DEPARTMENTAL APPEALS BOARD
Department of Health and Human Services
SUBJECT: New Jersey Department DATE: July 17, 1989 of Human Services
Docket No. 88-143 Decision No. 1069
DECISION
The New Jersey Department of Human Services (State) appealed the
decision of the Regional Director, Region II, Department of Health and
Human Services (Agency), disapproving an amendment to its cost
allocation plan (CAP) for services under Title IV-E (Foster Care and
Adoption Assistance) of the Social Security Act (Act). With this
amendment, the State sought to allocate all of its administrative costs
in recruiting foster care and adoptive homes to its Title IV-E program
even though a significant number of the children placed in these homes
were not eligible for Title IV-E. The Agency took the position that
such costs should be allocated among all programs benefited "to reflect
the actual population serviced." Appellant's Ex. 3, p. 2.
We find that the Agency could properly disapprove this amendment and
require that recruitment costs be allocated to other benefiting
programs. The State and the Agency should negotiate a cost methodology
under which costs could be allocated to other programs as well as to the
IV-E program.
I. Background
A. Statutory Background
1. Title IV-E and Foster Care Funding
The Adoption Assistance and Child Welfare Act of 1980, Public Law
96-272, amended the Social Security Act to create Title IV-E. Title
IV-E authorized a new program for foster care maintenance payments,
previously funded under Title IV-A of the Act (Aid to Families with
Dependent Children), and a federally-aided adoption assistance program
for special needs children. Title IV-E foster care and adoption
assistance is available for children who would otherwise be eligible for
Title IV-A assistance or, in the case of adoption assistance, for
children eligible for Supplemental Security Income. Section 470 of the
Act.
Under Title IV-E, federal financial participation (FFP) is primarily
available for three types of expenditures: foster care maintenance
payments, adoption assistance payments, and expenditures necessary for
the proper and efficient administration of the state plan. Section
474(a) of the Act. Recruitment of foster care homes is specifically
recognized as an allowable cost. 45 C.F.R. 1356.60(c)(2)(vii).
Other federally assisted programs may also provide services or
assistance to foster children. Title IV-B funds child welfare services,
including limited maintenance payments for children in foster care. A
state may also use funds available under Title XX (Social Services) of
the Act to provide social services to children in foster care.
Additionally, states, including New Jersey, fund state-only separate
foster care maintenance programs and other child welfare services. See
N.J. Stat. Ann. 30:4C-1-304C-65 (West 1981 & Supp. 1988), specifically
30:4C-30 allocating 75 percent of the maintenance costs to the State and
25 percent of the costs to the county in which the child lived.
2. The Cost Allocation Plan Process
A state participating in the various categorical programs under the Act,
including Title IV-E, is required to make determinations as to the
amount of commonly incurred expenditures, such as staff time, that are
attributable to each program the state administers. A state is required
to submit a cost allocation plan (CAP) to the Division of Cost
Allocation (DCA), in the appropriate DHHS regional office. 45 C.F.R.
95.507(a). The CAP must contain sufficient information to permit the
DCA Director to make an informed judgment on the correctness and
fairness of the state's procedures for identifying, measuring, and
allocating all costs to each of the programs administered by the state
agency. 45 C.F.R. 95.507(a)(4).
In approving a CAP, the DCA Director applies program regulations, such
as those governing Title IV-E, and OMB Circular A-87. 45 C.F.R. 95.503,
95.507(a)(2) and (b)(8)(i). OMB Circular A-87 sets forth general cost
principles which govern the administration of DHHS grants to states. It
is made specifically applicable to Title IV-E grants by 45 C.F.R.
74.171, 92.20(b)(5) and 1355.30(b).
Amendments to a CAP must be submitted to DCA (45 C.F.R. 95.509), and, if
DCA disapproves the amendment, a state may seek reconsideration of the
DCA decision by the DHHS Regional Director. 45 C.F.R. Part 75. A
Regional Director's negative determination may be appealed to the Board.
45 C.F.R. 75.6(c).
B. Factual Background
In March 1986, New Jersey submitted a proposed revision of its cost
allocation plan which identified its Title IV-E adoptive and foster care
administrative costs through the use of a random moment sample. On
March 27, 1987, DCA approved the use of the random moment sample as of
October 1, 1985, provided that the State make several changes.
