SUBJECT: New Jersey Department of Human Services

DECISION

The New Jersey Department of Human Services (New Jersey) appealed a decision of the Division of Cost Allocation (DCA) issued October 16, 2000. In that decision, DCA instructed New Jersey to prospectively revise its approved Cost Allocation Plan (CAP) to eliminate reimbursement under title IV-E of the Social Security Act (Act) for the activity of Advocacy/Brokerage. DCA also denied New Jersey's request to reconfigure the priority rankings pursuant to which it allocated the activity of Advocacy/Brokerage to title IV-E.

New Jersey's approved CAP defined Advocacy/Brokerage activities as --

Advocacy activities refer to the caseworker's or agency's efforts to mobilize the resources necessary to implement the client's service plan and to enable the client to realize his/her goals. Brokerage activities refer to those caseworker activities needed to negotiate, coordinate, and link a client with third party providers as needed, to implement an appropriate case plan.

Because these activities were identified as reimbursable title IV-E costs, DCA may require New Jersey to amend its approved CAP if DCA discovers a "material defect." 45 C.F.R. § 95.509(a)(2). Therefore, under the regulation, we must have a basis in the record to conclude that New Jersey's CAP contains a material defect in order to uphold DCA's direction to New Jersey to amend its CAP to eliminate title IV-E reimbursement for Advocacy/Brokerage.

New Jersey asserted that Advocacy/Brokerage costs are allowable as a component of case management and supervision, which is a reimbursable title IV-E administrative activity pursuant to 45 C.F.R. § 1356.60(c)(2)(vi) when properly allocated to title IV-E. DCA responded that the costs could not qualify as case management and supervision, but it failed to define, even in course of this proceeding, what activities are within the scope of "case management and supervision" as used in 45 C.F.R.
§ 1356.60(c)(2)(vi). The meaning of these regulatory terms is not self-evident. DCA, moreover, misconstrued the scope of the funding prohibition for treatment-oriented social services in 45 C.F.R. § 1356.60(c)(3) when it argued that the prohibition necessarily covered these activities. New Jersey, on the other hand, had a documented and longstanding practice of classifying Advocacy/Brokerage as part of its "case management." New Jersey's position appears to be a reasonable application of the regulatory terms and can be said to further the IV-E program's objective of preventing unnecessary placement or retention of children in foster care.

Accordingly, in the absence of any ACF definition of the regulatory terms "case management and supervision" or any legal authority or evidence that New Jersey's definition was outside the parameters of a reasonable definition of the regulatory terms, there is no basis for us to conclude that New Jersey's approved CAP contains a material defect. This decision does not preclude ACF from properly issuing a reasonable interpretation of the regulatory terms that differs from New Jersey's definition of the terms in its approved CAP. In the event that ACF does issue a definition, DCA could at that time require New Jersey to conform its CAP prospectively to the definition and provide New Jersey with an opportunity to appeal its decision pursuant to 45 C.F.R. Part 16.

Below, we review the cost allocation process, relevant provisions of title IV-E and the implementing regulations, and the factual background of the appeal. We then explain in detail why we reverse DCA's determination instructing New Jersey to eliminate reimbursement under title IV-E for the activity of Advocacy/Brokerage and denying New Jersey's request to reconfigure the priority rankings pursuant to which it allocated the activity of Advocacy/Brokerage to title IV-E.

I. Relevant Statutory and Regulatory Provisions and Board Decisions

A. The Cost Allocation Process

A state participating in the various public assistance programs under the Act, including the title IV-E program, is required to determine the amount of commonly incurred expenditures that are allocable to each program the state administers. A state is required to submit a plan for cost allocation to DCA for its approval. 45 C.F.R. § 95.507(a). This plan, or CAP, is defined as "a narrative description of the procedures that the State agency will use in identifying, measuring, and allocating all State agency costs incurred in support of all programs administered by the State agency." 45 C.F.R. § 95.505. Once approved by DCA, a CAP would generally continue in effect indefinitely if the state submits an annual statement to DCA certifying that the CAP is not outdated. 45 C.F.R. § 95.509(b).

