Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

State of Nebraska, Dep't of Health & Human Svs. v. United States Dep't of Health and Human Services

September 30, 2004


The opinion of the court was delivered by: Emmet G. Sullivan Unites States District Judge


I. Introduction

Plaintiff, the State of Nebraska Department of Health and Human Services ("Nebraska"), challenges the determination made by the Department of Health and Human Services Departmental Appeals Board ("DAB"). The determination, known as Decision 1882, disapproved Nebraska's amendment to its cost allocation plan. The amendment proposed by Nebraska allocates the costs of training Nebraska's protection and safety workers ("PSWs") exclusively to the Federal Foster Care and Adoption Assistance Program under Title IV-E of the Social Security Act. Plaintiff claims that this training is specifically developed and designed to meet the requirements of Title IV-E and that this training is only provided to trainees who handle or will handle Title IV-E cases. Pl. Resp. at 2 (citing A.R. 493-94). Nebraska seeks review of the DAB Decision under the Administrative Procedures Act ("APA"). 5 U.S.C. § 701 et seq.

Defendants are the U.S. Department of Health and Human Services ("HHS") and Tommy Thompson, in his capacity as Secretary of HHS. They argue that the DAB's decision upholding HHS's Division of Cost Allocation's ("DCA") disapproval of Nebraska's CAP was appropriate. Specifically, the DAB found that [I]n 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 administrative of the state plan. DAB Decision at 1 (A.R. 1). Defendants request that the decision be affirmed and this case be dismissed with prejudice.

III. Background

A. Federal Cost Principles

States that receive funds under the Social Security Act and other federal assistance programs incur some administrative costs to meet the requirements of the programs they administer. Pursuant to 45 C.F.R. § 95.501 et seq., each state is required to submit to the HHS Division of Cost Allocation a cost allocation plan ("CAP") that details how funds will be spent. A state may*fn1 claim federal financial participation ("FFP")"for costs associated with a program only in accordance with its approved cost allocation plan." 45 C.F.R. § 95.517.

In reviewing a CAP or CAP Amendment, DCA consults with the HHS division affected by the allocation, which in this case is the Administration for Children and Families ("ACF"). In determining whether Nebraska's CAP was appropriate, DCA applied the Office of Management and Budget ("OMB") Circular A-87, made applicable to the Title IV-E program by 45 C.F.R. §§ 74.27(a), 92.4(a)(3), and 92.22(b). DAB Decision at 3 (A.R. 3). OMB Circular A-87 states that in order to be allowable, a cost must "be necessary and reasonable for proper and efficient performance and administration of Federal awards" and "[b]e allocable to Federal awards...." Pl.'s Mot. Attach. A at ¶ C.1. It further instructs, "[a] cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objectives in accordance with relative benefits received." Pl.'s Mot. Attach. A at ¶¶ C.3.a, D, and E. OMB Circular A-87 provides that common costs should ordinarily be allocated among benefitting programs, but OMB Circular A-87 does not require it. Arizona v. Thompson, 281 F.3d 248, 259 (D.C. Cir. 2002).

Defendants note that ACF has provided guidance to states concerning allocation of Title IV-E administrative expenses in three ACF transmittals: ACYF-PA-87-05,*fn2 ACYF-PA-90-01,*fn3 and ACF-IM-91-15 (hereinafter "ACF transmittals").*fn4

B. Title IV-E

Through the Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272, 94 Stat. 500, Congress amended the Social Security Act to establish a foster care and adoption assistance program, described in Title IV-E. 42 U.S.C. § 670 et seq. Title IV-E replaced the foster care program that had been funded under Title IV-A of the Aid to Families with Dependant Children ("AFDC") program. Title IV-E 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 AFDC program and to provide for "adoption assistance for children with special needs." 42 U.S.C. § 670.

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 type of funds under Title IV-E. 45 C.F.R. §§ 1355.33(b)(1) and 1355.36(b)(4). Title IV-B has a funding cap; Title IV-E does not. 42 U.S.C. §621.

