GAB Decision 716
January 7, 1986
New York State Department of Social Services;
Garrett, Donald F.; Settle, Norval D. Ballard, Judith A.
Docket No. 84-170; ACN 02-40550
The New York State Department of Social Services appealed a decision
by the Office of Human Development Services (OHDS) disallowing
$34,548,504 in federal financial participation (FFP) claimed by the
State as maintenance payments for foster care children under section
403(a) (1) of the Social Security Act (Act), between October 1, 1977 and
September 30, 1980. The disallowance was based on OHDS's finding that
the costs at issue were not maintenance payments, but were
administrative costs associated with the provision of "social services"
as that term is defined at section 2002(a) (1) of the Act. OHDS took
the disallowance based on its view that section 403(a) (3) of the Act
prohibits federal reimbursement under Title IV-A for costs incurred by
states in the provision of any social services described in section
2002(a) (1) of the Act.
New York asserted that the costs at issue were allowable as 403(a)
(1)
maintenance payments for foster care children. Further, New
York
maintained that the 403(a) (3) prohibition against federal
reimbursement
of social service costs was limited in scope to claims for
services made
under section 403(a) (3) and could not be applied to claims
made under
section 403(a) (1).
As discussed below, we conclude that the claiming bar at section
403(a)
(3) applies to these claims. Even though they were submitted
under
section 403(a) (1) as maintenance payments, they are in
fact
administrative costs associated with social services. Further,
we
conclude that the relevant statutory provisions clearly contemplate
that
the costs at issue here would be viewed as administrative and not as
the
maintenance payment itself. As such, the costs are barred
from
reimbursement under Title IV-A. The State cannot overcome the
claiming
bar simply by how it submits its claims. Moreover, a review of
the
federal guidance in this area, and the State's application of
that
guidance, shows that the State had notice that foster care
assistance
payments were those payments made to meet the identifiable
individual
needs of the child in a foster family home or child care
institution,
and would not encompass the kinds of activities at issue
here.
Additionally, New York failed to demonstrate that Agency
officials
approved, or(2) were even aware of, the State's practice of
including
the costs of these activities as part of its maintenance claims
during
the time period in question here.
New York also raised as a subsidiary issue that some of its claims
might
qualify as allowable administrative expenses not associated with
social
services. In our decision in New York State Department of
Social
Services, Decision No. 449, July 29, 1983, we recognized that
costs
associated with income maintenance eligibility determinations would
be
allowable. Thus, our decision does not preclude federal funding
for
such costs if New York is able to document, within a time
frame
acceptable to the Agency, that a part of the disallowed
amount
represents such costs, or other allowable costs not subject to
the
claiming bar.
I. General Background and Past Board Decisions
A. The Program
Title IV-A of the Act provides for grants to states with approved
state
plans for aid to families with dependent children (AFDC). In 1961
the
AFDC-FC program was instituted under Title IV-A, providing FFP for
state
expenditures for the costs of supporting certain foster care
children
removed from their homes for their own best interest.
Section 408(a) provided that, for purposes of establishing eligibility
for
aid to families with dependent children, the term "dependent child"
can
include children in foster care meeting certain conditions. Section
408(b)
indicated that aid to families with dependent children shall
include foster
care for the dependent child --
(1) in the foster family home of any individual, whether the
payment
therefor is made to such individual or to a public or nonprofit
private
child-placement or child-care agency, or
(2) in a child care institution, whether the payment therefor is
made
to such institution or to a public or nonprofit private
child-placement
or child-care agency, but subject to limitations prescribed
by the
Secretary with a view to including as "aid to families with
dependent
children" in the case of such foster care in such institutions
only
those items which are included in such term in the case of foster
care
in the foster family home of an individual;. . . .
Section 403(a) (1) provided for payments to states with approved
state
plans for "amounts expended as aid to families with
dependent(3)
children." Generally, these payments are referred to as
maintenance
payments and can include payments for foster care children if the
State
plan meets the requirements of section 408 of the Act. Section
403(a)
(3) authorized funding for expenditures incurred by the states for
the
proper and efficient administration of the State plan. Prior to
1975,
section 403(a) (3) provided for reimbursement of social services at a
75
percent rate and reimbursement of other administrative expenses at a
50
percent rate.
Section 408(d) provided that services described in paragraph (f) (2)
of
section 408 would be considered as part of the administration of
an
approved state plan for section 403(a) (3). Section 408(f) (1)
required
the state to include in its state plan a provision for the
development
of a plan of care for each foster child to ensure that the
child
received proper care and that services were provided to
improve
conditions in the child's home. Section 408(f) (2) required the
use of
state child-welfare agency employees "to the maximum extent
practicable"
in placing the child. /1/ From at least 1972 until 1975 the
services
listed in section 408(f) were claimed by states generally as
"social
services" under Title IV-A. As mentioned above, social services
to AFDC
recipients were entitled to a higher level of federal
participation
than, for example, AFDC benefit payments also made under Title
IV or
AFDC administrative activities in general. Concerned about the
growth
of social services, which included services for children in foster
care,
Congress in 1972 placed a $2.5 billion funding ceiling or "cap" on
Title
IV-A social services. Revenue Sharing Act of 1972, Pub. L.
