New York State Office
of Children and Family
Services

The New York State Office of Children and Family Services (New York) appealed a decision by the Division of Cost Allocation (DCA) of the Department of Health and Human Services dated

May 20, 1997. This decision instructed New York to amend its Local Social Services District Cost Allocation Plan (CAP) prospectively with an effective date of October 1, 1997. Specifically, DCA concluded that changes in the circumstances in the operation of the random moment study in the CAP caused New York to claim certain activities which were not allowable administrative activities under title IV-E of the Social Security Act (Act). These activities involve non-client contact social services such as preparing written reports following or preceding the provision of social services in the field. DCA asserted that these activities are not allowable IV-E administrative activities because they involve the delivery of a social service and, in addition, because they are not listed in the regulations as an allowable IV-E activity and are not closely related to a listed activity.

As discussed in detail below, we conclude that DCA's determination is fully consistent with title IV-E and its implementing regulations. The primary purpose of the IV-E foster care program is to provide funding for foster care maintenance payments for children who have been placed in foster care and otherwise would have been eligible for Aid to Families with Dependent Children (AFDC) pursuant to provisions of the former title IV-A of the Act as in effect on June 1, 1995. The Act and the regulations also contemplate limited funding under the IV-E program for administrative activities on behalf of children who have been placed in foster care or are candidates for foster care. In order for the costs of an administrative activity to be properly charged to the IV-E program, the regulations provide that the activity must be listed as an example of an allowable IV-E activity or must be of a type which is closely related to one of the listed activities. The regulations further provide that the activity may not involve the delivery of social services to ameliorate or remedy personal problems, behaviors or home conditions. DCA properly determined that New York's current CAP would result in allocating to title IV-E the costs of activities that are not allowable. Therefore, we uphold DCA's determination instructing that the CAP be amended.

Below, we review the cost allocation process, relevant provisions of title IV-E and the implementing regulations, and the factual background of the appeal. We then explain why DCA's determination is consistent with the statute and regulations and why arguments presented by New York on appeal are unavailing.

The Cost Allocation Process

A state participating in the various public assistance programs under the Act, including the title IV-E program, is required to determine the amount of commonly incurred expenditures that are allocable to each program the state administers. A state is required to submit a plan for cost allocation to DCA for its approval. 45 C.F.R. � 95.507(a). This plan, or CAP, is defined as "a narrative description of the procedures that the State agency will use in identifying, measuring, and allocating all State agency costs incurred in support of all programs administered by the State agency." 45 C.F.R. � 95.505.

Once approved by DCA, a CAP would generally continue in effect indefinitely if the state submits an annual statement to DCA certifying that the CAP is not outdated. 45 C.F.R. � 95.509(b). However, DCA may require a state to amend its CAP if the CAP becomes outdated, a material defect is discovered in the CAP, or other changes in the operation of the CAP occur which make the CAP invalid. 45 C.F.R. � 95.509(a). The Board has jurisdiction to review DCA's final written decision in disputes involving CAP approvals, including any determination by DCA that a previously approved CAP must be amended. 45 C.F.R. Part 16, App. A., Section D.⁽¹⁾

Title IV-E

Title IV-E was originally enacted as part of the Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272. This title authorizes appropriations for foster care maintenance payments to assist states in providing, "in appropriate cases, foster care ... for children who otherwise would be eligible for assistance" under the AFDC program.⁽²⁾ Section 470 of the Act.

Because Congress wanted to encourage states to prevent improper foster care placements and to ensure that children remained in substitute care only when necessary, Congress imposed conditions on the receipt of title IV-E funding for foster care maintenance payments. First, the state plan must provide that the state will make reasonable efforts prior to the placement of a child in foster care to prevent or eliminate the need for removal of the child from home. Section 471(a)(15) of the Act. Second, the removal must be the result of a judicial determination with specific findings concerning the child's welfare and reasonable efforts to prevent removal, or pursuant to a voluntary placement agreement. Section 472(a)(1). Third, each child in foster care must have a case plan. Section 471(a)(16).

Section 474 of the Act establishes three categories of title IV-E expenditures: foster care maintenance payments (474(a)(1)), adoption assistance payments (474(a)(2)), and "amounts . . . found necessary by the Secretary for the provision of child placement services and for the proper and efficient administration of the State plan" (474(a)(3)).⁽³⁾

The regulations implementing title IV-E are codified at 45 C.F.R. Part 1356. Section 1356.60(c) concerns allowable administrative costs. Subparagraph (1) specifies certain costs, such as determination and redetermination of eligibility, which are "directly related only to the administration of the foster care program under this part" and which "may not be claimed under any other section or Federal program." Subparagraph (2) lists "examples of allowable administrative costs necessary for the administration of the foster care program" such as development of the case plan, case reviews, and case management and supervision. Subparagraph (3) provides that "[a]llowable administrative costs do not include the costs of social services ... which provide counseling or treatment to ameliorate or remedy personal problems, behaviors or home conditions."

Factual Background

A. New York's Child Welfare System

In New York, children who are suspected of being abused or maltreated become the subject of a report to the State Central Registry (SCR). Reports to the SCR are transmitted electronically to the appropriate Social Service District (SSD) child protective service (CPS) unit for investigation and assessment of risk of harm and services need. State Ex. 2, at � 5. The CPS caseworker determines whether a child named in an SCR report has been abused or maltreated and whether the child is at imminent risk of harm by remaining in the home and at immediate risk of foster care placement. Id., at �� 7-9. Based upon this assessment, the CPS caseworker takes appropriate action to initiate judicial proceedings to remove the child from home and/or to refer the child for mandated preventive services to prevent the immediate need for removal and to reduce the likelihood of removal. Id., at �� 9-10. In instances in which services intervention to prevent foster care placement is warranted, the caseworker opens mandated preventive services cases, authorizes the provision of appropriate preventive services, and completes New York's prescribed uniform care record (UCR) "initial assessment and service plan" or "risk assessment" form, and the Welfare Management System (WMS)/Child Care Review Service (CCRS) data entry forms. Id., at �� 11, 13. Subsequently, the case record, along with the UCR form, may be transferred to the appropriate preventive services or foster care caseworker unit for primary supervision of the cases.⁽⁴⁾ State Br. at 5.

