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Department of Health and Human Services
Appellate Division

SUBJECT: Texas Department of Human Services

DATE: December 15, 2004



Docket No. A-03-91
Decision No. 1954


The Texas Department of Human Services (TDHS) appealed the determination of the Administration for Children and Families (ACF) requiring TDHS to repay the federal share of overpayments that TDHS made under the former Aid to Families with Dependent Children (AFDC) program in title IV-A of the Social Security Act (Act). TDHS recovered these overpayments after it began participating in the cash assistance program that replaced AFDC, the Temporary Assistance for Needy Families (TANF) program. While the case was pending before the Board, ACF reduced the amount of the disallowance from $13,788,207 to $12,985,928. ACF letter dated 9/23/04, at 1. (1)

On appeal, TDHS argued that it had properly accounted for the federal share of the overpayment recoveries by spending the recovered funds for TANF benefits that exceeded the amount funded through its TANF grant. TDHS argued in the alternative that it was required to repay the federal share of only the net amount of overpayment recoveries after an offset for its substantial costs of recovering the overpayments.

As discussed in detail below, we conclude that use of AFDC overpayment recoveries to augment TDHS's TANF grant was not permissible under applicable law. We further conclude that ACF properly required TDHS to repay the federal share of the overpayment recoveries without any offset because TDHS currently has no unreimbursed costs available for such an offset.

The record for this case includes briefing and exhibits submitted by the parties as well as the transcript of an oral argument held by the Board. (2)

Legal Background

Title IV-A of the Act originally established a program of aid for needy dependent children and the parents or relatives with whom they were living, known as the Aid to Families With Dependent Children (AFDC) program. The Act provided for reimbursement of a percentage "of the total amounts expended" by a state during each quarter "as aid to families with dependent children under the State plan." Section 403(b) of the Act. (3) The Act set out detailed requirements for a "State plan for aid and services to needy families with children." Section 402(a)(1)-(44). The Act also provided for reimbursement of a percentage of state expenditures "found necessary by the Secretary for the proper and efficient administration of the State plan." Section 403(a)(3)(D).

States had a responsibility under title IV-A AFDC programs to recover overpayments made to individuals or families. The AFDC regulations at 45 C.F.R. 233.20(a)(13)(i)(A) (1995) required that "[t]he State must take all reasonable steps necessary to promptly correct any overpayment . . . ." The regulations defined "overpayment" as "a financial assistance payment received by or for an assistance unit [individual or family] for the payment month which exceeds the amount for which that unit was eligible." Section 233.20(a)(13)(i) (1995).

Section 403(b) of the Act set out "[t]he method of computing and paying" states for the amounts expended under an approved State plan. This section provided in relevant part that the amount to be paid to a state shall be-

reduced by a sum equivalent to the pro rata share to which the United States is equitably entitled, as determined by the Secretary of Health and Human Services, of the net amount recovered during any prior quarter by the State or any political subdivision thereof with respect to aid to families with dependent children furnished under the State plan . . . .

Act, section 403(b)(2)(B). The parties did not dispute that an overpayment recovered pursuant to 45 C.F.R.
233.10(a)(13)(i)(A) (1995) is an "amount recovered" within the meaning of section 403(b).

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), Public Law No. 104-193, amended title IV-A to establish a program of "Block Grants to States for Temporary Assistance for Needy Families" (TANF) that would replace the AFDC program. Section 401(a) of the Act as amended states in relevant part that the purpose of the amended title IV-A "is to increase the flexibility of States in operating a program designed to- (1) provide assistance to needy families so that children may be cared for in their own homes or in the homes of relatives . . . ." Each state which submits a State plan outlining how it will conduct the program and making certain certifications is eligible for an annual "State family assistance grant" in a set amount (tied to amounts previously spent for AFDC and several AFDC-related programs). Section 403(a)(1) of the Act.

States were eligible to participate in the TANF program beginning as early as October 1, 1996. TDHS began participating on November 5, 1996. TDHS Ex. 20.


1. Under applicable law, TDHS may not account for the federal share of AFDC overpayment recoveries by augmenting its TANF grant.

