Beno v. Shalala

• Decision Date: 13 July 1994
• Docket Number: No. 93-16411,93-16411
• Citation: 30 F.3d 1057
• Parties: Deanna BENO; Susan Wiseman; Jody Baker; Janese Denise Bland; Reina Weight; Susan Clark; Tawab Popal, Plaintiffs-Appellants, v. Donna SHALALA, Secretary, United States Department of Health and Human Services; Mary Jo Bane * , Assistant Secretary, Administration for Children and Families; Bruce Vladeck, ** Administrator, Health Care Financing Administration; Russell Gould, Secretary, California Health and Welfare Agency; Eloise Anderson, Director, California Department of Social Services; Thomas Hayes, Director, California Department of Finance, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1057

30 F.3d 1057

Deanna BENO; Susan Wiseman; Jody Baker; Janese Denise

Bland; Reina Weight; Susan Clark; Tawab Popal, Plaintiffs-Appellants, v. Donna SHALALA, Secretary, United States Department of Health and Human Services; Mary Jo Bane ^*,

Assistant Secretary, Administration for Children and

Families; Bruce Vladeck, ^** Administrator,

Health Care Financing Administration; Russell Gould,

Secretary, California Health and Welfare Agency; Eloise

Anderson, Director, California Department of Social

Services; Thomas Hayes, Director, California Department of

Finance, Defendants-Appellees.

No. 93-16411.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 13, 1994.

Decided July 13, 1994.

Melinda Bird and Clare Pastore, Western Center on Law and Poverty, Los Angeles, CA, for plaintiffs-appellants.

Edward T. Swaine, U.S. Dept. of Justice, Washington, DC, for federal defendants-appellees; and Eileen Gray and Theodore Garelis, Deputy Attys. Gen., Sacramento, CA, for state defendants-appellees.

Vicki Michel, Pacific Center for Health Policy and Ethics, University of Southern California Law Center, Los Angeles, CA, for amicus.

Appeal from the United States District Court for the Eastern District of California.

Before: GOODWIN, NORRIS, O'SCANNLAIN, Circuit Judges.

Opinion by Judge GOODWIN; Dissent by Judge O'SCANNLAIN.

GOODWIN, Circuit Judge:

Plaintiffs, California residents who receive Aid to Families with Dependant Children ("AFDC"), appeal the denial of their request for a preliminary injunction enjoining California's public benefits experiment, 853 F.Supp. 1195. Plaintiffs object to a state-wide benefits cut enacted as part of an experimental work-incentive project and challenge the Secretary of Health and Human Services' ("Secretary of HHS") ¹ waiver of certain federal laws related to the project. They argue that the Secretary's waiver violates the Administrative Procedures Act, ("APA"), 5 U.S.C. Sec. 701 et seq. and Sec. 211 of the HHS Appropriations Act, 42 U.S.C. Sec. 3515b, which prohibits HHS from spending federal money on experimental projects which pose a danger to human research subjects without their informed consent. In addition, they contend that California's project violates the Americans with Disabilities Act ("ADA"), 42 U.S.C. Secs. 12131-12213, by failing to make reasonable accommodations for AFDC recipients with disabilities. We reverse.

I. CALIFORNIA'S PROGRAM

The benefits cut at issue in this appeal is part of a five-year Assistance Payments Demonstration Project ("APDP") enacted at Cal.Welf. & Inst.Code Sec. 11450.01 et seq. APDP includes both a "residency requirement" and a "work-incentive" program. The former, which has been preliminarily enjoined on constitutional grounds, aims to discourage poor families from moving to California by limiting recent entrants' AFDC benefits to the amount received in their state of former residence. See Green v. Anderson, 811 F.Supp. 516 (E.D.Cal.1993), aff'd, 26 F.3d 95 (9th Cir.1994). The latter, which is the subject of this appeal, aims to encourage AFDC recipients to find work by decreasing benefits and allowing recipients to keep more of their earned income. ²

The work-incentive benefits cut affects all California AFDC families (approximately 826,000 families and 2.4 million persons, ER 367) without regard to family composition or disabilities, ³ except for a "control group" of 5,000 families randomly selected from four counties. The control group receives AFDC benefits at their former levels and is subject to the old income-disregard rules. In order to assess the impact of the work-incentive program, the state plans to compare data about these control group families with data on 10,000 families randomly selected from the same four counties. The state does not plan to study most of the other approximately 800,000 families affected by the cut.

