GAB Decision 337
June 30, 1982 Joint Consideration: Reimbursement of Foster Care
Services; Oregon Department of Human Resources; Docket No.
81-135-OR-HD; Michigan Department of Social Services; Docket No.
81-205-MI-HD; Virginia Department of Welfare; Docket No. 82-14-VA-HD
Ford, Cecilia; Settle, Norval Garrett, Donald
The Board jointly considered appeals by the States of Oregon,
Michigan, and Virginia, raising common issues of law and fact. Each
appeal arose from a determination by a regional official on behalf of
the Office of Human Development Services (Agency). The determinations
disallowed federal financial participation (FFP) under Title IV-A of the
Social Security Act (Act) for expenditures claimed by the States for
administrative activities under the Aid to Families with Dependent
Children - Foster Care (AFDC-FC) Program. The Agency determined that
these expenditures were for social services not eligible for FFP under
Title IV-A.
Our decision is based on the States' appeal briefs; the Agency's
responses to the separate appeals; the States' reply briefs; the
parties' responses to a number of questions posed by the Board; and a
transcript of a hearing held before the Presiding Board Member on June
7, 1982. /1/ After the hearing the States were given the opportunity to
object to the consolidation of their appeals in one decision. The Board
did not receive any objections.
(2) The common issue raised in these appeals is whether section 403(
a)(3) of the Act precludes payment under Title IV-A for foster care
placement and plan of care activities provided by the States. We
address other issues distinct to a particular state after the common
issue. For the reasons discussed below, we conclude that the Agency is
correct that section 403(a)(3) prohibits federal matching under Title
IV-A for placement, plan of care, and other similar activities for
foster children since these activities qualify as services covered by
Title XX of the Act. Nevertheless, the Agency has conceded that the
States' claims may include costs that would be allowable as purely Title
IV-A administrative activities, e.g. determining initial and continuing
eligibility, rate setting and maintaining the case in payment status.
The Agency has offered to pay for these costs if the States can separate
them out and, presumably, if no further barrier exists to their payment
at this time. The States will, therefore, have a reasonable amount of
time following issuance of this decision to reclaim these "pure" IV-A
administrative costs and the disallowances may be reduced by the Agency
accordingly.
The discussion that follows addresses only the legality of the
Agency's position concerning the disputed placement, plan of care, and
similar activities.
Factual Background
Oregon
On June 29, 1979 Oregon submitted an amendment to its cost allocation
plan through which Oregon intended to transfer costs from Title XX to
Title IV-A in order to claim FFP for its Children's Services Division
(CSD) staff involved in the AFDC-FC program. The activities performed
by CSD central and field office staff were described as case assessment,
service plan development, direct contact with courts and parents, child
placement, and staff supervision. Oregon cited SSA-AT-78-21, May 19,
1978, and 45 CFR 233.110 as the bases for the proposed transfer. The
effective date of the amendment was July 1, 1979. On October 24, 1980
the HHS Region X Division of Cost Allocation approved the cost
allocation plan amendment.
On July 16, 1981, the Regional Commissioner, Social Security
Administration, issued a disallowance for $1,715,246 in FFP claimed by
Oregon for social service administrative costs for the AFDC-FC Program
under Title IV-A for the period July 1, 1979 through September 30, 1980.
The disallowance letter stated that the activities described in Oregon's
amendment were not identifiable with the matchable Title IV-A activities
of determining eligibility, furnishing checks, or maintaining cases in
payment status.
(3) Michigan
In the first quarter of fiscal year 1981 Michigan attempted a
retroactive transfer from Title XX to Title IV-A of its claims for
expenses incurred in providing services under the AFDC-FC Program. The
expenditures in question were for activities involving the determining
and redetermining of eligibility for AFDC-FC assistance, licensing of
out-of-home placements, preplacement and placement activities,
developing a care plan, and monitoring and reevaluating case plans.
Michigan claimed these expenditures as administrative costs under
sections 408(f) and 403(a)(3) of the Act.
On October 20, 1981, the Regional Program Director, Administration
for Children, Youth and Families, rejected Michigan's claim for FFP for
fiscal years 1978 and 1979 in the amount of $5,026,341.The notification
of disallowance stated that AFDC-FC social services could not be claimed
under Title IV as administrative costs related to maintenance of
assistance, but, because of section 403(a)(3), could be claimed only as
social services under Title XX. The notification of disallowance noted
further that Michigan's claim included some expenditures eligible for
Title IV-A administration, such as determining initial eligibility, but
that Michigan had failed to limit its claim to eligible Title IV-A
expenditures. If Michigan were to re-examine its claim and identify
only those administrative costs eligible under IV-A, the Agency stated,
it would review the claim.
Virginia
On September 19, 1980 Virginia submitted a proposed amendment to its
cost allocation plan, effective July 1, 1979, to transfer the
reimbursement for certain direct costs incurred by 124 local welfare
agencies for their operation of the AFDC-FC Program from Title XX to
Title IV-A for purposes of FFP. These costs included the following
activities: costs incurred in the preparation and review of service
plans for AFDC-FC children; the approval of foster homes; the
selection of homes for AFDC-FC children; other placement services; the
referral of information for the determination and the redeterminations
of eligibility for financial services of AFDC-FC children; and the
pursuit of other sources of income for AFDC-FC children. The amount of
FFP involved for fiscal years 1980 and 1981 totalled $7,222,527.
On December 29, 1981 the HHS Deputy Regional Director, Region III,
issued a decision reaffirming the Department's disapproval of Virginia's
proposed amendment to its cost allocation plan. The basis for the
disapproval was that the amendment would take costs allocable to Title
XX functions and activities and shift the claims for the FFP applicable
to those costs to Title IV-A in violation of section 403(a)( 3).
