California Department of Social Services, DAB No. 410 (1983)

GAB Decision 410
Docket No. 82-162

April 28, 1983

California Department of Social Services;
Ford, Cecilia; Settle, Norval Teitz, Alexander


The California Department of Social Services (State) appealed the
decision of the Commissioner of Social Security under the disputes
clause of federal-state agreements for federal administration of state
supplementary payments (SSP) in California to recipients of supplemental
security income (SSI). The dispute was whether the Social Security
Administration (SSA) properly computed these payments to two classes of
SSP recipients in California, namely, disabled minors and those
receiving non-medical board and care, and who were also living in the
household of another and receiving support and maintenance in kind.

The State contended that the improper computation of SSP payments by
SSA resulted in allegedly erroneous payments to these two categories of
approximately $13,938,000 during the period from January 1, 1974 to
February 1, 1982. Based on the entire record, including a hearing on
February 10, 1983, we uphold the determination of the Social Security
Commissioner for all agreements but the first, from January through June
1974.

We find that, except for the first agreement, SSA properly computed
the payments to these two classes, based on the amounts of payments to
these categories specified in the agreements between the State and SSA.
As to the first agreement, the payment levels in these two overlap
classes should have been reduced by the amount of the one-third
reduction in the SSI payment for those in the household of another.

We do not reach the issue of whether state law would control the
amounts of the supplementary payments because the state statute did not
provide for the situation of the two overlap classes.

Although the amounts of SSP paid to the two classes were presumably
greater than the State originally intended to pay, California knew of
the problem before the ending date of the first agreement. The State
did nothing to correct the situation, although SSA called attention to
the payments apparently being more than California planned. These
payments were provided for in a voluntary agreement. We do not agree
with California's contention that it was (2) the obligations of SSA to
find a solution to the overlap payments, and therefore we uphold SSA's
determination on all agreements after the first one.

Facts and Background

The Social Security Amendments of 1972, Pub. L. 92-603, October 30,
1972, amended Title XVI of the Social Security Act (the Act) to provide
a national program of payments to replace the prior federal-state
programs of payments to the aged, blind and disabled (AABD). The new
program for supplemental security income (SSI) was a system of federally
administered cash payments to guarantee a minimum subsistence level to
eligible individuals, effective January 1, 1974. Benefits were
generally to be paid at statutory levels specified in section 1611 of
the Act, reduced by income not excluded under section 1612(b). Unearned
income, which was to reduce the amount of benefits payable, included
support and maintenance furnished in kind. Section 1612(a)( 2)(A).
However, in the case of a person living in the household of another and
receiving support and maintenance from such other person in kind, the
support and maintenance in kind did not have to be valued in actual
dollars and cents.Instead, the Act applied a reduction of 33-1/ 3percent
of the benefits otherwise payable, which was "in lieu of including such
support and maintenance in the unearned income of the eligible
individual." Section 1612(a)(2)(A)(i).

Under the SSI program, as originally enacted, the states were
permitted, but not required, to supplement the basic federal benefits
for SSI recipients. Section 1616(a) provided that the Secretary of the
Department of Health, Education, and Welfare (HEW, now HHS) could enter
into voluntary agreements with the states for SSA to make these state
supplementary payments for the states, and SSA paid all the
administrative costs. Subsequent legislation provided for mandatory
minimum supplementary benefits for all those who had been recipients
under the state programs replaced by SSI to the extent necessary to
insure there would be no loss of income to these recipients. The states
could also elect federal administration of these mandatory supplements.

As an inducement to states to enter into agreements for federal
administration of state supplements, Congress provided a limitation on
the states' fiscal liability for supplementary payments. Section 401,
Pub. L. 92-603; Section 1616 of the Act, note. This limitation is
commonly referred to as the "hold harmless" provision. It was the basis
of the dispute between California and SSA which led to the decision by
the Chairman of the Departmental Grant Appeals Board in California
Department of Social Services, Decision No. 86, February 28, 1980. The
hold harmless provision is not directly involved in this dispute between
the (3) same parties, but a brief summary of what Decision No. 86 did
and did not decide may be helpful in analyzing this dispute.

The dispute here, as the dispute leading to Decision No. 86, focused
on whether the one-third statutory reduction for in kind support and
maintenance in the household of another is to be treated as unearned
income or as a reduction in the benefit payment level.

