New York State Department of Social Services, DAB No. 1485 (1994)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: New York State Department of Social Services

DATE: July 21, 1994
Docket Nos. A-93-219 A-94-26 A-94-64 A-94-137 A-94-159
Decision No. 1485

DECISION

The New York State Department of Social Services (New York) appealed
determinations by the Administration for Children and Families (ACF)
disallowing a total of $101,094,142 in federal financial participation
claimed under title IV-E of the Social Security Act (Act) for foster
care maintenance payments. The payments were made on behalf of children
living in foster care placements with a relative. ACF found that some
of the children in a sample from which the disallowances were projected
had been living with a relative for more than six months prior to the
initiation of the court proceedings that determined that the child
should be removed from a prior home because the child's continuance in
that home would be contrary to the child's welfare. 1/ (We refer to
that prior home as the "contrary-to-the-welfare" home at various times
in this decision.) ACF concluded that the children were ineligible for
IV-E funding because they were not removed from the
contrary-to-the-welfare home as the result of a judicial determination,
as required by section 472(a)(1) of the Act. This conclusion was based
on ACF's interpretation of section 472(a)(1) as requiring the child's
physical removal from the contrary-to-the- welfare home. ACF considered
a child who was physically removed from the home of a specified relative
such as a parent within six months prior to the initiation of court
proceedings as removed from home within the meaning of section
472(a)(1). 2/ New York disputed ACF's interpretation. New York
contended that the child was removed within the meaning of this section
at the time the judicial determination was made transferring custody
from the child's parent to the state IV-E agency, although the child was
physically removed from the home of the parent more than six months
prior to the initiation of the court proceedings.

As explained in detail below, we conclude that ACF's interpretation of
section 472 is a reasonable interpretation (and perhaps the only
reasonable interpretation) of the language of the statute as a whole.
In addition, ACF's interpretation is supported by the legislative
history of the title IV-E program and furthers the goals of the program.
Contrary to what New York argued, ACF's interpretation did not
constitute a legislative rule which had to be issued pursuant to notice
and comment rulemaking under the Administrative Procedure Act. Instead,
it is an interpretative rule of which New York had timely, actual
notice. We also conclude that it was not improper for ACF to disallow a
portion of the claims without first deferring or auditing them.
However, we uphold the disallowances in principle only since we have not
yet considered arguments raised by New York concerning how ACF
calculated the disallowance. 3/


This decision is based on briefing filed by the parties as well as by
the City of New York. The Board permitted the City to participate as an
intervenor since the City had a substantial interest in the outcome of
the dispute and its participation was likely to sharpen some of the
issues presented. Ruling on Intervention dated January 25, 1994. Since
the City argued for reversal of the disallowances on essentially the
same grounds as New York, we attribute to New York all arguments for
this result.

Before the parties briefed the substantive issues discussed here, New
York requested that the Board dismiss the disallowances on the ground
that they were contrary to the moratorium established by section 13716
of the Omnibus Budget Reconciliation Act of 1993. That section provides
in pertinent part that the Secretary shall not, before October 1, 1994,
"reduce any payment to, withhold any payment from, or seek any repayment
from any State under . . . part E [of title IV of the Social Security
Act] by reason of a determination made in connection with any on-site
Federal financial review . . . ." New York argued that the
disallowances were based on such a review. The Board declined to
dismiss the appeal, concluding that the moratorium precluded the
Secretary only from collecting disallowed funds and that the conduct of
Board proceedings did not constitute collection of such funds. Ruling
on Request for Dismissal, dated November 18, 1993. The Board also
determined that the moratorium did not apply to these disallowances
because they resulted from reviews of the quarterly expenditure reports
on which the costs were claimed, not from the type of review referred to
in section 13716. Accordingly, the Board rejected New York's argument
that the moratorium precluded ACF from reducing payments to New York by
the amount of the disallowances. Ruling on Request for Reconsideration
of Ruling on Request for Dismissal, dated March 10, 1994.

Factual Background

The claims in question were for foster care maintenance assistance
expenditures incurred by New York City on behalf of children in foster
care placements with a relative. The expenditures were incurred from
July 1, 1988 through September 30, 1993. 4/ In 1989, ACF became
concerned that the claims may have included expenditures for children
whom ACF believed were ineligible for IV-E funding because they were not
physically removed from home as a result of a court order. ACF
therefore requested New York to provide documentation which identified
such cases. ACF deferred several claims because New York failed to
provide such documentation.

Although New York maintained that title IV-E did not require the child's
physical removal, New York proposed to conduct a random sample of New
York City foster care cases involving relative placements to determine
the percentage of the deferred claims in which there was documentation
establishing that the child was physically removed from home. ACF
approved the sampling plan, and provided that a child would meet the
physical removal requirement if the child lived with a parent or other
specified relative, other than the relative with whom he or she was
ultimately placed, at some time in the six months preceding the
initiation of court proceedings. ACF Ex. 2, Sampling Plan for Review of
Federally Deferred Title IV-E Kinship Claims at 3. New York sampled 250
cases, finding that 82% of the claims (after 20 cases were dropped from
the sample) were for children whose physical removal could be
documented. ACF conducted a re-review of a random subsample of 50 cases
and found that 74.5% of the claims were for children whose physical
removal could be documented and who were otherwise eligible for IV-E
payments. Based on these results, ACF allowed 74.5% of the deferred
claims and disallowed the remaining amounts. ACF also disallowed the
same percentage of similar claims which had already been paid.

