Tennessee Department of Human Services, DAB No. 1619 (1997) Department of Health and Human Services DEPARTMENTAL APPEALS BOARD Appellate Division SUBJECT: Tennessee Department Date: June 16, 1997 of Human Services Docket Nos. A-96-179 and A-97-70 Decision No. 1619 DECISION The Tennessee Department of Human Services (Tennessee) appealed decisions of the Administration for Children and Families (ACF) disallowing $663,641 (Docket No. A-96-179) and $3,216,342 (Docket No. A-97-70) in federal financial participation (FFP). Tennessee had claimed FFP pursuant to the Emergency Assistance (EA) provisions of title IV-A of the Social Security Act (Act) for the quarters ending March 31, June 30, and September 30, 1996. ACF disallowed FFP in expenditures incurred for providing benefits and services to children who were within the jurisdiction of Tennessee's juvenile justice system. In issuing the disallowance, ACF relied on Action Transmittal 95-9 (AT-95-9). That action transmittal provides that, as of January 1, 1996, FFP is not available under EA for expenditures for benefits or services to children in the juvenile justice system. Tennessee seeks to have the disallowance reversed on the grounds that AT-95-9 is invalid under the Administrative Procedure Act (APA), 5 U.S.C. § 553, et seq. Tennessee contends that AT-95-9 is a legislative rule which, under sections 533(b) and (c) of the APA, can only be effective after publication in the Federal Register and opportunity for comment. ACF contends that AT-95-9 is an interpretative rule which, under section 553(b) of the APA, is effective without notice and comment. We conclude that AT-95-9 is an interpretative rather than a legislative rule and that notice and comment rulemaking was not required. As explained below, we base this conclusion on the following factors: AT-95-9 sets forth ACF's interpretation of the requirements of sections 403(a)(5) and 406(e)(1) of the Act; in AT-95-9, ACF did not purport to promulgate a legislative rule; AT-95-9 is consistent with the existing regulations implementing the EA program; and to the extent that AT-95-9 modifies any unpromulgated ACF interpretation, its effect is consistent with ACF's prior practice of some twenty years concerning what constitutes an emergency for EA purposes. We therefore conclude that AT-95-9 constituted appropriate notice to states under the APA that, as of January 1, 1996, juvenile justice costs were not reimbursable under EA. Accordingly, we uphold the disallowance. Background and Relevant Federal Authority A. The APA When a federal agency adopts, amends, or repeals a rule, the APA requires the federal agency to publish notice of the proposed change in the Federal Register and give interested persons "an opportunity to participate in the rulemaking through the submission of written data, views, or arguments." 5 U.S.C. § 553(c). However, the APA provides an exception to the notice and comment requirement for "interpretative rules, general statements of policy, and rules of agency organization, procedure, or practice." 5 U.S.C. § 553(b). (Emphasis added). Therefore, interpretative rules may be promulgated without notice and comment while other rules, usually referred to as substantive or legislative rules, may not. 1/ Courts have consistently held that agency rules are invalid if an agency fails to comply with APA requirements. Buschmann v. Schweiker, 676 F.2d 352, 358 (9th Cir. 1982); cf. Chrysler Corp. v. Brown, 441 U.S. 281, 313 (1979) ("[c]ertainly regulations subject to the APA [notice and comment requirements] cannot be afforded the `force and effect of law' if not promulgated pursuant to the statutory procedural minimum found in that Act"). B. The EA Program The EA program was established in 1967 as an optional component of title IV-A of the Act. It provided reimbursement to states at an FFP rate of 50% for the amount "expended under the State plan . . . as emergency assistance to needy families with children." Section 403(a)(5) of the Act. Section 406(e)(1) of the Act, as in effect during the period in question, defined emergency assistance as follows: The term "emergency assistance to needy families with children" means any of the following, furnished for a period not in excess of 30 days in any 12- month period, in the case of a needy child under the age of 21 who is (or, within such period as may be specified by the Secretary, has been) living with any of the relatives specified in subsection (a)(1) in a place of residence maintained by one or more of such relatives as his or their own home, but only where such child is without available resources, the payments, care, or services involved are necessary to avoid destitution of such child or to provide living arrangements in a home for such child, and such destitution or need for living arrangements did not arise because such child or relative refused without good cause to accept employment or training for employment-- (A) money payments, payments in kind, or such other payments as the State agency may specify with respect to, or medical care or any other type of remedial care . . . and (B) such services as may be specified by the Secretary The Secretary has promulgated rules implementing the EA program at 45 C.F.R. § 233.120. By fiscal year 1990, some 20 years after the enactment of EA, 32 jurisdictions operated EA programs. According to state plans on file with the Department of Health and Human Services (DHHS), as of October 1988, most EA programs covered natural disasters (23 jurisdictions), such as floods and fires, and "unspecified crisis threatening family or living arrangements (21 jurisdictions)." House Comm. on Ways and Means, Overview of Entitlement Programs, WMCP No. 102-44, 102d Congress, 2d Session 631 (1992). Typical qualifying causes for EA specified by states -- included (in order of frequency): eviction, potential eviction, or foreclosure; homelessness; utility shut-off or loss of heating energy supply or equipment; loss of employment or strike; civil disorders or crimes of violence; health hazards/risks to health and safety; emergency medical needs; an illness, accident, or injury. Id. Sometime in the early 1990's, ACF allowed an expansion of these traditional types of emergencies by reimbursing certain states under EA for their expenditures on behalf of children in the custody of or under the supervision of the state's juvenile justice system. Tennessee was one of these states. Effective January 1, 1992, Tennessee amended the EA portion of its title IV-A state plan to cover EA reimbursement for services to children in state custody or in danger of coming into state custody. State Ex. 1. (See also State Exs. 2 and 3 concerning 1993 and 1994 amendments.) These plan amendments specifically stated that emergency services covered by the plan would include the provision of services to children under 21 years of age when those children have been removed from the household or when they have been removed from the community, or when they are considered at imminent risk of removal to the custody of the Tennessee Department of Human Services, the Department of Youth Development, the Department of Mental Health and Mental Retardation or the Juvenile Courts. 2/ Pursuant to these plan amendments, Tennessee claimed and ACF paid EA reimbursement for services and administrative expenses for children under the jurisdiction of each of these state departments. 