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CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
IN THE CASE OF  


SUBJECT: Nebraska Health and Human
Services System


DATE: May 14, 2003
          

 


 

Docket No. A-00-99
Decision No. 1882
DECISION
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DECISION

The Nebraska Health and Human Services System (Nebraska) appealed the determination by the Division of Cost Allocation of the Department of Health and Human Services (DCA), dated July 12, 2000, disapproving an amendment to Nebraska's Public Assistance Cost Allocation Plan. The amendment would allow Nebraska to allocate the costs of training its protection and safety workers (PSWs) exclusively to the federal foster care and adoption assistance program under title IV-E of the Social Security Act (Act). In disapproving the amendment, DCA relied on three written issuances of the Administration for Children and Families (ACF) requiring that the costs of training personnel of the state or local agency administering the title IV-E program be allocated among all benefitting programs.

For the reasons explained more fully below, we uphold the disapproval of Nebraska's proposed cost allocation plan amendment providing for allocation of PSW training costs exclusively to title IV-E. As Nebraska recognized and we have previously held, federal agencies have discretion under Office of Management and Budget (OMB) Circular A-87 to require states to allocate costs to all benefitting programs. In the written issuances referred to above, ACF gave notice of its decision to require that training costs be allocated in this manner. This decision was not unreasonable since, in enacting title IV-E, Congress made no commitment that the federal government would assume responsibility for overall funding of child welfare programs, which have traditionally been funded by the states. Instead, Congress provided for funding of administrative expenditures, including training expenditures, only to the extent that the Secretary of the Department of Health and Human Services (HHS) finds them necessary for the provision of child placement services and the proper and efficient administration of the state plan.

Legal Background

Title IV-E was originally enacted as part of the Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272. This title authorizes appropriations to enable states "to provide, in appropriate cases, foster care . . . for children who otherwise would be eligible for assistance" under a state's former Aid to Families with Dependent Children (AFDC) program and "adoption assistance for children with special needs." Section 470 of the Act. (1) Concurrently with the enactment of title IV-E, Congress enacted a revised title IV-B (Child Welfare Services Program), which provides funding for a broad range of social services to families and may also be used for the same types of costs funded under title IV-E. However, title IV-B, unlike title IV-E, has a funding cap. 42 U.S.C. § 621.

The primary purpose of title IV-E is to assist states with foster care maintenance payments and adoption assistance payments for eligible children. Sections 474(a)(1) and 474(a)(2) of the Act. In addition, the program provides for funding for expenditures "found necessary by the Secretary for the provision of child placement services and for the proper and efficient administration of the State plan." Section 474(a)(3) of the Act.

The expenditures incurred in the administration of the state plan are divided into three categories: expenditures "for the training . . . of personnel employed or preparing for employment by the State agency or by the local agency administering the plan . . ." (section 474(a)(3)(A)); expenditures "(including travel and per diem expenses) . . . for the short-term training of current or prospective foster or adoptive parents and the members of the staff of State- licensed or State-approved child care institutions providing care to foster and adopted children receiving assistance under this part . . ." (section 474(a)(3)(B)); and other expenditures (section 474(a)(3)(C), (D) and (E)). Section 474 provides for federal financial participation (FFP) in training expenditures at the rate of 75% and reimbursement of the remaining administrative costs at the rate of 50% FFP. A state's title IV-B plan must include a training plan which covers training activities and costs funded under title IV-E. 45 C.F.R. §§ 1356.60(b)(2) and 1357.15(t)(1).

The title IV-E regulations require that a state's "cost allocation plan shall identify which costs are allocated and claimed under this program" (45 C.F.R. § 1356.60(c)) and make the provisions on cost allocation plans at 45 C.F.R. Part 95, Subpart E, applicable to title IV-E (45 C.F.R. § 1356.30(c)). Section 95.505 of 45 C.F.R. defines a cost allocation plan (CAP) as "a narrative description of the procedures that the State agency will use in identifying, measuring, and allocating all State agency costs incurred in support of all programs administered by the State agency." 45 C.F.R. § 95.505. A state is required to submit a CAP to DCA for approval. 45 C.F.R. § 95.507(a). In reviewing a proposed CAP or CAP amendment, DCA is directed to consult with the "affected Operating Divisions." 45 C.F.R. § 95.511(a). For the IV-E program, the Operating Division is ACF. A state may amend its CAP for various reasons, including the discovery of a material defect in the CAP or a change which makes the allocation basis or procedures in the approved CAP invalid. 45 C.F.R. § 95.509(a). A state may claim FFP "for costs associated with a program only in accordance with its approved cost allocation plan." 45 C.F.R. § 95.517. However, if a State has submitted a plan or plan amendment for a State agency, it may, at its option claim FFP based on the proposed plan or plan amendment, unless otherwise advised by the DCA." Id. The state must then "retroactively adjust its claims in accordance with the plan or amendment as subsequently approved . . . ." Id.

General requirements for allocating costs incurred by state governments under federal grants are set out in Office of Management and Budget (OMB) Circular A-87. OMB Circular A-87 is made applicable to the title IV-E program by 45 C.F.R. § 92.4(a)(3) and 92.22(b) as well as by 45 C.F.R. § 74.27(a). OMB Circular A-87 states that, in order to be allowable, a cost must "[b]e necessary and reasonable for proper and efficient performance and administration of Federal awards" and "[b]e allocable to Federal awards . . . ." OMB Circular A-87, Attachment (Att.) A, ¶ C.1. The Circular further states: "A cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received." Id., ¶ C.3.a. (2)

Factual Background

The following facts appear from the record and are not in dispute. (3)

