Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Tennessee Department of Human Services
Date: June 16, 1997
Docket Nos. A-96-179
and A-97-70
Decision No. 1619
DECISION
The Tennessee Department of Human Services (Tennessee)
appealed decisions of the Administration for Children and
Families (ACF) disallowing $663,641 (Docket No. A-96-179)
and $3,216,342 (Docket No. A-97-70) in federal financial
participation (FFP). Tennessee had claimed FFP pursuant
to the Emergency Assistance (EA) provisions of title IV-A
of the Social Security Act (Act) for the quarters ending
March 31, June 30, and September 30, 1996.
ACF disallowed FFP in expenditures incurred for providing
benefits and services to children who were within the
jurisdiction of Tennessee's juvenile justice system. In
issuing the disallowance, ACF relied on Action
Transmittal 95-9 (AT-95-9). That action transmittal
provides that, as of January 1, 1996, FFP is not
available under EA for expenditures for benefits or
services to children in the juvenile justice system.
Tennessee seeks to have the disallowance reversed on the
grounds that AT-95-9 is invalid under the Administrative
Procedure Act (APA), 5 U.S.C. § 553, et seq. Tennessee
contends that AT-95-9 is a legislative rule which, under
sections 533(b) and (c) of the APA, can only be effective
after publication in the Federal Register and opportunity
for comment. ACF contends that AT-95-9 is an
interpretative rule which, under section 553(b) of the
APA, is effective without notice and comment.
We conclude that AT-95-9 is an interpretative rather than
a legislative rule and that notice and comment rulemaking
was not required. As explained below, we base this
conclusion on the following factors: AT-95-9 sets forth
ACF's interpretation of the requirements of sections
403(a)(5) and 406(e)(1) of the Act; in AT-95-9, ACF did
not purport to promulgate a legislative rule; AT-95-9 is
consistent with the existing regulations implementing the
EA program; and to the extent that AT-95-9 modifies any
unpromulgated ACF interpretation, its effect is
consistent with ACF's prior practice of some twenty years
concerning what constitutes an emergency for EA purposes.
We therefore conclude that AT-95-9 constituted
appropriate notice to states under the APA that, as of
January 1, 1996, juvenile justice costs were not
reimbursable under EA. Accordingly, we uphold the
disallowance.
Background and Relevant Federal Authority
A. The APA
When a federal agency adopts, amends, or repeals a rule,
the APA requires the federal agency to publish notice of
the proposed change in the Federal Register and give
interested persons "an opportunity to participate in the
rulemaking through the submission of written data, views,
or arguments." 5 U.S.C. § 553(c). However, the APA
provides an exception to the notice and comment
requirement for "interpretative rules, general statements
of policy, and rules of agency organization, procedure,
or practice." 5 U.S.C. § 553(b). (Emphasis added).
Therefore, interpretative rules may be promulgated
without notice and comment while other rules, usually
referred to as substantive or legislative rules, may
not. 1/
Courts have consistently held that agency rules are
invalid if an agency fails to comply with APA
requirements. Buschmann v. Schweiker, 676 F.2d 352, 358
(9th Cir. 1982); cf. Chrysler Corp. v. Brown, 441 U.S.
281, 313 (1979) ("[c]ertainly regulations subject to the
APA [notice and comment requirements] cannot be afforded
the `force and effect of law' if not promulgated pursuant
to the statutory procedural minimum found in that Act").
B. The EA Program
The EA program was established in 1967 as an optional
component of title IV-A of the Act. It provided
reimbursement to states at an FFP rate of 50% for the
amount "expended under the State plan . . . as emergency
assistance to needy families with children." Section
403(a)(5) of the Act. Section 406(e)(1) of the Act, as
in effect during the period in question, defined
emergency assistance as follows:
The term "emergency assistance to needy families
with children" means any of the following, furnished
for a period not in excess of 30 days in any 12-
month period, in the case of a needy child under the
age of 21 who is (or, within such period as may be
specified by the Secretary, has been) living with
any of the relatives specified in subsection (a)(1)
in a place of residence maintained by one or more of
such relatives as his or their own home, but only
where such child is without available resources, the
payments, care, or services involved are necessary
to avoid destitution of such child or to provide
living arrangements in a home for such child, and
such destitution or need for living arrangements did
not arise because such child or relative refused
without good cause to accept employment or training
for employment--
(A) money payments, payments in kind, or such
other payments as the State agency may specify with
respect to, or medical care or any other type of
remedial care . . . and
(B) such services as may be specified by the
Secretary
The Secretary has promulgated rules implementing the EA
program at 45 C.F.R. § 233.120.
By fiscal year 1990, some 20 years after the enactment of
EA, 32 jurisdictions operated EA programs. According to
state plans on file with the Department of Health and
Human Services (DHHS), as of October 1988, most EA
programs covered natural disasters (23 jurisdictions),
such as floods and fires, and "unspecified crisis
threatening family or living arrangements (21
jurisdictions)." House Comm. on Ways and Means, Overview
of Entitlement Programs, WMCP No. 102-44, 102d Congress,
2d Session 631 (1992). Typical qualifying causes for EA
specified by states --
included (in order of frequency): eviction,
potential eviction, or foreclosure; homelessness;
utility shut-off or loss of heating energy supply or
equipment; loss of employment or strike; civil
disorders or crimes of violence; health
hazards/risks to health and safety; emergency
medical needs; an illness, accident, or injury.
Id.
Sometime in the early 1990's, ACF allowed an expansion of
these traditional types of emergencies by reimbursing
certain states under EA for their expenditures on behalf
of children in the custody of or under the supervision of
the state's juvenile justice system. Tennessee was one
of these states. Effective January 1, 1992, Tennessee
amended the EA portion of its title IV-A state plan to
cover EA reimbursement for services to children in state
custody or in danger of coming into state custody. State
Ex. 1. (See also State Exs. 2 and 3 concerning 1993 and
1994 amendments.) These plan amendments specifically
stated that emergency services covered by the plan would
include the provision of services to children under 21
years of age when those children have been removed from
the household or when they have been removed from the
community, or when they are considered at imminent risk
of removal to the custody of the Tennessee Department of
Human Services, the Department of Youth Development, the
Department of Mental Health and Mental Retardation or the
Juvenile Courts. 2/ Pursuant to these plan amendments,
Tennessee claimed and ACF paid EA reimbursement for
services and administrative expenses for children under
the jurisdiction of each of these state departments. 3/
On September 12, 1995, ACF issued AT-95-9. The purpose
of this action transmittal was to notify states that FFP
would not be available under EA for the costs of benefits
or services provided to children in a juvenile justice
system. In it, ACF discussed the purpose of EA as
demonstrated by its legislative history. It wrote:
The context of the EA program is the family and its
purpose is to help family members by providing
financial assistance and services to enable them to
meet family emergencies that they are experiencing.
