The four social service programs included in our review—child care, child welfare services, child support enforcement, and the Temporary Assistance for Needy Families (TANF) block grant—provide a broad range of services and benefits for children and families. While each program is administered by HHS’ Administration for Children and Families, primary responsibility for operating these programs rests with state governments. Within many states, local governments operate social service programs with considerable autonomy. The major goals, services, and federal funding for the four programs are described below. Federally funded child care services consist primarily of subsidized care for children of low-income families while their parents are working, seeking work, or attending training or education. Other subsidized child care activities include providing information, referrals, and counseling to help families locate and select child care programs and training for child care providers. State child care agencies can provide child care directly, arrange for care with providers through contracts or vouchers, provide cash or vouchers in advance to families, reimburse families, or use other arrangements. Two settings for which states pay for care are family day care, under which care is provided for a small group of children in the caregiver’s home, and center care, under which establishments care for a group of children in a nonresidential setting, such as nonprofit centers sponsored by schools or religious organizations and for-profit centers that may be independent or members of a chain. The primary federal child care subsidy program is the Child Care Development Block Grant (CCDBG). In fiscal year 1996, about $2 billion was distributed to states to assist low-income families obtain child care so they could work or attend training or education. Under CCDBG, states are not required to provide state funds to match federal funding. Child welfare services aim to (1) improve the conditions of children and their families and (2) improve—or provide substitutes for—functions that parents have difficulty performing. Whether administered by a state or county government, the child welfare system is generally composed of the following service components: child protective services that entail responding to and investigating reports of child abuse and neglect, identifying services for the family, and determining whether to remove a child from the family’s home; family preservation and family support services that are designed to strengthen and support families who are at risk of abusing or neglecting their children or losing their children to foster care and that include family counseling, respite care for parents and caregivers, and services to improve parenting skills and support child development; foster care services that provide food and housing to meet the physical needs of children who are removed from their homes and placed with a foster family or in a group home or residential care facility until their family can be reunited, the child is adopted, or some other permanent placement is arranged; adoption services that include recruiting potential adoptive parents, placing children in adoptive homes, providing financial assistance to adoptive parents to assist in the support of special needs children, and initiating proceedings to relinquish or terminate parental rights for the care and custody of their children; and independent living services that are activities for older foster children—generally age 16 and older—to help them make the transition from foster care to living independently. Almost all states are also operating or developing an automated foster care and adoption data collection system. Federal funding for child welfare services totaled about $4 billion in fiscal year 1996. Nearly 75 percent of these funds were for foster care services. Depending on the source, the federal match of states’ program costs can range from 50 to 78 percent. The child support enforcement program enforces parental child support obligations by locating noncustodial parents, establishing paternity and child support orders, and collecting support payments. These services, established under title IV-D of the Social Security Act, are available to both welfare and nonwelfare families. In addition, states are operating or developing automated management information systems to help locate noncustodial parents and monitor child support cases. The federal government pays two-thirds of the states’ costs to administer the child support enforcement program. The states can also receive incentive funds based on the cost-effectiveness of child support enforcement agencies in making collections. In 1996, federal funding for program administration and incentives totaled almost $3 billion. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 made major changes to the nation’s welfare system. In place of AFDC and the Job Opportunities and Basic Skills Training (JOBS) programs, the 1996 law created a block grant for states, or TANF, that has more stringent requirements than AFDC for welfare parents to obtain jobs in return for their benefits. In 1996, the federal government spent about $11 billion on AFDC benefit payments, and JOBS provided almost $1 billion to help families on welfare obtain education, training, and work experience to become self-sufficient. TANF provides states flexibility in, among other things, providing assistance to needy families and promoting job preparation and work. Federal spending through the TANF block grant is currently funded at $16.4 billion per year. States are not required to match federal funds but must maintain specified historic levels of state spending on behalf of families eligible for TANF. The federal, state, and local governments have for decades privatized a broad range of government activities in both nonsocial and social service programs. This trend is continuing. Since 1990, more than half of the state and local governments we contacted have increased their contracting for services, as indicated by the number and type of services privatized and the percentage of social service budgets paid to private contractors. Spurred by political leaders and top program managers, states and localities privatized social services in an attempt to reduce program costs and improve services by using the technology and management flexibility they believe private contractors offer. In addition, studies we examined and federal, state, and local government officials we interviewed expect privatization to increase with the enactment of recent federal welfare legislation and anticipated managed care initiatives in child welfare. State and local officials also anticipated increased contracting for services in the child care and child support enforcement programs. Privatization is commonly defined as any process aimed at shifting functions and responsibilities, in whole or in part, from the government to the private sector. Privatization can take various forms, including divestiture, contracting out, vouchers, and public-private partnerships. Most common is contracting, which typically entails efforts to obtain competition among private bidders to perform government activities. With contracting, the government remains the financier and is responsible for managing and setting policies on the type and quality of services to be provided. Depending on the program, government agencies can contract with other government entities—often through cooperative agreements—and with for-profit and nonprofit agencies. Using a variety of strategies, the federal, state, and local governments have for decades relied on private entities to provide a wide range of services and program activities. Programs as diverse as corrections, transportation, health services, and information resource management have been privatized to varying degrees. As all levels of government attempt to meet existing or growing workloads with fewer resources, privatization has more frequently been considered a viable means of service delivery. Child care, child welfare, child support enforcement, and welfare-to-work programs have long used contractors to provide certain services. For example, most states and local governments have relied on an existing network of private day care centers to provide certain child care services. Foster care services in child welfare have also traditionally been provided by private providers. Finally, state and local governments have also generally relied on contractors to provide certain automated data processing and related support activities. In addition to state and local governments’ past use of contractors in social services, a national study has reported recent growth in state privatization of these programs. In its 1993 national study, the Council of State Governments reported that almost 80 percent of the state social service departments surveyed in the study indicated they had expanded their use of privatization of social services in the preceding 5 years. The council’s study reported that child care services and several child welfare services, such as adoption, foster care, and independent living support services, were among the services in which privatization increased the most. During our review, we found that privatization of social services has generally continued to expand, despite certain challenges confronting state and local governments seeking to privatize services, as discussed below. Representatives of several national associations told us that state and local social service privatization has increased throughout the country in the last several years, as indicated by the percentage of state and local social service budgets paid to contractors. Among the state and local governments we contacted, most officials said the percentage of program budgets paid to contractors has increased since 1990. While the percentage of funds paid to private contractors has generally increased in the states and programs we selected, we found that the proportion of state and local social service budgets paid to private contractors varies widely among the programs we reviewed. According to local program officials, for example, the Los Angeles County child support enforcement program spent less than 5 percent of its $100 million program budget on contracted services in 1996. In comparison, program officials said the child care component of San Francisco’s Greater Avenues for Independence (GAIN) program spent all its program funds, or $2.1 million, on privatized services in 1996. State and local government officials we interviewed generally said that, in addition to the increased and varied portion of program budgets spent on privatized services, the number of functions performed by private contractors has increased since 1990. In Virginia, for example, officials said that the state has recently begun to contract out case management and assessment functions in its welfare-to-work program, a function previously performed by government employees. State and local governments have also recently begun to privatize a broad array of child support enforcement services.