Nebraska employs protection and safety workers (PSWs) who are expected at some time during their tenure to handle cases involving children who are eligible for (or are candidates for) foster care maintenance payments under title IV-E. In addition, PSWs handle cases involving children receiving services under the title IV-B Child Welfare program and other children who are subject to the guardianship of the State ("State Wards") pursuant to Neb. Rev. Stat. § 43-285(1). According to Nebraska, the IV-E foster care cases constitute approximately 24% of all foster care cases and 21.5% of all child welfare cases. State Ex. 28 (Declaration of Larry D. Morrison, dated 3/20/03, ¶ 4). (4) Prior to commencing their work, newly-hired PSWs attend training conducted by the Center for Children, Families, and the Law of the University of Nebraska at Lincoln (CCFL) pursuant to a contract with Nebraska. All new PSWs receive classroom training in each of the following areas: Philosophy and Overview, Assessment, Status Offense, Placement/Permanency Planning, Case Management, Interviewing, Health/Psychology, Legal, Child Welfare Information System, Juvenile Justice, and Worker Safety/Unsanitary Conditions. In addition, all new PSWs receive field training in Intake, Initial Assessment/Safety Plan, Family Assessment, Case Plan, Status Offender/Dependency, Placement Planning and Implementation, Case Management Intervention, Accessing Services, Cultural Competency/Interethnic Placement Provisions, Multiethnic Placement Act, Records Management, Interviewing, Human Behavior and Development, Working Within the Legal System, Worker Safety, and the Nebraska Family On-Line Client User System/Children Welfare Information System. Current PSWs may also attend these classes. Nebraska Br. at 6-8, citing Nebraska Ex. 1 (Declaration of Chris Hanus dated 12/4/02), and Nebraska Exs. 13-15.

On September 30, 1999, Nebraska submitted to DCA several proposed amendments to its Public Assistance CAP. The proposed amendments included the following provision pertaining to training costs incurred by the State Service Management (SM) Office:

SM - Foster Care Training (023) -There are approximately forty-five FTE's in the cost center. The direct and indirect costs of the cost center will be directly charged to the Foster Care 75% Program, Title IV-E.

In letters dated November 8, 1999 and February 7, 2000, DCA informed Nebraska that the cost center described above "must be allocated to all programs that benefit. Title IV-E can only be charged for a portion of these costs." Nebraska Ex. 6, at 2, and Nebraska Ex. 7, at 1. Nebraska initially indicated that it would change its SM-Foster Care Training cost center provision to provide for allocation to title IV-E, title IV-B and the State Ward Program "based on an end of the quarter count of active cases in each program" (Nebraska Ex. 8, at 2), but notified DCA on June 13, 2000 that it was withdrawing its agreement to amend this provision. Nebraska Ex. 10. By letter dated July 12, 2000, DCA disapproved the SM-Foster Care Training portion of Nebraska's CAP. Nebraska Ex. 2. The disapproval letter stated that DCA had "been advised by our Department's Administration for Children and Families (ACF) [that] the assignment of those costs only to the Title IV-E 75% program is not acceptable." The disapproval letter cited OMB Circular A-87 as authority for DCA's decision, referring to the provisions stating that "[a] cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objective in accordance with relative benefits received" (OMB Circular A-87, Att. A, ¶ C.3.a) and that, to be allowable, costs must "[b]e necessary and reasonable for proper and efficient performance" of a federal award (¶ C.1.a.). The disapproval letter also cited three ACF issuances -- ACYF-PA-87-05 (dated October 22, 1987), ACYF-PA-90-01 (dated June 14, 1990), and ACF-IM-91-14 (dated July 14, 1991) -- which the letter stated "all require allowable training costs be allocated to all programs that benefit." (5)

ANALYSIS
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In response to Nebraska's appeal, DCA acknowledged that, in general, Nebraska's training program provided skills and knowledge that were directly relevant to the IV-E program. (6) See DCA Br. at 4. Accordingly, there is no question that the PSW training costs could properly be allocated in their entirety to title IV-E if Nebraska had no other programs that benefitted from the training. However, Nebraska acknowledged that "children who are served under Nebraska's IV-B program or State Ward program also derive benefit" from Nebraska's foster care training costs. Nebraska Br. at 9. Thus, this case presents the issue of whether DCA properly disapproved Nebraska's proposed CAP amendment on the ground that these costs must be allocated among all benefitting programs, i.e., title IV-E, title IV-B, and Nebraska's State Ward program.

The Board previously considered precisely the same issue in Illinois Dept. of Children and Family Services, DAB No. 1530 (1995). In that decision, the Board noted first the requirement in the prior version of OMB Circular A-87 (which the parties here agreed has not been substantively changed) that "[a] cost is allocable to a particular cost objective to the extent of benefits received by such objective." The Board stated that it "has considered the meaning of this provision in several decisions, concluding that the concept of 'benefit' requires that there be an 'equitable relationship between the cost and program or programs to which it is charged.'" Illinois at 17. The Board then stated that "this provision might reasonably be read to require that the costs of services used in part by each of several programs be distributed among those programs 'on something like a pro rata basis.'" Id., citing Oklahoma Dept. of Human Services, DAB No. 963, at 5 (emphasis added). However, quoting further from Oklahoma, the Board continued:

[T]he provisions [of OMB Circular A-87] appear to provide less guidance (and therefore more federal agency discretion) concerning costs which reasonably could be deemed fully assignable to each one of several programs . . . . In the latter situation, it would appear that an agency has considerable discretion to determine which of a wide range of methodologies would be 'equitable," including a pro rata distribution as well as assignment of the costs exclusively to one of the fully benefitting programs.

Id. (emphasis added). The Board noted its conclusion in Oklahoma that DCA therefore had discretion, once the state was given notice, to require a pro rata allocation to all benefitting programs of the costs of recruiting and approving foster and adoptive homes although those costs could also reasonably be allocated solely to title IV-E. The Board found Oklahoma "directly apposite," stating:

Illinois acknowledged that the costs in question benefitted both the title IV-E program and other public assistance programs. Moreover, Illinois was on notice well before the submission of its proposed CAP that it must allocate costs among all benefitting programs, even if the costs substantially benefitted title IV-E. Illinois acknowledged that this policy was clearly articulated in ACF-IM-91-15, dated July 21, 1991 . . . . Illinois was also put on notice of this policy by DCA's November 12, 1987 letter approving Illinois' RMS, which stated that ACYF policy required the application of eligibility ratios to allocate costs to IV-E. Thus, DCA properly required that Illinois' CAP provide for allocation of the costs to other benefitting programs in addition to title IV-E.

Id. at 18.