An approved CAP is not an unalterable "contract" binding the parties, and approval of a CAP cannot make a cost allowable (or allocable) contrary to statute or regulation. Oklahoma Dept. of Human Services, DAB No. 963 (1988); see also California Dept. of Social Services, Board No. 855 (1987); Oregon Dept. of Human Resources, DAB No. 729 (1986); and Massachusetts Dept. of Public Welfare, DAB No. 335 (1982). "Costs claimed in accordance with the plan still must be allowable under the applicable cost principles, regulations, and law and are still subject to any administrative or statutory limitations." New York State Dept. of Social Services, DAB No. 788, at 7-8 (1986).

A state may propose an amendment to a CAP at any time for DCA's approval. DCA may require a state to amend its CAP if "a material defect is discovered in the cost allocation plan by the Director, DCA or the State."⁽¹⁾ 45 C.F.R. § 95.509(a)(2).

In reviewing a CAP, DCA is directed to consult with the "affected Operating Divisions." 45 C.F.R. § 95.511(a). For the title IV-E program, the Operating Division is ACF.⁽²⁾

The Board has jurisdiction to review DCA's final written decision in disputes involving CAP approvals, including any determination by DCA that a previously approved CAP must be amended. 45 C.F.R. Part 16, Appendix A, Section D.

B. Title IV-E

Title IV-E was originally enacted as part of the Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272. Title IV-E presently authorizes appropriations for foster care maintenance payments to assist states in providing, "in appropriate cases, foster care . . . for children who otherwise would have been eligible for assistance" under the AFDC program.⁽³⁾ Section 470 of the Act.

Because Congress wanted to encourage states to prevent improper foster care placements and to ensure that children remained in substitute care only when necessary, Congress imposed conditions on the receipt of title IV-E funding for foster care maintenance payments. First, the state plan must provide that, except in certain circumstances, the state will make reasonable efforts prior to the placement of a child in foster care to prevent or eliminate the need for removal of the child from home. Section 471(a)(15) of the Act. Second, the removal must be the result of a judicial determination with specific findings concerning the child's welfare and reasonable efforts to prevent removal, or pursuant to a voluntary placement agreement. Section 472(a)(1). Third, each child in foster care must have a case plan. Section 471(a)(16).

Section 474 of the Act establishes three categories of title IV-E expenditures: foster care maintenance payments (474(a)(1)); adoption assistance payments (474(a)(2)); and "amounts . . . found necessary by the Secretary for the provision of child placement services and for the proper and efficient administration of the State plan" (474(a)(3)).

The regulations implementing title IV-E are codified at 45 C.F.R. Part 1356. Section 1356.60(c) concerns allowable administrative costs. Subparagraph (1) specifies certain costs, such as determination and redetermination of eligibility, which are "directly related only to the administration of the foster care program under this part" and which "may not be claimed under any other section or Federal program." Subparagraph (2) lists "examples of allowable administrative costs necessary for the administration of the foster care program" such as development of the case plan, case reviews, and case management and supervision.⁽⁴⁾ Subparagraph (3) provides that "[a]llowable administrative costs do not include the costs of social services... which provide counseling or treatment to ameliorate or remedy personal problems, behaviors or home conditions." The Board has held that administrative activities are allowable to the extent that they are listed in 45 C.F.R. § 1356.60(c) or closely related to a listed activity and not prohibited by section 1356.60(c)(3) and are allocated to title IV-E pursuant to an approved CAP. Illinois Dept. of Children and Family Services, DAB No. 1530, at 27 (1995); New York State Dept. of Social Services, DAB No. 1428, at 10 (1993), affirmed at New York v. Shalala, 1998 WL 150955 (S.D. N.Y. Apr. 1, 1998).

II. Factual Background

New Jersey claims reimbursement for title IV-E administrative expenses pursuant to its CAP, which is based on the Division of Youth and Family Services Random Moment Sample (RMS). The RMS identifies the activities performed by staff in New Jersey's district offices and assigns them, based on a priority ranking sequence, to the specific federal programs, including title
IV-E.

