Department of Health and Human Services
Departmental Appeals Board
QUALITY CONTROL REVIEW PANEL
SUBJECT: Kansas Department of
Social and Rehabilitation Services
Docket Nos. A-94-018
A-94-021
Decision No. QC 61
DATE: March 8, 1994
DECISION
The Kansas Department of Social and Rehabilitation
Services (Kansas)
appealed the October 12, 1993 quality
control (QC) review determinations of
the Regional
Administrator of the Administration for Children and
Families (ACF) in State QC review numbers 021030 (Docket
No. A-94-018)
and 023095 (Docket No. A-94-021). These
cases were consolidated since
they raised the same issue.
ACF determined that these assistance units
(AUs) were
ineligible for AFDC benefits during the review month of
February 1993 because the AUs had resources in excess of
the $1000
general resource limit. ACF found that Kansas
did not establish
properly the equity value of vehicles
owned by the assistance units.
For the reasons discussed below, we uphold ACF's
determinations.
Relevant Authority
Federal regulations provide that in determining
eligibility of an
assistance unit for AFDC the State must
consider the income and resources of
the assistance unit.
The regulation specifically provides that --
(B) in AFDC--The amount of real and personal
property that can be
reserved for each assistance
unit shall not be in excess of one thousand
dollars
equity value (or such lesser amount as the State
specifies in its
State plan) excluding only:
* * * *
(2) One automobile, up to $1500 of equity value
or such lower
limit as the State may specify in
the State plan; (any excess equity value
must be
applied towards the general resource limit
specified in the
State plan); . . . .
45 C.F.R. � 233.20(a)(3)(i)(b)(1992).
The regulations define the meaning of equity value for
purposes of an
automobile to be the fair market value
minus any encumbrances (legal debts);
fair market value
means the price an item of a particular make, model,
size, material or condition will sell for on the open
market in the
geographic area involved. 45 C.F.R. �
233.20(a)(3)(ii)(F)(4).
Section 205.40(b) of 45 C.F.R., which states the
definitions relevant to
the quality control system for
the AFDC program, provides in pertinent part
that --
Permissible State practice means written rules and
policies
relating to eligibility and payment that
are in accordance with existing,
approved State plan
provisions or with proposed plan amendments
submitted to, but not acted upon, by the Department.
In situations
where written rules and policies are
not consistent with the existing,
approved State
plan or proposed plan amendments, permissible state
practice means the provisions of the State plan or
proposed plan
amendments. Where the plan provisions
or proposed amendments do not
conform to Federal law
and regulations, permissible State practice means
the Federal law and regulations (see also �
205.42(b)).
45 C.F.R. � 205.40(b) (57 Fed. Reg. 46,805, October 13,
1992).
The Quality Control Manual (QCM), section 3547 provides
procedures for
appropriately excluding the equity value
of one automobile up to the $1500
limit from an
assistance unit's general resource limit. This section
states, among other things, that if the State does not
have procedures
for establishing the value of a motor
vehicle, the federal reviewers should
establish a fair
market value by contacting two collateral sources with
knowledge of what the vehicle would sell for on the open
market.
These sources may include automobile dealerships
or salvage yards and the
lowest appraisal of the two
should be used for purposes of the QC
review. QCM,
section 3547.
Factual Background
The federal reviewers determined that both AUs were
ineligible for AFDC
because they had excess resources in
the form of vehicles during the review
month of February
1993.
For State QC review number 021030, the AU applied for
assistance on
October 9, 1992 and was approved for
benefits on October 21, 1992.
State QC review analysis
of the case record on March 15, 1993 indicated that
the
AU owned a 1985 GMC Jimmy which was valued at $3,600
minus $3,000
owed leaving an equity value of $600.
