The Short Answer
1. Make sure the action agenda drives financing and not the other way around. 2. Consider financing as a matter of packaging together many different resources. No single financing source will do the job. 3. Stretch your resources by using them to leverage other resources. Seek funding options in the following priority order: < no-cost, items < items fully funded by other partners without your dollars < items funded jointly with your dollars and other funds, and < items funded solely with your dollars. 4. Consider each element of your plan one at a time and consider all the possible ways that element could be financed. Use the SIMPLE FINANCING SELF ASSESSMENT Questionaire to take a pass at the following types of financing and their many subcategories:
- Redeployment: Using money and non-monetary resources already in the system.
- Revenue: Finding new money and resources.
- Restructuring: Changing the laws of the universe which drive the use of money and resources.
5. Put the financing ideas into a coherent plan, assign responsibility to pursue opportunities and get started.
- Redeployment (using the money already in the system)
(1) A crucial part of developing any action plan is consideration of how the elements can be funded. It is beyond the scope of this guide to fully explore this part of the work. The overall plan should include four types of action items:
- no-cost, items
- items fully funded by other partners without your dollars
- items funded jointly with your dollars and other funds, and
- items funded solely with your dollars
The object of the game is to minimize items in the last category. With regard to joint funding, it is important to consider the ways in which available funds can be used as match for open-ended federal funding under MediCal (Title XIX) and Federal Foster Care Title IV-E). These sources can sometimes be used to help pay for services with a medical or therapeutic component, or which address the needs of children at risk of abuse or neglect. Don’t let the availability of such match determine what you decide to fund. But for things you want to fund anyway, this can have the effect of multiplying your money. (3) In doing this work it may also be useful to develop a map of how funds are now deployed for services to young children and their families. A growing number of counties in California have developed childrens budgets to provide such a picture. Prop 10 Commissions may wish to supplement these efforts by developing an analysis specific to services for children prenatal to age five. (4) The Cosmology of Financing or Paying for reform of the family and children’s service system (Excerpted from the “What Works Policy Brief: Financing Reform, Reforming Finance,” Foundation Consortium, January 2000). 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: Investment and Reinvestment: 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. 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 occured 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 sevice, 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. 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.