You best give that child back the very second the parent demands the return.

You have the words of a 3 year old who, unfortunately, sounds "coached" to begin with - this is NOT going to stand up in court.

The fact that you're absolutely FINE with the parents' drug dealings if you're allowed to keep the child speaks volumes about you.

If DHS have not seen fit to remove the child, that indicates that things are not as you describe.

(Incidentally, you wouldn't have grounds to sue the city for anything. The city does, however, have the right to penalize you to the fullest extent of the law)