DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Michigan Department of DATE: January 31, 1989 Social
Services Docket No. 88-89 Decision No. 1013
DECISION
Introduction
The Michigan Department of Social Services (State or Michigan) appealed
a determination by the Administration for Children, Youth and Families
(Agency or ACYF) disallowing $4,108,381 in federal financial
participation under the Adoption Assistance Program authorized by
Section 473 of the Social Security Act (Act). The Agency disallowed the
State's entire claim for fiscal year 1985 on the basis that the State
allegedly failed to apply eligibility criteria required by the Act.
Section 473 authorizes adoption assistance only for a child who meets
certain standards not in issue here and who the state determines to be a
child with "special needs." A "special needs" child is one
who cannot
or should not be returned to the home, and for whom the state "had first
determined" that there is a "specific factor or condition" inhibiting
adoption without assistance. Section 473(c)(2)(A).
The Agency took the position that the State failed to make any finding
of a "specific factor or condition" under section 473(c)(2)(A). The
Agency argued that the State had failed to comply with the Act and
regulations because it did not identify or define by written policies
the specific factors or conditions necessary for a child to be
determined a special needs child. An overlapping aspect of the Agency's
argument was that failure to have such written policies, combined with
other evidence, showed that Michigan, in fact, could not adequately have
made the required determinations. Therefore, the Agency determined that
every child represented in the State's Title IV-E adoption assistance
claim for fiscal year 1985 was ineligible, and disallowed the State's
entire claim. Agency's Brief, p. 2.
Summary of our decision
As discussed below, we find that the Agency's disallowance of the entire
claim was unreasonable. To begin with, the Act simply does not
specifically require threshold written policies and ACYF did not give
the State notice of this interpretation directly or by any rule or
program guideline. In the absence of any such restrictions, the State
was left with considerable discretion concerning how to determine
whether the factors in section 473(c)(2)(A) or others like them existed.
Indeed, nothing prohibited the State from -- as it apparently did --
incorporating the 473(c)(2)(A) determination "process" into a functional
review conducted on the State's own terms -- as long as the
determinations were, in fact, substantively made. The record indicates
that Michigan's functional approach was not as open to scrutiny as would
appear desirable, that it may not have been as orderly as the Agency
might reasonably want, and that the lack of criteria frustrated Agency
after-the-fact review. But the Agency has not justified the global
disallowance involved here. The statutory criteria are relatively
specific themselves, and were specifically adopted by Michigan in the
State Plan required for Title IV-E. The Act also allowed the State to
use other factors "such as" the listed criteria. There is no
substantial evidence that the determination process under section
473(c)(2)(A) was crippled by the lack of the written policies ACYF
alleged were required (as such policies were, by contrast, in the
separate Title IV-E Foster Care program). There is evidence that State
analysts in fact used the section 473(c)(2)(A) criteria; furthermore,
the record shows that ACYF's own reviewers found evidence of the
specific factors or conditions in the large majority of the cases they
actually reviewed.
Therefore, we reverse the disallowance. However, we do so without
prejudice to ACYF's discretion to continue its interrupted review
process in accordance with its own guidelines, and we emphasize the
responsibility of a state to provide information necessary to support
its claim.
Applicable authorities
The adoption assistance program is one of three basic programs under
Title IV-E of the Act (the others are the Foster Care program and a
program related to independent living initiatives). Section 473(a)
includes among the eligibility requirements for adoption assistance that
a child have "special needs," as determined by a state under section
473(c). The latter section states:
For purposes of [section 473], a child shall not be considered a
child with special needs unless --
(1) the State has determined that the child cannot or should not
be returned to the home of his parents; and
(2) the State had first determined (A) that there exists with
respect to the child a specific factor or condition (such as his
ethnic background, age, or membership in a minority or sibling
group, or the presence of factors such as medical conditions or
physical, mental, or emotional handicaps) because of which it is
reasonable to conclude that such child cannot be placed with
adoptive parents without providing adoption assistance under this
section or medical assistance under title XIX, and (B) that, except
where it would be against the best interests of the child because
of such factors as the existence of significant emotional ties with
prospective adoptive parents while in the care of such parents as a
foster child, a reasonable, but unsuccessful, effort has been made
to place the child with appropriate adoptive parents without
providing adoption assistance under this section or medical
assistance under title XIX. (emphasis added)
During fiscal year 1985, section 473 was governed by regulations which
had been published in 1983, and were codified at 45 C.F.R. Parts 1355
and 1356 (the 1984 C.F.R. compilation is relevant here). Provisions
specific to section 473 were set forth in section 1356.40. Nothing
dispositive of the issue here is found in the regulations.
