Oregon Department of Human Services, DAB No. 3054 (2021)

DECISION

The Oregon Department of Human Services (Oregon) appeals the September 14, 2018 determination of the Administration for Children & Families (ACF) imposing a penalty for Oregon's failure to meet the Temporary Aid for Needy Families (TANF) work participation requirements for fiscal year (FY) 2007.  ACF denied Oregon's request for a reasonable cause exception as well as its request for a discretionary penalty reduction based on its status as a "needy state" but accepted Oregon's corrective compliance plan (CCP).  Sept. 14, 2018 ACF Determination at 1.  Ultimately, however, Oregon did not meet the goals specified in its CCP, though ACF determined that Oregon had made significant progress toward those goals and imposed a reduced penalty amount of $7,654,781.1   Id.  Oregon appeals only the denial of its request for a penalty reduction (to $0) under 45 C.F.R. § 261.51 and Section 409 of the Social Security Act (Act) because it qualifies as a "needy state."  Appeal at 3.

For the reasons explained below, we find no merit in Oregon's appeal and uphold the reduced penalty of $7,654,781.  The amount of TANF funds to which Oregon is entitled for the next fiscal year will be reduced by the penalty amount, and Oregon must expend non-federal funds to replace the lost federal funds.  45 C.F.R. § 262.1(e)(1).

Legal Background

Title IV-A of the Act provides grants to eligible states that have approved programs for providing assistance to needy families with children and for providing the parents of those families with job preparation, work, and support services to enable them to achieve self-sufficiency and leave the program.  Act §§ 401-409.  A state that receives TANF grant funds must meet certain minimum work participation rates for all families receiving assistance under the TANF program as well as distinct work participation rates for two-parent families receiving TANF assistance.  Act § 407.  The Act defines the type of work

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activities that qualify as well as the minimum average number of hours per week an individual must work (or engage in designated work activities) to be counted toward the work participation rates.  Id. § 407(c), (d).

For 2002 and later, the minimum work participation rate across all families is 50%, and for 1999 and later, the minimum rate for two-parent families is 90%.  Id. § 407(a)(1)-(2).  However, the state's work participation rate requirements are decreased based on caseload reduction credits, such that the minimum rates are decreased by one percentage point for every percentage point decrease in the TANF caseload since FY 2005, where the reduction is not a result of changes to eligibility.  Id. § 407(b)(3).  Prior to FY 2007, the Act provided that caseload reduction credits would be based on caseload declines after FY 1995.  Id. § 407(b)(3) (2005).

The Deficit Reduction Act of 2005 (DRA), P.L. 109-171, signed into law on February 8, 2006, and effective October 1, 2006 (i.e., at the beginning of FY 2007), changed the relevant year for purposes of calculating the caseload reduction credits, from 1995 to the current 2005.  DRA § 7102(a), (d).  The DRA also had the effect of expanding the population of individuals subject to the work participation requirement by counting not only TANF recipients but also participants in other State-funded programs with "qualified State expenditures (as defined in section 409(a)(7)(B)(i))."  Id. § 7102(b).  The DRA established a September 30, 2006 deadline when recipient States were required to "establish procedures for determining . . . whether activities may be counted as work activities, how to count and verify reported hours of work, and who is a work-eligible individual."  Id. § 7102(c).

If a state fails to meet the minimum work participation requirements for a fiscal year (reduced, if applicable, by caseload reduction credits), the state is penalized by having its TANF grant for the immediately succeeding fiscal year reduced by an "applicable percentage" of the state's TANF grant.2   Act § 409(a)(3)(A).  Before imposing a penalty, the Secretary of the Department of Health and Human Services (Secretary) must give the state the opportunity to enter into a CCP, "which outlines how the State will correct or discontinue, as appropriate, the violation," and ensure "continuing compliance."  Act § 409(c)(1)(A); see also 45 C.F.R. § 261.53 (cross-referencing 45 C.F.R. § 262.6).  If a state does not come into compliance through its CCP, the state may qualify for a penalty reduction based on significant progress towards correcting the violation.  45 C.F.R. § 261.53; see also Act § 409(c)(3).

