Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
AFDC QUALITY CONTROL REVIEW PANEL
SUBJECT: New Mexico Human Services Department
Docket No. A-96-7
Decision No. QC96
DATE: February 26, 1996
DECISION
The New Mexico Human Services Department (New Mexico) appealed a September 5, 1995 quality control (QC) determination by the Regional Administrator of the Administration for Children and Families (ACF) in State Quality Control Review No. 2099 (Federal Quality Control No. 037). The Regional Administrator sustained the federal QC review finding that the assistance unit (AU) in this case received an Aid to Families with Dependent Children (AFDC) overpayment of $240. Her decision was based on a finding that the state QC review had failed to account for $360 in earned in kind income that the AU had received during the review month of November 1994.
For the reasons discussed below, we reverse ACF's overpayment determination.
Factual Background
This case involves the accuracy of an AFDC payment of $274 for November 1994. The AU is composed of a mother (the recipient) and her child.
The record establishes that the recipient was recertified for AFDC in May 1994, at which time she reported that she received no earned income and that she had shelter costs that included $300 rent and $60 utilities. New Mexico Ex. 1, Att. 1. The review month payment was based upon this information. New Mexico Ex. 1, Att. 2.
During the state QC review, the state reviewer concluded that the recipient received no earned income from wages or salaries as of the review date. New Mexico Ex. 1, Att. 3. The recipient stated that she was able to meet her shelter expenses by doing chores for the landlord in lieu of making a rental payment. Id. at 14. This arrangement was confirmed by a signed letter from the landlord dated January 14, 1995. New Mexico Ex. 1, Att. 4. The state reviewer, applying state policy, did not consider this arrangement to constitute in kind earned income. New Mexico Ex. 1, Atts. 5 and 6.
The federal QC reviewer concluded that the recipient was an employee of her landlord and that she therefore received earned in kind income as a result of the shelter arrangement. New Mexico Ex. 1, Att. 7. The federal reviewer considered the monthly value of the shelter arrangement to be $360 and determined that case was overpaid $240 for the review month. Id.
Applicable Authority
Title IV, Part A of the Social Security Act (Act) establishes the AFDC program to provide assistance to needy children and their caretakers. Under section 408(a) of the Act, the Secretary of the Department of Health and Human Services must establish a quality control system to determine the amount of any erroneous AFDC payments made by a state. Under this system, states review a sample of AFDC payments made during the review period in order to determine the level of erroneous payments. The Act then provides for federal QC re-review of a subsample of the cases reviewed by the state. See section 408(b) of the Act. Pursuant to this statutory mandate, the Secretary has issued regulations for the operation of the federal and state AFDC QC systems. 45 C.F.R. §§ 205.40 through 205.43. Those regulations provide that a state agency must operate its QC system in accordance with applicable regulations and the policies and procedures prescribed in the Quality Control Manuals (QCM) issued by the Department. 45 C.F.R. § 205.40(d)(1)
There are two different concepts which are relevant to the resolution of this case: first, permissible state practice (PSP), and second, earned income and its availability to the recipient.
1. Permissible State Practice
QC reviews are conducted against PSP. 45 C.F.R. § 205.42(b). This means that the basis for judging the correctness of eligibility and payment determinations is PSP. QCM, § 3020, at 2.
PSP is defined as "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." 45 C.F.R. § 205.40(b)(12); see also QCM, § 3130 and 3131.
If a state's written rules and policies are not consistent with the existing, approved State plan or proposed plan amendment, PSP means the provisions of the State plan or proposed plan amendments. 45 C.F.R. § 205.40(b)(12). In such cases, the QC review is conducted against the State plan. QCM, § 3020.
If a state's State plan provisions or proposed amendments do not conform to federal law and regulations, PSP means the federal law and regulations. 45 C.F.R. § 205.40(b)(12).
2. Earned Income
In AFDC, states must consider an AU's income and resources which are "available for current use" in determining eligibility for and the amount of assistance payments. 45 C.F.R. § 233.20(a)(3)(ii)(D). The regulation sets forth the following definition of "available":
. . . income and resources are considered available both when actually available and when the applicant or recipient has a legal interest in a liquidated sum and has the legal ability to make such sum available for support and maintenance.
Id.
In calculating an assistance payment, a state is required to take into consideration an AU's "earned income" less certain disregards. Act, §§ 402(a)(7)(A) and 402(a)(8). "Earned income" is defined as follows:
The term earned income encompasses income in cash or in kind earned by an individual through the receipt of wages, salary, commissions, or profit from activities in which he is engaged as a self-employed individual or as an employee. . . . Such earned income may be derived from his own employment, such as a business enterprise, or farming; or derived from wages or salary received as an employee.
45 C.F.R § 233.20(a)(6)(iii). Section 233.30(a)(6)(i) requires state policy to include a definition of "earned income" consistent with paragraphs (a)(6)(iii) through (ix) of that section.