92-512.
Effective October 1, 1975, Public Law 93-647 established a new Title
XX
of the Act for financing social services for low-income children
and
families, including AFDC children. Title IV-A retained as its
primary
purpose the provision of maintenance payments for families
with
dependent children. Public Law 93-647 included a provision
amending
section 403(a) (3), the authority for paying states for
administrative
expenditures under IV-A. Thereafter, section 403(a)(3)
(B) of the Act
provided --
. . . no payment shall be made with respect to amounts expended
in
connection with the provision of any service described in section
2002(
a) (1) of this Act. . . .(4)
Public Law 93-647 resulted in a 75 percent reimbursement rate for
social
services funding available to each state under Title XX but the
funding
remained capped. The Title IV-A reimbursement rate for
administrative
services remained at 50 percent.
In connection with an earlier Board decision addressing Title
IV-A
funding, Joint Consideration: Reimbursement of Foster Care
Services,
Decision No. 337, June 30, 1982, the Agency provided a cogent
summary of
the overall congressional purpose in creating a social services
program.
The Agency indicated:
Overall, P.L. 93-647 repealed most of the then existing
provisions of
the Social Security Act that provided for social services to
welfare
recipients and created instead a new Title XX. P.L. 93-647,
sections
3(a) and (b). In addition, section 403(a) (3) was
substantially amended
to include the language at issue in this case and to
delete reference to
the legislative cap on expenditures. Section 1130
itself (which for the
prior 3 years had capped social services) was repealed
by section 3(e)
(1) of P.L. 93-647, and all references to it deleted by
section 3(e) (2)
of P.L. 93-647.
What resulted then was enactment of a comprehensive (albeit
"capped")
program for social services funding to each State on an allocation
basis
in Title XX, simultaneous repeal of nearly all of the social
services
authorizations under Title IV-A, and simultaneous removal of the
cap
from Title IV-A to Title XX.
The only uncapped, open-ended funding provisions for social
services
remaining under Section 403(a) (3) (after operation of the
exception)
were specifically included by Congress and stated in
legislative
history: WIN and emergency assistance for needy
families. At least one
of those two programs was already effectively
capped by appropriations
limitations. There is no evidence that
Congress intended to uncap Title
IV-A and let foster care social services
(previously capped under Title
IV-A) explode, i.e., as soon as the cap of the
Title XX allocation was
used up.
Decision No. 337, pp. 11-12 (emphasis in original).
B. Past Consideration of 403(a) (3)
The Board has issued a series of decisions analyzing the development
of
section 403(a) (3) and its applicability to Title IV-A
funding.
Decision No. 337, supra; Decision No. 449, supra;(5) New York
State
Department of Social Services, Decision No. 552, July 16, 1984;
and New
York State Department of Social Services, Decision No. 614, December
20,
1984. The central issue raised in each of these appeals was
whether
section 403(a) (3) precluded reimbursement under Title IV-A for costs
of
foster care placement, development of plans of care, and provision
of
other services to foster care children and their families. The
three
New York decisions involved claims for social services during the
period
October 1975 through September 1980. Generally, before and after
the
enactment of Title XX, the costs challenged in those cases had
been
claimed in connection with activities meeting the statutory
description
of "social services." /2/ Based on our analysis of both Title XX
and
Title IV-A, we concluded that section 403(a) (3) precluded payment
under
Title IV-A of costs that were both within the definition of an
AFDC
administrative expense and expended in connection with the provision
of
section 2002(a) (1) social services. That conclusion was upheld by
the
U.S. District Court in an appeal by the State of Oregon from
Decision
No. 337. Oregon v. Heckler, Civ. No. 83-1466 (D.C. Or.,
January 31,
1984).
II. Facts of this Case
This appeal involves claims submitted for costs incurred by the New
York
City Department of Social Services in connection with children in
foster
family boarding homes (FFBH) supervised by private, nonprofit child
care
and placement agencies for the period October 1, 1977 through
September
30, 1980. Generally, the claims were for activities of the
private
agencies such as recruiting and training foster parents, visiting
foster
homes and other foster facilities, maintaining contact with
natural
families, and other services involved in implementing the
foster
children's plans of care, as well as costs such as overhead incurred
by
the private agencies. (6)
An Agency audit found, and the State did not deny, that the rate the
City
used to reimburse private nonprofit agencies included two
components: a
FFBH "administrative/services" per diem rate and an
additional per diem
amount calculated using monthly boarding rates and
clothing allowances paid
to foster parents. See New York Exhibit A,
Audit Report No. 02-40550,
pp. 16-19. New York claimed payment of the
full per diem rates as
maintenance payments under section 403(a)(1).
