GAB Decision 165
April 30, 1981 Michigan Department of Social Services; Docket No.
79-100-MI-SS Garrett, Donald; Settle, Norval Teitz, Alexander
The Michigan Department of Social Services (Grantee) filed an
application for review of the April 26, 1979 decision by the
Commissioner of the Social Security Administration (Agency). In that
decision, the Commissioner affirmed the earlier decisions of the Acting
SRS Regional Commissioners to disallow expenditures insofar as they
relate to $3,259,590 claimed as Federal financial participation (FFP)
under Titles I, X, and XIV of the Social Security Act (Act) for
expenditures under dual payee warrants issued for special need items for
the period from April 1, 1971 through December 31, 1973.
Our decision is based on the reconsideration record developed
pursuant to 45 CFR 201.14, the Grantee's application for review, the
Agency's response thereto, and an Order to Show Cause. The Grantee did
not respond to the Order and has informed the Board that it does not
intend to respond. The Agency was not required to respond to the Order
and did not do so. For the reasons stated below, we conclude that the
Agency's decision should be uphold.
Statement of the Case
In June 1971 the Grantee submitted a State plan amendment revising
its Public Assistance Manual to implement a "dual payee" payment system.
The dual payee system would allow the recipient to pay for specific
goods, services, or items recognized by the State agency as a special
need under the State plan in the form of checks drawn jointly to the
order of the recipient and the provider and negotiable only upon
endorsement by both the recipient and the provider. The use of such a
payment system was based on the Grantee's interpretation of 45 CFR
233.20(a)(2)(v), that since the provision of special need items is
optional with the state, the state could describe the circumstances
under which such special need items would be provided, includng the
method of payment.
The plan amendment was disapproved by the SRS Administrator in a
letter dated October 8, 1971 on the grounds that it provided for a
restrictive payment system without the safeguards provided for the
recipient under the provisions of 45 CFR 234.60 (Protective and vendor
payments for dependent children) and 45 CFR 234.70 (Protective payments
for the aged, blind, or disabled).
Despite the disapproval of its plan amendment, the Grantee operated
its dual payee system and by the quarter ending September 30, 1973 had
claims for FFP for the system totaling $9,183,203. This amount was
disallowed on January 30, 1974 by the Acting SRS Regional Commissioner,
Region V. For the period October 1, 1973 through December 31, 1973, the
grantee's claims under the dual payee system totalled $2,315,944 in FFP.
This amount was disallowed on March 7, 1975 by another Acting SRS
Regional Commissioner, Region V. The two disallowances totaled
$11,499,147 in FFP, claimed under Titles I, IV-A, X, and XIV.
The Grantee requested reconsideration of the disallowances pursuant
to 45 CFR 201.14 and accordingly received a conference with the SRS
Administrator on April 27, 1976.
In his decision letter dated April 26, 1979, the Commissioner upheld
the decision of the Acting SRS Regional Commissioners as to the
$3,259,590 claimed for FFP under Titles I, X, and XIV, but determined
that Section 3(b) of Public Law 95-171, passed subsequent to the
disallowances, prohibited the affirmation of that part of the
disallowance, amounting to $8,049,737, claimed as FFP under Title IV-A.
The Commissioner also noted that the remainder of the original claim,
$189,820, claimed under IV-A, was now being claimed by the Grantee under
Title XIX and, therefore, not at issue before him.
By letter dated May 24, 1979, the Grantee elected to appeal the
decision under the procedures at 45 CFR Part 16.
Discussion
Issue #1. Whether the Grantee's dual system of payment violated the
"money payments" principle.
Under titles I, X and XIV of the Social Security Act, except as
otherwise specifically provided for in Federal law, financial assistance
for purposes of Federal matching means money payments to needy
individuals. Sections 6(a), 1006, and 1405 of the Act. (emphasis added)
These statutory provisions are reflected in regulations at 45 CFR 234.11
which interpret money payments eligible for FFP as:
(Payments) in cash, checks, or warrants immediately redeemable at
par, made to the grantee or his legal representative with no
restrictions imposed by the agency on the use of funds by the
individual. (36 FR 22238, Nov. 23, 1971) (emphasis added)
This interpretation was previously reflected in Section 5120 of Part
IV of the Handbook of Public Assistance Administration (HPA). Section
5120 states that assistance comes to the needy person as a right and
that this right includes the freedom to manage his affairs as other
members of the community would. This includes, but is not limited to,
the right to decide how, when, and whether each of his needs is to be
met.
The Grantee argues that its dual payee system of payment, issuing
checks jointly to the recipient and the provider, does not violate the
money payments principle. The Grantee contends that although it was the
intent of Congress for money payments "to be free of those restrictions
which would prevent individuals receiving public assistance from the
management of their regular monetary affairs," the reference of Congress
in legislative history to money payments as "unrestricted" (see
quotation on page 4) was not meant in an absolute sense. Part III,
Grantee's Brief in Support of Conference Position. The Grantee
therefore asserts that the language of 45 CFR 234.11(a) limiting money
payments to those void of any restrictions is too strict an
interpretation of the statute.