Statutory Background

Under title IV-E of the Act, federal matching of state foster care
maintenance payments is available for children in foster care who would
otherwise be eligible for AFDC. Prior to the enactment of title IV-E
(in the Adoption Assistance and Child Welfare Act of 1980, Public Law
No. 96-242), funding for foster care maintenance payments was available
under title IV-A. The new title IV-E program (and other amendments made
by Public Law No. 96-242) grew out congressional concern that the
public child welfare system responsible for serving dependent and
neglected children had become a holding system for children living away
from their parents. Congress intended "to lessen the emphasis on foster
care placement and to encourage greater efforts to find permanent homes
for children either by making it possible for them to return to their
own families or by placing them in adoptive homes." S. Rep. No. 336,
96th Cong., 1st Sess. 1 (1979).

Section 472(a) provides that foster care maintenance payments will be
available for --

a child who would meet the [AFDC eligibility] requirements . . .
but for his removal from the home of a relative (specified in
section 406(a)), if--

(1) the removal from the home . . . was the result of a judicial
determination to the effect that continuation therein would be
contrary to the child's welfare . . . ;

(2) such child's placement and care are the responsibility of . .
. the State agency administering the State plan approved under
section 471 . . . ;

(3) such child has been placed in a foster family home or
child-care institution as a result of the . . . judicial
determination . . . ;

(4) such child-- (A) received aid under [title IV-A] in or for
the month in which . . . court proceedings leading to the
removal of such child from the home were initiated, or (B)(i)
would have received such aid in or for such month if
application had been made therefor, or (ii) had been living
with a relative specified in section 406(a) within six months
prior to the month in which . . . such proceedings were
initiated, and would have received such aid in or for such
month if in such month he had been living with such a relative
and application therefor had been made.

The relatives specified in section 406(a) are the child's father,
mother, grandfather, grandmother, brother, sister, stepfather,
stepmother, stepbrother, stepsister, uncle, aunt, first cousin, nephew,
or niece.

Other relevant statutory provisions are identified later in the
decision.

ACF's Interpretation of the "Removal" Requirement

As previously indicated, ACF read section 472(a)(1) of the Act as
requiring that the child be physically removed from the home of a
specified relative, such as a parent, as a result of a judicial
determination. However, ACF found eligible those children whose parents
left them with a relative up to six months prior to the initiation of
court proceedings which resulted in an order ratifying the child's
placement with the relative. This six-month grace period is recognized
in two ACF issuances, although neither issuance specifically addresses
relative placements. The "Title IV-E Foster Care Checklist Guide" in
ACF's "Financial Review Guide for On-Site Reviews of the Title IV-E
Foster Care Program" includes the following item (item 15 in the 1985
version, item 16 in the 1991 version):

a. DATE COURT ORDER INITIATED - The court order removing the child
must have been initiated, that is, the petition filed, no longer
than six (6) months after the child was removed from the home of a
specified relative.

* * * *

b. WITHIN 6 MONTHS - If the date of the petition is more than six
(6) months after the child's removal, the child is not eligible for
[federal funding].

In addition, ACYF-PIQ-89-01, dated February 9, 1989, (issued to clarify
the conditions under which an otherwise eligible child who is
voluntarily relinquished to the IV-E agency for the purpose of foster
care may subsequently become eligible for IV-E) states in pertinent
part:

If the child had last been living with the parent(s) within six
months of the date court proceedings were initiated leading to a
judicial determination that remaining in the home would be contrary
to the welfare of such child, the removal from the home will be
considered a "judicial removal" . . . . (sections 472(a)(1) and
472(a)(4)(B)).

ACF's interpretation was also derived in part from ACYF- PIQ-87-04,
dated August 13, 1987, issued in response to a "Policy Interpretation
Question" raised by ACF's Region II office on behalf of New York.
Region II questioned whether a child was eligible for IV-E payments
where "[t]he parents have deserted the home in which the child and
another relative remain," or "[t]he parent has taken the child to the
home of a relative for care and support and has never returned to resume
the care of the child," and subsequently "court action was taken to
place responsibility for placement and care of the child with the State
agency without physically removing the child from the home of the
relative." 5/ PIQ-87-04, at 2. The PIQ offered two reasons for
concluding that the child was not eligible for IV-E funding. First, the
PIQ stated that the definition of "home" in the title IV-A regulations
at 45 C.F.R.  233.90(c)(1)(v)(B) was applicable, "since eligibility for
foster care maintenance payments under title IV-E is based upon
eligibility for title IV-A . . . ." Id. at 3. This provision states
that --

A home is the family setting maintained or in process of being
established as evidenced by assumption and continuation of
responsibility for day to day care of the child by a relative with
whom the child is living. A home exists so long as the relative
exercises responsibility for care and control of the child even
though either the child or the relative is temporarily absent from
the customary family setting.

