B-197953.OM, NOV 12, 1980

B-197953.OM: Nov 12, 1980

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ANALYSIS THE AFDC PROGRAM IS DESIGNED TO PROVIDE FINANCIAL ASSISTANCE TO NEEDY DEPENDENT CHILDREN AND THE PARENTS AND RELATIVES WITH WHOM THEY RESIDE. 42 U.S.C. STATE AFDC PROGRAMS ARE FINANCED PRINCIPALLY BY FEDERAL FUNDS ON A MATCHING BASIS. A STATE PLAN FOR AID AND SERVICES TO NEEDY FAMILIES WITH CHILDREN MUST "*** PROVIDE SUCH METHODS OF ADMINISTRATION *** AS ARE FOUND BY THE SECRETARY TO BE NECESSARY FOR PROPER AND EFFICIENT OPERATION OF THE PLAN." 42 U.S.C. IS A CONCLUSION BUTTRESSED BY OTHER STATUTORY PROVISIONS. THAT ARE ADMINISTERED BY STATE AND LOCAL GOVERNMENTS UNDER FEDERAL GRANTS OR CONTRACTS. THE REGULATIONS PROVIDE THAT STATES ARE RESPONSIBLE FOR THE EFFICIENT AND EFFECTIVE ADMINISTRATION OF GRANT PROGRAMS.

B-197953.OM, NOV 12, 1980

SUBJECT: COMPARATIVE ANALYSIS OF FOUR STATES' AFDC PROGRAM MANAGEMENT (FILE B-197953; CODE 105081)

ASSISTANT REGIONAL MANAGER, NYRO - JAMES A. CARLAN:

THIS RESPONDS TO YOUR QUESTION WHETHER THE DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS) MAY EXERT CONTROL OVER THE LEVEL OF ADMINISTRATIVE SPENDING BY STATES PARTICIPATING IN THE AID TO FAMILIES WITH DEPENDENT CHILDREN (AFDC) PROGRAM, SUCH AS BY LIMITING HOW MUCH A STATE MAY ALLOCATE FOR SUCH COSTS. YOU THINK THAT SECTION 402(A)(5) OF THE SOCIAL SECURITY ACT, 42 U.S.C. SEC. 602(A)(5), PROVIDES HHS WITH SUCH AUTHORITY.

IN OUR OPINION, HHS MAY, BY ITS APPROVAL OR REJECTION OF A STATE PLAN, CONTROL TO SOME DEGREE THE ADMINISTRATION OF STATE AFDC PROGRAMS, BUT NOT TO THE EXTENT OF DICTATING THE ACTUAL AMOUNTS THAT MAY BE EXPENDED FOR ADMINISTRATIVE COSTS. A DETAILED ANALYSIS SUPPORTING OUR CONCLUSION FOLLOWS.

ANALYSIS

THE AFDC PROGRAM IS DESIGNED TO PROVIDE FINANCIAL ASSISTANCE TO NEEDY DEPENDENT CHILDREN AND THE PARENTS AND RELATIVES WITH WHOM THEY RESIDE. 42 U.S.C. SEC. 601. SUMS APPROPRIATED TO HHS FOR THE AFDC PROGRAM MAY BE USED TO MAKE PAYMENTS TO STATES WITH APPROVED STATE PLANS FOR IMPLEMENTING THE PROGRAM. STATE AFDC PROGRAMS ARE FINANCED PRINCIPALLY BY FEDERAL FUNDS ON A MATCHING BASIS. IN ORDER TO BE ELIGIBLE FOR FEDERAL FUNDS, THE STATES MUST SUBMIT, FOR THE SECRETARY'S APPROVAL, AFDC PLANS THAT CONFORM WITH THE ACT AND REGULATIONS PROMULGATED THEREUNDER. 42 U.S.C. SECS. 601 ET SEQ.

AMONG THE REQUISITES FOR APPROVAL, A STATE PLAN FOR AID AND SERVICES TO NEEDY FAMILIES WITH CHILDREN MUST "*** PROVIDE SUCH METHODS OF ADMINISTRATION *** AS ARE FOUND BY THE SECRETARY TO BE NECESSARY FOR PROPER AND EFFICIENT OPERATION OF THE PLAN." 42 U.S.C. SEC. 602(A)(5). THE QUOTED LANGUAGE SUGGESTS THAT THE SECRETARY MAY APPROVE OR DISAPPROVE A STATE PLAN, BASED UPON THE METHODS A STATE PROPOSES TO EMPLOY TO ADMINISTER ITS AFDC PROGRAM. THE LAW DOES NOT STATE, HOWEVER, THAT THE SECRETARY MAY CONTROL THE AMOUNT OF MONEY A STATE SPENDS TO ADMINISTER ITS AFDC PROGRAM FUNCTIONS. THAT THE SECRETARY'S AUTHORITY REGARDING ADMINISTRATION OF A STATE'S AFDC PROGRAM RELATES TO THE METHOD OF ADMINISTRATION AND NOT THE APPROVAL OR DISAPPROVAL OF COSTS PER SE, IS A CONCLUSION BUTTRESSED BY OTHER STATUTORY PROVISIONS, AGENCY REGULATIONS, AND CASE LAW.

