SUBJECT:

New Jersey Department of Human Services

DECISION

The New Jersey Department of Human Services (State) appealed a February 17, 2000 determination by the Administration for Children and Families (ACF) disallowing $3,509,267 in federal financial participation (FFP) claimed by the State under the Child Support Enforcement Program, title IV-D of the Social Security Act (Act).

The Hub Director stated:

It is my decision to allow enhanced rate funding only up to the amount for which there was prior written approval, and to disallow the entire overclaim. We have decided not to transfer any of these overclaims to the 66% category since we have no assurance that these are costs that would ordinarily be allowed at a 66% FFP rate.

On February 17, 2000, pursuant to the State's request for reconsideration, the Assistant Secretary for Children and Families affirmed the Hub Director's decision. This appeal followed.

We find that ACF's interpretation of the statute is consistent with the purposes of title IV-D. Consequently, we uphold the disallowance in its entirety.

Background

1. Statute, Regulations and Guidance

Established in 1975, the Child Support Enforcement Program was designed to locate non-custodial parents, establish paternity, enforce child support and collect child support payments. State agencies manage and operate their own programs subject to oversight by ACF's Office of Child Support Enforcement (OCSE). That oversight authority includes development of state child support data systems.

The Family Support Act (FSA) of 1988 required participating states to develop automated data systems with the ability to control, account for and monitor all processes for collecting child support. The FSA set October 1, 1995 as the deadline for implementing automated data systems. Moreover, the FSA provided an enhanced rate of FFP, 90 percent, for automatic data processing development and implementation costs approved by ACF and incurred by states through September 30, 1995.

The majority of states could not meet the October 1, 1995 implementation deadline. When Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), Public Law No. 104-193, it extended the availability of FFP at the enhanced 90 percent rate retroactive from October 1, 1995 through September 30, 1997 to enable states to complete development and implementation of their ADP systems.

As amended by PRWORA, section 455(a) of the Social Security Act provides-

(1) . . .[T]he Secretary shall pay to each State for each quarter an amount -

(B) equal to the percent specified in paragraph (3) . . . of the sums expended during such quarter as are attributable to the planning, design, development, installation or enhancement of an automatic data processing and information retrieval system . . .

(3)(A) The Secretary shall pay to each State, for each quarter in fiscal years 1996 and 1997, 90 percent of so much of the State expenditures . . . as the Secretary finds are for a system meeting the requirements specified in section 454(16)(as in effect on September 30, 1995) but limited to the amount approved for States in the advance planning document of such States on or before September 30, 1995.

(B)(i) The Secretary shall pay to each State or system described in clause (iii), for each quarter in fiscal years 1996 through 2001, the percentage specified in clause (ii) of so much of the State or system expenditures described in paragraph 1(B) as the Secretary finds are for a system meeting the requirements of sections 454(16) and 454A.

(ii) The percentage specified in this clause is 80 percent.

(iii) For purposes of clause (i), a system described in this clause is a system that has been approved by the Secretary to receive enhanced funding pursuant to the Family Support Act of 1988 . . . for the purpose of developing a system that meets the requirements of sections 454(16) (as in effect on and after September 30, 1995) and 454A, . . . .

In relevant part, the implementing regulation provides that, during fiscal years 1996 and 1997, FFP is available at the 90 percent rate for expenditures for the planning, design, development, installation or enhancement of a computerized support enforcement system as described in regulatory sections 307.5 and 307.10. However, the enhanced rate is "limited to the amount in an advance planning document [APD] or APDU [advance planning document update] submitted on or before September 30, 1995 and approved by OCSE." The enhanced rate applies if the APD has been approved in accordance with 45 C.F.R. � 307.15; if the system meets the requirements in 45 C.F.R. � 307.10; and if the expenditures incurred are consistent with the approved APD. See 45 C.F.R. � 307.30(a)(1)-(3).

The regulation at 45 C.F.R. � 307.20 requires that state IV-D agencies must submit an APD for a computerized support enforcement system, with the appropriate state approvals, in accordance with the submission process established at 45 C.F.R. Part 95, Subpart F. That subpart provides -

(1) A State shall obtain prior written approval from the Department as specified in paragraph (b) of this section, when the State plans to acquire ADP equipment or services with proposed FFP at the regular matching rate that it anticipates will have total acquisition costs of $5,000,000 or more . . .

