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REFORMING FINANCE
FINANCING REFORM
for Family and Children's Services
by Mark Friedman
Fiscal Policy Studies Institute
January, 2000
Published by the Foundation Consortium with a grant from The California Wellness
Foundation as part of its Health Improvement Initiative
A. Introduction:
Financing reform has two meanings. How do we come up with the money to pay
for the reform of family and children's services? And how do we reform the
financing systems which themselves drive and shape these services? Both
questions start with the idea that reform is somehow necessary. What is reform?
And why bother with this when so many other matters demand our attention? This
brief will address these questions and offer some ideas about how to do both
things well: finance reform and reform finance.
B. Why bother with finance reform?
There are a few simple reasons why we need to pay attention to service and
finance reform. First, the cost of bad results is killing us. We are spending
more and more money on family and children's services at a time when evidence
suggests things are actually getting worse (rising costs of foster care,
juvenile crime, remedial education etc.). Most of this spending, other than
elementary and secondary education, is for remediating bad results, after they
occur.
| "The cost of bad results is killing us. We are
spending more money on family and children's services at a time when
evidence suggests things are actually getting worse." |
Second, preventing these costs is cheaper in the long run. We are paying a lot
of money we might not have to pay if we did a better job of supporting families
and children before they got into trouble. The sooner we get about the business
of investing in preventing child and family problems the better off we will be.
This is not just good social policy, it's good fiscal policy. We literally can
not afford to continue on the path of endlessly increasing remedial costs. Let's
explore these ideas briefly.
| "We literally can not afford to continue on the path
of endlessly increasing remedial costs." |
1. The cost of bad results is killing us. There is of course the literal
version of this. Even with violent crime on the decline, the U.S. is still has
the highest violent crime rate among developed countries. But, the idea of bad
results starts with the idea of good results. Good results are conditions of
well-being we hope to achieve for children, families and communities. They are
such things as children born healthy, children ready for school, children
succeeding in school and staying out of trouble. Bad results are the opposites.
Much, if not most, government spending for children and families, other than
elementary and secondary education, is spent for bad results: children born unhealthy,
children not ready for school, not succeeding
in school, not staying out of trouble.
Special Note to Baby Boomers
Research shows that high crime ages are 14 to 24. If you are 50 years old
today, the 14 year olds who will be around when you are 65 will be born
next year. What we do for these children starting this year will
determine crime rates when you retire. |
The cost of bad results is not just public spending. Think about the ways in
which juvenile crime shows up in property damage which shows up in the insurance
rates we all pay. Put your arms around all this spending and you have a huge
bill, well in excess of $100 billion per year nationally.(1)
| "The cost of bad results is not just public spending.
Think about the ways in which juvenile crime shows up in property damage
which shows up in the insurance rates we all pay. Put your arms around all
this spending and you have a huge bill, well in excess of $100 billion per
year nationally." |
Now consider how this fast growing part of our budget compares with the revenue
we have to address these problems. The growth in revenue for state and local
government is modest even in these good economic times. State revenues increased
just 4.38% between fiscal years 1998 and 1999, compared to a 12.0% increase in
corrections costs between FY 1996 and FY 1997.(2)
The convergence of rising remedial costs with flat or modest revenue increases
has the effect of driving out expenditures for other purposes: quality of life
spending, and spending on preventing the problems from occurring in the first
place. We can already see this in the shift of state spending priorities over
the last ten years away from support for higher education and toward prison
costs.
We need to find ways in which we can slow and then reduce the costs of bad
results. We've got to begin to think of ways in which we can invest in
prevention now to reduce the longer term costs of bad results for children and
families.
2. Prevention is cheaper than remediation.
Ben Franklin thought a 16 to 1 return on investment was believable for
prevention investments. ("An ounce of prevention... a pound of cure.")
In real studies the return is more like 3 to 1, still not too bad.(3)
| "Ben Franklin thought a 16 to 1 return on investment
was believable for prevention investments. ("An ounce of
prevention... a pound of cure.") In real studies the return is more
like 3 to 1, still not too bad." |
In every field from bridge maintenance to health care, prevention is less
expensive over the long run than remediation. The question is: "What
constitutes prevention for juvenile crime, child mental health problems, and
foster care?" The answers which have emerged over the last 10 to 20 years
are helpful if still incomplete.
Networks of basic services and supports for all families with children, and
Carefully integrated continuums of special services and supports for
families and children in trouble, and
Services provided in a timely accessible family friendly way, linking
formal and informal support systems at the neighborhood level.
These networks include home visiting for all newborns, family support
particularly for families with young children, quality child care and other
early child development and education, and supervised recreation for youth.
