The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge
As part of the Improving Head Start for School Readiness Act of 2007, Congress instructed the Defendants in this action, the United States Department of Health and Human Services ("HHS") and Kathleen Sebelius, Secretary of HHS (collectively, "Defendants" or "the Secretary"), to promulgate regulations requiring low-performing grantees to compete for five-year grants, rather than receive automatic renewal of their grants under the Head Start program. Following this directive, in 2011 HHS enacted the Designation Renewal System ("DRS"). The DRS requires recipients of Head Start grants to compete for new five-year grants if, among other things, the grantees received one or more "deficiency" findings during the relevant time period. Plaintiffs are four not-for-profit membership corporations that provide services to community action agencies receiving Head Start grants. Several of the Plaintiffs' member agencies have been designated to compete for new five-year grants. Plaintiffs filed suit against HHS and Secretary Sebelius in her official capacity, alleging that the so-called "single deficiency trigger" is invalid because it (1) is impermissibly retroactive; (2) deprives Plaintiffs of protected property and liberty interests without due process; and (3) is arbitrary and capricious. Am. Compl., ECF No. , ¶¶ 71-79. The Plaintiffs initially sought a preliminary injunction, but withdrew the motion in favor of expedited resolution of this matter on the merits. See Jt. Notice, ECF No. ; 3/29/12 Minute Order. Presently before the Court are the parties' cross-motions for summary judgment*fn1 and Plaintiffs'  Motion to Strike or, in the Alternative, Motion for Leave to File Surreply. For the reasons stated below, the Court finds (1) the DRS is not retroactive; (2) the Plaintiffs failed to identify a protected property or liberty interest warranting due process protection, and in any event received sufficient due process; and (3) the DRS rule is neither arbitrary nor capricious. Accordingly, Plaintiffs'  Motion for Summary Judgment is DENIED and Defendants'  Cross-Motion for Summary Judgment is GRANTED. Plaintiffs'  Motion to Strike or, in the Alternative, Motion for Leave to File Surreply is also DENIED.
A. The Head Start Program
Administered by the Office of Head Start ("OHS"), part of the Administration for Children and Families ("ACF," itself part of HHS), Head Start is a national program that provides health, educational, nutritional, and other services to children of low income families in order to promote school readiness. Admin. Record ("A.R.") 03326 (DRS Final Rule). Established in 1965, the Head Start program awards grants to local agencies-public, non-profit, and for-profit-to provide "comprehensive child development services," with an emphasis on enabling preschool children to develop skills necessary to succeed in school. Id.; see Economic Opportunity Act of 1964, 42 U.S.C. § 9831 et seq. (2007). Congress expanded the program in 1995 to include services for pregnant women and children under the age of three ("Early Head Start"). Head Start Act Amendments of 1994, 42 U.S.C. § 9840a (2007).In some locations, umbrella agencies receive Head Start grants, but delegate the provision of actual services to member agencies. A.R. 00284 (Oct. 2008 Advisory Comm. Report). The Plaintiffs are organizations that provide support services to member agencies, known as community action agencies. In this case, the member community action agencies receive grants directly from the Head Start program. Am. Compl. ¶¶ 2-5. Regardless of the grant structure, the agency responsible for directly providing services is known as a "Head Start agency." A.R. 03345 (DRS Final Rule).
B. Head Start Program Monitoring
In order to monitor the quality of services provided by grantees and delegate agencies, the Head Start program conducts four types of reviews (1) reviews of newly designated Head Start agencies following the first year of providing services; (2) triennial reviews, evaluating each Head Start agency at least once during a three year period; (3) follow-up reviews of Head Start agencies found to have at least one deficiency or significant areas of non-compliance; and (4) unannounced on-site visits. 42 U.S.C. § 9836a(c)(1); see also 42 U.S.C. § 9836a(c)(2) (detailing the composition of review teams and areas of assessment). On-site reviews may lead to identification of two types of violations: deficiencies and non-compliances. A deficiency is defined as (A) A systemic or substantial material failure of an agency in an area of performance that the Secretary determines involves-(i) a threat to the health, safety, or civil rights of children or staff;
(ii) a denial to parents of the exercise of their full roles and responsibilities related to program operations;
(iii) a failure to comply with standards related to early childhood development and health services, family and community partnerships, or program design and management;
(iv) the misuse of funds received under this subchapter; (v) loss of legal status (as determined by the Secretary) or financial viability, loss of permits, debarment from receiving Federal grants or contracts, or the improper use of federal funds; or
(vi) failure to meet any other Federal or State requirement that the agency has shown an unwillingness or inability to correct, after notice from the Secretary, within the period specified;
(B) systemic or material failure of the governing body of an agency to fully exercise its legal and fiduciary responsibilities; or
(C) an unresolved area of noncompliance.
