DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: Fort Belknap Community DATE: May 2, 1989 Council Docket
No. 88-104 Decision No. 1045
DECISION
The Fort Belknap Community Council (Grantee) appealed a determination by
the Office of Human Development Services (Agency) disallowing $35,698 of
Grantee's Head Start program grant for the program year ending September
30, 1986. The disallowance was based on an audit finding that only 78%
of the Grantee's enrollees were from low-income families. The Agency,
accordingly, found that the Grantee had not complied with 45 C.F.R.
1305.4 (1985), which requires that at least 90% of each Head Start
program's enrollees be from low-income families. The disallowance was
reduced to $20,824 on the basis of additional documentation submitted by
the Grantee, from which the Agency concluded that 83% of the Grantee's
enrollees were from low-income families. As explained below, we sustain
the disallowance of $20,824.
Applicable Authority
The primary goal of the Head Start program is to foster social
competence in children of low-income families. The program seeks to
provide low-income children with a comprehensive interdisciplinary
development program which involves their families and their communities,
by focusing on intellectual, emotional, physical, and nutritional needs.
45 C.F.R. 1304.1-3.
Section 9840(a)(1) of 42 U.S.C. provides that the Secretary of the
Department of Health and Human Services (the Secretary) shall by
regulation prescribe eligibility criteria for the Head Start program,
and that such criteria may provide that programs may include the
participation of families which do not meet the low-income criteria "to
a reasonable extent." The Secretary, acting within the discretion
granted in section 9840(a)(1), has defined "a reasonable extent" as
10%
in 42 C.F.R. 1305.4.
The 90% low-income requirement of section 1305.4 applies to the
enrollees of each and every Head Start program which does not qualify
for exemption under 42 U.S.C. 9840((a)(2). This section exempts from
the 90% low-income requirement certain "communities" of 1,000 or less
individuals by allowing them to establish their own income eligibility
criteria. Specific levels of preschool service, medical resources,
community income eligibility and remoteness must be met before the
exemption applies.
Head Start grantees are generally required by 42 C.F.R. 1305.6(a) to
determine the financial eligibility of prospective enrollees before
allowing their participation. Income verifications, based on the
examination of Individual Income Tax Forms 1040, W-2 forms, pay stubs,
pay envelopes, written employer statements, or documentation of public
assistance, are required for determinations of eligibility.
The Grantee was formally notified of the 90% low-income requirement by
the Administration for Children, Youth and Families, in Transmittal
Notice 79-1, entitled "Guidance on Eligibility Requirements and
Limitations for Enrollment in Head Start" (Agency's Exhibit 4, p. 5,
item 1).
Section 45 C.F.R. 1305.6(b) provides that children remain eligible for
participation through the enrollment year of their eligibility
determination, and for the immediately succeeding enrollment year.
Section 45 C.F.R. 1305.5 (1985) sets forth a separate and distinct
requirement that at least 10% of the Head Start enrollment opportunities
in each state be available for handicapped children.
Background
The Grantee received funding for its Head Start program for grant year
1985-1986 to serve 118 children, and served 129 children.
Based on an audit performed by an independent certified public
accounting firm for the program year ending September 30, 1986, the
Agency concluded that the Grantee had served ineligible children under
its Head Start program in violation of 45 C.F.R. 1305.4. It concluded,
on the basis of income eligibility determinations made by the Grantee,
that only 100, or 78%, of the Grantee's enrollees were from low-income
families. The Grantee was notified of this finding by a letter, dated
November 3, 1987.
The Grantee acknowledged its failure to comply with section 1305.4 in
its letter to the Agency, dated March 16, 1988 (Agency's Exhibit 3).
Therein, the Grantee stated that it had noted its non-compliance with
the 90% low-income requirement during its review of enrollee files, and
expected a finding of non-compliance. The Agency notified the Grantee
of the disallowance of $35,698.
The Grantee filed an appeal with the Board. After reviewing additional
income documentation submitted by the Grantee, the Agency concluded that
107, or 83%, of the Grantee's enrollees were eligible, and reduced its
disallowance to $20,824. The Agency computed the disallowance amount by
multiplying the difference between 90% and 83% by the total federal
grant amount.
The Board requested further information from the Grantee regarding
enrollees whose eligibility was determined during the prior grant year
ending September 30, 1985. The information furnished did not change our
conclusions.
Analysis
The Grantee asserted several arguments on appeal. It maintained that it
is not bound by the 90% low-income requirement because: (A) the
requirement applied only to the 118 children funded by the grant in the
document entitled "Project Head Start 1985-1986 Program Information
Report"; (B) it is eligible to establish its own income eligibility
criteria, pursuant to 42 U.S.C. 9840(a)(2) (1981), and is, therefore,
exempt from the 90% low-income requirement; (C) it was encouraged by
the Head Start enrollment and attendance policies set forth in 44 Fed.
