Trading Outcome Accountability for Fund Flexibility

Mark Friedman Publications, RBA Resources Leave a Comment

Negotiating New State Local Deals for (Core) Family and Children’s Service Dollars


A national debate is underway about the limits of government responsibility and the roles of federal, state and local governments in meeting those responsibilities. A central theme in this debate involves moving responsibility closer to the problems, giving states the federal funds now devoted to social problems and allowing those problems to be addressed without “excessive” federal control. Within many states there is a corresponding dialogue about moving money and responsibility to counties or subcounty communities.

What is contemplated, under the heading “devolution,” is a profound change in the relationships between and among levels of government. For some participants in this debate, the change is about going back to an earlier and simpler time in our history where communities took ownership of their problems and worked to solve them within the constraints of local values and local resources, and without much in the way of outside money or direction. Others see the return to community control as opening the door to renewed neglect of poor and vulnerable populations by state and local governments and the loss of hard won standards established in federal and state law.

As with all such debates there is reason to give some credence to both views. The question which needs to be answered is less whether we as a nation should embrace this direction for change (the die is cast for extensive experimentation if nothing else), but whether we can take these next steps in a way which preserves the best of community responsibility without the worst of community abuse, with the best of established standards without the worst of intrusion and red tape. Can we, in other words, “devolve” responsibility for problem solving in a way which leads to solved problems?

We believe the answer to these questions is “probably yes.” We believe that, if it is done well, such changes may bring about not just a new sense of local ownership but better outcomes for children, families and communities. Creating local ownership, accountability, and ultimately better outcomes, involves, in part, creating new forms of local “governance” which cut across traditional lines of state and local bureaucracy and involve a broad spectrum of community leaders in the challenge of improving outcomes. The new deal which is envisioned in the best of the “devolution” scenarios is between the state and such local governance entities. But the question of whether this new approach to accountability produces positive or negative results depends on how this “new deal” is structured and implemented. And this matter of structure and implementation, in turn depends on the vitality and viability of a simple concept at the heart of any deal making: the concept of negotiation.

II. The Idea of Negotiation

This paper is about the kind of negotiation we think will be necessary to pull off the best of devolution, to create the kind of new relationship which has a chance to improve outcomes for children, families and communities. While we will focus in this paper on the questions of changing state and local relationships, the principles and approaches have direct applicability to changes in county community relationships, and to whatever is left to be debated about the changes under way in federal state relations.

The starting point for any discussion of changed state and local roles is the seemingly obvious recognition such change involves (at least) two parties, and that they each have legitimate interests which must be carefully considered and balanced in order to create a stable, mutually beneficial new relationship.

The idea that negotiation is the right approach is not one that is universally shared. The debate about devolution tends to gravitate to one of two rhetorical and undesirable extremes. At one end we have those in the role of devolver, the state (or federal) government whose primary interest is in shifting responsibility and limiting liability. This is the “dumping” camp, the group that wishes to find a clean break with the old system, which allows a simple buy-out of past roles, in exchange for some simpler set of fiscal constraints. The best of these people believe that the devolver should have less direct control and that local people will do better, even with less money. The worst of this group harbors the cynical view that local people will do no better and may do worse, but at least the blame for failure will now rest at the local, and not state, door.

At the other extreme are those at the county or community level who calculate the enormous sums that the state is spending on social problems in their county/neighborhood (from welfare costs to prison costs) and see the process leading quickly to a check for the full amount, no strings attached, “thank you very much.” In this case the neighborhood view is that this is “our money” and we should be able to spend it as we see fit. State standards or restrictions have no place.

Neither of these extreme views can stand the test of public scrutiny. State officials cannot wash their hands of responsibility for social problems, and local officials can not be given completely unrestricted discretion to spend state dollars. The answer to new relationships lies not at these extremes, but in the middle ground. And the middle ground can only be found through open, good faith two party negotiation.

The use of negotiation is not just about settling differences between those with mixed agendas or extreme views of state local relationships. There are many states, counties and communities in the country which are engaged in serious good faith discussions of how to craft the right balance between state and local roles. These processes are grounded in a common set of values and principles about family focused, less categorical, prevention oriented community based service. But, in truth, these processes have often bogged down when the discussion turned from values and principles (and demonstration projects), to moving serious dollar responsibility to the local level. Part of the process of breaking this logjam lies in the recognition that local governance entities require time to develop to the point where they are ready for serious (i.e, non-project) dollar responsibility. The idea that such relationships must be negotiated is the other tool to break the logjam. Unless, and until, state/local relationships are seen as negotiated relationships, many state efforts will remain stuck at the stage of rhetorical commitment to local accountability, without any change in real accountability or performance. And the promise of a new relationship which improves outcomes may be lost to the extremist camps discussed above, or lost altogether.