Everywhere one travels, teachers tell the same story: "We know exactly
which 3rd graders will end up in the juvenile justice system." So what do
we do with that information? Generally we do nothing. Why not attach a mentor to
every child and family in that situation. Why not pull out all the stops, do
whatever it takes, to keep that child from failing in school. The investments
will pay off in short order in the juvenile justice system and later in other
deep end service systems up to and including adult criminal justice.
| "Everywhere... teachers tell the same story: "We
know exactly which 3rd graders will end up in the juvenile justice
system." So what do we do with that information? Generally we do
nothing..." |
3. Financing structures hide the facts: The principle problem with
prevention investments is that the cost of prevention and the savings from
prevention show up in different places at different times. The finance systems
we use hide the facts about the relationship between prevention and prevention
effects. If costs and savings could be considered as a single unified multi-year
budget, then the economic arguments for prevention would be easier to make and
there would be straightforward financing mechanisms to reimburse prevention
costs and reinvest prevention savings. Current budget and finance structures
create boundaries between investment and return on investment components, within
the same fiscal year and across fiscal years. It would be like a company where
research and development was expected to be financially independent from sales.
Without that connection, R&D can never support itself and would die out.
When we expect prevention programs to be self supporting we do the same thing.
| "Current budget and finance structures create
boundaries between investment and return on investment within the same
fiscal year and across fiscal years. It would be like a company where
research and development was expected to be financially independent from
sales. Without that connection, R&D can never support itself and would
die out. When we expect prevention programs to be self supporting we do
the same thing." |
Prevention is common sense, but it is also fact. The best long term studies
(Perry pre school) show that investments in early quality of life pays back at
the rate of three dollars or more in later lower utilization of expensive
services. Vermont's recent experience in providing home visiting and success by
six in all communities and near universal child health coverage is beginning to
show up in reduced child abuse and child neglect, lower teen pregnancy and other
expensive services. Individual evaluations for home visiting, family
preservation and other preventive services show the cost benefit values of these
individual service investments. The compounding effects are rarely formally
evaluated, but the Vermont experience begins to suggest the potential of such
synergy.
So, if we can make the necessary investments in preventive services and
supports, and create the fiscal systems to capture and reinvest the savings
associated with these investments, we should be able to reduce long term
remedial costs and have more money to spend on quality of life expenditures for
all our citizens.
| "If we can make the necessary investments in
preventive services, and create the fiscal systems to capture and reinvest
the savings associated with these investments... we should be able to
reduce long term remedial costs and have more money to spend on quality of
life for all our citizens." |
C. Reform Finance
1. What is it? What does it mean to reform finance? Essentially, it is
changing the way we make decisions and create budgets. At a minimum there are
three parts: changing the way we budget so that cross-system results for
children and families drive budgets; changing the way we assess the performance
of programs so that client results drive budgets; and changing state local
fiscal relationships so that fund flexibility can be used to improve results.
2. Results-based budgeting across systems Apart from automation, not much
has changed in budgeting processes for a long time. Most budget processes work
like this:
Figure out how much there is to spend.
Take mandatory spending off the top.
If there's anything left, pick other spending priorities.
Put them in a political package called an "initiative."
Sell it.
Begin work on next year's budget.
At some level, this process - initiative based budgeting - is a political
fact of life that will not change any time soon. But, by itself, it misses the
point of what we are trying to accomplish for children and families over the
long term.
What is it? Results-based budgeting starts with the results we want for
children and families and works backward to the means to achieve those results.
It is very much like business planning which uses clear measures of success as
the driving force in tracking progress and setting organizational priorities.
| "Results-based budgeting starts with the results we
want for children and families and works backward to the means... it is
very much like business planning which uses clear measures of success...
in setting organizational priorities and tracking progress." |
The first challenge in applying business principles to children and family
matters is clearly articulating the ends we seek to achieve. And this leads
directly to the matter of language. We use language in so many different and
undisciplined ways that those working on child and family well-being function in
a virtual tower of Babel. Let's start with a few simple definitions:
Definitions
Results are conditions of well-being for children, adults, families
or communities stated in plain English (or plain Spanish or plain Korean).
They are things that voters and taxpayers can understand. They are not
about programs or agencies or government jargon. Things like, healthy
children, children ready for school, children succeeding in school,
children staying out of trouble, safe communities."
Indicators answer the question "How would we recognize these
results in measurable terms if we fell over them?" Indicators are
pieces of data which quantify whether we're getting the results we want.
So, for example, the rate of low-birthweight babies helps quantify whether
we're getting healthy births or not. The rate of high school graduation
helps quantify whether kids are succeeding in school, the crime rate helps
quantify whether we're living in safe communities, etc. |
The most important idea here is that results, by definition, have to do with
ends, not means. They cross over agency boundaries, and even over the boundaries
which separate government and private sector partners. It is going to take more
than the health department to produce healthy children. It is going to take more
than the school system to produce children succeeding in school. It is going to
take more than the police department to produce safe communities. It will, in
fact, take partnerships made up of many different players from across the
community's public and private sectors.
| "It is going to take more than the health department
to produce healthy children. It is going to take more than the school
system to produce children succeeding in school. It is going to take more
than the police department to produce safe communities." |
How does it work? The basic idea of results-based decision making is
fairly simple.