3/ On September 12, 1995, ACF issued AT-95-9. The purpose of this action transmittal was to notify states that FFP would not be available under EA for the costs of benefits or services provided to children in a juvenile justice system. In it, ACF discussed the purpose of EA as demonstrated by its legislative history. It wrote: The context of the EA program is the family and its purpose is to help family members by providing financial assistance and services to enable them to meet family emergencies that they are experiencing. ACF cited portions of the legislative history of EA to show that the focus of EA is family emergencies typically associated with lack of resources to meet such emergencies. Both the report of the House Ways and Means Committee and the report of the Senate Finance Committee on the 1967 Social Security Amendments state that the EA program is designed to deal with crisis situations threatening a family such as "eviction, or when utilities are turned off, or when an alcoholic parent leaves children without food." H. Rep. No. 544, 90th Cong., 1st Sess., 109 (1967); S. Rep. No. 744, 90 Cong., 1st Sess., 165 (1967). ACF noted that federal policy allowed states "`to define the types of emergencies it will cover . . . so long as the program's scope . . . bears a valid relationship to the intent and purpose of the program.' (SSA-AT-82-28, p.2.)" It then concluded that expenditures for children in the juvenile justice system did not bear such a relationship to EA and therefore did not qualify for EA reimbursement. ACF wrote: The central purposes and goals of the juvenile justice system are different from those of the EA program. The placement of a child in the juvenile justice system due to delinquency results from behavior that would be a criminal offense committed against society as defined under State law if done by an adult. A principal purpose of the placement of such children is to protect society. While it is true that rehabilitative services are provided to the child, the purpose is to enable the juvenile to return to society in a responsible capacity. When a child is placed in the juvenile justice system due to a need for supervision, it is because of the child's behavior rather than a family emergency. In many instances, the minor may have committed delinquent acts. Since the placement is made to address the child's behavioral problem rather than to alleviate a family emergency, the associated program and administrative costs would not be subject to Federal matching under the EA program. Finally, the statutory requirement in section 406(e) of the Social Security Act that a child sought to be served by the EA program be "without available resources" need not be met before a child is placed in the juvenile justice system for either of the above two reasons. Children are not placed in the juvenile justice system because they are destitute or in need of living arrangements. Indeed, such considerations are not even relevant. ACF concluded that FFP is not available under EA for expenditures for benefits or services to children in the juvenile justice system -- who have been removed as a result of the child's alleged, charged, or adjudicated delinquent behavior, or who have otherwise been determined to be in need of State supervision by reason of the child's behavior. The action transmittal was effective immediately for states which had not amended their state plans to include EA reimbursement for such children. States which had amended their plans and had been receiving EA reimbursement were given until January 1, 1996 to submit conforming state plan amendments and to change their claiming procedures. ACF did not dispute Tennessee's representations that the elimination of EA reimbursement effective January 1, 1996 for these children had a "substantial financial and programmatic impact on Tennessee's service delivery system for children and families." State Ex. 6, at 1. See also State Exs. 12- 15. In October 1995, the Office of the Inspector General (OIG) of the DHHS issued a report titled "Review of Rising Costs in the Emergency Assistance Program." The report documented the expansion of EA and traced the causes of that expansion. The report explained that-- [t]he EA expenditures increased by over 400 percent or $600 million from Fiscal Year (FY) 1991 to 1994. Information available at the Administration for Children and Families (ACF) shows that EA expenditures will exceed $1 billion by FY 1996 or about a 550 percent increase from FY 1991 EA expenditures. State Ex. 5, at i. As causes, the report identified ACF's approval of state plan amendments-- which enabled States to maximize Federal revenue by obtaining EA funding for services traditionally State funded. These services, predominantly juvenile justice, tuition, foster care, and child welfare usually address long-term problems while EA was intended to address temporary emergencies. Id. The report stated that in the course of conducting the review, the OIG had recommended to ACF that it revise or rescind its policies that allowed states to claim EA for these types of expenditures. The report noted that ACF had taken one such action by issuing AT-95-9. The OIG estimated that this action alone would result in annual federal savings of $240 million for three of the states (California, Pennsylvania, and New York) reviewed in the report. Federal reimbursement for EA under section 403(a)(5) of the Act was repealed by section 103 of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Public Law 104-193 (August 22, 1996). Analysis The Board has consistently held that if a federal agency's interpretation of a statute or a regulation it is charged with enforcing is a reasonable one, and the State had notice of it, then it will be upheld by the Board. Indiana Dept. of Public Welfare, DAB No. 970 (1988); see also New York State Dept. of Social Services, DAB No. 1473 (1994); Maine Dept. of Human Services, DAB No. 712 (1985), and Nebraska Dept of Health, DAB No. 373 (1982). In this case, Tennessee argued in effect that ACF did not give valid notice of the interpretation in AT-95-9, but it did not challenge the reasonableness of ACF's interpretation. Tennessee argued that AT-95-9 was invalid because it constitutes a legislative rule which should have been promulgated pursuant to the notice and comment provisions of the APA in order to be effective. ACF argued that AT-95-9 constitutes an interpretative rule which is not subject to notice and comment. As explained below, we conclude that AT-95-9 is an interpretative rule which, under the APA, was validly issued in an action transmittal and relied upon by ACF as a basis for this disallowance. While there is considerable diversity in the standards courts have used to distinguish between legislative and interpretative rules, it is generally agreed that when an agency is exercising its rule-making power to interpret or clarify an existing statute or regulation, the agency is considered to be engaged in interpretative rulemaking. 