The use of hypothetical examples may help to illustrate this point.
Let us take the simplest case, that of an aged or disabled person in an
independent living arrangement. The federal statute provides for a
monthly SSI payment of $150.00. The contract between SSA and California
provides for a payment, including the SSI amount and State
supplementation, of $235. Assuming no adjustments for any income of any
type other than SSI, and disregarding here any statutory exemptions, the
monthly State payment would be $85.

Let us now assume that we are dealing with a living arrangement with
in kind support and maintenance in the home of another, where the
one-third reduction is to apply. If the State did not change its
payment level for this group, SSA would take the $150 base statutory
payment, reduce it by one-third to $100, and pay the recipients in this
group, for the State, the amount of $135 per month, that is, $235 minus
$100. The recipients would then be receiving the same amount of money
($235) as those in an independent living arrangement, as well as
receiving support and maintenance in kind.

However, if the State is aware of the difference between living
arrangements, it could take care of the possible discrepancy by lowering
the amount of the combined federal-state payment accordingly. Thus, if
the payment level specified for those receiving support and maintenance
in the home of another were set at $185 (rather than $235), then the
State would still have to add only $85 to supplement the federal payment
of $100. The recipient in this living arrangement would come out as
well as one in an independent living arrangement because while he
received only $185 in cash assistance, he would be getting $50 worth of
in kind assistance in the home of another (1/3 of $150).

It is necessary to review the issues and the positions of the parties
in the prior case to understand the difference in the positions of the
parties here. Under the statutory provision a state which had entered
into an agreement for federal administration of SSP would not have to
pay more than it had paid out of state funds in 1972 as aid or
assistance to its AABD recipients, referred to as the state's
"baseline." The actual amount of the state payment used in determining
this baseline was known as a "protected payment." This was defined by
statute as the difference (4) between the adjusted payment level under
the 1972 state plan and the federal SSI benefit "plus income not
excluded under section 1612(b) of such Act."

It is obvious that, in determining the level of protected payments
used in computing the State's baseline, the more there is included in
income under the statute, the less the protected payments will be.
Taking the same simplified example, let us assume that the SSI benefit
payment for an individual who has no income (other than the SSI payment)
is $150. The agreement between SSA and the State calls for a payment of
$235 per month for the individual in an independent living arrangement,
which is the same amount as the adjusted payment level. The protected
payment is clearly the full amount of the State supplement of $85.

Now let us assume the same individual lives in the household of
another, and there receives support and maintenance in kind. By statute
the SSI payment to this individual will now be $100, not $150. If the
agreement calls for a combined federal-state payment of $185, the amount
of the State supplement will be the same $85. But whether the full $85
is a protected payment under the hold harmless statute was the issue on
which the parties differed. SSA contended that the one-third reduction
was to be treated as any other income would be. That is, the apparent
payment of $85 State supplement and $150 SSI is reduced by the statutory
one-third reduction to $100 federal and $85 State. The $50 reduction in
the SSI payment is treated as income, and so only $35 (85-50) of the
State payment is a protected payment.

The State's position in the earlier dispute was that this was
incorrect. California argued that the $150 SSI payment was to be
reduced by the statutory one-third to a new benefit level of $100. This
reduced benefit level was then to be deducted from the specified total
payment of $185, leaving the same $85 State supplement, but now the
entire $85 was to be considered a protected payment, since there was no
income to be considered.

Actually SSA did, as a practical matter, reduce the $150 to $100 for
the one-third reduction before doing the rest of the computation for
payments under the agreement, starting with a reduced "standard federal
payment amount." SSA contended that this was done only for
administrative convenience, since the same one-third reduction was
required in all the support and maintenance in the household of another
cases. SSA claimed that section 205(a) of the Act authorized this step.
This did not change its position that the one-third reduction was being
treated as income as required by statute.

This Board agreed with SSA, finding that the one-third reduction was
income for the purpose of the hold harmless provision.

(5) The difference in the appeal now before us is that California law
did not take into account the possible overlap in two categories, namely
disabled minor, and non-medical care. Whether they are viewed as
subsets of in kind maintenance and support in the home of another does
not matter. The point is that there were about 5% of the in kind
maintenance and support cases where the recipient was also either a
disabled minor or receiving non-medical care. This can be called an
overlap, for these cases were in both categories, that is, they were
receiving in kind maintenance and support in the household of another,
and also were either a disabled minor or receiving non-medical care. In
any event, the combination was not specifically covered either in the
California statute or the federal-state agreement. The only provision
for the classes of disabled minors and those receiving non-medical care
was based on an assumption of an independent living arrangement. SSA
calculated the SSP by simply subtracting the standard federal payment
amount, regardless of whether it reflected the 1/3 reduction, from the
total SSI/SSP level set in the federal-state agreement. As a result, a
disabled minor who was not receiving support and maintenance in kind
would receive the same total amount of money as one who was receiving
support and maintenance in kind. The question here is whether SSA was
obliged to treat this situation differently.

