GAB Decision 301
May 26, 1982 California Department of Aging; Docket No. 81-186-CA-AA
Garrett, Donald; Settle, Norval Teitz, Alexander
The California Department of Aging appealed a March 5, 1981 decision
by the Acting Commissioner on Aging, Department of Health and Human
Services (respondent), regarding $106,909 in costs, for fiscal years
1971 through 1973, of administering programs under Title III of the
Older Americans Act (the Act). Although this appeal preceded
regulations which authorized this Board to decide disputes under Title
III of the Act, the Agency requested that the Board act on the matter
and the parties agreed to be bound by the Board's decision under 45 CFR
Part 16 (1981).
The respondent characterized section 304(d) of the Act as a
maintenance of effort requirement. Generally, maintenance of effort
provisions are intended to prevent state and local governments from
reducing expenditures of their own funds in federally assisted programs
as a condition of receiving federal funds. Under the respondent's
reading of section 304(d) of the Act of 1965, as amended, the appellant
was required to expend for administrative costs in each fiscal year
between 1970 and 1973 the same amount of state funds it expended in
fiscal year 1969. The federal auditors found that in fiscal years 1970
through 1973 the appellant did not expend the requisite amount.
Therefore, the respondent took this disallowance. The respondent
further concluded that the Commissioner on Aging did not have the
authority in 1978 to allow the appellant to repay the disallowance from
federal funds unexpended in fiscal year 1973.
We conclude that the disallowance cannot be upheld because the
applicable regulations do not support the interpretation urged here by
the respondent.
I. Background
The Department of Health, Education, and Welfare (now Health and
Human Services) Audit Agency performed a review of the appellant's
administration of programs under Titles III and VII of the Older
Americans Act of 1965, as amended, during the period July 1, 1968
through June 30, 1976. One of the findings in the audit report, issued
June 23, 1977 (ACN 70550-09), was that the appellant did not maintain
the required level of administrative funding during the fiscal years
1972 and 1973. The audit report based its finding on a report to the
California Legislature by the California Auditor General's Office (AGO
(2) Report No. 171, dated September 1973) which stated that the
administrative costs funded by the appellant for fiscal years 1972 and
1973 were, respectively, $32,095 and $3,622 less than the minimum
required level. Furthermore, the federal auditors stated that the
workpapers on which the California Auditor General's Office report was
based disclosed that the appellant expended less than the required level
during fiscal years 1970 and 1971 as well. The federal auditors
recommended that $118,578 be refunded to the federal government.
Subsequently, the Region IX Office of Aging issued three progress
reports concerning the Audit Agency review. Progress Report #2, dated
December 27, 1977, reported that the appellant concurred in the
auditors' findings but requested a waiver of the finding involving the
maintenance of effort requirement because it had consistently
"overmatched" the required state contribution, even though it did
not
always meet the maintenance of effort requirement. /1/ The Progress
Report recommended acceptance of the appellant's request.
On April 28, 1978, the then-Commissioner on Aging wrote to the
appellant about the Audit Agency's findings and recommendation. The
Commissioner did not specifically address the appellant's request for a
waiver. He did state that, because the appellant had refunded $106,909
in Title III funds from fiscal year 1973, the respondent would reduce
the amount owing to $11,669. The Region's Progress Report #3, dated
July 1978, stated, at page 2:
Our last progress report recommended that the CDA be given a waiver
of the HEW audit report recommendation to return $118,578 for unmet
maintenance of effort requirements. This recommendation was partially
accepted by the Commissioner on Aging who in his letter of April 28,
1978 reduced the amount owed by the CDA from $118,578 to $11,669. The
April 28, 1978 letter explained the reasons for the reduction.
Furthermore, the Report, at page 4, stated:
Based on a verbal opinion from the Region IX HEW Attorney's office,
we recommend that the audit exceptions be classified as "previously made
(3) overpayments" and that the provisions of Section 307A (of the Older
Americans Act, as amended in 1973) and 1321.136 be involed in the
following manner:
(it) is recommended that the (disallowed item for maintenance of
effort) be classified as an overpayment of Title III administrative
funds and deducted from the CDA FY 1979 Title III allotment for
administration.
On September 21, 1979, the Audit Agency issued a "Follow-up Review."
