On February 8, 2006, President Bush signed the Deficit Reduction Act of 2005 ( P.L. 109-171 ). The bill was cleared for the President's signature earlier that month after the House voted to accept the changes made by the Senate (in December 2005) to a previously agreed-upon conference agreement ( H.Rept. 109-362 ). A primary purpose of budget reconciliation is to make statutory changes that reduce direct (or mandatory) spending out of the federal treasury. The largest child welfare programs receive mandatory federal funding, and certain changes to these programs would be made by the Deficit Reduction Act of 2005. Some of these were initially provided for only in the House version of the reconciliation bill, and some were in neither the initial Senate nor House version of the reconciliation legislation ( S. 1932 ) as it was passed in November 2005. These were added during the December 2005 conference agreement negotiations. The federal foster care and adoption assistance programs are open-ended entitlement programs. This means that the statutory language (contained in Title IV-E of the Social Security Act) commits the federal government to reimbursing states for every eligible claim submitted on behalf of an eligible child receiving foster care maintenance payments or an adoption assistance subsidy. Because of the open-ended nature of this mandatory spending, any statutory changes that redefine who is eligible to receive foster care or adoption assistanceâor what kind of costs a state may submit as eligible for reimbursementâshould have a direct effect on the level of federal spending in the program. In FY2004 (the most recent data available), federal spending on the foster care and adoption assistance programs combined was approximately $6.1 billion. The federal Promoting Safe and Stable Families program (Title IV-B, Subpart 2 of the Social Security Act) provides capped mandatory funds (and also authorizes discretionary funds) for states to offer services aimed at maintaining or reuniting families and promoting and supporting adoption. A set-aside from the program's funding is used for grants intended to help state courts assess and improve their handling of child welfare proceedings. For FY2005, mandatory funding of $305 million for the Safe and Stable program was increased by discretionary funding of $98.6 million, for total program funding of $404 million. As proposed by the President in his FY2006 budget request and included in the House reconciliation bill ( H.R. 4241 ) , the Deficit Reduction Act of 2005 ( P.L. 109-171 ), as enacted, rewrites the eligibility provisions for federal foster care under Title IV-E of the Social Security Act; it also made related changes to the adoption assistance eligibility provisions (also contained in Title IV-E). This change is sometimes called the Rosales provision because, as intended, it makes moot a 9 th Circuit U.S. Court of Appeals decision, Rosales v. Thompson (321 F. 3d. 835). The Congressional Budget Office (CBO) estimates that this provision will reduce federal outlays to the foster care program by $380 million over five years (FY2006-FY2010) and $863 million over 10 years (FY2006-FY2015). The Senate did not include the Rosales provision in the reconciliation legislation it approved in early November. However, after an effort on the Senate floor by Senator Conrad to strike this language from the final conference agreement failed, the provision remained in the conference agreement approved in both chambers, and was enacted in P.L. 109-171 . This provision of P.L. 109-171 restates eligibility for federal foster care in a manner intended to clarify the longstanding interpretation of those provisions by the U.S. Department of Health and Human Services (HHS), and thus to effectively overturn a 2003 court decision that disagreed with that interpretation. Changes to the adoption assistance eligibility criteria were made to conform with those foster care changes and to somewhat simplify the eligibility test. As included in the enacted legislation, the change does not prohibit payment of foster care maintenance payments to foster children living with grandparents. However, it may make it less likely that children who lived with a non-parent relative before they were formally brought into foster care (and who are in one of the 9 th Circuit states), will be eligible for federal foster care assistance. Eligibility for Title IV-E foster care and adoption assistance is multifaceted but, with limited exceptions for adoption assistance, includes a link to the income, deprivation, and resources tests as they were included in a state's Aid to Families with Dependent Children (AFDC) program, as that program existed on July 16, 1996. (Congress repealed the AFDC program as part of the 1996 welfare reform legislation that became P.L. 104-193 .) HHS has historically maintained that the AFDC income, deprivation, and resource tests must determine whether or not a foster