SSA maintained it was doing exactly what the agreements said, as far
as total payments. The State said SSA was not complying with federal
law, which required SSA to treat the one-third reduction as income, nor
was it complying with State law, which required that the total
federal-state grant level specified in the statute was to be reduced by
the one-third federal reduction for in kind support and maintenance.
According to the State, the formula for calculating the SSP benefit is:

SSP plus (SSI plus non-exempt income) = Total SSI/SSP Grant Level.

If we assume the total SSI payment to be $150, reduced by 1/3, to
$100, and the total grant level to be $235, then the SSP would equal
$135 according to SSA's practice. The State contends that the $50 for
the 1/3 reduction is to be added to the net SSI payment as nonexempt
income, leading to an SSP amount of $85.

$85 plus (100 + 50) = $235

It is the State's contention that the requirement of the state
statute (section 12200(i) of the California Welfare and Institutions
Code) should apply because it provided for the reduction in grant level
whenever in kind support and maintenance is treated as (6) "the basis
for a lower payment standard rather than being treated as the receipt of
unearned income." Since SSA treated the one-third reduction as a lower
payment standard rather than unearned income, the State statute should
apply to reduce the total grant level in the two disputed categories
according to the State.

I. THE EFFECT OF DECISION NO. 86 ON THIS CASE.

The appellant has argued that since California lost the "hold
harmless" appeal it must win this case.

We believe, finally, that it would be wholly inequitable and
inconsistent for SSA to win both the "hold harmless" appeal and this
appeal. That would be tantamount to saying that the one-third reduction
is income, but it's all right not to treat it as income.

As we stated in our brief, SSA cannot have it both ways.... Tr., p.
18.

Decision No. 86 did not decide that the one-third reduction had to be
treated as income for all purposes.This appears at the beginning of the
decision, where the issue in dispute is stated:

(whether) the value of support and maintenance in kind in the
household or another is income for purposes of a statutory formula,
known as the "hold harmless" provision....

The prior decision specifically excluded the two situations now
before us.

SSA's manner of calculating the SSP's resulted in higher SSP's for
one-third reduction cases only in the relatively infrequent situation
where there was an overlap between the one-third reduction category and
one of two other living arrangements identified in the agreement
("non-medical board and care" and "disabled minor...")... Where this
overlap occurred, SSA was making higher payments based on its
interpretation of the agreement. Whether this interpretation was
incorrect or was based on the State authorizing statute, Sec. 12200(i),
is a subsidiary issue not raised at the lower levels of this disputes
process. I have... concluded that it is not essential to the resolution
of the principal dispute....

Decision No. 86, pp. 9-10.

(7) However, we agree with the rationale of Decision No. 86 that the
one-third reduction is income even though it is in lieu of including the
value of support and maintenance in kind in the household of another
with other income for purposes of calculating benefits.

II. THE ONE-THIRD REDUCTION IS INCOME UNDER FEDERAL LAW.

Decision No. 86 did not actually hold that the one-third reduction
was income for any purpose other than the hold harmless provision, since
the appeal did not require going beyond that. However, the opinion
considered the legislative history of the one-third reduction provision
of the statute at length, and arrived at the conclusion that it was to
be treated as income.

As the legislative history of the provision clearly shows, Congress
enacted the one-third reduction provision not because it did not wish to
treat such support and maintenance as income but because it wished to
avoid problems associated with determining the precise value of such
support and maintenance. Congress deemed such support and maintenance
to have a certain value (the one-third amount) and treated that value in
the same manner as it treated the value of other in kind support and
maintenance--as income....

Decision No. 86, p. 13.

A. The one-third reduction as income ordinarily reduces the benefit
level.

Decision No. 86 states clearly that not only is the one-third
reduction income, but it is to be applied to reduce the benefit level,
as is other income:

Special rules are provided for valuing such support and maintenance,
but that deemed value is applied, as other income is, to reduce the
benefit level. Id., p. 7.

The end of the quotation above on the legislative history is that the
one-third reduction was treated "as income to be applied in reducing the
benefit level." Id., p. 13.