That report (a) referred to the original finding, (b) stated that the
appellant concurred with the finding but had pointed out that the
recommended refund would have adverse effects on its program, and (c)
stated that the Commissioner had reduced the amount because the
appellant had previously refunded Title III funds. The Follow-up Review
then stated, at page 9:
However, the State's final report of expenditures for fiscal year
1973 indicates that the $106,909 was not claimed because the State
expended less than the amount authorized. Expending less than the
amount authorized is not a substitute for refunding overclaimed costs.
Therefore, the State should be required to refund the $106,909.
On March 5, 1981, the Acting Commissioner on Aging concurred with the
Audit Agency that the appellant should refund the $106,909 even though
the respondent had "previously credited" (page 1) the appellant with
that amount. The appellant objected, in a letter dated April 23, 1981:
(We) consider that the obligation of correction passed from the
California Department of Aging to the Administration on Aging at the
time of the agreement with credit to the Department from the returned
1973 funds.
The respondent confirmed its decision to require repayment, in a
letter from the Acting Commissioner dated May 8, 1981. The letter
explained:
(Our) attempt to credit a portion of the amount by unexpended funds
remaining from previous allotments was not acceptable since it did not
represent a repayment of funds actually received by the State during a
time when the State failed to meet its maintenance of effort
requirements.
(4) II. Issues before the Board
The appellant has questioned whether there was a statutory
maintenance of effort requirement in effect during 1969 through 1973,
and has alleged that the appellant's considerable "overmatching" in
1969
should be taken into consideration when deciding whether the appellant
met whatever requirement existed. Furthermore, the appellant has
alleged that the Commissioner had discretion to waive the respondent's
decision to take a disallowance, and that, in fact, the respondent had
discharged the appellant's obligation to repay $106,909 and is therefore
estopped from claiming repayment now.
The Board considers that the issues before it are:
a) whether the respondent had authority to take a disallowance under
section 304(d) of the Older Americans Act for the period July 1, 1970
through June 30, 1973.
b) If so, whether it had discretion in taking or waiving the
disallowance.
c) If so, whether it is estopped from claiming the payment now
because it discharged the appellant's obligation in 1978.
III. Legislative History of the Older Americans Act
The Older Americans Act of 1965, Pub. L. No. 89-73, 79 Stat. 218,
July 14, 1965, addressed administrative costs in section 304. That
section provided that the larger of 10% or $15,000 of the State's annual
program allotment from federal funds would be available for up to
one-half of the administrative costs.There was no reference to
maintenance of effort. Pub. L. 90-42, 81 Stat. 107, July 1, 1967,
modified section 304 by increasing the federal share of administrative
costs to the larger of 10% of the annual program allotment of $25,000.
This increase was intended to strenghten State planning and
administration. H.R. Rep. 367, 90th Cong., 1st Sess, June 16, 1967,
page 3.
The Older Americans Act Amendments of 1969, Sec. 4, Pub. L. 91-69, 83
Stat. 108, September 17, 1969, deleted the previous language of section
304, and added a new section 304. In this new section, 304(b) provided
that federal funds would pay up to 75% of the costs of planning,
coordinating, and evaluating programs and activities and of the
administration costs, with a minimum amount of $75,000 to be provided by
federal funds. This allotment was no longer a percentage of the total
amount of program funds allotted to a state, but was a percentage of a
sum appropriated to all the states and territories specifically for the
costs of planning, coordination, evaluation, and administration of state
plans under Title III of the Act.
(5) Section 304(d), also added at this time, read:
The allotment of any State under subsection (b) for any fiscal year
shall be available for payments pursuant to this section to State
agencies which have provided reasonable assurance that there will be
expended for the purposes for which such payments are made and from
funds from State sources, not less than the amount expended for such
purposes from such funds for the fiscal year ending June 30, 1969.
It is this provision under which the respondent claimed authority for
this disallowance.