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The Secretary may reduce the penalty:  (1) "based on the degree of noncompliance"; (2) "if the noncompliance is due to circumstances that caused the State to become a needy State . . . during the fiscal year"; or (3) "if the noncompliance is due to extraordinary circumstances such as a natural disaster or regional recession."  Id. § 409(a)(3)(C) (emphasis added); 45 C.F.R. § 261.51(d) (ACF "may reduce the penalty if the State failed to achieve a participation rate because:  (i) [i]t meets the definition of a needy State, specified at § 260.30 of this chapter; or (ii) [n]oncompliance is due to extraordinary circumstances such as a natural disaster, regional recession, or substantial caseload increase.").  A state is considered a "needy state" based either on unemployment rates or on supplemental nutrition assistance program (SNAP) participation rates (SNAP trigger).  Act § 403(b)(5); 45 C.F.R. § 260.30 (defining "Needy State").

In addition, the Secretary may not impose the penalty upon determining that a state has "reasonable cause" for failing to comply with a requirement.  Act § 409(b); 45 C.F.R. § 262.5(a).  A state may claim reasonable cause due to:  (1) "[n]atural disasters and other calamities . . . whose disruptive impact was so significant as to cause the State's failure;" (2) "[f]ormally issued Federal guidance that provided incorrect information resulting in the State's failure;" or (3) "[i]solated problems of minimal impact that are not indicative of a systemic problem."  Id. § 262.5(a)(1)-(3).

A state may appeal ACF's adverse action to the Board within 60 days of receiving notice of such adverse action.  Act § 410(b)(1); 45 C.F.R. § 262.7(b).  The state must submit its brief and supporting documents with its appeal; ACF is permitted an opportunity to file a reply with supporting documents; and the state may also submit a reply with additional supporting documents.  45 C.F.R. § 262.7(b)(1), (c), (d).

Case Background

On August 28, 2009, ACF notified Oregon that it had failed to meet both its overall and two-parent work participation rates for FY 2007.  Ex. 1.3   ACF recognized that "[m]any States found it difficult to meet the FY 2007 work participation rates in the [TANF] program due to the major changes to work participation requirements in the [DRA]" and that the country was then "currently in the midst of difficult economic times that are placing substantial pressures on State human service agencies and programs, including TANF."  Id. at 1.  ACF stated, though, that it would "work closely with [Oregon] to ensure [it] [was] aware of [its] options for penalty relief and to help [Oregon] come into compliance as soon as possible."  Id.  This notice explained that Oregon had several options to pursue:  (1) Oregon could dispute the penalty if it thought ACF's finding was

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wrong; (2) Oregon could make a "reasonable cause claim"; (3) Oregon could enter into a corrective compliance plan to correct the violation and demonstrate how the state would achieve compliance; or (4) Oregon could submit information substantiating a request for a discretionary reduction in the penalty if the state's noncompliance was due to circumstances that caused it to be a "needy state" or due to "extraordinary circumstances such as a natural disaster or regional recession."  Id. at 3.

In September 2009, Oregon submitted a "reasonable cause" claim stating that "the timing of the DRA and Oregon's subsequent, biennial legislative session (required to codify new program elements designed to help Oregon meet the new DRA requirements), resulted in an inability to implement program changes until October 2007," which Oregon noted was the beginning of FY 2008.  Ex. 2, at 1.  Oregon also asserted that its "economy remain[ed] mired in an economic recession which has affected state and local government budgets and their ability to serve low-income families."  Id. at 2.  Oregon explained that the "legislative changes associated with the TANF redesign were approved by the Legislature and signed by the Governor on July 31, 2007" with an October 2007 effective date.  Ex. 3, at 1-2.  Oregon asserted that the changes to the state's TANF program were effective at increasing the work participation rates, as Oregon saw "significant improvements in the overall participation rates during FY 2008."  Id. at 2.  However, shortly after the start of FY 2008, "Oregon's economy began to quickly deteriorate, TANF caseloads began to increase at unprecedented rates, and the available resources required to fully carry out the new program were reduced."  Id.  The reasonable cause claim outlined the changes Oregon had made to its TANF program "with the overall strategy of achieving work participation rates while also recognizing the impact the TANF program has on the lives of thousands of Oregon low-income children and their parents."  Id. at 3.