4/ "An interpretative rule simply states what the administrative agency thinks the statute means . . . ." General Motors Corp. v. Ruckelshaus, 742 F.2d 1561, 1565 (D.C. Cir. 1984) (en banc), cert. denied, 471 U.S. 1074 (1985); see also Alcaraz v. Block, 746 F.2d 593, 613 (9th Cir. 1984) (interpretative rule "simply explained something the statute already required"). In contrast, courts also agree that when an agency acts to create new law, rights, or duties in what amounts to a legislative act, it is engaged in legislative rulemaking. White v. Shalala, 7 F.3d 296, 303 (2d Cir. 1993); Metr. School Dist. of Wayne Township v. Davila, 969 F.2d 485, 489-490 (7th Cir. 1992), cert. denied, 113 S.Ct. 1360 (1993); United Technologies Corp. v. EPA, 821 F.2d 714, 718 (D.C.Cir. 1987). See also Alcaraz, 746 F.2d at 613 (legislative rules impose general, extra-statutory obligations pursuant to authority properly delegated by the legislature); Cabais v. Egger, 690 F.2d 234, 238 & n. 9 (D.C.Cir. 1982) (legislative rules have effects completely independent of the statute). In addition to the necessity for notice and comment, Kenneth Culp Davis, in Administrative Law Treatise, identifies three principal differences between legislative and interpretative rules. These distinctions are as follows. o "First, a legislative rule has the same binding effect as a statute. It binds members of the public, the agency, and even the courts, in the sense that courts must affirm a legislative rule as long as it represents a valid exercise of agency authority." 1 Kenneth Culp Davis et al., Administrative Law Treatise § 6.3 (3rd ed. 1994). In contrast, "[a] court may choose to give binding effect to an interpretative rule . . . but it is the court that provides the binding effect of law through its process of statutory interpretation." Id. 5/ o Second, "an agency has the power to issue binding legislative rules only and to the extent Congress has authorized it to do so . . . . By contrast, any agency has the inherent power to issue interpretative rules." Id. o Third, "a legislative rule can impose distinct obligations on members of the public in addition to those imposed by statute, as long as the rule is within the scope of rulemaking authority conferred on the agency by statute. By contrast, an interpretative rule cannot impose obligations on citizens that exceed those fairly attributable to Congress through the process of statutory interpretation." Id. Given these principles and distinctions, we conclude that AT-95-9 is an interpretative rule for the following reasons. o AT-95-9 sets forth ACF's interpretation of what constitutes an "emergency" for purposes of EA reimbursement. Section 403(a)(5) authorizes FFP for "emergency assistance to needy families with children." That phrase is defined at section 406(e)(1) of the Act. It authorizes EA match for emergency assistance for a child "where such child is without available resources" and "the payments, care, or services involved are necessary to avoid destitution of such child or to provide living arrangements in a home for such child." In AT-95-9, ACF informed states that, as of January 1, 1996, a state's juvenile justice system's assertion of jurisdiction over a child did not constitute the type of emergency that Congress intended federal EA funds to address. o In AT-95-9, ACF did not purport to be acting pursuant to a Congressional delegation of legislative authority by which it could impose obligations in addition to those imposed by the statute itself. 6/ Rather, ACF looked to the legislative history of the statute for authority for its conclusion that Congress' intent was to assist in family emergencies, typically associated with lack of resources to meet such emergencies. This reliance on congressional history supports a finding that ACF was seeking to interpret congressional intent rather than promulgate binding standards "that exceed those fairly attributable to Congress through the process of statutory interpretation." Davis at 234. See Metr. School Dist. of Wayne Township, 969 F.2d at 490 (case law, language, and legislative history are classic tools of agency interpretation). o The result set forth in AT-95-9 is well within that attributable to Congress through statutory interpretation. The legislative history shows that Congress sought to assist states in addressing short-term family crises such as eviction, utility termination, or the need for resources such as food or medical care, rather than the type of long-term problems experienced by delinquent or ungovernable children and their families. o AT-95-9 is not inconsistent with any existing rule governing the EA program. Rather, AT-95-9 is consistent with the plain language of 45 C.F.R. § 233.120(b)(2) which provides that federal participation is available for services "that meet needs attributable to emergency or unusual crisis situations." AT-95-9 clarifies what ACF considers to be "emergency or unusual crisis situations." o Finally, if ACF had originally disapproved states' juvenile justice EA amendments on the grounds that a child's involvement with the juvenile justice system is outside the boundaries of what Congress meant emergency assistance to address, no one would have argued that ACF had to promulgate a rule prior to such disapprovals. ACF's action would have been regarded as within the scope of its authority to interpret the EA provisions. A state might appeal the disapproval on the grounds that ACF had misinterpreted the Act. However, the question on appeal would simply be whether ACF's disapproval of the plan amendment was based on a reasonable interpretation of the Act. The fact that ACF approved some plan amendments for juvenile justice EA services, and has now reconsidered the correctness of its interpretation, does not render AT-95-9 a legislative rule. In issuing AT-95-9, ACF is continuing to interpret the proper scope of the EA program in light of its experience in administering the EA program. The question of whether AT-95-9 is an interpretative rule or a legislative rule has been addressed by one court. In Chief Probation Officers of California v. Shalala, No. C-95-4644 DLJ (N.D. Cal. 1996), appeal docketed, No. 96- 15897 (9th Cir. May 10, 1996), the district court determined that AT-95-9 was an interpretative rule. The court found that-- [b]ecause the purpose of the Action Transmittal was to clarify the agency's interpretation of an existing regulation, and because the position announced in the transmittal was consistent with that regulation, the transmittal is more akin to those rules that have been classified as interpretative in this circuit than those rules that have been labeled substantive. Tennessee set forth several bases on which AT-95-9 should be considered a legislative rule. Below we address each of these arguments and explain why they are not persuasive. 