Reg. 214 (November 2, 1979) to overenroll, but was given little further
guidance; (D) supplemental resources of $61,379 allowed it to serve
additional children at no greater cost without violating the Head Start
income eligibility requirements; and (E) the income documentation on
which the disallowance was based reflected only seasonal incomes.
The Grantee also asserted several policy arguments. It (A) challenged
the 90% low-income requirement as arbitrary and capricious, without a
rational basis and contrary to congressional intent; and (B) maintained
that it should be relieved of compliance with the Head Start Act, 42
U.S.C. 9831 et seq. because the services which it provided comported
with the purpose and policy of the Head Start Act for the following
reasons: (1) Congress specifically intended that the Act target Indian
children, (2) many of the Grantee's ineligible enrollees had special
needs or handicaps that satisfy the requirement of 45 C.F.R. 1305.5, and
(3) the disallowance would cause the Grantee to suffer severe economic
hardship.
I. The 90% Low-Income Requirement Applies to the Grantee's
Circumstances
A. Proper Application of the 90% Low-Income Requirement
Section 45 C.F.R. 1305.4 unequivocally requires that at least 90% of the
children "enrolled" in each Head Start program be from low-income
families. The regulations contain no suggestion that the 90%
requirement applies to the number of children funded for service in
grant documents, rather than to the number of enrollees actually served
by the funded program.
Although the Grantee argued that the Agency has "summarily" increased
the number of children funded by the grant, it was through the Grantee's
sole action that the number of children served by its Head Start program
was expanded. Furthermore, the Grantee admitted that, at the behest of
Head Start enrollment and attendance policies, it acted to enroll more
children than the number listed in grant documents. (Grantee's brief
submitted September 16, 1988, p. 2 and Grantee's Exhibit B)
We find that the 90% low-income requirement applies to all of the
Grantee's 129 enrollees, and that the Grantee was fully apprised of this
provision by the Administration on Children, Youth and Families'
Transmittal Letter TN-79.1, which states that at least 90% of the
children enrolled in each Head Start program "shall be from low-income
families", and that this requirement is "to be figured on total program
enrollment by grantee". (Respondent's Exhibit 4, p. 6).
B. Grantee's Establishment of its Own Income Eligibility Criteria
The Grantee argued in its reply brief that because it is eligible,
pursuant to 42 U.S.C. 9840(a)(2), to establish its own criteria for
income eligibility in its Head Start program, it is exempt from the 90%
low-income requirement. The Agency argued that the Grantee's failure to
provide advance notification of its intention to establish its own
criteria precludes the Grantee's exemption from compliance with section
1305.4, and that the Grantee failed to meet the requirement that the
population of the community served by its Head Start program be
comprised of 1,000 or less individuals (Respondent's reply brief
submitted January 20, 1989, pp. 2-4).
Although the Agency relied on the finding of San Carlos Apache Tribe of
Arizona, DAB No. 369 (1982) to support its argument that the Grantee's
failure to provide advance notice of its intention to invoke the
statutory exemption of section 9840(a)(2) precludes the establishment of
its own income criteria, San Carlos addresses the determination of
eligibility, and not notice thereof. Section 45 C.F.R. 1305.6(a),
however, does require that a grantee make an eligibility determination
based on income prior to permitting a child to participate, which
necessitates the determination of criteria before enrollment.
There are no requirements in the statute or the legislative history
mandating that the Grantee provide the Agency advance notice of its
intention to devise its own criteria, but it would have had to determine
its eligibility criteria before operating a Head Start Program. San
Carlos, supra.
The Grantee contended that it satisfied the population requirement of 42
U.S.C. 9840(a)(2). We conclude, however, that although the Grantee
offered persuasive arguments and documentation that it satisfied the
requirements of 42 U.S.C. 9840 (a)(2)(A) through (D), it failed to
satisfy the preliminary requirement that its program be operated in a
"community with 1,000 or less individuals."
The Grantee asserted that the community to which this standard applies
is the Fort Belknap Agency, which has a population of less than 1,000,
rather than the entire Fort Belknap reservation. In support of this
assertion, Grantee argued that the term "community" denotes a specific
geographical location, and that the Fort Belknap Agency is distant from
other reservation towns. However, 45 C.F.R. 1301.2 defines "community"
as an area that provides a "suitable organizational base and possesses
the commonality of interest" required for the operation of a Head Start
program.
