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Children's Voice Article, January/February, 2004

Managing Child Welfare in Tough Times

by William Atkinson

Anyone who works in the social services would have to have been stranded on a desert island for the last two years to not know how hard funding has been hit. "A lot of agencies have seen state reimbursements and contracts literally evaporating in front of their eyes," notes CWLA Midwest Region Director Joel Johnson from his Chicago office.

"There's obviously a lot of concern about funding," echoes Skip Stuck, CWLA's Vice President for Membership Services. "In some cases, agencies are taking steps to address it. Others are going out of business."

Many agencies thought the current budget crisis was going to be a one-year thing. Now, Stuck says, they're coming to grips with the reality that this may even be more than a three-year adjustment. It may require that they completely rethink what they do from now on, beyond just staff reductions and furloughs.

"Many of our member agencies rely on government funding through contracts for child welfare services with state and county agencies, as well as government grants," says Dana Wilson, Director of the League's Mid-Atlantic Region. With government funding shrinking, "many of them are looking for new grants from charitable foundations and corporations to fund either specific projects or operational costs."

But Wilson notes that with more agencies seeking private grants, competition for this money is getting tighter; and with endowments and the stock market down, foundations and corporations have less money to give.

"Our agency, which involves two corporations, was barely breaking even, with some months showing deficits," reports Chris Cherney, CEO of Mississippi Children's Home Society and CARES Center in Jackson. "In fact, a number of our programs were running relatively heavy deficits." The agency faced skyrocketing medical costs, increases in general insurance costs, and the need to provide competitive salaries and salary increases to hire and retain quality staff.

The agency was also seeing a shift in private donor funds, partly because of the aftermath of 9/11, but also because a generation of philanthropists who had been very supportive of the Children's Home Society were getting older and passing on. "Things looked kind of bleak," Cherney admits. "We were asking ourselves how we would be able to maintain the quality of our service and the enthusiasm of our staff."

The Big Picture

Before hitting the panic button, though, it's important to put the funding picture into perspective. The Urban Institute in Washington, DC, conducted three national surveys of state-based child welfare financing in 1997, 1999, and 2001, providing insight into the sources and amounts of state child welfare funding and how the states have been spending that money.*

Child welfare agencies experienced a real boom period before the recession. "What we saw over time were relatively significant increases in spending," reports Rob Geen, Senior Research Associate at the Urban Institute. Between 1996 and 1998, for example, total spending increased 10% in adjusted dollars; between 1998 and 2000, it increased 20%.

Interestingly, these increases occurred at a time when caseloads weren't necessarily increasing. "Caseloads may have become more difficult and challenging, requiring additional cost per case," Geen points out, "but the total number of cases didn't increase much at all.

Nationwide, states received slightly less than half of all funding from the federal government--around 45% from 1996 to 1998, and 49% in 2000. The rest came from state and local sources. But the amount of federal funding varied widely from state to state, ranging from only 25% in some states to as much as 75% in others.

"We also found that child welfare spending is very volatile," Geen continues. "We can see large increases or decreases in relatively short periods of time that can't be explained by caseload changes only." For example, some states experienced a significant decline in funding between 1996 and 1998, then a significant increase between 1998 and 2000, while their caseloads didn't change that much in those four years. Geen believes some of these fluctuations in funding can be explained by media events, such as coverage of the death of a child in care, commissions, or special legislative efforts.

Most of the money went for children in out-of-home placements--$9.1 billion in 2000. Another $1.9 billion went for adoption, $1.8 billion for administration, and $2.9 billion for prevention and child protective services.

"When people talk about child welfare funding, they usually focus on Title IV-E, which is foster care and adoption money, but this only represents 48% of all federal money," Geen notes. "There are other federal funding streams not dedicated exclusively to child welfare, but child welfare agencies can use them to pay for child welfare services." This includes the Social Services Block Grant (SSBG), which represents about 17% of all federal spending; Temporary Assistance for Needy Families (TANF), which represents about 15%; and Medicaid (targeted case management and some rehabilitative services), which accounts for about 10%.