According to PIQ-87-04, if the parents have left the child with a
relative (in their own home or the relative's home), the child's home
and customary family setting have been shifted to the home of the
relative. Thus, the child is not removed from home when legal custody,
or responsibility for placement and care, is later given to the state
agency through a voluntary placement agreement or judicial
determination. Instead, the only change at that time is the legal
status of the child in relation to his absent parents.

Second, the PIQ stated that the "plain meaning of the language" of the
Act was that the child must be physically removed from home. The PIQ
cited the references in section 472(a) and 472(a)(1) to the child's
"removal from the home," as well as the language "has been placed" in
section 472(a)(3). The PIQ also cited the language "removed from his or
her home" in section 472(e).

Although none of the disallowance letters cited PIQ-87-04 as authority
for the disallowance, they all articulated the same interpretation as
stated in the PIQ, citing the definition of "home" in the AFDC
regulations as authority. ACF specifically cited this PIQ as authority
for the disallowances in its briefs in this proceeding.

Analysis

New York took the position that ACF's interpretation of section
472(a)(1) as requiring a physical removal was unreasonable. New York
argued that since Congress had ample opportunity to specify in title
IV-E that the term "removal" meant physical removal, Congress' failure
to do so was evidence that it did not intend to require physical
removal. New York also argued that ACF's interpretation frustrated
congressional intent to provide IV-E funds for children placed with
relatives. In addition, New York argued that ACF's treatment as IV-E
eligible of children who were physically removed up to six months prior
to the initiation of court proceedings undermined its interpretation.
According to New York, the requirement for removal pursuant to a court
order simply means that legal custody of the child must be transferred
from the child's parents to the state IV-E agency.

As discussed below, however, we find that ACF's interpretation is a
reasonable one and may in fact be the only reasonable interpretation.
Since ACF gave clear and timely notice of its interpretation in
PIQ-87-04, which was not required to be published pursuant to notice and
comment rulemaking, we defer to that interpretation. 6/

1. ACF's interpretation is supported by the language of section 472 as
a whole.

Although section 472 does not explicitly describe the removal of a child
which is required as a condition of IV-E eligibility as a physical
removal, the provisions in section 472 that refer to "removal" clearly
contemplate that the child must be physically removed from home within
the time frame here specified by ACF. 7/

Section 472(a)(1) provides for foster care payments for a child who
would meet all eligibility requirements for AFDC if the child had not
been removed from the home of a specified relative as the result of a
judicial determination that continuation in the home was contrary to the
child's welfare. This section expressly contemplates that the removal
of the child from the contrary-to-the-welfare home will cause the loss
of the child's existing AFDC eligibility. This cannot occur without a
physical removal because a child remains eligible for AFDC as long as
the child resides "in a place of residence maintained by one or more
[specified] relatives as his or their own home" (assuming other
eligibility requirements are met). See section 406(a) and equivalent
wording in section 407.

Moreover, section 472(a)(4) specifies the month for which the child must
establish the AFDC eligibility that is lost by virtue of the child's
removal from the home of the relative. It authorizes three options, the
first two of which apply where the child was living with the specified
relative in the month in which court proceedings were initiated: i.e.,
either the child must be receiving AFDC in or for the month in which
court proceedings leading to the removal of the child from the home were
initiated (section 472(a)(4)(A)), or the child would have received AFDC
in or for the same month if an application had been made (section
472(a)(4)(B)(i)). The third option applies where the child was not
living with the relative in the month in which court proceedings were
initiated, in which case the child must have been living with a
specified relative within six months prior to that month and would have
received AFDC in and for the month court proceedings were initiated if
the child had still been living with the relative in that month and an
application for AFDC had been made (section 472(a)(4)(B)(ii)). The
effect of the latter provision is to allow a child who had already been
removed from the contrary-to-the-welfare home (and who had thus already
lost AFDC eligibility prior to the month court proceedings were
initiated by virtue of having been removed from that home) to
nevertheless qualify for foster care payments if the removal occurred no
more than six months prior to the month court proceedings were
initiated.

When the foregoing provisions of section 472(a) are read together, they
clearly contemplate that the child will be physically removed from the
contrary-to-the-welfare home in or after the month in which court
proceedings are initiated or within the preceding six months. The
child's physical removal from the contrary-to-the-welfare home within
that time frame causes the child to lose his or her existing AFDC
eligibility, as provided in section 472(a)(1). That AFDC eligibility,
moreover, must be established for purposes of title IV-E foster care
eligibility by virtue of the child's physical presence in the
contrary-to-the-welfare home during the month proceedings are initiated
or during the preceding six months, as required by section 472(a)(4).
In the sample cases in question here, however, the physical removal
occurred more than six months prior to the initiation of court
proceedings when the parent left the child with another specified
relative. At that point, the child was no longer in the parent's "home"
within the meaning of the title IV-A regulations because the parent no
longer exercised responsibility for the child's care and control on a
day-to-day basis. ACF reasonably relied on this definition of "home"
since section 472(a)(1) specifically refers to title IV-A eligibility
requirements. Thus, ACF's interpretation of "removal" in section
472(a) is not only reasonable, but is arguably the only interpretation
which properly effectuates the statute read as a whole. New York's
interpretation, on the other hand, is contrary to the intent of section
472(a) since it would afford IV-E eligibility to a child who had not
physically resided in the contrary-to-the-welfare home during the period
in which AFDC eligibility in that home must be established under section
472(a)(4). Such a child could neither establish AFDC eligibility in
that home at the requisite time, nor be physically removed from that
home within the time frame contemplated by the statute. 8/