At issue is how a state is required to account for the federal share of AFDC overpayment recoveries after the AFDC program had terminated. TDHS maintained that it properly accounted for these funds by making payments for TANF benefits that exceeded the amount of its annual TANF grants. (4) The Board addressed a similar argument in Iowa Dept. of Human Services, DAB No. 1874 (2003), where it found that the state's use of AFDC overpayment recoveries for new cash assistance payments under TANF violated federal appropriations law. The Board stated in relevant part:

Section 1301(a) of 31 U.S.C. provides that "[a]ppropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law." That section has been described as follows: "Simply stated, 31 U.S.C. 1301(a) says that public funds may be used only for the purpose or purposes for which they were appropriated." Principles of Federal Appropriations Law, 2d ed., U.S. General Accounting Office, Office of the General Counsel, July 1991, OGC-91-5, at 4-2. Thus, the Board has observed that Congress appropriates funds only for authorized purposes and that a grantee's entitlement to federal funds does not extend beyond the federal financial participation authorized in the grant statute. See, e.g., New York State Dept. of Social Services, DAB No. 1358 (1992).

The overpayments in the case before us were paid as cash assistance payments under DHS's Family Investment Program (FIP), which at that time received federal funding under the AFDC program. When the AFDC program was still extant, DHS, as authorized by former section 403(2)(b) of the Act, used the overpayment recoveries for new FIP payments, reducing the amount of federal funding it would otherwise have claimed under the AFDC program for each quarter in which the new FIP payments were made. Beginning January 1, 1997, however, DHS received federal funding for its FIP payments under the TANF program. Thus, by continuing to use AFDC overpayments recovered after that date for FIP payments, DHS was using funds that had been appropriated for the AFDC program for the TANF program instead, in violation of 31 U.S.C. 1301(a).

DAB No. 1874, at 4-5.

TDHS argued that the holding in DAB No. 1894 did not govern here because the issue was not fully briefed before the Board. According to TDHS, DAB No. 1874 found a violation of appropriations law based on ACF's argument that AFDC and TANF are different programs without considering what TDHS characterized as the "touchstone of the analysis": whether they served the same purpose. TDHS asserted that "AFDC and TANF serve the same purpose - to assist needy children and families." TDHS Br. dated 10/31/03, at 38, citing 42 U.S.C. 601 (1994) and 42 U.S.C. 602(a) (sections 401(a) and 402(a) of the Act). TDHS also argued that AFDC appropriations language not expressly considered by the Board in DAB No. 1874 can be read to authorize the use of AFDC overpayment recoveries for the TANF program. TDHS pointed out that the congressional appropriations for each of the years during which TDHS made overpayments under AFDC provided funds "[f]or making payments under titles I, IV-A . . . and D, X, XI, XIV, and XVI of the Social Security Act . . . to remain available until expended." In TDHS's view, the funds made available pursuant to these appropriations bills could be used for TANF as well as AFDC because both AFDC and TANF are title IV-A programs. TDHS Br. dated 10/31/03, at 30-32.

These arguments are unavailing. Even if funds appropriated for AFDC could be used to pay for costs that would otherwise be funded by TANF, we conclude based on the following factors that AFDC funds may not be used to augment a state's TANF grant:

  • Section 403(a)(1) of the Act sets a dollar limit, or cap, on the amount of expenditures that can be reimbursed as costs of the TANF program. If a state that had claimed all of the funds to which it was entitled under the cap were permitted to use AFDC funds for costs of its program under TANF, the total amount of program costs paid with federal funds would exceed the TANF cap.
  • Former section 403(b)(2)(B) provided a mechanism for accounting for a state's overpayment recoveries, requiring that they be reported as a reduction of expenditures. This section did not authorize states to make expenditures that would not otherwise be authorized under title IV-A. Thus, TDHS's use of AFDC overpayment recoveries for its TANF program costs that exceeded the TANF cap was not a continuation of a previously authorized practice.
  • In section 116(b) of PRWORA, Congress set out detailed "Transition rules," including provisions in section 116(b)(3) for "closing out accounts" of "programs terminated or substantially modified by this title." Nothing in these rules provides for using AFDC funds for TANF costs. (5)

  • Section 404(a)(1) of the Act provides that TANF funds may be used "in any manner that the State was authorized to use amounts received" for the AFDC program. ACF has interpreted this provision as authorizing the use of TANF funds for AFDC costs. (6) There is no comparable provision in the Act for using AFDC funds for TANF costs.