In the sections which follow we look at what elements need to be addressed in putting together a new deal, some of the issues associated with negotiating each of these elements, some ideas about the process for experimenting with negotiation, and finally some examples of new relationships. The processes used for negotiation and the agreements which emerge from such negotiation will vary from place to place. We have much to learn about how these concepts can be best applied in practice. As we gain experience with these new state local agreements, we hope to learn about what additional elements belong in the negotiating framework.

III. The Elements of a New Deal

What are the elements of a new state local deal which allows for the exchange of outcome accountability and fund flexibility? The following sections outline six basic elements which must be addressed. Taken together, these elements make up a kind of negotiating “protocol” which could be used to structure a state local negotiation process. It is important to understand that this is not the definitive, exhaustive list. An essential first step in any negotiation process is agreement about what is to be negotiated, and this list is intended only as a starting point in answering this question. Each state and local partner will need to take an active role in developing a specific list for their use, adding, subtracting, changing, or maybe even starting over with a blank sheet.

A word about packaging is in order. A “deal” is a package of agreements which are interlocking, interdependent and must be taken as a whole. The package nature of this work is crucial. It is not possible to talk about a deal in which only one or two elements are addressed and remaining crucial issues are left out. For a deal to be successful, it must be viewed as complete by both (all) parties. All essential elements must all be present, and settled to the reasonable, if not full, satisfaction of the parties. This may seem obvious, but, in practice it is not. The single best way to sabotage the deal making process is to make sure that some essential element is not addressed, or the whole set of elements are never on the table at the same time. We clearly recognize this principle in our private lives. We understand what it means to approve a package agreement for a house or a car. But public deal making of the type we are discussing here is less well understood, and less commonly practiced. The negotiating elements discussed below must be viewed in this way, not as isolated issues which can be taken in sequence over months or years, but as the components of an agreement, which may change over time, but which can only function as a whole.

A. Who is Accountable?

Creating a Framework for Cross Systems Governance

If we are trading fund flexibility for outcome accountability, who, at the local level, is the party accountable for outcomes? Who is to be responsible for the prudent use of new fund flexibility? Who, in other words, is the “second party” to the new agreement?

If we seek local accountability for core dollars and improved outcomes for children and families, what local entity can take on this kind of accountability? In most states, counties and communities, there is now no single entity which recognized as accountable for the well being of children and families across categorical program lines. The Health Department is responsible for health; the Board of Education for education; the Department of Social Services for welfare, and so on. These agencies have interlocking and interdependent roles, but they are not usually the province of any single level of government. And, even where they are, they often have overlapping roles and inconsistent jurisdictional boundaries.

The history of the current categorical system is a long and complex one. It has grown up over 60, 200 or 2000 years, depending on your point of view. The results however are unambiguous. We have a system under which the whole child, or the whole family is never the province of anyone, inside or outside of government. Each agency can draw a line around some specified programmatic responsibility and point to other agencies when that boundary is breached. The result is a system where many agencies can deal with the same family and the same problems without even knowing it; where problems of children can be compartmentalized and a “cure” sought, without regard to the child’s place in the family or community. Often these categorical structures and strictures have been created or encouraged by federal or state program or funding categories. We have created a system where we know in great detail how money is used for what program, but not how this relates to the bottom line results for which we created these programs in the first place.

We have learned that this approach does not work very well. Many communities have spontaneously acted to create a structures which provides common ground for the many different players with responsibility for children and families. These structures have come into existence under the banner of coordination or collaboration, as a way to keep people informed and to allow the categorical agencies to act with the least overt conflict. Sometimes the impetus is the need to coordinate the work of separate agencies on behalf of a single child whose needs cross over agency lines. As these bodies gain experience there is a natural move to more challenging problems of coordinating policy, and eventually coordinating agency actions on matters of common interest such as grant applications for state or foundation funding. Coordinating bodies may become the sponsors of plans for funding sources (like Family Preservation and Support Act funds) and may even administer or allocate such project funding.

Over time, it is possible for such entities to take on actual “governance” responsibility for the service system as a whole and operate with formal authority for the functioning of the entire system. When such entities become broad enough to include community and parent representation, and have the formal sanction of the relevant political leadership, they may have both the credibility and legitimacy to act as true governance entities. This process of development is about building trust and building capacity and takes time. If we have learned anything about cross systems governance it is that it is evolutionary and must follow some developmental track like the one we have just described. Attempts to shortcut this development have consistently lead to failure. A first corollary to this view of governance is that such growth must be nurtured. A second corollary is that development can not be shortcutted. The “walk before you run” image fully applies. This becomes most evident and most important when it is applied to the business of money responsibility. Responsibility for allocation and oversight of funds is an advanced responsibility which requires that governance entities have developed to an advanced state, both in terms of trust, and also in terms of administrative and organizational capacity.

