Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
DATE: April 29, 1991
Docket No. 90-129
Decision No. 1246
DECISION
The New York State Department of Social Services appealed the decision
of
the Family Support Administration (FSA) disallowing $815,825 in
claims for
federal funding under Title IV-A of the Social Security Act
(Act) for the
period January 1, 1989 through March 31, 1989.
New York claimed these federal funds for Aid to Families with
Dependent
Children (AFDC) benefits it paid pursuant to proposed State
Plan
Amendment (SPA) 87-45. This proposed amendment was
initially
disapproved by the Regional Office and subsequently disapproved by
the
Assistant Secretary of FSA. Consequently, the State's claims
for
expenses incurred pursuant to SPA 87-45 were disallowed.
For the following reasons, we uphold the disallowance and reject
New
York's argument that the compliance procedures set out in 45
C.F.R.
201.6 bar FSA from imposing a disallowance for claims New York
made
prior to the Assistant Secretary's final disapproval of the
proposed
amendment.
I. Background
In March 1988, New York submitted SPA 87-45 to the Regional Office
for
approval. SPA 87-45 created a new AFDC special need category known
as
the Rent Supplement Program (RSP). Under SPA 87-45, certain
homeless
AFDC families were eligible for supplemental rent allowances to
secure
permanent housing.
On its Quarterly Statement of Expenditures for the quarter ending
March
31, 1989, New York claimed federal funding for expenditures
made
pursuant to SPA 87-45 between January 1, 1989 and March 31, 1989.
In
April 1989, the Regional Administrator initially disapproved SPA
87-45.
1/ The State appealed the initial disapproval of SPA 87-45 to
the
Assistant Secretary. On May 11, 1990, the Assistant
Secretary
disallowed New York's claims for federal funds pursuant to SPA
87-45 for
the quarter ending March 31, 1989. New York appealed this
disallowance
to the Board in June, 1990, and the Board stayed further action
in this
appeal until the ruling of the Assistant Secretary on the
approvability
of SPA 87-45. On November 14, 1990, the Assistant
Secretary finally
disapproved SPA 87-45. 2/
Under the Act, the AFDC State plan must describe the nature and scope of
a
state's IV-A program and give assurances that the program will
be
administered in conformity with the Act, applicable regulations, and
FSA
policies. Section 402(a) of the Act; 45 C.F.R. 201.2. The
state
becomes entitled to federal funding on the basis of a State plan
or
subsequent approvable plan amendments. Section 403(a) of the Act;
45
C.F.R. 201.2, 201.3(g). Federal funding is available for
expenditures
under a State plan as of the first day of the quarter in which
an
approvable amendment is submitted to FSA or the date on which
the
amended provision becomes effective in the state, whichever is
later.
45 C.F.R. 205.5(b). 3/
The regulations addressing approval and disapproval of AFDC State
plans
and State plan amendments are found at 45 C.F.R. Part 201.
The
regulations give states a procedural choice in submitting
plan
amendments for approval. A state may designate its amendment as a
"new
State plan." If it does so, the plan conformity provisions of 45
C.F.R.
201.3 apply to the approval process. If a state does not
designate its
amendment as a new State plan, the plan compliance provisions
of 45
C.F.R. 201.6(a) and (b) apply. 45 C.F.R. 201.3(f). Section
201.6
expressly defines an "unapprovable change in the approved State plan"
as
a "question of noncompliance" with federal requirements. 45
C.F.R.
201.6(a).
The procedures of 201.6(a) and (b) applied to the review of SPA
87-45
because New York did not designate SPA 87-45 as a new State plan.
In
the Matter of the Disapproval of New York's AFDC Plan
Amendment,
Transmittal No. 87-45, DAB Docket No. 89-143, Ex. R-1.
II. Analysis
New York argued that since SPA 87-45 was reviewed under the
201.6
compliance process, FSA could deny the federal funding claimed
pursuant
to SPA 87-45 only on a prospective basis. New York cited 45
C.F.R.