HHS REGULATIONS, PUBLISHED AT 45 C.F.R. PART 74, APP. C, PROVIDE GENERAL GUIDANCE REGARDING THE DETERMINATION AND ALLOCATION OF ALLOWABLE ADMINISTRATIVE COSTS. THESE REGULATIONS SET FORTH PRINCIPLES FOR DETERMINING THE ALLOWABLE COSTS OF PROGRAMS, SUCH AS AFDC, THAT ARE ADMINISTERED BY STATE AND LOCAL GOVERNMENTS UNDER FEDERAL GRANTS OR CONTRACTS. THE REGULATIONS PROVIDE THAT STATES ARE RESPONSIBLE FOR THE EFFICIENT AND EFFECTIVE ADMINISTRATION OF GRANT PROGRAMS. EACH GRANTEE HAS THE PRIMARY RESPONSIBILITY TO DECIDE THE BEST METHOD TO ASSURE PROPER AND EFFICIENT ADMINISTRATION OF ITS PROGRAM. TO BE ALLOWABLE UNDER A GRANT PROGRAM, COSTS MUST MEET CERTAIN GENERAL CRITERIA. FOR EXAMPLE, SUCH COSTS MUST BE NECESSARY AND REASONABLE FOR PROPER AND EFFICIENT ADMINISTRATION OF THE GRANT PROGRAM, BE ALLOCABLE TO THE PROGRAM, AND WITH SOME EXCEPTIONS, NOT BE A GENERAL EXPENSE REQUIRED TO CARRY OUT THE OVERALL RESPONSIBILITIES OF THE STATE GOVERNMENT. HHS REGULATIONS ALSO DESCRIBE TYPICAL DIRECT AND INDIRECT COSTS CHARGEABLE TO GRANT PROGRAMS.

UNDER THE AFDC PROGRAM, EACH STATE MAY SET ITS OWN STANDARD OF NEED AND DETERMINE THE LEVEL OF BENEFITS TO BE PROVIDED. THUS, EACH STATE EFFECTIVELY DETERMINES THE AMOUNT OF FUNDS IT WISHES TO DEVOTE TO THE AFDC PROGRAM. THE FEDERAL GOVERNMENT'S FINANCIAL PARTICIPATION IS A PERCENTAGE OF THE TOTAL AFDC EXPENDITURES WITHIN EACH STATE. THE GOVERNMENT'S FINANCIAL PARTICIPATION PERCENTAGES CORRESPONDING TO A STATE'S AFDC ADMINISTRATIVE COSTS ARE COVERED BY 42 U.S.C. SEC. 603(A)(3).

IN LIGHT OF HHS REGULATIONS AND OTHER AFDC STATUTORY PROVISIONS, IT IS REASONABLE TO CONCLUDE THAT ONCE A STATE PLAN IS APPROVED BY THE SECRETARY UNDER 42 U.S.C. SEC. 602, AND FEDERAL FINANCIAL PARTICIPATION FOR ADMINISTRATIVE COSTS DETERMINED UNDER 42 U.S.C. SEC. 603(A)(3), HHS LACKS AUTHORITY TO LIMIT A STATE'S ADMINISTRATIVE EXPENDITURES, IF PROPER UNDER THE LAW AND REGULATIONS.

THE SUPREME COURT HAS STATED, IN A NUMBER OF CASES, THAT STATES HAVE WIDE DISCRETION IN ALLOCATING THEIR AFDC RESOURCES. THE COURT HAS HELD THAT EACH STATE MAY DETERMINE WHO IS "NEEDY" FOR PURPOSES OF AFDC, SET ITS OWN STANDARD OF NEED, DEPENDING UPON THE CONDITIONS EXISTING IN THE STATE, AND DETERMINE THE LEVEL OF BENEFITS BY THE AMOUNT OF FUNDS IT DEVOTES TO THE PROGRAM. KING V. SMITH, 392 U. S. 309, 318-19 (1968). THUS, THE LEVEL OF AFDC BENEFITS TO BE PROVIDED TO ELIGIBLE AFDC RECIPIENTS IS A MATTER WHOLLY WITHIN A STATE'S DISCRETION, WITH THE FEDERAL GOVERNMENT CONTRIBUTING STATUTORILY PRESCRIBED PERCENTAGES OF THE TOTAL AFDC EXPENDITURES WITHIN A STATE. SEE ALSO, SHEA V. VIALMANDO, 416 U. S. 257, 253 (1974) (STATE DISCRETION IN DETERMINING STANDARD OF NEED AND LEVEL OF AFDC BENEFITS); DANDRIDGE V. WILLIAMS, 397 U. S. 471, 478 (1969) (STATES HAVE LATITUDE IN DISPENSING FUNDS FOR AFDC); AND ROSADO V. WYMAN, 397 U. S. 397 (1969) (STATES MAY PAY RECIPIENTS AS LITTLE OR AS MUCH AS THEY CHOOSE).

