Most children enter foster care when the state’s child welfare agency determines that they have been subjected to abuse or neglect and it is not in their best interest to immediately return home. On September 30, 2002—the latest date for which HHS figures were available for our review, 532,000 children were in foster care in the United States. Generally, after investigating the circumstances that contributed to the abuse or neglect, state child welfare agency staff develop a plan to help the parent make improvements and create a safe and stable family environment. ASFA requires that states hold a permanency planning hearing at least once every 12 months to determine, among other things, when and if reunification with the child’s family is a safe and practical option. HHS estimated that just over 50 percent of the 281,000 children who exited foster care during fiscal year 2002 were reunified with a parent or principal caretaker. If the parent has not followed child welfare agency plans or has failed to change behaviors to make reunification safe, the state may identify an alternative goal to establish a permanent home for the child. These goals include adoption, independence, or legal guardianship. Independent living arrangements may be attained once children reach the age of 18—or 21 in some jurisdictions—and have not been reunified with their families or adopted and for whom federal reimbursement for foster care expenditures is no longer available. Legal guardianship is a judicially created relationship between a child and a caretaker whereby the caretaker is awarded custody and decision-making rights with respect to the child. An October 2004 report indicated that 35 states and the District of Columbia had established subsidized guardianship programs to help ensure permanent families for children. The federal government typically does not reimburse states for costs associated with subsidized guardianship. However, 7 states have operated or are currently operating federally funded guardianship projects through their participation in the Title IV-E waiver program. HHS data show that 4 percent of children exited foster care through guardianship in fiscal year 2002. HHS reports that in fiscal year 2002, 17 percent of children exited foster care through adoption. Unless a parent voluntarily relinquishes his or her rights, states must petition the court for a termination of parental rights (TPR) before a foster child can be adopted. ASFA requires, with few exceptions, that states file a TPR petition when a child has been in foster care for 15 of the most recent 22 months, but ASFA does not address the length of time needed to grant the petition to terminate. Before the termination is completed, states can begin to recruit for an adoptive family and even place a child in a pre-adoptive home with an interested family after this family has been approved. The adoptive family approval process generally involves background checks and a home study—a detailed examination of a family’s circumstances, including its employment and finances and family medical history—to ensure that the family will provide a safe and suitable placement. The key steps in the process for adopting children from state child welfare agencies are summarized in figure 1. In order to be eligible to receive federal funding, ASFA requires that states do not delay or deny the placement of a child for adoption when an approved family is available outside the jurisdiction that currently handles the child’s case and requires states to facilitate the timely adoptive placement of children through the effective use of cross jurisdictional resources. States govern the placement of children across state lines through a compact known as the Interstate Compact on the Placement of Children (ICPC). At the time of publication, the compact was being rewritten to improve the process of placing children across state lines. Families who adopt children with special needs can receive monthly subsidies. The Adoption Assistance Program, under Title IV-E of the Social Security Act, authorizes the federal government to partially reimburse the states for the subsidies they provide to families who adopt special needs children. Payments to the parents of an eligible child with special needs can include both one-time adoption assistance for expenses such as attorney fees and ongoing monthly assistance, which is used for any identifiable needs of the child. Special needs children must meet at least one criterion from the following list: (1) the child is a dependent child who would have been eligible for AFDC, as it existed in 1996; (2) the child is eligible for Supplemental Security Income (SSI); (3) the child is a child of a minor parent who is in foster care already and receiving foster care maintenance payments under Title IV-E; or (4) the child received adoption assistance previously, but the adoption dissolved or the adoptive parents died. If the child does not meet these eligibility criteria, but still meets the state’s definition of special needs, the state can provide a subsidy to the child’s adoptive family, but cannot claim federal reimbursement. The amount of the subsidy is determined through negotiations between the adoptive parents and a representative of the state agency based on the needs of the child and circumstances of the adoptive family. The