Background
The law does not provide adoption subsidies for all hard-to-place
children, only those who meet the requirements of section 473. There
are several requirements, but the only one in issue here is the
requirement for a special factor under section 473(c)(2)(A). Agency's
Brief, p. 2.
Since well before the inception of the federal adoption assistance
program in 1980, Michigan has had its own adoption subsidy program for
hard-to-place children. State's Brief, p. 5. The State-only program
apparently is not as explicitly restrictive as the federal program.
Agency's Brief, p. 4. There was some suspicion that Michigan actually
was relying on the lesser standards of this State-only program.
Michigan had an ACYF-approved Title IV-E State Plan required by Section
471 of the Act for foster care and adoption assistance. In fact,
Michigan adopted the pre-printed plan language developed by ACYF as a
model. It appears that the relevant plan provisions were unchanged from
1981 through the period in issue here. Agency's Brief, p. 5; State's
Brief, pp. 16-17. In part, the plan states:
473(a)(1) 1. Adoption assistance payments are made only with
respect to a child with special needs, that is, a child who the
State has determined
473(c)(1) a. cannot and should not be returned to the home of
his/her parent(s) or the home from which he/she was removed, and
473(c)(2) b. cannot be placed with an adoptive parent(s) without
providing adoption assistance because of the existence with respect
to the child of a specific factor or condition (such as ethnic
background, age, membership in a minority or sibling group, medical
condition, physical, mental, or emotional handicap) or the
existence of significant emotional ties with prospective adoptive
parents while in their care as a foster child.
State's Appeal File, Exhibit (Ex.) E, p. 3-1; State's Brief, pp. 16-17.
Michigan's adoption assistance program was centrally administered in
Lansing by Michigan's Office of Children and Youth Services.
Eligibility determinations for adoption assistance were made in this
office by adoption specialists. State's Brief, p. 6; State's Appeal
File, Ex. H, Item 737, p. 1; Ex. W and X. The State said that an
adoption subsidy specialist applied the eligibility requirements of
section 473 of the Act, 45 C.F.R. 1355 and 1356.40, Michigan's approved
Title IV-E State Plan and a detailed Services Manual (Ex. H contains the
mid-1985 version) to the facts contained in each case file in order to
make the adoption assistance eligibility determinations. State's Brief,
p. 6. The Agency questioned this.
In the review of Michigan's program which led to this disallowance, ACYF
originally undertook a sample-based review of specific cases pursuant to
Agency policy to conduct such reviews in two stages. See Adoption
Assistance Financial Review Guide, State's Ex. J. ACYF cut the review
short when it decided that it was unnecessary because of Michigan's lack
of written procedures. Agency's Brief, pp. 6-7. Michigan complained
that this action was improper, but in view of our decision here, this
issue is moot; furthermore, as explained below, ACYF may now continue
the review.
Analysis
1. Whether Michigan was required to develop separate criteria.
The Agency's position on interpreting the Act was straightforward: it
argued that the only way the State could make the determination that a
child was a child with "special needs" and thus eligible for adoption
assistance was if the State had written policies or procedures for
defining what specific factors or conditions showed a child had special
needs. See, e.g., Agency's Brief, p. 10.