In New York City, the Administration for Children's Services (ACS) is responsible for administering to the needs of New York City children who have been placed in foster care or are at imminent risk of foster care placement. ACS maintains CPS units in field offices located in each of the five boroughs of New York City. State Ex. 6, at � 7. ACS also maintains services units known as the Family Preservation Program (FPP). There are 15 FPP units in New York City. State Ex. 6, at � 4.

CPS workers in New York City may refer cases to FPP units to provide a short term (6-8 weeks) regimen of intensive needs assessment, case planning, and social services intervention under the terms of the initial case plans. State Ex. 6, at �� 10,11. The goal of this intensive intervention is to prevent foster care placements, and to reduce or eliminate the household circumstances causing the risk of imminent placement. To accomplish this goal, FPP caseworkers carry only one or two cases at a time and engage in direct provision of one or more services, such as home visits for the purpose of counseling the family, performing and/or giving instruction in child care and homemaking-housekeeping skills, and performing advocacy activities on behalf of the family. Id. at � 12.

B. New York's Title IV-E CAP

In 1992, New York submitted to DCA a proposed amendment to its CAP. The amendment was known as the New Services Random Moment Study (RMS). In this amendment, New York submitted two options for claiming title IV-E administrative costs: the Emergency Assistance to Families with Needy Children Option (EAF Option) and the Title IV-E as Primary Program Option (IV-E Option). In December 1994, DCA approved the EAF Option, subject to certain conditions.⁽⁵⁾ In April 1996, DCA reaffirmed its approval of the RMS EAF Option with some modifications to the conditions initially set in December 1994. The terms of the EAF Option are the subject of this appeal.

Pursuant to the RMS, New York conducts monthly telephone studies of relevant SSD staff. The observations identify exactly what a sampled SSD services worker is doing at a particular moment in time. The results of the monthly surveys are compiled on a quarterly basis and used to support claims for reimbursement under title IV-E, and other benefiting assistance programs, for SSD administrative costs associated with the provision of services incurred in the subsequent quarter.

The RMS identifies and defines several specific activities, including the direct provision of social services. The activities include: Code 37 - Development/Re-evaluation of the Case Plan; Code 38 - Preparing Participation in Judicial Proceedings; Code 39 - Placement of Child; Code 40 - Working with Investigative Agencies (Criminal); Code 41 - Case Management/Monitoring; Code 42 - Direct Provision of Social Services; and Code 43 - Referral for Services. State Ex. 9, Att. A.

Consistent with the approved RMS, activities coded as 37, 38, 39, 41, and 43, are allowable administrative costs under section 474(a)(3) of title IV-E when performed by preventive and/or foster care caseworkers and case managers on behalf of title IV-E eligible children or children who may properly be viewed as candidates for title IV-E. 45 C.F.R. � 1356.60(c)(2)(i) - (vi). Activities coded as 42 pertain to the direct provision of social services and are not allowable under title IV- E. Similarly, DSS workers' participation in criminal investigations (Code 40) is not a title IV-E administrative cost.

In 1995, ACF conducted a survey of the operation of the RMS. The purpose of the survey was "to ensure that the RMS had been implemented in accordance with the CAP and that the information captured equitably reflects the relative cost to impacted programs." State Ex. 9, Att. E at 1 of Review of the New York State Department of Social Services New Services Random Moment Study (Review). The survey involved visits to SSD caseworker offices, including a visit to a New York City FPP unit. ACF found that all of the FPP workers' field work was coded as direct provision of social services (Code 42), while the in-office work was usually coded as case planning (Code 37) or case management (Code 41). ACF found that the majority of work performed by FPP units involved direct provision of services to children and their families. ACF found that the in-office case record entries made by FPP caseworkers and coded as a 37 or 41 activity were derived from observations and information gathered by the FPP caseworkers while providing services. Finally, ACF observed that foster care case management responsibility for cases temporarily assigned to FPP unit caseworkers was retained by CPS case managers. Based on its findings, ACF concluded that the case planning/management activity being reported in the CAP by FPP caseworkers was "not from the context of a case manager, but relates instead to the direct delivery of services." Id. at 2.

After its survey, ACF recommended that the RMS be modified to capture as unallowable, case planning activities when performed from a "service delivery perspective."⁽⁶⁾ State Ex. 9, Att. J., at 1. DCA adopted this recommendation and directed New York to devise a new activity code for non-client contact activities that are related to the delivery of social services and are "performed from a service delivery perspective." State Ex. 9, Att. I at 2. ACF instructed New York that such a code should include "all non-client contact work involving preparation for or follow-up to the direct provision of social services as defined in code 42." State Ex. 9, Att. J at 1. ACF acknowledged that there are some in-office activities performed by FPP workers that could qualify for title IV-E reimbursement.⁽⁷⁾ ACF also informed New York that, while its discussion of this matter had focused on the operation of FPP units, its decision about the allowability of these costs "could be relevant wherever a worker is responsible for providing social services." ACF letter of July 23, 1997, at 1.

As explained below, we conclude that DCA was correct in directing New York to revise its RMS to capture and exclude from its title IV-E claims "activities described in Code 37 [case planning] when performed from a service delivery perspective," i.e., "non-client contact work involving preparation for or follow-up to the direct provision of social services." State Ex. 9, Att. I at 2; Att. J at 1.