2. The legislative history supports ACF's interpretation.

The title IV-A foster care program, as amended in 1967, contained a
requirement, which was almost identical to section 472(a)(4)(B)(ii),
that the child have been eligible for AFDC in the home from which the
child was removed prior to the initiation of court proceedings or in the
preceding six months. The House and Senate reports on this IV-A
provision indicated that the prior requirement that a child must be a
recipient of AFDC when the court issues its order was "an unduly
limiting restriction." S. Rep. No. 744, 90th Cong., 1st Sess. 164
(1967); H.R. Rep. No. 544, 90th Cong., 1st Sess. 101 (1967). The
reports stated that the 1967 amendments would, among other things, make
eligible for foster care --

children placed under court order who had been living with one of
the specified relatives enumerated in the law within 6 months and
would have been eligible upon application for AFDC if he were
living with such relative and were removed from the home of such
relative by order of the court. This latter group would include
some children already in foster care at the time of this
legislation and who, except for this provision, would not be
eligible because they had already been removed from their homes.
Temporary plans may be needed, for example, for children both of
whose parents are killed in an accident and for whom the court does
not take immediate jurisdiction.

Id. This provision was later characterized in the report on the Senate
version of the 1980 law enacting title IV-E as follows:

[t]he existing law is written in such a way that emergency
placement in foster care can be made and subsequently ratified by
judicial determination without losing eligibility for AFDC matching
after the determination has been made.

S. Rep. No. 336, 96th Cong., 2nd Sess. 16 (1979). These statements
indicate that Congress viewed section 472(a)(4)(B)(ii) as an exception
to the requirement that a child be removed from home at the time of or
after the judicial determination for children who were the subject of a
temporary emergency placement.

The legislative history thus supports ACF's interpretation rather than
New York's. ACF here merely applied this exception to the physical
removal requirement, which was contemplated by Congress, to relative
placements that occurred within six months prior to the month in which
court proceedings were initiated. This application of the exception is
consistent with the literal language of section 472(a)(4)(B)(ii) as well
as with Congress' intent to allow the physical removal to precede the
judicial determination only by a short time.

New York relied on the legislative history of amendments to title IV-E
made by section 9133 of the Omnibus Budget Reconciliation Act of 1987.
This reliance is misplaced. These amendments (codified in sections
472(h) and 475(4)(B) of the Act) provide that foster care maintenance
payments made with respect to a minor child who is placed in foster
family home or child-care institution with a son or daughter are to
include amounts necessary to cover costs incurred with respect to the
son or daughter, and that the son or daughter is to be considered a
child with respect to whom foster care maintenance payments are made.
The House report indicates that, absent the amendments, foster care
maintenance payments would not be available for the child "because the
infant technically has not been removed from the home of the parent and
placed in foster care." Id., quoting H. Rep. No. 319 (II), 100th Cong.,
1st Sess. 909 (1987). This legislative history is consistent with ACF's
view that a child must be physically removed from the home of the
parent. The legislative history indicates that a special statutory
exception was required to provide IV-E funds for an infant who had not
been physically removed from the home of a parent who was also placed in
foster care.

3. ACF's interpretation furthers the basic goal of title IV-E to return
children in foster care to their parents.

ACF's interpretation is also reasonable because it furthers the basic
goal of title IV-E to return children to their parents. In order to
qualify a child for IV-E funds under this interpretation, a state agency
must initiate court proceedings either before the child is physically
removed from the home of his or her parent or within the next six
months. This gives states an incentive to bring children who have been
physically removed from their parents' homes into the foster care
system, where they will receive services directed toward the statutory
goal of reunifying them with their families. Once a child is under the
responsibility of the state agency, the state agency must develop a case
plan for the child within 60 days. See 45 C.F.R.  1356.21(d). The
case plan must include a description of the services offered and the
services provided to prevent removal of the child from the home and to
reunify the family. Id. In addition, there must be an administrative
or court review of the status of the child no less frequently than once
every six months "to determine . . . the extent of progress which has
been made toward alleviating or mitigating the causes necessitating
placement in foster care, and to project a likely date by which the
child may be returned to the home or placed for adoption or legal
guardianship . . . ." See section 475(5)(B) of the Act. In assuring
that the child will be in a position to receive these services on a
timely basis, ACF's interpretation furthers the basic statutory goal of
reunification.

New York's interpretation, on the contrary, might arguably work against
achieving this goal. The longer a child remains away from home, the
more difficult efforts to reunite the child with his or her parent might
become. Indeed, where a child has been living with a relative on a
long-term basis, it may become increasingly questionable whether a
return to the parent would be in the child's best interest.

