State Actions to Preserve Federal Benefits for Foster Children

Introduction

Foster children are among the most vulnerable groups in our society, with approximately 200,000 youth entering foster care each year. It is estimated that 10 percent to 20 percent of those youth could be eligible for federal benefits ranging from Social Security to veterans’ benefits. State agencies often appropriate these federal benefits, which are intended for children in foster care (Seal, 2023). These benefits could significantly aid foster children as they age out of the system or support them during their time in care. Some states use these funds to offset foster care costs, leaving many youths without access to financial stability or support for education and housing. This practice has drawn widespread criticism for the lack of transparency and ethical implications of diverting funds meant for the child’s future or immediate needs. Most foster child beneficiaries do not receive their benefits directly and are not even notified that someone has applied on their behalf (Hager & Shapiro, 2021; Children’s Advocacy Institute, 2021). State agencies request to have benefit checks sent directly to them, essentially intercepting the full amount to reimburse themselves for the child’s foster care (Children’s Advocacy Institute, 2021). Although this process is legal, it is disturbing and harmful. States should safeguard these federal funds and ensure they are put in the hands of the children who desperately need them. This requires passing legislation to prohibit child welfare agencies from using these funds to pay themselves for caring for the child in foster care, as well as mandating periodic accounting and ensuring the child is notified of any benefits application being filled out on their behalf (Seal, 2023). These changes, coupled with appropriate transition planning, would enable foster children to receive their deserved funds and be on more solid financial footing if and when they age out of the system.

Stopping Agencies from Stealing Benefits

State foster care agencies are stealing federal benefits from foster children, typically $700 per month, to reimburse themselves for the children’s care. A 2022 report by The Marshall Project and NPR found that in at least 36 states and Washington, D.C., state foster care agencies search case files to find children entitled to these benefits, then apply to Social Security to become each child’s financial representative. Once this is approved, the agencies take the money, almost always without notifying the children, their loved ones, or lawyers (Seal, 2023). In 2018, state foster care agencies collected more than $165 million from these children (Hager & Shapiro, 2021). In 2020, 42 states reported using $251 million in Supplemental Security Income, Social Security Disability Insurance, Social Security survivor’s benefits, Veterans Administration funds, and child support to reimburse themselves for the cost of a child’s care (Seal, 2023). While children’s federal benefits represent less than three percent of funds expended by state child welfare systems, these benefits could be a tremendous resource to meet the needs of children in care and those exiting care or transitioning into adulthood (Seal, 2023).

While moderate reforms have passed in some states, the most comprehensive reform has been in Arizona with the passage of HB 2559 (Kelly, 2024). In addition to requiring the state’s Department of Child Safety to apply for benefits on behalf of the child if the child is entitled to them, the legislation requires department employees to identify a representative payee in conjunction with the child’s attorney. Allowing federal and state benefits to remain with and be used by the child can more directly impact the children for whom these benefits were intended, satisfying the unique, unmet needs of those who have a disability, prematurely lost a parent, or will be exiting care and transitioning into adulthood.

The fight continues, however, as some states are pushing back. California introduced a bill that would have prohibited agencies in 58 counties from stealing benefits from foster children, but Governor Gavin Newsom (D-CA) vetoed it due to “implementation challenges” that were not considered in the annual budget (Office of the Governor of California). This decision is particularly troubling, as 15 percent of all foster children live in California, and one-third of the Nation’s unaccompanied youth are in California (Todd-Smith, 2024). Ending benefit theft could mean millions in lost revenue, and it is key that states, especially those with high percentages of foster children, pass legislation quickly (Seal, 2023).

Mandating Periodic Accounting

States should require that benefits remain with the child, with strict oversight to prevent agencies from diverting these funds to safeguard foster children’s federal benefits effectively. States should consider enacting legislation that includes clear mandates for benefit protection, periodic reporting, and the identification of a representative payee. Such reforms would ensure that benefits served their intended purpose—supporting the child’s well-being and transition into adulthood.

Periodic accounting is a crucial element of this legislation and is needed to ensure that funds end up in the hands of deserving children. Massachusetts has introduced H. 157, requiring the state’s Department of Children and Families (DCF) to establish savings or other accounts to conserve the balance of children’s benefits to transition them into adulthood and independent living successfully. The legislation also requires the DCF to maintain a detailed accounting of a child’s benefits and to provide a quarterly report to the child and the child’s representatives when the DCF serves as representative payee. Similar action was taken with the passage of Arizona HB 2559 in 2023, which mandates annual accounting of a child’s federal benefits and notification to the child, the child’s attorney, and the child’s parents or guardians.

The passage of protective legislation is only the first step; ensuring that these laws are effectively implemented and enforced is crucial. States must establish clear guidelines for the management and oversight of foster children’s benefits, with mechanisms in place for accountability and transparency. Regular audits, reporting requirements, and penalties for non-compliance are necessary to prevent misuse of funds. Training for caseworkers and other involved parties on the legal and ethical responsibilities surrounding these benefits would also help ensure that the laws were upheld and the children’s interests protected.

Preparing Young Adults to Exit Foster Care

When foster children age out of the system after not having been permanently adopted, they have little support. They struggle to find safe and affordable housing, so homelessness and joblessness often become their reality. About 23,000 children nationwide age out of the system each year, and 50 percent of foster children have no income within their first four years of aging out (Morris, 2021). Children aging out of the system could greatly benefit from a cushion of money they have accumulated over the years. When federal benefits are protected, children can save money and pay for necessary services such as housing, education, or food when they are no longer in foster care.

Agencies also need to teach young adults how to manage their benefits, which is the next step. U.S. federal law requires a transition plan to be established six months before a youth’s 18th birthday, but requirements vary among states. States should require all child welfare organizations to require transition plans to include financial planning. This should include informing foster youth about financial aid and job searching and providing them with financial skill-building and mentoring (Longero, 2020).

Building broad-based support for protecting foster children’s benefits and preparing young adults to exit foster care are essential to the success of any legislative reform. This requires active engagement with stakeholders, including child welfare advocates, legal representatives, policymakers, and the public. Advocacy efforts should focus on raising awareness about the importance of preserving these benefits and mobilizing support for reforms that prioritize the rights and needs of foster children. By encouraging a collaborative approach, states can create a robust network of advocates dedicated to ensuring that these vulnerable children receive the financial resources to which they are entitled.

Conclusion

States must prioritize the protection of foster children’s federal benefits. These funds, intended to support the most vulnerable, are too often diverted by state agencies, leaving foster youth without the resources they desperately need. States must adopt comprehensive legislative reforms, as done in Arizona and Massachusetts, that mandate transparency and accountability to combat this problem. By ensuring that benefits reach the children for whom they are intended, states can help foster youth be better prepared to transition into adulthood with the stability and support they deserve. States should consider protective legislation, engage stakeholders, and enforce these measures. To ensure foster children’s benefits are preserved and protected, states should do the following:

• Pass legislation like Arizona’s HB 2559 to require that the state’s agency overseeing foster care inform the child and the child’s attorney when they apply for benefits on behalf of the child.
• Pass legislation that requires department employees to identify a representative payee in cooperation with the child’s attorney to ensure money is not pocketed by employees.
• Pass legislation like Massachusetts’s H. 157 to require the state’s agency overseeing foster care to establish savings or other accounts to conserve the balance of children’s benefits.
• Require state welfare organizations to include financial planning in transition plans for those aging out of foster care.
• Build broad-based support for protecting foster children’s benefits and preparing young adults to exit foster care by engaging all relevant stakeholders.