A. DCA's actions are reasonable and in accordance with the Act, the implementing regulations, and ACF's prior interpretations of the Act.

As the Board has repeatedly held, the primary purpose of the IV-E foster care program is to provide funding for foster care maintenance payments for children who have been placed in foster care and otherwise would have been eligible for cash assistance under the former title IV-A of the Act. New York State Dept. of Social Services, DAB No. 1610, at 13 (1997); Illinois Dept. of Children and Family Services, DAB No. 1530, at 27 (1995); New York State Dept. of Social Services, DAB No. 1428, at 14 (1993); Missouri Dept. of Social Services, DAB No. 844, at 17 (1987). Title IV-E funding was never intended to share in the costs of delivering social services such as family preservation and support.⁽⁸⁾ Rather it was enacted as one component of the Adoption Assistance and Child Welfare Act of 1980, a broad federal attempt to assist states to provide help to children whose welfare is threatened. It is complemented by federal programs with funding caps, such as title IV-B, whose very purpose is to fund such social service activities as family preservation programs.⁽⁹⁾

While the primary purpose of title IV-E is to assist states with maintenance payments for eligible children, the program also provides for reimbursement at 50 percent for the total amount expended "as found necessary by the Secretary for the provision of child placement services and for the proper and efficient administration of the State plan." Section 474(a)(3) of the Act. The Secretary has adopted regulations setting forth the types of expenditures that qualify for reimbursement under section 474(a)(3). The regulations set forth two rules applicable here for determining whether a particular cost is an allowable IV-E administrative cost. The cost may not include the cost of providing a social service. Also, the cost must be one of a list of examples of allowable costs or closely related to one of those costs. As we explain below, the costs at issue here are unallowable under these regulatory rules. As to costs which are not allowable, the regulation at 45 C.F.R. � 1356.60(c)(3) provides --

Allowable administrative costs do not include the costs of social services provided to the child, the child's family or foster family which provide counseling or treatment to ameliorate or remedy personal problems, behaviors or home conditions.

Further, ACF has interpreted this provision to mean that title IV-E reimbursement is also not available for administrative activities, such as the daily recording of progress notes, which are related to the delivery of such social services. ACYF-PA-85-06 at 3, see also ACYF-PIQ-82-01, at 3 - 4.⁽¹⁰⁾

While New York's RMS contains a code for provision of services, this code addresses the "direct" provision of services. Examples listed in this code consist of the actual services such as "counseling, homemaker or housing services, day care, . . . and transportation provided by services workers for client to receive these services." State Ex. 9, Att. A at 10. After observing the operation of the FPP units, ACF realized that workers who were providing social services were claiming their administrative work, such as entries to the files for those services, as title IV-E activities. However, such activities are necessary to and part of the provision of the social services. Therefore, under 45 C.F.R. � 1356.60(c)(3), DCA properly instructed New York to develop an additional RMS code to capture administrative activities involving non-client contact in the provision of social services so that these activities would not be improperly charged to title IV-E.

New York's FPP units illustrate the problem DCA is trying to address. The function of FPP units is the delivery of intensive social services "to avert further deterioration of the household and to prevent the children's removal from their homes." State Ex. 8, � 13. As explained by New York:

FPP unit caseworkers are assigned two cases at a time, and are directed to be available to assist those families seven (7) days a week, twenty-four (24) hours per day. FPP caseworkers spend ten (10) to twenty (20) hours a week with the case families. The activities of FPP caseworkers include frequent home visits for the purposes of assessing needs, providing services, including counseling, performing and providing instruction in child care and homemaking-housekeeping skills, and monitoring the progress of the services intervention, and visits to schools, teachers, housing management offices, domestic violence programs, and health care providers as needed on behalf of the families.

State Ex. 6, � 12.

As we discuss in more detail below, FPP workers' in-office activity, which involves preparation for or follow up to the delivery of social services in the field, is necessary for and directly connected to the delivery of such social services. It is therefore part of the cost of delivering social services and not allowable under 45 C.F.R. � 1356.60(c)(3).

Aside from the social services prohibition, the regulation also specifies a list of examples of allowable administrative costs necessary for the administration of the IV-E program. 45 C.F.R. � 1356.60(c)(2). These costs include: development of the IV-E case plan, case reviews required by IV-E, and IV-E case management and supervision. The Board has previously held that in order for an activity to be an allowable IV-E administrative cost, the activity must be listed in the regulations as an example of an allowable IV-E activity or must be of a type which is closely related to one of the listed activities. New York, DAB No. 1428, at 10.

New York argued that the costs of FPP workers' in-office activities are allowable title IV-E costs because the activities

constituted "development of the case plan" and "case management and monitoring" within the meaning of 45 C.F.R. � 1356.60(c)(2).

In order to try to ensure that children were not needlessly put or kept in foster case, Congress required states to develop a case plan for each title IV-E recipient. Section 471(a)(16). Under section 475(1), a case plan is required to contain a range of information concerning where the child is placed, the appropriateness of the placement, how the agency will fulfill the requirements of title IV-E, assurances about proper care and services in the IV-E placement, and to the extent available, medical and educational records of the child. Additionally, the Secretary has adopted regulations concerning case plans requiring that they include a description of the services offered and the services provided to prevent removal of the child. 45 C.F.R. � 1356.21(d)(4). Finally, the Secretary recognized the critical importance of case planning and management by explicitly identifying them in 45 C.F.R. � 1356.60(c)(2) as allowable administrative activities.

