GAB Decision 493
Docket No. 83-103
December 30, 1983
Oregon Department of Human Resources;
Ford, Cecilia; Settle, Norval Teitz, Alexander
The Oregon Department of Human Resources (State) appealed a decision
of the Office of Child Support Enforcement (OCSE, Agency) disallowing
$19,337 in federal financial participation (FFP) for costs incurred
during the quarter ended December 31, 1981 for persons jailed after
being found in contempt for non-payment of child support. The OCSE
decision by the Acting Director affirmed a similar decision by the
Regional Representative. Based on our analysis below, we remand to the
Agency to permit the State to show any actual additional costs expended
for jailing beyond unallowable general governmental expenditures.
Background
The costs claimed and disallowed were for costs of jailing by two
county district attorneys claiming reimbursement from the State IV-D
(child support enforcement) Agency. /1/ The expenditures were in
connection with persons jailed for contempt of court for disobeying
child support orders. /2/ These facts are not in dispute.
(2)
The appeal came under the Board's expedited process, since the amount
in dispute was not over $25,000. 45 CFR 16.12(a). After the telephone
conference provided for in section 16.12(c)(2), the presiding Board
member gave the State an opportunity for an additional submission.
Later, the Agency asked leave to file a supplemental memorandum. The
Board member granted this request and gave the State the opportunity to
reply, which it did.
This appeal involves the interplay of the provisions of a specific
regulation, an action transmittal, and the "cost principles."
The specific regulation is 45 CFR 304.20 (1981), headed "Availability
and rate of Federal financial participation." This provides in pertinent
parts:
(a) Federal financial participation at the 75 percent rate is
available for:
(1) Necessary expenditures under the State title IV-D plan for the
child support services and activities specified in this section. . . .
* * *
(b) Services and activities for which Federal financial participation
will be available shall be those made pursuant to the approved title
IV-D state plan which are determined by the Secretary to be necessary
expenditures properly attributable to the child support enforcement
program including the following:
* * *
(3) The establishment and enforcement of support obligations
including:
* * *
(iv) Enforcement of the support obligation including those activities
associated with collections and the enforcement of court orders, such as
contempt citations, issuance of warrants, investigation, wage attachment
and processing, and the obtaining and enforcing of court-ordered support
through civil or criminal proceedings either in the State that granted
the order or in another State. . . .
The action transmittal is OCSE-AT-79-3, dated June 6, 1979. It
contains the following statement of purpose: (3) to clarify those
situations in which Federal funding is available for the costs of making
arrests necessary to enforce support obligations.
The transmittal includes the following:
The term arrest, as used herein, means taking an individual into
physical custody pursuant to court issued process and transporting that
person to the court that ordered his or her arrest. It does not include
incarceration, arraignment and other activities that may occur as the
result of an arrest. Federal funding for these costs are (sic)
prohibited by 45 CFR Part 74, Appendix C, Part Ic.1(a) since these
activities are the overall responsibilities of State or local
governments.
The cost principles for state and local governments are now found in
Office of Management and Budget Circular No. A-87 (hereafter A-87). /3/
The relevant section is in Attachment A, C. Basic Guidelines, which
contains the following:
1. Factors affecting allowability of costs. To be allowable under a
grant program, costs must meet the following general criteria:
a. Be necessary and reasonable for proper and efficient
administration of the grant programs, be allocable thereto under these
principles, and except as specifically provided herein, not be a general
expense required to carry out the overall responsibilities of State,
local . . . governments.
(4) A Department publication, Brochure No. OASC-10, A Guide for State
and Local Government Agencies (OASC-10), states that the cost principles
-
. . . do not allow the reimbursement of general expenses required to
carry out the overall responsibilities of State and local governments.