The Agency's argument is not supported by the record. The plain
language of section 473(c)(2)(A) of the Act requires only that the State
make a determination of the existence of a specific factor or condition
such as those specifically cited in the statute. While this clearly
means that the State must make a determination of special needs
eligibility (and implies that the determination must be accurate), under
the bare words of the statute and the State plan, this could be
accomplished by an experienced employee reviewing the information in a
case file and reasonably concluding that a specific factor such as one
of the factors enumerated in the statute existed. ACYF has a right to a
showing that the State did what the statute requires, but nothing in the
statute or the Federally-approved State plan requires that the State
first issue further written policies that elaborate or further define
those specific conditions cited in the statute in order to give this
particular provision of the statute effect. Indeed, the Agency
acknowledges that its rulemaking for this program contained a preamble
statement that the contents of the law "clearly reflect Congressional
intent and make further clarification or regulation unnecessary." 47
Fed. Reg. 30934 (July 15, 1982) (see Agency's Brief, p. 11).
ACYF has not shown anything in the statute or the practical exigencies
of program administration which compels the view that "States cannot
implement the statute if they do not develop their own criteria"
(Agency's Brief, p. 10), such that a program-wide retroactive
disallowance is appropriate. We should not (and do not here) thwart the
Agency's exercise of its program expertise in determining how section
473(c)(2)(A) should be implemented; the Agency is free to establish
rules requiring criteria and even stating what those criteria should be.
However, there are no such rules applicable here. The Agency has made a
good case that the determination process was not as orderly as
desirable; for example, there may have been confusion about what age
inhibits adoption. Agency's Brief, pp. 16-18; n. 2 supra. On the other
hand, the State had implementation discretion under the Act and, in the
absence of Agency rules governing such matters, might reasonably have
relied on knowledgeable analysts' judgment concerning, for example,
different ages as adoption-inhibiting in different contexts (we take no
position on this specific example here). The point is that in the
absence of any Agency rules or guidelines defining restrictions on the
State's exercise of its discretion in implementing section 473(c)(2)(A),
the focus must be on the reasonableness of particular determinations (or
classes of similar determinations); the circumstances simply do not
justify a retroactive disallowance for the entire program.
The Agency has not pointed to any other authority, including any
regulation or Agency policy transmittal, requiring the State to
promulgate such written policies. As noted, there is material in the
history of the Agency's rules which indicates just the opposite. The
Agency went so far as to cite a proposed 1988 regulation (containing the
statement that special needs are "defined by the state") on the basis
that the preamble indicates that the rule would not impose new
requirements. Agency's Brief, pp. 12-13. This provision merely
emphasizes the states' responsibility and discretion to make the
statutorily required determination; it does not impose a specific
obligation to separately develop criteria. The same problem attaches to
the Agency's citation to a "Checklist Guide" attached to an Agency
"Review Guide," which stated that "specific factors or conditions
are
defined by the State." Agency Brief, p. 29; State's Appeal File, Ex. J,
"Checklist Guide," p. 4. Aside from the fact that the cited attachment
is specifically marked "DRAFT," it most reasonably describes merely
the
State's responsibility under section 473 to make the determinations
required there, not to promulgate criteria; to the extent it can be read
as the latter, it hardly constitutes clear notice to the State of the
supposed requirement. Moreover, the main text of the guide, in
referring to the cited attachment, states only that the reviewers should
use the checklist to indicate whether the case folders contain adequate
documentation concerning a child's eligibility. Ex. J, p. 13.
It is also interesting to note the difference between the requirements
for the adoption assistance program and the foster care program (another
Title IV-E assistance program). While ACYF did not require states to
develop specific written policies in the adoption assistance program
regulations, for the foster care program ACYF specifically required the
states to promulgate written policy materials and instructions for use
in determining aspects of eligibility for placement in foster care. See
45 C.F.R. 1356.21(d); compare with 40 C.F.R. 1356.40.
For all of the foregoing reasons, we conclude that ACYF was unreasonable
in disallowing the entire claim based on what was, in effect, a
retroactively imposed requirement for written procedures of which the
State was not given notice either by the words of the statute itself or
by any Agency rule, guideline or action interpreting the statute.
2. The nature of Michigan's obligation to show it made the required
determinations.
