Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Illinois Department of Children and Family Services
DATE: June 1, 1992
Docket No. 91-111
Decision No. 1335
DECISION
This decision is the result of a court-ordered remand in
Illinois
Department of Children and Family Services v. Sullivan, C.A. No.
89-1730
(D.D.C., September 12, 1990). The district court reviewed the
Board's
decision in Illinois Dept. of Children and Family Services, DAB No.
1037
(1989). In that decision, the Board sustained a determination by
the
Administration for Children, Youth and Families (Agency) 1/
that
Illinois was ineligible for $1,034,619 awarded for fiscal year (FY)
1984
under section 427 of the Social Security Act (Act). The
Agency's
determination was based on a case record survey which it conducted
to
determine whether Illinois was operating a case review system "for
each
child receiving foster care under the supervision of the State,"
as
required by section 427(a)(1)(B) of the Act. Illinois took the
position
that six children whom the Agency found did not receive the
protections
of the case review system were not in "foster care" within the
meaning
of section 427(a)(1)(B) and should not have been included in
the
universe for the case record survey. The six children in question
were
placed in the homes of relatives which were identified by Illinois
as
"approved only" homes. Illinois argued that the term "foster
care"
referred to children in "foster family homes" within the meaning
of
section 472(c) of the Act and asserted that the six children were not
in
foster family homes because the homes were not approved as
meeting
licensing standards.
In DAB No. 1037, the Board sustained the Agency's determination
of
ineligibility on the ground that the children in question were in
foster
family homes and thus in "foster care" even under the State's
definition
of that term. The Board found specifically that "approved
only" homes
met licensing standards. The Board also found that, in any
event, the
record did not establish that the six children in question were
in
"approved only" homes. In view of these findings, the Board did
not
address the parties' arguments as to the proper definition of the
term
"foster care." The Board also rejected the State's contention that
the
90% compliance standard used by the Agency in the case record survey
was
arbitrary, capricious, or an abuse of discretion. In addition,
the
Board rejected the State's contention that the State complied with
the
section 427 requirements in several individual cases in addition to
the
cases involving children in "approved only" homes.
On appeal to the district court, Illinois challenged the Board's
holdings
concerning the children in "approved only" homes and the 90%
compliance
standard. The district court found that the Board erred in
finding that
the "approved only" homes met licensing standards. 2/ The
court further
found that the six children in question were in fact in
"approved only"
homes. Based on these findings, the court set aside the
Board's
decision and remanded the case to the Board to address Illinois'
contention
that the term "foster care" as used in section 427 applies
only to children
in foster family homes as defined in section 472(c) of
the Act. The
court did not rule on the merits of Illinois' objections
to the 90%
compliance standard on the ground that the Board's decision
on remand might
render that issue moot.
We find that the term "foster care" as used in section 427 is
ambiguous
and that the Agency's and the State's conflicting interpretations
of
that term are both reasonable (although the Agency's interpretation
may
best effectuate congressional intent). However, we further find
that
the Agency failed to give the State adequate, timely notice of
its
interpretation of "foster care" as including children in "approved
only"
homes, and may have led the State to believe that such children were
not
subject to the section 427 protections. Moreover, we find
that
retroactive application of the Agency's interpretation was
not
justified. Accordingly, we conclude that the Agency erred in
finding
the State ineligible for section 427 funds for FY 1984 based on a
case
record survey which included these children. 3/
Our conclusion that the Agency erred in finding the State ineligible
for
FY 1984 section 427 funds based on a case record survey which
included
children in "approved only" homes does not mean that the State
was
necessarily eligible for these funds. Instead, as both
parties
previously agreed, a case record survey which excludes such
children
must be conducted to determine the State's eligibility.
4/ The Agency
agreed that, if this case record survey finds that
the State complied
with the section 427 requirements in 90% or more of the
cases, the State
will be eligible for the FY 1984 section 427 funds.
The question
whether the 90% compliance standard applied by the Agency is
proper will
be presented only if the State did not comply with the section
427
requirements in at least 90% of the cases. The State
nevertheless
requested that the Board reconsider here the holding in DAB No.
1037
that the 90% compliance standard was proper based on new or
additional
authority. See Confirmation of Conference Call, dated
10/3/91, at 2.
The additional authority cited by the State supports the
Board's
holding, however. Accordingly, we reaffirm this holding.
While the district court set aside DAB No. 1037 in its entirety,
the
State's appeal challenged only the portions of that decision
which
involved the children in "approved only" homes and the 90%
compliance
standard. We therefore reinstate the portions of DAB No.
1037 which
were not appealed by the State. Specifically, we reinstate
the portions
of the decision which held that sample cases #10, 19, 27, 31,
and 32
were out of compliance. See DAB No. 1037, at 14-24.
Our conclusions about the meaning of the term "foster care" and
the
lawfulness of the 90% compliance standard are addressed
separately
below. For each issue, we provide background on the relevant
statutory
provisions and Agency issuances and then discuss our
conclusions.
I. Whether Children in "Approved Only" Homes Were in "Foster Care"
Background
The Adoption Assistance and Child Welfare Act of 1980, Public Law
No.
96-272, amended title IV of the Act to create a new Part E,
which
provides funding for foster care maintenance payments and
adoption
assistance payments made by a state. Public Law No. 96-272
also amended
Part B of title IV by adding a new section 427 which makes
additional
funds for child welfare services available to states which meet
certain
requirements for protecting children in foster care.
As one of the conditions for the receipt of additional child
welfare
funds, section 427(a)(2)(B) of title IV-B requires that a state
have
implemented and be operating "to the satisfaction of the Secretary"
--
a case review system (as defined in section 475(5)) for
each
child receiving foster care under the supervision of the State
.
. . .
Section 475(5) of title IV-E provides that --
The term "case review system" means a procedure for
assuring
that --
(A) each child has a case plan . . .
(B) the status of each child is reviewed
periodically but
no less frequently than once
every six months by either a
court or by
administrative review . . . , and
(C) with respect to each such child,
procedural safeguards
will be applied, among
other things, to assure each child
in foster
care under the supervision of the State of a
dispositional hearing to be held, in a family or
juvenile
court or another court . . . of
competent jurisdiction, or
by an
administrative body appointed or approved by
the
court, no later than eighteen months after
the original
placement (and periodically
thereafter during the
continuation of foster
care) . . . .