1. Whether the fact that AT-95-9 had a substantial impact on Tennessee makes it a legislative rule Tennessee asserted that AT-95-9 had a substantial impact on "the State's planning for the provision of services to children whose custody is committed to it by the courts or for those children for whom commitment to State custody could be avoided by services." State Br. at 9. Tennessee argued that the fact that AT-95-9 had a substantial impact on it and other states meant that AT- 95-9 was a legislative rule. It is undisputed that AT-95-9 reduced the amount of EA reimbursement Tennessee was able to claim and in this respect had a substantial impact on Tennessee's funding for child welfare services. See Tennessee Exs. 12 - 15. While Tennessee cited a line of decisions which use substantial impact as a factor in determining whether a rule is legislative or interpretative, other decisions have rejected substantial impact as a determinative factor. The Board has previously adopted the reasoning of the latter cases and concluded that substantial impact does not make a rule a legislative rule. Under prevailing case law, even if a rule has a significant impact on a party, this alone does not require that it be treated as a legislative rule. Because both interpretive and substantive rules may affect vital interests, the substantial impact test "has no utility in distinguishing between the two." Louisiana Dept. of Health and Hospitals, DAB No. 1176, at 7-8 (1990) (citing Cabais v. Egger, 690 F.2d 234, 237-238 (D.C.Cir. 1982), and inter alia United States v. Picciotto, 875 F.2d 345 (D.C.Cir. 1989)). New York State Department of Social Services, DAB No. 1473, at 3 (1994). Therefore, the fact that AT-95-9 had a substantial impact on Tennessee does not mean that it is a legislative rule. See also Dia Navigation Company, Limited v. Pomeroy, 34 F. 3d 1255, 1265 (3rd Cir. 1994); Alcaraz v. Block, 746 F.2d at 613; American Postal Workers Union v. USPS, 707 F.2d 548, 560 (D.C. Cir. 1983), cert. denied, 465 U.S. 1100 (1984). 2. Whether the fact that AT-95-9 restricted Tennessee's ability to claim EA reimbursement pursuant to its title IV-A state plan means that AT-95-9 is a legislative rule Until the issuance of AT-95-9, Tennessee could claim juvenile justice EA reimbursement pursuant to its title IV-A state plan. AT-95-9 informed Tennessee and other similarly situated states that they had to submit plan amendments deleting references to assistance for children in their juvenile justice systems and, as of January 1, 1996, could no longer claim funds for such children. Tennessee argued that elimination of its ability to claim EA for such juvenile justice children under its state plan made AT-95-9 a legislative rule. While there are cases which refer to the elimination of a right as a criterion for determining whether a rule is legislative or interpretative, these cases are not persuasive here for the following reasons. First, approval of a state plan pursuant to an interpretation of a statute does not bind the agency in perpetuity to that interpretation or require it to use legislative rulemaking to change the interpretation. Rather, the regulations concerning the approval and operation of title IV-A state plans explicitly contemplate that a state's claiming rights under a state plan may change as federal policy interpretations change. Section 201.3 of 45 C.F.R provides: After approval of the original plan by the Administration, all relevant changes, required by new statutes, rules, regulations, interpretations, and court decisions, are required to be submitted currently so that the Administration may determine whether the plan continues to meet Federal requirements and policies. (Emphasis added). Section 201.3(d) further provides: Basis for approval. Determinations as to whether State plans (including plan amendments and administrative practice under the plans) originally meet or continue to meet, the requirements for approval are based on relevant Federal statutes and regulations. Guidelines are furnished to assist in the interpretation of the regulations. (Emphasis added). Finally, section 201.6 of 45 C.F.R. addresses the circumstances under which the Secretary may withhold funds for noncompliance of a state plan. Subsection 201.6(a)(2) provides in relevant part: A question of noncompliance of a State plan may arise from an unapprovable change in the approved State plan, [and] the failure of the State to change its approved State plan to conform to a new Federal requirement . . . . Thus, the regulations expressly provide that agency interpretations and guidelines are to be used in determining whether state plans meet and continue to meet statutory and regulatory requirements for approval. Further, a state's failure to conform its plan to a new federal interpretation, not just a new statute or regulation, is grounds for withholding funds. Thus, the act of approving a state plan does not bind the agency to all interpretations used in that approval nor require the agency to subsequently use legislative rulemaking to change its prior interpretations. Quite appropriately, the agency is entitled to change its interpretations in light of its experience in administering the program and state plans must be adjusted in accordance with such changes. Second, cases citing the elimination of a right are similar to the cases which look to the "substantial impact" of a rule. Just as we do not accept the principle that a substantial impact makes a rule legislative, we do not accept the principle that elimination of a previously existing right, per se, makes a rule legislative. See New Jersey Dept. of Human Service, DAB No. 1071, at 9 (1989). As we stated previously, both interpretative and substantive rules may affect vital interests. Consequently, a change in agency policy may have the effect of removing a right that a party enjoyed under the prior policy. See Alcaraz, 746 F.2d at 593 (elimination of a right to receive benefits without providing a Social Security number); American Postal Workers Union, 707 F.2d at 548 (restriction of benefits under a pension system). The issue is not whether a right or benefit was eliminated by a rule, but whether the agency was acting pursuant to its authority to interpret the language of a statute or rule or acting pursuant to its authority to legislate standards which go beyond the language of the statute. Third, while this case involves the right of a state to claim federal reimbursement under a state plan, the cases cited by Tennessee in support of this argument concern the rights of individual beneficiaries. As we have noted previously, a state's ability to claim money under a federal program is not equivalent to an individual's right to a program benefit. See New Jersey, DAB No. 1071, at 10. This is particularly true here when the effect of the state plan provision in question was to shift to federal dollars costs traditionally borne by the state, not to change an individual beneficiary's entitlement under federal law. Below we discuss the cases cited by Tennessee as directly supporting its argument and explain why they are not persuasive. In Yesler Terrace Community Council v. Cisneros, 37 F.3d 442 (9th Cir. 1994), the court invalidated the Department of Housing and Urban Development's (HUD's) determination under 42 U.S.C. § 1437d(k) that Washington's state court eviction procedures satisfied due process requirements. With this determination, Washington public housing tenants lost their right to a pre-eviction administrative grievance hearing. The court found that HUD's finding was a legislative rule because section 1437d(k) "did not, on its own, alter tenants' rights to a grievance hearing." Id. at 449. Section 1437d(k) gave-- HUD the authority to make due process determinations. HUD therefore did more than construe the statute . . . . HUD's decision, made pursuant to authority granted by Congress, eliminated that right for a class of tenants. Therefore, it was a substantive rule. Id. (Emphasis added). The critical factor in this case was that HUD acted pursuant to a congressional delegation of authority to make determinations about the due process standards