Finally, the difficulty inherent in making the contrary- to-the-welfare
determination required by section 472(a)(1) long after the child has
been physically removed from home argues for reading this section as
requiring a judicial determination which is reasonably contemporaneous
with the child's physical removal. Under New York's position, the
judicial proceedings leading to the contrary-to-the-welfare
determination could be initiated several years after the child had been
physically removed from the contrary-to-the-welfare home.

4. ACF's interpretation does not frustrate congressional intent to fund
foster care placements with relatives.

New York nevertheless argued that ACF's interpretation frustrates
congressional intent to provide funding for foster care placements with
relatives because its effect is to substantially reduce the amount of
funds available for such placements. (New York asserted and ACF did not
dispute that Congress had a clear preference for such placements when
the child had to be removed from a parent's home.) According to New
York, states would be faced with the choice of foregoing IV-E funding if
they placed the child with the relative with whom the child had been
living for more than six months, or moving the child to another
placement and then possibly back to the relative in order to make the
child eligible for IV-E funding. 9/

However, as noted above, a state can ensure that it receives title IV-E
funds for relative placements by simply initiating court proceedings
leading to the contrary-to-the-welfare determination within six months
of the time the child is physically removed from the home of his or her
parent. 10/ In any event, a child who is ineligible for IV-E funds may
still be eligible for AFDC payments under title IV-A. The basic AFDC
program contemplates that a child might live in the home of a wide range
of specified relatives (other than a parent) without necessarily
becoming eligible for foster care benefits under title IV-E. Thus,
ACF's policy does not frustrate any congressional intent to provide
funding for children placed with relatives.

5. ACF's six-month grace period is neither inconsistent with PIQ-87-04
nor arbitrary.

ACF considered sample cases in which a child had been living with a
parent (or other specified relative other than the relative with whom
the child was ultimately placed) up to six months prior to the
initiation of court proceedings as complying with section 472(a)(1).
This was consistent with ACF's general recognition of a six- month grace
period in the 1985 and 1991 versions of its "Financial Review Guide for
On-Site Reviews of the Title IV-E Foster Care Program" and in
ACYF-PIQ-89-01. As noted by New York, ACF has applied this six-month
grace period in another context in addition to the circumstances raised
here, i.e., where the state agency takes action to remove the child from
home on an emergency basis before initiating the court proceedings
leading to the contrary-to-the-welfare determination. However, New York
argued that the application of this six-month grace period here was
inconsistent with ACF's interpretation of the removal requirement in
PIQ-87-04. New York argued further that the grace period was arbitrary
in that it was limited to only six months.

We disagree on both counts. PIQ-87-04 focuses on the type of removal
required by section 472(a)(1), concluding that the removal must be a
physical removal. It does not specifically address the question of when
that removal must occur. In any event, as long as the child is removed
within six months prior to the initiation of court proceedings, the
child still may be reasonably considered to have been physically removed
from the home as a result of these proceedings because of the close
proximity between the proceedings and the physical removal. Thus, the
six-month grace period is not inconsistent with the PIQ.

Furthermore, as discussed previously, the six-month grace period is not
arbitrary because it is consistent with section 472(a)(4)(B)(ii).
However, even if there were no statutory basis for this grace period, we
would conclude that it is reasonable. A limited exception to the
physical removal requirement for children who have been recently
physically removed from home is consistent with Congress' recognition,
discussed above, that children might need to be physically removed from
home on an emergency basis prior to a judicial determination. In
addition, this limited exception does not significantly delay the
provision of services directed toward reunification which are available
only after the children are brought into the foster care system.
Moreover, a six-month limit is reasonable because it ensures that
particular events relating to the child's treatment in the parent's home
will have occurred in close proximity to the court proceedings and thus
will be readily and timely assessed during those proceedings. In the
sample cases in question here, the child had already been removed from
the contrary-to-the-welfare home for a period of over six months to
several years before the initiation of court proceedings and had been
placed throughout that period in the home of another specified relative
who ultimately became a foster care provider for the child. The
distance in time between the physical removal and the court proceedings
conceivably made it more difficult (and less meaningful) for the court
to consider the basic question of whether the child's continuation in
that prior home was contrary to the child's welfare.

6. New York's position that the transfer of responsibility for the
child's care and placement to the state agency constitutes the "removal"
within the meaning of section 472(a)(1) is an unreasonable construction
of that section.

New York took the position that its interpretation of the requirement
for removal in section 472(a)(1) as referring to the transfer of
responsibility for the child's care and placement to the state agency is
the only reasonable interpretation. New York argued that the judicial
removal of legal custody, not physical removal, "constitutes the pivot
upon which the entire foster care placement process revolves." New York
brief at 14. See also New York City brief at 5. According to New York,
moreover, both the Supreme Court and the Courts of Appeals have
recognized this since they refer to the child's placement in the legal
custody of the state agency as the beginning of foster care, and not to
the child's physical removal. New York City brief at 7-8, citing Suter
v. Artist M., ___ U.S. ___, 112 S.Ct. 1360 (1992); Lehman v. Lycoming
County Children's Services Agency, 458 U.S. 502 (1982); Lipscomb by
DeFehr v. Simmons, 962 F.2d 1374 (9th Cir. 1992); L.J. by Darr v.
Massina, 838 F.2d 118 (4th Cir. 1988), cert. denied, 488 U.S. 1018
(1989).