San Carlos, supra, provides a standard for determining the existence of
a Head Start community. In that decision, the Board ascertained an
organizational base and common interest adequate to recognize four
separate communities within the appellant's reservation from the
following facts: (1) each identified community represented the part of
the district in which children attending the Head Start center lived;
(2) teachers, staff and program volunteers for each Head Start center
were residents of the identified communities; (3) each identified
community had a separate Head Start Parent Committee directly involved
in program planning and operations; and (4) each identified community
engaged in a separate fund-raising effort. In the instant case the
Grantee has failed to establish that the Fort Belknap Agency contained
the organizational base or common interest necessary for a community.
The Grantee also offered information in its Head Start grant application
for 1988 which is inconsistent with its contention that the relevant
community is that of the Fort Belknap Agency. In that document, it
requested program funding for the Fort Belknap Community Council, and
stated its population as 2042. (Respondent's Exhibit 7) In support of
its arguments that at least 50% of the Grantee's population is eligible
and that a disallowance would result in economic hardship, the Grantee
asserted that the unemployment rate for the reservation as a whole is
78%. The Grantee presented no evidence that its staff and enrollees
were drawn only from the Fort Belknap Agency and has argued, instead,
that the Head Start program provides a singular and crucial service to
the entire reservation community.
We find that the community served by the Grantee's Head Start program is
the entire reservation, which is governed by the Fort Belknap Community
Council. Because the Grantee failed to satisfy the population
requirement of 42 U.S.C. 9840(a)(2), it is ineligible to establish its
own income eligibility criteria and, therefore, subject to the 90%
low-income requirement.
C. Encouragement of Overenrollment
The Grantee argued that it was encouraged to overenroll with little
further guidance. We, however, conclude that the policy statement
expressed at 44 Fed. Reg. 214 (November 2, 1979), on which the Grantee
relied, in no way relieves it of the specific eligibility requirement of
45 C.F.R. 1305.4. Section 1.b. of the General Provisions of this policy
statement provides that recruitment procedures, by which enrollment
policies are carried out, must conform to the enrollment eligibility
requirements of Part 1305.
Although the Grantee included only the first page of the policy
statement on which it ostensibly relied, its assertion must be examined
in the context of the statement in its entirety. It provides that,
should a grantee elect to overenroll in order to maintain attendance for
all of its funded slots, it must satisfy certain requirements. The
Grantee failed to satisfy the prerequisites for overenrollment or to
submit relevant information in support of its argument.
This policy statement requires that an overenrolling grantee develop an
enrollment plan which must be approved by the Head Start Policy Council.
Such plan must include information regarding the program's projected
enrollment, the adequacy of resources for overenrollment, adult-child
ratios and group size. Despite the guidance offered by these
requirements, the Grantee failed to accompany its argument with
information regarding whether "chronic attendance problems", initial
enrollment and vacancy occurrences motivated overenrollment to protect
the full funding of its 118 slots, and included no information on
whether any of its classrooms exceeded preferred ratios and group sizes.
In addition to the requirements set forth in the aforementioned policy
statement, 45 C.F.R. 1305.6(a) requires that a Head Start agency must
make an eligibility determination prior to permitting a child to
participate in its program. Therefore, even if 44 Fed. Reg. 214 could
be construed to have encouraged overenrollment, the Grantee would have
remained responsible for determining the eligibility of its enrollees,
and for complying with the 90% low-income requirement.
D. Supplemental Resources
The Grantee offered Program Announcement 13.600-841, p.3, as authority
for its assertion that it was able to serve its ineligible enrollees
with supplemental, non-Head Start resources. It submitted the affidavit
of Caroline Yellow Robe, verifying non-federal contributions of
personnel, building and food services, and transportation worth $61,379,
which ostensibly enabled it to serve a greater number of children at no
greater federal cost. We conclude, in accordance with the Board's
decisions in Gila River Indian Community, DAB No. 264 (1982), Gila River
Indian Community, DAB No. 339 (1982) and Gila River Indian Community,
DAB No. 937 (1988), that such supplemental resources do not preclude the
Agency's disallowance. In these decisions, the Board found that in-kind
contributions could not be used to reduce the respective disallowances
because they did not reduce the amount of federal funds used by the
respective grantees. Such supplemental contributions merely increased
the resources available to the Grantee's overall Head Start program,
without affecting the amount of federal funds allocable to enrollees
from over-income families.
The Agency is concerned with the proper allocation of the funds which it
granted for the operation of the Grantee's Head Start program. The
Grantee did not establish that ineligible over-income children were
served by the supplemental resources, and not by grant funds. Indeed,
there is no evidence that all of the Head Start enrollees, including the
over-income children, did not benefit equally from the program expenses
funded by the grant, as well as from services and resources obtained
from other sources. Therefore, we conclude that such supplemental
resources may not be used to reduce the disallowance.