The same circumstances pertain here as in Illinois: Nebraska acknowledged that the training costs benefitted the title IV-E program, the title IV-B program and the State Ward program. In addition, Nebraska had notice before DCA disapproved its proposed CAP amendment of ACF's policy requiring allocation of the costs among all benefitting programs. Thus, under the rationale in Illinois quoted above, DCA here properly disapproved the proposed amendment to Nebraska's CAP providing for allocation of PSW training costs solely to title IV-E. As discussed below, none of Nebraska's arguments persuade us that that rationale should not apply here.

The ACF issuances on which DCA relied in disapproving Nebraska's proposed CAP amendment were not required to be published pursuant to notice and comment rulemaking in order to be valid.

Nebraska acknowledged that ACF set forth its "position that training costs must be allocated among all benefitting programs and may not be direct-charged to Title IV-E" in the three issuances cited in the disallowance letter: ACYF-PA-87-05, ACYF-PA-90-01, and ACF-IM-91-15. Nebraska Br. at 16. These issuances were part of ACF's guidance system, and Nebraska did not deny that it had notice of them. Nebraska argued, however, that these issuances are invalid because they constitute substantive rules that were not published pursuant to notice and comment rulemaking as required by the Administrative Procedure Act (APA), 5 U.S.C. § 553. (7) Nebraska maintained that these issuances qualify as substantive rules because they impose a new requirement that is "not fairly encompassed" by OMB Circular A-87, the title IV-E statute, and the title IV-E regulations. (8) Nebraska Br. at 15, quoting Paralyzed Veterans of America v. D.C. Arena L.P., 117 F.3d 579, 588 (D.C. Cir. 1997), cert. denied, 523 U.S. 1003 (1998). Nebraska also argued in the alternative that even if the issuances are interpretative rules, which section 553(b) of the APA excepts from the requirement for notice and comment rulemaking, they represent a change in ACF's interpretation of its regulations that is invalid because it was not published pursuant to notice and comment rulemaking. (9) In support of this argument, Nebraska quoted the statement in Paralyzed Veterans (at 586) that "[o]nce an agency gives its regulation an interpretation, it can only change that interpretation as it would formally modify the regulation itself: through the process of notice and comment rulemaking." Nebraska Br. at 41.

We are not persuaded that the ACF issuances in question were subject to the requirement for notice and comment rulemaking under either of Nebraska's theories. A substantive rule (also known as a legislative rule) creates new law, rights, or duties in what amounts to a legislative act. See New York State Office of Children and Family Services, DAB No. 1701, at 23 (1999) and court cases cited therein. In Illinois, we rejected Illinois' argument that ACF-IM-91-15 was a substantive rule, stating:

ACF-IM-91-15 merely described the position ACF will take when DCA consults with ACF about allocation of costs to title IV-E. [footnote omitted] It did not change any right of the states or impose any new obligations on them because the title IV-E regulations provide that states may claim costs (including administrative and training costs) only in accordance with an approved CAP . . . . It was thus a general statement of policy which was excepted from the notice and comment procedures.

5 U.S.C. § 553(b)(3)(A) . . . .

Illinois at 20. (10) We also cited in support of our conclusion that ACF-IM-91-15 was a general statement of policy our holding in New York State Dept. of Social Services, DAB No. 1358 (1992) that a general statement of policy does not substantively change what a state is required to do in order to be entitled to FFP. Id. This is clearly the case with respect to ACF-IM-91-15 and the two other ACF issuances, which do not alter the basic requirements that a state must claim costs in accordance with an approved CAP in order to be entitled to FFP and that the costs be consistent with the cost principles in OMB Circular A-87 governing the allowability of claims for FFP.

Furthermore, Nebraska did not offer any reason why we should conclude that the issuances in question here are interpretative rules rather than general statements of policy. An interpretative rule interprets or clarifies the terms of an existing statute or regulation. See DAB No. 1701, at 22-23, and court cases cited therein. The only statute or regulation pertaining to the allocation of costs that is cited in the ACF issuances is 45 C.F.R. § 1356.60(c), which states in pertinent part that a state's "cost allocation plan shall identify which costs are allocated and claimed under this program." This directive to identify the costs being allocated contains no ambiguity that is clarified by the instructions in the ACF issuances specifying how costs are to be allocated. Moreover, there is no specific language in either the general provisions on cost allocation in 45 C.F.R. Part 95 or in OMB Circular A-87 (incorporated by reference in the regulations at 45 C.F.R. Part 74 and Part 92) which the ACF issuances could be viewed as interpreting.

Accordingly, regardless of whether the three ACF issuances represented a change in ACF's position regarding the allocation of IV-E training costs (a matter as to which we make no finding), they were general statements of policy which were not required to be published pursuant to notice and comment rulemaking in order to be valid.

The Board applied the proper standard in Illinois when it held that DCA could properly disapprove Illinois's proposed CAP based on ACF-IM-91-15 as long as that policy was a reasonable one.

In Illinois, the Board held that "as long as the policy in ACF-IM-91-15 was a reasonable one (which we find it was), DCA could properly disapprove Illinois' proposed CAP based on that policy." At 20. Nebraska argued that we should not apply the same standard here, however. According to Nebraska:

In light of the U.S. Supreme Court's subsequent decisions in United States v. Mead Corporation, 533 U.S. 218 (2001), and [Christensen v. Harris County], 529 U.S. 576 (2000), the analytical approach that the Board used in Illinois is no longer valid. The Supreme Court held in Mead that general statements of policy - such as ACF-IM-91-15 (and ASMB C-10) - are "beyond the Chevron pale." That is, general statements of policy are not entitled to the deference that is prescribed in Chevron U.S.A., Inc., v. Natural Resources Defense Council, Inc., 476 U.S. 837 (1984) (holding that a court must defer to agency's reasonable policy choice reflected in agency regulations, even if in the court's view the agency's choice is inappropriate in light of statutory goals). [footnote omitted] Under current Supreme Court jurisprudence, the Board may not (as it did in Illinois) simply defer to the "reasonable" policy described in ACF-IM-91-15.