In a letter dated February 18, 1998, New Jersey requested DCA's approval to reconfigure the priority rankings for various activities identified on its Activity Claiming Categories Matrix (Claiming Categories Matrix). State Ex. Aa5-Aa9. The Claiming Categories Matrix lists each RMS activity code and its priority ranking by which a "hit" will be assigned to a claiming category. New Jersey represented that the reconfiguration involved no changes to its CAP or to the RMS itself, other than charging costs, which were allowable and allocable to two or more programs, to those programs based on the proposed reconfiguration of its priority rankings. New Jersey requested that the change have an effective date of January 1, 1997.⁽⁵⁾

Among other changes, New Jersey sought to reconfigure the priority rankings for five of its existing activity codes (Advocacy/Brokerage, Assessment/Case Planning, Case Recording, Case Review, and Case Conference) as follows:

• XIX - Medicaid Case Management from priority rank 4 to priority rank 3;
• IV-E - Foster Care - Pre-Placement from priority rank 5 to priority rank 4;
• IV-A - Emergency Assistance from priority rank 3 to priority rank 5.

The new priority rankings would then be:

1. IV-E - Foster Care - Non-Voluntary (formerly 1),
2. IV-E - Foster Care - Voluntary (formerly 2),
3. XIX - Medicaid Case Management (formerly 4),
4. IV-E - Foster Care - Pre-Placement (formerly 5),
5. IV-A - Emergency Assistance (formerly 3),
6. IV-B - Child Welfare Services (formerly 6).

State Ex. Aa6.

Under the revised rankings, the allocation of costs to federal programs would be determined in the following manner. The RMS computer program would first determine if the conditions necessary for assignment of the activity to the title IV-E in-placement categories (categories 1 and then 2) were present. If the conditions were not met (for example, the child was not in foster care), the program would then determine if conditions allowed assignment of the activity to title XIX - Medicaid Case Management. If assignment could not be made to title XIX, the program would then determine if the activity could be assigned to title IV-E Pre-Placement, and then to title IV-A Emergency Assistance. If none of the conditions of assignment were met for any of these programs, the activity would be assigned to title IV-B Child Welfare Services. State Ex. Aa23. Thus, where an activity could be assigned to more than one program, the first program in the priority rankings will absorb the cost.⁽⁶⁾

One of the five activities as to which the priority rankings were reconfigured by the requested amendment was Advocacy/Brokerage. This activity was described as follows:

Advocacy activities refer to the caseworker's or agency's efforts to mobilize the resources necessary to implement the client's service plan and to enable the client to realize his/her goals. Brokerage activities refer to those caseworker activities needed to negotiate, coordinate, and link a client with third party providers as needed, to implement an appropriate case plan.

State Ex. Aa75.

DCA responded by requesting additional information on New Jersey's RMS process so that appropriate federal offices could review the requested revisions. New Jersey submitted additional information. As to questions concerning the Advocacy/Brokerage activity, New Jersey wrote:

. . . DYFS identifies this activity as part of a caseworker's case management function . . . . For example, DYFS may have a case goal of returning children from foster care. However, a parent may not have adequate housing to implement this case goal. DYFS Advocacy and Brokerage activities could include calling a local housing authority to determine the likelihood of a client receiving low income housing; referring the client to a local housing authority; and assisting the client to complete a housing authority application.

State Ex. Aa123.

New Jersey also explained that, under Advocacy/Brokerage, a caseworker "may need to contact the provider, set up an appointment for the parent, and monitor the parent's progress." State Ex. Aa130.

After further consultation with ACF, DCA informed New Jersey that, while it would approve the reconfiguration of four of the activities, it would not approve the reconfiguration of the Advocacy/Brokerage activity as to title IV-E. DCA also requested that New Jersey amend its CAP to eliminate title IV-E claiming for Advocacy/Brokerage.

III. Parties' Arguments

DCA argued that Advocacy/Brokerage was not an allowable title IV-E activity because it was not listed as an approved activity in section 1356.60(c)(2) nor was it closely related to a listed activity. Specifically, DCA asserted that Advocacy/Brokerage did not constitute "referral to services" as authorized by section 1356.60(c)(2)(i) or "case management and supervision" as authorized by section 1356.60(c)(2)(vi). Additionally, DCA argued that Advocacy/Brokerage, as defined by New Jersey, constituted a social service prohibited by section 1356.60(c)(3), or that at a minimum, New Jersey had not demonstrated that activities within its definition did not constitute social services.

