Analysis of the 2008-09 Budget Bill: Health and Social Services

Foster Care (5180)

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. Seriously emotionally disturbed (SED) children are identified by the California Department of Education (CDE) and are typically placed in group homes to facilitate a greater degree of supervision and treatment.

The 2008–09 Governor’s Budget provides a separate Foster Care General Fund appropriation (Item 5180–153–0001) for the two counties (Los Angeles and Alameda) participating in the Title IV–E Child Welfare Waiver Demonstration Capped Allocation Project. The remaining 56 counties are budgeted in Item 5180–101–0001. Including the waiver counties, the Governor’s budget proposes expenditures of $1.6 billion ($425 million General Fund) for the Foster Care program in 2008–09. This represents an 8.6 percent decrease in General Fund expenditures from current–year estimated expenditures. Most of this decrease is attributable to the Governor’s budget–balancing reduction proposal to reduce Foster Care, Adoption Assistance, and Kinship Guardianship Assistance Payment (Kin–GAP) payment rates by 10 percent.

Budget Proposes To Reduce Foster Care Rates

The Governor’s budget proposes to reduce most Foster Care, Adoption Assistance, and Kinship Guardianship Assistance Payment rates by 10 percent, effective June 1, 2008. This proposed reduction will save an estimated $15.9 million in total funds ($6.8 million General Fund) in the current year and $190.3 million in total funds ($81.5 million General Fund) in 2008–09. We provide background information on existing rates and describe potential impacts of the proposed reductions on the supply of care providers. In addition, we present two alternatives to the Governor’s proposal.

Background

Foster Care Placement Types. If there is reason to believe that an allegation of child abuse or neglect is true, county welfare departments can place a child in one of the following: (1) a foster family home (FFH), (2) a foster family agency (FFA) home, or (3) a group home (GH). The FFAs are nonprofit agencies licensed to recruit, certify, train, and support foster parents for hard–to–place children who would otherwise require GH care. The FFA rates are based on the FFH rate, plus a set increment for the special needs of the child and an increment for the support services offered by the FFA.

Children who are identified by the CDE as SED are usually placed in GHs with psychiatric peer group settings. However, some SED children are placed in FFHs and FFA homes.

Permanent Placement Types. The Kin–GAP program provides monthly cash grants for children who are permanently placed with a relative who assumes guardianship. The Adoption Assistance program (AAP) provides monthly cash grants to parents who adopt foster children. Both Kin–GAP and AAP grants are tied to the foster care payment the child would have received if the child remained in a foster care placement.

Existing Rates. Foster care basic grant rates for FFH, FFA, and GH (including SED children) were designed to fund the basic costs of raising a child. For some foster care payment recipients, as a supplement to the basic grant, a specialized care increment (SCI) may be paid for the additional care and supervision needs of a child with health and/or behavioral issues. This could include, for example, a wheelchair ramp for a disabled child. A clothing allowance may also be paid in addition to the basic grant.

For 2007–08, the Legislature approved a 5 percent increase to the basic and SCI rates for FFHs and Kin–GAP recipients, effective January 1, 2008. The 5 percent increase also applies to GHs, excluding the rates for SED children, and new AAP cases entering the program after January 1, 2008. The Legislature did not approve a rate increase for FFA recipients as the average FFA grant is currently significantly higher than the average FFH grant. In addition, there is some evidence that rather than becoming the lower–cost alternatives to GHs, FFA homes have instead become higher–cost alternatives to FFHs. The last foster care rate increase was provided in 2001–02.

Governor’s Proposal. The Governor’s budget proposes to reduce the basic care, SCI, clothing allowance, and SED rates for children in FFHs and GHs by 10 percent. The proposal also reflects a corresponding 10 percent decrease for Kin–GAP and AAP recipients. In addition, the budget proposes to reduce FFA rates by 5 percent rather than 10 percent, as FFA recipients did not receive the recent 5 percent rate increase. The budget assumes enactment of legislation during the special session so that the rate reductions would go into effect June 1, 2008. This would save an estimated $6.8 million General Fund in the current year and $81.5 million General Fund in 2008–09. Figure 1 compares the average monthly foster care, Kin–GAP, and AAP payments prior to the 5 percent increase, after the rate increase, and with the Governor’s proposed reduction.

Potential Impacts of Rate Reductions

While the impact of the proposed reduction on existing and potential care providers is difficult to measure, one possible program impact is a decrease in the supply of care providers for both foster care and permanent placements. This change in the supply of care providers could ultimately lead to increased foster care expenditures depending on which types of placements experience the most significant supply effects. On the one hand, reduced foster care rates could result in a decrease in the number of FFH providers, which could then lead to increased placements in the more expensive FFA homes and GHs. On the other hand, a decrease in the number of GH providers could lead to increased placements in the less expensive FFHs and FFA homes.

In addition, reduced grants for Kin–GAP and AAP recipients could decrease the number of permanent placement providers, which could also lead to longer stays in foster care. This could raise Child Welfare Services costs as these cases remain open with social worker intervention. This could also increase Medi–Cal costs and utilization because recipients are eligible for these health services by virtue of their foster care status.

Alternatives to the Governor’s Proposal

Below we present alternatives to the Governor’s proposal which offer less budgetary savings, but reduce the financial impact on foster care, Kin–GAP, and AAP recipients.

Rescind Recent 5 Percent Rate Increase. One alternative to the Governor’s proposal is to rescind the recent 5 percent rate increase for FFH, GH, Kin–GAP, and new AAP recipients in the budget year. This option would generate an estimated savings of $17 million General Fund in 2008–09. By only rescinding the 5 percent rate increase, and not reducing rates by an additional 5 percent, foster care and permanent care providers would be no worse off financially than they were one year ago.

As part of this alternative, the Legislature should consider reducing the FFA rate by 5 percent in 2008–09, to keep the differential between the FFA rate and other foster care rates established by the Legislature. The Legislature did not provide the recent rate increase to FFAs in part because of a concern that FFA homes have become a higher–cost alternative to FFHs rather than a lower–cost alternative to GHs, which was the original intent of FFAs. The caseload trend for FFAs, which has been consistently increasing while other placement types have been decreasing or holding steady, supports this finding. Reducing FFA rates by 5 percent would generate an additional estimated savings of $6.6 million General Fund in 2008–09.

Cap the SCI Rate in Certain Counties. Another alternative is reforming the current SCI rate structure. As Figure 2 shows, the SCIs range from zero in three small counties to over $2,000 per month in other counties. The SCIs reflect historical rate structures which vary by county. One reform option for the SCI rate structure is to cap the maximum rate at $1,000 beginning in 2008–09. This option could save an estimated $1 million General Fund in the budget year. This cap would impact seven counties representing approximately 20 percent of the caseload. We note that currently 51 counties are able to serve children within this proposed cap.

Conclusion

The Governor’s proposal to reduce most foster care, Kin–GAP, and AAP rates by 10 percent results in General Fund savings of $6.8 million in the current year and $81.5 million in 2008–09. In deciding whether to adopt this proposal, the Legislature should weigh the budgetary savings against the potential for a decrease in foster and permanent care providers, which could lead to increased foster care expenditures as children may move into more expensive placements or remain in care for longer periods. Although the LAO alternatives to reduce foster care expenditures save considerably less than the Governor’s proposal, these options would lessen the financial impact on foster care, Kin–GAP, and AAP recipients, and reduce the chance for placement shifts.