(4) General Background
Title IV-A of the Act provides for grants to states for aid to
families with dependent children. In 1961 the AFDC-FC Program was
instituted under Title IV-A, providing FFP for state expenditures for
the cost of supporting certain foster care children who have been
removed from their homes for their own best interest. (Section 408)
Section 408(f) sets forth certain services that must be included in a
state's AFDC state plan: the dedevelopment of a plan of care for each
foster child that ensures that the child receives proper care and that
services are provided to improve conditions in the child's home; and
the use of specified employees to place children in foster homes or
child-care institutions.
The services listed in section 408(f) were, as of 1972, claimed by
the States as social services under Title IV-A. Concerned about the
growth of social services, including social services for children in
foster care, Congress in 1972 placed a $2.5 billion funding ceiling or
"cap" on Title IV-A social services. (Revenue Sharing Act of 1972,
P.
L. 92-512) Effective October 1, 1975, Congress, in P.L. 93-647,
established a new Title XX of the Act for financing social services for
low-income children and families, including AFDC children. P.L. 93-647
included a provision amending section 403(a)(3) to prohibit FFP under
Title IV-A for expenditures made in connection with any of the Title XX
services described in the new section 2002(a)(1) of the Act. P.L.
93-647 also imposed a cap on the social services funding available to
each state under Title XX. /2/
On June 24, 1981 the Agency issued SSA-AT-81-18 for the purpose of
"(clarifying) that... FFP is not available for social services
administrative costs in support of... AFDC-FC under Title IV-A."
The action transmittal stated:
FFP under title IV-A for AFDC-FC is limited to the provision of
foster care maintenance payments and related activities, e.g.,
determining initial and (5) continuing eligibility, rate setting, and
maintaining the case in payment status. Section 403(a)(3), as amended
by P.L. 93-647, prohibits FFP under title IV-A for any social services
described in Section 408(f), including placing the child, the cost of
developing, reviewing, supervising and monitoring a plan of care, as
well as carrying out the services provided for in that plan of care...
and recruitment of foster family homes and institutions.
The action transmittal directed the states to review their cost
allocation plans to ensure that the costs of social services were not
allocated to Title IV-A and stated that any cost allocation plan that
allowed costs for these services under Title IV-A had been approved in
error.
I. The primary issue: does the exception in section 403(a)(3) preclude
payment under Title IV-A for the activities in question?
The statutory basis for the Agency's policy in SSA-AT-81-18 and for
its disallowance here is section 403(a)(3). This paragraph funds
administrative expenditures "found necessary by the Secretary... for the
proper and efficient administration of the Secretary... for the proper
and efficient administration of the State plan." States receive payment
in proportion to the total amount expended "except that no payment shall
be made with respect to amounts expended in connection with the
provision of any service described in section 2002(a)(1)." /3/ This is
the critical statutory language, the "exception" at issue here.
Although section 403(a)(3) provides the authority for reimbursing
administrative activities, other provisions in Title IV-A require the
states to perform placement and plan of care activities as part of their
participation in the AFDC-FC Program. Section 408(a) defines a
"dependent child" to include a child "whose placement and care
are the
responsibility of" the state or local agency administering the IV-A plan
or other public agencies under agreement with the state agency. Section
408(f)(1) requires the state to include in its state plan provision for
development of a plan of care for foster care children and section
408(f)(2) requires use of employees of the state child-welfare agency
"to the maximum extent practicable" in placing the (6) child. /4/
Section 408(d) states that the services of child-welfare employees used
in placing a child are reimbursable under section 403(a)(3).
The States' Arguments
The States argued that the Agency incorrectly analyzed the intent of
Congress when it applied section 403(a)(3) to preclude payment under
Title IV-A for the activities in question. The States pointed to the
legislative history of section 403(a)(3) and the manner in which it
interacts with other key provisions. They emphasized that the disputed
activities are all required to be performed as part of a state's IV-A
plan by statute and federal regulations.
The States argued that the caps on social services funding enacted by
Congress in 1972 by P.L. 92-215 and in 1975 by P.L. 93-647 were designed
to restrict "services in the true sense of the word," i.e. "activities
initiated ad hoc by the states after the change to 75% FFP," and not
activities performed under the requirements of section 408. Michigan
Reply Brief, p. 13. The States distinguished between the activities
considered here which relate directly to placement and planning for
individual children and broader program services, such as supportive day
care, homemakers and housekeepers, which are provided as "social
services" to families in an effort to improve the family situation and
thereby prevent the need for foster care or expedite the return of
children to their homes. Oregon Responses to the Board's Questions, p.
2. The States also argued that it was clear that Congress did not
intend the specific services described in Title XX to encompass the
activities here at issue because Title XX was not intended to require
the provision of any particular service and yet the activities here at
issue are required activities under Title IV-A. Michigan Reply Brief,
p. 19. The States argued that "(s)ervices under Title XX... do not
exist until they are actually to be performed by the state, according to
the State Plan.... Therefore, the state defines (what are) 'services.'"
Oregon Responses to the Board's (7) Questions, p. 3. "Section
2002(a)(1) does not describe any (specific) services for foster
children...." Id, p. 2.
With respect to section 408(d), the States argued that Congress
enacted the provision to clarify that the IV-A program would fund the
required "maximum" use of services of employees from the child welfare
program for foster care placements under Title IV-A. "(Not) only is
section 408(d) not in irreconcilable conflict with section 403(a)(3), it
is not even inconsistent with such statute as the latter was intended
only to apply to true social services and the former with eligibility
and program requirements for Title IV-A." Michigan Reply Brief, p. 20.