Nebraska Br. at 45-46. Nebraska argued that the appropriate standard to apply under the cited cases is whether the policy articulated in ACF-IM-91-15 and the other two issuances is "persuasive." Id. at 46. Nebraska asserted that "there is nothing persuasive about the policy contained in ACF-IM-91-15," so that the policy is entitled to no deference. Id.; see also id. at 31-32.

We do not agree that the reasonableness standard employed in Illinois is no longer applicable in light of Christensen and Mead. Those cases addressed the question of whether a Department of Labor opinion letter and a U.S. Customs Service classification ruling, respectively, were entitled to deference under Chevron. Chevron held that a court must give deference to an agency's regulation containing a reasonable interpretation of an ambiguous statute. In Christensen, however, the Court stated that "[i]nterpretations such as those in opinion letters--like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law--do not warrant Chevron-style deference. . . . Instead, interpretations contained in formats such as opinion letters are 'entitled to respect' under our decision in Skidmore v. Swift & Co., 323 U.S. 134, 140, . . . (1944), but only to the extent that those interpretations have the 'power to persuade.' ibid." Christensen at 587. In Mead, the Court made a similar observation about classification rulings (at 220) and, quoting Skidmore, stated that the weight to be accorded to a Customs ruling letter "'will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.'" Mead at 219.

Christensen and Mead make clear that Chevron requires deference to a federal agency's interpretation only where the interpretation is contained in a document which has the force of law. As general statements of policy, ACF-IM-91-15 and the two prior issuances clearly do not have the force of law. However, we do not agree with Nebraska that the standard set out in Christensen and Mead applies here. Those cases involved agency interpretations of ambiguous language in statutes or regulations. Here, however, as discussed above, the ACF issuances constitute statements of policy as to how ACF believes HHS should exercise its discretion under OMB Circular A-87 to determine whether training costs should be allocated to all benefitting programs, rather than allocated solely to title IV-E. Accordingly, DCA need not demonstrate that this policy was "persuasive" rather than "reasonable" in order for it to be applicable here.

Nebraska failed to show that the policy in the ACF issuances is inconsistent with congressional intent in enacting title IV-E.

Even if the proper standard is whether the policy in the ACF issuances is persuasive, we find no merit in Nebraska's argument that this policy is not persuasive because it is inconsistent with congressional intent in enacting title IV-E. Nebraska asserted that the legislative history shows that Congress "was concerned not only about federally-supported foster care, but about foster care in the nation generally" and that Congress recognized that training "was necessary to improve the nation's foster care system generally." Nebraska Br. at 33-34, citing 125 Cong. Rec. E 4269-70 (daily ed. Sept. 5, 1979) (remarks of Rep. Biaggi). According to Nebraska, this implied that Congress' intent in providing enhanced funding for training (75% FFP) was to improve the overall foster care system. This goal would be thwarted, Nebraska argued, if Nebraska had to absorb a substantial portion of the costs of training since Nebraska does not have sufficient funds to pay its share. (11)

Nebraska acknowledged, however, that "[t]he legislative history of Pub. L. No. 96-272 does not specifically explain why Congress chose to reimburse 75% of the costs of training State agency staff." Nebraska Br. at 33. Thus, as evidence of congressional intent, Nebraska relied primarily on the preamble to a draft notice of proposed rulemaking, circulated by ACF in 1993, which stated that "[t]he intent of the Congress in providing a legislative base for an enhanced match for training is to staff the title IV-E program with more highly qualified workers." Nebraska Br. at 29, quoting Nebraska Ex. 18, at 5. We see no basis for reading this as a statement that Congress intended IV-E payments to benefit foster care generally. In any event, given that this document was never adopted and was drafted by a federal agency, it is hardly an authoritative statement of congressional intent.

Even if the statutory provision authorizing enhanced FFP of 75% for IV-E training costs reflects congressional intent to give states an incentive to improve foster care training, this does not mean that Congress determined that states were entitled to IV-E funding for 75% of all training costs regardless of whether other programs benefitted from the training. The Board addressed this matter in a slightly different context in rejecting the state's argument in Illinois that the content of its training courses need not be related to the IV-E administrative activities specified in the regulations. The effect of this argument, the Board stated-

would be to make title IV-E the funding source for all training on child welfare services. This is clearly contrary to congressional intent since, as the Board stressed in DAB No. 1428, the primary purpose of title IV-E is to provide funding for foster care maintenance and adoption assistance payments.

Illinois at 28. The Board made a similar point in New York State Dept. of Social Services, DAB No. 1588 (1996), where the Board upheld a disallowance of costs claimed as foster care and adoption assistance administrative costs for nurses working at New York City Child Welfare Administration field offices and congregate care facilities:

[T]he federal government may participate in funding different types of child welfare programs, but states retain primary responsibility for the safety and welfare of the children who live within their jurisdictions. In light of this fact, Congress did not intend, in enacting title IV-E, that the federal government would assume the responsibility for overall funding of child welfare programs. DAB No. 1428, at 14, citing staff of House Comm. on Ways and Means, 102d Cong., 2d Sess., Overview of Entitlement Programs 839 (Comm. Print 1992); DAB No. 1530, at 30. Title IV-E, therefore, is a program of limited purposes; its primary component involves funding maintenance payments for foster care children who would otherwise be eligible for AFDC under title IV-A. Thus, title IV-E was never intended to share in those costs incurred in carrying out a state's fundamental responsibility to protect and ensure the safety of its children and which would have been incurred even if title IV-E did not exist.

At 10-11. Thus, the provision for enhanced FFP is not evidence that Congress intended to require the IV-E program to function as the primary source of funding for all child welfare or even all foster care training costs. In the absence of evidence of a broader statutory intent, ACF's policy need only be consistent with the purpose stated in section 474(a)(3) of the Act, which provides for funding of training expenditures "found necessary by the Secretary . . . for the proper and efficient administration of the State plan . . . ." We therefore see no basis for Nebraska's position that DCA's determination to require training costs to be allocated to all benefitting programs is not persuasive in light of the purposes of title IV-E.

Even if Nebraska had an approved CAP that permitted it to allocate all foster care training costs exclusively to title IV-E, that is not a basis for finding that Nebraska was entitled to continue to allocate its costs in this manner.