42 U.S.C. § 9832(2). If a Head Start agency is found to violate "Federal or State requirements . . . in ways that do not constitute a deficiency," the agency will be labeled as "non-compliant." 45 C.F.R. § 1304.61(a). The Secretary "will notify the grantee promptly, in writing, of the finding, identifying the area or areas of noncompliance to be corrected and specifying the period in which they must be corrected." Id. A non-compliance will be re-classified as a deficiency if the grantee fails "to correct the specified areas of noncompliance within the prescribed time period." Id. § 1304.61(b).
As part of the various types of program reviews set forth in the statute, teams of monitors perform on-site inspections evaluating each Head Start agency's compliance with "program, administrative, financial management, and other requirements." 42 U.S.C. § 9836a(c)(1); A.R. 03331 (DRS Final Rule). If issues are identified on-site, the monitoring team will speak to agency personnel during the process of the review. A.R. 03332; e.g., A.R. 01604 ("[T]he Site Director at the [Head Start agency] confirmed the metal screws protruding from the fenceposts posed a safety hazard."). The review team submits evaluation materials to HHS, and experts from the Office of Head Start and ACF determine if the agency is non-compliant or deficient. A.R. 03332. "The Act does not provide for an appeal of deficiency findings, unlike terminations and suspensions lasting more than 30 days." Id. However,
[G]rantees currently have the opportunity to discuss the progress of the monitoring review while the review team is on site. Although the final determination is not made during the on-site review, grantees consistently are informed of the opportunity to provide additional input when concerns are identified while the team is on-site. Id.
Deficiencies that "threaten the health or safety of staff or program participants or pose a threat to the integrity of Federal funds" must be corrected immediately. 42 U.S.C. § 9836a(e)(1)(B)(i). Other deficiencies must be resolved within 90 days of identification of the deficiency, or within one year pursuant to a Quality Improvement plan, as proscribed by the Secretary. Id. § 9836a(e)(1)(B)(ii)-(iii), (e)(2)(A)(ii). If an agency fails to correct the deficiency within the relevant time frame, HHS will issue a letter of termination, which may be appealed to the Departmental Appeals Board. Id. § 9836a(e)(1)(C); A.R. 03331.
C. 2007 Reauthorization of Head Start
Historically, Head Start grants were issued for a single year but automatically renewed each year until the grantee relinquished the grant or HHS terminated the grant. A.R. 00001 (Proposed DRS Rule). The Government Accountability Office issued a report in 2005 criticizing this practice, finding that "[w]hen grants are allowed to remain with poorly performing grantees, children being served may not be getting the 'head start' they deserve because the grantees continuously fail to meet program and financial management standards." Id. (quoting U.S. Gov't Accountability Office, GAO-05-176, Head Start: Compreh. Approach to Identifying and Addressing Risks Could Help Prevent Grantee Fin. Mgmt. Weaknesses 28 (Feb. 2005)). The GAO urged ACF to implement a system requiring certain grantees to compete, but ACF expressed concern that it was not authorized to do so under the Head Start statute. A.R. 00001-02. The GAO turned to Congress and urged it to consider implementing a competition system. A.R. 00002. As part of the Improving Head Start for School Readiness Act of 2007 ("2007 Reauthorization"), Congress responded by amending the Head Start Act to require the Secretary to
[D]evelop a system for designation renewal that integrates the recommendations of the expert panel . . . to determine if a Head Start agency is delivering a high-quality and comprehensive Head Start program that meets the educational, health, nutritional, and social needs of the children and families it serves, and meets program and financial management requirements and standards [outlined in the statute].
42 U.S.C. § 9836(c)(1). Congress specifically provided that the designation system should be based on (1) "annual budget and fiscal management data"; (2) "program reviews"; (3) "annual audits"; (4) "classroom quality"; and (5) "Program Information Reports," each as specified in the Head Start Act. Id. Furthermore, the system should be "fair, consistent, and transparent," and "[t]he Secretary shall periodically evaluate whether the criteria of the system are being applied in a manner that is transparent, reliable, and valid." Id. § 9836(c)(8). Ultimately, the stated goal was to create a system that could be used to evaluate "whether a Head Start grantee is successfully delivering a high-quality and comprehensive Head Start program," and "whether the grantee has any unresolved deficiencies found during the last triennial review." Id. § 9836(c)(6)(A)-(B).
