GAB Decision 689
August 27, 1985
Tennessee Department of Human Services;
Ford, Cecilia Sparks; Teitz, Alexander G. Settle, Norval D. (John)
Board Docket No. 85-69
DECISION
Tennessee appealed a decision of the Office of Child Support Enforcement
(OCSE) disallowing $352,282 of the amounts Tennessee claimed for court
costs of the child support enforcement program under Title IV-D of the
Social Security Act in the period July 1, 1981 - December 31, 1983. The
court had collected fees in child support cases and OCSE argued that the
fees had to be set off against the court costs for which Tennessee
claimed federal funding. Tennessee argued essentially that the
particular fees involved were not subject to the conditions cited by
OCSE as a basis for the disallowance. Based on the analysis below, and
analyses in earlier Board decisions which dealt with similar issues
(discussed below), we uphold the disallowance.
Applicable requirements.
Section 455(a)(1) of the Social Security Act (42 U.S.C. 655(a)(1)),
which contains the basic funding authority for the child support
enforcement program, contains a provision which excludes from
reimbursable expenses "any fees collected or other income resulting from
services provided" under the states' child support enforcement plans.
This provision was effective October 1, 1981, and thus covered all but
the first three months of the period involved here. There is also a
Department-wide regulation generally requiring a grantee to account for
"program income" which was in effect throughout the period involved
here. 45 CFR Part 74, Subpart F. "Program income" is defined to
include "fees for services performed" under the grant, but exempts
"revenues raised by a government recipient under its governing powers,
such as taxes, special assessments, levies, and fines." 45 CFR 74.41(
a), (c). Tennessee argued that its court costs were covered by the
exception.
Prior decisions on "fees" versus "taxes".
The Board has dealt with the issue of whether court costs are or are not
covered by the exception in 45 CFR 74.41(c) in two prior cases.(2)
In Maryland Department of Human Resources, Decision No. 412, April 29,
1983, we upheld a disallowance related to fees assessed by State Circuit
Courts in two Maryland counties. A State statute required these courts
to retain three percent of all sums the courts collected (apparently not
restricted to support and alimony collections). Decision No. 412, pp.
2-3. Our primary analysis in the Maryland case dealt with the
regulations in Part 74, as section 455 of the Social Security Act was
not in effect for the period in issue in the case. Our reasoning there,
which we repeat at length because it is applicable here, was as follows:
45 CFR 74.41 and 74.42 essentially established a general rule that
grantees ought to account for income attributable to federally-supported
activities: if a grantee made money from activities which it paid for
with funds which Congress appropriated to support those activities, then
the federal government ought to share the benefit. This rule
represented no more than common sense, and was reflected in both a
program regulation (footnote omitted) and the Department's cost
principles (footnote omitted). The general rule was subject to an
exception which, although it was more ambiguous than might be ideal, was
equally a matter of common sense and fairness: merely because a grantee
raised funds through means such as general taxation which were then
coincidently spent to meet the goals of the federally-supported project,
did not mean that the State should have to treat the sums as program
income (unless the grant agreement specifically required it). In a way,
the issue concerns how close the nexus was between the "income" and
the
project: taxes and similar general revenue collections were not treated
as program income, but narrower categories of revenues related directly
to the federally-supported project, such as related "fees for services,"
were program income. One may speculate that the two ideas could overlap
in some circumstances which would make it difficult to determine whether
funds were program income or not, but we do not find that to be the
situation here. There was no dispute that the fees involved here
derived from activities for which federal funds were claimed. . . .
Given the general rule, and the nature of the exception, the State
had to show how an element(3) of what would otherwise be program income
qualified for exceptional treatment. The State's argument essentially
was that the court fees were governmental in nature because they were
mandated by law (footnote omitted), and we think that this is
insufficient to come within the exception. The general regulation
specifically included as program income "fees for services," and the
court fees reasonably were categorized as such fees.
Under the State's approach one could argue that any fee would qualify
for the exception as long as it was imposed by statute, or even,
perhaps, official administrative regulation. Further, under the same
logic, one could argue that a fee imposed by any State action would
qualify because it would be imposed under the State's "governmental"
authority. Any money-making actions of the State could thus be shielded
as "governmental," insofar as taken under color of State law. (footnote
omitted) Such analyses would have rendered the general rule in section
74.41 meaningless. We think that on the face of the regulation, the
fairer reading was that the provision exempted general government-wide
assessments such as taxes which were only incidently related to a
federally-supported program; the provision did not exempt fees, like
those here, which at least in substantial part clearly were associated
closely with the precise activities for which scarce federal funds were
provided.