The States vehemently disputed the Agency position that section 408(
d), as the source of reimbursement for placement services of
child-welfare employees, was repealed by implication. They argued that
case law does not favor constructions of repeal by implication and that
where a later act covers the subject of an earlier one, the later would
repeal the earlier only where it clearly was intended as a substitute
and the intend to repeal was clear and manifest.
Finally, the States argued that the Agency took inconsistent
positions concerning section 403(a)(3) in its action transmittals and in
inter-pretations of subsequent legislation affecting the AFDC-FC
Program. They also argued that the Agency treated states inconsistently
in its application of the exception.
The Agency's Arguments
The Agency argued that the exception in section 403(a)(3) prevents
reimbursement for the disputed activities "in no uncertain terms."
Agency's Michigan Response, p. 4. The Agency argued that each of the
disputed activities is a service for "children... in foster care"
and is
"directed at the (goals)" listed in section 2002(a)(1), especially
the
goal of "preventing or remedying neglect, abuse, or exploitation of
children and adults unable to protect their own interests, or
preserving, rehabilitating, or reuniting families." Agency's New Jersey
Response, p. 9. The reference to services of public welfare employees
in section 408(d), according to the Agency, did not override the
prohibition on reimbursement for those services in section 403(a)(3).To
the extent that both section 403(a)(3) and section 408(d) could not be
given effect at the same time, the Agency argued that the later statute,
the exception in section 403(a)(3), should be given effect. The Agency
stated that while the statutory scheme, which included section 408(d),
may be ambiguous, the Agency's interpretation was supported by
legislative history and sound application of legal principles pertaining
to statutory construction. The Agency argued that Congress did not
intend to remove foster care services of the type claimed here from the
cap imposed by Congress on (8) social services in the Revenue Sharing
Act of 1972, P.L. 92-512. The Agency denied any inconsistency in its
policies or in its application of policies.
Analysis
Although we differ with the Agency on certain points in its
justification of its position, we believe that the Agency policy in
action transmittal SSA-AT-81-18 is clearly within the Secretary's
authority to interpret the applicable statutes. The Agency's position
is consistent with the plain meaning of the statute, is supported by
Congressional intent in enacting the separate Title XX program, and is
reasonable in light of the actions of the parties both before and after
the creation of Title XX.
A. The plain meaning of section 403(a)(3).
In determining the effect of the social services exception in section
403(a)(3), it is critical to remember that the exception applies to
costs that are both within the definition of a IV-A administrative
expense, i.e. found necessary for the proper and efficient
administration of the State plan and expended in connection with the
provision of a social service described in section 2002(a)(1). This
conclusion follows directly from the design of section 403(a)(3).
Obviously if a cost could not meet the general rule, that it be
necessary for administration of the IV-A plan, there would be no need to
apply the exception to that rule even if the cost clearly met the
exception.
The States argued that the exception to section 403(a)(3) should not
be applied here because the activities in question are first and
foremost IV-A administrative activities. The States generally conceded
that the activities are not purely IV-A administrative activities and
that they may also be "social services," albeit not necessarily services
described in section 2002(a)(1). They pointed to the fact that the
activities must be provided under their IV-A State plans and that the
activities are an essential part of the process leading up to the
provision of foster care payments.
We believe, however, that the States have failed to recognize that
all costs covered by the exception must initially be "necessary" IV-A
administrative costs. It is by no means, then, a conclusive point in
favor of the States that these costs represent required administrative
activities under the IV-A plans. Indeed, we would imagine that most, if
not all, expenditures that are "necessary" for administration of the
plan are also required to be performed by the plan or are at least
contemplated by the plan. The IV-A program clearly does not provide (9)
the same amount of discretion to the states in selecting administrative
activities or services as does the Title XX program. While we agree
that the Agency's position does create the anomalous situation where a
state is required to perform activities under Title IV-A but can only be
reimbursed for those activities under Title XX, a highly discretionary
program, that result stems directly from the language of the exception
and the nature of the activities involved. In any event, there is no
basis in the language of the exception for distinguishing in treatment
between different types of "necessary" IV-A administrative activities
that also qualify as social services.
Moreover, the activities at issue clearly are connected with
provision of a social service described in section 2002(a)(1). /5/
Section 2002(a)(1) provides reimbursement for:
services directed at the goal of --
* * *
(C) preventing or remedying neglect, abuse, or exploitation of
children... or preserving, rehabilitating, or reuniting families,
* * *
including expenditures for administration.... Services that are
directed at these goals include, but are not limited to,... services for
children... in foster care....
The activities at issue here obviously can be viewed as having been
provided in connection with the goal of paragraph (C) and the example,
"services for children... in foster care." The States argued that
(10)
the language of the goal covers "child welfare," not "foster
care." We
believe that the paragraph could cover either, and that the reference to
"services for children... in foster care" confirms that the goal in
paragraph (C) could cover foster care activities. In any event, we note
that placement in foster care where appropriate would necessarily be
part of the broader goal of child welfare.
The States also argued that the reference to foster care services in
section 2002(a)(1) is general and would not clearly place the disputed
activities within the scope of the section. Section 2002(a)(1),
however, was designed by Congress specifically to give states discretion
in devising their own social services programs. The provision includes
five broad goals, along with a non-inclusive list of examples of
services. Under these circumstances, it would be unreasonable to look
for the sort of specific description the States would require.
