growth in caseload. In order to tie administrative funding to revised caseload, the funding should have been reduced by 6 percent to account for the new projection for 2004-05. In other words, the slight increase means that the proposed 2005-06 budget provides administrative funding for a foster care caseload of 80,043 children per month rather than the department's estimated average monthly caseload of 75,934 children.
Analyst's Recommendation. Based on our analysis, we conclude that the proposed foster care administrative budget for 2004-05 and 2005-06 is overbudgeted based on the department's own projections of caseload. Accordingly, we recommend reducing the 2005-06 funding for foster care administration by $2.3 million General Fund ($6.4 million total funds). This reduction will help to ensure that funding for administrative activities is tied to the projected caseload of children in the program. Not making this reduction would represent an augmentation to the foster care administration workload-based budget which has not been justified by the department.
We recommend that proposed General Fund spending for the Foster Care Program be reduced by $10 million for 2004-05 and $20.8 million for 2005-06 and that the foster care administrative funding be reduced by $827,000 in 2005-06 because the caseload projections overestimate the number of children in group homes and foster family agencies, and the number of seriously emotionally disturbed children. (Reduce Item 5180-101-001 by $20,797,000 and Reduce Item 5180-141-0001 by $827,000.)
Foster care has four caseload components: foster family homes, foster family agencies (FFA), group homes (GHs), and seriously emotionally disturbed (SED) children. Although we concur with the department's caseload forecast for the foster family homes, we believe that the estimates for the GH, FFA, and SED caseloads are overstated, as we discuss below.
Group Homes. This caseload is made up of foster children who, for various reasons, have been placed in a group home. The GHs are nondetention facilities that provide services for children in a group setting rather than in a more traditional family home. This is the most expensive placement for a child in foster care. For 2004-05 and 2005-06, the department is estimating that the average monthly grant will be about $5,100 per child.
Foster Family Agencies. This caseload is made up of children who have been placed in a certified foster family home that is overseen by a FFA. Generally, these children need slightly more intensive services than children placed in a licensed foster family home. This is a more expensive placement than foster family homes but considerably less expensive than group homes. For 2004-05 and 2005-06, the department is estimating that the average monthly grant will be about $1,750 per child.
Historical Growth Rate. From 1990-91 through 2002-03, the GH and FFA caseloads had been growing steadily. However, caseload data from the last 15 months show a decline and flattening of both caseloads. The GH caseload peaked in April 2003 at 11,736. In July 2004, the most recent month available, the GH caseload was down to 11,242. This constitutes a 4 percent reduction over this 15-month period. Likewise, the FFA caseload has moved up and down a little more, but has averaged about 18,700 cases per month over the last 15 months.
Current- and Budget-Year Projected Growth. Despite the recent downward trend, the department's most recent forecast projects that the GH caseload will grow by 3.4 percent in 2004-05 and an additional 3.5 percent for 2005-06. The department's projected caseload for July 2004 was 11,488 and the actual caseload for that month was almost 250 cases below that estimate. Despite the flattening of the FFA caseload over the last 15 months, the department's most recent forecast projects that the caseload will grow by 2.3 percent in 2004-05 and an additional 3.2 percent for 2005-06. Should recent trends continue, the department has significantly overstated both caseloads. As noted above, over the last 15 months the caseload has either been flat or has actually declined. We believe that both of these caseloads will remain essentially flat as counties, like Los Angeles, step up their efforts to provide up-front, preventive child welfare services in those cases where it may not be necessary to remove a child from the home and make a placement in foster care. This effort in Los Angeles County alone is expected to reduce its child welfare services caseload by about 4 percent between 2004-05 and 2005-06.
Although the most recent data suggest that the caseload in both components, will decline over the next two years, in order to be conservative we have assumed marginal growth of 0.3 percent for 2004-05 and 2005-06. (This 0.3 percent is equal to the projected growth in California's 5- to 17-year-old population.) Based on our forecast, we believe that the budget overstates foster care GH grant costs by $6.2 million and FFA costs by $2 million in state General Fund for 2004-05 and an additional $13.1 million and $4.9 million, respectively, in state General Fund for 2005-06.
This caseload is made up of children that the State Department of Education has determined are seriously emotionally disturbed. These children are not wards of the dependency court and are not at risk of abuse or neglect. However, GH-level payments are made on behalf of these children to residential facilities, and in some cases, foster family homes. The DSS has estimated that the average monthly grant will be approximately $5,500 per child.
Historical Growth Rate. The SED caseload had been growing steadily since 1990-91. However, caseload data from the last available 17 months show a decline and flattening of that caseload. The caseload peaked in May 2003 at 1,425. In September 2004, the most recent month available, the caseload was down to 1,349. This constitutes a 6 percent reduction during that time.
Current- and Budget-Year Projected Growth. The department's most recent forecast projects that the trend over the last 17 months will reverse and that the SED caseload will grow by 5.1 percent in 2004-05 and an additional 2.9 percent for 2005-06. As noted above, our review of the last 17 months of caseload data shows that the caseload has actually declined.
Despite the recent actual caseload decline, we have assumed a caseload growth of 0.3 percent consistent with the overall projected growth in the 5- to 17-year-old population in California. Based on our forecast, we believe that the budget overstates SED grant costs by $1.7 million (General Fund) for 2004-05 and an additional $2.8 million (General Fund) for 2005-06.
Based on our revised caseload projections, we recommend reducing the funding for foster care grants by $20.8 million in 2005-06, and recognizing additional savings of $10 million in 2004-05. Further, this revised caseload projection has a small impact for the amount of funding needed for foster care administration. Therefore, we recommend a state General Fund administrative reduction of $827,000 for 2005-06.