Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
AFDC Quality Control Review Panel
SUBJECT: North Carolina
Department of Human
Resources
Docket No. A-95-99
Decision No. QC82
DATE: June 22, 1995
DECISION
The North Carolina Department of Human Resources (North
Carolina)
appealed a March 6, 1995 quality control (QC)
determination by the Regional
Administrator of the
Administration for Children and Families (ACF) in State
QC Review No. 801076. The Regional Administrator found
that,
because North Carolina had not applied the $30 plus
one-third disregard, the
assistance unit (AU) was
underpaid by $33 in its Aid to Families with
Dependent
Children (AFDC) grant during the review month of January
1994. North Carolina considered the case correctly paid.
While the QC review month was January 1994, the decision
in this case
turns on whether the caretaker recipient
(the recipient) had received four
consecutive months of
the $30 plus one-third disregard as of June 1993 based
on
payment calculations for the corresponding budget month
of April
1993. If the answer is yes, then the recipient
would have received
four consecutive months of the $30
plus one-third disregard and would not be
entitled to the
disregard in the payment calculations for the review
month of January 1994. If the answer is no, then the
recipient
would not have received the disregard for four
consecutive months and would
be entitled to another four
months of the disregard, including January
1994.
North Carolina argued that, because the recipient had
failed to submit a
monthly reporting form for April 1993,
April was both a penalty month and
the budget month for
the fourth consecutive month of the recipient's receipt
of the $30 plus one-third disregard. ACF argued that,
because the
recipient did not have sufficient income in
April to have used the $30 plus
one-third disregard,
April should not be considered to be a budget month for
the fourth consecutive month and therefore the recipient
had not
received four consecutive months of this
disregard.
For the reasons discussed below, we find that under North
Carolina's
permissible state practice (PSP), as evidenced
by the provisions of its AFDC
Manual, April 1993 should
have been considered the budget month for the
fourth
consecutive month of the recipient's receipt of the $30
plus
one-third disregard and the recipient was not
entitled to this disregard in
the review month of January
1994. Therefore, we reverse ACF's error
determination.
Applicable Authority
For the purpose of calculating the amount of an AFDC
payment, an AU with
earned income is entitled to certain
disregards of its income. These
disregards are set out
in 45 C.F.R. � 233.20(a)(11). Some disregards
are always
applicable, for example, the disregard of the income of
certain types of students. However, the one-third
portion of the
$30 plus one-third disregard at issue in
this case is a time-limited
disregard. Specifically, the
one-third portion of the disregard may
not be provided to
an individual after the fourth consecutive month it has
been applied to the individual's earned income. 45
C.F.R. �
233.20(a)(11)(ii)(B). However, if the receipt
of the disregard is
interrupted prior to four consecutive
months having elapsed, a new four
month period of
eligibility for the disregard begins. Id.
Under certain circumstances, the regulations require
states to treat a
month as one of the four consecutive
months even if the individual did not
actually receive
the benefit of the disregard. Section
233.20(a)(11)(ii)(B) provides that
. . . any month for which the unit loses the $30
plus one-third
disregard because of a provision in
paragraph (a)(11)(iii) of this section,
shall be
considered as one of these [consecutive]
months
. . .
Id.
Section 233.20(a)(11)(iii) (emphasis added) provides that
The applicable earned income disregards in
paragraphs . . . (ii)(B)
of this paragraph do not
apply to the earned income of the individual for the
month in which
one of the following conditions apply
to him:
(A) An individual terminated his employment or
reduced his
earned income without good cause . . .
(B) An individual refused
without good cause
. . . within the period of 30 days preceding such
month to accept employment . . .
(C) An individual failed
without good cause . . .
to made a timely report . . . of that income;
or
(D) The individual voluntarily requests
assistance to be
terminated for the primary purpose
of avoiding receiving the $30 and
one-third
disregard for four consecutive months.
45 C.F.R. � 233.20(a)(11)(iii).
ACF conducts QC reviews against PSP. 45 C.F.R.
� 205.42(b).
PSP is defined as "state written policy
instructions that are consistent
with the State plan . .
. ." QC Manual (QCM) section 3130. North
Carolina
relies on its AFDC Manual, section 2350, part 6, page 3,
as
establishing its PSP for the budgeting issue involved
in this case.
Section 2350 discusses the application of
the $30 plus one-third
disregard. That section provides
that:
When the $30 and 1/3 disregard is interrupted
because the earned
income was penalized, do not
start the four consecutive months over.
The penalty
month counts as one of the four consecutive months.
NOTE: This applies when a case is suspended because
of the
penalty being applied.
Facts
The facts in this case are not in dispute. The AU
consisted of the
recipient and her minor child. The AU
had received uninterrupted AFDC
assistance since February
1992. The recipient was employed
sporadically during
1993 and 1994: January 24 - April 18, 1993
(Comfort
Inn), August 24 - September 14, 1993 (American Coating
Technologies), and September 29, 1993 - March 14, 1994
(Holiday
Inn). North Carolina was aware of her earnings
and included the
earnings in its calculation of her
benefits.