According to Nebraska, the cost allocation methodology that was disapproved by DCA here was the same methodology in Nebraska's previously approved CAP, with the only changes being language changes. Nebraska Br. at 1, 11. Nebraska argued that it was entitled to continued approval of this methodology since there had been no intervening statutory change or new ACF policy statement which would affect how costs could be allocated. Nebraska cited as authority for its position the Board's statement in Illinois that "[o]nce approved by DCA, a CAP may continue in effect indefinitely if the state submits an annual statement to DCA certifying that the CAP is not outdated." Nebraska Br. at 11, quoting Illinois at 4. DCA took the position that it had mistakenly approved a CAP effective July 1, 1993 that provided for allocating training costs exclusively to title IV-E, but asserted that it subsequently approved revised plans, including one with an effective date of October 1, 1997 that was in effect at the time of DCA's July 12, 2000 disapproval letter, that provided for allocating training costs to all benefitting programs. DCA Br. at 3, citing Affidavit of Lyle Lauritsen dated 2/20/03.

We need not resolve this factual dispute. Even if the CAP approved effective October 1, 1997 in fact provided for allocating training costs exclusively to title IV-E, DCA was not required to approve the CAP amendment proposed in 1999. The Board has consistently held that DCA may require a state to change its cost allocation methodology on a prospective basis. See, e.g., Oklahoma. Contrary to what Nebraska argued (and as we noted in Illinois at 18-19), Oklahoma is not distinguishable from the instant case on the ground that Oklahoma agreed to amend its CAP as requested by DCA since Oklahoma did so only after advising DCA that it disagreed with its allocation policy. Moreover, Nebraska's reliance on the statement in Illinois quoted above is misplaced. That statement simply refers to 45 C.F.R. § 95.509(b), which permits a state agency to certify that its approved CAP is not outdated in lieu of submitting a new proposed CAP for each fiscal year. The statement does not indicate that DCA must continue to approve the same CAP in successive fiscal years simply because the state certifies that it is not outdated, nor is there anything in the language of section 95.509(b) that suggests this. Furthermore, DCA may require a state to amend an approved CAP if "a material defect is discovered in the cost allocation plan by the Director, DCA or the State." 45 C.F.R. § 95.509(a)(2). In this case, DCA could argue that the existing CAP was defective since it was inconsistent with ACF policy.

Nebraska's other arguments in support of its position that it should have been permitted to allocate the training costs solely to title IV-E have no merit.

Nebraska's appeal raised numerous other arguments in support of Nebraska's position that it should have been permitted to allocate the training costs solely to title IV-E. As discussed below, however, these arguments are without merit.

o Nebraska argued that the training provisions of title IV-E itself permit states to allocate foster care training costs exclusively to title IV-E. Nebraska noted that section 474(a)(3)(A) of the Act authorizes funding for training state agency personnel "without requiring that the personnel work directly with or on behalf of children receiving assistance under title IV-E." Nebraska Br. at 32; see also Nebraska Reply Br. at 11. According to Nebraska, this omission is significant because it contrasts with section 474(a)(3)(B), which Nebraska said limits funding for training foster or adoptive parents and the staff of child care institutions to those "providing care to foster and adoptive children receiving assistance under this part." Nebraska also contrasted section 474(a)(3)(A) with section 2002(a)(2)(B)(ii), as amended by Public Law No. 96-272 (the same bill that established the title IV-E foster care program), which provides funding for "personnel training and retraining directly related to the provision of [title XX] services."

The Board addressed essentially the same argument in Illinois as follows:

Illinois's argument ignores the language in section 474(a)(3) of the Act which authorizes federal funding for expenditures found necessary by the Secretary for the proper and efficient administration of the state plan. This clearly gives DCA, as the delegate of the Secretary, the authority to limit the expenditures which are reimbursable as training.

Illinois at 21. In any event, on closer examination, we find that the statutory provisions cited by Nebraska have no direct bearing on the allocation issue in this case because they concern who is eligible to receive training. DCA did not dispute that the costs of training the PSWs would be allowable under title

IV-E, but rather whether the training costs could properly be allocated solely to title IV-E where other programs also benefit from the training.

o Nebraska pointed out that 45 C.F.R. § 1356.60(b)(2) requires that "[a]ll training activities and costs funded under title IV-E shall be included in the State agency's training plan for title IV-B." Nebraska argued that this requirement means that IV-E funds may be used "to provide foster care training to state agency workers who work with any of the children that may be served using Title IV-B funds." Nebraska Reply Br. at 11; see also Nebraska Br. at 37. Title IV-B authorizes funding for child welfare services, which are public social services directed toward the accomplishment of several purposes, including "protecting and promoting the welfare of all children . . . ." Section 425(a)(1) of the Act.

Nebraska's reliance on section 1356.60(b)(2) is misplaced. Nebraska asserted that this section was intended "promote the coordination of overall training and the integration of training in support of programmatic efforts." Nebraska Br. at 25, citing 45 Fed. Reg. 86817 (1980). (12) Nothing in this language or the language of the regulation itself suggests that title IV-E should bear the full costs of training that benefits both programs, however.

o Nebraska argued that OMB Circular A-87 permits it to shift any training costs that are allocable to title IV-B to title IV-E. Nebraska relied on the provision of the Circular stating that governmental units may "shift[] costs that are allowable under two or more awards in accordance with existing program agreements." Nebraska Br. at 27, quoting OMB Circular A-87, Attachment A, ¶ C.3.c. Nebraska also cited the explanation of this Circular provision in ASMB C-10, section 2-16, which states in part that a "function or activity . . . that benefits two or more programs may be set up as a single cost objective" and continues:

Costs allocable to that cost objective would be allowable under any of the involved programs which benefit these activities/costs. The government can make a business decision regarding what combination of funds available under these programs would be applied to this cost objective . . . . This results in applying eligible funding sources to the single cost objective, rather than allocating the cost objective to the programs involved.

Nebraska Br. at 27.