The most appropriate second party to the negotiation process, addressed in this paper, is a governance entity which has developed to the point that it is ready to take on responsibility for planning and overseeing the allocation of significant program funding. This does not mean that the governance entity should directly administer the funds and deliver the services. In fact, this is a potential trap. The business of managing services can fully absorb the attention of a governance entity and leave little time for the more important tasks of planning for and steering the system as a whole. Governance entities which are second parties to fund flexibility deals should function as the board of the directors for the service system, not the operational managers of the system’s component parts.

The question then involves thinking about who is now or can become accountable for child and family well being across agency and program lines and whether they have developed to the point that they can take on this kind of responsibility? There is a growing body of literature on what it takes to nurture governance entities through the early stages of their development. The balancing act required in negotiating a new state local fiscal deal involves finding or developing a structure which has the “maturity” and capacity to manage the fiscal and fund flexibility responsibility which comes as part of the trade for outcome accountability. And the deal which is struck must recognize the continued development of local governance entities and support the process of building their capacity.

B. For What Outcomes?

Creating a Framework of Outcomes and Indicators for which to be Accountable

If we are trading fund flexibility for outcome accountability, what do we mean by outcome accountability?

The term “result” or “outcome” is used today in many different and often conflicting ways. Much of the national discussion of family and children’s services reform uses a wide range of terms almost interchangeably, terms like outcomes, results, goals, benchmarks, milestones, indicators, and performance measures. In order to have a useful discussion of new state local relationships we need a clear and consistent approach to terminology. In the sections that follow we will use the following set of internally consistent definitions. :

! An “Outcome” or “Result” is a condition of well-being for children, families, or communities. Outcomes or results are what we want at the bottom line for our children, our families, and our communities. They are conditions like “healthy children,” “safe neighborhoods,” “children ready for school,” and “children succeeding in school.” Outcomes are understandable by lay people. They are about the fundamental desires of citizens and the fundamental purpose of government. They are above and beyond the jargon of bureaucracy. Outcomes, by their nature, cannot be “owned” by any single government agency or system. They cross over agency and program lines.

! An “Indicator” is a measure, for which data are available, which helps quantify the achievement of outcomes. Usually, there is no single data element which captures outcomes such as “healthy births,” or “children ready for school” or “safe communities.” It is, however, possible to identify measures which, taken together, give us an approximation of whether we are achieving an outcome. The rate of low birthweight babies, for example, helps measure achievement of healthy births. Surveys of reading readiness at kindergarten entry can help measure readiness for school. An essential element of this definition is that the data for an indicator are currently available. This is not about things we wish we knew, but about real world information actually produced. As our data systems get better we can add to the list of indicators.

! A “Performance measure” is a measure of the effectiveness of agency or program service delivery. This is a measure of the system’s production line and how well its services and programs are working or not working. This includes such information as rates of timely investigation of child abuse, or applications for assistance processed on time. These are the data sets we need to run our programs well, but they measure how well our responses are working, not the results we are trying to achieve.

The most important distinction in this set of definitions is between ends and means. Outcomes and indicators have to do with ends. Performance measures and the programs they describe have to do with means. The end we seek is not “better service” but better outcomes. The distinctions will help us describe relationships built on clear thinking about what we wish to achieve and the strategies we choose to get there.

The starting point for thinking about new state local relationships is a framework of outcomes and indicators which allows negotiations to be framed in terms of improving the well being of children, families and communities. These negotiations – and the resulting agreement – will almost certainly deal with program performance measures as well. But negotiations which are completely preoccupied with existing program categories and processes may end up focusing on the narrow questions of improving program performance, to the exclusion of the more important and more difficult question of improving outcomes. In the absence of an outcome/results “compass” state local agreements will tend to dwell on question of how to run the current system better – or manage the competition for allocated dollars – not the true bottom line of improved conditions for children, families and communities.

There is some growing body of experience with creating outcome and indicator frameworks. Oregon’s “benchmarks,” Minnesota’s “milestones,” Georgia’s or Missouri’s “results,” all provide excellent reference points for creating similar structures in other states, counties and communities. Some guidance is available in the reading list in Appendix F on the processes used to create these state structures. There are at least two questions which have direct bearing on the question of negotiating state local relationships. How broadly based is the process used to establish the outcome/indicator framework at the state and local level? And how much latitude should local partners have to diverge from an established state list The answers to these questions are simple in principle and complex in application. The development of both the state and local outcome framework should be as broadly based as possible. Since this is the starting point for many of the changes in the accountability structure envisioned in the new relationship, it is essential that there be broad and deep support for the framework. Ultimately, the outcomes and indicators should have an established political base in both the executive and legislative branches. The principle variable in this work is time. It is possible to structure an inclusive and politically sound process in as little as 6 to 9 months. At the other extreme is Oregon’s process which took years to fully develop and continues to change.