Thus, regardless of whether general appropriations law precluded TDHS from accounting for the federal share of its AFDC overpayment recoveries by using them for TANF expenditures, there can be no question that there is no authority to augment its TANF grant. The same result is dictated by program-based limitations that clearly had the same effect. (7)

Furthermore, we reject TDHS's argument that it was entitled to account for the overpayment recoveries in this manner at least until September 2000 because it lacked timely notice that it would not be permitted to use its AFDC overpayment recoveries to augment its TANF grant. TDHS Br. dated 10/31/03, at 25-29. Since September 2000, an ACF program instruction has directed states to repay the federal share of recoveries of AFDC overpayments made before October 1, 1996. See TANF-ACF-PI-2000-2 (TDHS Ex. 25). This program instruction rescinded two prior program instructions: a March 1999 program instruction stating that the federal share of such recoveries must be returned to the agency by check and a May 2000 ACF program instruction stating that such overpayment recoveries can be "credited to the TANF grant." See TANF-ACF-PI-99-2 (TDHS Ex. 23) and TANF-ACF-PI-99-2 (TDHS Ex. 24). Although the May 2000 program instruction was inconsistent with the two other program instructions, it provided for reducing a state's TANF grant by the amount of the AFDC overpayment recoveries, not for augmenting a state's TANF grant by that amount as TDHS did. In the absence of any guidance from ACF that the latter course of action was permissible, the factors identified above provided timely notice that it was not.

Accordingly, we conclude that TDHS could not properly account for any of its overpayment recoveries, which consisted of funds originally appropriated for the AFDC program, by using those funds to pay for costs incurred in later years for TANF that were in excess of the TANF cap.

2. TDHS must immediately repay the federal share of its AFDC overpayment recoveries.

Notwithstanding its position that it was entitled to use the federal share of the AFDC overpayment recoveries to make TANF benefit payments, TDHS stated that it "is prepared to resolve this disallowance action if it is permitted to offset the costs it incurred in recovering these AFDC overpayments against the amounts that it recovered." TDHS letter dated 9/29/04, at 3. According to TDHS, the federal share of its AFDC overpayment recoveries was $12,917,058 and the federal share of the costs it incurred to recover the AFDC overpayments was $8,998,138. (TDHS stated that it used match rates of 62.3% and 50%, respectively. TDHS letter dated 9/29/04, at 2, n.1.) TDHS stated that it would repay in cash $3,918,920, the amount of overpayment recoveries remaining after offsetting the recovery costs against the overpayment recoveries. Id., attached chart captioned "Impact on Texas of State and ACF Treatments of Cost of Recovering AFDC Overpayments," first page, and accompanying narrative "Explanation." ACF took the position that there was no legal basis for offsetting the costs of recovering the overpayments against the overpayment recoveries themselves. As explained below, we conclude that TDHS must repay the entire federal share of AFDC overpayment recoveries without offset because TDHS has already charged to its TANF grant all of the recovery costs in question.

TDHS took the position that an offset is permissible "because the AFDC statute, the source of the repayment obligation, requires return only of the federal share of the 'net amount' recovered." TDHS letter dated 9/29/04, at 2. As indicated above, former section 403(b)(2)(B) provided for adjustments to AFDC grant payments to states to reflect the "pro rata share" to which the federal government is "equitably entitled" of the "net amount recovered" in AFDC overpayments. We agree that this language on its face requires a state to account only for the amount of AFDC overpayment recoveries net of any costs the state incurred to obtain these recoveries.