Decision No. 412, pp. 3-5.
Maryland was also the appellant in a subsequent case dealing with
essentially the same issue, where we again held for OCSE. Maryland
Department of Human Resources, Decision No. 639, April 15, 1985. The
case also dealt primarily with application of the general requirements
for program income in 45 CFR 74.41. Maryland reiterated and refined
arguments made in the earlier case. The primary new argument was that
the fees imposed by statute were income of the county involved, not the
court, and did not benefit the child support enforcement program. In
part, our analysis was as follows:
The State's argument entirely misses the point. The proper focus is
on the receipt of the funds, not how the funds were spent. The critical
requirement of the regulation is that the State must receive income from
the very activities the grant actually funded. The definition, however,
does not require the State(4) to use the fees to benefit the
grant-funded activities or indeed to use the fees in any particular way.
The court systems could use the fees in any number of ways under the
circumstances here. In every instance, however, they remain "income"
under the definition since they were derived from activities that the
grant funded . . .
The State here creates a definition of program income that gives it
effective control over what qualified as program income. If the State
decides to use the money to reimburse the IV-D program, it qualified; if
the State chooses to use the money for other purposes, it does not. We
think such a position is clearly contrary to the intended purpose of the
cost principle definition of program income.
Decision No. 639, p. 5.
Tennessee has not persuaded us that either of the decisions above should
be modified or overturned, and we incorporate the reasoning in those
decisions here.
The fees involved here.
The fees in dispute were collected by the Juvenile Court of Memphis and
Shelby County, Tennessee. The Court had a contract with the Tennessee
Department of Human Services for the enforcement and collection of child
support in the IV-D program. Tennessee reimbursed the Court for 70% of
IV-D costs. The Court imposed a 5% fee on all child support payments
received. Tennessee's Brief, pp. 2-3; Tape of Conference.
In its first brief, Tennessee stated that the authority for collection
of the fees in question was Tennessee Code Annotated (TCA) Section
8-21-403. Tennessee's Brief, p. 2. TCA Section 8-21-403 states as
follows:
Handling alimony, child support and other payments.
(a) Each clerk of a court of record in this state receiving, handling
and disbursing alimony and similar moneys under and by order of court is
entitled to charge and receive the sum of five percent (5%) of said
moneys for his services, in so receiving, handling and disbursing same.
(emphasis added)$T(b) Said clerk shall account for the moneys so
received as compensation for his services as he now accounts for other
fees in his office.(5)
(c) No clerk of any court who receives, handles and disburses child
support payments pursuant to court decree or order shall deduct from any
such payment any fee or commission but shall pay over the entire amount
of any such payment to the person or persons for whose benefit it is
made. Any fee or commission due the clerk shall be collected from the
person making such payment, which shall be in addition to the amount of
such payment and shall be deemed court costs taxable to the person
charged with the responsibility of making said payment.
Tennessee's Appeal File, Exhibit F.
In its Reply Brief, Tennessee added an argument that the fees were
"analogous to local litigation taxes, as authorized by TCA Section
67-4-601, to be distributed as tax revenue pursuant to TCA Section
67-4-606." Reply Brief, p. 2. These code provisions are set forth in
Exhibit "A" to the Reply Brief. TCA section 67-4-601, entitled "Rights
of local governments preserved," states in part that "counties and
municipalities shall continue to have the authority to levy a local
litigation tax." During the conference held in this case, Tennessee
added that the fees in question might reasonably be considered collected
under a "combination" of TCA Sections 8-21-403 and 67-4-601.
Analysis.
A. The effect of section 455(a)(1) of the Social Security Act.
Section 455(a)(1) specifically excludes from reimbursable expenses "any
fees collected or other income resulting from services provided" under
Tennessee's Title IV-D program. Section 455(a) was cited both in the
disallowance letter and in OCSE's Brief (p. 4). Section 455(a) does not
contain the explicit exception for taxes found in 45 CFR 74.41(c).
