The Great Waiver Myth

This analysis is part of The Imprint’s series entitled: “Dollars and Priorities: The Financing of Child Welfare.”

As I begin this series analyzing efforts to change how the federal government finances the country’s child welfare systems, the Title IV-E Waiver Demonstration (“waiver”) program seems like a natural place to start.

For more than 20 years, the waiver program has given states and participating counties a capped allocation of funds to administer foster care in lieu of reimbursement based on the number of eligible children through Title IV-E of the Social Security Act, the entitlement that pays for foster care. Along with the cap comes increased fiscal flexibility, which has been billed by waiver proponents as a way to drive system experimentation and widen the array of services provided to families.

Today waivers are play a leading role in the advocacy campaign for comprehensive finance reform, with many advocates pointing to them as a model for permanent structural reform.

Unfortunately, the discussion around waivers often fails to capture their significant flaws, and encapsulates many of the misperceptions underlying the entire child welfare financing debate.

Many federal advocates assume that waivers have been tremendously effective in: 1) fostering innovation in participating child welfare systems; and 2) improving outcomes for children and families.

While these assumptions are rarely questioned in federal policy circles, those of us who have spent time on the ground know the reality is much less encouraging.

Yet the widely held theory that waivers have been an unqualified success has led many advocates to call for a reconfiguring of the federal child welfare financing system into something more “flexible.” Some have even called for “making waivers permanent,” since the program expires in 2019.

I believe this would be a grave mistake, undermining the IV-E entitlement for foster children and jeopardizing long-term funding for child welfare services.

Because a state’s IV-E funding is typically based on out-of-home care caseloads, as the number of kids in foster care has steadily declined across the country over the past 15 years, the total amount of federal dollars states receive has accordingly dipped. This fiscal problem is compounded by the fact that IV-E’s income eligibility restrictions have not been adjusted in nearly two decades, meaning that fewer and fewer of the children entering foster care each year qualify for the program.

At the same time, systems have shifted their focus to serving children in their homes, largely by keeping more families intact and reunifying them more quickly.

Unfortunately, the primary federal programs providing funding for home-based support services have not kept pace with this shift, primarily because these programs– including the Title IV-B and CAPTA programs, TANF, and SSBG– are not open-ended entitlements like IV-E and thus are subjected to the annual congressional appropriations process. Accordingly, the budgets of most fail to keep up with inflation, let alone meet the growing demand for front-end and post-permanency services.

In 1994, Congress created the waiver program, which allows states to use IV-E funds more flexibly.

Initially, the program was intended to give states the chance to test new strategies for addressing child maltreatment. However, because a participating state’s capped allocation was based on historical data, many states calculated that they would receive more federal resources by participating in the program, since caseloads had been rapidly and continually decreasing across the country.

For example, in California the waiver, known as the Capped Allocation Project (CAP), was funded based on a three-year average of expenditures between 2002-2003 and 2004-2005, even though the waiver didn’t go into effect until mid-2007.

Ultimately these fiscal considerations, as opposed to a yearning for enhanced flexibility to innovate, motivated many of the original states participating in the waiver program.

Though the first waiver program technically expired, several of the participants received extensions to continue operating under a waiver. In 2011, the program was reauthorized, enabling up to 30 more states to participate. Evaluation data for these post-2011 waivers is not yet available. However, a review of the evaluations of the original waivers can give us a better sense of whether or not they led to program experimentation and improved outcomes, as many advocates assume.

California’s CAP aimed to comprehensively utilize flexible funding to serve children and families, the model on which many waiver proponents today want to base permanent child welfare finance reform. In addition, CAP represents one of the longest-running active waivers in the country and was implemented in two unique jurisdictions: Alameda County and Los Angeles County, home to the nation’s largest child welfare system.

For these reasons I will focus this analysis on CAP and its final evaluation, which was completed in 2012.

First, did CAP lead to system and program innovation? The answer is pretty resoundingly, no.

According to CAP’s final evaluation report, conducted by Dr. Charlie Ferguson, both Los Angeles and Alameda “chose to enhance their services instead of choosing to dramatically change their systems.” While the counties did fund a “small number of new initiatives and investments,” ultimately they “mainly used the CAP to increase the intensity of existing services by expanding their operations and the numbers of children and families that could be served.”