The question of local variability is also simple in principle. There are two mainstream approaches. The first is Oregon’s which sets out a very complete set of indicators and allows counties, cities and communities to choose the most important from this list. A second approach creates a state core list which is designed to be common across jurisdictions, with the provision that local collaboratives can add to this list in any way they wish. In this latter system the process of subtraction is somewhat harder but not ruled out, and is based on some common sense reading of what outcomes or indicators lack relevance in total or in their stated form. If the core list approach is taken, it is essential that the list be a short one, and the process for developing it be very broadly based and inclusive.

A second matter closely related to the establishment of an outcome and indicator framework is the question of how success is measured within the newly created “deal.” As we will see later, when we talk about risks, rewards and penalties, the definition of “success” is more than an academic matter. There is an entire literature about the conceptual and technical matters at issue here. For purposes of our discussion, there are three approaches which need to be considered in structuring an accountability/flexibility trade.

(1) Established Standard: The most common way to measure success (or compliance) is in relation to an established standard. Success is defined in relation to whether the standard has been met or not. A good example of a performance measure standard is the requirement that all reports of child abuse be investigated within 24 hours. There are many other examples of established program performance standards. It is somewhat less appropriate to think of outcome indicators in terms of standards and there are few examples of established indicator standards. Indicators, such as high school graduation rates or rates of abuse and neglect are sometimes discussed in terms of a desired condition for all children. (e.g. All our children should graduate from high school. All our children should avoid drugs. No child should be abused.) Fixed numerical measures sound arbitrary and don’t quite work as “standards.” One example of an indicator where a credible standard has been set might be the full immunization of children, as an indicator of child health. (e.g. the percent of two year-olds who are adequately immunized should be at or near 100% by the year 2000)

(2) Point to Point: A second approach is “point to point” improvement. Success is defined as an increase (or decrease) between two points in time. Here we have many examples of point to point success defined for both indicators and performance measures. We succeed if the infant mortality rate in 5 years in lower than today. We succeed if the foster care caseload goes down in the next 18 months.

(3) Baseline: A third approach to measuring success involves the creation of a baseline. Success is defined as “beating” the baseline. This approach is much more complicated, but also much more realistic in complex systems with a defined trend line. Baselines recognize that sometimes the most that can be expected in the short run is to slow the rate at which problems get worse.

Of these we have a marked preference for the baseline approach. (The Iowa, Maryland and Michigan fiscal deals all use some form of baseline approach to set allocation amounts.) Absolute standards are hard to establish, and sometimes hard to justify or sell. Point to point approaches can be a formula for unrealistic expectations and a set-up for failure for local governance entities. There is a long history of government enterprises which promised to achieve absolute improvements from point A (today) to point B (3 years from now) and couldn’t deliver. While baselines take more time to create and explain, they do a far better job of capturing the complexity of social problems and are much more fair references against which to measure success.

C. With What Money?

Creating Funding Packages with Natural Incentives for Better Performance

The deal we are talking about involves new flexibility in the use of money. What money are we talking about? The answer to this question will dictate much about what has to be settled in the next several sections

1. Natural Clusters: The most useful way to think about the money part of a new deal is in terms of “natural clusters” of funding. What do we mean by natural clusters of funding? These are funds or expenditures which are connected in some way which allows us to think of them together. Two kinds of connections are most important: The first is the connection between prevention and remediation expenditures, such as expenditures for out of home care (foster care) and the expenditures dedicated to preventing (inappropriate) out of home care, such as family preservation. This natural cluster of funding has been the starting point for many of the new state local agreements which are now most advanced, including the Iowa Decat program and the Maryland agreements discussed below. Another example of a prevention/remediation cluster would be welfare payments and the job training and placement funding devoted to helping people get off welfare.

A second kind of natural cluster involves the connection between expenditures for a common service or common function, such as all the funding in the state budget for child care; or all the funding for intake for out of home care in the child welfare, juvenile justice, and mental health systems. Here the performance incentives involve some possibility of saving money through merger of services, economy of scale or other service delivery improvements. (See Appendix D.)

There are two reasons for thinking about “natural clusters” as a basis for structuring the agreement. First, if the clusters are well chosen they provide a built in set of incentives to produce better results. If we save money on remediation, we can use those savings for more prevention. If we can find a more efficient way to provide intake services, we can keep some or all of those savings for other improvements in the system of services and supports for children and families. If we can be more efficient or thoughtful in the use of child care funds, we can help more people attain self sufficiency, improve child development or meet other needs of the community more effectively.