Further, contrary to the States' arguments, the exception in section
403(a) does not require that the services be included in the States'
Title XX Services Plan or that the services be claimed by the States
under the social services program. As the Agency noted, section 403(
a)(3) applies --
even if the services are not actually provided under section 2002(
a)(1); it is enough that the services are "described in section 2002(
a)(1)." Thus, it cannot be argued that section 403(a)(3) simply means
that Title IV-A cannot pay for social services which are, in fact,
matched under Title XX (or that) Title IV-A is an alternative funding
source. Agency's Virginia Response, p. 7.
The States also argues that the plan and placement activities at
issue here occur before a child is actually in foster care. There are
several difficulties with that position, however. First, the language
was used as an example of the types of services that would fulfill the
goals and almost certainly was not designed to preclude activities
leading up to the placement. Moreover, even if these activities could
not be viewed as services for children in care, they could be viewed as
activities provided in connection with the provision of services for
children in care within the meaning of 403(a)(3).
Finally, the States have argued that the activities in question are
not the type of "ad hoc" activities that Congress intended to reach
when
it capped social services. The States cited, as examples of clearly
covered activities, the services of homemakers and housekeepers designed
to expedite the child's return to its family. Again, however, the
States overlook the dual nature of the activities covered by the
exception. It is highly questionable whether the ad hoc services cited
by the States could still be viewed as "necessary" (11) IV-A
administrative activities following the separation of the social
services program from the AFDC "income maintenance" program. In any
event there is no basis for the State's distinction in the language of
the section or the legislative history. Also, as the Agency argued,
there is a clear basis for distinguishing between pure administrative
activities such as eligibility determinations and the disputed placement
and plan of care activities which are in the nature of services that
historically have been performed by caseworkers and social workers.
Tr., p. 112.
Accordingly, from a careful reading of both the exception to section
403(a)(3) and section 2002(a)(1), we believe that the statutory language
clearly supports the Agency's position.
B. The legislative history and purpose behind the exception supports
the Agency's position.
In addition to the plain meaning of the statutory language, important
elements of the legislative history of the exception and of the new
Title XX program support the Agency's position.
First, the Agency's position is clearly consistent with the overall
purposes of Congress in creasing a separate social services program.
The Agency traced these purposes as follows:
Overall P.L. 93-647 repealed most of the then existing provisions of
the Social Security Act that provided for social services to welfare
recipients and created instead a new Title XX. P.L. 93-647, sections
3(a) and (b).In addition, section 403(a)(3) was substantially amended to
include the language at issue in this case and to delete reference to
the legislative cap on expenditures. Section 1130 itself (which for the
prior 3 years had capped social services) was repealed by section
3(e)(1) of P.L. 93-647, and all references to it deleted by section 3(
e)(2) of P.L. 93-647.
What resulted then was enactment of a comprehensive (albeit "capped")
program for social services funding to each State on an allocation basis
in Title XX, simultaneous repeal of nearly all of the social services
authorizations under Title IV-A, and simultaneous removal of the cap
from Title IV-A to Title XX.
The only uncapped, open-ended funding provisions for social services
remaining under Section 403(a)(3) (after operation of the exception)
were specifically included by Congress and stated in legislative
history: WIN and (12) emergency assistance for needy families. At
least one of those two programs was already effectively capped by
appropriations limitations. There is no evidence that Congress intended
to uncap Title IV-A and let foster care social services (previously
capped under Title IV-A) explode, i.e., as soon as the cap of the Title
XX allocation was used up. (Emphasis supplied) Agency's Michigan
Response, pp. 15-16
We agree with this summary and believe that the specific reference in
the legislative history to the exception in section 403(a)(3) provides
further evidence of purpose. The House Report states the following:
Section 3(a)(3) amends section 403(a)(3) of the Act to eliminate
federal matching under part A of title IV for expenditures for the
provision of services other than services required to be included in the
State's WIN program and services provided as emergency assistance to
needy families. H.R. Rep. No. 93-1490, 93rd Cong., 2nd Sess., 1974, p.
19.
This statement confirms that activities relating to social services
would no longer be reimbursable under Title IV-A following the
amendment. To the extent that States previously had an option to claim
these expenditures under either the AFDC-FC or the social services
program, no such option would continue to exist, and hence the
possibility of an intertitle transfer of Title XX costs to Title IV-A
would be foreclosed.
The same conclusion may be derived from a comparison of the exception
in section 403(a)(3) with the parallel but different barrier to payment
in Title XX, also enacted by P.L. 93-647.
Section 2002(a)(8) provides:
No payment may be made under this section with respect to any
expenditure if payment is made with respect to that expenditure under
section 403 or 422 (title IV-B, Child-Welfare Services) of the Act.
Where a cost would be allowable under Title XX and Title IV-A or
Title IV-B, section 2002(a)(8) permits payment under Title XX as long as
a state has not already been reimbursed for the same cost under the
other two programs. The exception in section 403(a)(3), however,
permits no such flexibility in claiming costs. If the activity is
connected with provision of a social service, section 403(a)(3) bars
reimbursement altogether under Title IV-A. We believe that the
different approach used in the two provisions demonstrates that (13)
Congress did not intend to have costs for activities reimbursed under an
uncapped program such as IV-A when those same costs were also within the
scope of the capped Title XX program. This is understandable and
completely in accord with the purpose of a cap. If states could shift
substantial amounts of costs away from a capped program, the purpose
behind creating the cap would be largely undermined. The same fiscal
concerns, however, would not apply to shifts of costs from an uncapped
program to a capped program and hence section 2002(a)(8) is more
flexible. /6/
Finally, we find it convincing that if Congress had considered which
activities would be affected by P.L. 93-647 before it was enacted,
Congress would likely have focused on these very activities since states
generally claimed them as capped "social services" for the three years
prior to enactment of P.L. 93-647. Indeed, the states bringing these
appeals and presumably other states participating in the two programs
claimed the activities as social services under Title XX after P.L.