Congress directed the Secretary to convene a panel comprised of experts in early childhood program accreditation, early childhood development, governance and finance of nonprofit organizations, delivery of services to special needs children, and assessment of programs for young children. 42 U.S.C. § 9836(c)(2)-(3). One employee from the Office of Head Start and an executive director of a Head Start agency would also sit on the panel. Id. The panel was charged with the task of making recommendations on a proposed designation renewal system. Id. § 9836(c)(4). Concurrent with a public notice and comment period, the Secretary was required to submit a report to Congress detailing the proposed designation system and that "include[d] a clear rationale for any differences between the proposed system and the recommendations of the expert panel, if any such differences exist." Id. § 9836(c)(10)(B). Congress required a similar report after the notice and comment period but prior to implementing the DRS. Id. § 9836(c)(10)(C).
D. Advisory Committee Recommendations and Proposed/Final Regulation The Secretary convened an expert panel in 2008, referred to as the "Advisory Committee," to make recommendations regarding the design for a designation renewal system. The Advisory Committee issued four reports discussing a variety of approaches towards constructing an appropriate designation system. A.R. 00017-00390. In the end, the Advisory Committee provided both overarching and specific recommendations for a proposed rule. Broadly speaking, the Advisory Committee recommended that the Secretary enact a system that is "reliable and valid in terms of the criteria and indicators used," "transparent to families, programs and the public," "[s]imple and easily understood by all stakeholders," and "[i]ntegrated into ongoing systems for program improvement in such a way as to add value." Additionally, the final rule should "[u]se multiple sources of valid and reliable data," utilize "Automatic Indicators" of a "serious nature," include "Key Quality Indicators" reflecting a pattern of poor performance, "[e]stablish a clear threshold to determine which grantees must compete," and "[a]pply the designation renewal system uniformly across all grantees."*fn2 A.R. 00345 (Dec. 2008 Advisory Comm. Final Report).
The Committee explained "[t]he system should be based on Automatic Indicators, whose occurrence would automatically require a grantee to compete for renewal, and Key Quality Indicators, where a pattern of poor performance in multiple areas would require a grantee to compete." A.R. 00349. "Based on these Indicators," the Committee noted "there should be a clear threshold to determine which grantees must compete for renewal of the Head Start grant." Id. In terms of automatic indicators, the Committee recommended that the following factors automatically trigger competition: "(1) suspension; (2) bankruptcy or debarment; (3) revocation by a state or local government of a license to operate a child care program; and (4) a significantly higher number of deficiencies in OHS monitoring than the average grantee." A.R. 00345. Specifically in reference to deficiencies:
The Committee believes that grantees should be automatically required to compete if they are found to have deficiencies far more than the average grantee. The Committee recommends defining this as having a number of deficiencies that is two standard deviations from the mean. The use of standard deviations to determine the specific number of deficiencies that would require a grantee to compete is appropriate because it ensures that grantees required to compete have an exceptionally high number of problems. The Committee agreed that a grantee would be required to compete even if all the deficiencies are in one area because their occurrence is a marker of poor performance that warrants competition.
A.R. 00350 (emphasis added).
Based on the Committee's recommendation, the Secretary published notice of a proposed rule on September 22, 2010. A.R. 00001. The proposed rule provided, in pertinent part, that
(a) A minimum of 25 percent of all Head Start grantees (including both Head Start and Early Head Start grantees) reviewed in the same year will be required to compete for their next five years of funding.
(b) A Head Start or Early Head Start agency shall be required to compete for its next five years of funding whenever the designated ACF official determines that one or more of the following seven conditions existed during the relevant time periods:
(1) An agency has been determined by ACF to have one or more deficiencies on a single review[.]
A.R. 00014. In her report to Congress, the Secretary addressed the Defendants' decision to use a single deficiency trigger rather than the recommended "two standard deviations from the mean":
While we considered using standard deviations to determine the threshold, we were concerned that this methodology would not be simple and easily understandable for grantees because the data used would vary for each cohort of grantees reviewed, as well as for each ...