Getting from Talk to Action Graphic
Click here to view
Develop a set of results and indicators: Develop a set of plain English
statements of well-being you would like to say exist in your community. For each
of these identify a set of measures, for which you have data which could be used
as proxies for these plain English conditions.
Create a baseline for each indicator: Create a baseline which shows where
you've been and where you're headed if you stay on your current course. Think
about success as turning away from the baseline or beating the baseline. This
may mean that success in the short term means slowing down the rate at which
things get worse, before things get directly better.
Tell the story behind the baseline: Find the causes, the forces at
work, the reasons why the baseline looks the way it does. In public health this
is called epidemiology. These forces become pointers to action in the steps
below.
Assemble partners who have an interest in turning the curve: Think about
potential partners who have a role to play in turning this curve (or set of
curves). Assemble a group of these folks, or use an existing group such as a
county/city/neighborhood collaborative body.
Identify what works: There is a tremendous body of knowledge built up
over the last 20 years about things that have had a demonstrable effect on bad
results. But the answers are not all, or even mostly in the library. It is
important to figure out what would work in your community. And that will
mean, among other things, asking the youth and families themselves. What would
work, what could work, in this community to turn the curve. Make sure at least
some of the ideas are no cost or low cost ideas.(4)
Not all or even most solutions are about more money.
Now you have the raw material for an action plan. The most important thing to
remember is that such a plan must be a multi-year plan. It is never true that
curves can be turned by any one agency in one year. The raw material can be
crafted into an action plan by thinking about which of these ideas are most
powerful, and sorting them into those that can be done in the next year vs the
next 2 - 5 years. It involves thinking systemically, about how the pieces fit
together into a system, not just a confederation of good ideas. And finally, it
involves thinking about how to finance this agenda, the subject of the second
half of this paper.
Results-based budgeting involves, even requires, the development of new tools. A
family and children's budget(5) can be developed
to show how money is now being used and to highlight opportunities for
investments and for more efficient use of resources. A periodic report card on
the well-being of children and families will serve as the mirror to hold up and
see "how are we doing?" And new tools like a periodic cost of bad
results analysis, or a portfolio from a Prevention Investment Board made up of
leading members of the jurisdiction's financial community.
| "Results accountability is ownership of the well-being
of a population (e.g. all children in the county) and the disciplined use
of data to track and improve that well-being." |
Results based budgeting must grow over time. You can't do it all at once. So
this year pick one result (children ready for school) or maybe just one or two
indicators and try it out. Over time, if these prove to be useful, fill in other
parts of this new way of doing business.
Now, it's all well and good to be thinking about cross-system, cross
community multiyear well-being of everybody and his brother, but we've got
agencies and programs to run. How do we make sure that they are run as well as
possible.
2. Performance budgeting within systems:
What is it? The answer is performance accountability and measurement. And
just like results accountability, the trick is to avoid the
all-talk-no-action-paper-blizzard version of performance budgeting. That's
mostly what we've seen over the last 30 years.
| "Performance accountability is ownership of a program,
agency or service system and the disciplined use of data to track and
improve its performance. |
Here's what's gone wrong in the past:
Too many performance measures
Not the right ones
Not used for anything
A paper monster waste of time
How does it work? How could we do performance measurement right? How
about this:
Fix for "Too many performance measures" For each program pick
just 3 or 4 measures. Resist the temptation to have a measure for every aspect
of every program. Ask managers to imagine they only had 5 minutes with the CAO
or Governor to discuss their program. What are the most important 3 or 4?
Fix for "Not the right ones" There are many methods which
can be used to choose the most important performance measures. One method is
based on the idea that all performance measures fit into one of four categories,
derived from the intersection of quantity and quality vs. effort and effect.
Performance Measures
Types of performance measures found in each quadrant
click here to view
If you think of this like a four quadrant box, the two most important measures
are:
Quality of Effect (1st most important): Here is where we look at
whether our the people who get service (our clients, customers, patients or
students) are better off.
Quality of Effort (2nd most important): Here we have measures which
tell us how well service was delivered (including such things as timeliness,
accessibility, efficiency)
After this the other measures (quantity of effort, e.g. how many people were
served, how many hours of services etc.) pale in importance. But ironically,
these other measures are the measures most often used.
This method of sorting measures and getting people to look at the most important
measures in terms of well-being of clients (or client results/outcomes) is
simple to use. And most managers can put entries in each quadrant for their
service a few minutes... not 3 months or 3 years, but 3 minutes to get people
out of the mindset of counting cases, and into the mindset of counting change
for the better for the people they serve. Try it.
| "...not 3 months or 3 years, but 3 minutes to get
people out of the mindset of counting cases, and into the mindset of
counting change for the better for the people they serve." |
Fix for "Not used for anything:" Picking performance measures
is just the first step in improving services. The next step is getting people to
track these measures on a regular basis and use the data to improve performance
(the idea of a learning organization).