ACF cited portions of the legislative history of EA to
show that the focus of EA is family emergencies typically
associated with lack of resources to meet such
emergencies.
Both the report of the House Ways and Means
Committee and the report of the Senate Finance
Committee on the 1967 Social Security Amendments
state that the EA program is designed to deal with
crisis situations threatening a family such as
"eviction, or when utilities are turned off, or when
an alcoholic parent leaves children without food."
H. Rep. No. 544, 90th Cong., 1st Sess., 109 (1967);
S. Rep. No. 744, 90 Cong., 1st Sess., 165 (1967).
ACF noted that federal policy allowed states "`to define
the types of emergencies it will cover . . . so long as
the program's scope . . . bears a valid relationship to
the intent and purpose of the program.' (SSA-AT-82-28,
p.2.)" It then concluded that expenditures for children
in the juvenile justice system did not bear such a
relationship to EA and therefore did not qualify for EA
reimbursement. ACF wrote:
The central purposes and goals of the juvenile
justice system are different from those of the EA
program. The placement of a child in the juvenile
justice system due to delinquency results from
behavior that would be a criminal offense committed
against society as defined under State law if done
by an adult. A principal purpose of the placement
of such children is to protect society. While it is
true that rehabilitative services are provided to
the child, the purpose is to enable the juvenile to
return to society in a responsible capacity.
When a child is placed in the juvenile justice
system due to a need for supervision, it is because
of the child's behavior rather than a family
emergency. In many instances, the minor may have
committed delinquent acts. Since the placement is
made to address the child's behavioral problem
rather than to alleviate a family emergency, the
associated program and administrative costs would
not be subject to Federal matching under the EA
program.
Finally, the statutory requirement in section 406(e)
of the Social Security Act that a child sought to be
served by the EA program be "without available
resources" need not be met before a child is placed
in the juvenile justice system for either of the
above two reasons. Children are not placed in the
juvenile justice system because they are destitute
or in need of living arrangements. Indeed, such
considerations are not even relevant.
ACF concluded that FFP is not available under EA for
expenditures for benefits or services to children in the
juvenile justice system --
who have been removed as a result of the child's
alleged, charged, or adjudicated delinquent
behavior, or who have otherwise been determined to
be in need of State supervision by reason of the
child's behavior.
The action transmittal was effective immediately for
states which had not amended their state plans to include
EA reimbursement for such children. States which had
amended their plans and had been receiving EA
reimbursement were given until January 1, 1996 to submit
conforming state plan amendments and to change their
claiming procedures. ACF did not dispute Tennessee's
representations that the elimination of EA reimbursement
effective January 1, 1996 for these children had a
"substantial financial and programmatic impact on
Tennessee's service delivery system for children and
families." State Ex. 6, at 1. See also State Exs. 12-
15.
In October 1995, the Office of the Inspector General
(OIG) of the DHHS issued a report titled "Review of
Rising Costs in the Emergency Assistance Program." The
report documented the expansion of EA and traced the
causes of that expansion. The report explained that--
[t]he EA expenditures increased by over 400 percent
or $600 million from Fiscal Year (FY) 1991 to 1994.
Information available at the Administration for
Children and Families (ACF) shows that EA
expenditures will exceed $1 billion by FY 1996 or
about a 550 percent increase from FY 1991 EA
expenditures.
State Ex. 5, at i.
As causes, the report identified ACF's approval of state
plan amendments--
which enabled States to maximize Federal revenue by
obtaining EA funding for services traditionally
State funded. These services, predominantly
juvenile justice, tuition, foster care, and child
welfare usually address long-term problems while EA
was intended to address temporary emergencies.
Id.
The report stated that in the course of conducting the
review, the OIG had recommended to ACF that it revise or
rescind its policies that allowed states to claim EA for
these types of expenditures. The report noted that ACF
had taken one such action by issuing AT-95-9. The OIG
estimated that this action alone would result in annual
federal savings of $240 million for three of the states
(California, Pennsylvania, and New York) reviewed in the
report.
Federal reimbursement for EA under section 403(a)(5) of
the Act was repealed by section 103 of the Personal
Responsibility and Work Opportunity Reconciliation Act of
1996, Public Law 104-193 (August 22, 1996).
Analysis
The Board has consistently held that if a federal
agency's interpretation of a statute or a regulation it
is charged with enforcing is a reasonable one, and the
State had notice of it, then it will be upheld by the
Board. Indiana Dept. of Public Welfare, DAB No. 970
(1988); see also New York State Dept. of Social Services,
DAB No. 1473 (1994); Maine Dept. of Human Services, DAB
No. 712 (1985), and Nebraska Dept of Health, DAB No. 373
(1982).
In this case, Tennessee argued in effect that ACF did not
give valid notice of the interpretation in AT-95-9, but
it did not challenge the reasonableness of ACF's
interpretation. Tennessee argued that AT-95-9 was
invalid because it constitutes a legislative rule which
should have been promulgated pursuant to the notice and
comment provisions of the APA in order to be effective.
ACF argued that AT-95-9 constitutes an interpretative
rule which is not subject to notice and comment. As
explained below, we conclude that AT-95-9 is an
interpretative rule which, under the APA, was validly
issued in an action transmittal and relied upon by ACF as
a basis for this disallowance.
While there is considerable diversity in the standards
courts have used to distinguish between legislative and
interpretative rules, it is generally agreed that when an
agency is exercising its rule-making power to interpret
or clarify an existing statute or regulation, the agency
is considered to be engaged in interpretative
rulemaking. 4/ "An interpretative rule simply states
what the administrative agency thinks the statute means
. . . ." General Motors Corp. v. Ruckelshaus, 742 F.2d
1561, 1565 (D.C. Cir. 1984) (en banc), cert. denied, 471
U.S. 1074 (1985); see also Alcaraz v. Block, 746 F.2d
593, 613 (9th Cir. 1984) (interpretative rule "simply
explained something the statute already required").