The Grantee further argues that 45 CFR 234.11(a) must be read
consistently with this construction of the Act. To do so, the Grantee
looks to subsequent amendments of the act and notes that Congress has
provided for alternative methods of payments, i.e. protective or vendor
payments. From this the Grantee concludes that if Congress is willing
to allow third party payments in certain situations, it would allow a
dual payee system of payment in the context that the Grantee has
provided.
Under the Grantee's dual payee system, the public assistance
recipient first determines that he has need of a particular item or
service. The recipient then decides from what provider to obtain the
item or service. After these initial decisons the recipient goes to the
Grantee with his request and is issued a warrant made out to him and the
provider for payment of the need. The face of the warrant contains a
designation of the services for which the warrant was issued. After
receipt of the warrant, the recipient proceeds to obtain the indicated
services to pay the provider with the warrant, or withhold payment be
refusing to sign the warrant because the goods or services are
unsatisfactory.
The Grantee contends that this method of payment allows the recipient
to exercise freely the personal money management choices envisioned by
Congress within the term money payments. The Grantee states that it is
only after the recipient has made his decision, the how, when, and
whether about the need, that the warrant is issued. In this regard, the
Grantee contends that the grant payment itself remains unencumbered.
The Board concludes that the Agency's interpretation of the term
money payments as being only those totally without restrictions is a
reasonable reading of the Act. The House and Senate committees in their
reports on the original Social Security Act explained that the term
"money payments" means that assistance shall be "confined to
payments in
cash." House Report 615 and Senate Report 625, 74th Congress, 1st
Session, 1935. This explicit provision coupled with the Congressional
intent, as set out below, to allow the recipients to manage their own
monetary affairs supports the Agency interpretation as a reasonable one.
The Grantee further contends that to the extent the regulation is
inconsistent with the Act, it should be made consistent, "and in this
regard subsequent legislative action is a proper fact 'to take into
consideration, in determining the meaning of a statute'." 73 Am Jur 2d
Statutes Sec. 718, Part III of Grantee's Brief.
The Board finds that subsequent legislative action supports fully the
Agency's interpretation of the Act. Congress in discussing the state of
the law in 1950 said:
At the present time only unrestricted cash payments to aged and blind
persons and with respect to dependent children under the approved State
plans are counted as expenditures with respect to which the Federal
Government will make a contribution. 2 U.S. Code Congressional Service,
p. 3474 (1950). (emphasis added)
At time passed Congress recognized that in certain limited situations
there was a need to protect certain recipients of public assistance from
their own inability to manage their funds. In legislating these
protections, Congress consciously realized it was modifying the strict
money payments principle, but such changes were made only in these
special circumstances and replete with very specific restrictions.
Thus, in considering the "Public Welfare Amendments of 1962", to
provide federal matching funds for the first time for protective
payments under AFDC, the legislative history provides:
The question the committee faced is how to deal with the instances of
abuse and misuse of funds given for the benefit of the children without
endangering the general principle that the large majority of aid to
dependent children recipients, who give proper care to their children,
should spend their assistance payment without direction. The committee
concluded that certain modifications in the principle of a "money
payment" were necessary. The money payment concept was included in the
1935 original Social Security Act, applicable to all the assistance
titles, and has not, except for medical care and foster home care, been
significantly modified since.
. . .
In modifying the money payment principle, your committee was
motivated by a desire to give States much more flexibility in dealing
with the difficult situations they face.The intention is not to change
the basic nature of the aid to dependent children program. Your
committee expects that, although States now will have the flexibility
some of them have sought to make other than money payments with Federal
participation, they will use this option sparingly, and will set forth
criteria to assure that these safeguards are involved only in those
instances where the need for them is clear.
House Report No. 1414, 87th Cong., 2nd Session, p. 17 (1962).
In such situations, Congress authorized for the first time the use of
protective or vendor payments. However, in doing so Congress provided
certain safeguards for the recipient. These safeguards are contained in
Section 406(b) of the Act. They basically provide that the state agency
must first make a determination that the recipient is unable to manage
funds and such mismanagement endangers the recipient's welfare. The
recipient must be provided an opportunity for a fair hearing on this
question. In addition, the state agency must make efforts to improve
the individual's ability to manage money and periodically review the
need for the protective payment. Such safeguards reflect Congress's
concern that recipients have a real choice in the use of their payments,
except where their own inability to manage funds makes it impossible.
These same concerns were expressed by Congress when protective
payments were extended to the adult categories, Title I, X, and XIV, in
the Social Security Amendments of 1965. See, e.g., U.S. Code Cong. and
Ad. News, p. 2099 (1965). Congress again addressed these concerns by
providing specific safeguards for the benefit of the recipient to assure
that protective payments will be used only in extraordinary situations.