The determination that the one-third reduction is income, and as such
reduces the benefit level, is not conclusive of the issue on appeal
here. It still has to be considered in the light of the specific
problems of the "overlap" cases, and the provisions of the federal-State
agreements. We turn now to the agreements themselves and the
contentions of the parties in relation to them.

(8) III. THE FEDERAL-STATE AGREEMENTS.

The contention of SSA is that not only did it comply with federal law
in how it treated the one-third reduction, but in any event it paid the
amounts set by California in the agreements themselves. /1/


An examination of the pertinent sections of the agreements will
illustrate the contentions of the parties.

We turn first to the first agreement. This was executed December 5,
1973 and was effective from January 1, 1974, when the SSI program began,
through June 30, 1974. Exhibit I, beginning at p. 220. Article V (p.
224) states that the amount of supplementary payments "shall be
determined in accordance with Article I of Appendix A of this
agreement."

In addition, Article I of Appendix A contains the following:

B. The maximum amount of the supplementary payments before any
reduction on account of income shall be determined... by referring to
the schedule of State supplementary payments, attached hereto. (Id., p.
233)

The actual schedule of payments under this agreement appears at p.
236. /2/ Under the five living arrangements, an aged or disabled
eligible individual in an independent living arrangement will receive
$235 per month. If the individual is residing in the household of
another and receiving room and board in kind, the amount is set at
$191.67. Clearly the difference between $235 and (9) $191.67 is the
one-third reduction of the statutory SSI benefit at the time (one-third
of $130, or $43.33).

(12) Using the same formula, and filling in based on the State's
claim, we have:

SSP = $283.00 minus (86.67 + 43.33) /5/

SSP = $153.00


In the first example, under SSA's practice, the dollar amount the
recipient actually is paid is $196.33 SSP plus $86.67 SSI for a total of
$283.00.

In the second example, under the State's contention, the total
dollars paid to the recipient is $153.00 SSP plus $86.67 SSI for a total
of $239.67.

The difference between the two total payments is $43.33, the amount
of the one-third reduction. Note that the federal SSI payment does not
change. It is only the State supplement which changes. Despite the
seemingly involved formula, the difference in the positions of the
parties is a simple one. Under the State's approach you first reduce
the total grant level for the one-third reduction, as income reduces a
grant. The difference between the reduced grant level and the SSI
payment is SSP. Under SSA's approach, you first for convenience reduce
the full SSI benefit by the one-third reduction, stated to be in
recognition of income, for a new standard payment amount. The
difference between the total grant level specified in the agreement and
the standard payment amount is SSP.

A. The first agreement.

The State relies (Tr., p. 15) on the language of the first agreement,
which provided that the maximum amount of the supplementary payments
"before any reduction on account of income" was to be determined by
referring to the schedule in the agreement. (Ex. I, p. 233) The
State's contention was that the one-third reduction was to reduce the
total grant level as income. We do not believe this language is
controlling.

It seems apparent that the State knew how SSA was calculating the
amount of SSP under the first agreement, since the State reduced the
total grant level in the household of another category to compensate for
the one-third reduction.

(13) Nevertheless, there is no clear indication that before the May
1974 letter referred to below the State knew of the overlap cases, and
that recipients in these two categories were being paid more than
logically should have been paid to them because of the method by which
SSA reduced the FBR "in recognition of income." In the absence of any
specific notice to the State of what was happening in the overlap cases,
the State could have assumed that SSA was treating the one-third
reduction as income in those cases to reduce the grant.

The first written notice to the State was in May 1974. The first
agreement ran through June 1974. We discuss below the obligation of the
State at least to attempt to correct the overpayments once it had notice
of them. It is not unreasonable to allow the State the period of time
from the May 1974 letter to the end of June of that year, the end of the
first agreement, to take corrective steps.

The Board finds that the State's contention that SSA overpaid the
amount of SSP for the overlap cases by the amount of the one-third
reduction during the period of the first agreement is correct.

B. Later agreements.

The language in the first agreement, "before any reduction on account
of income", is absent in later agreements. The State called attention
to the provision in the subsequent contracts in Appendix A, which
states: "The payment levels shown include the basic Federal payment."
The conclusion drawn by the State is:

(I think) there is a clear message that the totals do not take income
into account. Income is to be deducted by the Federal Government as it
is deducted in all other situations in which recipients have unearned
income. Tr., p. 15

This message is hardly clear to the Board. The statement that the
payment levels in contracts after the first "include the basic Federal
payment" does not say anything about how to treat it. It merely points
out, as is obvious from examination of the schedules, that the amounts
listed are a total SSI/SSP grant level, and not just an SSP amount to
which the SSI payment is to be added. In any event, there is no
indication that the varying language in the later agreements signified
that SSA had changed its general method of calculating the SSP.
Accordingly, it was the obligation of the State, as soon as it knew that
the overlap cases were apparently being overpaid, to do something to
change the agreements.