(2) A State shall obtain prior written approval from the Department as specified in paragraph (b) of this section, when the State plans to acquire ADP equipment or services with proposed FFP at the enhanced matching rate authorized by . . . 45 C.F.R. part 307 . . . regardless of the acquisition cost.

45 C.F.R. � 95.611(a)

The regulation at 45 C.F.R. � 95.611(b) establishes specific prior approval requirements for regular FFP, paragraph (b)(1), and enhanced FFP, paragraph (b)(2). Failure to comply with any of these specific prior approval requirements may result in disapproval of project funding. 45 C.F.R. � 95.611(b)(3).

On December 23, 1996, shortly after PRWORA took effect, OCSE issued Action Transmittal OCSE-AT-96-10. The Action Transmittal addressed the availability and the limitations on federal funding at the 90 and 80 percent rates of FFP for costs incurred by states in developing and implementing their automated child support enforcement systems. The Action Transmittal noted that PRWORA reinstated the 90 percent FFP rate from October 1, 1995 through September 30, 1997 to enable States to complete the work on their child support enforcement systems started under the FSA.

The Action Transmittal interpreted the statutory language to mean that the 90 percent rate was available only for development and implementation and only for costs included in an APD predating October 1, 1995. Specifically, it:

. . . reinstated FFP at the 90 percent rate, with limits, retroactive to October 1, 1995 and through September 30, 1997 to enable States to complete development and implementation of a CSES that meets the requirements of the Family Support Act.

. . . [PRWORA] also specified additional requirements to be included in a State CSES no later than October 1, 2000. Under . . . [PRWORA], a limited amount of Federal funds will be allocated to each State and will be available at the 80 percent FFP rate to assist in meeting these additional requirements.

Action Transmittal at 1.

Most pertinent to this case, the Action Transmittal described the applicability of the enhanced FFP extension as follows:

Federal funding at the 90 percent FFP rate is available only for costs incurred by the States to meet the development and implementation requirements of the Family Support Act and only for those costs included in an approved Advanced Planning Document (APD) submitted by the State on or before October 1, 1995. States may not amend their APDs to request additional Federal funding at the 90 percent rate.

Id. at 3, � 1 (emphasis supplied). Thus, the Action Transmittal interpreted the statutory extension of the 90 percent FFP rate to apply to costs which had been approved at the 90 percent FFP rate in an ADP submitted on or before October 1, 1995.

2. Facts

On August 15, 1995 the State submitted an APDU requesting reimbursement of $1,969,084 at an enhanced (90 percent) reimbursement rate resulting in $1,772,176 FFP, for the purchase of computerized support enforcement equipment to be used in its ACSES program. State Ex. Aa2. The APDU included total planned expenditures for equipment, training and other related costs of an additional $18.6 million, to be expended from FY 1996 through the end of FY 2003. ACF approved the APDU on September 5, 1995. State Ex. Aa4.

In its quarterly reports for the period July 1, 1997 through December 31, 1998, the State claimed $4,785,396 at the 90 percent FFP rate. The State contended that it was entitled to FFP at the enhanced 90 percent rate for APDU expenditures made during FY 1996 and 1997, based on PRWORA's amendment to section 455(a) of the Act.

When the State submitted these quarterly reports there remained available to it, from its approved August 1995 APDU, $1,276,129 at the 90 percent FFP rate, as this amount had not yet been claimed for expenditures incurred prior to September 30, 1995. ACF determined that the amendment entitled the State to that amount of enhanced rate FFP for approved costs. However, ACF determined that the State's claims for the additional enhanced FFP were not authorized under the amendment since those claims were not approved for enhanced rate funding in connection with expenditures incurred by September 30, 1995.

Attempting to gain approval for this FFP request, the State submitted an APDU in January 1999 along with an updated and revised version on June 30, 1999. ACF Exs. 2 and 3. ACF denied approval for the State's requests. ACF Exs. 4 and 5.