93-647 went into effect.
C. Repeal by implication of section 408(d).
The parties have expended much energy on whether the enactment of the
exception in section 403(a)(3) effectively "repealed by implication"
section 408(d) of the Act. The Agency in its briefs and in documents
submitted in the record took the position that the 1975 amendment to
section 403(a)(3) repealed section 408(d) by implication. The Agency
presumably felt compelled to take this position because it believed that
the continued existence of section 408(d) undermined its interpretation
of the exception in section 403(a)(3). The States on the other hand
argued that no repeal by implication of section 408(d) had occurred and
that the continued existence of section 408(d) reaffirmed the
possibility for reimbursement under section 403(a)(3) for the services
cited in section 408(d).
(14) Although we agree with the Agency concerning the effect of
section 403(a)(3) on the reimbursement of section 408(d) services, we do
not find it necessary to apply a "repeal by implication" construction
to
that section.
Section 408(d) merely provides that, for those state agencies using
the services of child-welfare employees in placing a child, the services
of the employees would be considered to be part of the administration of
the IV-A state plan for purposes of reimbursement under section
403(a)(3). It is conceded by both sides that this provision served only
to clarify which program (AFDC or child-welfare) would reimburse the
states for placement services of child-welfare employees. Section
408(d) confirms for these services what would require no confirmation
for other plan of care and placement activities raised in this dispute:
they are potentially reimbursable under section 403(a)(3) if they meet
the requirements of that section.
Thus, we do not find the continued existence of section 408(d)
damaging to the Agency's position or inconsistent with the purposes of
the exception to section 403(a)(3). /7/ It follows from the plain
meaning of the exception that Congress believed that authority might
continue to exist in section 403(a)(3), even with enactment of P.L.
93-647, for the reimbursement of activities in connection with the
provision of a social service. Even though Congress recognized that
authority might exist under both programs for the same activities, it
did not feel compelled to identify these activities individually or
delete reimbursement authority for them in Title IV-A through individual
prohibitions or amendments. It left responsibility for that to the
Agency, having guided the Agency through reference to section
2002(a)(1).
In interpreting which Title IV-A administrative activities are those
connected with the provision of a social service, the Agency has
effectively voided the authority in Title IV-A for the reimbursement of
these activities. Nevertheless, this effect is a direct result of the
"exception" and is not a "repeal by implication" in the
ordinary sense.
Accordingly, it is our view that the Agency's interpretation in AT-81-18
need only be subject to the same scrutiny that would ordinarily apply
when the Agency interprets provisions Congress has given it authority to
administer. Even if the Agency's position is subjected to a repeal by
implication analysis, however, we agree that (15) the intent of Congress
is manifest that section 408(d) not be given effect to provide FFP
contrary to the exception in 403(a)(3). /8/
We would also add concerning this issue that section 408(d) is by no
means dispositive of all activities here disputed. Section 408(d)
covers only placement services and then only if performed by
child-welfare employees. Michigan, for example, does not technically
make use of these employees in placing foster care children, and its
appeal as a result would not be affected by the repeal or nonrepeal of
section 408(d).
D. Consistency of Agency's policy in substance and in application
Aside from the arguments concerning the statutory basis for the
Agency's position, the States suggested that the Agency had taken
inconsistent positions concerning the exception in its policies and that
it had applied its policies inconsistently among states participating in
the IV-A and XX programs. /9/
(16) The States argued initially that the Agency should have amended
45 CFR 233:110 (concerning provision for placement and plan of care
activities in the state plan) since the "obvious thrust" of the Agency's
position is that section 408(f) is devoid of meaning. Virginia's Brief,
p. 7. The States, however, misconstrue the Agency's position. The
Agency stated that the exception in section 403(a)(3) has no effect on
the continued implementation of section 408(f); section 403(a)(3) merely
redirects reimbursement from Title IV-A to Title XX for activities
covered by the exception. Agency's Michigan Response to Board's
Questions, p. 7. We agree that the continued existence of section
233.110 in the regulations is not inconsistent with the Agency's
position. Although states no longer have the option to shift funding
for these activities back to the IV-A program they must still make
provision for performance of the activities in their IV-A state plans
under section 408(f). /10/
The States also argued that a policy transmittal issued by the Agency
four years after the enactment of P.L. 93-647 (SSA-AT-78-21) is
partially inconsistent with the position subsequently taken in AT-81-18.
The Agency responded that this transmittal does not apply to the type of
activity at issue here, and we agree. As the Agency stated:
The purpose of AT-78-21 (entitled AFDC-Foster Care: Federal
Reimbursable Cost Items for AFDC-FC Children Placed by State IV-A
Agencies in Private Non-Profit Child Care Institutions) is to provide
clarification of what items may be included in the AFDC-FC payment rates
for children placed by the State in private non-profit institutions (as
opposed to foster family homes) and matched with Title IV-A funds. The
Action Transmittal is not concerned with social services provided by
State employees to children in foster family homes, nor is it concerned
with foster care placement services rendered by State and local
employees.
(17) Private non-profit child care institutions provide services to
AFDC-FC children placed in them which are similar to the services
provided by foster parents to AFDC-FC children in foster family homes.
It is these institutional services which the Action Transmittal
addresses. Since their costs are included in determining the AFDC-FC
payment rate for children placed in private non-profit institutions,
they are properly payable under Title IV-A. Agency's Virginia Response,
p. 13.