Although these costs of general government are not explicitly defined in
the Circular, examples are provided. The expenses of the judiciary, the
State legislature and similar bodies such as county supervisors, county
councils, and school boards, a central budget office, etc., fall into
this category. However, an exception to this general prohibition is
permitted where a direct benefit to a Federal (programs) can be clearly
established. For example, the expenses incurred by a legislative
auditor in a compliance review of a Federal program would be acceptable.
/4/
(December 1976, p. 1)
Arguments of the parties
The parties' arguments, as the appeal proceeded, came to be directed
almost entirely to whether the jailing costs were within A-87's
prohibition against paying a general expense of state or local
government or within the OASC-10 exception. This exception is "where a
direct benefit to a Federal (programs) can be clearly established."
The State from the beginning relied on the "direct benefit" language,
claiming that without the threat of jailing court orders would not be
enforceable.
The Agency presented some statistics from the records of the State
program, which the Agency claimed showed that the increased use of
jailing was of minimal value to the program, as far as actual
collections were concerned, or was even counter-productive.
(5) The State contested this statistical argument with statistics of
its own. It also presented several published articles which supported
the view that jailing is useful to the State program. OCSE circulated
one of these articles to the State IV-D agencies with an information
memorandum. (OCSE-IM-78-3) The State also furnished two letters, one
from a district attorney and the other from a circuit court judge who
were both directly involved in the child support cases in one of the
counties involved in this appeal. Both argued vigorously that jailing
for contempt and the threat of jailing were vitally necessary to child
support collections. /5/
In reply, the Agency argued that the fact that jailing some
defaulting parents might induce many others to pay voluntarily was only
an "indirect" benefit to the program and incalculable. The Agency
also
relied on our prior decision in Pennsylvania Department of Public
Welfare, Decision No. 398, March 18, 1983.
In that case the State of Pennsylvania entered into a cooperative
agreement with the Philadelphia District Attorney for partial
reimbursement of costs of more aggressive prosecution of welfare fraud
cases under Title IV-A of the Social Security Act (Aid to Families with
Dependent Children program). We upheld the disallowance of these costs
based on the general government expense preclusion in A-87, together
with an action transmittal which stated that FFP was not available for
prosecution of suspected fraud cases because these activities were
considered "general government expenses." The OASC-10 exception was
not
raised by the parties.
Analysis
The four items, namely, the regulation (45 CFR 304.20), the action
transmittal (AT-79-3), the cost principles (A-87), and the guide
(OASC-10), must be considered together here. Standing alone, the effect
of any one might differ from the result we reach from looking at all
four.
(6) The regulation provides for FFP for enforcement of support
obligations "including those activities associated with collections and
the enforcement of court orders, such as contempt citations, issuance of
warrants . . . ."
The disallowance states that "(The) costs of jailing are not included
as being eligible for FFP under 45 CFR 304.20." It is true that the
costs of jailing are not listed separately in the regulation as one of
the specific activities eligible for FFP. The use of the word
"including", followed by a detailed listing, does not necessarily
mean
that there must be other items also eligible for FFP. On the other
hand, the phrase "such as" in the regulation implies that the listing
is
not complete and there may be other similar activities not itemized
which are also eligible for FFP.
It is certainly arguable that jailing is one of these items. There
may be little purpose in issuing a contempt citation and a warrant for
arrest if the ultimate sanction of jailing is not used. In the absence
of definitive rules, if FFP is available for the costs of threatening
jailing by contempt proceedings and arrest, should not the actual cost
of jailing also be a covered item? In the context of section 304.20
alone, there is no obvious distinction to be drawn between jailing and
the other related costs specified.
However, the regulation does not stand alone. More than two years
before the period covered by the disallowance the Agency issued an
action transmittal (AT-79-3) which stated specifically that federal
funding for incarceration, and arraignment and other activities that may
occur as the result of an arrest, was prohibited by the cost principles
as "the overall responsibilities of State or local governments." The
State does not deny actual knowledge of the action transmittal.
However, the action transmittal alone cannot fairly be viewed as
dispositive because this language was only incidental to its purpose.