In contrast, courts also agree that when an agency acts
to create new law, rights, or duties in what amounts to a
legislative act, it is engaged in legislative rulemaking.
White v. Shalala, 7 F.3d 296, 303 (2d Cir. 1993); Metr.
School Dist. of Wayne Township v. Davila, 969 F.2d 485,
489-490 (7th Cir. 1992), cert. denied, 113 S.Ct. 1360
(1993); United Technologies Corp. v. EPA, 821 F.2d 714,
718 (D.C.Cir. 1987). See also Alcaraz, 746 F.2d at 613
(legislative rules impose general, extra-statutory
obligations pursuant to authority properly delegated by
the legislature); Cabais v. Egger, 690 F.2d 234, 238 & n.
9 (D.C.Cir. 1982) (legislative rules have effects
completely independent of the statute).
In addition to the necessity for notice and comment,
Kenneth Culp Davis, in Administrative Law Treatise,
identifies three principal differences between
legislative and interpretative rules. These distinctions
are as follows.
o "First, a legislative rule has the same
binding effect as a statute. It binds members
of the public, the agency, and even the
courts, in the sense that courts must affirm a
legislative rule as long as it represents a
valid exercise of agency authority." 1
Kenneth Culp Davis et al., Administrative Law
Treatise § 6.3 (3rd ed. 1994). In contrast,
"[a] court may choose to give binding effect
to an interpretative rule . . . but it is the
court that provides the binding effect of law
through its process of statutory
interpretation." Id. 5/
o Second, "an agency has the power to issue binding
legislative rules only and to the extent Congress
has authorized it to do so . . . . By contrast,
any agency has the inherent power to issue
interpretative rules." Id.
o Third, "a legislative rule can impose distinct
obligations on members of the public in addition
to those imposed by statute, as long as the rule
is within the scope of rulemaking authority
conferred on the agency by statute. By contrast,
an interpretative rule cannot impose obligations
on citizens that exceed those fairly attributable
to Congress through the process of statutory
interpretation." Id.
Given these principles and distinctions, we conclude that
AT-95-9 is an interpretative rule for the following
reasons.
o AT-95-9 sets forth ACF's interpretation of what
constitutes an "emergency" for purposes of EA
reimbursement. Section 403(a)(5) authorizes FFP
for "emergency assistance to needy families with
children." That phrase is defined at section
406(e)(1) of the Act. It authorizes EA match for
emergency assistance for a child "where such
child is without available resources" and "the
payments, care, or services involved are
necessary to avoid destitution of such child or
to provide living arrangements in a home for such
child." In AT-95-9, ACF informed states that, as
of January 1, 1996, a state's juvenile justice
system's assertion of jurisdiction over a child
did not constitute the type of emergency that
Congress intended federal EA funds to address.
o In AT-95-9, ACF did not purport to be acting
pursuant to a Congressional delegation of
legislative authority by which it could impose
obligations in addition to those imposed by the
statute itself. 6/ Rather, ACF looked to the
legislative history of the statute for authority
for its conclusion that Congress' intent was to
assist in family emergencies, typically
associated with lack of resources to meet such
emergencies. This reliance on congressional
history supports a finding that ACF was seeking
to interpret congressional intent rather than
promulgate binding standards "that exceed those
fairly attributable to Congress through the
process of statutory interpretation." Davis at
234. See Metr. School Dist. of Wayne Township,
969 F.2d at 490 (case law, language, and
legislative history are classic tools of agency
interpretation).
o The result set forth in AT-95-9 is well within
that attributable to Congress through statutory
interpretation. The legislative history shows
that Congress sought to assist states in
addressing short-term family crises such as
eviction, utility termination, or the need for
resources such as food or medical care, rather
than the type of long-term problems experienced
by delinquent or ungovernable children and their
families.
o AT-95-9 is not inconsistent with any existing
rule governing the EA program. Rather, AT-95-9
is consistent with the plain language of 45
C.F.R. § 233.120(b)(2) which provides that
federal participation is available for services
"that meet needs attributable to emergency or
unusual crisis situations." AT-95-9 clarifies
what ACF considers to be "emergency or unusual
crisis situations."
o Finally, if ACF had originally disapproved
states' juvenile justice EA amendments on the
grounds that a child's involvement with the
juvenile justice system is outside the boundaries
of what Congress meant emergency assistance to
address, no one would have argued that ACF had to
promulgate a rule prior to such disapprovals.
ACF's action would have been regarded as within
the scope of its authority to interpret the EA
provisions. A state might appeal the disapproval
on the grounds that ACF had misinterpreted the
Act. However, the question on appeal would
simply be whether ACF's disapproval of the plan
amendment was based on a reasonable
interpretation of the Act. The fact that ACF
approved some plan amendments for juvenile
justice EA services, and has now reconsidered the
correctness of its interpretation, does not
render AT-95-9 a legislative rule. In issuing
AT-95-9, ACF is continuing to interpret the
proper scope of the EA program in light of its
experience in administering the EA program.
The question of whether AT-95-9 is an interpretative rule
or a legislative rule has been addressed by one court.
In Chief Probation Officers of California v. Shalala, No.
C-95-4644 DLJ (N.D. Cal. 1996), appeal docketed, No. 96-
15897 (9th Cir. May 10, 1996), the district court
determined that AT-95-9 was an interpretative rule. The
court found that--
[b]ecause the purpose of the Action Transmittal was
to clarify the agency's interpretation of an
existing regulation, and because the position
announced in the transmittal was consistent with
that regulation, the transmittal is more akin to
those rules that have been classified as
interpretative in this circuit than those rules that
have been labeled substantive.
Tennessee set forth several bases on which AT-95-9 should
be considered a legislative rule. Below we address each
of these arguments and explain why they are not
persuasive.
1. Whether the fact that AT-95-9 had a substantial
impact on Tennessee makes it a legislative rule
Tennessee asserted that AT-95-9 had a substantial impact
on "the State's planning for the provision of services to
children whose custody is committed to it by the courts
or for those children for whom commitment to State
custody could be avoided by services." State Br. at 9.
Tennessee argued that the fact that AT-95-9 had a
substantial impact on it and other states meant that AT-
95-9 was a legislative rule.
It is undisputed that AT-95-9 reduced the amount of EA
reimbursement Tennessee was able to claim and in this
respect had a substantial impact on Tennessee's funding
for child welfare services. See Tennessee Exs. 12 - 15.