Nebraska's argument is unavailing, however, since it ignores the language in the Circular requiring that the cost shifting be "in accordance with existing program agreements." In this case, of course, program issuances by ACF did not permit the cost shifting referred to by the Circular. (13)

o Nebraska argued that the requirement in the title IV-E regulations that a state's CAP "identify which costs are allocated and claimed under this program" does not require the allocation of training costs because it appears in section 1356.60(c), captioned "Federal matching funds for other State and local administrative expenditures for foster care and adoption assistance under title IV-E," not in section 1356.60(b), captioned "Federal matching funds for State and local training for foster care and adoption assistance under title IV-E." Nebraska seemed to imply that this placement meant that the IV-E regulations intended states to charge all training costs directly to title IV-E. Nebraska's argument is flawed, however, in that it ignores section 1356.30(c), which makes the provisions on cost allocation plans at 45 C.F.R. Part 95, Subpart E, applicable to title IV-E generally. Thus, the omission from the subsection on training costs of a reference to cost allocation similar to that which appears in section 1356.60(c) (other administrative costs) appears to be inadvertent. (14)

o Nebraska argued that states are permitted to allocate training costs solely to title IV-E because the IV-E regulations originally tied IV-E funding to the amount of funding under the former title IV-A foster care program. The regulations in question implemented former section 474(b)(4)(C) of the Act, which provided for a limit on each state's IV-E allotment based on the state's IV-A expenditures ("base expenditures"). (15) Former section 1356.65(a)(3) (1982) provided that these base expenditures included training expenditures, "which states were authorized [under former 45 C.F.R. § 220.63(b) (1979)] to allocate to Title IV-A on a primary program basis." Nebraska Br. at 37-38; Nebraska Reply Br. at 18, n.16.

Notwithstanding the connection between title IV-E and the title IV-A foster care program, how training costs were allocated under the latter program is simply not relevant here. DCA asserted, and Nebraska did not dispute, that HHS adopted the primary program approach as a matter of expediency because eligibility for the three principal public assistance programs -- AFDC (including title IV-A foster care), Medicaid, and Food Stamps -- was based on a single eligibility determination, funding for the programs was open-ended, and the federal matching levels for administrative costs were the same for all three programs. Thus, states would receive the same net amount of federal funds for administrative costs relating to these programs regardless of which method was used. See DCA Ex. 12, ¶ 7 (Declaration of Joseph E. Cook, Jr. dated 9/24/99). (16) As DCA noted, "[t]his relationship does not hold true between the child welfare programs at issue here (Title IV-B, Title IV-E and state foster care program), because IV-B is not an open-ended program . . . ." DCA Br. at 21-22. (17) In any event, the primary program approach described in section 220.63 would not apply on the facts of this case. That section stated that title IV-A "may be considered to be primarily benefited if the number of AFDC children served represents at least 85 percent of the total children served." In this case, however, the number of IV-E children served was less than a quarter of the total children served.

o Nebraska argued that it should be permitted to allocate its training costs exclusively to the IV-E program because the IV-E regulations authorize the withholding of 10% of a state's claims for IV-E administrative costs if the state is not in substantial conformity with the system factor of "operating a staff development and training program," in effect requiring that states provide staff training. Nebraska Reply Br. at 10, n.7, citing 45 C.F.R. §§ 1355.33(b)(1); 1355.34(c)(4)(ii) and (iii), and 1355.36(b)(4)(ii). (18) According to Nebraska, "for ACF to require that state-only-funded child welfare programs bear a share of the expense of the training programs that states undertake to comply with Title IV-E requirements amounts to a mandate for state spending that is not statutorily authorized." Nebraska Reply Br. at 7.

The Board has addressed a similar argument, based on Pennhurst State School and Hospital v. Halderman, 451 U.S. 1 (1981), with respect to the allowability of costs incurred to implement the IV-E requirement that reasonable efforts be made to return to their homes children who have been removed from their homes or placed in foster care. Pennhurst addressed the problem of states' liability for additional state spending flowing from the states' acceptance of federal funds, holding that "Congress must express clearly its intent to impose conditions on the grant of federal funds . . . ." Pennhurst at 24. In New York State Office of Children and Family Services, DAB No. 1701 (1999), the Board stated that HHS could properly deny IV-E funding for reasonable efforts relating to children who were neither IV-E-eligible nor candidates for IV-E as long as the state had notice that the social services it chose to provide as part of its reasonable efforts were not reimbursable as IV-E administrative costs. In the case now before us, Nebraska was clearly on notice, by virtue of the three ACF issuances, that ACF's policy was that the costs of providing IV-E training should not be allocated solely to IV-E where other programs also benefitted from the training. Accordingly, even if Nebraska had to use state funds to provide PSW training in order to avoid a withholding of IV-E funds under Part 1355, that is not a basis for reversing DCA's determination to disapprove a CAP amendment allocating the costs in their entirety to IV-E.

Nebraska did not show that using either caseload statistics or time studies is an inequitable basis for allocating training costs among all benefitting programs.

Nebraska argued that, even if training costs must be allocated among all benefitting programs, each of the allocation bases suggested by DCA -- caseload and time studies -- is inequitable on several grounds. (19) Nebraska asserted that caseload "is a snapshot measure" that does not account for future fluctuations in the proportion of IV-E cases, and that the IV-E caseload may in fact be inversely proportional to the benefit received from training since "[t]he most successful training may achieve the greatest reductions in Title IV-E caseload." Nebraska Br. at 28. (20) Nebraska asserted in addition that time studies do not reflect that "[s]ome cases will consume a great deal of worker time or effort for reasons that are unrelated to the issues or skills covered in foster care training . . . ." Id. at 29. Nebraska suggested that better allocation bases included: "the extent to which the activity is necessary to satisfy the legal requirements of a program or programs;" "revenues or other resources that conduct of the activity generates for a cost objective;" "what impact the activity has on making revenues or other resources available to further the programs' activities," or "what impact the activity has on reducing certain costs that would otherwise be borne by the program(s)." Id. at 18, 19, 22.