Tennessee did not dispute the applicability of section 455(d), nor that
it was effective throughout the period of the disallowance here, except
for the first three months. Tennessee's Brief and Reply Brief presented
its argument solely in terms of the provision on program income in the
general grant regulations:
. . . the real dispute in this case centers around the one question
of whether the exemption contained in 45 CFR 74.41(c) is applicable to
the fees in this case. If this exemption is not applicable, then the
fees are "program income" and should have been deducted. If this
exemption is applicable, however, (6) the fees are not "program income"
and the regulations requiring deduction of "program income" do not
apply.
Tennessee's Brief, p. 2. /1/
During the conference, in response to Board questioning to assure
Tennessee had fully considered the applicability of section 455,
Tennessee reiterated its argument that the regulation controlled, and
argued further that 45 CFR 74.41(c) was not inconsistent with the law,
but merely expanded and further defined the law.
There is no substantial basis in the record here for us to conclude
otherwise than that the statute, on its face, controls and is more
restrictive than the regulation. The statute simply and specifically
requires an offset against federal funds of any fees or other income
resulting from Title IV-D services. /2/
It is difficult to view 45 CFR 74.41(c) as an express or implied
"interpretation" of section 455(a) because the provision of law was
enacted long after the regulatory provision was promulgated, /3/ and
Tennessee provided no evidence or argument that OCSE ever intended 45
CFR 74.41(c) as an interpretation of section 455(a). On the other hand,
OCSE denies the proposed interpretation.
The provisions of Part 74 are general, Department-wide provisions
designed to give way to the particular limitations established for the
many different programs under this Department's umbrella. Part 74
specifically is not applicable "where inconsistent with Federal
statutes, regulations, or other terms of a grant." 45 CFR 74.4(a).
One might speculate that section 455(a) was not intended to recoup for
OCSE a federal share of general state tax revenues which a state
coincidently commits to child support enforcement activities, and that
to that extent the import of 45 CFR 74.4(c) is consistent(7) with the
law. But that is not the issue here, where the sums involved came in
the first place from a 5% charge on Title IV-D child support enforcement
court action.
Thus, it is fair to say that one need not even reach the issue of the
applicability of the exception in 45 CFR 74.41(c) in this case, except
for the firt three months of the disallowance period (when section 455(
a) was not in effect). Section 455(a) requires Tennessee to account to
OCSE for the fees involved here. But, as explained below, even if
section 455(a) was not applicable, the record supports, a determination
that the same result would follow under the regulation.
B. Status of the sums as "taxes" or "fees".
As noted above, Tennessee at first identified the 5% sums in question
here as collected under authority of TCA Section 8-21-403. That section
clearly identified the sums in question as fees for court services for
child support enforcement, and made it difficult to argue successfully
that the funds were in the nature of general tax revenues not associated
with Title IV-D activities. By the time of its Reply Brief, Tennessee
was arguing that perhaps the fees were "analogous" to local litigation
taxes under TCA Section 67-4-601 and by the conference, the fees had
metamorphosed to the point where Tennessee's counsel argued that they
were "collected under a combination of 403 and 601." Tape of Conference.
The State's point essentially was that the court could collect a fee
under authority of either or both TCA Sections 8-21-403 and 67-4-601,
and that OCSE should not merely "pigeon-hole" the funds in the place
most advantageous to it. Tennessee was engaging in some "pigeon-hole"
of
its own in the way it presented this issue, and rather belatedly; but
more important, the labeling is not material, in that no matter where
the sums are placed in Tennessee's statutory scheme, nothing changes the
uncontested fact that the sums derived entirely from Title IV-D
enforcement actions. /4/ That(8) is, even if one were to concede that
the fees were assessed under 67-4-601 rather than 8-21-403--a dubious
proposition under the record here--the close identification of the fees
with Title IV-D activities would still bring the fees within the ambit
of the general provision in the regulation that fees received for IV-D
services should offset scarce IV-D funds, as discussed in Decision No.
412.
