National Welfare Rights Organization v. Mathews

• Decision Date: 20 February 1976
• Docket Number: No. 75-1741,75-1741
• Citation: 174 U.S.App.D.C. 410,533 F.2d 637
• Parties: NATIONAL WELFARE RIGHTS ORGANIZATION et al., Appellants, v. F. David MATHEWS, Secretary of the Department of Health, Education and Welfare.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 637

533 F.2d 637

174 U.S.App.D.C. 410

NATIONAL WELFARE RIGHTS ORGANIZATION et al., Appellants, v. F. David MATHEWS, Secretary of the Department of Health,

Education and Welfare.

No. 75-1741.

United States Court of Appeals, District of Columbia Circuit.

Argued Nov. 4, 1975.

Decided Feb. 20, 1976.

Henry A. Freedman and Steven J. Cole, New York City, with whom Florence Roisman, Washington, D. C., was on the brief for appellant organizations.

Lawrence Silver, Deputy Atty. Gen., Harrisburg, Pa., Chief, Litigation of the Comm. of Pa. was on the brief for appellant Com. of Pa.

Richard A. Graham, Asst. U. S. Atty., Washington, D. C., with whom Earl J. Silbert, U. S. Atty., John A. Terry, William M. Brodsky and Ann S. DuRoss, Asst. U. S. Attys., Washington, D. C., were on the brief for appellee.

Joel J. Rabin, Asst. Atty. Gen., State of Md., Baltimore, Md., was on the brief for appellant State of Md.

Ronald A. Zumbrun, John H. Findley, Sacramento, Cal., John H. Midlen, Jr., Washington, D. C. and Glenn E. Davis, Sacramento, Cal., filed a brief on behalf of Pacific Legal Foundation as amicus curiae urging affirmance.

Before WRIGHT, Circuit Judge, LUMBARD, ^* Senior Circuit Judge for the Second Circuit and TAMM, Circuit Judge.

Opinion for the Court filed by Circuit Judge TAMM.

TAMM, Circuit Judge:

This appeal challenges the validity of a recent regulation promulgated by the Secretary of Health, Education and Welfare ("HEW") which purports to specify maximum amounts of resources allowable to recipients of Aid to Families with Dependent Children ("AFDC"), types of resources which are exempted in whole or part, and the manner of valuation of these resources. Plaintiff-appellants Pennsylvania, Maryland and various organizations representing welfare recipients allege, generally, that the regulation impinges the power granted by Congress to states to determine the resources a needy family may retain and, specifically, that the regulation is arbitrary and capricious because it contravenes the aims of AFDC and is unsupported by factual bases in the administrative record. Although we affirm the trial court ruling that the Secretary has power to promulgate regulations prescribing valuation, exemptions, and upper limits on resources of AFDC recipients, we reverse the judgment upholding the challenged rule. Not only does the regulation at issue here conflict with its enabling statute insofar as it values property without regard to encumbrances, but also the scanty administrative record is insufficient to support the factual determinations expressed in the rule.

I. CONTESTED REGULATION

On July 9, 1973, HEW gave notice of a proposed rulemaking which would establish limits on resources. ¹ 38 Fed.Reg. 18254. Two years later HEW promulgated the regulation at issue which provides in pertinent part:

The amount which may be reserved by an AFDC family of up to 4 persons, other than the reasonable value of a home as determined by the State agency, wedding and engagement rings, heirlooms, an automobile of a retail market value of $1200 or less and equipment and material of reasonable value necessary to implement a plan, approved by the agency, for employment, or rehabilitation, shall not be in excess of a market value of $2250. If the retail market value of the automobile exceeds $1200, the excess value shall be counted against the personal property reserves. For each additional eligible person, an additional $100 in personal property reserves above the $2250 limit may be allowed. Real and personal property shall be valued at their gross market value including encumbrances.

40 Fed.Reg. 12507 (1975). ² The promulgation also responded briefly to six "primary" types of objections raised in the 57 comments received during the rulemaking.

In June of 1975, plaintiffs filed the complaint in this case and obtained a temporary restraining order prohibiting the AFDC portion of 45 C.F.R. § 233.20(a)(3)(i) from going into effect on June 17. Before the trial court ruled on plaintiffs' motion for a preliminary injunction, the Secretary republished the challenged regulation with an expanded preamble explaining the basis and purpose of the regulation and responding further to comments. 40 Fed.Reg. 30963 (1975). The trial court subsequently denied plaintiffs' motion for a preliminary injunction and granted defendant's motion for summary judgment. It held that the Secretary is authorized by statute to regulate amounts and valuation of resources retained by AFDC families and that the regulation is both reasonable and issued in compliance with the Administrative Procedure Act. J.A. at 223-24. The judge, however, stayed the effective date of the regulation in order to give plaintiffs time to appeal. Plaintiffs appealed and this court extended the stay.