OHDS disallowed that part of
the costs which represented the
"administrative/services" component.
OHDS contended that part of this
claim was for social service costs which
were barred from federal
reimbursement under Title IV-A by section
403(a)(3). OHDS also
contended that, even if the State was correct that
some of the costs
were for income maintenance eligibility determinations
(and, therefore,
for administrative activities not associated with social
services),
reimbursement was precluded because the costs had been incurred
by
private agencies.
In our analysis below, we discuss: (1) whether the claiming bar
at
section 403(a)(3) of the Act applies to the State's claims even
though
they were submitted under section 403(a)(1); (2) whether the
State had
sufficient notice that the costs at issue could not properly be
included
in maintenance payments; and (3) whether OHDS approved New
York's
claims for federal reimbursement for the "administrative/
services"
component as maintenance payments. We address in a general
fashion only
the State's alternative argument that some of the costs were for
income
maintenance eligibility functions and, thus, were administrative
costs
not associated with social services.
III. Analysis
A. The Scope of the 403(a)(3) Claiming Bar
Based on our past analyses of this issue and our review of the
arguments
in this appeal, we conclude that the claiming bar of 403(a)( 3)
applies
to the disallowed costs regardless of how the State characterized
them
when it submitted its claims. The statute sets up a dichotomy
between
maintenance payments and administrative costs, including
social
services. The costs here are not properly included in
maintenance
payments and, as we discuss more fully below, the State had
notice that
they were not so included. The claims here are associated
with
administration of the foster care program and are the types
of
activities which Congress intended to exclude from funding under
Title
IV-A. These activities would normally be performed by the Title
IV-A
state agency and, as such, would indisputably be viewed
as
administrative activities. The only instance that the
statute(7)
specifically contemplates that another entity would be performing
such
activities is in section 408(f)(2), which refers to
placement
activities, which may be performed by child welfare agencies
under
certain conditions. Section 408(d) then specifies that such
placement
costs are then reimbursable as administrative costs under section
403(
a)(3). Moreover, as discussed more fully below, section
408(b)
indicates that payments for "aid to families with dependent
children"
includes only payments for the actual care of a particular child
who has
been placed in a foster family home or child care institution.
The
State's rate-setting system recognized this dichotomy between
payments
made on behalf of a particular child and general
"administrative/
services" costs incurred in operating a foster care
program. Finally,
we note that the State did not even attempt to
differentiate these costs
from those at issue in Decision Nos. 449, 552, and
614, which the State
had claimed as administrative costs.
Interpreting the bar to apply regardless of how the State
characterizes
its claim is consistent with the legislative history of Public
Law
93-647, which added the bar. The accompanying House Report
provided:
Section 3(a)(3) amends section 403(a)(3) of the Act to
eliminate
federal matching under part A of Title IV for expenditures for
the
provision of services other than services required to be included in
the
State's WIN program and services provided as emergency assistance
to
needy families. H.R. REP. No. 1490, 93rd Cong., 2nd Sess. 19
(1974).
(emphasis added)
Addressing the House Report in Decision No. 449, we noted that
the
amendments contained in Public Law 93-647 precluded the reimbursement
of
activities related to social services from Title IV-A funding. We
noted
that the apparent congressional purpose behind the amendments was
to
eliminate a possible loophole in the Title XX funding scheme
by
retaining under the Title XX cap social service activities that
were
also Title IV-A administrative activities. We found that, absent
the
403(a)(3) exception, a state could claim up to its cap "pure" Title
XX
services (i.e., those not also potentially reimbursable under
Title
IV-A), then claim "dual" IV and XX activities under Title IV-A
where
there would be unlimited potential for reimbursement although at a
50
percent rate. Thus, a state with a substantial amount of
"dual"
activities could expand its Title XX program beyond the cap at
the
expense of Title IV-A. We conclude that Congress intended to
eliminate
this claiming practice and that the open-endedness of of the
language
used brought all "dual" activities under the exception. See
Decision
No. 449, pp. 9-10. To interpret the exception to apply only if
a(8)
state claimed its expenditures under section 403(a)(3) as
administrative
expenditures, and to not apply to the same costs if claimed
under
section 403(a)(1), would permit the State to circumvent the Title
XX
ceiling.
New York argued that the Agency has not customarily interpreted
section
403(a)(3) to be a barrier to funding social service activities that
are
claimable other than as administrative costs. In support of
this
argument, New York claimed that, in connection with the decision
in
Decision No. 337, ". . . the agency admitted that services to
children
in foster care are reimburseable when provided by foster parents or
by
child care institutions to their residents." New York Brief, p. 11.