Pursuant to the Kansas Public
Assistance Manual (KPAM),
section 3221, State QC assigned a value of $100 to
the
vehicle since a 1985 GMC Jimmy was no longer listed in
the NADA
Official Car Guide. State QC determined that
the equity value of the
vehicle was therefore under the
resource limit of $1,500 for vehicles and
found the AU
eligible for AFDC. On July 16, 1993, the Regional
Administrator informed the State that the assignment of a
value of $100
to a vehicle not listed in the NADA
Official Car Guide was not a reasonable
method for
determining the equity value of a vehicle.
The Federal QC reviewers received verification from the
bank listed as
lien holder of the vehicle that the AU's
loan on the 1985 GMC Jimmy was paid
off on September 15,
1992, a month prior to the AU's application for
AFDC.
Pursuant to section 3547 of the QCM and since the State
did
not determine the fair market value of the vehicle,
the federal reviewers
established a fair market value by
seeking information from two automobile
dealerships in
Topeka, Kansas. One source indicated that the February
1993 market value for the 1985 GMC Jimmy would have
averaged between
$2,500 and $6,500 and the other
indicated it would have averaged between
$3,000 and
$4,500. Pursuant to section 3547 of the QCM the federal
reviewers used the lower appraisal of $2,500 minus $1,500
(equity limit
for a motor vehicle) leaving a balance of
$1,000. The AU, however, had
other liquid resources of
$728.92 for a combined available resource total of
$1,782.92 which is in excess of the State's general
resource limit of
$1,000. Consequently, since the AU had
resources in excess of the
limit, the federal reviewers
found the AU was ineligible.
In State QC review number 023095, State QC determined
that the AU owned
four vehicles: a 1983 Cadillac Deville,
a 1981 Toyota Pickup, a 1981
Chevrolet Caprice, and a
1947 Ford Truck. There were no liens on the
vehicles.
In order to establish the equity values of the vehicles,
State QC stated that the Cadillac would be considered
exempt as the one
motor vehicle set by the State within
the Federal maximum of $1,500.
State QC then assigned a
$100 value to each of the remaining three vehicles
based
on section 3221 of the Kansas Public Assistance Manual.
Since the State had been informed by ACF that applying an
arbitrary
assignment of a $100 value is not permissible
and that a reasonable basis
must be made for determining
the value of a vehicle, the federal QC
reviewers
determined the equity value of the vehicles. They used
the NADA Official Older Used Car Guide which provides
used car values
for older models 1976 through 1985.
Based on this guide, the federal
reviewers determined the
average trade-in value for all the vehicles except
the
1947 Ford Pickup. The values were as follows: 1983
Cadillac Deville - $1925; 1981 Toyota Pickup - $750; and
1981 Chevrolet
Caprice - $375. The federal QC reviewers
also received further
information from the AU on the
condition, mileage and options on each
vehicle.
Thereafter, the federal QC reviewers contacted two used
car dealers in Wichita, Kansas for appraisals on the
vehicles and
supplied them with the information on the
vehicles given by the AU.
The federal reviewers,
pursuant to section 3547 of the QCM, used the lowest
appraisal in determining the value of the vehicles. The
appraisals
were, as follows: 1983 Cadillac Deville -
$800; 1981 Toyota Pickup -
$300; 1981 Chevrolet Caprice -
$100 for parts; 1947 Ford Pickup - $2000
(good condition
as reported by client). The federal reviewers applied
the $1,500 exemption towards the 1947 Ford Pickup, which
left $500 in
excess resources. This amount, when added
to the values of the other
three vehicles totaled $1,700
in excess resources which exceeds the $1000
general
resource limit. As a result, the federal reviewers found
that the AU was not eligible for AFDC in the review
month.
Analysis
1. Kansas did not receive specific approval for its
practice of
valuation of vehicles.