II. THE FEDERAL WAIVERS

The benefits program at issue, AFDC, is a cooperative federalism program created by the Social Security Act of 1935, 42 U.S.C. Secs. 601-687. Participating states and the federal government jointly finance the program and state governments administer it under plans approved by the Secretary of Health and Human Services. Id. While states are not required to participate, participating states must comply with a variety of federal requirements. Alexander v. Choate, 469 U.S. 287, 289 n. 1, 105 S.Ct. 712, 714 n. 1, 83 L.Ed.2d 661 (1985); Rosado v. Wyman, 397 U.S. 397, 417, 90 S.Ct. 1207, 1220, 25 L.Ed.2d 442 (1970).

California concedes that APDP violates several of these requirements, including the "Maintenance of Effort" requirement of 42 U.S.C. Sec. 1396a(c)(1). ⁴ This section provides that:

the Secretary shall not approve any State plan for medical assistance if--(1) the state has in effect [AFDC] payment levels that are less than the payment levels in effect under such plan on May 1, 1988.

42 U.S.C. Sec. 1396a(c)(1). California's experiment reduces AFDC benefits to below their May 1988 levels. Thus, absent a waiver, the state could not implement the experiment without jeopardizing federal funding of its $14 billion Medicaid program. The California statutes enacting APDP, therefore, refer explicitly to obtaining HHS approval, and do not become effective until thirty days after state officials receive such approval. ⁵

On September 9, 1992, California officials applied to HHS for a waiver of these various federal laws, pursuant to the Secretary's authority under 42 U.S.C. Sec. 1315(a), which provides that:

In the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of subchapter I, X, XIV, XVI or XIX or this chapter, or Part A or D of subchapter IV of this chapter [the AFDC program], in a State or States--

(1) the Secretary may waive compliance with any of the requirements of section 302, 602, 654, 1202, 1352, 1382 or 1396a of this title, as the case may be, to the extent and for the period he finds necessary to enable such State or States to carry out such project.

California's waiver application alleged that the instant benefits cut would promote the objectives of the Act by creating a "work-incentive" experiment, which would "encourage able-bodied adults" to find work. ER 1167. The state requested authority to make unlimited benefits cuts, and contended that the experiment would help determine whether such work-incentives could be effective in other states. Id.

The state's application did not address the cut's effect on AFDC recipients with disabilities or on child-only families, who could not respond to the work incentive. Nor did it explain why the state had decided to cut benefits to all families in order to study the response of a few recipients in four counties or offer any data about the cut's potential impact on children or low-income families. Rather, it emphasized that the experiment will "save $420 million annually ($208 million federal, $202 million state and $10 million county, with administrative costs taken into account)" and asked HHS to take quick action on the waiver because "[g]iven the current fiscal condition of the State and Federal governments, it is imperative that these reforms be implemented as soon as possible." ER 1167.

On September 29, 1992, less than two weeks after receiving California's proposal, the Secretary faxed state officials a draft "Terms and Conditions" setting forth proposed conditions for approval of the experiment. The draft Terms and Conditions contains detailed provisions concerning "cost neutrality" (i.e. whether the experiment would increase federal expenditures) and data collection, but does not address the need for a statewide cut, the proposed cut's on children, or the need to cut benefits to disabled recipients and child-only AFDC units.

Plaintiffs' counsel wrote HHS, raising these and other issues and asking HHS to delay approval of California's project to enable plaintiffs to submit comments. HHS did not respond to this letter, but continued to exchange draft Terms and Conditions with California officials, adding various provisions about cancelling the program, federal funding, and data collection. The only change that addressed the project's potential impact on AFDC recipients was the Secretary's decision to limit the benefits cuts to 6.3% below 1988 levels. However, the Secretary gave no explanation for this figure and allowed the state to cut benefits to recent entrants by up to 80%.

On October 16, plaintiffs' counsel sent a second letter, objecting to the benefits cut and residency requirement and submitting voluminous materials about the harm the cut would cause AFDC families and children. Counsel also noted that California could create a work incentive without cutting benefits--by simply changing the income-disregard rules--and could limit the cut to those recipients whose disabilities did not preclude work. ER 1332. According to plaintiffs, such reforms could be implemented without increasing state and federal expenditures. Id. (stating that Michigan had enacted such a program).

HHS made its final editorial changes to the draft Terms and Conditions on the day it received plaintiffs' letter. These minor changes were not accompanied by any comment on plaintiffs' objections or proposed alternatives. The state also submitted no response to plaintiffs' comments. On October 29, after California submitted additional material on data collection, HHS granted California's waiver request.

California implemented the 1.3% cut authorized by the Secretary's waiver and Cal.Welf. & Inst.Code Sec. 11450.01(b)(1) on December 1, 1992. Relying on the Secretary's waiver, the legislature then authorized an additional 2.7% cut, which went into effect on September 1, 1993. Cal.Welf. & Inst.Code Sec. 11450.015. Because California had previously reduced AFDC benefits by 4.5% and 4.4%, California's AFDC benefits are now...