In July 2011, ACF responded to Oregon and concluded that Oregon's asserted basis for the reasonable cause claim did not fit any of the three categories for which a reasonable cause claim was available under 45 C.F.R. § 262.5(a).  Ex. 4, at 1.  ACF further explained that Oregon had not provided any evidence that the state would have met the minimum work participation if its state legislature had been able to approve the program changes effective FY 2007.  Id.  ACF afforded Oregon an additional opportunity to submit documentation to demonstrate how the delay in implementing the program changes directly impacted Oregon's ability to meet its work participation requirements for FY 2007.  Id.  ACF explained that Oregon could also still proceed by disputing the penalty, submitting a CCP, or substantiating a request for a discretionary penalty reduction.  Id. at 2.

In September 2011, Oregon renewed its reasonable cause claim in response to ACF's July 2011 letter.  Ex. 5, at 1.  Oregon asserted that it had "[i]solated problems of minimal impact that are not indicative of a systemic problem," which qualified it for a reasonable cause exemption under 45 C.F.R. § 262.5(a)(3).  Id.  Oregon explained that, due to the

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DRA, its work participation requirements drastically increased, from .3% to 45.1% for all families and from 13.9% to 78.3% for two-parent families.  Id.  Oregon asserted that in FY 2008, after it had implemented the legislative changes to the TANF program, the work participation rate for all families had increased by 61%, despite increasing caseloads and the onset of the recession.4   Id. at 2; Ex. 7b, at 2.  Oregon stated that, "[a]lthough we cannot say with absolute certainty, based on our inability to remove the economic factors from the calculation, Oregon has a high level of confidence that if the State had been able to implement the TANF program changes at the beginning of FY 2007, the State would have realized a significant improvement in work participation rates."  Ex. 5, at 2.  At this time, Oregon also requested, for the first time, that ACF reduce (actually, entirely remove) the penalty pursuant to 45 C.F.R. § 261.51(d) because Oregon was a "needy state," qualifying under the SNAP trigger.  Id. at 3.

Also in September 2011, Oregon submitted a CCP, which outlined the actions Oregon would take beginning FY 2012 to achieve compliance during that year.  Exs. 7a, 7b.  Oregon's CCP explained again that the state had not met its FY 2007 work participation requirements due to the changes to TANF that the DRA imposed and its inability to implement its TANF program redesign until FY 2008.  Ex. 7b, at 1-2.  Oregon explained that its "economy remained relatively strong in FY 2007 and the TANF caseload had yet to experience the rapid growth that it would experience in the following years," so Oregon expected that, if it had implemented the TANF redesign for FY 2007, the work participation rates that year would have exceeded the FY 2008 rates.  Id. at 2.  Soon after, ACF accepted Oregon's CCP "with the understanding that Oregon commits to an end goal of achieving compliance for FY 2007 by meeting or exceeding . . . both of its required work participation rates (adjusted for caseload reduction credit) for FY 2012 by September 30, 2012."  Ex. 8, at 1.  ACF stated that it would not impose the penalty against Oregon for the FY 2007 noncompliance if it came into compliance pursuant to the CCP.  Id.  ACF warned, however, that if Oregon did not come into compliance, ACF would issue a negative grant authorization for the fiscal year immediately following the notice of its decision.  Id.  In the latter case, Oregon would be required to increase its state TANF spending by the amount of the penalty.  Id.

In May 2013, ACF notified Oregon of the final denial of its claim of reasonable cause for failure to meet the work participation requirements purportedly caused by "isolated problems of minimal impact that are not indicative of a systemic problem."  Ex. 6, at 2.  ACF explained that the state legislature's biennial schedule did not constitute reasonable

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cause for failing to meet work participation rate requirements.  Id.  ACF emphasized that Congress had expressly required states to come into compliance with the changes the DRA imposed by September 30, 2006, and had made no exemptions for states with biennial legislative sessions like Oregon's.  Id.

In the same notice, ACF also rejected Oregon's request for a penalty reduction based on its status as a "needy state."  Id.  ACF recognized that Oregon had met the definition of a "needy state" based on the SNAP trigger for every month in FY 2007, but determined that Oregon did not demonstrate that the conditions that caused it to become a "needy state" contributed to its failure to meet the work participation rate requirements.  Id.  This was so, according to ACF, because Oregon had met the SNAP trigger (and was thus already a "needy state") during every month since July 2001 but nonetheless had met the work participation rate requirements until FY 2007.  Id.