Kansas argued that its practice of valuation of vehicles
was specifically
approved by ACF on September 10, 1980
with its submittal and approval of its
State plan. The
State claimed that its eligibility workers and quality
control reviewers have been using this method ever since
under the
assumption that it was correctly valuing
vehicles. The State further
contended that the ACF
Regional Office performed a review in June and July
of
1983 of the payment and eligibility sections of the KPAM
to identify
what practices could result in quality
control errors and did not notify
Kansas that there was
any problem with the valuation of vehicle practice set
forth in section 3221(1) of that manual. Kansas,
therefore,
claimed that it specifically and detrimentally
relied on ACF's determination
that its valuation method
was appropriate and argued that it is unfair for
ACF to
change its determination now.
We find that the record does not support Kansas' claims.
Kansas
indeed had at one time a State plan provision
that provided for assigning an
initial $100 value to a
vehicle that was not listed in the current NADA
Official
Car Guide. This plan provision was approved by ACF. In
1984, Kansas submitted the "streamlined State plan" which
provides that
the limit on the equity value of one
automobile shall be $1500 and
references the regulations
at 45 C.F.R. 233.20(a)(3). The definition
in the federal
regulations of equity value and fair market value was the
same in 1984 as in 1980. Unlike the State's 1980 plan
provision,
the 1984 State plan provision does not provide
for the State assigning a
$100 value should the car not
be listed in the NADA Official Car
Guide. While we
cannot conclude, as ACF has done here, that the lack
of
explicit reference to this practice in the 1984 State
plan was a
rejection of this practice, neither can we
agree with the State that ACF
would have understood that
when Kansas submitted its 1984 State plan
amendment, it
intended to keep the same written policies and procedures
for determining equity value of a vehicle. ACF could
have
reasonably concluded that the State was changing its
policies and
practices. Therefore, the 1980 State Plan
approval did not mean the
continuation of the valuation
practice under a different plan was
approved.
Moreover, the preamble to the final regulations
establishing the quality
control review system provides
that--
State practices (i.e., written policy and manual
material) are not
part of the State plan and, as
such, are not covered by plan approval. . . .
Should
a Region identify an inconsistency between the plan
and proposed
practice in any informal review, it
would normally advise the State.
However, the
responsibility for ensuring consistency between the
plan
and State practices resides with the State.
57 Fed. Reg. 46,788 (October 13, 1992). Consequently,
when ACF
approved Kansas' 1984 State plan amendment, it
did not specifically approve
any of the State's written
policies and procedures. As the preamble
specifies, one
of the purposes of the Quality Control System is to
identify any inconsistencies between the State plan and
State
practices.
Thus, Kansas could not have reasonably relied on approval
of either the
1980 State plan or the 1984 State plan
amendment as specific approval of the
State's practice of
valuing vehicles. Moreover, for us to find that
Kansas
detrimentally relied on ACF would require affirmative
statements
of approval of this practice given by a
responsible federal official and
that this reliance
caused an actual loss which should not otherwise have
occurred. 1/ There is no indication of any affirmative
statement of approval of this practice by ACF at the time
or subsequent
to the submission of the 1984 State plan.
2. Kansas' practice of valuation of vehicles does not
constitute a
method or procedure for determining value of
a vehicle.
The final QC regulations provide that where a State's
written rules and
policies are inconsistent with its
existing, approved State plan,
permissible state practice
(which is what the QC review is conducted
against) means
the provisions of the State plan and if the plan
provisions do not conform to federal law and regulations,
permissible
state practice means the federal law and
regulations. 45 C.F.R. �
205.40(b)(12).
This leads us to the central issue in this dispute which
is whether the
federal QC reviewers properly used the
valuation method set forth in section
3547 of the QCM
when the State had a practice for valuing vehicles.
Section 3543 of the QCM states that federal reviewers
should verify
equity value as of the review date. That
section further provides that
to determine "fair market
value" the QC reviewer is to follow state
procedures.
However, the QCM also provides that if the federal
reviewers determine that the State does not have a
procedure for
determining the fair market value of
vehicles, the federal reviewers should
establish the fair
market value using the methods set forth in the
QCM.
The question here is whether the State's practice was a
method for
determining "value" of a vehicle. The
regulation at 45 C.F.R.