While Tennessee cited a line of decisions which use
substantial impact as a factor in determining whether a
rule is legislative or interpretative, other decisions
have rejected substantial impact as a determinative
factor. The Board has previously adopted the reasoning
of the latter cases and concluded that substantial impact
does not make a rule a legislative rule.
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.
Because both interpretive and substantive rules may
affect vital interests, the substantial impact test
"has no utility in distinguishing between the two."
Louisiana Dept. of Health and Hospitals, DAB No.
1176, at 7-8 (1990) (citing Cabais v. Egger, 690
F.2d 234, 237-238 (D.C.Cir. 1982), and inter alia
United States v. Picciotto, 875 F.2d 345 (D.C.Cir.
1989)).
New York State Department of Social Services, DAB No.
1473, at 3 (1994).
Therefore, the fact that AT-95-9 had a substantial impact
on Tennessee does not mean that it is a legislative rule.
See also Dia Navigation Company, Limited v. Pomeroy, 34
F. 3d 1255, 1265 (3rd Cir. 1994); Alcaraz v. Block, 746
F.2d at 613; American Postal Workers Union v. USPS, 707
F.2d 548, 560 (D.C. Cir. 1983), cert. denied, 465 U.S.
1100 (1984).
2. Whether the fact that AT-95-9 restricted
Tennessee's ability to claim EA reimbursement
pursuant to its title IV-A state plan means
that AT-95-9 is a legislative rule
Until the issuance of AT-95-9, Tennessee could claim
juvenile justice EA reimbursement pursuant to its title
IV-A state plan. AT-95-9 informed Tennessee and other
similarly situated states that they had to submit plan
amendments deleting references to assistance for children
in their juvenile justice systems and, as of January 1,
1996, could no longer claim funds for such children.
Tennessee argued that elimination of its ability to claim
EA for such juvenile justice children under its state
plan made AT-95-9 a legislative rule.
While there are cases which refer to the elimination of a
right as a criterion for determining whether a rule is
legislative or interpretative, these cases are not
persuasive here for the following reasons.
First, approval of a state plan pursuant to an
interpretation of a statute does not bind the agency in
perpetuity to that interpretation or require it to use
legislative rulemaking to change the interpretation.
Rather, the regulations concerning the approval and
operation of title IV-A state plans explicitly
contemplate that a state's claiming rights under a state
plan may change as federal policy interpretations change.
Section 201.3 of 45 C.F.R provides:
After approval of the original plan by the
Administration, all relevant changes, required by
new statutes, rules, regulations, interpretations,
and court decisions, are required to be submitted
currently so that the Administration may determine
whether the plan continues to meet Federal
requirements and policies.
(Emphasis added).
Section 201.3(d) further provides:
Basis for approval. Determinations as to whether
State plans (including plan amendments and
administrative practice under the plans) originally
meet or continue to meet, the requirements for
approval are based on relevant Federal statutes and
regulations. Guidelines are furnished to assist in
the interpretation of the regulations.
(Emphasis added).
Finally, section 201.6 of 45 C.F.R. addresses the
circumstances under which the Secretary may withhold
funds for noncompliance of a state plan. Subsection
201.6(a)(2) provides in relevant part:
A question of noncompliance of a State plan may
arise from an unapprovable change in the approved
State plan, [and] the failure of the State to change
its approved State plan to conform to a new Federal
requirement . . . .
Thus, the regulations expressly provide that agency
interpretations and guidelines are to be used in
determining whether state plans meet and continue to meet
statutory and regulatory requirements for approval.
Further, a state's failure to conform its plan to a new
federal interpretation, not just a new statute or
regulation, is grounds for withholding funds. Thus, the
act of approving a state plan does not bind the agency to
all interpretations used in that approval nor require the
agency to subsequently use legislative rulemaking to
change its prior interpretations. Quite appropriately,
the agency is entitled to change its interpretations in
light of its experience in administering the program and
state plans must be adjusted in accordance with such
changes.
Second, cases citing the elimination of a right are
similar to the cases which look to the "substantial
impact" of a rule. Just as we do not accept the
principle that a substantial impact makes a rule
legislative, we do not accept the principle that
elimination of a previously existing right, per se, makes
a rule legislative. See New Jersey Dept. of Human
Service, DAB No. 1071, at 9 (1989). As we stated
previously, both interpretative and substantive rules may
affect vital interests. Consequently, a change in agency
policy may have the effect of removing a right that a
party enjoyed under the prior policy. See Alcaraz, 746
F.2d at 593 (elimination of a right to receive benefits
without providing a Social Security number); American
Postal Workers Union, 707 F.2d at 548 (restriction of
benefits under a pension system). The issue is not
whether a right or benefit was eliminated by a rule, but
whether the agency was acting pursuant to its authority
to interpret the language of a statute or rule or acting
pursuant to its authority to legislate standards which go
beyond the language of the statute.
Third, while this case involves the right of a state to
claim federal reimbursement under a state plan, the cases
cited by Tennessee in support of this argument concern
the rights of individual beneficiaries. As we have noted
previously, a state's ability to claim money under a
federal program is not equivalent to an individual's
right to a program benefit. See New Jersey, DAB No.
1071, at 10. This is particularly true here when the
effect of the state plan provision in question was to
shift to federal dollars costs traditionally borne by the
state, not to change an individual beneficiary's
entitlement under federal law. Below we discuss the
cases cited by Tennessee as directly supporting its
argument and explain why they are not persuasive.
In Yesler Terrace Community Council v. Cisneros, 37 F.3d
442 (9th Cir. 1994), the court invalidated the Department
of Housing and Urban Development's (HUD's) determination
under 42 U.S.C. § 1437d(k) that Washington's state court
eviction procedures satisfied due process requirements.
With this determination, Washington public housing
tenants lost their right to a pre-eviction administrative
grievance hearing. The court found that HUD's finding
was a legislative rule because section 1437d(k) "did not,
on its own, alter tenants' rights to a grievance
hearing." Id. at 449. Section 1437d(k) gave--
HUD the authority to make due process
determinations. HUD therefore did more than
construe the statute . . . . HUD's decision, made
pursuant to authority granted by Congress,
eliminated that right for a class of tenants.
Therefore, it was a substantive rule.
Id. (Emphasis added).