In August 2015, ACF informed Oregon that it had failed to meet its work participation requirements for FY 2012 and, therefore, had failed to meet the goals of its CCP.  Ex. 9, at 1; see also Ex. 10, at 1 (May 28, 2015 notice informing Oregon it had not met the work participation rates of 50% and 90% for all families and two parents, respectively, for FY 2012).  ACF noted that the amount of the penalty had been reduced from $8,339,931 to $7,654,781 due to the "significant progress" Oregon had made toward the goal in its CCP.  Ex. 9, at 1.  On September 14, 2018, ACF issued a notice of adverse action, pursuant to 45 C.F.R. § 262.7, informing Oregon of its right to appeal to the Board.  Ex. 11.

Oregon timely appealed to the Board.  Oregon did not submit any exhibits with its appeal.  ACF filed its reply along with Exhibits 1 thro3ugh 11.

Discussion

Oregon does not challenge ACF's determination that the state is subject to a penalty for failing to meet its work participation requirements for FY 2007.  Nor does Oregon challenge ACF's calculation of the amount of penalty due.  Instead, Oregon focuses its argument on ACF's denial of its request for a penalty reduction, asserting that Oregon failed to meet its work participation rate requirements in FY 2007 because it was a "needy state" during that year.

Oregon asserts that, while it is true that the state was able to meet its work participation requirements in prior years when it was also a "needy state," it was able to comply due to a waiver it had received (from 2001-2003) as well as the application of caseload reduction credits (from 2004-2006).  Oregon asserts that, "[w]ithout these two factors, . . . Oregon may very well have faced a situation in FY 2001 through FY 2006 in which the circumstances that caused it to qualify as a ‘needy state' resulted in its failure to meet work participation requirements."  Appeal at 1.

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As we discuss below, we are not persuaded by Oregon's position and conclude that Oregon has not met its burden to demonstrate causation (as required by the Act) such that it failed to meet work participation requirements due to the same circumstances that caused it become a "needy state."  Moreover, because the decision to grant a penalty reduction is discretionary and ACF has articulated a reasonable basis for its denial, we uphold ACF's determination.

A.     The Board will review Oregon's challenge to the penalty reduction for abuse of discretion.

The regulation at 45 C.F.R. § 262.7(b) permits a state to appeal to the Board ACF's decision, "in whole or in part," to penalize the state for its failure to meet work participation requirements.  The Board has not had occasion previously to review the denial of a state's request for ACF to reduce such a penalty.  Here, ACF agrees that the Board can review its determination to deny a penalty reduction under section 261.51(d) and asserts that the appropriate standard of review is abuse of discretion.  Reply at 11-13.  Oregon has not disputed that the "abuse of discretion" standard applies.5   See Appeal.  Thus, the Board will review for abuse of discretion ACF's determination not to reduce the penalty on the basis of Oregon's "needy state" status.

When the Board reviews an agency's action for abuse of discretion, the Board is "limited to determining whether the decision was arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law."  River E. Econ. Revitalization Corp., DAB No. 2087, at 7 (2007).  In taking discretionary actions, "a federal agency . . . has considerable though not completely unbounded discretion" and must state the basis for its action; it cannot act on "unsubstantiated conclusions or on bases so insubstantial that the decision fairly can be described as capricious."  Id. at 7-8.  The Board will not substitute its own judgment for that of the agency but "instead ask[s] only whether the agency has articulated a reasonable basis for its decision, not whether it was the only reasonable decision."  Id. at 9.

Oregon bears the burden in this appeal of establishing that it qualified for the penalty reduction and, ultimately, that ACF abused its discretion in denying its request.  See, e.g., Kings Cmty. Action Org., DAB No. 2534, at 6 (2013) (finding no abuse of discretion in ACF's denial of waiver of non-federal share where appellant failed to demonstrate it made a reasonable effort to meet non-federal share requirement and provided no evidence or explanation); Md. Dep't of Human Res., DAB No. 1886, at 6-7 (2003) (finding no

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abuse of discretion in length of grace period for compliance ACF granted and concluding that Maryland had "pointed to nothing indicating that ACF's decision should be reversed based on this standard").

