DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: New York State
Department of Social Services
Docket Nos. 88-65 88-92
88-161
Decision No. 999
DATE: December 8, 1988
DECISION
The New York State Department of Social Services (New York/State)
appealed a series of determinations by the Family Support Administration
(FSA/Agency) disallowing $9,746,443 in federal funds claimed by the
State under the Aid to Families with Dependent Children (AFDC) program.
The funding at issue was claimed by New York as the federal share of
maintenance payments to AFDC recipients for the period June 1, 1983
through December 31, 1987. FSA's primary allegation was that the
State's claims were ineligible for federal funding as AFDC maintenance
payments. New York described the claims at issue as bonus payments made
to landlords, under the State's Emergency Assistance Rehousing Program
(EARP) operating in New York City. Under EARP, the State paid bonuses
to landlords who provided housing to AFDC recipients. New York asserted
that the EARP payments represented "special need" items under New
York's
State plan and, therefore, were federally reimbursable AFDC maintenance
payments. Additionally, New York asserted that FSA was aware of EARP
from its inception in 1983 and could not now withhold AFDC funding for
it.
The parties agreed that since these individually docketed appeals
contained identical issues of law and fact they should be considered
jointly. Based on the following analysis, we uphold the entire
disallowance of $9,746,443.
The AFDC Program
The AFDC Program is set out at Title IV-A of the Social Security Act
(Act). Regulations detailing the scope of coverage and conditions of
eligibility for AFDC are found at 45 C.F.R. Part 233. In order to
receive federal funding under AFDC, a state must operate its program in
accordance with a state plan approved by the Secretary. See section 401
of the Act. The term AFDC is defined as "money payments with respect to
a dependent child or . . . children, or, at the option of the State, a
pregnant woman . . . ." Section 406(b). Payments made under the AFDC
program are generally referred to as maintenance assistance.
Payment to an AFDC recipient is based upon that individual's needs for a
particular month. See section 402(a)(7) of the Act and 45 C.F.R.
233.20. A state plan must specify a standard of need, expressed in
money amounts, "to be used in determining (a) the need of the applicants
and recipients and (b) the amount of the assistance payment." 45 C.F.R.
233.20(a)(2). The implementing regulations permit a state to identify
"special need items" as part of the standard of need used in calculating
maintenance assistance. When a state includes special need items in its
overall standard of need, its state plan must describe the special needs
and the circumstances under which they will be included. Further, the
state plan must provide that special need items are uniformly considered
for all applicants and recipients requiring them throughout the state.
45 C.F.R. 233.20(a)(2)(v).
EARP
EARP was established in New York City in 1983. The program is now
operative in some other districts within the State, but is not uniformly
available throughout the State. The program's purpose is to make
previously uninhabitable housing available for rental to public
assistance recipients temporarily domiciled in hotels and motels. Under
EARP, public and private landlords agree to correct housing code
violations in their rental properties and make those facilities
available to AFDC families in return for lump sum bonus payments from
the State. The State then claims federal reimbursement for the EARP
payments as AFDC maintenance payments.
Since the program's inception, payments to private landlords have risen
on a graduated scale so that they are now equal to the difference
between the public assistance rate for temporary housing in a
hotel/motel over an eight-month period and an AFDC family's shelter
allowance for eight months. One-half the bonus is paid to a private
landlord after acceptance of the apartment; the remainder is paid after
a follow-up inspection approximately three months later. The landlord
must rent to an AFDC family for 32 months at a monthly rate not in
excess of the maximum public assistance rental allowance. Payments to
public landlords are calculated under the same basic formula, but over a
four-month period. Public landlords need only rent to AFDC recipients
for 28 months. The public landlord receives a lump sum bonus when an
agreement is reached to correct major housing code violations. New York
Brief (Br.), pp. 3-4; FSA Br., pp. 3-4. FSA asserted, and New York did
not deny, that the bonus payment for a private landlord renting to a
family of four would be approximately $9,600. FSA Br., p. 3.
Analysis
There is no dispute that the shortage of affordable housing poses a
threat to the welfare of many individuals. As FSA acknowledged,
programs such as EARP may well assist in furthering this vital public
need. The issue here, however, is whether the State's claim for AFDC
funding for EARP payments is consistent with federal requirements and
with the State plan.
For the reasons explained below, we conclude that the EARP payments do
not qualify as maintenance assistance under the Act and applicable
regulations and that, even if they could so qualify, the State did not
show that it reasonably interpreted its State plan to authorize such
payments as "special needs" items. We also reject the State's assertion
that FSA somehow acquiesced in the State's claims.
Whether the EARP payments qualify as maintenance assistance
A state plan must specify a statewide standard expressed in money
amounts which is used in determining the needs of recipients and the
amount of the resulting assistance payment. See 45 C.F.R.
233.20(a)(2)(i). The standard of need is "the amount deemed necessary
by the State to maintain a hypothetical family at a subsistence level."
Shea v. Vialpando, 416 U.S. 251, 253 (1974). AFDC maintenance payments
are made monthly and, except as discussed below, must be provided
directly to recipients. Maintenance payments represent the difference
between a family's income and the applicable standard of need (or some
lesser amount established by the state plan. On the other hand, EARP
payments are not monthly payments to AFDC recipients; rather, they are
lump sum payments to landlords. The State argued hypothetically that if
the payments were actually made directly to the recipients, the
recipients would receive them on a monthly basis like a traditional AFDC
payment. The reality of the program, however, is that EARP payments are
not designed to be paid in that manner, nor are they based on the
applicable formula for calculating a maintenance payment, i.e., standard
of need less countable monthly income. Rather, they are lump sum
payments to landlords based on a formula which does not consider the
measurable needs of a particular recipient on a monthly basis.
Moreover, the regulations require that an AFDC family's needs be
determined on an objective basis. 45 C.F.R. 233.20(a)(1)(i). The State
said that its EARP payments met this requirement because the amounts
paid were based on the excess amounts which would otherwise be needed to
house an AFDC family in a hotel or motel. This basis is an objective
one, the State argued, because it is rational and involves the use of
facts without distortion by personal feelings or prejudice. The EARP
payments, however, presume that the need for hotel/motel payments would
continue for eight months or four months (depending on whether the EARP
payments were made to a private or public landlord). The amount paid is
not based on the circumstances of a particular AFDC family or even
related to the cost of repairs for the particular rental unit, but was
justified by the State as the amount necessary to secure significant
numbers of participating landlords. In our view, the regulation
contemplates that it is the recipient's need which must be
determinative, not the landlord's.
Further, in spite of New York's assertion to the contrary, EARP payments
are not actually made with respect to a particular family. While the
payment may allow an AFDC family to occupy a certain rental unit, the
payments are made to the landlord in order to make the unit available to
AFDC recipients for a specified period. While the State may claim AFDC
funding in the name of a particular recipient, the landlord has power
over the selection of a tenant and any number of recipient-families may
rent the unit after the EARP agreement takes effect. So long as the
rental unit is occupied by an AFDC family during the prescribed period
of the EARP agreement, the landlord's bonus is secure.
FSA also contended that the manner in which the EARP payments were made
was not consistent with program requirements since EARP payments were
not made directly to recipients. It is a basic principle of the AFDC
program that a maintenance payment is an unrestricted money payment and
that the recipient has the responsibility to manage the funds. See
section 406(b) of the Act; also 51 Fed. Reg. 9200 (March 18, 1986)
(preamble to implementing regulations). However, there are two
exceptional circumstances in which the AFDC program authorizes vendor
payments: where there is a showing of mismanagement of funds by the
recipient or where the recipient voluntarily agrees to the use of
vendor payments. See 45 C.F.R. 234.60. The State attempted to
characterize EARP payments as vendor payments, i.e., payments to a third
party on behalf of the recipient. The State said that families
participating in EARP agree to voluntary restriction of their grants, as
evidenced by a voluntary restriction form in their case records. New
York's Oct. 11, 1988 submission, p. 3. The State provided no evidence,
however, to show that the recipients had an option to withdraw this
consent, as required by the regulations, or that a withdrawal would be
meaningful, given that the lump sum payment had already been made to the
landlord.
We also agree with FSA that its position is supported by the fact that
section 1119 of the Act limits payments to AFDC recipients for repairs
on their own homes. Section 1119 provides federal funding of home
repairs by AFDC (and other public assistance) recipients under certain
limited circumstances. Two of the limitations on such funding are that
the recipients own the home in issue and costs submitted for federal
funding not exceed $500. FSA argued that this provision of the Act made
it apparent "that Congress contemplated the use of Title IV-A funds for
home repairs under very limited circumstances." Notice of Disallowance,
March 7, 1988, p. 2. In response, New York asserted that the enactment
of section 1119 represented an enhancement of federal funding for
certain private home repair by public assistance recipients. The State
concluded that Congress meant to enhance reimbursement for certain
capital costs, but did not mean to limit the manner in which such
payments are available under AFDC. New York's Oct. 11, 1988 submission,
pp. 2-3.
We disagree with the State's rationale. The legislative history offered
by the State shows the congressional concern with home ownership by
public assistance recipients, especially where providing funding for
repairs would enable a recipient to retain a home for less than it would
cost to rent. See S. Rep. No. 744, 90th Cong., 1st Sess., reprinted in
1967 U.S. Code Cong. & Admin. News 2834, 3005. Given the limitations on
funding available to recipients themselves, it would hardly be logical
to conclude that Congress intended to permit AFDC funding, on a
significantly more costly scale, for repairs to buildings not owned by
recipients.
In sum, the manner in which the EARP payments are calculated and paid,
as well as the nature of the payments, support FSA's position that the
EARP payments cannot properly be considered AFDC maintenance payments.
Even if the State were correct that the EARP payments were rent
supplements paid with respect to particular recipients, we would uphold
the disallowance because, as we find below, the payments were not
authorized by the State plan.
Whether EARP payments were authorized by the State plan
New York also argued that EARP was established as a special need item
within the AFDC State plan and was thereby eligible for federal
reimbursement. The Agency correctly noted that the Board will generally
defer to a state's interpretation of its own state plan. However, such
deference is premised on the assumption that a state's interpretation is
reasonable. See Massachusetts Dept. of Public Welfare, DAB No. 730
(1986); and DAB No. 853 (1987). Moreover, the state must show that it
did, in fact, officially interpret its state plan to cover the
questioned payments and has not simply advanced an interpretation only
as an after-the-fact attempt to justify acting inconsistently with, or
simply ignoring, its state plan. See South Dakota Dept. of Social
Services, DAB No. 934 (1988).
As noted above, a state's standard of need for AFDC recipients includes
certain basic need items and may also include certain identified special
need items. Here, New York's State plan included the following special
need item: "Extermination fees and other fees necessary to retain
shelter." See Att. to New York's Oct. 11, 1988 submission. New York
asserted that its claims for AFDC funding fall within the scope of
"other fees necessary to retain shelter." As we discuss below, the
State's interpretation is unreasonable.
By definition, a fee is "compensation often in the form of a fixed
charge for professional service or for special and requested exercise of
talent or skill . . . ." Webster's Third New International Dictionary,
1976. Payment for an exterminator's service would fall within the plain
meaning of a fee necessary to retain shelter. Payments under EARP would
not. EARP payments are not made as compensation for services to enable
a particular recipient to retain shelter in the same sense that payment
for an exterminator's services would be. Rather, the EARP payment is
based on the condition that housing code violations in a unit will be
corrected (without regard to the cost incurred) and the unit will be
leased to an AFDC family. The State's regulation implementing the State
plan provision refers to "other charges necessary to retain shelter,"
but we do not think this language on its face contemplates EARP payments
either. The EARP payment is not a charge to a tenant under a rental
agreement in the same way an extermination fee would be; rather, the
State becomes liable to the landlord for the EARP payment by reason of
its agreement with the landlord.
The State argued that it had considerable discretion under the Act to
determine what special needs it would pay. We agree. But the State
must exercise this discretion in its State plan. A state plan must
describe special need items as well as the circumstances under which
they will be included within the overall standard of need. 45 C.F.R.
233.20(a)(2)(v); see also, 45 C.F.R. 201.2. The purpose of this
requirement is to ensure that the federal agency can meaningfully review
whether the plan provision meets federal requirements and that
recipients are informed of what coverage is available. We do not think
that the language in the State plan provision on "fees necessary to
retain shelter" is sufficient to inform either FSA or recipients that
EARP payments would be considered a special need.