Appellant's Ex. 5.
The change at issue in this case involved the allocation of
administrative costs for recruiting foster care and adoptive homes. In
its proposed revision, the State had allocated all of these costs to its
Title IV-E program even though these homes serve both Title IV-E and
non-Title IV-E children. DCA requested that these costs be "allocated
to the various programs based on the ratio of children in the applicable
programs." Id., p. 2.
While New Jersey agreed in prior correspondence to adjust this
allocation (Appellant's Ex. 4, p. 2), it ultimately refused to
incorporate this modification and the Director of the DCA disapproved
that portion of the State's random moment sampling procedure.
Appellant's Ex. 8. The Regional Director affirmed DCA's decision as to
allocation of these costs and the State appealed that affirmance.
The record demonstrates that under New Jersey's foster care and adoptive
home recruitment process, the State recruited foster care and adoptive
homes without regard to whether they would house IV-E children or
non-IV-E children. Tr., pp. 41-45, 72. Once the homes were approved,
children were placed in them without regard to the child's source of
maintenance funding. Id. For the quarter ending September 30, 1988,
only 49 percent of New Jersey's foster care children in foster care
homes were eligible for IV-E maintenance payments. Appellant's Letter,
March 17, 1989, p. 2.
II. Discussion
In support of its proposed CAP amendment, New Jersey argued (1) that 45
C.F.R. 1356.60(c)(vii) permitted it to allocate the costs of home
recruitment solely to Title IV-E, and (2) that the Agency could refuse
such an allocation formula only after October 1, 1987, when it issued
ACYF-PA-87-05. As discussed below, we reject the first argument on the
grounds that 45 C.F.R. 1356(c)(2)(vii) reasonably authorizes FFP only
for administrative costs which are necessary for serving the needs of
IV-E children, not the needs of all children in foster care. This
conclusion is fully consistent with the cost principles of OMB Circular
A-87, under which a cost is allocable to a particular cost objective to
the extent of the benefits received by such objective. We reject the
State's second argument on the grounds that the Agency may reasonably
rely directly on the IV-E regulations and general cost principles for
the period prior to the publication of ACYF-PA-87-05. The position in
this policy issuance is fully consistent with these authorities and did
not alter any previously published position on allocation of recruitment
costs.
A. The Agency may reasonably require New Jersey to allocate
recruitment costs for foster care and adoptive homes among Title
IV-E and other benefiting programs.
1. The Title IV-E Regulations
New Jersey argued that the plain language of 45 C.F.R.
1356.60(c)(2)(vii) allowed it to allocate all of its foster and adoptive
home recruitment to Title IV-E. That subsection provides:
The following are examples of allowable administrative costs
necessary for the administration of the foster care program: . .
. . . (vii) Recruitment and licensing of foster homes
and institutions.
Although this provision clearly provides that foster home recruitment is
a type of administrative expense that is allowable under Title IV-E, it
does not support the State's position that IV-E reimbursement is
available for the universe of foster care recruitment activities
undertaken by the State. The Title IV-E program was designed to cover
the maintenance needs of a specified population of children in foster
care, not the entire foster care population within a particular state.
Section 470 of the Act. Likewise, the costs for recruiting foster care
homes should be related to the children served by the program.
Therefore, the regulation reasonably and logically may be interpreted to
provide Title IV-E funding only for costs of recruiting homes for Title
IV-E children. This is consistent with the stated scope of the IV-E
regulations, which is specifically limited to administrative and
training expenditures that are "related" to foster care maintenance
payments. See, for example, 45 C.F.R. 1356.10. Moreover, there is no
explicit reference in either the regulations or the IV-E statute to
funding for recruitment of homes that will serve children who are not
eligible for IV-E maintenance payments. Where a program regulation
intends to provide funding for an administrative activity that is
arguably broader than the scope of the program itself, that regulation
can reasonably be expected to be explicit.
Finally, as we develop in detail below, an interpretation which limits
allowability of costs to recruitment of homes for IV-E children is
consistent with basic cost principles that require that costs be
allocated to a particular program to the extent of benefits received by
the program. New Jersey offered several additional arguments to support
its view that 45 C.F.R. 1356.60(c)(2)(vii) permitted it to allocate all
of its recruitment costs to Title IV-E. These arguments involved
related provisions within 45 C.F.R. 1356.60(c) and the State's
construction of Missouri Dept. of Social Services, DAB No. 844 (1986).
