DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Missouri Department of Social Services Docket No. 86-136 Decision No. 902
DATE: September 30, 1987
DECISION
The Missouri Department of Social Services (State) appealed a determination by the Administration for Children, Youth and Families (ACYF, Agency) disallowing federal financial participation (FFP) claimed under Title IV-E (Foster Care) of the Social Security Act (Act). ACYF disallowed $9,307,972 in administrative costs and $496,028 in training costs, a total of $9,804,000 in FFP, claimed by the State for fiscal years (FY) 1983-1985 under a proposed amendment to its Title IV-E Cost Allocation Plan (CAP). ACYF based its disallowance on three separate grounds. First, ACYF concluded that activities claimed under the proposed CAP amendment would not be reimbursable as IV-E administrative costs because the amendment itself and hence the activities contemplated by it exceeded the scope of the IV-E program. Second, ACYF found that an unspecified amount of FFP claimed by the State for FYs 1983 and 1984 was not payable because the State had previously reached a IV-E funding ceiling established when the State voluntarily elected to transfer unused IV-E funds to its Title IV-B program. Finally, ACYF questioned whether the State's administrative and training claims had been adequately documented for the quarters ending March 31, 1983 through September 30, 1985.
While the present appeal was pending, the Board issued its decision in an earlier appeal which raised identical issues relating to the CAP amendment as those raised here. In Missouri Department of Social Services, Decision No. 844 (1987), the Board held that the activities contemplated by the amendment, if properly defined by the State, could be reimbursable under the IV-E program as administrative costs. In this appeal, ACYF chose not to contest further the CAP amendment issues and for the reasons discussed in our earlier decision (which we incorporate in its entirety here), we reach the same findings on each of the CAP issues raised..With respect to the documentation issues which ACYF also cited as a basis for the disallowance, the parties voluntarily agreed to delay consideration of these issues until the Board resolved the question of whether the State's IV-E claim exceeded a funding allotment.
Accordingly, the sole issue to be addressed in this decision is whether the State's claims for FYs 1983 and 1984 would cause the State to exceed a funding ceiling that ACYF alleged was operative for those two fiscal years. ACYF alleged that the funding ceiling became applicable when the State voluntarily applied to transfer unused Title IV-E funds to its Title IV-B program. ACYF stated that the claims for FYs 1983 and 1984 simply would not be payable because they exceeded the allotment even if they could be documented as allowable IV-E costs. 1/
For reasons described below, we conclude that the State's claims here are not barred by the State's actions in applying to transfer funds to Title IV-B and that the State's claims therefore are payable if they can be properly documented. Accordingly, the parties may proceed with their efforts to resolve whether the State has properly documented the claims as allowable foster care administrative costs.
Background to the IV-E and IV-B Programs
Title IV-E (sections 470-476 of the Act) provides funding for, among other things, foster care maintenance payments and necessary administrative activities in support of those payments. Title IV-B (sections 420-425 of the Act) provides funding to assist state public welfare agencies in establishing, extending, and strengthening child welfare services.
In establishing procedures for funding and operating the IV-E and IV-B programs, Congress made the programs in certain respects interdependent. For the fiscal years at issue here, 1983 and 1984, Congress imposed an allotment limit (or funding ceiling) on states in the IV-E program only if the total funding appropriated for the IV-B program equalled or exceeded a specified "trigger" amount. Section 474(b). (Since the actual appropriation for the IV-B program did not equal or exceed the trigger amount for FYs 1983 and 1984, no allotment limit applied to states for foster care payments under the IV-E program for those years.)
Further promoting the interrelationship between the IV-E and IV-B programs, Congress permitted states to make claims for IV-B child welfare services with unused IV-E funds. Section 474(c). Section 474(c)(2), however, limits a state in making such claims for IV-B expenditures to the amount by which a prescribed allotment (termed by ACYF the "hypothetical" allotment) exceeds the amount claimed by the state for IV-E foster care expenditures. 2/ Under this provision, if a state's claims for its foster care expenditures exceeded the hypothetical allotment, the state simply would be unable to use any IV-E funds for child welfare services claims. In implementing section 474(c), regulations at 45 C.F.R. 1356.70 require a state to apply to ACYF for a "transfer" of unused IV-E funds within the hypothetical allotment to the IV-B program before actually making a claim for IV-B child welfare services against those funds. Section 1356.70(e)(2)(i) requires a state to apply for approval of a fund transfer by August 15th of the fiscal year unless a different date is set for all states.
It is also relevant to note that the IV-E statute authorizes a claim for estimated expenditures prior to the beginning of each calendar quarter and then authorizes a state to claim adjustments to the amounts previously claimed, as necessary. Section 474(d); 45 C.F.R 201.5(a)(3). A state is limited in its adjustments by the timely claims provision at section 1132 of the Act. This provision gives a state, generally, two years from the date of the foster care expenditures to file a claim for those expenditures.