213.33, which provides:
If, in the case of a hearing pursuant to section 201.6(a)
of
this chapter, the Administrator concludes that a State plan
does
not comply with Federal requirements, his decision that
further
payments will not be made to the State, or payment will
be
limited to categories under or parts of the State plan
not
affected, shall specify the effective date for the
withholding
of Federal funds. The effective date shall no be
earlier than
the date of the Administrator's decision . . . .
On the basis of 45 C.F.R. 201.6 and 213.33, New York asserted that
FSA
could not disallow federal funds for expenditures made pursuant to
SPA
87-45 prior to the Assistant Secretary's final decision on November
14,
1990. Since the expenditure of these funds occurred in the
first
quarter of 1989, New York maintained that FSA is absolutely barred
from
recouping these funds. 4/
We reject New York's argument. New York has failed to
distinguish
between FSA's authority to review State plan compliance and
FSA's
authority to impose a disallowance. 5/ They are distinct and
not
mutually exclusive remedies. Below we discuss both remedies.
Section 404(a) of the Act authorizes FSA to review a state's
compliance
with its State plan. The provisions at 45 C.F.R. 201.6
implement
section 404(a) by further defining what constitutes a
compliance
question and setting forth procedures for compliance
reviews. Under
201.6, after notice and hearing to the state, the
Secretary may withhold
all or part of a state's IV-A payments until he is
satisfied that the
state is in substantial compliance with its plan.
The Secretary's
remedy in a compliance action is prospective, i.e., the
withholding of
all or part of a state's future federal funding.
Alternatively, in a disallowance the Secretary may determine that
"any
item or class of items on account of which Federal
financial
participation is claimed" shall be disallowed. Section
1116(d) of the
Act. Under section 403(b)(2) of the Act, the Secretary
is required to
reduce a state's current payment "by any sum by which he finds
that his
estimate for any prior quarter was greater . . . than the amount
which
should have been paid to the State for such quarter . . . ." See
also
45 C.F.R. 201.5(c). The Secretary's remedy in a disallowance
is
retrospective and limited, i.e., the recovery of discrete sums
which
have previously been paid to a state in excess of the amount to
which
the state was entitled.
The Board has found that the Secretary's compliance remedies
and
disallowance remedies are not mutually exclusive and serve
different
purposes. New Jersey Dept. of Human Services, DAB No. 259 at
15, 18
(1982). The compliance remedy grants the Secretary sweeping
powers when
a state is in substantial noncompliance with program
standards. In a
compliance action, the Secretary is authorized to
terminate all funding
to the state in order to give it compelling incentive
to bring its
program back into compliance. In keeping with the coercive
nature of
the remedy, the amount of money the Secretary may withhold is
not
necessarily related to the actual costs of the noncompliance at
issue.
In contrast, a disallowance action provides a specific and
focused
remedy pursuant to which the federal government may disallow
precisely
identified amounts which were not spent in accordance with
program
requirements. Id. at 16-17.
The State's position that review of SPA 87-45 under the 201.6
compliance
process somehow precludes FSA from disallowing funds spent
pursuant to
an unapprovable amendment is not supported by the language or
scope of
sections 201.6 or 213.33. Those sections go only to the
circumstances
under which FSA may exercise its authority under the Act to
withhold
future payments on the basis of a state's noncompliance. They
do not
conflict with FSA's power to recover funds which were spent pursuant
to
an unapprovable amendment.
Further, the State's position that review of SPA 87-45 under the
201.6
compliance process somehow precludes FSA from disallowing funds
spent
pursuant to an unapprovable amendment is contrary to the
principles
which justify federal financial participation. Under those
principles,
federal funding is available "for expenditures under the plan"
or
approvable amendments to the State plan. Section 403(a) of the Act;
45
C.F.R. 201.2, 201.5, 205.5. FSA has no obligation to participate
in
expenditures which are not in accordance with an approved state plan
or
approvable amendment. Michigan Dept. of Social Services, DAB No.