Finally, the Older Americans Comprehensive Services Amendments of
1973, Pub. L. 93-29, 87 Stat. 30, May 3, 1973, revised section 304 once
again. The provision referring to Planning, Coordination, Evaluation,
and Administration of State Plans, previously section 304, became
section 306. The federal share of administrative costs remained 75%,
but the total amount of federal funds available for such costs became
once again a percentage of the total program allotment, with no dollar
minimum for the administrative costs. Section 304(d) was removed from
the Act entirely. The amendments added a new provision to section 307,
Payments:
(c) A State's allotment under section 303 for a fiscal year shall be
reduced by the percentage (if any) by which its expenditures for such
year from State sources under its State plan approved under section 305
are less than its expenditures from such sources for the preceding
fiscal year. /2/
IV. Analysis
A. Respondent's authority to take a disallowance under section 304(
d) of the Older Americans Act of 1965, as amended, for the period July
1, 1970 through June 30, 1973.
The applicable version of the Older Americans Act is that amended by
Pub. L. 90-42 in 1967 and Pub. L. 91-69 in 1969. The Older Americans
Comprehensive Services Amendments of 1973 do not apply to this (6)
disallowance for a period ending June 30, 1973 because they were not
enacted until May 3, 1973. There has been no allegation by either party
that the 1973 amendments should be applied retroactively. Therefore,
all legal argument by either party with regard to the respondent's
policies under the 1973 and later amendments is irrelevant to the
resolution of this issue.
Section 304(d) of the Act required the appellant to provide
"reasonable assurance" that it will expend for administrative purposes
not less than the amount it expended for fiscal year 1969. The
respondent admitted that the appellant provided these assurances in the
state plan submitted in 1969, and in annual statements regarding
compliance with the terms of the Act. Respondent's submission, May 5,
1982, page 8. The appellant argued that this is all it was required to
do under the statute. The appellant further argued tha section 304(d)
did not require the appellant to actually expend that amount, in direct
contrast to the provision added by the 1973 amendments. We agree that
this is one possible interpretation of the statute, and conclude that it
is the interpretation that must be applied here, for the following
reasons.
In the Board's Order to Develop the Record, April 12, 1982, we asked
the respondent to state the policy, in effect during this time period,
which interpreted section 304(d). We asked the respondent to include
regulations or other written interpretations, and any legislative or
statutory references supporting the interpretation. The respondent
specifically cited only one regulation, which became effective March 31,
1980, and is thus not applicable here. The respondent stated that it
had always interpreted the maintenance of effort provision of the
statute as requiring that the State meet prior year's expenditures, . .
. ." Respondent's submission, May 5, 1982, page 4. The respondent did
not support this statement with any references. The respondent's
statement can be interpreted either that it believes section 304(d), as
amended in 1969, was a maintenance of effort provision, or that it only
considered a maintenance of effort provision to have been in effect
since 1973. There is no basis for interpreting expenditures." Section
304(d) referred to a standard based on the expenditure of state funds
for administrative costs in fiscal year 1969. A standard based on the
prior year's expenditures was first referred to in the 1973 amendments,
section 307(c) of the Act. We note, furthermore, that the only
regulations in effect during the period in question interpreting section
304(d) were at 45 CFR 903.41 and 903.42. These state:
903.41. Federal funds made available under section 304 of the Act
for any fiscal year shall be available to each State which has a State
plan approved under (7) Title III of the Act, and has complied with the
requirements under Sec. 903.42, to pay not in excess of 75 per centum of
the costs of planning, coordination, and evaluation activities related
to the purposes of the Act and of administering the State plan . . . .
903.42. Reasonable assurance shall be provided by State agencies, as
the Commissioner may prescribe, that there will be expended for the
purposes for which payments are made under section 304 of the Act, for
the year for which such payments are made and from funds from State
sources, not less than the amount expended for such purposes from such
funds for the fiscal year ending June 30, 1969.
A maintenance of effort regulation, 45 CFR 903.138, interpreting
section 307 (c) of Pub. L. 93-29, was proposed in September, 1973 and
became effective October 11, 1973, which was after the time period
involved here. The respondent did not cite this regulation at all,
although the respondent's explanation of its policy, referred to above,
paraphrased this regulation.