In order to receive section 427 funds, a state must also show that it
"has
conducted an inventory of all children in foster care under
the
responsibility of the State" (section 427(a)(1)), and "has
implemented
and is operating to the satisfaction of the Secretary" a
statewide
information system with information about the placement of "every
child
in foster care" and a service program to help children return to
their
homes or be placed for adoption (section 427(a)(2)(A) and (C)).
A state must satisfy some of the same requirements as a condition
of
eligibility for title IV-E funds. Specifically, section
471(a)(16)
provides that, in order to be eligible for funding under title
IV-E, a
state must have a plan which --
provides for the development of a case plan (as defined
in
section 475(1)) for each child receiving foster care
maintenance
payments under the State plan and provides for a case
review
system which meets the requirements described in
section
475(5)(B) with respect to each such child . . . .
Title IV-E also provides that foster care maintenance payments
are
reimbursable only if they are made on behalf of a child who is "in
the
foster family home of an individual" or "in a child-care
institution."
Section 472(b). Section 472(c) states that --
For the purposes of this part . . . the term "foster
family
home" means a foster family home for children which is
licensed
by the State in which it is situated or has been approved,
by
the agency of such State having responsibility for
licensing
homes of this type, as meeting the standards established
for
such licensing . . . .
Proposed regulations to implement the amendments to title IV made
by
Public Law No. 96-272 were first published by the Department of
Health
and Human Services (HHS) on December 31, 1980. The proposed
regulations
included a section (section 1357.30) which closely followed the
language
of section 427(a). In addition, the proposed regulations
defined the
term "foster care" as --
. . . 24-hour, out-of-home care provided in a licensed
or
approved foster family home, group home, or child
care
institution.
Proposed section 1355.20(a) (45 Fed. Reg. 86,817, 86,834). The
proposed
regulations also defined the term "foster family home" as "the home
of
an individual or family licensed or approved by the State
licensing
authority(ies) . . . that provides 24-hour out-of-home care
for
children." Id. Proposed section 1355.20 stated that the
definitions
were applicable to the terms as they appeared throughout the
title IV-B
and IV-E regulations, unless otherwise specified.
HHS subsequently withdrew these proposed regulations and issued a
second
notice of proposed rulemaking (47 Fed. Reg. 30932 (July 15, 1982))
which
was adopted as a final rule in 1983. These regulations do not
define
the term "foster care" and do not refer to the requirement for a
case
review system. The regulations state with respect to the
requirements
for an inventory and statewide information system only that they
"must
include those children under the placement and care responsibility
of
the State title IV-B or IV-E agencies." 45 C.F.R. . 1357.25
(1983).
Like the original proposed regulations, the final regulations define
the
term "foster family home" as "the home of an individual or
family
licensed or approved by the State licensing or approval authority(ies)
.
. . that provides 24-hour out-of-home care for children." 45 C.F.R.
.
1355.20(a). This section further states that the term "may
include
group homes, agency operated boarding homes or other facilities
licensed
or approved for the purpose of providing foster care by the State
agency
responsible for approval or licensing of such facilities."
Section
1355.20(b) provides that the definitions in section 1355.20(a)
are
applicable to the terms as they appear throughout the title IV-B
and
IV-E regulations, unless otherwise specified. In addition,
section
1355.20(a) states that "[u]nless otherwise specified, the
definitions
contained in section 475 of the Act apply to all programs under
title
IV-E and IV-B of the Act."
While the final regulations do not specifically address the question
of
the scope of the population to be included in a state's section 427
case
review system, several Agency issuances do so. The first issuance,
PIQ
82-12, dated July 12, 1982, responded to the question whether
certain
groups of children -- specifically, mentally disabled
children,
developmentally disabled children, SSI/SSP recipients, and children
in
voluntary out-of-home placements supervised by a probation department
--
should be included in the inventory, information system, and case
review
system required by section 427. The PIQ stated:
In order to make this determination, two factors should
be
considered. First, are the children in foster care?
Although
the Act does not specifically define the term "foster care,"
the
definitions of "foster family home" and "child-care
institution"
found in section 472(c) of the Act, provide guidance to
the
State in making this determination. Second, is the child
under
the responsibility of the State agency administering
or
supervising the administration of the title IV-A(FC), IV-E,
or
IV-B State plan? A controlling indicator here is whether
the
State agency has the responsibility for care and placement
of
the child and the power to determine the child's placement.
PIQ 82-12, at 4.
On June 5, 1985, the Agency issued PIQ 85-6 in response to a question
by
HHS Region X concerning whether children under state
responsibility
placed with unlicensed relatives with no foster care payment
would be
required to meet the section 427 requirements. 5/ The PIQ
stated that
"the following considerations would be applied" in determining
whether
the children should be included in a state's foster care population
for
purposes of section 427:
1. Is the child in foster care? Has the child been
removed
from his home pursuant to a voluntary placement agreement or
as
the result of a judicial determination and placed in
out-of-home
care?
2. Is the child under the responsibility of the State
agency
for placement and care?
PIQ 85-6, at 8.
Finally, on June 1, 1987, the Agency issued PA-87-02. This
issuance,
which was denominated a "Clarification of ACYF-PIQ-82-12," noted
that
there had been uncertainty in some states with respect to
whether
certain categories of children, including "children placed by the
State
in relative foster homes, with or without foster care payments,"
were
covered by section 427. PA-87-02 stated that the only two factors
to be
considered were "(1) whether the children are in foster care, and
(2)
whether the children are under the responsibility of the State
title
IV-B/IV-E agency," and stated that "foster care" was "twenty-four
hour
substitute care for children outside of their own homes," and
included
relative foster homes. 6/
Factual Background
The sampling methodology proposed by the State for the case record
survey
for FY 1984 excluded children in "approved only" homes from the
universe from
which the case record sample was to be drawn. As
previously indicated,
these children were placed in homes of relatives
which were neither licensed
by the State as foster family homes nor
approved as meeting licensing
standards. The State took the position
that these children were not in
"foster care" within the meaning of
section 427 and, consistent with this
position, the State did not in
fact provide all of the section 427
protections to the children in the
six sample cases reviewed in the case
record survey who were living in
"approved only" homes. 7/ The Agency
rejected the State's methodology,
taking the position that children placed by
the State in "approved only"
homes were in "foster care" within the meaning
of this section. At the
Agency's direction, the State then provided a
case record sample which
included children in "approved only" homes.
