GAB Decision 465
Docket No. 83-97
September 30, 1983
South Dakota Department of Social Services;
Ford, Cecilia; Settle, Norval Garrett, Donald
The South Dakota Department of Social Services (State) appealed a
disallowance of $71,552.10 by the Associate Commissioner for Family
Assistance, Office of Family Assistance, Social Security Administration,
relating to costs for the State's 1981 Low Income Energy Assistance
Program (LIEAP). The sum represents an amount for administrative costs
claimed above a ceiling imposed by statute and regulation. The State
had requested a waiver of the ceiling nine months into the fiscal year,
and the Agency denied the request, giving rise to this disallowance.
The State argued that the Agency's denial was arbitrary and capricious.
For the reasons stated below, we uphold the disallowance.
The State's Waiver Request
The Home Energy Assistance Act of 1980 (Title III of Pub. L. 96-223)
authorized grants to states and Indian tribes to provide assistance to
eligible households to offset rising home energy costs that were
excessive in relation to household income. The Act provided that a
state could use for administration an amount not to exceed 5% of the
cost of carrying out the State plan except that upon proof of "unusual
circumstances," a state could use up to 7-1/2% of the costs. The Act
also said that the state would pay from non-federal funds all remaining
costs of administering its program. (See, Section 308(b)(11))
The Act further provided for waiver of Section 308(b) requirements:
Where the Secretary determines that a waiver is likely to assist in
promoting the objectives of this title, the Secretary may waive
compliance with any of the requirements of subsection (b) to the extent
and for the period the Secretary finds necessary to enable any such
State to carry out the program assisted under this title.
Pub. L. 96-223, Section 308(d)(2).
To implement the Act, the Department issued interim final regulations
on May 30, 1980, effective upon publication (45 Fed. Reg. 36810-36836)
and final regulations on October 7, 1980, effective upon publication (2)
(45 Fed. Reg. 66666-66703). The interim final regulations generally
tracked the language of the statute on administrative costs and add
that:
"Unusual circumstances" include, but are not limited to, special
geographical factors, acts of God, and a low total grant level such as
might occur if we make grants to some Indian Reservations.
45 Fed. Reg. 36828 (1980).
The Supplementary Information section of the interim regulations
explained that:
In unusual circumstances we may allow a State to use an additional
amount of Federal funds for administration not to exceed 2 1/2 percent
of the cost of carrying out the plan. A State must obtain our approval
before it uses additional Federal funds for administration. Unusual
circumstances may include special geographical factors and events that
cause administrative costs to increase but that could not have
reasonably been forseen at the time the State plan was developed.
45 Fed. Reg. 36814 (1980).
The interim final regulations also provided for waiver of plan
requirements where the Agency determined that a waiver was "necessary
for the State's administration of its program and is likely to assist in
promoting the objectives of the home energy assistance program. . ." (45
Fed. Reg. 36824 (1980))
The Supplementary Information section of the interim final
regulations explained that:
Waviers will only be granted when they are actually necessary to
enable a State to operate the program and only when a waiver of a
requirement will promote the objectives of the Act. We do not intend to
waive items solely for the convenience of States or when they would make
entire population groups ineligible. We intend to review waiver
requests carefully to assure that they further the intentions of
Congress as identified in the Act.
45 Fed. Reg. 36811 (1980).
(3) In June and July 1980, the Governor of South Dakota requested a
waiver of the 5% ceiling to 7-1/2%, citing such factors as the necessity
for an extensive outreach program, general economic problems in the
State, and an inability to obtain state funds because the Legislature
did not meet until January 1981. In October 1980 the Secretary
responded to the waiver request, stating that the concerns of South
Dakota and other states had been reviewed and that the ceiling on
administrative costs would be raised to 7-1/2%.
The final regulation on administrative costs provided for a 7-1/2%
ceiling on administrative costs (45 Fed. Reg. 66692 (1980)). The
Supplementary Information section explained that:
We have determined that the . . . 5 percent limitation on the amount
of Federal funds that can be used for administration should be waived
for all States. Based on a thorough review of the comments we received
on the interim final regulations, the communications we have received
from many states as to the difficulties they would encounter absent this
waiver, and other evidence, we believe that this waiver is necessary to
allow them to administer their programs and likely to assist in
promoting the objectives of the Act. This means that a State may expend
from its allotment an amount not to exceed 7-1/2% of the total cost of
carrying out the plan without matching that amount from State funds.
Beyond that point, the State must pay 100% of the administrative
expenses.
45 Fed. Reg. 66672 (1980).
The final regulation covering waiver of plan requirements was
substantially identical to the interim final regulations. (45 Fed.
Reg. 66688 (1980))
South Dakota made its second request for waiver by letter dated June
18, 1981, 9 months into the FY 1981 LIEAP and after the heating season
was over (the State did not have a cooling program). This time the
State requested "a waiver on administrative costs against the State's
total allocation instead of the administrative costs against the cost of
carrying out the FY 81 (LIEAP)." The State mentioned such factors as
expensive start-up costs, an extremely mild winter leading to fewer than
the originally projected applicants, a large elderly population, and the
fact that the State did not budget any state funds.