The appellant alleged that the respondent never issued a policy
statement on the interpretation of the 1969 amendment of section 304(d)
and that Program Instructions AoA-PI-75-27, dated April 9, 1975, and
AoA-PI-76-38, dated July 27, 1976, were the first instructions they
received regarding the respondent's interpretation of a maintenance of
effort requirement. The respondent did not refer to any policy
statements whatsoever in its submission. AoA-PI-75-27 referred to
section 307(c) of the Act (inserted by the 1973 amendments) and stated
that the section and the corresponding regulation, 45 CFR 903.138(a),
constitute the maintenance of effort rule. Page 1. Furthermore, this
transmittal stated: "The first year for computing the maintenance of
effort level was Fiscal Year 1974 . . . ." Page 3.
The statute and applicable regulations on their face require only a
prospective reasonable assurance. AoA-PI-75-27 confirms that the
respondent never adopted a policy under the 1969 amendments interpreting
section 304(d) in such a manner as to require more than "reasonable
assurance" during the period in question. As stated above, these
assurances were given.
Furthermore, in making their findings, the federal auditors relied on
the report made by the California Office of the Auditor General to the
California Legislature. That report stated a legal conclusion that the
appellant's obligation was to expend the same amount of money that it
expended in fiscal year 1969. We do not believe that the respondent can
rely on the legal conclusions of the California Auditor (8) General's
Office regarding federal requirements for its authority to take this
disallowance. Furthermore, the appellant now asserts that the Auditor
General's conclusions were erroneous.
Therefore, we conclude that the respondent has not shown that it had
authority to take a disallowance under section 304(d) for the
appellant's failure to maintain the fiscal year 1969 level of spending.
The appellant gave reasonable assurances that it would maintain its
level of spending and that is technically all the statute and the
regulations at that time required.
B. Respondent's discretion to take the disallowance.
The appellant alleged that, if we accepted the respondent's
interpretation of section 304(d), the interpretation of section 304 as a
whole and the legislative history of that section support an exercise of
discretion by the respondent. The appellant alleged that in each year
the appellant contributed at least the 25% matching funds required under
section 304(b). /3/ The respondent did not deny this, but simply argued
that meeting a matching requirement was irrelevant to compliance with a
maintenance of effort requirement. The appellant further alleged that
the amount contributed by the State in fiscal year 1969 was 40% rather
than 25% and, therefore, it was unreasonable to hold it to an assurance
that it would continue to match the federal funds with 40% rather than
the required 25%. While it is clear that matching and maintenance of
effort requirements are discrete requirements which must be separately
met, the appellant has asked for equitable consideration of what it
provided from non-federal funds during the period in question. Thus,
even assuming that we accepted respondent's arguments on how section
304(d) should be interpreted, we believe there would still remain a
question, which we need not reach here, of whether the respondent had
discretion to accommodate the unusual circumstances in which the
appellant found itself, given the purpose and intent of section 304 (d).
C. Effect of the Commissioner's letter of April 28, 1981, which
waived repayment of $106,909.
Here, the facts show that in 1978 the then-Commissioner in effect
exercised his discretion to discharge the appellant's obligation. In
1981 the respondent claimed $106,909 from the appellant because the (9)
respondent argued that unexpended funds returned to the U.S. Government
cannot be used to repay a previous debt. The appellant argued that the
respondent was estopped from claiming repayment at this time, because of
the Commissioner's action in 1978 waiving repayment of $106,909. The
appellant also argued that the amount of time which passed between the
period in question and the respondent's decision in 1981 to reclaim the
$106,909 makes it impossible for the respondent to claim the repayment
now, under a theory of laches. We do not need to reach the issues of
estoppel or laches, given our conclusion that the respondent has not
shown that it interpreted section 304(d) in such a manner as to
authorize a disallowance.
Conclusion
We conclude that the decision of the respondent in 1981 to reclaim
$106,909 cannot be upheld for the reasons stated above. /1/ This
position on the part of the appellant was taken as early as
December 1, 1976, in a response to the draft audit. /2/ It should be
noted that the allotment under section 303 referred to the total federal
allotment, as well as the portion reserved for administrative costs.
/3/ The appellant has provided figures showing its contribution to the
administrative costs during fiscal years 1969 through 1973. The
respondent provided identical figures for fiscal years 1969 and 1972 and
1973, but provided no figures for fiscal years 1970 and 1971. Neither
party could provide figures showing the federal contribution to
administrative costs, although the appellant did provide figures showing
its total federal allotments for those years.
OCTOBER 22, 1983