B.     Oregon has not established that its failure to meet work participation requirements in FY 2007 was due to the same circumstances that caused it to become a needy state.6

Before the Board, Oregon asserts that, although it was a "needy state" in every month beginning in July 2001 and met the work participation requirement each year until FY 2007, "it is not entirely correct to conclude this means Oregon's failure to meet the FY 2007 work participation requirements did not result from circumstances that caused it to become a needy state."  Appeal at 1.  Oregon explains that it met its work participation requirements from 2001 through 2003 because it had received a waiver that "was unique from other states in that [Oregon] was allowed to define which activities counted towards work participation based on individual need."  Id. at 2. Oregon further explains that it met work participation requirements from 2004 through 2006 because caseload reduction credits were calculated with a 1995 base year prior to the DRA.  Id.  Oregon asserts that, following the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104-193, TANF caseloads significantly dropped, and by 2004, Oregon asserts that its monthly average caseload was 18,525.  Id.  So, with FY 1995, during which Oregon's average monthly caseload was 39,264, serving as the base year for determining case reduction credits, its work participation requirements were significantly reduced in 2004-2006 (to zero or nearly zero).  Id.  When the DRA took effect and Oregon's work participation rate was increased to 45.1% for 2007, Oregon was unable to meet the measure.  Id.  Oregon asserts that, without the benefit of the waiver and then the caseload reduction credits, "Oregon may very well have faced a situation in FY 2001 through 2006 in which the circumstances that caused it to qualify as a ‘needy state' resulted in its failure to meet work participation requirements."  Id. at 1.

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Meanwhile, ACF reiterates in its reply brief that Oregon qualified as a needy state beginning in 2001 but provides further details.  Reply at 14.  ACF explains that it analyzed Oregon's work participation data in the years preceding its failure and concluded based on that data, as well as "Oregon's own words that the principal cause of Oregon's FY 2007 failure was the change that the DRA of 2005 made to the caseload reduction credit calculation and the increased adjusted target rate that Oregon had to meet (and Oregon's failure to make the necessary state legislative changes to comply with the new law), not the state's status as a needy state."  Id. at 14-15.

We do accept Oregon's point that considering only whether the state met work participation requirements in the years preceding its failure, when it was also a "needy state," does not present a complete picture here.  Oregon fails to identify, however, what circumstances caused it to become a needy state and to demonstrate that those same circumstances also led to its failure to meet work participation requirements in FY 2007.  Oregon vaguely argues that its economy was a relevant circumstance.  "To further validify the impact of the expiration of the . . . [w]aiver and the re-set of the caseload reduction credit base year on Oregon's ability to meet the work participation requirements," Oregon references the average annual unemployment rates for 2004, 2005, and 2006—7.1%, 6.2%, and 5.4%, respectively.  Appeal at 2.  Oregon then asserts that, because it was able to meet the participation rate requirements in 2004 through 2006, but not in 2007, when its unemployment rate was even lower, at 5.2%, there is "a direct correlation between the expiration of the . . . [w]aiver, the re-set of the caseload reduction credit base year and the work participation rate."  Id.  This may show that strong employment did not suffice to empower Oregon to achieve the required work participation rate for TANF recipients once it could no longer rely on having virtually non-existent work participation rate requirements.  It does not show, however, that the improvement of the employment picture caused both the high need for SNAP (i.e., the basis for Oregon's needy-state status) and the weak work participation rate performance.  Oregon's assertion only shows that, at the time when Oregon no longer benefitted from caseload credits eliminating its TANF work participation requirements, the job picture had improved.

Oregon's attribution of its failure to meet work participation requirements to the expiration of the waiver and the DRA is in fact similar to the position that ACF has taken.  See Reply Brief at 13 ("ACF . . . concluded that Oregon failed to meet the work participation requirement due to the changes to the caseload reduction credit brought about by the DRA and Oregon's failure to implement the changes necessary to meet the new requirements of the DRA.").  But Oregon does not explain how the changes in TANF rules could be the same circumstances that caused Oregon to become a needy state, i.e., to have a high SNAP rate.  This is the causation Oregon must establish to demonstrate it was even eligible for consideration of a discretionary reduction of the applicable penalty.