Tennessee argued that the disposition of the funds in question was
material to a determination of whether the funds derived from fees to be
offset or taxes to be exempt. Tennessee maintained that the Court's
fees were turned over in their entirety to the County's general funds,
and that this showed, in practical terms and in terms of Tennessee's
statutory scheme, that the fees were in the nature of taxes entitled to
exceptional treatment under the regulation. We dealt with this issue in
Decision No. 639, discussed above, and Tennessee has not persuaded us
that that decision was incorrect. Tennessee acknowledged that part or
all of the Court's fees here could, in the discretion of the Court, be
retained; the fact that Tennessee gave them all to the County does not
in any way impeach the proposition that the funds were directly derived
as fees or income from Title IV-D activities. It is simply not
reasonable to categorize the funds as not subject to the offset
requirement of 45 CFR 74.41 merely because the Court chose to use the
funds for some purpose other than to meet Title IV-D expenses. The
regulation is fundamentally concerned with grantee income, not
expenditures. To hold as the State would have us hold would mean that a
state could always escape the income offset requirement merely by moving
any Title IV-D fee proceeds away to cover a non-IV-D cost item.
Furthermore, the fact that Tennessee's court arguably had more
discretion than Maryland's courts in use of the funds is not a
sufficient basis to ignore the nature of the funds as income from Title
IV-D. Tennessee also argued essentially that the State imposes various
assessements as a means of deriving revenue for the State and its
counties, and that these assesssments--some of which are labeled "taxes"
and some "fees"--are, in the larger scheme of things, part of the
overall revenue-raising strategy of the State under its taxing power.
Our basic response to this argument is that it fails to take into
account the nature of the particular fees involved here as income
closely associated with Title IV-D activities, as already discussed. We
also note OCSE's observation that most of these revenue-raising devices
are contained in a specific chapter of law on taxes, not the chapter on
"fees' in which TCA 821-403 is found. Furthermore, TCA 8-21-403
specifically identifies the charges involves as "fees" for "services,"
and the mere fact that these fees are "taxable" to the payor is an
incidental use of a term which merely means a cost is charged to a
party. See OCSE's(9) Brief, p. 7. But most important, as we previously
noted in Decision No. 412, the treatment of taxes is an exception to a
general rule about program income, and the primary question is how close
the charge involved is to activities under Title IV-D. Here, putting
all the tenuous labeling arguments aside, there is no question but that
the fees involved arose from Title IV-D activities. Under the analysis
in Decision Nos. 412 and 639, the fees involved here clearly fall within
the offset requirement, and Tennessee has provided no reasonable basis
for us to distinguish its case from Maryland's cases.
Conclusion.
For the reasons noted above and in Decision Nos. 412 and 639, we uphold
the disallowance. /5/
/1/ Section 455(a) was not dispositive in Board Decisions Nos.
412 and 639, because the disallowances in those cases covered only
periods prior to the effective date of section 455(a). /2/
Tennessee never contended that the fees here did not result from Title
IV-D services. /3/ Section 455(a) was added to the Social
Security Act by section 2333(c) of the Omnibus Reconciliation Act of
1981 (Pub. L. 97-35). 45 CFR 74.41 has been in regulations in its
present form since at least 1980, and some form of the provision has
been in existence since at least 1973 (see, e.g., 45 CFR 74.46 (1974)).
/4/ Nevertheless, we also note, for purposes of labeling, that
Tennessee did not contest OSCE's position that TCA Section 8-21-403 is
in the chapter entitled "Fees Charged" rather than "Taxes and
Licenses"
which contains the numerous tax provisions cited by the State. OCSE's
Brief, p. 6. OCSE also noted a distinction between child support fees
as court costs under TCA Section 8-21-403, and a provision concerning a
general State litigation "privilege tax" (TCA Section 67-4-602) which
said this "tax" "shall not be deemed to be costs." OCSE's
Brief, p. 7;
Exhibit C; TCA Section 67-4-603(c). OCSE also provided an explanation
of how TCA Section 8-21-403 fees are designed to directly correlate with
payment of salary of court officials (OCSE's Brief, pp. 8-9) which is
unrebutted, although the Court here apparently did not keep the funds.
/5/ Tennessee also sought Board action with regard to court fees for the
period of January 1, 1984 through June 30, 1984, although there has as
yet been no disallowance for this sum. Tennessee said it had been
denied federal funding orally by an OCSE representative for these fees.
Disallowance Letter, p. 1. OCSE argued that there technically was no
claim before it which could result in a disallowance, so that the Board
had no jurisdiction. OCSE's Brief, p. 9. Tennessee argued that we
should consider the matter of the fees in the later period as a matter
of economy and efficiency. Tape of Conference. If we had held for the
State, there might have been an issue here for the Board to resolve.
But, since we are upholding the OCSE determination, the issue is moot as
a practical matter.
JANUARY 14, 1986