Managers must get from talk to action. This involves some of the same kind of
steps used in results accountability. For each performance measure create a
baseline which shows the performance history and the future performance track if
we stay on our current course. Think of the potential partners who have a role
to play in improving that performance. And think of what would work, what could
work to improve performance, including no-cost low-cost ideas. Make sure this
thinking and acting process is eventually used at every intersection of
supervisor and subordinate throughout the organization.
Fix for "Paper monster waste of time" Most performance
measurement efforts are sponsored by the executive's office or the budget
department who announce that "starting yesterday everyone must have
performance measures." It can't be done that fast, and if it is, it will
fail. Better to start with a few programs who have managers ready to be leaders.
Let them show that this can be done and is useful to managing their services.
Since everyone will be watching them, make sure they are not beat up too badly
during the next year's budget process. Then build out from that success.
3. Trading results accountability for fund flexibility
The last matter we get to discuss here has to do with the fact that the state
local fiscal relationship is, shall we say, not always helpful. It starts with
the feds who dump on the states, who dump on the counties, who dump on the
cities who dump on the communities. It's the fiscal food chain. It has lead to
an underfunded categorical system of overlapping and contradictory mandates,
created through years of accumulated political deals, not through any sensible
view of how to divide responsibility.
| "The fiscal food chain...the feds dump on the states,
who dump on the counties, who dump on the cities, who dump on the
communities..." |
What is it? Now let's imagine that everyone was on the same page about
improving results for children and families. The question we would ask is:
"How could we change the federal-state-local fiscal relationships to help
improve results?" The answer involves at least three parts:
Negotiation between state and local partners
Leading to useful fund flexibility
Linked to results accountability
How does it work? First, it's about negotiation (stupid) between state and
local partners. Sounds obvious, but it is rarely practiced. We usually end up
with two extreme positions when this subject is considered: the dumping version,
where the state dumps new responsibilities on local government with less money.
This is the form that block grants usually take. The other extreme is often
articulated by local partners out of frustration: "Just give us the money(6)
with no strings and no questions." Neither of these extreme views serve the
purpose of improving results for children and families and neither stands up
well to public scrutiny. The middle ground requires two party good faith
negotiation.
| "The object of such negotiation is a new deal between
state and local partners which exchanges fund flexibility for a new form
of accountability for results." |
The object of such negotiation is a new deal between state and local partners
which exchanges fund flexibility for a new form of accountability for results.
Creating such a new deal requires that a minimum of six questions be answered to
the mutual satisfaction of both parties: Who's accountable? For what results?
With what money? With what standards and safeguards? With what risks rewards and
penalties? For what period of time?
A New State Local Fiscal Deal
must answer these questions:
Who's accountable?
For what results?
With what money?
With what standards and safeguards?
With what risks rewards and penalties?
For what period of time?
|
There are some lessons learned from years of largely unsuccessful
experimentation with changing state local fiscal relationships. Funding pools
may be useful components of any deal, but they are means, not ends in
themselves. And not any funding pool will do. The devil is in the details.(7)
What goes into a funding pool and the strings attached are of vital importance
to whether it is helpful or harmful. The most important rule about funding pools
is that the money in them should include related remedial and preventive
expenditures. This will create a natural incentive to save money on remediation
so that it can be spent on prevention.
In family and children's services it is possible to group funds for out of home
care placement with funds to prevent out of home care. This is, in essence, what
Iowa did in its Decat program, the longest running and most successful of all
new state/local deals. Other such prevention remediation clusters are possible.
The point is to group funding so that there are natural incentives to do better.
D. The Cosmology of Financing or Paying for reform of the family and
children's service system
What is it? Imagine that you could come up with an ambitious agenda of
things that you think will work to improve results for children and families in
your community. How could you pay for it? The cosmology of financing is a
systematic way of considering all the possible ways to finance such an agenda.
The main categories:
Using money and non-monetary resources already in the system: redeployment and
reinvestment
Finding new money and resources: revenue and refinancing
Changing the laws of the universe which drive the use of money and resources:
restructuring
How does it work? When it comes to financing most people are stuck
thinking about resources in just one or two ways. It is absolutely essential to
consider every possible approach and craft financing packages to support
our agenda for children and families. There are no magic funding sources.
Successful financing plans bring together many elements. As you develop your
financing plan, think about how each of the approaches discussed below
can be applied to each of the elements in your agenda.
1. Using Money (and non monetary resources) Already in the System: Investing
and Reinvesting:
The first order of business is using the resources already in the system. And
the biggest of those resources are the huge sums now being spent on remediation.
How could we tap this bank account for prevention investments.
Imagine a company where the investments in research and development paid off big
time in sales. But the sales department and the research and development
department were separated by an accounting fire wall. R&D had to be self
supporting without any of the profits from sales. Couldn't be done. Because
investment and the profit show up in different parts of the company's budget.
And unless the enterprise can be thought of as a whole, there is no way to make
the investment engine go.