The State has drawn this argument out of its proper context. In
making
the point relied upon by the State, the Agency was addressing
the
inapplicability of Action Transmittal SSA-AT-78-21 (AT-78-21) /4/ to
the
circumstances of Decision No. 337. Specifically, the Agency noted
--
Private non-profit child care institutions provide services
to
AFDC-FC children placed in them which are similar to the
services
provided by foster parents to AFDC-FC children in foster family
homes.
It is these institutional services which the Action
Transmittal
addresses. Since their costs are included in determining
the AFDC-FC
payment rate for children placed in private non-profit
institutions,
they are properly payable under Title IV-A. /5/ (emphasis
added)
Clearly, the type of services which are reimbursable under
these
circumstances are those services similar in nature to those provided
by
a foster parent in the home to meet the specific needs involved in
the
care of the child. The social services here are not of that
type.
Rather, they are essentially administrative in nature.
Accordingly, we conclude that the costs at issue here are
administrative
in nature, and not properly included in maintenance
payments,(9) and
therefore are subject to the claiming bar. As we
discuss below, the
State had sufficient notice that it could not properly
include these
costs in its maintenance payments and, consequently, that the
claiming
bar would apply.
B. The Scope of "Maintenance Payments"
In examining whether the State had sufficient notice, we think that
the
State had a heavy burden in view of the fact that it had
previously
claimed these costs as administrative and continued to claim
identical
activities when performed by the State agency as
administrative.
Moreover, we note that the State did not cite to any
provision which
specifically states that a foster care maintenance payment
can include
costs incurred by a private placement agency for the types of
activities
at issue here. Rather, the State relied primarily on the
fact that the
statute and regulations permit payment to be made to a private
agency.
This begs the question, however, of whether the payment to a
private
agency constitutes a payment for foster care maintenance
reimbursable
under section 403(a)(1), or is properly characterized as
an
administrative expense.
1. The Statute
The State argued that, when evaluating a claim for maintenance costs
under
403(a)(1), the use to which a private agency puts a payment for a
child in a
foster family boarding home is immaterial. New York noted
that section
408(b) of the Act provides that aid to families with
dependent children
includes foster care payments in behalf of the child
whether such a payment
is made to a public or private agency. New York
Reply Brief, p.
11. The State also argued that, when read in
conjunction, sections
406(b) and 408(b) support its position that the
claims at issue are allowable
as maintenance costs.
While the statute and regulations do not specifically define what can
be
included in maintenance payments for foster care children, we
conclude
that, read as a whole, the relevant provisions clearly indicate
an
intent to include only the amounts ultimately paid to meet the
care
needs of a particular child placed in a foster family home or child
care
institution.
Generally, section 406(b) provides that the term "aid to families
with
dependent children" means money payments with respect to (or, in
some
circumstances medical or remedial care in behalf of) a dependent
child,
including payments to meet the needs of the relative with whom
any
dependent child is living; and payments(10) with respect to
any
dependent child which are made to another individual who (as
determined
in accordance with standards prescribed by the Secretary) is
interested
in or concerned with the welfare of such child or relative.
Section 408(b) provides:
the term "aid to families with dependent children"
shall,
notwithstanding section 406(b), include also foster care in behalf of
a
child described in paragraph (a) of this section --
(1) in the foster family home of any individual, whether the
payment
therefor is made to such individual or to a public or nonprofit
private
child-placement or child-care agency, or
(2) in a child care institution, whether the payment therefor is
made
to such institution or to a public or nonprofit private
child-placement
or child-care agency, but subject to limitations prescribed
by the
Secretary with a view to including as "aid to families with
dependent
children" in the case of such foster care in such institutions
only
those items which are included in such term in the case of foster
care
in the foster family home of an individual. . . .
In both sections 406(b) and 408(b) the term "aid to families
with
dependent children" envisions payments made to maintain an
acceptable
level of care for the individual child whether in a parent's home,
a
foster family home, or a child care institution. We see nothing
in
these sections of the statute which can be construed to expand
the
concept of "maintenance payments" to include items for the services
here
such as recruiting foster parents, visiting foster homes, or placing
the
child.
2. The Federal and State Regulations
The regulations governing foster care under Title IV-A support
a
conclusion that there is a distinction between the child care itself
and
the placement and other services activities associated with the
foster
care program. The regulations effective for the period of
this
disallowance at 45 CFR 233.110(a)(1) and (2), which establish state
plan
requirements, refer to "care and placement" and "care and
services,"
implying that the term "care" encompasses neither placement
nor
services. (11)
The regulation at 45 CFR 233.20(a) (2), which establishes guidelines
for
determining need and the amount of assistance under the AFDC
program,
provides that the State plan must:
(i) Specify a statewide standard, expressed in money amounts, to
be
used in determining (a) the need of applicants and recipients and
(b)
the amount of the assistance payment.