3. The Assistant Secretary's Decision

The Assistant Secretary's February 17, 2000 disallowance decision focused on the three points the State raised before her.

A. FFP

The State contended that PRWORA merely required prior approval of ADP costs and did not specifically limit the approval of those costs to be claimed at a particular rate of FFP, as long as the costs were submitted in an APDU approved by September 30, 1995, and were spent during fiscal years 1996 and 1997.

The Assistant Secretary indicated that the statutory revisions encompassed in PRWORA allowed states to claim federal funding at the 90 percent rate through September 1997, but limited the application of the 90 percent rate to expenditures approved at that rate and intended to be expended by no later than September 30, 1995, but which in fact had remained unexpended as of that date. The Assistant Secretary stated that OCSE generally approved state APD funding requests subject to a variety of terms and conditions, often subjecting different categories of expenditures for federal funding to different rates of FFP. She went on to note that, as of September 30, 1995, the State had submitted six APDs with nearly $23,000,000 approved for federal funding of ADP costs. These approved costs consisted of $16.7 million eligible for FFP at the regular rate - 66 percent - and $6.3 million at the enhanced rate - 90 percent. The Assistant Secretary reasoned that, in the quarterly reports in issue, the State had exhausted the availability of claims eligible for the enhanced rate and was now requesting an additional $3.5 million in enhanced funding on the theory that it would have claimed this amount had it known, prior to September 30, 1995, that the enhanced expenditure period would be extended by two years.

The Assistant Secretary rejected the State's position that PRWORA allowed reimbursement for all claims at the 90 percent rate. She noted that the regulations at 45 C.F.R. � 95.611(b)(1) and (2) set out specific and separate prior approval requirements for "regular" and "enhanced" FFP reimbursement and did not provide any support for concluding that these requirements were interchangeable. The Assistant Secretary pointed out that the State's August 1995 APDU specifically requested FFP at varying rates and that OCSE's approval was limited to those 90 percent FFP expenditures the State had scheduled prior to the original, September 30, 1995, termination of the availability of the enhanced FFP. The Assistant Secretary concluded that the State altered its acquisition and expenditure schedule without notice to or approval from OCSE and in spite of the fact that OCSE had issued an Action Transmittal in December 1996 notifying states that they could not amend an APD after September 1995 to request additional funding at the 90 percent rate.

B. Cost Categories

Relying on section 455(a)(1)(B) of the Act, which states that FFP is available at 90 percent for "planning, design, development, installation or enhancement of an ADP system," the State argued that the purpose of the actual expenditures superseded the initial proposal for the expenditures in the APD and its subsequent approval. The State maintained that the statute did not limit approval of expenditures to a specific cost classification. Thus, approved expenditures classified as either "operational" or "developmental" could be claimed under either category, limited only by the total amount of approved expenditures.

The Assistant Secretary rejected the State's position, noting that the August 1995 APDU requested approval for expenditures totaling $18.7 million and that the September 5, 1995 approval of that APDU classified $16.7 million at the 66 percent rate for operational costs and $1.9 million at the 90 percent rate for developmental costs. The approval letter also noted that no expenditures were approved at the 90 percent rate for operational costs.⁽¹⁾

C. Automatic Rate Reduction

The State contended that any expenditures for which its claims at the 90 percent rate were disallowed should be automatically considered allowable at the 66 percent FFP rate without the need to file an additional claim at that rate. The Hub Director had denied this request absent proof that these costs were normally reimbursable at the 66 percent rate.

The Assistant Secretary again cited the requirement for separate funding approvals for expenditures at different FFP rates at 45 C.F.R. � 95.611(b)(1) and (2), noting that one could not assume that expenditures claimed at an enhanced rate automatically qualified for reimbursement at a lower rate. However, the Assistant Secretary stated that ACF would consider the State's request, subject to all applicable statutes, regulations, policies and limitations if the State could satisfactorily demonstrate that the costs could qualify for reimbursement at the 66 percent rate.⁽²⁾

This appeal, for $3,509,267 in denied FFP, followed.

