“Why are states stealing money from literal orphans?” That’s the question then-R Street fellow Shoshana Weissmann asked child welfare expert Maureen Flatley on a Federalist Society podcast earlier this year. The two could hardly contain their outrage as they described how states supposedly swindle foster children out of federal aid payments.
And now, thanks to a bipartisan chorus arguing that states are “confiscating” foster children’s assets and “stealing” their benefits, the Administration for Children and Families (ACF) has sent letters to 39 governors, accusing them of “intercept[ing]” funds intended for these children. In a press release issued Thursday, HHS secretary Robert F. Kennedy Jr. alleged that state child welfare agencies have been “stack[ing] the deck against children.” ACF assistant secretary Alex Adams had earlier told states that he would “work to curb this abusive practice.”
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How did we get here? Everyone from the America First Policy Institute to the Marshall Project has repeated these accusations in recent years. The reality: by serving as payees for children in their custody, states are complying with federal law and preventing fraud.
The controversy surrounds two benefits from the Social Security Administration (SSA): Supplemental Security Income (which supports low-income disabled children) and Social Security survivors’ benefits (which sends minors income after a parent dies). Both are designed to help cover everyday expenses—food, clothing, and shelter—to ease the financial strain created by a child’s disabilities or the loss of a parent’s income. Federal regulations require the benefits to be used for a child’s “current maintenance.”
When an eligible child lives with his parent, that parent is automatically designated as his representative payee. Federal law requires the parent to use the benefit to pay for the child’s care. When a child enters the state’s custody in foster care—typically due to abuse or neglect by their parents—the state becomes the representative payee and assumes the same responsibilities.
This isn’t a loophole or benefit-maximization scheme to “balance starved state budgets,” as Amy Harfeld, national policy director of the Children’s Advocacy Institute, alleges. States are simply complying with federal law. The money isn’t being diverted from foster kids “into state coffers to pay for anything from paper clips to prisons,” as Senator Elizabeth Warren has claimed. The SSA, “under certain conditions,” permits states to “deposit beneficiary funds into a general depository account (e.g., a state general fund) in order to route the funds to a subordinate agency’s subaccount (e.g., state child welfare agency).”
More than 20 years ago, the Supreme Court unanimously affirmed that states can use a foster child’s Social Security benefits to cover the cost of care. Having lost in the courts, an odd alliance of advocates has launched a new campaign. They argue that when public agencies become the representative payee, they are “taking disabled and orphaned foster youth’s assets behind their back” and forcing beneficiaries to pay for their own foster care in a way that is “immoral and predatory.”
But Social Security benefits are not an inheritance, and they are not an eligible child’s “property.” Eligible children don’t have separate accounts with trustees because these benefits were not created to serve as trust funds.
The SSA’s rules are clear: funds can be saved for the future only after the recipient’s current and reasonably foreseeable needs are met. When a child welfare agency, acting as the representative payee, uses a federal benefit for a child’s placement, food, therapy, clothing, and other necessities, that is compliance—not misuse.
(These SSA benefits are different from the survivor or compensation benefits that the child of a military veteran receives, which are administered under a separate set of rules and fiduciary expectations. Advocates have been happy to ignore this distinction to maximize public outrage.)
Some self-styled reformers have made dramatic accusations of fraud. Maureen Flatley has claimed that one child welfare agency was “issuing multiple Social Security numbers to the same kids so that they could make multiple Title IV-E claims to the feds.”
While the federal government should address fraud by state entities when it occurs, officials must be equally concerned with fraud perpetrated by parents and other relatives who misuse federal funds. Between 2015 and 2022, the Social Security Administration made an estimated $72 billion in improper payments. Since children make up about 13 percent of all beneficiaries, the scale of potential fraud is not trivial.
In one recent case, for example, a mother pocketed $86,000 from her children’s Social Security survivor benefits after they were removed from her custody. She reportedly explained that “although she used drugs, she did not use the money that was intended for the children on drugs” and “she continued to provide support to the children . . . by sending them money each month to buy school items and lunches.”
Preventing states from being representative payees makes fraud more likely, not less. Without states in that role, parents could continue receiving checks even while their children are in foster care. And while advocates say they want states to “save” these benefits for foster youth, most children in care ultimately reunify with their parents—who become the representative payee once again.
Such a policy could result in states cutting checks for tens of thousands of dollars to the same adults whose behavior prompted removal in the first place, with no guarantee that the conserved money will be used for their children’s needs. Unintended consequences are easy to imagine: a recent study found a 20–30 percent increase in emergency department visits for drug and alcohol use following SSI receipt.
Some advocates have called on child welfare agencies to open and manage individual savings accounts for every eligible child, including tracking deposits, receipts, and withdrawals for youth who may move placements repeatedly. But this adds a fresh layer of bureaucracy to systems already stretched thin. Arizona, for example, recently banned the use of Social Security benefits for foster care—and since it did not receive extra money to cover the gap, the state simply spent less on foster care and hired staff to handle the new accounting requirements.
Our child welfare system is not without fault. But the idea that agency leaders, policymakers, and state and federal legislators have conspired to steal from the country’s most vulnerable children betrays a shocking level of credulity. It’s time to focus on reforms that will help foster children instead of stories that make adults feel righteous.
Photo: Thomas Barwick / DigitalVision via Getty Images