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June 30, 1995

MARCEL YOUAKIM, et al., Plaintiffs,

The opinion of the court was delivered by: NORDBERG


 In light of the July 1, 1995 effective date of the HMR Reform legislation, the Court has held itself and the parties to a demanding schedule in this adjudication. Because the Court believes that it is important to have a ruling in this case before the legislation goes into effect, the Court has not had the opportunity to produce a full Memorandum Opinion and Order, but seeks to articulate in as much written detail as possible the basis for the findings of fact and conclusions of law that underlie its decision. *fn2"

 The Court has reviewed the motions submitted and the arguments of counsel, the exhibits received into evidence, all the testimony submitted to the Court in written and oral form, including written and oral direct, cross and re-direct examinations, detailed notes taken during the evidentiary hearing by the Court, the proposed findings of fact and conclusions of law submitted by the parties, the brief submitted by the amici curiae, the stipulations of fact submitted by the parties and a tape recording of the entire hearing. Where necessary, the Court made credibility determinations based on the witness' intelligence, ability and opportunity to observe, their memory and manner while testifying, any interest, bias or prejudice they may have had, and the reasonableness of their testimony in light of all the evidence presented in the case. The Court held an evidentiary hearing on June 15 and 16, 1995.


 Some explanation of the background of the case is required to understand the arguments of the parties.

 Before the initial litigation in this case, many years ago, the State of Illinois defined the term "foster family home" as "a facility for child care in residences of families who receive no more than 8 children unrelated to them . . . for the purpose of providing family care and training for the children on a full time basis." Miller v. Youakim, 440 U.S. 125, 130, 59 L. Ed. 2d 194, 99 S. Ct. 957 (1979). Thus, an individual providing family care and training to children related to the individual did not maintain a foster family home. Such children and caregivers were therefore ineligible for the federal foster care payments which were available through the states to foster family homes, even though a child would have been eligible for such payments if the child had been placed in the home of a non-relative. In 1976, a three-judge panel held that Illinois's practice of excluding relatives from the definition of foster family home conflicted with sections 601 and 608 of the Social Security Act and was therefore invalid under the Supremacy Clause of the United States Constitution. Miller v. Youakim, 431 F. Supp. 40, 45 (N.D. Ill. 1976).

 As part of its ruling, the Court entered a Judgment Order. The Order enjoined the State of Illinois from enforcing any law or administrative policy or procedure insofar as it excluded any child or foster care provider from eligibility in the Title IV-E *fn3" program or denied the full benefits available under that program on the basis of a familial relationship between the provider and the child. Judgment Order, P 4(a). The Order also required that Illinois pay full Title IV-E benefits to related foster children and parents if they were eligible to receive them. The District Court's conclusion that the Illinois statute violated the Supremacy Clause was affirmed by the Seventh Circuit, 562 F.2d 483 (7th Cir. 1977), and the Supreme Court, 440 U.S. 125, 99 S. Ct. 957, 59 L. Ed. 2d 194 (1979), both with written opinions.

 The instant litigation involves a dispute regarding the requirements of the 1976 Judgment Order. Plaintiffs claim that Defendant disfavors relative foster children and caregivers in the transition process between the old foster care system and HMR Reform. Plaintiffs contend that the transition process *fn4" established by the legislation violates the 1976 Order, the provisions of Title IV-E of the Social Security Act and the Due Process Clause of the Fourteenth Amendment. However, Plaintiffs do not challenge the authority of the State of Illinois to enact HMR Reform or any substantive portion of that legislation.


 DCFS is the Illinois state agency charged with investigating allegations of child abuse and neglect throughout Illinois and caring for children and families who are the victims of child abuse and neglect. *fn5" If DCFS determines that a child is in imminent risk of harm or cannot be safely maintained with her family, DCFS may take immediate emergency custody of the child. Within two days of taking emergency protective custody, a hearing must be held in juvenile court to determine whether the child should be made a ward of the court and placed in DCFS guardianship. Children in the custody or guardianship of DCFS are placed in substitute care placements, including relative homes, non-relative homes, group homes, or institutions.