(14) The later agreements do define "basic Federal payment" as the
money payment required by section 1611 of the Act. However, this is in
itself inconclusive, since in the cases in the household of another this
money payment (sec. 1611) must be reduced by one-third (sec. 1612).

Even if there were any possible ambiguity in the language of the
agreements, under the State's claim that the amounts should be reduced
for income based on the one-third reduction, the failure of the State to
attempt to rectify the situation after it was called to its attention
precludes it from successfully attacking the SSP payments.

We discuss below the question of notice to the State, and how this
can affect any possible federal liability.

III. THE CALIFORNIA STATE STATUTE DOES NOT SUPPORT THE STATE POSITION.

The appellant argues that its position is supported by the California
State statute, section 12200 of California's Welfare and Institutions
Code, and particularly subsection (i).Section 12200 begins as follows:

An aged, blind or disabled applicant or recipient shall be paid an
amount of aid which when added to his federal benefit received under
Part A of Title XVI of the Social Security Act and other nonexempt
income and resources, equals the following: ....

Then follow in subsections (a) through (d) specified amounts for
aged, blind, or disabled inviduals or married couples. The so-called
restaurant allowance for those who cannot prepare meals at home is
subsection (e). Subsection (h) has no bearing on this appeal.

Subsection (f) provides an amount for "a disabled minor under 18
living with a parent or guardian or relative." Subsection (g) gives the
amount "for a recipient in a non-medical out-of-home care facility."

Subsection (i), the subsection of most interest here, reads:

In the case of any individual or couple whose federal benefit
received under Part A of Title XVI of the Social Security Act is reduced
in accordance with Section 1612(a)(2)(A) of Public Law 92-603 because he
lives in another person's household and receives support and
maintenance-in-kind from such person, (15) the appropriate grant level
set forth in subdivision (a), (b), (c) or (d) of this section shall be
reduced by the amount of the reduction in the federal benefit...

This subdivision shall be operative only during such time that such
in-kind support and maintenance, under federal law, is treated as
providing the basis for a lower payment standard rather than being
treated as the receipt of unearned income.

The parties differ on the overall effect of State law on this case.
SSA contends that State law cannot affect the administration of the SSI
payments, which is controlled by federal law and the federal-state
agreements. We do not consider it necessary to reach this issue, since
even if the California law controlled, it would not affect the result
here.

Subsection (i) of section 12200 by definition is to be operative only
when in kind support and maintenance in the household of another "is
treated as providing the basis for a lower payment standard." If this in
kind support and maintenance were treated as the receipt of unearned
income, rather than as providing the basis for a lower payment standard,
the provisions of subsection (i) presumably never would go into effect.

However, the result in this appeal would be the same if subsection
(i) did become operative, since it did not, by its own terms, apply to
subsections (f) and (g), the disabled minor and non-medical board and
care categories. The subsection omits the two categories at issue here,
although it refers to the categories in subsections (a) through (d).
Whether the omission was intentional or inadvertent is immaterial,
because clearly subsection (i) does not refer to the disabled minor and
non-medical board and care classes in subsections (f) and (g).

IV. NOTICE TO THE STATE.

On May 10, 1974 the State was informed by the Regional Planning
Officer of the SSI Bureau that there was a problem (Exhibit IX). Some
of the non-medical board and care recipients came under the household of
another provision and would therefore have the federal portion of their
grant reduced to $93.34 because of the one-third reduction. Since the
State law mandated a $283.00 payment for these cases, the SSP would now
be $189.66, the difference between the reduced federal grant and the
$283.00 grant payment level.

The letter goes on to say that SSA had tried to call these cases
something else, defining them as "care situations" rather than in (16) a
household of another. The one-third reduction would then not apply.
However, the letter said this could not be done.

This letter was definite notice to the State that in this one case it
would be paying a larger SSP than presumably it wanted to do. The
letter stated that the Region had informed the State of this situation
in March. The SSI program did not go into effect until January 1, 1974,
so less than three months into administration of the State supplement
SSA apparently alerted the State to a serious situation.