This purpose was to extend the availability of FFP for the costs of
arrests to enforce support obligations by permitting state or local IV-D
agencies to purchase arrest services from local police. Nevertheless,
we cannot ignore the fact that the Agency went out of its way to say
that arrest did not include jailing, and that jailing was not eligible
for FFP.
We are then faced with a regulation listing items eligible for FFP,
which does not actually mention jailing (although it might reasonably be
included by inference) and an action transmittal which says outright
that cost of jailing is not eligible for FFP (7) (although the
transmittal says this gratuitously). If the regulation specifically
mentioned jailing, the specific inclusion would control. Without the
specific listing of jailing in the regulation providing for FFP, we are
directed by the action transmittal to the cost principles.
We turn then to the cost principles in A-87. The action transmittal
directs us to the preclusion of general governmental expenses in C.1.a.
of Attachment A. But before we reach the general government exclusion,
there are other requirements for a cost to be allowable under that
section. Costs must first "be necessary and reasonable for proper and
efficient administration of the grant programs."
Whether the costs were "necessary and reasonable"
In State of Oregon Mass Transit Assessment, Decision No. 402 -
Supplementary Decision, August 31, 1983, we referred to the term
"necessary" in the cost principles as meaning something "'essential',
so
that the grant programs could not be run properly and efficiently
without it." (p. 4) This does not mean that it would be impossible to
run the grant program without the cost item, but that the grant program
would not run well without it. The words "necessary and reasonable"
relate to whether a cost item is reasonably required to achieve a
program objective.
We also said in Oregon Mass Transit that the word "reasonable" does
not change the meaning of this particular cost principle, but "adds a
logical addition," that a cost has to be reasonable "in amount and
application," as well as necessary. (pp. 8-9) We also stated that "It
would be virtually impossible to provide detailed guidelines as to what
is 'necessary and reasonable' for every aspect of the programs
affected." (Id., p. 9)
Here, from the State's point of view, to run the State's child
support enforcement program properly and efficiently required the use of
jailing in extreme cases. Since the State is running its program, and
presumably knows which enforcement mechanisms work well in Oregon's
particular circumstances, we are inclined to give considerable weight to
Oregon's view of what is "required" for Oregon's program. Thus, on
balance, we are persuaded by Oregon's argument that the costs of jailing
were necessary and reasonable to run the State's IV-D program properly
and efficiently because without the threat of jailing, and its use where
the threat was not enough, citation for contempt was meaningless.
On the other hand, the Agency has not presented persuasive evidence
that the costs of jailing were not "necessary and reasonable" for
(8)
proper and efficient administration of the child support program. In
its Supplemental Memorandum (p. 7) the Agency admits that:
The Office of Child Support Enforcement (OCSE) has in the past
encouraged the States to use their lawful procedures to ensure that
court ordered child support obligations are paid. Citation for contempt
is one means to this end. . . .
We have indicated above our agreement with Oregon's argument that
citation for contempt without punishment thereafter would be
meaningless. It is not necessary to have a threat of jail "explicitly
and directly held over the contemnor solely to enforce his compliance
with court order", which the Agency fears might be a "breach of the
attorney's ethical responsibility." Supplemental Memorandum, p. 8. The
mere fact that some defaulting parents are sent to jail for not
complying with court-ordered payments can certainly serve as a signal to
others similarly situated, without involving ethical problems. The fact
that jailing may also "promote respect for the court and the importance
of its judgments" (Id.) does not prevent its usefulness in carrying out
what is after all the primary objective of the child support program, to
see that support for children is paid by those who owe it. /6/
For the foregoing reasons, we also find that the costs were
"necessary" expenditures under the State IV-D plan within the language
of 45 CFR 304.20(a)(1). (See p. 2 above.)