Nebraska has not shown that either caseload statistics or time studies is an inequitable basis for allocating training costs to all benefitting programs. As DCA itself stated, case counts and random moment time studies are "not exact," but merely an "approximation of the benefits received by various programs . . . ." DCA Br. at 17. Indeed, if it were possible to precisely identify what training benefitted what program, training costs could be charged as direct costs to the appropriate program without the need for any allocation methodology. The fact that a PSW's IV-E caseload varies over time does not mean that caseload statistics would not produce a reasonable approximation of how the PSW training benefitted each program since it is likely that, at the time the "snapshot" is taken, some PSWs might have higher-than-normal IV-E caseloads which would offset the lower-than-normal IV-E caseloads of other PSWs. Similarly, with respect to time studies, a non-IV-E case that requires a greater-than-average amount of a PSW's time might be counterbalanced by a IV-E case that requires a less-than- average amount of a PSW's time. Moreover, while training might help a PSW to keep or move a child out of foster care, there are certainly other factors that could affect the IV-E caseload. Thus, the potential for training to reduce the IV-E caseload does not in our view invalidate the use of caseload to measure the extent of benefit to each of the participating programs.

While Nebraska thus failed to show that either caseload or time studies would not be an equitable basis for allocating training costs, this does not mean that there could not be another basis that is more appropriate. None of the bases suggested by Nebraska is appropriate, however, since they all result in allocating training costs exclusively to IV-E. Since Nebraska has not shown that use of caseload or time studies to allocate training costs is inequitable and has not proposed another basis that reflects benefit received by all three programs in question here, DCA may require that Nebraska allocate its training costs based on either caseload or time studies unless the parties agree on another basis not yet identified.

Conclusion

For the foregoing reasons, we uphold DCA's determination disapproving Nebraska's proposed CAP amendment dated September 30, 1999.

JUDGE
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Judith A. Ballard

Donald F. Garrett

Cecilia Sparks Ford
Presiding Board Member

FOOTNOTES
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1. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Public Law No. 104-193, repealed the AFDC program and amended title IV-E so that it refers to certain provisions of former title IV-A as they were in effect on June 1, 1995.

2. We quote here from the version of OMB Circular A-87 which was issued by OMB in 1995. 60 Fed. Reg. 26,484 (May 17, 1995). A 1997 amendment did not affect the provisions of ¶ C.3.

On April 8, 1997, HHS issued its Implementation Guide for OMB Circular A-87, ASMB C-10. However, DCA stated in its brief that this document "is not the authority upon which DCA relied in [disapproving] Nebraska's CAP amendment." DCA Br. at 13. Accordingly, we do not address Nebraska's arguments that this document was an invalid interpretation of OMB Circular A-87. (We note, however, that Nebraska itself relied on portions of ASMB C-10 in support of its position in this appeal.)

3. After Nebraska appealed DCA's determination, Nebraska sought extensive discovery from DCA, filing a Motion to Compel Production of Documents in December 2000. The Presiding Board Member issued a final Ruling on Discovery Request dated July 16, 2002 after briefing by the parties on several threshold issues. Discovery was completed in October 2002, and briefing then proceeded pursuant to 45 C.F.R. § 16.8. References in this decision to the parties' briefs and exhibits are to submissions made after October 2002.

4. ACF stated that according to Nebraska's Finance and Support staff, the percentage of IV-E cases in the entire population of foster care cases "has been under 25% for several quarters and was 21.5% for the quarter ending September 30, 2001." DCA Br. at 18, n.5. The difference between the figures is not material here.

5. ACYF-PA-87-05 states in relevant part:

Allowable administrative costs for activities such as recruitment and licensing of foster homes, training and activities described in the previous section that are not linked directly to the eligibility of children must be allocated to title IV-E, State foster care and other State/Federal programs in such a manner as to assure that each participating program is charged its proportionate share of the costs. The allocations may be determined by case count of title IV-E-eligible children in relation to all children in foster care under the responsibility of the State title IV-E/IV-B agency or on some other equitable basis.

Nebraska Ex. 25, at 2. ACYF-PA-90-01 states in relevant part:

All training costs must be allocated to Title IV-E, State foster care and other State/Federal programs in such a manner as to assure that each participating program is charged its proportionate share of the costs. The allocations may be determined by case count of title IV-E eligible children in relation to all children in foster care under the responsibility of the State title IV-E/IV-B agency or on some other equitable basis.

Nebraska Ex. 26, at 2. ACYF-IM-91-15 states in relevant part:

It has come to our attention that there may be some confusion as to whether training costs . . . should be allocated among all benefitting programs or whether such costs can be direct-charged to title IV-E. The purpose of this Information Memorandum is to restate Federal requirements on this issue.

* * * * *

Policy Announcement ACYF-PA-90-01 states that all training costs must be allocated to title IV-E, State foster care and other State/Federal programs in such a manner as to assure that each participating program is charged its proportionate share of the costs. This is in accordance with 45 CFR Part 95.507(a)(2), which requires that State cost allocation plans conform to the accounting principles and standards prescribed in Office of Management and Budget (OMB) Circular A-87. OMB Circular A-87 defines indirect costs as those incurred for a common or joint purpose which benefit more than one cost objective. It further requires that indirect cost pools be distributed to the benefitting cost objections in such a manner which will produce an equitable result. INFORMATION: Training costs for all training . . . must be allocated among all benefitting programs and may not be direct-charged to title IV-E, unless title IV-E is the only benefitting program.

Nebraska Ex. 27, at 1-4.

6. The one exception to which DCA pointed was the Juvenile Justice training block, which DCA asserted "does not pertain to and is not allowable under Title IV-E." DCA Br. at 5, n.1. Nebraska disagreed on the ground that "[i]t serves the purposes of Title IV-E for the relevant PSWs to be trained in some depth about the operations of the juvenile justice system in which their IV-E-eligible juvenile clients are involved." Nebraska Reply Br. at 13, n.11. Nebraska acknowledged that it also provided "Juvenile Justice Officer (JSO) Specialized Training," but cited the Declaration of Chris Hanus, Deputy Administrator of Nebraska's Office of Protection and Safety, which states that "only those PSWs whom NHHSS expects to work regularly with delinquent juveniles receive this specialized training in juvenile justice issues." Id., quoting Nebraska Ex. 1, at 2. We need not resolve this issue, which was not fully briefed by the parties, in order to determine whether DCA properly disapproved Nebraska's proposed CAP amendment. This issue could be reviewed by the Board on appeal of any disallowance by ACF of training costs related to the Juvenile Justice block. We note here, however, that the fact that FFP is not available for the cost of care in a juvenile detention facility (see section 472(c)(2) of the Act) is not dispositive of whether training in juvenile justice issues could ever be allowable under IV-E.