The State does not deny receipt of the letter but has two rather
ingenuous reasons for minimizing its effect. The first is that the
letter, says the State, confirms that SSA was treating the one-third
reduction as a benefit level rather than as income (Appellant's reply
brief, p. 3). And if SSA meant what it is now saying, the appellant
argued, the letter should have informed the State that the one-third
reduction was unearned income and by law must be deducted from the SSP
payment (p. 4).

The significance of the May 1974 letter is not in whether it referred
to the one-third reduction as unearned income or as a lower benefit
level. The significance is that the State was told by SSA: (1) we had
to reduce the SSI payment in these cases by one-third; (2) your State
law requires a $283 payment; (3) therefore you are going to have to pay
more money in State supplementation in these cases; (4) we tried to
figure out how to help you but the suggested method did not work.

Apparently nothing further happened for about a year. On March 19,
1975, the same federal official wrote the same State official (Exhibit
X). The letter refers to a February 14, 1975 letter and discussions
between the parties, but at the hearing no one was able to shed any
light on what happened during the hiatus between the first and second
letters. This second letter referred generally to the one-third
reduction cases and specifically to the disabled minor cases.

On the disabled minor classification, the letter suggests removing it
from the State law because of its inequity. SSA first states that it
did not follow the State law amendment of section 12200(i) to reduce the
payment level for those in the household of another by the amount of
reduction in the federal benefit.

SSA said it did not adhere to the practice of the State statute
because the agreement specified the payment amount and SSA was not bound
by State law. It continued:

a. The last paragraph of section 12200(i) states that this
subdivision be operative only so long as the value (17) of support and
maintenance is not treated as receipt of unearned income.

b. Section 1612(a)(2) of Title XVI clearly states that such support
is unearned income and that the 1/3 reduction is in lieu of computing
the value of same. (emphasis in original) Our conclusion is that your
statute is probably inoperative and you have no basis in law for asking
us to reduce state supplements in these situations.

To protect your Department and the Federal Government against
litigation concerning this issue we strongly urge you to seek
legislative revision to conform with our contractual procedure as
quickly as possible.

In addition to the letters (Exhibits IX and X), the Claims Manuals in
Exhibit XI are of considerable significance in showing the State knew,
or at least should have known, of the problems in these two categories.
The State was routinely issued SSA's Regional Claims Manual Supplements
(Respondent's brief, pp. 28). These were in fact sent to the State for
review before being published (Tr. p. 28). Thus, in the supplement
dated August 29, 1975, under Optional Supplementary Payments, there is
the following:

A Federal Living Arrangement determination of "living in the
household of another" does not preclude certification for non-medical
out-of-home care. For those cases, the Federal grant will be reduced by
1/3 and the State supplemental payment increased to pay the difference
between the reduced Federal grant and the payment level for out-of-home
care. (Exhibit XI, eighth unnumbered page in August 29, 1975
supplement, Regional Transmittal Sheet No. 284; emphasis in original)

There is in contract law a general principle of mitigation of
damages. /6/ Even if one party has breached a provision of a (18)
contract, the other party cannot simply sit by and allow damages to
accumulate, with certain conditions. The injured party must know of the
breach, and he must be able to mitigate damages without great expense to
himself. So here, even if SSA was wrong in its interpretation of the
contracts after the first one (although we find it was correct), the
State could not let SSA continue to pay the erroneous amounts of SSP
without at least trying to do something to alleviate the situation.


V. OTHER CONSIDERATIONS.

The State did not deny that it knew what was happening all along in
the two categories of disabled minor and non-medical board and care.
However, it said that apart from State and federal law, SSA should be
precluded from taking the position it does here. This argument of the
State is based both on a claim of estoppel, and what appear to be
general equitable considerations. The estoppel argument cannot be
supported on the basis of recent Supreme Court cases. In both Schweiker
v. Hansen, 450 U.S. 785 (1981) and INS v. Miranda, 103 S.Ct. 281
(1982), the Court found summarily that the facts did not justify
estopping the federal government on the basis of representations by
federal employees. The implication in the cases is that the only
possible basis for applying estoppel would be if there were affirmative
misconduct on the part of the federal officials involved. Certainly
there is no indication that the position taken by the federal officials
here would come under any definition of affirmative misconduct.

It is doubtful that there is here the basis for a claim of equitable
estoppel, even if the federal government were not the party sought to be
estopped. Among the necessary elements for a successful estoppel claim
is that the party asserting the estoppel be ignorant of the true facts.
See Montana Department of Social and Rehabilitation Services, Decision
No. 171, April 30, 1981. The State cannot claim here that it was
ignorant of what was happening, after the 1974 and 1975 letters telling
it exactly what problems there were.