Factual Background
For both FY 1983 and 1984 the State initially anticipated that its claims for IV-E expenditures would be less than the hypothetical allotment and that therefore it would be beneficial for the State to apply for a transfer of the unused IV-E funds based on an estimate of what its foster care expenditures would be for the rest of each fiscal year. The State explained that, when it chose to use unused IV-E funds for IV-B expenditures in FYs 1983 and 1984, it did not have the capability to measure all of its IV-E administrative costs, and consequently it was unable at that time to claim all the IV-E funds to which it was actually entitled. Hovis Affidavit, par. 4. As a result of a change in the methodology for computing IV-E administrative costs, the State subsequently realized that its foster care claims would greatly exceed the hypothetical allotment for the fiscal years in question and that it would no longer be beneficial for it to transfer the unused IV-E funds to the IV-B program. The State accordingly adjusted its IV-E claims for FYs 1983 and 1984 to reflect the higher amount of administrative costs based upon the new methodology. At the same time, the State sought to withdraw its application to transfer funds to Title IV-B and to decrease its IV-B claims for those fiscal years in the amount of the transferred IV-E funds. It is not contested that the State did all this within the applicable timely claims deadlines of section 1132 of the Act. 3/
ACYF argued that, when a state applies to transfer funds by the August 15th deadline in the regulations, the funds become irrevocably committed to the IV-B program. The application could not be withdrawn, according to ACYF, and no transfer of funding back to Title IV-E was authorized by Title IV-B. ACYF argued that its interpretation of the regulations and the statute, in the absence of any legislative history which indicates that a different interpretation is warranted, should be given deference.
Discussion
We find that ACYF's interpretation of its regulations is not sustainable because the interpretation conflicts with the funding "transfer" provisions in the statute and the statutory claiming prerogatives specifically given the State under the IV-E program.
Section 474(c)(2) of the Act gives a state the option to use IV-E funds for IV-B child welfare services expenditures. This provision imposes a limit, referred to as the hypothetical allotment, on the amount of IV-E funding that may be used by the State for child welfare. A state's claims for child welfare under IV-E, when combined with its foster care claims, may not exceed the hypothetical allotment. If a state's claims for foster care expenditures alone exceed the hypothetical allotment, the state may not use any IV-E funds for child welfare services. At the time the State filed its application to transfer funds from Title IV-E to IV-B, its estimates for foster care expenditures were below the hypothetical allotment so that it was conceivable that the State could have used IV-E funds to cover child welfare expenditures. Subsequently, however, the State made claims adjusting its foster care expenditures upwards beyond the hypothetical allotment. Once the State made these claims adjustments, section 474(c)(2) no longer permitted it to use any IV-E funds for child welfare expenditures. The Agency, nevertheless, would apply the hypothetical allotment to bar foster care claims above the allotment ceiling. This is clearly contrary to section 474(c)(2), which specifically limits applicability of the hypothetical allotment to optional claims under IV-E for child welfare services and which furthermore precludes optional claims altogether when foster care claims exceed the hypothetical allotment. We can find no basis, therefore, to bar the foster care claims here by application of the hypothetical allotment in section 474(c).
Moreover, the State's decision to adjust its foster care claims upward above the hypothetical allotment was clearly authorized by sections 474(d) and 1132 of the Social Security Act. Section 474(d) authorizes a state to file its quarterly claims for IV-E expenditures in the form of an estimate prior to the beginning of each quarter and authorizes a state to make adjustments in its claims as necessary thereafter. Section 1132 gives a state a two-year time frame from the date of the expenditure to file an adjusted claim. There is absolutely no indication in Title IV-E that these prerogatives would be modified because the states are given an option under section 474(c)(2) to claim IV-E funds for IV-B expenditures. Indeed, the statute does not even technically require a state to "transfer" funds to IV-B before claiming those funds for child welfare services. It merely authorizes a state to make a claim for the child welfare expenditures under Title IV-E just as it would for foster care maintenance. Here, in essence, the State merely wishes to adjust its foster care claims upward within the timely claims deadline and to forego child welfare services claims which would no longer be permissible. We find that the statute clearly gives it that prerogative.
ACYF pointed to nothing in the wording of the relevant statutory provisions to support its position. While ACYF cited to statements in the legislative history of the provisions which ACYF said supported its position, these statements do no more than describe how the "transfer" provisions operate. The legislative history does not specifically address the issue here. ACYF did argue that the legislative history demonstrated that Congress wished to encourage states to apply unused IV-E funds for IV-B program purposes and that permitting a state to change its election to use funds for these purposes would undercut Congressional intent. When the State decided to adjust its claims in the instant case, however, it acknowledged that it would have to cover those expenditures with its own funds. Therien Affidavit, par. 19. Thus, the child welfare services program was in no way diminished by the State's actions here.
Moreover, there is nothing in the legislative history cited by ACYF that indicates that Congress wished to cut off bona fide IV-E claims authorized by statute simply so that a state might proceed with a fund transfer that it had initially thought would be possible and beneficial. It is particularly unreasonable to limit a state to an allotment amount which Congress specifically chose not to impose on foster care maintenance claims for the fiscal years in question. ACYF's position would interpret a provision designed to give states greater flexibility in their programs to instead limit that flexibility. ACYF's interpretation would discourage states from applying for a transfer unless they could be sure their foster care claims would not exceed their hypothetical allotment. States proposing to transfer funds would be limited in foster care claims to estimates of expenditures made well before the fiscal year had ended and before the expenditures had even been incurred.