(4) The Associate Commissioner for Family Assistance denied the
second request for a waiver in a letter dated September 1981 on the
basis that the ceiling had already been raised and that "a further
waiver of that limitation at this time would not further the objectives
of the program." (Attachment to State's Notice of Appeal)
The Agency's Denial Was Not Arbitrary or Capricious
The State argued that a waiver was proper and necessary to enable the
State to carry out the LIEAP, based on the factors set forth by the
State. The denial was, therefore, arbitrary and capricious. In
addition, the State argued that the denial of waivers to 12 states while
granting them to 42 Indian tribes was an abuse of discretion and a
denial of equal protection.
This Board has often held that it will not substitute its discretion
for that of the Agency where the Agency's decision is in accordance with
the rules and the Agency's exercise of its discretion is reasonable
(see, e.g. The Neighborhood House Association, Decision No. 136,
December 1, 1980; Wisconsin Department of Health and Social Services,
Decision No. 116, August 14, 1980; Oregon State-wide Allocation Plan,
Decision No. 22, June 25, 1976). In this case, based on the reasons
given by the Agency in its response to the appeal, the Board must find
that the Agency's discretion was exercised reasonably. /1/
The Agency pointed out that all of the states had to cope with
adverse economic conditions and new requirements imposed by the 1981
LIEAP program. In addition, the State could have exercised options,
such as avoiding an assistance application process for households and
receiving a waiver of the periodic summary program data requirement,
that would have reduced administrative costs.
In answer to the State's recitation of problems encountered because
of a mild winter resulting in fewer participating households, the Agency
pointed out that the State had an obligation to continually monitor its
program and should have made adjustments in administration during the
program year. The Agency also suggested that given the knowledge that
the State (5) was small, rural, and had a large elderly population, the
State's original and revised projections of households that could be
served were unrealistic.
The Agency emphasized the fact that the State's waiver request was
untimely. It was submitted in June 1981, after the heating season was
over and after the program was substantially administered. The Agency,
therefore, did not believe that additional federal funds were "necessary
to enable a State to operate the program," a requirement under the
statute and regulations for receiving a waiver.
The timing factor was also a key element in differentiating the
denial of South Dakota's request from the granting of the Indian tribes'
requests. Requests for waivers were approved for 42 tribes; 38 of these
tribes had requested waivers as part of their initial plans and were
approved by the Agency before the programs began to operate. The other
for were made during program operation.
In addition, the interim final regulations state that an "unusual
circumstance" which might have lead to a waiver of the 5% administrative
costs ceiling might be "a low total grant level such as might occur if
we make grants to some Indian Reservations." The Agency used that same
reasoning to grant waivers of the 7-1/2% ceiling; most of the tribes
argued that they needed the waiver to enable them to even begin to
operate their programs. According to detailed budgets submitted to the
Agency, 7-1/2% did not give them enough real dollars to run their
programs. Less than 1/2 of the Indian tribes had LIEAP allocations of
over $100,000; only one tribe had an allocation of over $1 million
(South Dakota's allocation was over $9 million).
Finally, in several instances, the Agency considered the indirect
cost rates negotiated by the tribes with other federal agencies which
provided a guideline as to the amount of administrative costs necessary
to run programs on Indian reservations. /2/
The State did not provide any convincing arguments in response to the
Agency's reasons for denying the waiver. It did not respond directly to
the Agency's point about the necessity for monitoring the program. The
fact that the State "returned" nearly $4 million to the federal
government does not mean that it is now being penalized by this
disallowance. Rather, by tying federal payments for administrative
costs in part to the amount of allowable assistance payments, the Agency
was telling states that allowable (6) administrative costs would be
governed in part by how many households received LIEAP payments. The
statute and regulations are clear as to the relationship and the burden
on the states to use their own funds for any remaining administrative
costs. Finally, the State's response to the Agency's concern about the
untimeliness of the waiver request is irrelevant to this dispute. That
the Agency took nine months to notify the State that the Agency's
initial determination that the State was entitled to a hearing (under 45
CFR 260.30) was an error may not be laudable, but it has no hearing on
the fact that the statute and regulations state that a waiver can be
granted only when it is necessary to administer the program. The State
has not refuted the Agency's assertion that the waiver request was
received after administration of the 1981 program had substantially been
completed and, therefore, was not necessary to operate the program.
Therefore, based on the arguments and information provided by the
parties, we find that the Agency, in denying the request for a waiver of
the 7-1/2% administrative costs ceiling, acted reasonably.
Conclusion
For the reasons stated above, we uphold the disallowance. /1/ The
Agency's letter denying the waiver did not discuss in detail why
the State's arguments had been rejected, but merely recited the general
language of the statute and regulations. The State has not been
prejudiced by this, however, because it has had a full opportunity to
reply to the detailed reasons given by the Agency during the course of
this appeal. /2/ For further details on the waivers given to the
Indian tribes, see the chart prepared by the Agency at Exhibit 7 of its
Response.
NOVEMBER 14, 1984