New York's argument is an unreasonable construction of the statute,
however. Section 472 specifically requires both that the child be
removed from home and that the state agency have responsibility for the
child's care and placement. If the requirement for removal from home in
section 472(a)(1) is read to mean just the transfer of responsibility
for the child to the state agency, as argued by New York, then section
472(a)(2), which requires that the child's placement and care be the
responsibility of the state agency, becomes superfluous. Thus, Congress
clearly intended the two provisions (sections 472(a)(1) and (2)) as
separate conditions of IV-E eligibility. This construction does not
deny that the transfer of responsibility for the child's care and
placement is a critical step in qualifying the child for IV-E services,
but merely recognizes that it is not the only step. Moreover, as we
discussed at length in section 1, New York's interpretation is
unreasonable because it fails to adhere to the requirement for a
physical removal within the time frame that is explicitly contemplated
by provisions of section 472(a) of the Act. Finally, none of the cases
cited by New York support its interpretation. The mere fact that the
courts recognized that children in foster care were in the custody of
the state does not mean that the courts viewed the transfer of
responsibility for a child's care and placement to the state agency as
equivalent to removal from the home.

7. The language of the IV-E regulations concerning "removal" is not
inconsistent with ACF's interpretation.

New York contended that certain provisions of the IV-E regulations
adopted in 1993 were inconsistent with ACF's interpretation. The
regulations in question implement the statutory requirements for a
system for the collection of adoption and foster care data. 58 Fed.
Reg. 67924 (December 22, 1993), to be codified at 45 C.F.R. Part 1355.
These regulations were not designed to implement the statutory
requirement for removal and were not in effect during the time period
covered by the disallowances here. Thus, New York cannot reasonably
rely on them.

In any event, one provision of the regulations cited by New York clearly
supports ACF's interpretation, and the other provision is not
inconsistent with that interpretation. New York relied on the absence
of any reference to physical removal in a provision defining "foster
care" as "24 hour substitute care for all children placed away from
their parents or guardians and for whom the State agency has placement
and care responsibility . . . ." In fact, however, this provision
supports ACF's interpretation. The phrase "placed away, like the term
"removed," appears to contemplate a physical removal rather than a
change in legal status. Moreover, the regulatory definition of "foster
care" views the placing away, or removal, of the child as separate from
the state agency's responsibility for the child's placement and care and
is thus inconsistent with New York's view that the act of giving the
state agency such responsibility constitutes "removal" within the
meaning of section 472(a).

New York also disputed ACF's contention that a provision requiring that
states document the number of "removal episodes" which defines that term
as "removal of the child from his/her normal place of residence
resulting in his/her placement in a foster care setting" supported ACF's
interpretation. New York contended that the child's "normal place of
residence" means a place other than the child's actual residence, so
that a child could be constructively removed from the parent's home by a
court order even if the child was no longer actually residing in that
home. However, New York would read more into this language than the
plain meaning would require. In the context of these regulations,
"normal place of residence" could just as easily mean the home the child
resided in prior to placement in foster care.

8. ACF's interpretation was not a legislative rule which was required
to be published pursuant to notice and comment rulemaking, but was
instead an interpretative rule of which New York had actual notice.

The Administrative Procedure Act requires publication of a proposed
legislative rule followed by an opportunity for public comment in order
for such a rule to be enforceable. 5 U.S.C.  553(b), (c). An
interpretative rule is not subject to the notice and comment
requirement, although a party cannot be adversely affected by such a
rule unless timely, actual notice of the rule has been given or the rule
has been published in the Federal Register. 5 U.S.C.  552(a)(1).

New York argued that ACF's reading of section 472(a)(1) as requiring
physical removal was not an interpretative rule but was instead a
legislative rule. New York asserted that ACF did not merely interpret
or clarify the Act, but rather added substance to the Act. According to
New York, ACF "has, in effect, amended the statute by constructively
inserting the word `physical' into section 472(a) of the Act." New York
brief at 18. In addition, New York asserted that any rule that affects
a grantee's ability to claim federal funds, as this does, is a
legislative rule. New York also noted that exceptions to the notice and
comment requirements are to be narrowly construed. Finally, New York
contended that, even if ACF's reading constituted an interpretative
rule, it was not binding because it was inconsistent with ACF's six-
month grace period and the states therefore lacked actual notice of
"which removal requirement" was applicable. Id. at 20.

As discussed above, however, ACF's interpretation has such compelling
support within the framework of section 472(a) as a whole that it
appears to be the only reasonable interpretation of "removal." Thus,
ACF here was merely applying the requirements of the statute, of which
New York had notice.