D. The State's Position Before the Board

The State noted that the August 1995 APD resulted in approval for expenditures of $18,661,077 over an eight year period. However, only $1,898,617 was initially claimed at the enhanced 90 percent rate since this was the amount the State reasonably expected to expend by the October 1, 1995 deadline for 90 percent reimbursement expenditures. The State argued that it had the option of claiming the remaining $16,762,461 at the 90 percent rate, but "found it unlikely that this amount could be expended on or before October 1, 1995." State Br. at 8. Moreover, the State noted that ACF had approved $22,942,360 in total funding for ACSES. Id.; State Ex. Aa 4.

The State argued that PRWORA's amendment to section 455(a)(3)(A) of the Act, extending the period for program claims through September 30, 1997, mandated that ACF consider the total amount approved for federal funding in APDs submitted by September 30, 1995 when calculating the 90 percent rate of FFP. Thus, the State reasoned, since the State had been approved for expenditures totaling $22,942,360 by August 1995, ACF improperly limited the rate of enhanced reimbursement to the amount which the State had approximated it would expend ($1,898,617) by the initial deadline, October 1, 1995. State Br. at 9.

The State appears to interpret the Act as mandating 90 percent FFP for all ADP program expenditures, requiring only that the expenditures be incurred during the approved fiscal years and not exceed the total amount of program expenditures approved in the APD. Id. at 10.

Conclusion

As discussed in footnote 2 above, the issue of the State's entitlement to 66 percent FFP for expenditures not eligible for the 90 percent rate is not before us at this time. Consequently, based on the preceding analysis, we sustain ACF's disallowance in its entirety.

The statutory changes implemented by the PRWORA could have been more clearly drafted in that Congress did not state specifically whether the extension of the 90 percent rate was limited to expenditures previously approved at that rate. Regardless, however, it is clear that ACF's interpretation of those changes is entirely consistent with the preexisting intent of the Family Support Act.

In essence, the State urges that section 455(a)(3)(A) of the Act applies the 90% FFP rate to all expenditures claimed here and denied by the Assistant Secretary, as long as the expenditures were made during fiscal 1996 and 1997, and were approved by September 30, 1995. ACF urges that the extension of the 90% FFP rate was only intended by Congress to apply to expenditures that were approved at 90 percent FFP and intended to be expended by September 30, 1995.

As ACF noted, sections 455(a)(1)-(3) of the Act differentiate between the rates of FFP available to states and establish separate provisions for each of the rates. These are distinct provisions, creating different conditions and limitations for each rate of FFP funding. See ACF Br. at 8.

In addition, the regulations at 45 C.F.R. � 95.611(b)(1) and (2) emphasize the importance of prior approval for FFP - particularly when FFP is at an enhanced rate.

Finally, the House Conference Report notes that under the PRWORA -

The Federal government will continue the 90 percent matching rate for 1996 and 1997 in the case of provisions outlined in advance planning documents submitted before September 30, 1995; the enhanced match is also provided retroactively for funds expended since expiration of the enhanced rate on October 1, 1995.

Pub. L. No. 94-193, 1996 U.S.C.C.A.N. (96 Stat.) 2750.

This language does not support the State's argument that Congress intended to expand the 90% FFP to expenditures that were never intended to be made by the State before September 30, 1995.

The State's August 1995 APDU requested that 90 percent enhanced rate FFP totaling $1,898,617 be made available to it for expenditures to be incurred prior to October 1, 1995. The State specifically noted:

As a result of the Enhanced Federal Funding guidelines, we expect that 765 devices will be delivered prior to September 30, 1995 and installed within 90 days of delivery. These devices will, as a result, qualify for 90 percent funding. Subsequent deliveries and installations will then be funded at a federal funding rate of 66 percent.

August 15, 1995 APDU at 18 (State Ex. Aa 2).

Thus, prior to the enactment of PRWORA, the State was plainly aware of the differences in various reimbursement rates available for ADP expenditures. Indeed, there is no issue here of lack of timely notice to the State, since the statutory provision at issue was retroactive in effect, and the ACF made plain its interpretation well in advance of any claim filed by the State.

