This paper analyzes the effects of federal funding mechanisms on the nation's child welfare system and explores possible policy alternatives. First, the author examines the relationship between the level of foster-care utilization and the per diem federal reimbursement system that helps to support state child welfare activities. The author argues that the juxtaposition of social policies that seek to limit use of foster care with fiscal policies that make reimbursement contingent upon a child's placement in foster care creates a fundamental tension in the child welfare system