The second reason is that we need a way to approach fund “devolution” incrementally. It is a daunting challenge to think about throwing all the money in a single pot and striking a single deal. Every fund source brings with it a long history of conflicting priorities, issues about standards, and, of course, a constituency. There are those who perhaps think it best to bulldoze past all this complexity by packaging disparate fund sources and letting the chips fall where they may. We believe that a better approach allows the new state local relationship to grow over time as experience is gained and trust is earned. Funding clusters provide a natural set of building blocks for the financial components of this incremental approach.

2. Core vs. Project Dollars: The most interesting new deals involve core dollars, not project dollars. What do we mean by project and core dollars? Project dollars tend to be small-scale amounts for discretionary or demonstration services which may or may not exist in every jurisdiction. They relate to services, which, while important in their own right, lie at the fringe of the primary systems of care for children and families. In contrast, core dollars are expenditures which exist in every jurisdiction and which represent a mainstream commitment of state and/or local government to services and supports for families and children. Core dollars include such potential sources as funding for foster care payments and staff, welfare payments, or child care funding for welfare and working poor families.

Giving project grants (of almost any size) to local governance entities does not change the nature of local responsibility, nor does it provide sufficient resources to allow local decision making to have a meaningful impact on child and family outcomes. Transferring control of core dollar resources, on the other hand, signifies a major change in nature of local accountability, and a potential new way of solving the problems for which these funds were appropriated. We have plenty of examples of local governance entities receiving and administering project dollars. Competitive grant processes often suffice for creating the contractual “negotiated” relationships which allow these funds to be distributed. But they are qualitatively different from any similar process applied to core dollars.

There is, of course, not a sharp unambiguous dividing line between core and project dollars. And this ambiguity has some benefit. There is good reason to believe that control of project dollars plays a useful role in building the capacity of local governance entities to take on larger responsibility for the mainstream systems of care. But project dollar responsibility is the starting point, not the ending point for new state local relationships. State local relationships that have been built around only project dollars have a tendency to get stuck there. Relationships that are built on core dollars – such as the Iowa Decat system, or the Virginia Comprehensive Services Act – represent substantive redefinitions of state/local accountability, and provide a basis for further growth and change.

It is worth noting again, that local governance “control” of core dollars does not mean that governance entities should become a new level of super, unified monolithic bureaucracy. Local governance entities can exercise control without actually directly managing the day to day operations of core children and family services. The purpose of trading for flexibility over control of resources is to allow governance entities to make sense out of resource utilization for the specific purpose of improving outcomes for children and families. This approach takes on meaning only when mainstream resources are on the table.

3. A Word about Fund Pools: The discussion of new fiscal deals is often closely connected to discussion of “funding pools.” These are arrangements where money, previously segregated in categorical line items is merged with other funds in a single account. The most important thing to recognize about fund pools is that they are means to an end, not an end in themselves. The new state/local fiscal deal may, or may not, take the form of a fund pool. The important point is not whether a fund pool structure is used but what conditions or structures go with that pool. In other words, what does the deal which is wrapped around the fund pool look like? We will address this question in more detail in the sections which follow. At the bottom line, the contributors to any funding pool have the right to negotiate the terms of their contribution in relation to certain standards and safeguards and other negotiation elements discussed in this paper. This may, in fact, be the only feasible way to break through bureaucratic resistance to the use of fund pool structures.

D. With What Standards and Safeguards?

Reaching Agreement on Performance; and Reasonable Boundaries for Responsibility

Standards come in two types. Standards can mean the minimum acceptable level of performance or behavior. Minimum standards address such basic matters as the misuse or diversion of funds (e.g. Funds may not be used for purposes unrelated to family and children’s services.) or minimum service performance levels which must be met or exceeded. (e.g. Investigation of all child abuse reports must take place within 24 hours.) The term “standard” can also mean a sought after or optimal level of performance. (“Our community standard is a 100% immunization rate.” “All of our children will graduate from high school.”)

The matter of standards is closely linked with the matter of money, for the simple reason that all fund sources have some basis in law which prescribes purpose and acceptable use of funds. This ingrained system of accountability by fund source has been the most important contributor to the current categorical system of services for children and families. But not all elements of this accountability structure are without legitimate purpose, and not all can be thrown overboard in constructing new state local relationships. The process of reaching agreement in a state local deal is about creating a new accountability structure to replace the old structure.

The problem is that we have become so good at being accountable for individual categories (the trees), that we have failed in our accountability for the system as a whole (the forrest). As fund sources are added to the deal, it will be necessary to examine each and determine which of the current requirements should (or must) be continued, and which should be subsumed under a more broadly based form of outcome or performance accountability. This is one of the most important parts of the negotiation process, because those who have legal responsibility for funding contributed to the deal cannot release the second party from requirements attached to those fund sources, without some suitable new accountability arrangement in place. It is, of course possible to rewrite all current restrictions into the deal, but such action would defeat the purpose of a flexibility for accountability deal. The question is one of creativity and balance. The answer lies in specifying what needs to be achieved, and leaving the how to achieve it, as much as possible, to local discretion.