New Jersey argued that the limiting sentence in 45 C.F.R. 1356.60(c)(1)
applied to the costs listed in sub-paragraph (c)(2). Appellant's Brief,
p. 6. Section 1356.60(c)(1) lists a number of types of Title IV-E
administrative costs that are "deemed allowable" and then provides
that
"[t]hey may not be claimed under any other section or Federal program."
The second sub-paragraph lists additional types of allowable
administrative costs, including foster home recruitment, and does not
contain such a restriction. New Jersey argued that the limiting
sentence in subparagraph (c)(1) applied to the costs identified in
(c)(2) in spite of the absence of the limiting sentence in (c)(2). We
reject the State's argument because the clear implication from the
placement of the sentence is that it apples only to the first
sub-paragraph. This construction is fully supported by the preamble to
the final rule. It provided:
Therefore, sub-paragraph (c)(1) of @ 1356.60 of this final rule
lists administrative costs deemed allowable under title IV-E and
not reimbursable under any other Federal program. (States may
support them by using State and local funds.) Sub-paragraph
(c)(2) lists the remaining examples of allowable administrative
costs. Together they list the same activities previously
listed as allowable under sub-paragraph (c)(1) in the NPRM. The
NPRM also contained a statement of other programs to which costs
might be charged. That statement has been deleted. As some
commenters correctly pointed out, the State's approved cost
allocation plan is the proper document under which multiprogram
costs are distributed to particular programs.
Therefore we reject the State's construction of 45 C.F.R. 1356.60(c)(1).
New Jersey also argued that reading the provisions of 45 C.F.R.
1356.60(c)(2)(i)-(ix) as a whole supports its position that recruitment
expenses should be allocated solely to Title IV-E. Appellant's Brief,
p.6. Subparagraph (c)(2) lists nine different categories of allowable
administrative expenses, including recruitment costs. The ninth
category concerns "agency overhead" and the text of that subparagraph
provides that "a proportionate share of related agency overhead" is
an
allowable expense. The other eight categories of allowable
administrative expenses, including recruitment costs, are not modified
by the adjective "proportionate". New Jersey concluded that the absence
of the adjective "proportionate" meant that all recruitment expenses
were allowable.
We do not find this a valid construction of the regulation. In light of
the statutory purpose of IV-E-- to provide maintenance assistance to a
limited category of foster care children-- it is unreasonable to read
this regulation as covering a broader category absent an explicit
indication in the regulation. Instead, we find that the use of the
adjective "proportionate" in subparagraph (ix) merely reflects an
understanding that "agency overhead" necessarily includes a wide range
of different programs' costs while the types of costs listed in (i)
through (viii) were not necessarily present in other programs.
Moreover, in light of the preamble, the regulation is properly read to
limit "overhead" costs to a proportionate share, and to limit
recruitment and other listed costs to those costs allocated to IV-E in
an approved CAP.
Finally, New Jersey argued that the Board's decision in Missouri Dept.
of Social Services, DAB No. 844 (1987) supports its position.
Appellant's Brief, p. 11. Missouri involved the issue of whether the
costs of negative IV-E eligibility determinations as well as certain
services for program candidates who never become eligible are allowable
under IV-E. The Board held that the disputed activities, if properly
defined by the state in its plan, are reimbursable under the IV-E
program as administrative costs.
In Missouri, the Board concluded that the activities were an integral
part of the IV-E eligibility determination process for individuals who
were candidates for the program and fulfilled specific requirements in
the statute and regulations. The Agency did not argue that the
activities were performed to fulfill requirements of any other program
or explain why allocation to any other program would be justified. In
this case, it is apparent that approximately 50 percent of the foster
homes recruited are necessary for programs other than IV-E. Clearly the
expenses incurred to build New Jersey's foster care capacity
substantially benefit programs other than IV-E. Therefore, we find that
this case is not controlled by our decision in Missouri.