233.20(a)(3)(ii)(F)(4)
specifically defines equity value of a vehicle as the
fair market value minus encumbrances (legal debts) and
the fair market
value is defined as the price an item of
a particular make, model, size,
material or condition
will sell for on the open market in the geographic
area
involved. While the regulations do not specify what
method a
State must use for determining fair market
value, the regulation assumes a
reasonable method should
be used. We find, however, that the State's
practice is
an inherently unreasonable method.
The State's practice is to use the "NADA Official Car
Guide" to find the
value of a vehicle and in the absence
of a listing in that Guide to ascribe
a value of $100.
The State, however, has not demonstrated that the
NADA
Official Car Guide functions by listing every vehicle of
more than
nominal value. Moreover, the State has not
demonstrated that the fact
that a car is not listed in
that guide automatically means the vehicle
reasonably
could be ascribed a value of $100. Rather, the facts
indicate just the opposite. In State QC review number
023095, the
federal reviewers used the "NADA Official
Older Used Car Guide" and found
that, except for the 1947
Ford Pick-up truck, the three other vehicles were
listed
with values substantially in excess of $100. Thus, the
lack
of a listing in the "NADA Official Car Guide" did
not mean that the vehicles
had a value of only $100.
Moreover, the KPAM sets forth that in determining the
value of resources
generally, the workers should first
use a "reputable trade publication," yet
for purposes of
vehicle valuation the KPAM specifically references only
the "NADA Official Car Guide." As the facts show,
however, this is
not the only car guide published by
NADA. Given that the facts
indicate that NADA publishes
other applicable car guides, the State also has
not shown
why it is reasonable to use only the "NADA Official Car
Guide"
for determining value. 2/ Particularly, there
is no basis
in fact for the State's practice of using a
$100 value in the absence of a
listing in the Guide; the
State has not shown that the $100 value is an
accurate
and reasonable reflection of the price on the open market
of a
particular vehicle.
Thus, the State's practice bears no reasonable
relationship to the "price
an item of a particular make,
model, size, material or condition will sell
for on the
open market in the geographic area involved" as the
regulations define "fair market value." 3/ 45 C.F.R. �
233.20(a)(3)(ii)(F)(4). Therefore, we conclude that the
State's
policies and procedures for valuing a vehicle do
not constitute a practice
for determining "fair market
value." If the 1984 State plan is
interpreted to permit
the continued practice of assigning an arbitrary $100
value to vehicles not in the "NADA Official Car Guide,"
then it would be
inconsistent with the requirements of
the federal regulations. In such
cases, the QC reviewers
are to use federal law and regulations as the
permissible
state practice against which to conduct the review.
Thus, the federal reviewers reasonably concluded that the
State did not
have procedures for establishing the value
of a vehicle and were correct to
use the procedures set
forth in the QCM.
3. The errors identified are not payment adjustment lag
errors.
Kansas contended that any alleged discrepancies due to
the valuation of
vehicles should be treated not as a
regular discrepancy but as a payment
adjustment lag
discrepancy (PAL), which is not reportable for purposes
of Kansas' official error rate. The State claimed that
the reason
for the Regional Administrator's findings was
a status-changing event (a
July 1993 letter from ACF
which indicated that the valuation method was not
appropriate) which occurred after the February 1, 1993
review dates.
The purpose behind QC review is to measure the
correctness of eligibility
determinations and payment
amounts for the review month in the sampled
cases. QCM
section 3020. In these two cases, the reviewers
were
evaluating whether the assistance units had resources in
excess of
the general resource limit. This evaluation is
done for purposes of
determining if the assistance unit
was in fact eligible for
assistance. The QCM
specifically states that "the only payment error
which
can result from a discrepancy in resources is
ineligibility." QCM section 3543. The QCM provides that
a
PAL discrepancy --
results from a change in the AU's [assistance
unit's] circumstances
that first occurred in the
review month or the month immediately preceding
the
review month. However, only changes that affect the
review
month(s) payment are considered PAL
discrepancies.