New Jersey argued that Advocacy/Brokerage was a component of "case management and supervision" as authorized by section 1356.60(c)(2)(vi).⁽⁷⁾ New Jersey argued that its construction of the terms case management and supervision was reasonable and that neither DCA nor ACF had provided any definition of case management and supervision which would inform states as to what was encompassed. Additionally, New Jersey argued that social services prohibited by section 1356.60(c)(3) were limited to treatment-oriented social services and that Advocacy/Brokerage was not a treatment-oriented service within the meaning of that regulation.

The Board has held repeatedly that administrative activities are allowable under title IV-E to the extent that they are listed in 45 C.F.R. § 1356.60(c) or closely related to a listed activity and not prohibited by section 1356.60(c)(3) as a treatment-oriented social service. Illinois, DAB No. 1530, at 26; New York, DAB No. 1428, at 10. New Jersey asserted that its activity, Advocacy/Brokerage, is authorized by subsection 1356.60(c)(vi) as case management and supervision and is not a treatment-oriented social service.

The activity of Advocacy/Brokerage is currently listed in New Jersey's CAP as an activity reimbursable under title IV-E where allocated according to the RMS method. Once approved by DCA, a CAP continues in effect indefinitely if the state submits an annual statement to DCA certifying that the CAP is not outdated. 45 C.F.R. § 95.509(b). DCA may require a state to amend its CAP upon the discovery of a "material defect" 45 C.F.R. § 95.509(a)(2). Under the regulation, in order for New Jersey to be required to amend its approved CAP, there must be a basis for concluding that the CAP contains a material defect.

In the absence of any ACF definition of the regulatory terms "case management and supervision" or any evidence or legal authority that New Jersey's definition of the terms as including Advocacy/Brokerage was a wholly unreasonable definition of the regulatory terms, there is no basis for us to conclude that New Jersey's approved CAP contains a material defect. The reasons supporting our conclusion are as follows:

• While DCA asserted that the activity of Advocacy/Brokerage is not a component of case management and supervision as used in 45 C.F.R. § 1356.60(c)(2)(vi), DCA failed to identify any policy guidance from ACF which clarified what activities were within the scope of that regulation. Further, while DCA argued that the Board should defer to its reasonable interpretation of the regulation, DCA failed to provide the Board with any definition of case management and supervision even as part of this proceeding.⁽⁸⁾ The scope of the regulatory terms "case management and supervision" is not self-evident. In the context of an approved CAP provision, it is unreasonable of DCA to assert that none of the activities listed in the approved CAP as Advocacy/Brokerage could be case management and supervision activities without first clarifying what the scope of case management and supervision is.
  

• New Jersey had a documented and longstanding practice of classifying Advocacy/Brokerage as part of its "case management."⁽⁹⁾ State Ex. Aa63, Aa75, and Aa147. In addition, New Jersey's interpretation of case management is supported by the fact that the activities listed as part of Brokerage are consistent with definitions of case management in different but related contexts such as Medicaid targeted case management services. State Ex. Aa155. New Jersey's interpretation that case management and supervision could include some level of assistance to families to gain access to social services to prevent foster care placement or facilitate a child's return to his or her family appears to be consistent with the IV-E programmatic goal of preventing unnecessary placement or retention of children in foster care. DCA failed to provide the Board with any evidence or legal authority to support the conclusion that New Jersey's definition of case management was outside the parameters of a reasonable interpretation of the regulatory terms "case management and supervision."



• DCA never alleged that its prior approval of the CAP provision was a result of mistake or oversight or that it had not previously approved similar provisions in other states' CAPS. While there are circumstances in which DCA or an Operating Division could be reasonably unaware of the full effect of a plan provision (see Oregon, DAB No. 729), this does not appear to be one of those circumstances.



• DCA's insistence that Advocacy/Brokerage necessarily constitutes the type of social services prohibited by 45 C.F.R. § 1356.60(c)(3)is an overly broad reading of that provision. Section 1356.60(c)(3) prohibits title IV-E funding of "social services . . . which provide counseling or treatment to ameliorate or remedy personal problems, behaviors or home conditions." The preamble to that rule also spoke of the excluded services as "treatment-oriented" services.⁽¹⁰⁾ 47 Fed. Reg. 30,922, at 30,923 (July 15, 1982).