Aside from its arguments of legislative intent, ACYF here relied heavily on the regulation (45 C.F.R. 1356.70(e)) that requires a fund transfer application by August 15th as a prerequisite for claiming IV-B expenditures with IV-E funds. ACYF argued that, once a state files an application pursuant to the regulation, any funds referenced by the application become irrevocably committed to the IV-B program. Section 1356.70(e), however, nowhere specifies that an application is "irrevocable" and cannot be withdrawn, nor does it suggest that a state can no longer adjust its claims under either Title IV-E or IV-B once it files its application. As concluded above, once the State adjusts its foster care claims above the hypothetical allotment within timely claims deadlines, its application to transfer funds to Title IV-B must be disapproved under section 474(c)(2). Section 1356.70(e) in fact contemplates that an application for a transfer may be disapproved since it expressly requires a state to apply for the "approval" of transfer of funds. And, indeed, the State has pointed to other statutory requirements, applicable to fund transfers (section 474(c)(4)(A)), that could also cause the Agency to partially disapprove applications well into subsequent fiscal years. Thus, we find that the only reasonable interpretation of the fund transfer regulation, consistent with statutory claiming prerogatives and the hypothetical allotment provisions, is that the application may be disapproved by the Agency (or withdrawn by the State) when adjusted foster care claims exceed the hypothetical allotment. 4/ ACYF also argued that allowing a state to revoke its election to transfer funds would cause administrative problems for ACYF. ACYF alleged that, if a state were allowed to change its transfer decision, the change could affect that state's IV-B reallotment eligibility status, which in turn could affect the computation of reallotment funds available to other states. The record here, however, indicates that the State's claim adjustments will have no effect on the reallotment process for other states. State Reply Brief, pp. 21-22; Therien Affidavit, pars. 21-23. The funds at issue were not of a sufficient amount to make the State ineligible for the reallotment pool. Moreover, the Agency's regulations at 45 C.F.R. 1357.30(g)(4) could be implemented to prohibit applications for reallotted funds under these circumstances and would appear to alleviate completely the problem that a state might request additional funds following a decision not to transfer funds to the IV-B program. In any event, the possibility of a change in the reallotment computation does not appear to be unique to these circumstances. A disallowance of IV-B claims by the Agency could have the same effect as an adjustment in a state's IV-E claims because it might mean that a state which thought it had incurred allowable costs in the amount of its IV-B allotment had not.
The programs at issue here have in their nature a certain amount of administrative uncertainty in that a state has two years, under section 1132, to adjust its claims. A state's reimbursable expenditures for the programs for each fiscal year may not be definitely determined until the two years have expired. Permitting the State to adjust its claims under the circumstances here will thus not add any more uncertainty to the administration of the programs than already exists.
Conclusion
For the reasons stated above, we find that the State's additional claims for IV-E foster care maintenance for FYs 1983 and 1984 are not barred by the State's election to transfer funds to IV-B. The claims, therefore, are payable if they can be properly documented. The State must, of course, complete documentation of these additional claims. The Board will confer with the parties to set procedures for resolving the issues of documentation which had already been partially developed in the present proceedings.
________________________________ Judith A.
Ballard
________________________________ Norval D.
(John) Settle
________________________________ Donald F.
Garrett Presiding Board Member
1. In its notice of appeal the State declared that the "allowable but not payable" amounts for FYs 1983 and 1984 could equal or exceed $8,606,955 in FFP.
2. The hypothetical allotment was the allotment ceiling that would have applied to states for foster care expenditures generally if IV-B appropriations had equalled the trigger amount. ACYF termed the allotment "hypothetical" apparently because IV-B appropriations for the years in question had not equalled the trigger amount. The State was also limited in the total amount of child welfare services claims it could make (using funds from either title) to the allotment level that would have applied in the IV-B program if IV-B appropriations had been at the trigger amount. Section 474(c)(2) of the Act.
3. For fiscal year 1983, the amounts in question were as follows: In FY 1983 the State's IV-E hypothetical allotment was $3,267,551. The State's estimated foster care expenditures for the first three quarters were $1,604,957, with an estimated fourth quarter figure of $524,878, for a total of $2,129,835. Thus the State had a IV-E gap from its hypothetical allotment of $1,137,716, which it requested to apply to IV-B child welfare expenditures. Subsequently the State realized that its foster care expenditures exceeded the hypothetical allotment by $2,688,796. As a consequence the State adjusted its foster care claims to include the claims at issue here and withdrew its transfer application for $1,137,716 and any claims based on that application within timely claims deadlines.
4. ACYF argued that there is no statutory or regulatory basis for transferring funds back to Title IV-E once they have been transferred from IV-E to IV-B under procedures provided in the regulations. As is evident from our analysis above, however, ACYF misses the point. Even though the State may have initially applied for transfer of funds pursuant to the regulations, the funds may not be approved to be transferred, and may not be viewed as having been transferred, where the State would not qualify for transfer because of the increased adjustment in its foster care claims and because of the subsequent withdrawal of its transfer