PROVIDENCE — The Rhode Island Department of Children, Youth and Families needs to redesign the way the department provides care to lower its costs, “rather than continuously engaging in annual budget exercises to reduce expenditures,” according to a panel that spent several months studying the department’s finances.

Last December, Governor Carcieri asked former state budget chiefs Stephen McAllister and Lee Grossi, along with Tom Hogg, a former chief financial officer at Old Stone Bank and the CFO at Rhode Island Housing, to study the finances of the DCYF to improve “fiscal accountability.”

In its report released yesterday, the group urged the governor to appoint a new panel of experts specifically to implement reforms in the way the DCYF provides care. The governor will take the committee’s advice, and will begin assembling a team of experts over the next few weeks, according to his spokesman, Jeff Neal.

The report’s primary recommendation is to reform how the DCYF cares for children in its custody. According to the review team, the DCYF served 11,329 children last year, about 9,000 at any point in time. Of these, 1,210 were in residential care, including the Rhode Island Training School. “Residential expenses will account for approximately two-thirds of the department’s expenditures,” the panel wrote. “Thus, 13 percent of DCYF’s clients are consuming 67 percent of its budget.”

“This report shows that DCYF’s historic financial problems are systemic and serious,” Carcieri said in a statement. “They are not limited to one budget cycle or to one director. In fact, many of these problems have been growing for years. As with other previous reports in the last 10 years, this report also shows that the current situation — in which residential placements take up nearly 70 percent of the department’s budget — is simply unsustainable in the current fiscal climate. Controlling DCYF’s budget in the future will require a wholesale redesign of how the department cares for children in its custody.”

To address these concerns, the review team urged the DCYF and “external stakeholders,” such as the Family Court, to agree on a plan to limit residential placements, to develop “appropriate alternatives,” and to eventually reduce the number of beds in the system. Jane Hayward, state director of health and human services, said lower-cost alternatives could include placing children who have behavioral or medical problems with specially-trained foster parents. Or keeping children at home or in foster homes and using outside services from the community to meet their needs, she said.

The review panel also called for: resolving an ongoing bottleneck in foster care licensing; renegotiating union contracts to include flex work time; inclusion of DCYF caseloads in the state’s twice-annual caseload estimating conference; working to have fewer children sentenced to the Training School, when less restrictive environments would do; and better management of overtime expenses.

The long-term suggestions from the panel are not expected to affect the DCYF budget for the upcoming fiscal year, Neal said.

marsenau@projo.com