The critical factor in this case was that HUD acted
pursuant to a congressional delegation of authority to
make determinations about the due process standards of
states' eviction procedures. In determining that
Washington's eviction process satisfied due process, HUD
was not construing or interpreting section 1437d(k).
Rather, HUD was acting pursuant to the authority
delegated by that section to make findings independent of
the terms of that section. This is the type of authority
which is regarded by courts as legislative rule making
authority.
Linoz v. Heckler, 800 F.2d 871 (9th Cir. 1986), involved
a challenge to a provision in the Medicare carrier's
manual issued by the Health Care Financing Administration
(HCFA). This provision precluded reimbursement for
ambulance services incurred by Medicare Part B claimants
for transfer to better equipped facilities to be treated
by medical specialists. The court determined that the
manual provision was a legislative rule. We conclude
that Linoz is not persuasive in this case for the
following reasons.
o Linoz involved the rights of individual
Medicare beneficiaries. As we have observed
previously, the rights of individual
beneficiaries may be accorded more deference
than the rules affecting states' claims for
federal dollars under a state plan.
o In Linoz, the manual provision was binding on
the insurance carriers, i.e., the carrier had
no choice but to deny the claim and the
claimant had no judicial right of review as to
the denial. In contrast, AT-95-9 is not
binding on the Board. Rather, the Board looks
to whether an action transmittal is a
reasonable interpretation of the related
regulation or statutory provision. Further, a
state can seek judicial review of the Board's
decision and the reviewing court is similarly
not bound by the action transmittal.
o The Linoz court may have been influenced by the
fact that the manual provision at issue
resulted in particularly harsh consequences for
Medicare beneficiaries and was subsequently
repealed by HCFA. For example, one of the
plaintiffs had a ruptured urinary tract system
but lived on an island with no urologist. The
manual provision precluded reimbursement for
transportation to an island and a hospital with
an urologist. By the time Linoz was issued,
HCFA had amended the manual to allow for such
ambulance costs.
Finally, we note that both Yesler and Linoz are Ninth
Circuit Court of Appeals cases. However, the district
court in the Ninth Circuit in Chief Probation Officers of
California did not find them to be persuasive in the
categorization of AT-95-9.
3. Whether a change in agency interpretation must
be promulgated pursuant to APA notice and
comment procedures
After 1990, ACF began reimbursing a number of states
under EA for the provision of benefits and services to
children under the jurisdiction of their juvenile justice
systems. AT-95-9 provided notice to these states and all
others that such expenses would no longer be reimbursable
under EA as of January 1, 1996. Tennessee argued that
AT-95-9 changed agency policy and therefore the
transmittal should have been promulgated pursuant to
notice and comment requirements of the APA. 7/
We reject this argument for the following reasons.
First, as the court in Chief Probations Officers of
California noted, courts have recognized that "a change
in agency position does not necessarily make a rule
legislative." Chief Probation Officers of California, at
7. The determinative factor should be the legal basis
for the rule, i.e., whether the agency is invoking its
congressionally delegated authority to adopt rules which
go beyond the requirements of the statute, not whether
the new rule changes a prior agency interpretation of the
statute.
An instructive case on this point is White v. Shalala.
White involved a ruling by the Social Security
Administration (SSA) requiring veteran's benefits paid to
a veteran for the support of the veteran's dependent to
be counted as the dependent's unearned income in
calculating the dependent's Supplemental Security Income
(SSI) benefits. Prior to the issuance of the ruling,
SSA's policy had been to treat such benefits as the
unearned income of the veteran. This prior policy was
judicially invalidated. The plaintiffs argued that SSA's
new ruling, which had the effect of reducing dependents'
SSI benefits, was a legislative rule. The court looked
to whether SSA was exercising its rulemaking power to
clarify an existing statute, or to create new law,
rights, or duties in what amounted to a legislative act.
It concluded that the new rule remained interpretative
because SSA was interpreting the terms "income" and
"received" in the existing statute and implementing
regulations. The court wrote:
The plaintiffs argue that SSR 82-31 is legislative
because it is a change from the Secretary's prior
interpretation of s 1382a(a)(2)(B) under which the
augmented portion of the benefit was counted as
income to the veteran rather than the veteran's
dependant. However, an interpretive rule changing
an agency's interpretation of a statute is not
magically transformed into a legislative rule
. . . . If the rule is an interpretation of a
statute rather than an extra-statutory imposition of
rights, duties or obligations, it remains
interpretive even if the rule embodies the
Secretary's changed interpretation of the statute.
White v. Shalala, 7 F.3d at 304 (emphasis added). See
also Metro. School Dist. of Wayne Township, 969 F.2d 485,
at 492 (agency's change in reading of statute did not
make rule announcing change legislative); American
Postal Workers Union, 707 F.2d at 559 (new agency
position does not make rule substantive rather than
interpretative).
Second, the Board has previously considered whether a
change in an agency's policy requires that the new policy
be considered a legislative rule. In New Jersey, DAB No.
1071, New Jersey challenged the validity of certain
Medicaid policies which HCFA issued as revisions to part
of its State Medicaid Manual. New Jersey argued that the
manual provisions were a substantive modification of the
law, restricting entitlements, and were subject to notice
and comment rulemaking procedures. The Board determined
that "a policy interpretation established by informal
means could be changed in the same way." New Jersey, DAB
No. 1071 at 9. See also Maine Dept. of Health Services,
DAB No. 712 (1985).
Therefore, even if AT-95-9 modified ACF's prior
interpretation on the allowability of juvenile justice
costs, this does not make it a legislative rule. EA had
existed for over 20 years before ACF began reimbursing
juvenile justice costs in the early 1990's. ACF's
interpretation, that section 406(e)(1) allowed such
reimbursement, was not effectuated by rulemaking or by
action transmittal or by any sort of formal policy
announcement. Consequently, AT-95-9 simply modified an
unpromulgated interpretation that had been implemented
through state plan approval in a minority of states. It
is entirely appropriate that ACF amended this
unpromulgated interpretation by means of an action
transmittal. See New York State Dept. of Social Services
v. Bowen, 835 F.2d 360, 366 (D.C. Cir. 1987) (recognizing
an action transmittal as a vehicle for formal statement
of official ACF interpretations) cert. denied, 486 U.S.