Performance minimums are one form of safeguard, but there are many other matters which the parties need to address. Both parties have legitimate interests to protect, financial and otherwise. And there is a need to think about the boundaries of liability for each. This is most important with regard to financial liability. In circumstances where fixed payments are made to the second party for what may be open ended social needs, there must be agreements on when and how such payments are adjusted (i.e. inflation or population growth; annually) and where there are carveouts or exclusions which must be known (i.e. local governance boards will only be responsible for the first $80,000 of an institutional placement).

The deal should establish an outcome/performance basis for accountability which allows the new deal to meet the legal and political tests necessary for support. Crafting a workable answer to the standards and safeguards questions may be the make or break part of the negotiation process.

E. With What Risks, Rewards and Penalties?

Creating Incentives and Defining Risk

Closely related to the question of standards is the question of rewards and penalties. Not all contracts need to have explicit reward and penalty provisions. If the parties make good choices about the funding clusters included in the agreement, then much of the work on incentives may already be done. But, several issues will still require some level of consideration.

At a minimum there needs to be some specificity about the possibility that one or the other party fails to live up to their commitments, and the consequences which derive from this circumstance, up to and including termination of the agreement.

Some proponents of outcome accountability have argued that new relationships are meaningless without penalties for failing to meet minimum outcome or performance standards. The role of penalties can become more important if agreements are not designed to go through some sort of periodic renegotiation process and there is no ready way to terminate relationships for unacceptable performance.

Managed care is another form of risk “contracting.” There is increasing interest in the use of managed care and other risk based contracting structures for services outside the health field. The issues associated with applying managed care contracting principles to relationships between levels of government are effectively the same as those involved in negotiating a trade of outcome accountability and fund flexibility. It is beyond the scope of this paper to take on the issue of managed care or privatization directly. Suffice it to say, that managed care relationships are but one of many different forms a new state local relationship might take. The use of financial risk components in managed care or other agreements hinges on whether the second party to the negotiations has some form of independent revenue raising capability. If not, the question of real financial risk is moot, and fiscal incentives must involve incentives associated with the fixed funding in the agreement.

F. For What Period of Time?

Creating Room to Succeed

As it turns out this is one of the sleeper questions in negotiating new accountability relationships. Most government contracting is set up as either short term contracts (usually corresponding to the one or two year budget cycle); or, in the case of intergovernmental agreements or memorandum of understanding, as ongoing relationships with no set termination point. Neither of these extremes may be suitable for an accountability relationship based on outcomes. If the purpose of the new relationship is to create financial incentives for prevention, and therefore for lower long term cost, then the second party must have a financial interest for a period which spans the likely financial effects of prevention investments (what we will call the “threshold period.”) There are very few social programs which show such effects in a one or two year period. New relationships which are seen to exist for some period of time less than the threshold period can actually create perverse incentives to cash in short term solutions, cream client populations or restrict service expense, because the contract period itself denies access to true prevention related savings.

On the other hand, agreements which are structured as indefinite relationships may create the expectation that the contract can never be terminated and therefore any standards which may have been negotiated are irrelevant.

Clearly, the negotiation process must balance these two natural extremes. The new negotiated state local deals must be established as multi year agreements which recognize the long term nature of the challenge to improve outcomes for child family and community well being. They must also provide for some periodic review which allows both parties an effective means to exit the agreement if performance of the other party is not satisfactory.

IV. The Results of Negotiation: examples of state/local deals

There are many states involved in developing new frameworks for state/local accountability for family and children’s services. Among those most active are California, Iowa, Georgia, Maryland, Michigan, Missouri, North Carolina, Oregon, Vermont, Virginia and Washington. In this section we take a look at the new deals in two of these states, through the lens of a negotiated trade of outcome accountability for fund flexibility.

A. Iowa: Child Welfare Decategorizaton Initiative

Iowa’s “Decat” Initiative, established in 1987, provides a framework for a different kind of state local programmatic and fiscal relationship. (See Appendix E) In 1995, the initiative operated in counties covering 60% of the state’s population, and coverage of all counties is expected over the next several years. Local Decat boards have been formed for each participating county (or in some cases groups of counties) with representatives from county and community leadership, including elected leaders, representatives from the child serving agencies and from the business and private sectors.

These boards have been given responsibility for finding the best ways to care for children at risk of, or in need of, out of home care. Working with the actual child welfare system funds provided in the state budget, the boards are empowered to create a system of care which prevents out of home care, when this can be done without endangering the child, and provides quality community based care for children requiring out of home care. The state acts as banker for each of the Decat boards and controls actual disbursement of funds. Although Decat boards do not physically control the funds, the plan for the use of funds is established locally within broad parameters established in the authorizing legislation. State disapproval of plans or individual expenditures is rare. Where Decat boards are able to save money by preventing out of home care, or by providing less expensive community based care, these savings may be retained by the local boards and reinvested in preventive measures. A special provision of state law allows for such savings to be carried over between state fiscal years.