subsidies are intended to help adoptive families manage the cost of caring for their special needs children. Adopted children often have difficulties with issues of loss, attachment, and identity formation that can lead to behavioral and developmental problems and require professional treatment. In addition, special needs children with physical and other mental disabilities may require specialized care and treatment. Adoption subsidies are available to families until children reach age 18 but may be extended to age 21 if a mental or physical disability necessitates continuation. In addition to reimbursing states for the adoption subsidies, the federal government pays adoption incentive funds to qualifying states. Under the Adoption Promotion Act of 2003, (Pub. L. No. 108-145), which amended the Adoption Incentives Program, a state is eligible for an award if the number of adoptions from the foster care system for the fiscal year under review exceeds the state’s baseline year, the highest number of adoptions in any previous year, beginning with fiscal year 2002. States may also receive an incentive payment based on the adoptions of children having special needs or children older than age 9. Specifically, when a state exceeds its baseline year in each category, it will receive an incentive payment of $4,000 for each child adopted from foster care, $2,000 for the adoption of each special needs child younger than age 9, and $4,000 for the adoption of each child aged 9 or older. Thus, the program encourages adoption generally while emphasizing the adoption of children with special needs. In fiscal year 2003, the federal government paid states more than $17 million in incentive payments through this program. Title IV-E adoption subsidies and adoption incentive awards are not the only federal assistance available to support adoption. Funds authorized under Title IV-B of the Social Security Act, the Temporary Assistance for Needy Families program (TANF), and the Social Services Block Grant (SSBG) have also been used to facilitate and sustain adoptions. We reported that in fiscal year 2002 states used more than $5 million in Title IV-B funds on adoption subsidy payments, more than $9 million on recruitment and training for foster and adoptive parents, and nearly $29 million on adoption support and preservation services. A recent survey on states’ fiscal year 2002 allocations of federal funds for child welfare found that states reported spending $56 million in TANF funds, $44 million in Title IV-B funds, and $22 million in SSBG funds on adoption and support services for adopted children. HHS’s Children’s Bureau administers and oversees federal funding to states for child welfare services under Titles IV-B and IV-E of the Social Security Act, and states provide these child welfare services, either directly or indirectly through contracts with private agencies. Among other activities, HHS staff are responsible for developing appropriate policies and procedures for states to follow and conducting administrative reviews to ensure that states are in compliance with established policies. HHS staff from its 10 regional offices provide technical assistance to states, review state planning documents, assist with state data system reviews, and assess states’ use of funds for foster care maintenance payments. Between 2001 and 2004, HHS completed its first round of Child and Family Services Reviews (CFSR), which assessed child welfare outcomes in all 50 states, the District of Columbia, and Puerto Rico. These reviews assessed states’ progress and achievement in many areas and found weaknesses related to adoption. For example, HHS reported that at least 27 states experienced challenges seeking terminations of parental rights in accordance with ASFA. In addition, HHS also reported that 37 of the 52 states failed to meet the national standard of finalizing adoptions within 24 months of the child’s most recent entry into foster care. To evaluate states’ performance on child welfare indicators, such as timely adoptions, HHS relies, in part, on its Adoption and Foster Care Analysis and Reporting System (AFCARS) to capture, report, and analyze information collected by the states. In addition, AFCARS is used to generate annual reports on foster care and adoption programs nationwide, and it is the primary source of data for the Adoption Incentives Program. We reported that the AFCARS data were not reliable and recommended that HHS make improvements. HHS officials agreed with our findings and stated that several data definitions in AFCARS would be updated and revised. In June 2004, HHS officials stated that the regulations related to making these changes were being drafted. As of April 2005, the regulations had not been issued, and HHS officials said they did not have a specific planned release date. States we visited reported that limited resources, court-related processes, and delays in completing interstate placements were the major challenges to special needs adoption. The limited resources impeded state agencies’ efforts to recruit adoptive families. Additionally, officials said that difficulties scheduling cases and the time involved with other court proceedings delayed finalizing adoptions. Officials also reported that delays in completing home studies hindered adoptions that involved interstate placements.