1055 (1988). As the court wrote in Chief Probation
Officers of California:
For a brief period beginning sometime around 1993,
HHS approved a limited number of state plans which
requested EA reimbursement funds to cover services
provided through juvenile justice systems programs.
In 1995, however, the agency issued the Action
Transmittal to revise this practice and to provide
an interpretation of the emergency assistance
program which was more consistent with the agency's
historical view of the statute and the legislative
intent of Congress. The brief prior period of
agency approval of state plans including juvenile
justice system programs does not convert this
interpretative announcement into a substantive rule
requiring APA notice and comment procedures.
Chief Probation Officers of California, at 7 (emphasis
added).
4. Whether the revised interpretation of 45 C.F.R.
§ 233.120 in AT-95-9 makes AT-95-9 a
legislative rule
The ACF Regional Office had previously approved
Tennessee's state plan which provided EA services to
children in the juvenile justice system. Tennessee
asserted that this approval and subsequent reimbursement
meant that ACF interpreted sections 403(a)(5) and
406(e)(1) of the Act and 45 C.F.R. § 233.120 to authorize
EA reimbursement for such services. According to
Tennessee, AT-95-9 therefore represented a change in
ACF's interpretation of the statute and regulation.
Tennessee argued that "ACF's change in that previous view
and current restriction of the type of service is making
law which is subject to substantive rule making
requirements of the APA." State Br. at 13.
As discussed above, we conclude that ACF may change its
"previous view" of what reimbursement is allowable under
EA without notice and comment. The fact that the change
involves a revised reading of a regulation or a statute
does not alter our conclusion. All interpretative rules
necessarily involve interpretation of a statute or
regulation. A change in an agency's interpretation may
involve a revised understanding of a statute's
requirements or a revised construction of a regulation.
An interpretative change in itself does not make a
resulting rule legislative.
Tennessee contended that there are cases in which courts
have concluded that a revised construction of a
regulation must be promulgated by legislative rule. In
support of its argument, Tennessee cited Ohio Department
of Human Services v. HHS, 862 F.2d 1228 (6th Cir. 1988).
Ohio involved a dispute over the validity of an
amendment of a rule governing the amount of an
institutionalized Medicaid recipient's income that would
have to be contributed to the cost of institutional care.
The original 1974 regulation was adopted pursuant to
notice and comment rulemaking. The 1978 amendment,
adopted without notice and comment, set a ceiling on the
amount a state could exempt from contribution. The court
found that this ceiling was not implicit in the 1974
regulation and that the 1978 amendment of the 1974
regulation had to be effectuated by notice and comment.
However, as the court noted in Chief Probation Officers
of California, AT-96-9 is consistent with the terms of
the related regulation, 45 C.F.R. § 233.120(b)(2).
Further, in Ohio, the court was reviewing HCFA's
promulgation of standards pursuant to section 1902(a)(17)
of the Act, in which Congress granted HCFA the authority
to promulgate legislative rules concerning eligibility,
income, and resources standards for the Medicaid program.
This case therefore does not fall within the holding of
Ohio.
5. Whether ACF was acting pursuant to legislative
rulemaking authority vested in it by section
406(e)(1)(B) of the Act
Section 406(e)(1) of the Act defines emergency assistance
to needy families as "(A) money payments, payments in
kind, or such other payments as the State agency may
specify with respect to, or medical care or any other
type of remedial care . . . and (B) such services as may
be specified by the Secretary." Tennessee argued that
subsection (B) of section 406(e)(1) vested legislative
rulemaking authority in ACF and that ACF acted pursuant
to this authority when it issued AT-95-9.
We reject this argument for the following reasons.
First, an agency's characterization of the authority
pursuant to which it is acting is entitled to
consideration in determining whether a rule is
legislative. United Technologies, 821 F.2d at 718;
Metro. School Dist. of Wayne Township v. Davila, 969 F.2d
at 489; General Motors Corp. v. Ruckelshaus, 742 F.2d at
1565. Cabais v. Egger, 690 F.2d at 258, n. 7. ACF did
not purport to be acting pursuant to any authority vested
in it by section 406(e)(1)(B).
Second, as the court determined in Chief Probation
Officers of California, AT-95-9 does not address what
constitutes a "service." Consideration of what
constitutes a service would entail a discussion of
services, i.e., counseling, rent payments, medical care,
and homemaker services. Rather, AT-95-9 addresses what
is to be considered an "emergency." It speaks to the
fact that ACF has allowed states to define the types of
emergencies they would address "so long as the program's
scope bears a valid relationship to the intent and
purpose of the program." AT-95-9, at 2, citing AT-82-28,
at 2. The action transmittal goes on to explain why
juvenile justice situations "bear no such `valid
relationship' to the context or purpose of the EA program
. . . ." Id.
6. Whether, in promulgating AT-95-9, ACF was
interpreting the term "emergency" or exercising
its judgment as to how to implement a general
statutory mandate
Tennessee argued that AT-95-9 was "a statement of ACF's
policy judgment relative to its implementation of the
statute for emergency assistance" and not an
interpretation of the term "emergency." State Br. at 18.
Tennessee therefore concluded that AT-95-9 falls within
the court's assertion in United Technologies that if "the
rule is based upon an agency's power to exercise its
judgment as to how best to implement a general statutory
mandate, the rule is likely a legislative one." Id. at
19, citing United Technologies, 821 F.2d at 719-720.
The holding in United Technologies does not support
Tennessee's argument on this point, but rather supports
the conclusion that AT-95-9 is an interpretative rule.
United Technologies dealt with the Environmental
Protection Agency's (EPA's) rules conforming its
hazardous waste regulations to new statutory provisions
enacted in the Hazardous and Solid Waste Amendments of
1984. The court determined that the EPA rules were
interpretative for the following reasons.
o The EPA viewed the rules as interpretative. It
explained that the "principal purpose" of the
Final Rule was "to codify the new statutory
requirements" of the 1984 Amendments. Further,
in the preamble, the EPA discussed the
regulations in light of what it construed
Congress' intent to be rather than as an
exercise of its delegated power to promulgate
rules.
o The legal basis for the rules was the EPA's
interpretation of specific statutory
provisions. As the court wrote, "what
distinguishes interpretative from legislative
rules is the legal base upon which the rule
rests. If the rule is based on specific
statutory provisions, and its validity stands
or falls on the correctness of the agency's
interpretation of those provisions, it is an
interpretative rule." Id. at 719. Further,
the court recognized that interpreting the
statute may entail more than merely "restating"
statutory language. Id.
o The rules did not "pick up where the statute
left off." Id. Thus, they were not based on
the EPA's "power to exercise its judgment as to
how best to implement a general statutory
mandate." Id. at 720.