ACF argued that no offset is permissible because former section 403(b)(2)(B) was merely "a mechanism" to make adjustments to AFDC payments to states "in a reliable, timely, and convenient manner." ACF letter dated 11/12/04, first page. According to ACF, once TDHS began participating in the TANF program, section 403(b)(2)(B) was "no longer effective." Id. There is no dispute that, while the AFDC program was still in existence, this section allowed a state to simply report the net overpayments that it had collected and ACF to then reduce the next payment of AFDC funds to the state by the federal share of that amount. It is also undisputed that this mechanism for adjusting for AFDC overpayments is no longer available because states are no longer receiving AFDC grant payments. However, former section 403(b)(2)(B) also sets out the nature of a state's obligation to account for recovered overpayments: to account for "the pro rata share to which the United States is equitably entitled," i.e., the federal share, "of the net amount recovered during any prior quarter . . . ." (8) We see no reason why the fact that the original mechanism for accounting for the overpayments is no longer viable should change the nature of the state's obligation to account for the recovered overpayments as stated in the section. Indeed, to the extent that it sets out this obligation, section 403(b)(2)(B) was continued in effect by section 116(b)(2) of PRWORA, which states that "[t]he amendments made by this title shall not apply with respect to-(A) powers, duties, functions, rights, claims, penalties, or obligations applicable to aid, assistance, or services provided before the effective date of this title under the provisions amended." (9)

Accordingly, it was in theory permissible for TDHS to offset its costs of recovering the AFDC overpayments against the overpayment recoveries themselves, and to return to ACF only the federal share of the "net amount" of overpayment recoveries. We nevertheless conclude for the reasons explained below that, under the circumstances of this case, TDHS must immediately repay the entire federal share of its AFDC overpayment recoveries without offset.

As indicated above, TDHS stated that it would offset recovery costs of $8,998,138 against $12,917,058 of AFDC overpayment recoveries. TDHS acknowledged, however, that it had previously charged its recovery costs to TANF (as ACF acknowledged was permissible). TDHS letter dated 9/29/04, attachments. There is no indication in the record that TDHS has requested a downward adjustment in its TANF grants for the relevant quarters in the amount of the recovery costs. TDHS therefore currently has no unreimbursed recovery costs which could be offset against its AFDC overpayment recoveries. TDHS in effect asked the Board to rule that TDHS need not repay the federal share of its overpayment recoveries based on TDHS's expectation that it will in the future have unclaimed recovery costs to offset against them. Such a ruling would be simply an advisory opinion since the issue is not presented on the facts of this case. The Board has consistently declined to issue advisory opinions. See, e.g., Colorado Dept. of Personnel & Administration, DAB No. 1872 (2003).

Furthermore, TDHS argued for more than simply an offset here: TDHS sought to reverse transactions and recharacterize funds in such as way as to put itself in the same posture as if it had used its AFDC recovery costs to offset its overpayment recoveries and repaid the net amount to ACF on a quarterly basis beginning in 1996. Specifically, TDHS proposed to reduce its TANF grant by $17,996,276 previously charged to that grant for recovery costs, thus making available unclaimed costs which it could offset against its AFDC overpayment recoveries. In addition, to avoid having to repay to ACF the TANF funds previously received for the recovery costs, TDHS proposed to charge to its TANF grant $17,996,276 of the $20,733,641 it claims to have expended for TANF benefits. TDHS letter dated 9/29/04, attachments. We agree with ACF, however, that--

[t]he issue before the Board is not whether the State could have taken a more advantageous approach to maximize its cash flow or minimize the draw-down rate of its TANF grant. ACF contends that the issue is whether the State properly allocated the federal funds it had at its disposal and how to adjust any discrepancies.

ACF letter dated 10/4/04, 2nd page.

In any event, it is unclear whether the actions TDHS proposed to take in conjunction with the offset would be permissible. Among other things, TDHS would have to establish that the $17,996,276 previously charged to its TANF grant for recovery costs was properly allocated to the AFDC program in accordance with its cost allocation plan, since TDHS may not have distinguished between the cost of recovering AFDC overpayments and the cost of recovering TANF overpayments when it charged the $17,996,276 to TANF. Further, TDHS would have to document that it had allowable expenditures of $17,996,276 for TANF benefits which it had not claimed and that it had not used any of these expenditures to satisfy its TANF maintenance of effort requirement. Moreover, TDHS could claim these expenditures under TANF only if the claims were filed within two years of the end of the quarter in which the expenditures were incurred, as required by section 1132 of the Act, or if one of the exceptions to this requirement applied. The record in this case is not sufficiently developed to permit us to address such issues here, however.