of states' eviction procedures. In determining that Washington's eviction process satisfied due process, HUD was not construing or interpreting section 1437d(k). Rather, HUD was acting pursuant to the authority delegated by that section to make findings independent of the terms of that section. This is the type of authority which is regarded by courts as legislative rule making authority. Linoz v. Heckler, 800 F.2d 871 (9th Cir. 1986), involved a challenge to a provision in the Medicare carrier's manual issued by the Health Care Financing Administration (HCFA). This provision precluded reimbursement for ambulance services incurred by Medicare Part B claimants for transfer to better equipped facilities to be treated by medical specialists. The court determined that the manual provision was a legislative rule. We conclude that Linoz is not persuasive in this case for the following reasons. o Linoz involved the rights of individual Medicare beneficiaries. As we have observed previously, the rights of individual beneficiaries may be accorded more deference than the rules affecting states' claims for federal dollars under a state plan. o In Linoz, the manual provision was binding on the insurance carriers, i.e., the carrier had no choice but to deny the claim and the claimant had no judicial right of review as to the denial. In contrast, AT-95-9 is not binding on the Board. Rather, the Board looks to whether an action transmittal is a reasonable interpretation of the related regulation or statutory provision. Further, a state can seek judicial review of the Board's decision and the reviewing court is similarly not bound by the action transmittal. o The Linoz court may have been influenced by the fact that the manual provision at issue resulted in particularly harsh consequences for Medicare beneficiaries and was subsequently repealed by HCFA. For example, one of the plaintiffs had a ruptured urinary tract system but lived on an island with no urologist. The manual provision precluded reimbursement for transportation to an island and a hospital with an urologist. By the time Linoz was issued, HCFA had amended the manual to allow for such ambulance costs. Finally, we note that both Yesler and Linoz are Ninth Circuit Court of Appeals cases. However, the district court in the Ninth Circuit in Chief Probation Officers of California did not find them to be persuasive in the categorization of AT-95-9. 3. Whether a change in agency interpretation must be promulgated pursuant to APA notice and comment procedures After 1990, ACF began reimbursing a number of states under EA for the provision of benefits and services to children under the jurisdiction of their juvenile justice systems. AT-95-9 provided notice to these states and all others that such expenses would no longer be reimbursable under EA as of January 1, 1996. Tennessee argued that AT-95-9 changed agency policy and therefore the transmittal should have been promulgated pursuant to notice and comment requirements of the APA. 7/ We reject this argument for the following reasons. First, as the court in Chief Probations Officers of California noted, courts have recognized that "a change in agency position does not necessarily make a rule legislative." Chief Probation Officers of California, at 7. The determinative factor should be the legal basis for the rule, i.e., whether the agency is invoking its congressionally delegated authority to adopt rules which go beyond the requirements of the statute, not whether the new rule changes a prior agency interpretation of the statute. An instructive case on this point is White v. Shalala. White involved a ruling by the Social Security Administration (SSA) requiring veteran's benefits paid to a veteran for the support of the veteran's dependent to be counted as the dependent's unearned income in calculating the dependent's Supplemental Security Income (SSI) benefits. Prior to the issuance of the ruling, SSA's policy had been to treat such benefits as the unearned income of the veteran. This prior policy was judicially invalidated. The plaintiffs argued that SSA's new ruling, which had the effect of reducing dependents' SSI benefits, was a legislative rule. The court looked to whether SSA was exercising its rulemaking power to clarify an existing statute, or to create new law, rights, or duties in what amounted to a legislative act. It concluded that the new rule remained interpretative because SSA was interpreting the terms "income" and "received" in the existing statute and implementing regulations. The court wrote: The plaintiffs argue that SSR 82-31 is legislative because it is a change from the Secretary's prior interpretation of s 1382a(a)(2)(B) under which the augmented portion of the benefit was counted as income to the veteran rather than the veteran's dependant. However, an interpretive rule changing an agency's interpretation of a statute is not magically transformed into a legislative rule . . . . If the rule is an interpretation of a statute rather than an extra-statutory imposition of rights, duties or obligations, it remains interpretive even if the rule embodies the Secretary's changed interpretation of the statute. White v. Shalala, 7 F.3d at 304 (emphasis added). See also Metro. School Dist. of Wayne Township, 969 F.2d 485, at 492 (agency's change in reading of statute did not make rule announcing change legislative); American Postal Workers Union, 707 F.2d at 559 (new agency position does not make rule substantive rather than interpretative). Second, the Board has previously considered whether a change in an agency's policy requires that the new policy be considered a legislative rule. In New Jersey, DAB No. 1071, New Jersey challenged the validity of certain Medicaid policies which HCFA issued as revisions to part of its State Medicaid Manual. New Jersey argued that the manual provisions were a substantive modification of the law, restricting entitlements, and were subject to notice and comment rulemaking procedures. The Board determined that "a policy interpretation established by informal means could be changed in the same way." New Jersey, DAB No. 1071 at 9. See also Maine Dept. of Health Services, DAB No. 712 (1985). Therefore, even if AT-95-9 modified ACF's prior interpretation on the allowability of juvenile justice costs, this does not make it a legislative rule. EA had existed for over 20 years before ACF began reimbursing juvenile justice costs in the early 1990's. ACF's interpretation, that section 406(e)(1) allowed such reimbursement, was not effectuated by rulemaking or by action transmittal or by any sort of formal policy announcement. Consequently, AT-95-9 simply modified an unpromulgated interpretation that had been implemented through state plan approval in a minority of states. It is entirely appropriate that ACF amended this unpromulgated interpretation by means of an action transmittal. See New York State Dept. of Social Services v. Bowen, 835 F.2d 360, 366 (D.C. Cir. 1987) (recognizing an action transmittal as a vehicle for formal statement of official ACF interpretations) cert. denied, 486 U.S. 1055 (1988). As the court wrote in Chief Probation Officers of California: For a brief period beginning sometime around 1993, HHS approved a limited number of state plans which requested EA reimbursement funds to cover services provided through juvenile justice systems programs. In 1995, however, the agency issued the Action Transmittal to revise this practice and to provide an interpretation of the emergency assistance program which was more consistent with the agency's historical view of the statute and the legislative intent of Congress. The brief prior period of agency approval of state plans including juvenile justice system programs does not convert this interpretative announcement into a substantive rule requiring APA notice and comment procedures. Chief Probation Officers of California, at 7 (emphasis added). 