QCM section 3300 (October 1992). A regular payment
discrepancy
occurs when --
(1) a change in circumstance first occurred before
the month
immediately preceding the review month;
or, (2) an incorrect adjustment was
made to the
review month's payment, including a supplemental
payment,
based on a change in circumstances which
occurred during, or in the month
immediately
preceding the review month; or, (3) a change in
circumstance
occurred prior to authorization of the
first check to a newly eligible
AU. A payment
discrepancy can also result from an incorrect
determination of eligibility or payment amount prior
to initial
authorization. An erroneous
determination at initial eligibility which
results
in an incorrect payment is always considered a
regular payment
discrepancy.
Id.
ACF explains in the QCM that the PAL concept was
established to take into
account the fact that systems
limitations or other advance notice
requirements (where
the State must give certain advance notice to a
recipient
of certain actions that are to be taken with regard to
their
assistance) may prevent the State from making
timely adjustments to the
review month's payment when
changes in circumstances occur. QCM
section 3300.
Kansas has not shown that there was a change in the
circumstances of these two AUs which occurred in the
review month of
February 1993 or the month immediately
preceding the review month, January
1993, which is
required for a PAL discrepancy. Moreover, contrary to
Kansas' contention, the July 1993 letter from ACF to
Kansas did not
constitute a "change in AU's
circumstances" under the QCM provisions.
As we explained
above, the basis for judging the correctness of
eligibility and payment determinations, is permissible
state
practice. In this instance, Kansas failed to
conform their policies
for determining equity value as
set forth in the KPAM to its State plan, as
amended in
1984. The preamble to the final regulations specifically
provide that it is a state's responsibility to ensure
consistency
between its state plan and any state policy
and manual material and that the
State's written policies
and procedures are not subject to federal
approval. 57
Fed. Reg. 46,788 (October 13, 1992). The record
therefore indicates that any payment discrepancy here was
the result of
the State's failure to conform its written
policies and procedures in KPAM
to its 1984 State plan
and to federal regulations. As a result,
Kansas'
practice of determining the equity value of vehicles was
out of
conformity years before the federal QC review.
Thus, we agree with ACF that the discrepancies found by
the federal
reviewers did not result from a change in the
AUs' circumstances; rather, we
find that the
discrepancies identified resulted from Kansas' omission
dating from submission of its State plan in 1984 to
conform its
practices with its State plan or to federal
regulations. Therefore, we
find no basis for the State's
argument that the errors found in these cases
should be
considered PAL discrepancies.
4. There is no provision which would allow the State
under the
circumstances here a reasonable period of time
to change its manual.
Finally, the State argued that because ACF first notified
the State on
July 26, 1993 that the assignment of a value
of $100 to a vehicle not listed
in a NADA Official Car
Guide, as set forth in the KPAM, was not a reasonable
method for determining market value of a vehicle, Kansas
should be
permitted a reasonable time to implement ACF's
decision. The State
contended that it would be unfair to
apply ACF's decision in July 1993
retroactively to find
an overpayment for the review month of February
1993.
We agree with ACF that Kansas had the obligation to
ensure that its KPAM
provisions were in accordance with
its State plan and federal
requirements. Moreover, ACF
was under no obligation to identify the
erroneous KPAM
provision for Kansas prior to the QC review. The July
1993 letter from ACF merely states what the QC review
found and
reiterates to Kansas its obligation to conform
its policies and
procedures.
While the regulations provide for excluding QC payment
errors in certain
circumstances, those circumstances are
not present here. Under 45
C.F.R. �
205.42(d)(2)(i)and(ii), only federal policy changes are
afforded a six-month hold-harmless period. Thus, the
regulations
provide for excluding QC payment errors
resulting solely from a State's
failure to properly
implement changes in federal law or regulation for a
period of six months after the effective date of statute
or implementing
regulations, whichever is later. 4/
After the end of this
six month hold harmless period, the
QC review is conducted against
permissible state
practice. See 57 Fed. Reg. 46,782, 46,791
(1992). The
preamble to the final regulations further explains that
ACF has no authority to establish a hold-harmless time
period for
State-initiated policy changes. Id. at
46,790. In the instant
case, there was no change in
federal statute or implementing regulations
regarding the
issue in dispute which would exclude these errors under
the hold-harmless period.