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Oregon does make some attempt to link its SNAP caseload and unemployment rates to its failure to meet the work participation requirements.  Oregon states:  "[T]he SNAP participation rate had been on the rise since 2004.  In 2005 to 2007 Oregon had significantly higher SNAP participation rates than two-thirds of other states.  In 2007 the participation rate among the SNAP eligible population was at 96 percent."  Appeal at 2-3.  Oregon also asserts:  "When looking at Oregon's unemployment rate alongside the growing SNAP participation rate, it demonstrates that many families were working but were still underemployed and eligible to continue receiving benefits."  Id. at 2.  Oregon's inference is merely speculative, as Oregon has not presented any evidence to support this conclusion.

While it is certainly possible that a high SNAP participation rate with low unemployment may reflect that working individuals lacked enough hours or pay to lose qualification for SNAP, other explanations may also exist.  Oregon boasted a relatively strong economy in 2007 (Ex. 7b, at 2 (Oregon's CCP, stating that "Oregon's economy remained relatively strong in FY 2007")) with low unemployment compared to prior years (see Appeal at 2).  That Oregon had a strong economy in FY 2007 supports the conclusion that jobs were indeed available.  Meanwhile, TANF work participation rates do not necessarily require each individual to have obtained a full-time, well-paid job but instead allow for the program to offer various work participation activities.  See Act § 407(c) (establishing weekly minimum of 30 hours for 2000 and subsequent years), (d) (defining "Work Activities" to include (not exclusively), in addition to employment, "on-the-job training"; "job search and job readiness assistance"; "education directly related to employment"; and "satisfactory attendance at secondary school").  High SNAP participation during low unemployment due to widespread underemployment, as Oregon posits, does not establish that underemployment somehow also caused the low TANF work participation.  Moreover, Oregon even explicitly attributes the increase in the SNAP participation rate beginning in 2004 "to changes in eligibility criteria, state options and processes to improve access," not for any reason due to the economic circumstances at the time, or, specifically Oregon's decreasing unemployment rate from 2004 through 2007.  Appeal at 2-3.  Thus, Oregon's argument that the relative strength of its economy coupled with high SNAP participation rates contributed to or somehow explained its failure to meet work participation requirements in FY 2007 is unpersuasive.

At times, Oregon seems to have made an almost reverse argument.  To support its claim that it would have complied with the work participation rates if it had been able to make critical changes to its TANF program effective before FY 2008, Oregon points out that its work participation rate increased somewhat after the legislative changes went into effect in FY 2008.  Ex. 5, at 2 (September 2011 letter to ACF renewing reasonable cause argument).  Noting that the post-2007 weak economy and increased unemployment (due to the economic recession, which hit during FY 2008) negatively affected its ability to serve TANF families and its work participation rates, Oregon states that "[t]here is no accurate way to remove the economic impacts of the recession from the calculation when

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attempting to determine what the State's work participation rates would have been absent the recession."  Id.  Evidently, Oregon believes its work participation rates would have increased further in FY 2008 but for the recession and implies that they would have been compliant in FY 2007 had Oregon been able to implement the program changes then.  Oregon cannot logically argue that its relatively strong economy in 2007 but also its relatively weak economy after 2007, both explain its high SNAP rates and low TANF work participation rates.  In any case, to the extent the failure to put the program reforms in place timely (even if due to the then-current biennial system) caused the inadequate work participation performance, that legislative schedule had nothing to do with the circumstances causing the high SNAP rates (and hence, Oregon's needy-state status).