(19) In addition to a specific claim of estoppel, the State claims
that it could do nothing else. The federal regulations permitted only
five living arrangements, so it could not set up separate classification
for disabled minors and non-medical board and care cases where they were
in the household of another. /7/


There are two answers to this contention. The first is that the
optional State supplement was administered by SSA under a voluntary
agreement with the State. The State could have terminated the agreement
and administered the entire SSP itself.

The second answer is that it could have done something much less
drastic. It could have but the two categories in the household of
another category, and then paid them an additional amount, as a
separately administered State supplement for just the disabled minors
and non-medical board and care categories. In this way these two
categories could have received the amounts the State thought they
deserved, and still have the total grant reduced for the amount of the
one-third reduction. Of course it could always have amended the State
statute to reduce the amount of the payments, and then modified the
agreement accordingly.

In any event, the responsibility of seeing something was done was
certainly the State's, once it was notified of what was happening.

VI. DETERMINATION OF FEDERAL LIABILITY.

We have found that SSA erroneously overpaid the disabled minors and
non-medical board and care cases in the household of another during the
term of the first agreement, January through June 1974. Since there is
no agreed breakdown of overpayments for this period, we leave the
determination of the amount of the federal liability to the parties. We
realize that there may be some dispute since the agreement limits
liability for erroneous payments to payments "identified on an
individual basis" by the State. (Exhibit I, Article IX, p. 227) In
addition, liability is limited to cases "reported in writing and
verified by the Secretary." If the parties cannot agree, they may return
to the Board on this one limited point.

(20) CONCLUSION

We uphold the determination of the Social Security Commissioner for
all periods of the agreements except from January through June 1974.
For that period we reverse. /1/ We (California) provided the total
grant amounts in the contract; that is correct. We provided
the total grant amounts for all recipients.... Tr., p. 14. /2/
The "Schedule of State Supplementary Payments", listing only those
payments relevant to this decision, is reproduced below. The schedule
is called one of State supplementary payments; it is obvious that the
payments are the total SSI-SSP grant. Residing in the Household
Disabled of Another and
Minor Category of Independent Receiving Room
Non-medical Eligible Living and Board
Board and in Individual Arrangement In Kind
Care Disabled $235 $191.67 $283 $213
E The next category, independent living arrangement without cooking
facilities, commonly known as the restaurant allowance, does not concern
us here. The last two columns are the crux of the issue before us. The
last column is "disabled minor" at $213.The emphasis should be on the
preceding column, since here is where the disparity is most obvious.
Persons in this living arrangement, "non-medical board and care," are to
receive $283, as opposed to those in an independent living arrangement
who receive $235. The difference is obviously intended to provide for
the board and care. But if a person in this category resides in the
household of another, there is no provision for reducing the $283
benefit. This means that even though he does not have to pay for room
and board, receiving it in kind in the household of another, on the face
of the agreement he receives the same as an individual in the same
classification who is paying for his room and board, as well as paying
for his care. What the State says SSA should have done in this case is
reduce the total amount of the payment specified in the agreement by the
amount of the one-third reduction. SSA says it did reduce the amount
originally, when it routinely reduced the federal benefit rate (FBR) by
the one-third statutory reduction to arrive at a "standard federal
payment amount." (See Respondent's brief, p. 5) Thus, in the household
of another cases, the federal benefit rate, the SSI payment provided for
by statute, was reduced for administrative convenience, in recognition
of income. This "standard federal payment amount" was then subtracted
from the amount payable specified in the schedule in the agreement. The
balance was the amount of the supplementary payment by the State. This
was clearly brought out in the Initial Determination of the Social
Security Commissioner, July 26, 1982, Exhibit III, pp. 3-5. n3 In the
independent living situations, the FBR of $130 was (10) subtracted from
the total SSI-SSP payment specified in the agreement (p. 5). The State
has no quarrel with these payments in the left-hand column, the
independent living arrangements. Code A receives a total payment of
$235, consisting of $130 FBR and $105 SSP. The second example, Code B,
non-medical board and care in an independent living arrangement, calls
for a total payment of $283, of which $130 is FBR and $153 SSP. The
third example, Code E, is a disabled minor, with a total payment of
$213, of which $130 is still the FBR and $83 is SSP. /3/
Schedule of computations on p. 5 of Exhibit III: Independent Living
Situations One Third Reduction Situation (no additional
income involve O/S Code A
$235.00 SSI/SSP $191.
-130.00 FBR - 86.67 FBR red
$105.00 SSP $
O/S Code B O/S Code B $283.00 SSI/SSP
$283.00 SSI/SSP -130.00 FBR - 86.67 FBR
reduced by 1/3 $153.00 SSP $196.33 SSP
O/S Code E O/S Code E $213.00 SSI/SSP
$213.00 SSI/SSP -130.00 FBR - 86.67 FBR
reduced by 1/3 $ 83.00 $126.33 SSP E
The first example in the right-hand column (one-third reduction
situations) is the typical living in the household of another situation.
The FBR is first reduced by one-third, from $130 to $86.67. This is
then subtracted from the total SSI/SSP payment specified in the
agreement of $191.67 to leave an SSP of $105. This is the same
supplementary payment by the State as in Code A, the independent living
arrangement. The confrontation is in the two remaining one-third
situations. The first (Code B) is non-medical board and care in the
household of another. There is no separate listing for such a
classification in the agreement, so SSA takes the same total SSI/SSP
payment provided for in the non-medical board and care in an independent
living arrangement, namely $283. From this SSA deducts the "standard
federal payment amount" of $86.67, the FBR reduced by one-third. This
leaves a payment of $196.33 to be made by the State, or more than the
$153.00 SSP payable to non-medical board and care cases in an
independent living arrangement. The difference of $43.33 obviously is
the same as the one-third reduction. The disabled minor living in the
household of another has exactly the same differential. The State says
this is wrong. In these two situations (non-medical board and care and
disabled minor in the household of another) it says it was the practice
of SSA: (11) to reduce the Federal benefit (SSI) by one-third and
increase the State benefit (SSP) by the same amount, leaving the SSI/SSP
level unchanged. (Appellant's brief, p. 4, emphasis in original) The
correct method, says the State, was first to reduce the SSI/SSP level by
the amount of the one-third reduction, and then pay the recipient the
difference between that amount and the federal benefit payment. The
State gave examples, with a formula, in n. 4 on pages 7-8 of its brief,
of the difference in results of SSA's practice and what California says
was the proper method. The State said this was following the formula in
the State law. We state below why we do not feel State law is
applicable here, but a consideration of the formula illustrates the
difference in approach of the parties. The State example uses July 1981
grant levels. For ease in following, we have substituted the same grant
levels used in the Commissioner's computation in note 3 above. We also
rearrange the formula for simplicity. The State gives it as: SSP plus
(SSI plus nonexempt income) = Total SSI/SSP Grant level. Since the
amount of SSP is what we are considering, the formula is easier to
follow in this form: SSP = Total SSI/SSP Grant level minus (SSI plus
nonexempt income). We take the amounts in the non-medical board and care
in the household of another, the most obvious case, O/S Code B on the
right-hand side in note 3 above. The total SSI/SSP grant is $283.00;
the SSI statutory amount (FBR) is $130.00; the one-third reduction is
$43.33. We fill in the State's formula, taking first SSA's practice as
in note 2 above: SSP = Total SSI/SSP Grant level minus (SSI plus
nonexempt income) SSP = $283.00 minus (86.67 + 0) n4 SSP = $196.33
/4/ SSA's position was that it had already taken account of the
one-third reduction, when in recognition of it as income it had reduced
the FBR of $130.00 to the standard payment amount of $86.67. Therefore
there was no other income to be included in the formula. /5/
California's position was that if the one-third reduction was treated as
income, it should be treated as all other non-exempt income, that is, be
included in the formula to reduce the amount of the total grant and
therefore the SSP. /6/ See, Restatement, Second, Contracts Sec. 350;
Avoidability as a limitation on damages (1) ... damages are not
recoverable for loss that the injured party could have avoided without
undue risk, burden or humiliation.... Comment b. Effect of failure to
make efforts to mitigate damages. As a general rule, a party cannot
recover damages for loss that he could have avoided by reasonable
efforts.... /7/ An arrangement was finally made to incorporate
the two overlap classes as separate categories, while retaining the
overall limitation of five living arrangements. (Schedule V, State's
Hearing Exhibit No. 1) This was effective February 1, 1982, the end of
the period of the dispute. The State contended it never anticipated
such a possible arrangement, and in any event it was the obligation of
SSA to work it out sooner.

JULY 07, 1984