The States also argued that internal Agency memoranda demonstrate
that a "reasonable" interpretation of the statute exists in support
of
their position. These memoranda include a set of answers prepared by
the Assistant General Counsel, HHS, to questions posed by the Executive
Assistant to the Assistant Secretary for Management and Budget, HHS, as
well as a decision memorandum prepared by the Office of Family
Assistance for the Acting Commissioner of Social Security prior to his
policy decision on the issue raised here. The Agency stated the final
policy decision of the Acting Commissioner was based on the most
reasonable interpretation of the law, regardless of alternative options
presented to him in the action memorandum. It acknowledged that General
Counsel opinions may be used in the policy-making process, but
emphasized that the opinions do not represent the official Agency
position on the issue in question. That position exists only in the
SSA-Action Transmittal-81-18 of June 24, 1981. The Agency argued that
even if another legally tenable position existed, the Agency is entitled
to select the position which, in its view, more closely conforms with
Congressional intent and furthers other important program
considerations.
The other "tenable" construction, cited by the States from the
internal Agency memoranda, would view the services here in question as
purely IV-A administrative activities. This construction, however, does
not address the broadness of the reference to social services in section
403(a)(3), the States' own prior claiming practices concerning these
activities, and other important factors such as the design and purpose
of the exception. Indeed, such a construction, by recasting the nature
of activities previously viewed as social services and as clearly
reimbursable under Title XX, seems to us to rule out the possibility of
giving any effect to the exception.
Finally, the States argued that the Agency applied its policies
inconsistently between states. The States cited instances where the
Agency allegedly approved cost allocation plans that permitted
reimbursement for these activities under Title IV-A and suggested that
some states actually may have been reimbursed for the activities. The
Agency argued that approval of a plan does not mean that allocated costs
are automatically allowable and that to the extent that an (18) approved
plan is contrary to statute, it can not be given effect. Further, the
Agency stated that no state has ever been reimbursed for this type of
activity under Title IV-A.
As discussed below with respect to Oregon, the approval of a cost
allocation plan does not necessarily constitute approval for charging
any item of cost to a specific program since a plan functions primarily
to delineate proper cost allocation methods and procedures. See 45 CFR
205.150. The Agency, in Oregon, issued a disclaimer to this effect.
Further, the States have not presented evidence of a "final" payment
to any state for these activities. While the Agency's approval of plans
in limited instances here may have indicated confusion on the part of
officials within the Agency prior to the Agency's action transmittal in
1981, that confusion is understandable given the very complicated nature
of the statutory provisions at issue here. Indeed, in the absence of
the exception in section 403(a)(3), the activities here clearly would be
reimbursable under either Title IV-A or XX. This potential for
reimbursement under either program has added to the confusion in this
dispute. Further, the issues raised here were not immediately posed
following enactment of P.L. 93-647 since the States continued making
claims for these activities under Title XX.Thus, it is not altogether
surprising that the Agency was initially caught off guard about the
effect of the exception in its policies.
In summary, we conclude that the Agency's interpretation of section
403(a)(3) to preclude reimbursement under Title IV-A for foster care
placement, plan of care and similar activities was correct, /11/ and
that the Agency has been consistent in formulating and applying its
policy. We devote the remainder of the decision to issues raised only
by the Oregon appeal.
Issues Relating to Oregon's Appeal
I. Agency approval of Oregon's cost allocation plan
Oregon argued that on October 24, 1980 the Agency had specifically
approved an amendment to Oregon's cost allocation plan, shifting costs
(19) for AFDC-FC placement and plan of care services from Title XX to
Title IV-A. In its notification of disallowance to Oregon, the Agency
admitted that it had approved the amendment which included the
allocation of those costs to Title IV-A, but stated:
Our position is that even though a particular cost might be properly
allocable to Title IV-A related activities, that cost must still be
allowable under Title IV-A law and regulation to be matched by Federal
funds. The Division of Cost Allocation's July 12, 1979 approval of
CSD's cost allocation plan contained the following statement: "This
approval relates to the accounting treatment accorded the costs of your
programs only, and nothing contained herein should be construed to
approve activities not otherwise authorized by approved program plans,
or Federal legislation or regulations."
In the context of the above statements, we believe that approval of
the cost allocation plan amendment does not affect the disallowance
consideration process. (p. 2)
Oregon questioned the relevance of the Agency's July 12, 1979 letter
which approved the initial cost allocation plan of the Oregon Department
of Human Resources. Oregon pointed out that the amendment it submitted
on June 29, 1979 not only provided for accounting treatment, but also
included a detailed statement of which activities would be allocated to
Title IV-A. Oregon stated that when the Agency approved this amendment
on October 24, 1980, no disclaimer on the activities, as was contained
in the July 12, 1979 letter, was included.
The Agency position is that "the State was put on notice that the
approval of a cost allocation plan approves only the methodology for
allocating costs between the various Federal and State programs. It
does not mean that allocated costs are automatically allowable.
Allocated costs will have to be scrutinized for allowability under
applicable Federal laws and regulations." (Agency Response, p. 9) Any
cost allocation plans that allocated social service costs to Title IV-A,
if approved, had been approved in error. (AT-81-18, p. 3)
We believe that the Agency's position concerning the effect of plan
approval is reasonable. As the Agency argued, cost allocation plans
function primarily to delineate proper cost allocation methods and
procedures and not the full range of substantive issues raised by the
Agency's programs. See 45 CFR 205.105. Under such circumstances, it is
unreasonable to view the plans as policy judgments and to bind the
Agency in areas where an amendment is found to be contrary to the
controlling statute. We also note that the expertise of the Division
(20) of Cost Allocation, responsible for reviewing such plans, is in
allocation methodology rather than in the allowability of charges to any
particular program.