Welfare reform in 1996 had a relatively strong impact on child welfare spending, according to Geen. Although it didn't directly address child welfare, it did alter funding streams on which child welfare agencies rely. One of these was the emergency assistance program that existed under AFDC. With welfare reform, emergency assistance was eliminated, and funds from the program were rolled into the TANF block grant.

"Between 1996 and 1998, we saw a 38% decline in the amount of money states were spending from TANF, compared with what they were spending from the old emergency assistance program," Geen explains. "We think this decline had a lot to do with states' uncertainty as to how TANF funds could be used and concerns about the future availability of TANF funds if welfare caseloads increased."

As welfare caseloads actually decreased between 1998 and 2000, there was a massive increase--168%--in the amount of money states were using from the TANF block grant for child welfare services.

Another funding stream affected by welfare reform was SSBG, which was cut by 15%. But the new law allowed states to transfer part of their TANF block grant to SSBG, which many did, to the tune of more than $700 million. "This saved child welfare agencies in many ways," Geen explains, "because the amount of money they were getting from SSBG didn't decline. In fact, it increased about 2% between 1998 and 2000."

Because children in foster care often have disabilities and are thus eligible for Supplemental Security Income (SSI), agencies also rely on this program for funding. "States have an incentive to get SSI for those children, because it is 100% federal reimbursable," Geen notes. "States have to match funds for the other programs." With welfare reform, however, Congress made it more difficult for children to be found eligible for SSI. As such, Geen says, "Between 1998 and 2000, we saw a 16% decline in the amount of money states were able to pull down from SSI for children in foster care."

The other policy change that has had a large impact on child welfare is the Adoption and Safe Families Act. "We have seen large increases in the amount of money states have been pulling down from Title IV-A adoptions," Geen says, citing a 41% increase in adoptions between 1996 and 1998, and another 40% between 1998 and 2000.

The Urban Institute's 2003 survey, which should be released later this year, will examine new financing data to get a sense of what the recession has meant to states. "We did interview state child welfare directors at the end of our last survey," Geen says, "asking them what was happening in 2001, in addition to collecting 2000 data." Many noted concerns about cuts they might be facing because of the economy. The 2003 survey will document some of the declines that occurred in 2002.

Geen says the main complaint states have about federal financing is that the federal government provides an open-ended entitlement for children in foster care or adoption, but caps money for prevention activities at a relatively low level, making it difficult for states to come up with funds for prevention. "During difficult economic times, there's a concern that these prevention funds are even more difficult to come by," Geen explains. "In fact, while foster care and adoption funds are always available, prevention funds are almost considered a luxury during difficult economic times."

Influencing the Bottom Line

Given the current challenges, agencies can take a number of steps to reduce expenses and increase revenue:
  • Cut costs wherever possible. This is the first and most obvious step. "Be as close and accurate as you can on your budgeting, based on previous years' experience," suggests Mississippi's Cherney. "Then hold your staff, yourself, and your board accountable for trying to live within that budget. We started some belt tightening--watching expenditures, putting off some remodeling, not replacing vehicles and equipment. By better fiscal management, we were able to keep some of our costs down."

  • Review strategic plans. Agencies should ask themselves what is still doable in the current economic light. "Most organizations that operated under three-year plans have abandoned them, especially if those plans were written pre-2001, during good economic times," CWLA's Stuck explains. "They are rethinking what they are doing in order to be more realistic in terms of the resources that are likely to be available to them."

    Jeff Bormaster, CWLA's Western Region Consultation Manager, sees many organizations using endowments to fund much of their indirect operations. He cautions, however, "Using endowment proceeds based on a five-year rolling average, organizations need to realize it will take longer than five years for them to see some endowment recovery, even if everything works perfectly. I tell organizations they need to develop their fund development plans understanding that, for 10 years, their endowments will not produce what they used to produce two years ago."