DAB Decision at 2 (A.R. 2).

In addition to foster care maintenance payments and adoption assistance payments, Title IV-E 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." 42 U.S.C. § 674(a)(3). Section 674(a) provides for federal financial participation ("FFP") for most types of such administrative costs at the rate of 50%. 42 U.S.C. § 674 (a)(3)(C). However, it provides for FFP at the rate of 75% for such expenditures that a state incurs to train personnel employed by or preparing for employment by the state or local agency administering the state's Title IV-E program. 42 U.S.C. § 674 (a)(3)(A). DAB Decision at 3-4 (A.R. 3-4).

A state's Title IV-B plan must include a training plan that covers training activities and costs funded under Title IV-E. 45 C.F.R. § 1357.15(t)(1). The HHS regulation implementing Title IV-E reiterates this training cost provision. 45 C.F.R. 1356.60(b)(2). It further directs that"the State's cost allocation plan shall identify which costs are allocated and claimed under this program." 45 C.F.R. § 1356.60(c). Moreover, it explicitly states that the statewide automated child welfare information system expenditures"shall be treated as necessary for the proper and efficient administration of the State plan without regard to whether the system may be used with respect to foster or adoptive children other than those on behalf of whom foster care maintenance or adoption assistance payments may be made under this part." 45 C.F.R. § 1356.60(e).

However, Title IV-E regulations do not address how training costs should be allocated. Plaintiff maintains that ACF policy statements from the early years of Title IV-E advise that if at least 85% of training is directed toward Title IV-E foster care, all training for eligible trainees and for trainers may be charged to Title IV-E, and that training developed for and directly benefiting Title IV-E may be allocated entirely to Title IV-E even if the employees attending the training are not fully supported by the Title IV-E program. A.R. 254*fn5 and A.R. 256-58.*fn6

C. Nebraska's Foster Care Training Program

Nebraska Department of Health and Human Services ("NDHHS") employs protection and safety workers ("PSWs"), all of whom are expected to handle cases involving children who are eligible for or are candidates for foster care maintenance payments under Title IV-E. A.R. 492. PSWs also handle cases involving children receiving services under Title IV-B and children who are wards of the State. A.R. 491-92. Prior to assuming a caseload, NDHHS requires all newly hired PSWs to attend training at the University of Nebraska, which was specifically designed to comply with Title IV-E requirements. A.R. 491-94.

D. Nebraska's Proposed Cost Allocation Plan

Effective July 1, 1993, DCA approved Nebraska's CAP, which included a provision stating that the cost of new worker training was directly charged to Title IV-E. A.R. 574, 578. DCA attempted to rectify the situation in 1996 by requiring Nebraska to change the provision and begin allocating costs to all the benefitting programs. Defs.' Mot. at 31. Nebraska submitted a new CAP in 1997 that was drafted in a manner so as to arguably support an interpretation that the method it employed under the 1993 CAP was still permitted. Id. Nebraska continued to direct charge Title IV-E exclusively. Id. On September 30, 1999, Nebraska submitted several proposed amendments to its CAP. See DAB Decision at 5 (A.R. 5). The CAP Amendments included a provision stating that the direct and indirect costs of its foster care training will be directly charged to Title IV-E. Id. In response, DCA informed Nebraska that these training costs"must be allocated to all programs that benefit. Title IV-E can only be charged a portion of the costs." Id. After a series of communications between DCA and Nebraska, Nebraska agreed to amend its CAP based on the number of active cases in each program. A.R. 961 Appendix B. On June 13, 2000, Nebraska notified DCA that it was withdrawing its agreement to amend the plan. A.R. 963. After Nebraska declined to amend its cost allocation plan, DCA disapproved the foster care training portion of Nebraska's CAP. DAB Decision at 6 (A.R. 6).

The DCA disapproval letter cited OMB Circular A-87 as authority for DCA's decision, referring to the provision stating that a"cost is allocable to a particular cost objective if the goods or services involved are changeable or assignable to such cost objective in accordance with relative benefits." OMB Circular A-87, Attach. A. ¶ C.3.a. The DCA disapproval letter also cited the three ACF transmittals, that require training costs to be allocated to all benefitting programs. Decision 1882 at 6 (A.R. 6).