The lack of a disclaimer in the Agency's approval of the plan
amendment is not critical here. The Agency included the disclaimer at
the time it approved the initial plan and pending amendments and
revisions. It is altogether reasonable, in our view, for the disclaimer
to apply as well to subsequently approved amendments, even though the
Agency did not repeat the disclaimer with each approval. By making the
disclaimer at the time it approved the initial plan, the Agency placed
the State on notice that the disclaimer would apply to the plan as a
whole. Further, the State did not propose, and we are unaware of, any
substantive reason for not applying the disclaimer to the entire cost
allocation plan when it clearly applied to the initial plan.
Correspondence between the Agency and Oregon provides further basis
for concluding that the State can not reasonably object to the
disallowances taken here. In a letter to the Agency dated June 24,
1980, the Director of the Department of Human Resources advised the
Agency that the Children's Services Division "chooses not to withdraw
its amendments relating to the charging of administration costs" because
a withdrawal "would conceivably jeopardize the right to claim these
funds at some future date." The Director requested approval of the
amendments even though the Agency had advised the State that the
legality of the amendments had not been resolved within the Agency.
Approval would be appropriate, according to the Director, because the
Agency still had "disallowance and/or deferral options" available
to it.
Thus, Oregon recognized that the Agency might have to disallow claims
in spite of its approval of the plan amendment.
II. Alleged improper use of disallowance procedures
Oregon also argued that the Agency had failed to pay its claims for
the disputed activities although the claims were neither formally
deferred nor promptly disallowed by the Agency, and that this violated
Agency regulations. /12/
Oregon argued that the Agency either should have disallowed Oregon's
claims and notified the State of such action pursuant to 45 CFR (21)
201.14(b)(1) or deferred payment and notified the State, as required by
45 CFR 201.15(c). "Instead, payment was deferred but the state was not
notified until after an extended period of time.... As a result, Oregon
has been denied legal remedies guaranteed by Federal regulations."
Oregon's Reply, p. 3.
The Agency argued in response:
Section 201.15 relates, both in content and practice, only to
deferrals. A deferral action is defined in 45 CFR Sec. 201.15(b) as a
"... process of suspending payment..., pending receipt and analysis of
further information relating to the allowability of the claim under the
procedures specified in the section." In practice and by regulatory
definition, deferrals are not to be taken when enough information is
available to the Regional Commissioner to take a disallowance action,
i.e., no additional information from the State is needed for the
Regional Commissioner to make a decision on allowability of the State's
expenditure claim. A disallowance was the action chosen by the
Department with respect to Oregon's claim.
The Department's position is that the action taken was a disallowance
and does not fall under the procedural requirements of 45 CFR 201.15.
As to the withholding of funds, nothing in Federal regulation requires
the Department to reimburse State expenditure claims which are not
allowable under applicable Title IV-A law and regulation.
After a careful consideration of the entire deferral regulation, 45
CFR 201.15, we conclude that the Agency interpretation is reasonable.
The Agency's inaction here stemmed from the questionable legality of the
claims, not from the lack of documentation concerning their
allowability. The State did not deny the Agency's allegation that, in
practice, it only applied the deferral procedures when it needed more
information. Therefore, the Agency's only obligation was to issue a
prompt disallowance, /13/ and in fact the Agency disallowed 'he claims
approximately three weeks after it issued SSA-AT-81-18.
(22) In earlier correspondence dated June 24, 1980, Oregon itself
recognized that the Agency might use disallowance procedures for claims
based on the plan then under consideration covering the disputed
activities. The State knew that the Agency had yet to resolve
"outstanding policy issues" concerning the legality of reimbursing
those
activities under Title IV-A. Moreover, it is likely the State would be
the first to complain if the Agency had not given thorough consideration
to the complicated legal issues raised by its claim. Thus, we believe
that it was unreasonable of the State to expect a disallowance (or
payment) immediately following approval of the amendment on October 24,
1980. And, in fact, a regional Agency official did notify the State on
January 8, 1981 that he was recommending a disallowance for AFDC foster
care administrative costs.
Finally, we note that the Board's jurisdiction in the Oregon appeal
stems from the Agency's disallowance, and that, even if the Board
concluded that the deferral procedures did apply, it appears that the
Board would lack authority to provide a remedy for any alleged failure
to follow those procedures.
Accordingly, after considering the issues specific to the Oregon
appeal, we find no basis to overturn the Agency's disallowance.