These three factors are present in this case. First, ACF
viewed AT-95-9 as a interpretative rule: ACF promulgated
the rule as an action transmittal and ACF discussed the
transmittal in light of what it construed Congress'
intent to be rather than as an exercise of a delegated
power to promulgate rules. Second, the legal basis for
AT-95-9 is ACF's interpretation of the language of
section 406(e)(1), not a congressional delegation of
authority to define "services." We reject Tennessee's
argument that the fact that AT-95-9 did not set forth a
comprehensive definition of the term "emergency" means
that AT-95-9 is not a reasonable interpretation of that
term. The purpose of AT-95-9 was to address whether
costs of services for children in the juvenile justice
system should be funded by EA. Therefore, AT-95-9 set
forth ACF's interpretation of the term emergency in
relation to such costs. Third, AT-95-9 does not "pick up
where the statute left off." Rather, ACF's exclusion of
juvenile justice costs from EA reimbursement is a
reasonable construction of the language and legislative
history of sections 403(a)(5) and 406(e)(1).
Thus, what the United Technologies court meant by an
"agency's power to exercise its judgment as to how best
to implement a general statutory mandate" is clearly not
involved here, as illustrated by the cases the court
cited as examples of an agency exercising such a mandate:
Citizens to Save Spencer County v. EPA, 600 F.2d 844
(D.C.Cir. 1979), and Chamber of Commerce v. OSHA, 636
F.2d 464 (D.C.Cir. 1980).
o In Spencer County, the court reviewed the EPA's
implementation of the Clean Air Act. It was
undisputed that two major provisions of that
Act were inconsistent. When the EPA adopted
rules which harmonized the conflict, the court
found that the rules --
. . . by no stretch of the imagination
could have been derived by mere
"interpretation" of the instructions of
Congress. According to the standard of
this court, these two Rules were clearly
legislative because they served to "create
law . . . implementary to an existing
law," rather than serving as mere
"statements as to what . . . a statute
. . . means." In the present case,
"interpretation" could only go so far as
to spot the dilemma posed by the statutory
inconsistency, while legislative-type
action was required to carry the agency
the rest of the way toward a compromise
solution.
Spencer County, 600 F.2d at 879.
o Chamber of Commerce v. OSHA involved a
challenge to a Department of Labor (DOL) rule
requiring employers to compensate employees for
time spent accompanying OSHA inspectors during
work site examinations. Prior to that case,
there had been a judicial determination that
neither the Occupational Safety and Health Act
of 1970 (the "OSHA Act") nor the Fair Labor
Standards Act required such compensation. The
Chamber of Commerce court reasoned that such a
rule could not be interpretative because the
prior court decision had foreclosed such an
interpretation. Rather, the court concluded
that DOL "has attempted through th[e]
regulation to supplement the [OSHA] Act, not
simply to construe it, and therefore the
regulation must be treated as a legislative
rule."
Plainly, ACF's action in promulgating AT-95-9 is
different from that of the agencies in Spencer County and
Chamber of Commerce.
Tennessee also argued that ACF's actions in approving a
New Hampshire EA state plan amendment demonstrated that
ACF was a exercising its judgment as to how best to
implement a general statutory scheme. The history of the
New Hampshire amendment is as follows. In November 1994,
New Hampshire filed an amendment to its title IV-A state
plan. The amendment made several changes to New
Hampshire's EA program including changes in coverage of
benefits and services to children in New Hampshire's
juvenile justice system. ACF did not act on the
amendment prior to the issuance of AT-95-9 in September
1995. In March 1996, ACF approved the plan amendment,
with the caveat that benefits and services to any
children in the juvenile justice system were excluded
from EA reimbursement after December 31, 1995. The
effect of this approval was to allow New Hampshire to
retroactively claim EA reimbursement for juvenile justice
costs from the effective date of the plan amendment,
November 15, 1994 to December 31, 1995.
Tennessee argued that --
ACF is not, therefore, simply interpreting the
requirements of the statute, it is making judgments
on the approval of certain types of services and the
periods of eligibility for claiming FFP. As such,
it has shown that it considers that it must
legislate the program's parameters because of a lack
of Congressional direction on time limitation or any
specific Congressional prohibition of the scope of
services.
State Br. of February 28, 1997, at 6.
We reject this argument for the following reasons. In
September 1995, ACF issued, via the formal agency
mechanism of an action transmittal, its interpretation of
the requirements of sections 403(a)(5) and 406(e)(1).
This interpretation was inconsistent with ACF's prior
actions in administering EA, i.e., its approval of a
number of other state plan provisions for reimbursement
of juvenile justice costs. These events left New
Hampshire in limbo: should it be included in those
states which had no plan provision for juvenile justice
reimbursement, or, since the effective date of its
pending plan amendment was well prior to September 1995,
should it be included in those states which had until
January 1, 1996 to stop claiming EA for juvenile justice
expenditures? We fail to see how ACF's decision to put
New Hampshire in the second group is inconsistent with
our conclusion that AT-95-9 interprets the EA statutory
and regulatory provisions. The fact ACF's application of
AT-95-9 had real consequences, such as the ability to
claim FFP, does not make AT-95-9 something more than an
interpretation of these provisions.
7. Whether AT-95-9 imposed impermissible new
conditions for receipt of EA assistance
Tennessee argued that "the announcement that the
provision of EA services is prohibited due to the child's
own behavior which places him in the juvenile justice
system is not supported in the statute or the
regulations." State Br. at 19-20. Tennessee asserted
that this "creation of a new limitation" made AT-95-9 a
legislative rule because it imposed additional
requirements rather than explaining existing
requirements. Id. at 20.
We disagree. As we discussed earlier, the directives of
AT-95-9 are well within those attributable to Congress
through statutory interpretation. Section 403(a)(5) of
the Act provides funding for "emergency" assistance. The
legislative history shows that Congress sought to address
family crises such as eviction, utility termination, or
need for resources such as food or medical care rather
than to address long-term familial difficulties caused by
the delinquent or ungovernable behavior of a child. AT-
95-9 reasonably interprets this section on the basis of
the plain language of the Act and its legislative
history.