We face two distinct issues in this appeal. We must first decide whether the Secretary has the power to regulate standards indicating the resources to be considered against the state standard of need, a maximum limit on those resources, and the proper valuation of them. Second, if we find that such power exists, we must still determine whether the Secretary exercised that power reasonably and in accord with procedural mandates. We turn now to the issue of the Secretary's authority.

II. POWER TO REGULATE

AFDC was established under the name of Aid to Dependent Children in Title IV of the Social Security Act of 1935, P.L. 74-271. Now, as then, the basic scheme of the assistance program is that the federal government provides funds to the states for distribution to needy children under a plan approved by the Secretary. ³ In order to be approved, state plans must meet specifications set out in 42 U.S.C. § 602(a) (Supp. III 1973), ⁴ and may not impose a more stringent residency requirement than that the prescribed in the statute, id. at § 602(b). Any plan which meets these requirements must be approved by the Secretary. Id. See also Arizona State Department of Public Welfare v. HEW, 449 F.2d 456, 461, rehearing and rehearing en banc denied (9th Cir. 1971), cert. denied, 405 U.S. 919, 92 S.Ct. 945, 30 L.Ed.2d 789 (1972).

Section 1302 grants to the Secretaries of HEW, the Treasury, and Labor the authority to "make and publish such rules and regulations, not inconsistent with this chapter, as may be necessary to the efficient administration of the functions with which each is charged under this chapter." Under this broad grant of power, the Secretary may promulgate regulations binding on the states. King v. Smith, 392 U.S. 309, 317, 88 S.Ct. 2128, 20 L.Ed.2d 1118 (1968); Arizona State Department of Welfare v. HEW, supra, 449 F.2d at 467; Solman v. Shapiro, 300 F.Supp. 409, 413 (D.Conn.), aff'd per curiam, 396 U.S. 5, 90 S.Ct. 25, 24 L.Ed.2d 5 (1969). In upholding a different HEW regulation, one court described this far-ranging authority as follows:

A more plenary great (sic) of rule-making power would be difficult to devise. . . .

The breadth of the rule-making authority of § 1302 is underscored when seen in the perspective of the entire federal statutory scheme of public assistance. The various programs provided for authorize the Secretary of HEW to require, in the welfare field, that each state incorporate in its plan "such methods of administration . . . as are found by the Secretary to be necessary for the proper and efficient operation of the plan. . . . " It is clearly contemplated that in this way the Secretary can, through review and scrutiny of state plans, be instantly apprised of problems in the federally-funded assistance programs and rectify or eliminate troublesome areas in whatever way he, as his expertise may direct him, finds most effective and within the purposes of the public assistance statutory fabric.

Serritella v. Engleman, 339 F.Supp. 738, 752 (D.N.J.) (footnote omitted), aff'd per curiam, 462 F.2d 601 (3d Cir. 1972).

Appellants here do not deny this general power to regulate, but argue that the exercise of authority is invalid because it is inconsistent with the Act. The major thrust of plaintiffs' argument is that Congress, in enacting the Social Security Act of 1935, set up a basic federal framework for assistance to dependent children within which the states were free to determine the standard of need and level of benefits. They argue that legislative history and recent Supreme Court decisions conclusively prove that HEW's regulation goes far beyond the limited federal rule envisioned by Congress. HEW, on the other hand, refers us to the basic assumption that federal spending may be limited by the department charged with administration of the assistance program and to the fact that since 1955 HEW has prescribed a maximum on resources. For the reasons discussed below, we hold that the type of regulation challenged in this case is consistent with the cooperative spirit of federalism pervading assistance programs.

The legislative history of the Social Security Act of 1935 reveals that Congress intended to leave to the states many determinations in the administration of the program. ⁵ Representative Doughton, in reporting the bill from the House Ways and Means Committee, stated:

In fact, these provisions limit very strictly the supervisory powers of the Social Security Board over the States, and provide a maximum of State control in these matters. The federal standards or conditions included in the law may, indeed, be regarded as minimum conditions, leaving to the States the determination of policies, the detailed administration, the amount of aid which shall be given, and questions of personnel.

It takes into account the variations in standards and in cost of living in different parts of the country. . . .

79 Cong.Rec. 5469-70 (1935). In another colloquy, Representative Doughton again stressed the state responsibility for determining the amounts to be received:

Mr. McLAUGHLIN. May I inquire how the determination is to be made in the individual's case as to the amount...