E. The DAB Decision

Nebraska appealed DCA's decision to the DAB. The issue before the DAB was whether DCA properly disapproved Nebraska's proposed CAP amendments on the ground that the cost of training must be allocated among all benefitting programs. As the Board noted, it had previously considered precisely the same issue in Illinois Dept. of Children and Family Services, DAB No. 1530 (1995), and ruled that DCA had properly required that Illinois' CAP provide for allocation of costs among all benefitting programs. DAB Decision at 8 (A.R. 8). The Illinois decision was predicated upon the DAB ruling in Oklahoma Dept. of Human Services, DAB No. 963 (1988), holding that DCA had discretion to require a pro rata allocation of the costs of services to all benefitting programs.

In its analysis, the DAB noted that it was clear that there were other programs in the state that benefitted from the training. See DAB Decision at 8 (A.R. 8). The DAB determined that in light of the circumstances in this case, its holding in Illinois was controlling. Thus, the DAB noted:

Illinois [here Nebraska] 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. A.R. 9. Defendants argue that Nebraska, like Illinois, was on notice of the same policy as is evidenced by its actions up to June 13, 2000. A.R. 564; see also A.R. 960-61, A.R. 975-76.

Because the DAB found that the rationale in Illinois was controlling, the DAB focused on responding to the arguments made by Nebraska in its filing. DAB Decision at 10-25 (A.R. 10-25). The DAB's findings are summarized as follows:

1. The ACF Transmittals Relied On By DCA In Disapproving Nebraska's Proposed CAP Amendment Were Not Required To Be Published Pursuant To Notice And Comment Rulemaking.

The DAB rejected Nebraska's argument that the ACF transmittals were invalid because they were substantive rules that imposed a "new requirement that is 'not fairly encompassed' by OMB A-87, the title IV-E statute, and the title IV-E regulations" and thus should have been subjected to the notice and comment provisions of the APA. DAB Decision at 10 (A.R. 10). The DAB also rejected Nebraska's alternative argument that the ACF transmittals constituted interpretive rules that represent a change in ACF's interpretation of its regulation. DAB Decision at 10-11 (A.R. 10-11). The DAB explained that the transmittals were part of ACF's guidance system. DAB Decision at 12 (A.R. 12). Citing its holding in New York State Dept. of Social Services, DAB No. 1358 (1992), the DAB found the ACF transmittals to be "general statements of policy" that do not substantively change what a state is required to do in order to be entitled to FFP. DAB Decision at 12 (A.R. 12). The DAB explained that it rejected the same argument made by Illinois 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. It did not change any rights of the states or imposed any new obligations on them because the title IV-E regulation provides 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... DAB Decision at 11 (A.R. 11).

2. The Board Applied The Proper Standard In Illinois When It Held That DCA Could Properly Disapprove Illinois' Proposed CAP Based On ACF-IM-91-15 As Long As That Policy Was A Reasonable One.

Nebraska argued that recent case law supported its position that the DAB could not defer to the "reasonable" policy relied on in ACF-IM-91-15. See DAB Decision at 13 (A.R. 13). The DAB found that the two cases relied upon by Nebraska, United States v. Mead Corporation, 553 U.S. 218 (2001) and Christensen v. Harris County, 529 U.S. 576 (2000), were inapposite here. The DAB explained that both Christensen and Mead, which insert the issue of "persuasiveness" into the deference test under Chevron USA, Inc. v. Natural Resources Defense Council, Inc., 476 U.S. 837 (1984), require deference to a federal agency's interpretation only where the interpretation is contained in a document which has the force of law. DAB Decision at 14 (A.R. 14). The DAB acknowledged that the ACF transmittals did not have the force of law. Moreover, Mead and Christensen involved interpretations of "ambiguous language in statutes or regulations." DAB Decision at 14 (A.R. 14). The DAB found that instead of resolving ambiguity in a statute or regulation, the ACF transmittals "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." Id.