New Mexico's definition of earned income is promulgated at FAP-521. (This rule was previously codified at FAP- 436; we will refer to it by its present section number.) FAP-521 provides, in part, that
Earned income is income in cash or in kind (such as jewelry, agricultural products, automobiles, etc. that can be sold or converted to cash) that is received as wages from employment.
FAP-521; New Mexico Ex. 1, Att. 8.
The Parties' Arguments
New Mexico argues that its definition of earned income constitutes PSP. It further argues that, under its definition of earned income, the benefit received by the recipient is not earned in kind income because (1) the right to live in the house was personal to her and cannot be converted to cash and (2) she was not an employee of the landlord.
ACF counters that New Mexico's definition of earned income does not constitute PSP for two different reasons. First, ACF contends that, because New Mexico had no specific language relating to earned income in its 1994 AFDC State plan, New Mexico's definition of earned income is not in accordance with a State plan provision and therefore not PSP. Second, ACF contends that the portion of New Mexico's definition requiring that an in kind benefit be convertible to cash is contrary to federal regulations and therefore cannot be considered a PSP. ACF argues that the basis for judging the correctness of this payment is federal regulations and that, under these regulations, the recipient was the employee of the landlord and received earned in kind income which must be considered in determining the assistance payment.
Analysis
The issues presented in this case are (1) whether New Mexico's definition of earned in kind income constitutes PSP and is therefore binding upon the QC process; and (2) if New Mexico's definition does constitute PSP, whether the recipient's arrangement with her landlord constitutes earned in kind income under that definition.
For the following reasons, we conclude that the definition of earned in kind income set forth in New Mexico's regulations constitutes PSP for this case and that the value of this shelter arrangement did not have to be counted as in kind earned income.
1. New Mexico's definition of earned in kind income constitutes PSP for this case.
PSP is defined as a State's written rules and policies relating to AFDC eligibility and payment that are in accordance with a state's AFDC State plan provisions. 45 C.F.R. §205.40(b)(12). ACF took the position that, because "[t]he New Mexico AFDC state plan in effect during 1994 did not contain specific language related to earned income," its definition of in kind earned income set forth in its rules could not constitute PSP. New Mexico Ex. 2, Regional Administrator Reconsideration Letter at 3.
We disagree for the following reasons.
o By design, a State plan is a limited document. As the QCM explains, "The State plan is a concise document which focuses primarily on the options that a State may elect in administering its AFDC program." QCM, § 3132, at I-9. State plans necessarily do not contain the level of detail which is required to actually administer a state's AFDC program.
o Because State plans are limited documents, states must promulgate comprehensive policies which instruct case workers how to make eligibility and payment decisions in accordance with the provisions of a State plan and these policies may not have a State plan corollary. To construe silence in the State plan to mean that a state policy was "not consistent with existing, approved State plan" (45 C.F.R. § 205.40(b)) would negate, as PSP, significant portions of state policies which workers use to make payment decisions. Therefore, the fact that a state policy may not have a precise corollary in a State plan should not be, in and of itself, grounds to disqualify it as PSP.
o Finally, in the case of earned income, federal regulations specifically instruct states to set forth their definitions of earned income in their policies, not their State plans. Section 233.20(a)(6) states:
(6) Disregard of earned income; definition. Provide that for purposes of disregarding earned income the agency policies will include:
(i) A definition of "earned income" in accordance with the provisions of paragraphs (a)(6)(iii) through (ix) of this section.
(Underline emphasis added.) 1/
Therefore, particularly in regard to a definition of earned income, we conclude that a state should be able to rely on its definition which it has placed in its state policies.
ACF also argued that the portion of New Mexico's definition requiring that in kind income be convertible to cash is contrary to federal regulations and therefore cannot be considered PSP. We agree with ACF that in order to qualify as PSP, a state policy must be consistent with the Act, the AFDC regulations, and ACF policy interpretations. We base this conclusion on the fact that, in their State plans, all states agree to administer their programs in accordance with these authorities. New Mexico State Plan, ACF Ex. 1, at 1; QCM, § 3131 A.
New Mexico represented that its requirement that in kind income be convertible to cash was derived from its interpretation of 45 C.F.R. § 233.20(a)(3)(ii)(D). That regulation requires that income be "available" in order to be counted in the AFDC budgeting process. As to what "available" means, that regulation provides:
. . . income and resources are considered available both when actually available and when the applicant or recipient has a legal interest in a liquidated sum and has the legal ability to make such sum available for support and maintenance.
45 C.F.R. § 233.20(a)(3)(ii)(D). ACF responded only with the argument that "[i]t is beyond question that New Mexico's requirement that earned in kind income be capable of "conver[sion] into cash" directly conflicts with federal regulations defining earned in kind income." ACF Br. at 5.