Indeed, throughout its submissions to ACF, Oregon consistently asserted that a primary reason it failed to meet work participation requirements in FY 2007 was the DRA and its inability to implement necessary changes to its TANF program in FY 2007 because of its biennial legislative cycle.  Ex. 2, at 1 ("Ultimately, the timing of the DRA and Oregon's subsequent, biennial legislative session (required to codify new program elements designed to help Oregon meet the new DRA requirements), resulted in an inability to implement program changes until October 2007."); Ex. 3, at 1 ("The DRA provisions, including resetting the Caseload Reduction Credit from 1995 to 2005, created a significant gap between Oregon's baseline outcomes and the new target."); Ex. 5, at 1 ("[M]any states found it difficult to meet their work participation rates for FY 2007 due to the major changes to TANF work participation requirements enacted under the [DRA].  In addition to the challenges faced by other states, Oregon's work participation rates were further negatively impacted by the State's inability to implement necessary program changes in a timely manner due to the biennial schedule of the State's legislative sessions."); Ex. 7b, at 2 ("Oregon would have achieved a much higher work participation rate if the State had been able to implement its redesigned TANF program at the beginning of FY 2007.").  Oregon's CCP included an entire section explaining "Why Oregon Did Not Meet FY 2007 Work Participation Rate . . . Requirements."  Ex. 7b, at 1-2 (bold and underlining removed).  There, Oregon explained that its "TANF program redesign was approved by the Legislature and signed by Oregon's Governor on July 31, 2007" and that it "had an effective date of October 2007, the beginning of FY 2008."  Id. at 2.  Oregon stated explicitly that it "would have achieved a much higher work participation rate if the State had been able to implement its redesigned TANF program at the beginning of FY 2007, evidenced by the significant impact the program changes had on the FY 2008 work participation rates, even with growing cash assistance requests and a rapidly deteriorating economy."  Id.

Oregon asserted that its program changes were successful, as it increased the all family work participation rate by 61% for FY 2008 (over the prior year's low rate), even with a high unemployment rate and a TANF caseload increase of 15.6%.  Id.  Oregon expressed confidence that, had it been able to implement its TANF redesign earlier, to be effective for FY 2007, it would have exceeded the FY 2008 work participation rates.  Id.  In none

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of these statements did Oregon assert that unemployment rates or SNAP participation rates, or circumstances that affected those rates, contributed to its failure to meet work participation rates in FY 2007.7

Both Oregon and ACF agree that Oregon was a needy state in FY 2007, as determined by its SNAP participation rate, but that alone is insufficient to support Oregon's eligibility for the discretionary penalty reduction.  The noncompliance must be due to circumstances that caused Oregon to become a needy state during FY 2007.  Act § 409(a)(3)(C).  Oregon has only made speculative assertions, unsupported by any evidence, that at best imply some connections between Oregon's SNAP participation rates and unemployment rates and its failure to meet its work participation rates for FY 2007.  In short, it remains unclear what factors caused Oregon to become a needy state and whether or how those factors also contributed to Oregon's failure to meet work participation requirements.  We decline to draw inferences in Oregon's favor based on these slender threads, particularly where Oregon itself repeatedly blamed its failure primarily on the DRA changes and on its inability to implement program changes at an earlier date.  Thus, Oregon has not met its burden of demonstrating its eligibility for a discretionary penalty reduction.

C.     ACF did not abuse its discretion in denying Oregon a discretionary penalty reduction.

As explained, Oregon has not established that it was eligible for a discretionary penalty reduction.  Furthermore, even if we had found it eligible to be considered for such a discretionary penalty reduction, Oregon would have to show that ACF had no reasonable basis to exercise its discretion in denying the request or that it acted for some impermissible or abusive reason.  Oregon has never articulated any argument that ACF abused its discretion, and we find that ACF has articulated a reasonable basis for its action.

ACF agrees that Oregon was a needy state based on the SNAP participation trigger in 2007 and that it also met the definition as a needy state in the preceding years since 2001.  Reply at 14.  ACF explained that, in considering Oregon's request for a penalty reduction, it "analyzed the state's work participation data in the years prior to the failure, when the state also qualified as needy—the same approach it has used with any state that made a request for reduction due to meeting the ‘needy state' criteria."  Id.  According to the work participation data that ACF has presented, which Oregon has not disputed,

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although Oregon essentially did not have a work participation requirement to meet under the prior version of the Act due to case reduction credits, Oregon nevertheless was able to achieve significantly higher actual work participation rates from 2001 through 2003, and somewhat higher rates for 2004 through 2006.  Id. at 15.  From 2001 through 2003, Oregon's work participation rates ranged between 60% and 72%.8   Id.  In 2004 its participation rate dropped down to 32.1%, and it dropped further to 14.9% in 2005, 15.2% in 2006, and 14.7% in 2007.  Id.  Oregon has not really explained (with any evidence) what underlay its much lower success in providing work participation activities to its TANF recipients in the years from 2004 through 2007 during which its unemployment rate fell from 7.1% to 5.2%.  Appeal at 2.