The following summary shows how the major elements of the Iowa program relate to the six negotiation categories discussed above.

! Who is Accountable?: The Decat boards serve as the local governance entity responsible for planning and administering the system.

! For what Outcomes?: The original legislation set out to “reduce use of restrictive approaches which rely upon institutional, out-of-home, and out-of-community services.” More recently, Iowa’s Council on Human Investment has developed an outcome and benchmark framework for use in statewide planning and budgeting. The Council’s benchmarks which directly relate to the Decat structure are #6: “A reduction in the incidence of child abuse” and #8: “A reduction in the proportion of children needing to be placed out of the home due to abuse, neglect or delinquency.”

! With what Money?: The Decat boards control all funding in the child welfare and juvenile justice system for out of home placement and for prevention of out of home placement. This prevention/remediation cluster provides a natural incentive to save money on placement, when this can be done safely, and encourages reinvestment of these savings in additional prevention service.

! With what Standards and Safeguards?: The structure maintains the pre-existing standards for the quality of out of home care and other child welfare services. With regard to fiscal safeguards, allocations to decat boards are adjusted for population growth and inflation. In addition, the state adjusts allocations, to the extent resources permit, to boards experiencing unusual increases in service demand. The state “banking” system for Decat boards provides some level of safeguard against misappropriation of funds.

! With what Risks, Rewards and Penalties?: The most important incentives derive from the packaging of prevention and out of home care funding as noted above. Since Decat boards have no independent revenue raising capability, there is no direct financial risk, but any overall deficits in the system are shared by all Boards in the form of reduced allocations.

! For what Period of Time?: The new structure is not time limited. Decat boards submit annual plans, subject to state review.

B. Maryland: Local Management Entities

Maryland’s System Reform Initiative created a “new deal” between state agencies (Health and Mental Hygiene, Education; Human Resources and Juvenile Justice) and local governing entities, which are known as Local Management Boards (LMB). Under this arrangement, the state agencies redirect state funds that would have been spent on out-of-home and out-of-state placements to LMB’s, which use the funds to support an interagency system of community-based services for children and families. LMB’s conduct assessments of out-of-home placement trends and use these data to negotiate local plans and establish target levels of performance on specified indicators in cooperation with the state.

LMBs may earn incentive money if they meet the predetermined performance level, and spend less money than the state agencies would have spent on the same population of children. If the child remains at home rather than in out-of-home placement, incentive payments are made to the LMB the following fiscal year. Incentive payments are calculated at 75% of the LMB’s net savings over the amount the state would otherwise have spent. The LMB may then use earned incentive payments to finance the development of comprehensive community based services and supports. For example, the LMB in Baltimore City has used earned incentive to finance parent support groups, Salvation Army Shelter beds and services, school projects, respite care, summer youth mentoring programs, new program start-up funds, and may other community supports.

Following is a summary of the most important features of the Maryland program in the six negotiation categories discussed above:

! Who is Accountable?: The Local Management Boards serve as the local governance entity responsible for planning and administering funding for out-of-home and preventive services.

! For what Outcomes?: The primary outcome indicator used to measure success is rate of out-of-home and out-of-state placements. The LMB seeks to reduce these rates, while maintaining children safely at home or in the community.

! With what Money?: The LMB’s control funds for out-of-home care and the incentive dollars earned on reductions in spending relative to established targets. Like Iowa, this cluster provides a natural incentive to save money on placement when this can be done safely, and funds can be reinvested in additional prevention services.

! With what Standards and Safeguards?: The structure maintains the most important pre-existing standards for the quality of out of home care and other child welfare services. Allocations to the boards are negotiated based on the expected baseline of out-of-home and out-of-state costs of care.

! With what Risks, Rewards and Penalties?: The most important incentives derive from the packaging of prevention and out of home care funding as noted above. LMB’s have a direct financial incentive in the payment of incentive dollars for performance at or above targeted levels.

! For what Period of Time?: The new structure is not time limited. LMB’s submit annual plans, subject to state review.

V. The Essential Role of Legislation

A word is in order about the importance of legislation in this process. The new relationships between state and local entities must be initially authorized and eventually codified in state law. A new system of outcome accountability can not rest (for very long) on the transitory sanction of a solely executive branch process. It must eventually take the form of legislation. The question which must then be answered is: “Why not just skip the negotiation process, write a piece of legislation and be done with it?” The answers to this question have to do with both the role and form of potential legislation.