By the clear words of the statute, the State was obligated to "first"
make the required determinations that the specific factors or conditions
specifically cited in the statute existed in a particular case.
Michigan has a responsibility to show that it did so. Michigan also has
a concomitant obligation to show that the determinations which it made
were, in fact, correct and supported by the record. We do not read
Michigan's submission to argue with these propositions. Rather, the
dispute at this juncture concerns essentially the kind of evidence
required and whether Michigan made the required showing. Agency's
Brief, pp. 14-23.
As we discuss below, the record here contains evidence that, on balance,
and in the context of our conclusions above, we find persuasive of the
state's general practice of making the determinations in advance. The
record is insufficiently developed concerning case-by-case validity,
which may require further action as discussed below.
We deal first with the State's threshold determination responsibility.
The Agency argued that while State representatives advised the review
team that each case record had a special factor or condition of the type
cited in the statute, there was no one document in the case file
indicating which specific factor or condition the reviewer found was
present to determine eligibility. The Agency essentially contended that
since a grantee has a burden to document its claim (see 45 C.F.R.
74.61), the State's lack of a specific notation in the case file
indicating which factor or condition the adoption subsidy specialist
determined was present was a failure to document its claim.
We conclude that the Agency is incorrect, basically for two reasons.
The first relates to the Agency's reliance on 45 C.F.R. 74.61, which
contains general financial management standards for grantees' financial
management systems. This provision is concerned with accurate financial
reporting and accounting to support claims. The specific record-keeping
requirements described in the provision relate to data on "awards,
authorizations, obligations, unobligated balances, assets, outlays,
income, and . . . liabilities" (74.61(b)) and source documentation such
as "cancelled checks, paid bills . . . etc." (74.61(g)). Thus, while
the purpose of 45 C.F.R. 74.61 surely is to set standards for proof that
federal funds were properly spent both in an accounting and programmatic
sense, its provisions are specific only in accounting terms, and its
terms otherwise are too general to reach the issue of what specific
records are required to document compliance with a programmatic (as
opposed to accounting) requirement. Second, we have been shown nothing
in the Act, the Agency's regulations, or any guidelines requiring such a
specific document or notation. Thus, in the absence of an explicit
program direction requiring it, the lack of such a specific notation per
se cannot reasonably be construed as a failure to document.
Of course, the State clearly has an obligation to show objectively that
it met the requirements of the Act. But in the absence of explicit
restrictions, the State has considerable freedom in the way it makes its
case. We find from the record here that the State generally did make
the required special needs determinations (and since we are dealing at a
level of generality, with an overall program disallowance, this finding
is sufficient for our determination in this case, although in particular
cases the evidence might not be sufficient).
The State essentially argued that it had conducted the eligibility
reviews which included 473(c)(2)(A) findings without distinct and
separate labeling or recording as part of a functional approach; i.e.,
valid special needs determinations were made in accordance with the Act
as an integral part of an overall adoption assistance program. See,
e.g., State's Ex. F. The State also alleged that it had informed the
Agency as early as 1982 and subsequently of just how its program worked,
with no objections. State's Brief, pp. 6-8, 26-27 (in fact, the State
makes an argument for estoppel based on these circumstances which, in
view of our decision on other bases, we do not reach). Id., pp. 26-28.
As a result of the program review which led to this disallowance, it
appears that the Agency -- not entirely unreasonably -- became
suspicious of a process which arguably appeared to play fast and loose
with Federal requirements, particularly where there was a State-only
program with lesser standards. Agency's Brief, pp. 17-18. However, the
Agency has not impeached the State's case.