Thus, neither of these regulations, essential to the creation of
an
acceptable AFDC state plan, addresses the inclusion of the type
of
private agency costs at issue here in the concept of
maintenance
payments. While they do not specifically preclude such
costs, we think
that the plan meaning of the regulations is that the needs of
the AFDC
applicants and recipients as individuals, not those of the
placement
agencies, should be the object of federal reimbursement under
section
403(a) (1).
In its Response to the Order to Develop the Record, the Agency
indicated
that current law regarding the foster care program (Title IV-E,
section
472 of the Act) refers to a definition of "foster care
maintenance
payments" at section 475(4) of the Act. The definition
provides --
(4) The term "foster care maintenance payments" means payments
to
cover the cost of (and the cost of providing) food, clothing,
shelter,
daily supervision, school supplies, a child's personal
incidentals,
liability insurance with respect to a child, and reasonable
travel to
the child's home for visitation. In the case of institutional
care,
such term shall include the reasonable costs of administration
and
operation of such institution as are necessarily required to provide
the
items described in the preceding sentence.
The Agency conceded that this definition was added ". . . because
of
confusion which was generated under the old program which did
not
contain any statutory definition of that term." Id. at 1.
In its June 17, 1985 submission, the State focused on this statement
and
indicated the Agency ". . . cited no authority for its rule
of
construction under which the closing of a loophole in a new IV-E
program
works to close also the loophole as it pre-existed in the IV-A
Program."
The State then argued that ". . . the Agency's argument in favor
of
'closing the loophole' acknowledges the legality of the State
claiming
methodology at the time it was employed. " Id. at 1-2.(12)
In spite of the parties' arguments regarding any confusion surrounding
the
pre-Title IV-E meaning of "foster care maintenance payments," the
State plan
attachments convince us that, when the State established its
standards for
such payments, New York clearly understood that term. The
State regulations
governing the Standards of Payment for foster care
were contained in
Administrative Letter 76-101 (76 ADM-101). New York
Exhibit I, Attachment
16. These regulations were established in 1976,
prior to the period in
dispute. In the Introduction to the section
titled Standards for Foster
Family Boarding Home Care, the State notes
--
The maximum payments that are established for each category
are
related to the reasonable costs of care and maintenance that
foster
parents incur for the children in their homes.
76 ADM-101, p. 15 (emphasis added).
Thus, where the State is currently at odds with the Agency regarding
the
scope of "Maintenance payments," the State standards reveal that
prior
to the period in dispute New York's understanding of the scope of
that
term more closely reflected the Agency's position.
Further, the regulation at 233.20(a) (2) also provides that:
(v) If the State agency includes special need items in its
standard,
(the State plan must) (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.
ADM 76-101 clearly established that the State's standard of need
for
children in foster family boarding homes consisted of three
components:
a boarding home rate (which met the child's basic needs for
food,
shelter, and care in the home and which could differ depending on
the
amount of supervision and support the child needed); a
clothing
allowance (which varied according to the age of the child);
and a
provision for "special payments." The term "special payments" is
defined
to include a list of specific needs such as: special attire
(for proms,
religious observances, uniforms, graduations, etc.); school
expenses
(books, routine expenses, field trips); music, art, and
dancing lessons
(along with any necessary accessories); birthday gifts,
school pictures
and yearbooks; transportation; and non-medical
needs of handicapped
children. 76 ADM-101, pp. 15-19. New York
argued that this list was
"non preemptive" and that the social services(13)
in dispute here could
be considered to be related to the special needs of the
child. New
York's Response to the Order to Develop the Record,
pp. 5-6. However,
the State's position on this point conflicts
with the explicit language
of 76 ADM-101. Where that document
establishes the standards for foster
family boarding home care, it
provides:
. . . There are no ceilings on payments for special needs,
although
payments may not be claimed for reimbursement unless they are for
items
identified in the section on Special Payments.
76 ADM-101, p. 15.
The ADM's language suggests that the list is exclusive and that items
not
listed as "special needs" could not be reimbursed under that
category.
Moreover, the document also shows that the State understood
the costs here to
be administrative costs. ADM 76-101 defines
"standards of
administration" to include: intake (study, summary, and
information,
referral, assisting and arranging for services to prevent
foster care);
placement services (development, implementation, and
evaluation of placement
service plans); post-placement services
(development and implementation
of discharge service plans); and
selection, development, and
surpervision of foster care facilities. Id.
at 4.