165
(1981); Tennessee Dept. of Health and Environment, DAB No. 950
(1988);
see also New York State Dept. of Social Services, DAB No. 999
(1988).
Therefore, we find that the 201.6 process for reviewing a proposed
State
plan amendment does not negate FSA's disallowance authority to
recover
funds which were not spent pursuant to the State plan or an
approvable
amendment.
Conclusion
For the foregoing reasons, we uphold this disallowance.
Judith A. Ballard
Cecilia Sparks Ford
Norval D. (John) Settle Presiding Board Member
1. The Regional Administrator disapproved SPA
87-45 on the following
grounds: it violated the requirement at 45
C.F.R. 233.20(a)(1)(i) that
the needs of an AFDC family be determined on an
objective basis; it
violated the requirement at 45 C.F.R. 233.20(a)(2)(v)
that special need
items be considered for all applicants and recipients
requiring them; it
violated the equitable treatment requirement at 45 C.F.R.
233.10(a); and
it violated the limited statutory authorization for funding
for home
repairs under section 1119 of the Act. The Assistant Secretary
adopted
these grounds in her final decision disapproving 87-45.
Final
Administrative Decision, In the Matter of the Disapproval of New
York's
AFDC Plan Amendment, November 14, 1990.
2. The Assistant Secretary's decision was based on a
recommended
decision of a hearing officer appointed pursuant to the process
set
forth in 45 C.F.R. 213. The hearing officer was a member of the
HHS
Departmental Appeals Board and the record of that hearing is
contained
in In the Matter of the Disapproval of New York's AFDC Plan
Amendment,
Transmittal No. 87-45, DAB Docket No. 89-143. Pursuant to
New York's
request, the record in DAB Docket No. 89-143 is incorporated
herein.
3. Because a state is not entitled to federal funding
for payments
made before the date the amendment becomes effective in the
state, a
state wishing to maximize its entitlement to such funding might
begin to
pay benefits under a proposed amendment before the amendment
is
approved. Here, New York paid RSP benefits prior to FSA's decision
on
the approvability of SPA 87-45. If FSA had approved SPA 87-45, New
York
would then have been entitled to retain and/or claim
federal
participation in the benefits it paid pursuant to SPA 87-45 while it
was
under review by FSA.
4. In this decision, we do not address the timing
question of
whether the Assistant Secretary must complete the 201.6 review of
an
proposed amendment prior to disallowing or recovering funds
spent
pursuant to that amendment. We do not address this question
because New
York did not brief the issue; because the Board effectively
stayed its
process until the Assistant Secretary issued her final decision on
SPA
87-45; and because, from the record, the issuance of the disallowance
in
May rather than in November caused no apparent prejudice to New York.
5. Some confusion has surrounded the question of
whether an action
should be classified as a question of conformity,
compliance, or
disallowance. See State Department of Public Welfare of
the State of
Texas v. Weinberger, 388 F.Supp. 1304 (W.D. Tex. 1975) aff'd
sub. nom.
State Department of Public Welfare of the State of Texas v.
Califano,
556 F.2d 326 (5th Cir. 1977); State of Georgia v. Califano, 446 F.
Supp.
404 (N.D. Ga. 1977); State of N.J. v. Department of Health and
Human
Serv., 670 F.2d 1262 (3rd Cir. 1981); State of N.J. v. Department
of
Health and Human Serv., 670 F.2d 1284 (3rd Cir. 1982); State of N.J.
v.
Department of Health and Human Serv., 670 F.2d 1300 (3rd Cir.
1982).
The federal circuits have disagreed on the test that should be used
to
determine whether an action is a disallowance or a compliance
question.
Compare Comm. of Mass. v. Departmental Grant, Etc., 698 F.2d 22
(1st Cir
1983) and State of Ill. Dept. of Public Aid v. Schweiker, 707 F.2d
273
(7th Cir.