There are two kinds of legislation which can be written in this area. The first kind, for which we have a number of good examples, creates a framework for the development and support of local governance entities and structures an evolutionary or developmental process for establishing new accountability relationships. Several states have passed legislation of this sort which enables the local governance entities to build capacity over time. This structure enable the creation of an array of possible new deals between the state and the new local governance entities. (California, Georgia, Missouri, Oregon, Washington)

A second class of legislation provides for the codification of a more specific “flexibility for outcome accountability” deal for some portion of the funding now devoted to family and children’s services. This differs from the first set of legislation in that the funding on the table and the nature of the new relationship is more clearly specified in law. A few states have laws, of this latter type. The Iowa and Maryland programs are described above. Virginia’s Comprehensive Services Act provides for an allocation of nearly $100 million to local boards which decide on the use of funding for children at risk of out of home care. It is important to note that this kind of legislation differs markedly from the older state laws which established county operated service systems in the first place. These laws were generally structured to pass down the current state and federal categorical requirements with weak or non-existent outcome accountability structures, few if any provisions for cross system coordination, and significant constraints on local flexibility.

Legislative support and actual legislation is essential to the effectiveness of any process to establish new state local relationships. The idea of negotiated new relationships is fully consistent with the need for change in state law. Negotiations can be used to learn about viable structures which are later fully codified as new formal relationships available to all jurisdictions. Legislation which authorizes new local governance entities can provide a framework within which this learning can take place.

States which have already enacted laws establishing new funding relationships can use negotiation to build out from the initial agreements to incorporate more fully the whole set of resources which can be made available to local decision makers. Where state laws are written for a small defined set of project or discretionary dollars, it can be difficult build out from this initial agreement. Negotiation processes can be used to get the developmental nature of this work unstuck and back on track.

It is, of course, possible to think about the negotiation process as a bill drafting process from the beginning. There are some proponents of reform who think they know with perfect certainty what the deal should look like and how such legislation should be crafted. We think the best legislation will be of the type that establishes a framework for outcome accountability, supports the progressive development of local governance capacity, and which allows the resulting deal to vary in response to differences between counties and communities. The goal of this change is not to replace the current rigid state system with an equally rigid county or community system, but to allow local people to use new flexibility to solve problems. This goal is best achieved by legislation which allows the balancing of accountability and flexibility to be responsive to local needs.

VI. The Link to Outcome Based Decision Making and Budgeting:

The new deal established between the state and counties/communities creates a new kind of accountability for making the best use of resources to improve outcomes for children, families and communities. How counties and communities exercise this new authority will determine whether this new arrangement is a success or failure. If local governance entities adopt traditional categorical decision making and budgeting systems, they may well do no better than replace the old arrangement with a different way to channel the same dollars to the same service system. The outcomes we can expect will also be much the same.

If the results are to be different, then the new deal will require new approaches to decision making. Local governance entities will need to structure decision making systems which start with the outcomes they wish to achieve/improve and work backwards to the most effective use of resources to get there. This new kind of decision making process is described in the Center paper: “From Outcomes to Budgets, An Approach to Outcome Based Decision Making and Budgeting for Family and Children’s Services.

VII. Conclusion

The question must be asked: Can we afford to have a separate arrangement with each county and community in the United States? There are over 3,000 counties, over 15,000 school districts, and many more cities and towns. Embedded in this structure is an overlapping array of things people consider communities or neighborhoods, which for good reason defy simple or strict definition. Is it possible to have a coherent and effective “system” if each of these elements in our political fabric are different? The answer is at once straightforward and complex. Each county, city, community, neighborhood and school district is already different. The question is not whether we can live with diverse responses to social problems, but whether we can live without it. As noted at the beginning of this paper, the logic of thinking about community level solutions has to do with the very same need to “make sense” of the fragmented and irreconcilable systems, which only manifest themselves at one time and in one place: the community. It is, in fact, our best hope, that having failed to make much headway in fixing the grand system of health, education and social services in state capitals and Congress, that our best chance may be with the people who need use and manage these services at the local level.

The approach to negotiation presented in this paper is not intended to suggest that we must inevitably, individually negotiate separate deals with every county and every community. The immediate relevance of negotiation is as a means to break the logjam of rethinking roles and responsibilities in those states, counties and communities which are experimenting with new arrangements at the leading edge of this work. What we learn from them may tell us how to codify pieces of these structures so that they do not have to be rediscovered in a separate process with every separate community. We will learn where the limits are in balancing economies of scale and local responsiveness, common needs and variable needs, and of course, flexibility and accountability. We will learn in essence where negotiation figures in the long term formulation of a system which can be the things our rhetoric says we want: a family focused, prevention oriented, community owned system of services and supports which produce better outcomes for children and families. If the process of negotiation does nothing more than advance our learning about what is possible toward these ends, it will have served its purpose.

Mark FriedmanTrading Outcome Accountability for Fund Flexibility

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