Two affiants for the State (both State adoption specialists during the
period of the disallowance) stated specifically that in certifying the
eligibility of special needs children under Title IV-E, they had made
determinations of existence of specific factors or conditions under
section 473(c) based on a review of case file evidence. State's Appeal
File, Ex. W, X. Two other affiants stated the same with regard to
periods prior to the period of the disallowance. Exs. Y, Z. Bolstering
these sworn statements is evidence that the Federal reviewers, during
the initial review which was cut short for this overall disallowance,
found specific evidence of the required 473(c)(2)(A) conditions in 43 of
the 50 sample cases reviewed. State's Brief, pp. 11-12, and exhibits
cited. The Agency's attempt to dismiss the latter evidence is
unpersuasive. The Agency disavowed the findings as "merely internal
working documents" which did "not independently bind OHDS" (Agency's
Brief, p. 22); this may or may not be true, but in any event is beside
the point and a lame response to the evidence. The Agency also argued
that the reviewers' findings were essentially only that the required
factors were shown from case files, not that the State had specifically
made such findings itself (id.); assuming for argument that this is
true, the evidence still would have substantial validity as a clear
inference that the determinations had in fact been made. Finally, the
Agency argued that some of the factors the federal reviewers' found were
different from those a State affiant later found (id., and see n. 3);
the answer appears to be that there were plenty of factors to go around
(less facetiously, the Act not only lists a variety of factors, but
allows a state to select others "such as" the ones listed).
3. The parties' responsibilities concerning further review.
While there is evidence that the State generally made the required
determinations, the record here is not sufficiently developed for us to
determine conclusively whether specific factors were adequately
identified or evidenced in the sample cases. In any event, it would be
inappropriate for us to do so. The Agency cut short its normal review
process, and we do not know what further steps, if any, would have been
taken. We see nothing here which precludes the Agency from continuing
its review of sampled cases to the extent appropriate under its own
guidelines in the Adoption Assistance Financial Review Guide (State's
Ex. J). Although the State challenged ACYF's action in stopping the
prescribed review process, it obviously is practical and cost-effective
for ACYF to do so where it determines that all cases are ineligible as a
matter of law. Having decided that ACYF's determination was wrong, we
nonetheless know of nothing which should preclude ACYF from now picking
up where it left off.
Moveover, we agree with the Agency that it is not the Agency's
reviewers' responsibility to develop evidence in support of the
eligibility of individuals or to hazard guesses about which specific
factors underlie special needs determinations; within the constraints of
the Agency's own sampling and review process it is still up to the State
to document its claim. While we have concluded that there was no
requirement for written procedures, or to record the required findings
in any particular manner, this is not to say that a state can simply
hand over a case file to a Federal reviewer with the observation that
the file contains evidence somewhere which supports state analysts'
determinations. The Agency may require a state to identify in each
sampled case what factor or factors state analysts used in deciding
eligibility. Here, Michigan's analysts' affidavits all indicate
conclusorily that they, in fact, made the required determinations. This
was sufficient for our general analysis above, but is insufficient
evidence (by itself) in relation to individual cases; it is simply not
enough for an analyst to say, in effect, "trust me." If the analysts
did what they say they did, the nature of bureaucratic endeavor normally
would guarantee a specific notation in individual case files. If such a
notation is not immediately at hand, so that the determination can only
be shown directly or by reasonable inference from other evidence, the
burden is on Michigan, not the Federal reviewers, to provide the
evidence that determinations were made correctly. The Federal
reviewer's responsibility is to review the State's evidence, not to
affirmatively develop a record of evidence on behalf of the State.
Thus, the State bears a burden of proof; but ACYF has a responsibility
to consider the State's evidence. If the State's evidence is less
developed than it might have been, ACYF's rules and guidelines lacked
specificity on the kind of evidence required. The record, as it has
been developed and displayed here, contains evidence supporting the
State's determinations which ACYF must consider in finalizing its
review; furthermore, there may be issues of the reasonableness of
particular factors concerning which the State should be given an
opportunity to present further evidence.
Conclusion
For the reasons indicated above, we reverse the disallowance of
$4,108,381, without prejudice to ACYF's right, if it chooses to do so,
to continue its review in accordance with its Adoption Assistance
Financial Review Guide, making such further determinations as may be
appropriate under this decision and the Guide.
________________________________ Donald F. Garrett
________________________________ Alexander G. Teitz
________________________________ Norval D. (John) Settle
Presiding Board