4. Whether the revised interpretation of 45 C.F.R. § 233.120 in AT-95-9 makes AT-95-9 a legislative rule The ACF Regional Office had previously approved Tennessee's state plan which provided EA services to children in the juvenile justice system. Tennessee asserted that this approval and subsequent reimbursement meant that ACF interpreted sections 403(a)(5) and 406(e)(1) of the Act and 45 C.F.R. § 233.120 to authorize EA reimbursement for such services. According to Tennessee, AT-95-9 therefore represented a change in ACF's interpretation of the statute and regulation. Tennessee argued that "ACF's change in that previous view and current restriction of the type of service is making law which is subject to substantive rule making requirements of the APA." State Br. at 13. As discussed above, we conclude that ACF may change its "previous view" of what reimbursement is allowable under EA without notice and comment. The fact that the change involves a revised reading of a regulation or a statute does not alter our conclusion. All interpretative rules necessarily involve interpretation of a statute or regulation. A change in an agency's interpretation may involve a revised understanding of a statute's requirements or a revised construction of a regulation. An interpretative change in itself does not make a resulting rule legislative. Tennessee contended that there are cases in which courts have concluded that a revised construction of a regulation must be promulgated by legislative rule. In support of its argument, Tennessee cited Ohio Department of Human Services v. HHS, 862 F.2d 1228 (6th Cir. 1988). Ohio involved a dispute over the validity of an amendment of a rule governing the amount of an institutionalized Medicaid recipient's income that would have to be contributed to the cost of institutional care. The original 1974 regulation was adopted pursuant to notice and comment rulemaking. The 1978 amendment, adopted without notice and comment, set a ceiling on the amount a state could exempt from contribution. The court found that this ceiling was not implicit in the 1974 regulation and that the 1978 amendment of the 1974 regulation had to be effectuated by notice and comment. However, as the court noted in Chief Probation Officers of California, AT-96-9 is consistent with the terms of the related regulation, 45 C.F.R. § 233.120(b)(2). Further, in Ohio, the court was reviewing HCFA's promulgation of standards pursuant to section 1902(a)(17) of the Act, in which Congress granted HCFA the authority to promulgate legislative rules concerning eligibility, income, and resources standards for the Medicaid program. This case therefore does not fall within the holding of Ohio. 5. Whether ACF was acting pursuant to legislative rulemaking authority vested in it by section 406(e)(1)(B) of the Act Section 406(e)(1) of the Act defines emergency assistance to needy families as "(A) money payments, payments in kind, or such other payments as the State agency may specify with respect to, or medical care or any other type of remedial care . . . and (B) such services as may be specified by the Secretary." Tennessee argued that subsection (B) of section 406(e)(1) vested legislative rulemaking authority in ACF and that ACF acted pursuant to this authority when it issued AT-95-9. We reject this argument for the following reasons. First, an agency's characterization of the authority pursuant to which it is acting is entitled to consideration in determining whether a rule is legislative. United Technologies, 821 F.2d at 718; Metro. School Dist. of Wayne Township v. Davila, 969 F.2d at 489; General Motors Corp. v. Ruckelshaus, 742 F.2d at 1565. Cabais v. Egger, 690 F.2d at 258, n. 7. ACF did not purport to be acting pursuant to any authority vested in it by section 406(e)(1)(B). Second, as the court determined in Chief Probation Officers of California, AT-95-9 does not address what constitutes a "service." Consideration of what constitutes a service would entail a discussion of services, i.e., counseling, rent payments, medical care, and homemaker services. Rather, AT-95-9 addresses what is to be considered an "emergency." It speaks to the fact that ACF has allowed states to define the types of emergencies they would address "so long as the program's scope bears a valid relationship to the intent and purpose of the program." AT-95-9, at 2, citing AT-82-28, at 2. The action transmittal goes on to explain why juvenile justice situations "bear no such `valid relationship' to the context or purpose of the EA program . . . ." Id. 6. Whether, in promulgating AT-95-9, ACF was interpreting the term "emergency" or exercising its judgment as to how to implement a general statutory mandate Tennessee argued that AT-95-9 was "a statement of ACF's policy judgment relative to its implementation of the statute for emergency assistance" and not an interpretation of the term "emergency." State Br. at 18. Tennessee therefore concluded that AT-95-9 falls within the court's assertion in United Technologies that if "the rule is based upon an agency's power to exercise its judgment as to how best to implement a general statutory mandate, the rule is likely a legislative one." Id. at 19, citing United Technologies, 821 F.2d at 719-720. The holding in United Technologies does not support Tennessee's argument on this point, but rather supports the conclusion that AT-95-9 is an interpretative rule. United Technologies dealt with the Environmental Protection Agency's (EPA's) rules conforming its hazardous waste regulations to new statutory provisions enacted in the Hazardous and Solid Waste Amendments of 1984. The court determined that the EPA rules were interpretative for the following reasons. o The EPA viewed the rules as interpretative. It explained that the "principal purpose" of the Final Rule was "to codify the new statutory requirements" of the 1984 Amendments. Further, in the preamble, the EPA discussed the regulations in light of what it construed Congress' intent to be rather than as an exercise of its delegated power to promulgate rules. o The legal basis for the rules was the EPA's interpretation of specific statutory provisions. As the court wrote, "what distinguishes interpretative from legislative rules is the legal base upon which the rule rests. If the rule is based on specific statutory provisions, and its validity stands or falls on the correctness of the agency's interpretation of those provisions, it is an interpretative rule." Id. at 719. Further, the court recognized that interpreting the statute may entail more than merely "restating" statutory language. Id. o The rules did not "pick up where the statute left off." Id. Thus, they were not based on the EPA's "power to exercise its judgment as to how best to implement a general statutory