Even if section 472(a) were subject to more than one reasonable
interpretation, however, ACF's interpretation of the term "removal" in
section 472(a) would not be a legislative rule. Legislative rules
create law or obligations, while interpretative rules are statements of
what an administrative agency thinks a statute or regulation means.
Cabais v. Egger, 690 F.2d 234 (D.C. Cir. 1982). PIQ-87-04, applied in
conjunction with the six-month grace period recognized in other ACF
issuances, is clearly a statement of what ACF thinks the term "removal"
means.

Moreover, under prevailing case law, even if a rule has a significant
impact on a party, this alone does not require that it be treated as a
legislative rule. See New York State Dept. of Social Services, DAB No.
1473 (1994) at 8 and court cases cited therein. Accordingly, even if
the effect of ACF's reading was to limit title IV-E funding for children
placed with relatives (which we found above was not necessarily the
case), that would not make it a legislative rule.

Furthermore, although the distinction between a legislative and an
interpretative rule can sometimes be blurred, this case involves a
clear-cut interpretative rule. Thus, there is no basis for New York's
argument that this case involves an interpretative rule only under a
broad construction of this exception to the notice and comment
requirement.

We also reject New York's argument that it did not have actual notice of
ACF's interpretation. Section 472(a)(4)(B)(ii) provides the authority
for the six-month grace period ACF applied in this case. Moreover, ACF
provided notice of this grace period in its Financial Review Guide and
PIQ-89-01. As discussed earlier, PIQ- 87-04 was not inconsistent with
this six-month grace period. It focused on the requirement for physical
removal and nowhere stated when a qualifying removal had to occur in
relation to the initiation of judicial proceedings. Furthermore, New
York cannot reasonably argue that it was prejudiced by ACF's application
of PIQ- 87-04 here since ACF gave New York the benefit of the six-month
grace period. Accordingly, New York's argument that it did not know
"which rule" applied has no merit.

We therefore conclude that PIQ-87-04, as applied in this case,
constituted an interpretative rule of which New York had actual notice,
and was binding on New York since ACF's interpretation was highly
reasonable.

9. It was not improper for ACF to disallow some claims without first
deferring or auditing them.

Most of the claims in question here were initially deferred. A portion
of the deferred claims was subsequently disallowed based on the results
of a review of sample cases. However, claims totalling $34,414,224 in
federal funding were fully paid upon submission, and later disallowed
based on the case sample review. ACF recouped the disallowed amount by
reducing the payments made for that portion of the previously deferred
claims which ACF determined was allowable.

New York argued that ACF lacked authority to retroactively disallow
claims that it had previously allowed and paid. According to New York,
ACF could properly disallow claims only as a result of the claims review
(deferral) process set out in 45 C.F.R.  201.15(c) or based on an
audit or other review. 11/ New York contended that --

the audit and deferral processes afford grantees the opportunity to
demonstrate the allowability of their claims and thereby avoid the
issuance of unwarranted disallowances. A general rule authorizing
the disallowance of claims which have not been audited or deferred
would eliminate this opportunity and require the Board to decide
many cases which could be resolved without its intervention.

New York reply brief at 23; see also New York City reply brief at 21.

We find no merit in New York's argument. New York did not point to any
authority which specifically requires that any disallowance be taken
pursuant to either the section 201.15 deferral process or an audit.
Section 474(d)(2) of the Act and the implementing regulations provide
simply that adjustments to quarterly amounts paid to states can be made
for prior overpayments which the Secretary determines were made,
including overpayments based on estimates for prior quarters.

In any event, the rationale on which New York relied is inapposite here
since New York in fact had an opportunity to demonstrate the
allowability of the claims in question. ACF disallowed these claims
based on the same case sample review which was proposed and conducted by
New York in order to determine the allowability of the deferred funds.
New York did not dispute that it had an adequate opportunity, through
the case sample review, to demonstrate the allowability of the deferred
claims before they were disallowed in part. New York apparently takes
the position that this sample could not properly be applied to cases
outside the universe from which the sample was drawn. However, this is
a statistical sampling issue and does not affect the validity of the
procedure whereby the claims were disallowed. 12/

Conclusion

For the foregoing reasons, we conclude that ACF properly found
ineligible for IV-E funding children who were not physically removed
from home within six months prior to the initiation of court proceedings
resulting in a judicial determination that continuation in the home was
contrary to the child's welfare. Accordingly, we uphold the
disallowances in principle. The Board will schedule further proceedings
to consider New York's arguments concerning the calculation of the
disallowances if New York so requests within 30 days of its receipt of
this decision.

_________________________ Judith A. Ballard

_________________________ Cecilia Sparks
Ford

_________________________ Donald F. Garrett
Presiding Board Member


1. According to New York, the children were removed as the result
of a court order (rather than a voluntary placement agreement) in all of
the sample cases. New York brief at 18. We therefore focus on the
requirements for removal of children as the result of a judicial
determination, although the result here would be the same if a child's
removal from home occurred pursuant to a voluntary placement agreement
executed more than six months after the month of the child's removal.