• DCA relied heavily on New York, DAB No. 1428, in which the Board upheld DCA and ACF's position that "arranging for services" was not allowable as "referral to services" under section 1356.60(c)(2)(i). However, allowability of title IV-E activities turns on whether the activity is reasonably encompassed by any of the listed items; the Board's determination that referral did not encompass arranging for services does not mean that the same type of activity could not qualify as part of case management and supervision where the state utilizes the activity as a component of its title IV-E case management. The Board did not specifically address the scope of "case management and supervision" in that decision and the type of activity and the circumstances raised in that decision are arguably distinguishable from the type of activity and the circumstances raised here.⁽¹¹⁾ Therefore, while New York, DAB No. 1428, and other Board decisions, such as New York State Office of Children and Family Services, DAB No. 1701 (1999)and New York State Dept. of Social Services, DAB No. 1588 (1996), could be read as offering some support for DCA's position that Advocacy/Brokerage activities are not allowable IV-E administrative costs within the regulatory framework, they would not require ACF to define case management and supervision in this manner.



• DCA argued that New Jersey's construction of "case management" would make section 1356.60(c)(2)(i) ("referral to services" activities) superfluous. We recognize that the regulation's differentiation between referral and case management could be viewed as supporting DCA's construction that case management and supervision does not include referral or similar but more complex activities such as Advocacy/Brokerage. However, the role of referral activities and case management activities could conceivably overlap. This overlap highlights the need for guidance as to the scope of case management and supervision and its relationship with the other listed activities such as referral and the other case-related activities identified in section 1356.60(c)(2).
  

V. Conclusion

Accordingly, in the absence of any ACF definition of the regulatory terms "case management and supervision" or any evidence or legal authority that New Jersey's definition was outside the parameters of a reasonable definition of the regulatory terms, there is no basis for us to conclude that New Jersey's approved CAP contains a material defect. Therefore, we reverse DCA's determination instructing New Jersey to eliminate reimbursement under title IV-E for the activity of Advocacy/Brokerage and denying New Jersey's request to reconfigure the priority rankings pursuant to which it allocated the activity of Advocacy/Brokerage to title IV-E. This decision does not preclude ACF from properly issuing a reasonable interpretation of the regulatory terms that differs from New Jersey's definition of the terms in its approved CAP. Nor does it preclude DCA's further investigation of the discrete activities which comprise Advocacy/Brokerage under New Jersey's CAP. In the event that ACF does issue a definition, DCA could at that time require New Jersey to conform its CAP to the definition and provide New Jersey with an opportunity to appeal that decision in accordance with 45 C.F.R. Part 16.

Judith A. Ballard

Marc R. Hillson

Donald F. Garrett
Presiding Board Member

1. Under section 95.509(a), DCA may also require a State to amend under the following circumstances, none of which DCA alleged:

(1) The procedures shown in the existing cost allocation plan become outdated because of organizational changes, changes in Federal law or regulations, or significant changes in program levels, affecting the validity of the approved cost allocation procedures.

* * *

(3) The State plan for public assistance programs is amended so as to affect the allocation of costs.
(4) Other changes occur which make the allocation basis or procedures in the approval cost allocation plan invalid.

2. Since the Secretary has delegated to ACF the responsibility for making the initial determination of "amounts . . . found necessary by the Secretary for the provision of child placement services and for the proper and efficient administration of the State plan" (Section 474(a)(3) of the Act), determinations of allowability must be made first by ACF.

3. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Public Law No. 104-193, repealed the title IV-A program and amended title IV-E so that it refers to certain provisions of former title IV-A as they were in effect on June 1, 1995.

4. Section (2) sets forth the following activities as "examples of allowable administrative costs necessary for the administration of the foster care program":

(i) Referral to services;
(ii) Preparation for and participation in judicial determinations;
(iii) Placement of the child;
(iv) Development of the case plan;
(v) Case reviews;
(vi) Case management and supervision;
(vii) Recruitment and licensing of foster homes and institutions;
(viii) Rate setting; and
(ix) A proportionate share of related agency overhead.
(x) Costs related to data collection and reporting.