E. Seasonal Income
The Grantee failed to offer any evidence in support of its assertion
that the documentation on which determinations of eligibility were based
reflect only seasonal income. We are unable to conclude, on the basis
of a mere assertion of inadequate documentation, that this argument
merits consideration. Furthermore, the Grantee's own determinations of
income eligibility, required before participation in its program was
allowed, were made on the basis of such documentation.
II. Grantee's Policy Arguments Do Not Relieve it From Compliance With
90% Low-Income Requirement
A. The Low-Income Requirement
The Grantee challenged the 90% low-income requirement of 45 C.F.R.
1305.4 as arbitrary and capricious, without a rational basis, and
contrary to congressional intent. The statutory and regulatory
authority discussed above are dispositive of this issue. Furthermore,
the Board has rejected all of these arguments in past decisions.
As the Board concluded in DAB Nos. 264 and 339, 42 U.S.C. 2928 (1981)
provided for the provision of financial assistance to a Head Start
program focused primarily on children from low-income families,
permitting the participation of ineligible children "to a reasonable
extent," properly defined by the Secretary as 10%.
The Board concluded in DAB Nos. 264 and 339 that the low-income
requirement of the Act is clear and unambiguous. In DAB No. 339 the
Board, furthermore, determined that the requirement is consistent with
the congressional concern, reflected in 42 U.S.C. 2928, that a high
percentage of Head Start participants be from low-income families, and
accordingly, found that the requirement has a rational basis.
We conclude that the Grantee is not relieved of compliance with the
unambiguous, rationally based requirement of section 1305.4, the
establishment of which was within the Secretary's authority and
consistent with congressional intent.
B. Head Start's Purpose and Policy
The Grantee asserted that the services provided to over-income enrollees
were within the purpose and policy of the Act because (1) Congress
specifically intended that the Act target Indian children; (2) many of
the Grantee's ineligible enrollees had special needs or handicaps that
satisfy the requirement of 45 C.F.R. 1305.6; and (3) the disallowance
would cause the Grantee to suffer severe economic hardship.
1. Service to Indian Tribes
The primary goal of the Act, as stated in 42 U.S.C. 9831 and 45 C.F.R.
1304.1-3, is service to low-income children. The full extent of the
congressional intention to ensure service to Indian and migrant children
is accomplished by 42 U.S.C. 9835(2)(A), which allots funding for
programs to Indian and migrant children. There is no statutory
authority to infer a further intention to target Indian tribes which
would relieve the Grantee of the 90% low-income requirement.
The Board addressed this argument in DAB No. 339, and concluded that,
even if the Act were specifically intended to benefit Indian tribes, the
result would not be affected. All of the children served must be from
low-income families unless otherwise exempted by regulation. We
conclude, in accordance with this decision, that the Grantee is not
entitled to exemption from the 90% low-income requirement by virtue of
its status as an Indian tribe.
2. Service to Handicapped Children
We agree with the Agency that 45 C.F.R. 1305.5, requiring that at least
10% of the Head Start programs in each state be available for eligible
handicapped children, is separate and distinct from the 90% low-income
requirement. As the Agency pointed out, Public Comment 2, Fed. Reg.
14936 (April 7, 1978), clarifies the fact that, despite confusion among
commentors, the two sections set forth separate and distinct
requirements. Grantee's argument that its over-income enrollees
fulfilled the requirement that 10% of its enrollees be handicapped is
without merit. 3. Economic Hardship
Forty-three Fed. Reg. 68 (April 7, 1978), Comment 4, addressed arguments
for waiver of the poverty line or moderation of its impact by reduction
of the 90% low-income requirement on the bases that many small, rural
and Indian communities have children with family incomes that are
slightly above the poverty line who would benefit from Head Start
services, and that its strict application causes economic hardship and
community relations problems. These arguments were rejected on the
basis of 42 U.S.C. 9840(a)(1), which provides that low-income families
shall be eligible if their incomes are below the poverty line. The
Department is without authority to waive this provision.
The Board is, furthermore, without the authority to waive the 90%
low-income requirement. Although the disallowance may result in
economic hardship for the Grantee, we conclude that this result is
immaterial to the Grantee's responsibility to comply with Head Start
statutory and regulatory requirements, of which it was fully apprised.
The Board is bound by all applicable laws and regulations. 45 C.F.R.
16.14.
Conclusion
For the foregoing reasons, we uphold the disallowance of $20,824.
____________________________ Judith A. Ballard
____________________________ Norval D. (John) Settle
____________________________ Alexander G. Teitz Presiding Board