In both counties the significant savings accrued through reduced foster care expenditures was overwhelmingly redirected toward “administration,” a catchall category of funding that is hard to dissect. Both counties increased their administration funding levels by over 50 percent, and administration expenditures were making up more than 70 percent of the budget in each county by 2011.

In Los Angeles alone, the spending on administration increased from $404 million to $621 million in just five years under the waiver.

According to the final evaluation report, the “largest percentage of CAP initiatives and investment expenditures were on service provider contracts” in Alameda, while in Los Angeles there was “an almost equal split between service provider contracts and salaries and benefits for the staff necessary to implement the initiatives and investments.”

In short, the bureaucracy was swallowing up the vast majority of waiver funding freed up by reducing foster care expenditures.

Los Angeles County’s evaluation indicates that of the $5.1 billion in federal, state, and county funds included in the waiver in its first five years, only $92.6 million (or less than 2 percent of the County’s IV-E funding during that time) was reinvested in programs. Of this, just $51 million was spent on new initiatives. Alameda invested similarly miniscule percentages of its waiver funds in new programs. These figures make it hard to take seriously the idea that the waiver was spurring innovation.

But did outcomes improve for children and families under the waiver? Here, it is decidedly a mixed bag.

In Alameda, the final evaluation report noted “indicators were mixed,” while in Los Angeles it was “difficult to suggest that the indicators and outcomes were doing better.” Both counties received poor scores on a number of the indicators tracked in the final evaluation.

At the same time, both jurisdictions succeeded in reducing their foster care caseloads under the waiver, with Alameda’s declining by over 30 percent and Los Angeles’ by more than 20 percent.

In Alameda this was primarily accomplished by significantly reducing entries and placing more children with kinship guardians.

Meanwhile in L.A, foster care entries remained stable despite increases in both referrals and substantiations, as the county diverted more families into its differential response program. Reductions in Los Angeles were increasingly achieved through reunifications.

However, a closer look at the data in the evaluations highlights the perils of assuming that caseload reductions are in and of themselves a good thing.

Perhaps the biggest red flag in L.A. was the 15 percent increase in reentry following reunification during the waiver years noted in the county’s evaluation. This figure calls into question whether Los Angeles County’s strategy of increasing reunifications to reduce caseloads under the waiver resulted in kids being rushed home before they or their families were prepared to ensure their safety.

Just a year later, L.A. County created a Blue Ribbon Commission on Child Protection, and since then foster care caseloads have increased substantially, indicating that the county may have over-aggressively kept children out of foster care.

Under the waiver, both Alameda and L.A. undoubtedly succeeded in reducing the number of children in foster care, but important questions remain about whether that process was done safely and whether the financial construction of the waiver led the counties to do so haphazardly.

The CAP experience raises serious doubts about whether waivers actually spur innovation, and whether they ultimately improve outcomes for children and families. In reality, waivers are not the panacea that some advocates believe them to be.

Finally, from a policy standpoint waivers can create a dangerous precedent.

Waivers are essentially time-limited block grants, with funding capped based on an arbitrary number as opposed to the needs of children in foster care at a particular point in time.

Implementing waivers on a permanent basis would jeopardize long-term child welfare funding, since block grants eventually come to be seen as anonymous pots of money sent to states.

When fiscal or political conditions create an environment of austerity, these “faceless” programs are no longer protected as entitlements and inevitably see their funding levels reduced. The funding history of the TANF and SSBG programs highlight the perils of converting entitlements into block grants, with both programs suffering significant cuts over the years.

Given the mixed programmatic results of the waivers and the serious outstanding questions around the fiscal incentives they create, we should all have serious reservations about whether waivers provide a model or roadmap for what comprehensive child welfare finance reform should ultimately look like.

Sean Hughes is a managing partner at the consultancy firm Social Change Partners. Over the next few months, he will write a series of analysis pieces in The Imprint about child welfare finance reform. We encourage readers to submit their own commentary and analysis on the subject.

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