5. The impetus for this change was the Temporary Assistance to Needy Families program (enacted by Public Law No. 104-193 (August 22, 1996)) (TANF), which New Jersey implemented January 1, 1997. TANF replaced title IV-A, including the Emergency Assistance (EA) program under title IV-A, with a capped block grant to the states. Because TANF replaced EA, costs previously charged under the RMS to EA, an uncapped program, would be assigned to TANF, a program with limited funding. New Jersey sought to redirect those costs to titles XIX and IV-E, uncapped programs, presumably to minimize its charges to TANF. See State Ex. Aa5.

6. New Jersey represented to DCA that the total reconfiguration of service activities, including Advocacy/Brokerage, would result in additional Medicaid expenditures of $5 million and decreased title IV-A EA expenditures of $6.1 million. State Ex. Aa8. In that letter, New Jersey identified no financial impact on title IV-E which would result from the reconfiguration. New Jersey did state that another change that it requested in this series of amendments involving the updating of a code on the RMS Logic Matrix to Determine Cost Allocation Indicator would result in a $5 million increase to title IV-E. The update to the code was approved by DCA.

7. In its notice of appeal, New Jersey asserted that Advocacy/Brokerage was authorized as referral to services under 45 C.F.R. § 1356.60(c)(2)(i). However, in its briefing before the Board, New Jersey relied only on section 1356.60(c)(2)(vi).

8. DCA argued that its interpretation of title IV-E and section 1356.60(c)(2) was entitled deference under Chevron v. Natural Resources Defense Counsel, 467 U.S. 837 (1984). DCA also asserted that its interpretation of its own regulations was "controlling," unless "plainly erroneous or inconsistent with the regulation" under Auer v. Robbins, 519 U.S. 452, 461 (1997). However, DCA's argument does not take into account the fact that it has cited no previously existing definition of section 1356.60(c)(2)(vi). Auer recognized the fact that an agency's interpretation is first articulated in the context of litigation does not, in itself, render it unworthy of deference. However, the agency should be prepared to show that "there is not reason to suspect that [the interpretation] does not reflect the Secretary's fair and considered judgment on the matter in question." Auer v. Robbins at 462. In view of such factors as the absence of any prior ACF policy statement concerning the scope of case management and supervision, DCA's inability to define the scope of these terms in the course of this proceeding, and DCA's prior approval of Advocacy/Brokerage as a title IV-E activity in New Jersey's CAP, there is no indication in the record that DCA's litigation position in fact reflects ACF's fair and considered judgment on this issue.

9. The New Jersey Division of Youth and Family Services published a Catalogue of Programs, Services and Activities (Catalogue) to describe "the variety of service activities of social service agencies." State Ex. AA63. The Catalogue was developed "to provide a universal language among all social service agencies." Id. In the Catalogue, New Jersey listed Advocacy/Brokerage as a case management activity. State Ex. Aa75. New Jersey indicated and DCA did not dispute that this designation and definition was set forth in the 1983 version of the Catalogue. State Br. at 17, State Ex. Aa147.

10. Treatment-oriented social services, even if performed in the process of case management/supervision, would not be a reimbursable title IV-E cost. Thus, the reimbursement of treatment-oriented services under an approved CAP would qualify as a material defect under 45 C.F.R. § 95.509(a). Further, non-treatment-oriented services are not ipso facto reimbursable under the title IV-E even when they are consistent with the goals of title IV-E. Such services must first and foremost be included under one of the examples cited in the list set forth in 45 C.F.R. § 1356.60(c)(2) or be closely related to one of the examples.

11. In addition to focusing on the relationship between arranging for services and the authorized activity of "referral to services" under 45 C.F.R. § 1356.60(c)(2)(i), New York presented the following differences: New York's RMS definition of arranging for services was arguably overly broad in that it referred to "utilizing . . . services . . . provided by the local district to assist in the amelioration of personal problems, behavior or home conditions"; New York's RMS had not previously been approved and was defective in other ways; and, since New York's RMS expressly provided for the category of "case management/monitoring", New York's category of "arranging for services" appeared to be intended to be something other than case management. Our decision left open the possibility that some of the activities might be allowable if more clearly defined.