Because of her earnings, the recipient was required to
report her income
monthly and her grant was calculated
retrospectively. However, for the
month of April 1993,
the recipient failed, without good cause, to file a
timely monthly report concerning her earnings of $52.06.
Because
of this failure, North Carolina imposed the
penalty for late monthly
reporting by applying no earned
income disregards to the recipient's April
income and
considering April the budget month for the fourth month
of
her receipt of the $30 plus one-third disregard.
The recipient's employment with Comfort Inn ended in
April 1993 and she
began a new job in August 1993.
Because North Carolina, pursuant to
its state procedures,
considered the recipient as having received four
consecutive months of the $30 plus one-third disregard as
of June 1993,
North Carolina computed the recipient's
earnings for the budget month of
November 1993 by
applying only the $30 disregard.
Parties' Arguments
North Carolina argued that it had correctly applied its
PSP by
considering the June 1993 payment month as the
fourth month of the
recipient's four consecutive months
of the $30 plus one-third
disregard. It pointed out (1)
that section 233.20(a)(11)(ii)(B) states
that any month
for which a unit loses the $30 plus one-third disregard
because of section 233.20(a)(11)(iii) should be
considered one of the
four consecutive months and (2)
that section 233.20(a)(11)(iii)(C) provides
that the
section (ii)(B) disregards do not apply to an
individual's
earned income when the individual has failed
to make a timely report of that
income. North Carolina
concluded that the federal regulations required
it to
deny the recipient the right to the $30 plus one-third
disregard
in its budget calculation for June 1993 and to
count June as the fourth
consecutive month. Finally, it
maintained that its interpretation of
federal
requirements had been adopted in its AFDC Manual which
specifically provided that such a penalty month should be
counted as one
of the four consecutive months. It
asserted that ACF's position was
"new" and contrary to
North Carolina's prior understanding of these
regulations. State Appeal File, Att. 2 at 1.
ACF argued that the penalties under 45 C.F.R.
� 233.20(a)(11)(iii) only
result in the loss of the
"applicable" earned income disregards. It
reasoned that
in order for an earned income disregard to be
"applicable," the recipient would have had to have earned
enough money
for it to be used in calculating her grant
but for the imposition of the
penalty. Since this
recipient's earnings in April 1993 were under $90
and,
but for the penalty, would have been completely
disregarded
pursuant to the $90 standard disregard, the
$30 plus one-third disregard
could not have been used to
disregard any of the April earnings. Thus,
ACF argued
that this recipient lost the $30 plus one-third disregard
because of low earnings rather than pursuant to section
233.20(a)(11)(iii). ACF therefore concluded the
provision of
section 233.20(a)(11)(ii)(B) requiring a
section 233.20(a)(11)(iii) penalty
month to be considered
a disregard month was irrelevant in this case.
In
support of ACF's position, the Regional Administrator
cited a 1981
action transmittal and the QCM.
Analysis
We conclude that, pursuant to its PSP, North Carolina
correctly budgeted
this case during the review month of
January 1994. We reach this
conclusion because (1) the
regulations at issue are susceptible to
alternative
reasonable interpretations, (2) North Carolina's
interpretation is reasonable, (3) North Carolina did not
have adequate
and timely notice of ACF's contrary
interpretation, and (4) North Carolina
had established
its interpretation as a state practice in its AFDC
Manual. Below we discuss these reasons.
As demonstrated in this case, sections
233.20(a)(11)(ii)(B) and
(a)(11)(iii) are capable of
alternative interpretations. For the
following reason,
we conclude that North Carolina's interpretation of the
effect of subsection 233.20(a)(11)(iii)(C) is reasonable,
absent timely
and adequate notice of ACF's contrary
interpretation. Section
233.20(a)(11)(iii) provides that
"the applicable earned income disregards in
paragraphs
. . . (ii)(B)" do not apply if: (A) an individual quits
or reduces his earned income without good cause, (B) an
individual
refuses without good cause to accept
employment, (C) an individual fails to
file a monthly
report of his income, or (D) an individual voluntarily
requests that assistance be terminated to avoid receiving
four
consecutive months of the $30 plus one-third
disregard. While ACF
argued that the term "applicable"
means that the person must have had
sufficient income to
have used the disregard but for the penalty, two of the
four section 233.20(a)(11)(iii) penalty categories could
not involve
such income. For example, if a person quit
their employment without
good cause (subsection (A)) or
refused to accept employment (subsection
(B)), no earned
income disregards would be "applicable" because the
recipient would have no earned income. Therefore, given
that in
two of the four penalty categories, the $30 plus
one-third disregard would
necessarily not be "applicable"
in the sense that ACF has used it, we do not
think it
unreasonable of North Carolina to have determined that,
when it
imposes a monthly reporting penalty for failure
to report earned income,
that month is also deemed, under
section 233.20(a)(11)(iii), to be a $30 and
one-third
disregard month.
Where there are two conflicting interpretations of a
statute or
regulation, both of which are reasonable, the
federal agency's
interpretation is entitled to deference
if appropriate notice of that
interpretation has been
given to the states.* Commonwealth of
Pennsylvania,
Dept. of Public Welfare v. United States Department of
Health and Human Services, 928 F.2d 1378 (3d Cir. 1991).
For the
following reasons, we conclude that the action
transmittal and QCM
provisions cited by the Regional
Administrator in her decision cannot be
considered
adequate notice to North Carolina that its interpretation
of
section 233.20(a)(11)(iii) was contrary to ACF's
interpretation. The
1981 action transmittal provided:
Question: If a recipient's entire earned income can
be
disregarded under the $75 work expense and the
$160 per child per month
child care disregards prior
to applying the $30 and 1/3 disregard, should
States
consider this recipient to have received the $30 and
1/3
disregard for that month?
Answer: No. However, if any earned income is
disregarded by applying the $30 and 1/3 disregard,
then this recipient
should be considered to have
received the $30 and 1/3 for purposes of the 4
month
limitation.
SSA-AT-81-35, p. 2 (November 5, 1991).
While this provision is consistent with ACF's
interpretation of
section 233.20(a)(11)(iii)(C), it does
not constitute adequate notice of
that interpretation
because it addresses how you calculate the four
consecutive months when person is actually receiving the
benefit of the
disregard. It does not address the
question of how you calculate the
effect of a penalty
under subsection (C).
ACF cited also two sections of the QCM.
A penalty, withholding the applicable earned income
disregards, can
apply if the recipient failed
without good cause to report earnings timely
or
failed without good cause to file a timely monthly
report of
earnings.
(Emphasis added) QCM at V-119.
This section parallels the language of the regulation and
presents the
same problem. It does not make it clear
that, in order for a penalty
month to be one of the
consecutive months in a subsection (C) penalty, the
$30
plus one-third disregard would have to have been applied
but for the
imposition of the penalty. This is
particularly true in context of the
subsections (A) and
(B) of section 233.20(a)(11)(iii).
Finally, ACF cited the QCM at V-124 (emphasis added).
The $30 and one-third disregard is applied to an
individual's
earned income for four consecutive
months beginning with the first month in
which it is
applicable. If any part of it is applied, the
individual is
considered to have received the
disregard for that month. When this
disregard is
used to determine the amount of payment due for a
month,
that payment month is one of the four
consecutive months.
Like the Action Transmittal, this section of the QCM
gives guidance as to
how to decide whether a non-penalty
month is one of the four consecutive
months. It is
consistent with ACF's present position but does not
constitute adequate notice of ACF's interpretation of the
effect of the
penalty provisions particularly in light of
the immediately subsequent
paragraph of that section of
the QCM. It provides:
Under most circumstances, if application of the
disregard is
interrupted before it has been received
for four consecutive months, the
individual starts a
new four-month period of eligibility for the
disregard when income levels make it applicable
again. . . .
However, the four-month period
continues under the following
circumstances:
* * *
c. If an individual is deprived of the $30 and one
third
disregard because he/she has been
sanctioned, the accumulation of the
consecutive
months of application of the $30 and one-third
disregard
continues.
(Emphasis added) QCM at V-124-125.
This language reasonably could also be construed by North
Carolina to
mean that a monthly reporting sanction did
not interrupt the accumulation of
consecutive months.
Finally, we conclude that North Carolina demonstrated
that it had adopted
its interpretation of section
233.20(a)(11)(iii)(C) as a state practice in
its AFDC
Manual. In that manual, it instructed its eligibility
workers that when the $30 plus 1/3 disregard was
interrupted because
earned income was penalized, the
penalty month counted as one for the four
consecutive
months. Since North Carolina did not have adequate and
timely notice of ACF's contrary interpretation, this
provision
constituted a PSP and North Carolina's
budgeting process in this case should
be evaluated
against that PSP.
Therefore, because North Carolina's interpretation of
sections
233.20(a)(11)(ii)(B) and 233.20(a)(11)(iii)(C)
is reasonable and set forth
in its AFDC Manual and since
North Carolina had no prior notice of ACF's
contrary
interpretation, North Carolina's action in this case was
pursuant to its PSP.
Conclusion
For the foregoing reasons, we conclude that the AU in
this case was not
entitled to the $30 plus one-third
disregard during the review month and we
reverse ACF's
error determination.
Andrea M.Selzer
Maxine M. Winerman
Sara Anderson
* * * Footnotes * * *
* While we conclude that North Carolina's
interpretation of sections 233.20(a)(11)(ii)(B) and
233.20(a)(11)(iii)(C) is reasonable, we note specifically
that ACF's
construction is reasonable also, and, as
discussed above, entitled to
deference once a state has
received adequate and timely notice. ACF's
interpretation gives full effect to the terms "loses" and
"applicable"
as they logically apply to subsection
233.20(a)(11)(iii)(C). Also we
note that ACF's
interpretation is more fair to recipients because ACF's
interpretation limits the consequences of the penalty for
failure to
file a timely monthly report to the actual
income that the recipient failed
to report.