The State asserted that, when it prepared its August 1995 APDU, it had the "option of naming the remaining $16,762,461 at the 90% rate, but found it unlikely that this amount could be expended before or on October 1, 1995." State Br. at 8. We do not believe that the State necessarily had this "option" since if the State had requested approval in its August 15, 1995 APDU that it would have spent $18 million by September 30, 1995, ACF would likely have rejected such a large and late projected expenditure. We base this assumption on the fact that, as noted in its September 5, 1995 approval of the lesser enhanced funding sought in the APDU, ACF had already contacted State staff "to seek an explanation of how the equipment and services outlined in the APDU were to be procured to meet the October 1, 1995 deadline." State Ex. Aa 2.

The State is attempting to increase its claim for 90 percent FFP to a level far higher than was available to it for expenditures through September 30, 1995. Regardless of the amount of expenditures for which the State sought enhanced FFP, there was not a carte blanche entitlement to enhanced reimbursement for costs of all types. The enhanced funding sought by the State in August 1995 was available only for developmental and implementation costs. To this end, the State requested approval for approximately $1.9 million. The remainder, approximately $16.7 million, was attributable to operational costs, reimbursable at the regular FFP rate, 66 percent. See Assistant Secretary's Decision at 3 (February 17, 2000). While the State was most certainly free to seek approval for more than $1.9 million at an enhanced rate, that request would have been subject to the applicable prior approval requirements.

The State argued that the changes brought about by PRWORA mandated that ACF apply the enhanced rate of FFP for all the State's ADP expenditures approved prior to September 30, 1995 without regard to the prior difference in rates of reimbursement applicable to operational and developmental expenditures. However, as we stated above, neither the statute nor the legislative history supports the State's position.

As noted, prior to September 30, 1995, there were different FFP reimbursement rates available for different categories of ADP expenditures. With the enactment of PRWORA, section 455(a)(3)(A) of the Social Security Act was added to provide -

The Secretary shall pay to each State, for each quarter in fiscal years 1996 and 1997, 90 percent of so much of the State expenditures . . . limited to the amount approved for States in the advance planning document of such States on or before September 30, 1995.

ACF reasonably determined that this new provision extended the availability of enhanced reimbursement for certain pre-approved expenditures at the 90 percent rate. There is nothing in the statutory language which would clearly support a conclusion that the new provision was designed to expand the availability of enhanced funding to cover costs previously not eligible for enhanced FFP. Had the drafters of this legislation intended that result, the section could have simply been written to provide 90 percent for all expenditures approved on or before September 30, 1995. Moreover, the State's current position would have entitled it to enhanced reimbursement for the $16,762,461 which had been approved at the regular rate of reimbursement. Based on the different rates of FFP available prior to September 30, 1995 (90 percent versus 66 percent), this would have resulted in more than four million dollars in additional FFP for the State. Assuming there were other states in similar situations, we believe that, absent specific language, Congress did not intend the federal government to incur significant additional program costs as advocated by the State here. Such costs would amount to windfalls for states that were dilatory in complying with this longstanding statutory requirement. Rather, the extension of time to claim enhanced FFP for pre-approved expenditures provides the states that which they would have been entitled to had their systems been up and running by the initial, September 30, 1995, deadline. To the extent that states whose ADP programs were farther along were able to claim more expenditure at the enhanced rate of FFP, that is merely a logical and reasonable result of the circumstances in which they placed themselves by that deadline.

Cecilia Sparks Ford

M. Terry Johnson

Marc R. Hillson
Presiding Board Member

1. The Assistant Secretary also found in her decision that none of the expenditures for which the State was claiming 90 percent FFP were eligible for 80 percent FFP under the provisions of section 455(a)(3)(B). (State Ex. Aa 1). The State did not appeal this determination.

2. The State has not pursued the "automatically qualified" argument on appeal. Clearly, as the Assistant Secretary noted in her decision, the State would have to at least show, at the time it presented its claims for FFP, that the expenditures met the prerequisites for 66 percent FFP. Since the State has not had the opportunity to make such a presentation, any question regarding the allowability of these claims at a lesser rate of FFP is purely speculative.