When the State failed the
case record survey and was determined ineligible
for FY 1984 section 427
funds, it appealed this determination in part on the
ground that the
survey improperly included children in "approved only"
homes.
Analysis
This case raises the question whether the requirement in section 427 for
a
case review system for "each child in foster care under the
supervision of
the State" applies to children in "approved only" homes.
There is no dispute
that these children were "under the supervision" of
the State. Thus,
the issue here is whether these children were in
"foster care" within the
meaning of section 427. The Agency took the
position that it was clear
on the face of the statute that all children
in 24-hour, out-of-home care
were in "foster care" and that children in
"approved only" homes were thus
required to be included in the State's
case review system. The State
took the position that "foster care"
meant care in a foster family home or
child care institution as defined
in title IV-E. The District Court
found that the "approved only" homes
were not foster family homes or child
care institutions since they were
not licensed or approved as meeting
licensing standards for either type
of facility. Thus, under the
State's interpretation, a case review
system would not be required for
children in "approved only" homes.
As discussed in detail below, we conclude:
o That the Agency's interpretation of the term "foster care"
as
including children in "approved only" homes is reasonable
since
it is consistent with the statutory language and the
legislative
history;
o That the Agency's interpretation was, however, not
required
by the language of the statute;
o That the statute can also be reasonably interpreted in
the
manner argued for by the State;
o That the State did not receive notice of the
Agency's
interpretation until the issuance of PIQ 85-6 in 1985; and
o That retroactive application of the Agency's
interpretation
was not justified.
Accordingly, we conclude that the Agency's interpretation was not
binding
on the State and that the State's interpretation should be
applied in
determining the universe for the case record survey for FY
1984.
1. The Agency's interpretation of "foster care" is reasonable.
Although the Act uses the term "foster care" in both section 427 of
title
IV-B and in title IV-E, there is no express definition of that
term in either
title (or in the implementing regulations). Thus, there
is no basis for
finding that the Agency's interpretation of "foster
care" is inconsistent
with the specific language of the statute.
Moreover, we find some support for the Agency's interpretation in
the
scheme of the Act. Foster care maintenance payments are available
under
section 472(b) only for children in foster family homes or child
care
institutions. In contrast, the section 427 requirements apply to
each
child in "foster care under the supervision of the State" without
regard
to whether maintenance payments are made on their behalf.
Indeed, as
discussed later, title IV-B in general is directed at a broader
range of
child welfare concerns than those associated with children
needing
financial support under title IV-E.
The Agency's interpretation is also consistent with the basic purpose
of
section 427 to protect the class of children in "foster care."
Since
the purposes of section 427 are protective, a broad reading of the
term
"foster care" which entitles the maximum number of children to
the
section 427 protections best effectuates congressional intent.
Furthermore, the Agency's interpretation of the term "foster care"
is
supported by specific language in the legislative history of
the
amendments to title IV of the Act made by Public Law No. 96-272.
The
Senate report on .the bill that was later adopted as Public Law
96-272
stated that the amendments involved --
a major restructuring of Social Security Act programs for
the
care of children who must be removed from their own homes.
In
particular, the incentive structure of present law is
modified
to lessen the emphasis on foster care placement and to
encourage
greater efforts to find permanent homes for children either
by
making it possible for them to return to their own families
or
by placing them in adoptive homes.
S. REP. No. 336, 96th Cong., 2nd Sess. 1 (1979). The children
in
question here were clearly "removed from their own homes" and placed
by
the State in homes which were not "permanent" homes. There is
no
indication that the legislation was not intended to address the needs
of
such children merely because the homes in which they were placed
were
not licensed by the State as foster family homes or approved as
meeting
these licensing standards. In addition, in
discussing the regulatory
impact of the section 427 program, the Senate
report states:
If . . . a State elects to participate in this
program,
regulations would be necessary to carry out its
requirements.
These regulations would affect the children in
State-supervised
foster care in each participating State including both
foster
care funded under the AFDC foster care provisions and
foster
care otherwise supervised by the State.
S. REP. No. 336, 96th Cong., 2nd Sess. 97 (1979). This is a
clear
indication that Congress viewed "foster care" as covering children
in
addition to those eligible for foster care maintenance payments
under
title IV-E (formerly funded under title IV-A (AFDC)).
Moreover, as noted by the Agency, the House report on the bill that
was
later enacted as Public Law No. 96-272 expressed a preference
for
placement with relatives "if appropriate and reasonably possible."
H.
REP. No. 136, 96th Cong., 2nd Sess. 49 (1979). The Agency asserted
that
"[i]t would make no sense for Congress to state its preference
for
relative placements only to see children in those placements
receive
fewer procedural protections than other children who receive
the
protections of Section 427." Agency brief at 11. The State
responded
that it did not seek to exclude children from the case review
system
because they were placed with relatives but rather because they were
not
in foster family homes as defined in title IV-E. 8/ In any event,
a
significant number of children placed with relatives would be
excluded
from the case review system required by section 427 under the
State's
interpretation of the term "foster care." 9/ Thus, it is
arguable that
adoption of the State's interpretation would frustrate
Congressional
intent in this respect.
Since the Agency's interpretation of the term "foster care" as
including
children in "approved only" homes is consistent with the language
and
underlying purpose of the statute and is supported by the
legislative
history, we conclude that it is reasonable. 10/
2. The Agency's interpretation of "foster care" is not required by
the
language of the statute.
The Agency argued that its interpretation was required by the language
of
section 427(a)(2)(B), which provides that, in order to receive
section 427
funds, a state must have implemented and be operating "a
case review system .
. . for each child receiving foster care under the
supervision of the
State." The Agency read this as requiring that a
child be included in
the case review system if the child is "under the
supervision of the
State." The Agency asserted, moreover, that the
reference to "each
child" shows that Congress did not intend to exclude
any children under State
supervision from the section 427 protections.
The Agency also noted that the
requirement for an inventory at section
427(a)(1) applies to "all children in
foster care under the
responsibility of the State." The Agency argued
that since this was the
same class of children covered by the case review
system, the fact that
the State included children in "approved only" homes in
its inventory
meant that these children were in "foster care."
We are not persuaded that the language cited by the Agency requires
the
interpretation the Agency advanced here. As noted above, this
case
involves the interpretation of the term "foster care" as used in
section
427. The Agency's view that the controlling factor is whether
the child
is "under the supervision of the State" renders the words "in
foster
care" superfluous, in contravention of the basic principle of
statutory
construction that a law should be construed so as to give meaning
to all
its parts. Sutherland, Statutory Construction, 4th Ed., Vol. 2A,
.
46.06. In addition, the phrase "each child" logically refers to
each
child in foster care, not each child under state supervision.
Moreover,
the State alleged (and the Agency did not deny) that there are
many
children under state supervision "who are not in anything
resembling
foster care, e.g., children in hospitals, correctional
facilities,
detention centers, independent living arrangements, and even
children
who have returned to their natural parents." State brief at
23. Thus,
it makes no sense to equate children in foster care with
children under
state supervision.
Furthermore, although it is true that the statute requires an
inventory
which includes the same class of children as the case review
system, the
statute is no more specific regarding which children should be
included
in the inventory than it is with respect to which children should
be
included in the case review system. Moreover, section 1357.25 of
45
C.F.R. gives states discretion to include in the inventory children
in
addition to those "under the placement and care responsibility of
the
State." Thus, the fact that the State included children in
"approved
only" homes in its inventory is not dispositive. 11/
Accordingly, although we concluded above that the Agency's
interpretation
of "foster care" as including children in "approved only"
homes is consistent
with the language of the statute and the legislative
history, we further
conclude that the statute does not require this
interpretation. This
leaves room for other, reasonable interpretations
such as the one advanced by
the State.
3. The State's interpretation of the statute is reasonable.
The State advanced its own interpretation of the term "foster
care."
According to the State, since section 427 expressly adopts
the
definition of "case review system" in section 475 of title IV-E and
the
definition of "case review system" in section 475 refers to children
"in
foster care," the term "foster care" as used in section 427 must
derive
its meaning from title IV-E. The State reasoned further that
since
title IV-E requires a case review system for all children
receiving
foster care maintenance payments and such payments may be made only
on
behalf of a qualified child who is in a "foster family home" as
defined
in section 472(c), a child is only in "foster care" if he or she is
in a
foster family home. 12/ As indicated above, if the State's
argument
were correct, children in "approved only" homes would not be in
"foster
care" since the homes were not licensed or approved by the State
as
meeting licensing standards, as specified in the definition of
"foster
family home." 13/
The State asserted that this reading of the statute was the
only
reasonable one, arguing that if "foster care" were not limited
to
children in foster family homes as defined by section 472(c), a
state
would be required to include in its case review system children who
were
not even eligible for foster care maintenance payments in order
to
obtain title IV-E funding. The State also argued that it would make
no
sense if a child were considered to be in foster care for purposes
of
section 427 but not title IV-E, particularly since section 427 and
title
IV-E were enacted together. The State argued further that it
was
logical for Congress to tie section 427 funding to foster homes
which
were licensed or approved as meeting licensing standards as a means
of
promoting and improving the level of care afforded children in
foster
care. The State noted in this respect that not only does the
Act
require that foster family homes be licensed but also HHS
itself
emphasized the importance of licensure in the preamble to the
1983
regulations. Finally, the State argued that its interpretation of
the
term "foster care" was consistent with the 1983 regulations since
the
regulations provide that the definition of "foster family home"
is
applicable to both title IV-B and title IV-E.
We find that the State's interpretation of the term "foster care"
as
excluding children in "approved only" homes is a reasonable one.
As
indicated above, since the term "foster care" is not defined in the
Act,
there is a great deal of room for interpretation. As noted
earlier, the
State's interpretation leaves a substantial portion of the cases
which
are under the State's supervision outside the protections afforded
by
section 427. While the Agency's more inclusive interpretation
thus
better effectuates the broad protective purposes of section 427,
the
State's interpretation is certainly consistent with the literal
language
and structure of the statute.
On the other hand, we find that, like the Agency's interpretation,
the
State's interpretation is not required by the language of the Act.
The
State's case is built wholly on inference, since there is nothing in
the
statute which expressly ties the term "foster care" as used in
section
427 of title IV-B to the definition of "foster family home" in
title
IV-E. Moreover, the State's argument overlooks the requirement
in
section 472(a)(16) of the Act that a case review system be provided
for
all children receiving foster care maintenance payments. Children
who
are not in foster family homes are not eligible for such payments
and,
under this section, need not be included in a case review system as
a
condition of title IV-E funding. Reading section 427 to apply
to
children in addition to those in foster family homes would not
change
the requirements of section 472(a)(16). Thus, the
Agency's
interpretation would not, as the State contended, require the State
to
include children in "approved only" homes in its case review system
in
order to obtain title IV-E funding. Instead, the effect of the
Agency's
interpretation is merely to provide an incentive to states to extend
the
protections of the case review system to children not covered
under
section 472(a)(16).
In addition, contrary to the State's argument, the fact that section
427
and title IV-E were enacted together does not require that they apply
to
the same children. Section 427, which is located in title
IV-B,
authorizes additional funding for child welfare services. Under
section
425(a)(1), child welfare services are public social services
directed
toward the accomplishment of several goals, including "protecting
and
promoting the welfare of all children . . . ." Title IV-E, on the
other
hand, authorizes federal funding for payments on behalf of children
in
foster care only if a number of very specific conditions are met.
Since
the two programs are different in purpose and scope, we agree with
the
Agency that the better view is that, as a condition of receipt
of
additional funds under the broader title IV-B program, Congress
intended
to require states to provide procedural protections for children
in
addition to those eligible to receive foster care maintenance
payments
under title IV-E. 14/
Furthermore, there is no evidence that Congress intended licensure to be
a
defining characteristic of "foster care" for purposes of section 427.
The
definition of a "foster family home" as one which is licensed or
approved as
meeting licensing standards ensures that title IV-E funds
will not be used to
support children in homes which do not meet state
licensing standards.
Moreover, although the preamble to the 1983
regulations refers to "the
important principle of licensure or approval"
(48 Fed. Reg. 23104, 23105 (May
23, 1983)), this relates specifically to
the definition of "foster family
home" in title IV-E.
Finally, contrary to the State's view, the 1983 regulations do not
provide
that the definition of "foster family home" applies to titles
IV-B and
IV-E. Instead, the definitions in section 1320.55(a) are
made
applicable to the defined terms as they appear throughout
the
regulations implementing titles IV-B and IV-E. Since the term
"foster
family home" does not appear in title IV-B, section 1320.55(a)
cannot
make the definition of "foster family home" applicable to title
IV-B.
We are therefore faced with two conflicting interpretations of
"foster
care," both of which are reasonable and neither of which is required
by
the statute. As discussed below, we conclude that the
State's
interpretation should be applied for purposes of determining
the
universe for the case record survey for FY 1984 since the Agency did
not
give the State adequate, timely notice of its interpretation
and
retroactive application of the Agency's interpretation is not
justified.
4. The Agency did not give the State adequate, timely notice of
its
interpretation.
The Board and the courts have consistently held that, where a statute
is
ambiguous, the Agency's interpretation is entitled to deference if
"that
interpretation is reasonable, and appropriate notice of
that
interpretation has been given to the State." California Dept. of
Health
Services, DAB No. 1285 (1991), at 9, citing Commonwealth
of
Pennsylvania, Dept. of Public Welfare v. The United States Department
of
Health and Human Services, 928 F.2d 1378 (3d Cir. 1991); see
also
Tennessee Dept. of Human Services, DAB No. 1094 (1989), at 7. 15/
This
approach is consistent with 5 U.S.C. . 552(a)(1), which provides that
an
agency interpretation of general applicability not published in
the
Federal Register may adversely affect a party (other than the
agency)
only if "the party has actual and timely notice of the terms
thereof."
While the Agency's interpretation of the term "foster care"
is
reasonable, the State cannot fairly be held to the
Agency's
interpretation if the State did not receive adequate, timely notice
of
that interpretation in the context where there was another
reasonable
interpretation relied on by the State. As discussed below,
here the
Agency failed to state its interpretation clearly in regulations
or
other guidance issued before the fiscal year in question and may
have
actually led the State to believe that "approved only" children were
not
in "foster care" within the meaning of section 427. Accordingly,
the
State was entitled to exclude such children from the case record
survey
for FY 1984.
We note preliminarily that this analysis is valid only if the
Agency's
interpretation of "foster care" was an interpretative rule, not
required
by 5 U.S.C. . 553 to be published pursuant to notice and
comment
rulemaking. The Agency's view of what constitutes "foster
care" is
clearly interpretative since it relates to the meaning of
specific
statutory language. See Gibson Wine Co. v. Snyder, 194 F.2d
329, 331
(D.C. Cir. 1952); United States v. Picciotto, 875 F.2d 345, 347
(D.C.
Cir. 1989). Thus, the question whether the State had notice of
the
Agency's interpretation is critical here.
The Agency contended that its interpretation was clearly articulated
in
PIQ 82-12, which was issued to the states prior to FY 1984.
16/
According to the Agency, the PIQ specifies that any child for whom
the
state agency is responsible must be included in the case review
system
under section 427. However, we find that the Agency's
interpretation is
not clearly articulated in this PIQ and that the PIQ may
have actually
led the State to believe that the Agency had adopted the
same
interpretation as the State.
The summary at the beginning of the PIQ states that "a State must
include
in the inventory, information system and case review system all
those
children in foster care under the responsibility of the State
agency(ies)
administering or supervising the administration of the title
IV-B Child
Welfare Services State Plan or the title IV-E or IV-A (FC)
State plans . . .
." This merely repeats the statutory requirement,
however, and does not
address the question of which children are in
foster care. The same
language is repeated later in the PIQ followed by
the statement:
"Therefore, any child for whom the State agency is
responsible must be
included." However, the PIQ later identifies
whether a child is in
foster care and whether the child is under the
responsibility of the state
agency as two separate factors which must be
considered in determining
whether a child should be included in the case
review system. 17/ After
identifying the first factor, the PIQ states
that "[a]lthough the Act does
not specifically define the term `foster
care,' the definitions of `foster
family home' and `child care
institution' found in section 472(c) of the Act
provide guidance in
making this determination." This statement could
reasonably be read as
equating "foster care" with "foster family home" and
"child care
institution" as defined by section 472(c). After
identifying the second
factor, the PIQ states that "[a] controlling indicator
here is whether
the State has the responsibility for care and placement of
the child and
the power to determine the child's placement." Contrary
to the Agency's
position, this appears in context to be a clarification of
the second
factor rather than a general statement of what constitutes foster
care.
Thus, PIQ 82-12 not only failed to give the State notice that the
Agency
interpreted the term "foster care" in section 427 as including
children
in "approved only" homes, but also arguably confirmed the
State's
interpretation of that term as not including such children.
The State was particularly likely to have read PIQ 82-12 as confirming
its
interpretation of the term "foster care" since the proposed
regulations
issued in December 1980 specifically defined "foster care"
as care in a
foster family home or child care institution. While the
proposed
regulations did not have any legal effect, the fact that they
were consistent
with the State's reading of the PIQ made it all the more
important that the
Agency give the State clear notice of the different
interpretation which it
ultimately adopted. 18/
Moreover, the final regulations adopted in 1983 state that a foster
family
home may include certain facilities (such as group homes)
"licensed or
approved for the purpose of providing foster care." 45
C.F.R. .
1355.20(a). This language arguably equates "foster care" with
care in a
"foster family home," providing further support for the
State's
interpretation.
The Agency also contended, however, that Miller v. Youakim, 440 U.S.
126
(1979), to which the State was a party, put the State on notice that
it
might not be proper to exclude children in "approved only" homes
from
the case review system. In Youakim, the Supreme Court considered
the
State's practice of excluding children who resided with relatives
from
eligibility for foster care maintenance payments funded under title
IV-A
of the Act prior to the enactment of Public Law No. 96-272. The
Court
rejected the State's argument that children placed with relatives
were
not in foster family homes as defined in title IV-A and should
be
excluded on that basis, stating that "[n]either the legislative
history
nor the structure of the Act indicates that Congress intended
to
differentiate among neglected children based on their relationship
to
their foster parents." Youakim at 138-139. The Agency
acknowledged
that, unlike the children in question here, the children at
issue in
Youakim were in licensed homes. The Agency nevertheless
contended that,
in view of the Court's statement, the State should have
questioned
whether children in relative placements which could not meet
licensing
standards could be treated differently from children placed in
licensed
homes. The Agency's argument is based on speculation as to
what the
Court would have decided on different facts under a different
statutory
provision. Thus, we do not agree that Youakim raised a
question about
whether children in "approved only" homes could properly be
excluded
from the case review system required by section 427. In any
event, to
the extent that such a question was raised, the State could
reasonably
have thought that it was resolved by the proposed regulations
issued in
1980 and by PIQ 82-12. 19/
Thus, the State did not have adequate, timely notice of the
Agency's
interpretation of the term "foster care" as used in section
427.
Accordingly, the Agency's interpretation was not binding for purposes
of
determining whether the State was eligible for FY 1984 section 427
funds
unless retroactive application of the Agency's interpretation
was
justified.
5. There is no basis for retroactive application of the
Agency's
interpretation to FY 1984.
The Agency nevertheless pointed out that the State agreed that
the
interpretation of "foster care" which the Agency sought to apply
here
was clearly articulated in PIQ 85-6, issued June 5, 1985. The
Agency
asserted that retroactive application of this PIQ was proper under
a
balancing test set out in SEC v. Chenery Corp., 332 U.S. 194 (1947),
in
which "the ill effects of retroactivity must be balanced against
the
mischief of producing a result that is contrary to a statutory design
or
to legal and equitable principles." This test requires consideration
of
the following factors: (1) whether the particular case is one of
first
impression; (2) whether the new rule represents an abrupt departure
from
well-established practice or merely attempts to fill a void in
an
unsettled area of law, (3) the extent to which the party against
whom
the rule is applied relied on the former rule, (4) the degree of
the
burden which a retroactive order imposes on a party, and (5)
the
statutory interest in applying a new rule.
The State contended that the balancing test in Chenery was
inappropriate
because the Supreme Court later held in Bowen v. Georgetown
University
Hospital, 488 U.S. 204 (1988), that the power to promulgate
retroactive
rules must be expressly granted by Congress. The State
further
contended that there was no basis for retroactive application of
the
Agency's interpretation even applying Chenery.
We conclude that the Agency's reliance on Chenery is misplaced.
Chenery
dealt with the question whether an order arising out of an
agency
adjudication could properly be applied on a retroactive basis.
20/
However, as indicated above, the Agency here sought to
retroactively
apply PIQ 85-6 as an interpretative rule, not merely to
adjudicate the
meaning of the term "foster care." As also indicated
above, the law is
clear that an interpretative rule, even if reasonable,
cannot adversely
affect a party unless the party has timely notice of the
interpretation.
21/
In any event, we conclude that retroactive application of the
Agency's
interpretation is not warranted even applying the balancing test
in
Chenery. The Agency argued that this case was not one of
first
impression since the issue of whether children placed with
relatives
could be treated differently from other groups of children in
foster
care was in litigation in Youakim. However, as discussed above,
this
case is distinguishable from Youakim in that it involves children
placed
in with relatives in non-licensed homes rather than children placed
with
relatives in licensed homes. The Agency also argued that
its
interpretation was well-established. However, as previously
discussed,
none of the Agency's issuances prior to PIQ 85-6 clearly
articulated the
Agency's interpretation. The Agency argued in addition
that the State
could not reasonably have relied on the interpretation which
it advanced
here in light of Youakim and PIQ 82-12. 22/ As just noted,
however, the
Agency's interpretation was not evident from PIQ 82-12, and
Youakim
arguably raised a different issue from that presented here.
Thus, we
are not persuaded that the State should have questioned whether its
own
interpretation of section 427 was correct on the bases cited by
the
Agency. 23/
The Agency further argued that since the section 427 funds were
"incentive
funds," the State was not prejudiced by a finding that it was
ineligible for
the funds. However, regardless of how the section 427
program is
structured, the State will be entitled to the $1,034,619 of
section 427 funds
in question here if it passes the case record survey.
Thus, retroactive
application of the Agency's interpretation to deprive
the State of these
funds would impose a significant burden on the State.
Finally, we agree with
the State that retroactive application of the
Agency's interpretation would
not further the purposes of the Act since
children who were, in the Agency's
view, wrongly excluded by the State
from the case review system could not
retroactively receive the section
427 procedural safeguards. Thus, all
of the factors in the balancing
test weigh against the retroactive
application of the Agency's
interpretation of the term "foster care."
For the foregoing reasons, we conclude that the State's definition of
the
term "foster care" should be applied in selecting the universe for
the case
record survey for FY 1984.
II. Whether the Use of a 90% Compliance Standard Was Proper
Section 427(a)(2)(B) requires that a state have implemented and
be
operating a case review system "to the satisfaction of the Secretary .
.
. ." The Agency awards section 427 funds to a state which wishes
to
participate in the section 427 program based on a written
certification
by the state that it met the requirements of section 427.
Subsequently,
the Agency performs a compliance review to validate the
state's
self-certification. As part of this compliance review, the
Agency
surveys a sample of foster care case records to determine whether
the
section 427 requirements were actually met. However, the Agency has
not
required 100% compliance in order for a state to pass the case
record
survey, but instead has applied progressively more stringent
compliance
standards: 66% for a state's first year of operating a
section 427
program, 80% for a state's second year, and 90% for a state's
fifth
year. (The review of the fifth year is performed after two
unreviewed
years and is known as the triennial review.) These
compliance standards
were announced in written program instructions sent by
the Agency to the
states. The 90% compliance standard at issue here was
announced in PI
85-2, dated January 29, 1985, which was after the fiscal year
in
question (FY 1984) but before the review for that year was conducted.
The case record survey for FY 1981, the State's initial year of
operation,
found that the State had complied with the section 427
requirements in more
than 80% of the cases surveyed. The Agency
therefore agreed not to
conduct another review until FY 1984 and applied
the 90% compliance standard
applicable to triennial reviews in that
year.
The State contended that the application of the 90% compliance
standard
was arbitrary, capricious, and an abuse of discretion because
the
standard was a substantive rule promulgated without notice and
comment
rulemaking as required by 5 U.S.C. . 553 and because the 90%
standard
was applied retroactively. In DAB No. 1037, the Board rejected
these
arguments, citing its decision in Connecticut Dept. of Children
and
Youth Services, DAB No. 952 (1988). The Board there found that
--
the 90% compliance standard did not change the
statutory
requirements; it was merely the level of compliance which
the
Secretary decided as an administrative matter to enforce
in
triennial reviews. [Footnote omitted.] The 90% standard
was
therefore not a rule for which notice and comment rulemaking
was
required . . . .
Connecticut at 8. The Board also found in Connecticut that
retroactive
application of the 90% standard was not prejudicial to
Connecticut,
stating --
To argue that the State was harmed by the lack of notice
would
be to admit that the State never intended to fully comply
with
the statutory requirements, but had aimed instead for the
80%
level of compliance required in the prior review. Such
an
approach would be inconsistent with the certification
submitted
by the State . . . that it met the requirements of section
427.
Id. at 8-9. Finding that the State had "made no showing here that
this
conclusion was wrong as a matter of law," the Board in DAB No.
1037
upheld the application of the 90% compliance standard to the State's
FY
1984 case record survey.
Although the District Court did not reach the issue of the validity of
the
90% compliance standard in its decision, the State requested that
the Board
reconsider its holding on this issue based on new or
additional
authority. The State subsequently called two court decisions
to the
Board's attention: Maryland Dept. of Human Resources v.
Sullivan, 738
F.Supp. 555 (D.D.C. 1990) and Connecticut Dept. of
Children and Youth
Services v. Department of Health and Human Services,
C. A. No. 88-1807
(D.D.C., March 18, 1992). In Maryland, the court
upheld the Board's
decision in Maryland Dept. of Human Resources, DAB
No. 1039 (1989), in which
the Board incorporated its earlier decision
upholding the application of the
80% compliance standard announced in PI
82-06 (Maryland Dept. of Human
Resources, DAB No. 706 (1985)). The
State attempted to distinguish the
instant case from the court's
decision in Maryland on the ground that the
compliance standard in
Maryland was announced in an earlier Agency program
instruction which,
unlike PI 85-2, gave the Agency discretion in applying the
standard.
The State further asserted that the Connecticut court decision,
which
upheld DAB No. 952, was wrong in that the court erroneously held that
it
need not address the question of whether retroactive application of
the
90% standard was proper because the standard constituted
an
interpretative rather than a legislative rule.
We conclude that our decision in DAB No. 1037 that the Agency
properly
applied a 90% compliance standard should be reaffirmed in light of
the
subsequent court decisions. In discussing the 90% compliance
standard,
the court in Connecticut stated in part:
It is the statute itself that sets forth the requirements
under
the Act. . . . The 90% compliance standard established in
PI
85-02 creates no new requirements, but merely demonstrates
an
exercise of administrative discretion to allow some
deviation
from perfect compliance with the statute. . . .
The legal
standard governing the awarding of funds is set forth in
the
statute itself . . . . Therefore, it is not the
program
instruction, but the statute itself that creates law
and
determines rights by mandating the behavior of the
individual
states.
C.A. No. 88-1807, at 14. The court's decision to uphold the
application
of the 90% compliance standard was thus based on the same
rationale as
the Board's decision to uphold the 90% standard in DAB No. 1037
and DAB
No. 952. We disagree with the State's position that the court
in
Connecticut should have addressed the question whether
retroactive
application of the 90% standard was proper notwithstanding the
fact that
the court found that this standard was an interpretative
rule. Although
the Secretary determined that a state's performance was
satisfactory if
the state provided the section 427 protections to 90% of the
children in
foster care, the standard with which the state was bound to
comply was
set by the statute, which required that the protections be
provided to
"each child." Thus, neither Connecticut nor this case
involve applying
a rule that has an impermissible retroactive effect of
altering a
state's substantive rights or obligations.
The Agency did not dispute the State's contention that the
program
instruction at issue in Maryland, PI 82-06, was distinguishable from
PI
85-2 on the basis asserted by the State. Nevertheless, the
Maryland
court decision is instructive in that, like the Connecticut
court
decision, it views the statute as conditioning section 427 funding on
a
state's "monitoring each and every child," 738 F. Supp. 555, at 560,
and
thus focuses on the fact that the program instruction did not
alter
substantive obligations. While the fact that the
administrative
discretion left to the Agency head in PI 82-06 permitted an
analysis
viewing PI 82-06 as a general statement of policy, the
alternative
analysis that it constitutes an interpretative rule is sufficient
to
exempt it from notice and comment rulemaking. This alternative
analysis
applies to PI 85-2 as well as PI 86-06.
Accordingly, consistent with subsequent authority, we reaffirm our
holding
in DAB No. 1037 that the Agency properly applied a 90%
compliance standard to
the State's case record survey for FY 1984.
Conclusion
For the foregoing reasons, we conclude that the Agency improperly
found
the State ineligible for FY 1984 section 427 funds based on a
case
record survey which included children in "approved only"
homes.
Accordingly, this case is remanded to the Agency to conduct a
case
record survey which excludes these children. If the State complied
with
the requirements of section 427 in at least 90% of the sample cases,
the
State should be found eligible for the section 427 funds. If the
State
contests new findings in individual cases which raise issues
not
previously decided by the Board, it may request review by the
Board
within 30 days of its receipt of the Agency's written
determination.
_____________________________ Judith A. Ballard
_____________________________ Norval D. (John) Settle
_____________________________ Cecilia Sparks Ford
Presiding
Board Member
1. Effective April 15, 1991, the Administration for Children, Youth
and
Families was one of several agencies combined into the
Administration
for Children and Families.
2. The court agreed that, until October 1981, "approved only" homes
met
the licensing standards for foster family homes, but found that once
the
licensing standards were updated:
The designation "approved only" reflected the inability of
a
related caretaker to meet the new licensing standards, not
a
determination that the related caretaker had met the
standards
in effect until October 1981.
District Court decision at 15.
3. We assume for purposes of this decision that none of the children
in
"approved only" homes received title IV-E payments. Under
section
472(b) of the Act, eligibility for such payments is conditioned on
the
child's placement in a foster family home or child care
institution.
Thus, a child receiving such payments would be in "foster care"
as
defined by the State. While the district court found that the State
had
not claimed foster care maintenance payments under title IV-E for any
of
the six children at issue, it made no finding with respect to
other
children in "approved only" homes. Accordingly, the Agency may
require
proof that all children who received title IV-E payments were
included
in the universe.