Conclusion
Based on the foregoing analysis, the Board sustains the disallowance
for each of the States participating in this joint consideration. The
States, nevertheless, will have a reasonable amount of time, in
accordance with any constraints established by the Agency, to separate
out "pure" IV-A administrative costs, as identified in SSA-AT-81-18,
and
the Agency should modify its disallowance accordingly. /1/ The State of
Oregon was invited to participate at the hearing, but elected
not to attend. Oregon, however, was sent a copy of the transcript of
the hearing and was provided an opportunity to comment on the
transcript. A fourth state, New Jersey, participated at the hearing
because it had recently appealed a disallowance involving the same
issues presented here, New Jersey Department of Human Resources, Docket
No. 82-68-NJ-HD. Because the New Jersey appeal had been filed only
recently and the parties in that case had not had the opportunity to
develop fully all the issues raised by that appeal, the Board announced
at the hearing that the consolidated decision would not include the New
Jersey appeal. The Board did state, however, that all materials
submitted by the parties in the New Jersey appeal by June 7, 1982 would
be utilized by the Board in reaching its decision in the consolidated
appeals. /2/ The issues of statutory construction raised by
these appeals do not have a practical effect on states beyond September
30, 1980. This is discussed in detail on page 3 of the Decision
Memorandum to the Acting Commissioner of Social Security dated February
24, 1981, submitted as part of Oregon's Appeal File. P.L. 96-272,
which was enacted on June 17, 1980, shifts AFDC-FC from section 408 to a
new Part E of Title IV effective at State option as early as October
1980, but no later than October 1982. /3/ The exception goes on
to permit reimbursement under Title IV-A for certain WIN services
required by section 402(a)(19) to be included in the state plan. Some
of these services may also be covered by the social services program or
there would be no need for this further exception. /4/ We use the term
"child-welfare agency" here as a shorthand for the statutory
language "State public-welfare agency referred to in section 522(a)
(Title V-3)... or any local agency participating in the administration
of the plan referred to in such section...." When section 408(f)(2) was
enacted, child-welfare services were provided under Title V-3 of the
Act, and section 522(a) referred to the state agency responsible for
administering the V-3 plan. In 1968, however, Title V-3 was repealed
and was replaced by Title IV-B of the Act. P.L. 90-248. The
successors of the state public-welfare agencies once referred to in
section 522(a) are the agencies now referred to in section 421(a).
/5/ It is difficult for the States to deny that the activities qualify
under section 2002(a)(1) since they claimed the activities as social
services for the three years prior to the separation of programs. During
this period a ceiling on finding or "cap" had already been imposed
on
social services by P.L. 92-215. Moreover, the States claimed these
activities as social services under Title XX for years following
separation apparently until events within their programs made it
advantageous for them to change their claiming posture. Title XX social
services are reimbursable at a 75% rate while Title IV-A administrative
costs are limited to 50% FFP. Nevertheless, once a state reaches its
cap under Title XX, any percentage of reimbursement for additional
services would be advantageous. /6/ The States would place altogether
different significance on section 2002(a)(8). They argue that it
supports their position since it contemplates the possibility of payment
under Title IV-A for activities reimbursable under either Title IV-A or
XX. The interpretation of the effect of 2002(a)(8) would not bring that
section into direct conflict with the more specific terms of the
403(a)(3) exception. We believe, rather, that the reference to Title
IV-A in section 2002(a)(8) was necessary to cover services or activities
(reimbursable under either title) that expressly were not within the
scope of the 403(a)(3) exception. The Agency lists these activities as:
WIN services, emergency assistance under 403(a)(5) and day care as a
special need under 403(a)(1). Tr., p. 83. /1/ Indeed, if the
exception in section 403(a)(3) is viewed as repealing section 408(d), it
would repeal the provision that makes section 403(a)(3) applicable to
begin with. The repeal, by application of the exception, would
effectively undercut the authority for applying the rule as a whole.
/8/ We do not find it necessary to provide a full discussion of the case
law on repeal by implication since the highest standard for such repeal
advanced by the States, i.e. that Congressional intent be manifest, is
met here. /9/ The States also argued that the Agency's policy is
contrary to implied positions of GAO in its reports. An April 30, 1981
report of the U.S. General Accounting Office (GAO) stated: Section
403(a)(3) of title IV-A of the Social Security Act does not allow the
reimbursement of administrative costs incurred by private nonprofit
agencies. However, such costs are eligible for Federal financial
participation under title IV-A if incurred by a public agency and under
title XX if incurred by a private or public agency. Another GAO report,
dated July 10, 1981, concluded that the states' use of intertitle
transfers to increase federal funding of their social services programs
was legal. While portions of these reports concern issues related to
those raised here, neither contains a statement of position on the
specific issues of this dispute, much less a legal analysis of those
issues. Consequently, we cannot accord these reports significant weight
as authority in favor of the States. Further, as the Agency argued, the
ultimate responsibility for interpreting the provisions at issue rests
with the Secretary. /10/ Another alleged regulatory
inconsistency arose from Agency policies implementing the new AFDC-FC
program under Title IV-E. The States argued that administrative
activities in dispute here would be reimbursable under that program. The
Agency responded that the regulations cited by the States had only been
proposed and that no final regulations implementing Title IV-E had been
published. The Agency argued convincingly, in our view, that a critical
distinguishing factor is the absence of a statutory bar to payment under
Title IV-E for the type of activities covered by the exception in
section 403(a)( 3). /11/ During the hearing the States argued
for the first time that their claims may have included costs relating to
the licensing of foster family homes and that such costs could be paid
pursuant to the last paragraph of section 408. The Agency responded
that that paragraph served only to define a "foster family home" and
did
not provide authority to pay the States for a function that they had
historically performed. We agree that the Agency is not required by
section 408 to pay for licensing activities. /12/ It is unclear
from Oregon's brief whether it made any claims before the Agency
approved its cost allocation plan amendment to October 24, 1980, and
thus whether its argument applies to any such claims or just to claims
made between approval and the Agency's formal disallowance dated July
16, 1981. /13/ The State relied on 45 CFR 201.14(b) for its
proposition that a disallowance must be issued promptly. As of March 6,
1978, however, section 201.14 was revised to apply only to disallowances
where reconsideration was requested prior to that date, 43 Fed. Reg.
9266. Authority to review disallowances was transferred to the Board.
Current regulations state that granting agencies "attempt to promptly
issue final decisions" in grant disputes when it is clear the matter
cannot be resolved informally. 45 CFR 74.304 (1981).
SEPTEMBER 22, 1983