ACF thus considered Oregon's historical work participation rates in the several years leading up to its failure to meet its target in FY 2007.  ACF could reasonably conclude that the DRA (effectively holding Oregon to a higher enforceable standard), as well as Oregon's inability to implement necessary program changes in response, were the primary reasons Oregon failed to meet its targets in FY 2007, not any factor that caused its needy status.

ACF also relied on Oregon's own assertions in its prior submissions, which we have discussed above, that the principal causes of its failure in FY 2007 were the statutory change as well as Oregon's failure to timely enact state legislation to account for the federal statutory changes.  Reply at 15-16 (citing Ex. 2, at 1; Ex. 5, at 2; Ex. 7b, at 1, 2; Appeal at 2).  We see no abuse of discretion in ACF having considered the exact explanation that Oregon consistently asserted as to why it failed to meet its work participation requirements.

We therefore conclude that ACF acted within its discretion and provided a reasonable basis for declining Oregon's penalty reduction request.

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Conclusion

The Board sustains the penalty of $7,654,781.

1. ACF originally sought to impose an $8,339,931 penalty.  Sept. 14, 2018 ACF Determination Letter at 1.
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2. The Act provides different "applicable percentage[s]" depending on whether a state was subject to a penalty in the preceding fiscal year.  Act § 409(a)(3)(B).  If the state was not subject to a penalty in the preceding year, the "applicable percentage" is five percent.  Id. § 409(a)(3)(B)(i).  If the state was subject to a penalty in the preceding year, the "applicable percentage" is the lesser of:  (I) the percentage by which the TANF grant was reduced in the preceding year, increased by two percentage points; or (II) twenty-one percent.  Id. § 409(a)(3)(B)(ii).
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3. Oregon did not submit any exhibits to the Board.  All exhibit references, therefore, refer to exhibits ACF submitted with its reply brief.
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4. Oregon references a 61% increase in its FY 2008 all family work participation rate over its rate for FY 2007, which ACF informs us was 14.7%.  Ex. 5, at 2; Ex. 7b, at 2; Reply Brief at 15.  A 61% increase over the 14.7% work participation rate for FY 2007 would yield a work participation rate of approximately 24% for FY 2008.  This rate would still be far below the 50% all family work participation rate requirement established by the Act.
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5. Oregon did not reply to ACF's responsive briefing, though it was notified of its opportunity to do so.  See Acknowledgment Letter at 2; see also 45 C.F.R. § 262.7(d).
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6. As we referenced above, section 409(a)(3)(C) of the Act states that the Secretary "may reduce the penalty if the noncompliance is due to circumstances that caused the State to become a needy State . . . during the fiscal year."  The regulation, meanwhile, provides that ACF "may reduce the penalty if the State failed to achieve a participation rate because . . . [i]t meets the definition of a needy State."  45 C.F.R. § 261.51(d)(1)(i).  Oregon does not dispute that it was required to show causation as identified in the Act; i.e., that it was required to show that the circumstances that caused the State to become a needy State were also responsible for Oregon's failure to meet work participation requirements.  See Appeal at 3 (recognizing that the Act and regulation provide for a reduction in the penalty where "the noncompliance is due to circumstances that caused the state to meet the definition of ‘needy state'").  Thus, we need not address whether the differences in wording between the Act and regulation are material.  However, even were we to conclude that the regulation did not require evidence of causation, we would find that lack of evidence of causation would be a reasonable basis upon which ACF could exercise its discretion.
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7. The closest Oregon came to making such an argument was in its September 2011 request for a penalty reduction, in which Oregon requested "a penalty reduction down to zero dollars" because "Oregon met the definition of a ‘needy state'" based on the SNAP trigger.  Ex. 5, at 3.  Aside from stating how it qualified as a needy state, Oregon did not explain the basis for its request for a penalty reduction.
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8. Oregon has argued that the waiver it had from 2001 through 2003 enabled it to meet its work participation requirements because "it was allowed to define which activities counted towards work participation requirements based on individual need" (Appeal at 2) but has not provided any further details, let alone evidence, to demonstrate how the waiver was responsible for such a significantly higher actual work participation rate for those years compared to subsequent years.
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