7. The APA requires that a federal agency publish "[g]eneral notice of proposed rule making" in the Federal Register and give interested persons "an opportunity to participate in the rule making through the submission of written data, views, or arguments." 5 U.S.C. §§ 553(b) and (c). Section 553(b) provides an exception to the notice and comment requirement for "interpretative rules, general statements of policy, and rules of agency organization, procedure, or practice." Section 553(a)(2) also provides for an exception for matters relating to grants. However, HHS has chosen to abide generally by the provisions of section 553, notwithstanding the grants exception. 36 Fed. Reg. 2532 (1971).

8. One of the grounds for Nebraska's argument that the issuances go beyond the requirements of OMB Circular A-87 was that the Circular does "not mandate that costs be allocated among all programs that derive any benefit . . . ." Nebraska Br. at 11. DCA disputed this characterization of the Circular, which DCA stated "requires that foster care training costs be allocated to all benefitting programs." DCA Br. at 7. As DCA recognized, however, consistent with Nebraska's position, the Board has held that the Circular does not require such an allocation but gives federal agencies discretion to require it. See DCA Br. at 11, citing Oklahoma. Moreover, the D.C. Circuit Court of Appeals recently rejected HHS's contention that "the Circular requires all federal agencies to use benefiting program allocation in the administration of federal grants." Arizona v. Thompson, 281 F.3d 248 (C.A.D.C. 2002).

9. According to Nebraska, "[o]n many occasions and in a number of official policy statements" prior to the dates of the three issuances in question, "ACF or its predecessor agency has expressed its interpretation that foster care training costs may be fully allocated to Title IV-E if it is the primary benefiting program." Nebraska Br. at 35-36. Although Nebraska provided numerous examples of what it viewed as a prior, inconsistent policy, it is unnecessary to discuss them here in light of our conclusion below.

10. Illinois had argued that ACF-IM-91-15 was a substantive rule because it represented a change in ACF's prior policy with respect to allocation of training costs. The Board concluded that even if there was a change in policy, the policy was a general statement of policy which was exempt from notice and comment rulemaking under the APA.

11. This argument glosses over the fact that title IV-E was not the only source of federal funding for Nebraska's training costs, which were also allocable to title IV-B.

12. Contrary to what Nebraska indicated, the language quoted does not come from the preamble to the notice of proposed rulemaking for this regulation, but rather from a later preamble (61 Fed. Reg. 58632, 58649 (Nov. 18, 1996)) explaining the requirement in the title IV-B regulations, at 45 C.F.R. § 1357.15(t)(1), that a state's Child and Family Services Plan include a training plan which "must be combined with the training plan under title IV-E as required by 45 CFR 1356.60(b)(2)." The 1996 preamble also contained the following language: "States and Indian Tribes are encouraged to make title IV-E training as complementary to and supportive of the CFSP as it can be. At the same time, title IV-E training has a unique focus and operates within a specific statutory and regulatory framework."

13. DCA asserted in response to Nebraska's argument that "Nebraska cannot make a funding allocation by which it chooses to allocate to Title IV-E training costs that might otherwise be allocated to Title IV-B, in the absence of legislation specifically allowing for same." DCA Br. at 15. ASMB C-10 makes clear, however, that legislation authorizing cost shifting is necessary only where a state seeks to shift costs that are allocable to one federal program to another federal program to which the costs would otherwise be "unallocable." See ASMB C-10, section 2-12. In the case now before us, the training costs would be properly allocable in their entirety to any of the programs in question if the other programs did not exist. Thus, no statutory authorization would be required if ACF wished to permit a state to allocate all of the training costs to title IV-E.

14. We note that both the statute and the regulations specifically provide that expenditures for Statewide automated child welfare information systems (SACWIS) are allowable IV-E costs without regard to whether the systems may be used with respect to children who are not eligible for IV-E. See section 474(c) of the Act; 45 C.F.R. §§ 1355.57(a), 1356.60(e). Thus, it is likely that if either Congress or ACF had determined that training costs should be allocated solely to title IV-E, there would be express authority for such allocation as in the case of SACWIS.

15. Prior to the enactment of title IV-E, funding for foster care maintenance payments was available under title IV-A. States were given until October 1, 1982 to begin operating under approved title IV-E plans.

16. The last two pages of the Declaration are omitted from the copy at DCA Ex. 12. A complete copy was submitted as Exhibit 12 to Appellant's Brief in Response to the Board's Request for Preliminary Briefing. See Nebraska letter dated 10/18/01.

17. In Arizona v. Thompson, the court stated that similar "arguments of policymaking discretion" with respect to the use of Temporary Assistance for Needy Families (TANF) grants to pay for the common costs of administering the TANF, Medicaid, and Food Stamp programs "may justify a decision by HHS to depart from the method of cost allocation it accepted under the former program [although] they do not compel it to do so." 281 F.3d 248, 257-258.

18. DCA took the position that "training is not a legal requirement of the IV-E program." DCA Br. at 14. We need not resolve that dispute for purposes of this case, however.

19. DCA's letter disapproving Nebraska's proposed CAP amendment did not state what allocation basis must be used, although DCA noted that it had "suggested one basis would be an allocation based on the proportion of cases for each program that benefits from the training." Nebraska Ex. 2, at 1; see also Nebraska Ex. 7, at 1. DCA stated in its brief that "[r]andom moment time studies also provide an acceptable basis for allocation." DCA Br. at 16.

20. Nebraska stated that "[t]hese factors are compounded by the fact that it is difficult, if not impossible, to make a reasonable measurement of what portion of training content is IV-E specific rather than generalizable to all foster care." Nebraska Br. at 28. It is unclear what Nebraska means by this, since, as noted earlier, DCA conceded that all of the training except the Juvenile Justice Block benefitted IV-E as well as other programs.

CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES