New York State Department of Social Services, DAB No. 552 (1984)

GAB Decision 552
Docket No. 84-1

July 16, 1984

New York State Department of Social Services;
Ford, Cecilia; Settle, Norval Garrett, Donald


The New York State Department of Social Services (State) appealed a
determination by the Acting Commissioner of the Social Security
Administration (SSA) upholding a disallowance in the amount of
$1,346,489 in federal financial participation (FFP), which the State
claimed on its Quarterly Statement of Expenditures for the quarter
ending March 31, 1976. /1/ The State claimed New York City Bureau of
Child Welfare staff personnel costs of providing services to children in
the Aid to Families with Dependent Children-Foster Care program
(AFDC-FC) during the period October to December 1975. The Agency
disallowed the claim under Title IV-A because it determined that the
claim was for the costs of social services subject to the funding
exclusion in section 403(a)(3) of the Social Security Act (the Act).


The parties agreed that the issues in this appeal were virtually the
same as those decided by the Board in New York Department of Social
Services, Decision No. 449, July 29, 1983, which upheld a disallowance
under Title IV-A for costs of foster care placement, development of
plans of care, and provision of other services to (2) the children and
their families in connection with foster care. /2/ Both parties to this
appeal agreed to rely on the briefing they had submitted in the earlier
appeal resolved by Decision No. 449 with regard to the legal issues of
statutory interpretation and estoppel. The parties also agreed to
supplement the record here with the specific facts of this disallowance.


The issues raised by this appeal are whether section 403(a)(3) of the
Act precludes reimbursement under Title IV-A for the costs of the foster
care services in question, whether the interpretation of section
403(a)(3) set out in action transmittal SSA-AT-81-18, issued June 24,
1981, applies to preclude reimbursement of these activities, and whether
SSA should be estopped from taking this disallowance.

In upholding the disallowance, this decision incorporates the
analysis and legal conclusions set out in Decision Nos. 337 and 449. We
conclude that section 403(a)(3) precludes payment under Title IV-A for
the costs claimed here of social services provided by New York City
social service workers to AFDC-FC children during the period October to
December 1975. We also conclude that SSA-AT-81-18 is a correct
interpretation of section 403(a)(3) and that SSA must apply that
interpretation to the claimed costs. Finally we conclude that SSA is
not estopped from taking this disallowance.

General Background

Prior to October 1975, social services performed for AFDC-FC children
were claimed by states under Title IV-A. Effective (3) October 1, 1975,
Pub. L. 93-647 established a new Title XX for financing social services
for low-income children and families. Title IV-A retained as its
primary purpose the provision of maintenance payments for families with
dependent children. Pub. L. 93-647 included a provision amending
section 403(a)(3) (the authority for paying states for administrative
expenditures under IV-A) to prohibit FFP under Title IV-A for
expenditures made in connection with any of the Title XX services
described in the statutory provision defining the scope of Title XX,
section 2002(a)(1) of the Act. Pub. L. 93-647 also imposed a cap on the
amount of funding available to each state under Title XX.

On June 24, 1981 SSA issued Action Transmittal SSA-AT-81-18 for the
purpose of "(clarifying) that . . . FFP is not available for social
services administrative costs in support of . . . AFDC-FC under Title
IV-A." The action transmittal explained that FFP under Title IV-A for
AFDC-FC is limited to foster care maintenance payments and related
activities and that section 403(a)(3) prohibits FFP under Title IV-A for
social services required by section 408(f). The action transmittal
stated, at p. 2:

. . . A worker may perform a variety of functions, some of which are
allowed under Title IV-A and others which are not but may be under Title
XX or Title IV-B. In these situations the cost attributed to the
respective functions should be divided in accordance with acceptable
cost allocation principles and practices.

The action transmittal also directed the states to review their cost
allocation plans to ensure that the costs of social services were not
allocated to Title IV-A; the action transmittal indicated that any cost
allocation plan which allowed costs for these services under Title IV-A
had been approved in error.

The State's claim represents costs of New York City social service
workers who performed services for ADC-FC children during the period
October to December 1975. The record does not establish the precise
nature of the services; the State refers to them generally as "foster
care services." The Regional Office deferred the claim in June 1976 and
asked the State to document that the social service workers were
performing income maintenance functions rather than social services.
The State did not do so and the Acting Regional Commissioner disallowed
the claim. SSA stated, however, in its November 1983 decision upholding
the disallowance, that it would permit the State to revise its claim for
any portion of the costs which the State could document as relating to
eligibility determination and administration of (4) AFDC-FC payments.
The State has never documented the nature of the activities nor denied
that the activities include social services. /3/


The Effect of Section 403(a)(3) on Reimbursement for These Costs

Here, the State argued that "foster care activities" could be charged
either to Title IV-A or Title XX. The Board previously analyzed, in its
Joint Consideration, Decision No. 337, and in New York Department of
Social Services, Decision No. 449, the meaning of section 403(a)(3). We
concluded that section 403(a)(3) precluded payment under Title IV-A of
costs that were both within the definition of an AFDC administrative
expense and expended in connection with the provision of a social
service described in section 2002(a)(1) of the Act, regardless of
whether the services were provided to foster care children. This
conclusion followed directly from the language and design of section
403(a)(3). The State here raises no new arguments as to why our
analysis would not apply to all of the costs covered in this appeal.
Accordingly, we incorporate that analysis here and conclude once again
that payment under Title IV-A is barred by statute. See in particular
pp. 5-18, Decision No. 337, and pp. 6-15, Decision No. 449.

(5) In the appeal resolved by Decision No. 449, the State also argued
that SSA-AT-81-18 should not be retroactively applied to the claim and
that SSA should allow the claim under Title IV-A. SSA-AT-81-18 limited
payment of FFP for social services administrative costs for the AFDC
program to Title XX funds. The Board concluded that the statute, in
section 403(a)(3), precluded payment under Title IV-A for these services
and that the interpretation set out in SSA-AT-81-18 was correct. The
Board concluded that SSA must apply the statute to all claims for time
periods when the statute was in effect, regardless of when the action
transmittal was issued. Here, the statute was in effect for the time
period in question (October to December 1975) and, therefore, SSA must
apply the statute.

The Application of the Doctrine of Equitable Estoppel

The State argued that SSA was estopped from taking the disallowance
because federal employees told the State that it could claim foster care
services under Title IV-A, and because the State relied on that
information in claiming the costs.

The State submitted an affidavit from a State employee who asserted
that in July 1975 a senior SRS fiscal officer told him that the direct
costs of activities performed by local caseworkers on behalf of eligible
AFDC-FC children could be claimed under either Title IV-A or Title XX.
See Affidavit of Donald Fader, State Appeal File, Appendix. The State
employee asserted that he verified this information with another senior
Regional fiscal officer and that, on the basis of this information, the
State submitted the claim disallowed and appealed here. /4/


Both parties agree that in July 1975 a Regional Office fiscal officer
met with State employees concerning the preparation and processing of
State requests for payment of social service costs. Both parties also
agree that the costs of foster care services were discussed at that
meeting. However, SSA maintained that no federal employee ever assured
the State that it could claim all (6) caseworker costs as Title IV-A
income maintenance costs and that the July 1975 discussions referred
primarily to claiming institutional foster care costs. The State has
not denied that the discussions centered primarily on institutional
foster care. /5/ Moreover, SSA submitted an affidavit from the federal
employee with whom the State spoke in order to verify the information
allegedly provided to the State in July 1975. In that affidavit the
federal employee asserted that no specific proposal or method for
claiming costs of foster care services (other than in an institutional
setting) was discussed or approved. Affidavit of Salvatore Milano, SSA
Appeal File. SSA also pointed out that the State court not have
reasonably believed that its claims would be paid without the State
having to document their validity.


The doctrine of equitable estoppel precludes a party from
establishing an essential element of its claim because of that party's
misrepresentations, on which the opposing party relied to its detriment.
In Decision No. 449 the Board set out principles governing the
application of the doctrine of equitable estoppel to actions of the
federal government. pp. 23-24. /6/ We concluded (7) that because
section 403(a)(3) prevented the State from claiming under Title IV-A the
administrative costs of services provided for foster care children, SSA
could not be estopped from implementing the statute. That analysis
applies to this appeal and we conclude once again that SSA may not be
estopped from applying section 403(a)(3) to this claim.


Even if SSA could be estopped, however, the State would have to show
that the elements necessary to estop the federal government were present
here. In a recent decision by the United States Supreme Court
concerning whether the federal government could be estopped from
recovering funds for services provided to Medicare beneficiaries, the
Supreme Court concluded that although the provider of Medicare services
received double reimbursement due to the mistake of the federal
government, the provider was not entitled to retain money that it should
never have received in the first place. The Court found that the
provider did not lose a right as a consequence of the federal
government's actions but "merely was induced to do something which could
be corrected at a later time." Heckler v. Community Health Services of
Crawford County, U.S. , 104 S.Ct. 2218, 2225 (1984). We concluded above
that the State is not statutorily entitled to claim these services under
Title IV-A. This is not a case where the actions of a federal employee
misled the State into losing a right to which it was otherwise entitled.
Rather, it is a case similar to that discussed in Heckler v. Community
Health Services, where, if the State's assertions about what federal
employees told the State were true, the State was merely induced to
claim costs in a manner the statute specifically prohibits.

Moreover, the State has not proved that there was a misrepresentation
by the federal employees on which the State relied. In Decision No.
449, we concluded that the internal documents upon which the Regional
Commissioner based his recommendation that the disallowance be withdrawn
were not a basis for estopping SSA from taking this disallowance. In
this appeal, the State merely alleges that oral statements were made
about claiming certain costs under Title IV-A. SSA has denied that
federal employees ever made such broad statements and instead claimed
that any statements made referred only to a very limited situation. The
State has not known that SSA set out the position asserted by the State
in writing. The State has not established that the federal employees
have to the State information which was wrong and about which they knew
the truth, or that the State reasonably relied to its detriment on
anything said by federal employees. See Decision No. 449, p. 23, fn.
10; Heckler v. Community Health Services, at 4623. Thus, even if SSA
could be estopped, the State has not established the basic elements of
equitable estoppel.

(8) In a separate but related argument, the State also pointed to
some written statements which it alleged were evidence of a federal
policy to allow payment of faster care services under Title IV-A. One
statement, made by the Acting Regional Commissioner in the disallowance
letter of November 2, 1976, advised the State that "the potential exists
for claiming the costs of income maintenance activities performed by
social services staff . . . for periods subsequent to" approval of a
revised cost allocation plan which allocates costs between income
maintenance and social services activities. p. 2. The other statement
was made by the Regional Commissioner in a June 1977 memorandum to the
Central Office recommending that this disallowance be withdrawn. There
the Regional Commissioner referred to a "policy statement from our
Central Office" permitting payment under Title IV-A for any activities
required to be performed for AFDC-FC.

We do not agree that these two statements are evidence of a federal
policy to permit payment of all foster care services under Title IV-A.
The Acting Regional Commissioner's statement suggested distributing the
costs of services performed by social service workers between Titles
IV-A and XX, not shifting the entire cost of the services to Title IV-A.
This suggestion is consistent with the position set out in SSA-AT-81-18
that a state may set out in its cost allocation plan a distribution
method for allocating costs between social services and income
maintenance. /7/ It is also consistent with SSA's position that (9) the
State could have claimed under Title IV-A costs that the State could
document were related to eligibility determinations and administrative
functions for AFDC-FC payments.


In Decision No. 449 we concluded that the "policy statement" referred
to in the Regional Commissioner's recommendation that the disallowance
be withdrawn was not intended by SSA to be a statement of official
policy, and that the documents referred to as a "policy statement" were
merely internal documents memorializing telephone conversations between
federal employees. We found that the documents did not directly address
the effect of section 403(a)(3) and that the conversations memorialized
did not clearly concern the question of whether foster care services
could be claimed under Title IV-A in all cases.

Conclusion

We conclude, as we did in Decision Nos. 337 and 449, that the only
reasonable and legally supportable interpretation of section 403(a)(3)
is that the State may not claim under Title IV-A administrative costs of
social services to foster care children that are not related to income
maintenance functions. The State has not shown that any of the services
for which it claimed costs were related to eligibility determinations or
administrative functions for payments under AFDC-FC. We also conclude
that SSA must implement this statutory provision for all periods in
which section 403(a)(3) was in effect including the quarter involved
here. Finally, we conclude that SSA cannot be estopped from
implementing the statute, and that even if it could, the State has not
established the elements of estoppel. Therefore, we uphold the
disallowance in the amount of $1,346,489. /1/ The Acting Regional
Commissioner of the Social and Rehabilitation Services (SRS)
disallowed the claim on November 2, 1976, after deferring the claim in
June 1976. The State requested reconsideration of the disallowance in
April 1977. The Acting Commissioner of SSA upheld the disallowance on
November 28, 1983 and the State appealed that determination to this
Board under 45 CFR Part 16. /2/ SSA, in disallowing the State's
claim, referred only to Board Joint Consideration: Reimbursement of
Foster Care Services, Decision No. 337, June 30, 1982. In that
decision, the Board concluded that section 403(a)(3) of the Act
precluded payment under Title IV-A for foster care placement and plan of
care activities provided by State or local social workers administering
AFDC-FC programs in the states of Oregon, Michigan and Virginia. SSA
alleged that the facts, issues, and positions of the parties to the
appeals resolved by Decision No. 337 were essentially the same as those
involved in this disallowance. Notice of Disallowance, November 28,
1983, p. 3. Decision No. 337 was affirmed by the United States District
Court for the District of Oregon on January 31, 1984. Civil No. 83-1466
FR. In Decision No. 449, which also involved the State of New York, we
reached the same conclusion as in Decision No. 337 with respect to the
meaning of section 403(a)(3). /3/ The State, in its Reply Brief,
asserted that the "foster care services" provided by the social
service workers were "in the nature of administrative tasks to determine
AFDC-FC status and to provide AFDC-FC maintenance for these children."
Reply Brief, June 28, 1983, p. 3. Although this statement purported to
be a factual assertion, the State did not and has never supported it
with documentation. The Reply Brief referred to an affidavit submitted
by the State with its Appeal File and to a letter written by a State
Commissioner as support for the statement. The affidavit was made by a
State Deputy Counsel who alleged that in 1975 he provided legal advice
to the State upon which the State relied in making this claim. In his
affidavit he asserted, ". . . it seemed clear to me that these
activities could be claimed in either category at the option of the
State. . . ." Affidavit of David Kellogg, p. 2, para. 4. He provided no
factual basis for this assertion and implied that his conclusion was
based on his own legal analysis of the statute. The letter from a State
Commissioner asserted that many of the activities related to income
eligibility determination but offered no support for that assertion.
The Commissioner also referred to an agreement between the Regional
Office and the State that services provided to AFDC-FC recipients could
be claimed under Title IV-A. See fn. 5 below for further explication of
that agreement. /4/ The State also submitted an affidavit from a
State Deputy Counsel who alleged that in 1975 he provided legal advice
to the State upon which the State relied in making its claim. See
Affidavit of David Kellogg, State Appeal File, Appendix. The affidavit
stated that his advice was based on his legal analysis and on
"assurances" given by Regional Office personnel. The affidavit does not
offer details about what the assurances were or who gave them, and the
affidavit does not set out any facts material to the issues presented
here. The affidavit substantiates only that the State acted after
receiving legal advice from its own counsel about possible
interpretations concerning the statutory authority for paying these
costs. /5/ In the disallowance letter of November 2, 1976, the
Acting Regional Commissioner mentioned an agreement between SRS and the
State to the effect that certain foster care costs for social services
in an institution could be claimed either under Title IV-A or Title XX.
The Acting Regional Commissioner also stated, however, that the
agreement "related solely to payments and social services rendered in an
institution." p. 2. Furthermore, in Mr. Kellogg's affidavit, he admits
that his legal analysis concerning claiming foster care activities arose
out of the disallowance in September 1975 of claims for institutional
foster care services. Affidavit, p. 2, para. 4. /6/ Federal
courts have never unanimously agreed that the doctrine of equitable
estoppel may be invoked against the federal government. State of New
Jersey v. DHHS, 670 F.2d 1284 (3d Cir. 1982). The Supreme Court has
stated that "it is well-settled that the Government may not be estopped
on the same terms as any other litigant." Heckler v. Community Health
Services of Crawford County, U.S. , 104 S.Ct. 2218, 2224 (1984). Some
of the lower courts have held that at the very least affirmative
misconduct is necessary to invoke estoppel against the government.
United States v. Harvey, 661 F.2d 767, 773 (9th Cir. 1981); New Jersey
v. DHHS, supra, at 1298. These courts have described affirmative
misconduct as intentional misrepresentation or wrongful concealment of a
material fact, and have indicated that negligence will not suffice. New
Jersey v. DHHS, at 1297. See also INS v. Miranda, 103 S.Ct. 281, 283
(1982). /7/ In the State's Reply Brief, it argued for the first time
that the cost allocation plan in effect during 1975 permitted foster
care services to be claimed under Title IV-A. The State submitted a
letter written in 1977 by a State official to the Health Care Financing
Administration explaining that the State's cost allocation plan
permitted charging the costs of all an individual's time to a function
if that individual spends more than 85% of his time on that function.
This argument does not directly relate to or support the State's
position on estoppel. Moreover, even if such an allocation method were
found to apply to the costs in question here (and we do not reach that
conclusion), the State would still have to document that at least 85% of
the services performed by the social service workers were related to
eligibility determinations and administrative functions related to
payments under AFDC-FC. As discussed above, the State has not
documented the nature of the services claimed here. Moreover, in
Decision No. 449 we concluded that approval of a cost allocation plan is
not a guarantee of allowability of particular costs and cannot override
the provisions of a controlling statute, in this case, section
403(a)(3).

NOVEMBER 14, 1984