4. The Board noted in DAB No. 1037 that the parties disagreed as
to
whether the Agency should conduct a case record survey using a
new
sample which excluded cases involving "approved only" children or
should
use the original sample with the "approved only" cases
excluded.
Nevertheless, the Board did not reach that issue in view of
its
conclusion that the Agency properly determined that all of the
disputed
cases failed the case record survey. See DAB No. 1037, at 2,
n. 2.
While we reach a different conclusion here, the parties agreed that
the
Board need not consider as part of this remand the question of how
the
Agency should complete the case record survey. Confirmation
of
Conference Call, dated 10/3/91, at 3.
5. The PIQ also responded to other questions not relevant here.
6. On May 10, 1991, after the appeal leading to DAB No. 1037
was
instituted, the Agency issued ACYF-IM-91-11, which cited PIQ 82-12
and
PA-87-01 and stated specifically that "children under the
responsibility
of the State agency who have been placed with relatives
regardless of
whether the State defines the placement as `kinship care,'
`foster
care,' or something different" must be afforded the section
427
protections. IM-91-11, at 1.
7. The State asserted that its administrative rules
implementing
section 427 did not require the section 427 protections for
children in
"approved only" homes, but required only that these children
be
monitored.
8. Unless the State placed some children in relatives' homes
which
qualified as foster family homes, the distinction made by the
State
would not have much validity. It is not clear from the record
whether
any relatives' homes qualified as foster family homes during FY
1984.
9. The Agency estimated that 45% of the State's "foster care"
caseload
would be excluded under the State's interpretation. Agency
brief at 7.
The State estimated that 18.8% would be excluded. State
reply brief at
2-3. We need not determine the correct percentage since
in either case
the number is clearly significant.
10. Although the State cited other language in the legislative
history
as supporting its interpretation, it conceded that this language was
not
"dispositive." Transcript of April 9, 1992 oral argument at 17.
11. The Board noted in DAB No. 1037 that the exclusion of the
children
in "approved only" homes from the State's case review system
was
"suspect" because the State provided no evidence that it included
such
children in its inventory under this discretionary authority rather
than
because they were considered to be in "foster care." DAB No. 1037
at
11. However, this alone is not a substantial enough basis
for
concluding that the children in "approved only" homes were in
"foster
care" within the meaning of section 427.
12. The State also asserted that a child in a "child care
institution"
within the meaning of section 472(c) was in "foster care."
For brevity,
we refer only to foster family homes in discussing the
State's
arguments.
13. Despite the breadth of this argument, the State stated that it
was
not contending that other children in unlicensed placements were not
in
"foster care" within the meaning of section 427. Transcript of April
9,
1992 oral argument at 39-41.
14. It would be illogical to read the statute as requiring section
427
protections for all children eligible for title IV-B services,
however,
since that would include children clearly not in foster care, such
as
children living with their parents.
15. The Agency cited Chevron v. NRDC, 467 U.S. 837 (1984), and Board
of
Governors v. Dimension Financial Corp., 474 U.S. 361 (1986), in
support
of its argument that the Board was required to uphold the
Agency's
interpretation of the statute if it is a "permissible construction
of
the statute." Agency brief at 15, quoting Chevron at 843.
These cases
are not on point, however, since they involve court actions to
set aside
Agency regulations and did not raise the question of whether there
was
adequate notice of the Agency's interpretation.
16. While the Agency also argued that its interpretation was
apparent
on the face of the statute, this argument is not persuasive,
as
discussed above.
17. The Agency noted that the PIQ was responding to the
question
whether mentally disabled children, developmentally disabled
children,
SSI/SSP recipients, and children in voluntary out-of-home
placement
supervised by a probation department should be included in the
case
review system and did not mention relative placements as a
possible
category of children to be excluded. However, even if the
Agency did
not take children in "approved only" homes into account in
developing
the PIQ, this does not make the general criteria stated in the
PIQ
inapplicable in determining whether such children must be included in
a
state's case review system.
18. During the oral argument in this case, the Agency contended for
the
first time that, in defining "foster care" as "24-hour, out-of-home
care
provided in a licensed or approved foster family home," the
proposed
regulations were not referring to a foster family home as defined
in
section 472(c) of the Act, i.e., one "which is licensed by the State .
.
. or has been approved . . . as meeting the standards for
such
licensing." Since the language in the statute and the
proposed
regulations is virtually identical, however, we see no basis for
the
Agency's argument.
19. In the course of discussing the notice issue, the Agency
also
commented that the State argued successfully before the Board
in
Illinois Dept. of Public Aid, DAB No. 478 (1983), that "approved
only"
homes met licensing standards for foster family homes, so that
children
in these homes were eligible for foster care payments under title
IV-A.
The Agency stated that "[i]f Illinois was being truthful with the
Board
at that time, then relative placements should have been included in
the
State's Section 427 program for at least 1981 and they were
not."
Agency brief at 24. It is not clear what bearing this has on the
issue
of whether the State had notice of the Agency's interpretation.
In any
event, the treatment of "approved only" children in FY 1981 is
not
relevant here since the District Court in its decision reversing DAB
No.
1037 specifically found that "approved only" homes did not
meet
licensing standards in FY 1984.
20. Lower court decisions applying Chenery have likewise dealt
with
adjudications (see e.g., Clark-Cowlitz Joint Operating Agency
v.
F.E.R.C., 826 F.2d 1074 (D.C. Cir. 1987)) or have involved
the
retroactive application of an agency regulation (see e.g., Yakima
Valley
Cablevision, Inc. v. F.C.C., 794 F.2d 737 (D.C. Cir. 1986)).
21. We further note that Bowen is not on point since that case
involves
the retroactive application of a legislative rule.
Express
congressional authorization is not required for a federal agency
to
merely interpret the meaning of a term not defined in a statute.
22. The Agency did not dispute that there was actual reliance, however.
23. The State also noted that in 1982, it had submitted to the
Agency
copies of its administrative rules relating to the section 427
program,
including a rule which specified that administrative case reviews
were
conducted only for children living in foster family homes licensed
or
approved as meeting licensing standards, group homes or child
care
institutions. The State suggested that it reasonably relied on
this
interpretation because the Agency approved its administrative
rules.
The Agency denied that it was aware of the State's interpretation
prior
to 1984. Agency brief at 13-14. However, we need not
resolve this
dispute in view of our conclusion that the State could
reasonably have
read PIQ 82-12 as confirming its