The cited sections of ADM 76-101 support the conclusion that, in
the
course of developing the State plan, New York was aware of a
distinction
between administrative costs and maintenance costs which it
contended
here does not exist. /6/
3. The Handbook of Public Assistance
Administration
New York quoted extensively from the Handbook of Public
Assistance
Administration at Part IV, 3452 in support of the proposition
that
"(assistance) payments, as opposed to payments for
service/
administration were . . . contemplated as reimbursable pursuant to .
.
. 403(a) (1)." New York Reply Brief, p. 7. We do not think that
that
particular proposition is in dispute. Rather, the question posed
by the
State's appeal is what type of costs constitute
assistance(14)
(maintenance) under 403(a) (1). The sections of the
Handbook relied
upon by New York provide:
5. Foster Family Homes
Foster family care is the provision of substitute family care
for
children. . . .
* * *
7. Payments for Foster Care
Assistance in the form of payments for foster care in behalf of
the
eligible child refers to the payments made to foster parents
or
children's institutions. The payment for foster care may be made to
the
foster parents or the children's institution or cooperating agency
in
behalf of the eligible children in their care. In these instances
such
payment represents assistance in behalf of the eligible child
receiving
such care. . .
8. Fees for Foster Care
As with other aspects of need, the standards and policies
applicable
to children in foster care should be such that they provide a
basis for
objective and equitable determinations throughout the State.
The "money
amounts". . . that are established as the fees to foster parents
may
vary within the State when difference in "boarding rates" has
been
objectively determined to exist within the State.
Foster care will be an item in the State's established need for
AFDC.
. . .
. . . Needs that are not included for children in their own
homes
should have some relationship to the differences between foster homes
or
children's institutions and children's own homes.
* * *
Pursuant to the intent of and the authority provided in the
law,
payments for foster care in children's institutions must be based
on
rates or fees which are established with a view of excluding
the
overhead costs of operating the institution and including only
those(
15) costs items which care included in rates and fees for foster care
in
family homes.
* * *
In its recommendations, the Child Welfare League of America
suggests
that a State's policies about foster care costs should be based
on
acceptance that the agency is responsible "for payment of all
direct
costs of care including board, clothing expenses, medical and
dental
services, education, recreation expenses, transportation, clothing
and
personal allowances and special services identifiable to the
child's
need." These recommendations go on to say that "foster parents
should
not be expected to assume financial responsibility for any part of
the
child's care unless by special arrangement with the agency."
(emphasis
added by New York)
New York contended that this part of the Handbook, especially
subsection
8, contemplated ". . . that a State may select alternatives in
claiming
reimbursement for foster care payments. One alternative is to
claim
only consumption items . . . Another alternative, albeit somewhat
more
ambiguously set out, clearly contemplates, as a minimum, inclusion of
a
variety of service items." New York Response to the Order to Develop
the
Record, p. 4. Further, New York noted that the Handbook predated
the
regulation at 45 CFR 233.110. New York contended that the drafters
of
the regulation attempted to conform the regulation with
recommendations
of the Child Welfare League of America quoted above. In
support of this
contention, New York cited 45 CFR 233.110(a) (5). /7/ Id. at
6. That
subparagraph requires that a state plan --
Provide that there will be specific criteria for determining
the
amount of payment for foster care in foster family homes and in
child
care institutions. In establishing rates of payment to
institutions,
only those items included for care in foster family homes will
be
included, and overhead costs of the institution will be excluded.
(16)
Responding to this argument, the Agency conceded that section 3452 of
the
Handbook at subsection 8 did permit alternatives for a state's
standard of
need for foster care, but that those alternatives only
address the type of
consumption items which may be included in the
standard. The Agency
noted that the discussion in subsection 8 ". . .
never includes social
services which, in the context of the AFDC-FC
program and Section 408 and
Title XX cannot be thought of as 'special
needs.'" Additionally, the Agency
noted that administrative costs were
not mentioned in subsection 8, and that
the language addressing "special
services identifiable to the child's need"
arises in the context of the
Child Welfare League's recommendation and not as
part of Agency policy.
OHDS Submission, June 17, 1985, p. 3.
Notwithstanding New York's assertions to the contrary, we do not
think
that the Child Welfare League's recommendations constitute a
"statement
of Agency policy to reimburse the costs at issue here." See New
York
Submission, July 10, 1985. In context, the reference to
"special
services identifiable to a child's need" cannot be read as
authorizing
federal funding for the types of social services at issue
here. The
private agencies' activities of recruiting foster homes are
simply not
identifiable to the needs of any particular foster child.
Although
services related to placement and a plan of care are identifiable to
a
particular child, we do not think they are designed to substitute
for
parental care in the same way as the other need items
mentioned.
Rather, they are unique to the foster care program and a part
of
administering such a program.
The State has not demonstrated that any of the items for which it
is
seeking reimbursement are the type envisioned by the
statute,
regulations, Handbook, or even the State's Standard of Need, under
the
concept of "foster care maintenance payments."