Whether the costs met the exception to the prohibition on general
government expenditures
We come then to the crux of the case, the general government
exclusion in the cost principles, and the OASC-10 exception. Clearly,
having and maintaining a jail is an expense of general (9) government,
the same as a city hall or a state capitol. It is the "overall
responsibility" of the state or local government to provide a jail. But
that does not mean that none of the expenses of jailing defaulting
parents can ever be eligible for FFP, because of the exception to the
general government preclusion in OASC-10, "where a direct benefit to a
Federal (programs) can be clearly established."
We believe this language in OASC-10, that a "direct benefit must be
clearly established," is in the nature of a "but for" test. That
is,
the jailing costs are allowable only if they demonstrably would not have
been incurred if there were no defaulting parents jailed under the
federal child support program. Contempt proceedings were brought
against these defaulting parents under the IV-D program, as encouraged
by the Agency. The State thought it necessary and reasonable that some
of these parents should be jailed as a last resort. The costs of
keeping them in jail, over and above the costs of running the jail
without them, are to us a clearly established direct benefit to the IV-D
program. /7/
(10) We believe FFP should be available only for the costs of jailing
which can be shown to have been incurred only for the IV-D prisoners and
not for general expenses of running the jails. To be specific, a jail
has to be heated and lighted whether there are IV-D prisoners in it or
not. Some guards are needed with or without these prisoners. We
interpret the applicable limitation to preclude mere pro rata
distribution of such costs to the child support program: just because
one can mathematically allocate a share of such costs to the program is
not, by itself, sufficient to show that the program effectively gave
rise to additional costs.
The Agency recognized that the extra cost of feeding non-support
prisoners is an expenditure "which might be delineated as attributable
solely to IV-D "(Supplemental Memorandum, p. 4) As to other expenses,
the Agency goes on to say that "If the State could document and
substantiate that a specific expense were attributable solely to Title
IV-D, it would presumably be reimbursable." (Id.)
Whether there were additional costs attributable to the IV-D program,
such as for extra guards, would depend on how many IV-D prisoners there
were. The State, in its response to the Agency's supplemental
memorandum, states that: "Staffing, and the entire range of jailing
costs are a function of the total number of prisoners. Adding more
prisoners requires more space, more guards, etc." (unnumbered second
page) This may or may not have been true in the particular case. If the
number of IV-D prisoners was minimal, or small in comparison to the
total normal jail population, more space and more guards may not have
been required.
On the other hand, there may be a situation in which the grantee and
the agency can easily and directly identify costs incurred only because
of the presence of IV-D prisoners. In that case, we think it reasonable
to conclude that section 304.20, coupled with the exception in OASC-10
to non-allowability of general government expenses in A-87, would
authorize payment.
We recognize that we have articulated a distinction which may be
difficult to implement practically. We believe that in this particular
case there is a burden on the grantee to produce affirmative evidence of
actual costs specifically incurred for the IV-D program. This burden
arises because the grantee was on notice, by means of the action
transmittal, that jailing costs generally were, at a minimum, of
questionable allowability.
We do not believe that Pennsylvania Department of Public Welfare,
Decision No. 398, supra, controls this case. In that case there was no
specific regulation, such as we have here, which arguably (11)
specifically provided for FFP for the particular costs claimed, for
prosecution of welfare fraud cases. In fact, the State relied on A-87
for the allowability of these costs. In addition, the action
transmittal in Decision No. 398 specifically addressed the particular
costs at issue in the appeal. It stated which activities in
investigation of alleged welfare fraud were eligible for FFP and which
were not. Prosecution of suspected fraud cases was the only item listed
for which FFP was not to be available. Here the exclusion of jailing
activities was included gratuitously in an action transmittal whose
purpose was to extend FFP for certain costs of arrests.