The only other provision for excluding errors applies to
errors resulting
solely from the State's reliance upon
and correct use of information
provided by the Secretary
about matters of fact or the State's reliance upon
written statements of federal policy provided to the
State by the
Secretary, which means formal written policy
statements from a federal
official responsible for
dissemination of such policy in the AFDC program
such as
Action Transmittals and Manual materials which are
routinely
sent to the states by ACF. Mere approval of a
State plan would not
constitute a written statement of
federal policy. 45 C.F.R. �
205.42(d)(2)(ii); 57 Fed.
Reg. 46,782, 46,808 (1992). The record
indicates that
the State's policy for valuation of vehicles was not
based on any specific factual information issued by ACF
or based on any
written policy statement issued by ACF.
Indeed, the State claims it
relied to its detriment
because ACF did not inform the State that its
practice
was not in conformance with its State plan and federal
regulations. As we discussed above, the State was on
notice that
ACF approves only a state's plan and not its
written policies and
procedures. Consequently, there is
no basis for finding that Kansas
detrimentally relied on
any factual information or written statement of
policy
provided by ACF which would exclude these errors from
consideration as erroneous payments.
Conclusion
Based on the foregoing, we sustain ACF's determination
that these two AUs
were ineligible due to excess
resources.
_____________________________
Leslie A. Sussan
_____________________________
Peggy McFadden-Elmore
_____________________________
Andrea M. Selzer
* * * Footnotes * * *
1. Kansas is
essentially arguing that ACF
should be estopped here. There is
certainly question
about whether the federal government is ever subject to
estoppel, but it is clear that one cannot prevail against
the government
without at least demonstrating that the
traditional elements of an estoppel
are present. The
elements of estoppel are that the party claiming the
estoppel must have relied on his adversary's conduct in
such a manner as
to change his position for the worse,
that reliance must have been
reasonable in that the party
claiming the estoppel did not know nor should
it have
known that its adversary's conduct was misleading.
Heckler
v. Community Health Services of Crawford County,
Inc., 467 U.S. 51 (1984);
Lyng v. Payne, 476 U.S. 926
(1986). Even if there is detrimental
reliance, for the
federal government to be subject to estoppel, there must
also be a showing of "affirmative misconduct," which
appears to require
more than an innocent mistake in
giving out information; seemingly it would
require
serious misconduct on the part of a government official
such as
deliberate misrepresentation. INS v. Hibi, 441
U.S. 5 (1973) (per
curiam); Schweiker v. Hansen, 450 U.S.
785 (1981); and INS v. Miranda, 459
U.S. 12 (1982)
2. In
State QC review number 021030, federal
reviewers relied on quotes from
dealers, but it seems
likely that a 1985 GMC Jimmy would have been listed in
at
least the NADA Official Used Car Guide as of the review
date.
In any event, as in State QC review number 023095,
a dealer's estimate was
probably closer to the true
market value for a specific place and
time.
3. Even if the
1980 State plan specified such a
method, the State's method, in practice, of
arbitrarily
assigning a $100 value in the absence of a listing in
only
the NADA Official Car Guide is not a reasonable
interpretation of the
regulatory definition of "fair
market value" which is specifically
incorporated into the
State's 1984 State plan provision. Thus, where a
State's
practice is inconsistent with its State plan, the federal
reviewers would review against the applicable state
plan.
4. The preamble
indicates that ACF will notify
States when the six-month hold-harmless
procedures will
apply. 57 Fed. Reg. 46,791 (October 13, 1992).
No
evidence was presented that any such notice was issued
here; this is
further indication that no federal policy
change was involved.
(..continued)