The same thing is true in children's services. Invest in recreation services,
and the benefits show up in juvenile probation. Try to make recreation pay for
itself and it can't be done. Link the two and maybe it can. Invest in family
support centers and the savings show up in lower health costs by public and
private providers. Try to make family centers pay for themselves and it can't be
done.
| "Invest in recreation services, and the benefits show
up in juvenile probation.... invest in family support centers and the
savings show up in lower health costs by public and private
providers." |
The way businesses answer this question is by linking investment and return on
investment (ROI) and considering the value of investments over time. By
anticipating a credible return on investment, it is possible to use funds up
front to be paid back later, with profit for the shareholders left over. The
problem with applying this idea to children and family services centers on the
word "credible." There have been many undisciplined attempts to
argue for a return on investment in children and family services, to the point
that people in positions of responsibility, like yourself, are rightly
skeptical.
We have a few examples where the investment-return-on-investment structure has
been shown to work reasonably well. The best examples are investments in family
preservation services designed to keep children out of unnecessary placement in
out of home care. The key to the success of these investments is the disciplined
targeting of intensive services to children who would have gone into
care without such services. Obviously if you apply these new services to
children who never would have gone into care in the first place, you incur all
the new expense and get none of the savings. (See "For More
Information" section) What is unusual about this investment in particular
is that the savings show up in less than 2 years, an unusually short time for
this kind of work.
Another reason the ROI method works with family preservation is that we know
exactly where to look for the savings and with fairly simple budgeting tools can
credibly capture it. The technology to do this on a broader scale is
described in "Capturing Cash for Kids." (See "For More
Information" section.)
Let's say we could invest in preventive children services, such as (child care,
recreation, family support, teen jobs, mentoring etc.) in such a way that we
could actually track and capture the cost savings and cost avoidance which occur
several years later in the deep end systems like foster care, juvenile justice
and health care. What if we could strike a political deal that any savings or
cost avoidance captured this way would be reinvested back into prevention
services to generate more savings in the future. This would be a reinvestment
deal. The accounting and budget techniques necessary to identify credible
savings and cost avoidance effects are within the reach of many budget shops.
But leadership is needed, along with thinking outside the budget boxes, to
harness basic business investment principles to this challenge.
| "What if we could strike a political deal that any
savings or cost avoidance... would be reinvested back into prevention
services to generate more savings in the future. This would be a
reinvestment deal." |
Generating a return on investment from deep end services is the most important
redeployment approach. There are several other forms of redeployment to
consider: wrap-around redeployment, cut-based redeployment and material
redeployment. Let's take a look at each one briefly.
Wrap-around redeployment is reuse of money being spent for an
individual child. All the funds now being spent for a child in expensive out of
home placement are considered as a single total - and a service team is
permitted to design an individual program "wrapped around" the child,
providing they do so at the same total cost or less. When this technique is used
to bring children home from out of state or care or expensive institutional care
to community based services, the package can come in at 70% or less of the
original cost. These are funds already in the system redeployed to pay for
better service.
Cut-based redeployment is, at its heart, the age old business
of cutting one thing to fund another. We in human services have a very bad track
record of voluntarily cutting anything. So we wait until it is forced on us and
then make the hard choices. But there is no reason we could not make the hard
choices now, providing one protection is in place. The money cut in this way
must go back into improved services for children and families. Without this
assurance, cutting will always wait for the mandates and emergencies. It is
possible for us to create new efficiencies in service delivery and to face up to
programs that are not working well, and to use these savings to fund services
needed to improve results. One of the best examples of this occurred under the
administration of Governor Roberts in Oregon. The Governor asked state agencies
to cut over $100 million, and then allowed them to reapply for the money based
on what would have the greatest impact on the state's priority benchmarks.
Material redeployment addresses the non-monetary resources
already in the system. We commonly see this used when staff are collocated at a
family support center, or space and equipment are "contributed" to
some new enterprise. One of the best examples of this is the actual bartering of
one service for another, which occurred between a child care provider and a drug
treatment provider in Chicago. One provider got child care for its patients. The
other got drug treatment for its children's mothers. No money changed hands. If
there is an agenda to be financed, some of it can come from the use of
non-monetary resources already in the system.
2. Finding New Money and Resources:
Refinancing involves using someone else's money to pay for services
already provided, thereby freeing up your own (general) funds for new use.
Refinancing has been mostly applied to services eligible for some form of
open-ended federal reimbursement. By increasing federal claims for these
services, state or local general purpose funds are freed up.
The principle challenge in refinancing is keeping the freed-up money in the
system of services for children and families. Unfortunately, the history of this
work over the last 20 years shows that more often the freed-up money is taken
away and used for other purposes. When this happens, the child and family
service system is actually worse off, having all the new paperwork for the new
federal claims, and nothing in terms of new resources to show for it. If you can
solve the problem of getting a firm commitment to reinvest earnings from such
efforts, then it may be worth going forward.
| "The principle challenge in refinancing is keeping the
freed-up money in the system of services for children and families." |
Federal entitlement fund sources are much diminished from 10 years ago, but
there are two important ones still left. Title IVE of the Social Security Act
allows states to claim costs associated with low income children in foster care,
subsidized adoption, and some pre-foster care placement costs. Medicaid (Title
XIX) of the Social Security Act) provides a wide range of funding for medical
and related services for low income children in the health, mental health,
social service, and education systems.