child was or would have been considered needy if that child had still been living in the home from which he or she was removed for safety reasons (generally the home of the biological parent(s)). However, this HHS interpretation of how to apply the AFDC eligibility tests was challenged in California, and in March 2003, the 9 th Circuit Court of Appeals ( Rosales v. Thompson, 321 F. 3d. 835) ruled against HHS. The 9 th Circuit court interpreted the law to permit, in some instances, a state to determine whether a foster child would have met the AFDC tests while living in the home of a relative instead of in the home of the parent (e.g., a grandmother or aunt who informally cared for the child because the parents were unfit or unwilling). Under AFDC program rules, a child living with a non-parent relative is virtually always considered needy because the AFDC income, resource and other tests are applied only to the child. This means that whether the non-parent relative is very wealthy or very poor is not a consideration in determining a child's eligibility for federal foster care assistance; only the child's personal income is considered. Therefore, this reading of the law permits expanded eligibility for federal (Title IV-E) foster care assistance if a child lived with a non-parent relative before being formally placed in foster care (provided the child lives in a 9 th Circuit state). HHS chose not to appeal the decision of the 9 th Circuit. Instead, it notified the nine states in the 9 th Circuit (Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) that they should amend their Title IV-E state plans to follow the eligibility logic of the Rosales decision. At the same time, HHS notified all other states that they must continue to determine Title IV-E foster care eligibility based on the traditional HHS reading of the law. Finally, the Department sought a statutory change to bolster its longstanding interpretation of Title IV-E (foster care and adoption assistance) eligibility rules, and to restore their uniform application in all states. All states in the 9 th Circuit have amended their state Title IV-E plans to provide for expanded Title IV-E foster care eligibility (as permitted by the Rosales decision). Enactment of the statutory eligibility clarifications in the Deficit Reduction Act, however, means that states will have to redo those plans again, because children entering foster care in the 9 th Circuit states are again required to meet the eligibility criteria currently used in all states outside the 9 th Circuit. In June 2006, HHS issued an Information Memorandum that permits 9 th Circuit states to continue to make Title IV-E foster claims for children who were federally eligible solely because of the Rosales definition of eligibility only until the annual re-determination of that child ' s Title IV-E foster care eligibility . In addition, those states may no longer apply the Rosales eligibility criteria for children entering foster care. Instead, all children must now qualify under the more narrow eligibility criteria. Accordingly, states in the 9 th Circuit may see a decline in the share of children in their caseloads for whom they may receive federal reimbursement for foster care costs. These states would then need to support a larger share of foster care children using state dollars only (or possibly some other capped source of federal funding such as the Temporary Assistance to Needy Familiesâor TANFâblock grant). The exact effect of this provision in each of the 9 th Circuit states is unknown. Finally, the provisions included in the final budget reconciliation bill ( P.L. 109-171 ) restate certain adoption assistance eligibility requirements to conform with the foster care eligibility clarifications, and somewhat simplify the eligibility determination process for adoption assistance. Prior policy provided that, in cases where adoption assistance eligibility rests in some part on AFDC eligibility, the AFDC eligibility criteria must have been met at two points: 1) when the child was removed from his or her home and placed in foster care, and 2) when adoption proceedings were initiated. P.L. 109-71 , as had previously been passed by the House ( H.R. 4241 ), would eliminate the second AFDC test. This change was expected to simplify adoption assistance eligibility determination while having little to no effect on the number of children found eligible. As enacted, the Deficit Reduction Act ( P.L. 109-171 ) will also limit the ability of states to claim federal reimbursement of certain costs related to administering their Title IV-E foster care programs. In January 2005, the Administration published a Notice of Proposed Rulemaking (NPRM) that proposed regulations similar to the statutory changes included in P.L. 109-171 . Those statutory changes were included in the House budget reconciliation bill ( H.R. 4241 ), but were not a part of the reconciliation bill that passed the Senate in November.