For the following reasons, we reject New York's arguments that the work done in preparation for or as follow-up to the delivery of social services at issue here is allowable under title IV-E as case planning or case monitoring.

o The documentation created by a social services provider, such as an FPP worker, is fundamentally different than what is required by title IV-E case planning standards. A title IV-E case plan is "a written document, which is a discrete part of the case record, in a format determined by the state." 45 C.F.R. � 1356.21(d)(1). In that case plan, a state must include a description of the services offered and/or provided to a family. 45 C.F.R. � 1356.21(d)(4). However, a social services provider documents the process of delivering these services.

o The sample FPP case file in this record (State Ex. 7) demonstrates why an RMS should have a category to capture administrative work in support of the delivery of social services.⁽¹¹⁾ The case record entries record in detail the worker's preparation for and follow-up to the delivery of social services. The worker documents and discusses shopping with the mother for cleaning supplies, cleaning house with the mother, counseling the mother and father on child rearing practices, helping the children with their homework and counseling the children, accompanying the mother to medical appointments for one of the children, and advocating for the family with its landlord. These are plainly social service activities and memorialization of social services activities.

o From the record, it appears that only a small part of the documentation created by the FPP worker is routinely submitted to the managing CPS or foster care worker. In cases where the immediate risk of removal continues to exist or the child has been placed in foster care, a Case Termination Assessment and case summary documentation are provided, while the full written case record is provided only if requested. State Ex. 6, at � 15. The fact that significant portions of the FPP workers' written work product are not included on a routine basis in the child's title IV-E case record undercuts New York's arguments that all of this documentation is part of the title IV-E case plan rather than a social worker's documentation of the provision of social services.

o One can appreciate the disparity between the work of a preventive services worker and a FPP worker by contrasting the worker/family ratios between the two types of workers. A preventive services worker may have 150 cases; a FPP worker has two. State Ex. 9, Att. E at 16 of the Review. A FPP worker is not doing 75 times the case planning; rather, the FPP worker is delivering intensive social services to the family and preparing for and documenting the delivery of those services.

o New York insisted that it should not have to differentiate social service preparation or follow-up activities from traditional case planning/management activities. This is an untenable position in light of the burden of New York as grantee to document the allowability of all of its claimed IV-E costs. New York State Dept. of Social Services, DAB No. 1666, at 19 (1998); Washington Dept. of Social and Health Services, DAB No. 1214, at 13 (1990). New York, nevertheless, is free to explore further with ACF whether it could isolate in its CAP some limited portion of an FPP worker's activities that could be considered IV-E case planning or case management.

New York further argued that the in-office work of the FPP workers should be considered an allowable administrative cost because it was necessary to comply with the title IV-E requirements that the state make reasonable efforts prior to the placement of a child in foster care to prevent or eliminate the need for removal of the child from home, and that the removal be pursuant to a judicial determination with specific findings concerning the child's welfare and reasonable efforts to prevent removal.

For the following reasons, we disagree with this argument.

o Title IV-E is a foster care maintenance payment program which conditions eligibility for maintenance payments on the provision of reasonable efforts, such a social services, to prevent placement. However, in title

IV-E, Congress did not expressly authorize funding for social services delivered as part of a state's reasonable efforts, nor is there any indication in the legislative history that Congress intended to authorize such funding. Further, in the implementing regulations, the Secretary determined that the costs of social services are not allowable administrative costs. Therefore, while a state must make reasonable efforts to avert foster care placement, and removal must be based on a judicial determination that reasonable efforts have been made as conditions for obtaining funding for IV-E maintenance payments, the costs of social services which a state provides as part of its reasonable efforts are not allowable title IV-E costs.

o The fact that certain documentation may be used in making a removal decision or in a judicial proceeding does not mean that the costs associated with creating that documentation are title IV-E administrative expenses. For example, in deciding whether or not to remove children to foster care, a worker may refer to and rely on medical records or school records. However, the costs of generating these records are not chargeable to title IV-E.

o New York contracts directly with a range of providers for social services for families eligible for mandated preventive services. State Ex. 2, at � 19.⁽¹²⁾ While the services provided by such contractors are part of New York's reasonable efforts to avert foster care placement, New York cannot claim title IV-E coverage for the costs of documentation generated by social service contractors. ACYF-PIQ-85-6, at 3. For example, core mandatory preventive services include homemaker services and parent training or parent aide. State Ex. 4, 18 NYCRR 423.4(d). If a CPS case worker purchases homemaker services or parent training services from a contractor, the state cannot claim title IV-E for these social services or for the costs of the contractor's documentation of these services. Similarly, in an FPP case where the FPP worker is the provider of homemaker or parent training services, the worker's documentation does not constitute a title IV-E administrative expense.

Therefore, we conclude that DCA's actions are reasonable and in accordance with the Act, the implementing regulations, and ACF's prior interpretations of the Act.

B. New York's remaining arguments are without merit.

1. DCA's actions do not violate Pennhurst State School and Hospital v. Halderman.

New York argued that DCA cannot deny administrative costs associated with reasonable efforts involving the provision of social services since reasonable efforts are required by the title IV-E. New York cited the case of Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17 (1981) for the proposition that Congress must condition the states' receipt of federal funds "unambiguously . . ., enabl[ing] the States to exercise their choice knowingly, cognizant of the consequences of their participation." New York concluded that, by refusing to allow title IV-E funds to be claimed for the costs of administrative activities related to the delivery of social services which are part of a state's reasonable efforts to prevent placement, ACF has construed title IV-E in a way that violates the holding in Pennhurst.

We do not believe DCA's construction of title IV-E violates Pennhurst. Pennhurst holds that federal conditions on the states' receipt of federal funds should be unambiguous. As discussed below, New York had notice that while title IV-E requires reasonable efforts to prevent the placement of children in foster care as a condition for IV-E maintenance payments, the social services a state chooses to provide as part of its reasonable efforts are not a title IV-E administrative cost.⁽¹³⁾ Pennhurst does not address whether the federal government must participate in the costs of any of those conditions. Here New York is challenging DCA's refusal to fund the costs of social services so Pennhurst is not relevant.