3. Nebraska Failed To Show That The Policy In The ACF Transmittals Is Inconsistent With Congressional Intent In Enacting Title IV-E.

Nebraska's next argument was that the ACF transmittals at issue here were inconsistent with Congress' desire to improve the overall foster care system. DAB Decision at 14 (A.R. 14). Nebraska relied heavily on the draft notice of proposed rulemaking that claimed "the intent of 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." The DAB, noting that the draft notice was never adopted, found "no basis for reading this as a statement that Congress intended title IV-E payments to benefit foster care generally." DAB Decision at 15 (A.R. 15). Moreover, the DAB reasoned that even if Congress' intent was to improve foster care, it does not mean that Congress determined that states were entitled to have their training funded at 75% regardless of whether other programs benefitted. Id. The DAB noted that it addressed similar arguments with the same result in Illinois and New York.

4. Even If Nebraska Once 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.

Nebraska argued, as did Illinois before it, that it was entitled to continued approval of the previously approved cost allocation methodology in its 1993 CAP. Nebraska noted that once 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. DAB Decision at 16-17 (A.R. 16-17). The DCA has acknowledged that it was mistaken in its prior approval of Nebraska's CAP. DAB Decision at 17 (A.R. 17). Moreover, the DAB notes that it has held that the 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)." Here, the DAB found that the defect was that the plan was inconsistent with ACF policy.

5. Nebraska's Other Arguments That It Should Have Been Permitted To Allocate The Training Costs Solely To Title IV-E Have No Merit.

Nebraska suggests that the training provisions of Title IV-E permit states to allocate foster care training costs exclusively to Title IV-E. The DAB found "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." DAB Decision at 18 (A.R. 18)(emphasis in original). The DAB noted that DCA did not dispute that the cost of PSWs training would be permitted under Title IV-E, but rather, the DCA disputed whether the cost should be allocated among all the benefitting programs. Id.

Nebraska argued that because the Title IV-E program is included in the state's training plan for Title IV-B, the Title IV-E funds may be used to provide training to any state agency worker who works with children in one of these plans. DAB Decision at 18 (A.R. 18). The DAB observed that there is no language that suggests that Title IV-E should bear all the costs. DAB Decision at 19 (A.R. 19).

Nebraska argued that OMB A-87 allows it to shift training costs from Title IV-B to Title IV-E. Id. The DAB found that OMB A-87 requires that "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." DAB Decision at 20 (A.R. 20).

Nebraska argued that placement of the requirement that the state's CAP "identify which costs are allocated and claimed" under Title IV-E at 45 C.F.R. § 1356.60(c), meant that "the IV-E regulations intended states to charge all training costs directly to title IV-E." Id. The DAB pointed out that Nebraska ignored § 1356.30(c), which makes the provision on cost allocation applicable to Title IV-E generally. Thus, the DAB found, "the omission from the subsection on training costs of a reference to cost allocation similar to that which appears in section 1356.60(c)... appears to be inadvertent." DAB Decision at 20-21 (A.R. 20-21).

Nebraska argued that states are permitted to allocate costs solely to Title IV-E because it was originally tied to funding under the former Title IV-A foster care program. DAB Decision at 21 (A.R. 21). The DAB noted that cost allocation under Title IV A is not relevant. Id. The DAB found that under Title IV-A there was a provision that provided "that title IV-A 'may be considered to be primarily benefitted 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." DAB Decision at 22 (A.R. 22).

Nebraska argued that it should be permitted to allocate its training costs exclusively to Title IV-E because its regulations authorize the withholding of 10% of a state's claim for Title IV E administrative costs if the state is not in substantial conformity with the system factor of "operating a staff development and training program." Id. Thus, training is mandated. The DAB, having addressed these arguments in prior published decisions in 1981 and 1999, noted that Nebraska was clearly on notice. Thus, the DAB concluded that even if Nebraska has to use state ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.