The principle way to increase IVE claims is to increase the percent of eligible
children. Many states and counties have increased their IVE eligibility rate
into the 70% or better range, bringing a significant increase in reimbursement.
The other way to increase IVE claims is to broaden the type of expenses claimed.
Here, recent work is pushing the boundary of expenditures that can be claimed as
preplacement prevention work and administrative expense.
The way to increase Medicaid claiming parallels the strategies for IVE: increase
the percent of eligibles and the scope of claiming. In Medicaid the scope of
claiming comes first. California and many other states have established a method
for school districts to claim reimbursement for medically related services
provided to special education students as part of an Individualized Education
Plan (the LEA billing option). Many other services in public health, mental
health, social services can also be made to qualify for Medicaid reimbursement.
And many activities performed by workers in these systems can be claimed as
Medicaid administration under broadly established definitions of this type of
expense.
| "The way to increase Medicaid claiming parallels the
strategies for IVE: increase the percent of eligibles and the scope of
claiming." |
The principle difficulty in this kind of work is the risk of audit. The federal
rules are complex, though not impossible, and it is essential that the work be
done carefully to assure that the new claims don't have to be paid back later.
If this precaution is met, and there is a reinvestment commitment, then
refinancing can produce significant new resources to support a plan for
improving results for children and families.
Revenue: There are many other ways to increase revenue other than the
increasing federal claims to displace state and local funds.
There is new federal funding available as a consequence of the improved economy
(e.g. increased funding for child care, community development and education) and
there is new flexibility in the use of existing funding (e.g. the new EdFlex
bill provides flexibility to all states in the use of federal education
funding). Among the most important revenue sources is the surplus in the TANF
welfare program caused by significant reductions in caseloads since the end of
the last recession.
At the state level, new funding is also available. The improved economy has
created budget surpluses in all but two of the fifty states. And new fund
sources, like Prop 10, are opening up new possibilities.
Private funding is growing at an even greater pace. The growth in the stock
market has significantly increased the endowments of many foundations who are
required by law to give away a minimum percent of assets each year. And new
foundations have been formed as a result of the conversion of non-profit to
for-profit health providers. Corporations are also important sources of funding
for children and family services, particularly when the plan component is linked
to their service enterprise (e.g. health providers supporting immunization
efforts). And there are many ways to raise revenue by improving 3rd party
collections (e.g. child support medical support obligations), by charging fees
for services (even modest fees can help), by actively seeking donations (one
family support center in Maryland has over 300 supporters in their
neighborhood). And don't forget the importance of volunteer and other
contributed resources (e.g. mentoring and food banks).
3. Changing the Laws of the Universe: Restructuring: The last category is
about changing the incentives which drive money toward the things we want and
away from the things we don't. Again this is common practice elsewhere in the
world, notably the tax system, where tax incentives drive investments in home
ownership and contributions to the non-profit community. These concepts can be
applied to family and children's services in a number of ways. Performance
incentives can promote change by rewarding good practice. Flexible funding can
allow discretionary use of funds by line workers (e.g. payment of a housing
deposit to keep a family together and the children out of foster care). Funding
pools can provide flexibility at the system level to allow savings in
remediation to be spent on prevention. More information on these approaches is
available in the "More Information" section.
These elements of the "cosmology" are intended to be used after an
action agenda for children and families has been developed. Partners then take
each element of the action plan and think through how each type of funding
strategy in the cosmology can be brought to bear on that element over a
multi-year period. The ideas are then consolidated into a funding plan that
identifies what is to be funded, who are the potential funding partners, what
are the potential resources , who is responsible for pursuing each resource and
a timetable for action.
E. Getting Started
The cost of not reforming finance and financing reform is the steady increase
in the cost of bad results. Since prevention is cheaper that remediation, we are
spending a lot of money for remediating problems that we don't need to spend.
The sooner we get about the business of investing in preventing child and family
problems the better off we will be. This is not just good social policy. It's
good fiscal policy. We literally can not afford to continue on as we have. The
old proverb: "The best time to plant a tree was 20 years ago. The second
best time is today." It's time to get started.
| "The starting point depends a lot on the particular
political environment in your county, city or community. What are people
passionate about? Who are the public and private sector leaders who care
about this stuff? What capacity exists to get the work done?" |
How do you get started? The answer may surprise you. This work is not linear,
and there is not a simple sequence of things to do. Strands of this work will
proceed in parallel. The starting point depends a lot on the particular
political environment in your county, city or community. What are people
passionate about? Who are the public and private sector leaders who care about
this stuff? What capacity exists to get the work done? Given your own answers to
these questions, consider any of the items on the following list as possible
starting points for a strand of work.
| "Don't wait a year or two to get to action. People are
burned out by the all-talk-no-action processes of the past... try to make
sure a strand of your work involves working to turn a curve as soon as
possible." |
Remember as you think about this, that the purpose of this work is to get from
talk to action on improving the well-being of children and families. Don't wait
a year or two to get to action. People are burned out by the all-talk-no-action
processes of the past. Try to make sure a strand of your work involves working
to turn a curve as soon as possible, while the other strands about creating
report cards and other tools go forward.