2. New York received actual and adequate notice that activities in preparation for or follow-up to the delivery of social services are not title IV-E activities.

New York argued that ACF's and DCA's 1997 correspondence directing it to amend its CAP did not constitute adequate and actual notice that costs for the activities of preparation for and follow-up to the delivery of social services were not chargeable to title IV-E. It asserted that ACF's and DCA's policy was "vaguely worded, ill defined, and not so stated in any other regional issuance or in any systematic uniform transmittal issued by the ACF central office." State Br. at 41.

We conclude that New York received adequate and actual notice for the following reasons.

First, 45 C.F.R. � 1356.60(c)(3) explicitly provides that allowable administrative expenses do not include the costs of social services. The preparation and follow-up work done by workers delivering social services is part of the cost of delivering social services. Moreover, 45 C.F.R. � 1356.60(c)(2) does not include the social service in-office activities at issue as an example of an allowable administrative cost nor are the activities closely related to an example.

Second, in a series of letters from the Regional Office and Central Office, ACF informed New York that these activities were not allowable. In the correspondence, New York was given a general principle for identifying the work at issue: "all non-client contact work involving preparation for or follow-up to the direct provision of social services as defined in code 42 [direct delivery of social services]." New York was given specific examples of what such work would include. ACF explained why, in its view, the change was necessary. New York was told of the scope of the policy. New York was informed by the Central Office that it had reviewed and approved the Regional Office's instructions. We conclude that these letters constitute actual and adequate notice of the fact that in-office activities related to the delivery of social services are to be considered part of the cost of social services.

Nor do we agree with New York that the correspondence demonstrates that the policy was adopted in a haphazard way. The fact that ACF made additional points to clarify its position, in response to New York's arguments, is only natural. While we do agree that the details of how to identify the costs at issue are not resolved, this is the result of New York's insistence that no change is necessary. Consequently, the parties have not discussed the exact terms of the new code and how it might operate.

New York also argued that ACF had not "proffered any credible reasoned analysis establishing a rational basis in support of the regional policy at issue" and that it was not within the authority of the Board to "contrive or manufacture a rational basis . . . in the absence of one deliberated on and formulated by the Respondent's policy making staff." State Br. at 41. We disagree. The substance of our decision is based on the authorities and reasoning set out by ACF in its correspondence with New York and on DCA's briefs in this case.

Finally, New York argued that ACF and DCA could not impose this restriction on New York because it was not a "clearly applied uniform national policy which has been consistently applied and properly communicated to all the states." State Reply Br. at 15. In support of this argument, New York cited North Carolina Dept. of Human Resources, DAB No. 1631 (1997).

We reject New York's argument that this case is governed by North Carolina because the factors in North Carolina are not present here. North Carolina involved a disallowance of costs under the Emergency Assistance (EA) provisions of title IV-A for children placed in secure juvenile justice facilities. The Board held that, prior to January 1996, ACF had not adopted a policy pursuant to which it could disallow such costs. The record in North Carolina established that ACF had approved state plans explicitly providing for such expenditures and reimbursed states for such expenditures; that North Carolina amended its title IV-A state plan to include such costs; and that then, in January 1995, ACF informed North Carolina that such costs were not allowable. In North Carolina, ACF based its case before the Board on the theory that, whatever its prior practices, by late 1994 it had adopted a "national policy" prohibiting such costs. In the context of that assertion, the Board looked to see whether ACF had adopted such a policy as of that time.

North Carolina is not relevant to the case for the following reasons. First, there is no general requirement that a Regional Office act pursuant to a specifically articulated memorialized "national policy." Regional Offices must make many decisions about the administration of programs. It is not possible for there to be a "national policy" on every situation that might become a question at the regional level in title IV-E. Rather, the Regional Office must act in accordance with the law, regulations and existing guidance, such as action transmittals, that have been issued by the Central Office.

Second, the factors in North Carolina which raised the question of whether ACF was acting pursuant to a national policy are not present in this case. Unlike North Carolina, there is no evidence that ACF or DCA approved state plans or cost allocation plans explicitly providing for administrative services in support of the delivery of social services or acted in any other way which would cause New York or any other state to reasonably conclude that such costs were allowable.⁽¹⁴⁾

For the preceding reasons, we conclude that New York received actual and adequate notice.

3. ACF's instructions to New York concerning allowable title IV-E activities do not constitute a legislative rule and do not have to be promulgated pursuant to the notice and comment procedures of the Administrative Procedure Act.

New York argued that ACF's position that activities involving preparation for and follow-up to the delivery of social services are not title IV-E activities establishes a new definition for the terms "development of the case plan" and "case management and supervision." Citing section 553(c) of the Administrative Procedure Act (APA), New York asserted that such a policy constitutes a legislative rule which must be published in the Federal Register for notice and comment. Section 533(c) requires that when a federal agency adopts, amends, or repeals a rule, the federal agency must publish notice of the proposed change in the Federal Register and give interested persons "an opportunity to participate in the rulemaking through the submission of written data, views, or arguments."

We do not think ACF's or DCA's actions constitute the promulgation of a rule. Rather, in reviewing the operation of New York's CAP, ACF and DCA have applied the Act and the implementing regulations to a discrete set of facts. This is the type of programmatic decision agencies must make in the routine administration of a program.