2. OMB Circular A-87
In addition to the IV-E regulations previously discussed, these costs
are governed by OMB Circular A-87, made applicable to DHHS grants to
states by 45 C.F.R. 74.171. At Attachment A, section C.2, that circular
sets forth general principles concerning the allocation of costs to a
specific grant. It provides:
a. A cost is allocable to a particular cost objective
to the extent of benefits received by such objective.
Since approximately 50 percent of the children living in New Jersey's
foster care homes are non-IV-E children, New Jersey has had to develop a
much greater foster care home capacity than is required by its IV-E
population. Thus, New Jersey's position that all recruitment costs
should be allocated to IV-E is unacceptable.
The Board has previously applied the allocation standards set forth in
OMB Circular A-87 to Title IV-E costs of foster care and adoptive homes
recruitment. See Oklahoma Dept. of Human Service, supra.
In Oklahoma, the state had an approved CAP which authorized allocation
of home recruitment expenses to IV-E even though the homes served
non-IV-E children. The Board found that such an allocation was not so
erroneous as to allow the Agency to retroactively disallow the
recruitment costs. However, the Board ruled that the Agency could
prospectively require an amendment of the CAP and allocation of the
recruitment costs among Title IV-E and other programs. Id., p. 9.
As the Agency argued, the ruling in Oklahoma is dispositive of the
allocation issue in this case. Under Oklahoma, the Agency may refuse
to allow New Jersey to allocate all of its recruitment costs to Title
IV-E. Since New Jersey never had an approved CAP which allowed
allocation of these expenses to IV-E, the Agency is entitled to adjust
the allocation for the entire period of this dispute: the effective date
of the CAP amendment (October 1, 1985) to the present.
B. The Agency may require allocation of recruitment costs prior
to October 1987 when it issued ACYF-AP-87-05.
New Jersey argued that allocation of recruitment costs should not be
required until October of 1987 when the Agency issued ACYF-AP-87-05. We
reject that argument because (1) prior to the publication of
ACYF-AP-87-05, the Agency may reasonably rely on its program
regulations; (2) this policy announcement did not amend prior
expressions of Agency policy on this issue; and (3) the State had notice
of the Agency's position on this issue as of at least November 1986 and
was never operating under an approved CAP which allowed it to allocate
all of these expense to IV-E.
The Agency issued ACYF-AP-87-05 to comply with the Missouri decision.
This policy announcement explicitly revised the Agency's prior position
on another issue, set forth in ACYF-AP-85-01 (which stated that certain
eligibility determination costs were allowable only for children who
were placed in foster care and determined eligible for IV-E). The
announcement went on to discuss allocation of costs for foster home
recruitment and other costs that were "not linked directly to the
eligibility of children." It required that these costs be allocated to
"title IV-E, State foster care, and other State/Federal programs in such
a manner as to assure that each participating program is charged its
proportionate share of the costs." Respondent's Ex. R-3, pp. 3-4. The
prior policy announcement had not addressed the issue of allocation of
these types of administrative costs.
Therefore, we reject New Jersey's argument that the Agency could not
require allocation until after this policy announcement.
C. The Agency and New Jersey should re-examine allocation of
the Title IV-E adoptive and foster care home recruitment costs.
The Agency's attorney indicated that, in the event the Board concluded
that these costs should be allocated, it would be willing to discuss
with New Jersey an equitable allocation formula. Tr., p. 80. The
Agency, in ACYF-PA-87-05, has recognized that the Agency has some
discretion establishing the allocation methodology and that allocation
does not necessarily have to be based on a strict proportionate
calculation of the IV-E and non-IV-E population. See also Oklahoma,
supra, and Respondent's Letter of April 25, 1989, p. 2.
Thus, in view of our conclusion that the Agency may refuse to allow New
Jersey to allocate 100 percent of these costs to Title IV-E, the parties
should negotiate to establish an appropriate allocation method. If the
parties are unable to agree on an allocation method, the State may seek
review pursuant to the Part 75 process.
III. Conclusion
We uphold the decision of the Regional Director, Region II, Department
of Health and Human Services, of June 22, 1988, disapproving the
allocation of 100 percent of New Jersey's foster care and adoptive home
recruitment costs to Title IV-E.
Norval D. (John) Settle
Judith A. Ballard
Donald F. Garrett Presiding Board