    Agencies should also consider expanding long-term strategic planning to outside their own organizations. As director of child welfare for Indiana, Sharon Pierce worked for almost 10 years trying to expand the Medicaid rehabilitation option to include licensed child welfare agencies. "We are just now seeing that coming to fruition this year," says Pierce, now CEO of The Villages of Indiana in Indianapolis. "This will give us the opportunity to leverage county dollars that are already being expended for child welfare, to draw down federal dollars that, until now, we haven't been able to access."

    Consider cutting programs. Although it's a painful thought, agencies may need to consider axing complete programs. "Rather than just cutting 10% across the board, look at each program individually and determine which ones are working and which ones aren't," Stuck suggests. "If all you do is cut 10% across the board each year, you end up weakening your agency as a whole and ultimately jeopardizing its survival."

    Cherney agrees. "Have the courage to make the hard decisions to drop certain programs if they just can't be turned around. We had to make the decision to close some of our more deficit-prone programs."

    To get a sense of where to look for program cuts, agencies should examine their core mission and services. What are they known for? "A number of agencies have expanded beyond their basic missions in the last few years," Stuck says. "You need to go back to basics. Once you identify your core, decide what you need to do to strengthen that core." Then find ways to extricate yourself from the other peripheral ventures if they aren't profitable.

    It's all a matter of perspective, Stuck explains. "If you expand when times are good, that's called 'being entrepreneurial.' If you expand during poor economic times, that's called 'spreading yourself too thin.'"

  • Explore entrepreneurial options. It may be smart to be entrepreneurial during the good times, but is it always a bad choice to be so during tough times? Although expanding during tough economic times might be "spreading yourself too thin," agencies can still find ways to be entrepreneurial.

    One relatively risk-free entrepreneurial initiative is to begin looking for additional funding sources. "Most of our agencies have become increasingly dependent on public funding sources, primarily state sources," Stuck says. With most states operating with budget deficits, this is a problem for agencies that depend on state contracts. "One option," Stuck explains, "is to diversify in terms of finding ways to sell the same services to other organizations, such as businesses, counties, or other local governments. Another way is to sell different kinds of services to these organizations."

    But, Stuck cautions, don't expect these initiatives to be easy. "The same economic factors that have caused states to operate in deficits have also reduced the amount of money available to these other organizations."

    Some entrepreneurial decisions do involve some risk. Cherney cites one example: "We just purchased 80 acres on the Gulf Coast to develop a new psychiatric residential treatment center, and we're now...going after the funding. We will have to borrow $2 million to $3 million...We have a good track record, though, and we do most things well, so we usually don't have a problem getting funding." In fact, most of the agency's programs run on a cost-plus basis.

    Although some organizations view these times as a mandate to get back to their core missions, others see an opportunity to pick up quality services and acquire other agencies. "They may dump some of the things those agencies do," Stuck says, "but maintain the services on which they feel they can break even."

    Some agencies are adopting other innovative ways to align their organizations. "For example, if they have a for-profit arm, they may use this to help fund the services of the nonprofit segment," Wilson, of CWLA's Mid-Atlantic Region, says.

    Other agencies are actually getting into for-profit businesses to help support their nonprofit programs. "They are operating for-profit corporations, such as Ben & Jerry's ice cream shops, public storage facilities, or selling real estate," CWLA's Johnson notes.

  • Focus on advocacy. According to Pierce, the public and private sectors are making some difficult choices. For example, youth aging out of foster care "really need a strong support system to [help them] make the transition from childhood to adulthood," she explains. "If the state is looking at a 2-year-old who is at risk of abuse versus a 16-year-old at risk of abuse, they will probably put their resources toward the 2-year-old. Still, I think these teens are equally at risk of being violated and manipulated." The Villages, therefore, tries to be very active in advocacy and public policy.