 Children may be placed with relatives immediately by DCFS, even though the relative home is neither licensed nor approved as a foster home, as long as the relative home passes an initial "safety check." The Court will refer to this situation as placement in a "pre-approved" home. *fn6" In contrast, a child may be placed in a non-relative home only if that home has been licensed. Prior to HMR Reform, DCFS provided children placed in pre-approved homes the full foster care assistance of approximately $ 350 per child per month, despite the fact that the federal government did not reimburse Illinois under Title IV-E unless a related child was placed in a licensed or approved home. 42 U.S.C. § 672(c). Thus, from the point of view of the related foster care provider, there was no financial incentive to apply to be approved or licensed under the pre-HMR Reform foster care system. In addition, the difference between pre-approved, which means that the home is approved to take the child but not for reimbursement under federal programs, and approved, meaning that the State of Illinois was eligible to receive federal reimbursements under Title IV-E of the Social Security Act, was a distinction that understandably escaped related caregivers. The bottom line, however, is that many caregivers do not know whether or not they are "licensed" or "approved" as opposed to "pre-approved," a distinction which affects their rights in the transition to HMR Reform. *fn7"

 Children in DCFS custody or guardianship are assigned a case worker, who may be a DCFS employee or may be assigned through a private child welfare agency, such as Catholic Charities. If a child's case is assigned to one of the sixty-seven private welfare agencies doing work for DCFS, the agency not only provides a caseworker to manage the case, but also is responsible for sheparding the family through the licensure or approval process. *fn8" As of April 30, 1995, 47,007 children were in foster care via DCFS placements. Private welfare agencies managed 31,596 of those children.

 Prior to HMR Reform, foster children in Illinois who lived in private homes were categorized by the State in one of three groups. The children either lived in a licensed home, an approved home, *fn9" or a pre-approved home, with the pre-approved category being divided between those with applications for approval pending and those without. All children residing with non-relatives must live in licensed homes, as an unrelated foster parent could not, and can not under HMR Reform, care for a child unless the foster home has been licensed. The "approved" category was created in 1986, in part to make it easier for DCFS to place children in relative homes. As the Court has noted, DCFS may place children in the home of a related person immediately after the child is removed from her original home so long as the relative satisfies an initial safety check. Relatives may then apply to have their homes approved or licensed. A summary of the status of the 26,368 children in DCFS custody residing in relative homes as of April 30, 1995 (of the total of 47,007 children involved with DCFS) is presented here. Approved or Pending No Application Denied Total Licensed DCFS 2,027 1,086 5,402 11 8,526 Private Agency 9,507 4,766 3,544 25 17,842 Total 11,534 5,852 8,946 36 26,368

 Of the 11,534 children in the "Approved or Licensed" category, only 308 are in licensed homes. DCFS receives federal Title IV-E funds only for those children in licensed and approved homes, although DCFS has continued to pay the full foster care rate of approximately $ 350 per child per month to children in the "Pending" and "No Application" categories without federal assistance. The statistics with respect to the number of relative foster care homes in each category as of April 30, 1995 are similar to those with respect to the number of children, as demonstrated by this table. Approved or Pending No Application Denied Total Licensed DCFS 1,051 681 3,182 7 4,921 Private Agency 4,005 2,935 1,994 10 8,944 Total 5,056 3,616 5,176 17 13,865

 Prior to HMR Reform, relatives were favored by DCFS for foster child placements. DCFS actively recruited relatives as foster care providers. In 1986, DCFS created the "approved" category, in part to make it easier for DCFS to place foster children with relative caregivers. Between the promulgation of 89 Ill. Admin. Code § 335 (establishing the approval category) and HMR Reform, DCFS's preference for relative caregivers was consistent with State law. See 20 ILCS 505/7(b) (repealed by HMR Reform). Furthermore, to the extent DCFS encouraged relative caregivers to apply to be approved or licensed, DCFS usually encouraged the approval process, which was easier for both DCFS and the family involved.

 DCFS has struggled to carry out its responsibilities to the people of Illinois, due in large part to the enormity of those responsibilities. The number of children in DCFS custody has nearly doubled in the last four years, rising from 23,700 in June, 1991 to 47,000 as of April 30, 1995. Similarly, the number of children in state custody who are placed with relative care givers increased from approximately 5,500 in June, 1988 to over 25,700 in January, 1995, an increase of 367%. According to DCFS, this astronomical growth in relative care was primarily caused by a state law which established a preference for relative caregivers (and was repealed as part of HMR Reform), a broad definition of "neglected children" which included children living with relatives in the absence of a biological parent, slower rates of discharge from relative homes and the disparity between the payments available to foster parents caring for relatives and those available to non-foster parent caregivers who relied solely on other kinds of public assistance, including Aid to Families with Dependent Children ("AFDC"). In addition, the growth in relative foster care is partially due to the fact that DCFS sought out or solicited relative caregivers.