C. "Administrative/Services" Costs Reimbursable as
Maintenance
Payments
New York maintained that OHDS had disallowed the
"administrative/
services" component of the rates in spite of "prior
agreements and
approvals extended to NYSDSS's claiming theory and method by
both
Regional and Central HHS personnel." New York Brief, p. 4. The
State
submitted affidavits from State officials to show that Agency
regional
officials were aware that the rates paid to New York City included
this
component, and that New York was claiming these costs as
maintenance
payments for period 1968-1972. See New York Exhibits J and
K. However,
this does not avail the State here. As we have noted
earlier, during
this period, social services were reimbursable under former
section
403(a)(3) (A) of(17) the Act at a 75 percent rate. Thus,
permitting the
State to include the "administrative/services" component at
the lower
rate for maintenance payments would not have resulted in the
State
receiving more money than it was otherwise entitled to at that
time
under the Title IV-A program. /8/
There is simply no evidence in the record to support a finding that
OHDS
explicitly approved the State including the "administrative/
services"
component as a reimbursable part of maintenance payments to the
State.
In its Notice of Appeal, New York indicated that "the expenditures
in
question were identified to appropriate federal officials in the
course
of development of 78-AT-21 (AT-78-21) and approved in the context of
the
issuance of that document." New York Exhibit C. AT-78-21 was issued as
a
program interpretation promulgated to provide clarification of
the
"Federally reimbursable cost items that may be included by States
in
their negotiation and determination of payment rates for
AFDC-Foster
Care children receiving care in private non-profit child
care
institutions." The action transmittal indicated that --
As . . . the need items provide the basis for determining the
amount
of payment made to foster family homes and private non-profit child
care
institutions. The need items available for all AFDC-FC children
must be
the same (or clearly analagous), whether the child is in foster
family
care, or a private non-profit child care institution. The tasks
and
services rendered by institution staff are similar to those provided
by
foster parents as they operate and manage their home and provide
a
family life to the AFDC-FC child.
Allowable costs for FFP under title IV-A include the costs
of
personnel such as child care staff, social workers, maintenance and
food
preparation workers, and other institution staff whose work
assignments
include functions that keep the AFDC foster care program
operating on a
day-to-day basis, or that meet the child's need for
parenting,
supervision, direction, protection, emotional support, and care. .
. .
(emphasis added)(18)
The language of the action transmittal clearly indicates that only
costs
related to the care and supervision of the child in the child
care
institution could be reimbursed. The obvious rationale here is
that
these costs were considered analogous to those incurred by a
foster
parent in the home. This position is consistent with the
Handbook of
Public Assistance reference to direct costs of care and follows
from the
statutory provision prohibiting reimbursement of institutional costs
not
attributable to the care or maintenance of a child in AFDC-foster
care
or to the provision of foster care.
Additionally, the State argued that a July 21, 1976 letter from
OHDS's
predecessor organization to the State (quoted by the auditors at page
15
of the Audit Report) supported the State's contention that the
Agency
had approved its practice of claiming an entire package
of
administrative costs as part of AFDC-FC maintenance. That
letter
provided:
We agree that the concept of AFDC-FC entails the purchase of
an
entire package of care for such children. To the extent that
items
necessary to such a child's maintenance are furnished, these may
be
claimed as AFDC-FC costs. Such an arrangement could constitute 100%
of
the costs of care for such children. This interpretation is of
course
subject to any future policy determinations made by our Central
Office.
See New York Exhibit N.
While the auditors apparently believed this letter showed that OHDS
had
approved New York's claiming practice, we think that this language
does
no more than approve the "package of care" concept in the
abstract.
Indeed, the letter specifies that costs can be claimed as AFDC-FC
costs
only if for items necessary to a child's maintenance. Further,
in
context, this letter was part of an exchange of correspondence
between
State and Agency officials. See, also, New York Exhibits L, M,
and O.
The apparent purpose of these letters was to discuss various aspects
of
the State's claiming methodology (which was being questioned), and
any
acceptance of the State's methodology was tentative pending
further
review of specific aspects of the State's program. See New York
Exhibit
O. Nothing in the correspondence indicates that the State
intended to
claim the "administrative/services" component of its rates
as
"maintenance payments." Thus, in its proper perspective this
letter
cannot be reasonably be read as granting approval for claiming
as
"maintenance payments" costs incurred by private, nonprofit(19)
agencies
for child-placement, recruitment of foster families, and the
other
activities at issue here. /9/
New York alleged that, included in its claims, were costs
of
administrative activities not associated with social services.
The
State pointed to Decision No. 449 in which the Board noted
OHDS's
willingness to reexamine part of that disallowance, based on New
York's
ability to document, using reasonable methodology, that the costs
at
issue there were related to income maintenance eligibility
activities.