Other Funding Options

Beyond these steps, agencies have several additional funding opportunities to consider:
  • Engage the public. Although it has always been a staple for most agencies, more and more are finding fundraising is especially important these days. "Lots of people are saying there is no money available anymore," Bormaster says, "but that's just not the case. There's lots of money out there. It's not necessarily being donated to child welfare agencies, but the money is available." In 2001, for example, $212 billion was donated to organizations. Human service organizations received just 9.3% of that--which means 90.7% of that money is still out there.

    Many organizations are pursuing foundations and corporations for support, but foundation and corporate dollars represent only 17% of the $212 billion donated in 2001. Most--75.8%--came from individuals.

    "One of the best ways to tap into this is to focus on fundraising," Bormaster continues. Some organizations that have been in the habit of doing fundraisers are still as successful as they have been, while others aren't generating as much as they once did. "Organizations that have not engaged in fundraising, though, now realize they need to start."

    To get a leg up on the process, Bormaster encourages organizations to create community fundraising calendars, determining which other organizations are trying to raise money in their communities during the year, when they are doing it, and how they are doing it. "Then, come up with fundraisers that don't compete directly against these others," he suggests.

    Agencies are finding success with events such as galas, tournaments, and awards banquets. "Even if they've been doing these before, they're doing more of them," Wilson says.

    "One of the critical challenges we're facing is the cutback in child care support for low-income and working poor families," Pierce says. "They're no longer able to make up the difference without vouchers, and we have [used all] our scholarship dollars. We're becoming heavily involved in fundraising to compensate for some of the gap."

    Many agencies are also looking to local businesses for help with fundraisers. "A business might be willing to donate a percentage of its proceeds for a day or a week to an agency," Wilson suggests. Or it may be willing to cosponsor an event with an agency by covering the hard costs. "As a result, all of the donations can go directly to supporting the agency, instead of using part of them to cover the costs of the event."

    Cherney recalls that Mississippi Children's Home Society "took a leap of faith and gave a 3% across-the-board raise to everyone last year on the assumption that, even though these were tight times, we might expect a lot of donations near the end of the year, which typically happens." Although the first six to eight months are tight in terms of donations, from the eighth month on the agency's donors seem to come through. By the end of 2002, things did start to get better. A number of private donors who had donated in the past started giving more again, and several new donors came through with some extremely large gifts. "We ended the year on a fairly positive note," he says.

    One reason for the uptick at the end of the year, Cherney believes, is the agency's use of fundraising activities. "We do a the first half of the year, but they usually don't bring in a lot of money. They just get our name out in front of the public and give us the opportunity to develop potential supporters for our organization." These individuals may not give a lot during the fundraisers, but they often make large gifts toward the end of the year. "There was one $50,000 gift we weren't sure we were going to get, but we did. We had another $100,000 gift that came in unexpectedly from a person who knew about us but had not been a steady contributor."

  • Engage alumni. As important as outside contributions are, agencies shouldn't forget about people on the "inside"--former clients. "We have a longstanding alumni group who used to be orphans here, and they have been generous," says Adam G. Jacobs, CEO of the Bellefaire Jewish Children's Bureau (JCB) Shaker Heights, Ohio. JCB shifted from being an orphanage to a treatment center around World War II, so it has one alumni group who were orphans before World War II and a second who were treated from post - World War II through the early 1970s, many of whom have become very successful. "The orphan alumni group [is teaching] the notion of giving and caring to the younger alumni group," Jacobs explains.

    "The two groups get together once a month for dinner, so it is very social for the first part of the evening," explains Sylvia Morrison, JCB's Director of Community Affairs and Resource Development, who created the younger alumni group. "Then the meeting becomes a little more businesslike. The older group guides the younger group on events that make sense and how to stay in touch with their own alumni."

    JCB also has some auxiliaries whose members are aging. Morrison is rejuvenating them with their own children and friends of their children. "Both of these initiatives are creating the potential for some additional long-term giving and estate planning, as well as some more modest giving on an operational or annual basis," Jacobs explains.