Since there is presently no basis for an offset, we conclude that TDHS is required to immediately repay the entire federal share of its overpayment recoveries without any offset for recovery costs. Section 74.73(a) of 45 C.F.R. provides in part that "[a]ny funds paid to a grantee in excess of the amount to which the grantee is finally determined to be entitled under the terms of the award constitute a debt to the Federal Government." TDHS's overpayment recoveries clearly constitute a debt within the meaning of section 74.73(a). That section also requires repayment of the debt "within a reasonable period after the demand for payment." The Board has previously stated that "[t]he general rule is that a debt must be repaid, in cash, within a reasonable time." Louisiana Division of Administration, DAB No. 1893, at 11 (2003), citing 45 C.F.R. 92.52(a). (10) "The federal government may permit a debtor to use other means of repayment, but a decision not to use such other methods is generally within the federal agency's discretion." Id. at 11 and n.6, citing Licking County Economic Action Development Study, DAB No. 1159 (1990)(noting that repayment of a disallowance is a matter between the grantee and the affected program); New York City Human Resources Administration ("the use of any method [of repayment] other than the return of the disallowed funds in cash would be solely at the discretion of the Agency"); and Mississippi Dept. of Public Welfare, DAB No. 431 (1983)("The Board's powers over appeals and the appeals process do not authorize it to dictate how or when a disallowance is repaid"). ACF's determination to require repayment of the debt in question here without offset was clearly not an abuse of discretion since there is presently no basis for the offset proposed by TDHS.


For the reasons discussed above, we uphold the disallowance in full.


Daniel Aibel

Judith A. Ballard

Donald F. Garrett
Presiding Board Member


1. ACF reduced the disallowance by $802,279 based on its finding that some of the overpayments were recovered before TDHS began participating in TANF and had been accounted for. ACF reduced the disallowance by an additional $68,870 by using TDHS's methodology for estimating the amount of the overpayment recoveries.

2. The Presiding Board Member denied TDHS's request for a hearing on the ground that an evidentiary hearing would not be useful as to any of the issues identified by TDHS, but offered the opportunity for oral argument. Ruling dated 2/12/04. An oral argument was held on October 6, 2004 following a stay of proceedings to permit the parties to narrow the issues and explore the possibility of settlement.

3. The sections of the Act cited in this decision were codified at 42 U.S.C. 601 et seq.

4. In its initial brief, TDHS took the position that it had accounted for the overpayment recoveries by reducing the amount claimed under its TANF grants, but subsequently appeared to abandon this position.

5. TDHS relied on section 116(b)(2) of PRWORA in arguing that it was not required to repay the federal share of AFDC overpayment recoveries, but this argument was premised on its abandoned position that it used its recoveries to reduce its TANF drawdowns. See TDHS Br. dated 10/31/03, at 23-24. TDHS also argued that, under section 116(b)(2), it was required to account only for its net overpayment recoveries, an argument which we discuss later.

6. See ACF letter dated 9/23/04, 2nd page, citing ACF Ex. 6 (ACF Program Instruction TANF-ACF-PI-04-03 (dated July 14, 2004)).

7. We also note that permitting states to use AFDC overpayment recoveries to augment their TANF grants would primarily benefit states that had large AFDC overpayments and/or were slow to recover overpayments.

8. This obligation is qualified in former section 403(b)(2)(C) in ways not relevant here.

9. ACF pointed out that TDHS's obligation to return the federal share of overpayment recoveries continued under 45 C.F.R. 74.72 ("closeout of an award does not affect . . . [t]he obligation of the recipient to return any funds due as a result of later refunds, corrections, or other transactions"). This does not mean that former section 403(b)(2) of the Act could not also continue in effect for the purposes of determining the amount due.

10. During the period in question here, TANF was subject to the uniform administrative rules in Part 74 rather than Part 92 as is now the case; however, the language of section 74.73(a) and 92.52(a) is identical.