mandate." Id. at 720. These three factors are present in this case. First, ACF viewed AT-95-9 as a interpretative rule: ACF promulgated the rule as an action transmittal and ACF discussed the transmittal in light of what it construed Congress' intent to be rather than as an exercise of a delegated power to promulgate rules. Second, the legal basis for AT-95-9 is ACF's interpretation of the language of section 406(e)(1), not a congressional delegation of authority to define "services." We reject Tennessee's argument that the fact that AT-95-9 did not set forth a comprehensive definition of the term "emergency" means that AT-95-9 is not a reasonable interpretation of that term. The purpose of AT-95-9 was to address whether costs of services for children in the juvenile justice system should be funded by EA. Therefore, AT-95-9 set forth ACF's interpretation of the term emergency in relation to such costs. Third, AT-95-9 does not "pick up where the statute left off." Rather, ACF's exclusion of juvenile justice costs from EA reimbursement is a reasonable construction of the language and legislative history of sections 403(a)(5) and 406(e)(1). Thus, what the United Technologies court meant by an "agency's power to exercise its judgment as to how best to implement a general statutory mandate" is clearly not involved here, as illustrated by the cases the court cited as examples of an agency exercising such a mandate: Citizens to Save Spencer County v. EPA, 600 F.2d 844 (D.C.Cir. 1979), and Chamber of Commerce v. OSHA, 636 F.2d 464 (D.C.Cir. 1980). o In Spencer County, the court reviewed the EPA's implementation of the Clean Air Act. It was undisputed that two major provisions of that Act were inconsistent. When the EPA adopted rules which harmonized the conflict, the court found that the rules -- . . . by no stretch of the imagination could have been derived by mere "interpretation" of the instructions of Congress. According to the standard of this court, these two Rules were clearly legislative because they served to "create law . . . implementary to an existing law," rather than serving as mere "statements as to what . . . a statute . . . means." In the present case, "interpretation" could only go so far as to spot the dilemma posed by the statutory inconsistency, while legislative-type action was required to carry the agency the rest of the way toward a compromise solution. Spencer County, 600 F.2d at 879. o Chamber of Commerce v. OSHA involved a challenge to a Department of Labor (DOL) rule requiring employers to compensate employees for time spent accompanying OSHA inspectors during work site examinations. Prior to that case, there had been a judicial determination that neither the Occupational Safety and Health Act of 1970 (the "OSHA Act") nor the Fair Labor Standards Act required such compensation. The Chamber of Commerce court reasoned that such a rule could not be interpretative because the prior court decision had foreclosed such an interpretation. Rather, the court concluded that DOL "has attempted through th[e] regulation to supplement the [OSHA] Act, not simply to construe it, and therefore the regulation must be treated as a legislative rule." Plainly, ACF's action in promulgating AT-95-9 is different from that of the agencies in Spencer County and Chamber of Commerce. Tennessee also argued that ACF's actions in approving a New Hampshire EA state plan amendment demonstrated that ACF was a exercising its judgment as to how best to implement a general statutory scheme. The history of the New Hampshire amendment is as follows. In November 1994, New Hampshire filed an amendment to its title IV-A state plan. The amendment made several changes to New Hampshire's EA program including changes in coverage of benefits and services to children in New Hampshire's juvenile justice system. ACF did not act on the amendment prior to the issuance of AT-95-9 in September 1995. In March 1996, ACF approved the plan amendment, with the caveat that benefits and services to any children in the juvenile justice system were excluded from EA reimbursement after December 31, 1995. The effect of this approval was to allow New Hampshire to retroactively claim EA reimbursement for juvenile justice costs from the effective date of the plan amendment, November 15, 1994 to December 31, 1995. Tennessee argued that -- ACF is not, therefore, simply interpreting the requirements of the statute, it is making judgments on the approval of certain types of services and the periods of eligibility for claiming FFP. As such, it has shown that it considers that it must legislate the program's parameters because of a lack of Congressional direction on time limitation or any specific Congressional prohibition of the scope of services. State Br. of February 28, 1997, at 6. We reject this argument for the following reasons. In September 1995, ACF issued, via the formal agency mechanism of an action transmittal, its interpretation of the requirements of sections 403(a)(5) and 406(e)(1). This interpretation was inconsistent with ACF's prior actions in administering EA, i.e., its approval of a number of other state plan provisions for reimbursement of juvenile justice costs. These events left New Hampshire in limbo: should it be included in those states which had no plan provision for juvenile justice reimbursement, or, since the effective date of its pending plan amendment was well prior to September 1995, should it be included in those states which had until January 1, 1996 to stop claiming EA for juvenile justice expenditures? We fail to see how ACF's decision to put New Hampshire in the second group is inconsistent with our conclusion that AT-95-9 interprets the EA statutory and regulatory provisions. The fact ACF's application of AT-95-9 had real consequences, such as the ability to claim FFP, does not make AT-95-9 something more than an interpretation of these provisions. 7. Whether AT-95-9 imposed impermissible new conditions for receipt of EA assistance Tennessee argued that "the announcement that the provision of EA services is prohibited due to the child's own behavior which places him in the juvenile justice system is not supported in the statute or the regulations." State Br. at 19-20. Tennessee asserted that this "creation of a new limitation" made AT-95-9 a legislative rule because it imposed additional requirements rather than explaining existing requirements. Id. at 20. We disagree. As we discussed earlier, the directives of AT-95-9 are well within those attributable to Congress through statutory interpretation. Section 403(a)(5) of the Act provides funding for "emergency" assistance. The legislative history shows that Congress sought to address family crises such as eviction, utility termination, or need for resources such as food or medical care rather than to address long-term familial difficulties caused by the delinquent or ungovernable behavior of a child. AT- 95-9 reasonably interprets this section on the basis of the plain language of the Act and its legislative history. Nor do we agree that AT-95-9 should be characterized as imposing "additional requirements." Even if the action transmittal effectuates a change in prior agency policy, it is based on the language of sections 403(a)(5) and 406(e)(1) and does not create a requirement in addition to those which can reasonably be considered to be set forth in those sections. In support of this argument, Tennessee cited Linoz v. Heckler, 800 F.2d 871, and U.S. v. Picciotto, 875 F.2d 345. We have previously discussed why Linoz is not persuasive. Moreover, Picciotto actually illustrates why AT-95-9 does not impose the type of "additional requirement" which is characteristic of legislative rules. In Picciotto, the court determined the rule at issue was legislative. It that case, the National Park Service had promulgated, pursuant to notice and comment rulemaking, a set of rules governing demonstrations in national parks in the Washington area. In addition to these regulations, it also adopted, without notice and comment, a rule limiting demonstrators' property in Lafayette Park to such property as was reasonably required by a demonstration participant during any 24- hour period. The appellant was convicted of violating the latter rule. In determining that the rule was legislative, the court found that the Park Service failed to show that the rule, which imposed criminal sanctions, construed language in any section of an existing statute or rule. As the court wrote, "An interpretive rule explains an existing requirement; it does not impose an `additional' one." Picciotto, 875 F.2d at 348. Because the Park Service did not establish that the property ban was an interpretation of an existing statute or regulation, the court determined that it was an "additional" requirement. In contrast, ACF's exclusion of juvenile justice costs is clearly based on its interpretation of the plain language of sections 403(a)(5) and 406(e)(1). It is not an additional requirement which rests on ACF's authority to adopt requirements beyond those set forth in the statute. Conclusion For the foregoing reasons, we uphold these disallowances in the amounts of $663,641 and $3,216,342. _____________________________ Cecilia Sparks Ford _____________________________ Norval D. (John) Settle _____________________________ M. Terry Johnson Presiding Board Member * * * Footnotes * * * 1. Section 553(a)(2) of the APA also provides for an exception for matters relating to grants. However, the Department of Health and Human Services (DHHS) has chosen to abide generally by the provisions of section 553, notwithstanding this exception. 36 Fed. Reg. 2532 (1971). 2. Tennessee described the jurisdictions of these departments as follows: The Department of Human Services, in addition to being the state's title IV-A agency, provided child welfare services for children alleged to be physically or sexually abused or neglected, unruly children, i.e. those whose offense was a status offense due to their age such as being runaways, and to children who had been adjudicated delinquent, but for whom foster care or out of home residential services was determined to be the appropriate placement. The Department of Youth Development provided services to children who were adjudicated by the juvenile courts to be delinquent due to committing an offense which, if committed by an adult, would be deemed to be a criminal offense as well as to children adjudicated as unruly and who were found to be in violation of a valid court order. The Department of Mental Health and Retardation provided services to children whose mental status required mental health or mental retardation services either before or after commitment by a juvenile court. State Ex. 15, at 2-3. In 1996, services to all of these categories of children were consolidated in a new Department of Children's Services pursuant to Public Chapter 1079 (1996). 3. The kinds of assistance provided to children included shelter care, family foster care, and residential or psychiatric group care for children separated from their parents. The kinds of services included case management, counseling, transportation, and parenting education and training. Also covered were activities incidental to the administration of the EA program including investigation of emergency conditions, activities supporting eligibility determinations, information, referral, case management, counseling, and court-related activities. 4. The rationale for exempting interpretative rules from notice and comment procedures has been explained in this way: Interpretive rules articulate positive law that already exists in the form of statute or legislative rule. The theory is that the agency's interpretive document merely explains, but does not add to, the substantive law that already exists. Because Congress (or the agency, in a prior legislative rule) has legislated previously, a further act of legislation (through notice-and-comment procedures) is conceptually unnecessary to give effect to the interpretive proposition set forth in the document. That proposition, at least in the agency's opinion, already possesses the force of law. It has that effect not because the agency endows it with that effect, but because it represents the meaning of a statute or legislative rule that is already law. The agency, by issuing its document, asserts that existing legislation already has established by implication the position that the agency interpretation now specifies. The interpretation, therefore, does not project new legal effect of its own. "`Interpretive' Rules, `Legislative' and `Spurious' Rules: Lifting the Smog," 8 Admin. L.J. of Am. Univ. 1 (1994). 5. As the Supreme Court wrote in Batterton v. Francis: Legislative, or substantive, regulations are "issued by an agency pursuant to statutory authority and . . . implement the statute, as, for example, the proxy rules issued by the Securities and Exchange Commission . . .. Such rules have the force and effect of law." U.S. Dept. of Justice, Attorney General's Manual on the Administrative Procedure Act 30 n. 3 (1947). . . . By way of contrast, a court is not required to give effect to an interpretative regulation. Varying degrees of deference are accorded to administrative interpretations, based on such factors as the timing and consistency of the agency's position, and the nature of its expertise. Batterton v. Francis, 432 U.S. 416, 425 n. 9. 6. Section 406(e)(1)(B) gives ACF the authority to identify services which must be considered emergency services. This appears to be a congressional delegation of legislative authority to ACF for this limited purpose. However, ACF did not invoke this authority and viewed itself as addressing the issue of what can be considered an emergency under section 403(a)(5) rather than addressing what constitutes a service. 7. ACF argued that it had never established an agency policy concerning the allowability of EA reimbursement for juvenile justice costs. ACF Br. at 7 - 8. It pointed out that it had never formally announced an interpretation on this issue and it disputed Tennessee's position that the approval of state plan provisions by Regional Offices created any substantive policy. For the purposes of this decision, we do not reach the question of whether ACF adopted a policy concerning these expenditures. As we explain below, ACF's action in reimbursing some states for juvenile justice costs cannot, by any stretch of the imagination, be characterized as legislative rule-making. Therefore, even if we assume that action reflected agency policy, ACF may subsequently alter its interpretation of the requirements of the EA statute without engaging in legislative rule-making. (..continued)