See, Sec. 6(a), 1006, and 1405 of the Act.
The Grantee argues that such legislation providing for protective and
vendor payments and the attendant safeguard regulations refer to third
party payments and cannot be the basis for prohibiting the dual payee
system which the Grantee contends is a non-third party payment.
The Grantee is correct insofar as Congress had not specifically
addressed a dual payee system at the times covered by the disallowances.
However, Congress did so when on November 12, 1977 it passed Public Law
95-171. Section 3(a)(2) of Public Law 95-171 amended Section
406(b)(2)(E) of the Act to allow for payments in the form of joint
checks in the same manner as the Grantee's dual payee system. Congress
recognized joint checks as a form of vendor payment and, therefore,
subject to the previously established safeguards. See, Senate Report
No. 95-456, p. 3584 (1977). Although enacted after the period of the
disallowance and therefore not controlling on this point, P.L. 95-171 is
important to demonstrate that Congress recognized the dual payee system
as a non-money payment, and as such, subject to the safeguards enacted
to protect the recipients from the abuses of such a system.
Public Law 95-171 also authorized FFP under Title IV-A for the period
January 1, 1968 through April 1, 1977 even though: (1) the State
exceeded the previous 10 percent limitation on protective payments; (2)
it provided assistance in the form of joint checks; or (3) it did not
comply with the provisions limiting the circumstances under which such
payments could be made. Congress expressly recognized that joint checks
were not an acceptable method of payment but added this "forgiveness"
provision after hearing testimony that New York City might be penalized
two-thirds of $1 billion over an 8 1/2-year period. It is important to
note that Congress authorized FFP under Title IV-A where it had
previously been prohibited, but did not authorize identical expenditures
under Titles I, X, XIV which were also similarly prohibited.
Issue #2. Whether the Michigan system of dual payee warrants, for
"special needs", which are optional with the state, under 45 CFR
233.20(a)(2)(v), must meet the statutory and regulatory requirements for
money payments.
The regulations at 45 CFR 233.20(a)(2)(v) provide that:
If the State agency includes special need items in its standard, (a)
describe those that will be recognized, and the circumstances under
which they will be included, and (b) provide that they will be
considered in the need determination for all applicants and recipients
requiring them. (This regulation has remained unchanged since 1969).
The Grantee's position is that the items for which payment was
disallowed were "special needs" within the meaning of the regulation
and
the method of joint payment instituted comes under "the circumstances
under which they will be included." 45 CFR 233.20(a)(2)( v).
We find the Grantee's argument to be without merit. The Grantee, in
taking the position it does on the meaning of the words "and the
circumstances under which they will be included", loses sight of the
location of those words in the regulations. The heading of Part 233 of
45 CFR is "Coverage and Conditions of Eligibility in Financial
Assistance Programs." It has nothing to do with the method of payment of
assistance or with Federal matching of payments. Section 233.20 is
headed "Need and amount of assistance"; and section 233.20(a)(2) is
"Standards of assistance." Thus the language on which the Grantee
relies
in (v) comes under these headings. Nowhere is there any mention of how
payments are to be made to recipients or how and when Federal matching
will be available.
It should be made clear what is not at issue here. The Agency has
not contended that the particular items or services for which FFP was
disallowed were not "special needs." The inclusion of these special
needs items in the standard of need has not been questioned, but rather
the method of their payment. *
There must be a statewide standard of assistance, expressed in money
amounts, to be used in determining the need of applicants and recipients
and the amount of assistance to be paid to them. 45 CFR 233.20(a)(2)(i).
All that 45 CFR 233.20(a)(2)(v) does is recognize that special needs may
be included in the state standard. It is the Grantee's method of
payment which does not meet the requirements of the statute and
regulations for "money payments."
Conclusion
Federal financial participation for special needs must be authorized
under the provisions of 45 CFR 234.11(a) as money payments or 234.70(b)
as protective payments. The Grantee has failed to show that its dual
payee method of payment complies with either of these provisions.
Therefore, the decision of the Commissioner of the Social Security
Administration is upheld. * In its Memorandum Brief in Support of
Conference Position the Grantee distinguished financial assistance
provided in the form of money payments made "at regular intervals,"
and
the "optional irregular" payments to meet a "special need."
(Section II
of Grantee's Brief.) The Supreme Court has pointed out in Quern v.
Mandley, 436 U.S. 725, 737 (1978), that special need items may
frequently be a "regular or recurring expense." In any event, the
decision of the Commissioner of Social Security does not question the
authority of the Grantee to include special need items as part of the
standard of need, in addition to the "regular, recurring items of need,"
but only the method of payment. (Commissioner's Decision, Conclusions
of Law A and B.)
OCTOBER 04, 1983