2. For simplicity, both parties assumed that the
contrary-to-the-welfare home from which each child in question was
removed was the home of the child's parent. However, title IV-E speaks
in terms of a removal from the home of "a specified relative." Thus, a
child who lived with a specified relative other than a parent before
residing with the relative with whom the child was ultimately placed by
the state agency might qualify for IV-E payments on the basis of the
child's removal from the home of that specified relative.

3. The parties agreed at the outset of the proceedings in this case
that briefing on these arguments should be deferred until the Board
decided the threshold legal issue. The Board will schedule additional
proceedings to consider these arguments if New York so requests within
30 days of its receipt of this decision.


4. The amount of each claim and period for which the claim was made
are as follows: Docket No. A-93-219 -- $71,385,412 for the period July
1, 1988 through December 31, 1992; Docket No. A-94-26 -- $6,252,334 for
the quarter ended March 31, 1993; Docket No. A-94-64 -- $6,172,825 for
the quarter ended June 30, 1993; Docket No. A-94-137 -- $5,261,006 for
the quarter ended September 30, 1993; and Docket No. A-94-159 --
$12,022,565 for the period October 1, 1989 through December 31, 1992.

5. Since the parties developed the facts of only one of the sample
cases in question here, we make no judgment as to whether this
description covers all the circumstances arising in these cases. In the
one case, the grandmother removed the children from their mother, but
the mother did not demand the children's return until seven months
later, at which time judicial proceedings were initiated which resulted
in a court order placing the children with the grandmother. New York
Exs. 28 - 32.

6. The Board and the courts have consistently held that where a
statute is subject to more than one interpretation, the federal agency's
interpretation is entitled to deference if that interpretation is
reasonable, and appropriate notice of that interpretation has been given
to the state. See, e.g., Connecticut Dept. of Children and Youth
Services, DAB No. 1395 (1993); Pennsylvania Dep't of Public Welfare v.
U.S. Department of Health and Human Services, 928 F.2d 1378 (3d Cir.
1991). As discussed below in this decision, however, we conclude that
the language of the statute as a whole may not even be reasonably
subject to more than one interpretation.

7. Aside from relying on the statutory analysis developed in this
section, we also note that ACF's interpretation of the word "removal" in
section 472(a) is consistent with the plain meaning of the word.
"Remove" is commonly defined as "to change or shift the location,
position, station, or residence of." Webster's Third New International
Dictionary at 1921 (1976). This definition more clearly applies to a
change in a child's physical location with respect to the child's parent
than to a change in the child's legal status. Indeed, if Congress had
intended the latter meaning rather than the plain meaning, it likely
would have been more explicit in describing the type of "removal"
intended.

8. In addition to section 472(a), other provisions of section 472
provide support for ACF's interpretation and undercut New York's.
Section 472(e) of the Act provides that, within 180 days (about six
months) of a voluntary placement, there must be a judicial determination
that such placement is in the best interest of the child. New York's
interpretation would in effect allow it to circumvent this requirement
as well as the requirement in section 472(f) that there be a written
agreement between the state agency and the child's parents or guardian.
The cases in question here arguably involved placements that, while not
pursuant to voluntary placement agreements, were nonetheless voluntary
since the children were living with relatives with whom the parents had
left them, apparently without state agency involvement. There is no
evidence that any of the cases in question here had a signed voluntary
placement agreement or a judicial determination initiated within six
months ratifying the placement.

9. We note that it is unclear whether the state agency can establish
IV-E eligibility by simply removing the child from the home of the
relative in which the child has resided for more than six months
following the child's physical removal from home; a court would have to
determine that continuation in that home was contrary to the child's
welfare or there would have to be a voluntary placement agreement.

10. This assumes that the state agency would be in a position to
know that the child had been physically removed from home and was living
with a relative. New York alleged that it could take "days, weeks,
months, or even longer" before the state agency learned of this
situation. New York City brief at 17. However, if, as is likely, the
child's parent was receiving AFDC payments for the child, the child's
removal should have been reported to the state agency. Moreover, if the
child's relative applied for AFDC or foster care payments once the child
began living with him or her, the state agency might have ascertained
that the child had been recently removed from home. Finally, whenever a
parent transfers a child to a relative's home under circumstances which
the court later finds to be contrary to the child's welfare, such a
transfer would likely come to the attention of the state agency through
other means (e.g., through the filing of an abuse or neglect report by
the relative).

11. Section 201.15 provides that a claim or portion of a claim may
be deferred (as opposed to paid or disallowed) when the Regional
Administrator believes the claim or a specific portion of the claim is
of questionable allowability. The Regional Administrator must give the
state written notice of the deferral which specifies the reason for the
deferral and requests the state to make available for inspection all
documents and materials which the Regional Office believes necessary to
determine the allowability of the claim. The Regional Administrator (or
Administrator) has 90 days after all documentation is available in
readily reviewable form to determine the allowability of the deferred
claim (and may disallow if documentation is not submitted in readily
reviewable form within the specified time). The claim must be paid
subject to a later determination of allowability if the Regional
Administrator is unable to complete the review within that time period.

12. Indeed, New York specifically identified this as one of the
calculation issues which it agreed should be addressed after the Board
ruled on the other issues presented by these