 The cost of maintaining DCFS is high, particularly because Illinois provides the full foster care rate of payment to foster children even in cases where the federal government does not partially reimburse the State for doing so, such as in cases where a relative cares for a child but does not maintain an approved or licensed home. Hawaii is the only other state that pays foster care rates regardless of the eligibility for Title IV-E reimbursements. DCFS estimates that the State of Illinois lost $ 16 million in federal funds in fiscal year 1992 due to its policies regarding relative foster care payments. As the Court has noted, much of this loss was caused by the State's inability to license or approve, and therefore qualify for Title IV-E reimbursements, many of the relative foster homes. Part of this problem is due to the fact that relative caregivers lack a financial incentive to pursue licensure or approval in the pre-HMR Reform system as their benefit remains constant regardless of their status. Part of the problem also lies with administrative difficulties at DCFS. For example, DCFS and the private agencies responsible for licensing and approval of relative foster homes have lost applications filed by some foster parents. DCFS claims to have introduced steps to increase its administrative efficiency, such as the introduction of new fingerprint reading equipment which will supposedly reduce the time it takes to consider an application for licensure, but no evidence indicating any measurable improvements was submitted to the Court.

 After July 1, 1995, the licensing requirements under HMR Reform are the same for relative and non-relative caregivers and slightly more stringent than those in place prior to HMR Reform. Furthermore, HMR Reform changes the prior "official" policy of requiring foster care providers to apply for approval or licensure as a condition to keeping a child. *fn11" Under HMR Reform, the caregiver has the option to pursue a license or not. Therefore, a caregiver who is not capable of becoming licensed may still have a child placed in his or her foster home, but the caregiver will not receive foster care payments.

 Those homes that are already licensed will not have to re-apply until their current licenses expire, despite the changes in the substantive licensing requirements. Those homes that are not yet licensed, however, which are mostly relative homes, must apply for and obtain a license to preserve their foster care payments beyond September 30, 1995, or in many cases, beyond July 1, 1995. For those foster children and foster care providers who will lose foster care payments as of July 1 or September 30 due to the implementation of HMR Reform, the amount of the loss will depend on the number of foster children involved. Although foster care payments will be eliminated for all but licensed homes, the State will continue to provide assistance to unlicensed homes via the Department of Public Aid and the Aid to Families with Dependent Children programs. Because these programs utilize an "economy of scale" theory, the payments increase at a decreasing rate for each additional child involved. For example, for a single foster child in Cook County, an unlicensed relative caregiver will receive $ 252 per month, or 72% of the approximately $ 350 per month they had received as a foster parent. An unlicensed foster home with eight children (the statutory maximum) would receive $ 1,165 per month, or 42% of the approximately $ 2,800 it would have received in the foster care program. *fn12" Of course, relative caregiver may receive the full foster care benefits upon receiving a license as a foster care provider. The foster care payments do not incorporate economies of scale because obtaining and maintaining a license entails significant fixed costs, including maintaining certain housing standards. According to DCFS, the additional requirements placed on licensed foster homes, including having a telephone, a satisfactory water supply, and undergoing foster care training as well as a criminal check, justify the additional payments made to licensed caregivers as opposed to those who have merely passed the safety check.

 DCFS began the implementation of HMR Reform by holding briefings for agencies and advocates in March, 1995. In April, 1995, DCFS provided current relative caregivers with initial written notice of the HMR Reform Plan. On April 28, 1995, DCFS issued a second notice of HMR Reform, including an application for licensure in notices sent to approved homes and homes with applications for approval pending. On approximately June 12, 1995, DCFS issued another notice to relative caregivers. This time, however, separate notices were sent depending upon whether the home was approved, pre-approved with an application pending, or pre-approved without a pending application. *fn13" These three notices were the only notice of HMR Reform sent to relative caregivers. Applications for licensure were not sent to pre-approved caregivers who did not have an application for approval pending. These caregivers were instructed to obtain applications from their case worker.

 Many applications for licensure filed by relative caregivers before July 1, 1995 will not be decided by September 30, 1995. As a result, many foster caregivers will lose full foster care benefits at that time. Under HMR Reform, some of those applicants, as well as some of those who lost benefits as of July 1, 1995, will lose benefits even though they satisfy the licensure requirements under HMR Reform. In such cases, DCFS will not pay benefits retroactively.

 DCFS intends to notify applicants for licensure of its decision with respect to their application by mail. If an application is rejected, the notice will include a written reason for the rejection. Under HMR Reform, there is no right to an appeal of an unfavorable decision. Appeals are available in only two situations: (1) to those homes that lose benefits and claim that the loss is the result of a DCFS mistake related to whether or not the home is already licensed; and (2) to those approved homes who lose benefits and claim that the loss is the result of a DCFS mistake related to whether an application for licensure was made in time (by June 30, 1995) to preserve benefits until September 30 or until a determination by DCFS, whichever occurs earlier.

 The financial implications of HMR Reform are significant. DCFS estimates that HMR Reform will result in a net savings to the State of Illinois (and net loss to benefit recipients) of $ 44.4 million, consisting of $ 60.8 million in savings at DCFS offset by ...

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