THUS, IN LIGHT OF CASE LAW, IT IS CLEAR THAT HHS MAY NOT CONTROL ACTUAL AMOUNTS STATES SPEND ON AFDC BENEFITS. SINCE, AS NOTED ABOVE, ADMINISTRATIVE COSTS WILL VARY IN ACCORDANCE WITH THE AMOUNT OF BENEFITS PROVIDED, IT FOLLOWS THAT HHS MAY NOT SET DOLLAR LIMITS ON A STATE'S ADMINISTRATIVE EXPENDITURES FOR CARRYING OUT AN APPROVED AFDC STATE PLAN.

STATES MAY NOT, HOWEVER, SPEND INDISCRIMINATELY FOR AFDC ADMINISTRATION. UNDER THE LAW AND REGULATIONS, HHS HAS AUTHORITY TO OVERSEE STATE ADMINISTRATIVE SPENDING, AND, WHERE APPROPRIATE, ENTIRELY OR PARTIALLY TERMINATE FEDERAL PAYMENTS IF "IN THE ADMINISTRATION OF THE (STATE) PLAN THERE IS A FAILURE TO COMPLY SUBSTANTIALLY WITH ANY PROVISION REQUIRED BY SECTION 602 (A) OF THIS TITLE TO BE INCLUDED IN THE PLAN." 42 U.S.C. SEC. 604(A)(2). SEE KING V. SMITH, SUPRA, 317 N.12.

AS A PRACTICAL MATTER, THE PRINCIPAL METHOD OF CONTROL OVER ADMINISTRATIVE COSTS IS HHS' POWER TO APPROVE OR DISAPPROVE STATE PLANS, WHICH AS NOTED, ARE REQUIRED TO INCLUDE PROPOSED METHODS OF ADMINISTRATION. IF A STATE'S PLAN PROPOSES METHODS OF ADMINISTRATION THAT THE SECRETARY CONSIDERS TOO INEFFICIENT OR COSTLY, THE PLAN CAN BE REJECTED AS NOT BEING IN ACCORDANCE WITH SEC. 602(A)(5).

ONCE THE STATE PLAN IS APPROVED, THE AMOUNT OF THE FEDERAL FINANCIAL PARTICIPATION FOR ADMINISTRATION (A PERCENTAGE OF TOTAL STATE COSTS AS PROVIDED IN 42 U.S.C. SEC. 603), IS BASED ON DOCUMENTS SUBMITTED TO HHS BY THE STATE AGENCY. UNDER 45 C.F.R. SEC. 201.6, PAYMENTS MAY BE WITHHELD OR REDUCED (AFTER NOTICE AND HEARING) IF THE STATE PLAN NO LONGER COMPLIES WITH THE SOCIAL SECURITY ACT, OR IF, IN THE ADMINISTRATION OF THE PLAN, THERE IS A FAILURE TO COMPLY WITH THE PROVISIONS OF THE ACT.

CONSEQUENTLY, ALTHOUGH HHS MAY NOT LIMIT THE DOLLAR AMOUNTS OF STATE ADMINISTRATIVE EXPENSES FOR AFDC PROGRAMS, IT MAY, TO THE EXTENT THAT IT REJECTS CERTAIN EXPENDITURES AS BEING OUTSIDE "NECESSARY AND EFFICIENT OPERATING COSTS," IMPACT ON AMOUNTS STATES CHOOSE TO SPEND FOR THIS PURPOSE. SEE 45 C.F.R. SEC. 220.61.

DIGEST

DEPARTMENT OF HEALTH AND HUMAN RESOURCES MAY, BY ITS APPROVAL OR REJECTION OF A STATE PLAN UNDER 42 U.S.C. 602(A)(5), CONTROL TO SOME DEGREE THE ADMINISTRATION OF STATE PROGRAMS FOR AID TO FAMILIES WITH DEPENDENT CHILDREN (AFDC), BUT NOT TO THE EXTENT OF PRESCRIBING A LIMIT ON THE AMOUNT THAT MAY BE EXPENDED FOR STATE AFDC ADMINISTRATIVE COSTS. THE LEVEL OF SUCH FEDERAL FINANCIAL PARTICIPATION IS PRESCRIBED BY LAW, 42 U.S.C. 603(A)(3).