However, even if ACF's or DCA's actions constitute promulgation of a rule, the APA provides an exception to the notice and comment requirement for "interpretative rules, general statements of policy, and rules of agency organization, procedure, or practice." 5 U.S.C. � 553(b). (Emphasis added.) Therefore, interpretative rules may be promulgated without notice and comment while other rules, usually referred to as substantive or legislative rules, may not.⁽¹⁵⁾ Courts have consistently held that agency rules are invalid if an agency fails to comply with APA requirements. Buschmann v. Schweiker, 676 F.2d 352, 358 (9th Cir. 1982); cf. Chrysler Corp. v. Brown, 441 U.S. 281, 313 (1979).

While there is diversity in the standards courts have used to distinguish between legislative and interpretative rules, it is generally agreed that when an agency is exercising its rulemaking power in order to interpret or clarify an existing statute or regulation, the agency is considered to be engaged in interpretative rulemaking.⁽¹⁶⁾ "An interpretative rule simply states what the administrative agency thinks the statute means

. . ." General Motors Corp. v. Ruckelshaus, 742 F.2d 1561, 1565 (D.C. Cir. 1984) (en banc), cert. denied, 471 U.S. 1074 (1985); see also Alcaraz v. Block, 746 F.2d 593, 613 (9th Cir. 1984) (interpretative rule "simply explained something the statute already required").

In contrast, courts also agree that when an agency acts to create new law, rights, or duties in what amounts to a legislative act, it is engaged in legislative rulemaking. White v. Shalala, 7 F.3d 296, 303 (2d Cir. 1993); Metr. School Dist. of Wayne Township v. Davila, 969 F.2d 485, 489-490 (7th Cir. 1992), cert. denied, 113 S.Ct. 1360 (1993); United Technologies Corp. v. EPA, 821 F.2d 714, 718 (D.C.Cir. 1987); see also Alcaraz, 746 F.2d at 613 (legislative rules impose general, extra-statutory obligations pursuant to authority properly delegated by the legislature); Cabais v. Egger, 690 F.2d 234, 238 & n. 9 (D.C.Cir. 1982) (legislative rules have effects completely independent of the statute).

Given these principles and distinctions, we agree with ACF's position that the decision that the costs at issue are not allowable is, at most, an interpretative rule for the following reasons.

o Section 1356.60(c)(3) provides "allowable administrative costs do not include the cost of social services." In its dealings with New York on this issue, ACF is interpreting what activities it considers to be properly included in the "cost of social services" and outside the examples set forth in section 1356.60(c)(2). This is a clarification of this regulation. When an agency interprets or clarifies an existing statute or regulation, the agency is considered to be engaged in interpretative rulemaking.

o As we explain in our review of the substantive validity of ACF's and DCA's position, ACF's denial of these administrative costs is well within title IV-E limitations attributable to Congress through statutory interpretation. Therefore, ACF's and DCA's actions do not create new law, rights, or duties completely independent of the terms of title IV-E or the existing regulations.

o Legislative rulemaking is required where the challenged action "sets forth a new position inconsistent with . . . existing regulations." Gurnsey Memorial Hospital v. Shalala, 514 U.S. 87, 100 (1995). However, ACF's and DCA's position is consistent with the existing rules governing title IV-E and with ACF's prior policy announcements.

Therefore, we conclude that ACF's and DCA's application of 45 C.F.R. � 1356.60(c) to the facts here does not constitute a legislative rule and did not have to be published using notice and comment rulemaking.

4. The passage of the Adoption and Safe Families Act of 1997 and New York's recent title IV-E waiver do not require a reversal of DCA's cost allocation decision.

New York argued that after the Adoption and Safe Families Act of 1997, Public Law No. 105-89, the title IV-E foster care program can no longer be characterized as a program of limited purpose. It relied on section 471(a)(15)(F), which provides that a state may engage in reasonable efforts to reunite a family while concurrently engaging in administrative activities necessary for the adoption of a child. New York argued that this change means that administrative activities do not have to be unique to title IV-E and an FPP worker's activities could simultaneously be preparation for or follow-up to the delivery of social services and case planning.

We disagree. The purpose of the Adoption and Safe Families Act was to encourage and help states move children into adoptive homes. While it clarified what constitutes reasonable efforts and circumstances under which a state may abandon reasonable efforts, it did not modify title IV-E funding for services provided in furtherance of a state's duty to engage in reasonable efforts to prevent removal.

New York also informed the Board that on June 11, 1998, New York and ACF had entered into an agreement by which ACF has waived certain provisions of title IV-E for a Demonstration Project to be conducted in New York. State Ex. 22. New York argued that ACF's waiver will "significantly change the way cost allocation is performed."⁽¹⁷⁾ Given this waiver, New York argued "efforts to identify costs charged to this new code will be disproportionate to the results received." State Supplement Br. at 7. It asked that DCA's decision be reversed for further consideration in light of this waiver.

Pursuant to the explicit terms of this waiver, we reject this request. Section 2 of the waiver provides, "[T]hese Terms and Conditions shall not have any effect upon, nor shall they be used in any manner in connection with, any administrative matter relating to Parts B or E of title IV of the Act, before the Departmental Appeals Board." State Ex. 22, at 5.

5. DCA's determination is fully supported.

New York argued that DCA's position that New York must amend its CAP was not supported by substantial evidence. Specifically, New York complained that DCA's position was based on ACF's review of a sample of RMS observations of the FPP unit and that ACF had not produced the exact observations reviewed nor demonstrated that the sample was statistically valid. New York pointed to its exhibit containing a sample FPP case file as contradicting ACF's conclusions that the FPP units' in-office documents involve preparation for or follow-up to the provision of social services.

As a grantee, New York has the burden of showing that its CAP authorizes it to claim funds in accordance with requirements enacted by Congress and adopted by the administering agency. New York State Dept. of Social Services, DAB No. 1666, supra; Washington Dept. of Social and Health Services, DAB No. 1214, supra. New York has not met that burden here.

First, DCA did not purport to base its decision on a scientific statistical sample. Rather, DCA is relying on the findings in the Regional Office's review that FPP workers provide direct social services. New York did not dispute that these workers provide social services; New York disputed ACF's and DCA's characterization of the FPP workers' in-office work as work related to the delivery of social services rather than as case planning and management. Yet, New York produced no evidence to contradict the conclusion that the delivery of social services is not limited to field work, but also includes in-office preparation for and follow-up to the field work.

Second, contrary to New York's assertions, State Exhibit 7 demonstrates clearly that a FPP worker's documentation primarily concerns the delivery of social services. For example, the exhibit includes a weekly plan, which sets out what is planned for the week, and a weekly summary, which describes what was done in the week. The weekly plan for the first week is "Work on referral form to get a home maker in the household. Help [client] prepare the house for the infants return home. Clean and sanitize the place." Ex. 7, D1. New York argued this relates to "anticipated activities in furtherance of the case plan and goals . . . . It is clearly an administrative document designed for management purposes and not actual delivery of services." State Reply Br. At 13. We disagree. We view this as a document for managing services -- it sets forth the services the FPP worker plans to deliver in the coming week. Similarly, the weekly summary provides "FP paid portions of 2 outstanding utility bills; bought linen, and other household products; cleaned apartment w/client; put up baby crib; conferred w/ Dr. TM on infant's condition at KCH." Again, this is a summary of services. However, these are just the summaries. The largest document of the exhibit involves the "FPP Weekly Summary Continuation" form. State Ex. 7, Form E. It sets forth in detail the activities of the FPP worker.⁽¹⁸⁾ A review of this form demonstrates a level of detail that is appropriate for a service provider but far beyond anything envisioned by federal standards for title IV-E case planning or documentation of reasonable efforts. A title IV-E case plan must "include a description of the services offered and the services provided to prevent removal." 45 C.F.R. � 1356.21(d)(4). New York provided no authority for a conclusion that title IV-E requires a state to describe the day-to-day provision of social services. Rather, as to reasonable efforts, the purpose of a title IV-E case plan is to document the fact that reasonable efforts have been made, not to document the details about how the social worker goes about delivering the social services that constitute the reasonable efforts.

Thus, the evidence of record fully supports DCA's determination that New York's present CAP enables New York to claim costs which are not reimbursable under title IV-E and should be amended. Nevertheless, as we stated previously, ACF recognized that some limited portions of what a FPP worker might do could be considered allowable under title IV-E. Since a grantee has the duty of documenting the allowability of costs, it is New York's burden to identify such costs. New York is free to discuss with ACF and DCA how it might fashion some measure for isolating these discrete case planning/management activities in a way that would not be subject to confusion or abuse, and that would ensure that IV-E funds are used only for costs reasonable and necessary for the proper administration of title IV-E, consistent with congressional intent.

On the basis of the foregoing, we uphold DCA's determination requiring New York to amend its CAP prospectively with an effective date of October 1, 1997.

1. Although an intermediate administrative appeals process existed at the time DCA issued its initial determination, the parties agreed that New York's appeal could be considered directly by the Board. DCA letter dated November 25, 1997. The intermediate appeals process has now been eliminated altogether, so that the disapproval of a proposed CAP by the DCA Director is now appealed directly to the Board. 62 Fed. Reg. 38217 (July 17, 1997).

2. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Public Law No. 104-193, repealed the title IV-A program and amended title IV-E so that it refers to certain provisions of former title IV-A as they were in effect on June 1, 1995.

3. Prior to November 5, 1990, section 474(a)(3) referred only to expenditures "found necessary by the Secretary for the proper and efficient administration of the State plan." This language was amended by Public Law No. 101-508, � 5071(a).

4. New York has established a statewide, locally administered, preventive services program for the purposes of averting an impairment or disruption of a family which could result in placement of a child in foster care, of strengthening the ability of related persons to live together, and of encouraging stable living arrangements. State SSL � 409. Eligibility for "mandated" preventive services is determined, without regard to income, upon a finding that a child will be placed or continued in foster care unless appropriate preventive services are provided. State SSL � 409-a 1.(a). The supportive and rehabilitative preventive services include clinical diagnostic and therapeutic services, parent aide services, parent training, emergency shelter and food, day care services, homemaker and housekeeper services, and home management services. 18 NYCRR Part 423. Such services can be contracted for or provided directly by the SSD. State Ex. 2, at � 11.

5. The IV-E Option, however, was rejected by DCA, and DCA's determination was subsequently upheld by the Board in New York State Dept. of Social Services, DAB No. 1428 (1993). Under the IV-E Option, New York claimed reimbursement for children whether or not they met ACF's definition of a child who is a "candidate" for foster care maintenance payments, as set forth in program announcement ACYF-PA-87-05 (1987). New York has repeatedly claimed reimbursement pursuant to the disapproved IV-E Option and the Board has issued successive affirmances of ACF's disallowances.

6. In this proceeding, New York complained that ACF provided technical assistance to New York in setting up its RMS "without raising the issue that is now in dispute." State Reply Br. at 11. However, ACF had explained to New York that --

[t]he issue identified through the NYC Family Preservation units was not nearly as significant in 1992 when the cost allocation plan including the New Services RMS was submitted to DCA. It was our understanding that all local social services district (LSSD) preventive services units prior to the implementation of the Family Preservation program primarily performed case planning/case management oversight while provision of social services was largely contracted to other organizations. The material change represented by the creation of the NYC Family Preservation units and the possibility that other LSSDs are misclassifying some administrative activities related to provision of social services requires an amendment to the current CAP.

State Ex. 9, Att. J. at 2.

7. Possible activities for FPP workers that ACF has mentioned include placing a child in foster care; preparing for judicial hearings; participating in overall case planning meetings with a case manager (State Ex. 9, Att. E at 17 of Review); preparing, as a case manager, "general observations for inclusion in the overall case plan (preventive services record)" (Id. at 20); and "should the State choose to designate [FPP] workers as case managers . . . determinative activities such as producing a plan designed to avoid placement or initiating placement action . . ." ACF letter of September 17, 1997 at 2.

8. The preamble to the notice of proposed rulemaking for 45 C.F.R. �1356.60(c)(3) recognized that although the costs of conducting the activities essential to fulfilling the plan requirements under section 471 of the Act are considered necessary for the proper and efficient administration of the plan, the "costs of direct services to children, parents or foster parents to ameliorate personal problems and which go beyond the activities specified in the regulation are to be funded from other programs." 45 Fed. Reg. 86817, 86826 (Dec. 31, 1980). The preamble thus noted that: "The regulation delineates such social service costs from those required to carry out the provisions under title IV-E." Id. In response to commenters who opposed the prohibition on reimbursement of administrative costs for social services, the preamble to the final rule stated:

We agree that treatment-oriented services, such as helping families be reunited . . . , are vital to the goals of Pub. L. 96-272. However, concurrently with the enactment of title IV-E, Congress enacted a revised title IV-B (Child Welfare Services Program) which provides for the delivery of these social services. In addition, title XX of the Act, now the Social Services Block Grant, provides funds to States for services. Because other sources of Federal funds are available for the provision of these services, the Department has prohibited reimbursement from title IV-E funds for treatment-oriented services as inconsistent with the statutory concept of maintenance expenditures. Funds for those purposes are the major focus of the service programs. Therefore, the final regulation continues the NPRM requirement by prohibiting FFP under title IV-E for treatment-oriented services. 47 Fed. Reg. 30922, 30923 (July 15, 1982).

9. In 1993, title IV-B was amended to ensure that at least a portion of title IV-B funds was expended for family preservation services. The Omnibus Budget Reconciliation Act of 1993 (Public Law No. 103-66) created a new capped entitlement under title IV-B for a broad range of services to families termed "family preservation" and "family support" services. Prior to this amendment, states could use, but were not required to use, title IV-B for family preservation services.

10. New York argued that the action transmittals cited by ACF are subject to other reasonable interpretations. New York Reply Br. at 16 - 18. However, even if this is true, it would not be dispositive in this case. DCA instructed New York to amend its CAP prospectively. Therefore, even if New York had reasonably read the action transmittals as allowing the costs it seeks to claim, it has been given notice that its interpretations are not in accord with ACF's and DCA's interpretations and therefore it cannot reasonably rely on its interpretation in the future. New Jersey Dept. of Human Services, DAB No. 1549, at 16 (1995).

11. The names in State Exhibit 7 have been redacted by the Board to protect the privacy of the family identified in the exhibit the state originally submitted. We have also redacted names in four Random Moment Observation Forms that were included as Attachment H to State Exhibit 9.

12. In fact, contracting for services, rather than directly providing services, has been New York's usual practice. State Ex. 9, Att. J. at 2.

13. New York also argued that DCA's position "circumvents the kind of scrutiny Congress intended by enacting the federal "unfunded mandates" legislation, i.e., The Unfunded Mandates Reform Act of 1995, Pub. L. No. 1004-4 (1995). However, that act postdates the statute and regulations at issue here and is not applicable. Therefore, we will not consider its hypothetical impact on title IV-E.

14. New York sought discovery in this case concerning actions of other Regional Offices as to the allowability of in-office activities related to the delivery of social services. The discovery request did not yield any information indicating that such costs have been allowed in other regions.

15. Section 553(a)(2) of the APA also provides for an exception for matters relating to grants. However, the Department has chosen to abide generally by the provisions of section 553, notwithstanding this exception. 36 Fed. Reg. 2532 (1971).

16. The rationale for exempting interpretative rules from notice and comment procedures has been explained in this way:

Interpretive rules articulate positive law that already exists in the form of statute or legislative rule. The theory is that the agency's interpretive document merely explains, but does not add to, the substantive law that already exists. Because Congress (or the agency, in a prior legislative rule) has legislated previously, a further act of legislation (through notice-and-comment procedures) is conceptually unnecessary to give effect to the interpretive proposition set forth in the document. That proposition, at least in the agency's opinion, already possesses the force of law. It has that effect not because the agency endows it with that effect, but because it represents the meaning of a statute or legislative rule that is already law. The agency, by issuing its document, asserts that existing legislation already has established by implication the position that the agency interpretation now specifies. The interpretation, therefore, does not project new legal effect of its own. "`Interpretive Rules,' `Legislative' and `Spurious' Rules: Lifting the Smog," 8 Admin. L.J. of Am. Univ. 1 (1994).

17. According to New York, under the waiver, title IV-E funds may be used for children and families who are not eligible for title IV-E, title IV-E funds may be used for services to children and families that would not normally be covered under title IV-E, and New York can use title IV-E to pay for administrative activities associated with social services that would not normally be allowed. New York further represented that New York City has indicated its intention to participate in the demonstration.

18. For example, part of the entry for April 22, 1996 to April 28, 1996 provides:

As planned on Thursday FP and [client] cleaned the house room by room. We sanitized the mattresses and sofas; cleaned behind and under all furniture; mopped floors and scrubbed the toilet (replaced old toilet seat with a new one.)

Working with [client] and observing her FP noticed that [client] lacked organization. She wasn't apt in making a neat bed, she mixed the children['s] shoes, and she couldn't stack things orderly. In addition she was inapt in sweeping the floor. However, when FP offered suggestions and showed her certain ways to do a thing, she tried to the best of her ability.