CONCLUSION
Based on the foregoing, we remand this case to the Agency to permit
the State to show any additional costs actually incurred for jailing
IV-D prisoners based on our analysis; FFP should be allowed fro such
costs. If the parties cannot agree on the costs eligible for FFP, the
State may appeal to the Board on this one point. /1/ The appellant in
its appeal letter said the charges claimed included "direct
costs, some of which are joint costs." These "direct charges"
included
"meals, an allocation of jailor, utilities, and space rent." (Letter,
May 26, 1983, p. 1) In its first response, the respondent stated that
the costs claimed by the State were indirect, computed "using a per diem
rate times the number of days spent in jail by individuals found in
contempt of court for noncompliance with child support orders. . . .
The total jailing administration charges were used in the computation of
the per diem rate for general incarceration." (p. 2) The terminology of
"direct" and "indirect" costs is not the real issue here.
/2/
Some of the prisoners were being held to be turned over to another state
on a criminal non-support charge. The parties in their arguments
treated all the costs as costs of jailing for contempt and we do too.
/3/ The cost principles for state and local governments have remained
substantially unchanged over many years, although their designation has
changed as the functions covered by them were transferred from one
federal department or agency to another. Originally OMB Circular A-87,
they were designated in 1974 as Federal Management Circular (FMC) 74-4.
The principles were set out in 45 CFR Part 74 as Appendix C until 1980,
when FMC 74-4 was incorporated by reference in 45 CFR 74.171. In
January 1981 FMC 74-4 was redesignated as OMB Circular A-87, which was
the designation during the time period covered in this appeal. /4/
OASC-10 contains both the cost principles and the procedures for
establishing cost allocation plans and indirect cost rates for grants
and contracts of state and local government agencies with the federal
government. The "direct benefit" exception to the preclusion of general
governmental expenses appears at the very beginning, under General
Information. This exception appears nowhere else. As the Department's
interpretation it is of course binding on the Department. /5/ The
letter from the circuit court judge was originally sent to the
Board by the judge, not by a party. We stated that we would then not
consider it for that reason, among others. However, the State
resubmitted the letter in its response to the Agency's Supplemental
Response, and the Agency did not object to including the letter in the
record. /6/ The concern of the Agency in its Supplemental
Memorandum for professional responsibility problems in contempt
situations is apparently not shared by the Oregon State Bar. Exhibit R
of the appellant's Response to the OSCE brief is an extract from a
Family and Juvenile Law Newsletter published by that section of the
State Bar. In "No, It's Not Just a Piece of Paper," a Circuit Judge
suggests methods for putting teeth in a support order: "There are
plenty of enforcement techniques, including contempt of court. . . .
Select the ones that apply to your case and use them all. That is, send
the obligor the message that you will do whatever is necessary." A later
suggestion is: "If you want a jail sentence, say so." /7/ The Agency
argued that the term "benefit" in the exception to the preclusion
on
payment for costs of government activities meant that the State had to
prove an actual financial gain in child support collections. It is not
clear what "benefit" in the exception means. On one hand, one can
argue
that "benefit" should be read as a cost allocation concept, where
the
term refers to distribution of costs among different programs as a
threshold accounting mechanism. Cf., New York Department of Social
Services; Wage Reporting System, Decision No. 415, April 29, 1983, p.
7. On the other hand, one can argue that such an interpretation would
make the use of "benefit" in the exception unnecessary, that "benefit"
reasonably may have a different meaning in this context, and that that
meaning may be that the Agency can require some affirmative showing of
"benefit" beyond mere allocability. We need not decide here which
is
the more reasonable interpretation (the parties did not address the
issue), because in any event we find that the Agency's position reflects
an overly rigid and unreasonable reading of the term in the context of
this case. As stated earlier, we agree with the State that jailing is
important to Oregon's child support program. There is no basis on the
face of the regulation for requiring quantitative stringency to
determine a precise benefit per se; and in any event, the rule we
support in this decision, requiring a direct nexus between costs claimed
and actual incurrence for the child support program, achieves much the
same result.
NOVEMBER 14, 1984