  • Engage board members. Charles L. Baker, recently retired President and CEO of the Presbyterian Child Welfare Agency, Buckhorn, Kentucky, believes agencies without good financial advisors on their boards may have some problems. "We have a very good board," he says. "We have some bankers and accountants who can help us with things like floating bond issues that allow us to reduce our interest rates on capital projects. They also provide us with other important financial advice."

    Johnson points out, though, that boards can do more than just provide financial advice. "A lot of agencies are asking their boards to become more involved in fundraising," he says. "During times of prosperity, they didn't need to be this involved, so a lot of that activity never took place. Now agencies are looking at their boards and reminding them they have fiduciary responsibilities to support the agencies--not only with their time and talents, but also with other resources, such as writing checks themselves, and encouraging others to do so."

    Bormaster cites research that shows when individuals were asked why they donated to child welfare agencies, 77% said because they knew the person who asked them, and 63% explained they volunteered at the organization. "Fundraising in tough economic times is really about resource development and relationship building," he emphasizes.

    When Bormaster visits agencies, he encourages them to get their boards of directors involved in fundraising. "A board of directors of 15 or 20 people knows more people than the executive director alone does. Ask each board member to identify 10 people they believe would support them in their efforts to support the organi-zation. Then ask these 150 or 200 people to go out and ask other people if they would be willing to support the organization."

  • Engage staff. A common oversight in virtually every organization--from Fortune 500 corporations to small child welfare agencies--is failing to fully use the knowledge and support of employees. The myth is that employees really can't contribute much because they are at too low a level to understand the real issues. In fact, organizations that fully use their employee base end up stronger.

    Just ask Baker. "Like every other organization, we had a difficult time last year," he says. "The first thing we did was look at our expenses and find a way to trim some of these." The agency's major emphasis, however, has been on finding better ways to increase its revenue from its contract services--one reason it didn't focus on payroll cuts when looking for ways to reduce expenses. "The things that need to be done to generate the additional revenue require having workers on the front lines," he says.

    The agency's first step was to inform staff what was happening--some 400 employees at five different sites. "We created a large chart with a graphic representation of the history of our business from around 1900 into the future," Baker explains. Part of this graphic showed the cost of serving one child per day over the last 15 years. Each year's cost was shown on a red bar. A green bar showed the agency's contract revenue that year. Although both bars increased each year, the graph showed how, in 2002, the red bar exceeded the green bar.

    "A lot of people were surprised to see that," Baker says, "especially since, for a 10-year period ending two years ago, we had a very good revenue stream. This additional revenue had allowed us to do some foster care and some high-end residential treatment services."

    The presentation, and the subsequent staff discussion, got Baker's staff thinking about their individual units' work at the agency.

    Traditionally, the accounting department had always distributed the agency's financials each month throughout the organization. But even though they had access to it, most of the

    employees didn't bother looking at the information because they didn't know how to read the financial reports.

    After the presentation, however, Presbyterian started putting its monthly financials into graph form to show employees how each individual unit was doing. "Now, each unit has a goal of having revenues exceed expenses," Baker says. If expenses exceed revenues, the vice president talks with the team leader to see what's happening and what can be done. The agency has been doing this just over a year, and Baker says the results have been "wonderful."

    "Our expenses have declined, and our revenues have been showing steady growth because employees are actively involved in the process." If a child is leaving the residential program today, for example, employees know how important it is to have that bed filled tomorrow. "They know the results of everything they do will show up in the monthly graph," Baker says.


Looking at the current economic situation, Pierce emphasizes the importance of a wide-angle, long-term view. "I don't think this is a challenge that can be solved with a Band-Aid. We must invest in...all of the things that need to be done to address the problem early on. If we allow it to expand unchecked, the problem will become more complex and costly to address."

One way or another, she says, "agencies must continue to provide the services needed today. If we don't provide these services today, the families may come back to us later on, needing even more intensive and costly levels of services."

William Atkinson is a full-time business writer and former regional reporter for TIME.

* These surveys examined data from 1996, 1998, and 2000, respectively.

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