See Decision No. 449, p. 1., n. 1. New York argued that
"(there) is no
statutory barrier to the payment of these type of activities
under 403(
a)(3)." New York Reply Brief, p. 12.
In view of the fact that the State did not claim these costs
as
administrative costs under section 403(a)(3), nor document that costs
of
income maintenance eligibility functions were, in fact, included, we
do
not here reach this issue. However, OHDS maintained that Title
IV-A
would not, in any event, permit reimbursement of administrative
costs
incurred by private agencies.
As OHDS noted, the Secretary has considerable discretion to
determine
whether particular costs qualify as reimbursable administrative
costs
under Title IV-A. The Agency did not identify any general
statutory or
regulatory restriction against contracting with private agencies
to
provide certain foster care administrative functions which may also
be
performed by the Title IV-A State agency. The Handbook section
which
OHDS relied on addresses(20) placement services but not
income
eligibility functions. OHDS did not point to any issuance
stating a
"policy" against paying for these administrative functions if
performed
by private agencies, and the auditors' conclusion that such a
policy
existed was based on memoranda from the Office of General Counsel
which
rely solely on the preference in section 408 for use of public
child
welfare agency personnel. This reasoning appears faulty for
two
reasons, however: section 408(f) mandates use of public
agency
employees "to the maximum extent practicable" but does not preclude
use
of other persons where this is impracticable; and section
408(f)
mandates such use for certain activities only and does not include
in
those activities the eligibility determination function.
Thus, we merely note here that nothing in this decision precludes
OHDS
from reexamining this aspect of the disallowance if the State
actually
claims the costs under section 403(a)(3) and documents them as
related
to income maintenance eligibility activities, and as necessary
and
proper to the efficient administration of the State plan. OHDS may,
of
course, set a deadline for the State to resubmit its claim
for
administrative expenses and document their allowability.
CONCLUSION
Based on our analysis above, we uphold the entire disallowance
of
$34,548,504. However, as we have noted, nothing in this
decision
precludes an OHDS review of documentation submitted to show to
what
extent allowable income maintenance eligibility activities are
included
or to what extent special needs items reimbursable under the State
plan
are included (see note 9 above). /1/ Public Law 96-272, which
was
enacted on June 17, 1980,
repealed section 408 and shifted the
foster care program to a new Part E of
Title IV effective at state
option as early as October 1980, but no later
than October 1982.
/2/ As we noted in Decision No. 449, at page 7, New
York's policy was
to maximize funding for the activities at issue by claiming
them as
social services reimbursable at 75% FFP under Title XX until
reaching
the Title XX funding cap. Once the cap had been exceeded, New
York
would claim the same type of costs as IV-A administrative
expenses
reimbursable at 50% FFP under IV-A without a funding ceiling.
/3/
New York appealed Decision Nos. 449, 552, and 614 to the United
States
District Court for the District of Columbia (C.A. 84-3620). No
decision
has yet been issued in that
case. /4/ Action
Transmittal
SSA-AT-78-21 (May 19, 1978) was provided to the State in its
capacity as a
State Agency administering an approved public assistance
plan. See OHDS
Exhibit 2. /5/ Agency Response,
Virginia
Department of Welfare, Docket No. 82-14, p.
13. /6/ We note
that the same
distinctions set out in ADM 76-101 are repeated in ADM
77-128. That
document, issued on December 29, 1977, superseded ADM
76-101. See New York
Exhibit I, Attachment 20, ADM 77-128, p. 4.7, for
the items included as
special payments and page 20.1, regulation
606.2(b) for the standards of
administration. /7/ Cited by New York as
45 CFR
233.110(5). /8/ Generally,
maintenance payments are
reimbursed at a 50% rate. However, a state has the
option of claiming
foster care payments at the slightly higher Medicaid rate
set under
section 1118 of the Act and New York has chosen this option.
See
section 1118 of the Act; New York Brief, p. 5, n. 1. /9/
During the
course of an October 1,
1985 conference call, the Board asked
the parties to address an apparent
inconsistency appearing at pages
16-19 of the Audit Report.
Specifically, it appeared that several items
of cost representing special
payments for items specifically listed in
ADM 76-101 may have been included
in the State's administrative/services
per diem rate. New York
explained how, if the private agency had
directly paid the provider of the
special need item, as opposed to
reimbursing the child's parent, a payment
for the same item in two
different years could be classified in two different
ways. OHDS conceded
that there may have been some slight "overlap" between
the
administrative/services per diem rate and special needs payments.
OHDS
indicated that to the extent the State could show that there were
items
within the administrative/services per diem rate which qualified
as
special payments under the State standard of payment, the items would
be
allowed.
MARCH 28, 1987