Nor do we agree that AT-95-9 should be characterized as
imposing "additional requirements." Even if the action
transmittal effectuates a change in prior agency policy,
it is based on the language of sections 403(a)(5) and
406(e)(1) and does not create a requirement in addition
to those which can reasonably be considered to be set
forth in those sections.
In support of this argument, Tennessee cited Linoz v.
Heckler, 800 F.2d 871, and U.S. v. Picciotto, 875 F.2d
345. We have previously discussed why Linoz is not
persuasive. Moreover, Picciotto actually illustrates why
AT-95-9 does not impose the type of "additional
requirement" which is characteristic of legislative
rules. In Picciotto, the court determined the rule at
issue was legislative. It that case, the National Park
Service had promulgated, pursuant to notice and comment
rulemaking, a set of rules governing demonstrations in
national parks in the Washington area. In addition to
these regulations, it also adopted, without notice and
comment, a rule limiting demonstrators' property in
Lafayette Park to such property as was reasonably
required by a demonstration participant during any 24-
hour period. The appellant was convicted of violating
the latter rule. In determining that the rule was
legislative, the court found that the Park Service failed
to show that the rule, which imposed criminal sanctions,
construed language in any section of an existing statute
or rule. As the court wrote, "An interpretive rule
explains an existing requirement; it does not impose an
`additional' one." Picciotto, 875 F.2d at 348. Because
the Park Service did not establish that the property ban
was an interpretation of an existing statute or
regulation, the court determined that it was an
"additional" requirement.
In contrast, ACF's exclusion of juvenile justice costs is
clearly based on its interpretation of the plain language
of sections 403(a)(5) and 406(e)(1). It is not an
additional requirement which rests on ACF's authority to
adopt requirements beyond those set forth in the statute.
Conclusion
For the foregoing reasons, we uphold these disallowances
in the amounts of $663,641 and $3,216,342.
_____________________________
Cecilia Sparks Ford
_____________________________
Norval D. (John) Settle
_____________________________
M. Terry Johnson
Presiding Board Member
* * * Footnotes * * *
1. Section 553(a)(2) of the APA also provides
for an exception for matters relating to grants.
However, the Department of Health and Human Services
(DHHS) has chosen to abide generally by the provisions of
section 553, notwithstanding this exception. 36 Fed.
Reg. 2532 (1971).
2. Tennessee described the jurisdictions of
these departments as follows:
The Department of Human Services, in addition to
being the state's title IV-A agency, provided child
welfare services for children alleged to be
physically or sexually abused or neglected, unruly
children, i.e. those whose offense was a status
offense due to their age such as being runaways, and
to children who had been adjudicated delinquent, but
for whom foster care or out of home residential
services was determined to be the appropriate
placement.
The Department of Youth Development provided
services to children who were adjudicated by the
juvenile courts to be delinquent due to committing
an offense which, if committed by an adult, would be
deemed to be a criminal offense as well as to
children adjudicated as unruly and who were found to
be in violation of a valid court order.
The Department of Mental Health and Retardation
provided services to children whose mental status
required mental health or mental retardation
services either before or after commitment by a
juvenile court.
State Ex. 15, at 2-3.
In 1996, services to all of these categories of children
were consolidated in a new Department of Children's
Services pursuant to Public Chapter 1079 (1996).
3. The kinds of assistance provided to children
included shelter care, family foster care, and
residential or psychiatric group care for children
separated from their parents. The kinds of services
included case management, counseling, transportation, and
parenting education and training. Also covered were
activities incidental to the administration of the EA
program including investigation of emergency conditions,
activities supporting eligibility determinations,
information, referral, case management, counseling, and
court-related activities.
4. The rationale for exempting interpretative
rules from notice and comment procedures has been
explained in this way:
Interpretive rules articulate positive law that
already exists in the form of statute or legislative
rule. The theory is that the agency's interpretive
document merely explains, but does not add to, the
substantive law that already exists. Because
Congress (or the agency, in a prior legislative
rule) has legislated previously, a further act of
legislation (through notice-and-comment procedures)
is conceptually unnecessary to give effect to the
interpretive proposition set forth in the document.
That proposition, at least in the agency's opinion,
already possesses the force of law. It has that
effect not because the agency endows it with that
effect, but because it represents the meaning of a
statute or legislative rule that is already law.
The agency, by issuing its document, asserts that
existing legislation already has established by
implication the position that the agency
interpretation now specifies. The interpretation,
therefore, does not project new legal effect of its
own.
"`Interpretive' Rules, `Legislative' and `Spurious'
Rules: Lifting the Smog," 8 Admin. L.J. of Am. Univ. 1
(1994).
5. As the Supreme Court wrote in Batterton v.
Francis:
Legislative, or substantive, regulations are "issued
by an agency pursuant to statutory authority and . .
. implement the statute, as, for example, the proxy
rules issued by the Securities and Exchange
Commission . . .. Such rules have the force and
effect of law." U.S. Dept. of Justice, Attorney
General's Manual on the Administrative Procedure Act
30 n. 3 (1947). . . . By way of contrast, a court
is not required to give effect to an interpretative
regulation. Varying degrees of deference are
accorded to administrative interpretations, based on
such factors as the timing and consistency of the
agency's position, and the nature of its expertise.
Batterton v. Francis, 432 U.S. 416, 425 n. 9.
6. Section 406(e)(1)(B) gives ACF the authority
to identify services which must be considered emergency
services. This appears to be a congressional delegation
of legislative authority to ACF for this limited purpose.
However, ACF did not invoke this authority and viewed
itself as addressing the issue of what can be considered
an emergency under section 403(a)(5) rather than
addressing what constitutes a service.
7. ACF argued that it had never established an
agency policy concerning the allowability of EA
reimbursement for juvenile justice costs. ACF Br. at 7 -
8. It pointed out that it had never formally announced
an interpretation on this issue and it disputed
Tennessee's position that the approval of state plan
provisions by Regional Offices created any substantive
policy.
For the purposes of this decision, we do not reach the
question of whether ACF adopted a policy concerning these
expenditures. As we explain below, ACF's action in
reimbursing some states for juvenile justice costs
cannot, by any stretch of the imagination, be
characterized as legislative rule-making. Therefore,
even if we assume that action reflected agency policy,
ACF may subsequently alter its interpretation of the
requirements of the EA statute without engaging in
legislative rule-making.
(..continued)