For the following reasons, we agree with New Mexico that its construction of "available," as reflected in its definition of earned in kind income, is a reasonable construction of 45 C.F.R. § 233.20(a)(3)(ii)(D) and therefore may be considered PSP.
o 45 C.F.R. § 233.20(a)(3)(ii)(D) is susceptible to alternative and conflicting interpretations.
o First, the regulation uses the conjunctive "and" rather than the disjunctive "or" between "actually available" and "when the applicant or recipient has a legal interest in a liquidated sum." New Mexico interpreted the regulation as requiring income to meet both these tests. While ACF would presumably interpret the regulation as encompassing income which was "actually available" or which could be made available for support and maintenance, New Mexico's construction is a reasonable reading of confusing syntax.
o Second, the term "liquidated sum" can be read to mean at least two different things. New Mexico interprets "liquidated sum" to be using the word "liquidate" to mean "to convert (holdings or assets) into cash." Webster's New World Dictionary, 788 (3d College Ed. 1988). ACF construes the term "liquidated sum" to be using the word "liquidate" to mean "to settle by agreement the . . . the amount of (indebtedness, damages, etc.)," i.e., to be of an ascertainable value. Id.; see ACF Br. at 6. Again, New Mexico's construction is a reasonable reading of a term that has multiple meanings.
o Therefore, New Mexico's construction of 45 C.F.R. 233.20(a)(3)(ii)(D) is consistent with grammatical principles and with a definition of the term "liquidated."
o There is nothing in the record to indicate that New Mexico had adequate and timely notice of ACF's contrary interpretation of this regulation. Therefore, while ACF has now informed New Mexico that New Mexico's interpretation of 45 C.F.R. § 233.20(a)(3)(ii)(D) is erroneous, New Mexico's definition of earned in kind income as set forth in FAP- 521 is a PSP for purposes of this case. 2/
2. The recipient's shelter arrangement did not constitute earned in kind income under FAP-521.
Under FAP-521, the test for determining whether the recipient's income is earned in kind income is whether the recipient received the benefit from her landlord as wages from employment, and, if so, whether the benefit or service is something that could be converted to cash.
The Panel finds nothing in the record from which it can reasonably conclude that the second criterion of FAP-521 was met. Under the arrangement between the recipient and her landlord, the recipient has neither a legal interest in a liquidated amount of money nor does she have the ability to convert her in kind right of occupancy into cash, as required by FAP-521. New Mexico is correct in its characterization of the recipient's arrangement as a limited, non-monetary right to live in the landlord's house should she choose to perform chores and maintenance on the property. The record does not reflect that the recipient could have sold this benefit to another individual for cash. Therefore, the arrangement between the recipient and her landlord fails to meet the second criteria of FAP-521.
Because the recipient's arrangement fails to meet the requirement that the in kind benefit be able to be converted to cash, it is not necessary to reach the issue of whether the recipient was employed. However, even if it were necessary to reach the issue of whether the recipient was an employee of her landlord, the record contains conflicting affidavits on this issue. Under New Mexico law, it is not apparent that such evidence would be sufficient to establish the existence of an employer/employee relationship. Triple B Corp. v. Brown and Root, Inc., 739 P.2d 968, 971-72 (N.M. 1987); Jelso v. World Balloon Corp., 637 P.2d 846, 850 (N.M. Ct. App. 1981); Reynolds v. Swigert, 697 P.2d 504 (N.M. Ct. App. 1984).
Conclusion
For the reasons cited above, we reverse ACF's determination that this case was overpaid $240 in AFDC during the review month of November 1994.
__________________________
Leslie Weyn
__________________________
Sara Anderson
__________________________
Joseph T. Gatewood
* * * Footnotes * * *
1. We note that section 3132 A. of the QCM refers to "mandatory federal requirements" and provides:
Where the State plan does not contain specific language relating to a mandatory Federal requirement, the QC review is conducted against Federal regulations and implementing Federal policy interpretations.
ACF made reference to this provision in its brief; however, it did not explain how this provision affected this case. ACF Br. at 4. While counting available earned income of an AU is a mandatory federal requirement, ACF granted states the authority, within the confines of 45 C.F.R. § 233.20(a)(6), to define "earned income." As stated above, the fact that 45 C.F.R. § 233.20(a)(6)(i) instructs states to define earned income is sufficient grounds to conclude that a state's definition should be relied upon in the QC process for determining whether the state has made an error.
2. Since New Mexico has notice of ACF's contrary interpretation as of this case, it will have to modify its definition or risk future QC errors which would result from continued use of this definition. ACF noted that, effective February 1995, New Mexico amended its State plan to provide that earned in kind income paid as compensation for services must be treated in accordance with federal regulations at 45 C.F.R. § 233.20(a)(6) and (a)(11). ACF Ex. 2, at 2. However, there is no indication in the record as to whether New Mexico also amended FAP-521.