Moreover, the State did not show that it had officially interpreted this
language to cover EARP payments. The State provided no evidence that it
intended this State plan provision to be interpreted in such a broad
manner. Nor did the State provide evidence that its claims for EARP
payments were based on an official interpretation that EARP payments
fell within the scope of the plan provision. Indeed, the State admitted
that it had no written interpretation of the plan provision as
encompassing EARP payments. Telephone Conference, September 29, 1988.
We conclude, therefore, that the State is simply attempting, after the
fact, to rationalize its AFDC claims for EARP payments.
This conclusion is also supported by a number of other factors:
o Shelter has long been recognized as a basic need in the AFDC program.
See Information Memorandum APA-IM-73-18 (January 19, 1973), (issued to
New York) FSA Ex. B; and Quern v. Mandley, 436 U.S. 725, 737 (1978).
The New York State plan includes shelter as a basic need but establishes
a maximum monthly rental allowance. If the EARP payments are a rent
supplement for a particular recipient allowable as a special need, as
the State said, the State plan should have made this clear because
otherwise the payment would appear to conflict with the rental allowance
provision.
o As FSA noted, "a special need . . . is budgeted in the total standard
of need." Quern v. Mandley, supra. As we have found, EARP payments
were not budgeted into the monthly standard of need. Additionally, the
implementing regulations at 45 C.F.R. 233.10(a)(2)(v) require that
special needs items be uniformly considered for all recipients requiring
them throughout the State. Here, EARP is available only in New York
City and some other local districts within the State.
o The mere fact that the State has claimed AFDC funding for EARP since
the program's inception in 1983 does not mean that the State always
considered EARP payments to be special needs under the AFDC plan. EARP
was established as an "emergency assistance" program. This suggests
that the State may have originally thought it could claim the payments
under AFDC as emergency assistance, which is payable only if certain
conditions are met.
o The State plan provisions on hotel/motel accommodations and on
expenses such as moving expenses necessary to obtain shelter detail the
conditions and circumstances of payment. On the other hand, the plan
simply provides for payment of extermination and other fees "when
necessary." This indicates that the provision was intended to authorize
only relatively minor payments, similar in amount and nature to
extermination fees, rather than items as costly as the EARP payments.
Thus, we conclude that the fee provision could not reasonably be
interpreted to encompass EARP payments.
Whether FSA approved the State's claims
New York argued that the Agency was aware that EARP payments were being
made under the AFDC program. In support of this position the State
provided an affidavit from its Acting Deputy Commissioner for Income
Maintenance. See New York's Oct. 11, 1988 submission. The substance of
this affidavit was that during "some" meetings between FSA and State
officials, conducted from February 1983 through July 1987, the EARP was
discussed.
If the State had shown that FSA officials were aware that the State
considered EARP payments to be "other fees necessary to retain shelter,"
within the meaning of the State plan, and raised no objection, this
might provide some support the State's position that this was a
reasonable interpretation of the plan language, consistent with federal
requirements. The mere fact that the EARP was discussed, however, is
insufficient to establish that FSA knew that the State intended to
charge EARP payments to AFDC as special needs under its existing State
plan.
Moreover, the State's evidence is insufficient to estop FSA from taking
this disallowance. Under the Supreme Court case of Heckler v. Community
Health Services of Crawford County, 467 U.S. 51 (1984), it is clear that
for estoppel to apply against the federal government, the private party
must at least demonstrate that the traditional elements of estoppel are
present. These elements are that (1) the estopped party must have made
a definite misrepresentation of fact to any other person having reason
to believe that the other will rely upon it, (2) the party asserting the
estoppel must have reasonably relied upon it and (3) must have changed
his position in reliance upon the misrepresentation, and (4) must have
suffered a detriment as a result.
We find that the State did not meet its burden of establishing the
traditional elements of estoppel. We note, moreover, that Supreme Court
decisions on estoppel suggest that, if estoppel applies at all to the
federal government, at the very least it requires a showing of
"affirmative misconduct" on the part of federal officials. See, e.g.,
Schweiker v. Hansen, 450 U.S. 785 (1981); INS v. Miranda, 459 U.S. 14
(1982). The State's evidence falls far short of this standard.
Conclusion
Based on the foregoing analysis, we uphold this disallowance in its
entirety.
________________________________ Donald F. Garrett
________________________________ Alexander G. Teitz
________________________________ Judith A. Ballard Presiding
Board