1. Talk to Action: Pick a curve and turn it. Find a condition of
well-being in your community (and associated indicators) that's "not
OK." Assemble public and private partners around the table to who have a
potential role to play in improving this condition. Put the indicator numbers on
the wall in the form of a baseline. Ask the partners where this line is heading
if we don't change. Ask about the story behind this baseline and what it would
take to turn the curve. Develop an action plan. After your first success, take
on another curve.
2. Develop a set of results and indicators and publish a Children's Report
Card. Children's report cards are like mirrors held up to the community.
Looking in this mirror is like asking "How are we doing for children and
families?" The response to this look in the mirror sometimes helps move
communities to action. Developing a complete, politically grounded list of
results and indicators and publishing a report card will take a few years to
finish, but will provide working products that can be used in the interim.
3. Create a reinvestment deal to reduce the cost of bad results. Identify
where the costs of remediating problems of children and families are growing
rapidly. Bring together a set of partners who "own" those growing
costs, and develop a set of investments which might slow or turn around the
growth in these costs. Include in this work your best fiscal people, and ask
them to help develop a way to capture the cost savings and cost avoidance if
these investments pay off. Cut a deal with the political and fiscal leadership
to allow you to keep these savings and reinvest them in more preventive services
for children and families.
4. Improve the performance of a program or agency. Work with a few
willing managers to develop performance measures for their programs. Help them
develop performance baselines for the 3 or 4 most important measures. Ask that
they develop performance plans which address the story behind their performance
baselines, partners with a role to play in helping their program succeed, and
what works to improve performance. Recognize and reward the innovators, and
build out from this success to other programs and agencies.
5. Begin linking results and performance to budgets. Consider results and
performance measures in the annual budget process. Add a new section to this
year's budget where you ask how the county or city is doing on one result
(condition of well-being) e.g. a safe community, or children ready for school.
Present indicator baselines for this result and the best thinking of your public
and private partners about what it will take to improve this condition. Discuss
how your "what works" ideas show up in this year's budget.
In the program section of the budget, present the most important 3 or 4
performance measures (no more) for each program, and ask managers to present the
story behind their performance baselines, and what they propose to do to improve
performance in the coming year.
6. Create a Children's Investment Board. Ask some of the leaders from
your business community (especially banking, insurance and finance) to join you
in creating a new investment board to bring the same investment discipline used
in the private sector to investing in children and families. If possible give
them a few million dollars and ask them to create a portfolio of investments.
Allow the board to set standards for the development of proposals. Include in
this process the development of methods to capture how these investments will
pay off in reduced costs of bad results in future years.
G. For More Information:
Resources:
The Finance Project
1000 Vermont Avenue NW
Washington, DC 20005
Fiscal Policy Studies Institute
8 Charles Plaza, Suite 1407
Baltimore, Maryland 21201
Center for the Study of Social Policy
1250 Eye St. NW
Washington, DC 20005
UCSF Child Services Research Group
44 Montgomery Street, Suite 1450
San Francisco, California 94104
Center for Collaboration for Children
CSU Fullerton EC-324
800 N. State College Blvd.
Fullerton, California 92634
Child and Family Policy Center
Flemming Building Suite 1021
218 Sixth Avenue
Des Moines, Iowa 50309
Publications:
A Strategy Map for Results-based Budgeting: Moving from Theory to Practice,
The Finance Project, Mark Friedman, September 1996.
A Guide to Developing and Using Performance Measures in Results-based
Budgeting, The Finance Project, Mark Friedman, May 1997
A Guide to Developing and Using Family and Children's Budgets, The
Finance Project, Mark Friedman and Anna Danegger, August 1998
The Cosmology of Financing: Financing Reform of Family and Children's
Services: An Approach to the Systematic Consideration of Financing Options,
The Center for the Study of Social Policy, Mark Friedman, June 1994
Trading Outcome Accountability for Fund Flexibility: Negotiating New State
Local Deals for (Core) Family and Children's Service Dollars, The Center for
the Study of Social Policy, Mark Friedman, December, 1995.
Capturing Cash for Kids: A Workbook for Reinvesting in Community Based
Prevention Approaches for Children and Families, The Comprehensive Integrated
Services Reinvestment Project of the Foundation Consortium, Marty Giffin, Abram
Rosenblatt, Nancy Mills and Mark Friedman, September 1998
Results, Indicators,
Report Cards and Children's Budgets
Los Angeles has the country's longest running children's budget.
Established in 1986 by the Los Angeles Roundtable for Children (precursor
to the Children's Planning Council) and produced every year since. The
budget brings together all the spending by county agencies related to
children and family services using eight functional categories to group
related spending. Los Angeles developed a set of outcomes and indicators
for children and families and has issued an annual score card on these
measures. And in 1998, Los Angeles issued an action plan drawing on the 15
year history of work on children's budgets and the combined thinking of a
wide range of partners.
Contra Costa County has also developed a set of outcomes and
indicators and a children's budget, which has become one of the most
advanced children's budgets in the country.
In October 1998, the Mayor's Office for Children and Youth in San
Francisco issued a family and children's budget. Other California
counties with exemplary reporting on outcomes and indicators include Santa
Cruz, San Diego, Placer and Santa Barbara. |
| The Cosmology of Financing
New Federal Money
California was late in the game of increasing federal revenue under the
open ended entitlement programs of the Social Security Act. Part of the
reason for the state's reticence was a bad experience with an attempted
and not well constructed claim for additional emergency assistance funds
in the early 1980's which lead to a large and painful federal audit
disallowance.
While problems with the quality of creative claims and resulting
disallowances continue to be an issue, California counties and school
districts have produced a significant amount of new federal money. The
MediCal LEA billing option was created to allow school systems to claim
MediCal reimbursement for special education services provided to MediCal
eligible children. Additional claims for MediCal administrative claims led
to new problems with the federal auditors, but some new claims ware
sustained. And a number of counties continue to pursue additional federal
funding under the federal foster care law (Title IV-E).
The single biggest issue in generating new federal revenue is what happens
to the new funding. In most of this work around the country the money is
taken out of the children and family service system, leaving that system
with more paperwork and nothing much to show for the work. (In one unnamed
state, the school districts' estimated Medicaid claim was taken off the
top of their ADA reimbursement!!) In a few places the money has been
largely reinvested back into better services for children. The strings
attached to the MediCal billing option require this reinvestment in
California. Missouri and Iowa are among the states with the best track
record on reinvesting all or most of the new earnings from refinancing
services. |
The Cosmology of Financing
Reinvestment
Digging up new federal money is not the only, and not even the most
important approach to financing. Investing in prevention and reaping the
resulting savings for reinvestment is the most powerful and important long
term creative financing strategy.
California has demonstrated this kind of work with its investments in the
mental health system of care initiative, and in its investments in family
preservation services. Ventura county was the leader in systems of care,
now operating in nearly all counties. In family preservation, Placer
county, among others, has had the backing of political and budget
leadership to identify capture and reinvest related foster care savings.
Efforts to identify the savings from more broadly based prevention
investments in children are receiving attention as a result of the
Foundation Consortium's Reinvestment Project. The publication
"Capturing Cash for Kids" sets out a methodological approach to
doing this. And Santa Cruz and Ventura counties are actively working to
demonstrate that this can be done. California may turn out to be a leader
in this work if these efforts are successful. |
Trading Results Accountability
for Fund Flexibility
Still the best, after all these years, is the Iowa Decategorization (or
Decat for short) program. Established in 1987 with a simple two page piece
of legislation, the initial purpose was to reduce the excessive use of
group and institutional placements for children in the child welfare and
juvenile justice system. It gave considerable flexibility to locally
constituted Decat boards to use money flexibly across the whole continuum
of care for children in these systems. The law allowed counties who saved
money in deep end services to keep that money and use it for preventive
services like family preservation and respite care. And it included a
provision unprecedented in Iowa law - the ability to carry over savings
across fiscal years.
In California, the Systems of Care work has had similar success. Based in
the mental health system, systems of care has shown that the flexible use
of funds to produce community based wrap around plans of care can result
in better service at less cost. UC San Francisco's study showed that
system of care counties spent considerably less on group and institutional
care than comparable counties without system of care initiatives. |
Footnotes:
1. Capturing Cash for Kids, The Comprehensive
Integrated Services Reinvestment Project, March 1998, page 8.
2. Latest data available from the National Association of
State Budget Officers 1997 State Expenditure Report, May 1998.
California's FY 99 revenue increase was 6.55%, compared to a 6.8% increase in
corrections expenditures between FY95 and FY97.
3. The National Association of Child Advocates assembled
25 examples of the cost/benefit effects of prevention in "Ready Willing
Able," 1996. Another well know source of examples is Lizbeth Schorr's
"Within Our Reach," 1988.
4. When this is done, often half to two thirds of the
ideas that groups come up with are no cost or low cost.
5. Some of the best children's budgets in the country are
those created in California. Los Angeles County has produced a children's budget
for 20 years, the longest known period of any children's budget. Contra Costa
County and San Francisco has also produced excellent children's budgets. See
also "A Guide to Developing and Using Family and Children's budgets"
by the Finance Project.
6. Dammit
7. That's why they call it devilution.
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