Kilpatrick v. Michigan Dept. of Social Services, Docket No. 67748

• Decision Date: 11 August 1983
• Docket Number: Docket No. 67748
• Citation: 126 Mich.App. 559,337 N.W.2d 576
• Parties: Joycelyn KILPATRICK, Plaintiff-Appellant, v. MICHIGAN DEPARTMENT OF SOCIAL SERVICES, Defendant-Appellee. 126 Mich.App. 559, 337 N.W.2d 576
• Court: Court of Appeal of Michigan — District of US

Page 576

337 N.W.2d 576

Joycelyn KILPATRICK, Plaintiff-Appellant, v. MICHIGAN DEPARTMENT OF SOCIAL SERVICES, Defendant-Appellee.

Docket No. 67748.

126 Mich.App. 559, 337 N.W.2d 576

Court of Appeals of Michigan.

Submitted May 5, 1983.

Decided June 21, 1983.

Released for Publication Aug. 11, 1983.

[126 MICHAPP 560] Lawrence P. Hanson, Petoskey, for plaintiff-appellant.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., and Janis Meija and Rose A. Houk, Asst. Attys. Gen., for defendant-appellee.

[126 MICHAPP 561] Before ALLEN, P.J., and R.B. BURNS and WALSH, JJ.

WALSH, Judge.

Plaintiff, Joycelyn Kilpatrick, was denied Aid to Families with Dependent Children (AFDC) benefits by defendant Michigan Department of Social Services (DSS) for the months of February and March, 1981, because of excess resources. She requested a hearing before a hearing officer. The hearing officer affirmed the denial of benefits. Plaintiff appealed the hearing officer's decision to circuit court, which affirmed. She now brings her appeal to this Court.

Plaintiff applied for AFDC benefits in December, 1980, but withdrew her application because her family was able to earn sufficient income through sawmill contracts which lasted until January, 1981. She again applied for benefits in February, 1981. In her application, she listed assets whose value totalled $29,390.42, including nonhomestead real property (the aforementioned sawmill) with an equity value of $29,072.87.

The Kilpatricks purchased the sawmill on land contract and operated it as a family business from 1975 to 1979. In October, 1979, they leased the sawmill to a third party for one year with an option to purchase. The lessee did not exercise the option. In November, 1980, the entire sawmill business, including land and equipment, was listed with a realtor at a selling price of $39,800. In a letter to DSS, the realtor stated that he had received numerous inquiries about the sawmill but that the economy would have to change drastically before the sawmill would be sold. In a subsequent letter to DSS, the realtor stated that a "quick sale" price of the sawmill would be $25,000. In February, 1981, the Kilpatricks still owed $10,728.13 on the sawmill land contract.

[126 MICHAPP 562] Plaintiff's application for AFDC benefits was denied because she exceeded the $2,000 asset ceiling for eligibility during February and March, 1981. M.C.L. Sec. 400.56g(1)(a); M.S.A. Sec. 16.456(7)(1)(a). ¹ The hearing officer and circuit court rejected plaintiff's claim that the sawmill, because of its alleged unmarketability, should not have been treated as a nonexempt asset for purposes of determining her family's eligibility for AFDC benefits. We affirm.

The AFDC program was established by Congress as part of the Social Security Act. 42 U.S.C. Secs. 601 et seq. It is financed largely by the federal government, which provides matching funds to those states which elect to participate. Administration of the program is left to the states, whose plans must be approved by the Secretary of the Department of Health and Human Services and must meet certain minimum standards set forth in the Social Security Act and regulations promulgated thereunder. King v. Smith, 392 U.S. 309, 88 S.Ct. 2128, 20 L.Ed.2d 1118 (1968); Pease v. Director of Michigan Dep't. of Social Services, 105 Mich.App. 689, 695, 308 N.W.2d 432 (1981), lv. den. 412 Mich. 940 (1982).

42 U.S.C. Sec. 602(a)(7) dictates that state AFDC plans provide that, in determining need, the state agency charged with administering the program shall take into consideration income and resources of any child or relative claiming aid. At 45 CFR 233.20(a), the requirements for state AFDC plans are more fully detailed. Pursuant to 45 CFR 233.20(a)(3)(ii), state plans must:

"Provide that in determining need and the amount of the assistance payment * * *.

* * *

[126 MICHAPP 563] "(D) Net income * * * and resources available for current use shall be considered; income and resources are considered available both when actually available and when the applicant or recipient has a legal interest in a liquidated sum and has the legal ability to make such sum available for support and maintenance * * *.

"(E) Income and resources will be reasonably evaluated. Resources will be evaluated according to their equity value.

* * *

"Equity value means fair market value minus encumbrances (legal debts); Fair market value means the price an item of a particular make, model, size, material or condition will sell for on the open market in the geographic area involved * * *. Liquid assets are those properties in the form of cash or other financial instruments which are convertible to cash * * *." See 45 Fed.Reg. 45911-45912 (1980).

Michigan is a participant in the AFDC program and has developed a state plan for the program's administration. M.C.L. Sec. 400.1 et seq.; M.S.A. Sec. 16.401 et seq. According to that plan, a family is eligible if, inter alia, the family group does not have property that has a value of more than $2,000. This limitation excludes the value of their home, $1,000 of the cash surrender value of life insurance, household goods and wearing apparel, and some property used in earning income. M.C.L. Sec. 400.56g(1)(a); M.S.A. Sec. 16.456(7)(1)(a).

The director of the state department of social services is authorized to promulgate rules with respect to the AFDC program. M.C.L. Sec. 400.10; M.S.A. Sec. 16.410. Pursuant to that authorization, the director has promulgated the following rule:

"Only income and resources which are available in [126 MICHAPP 564] fact for current use are to be considered in determining the need of individuals for assistance and the amount of payments to or for them." 1979 AC, R 400.12(10).

The DSS assistance payments manual sets forth departmental policy in the administration of the AFDC program. The manual describes nonhomestead real property, which is not exempt, and sets forth DSS policy concerning the determination of the value and availability of such property.

"Non-homestead real property is real estate a person owns that is not part of his homestead. This includes non-homestead life estates and life leases.

"The value and availability of real property depends upon its equity value and type of ownership.

"Equity value is the property's fair market value minus all encumbrances and the costs to be incurred in the sale of the property.

"Joint Ownership. If a person owns non-homestead property jointly with his spouse, and they live together, the total equity value is a countable asset for that person.

"The person's share of non-homestead property held jointly with a non-spouse or a separated spouse, is calculated by dividing the value by the number of owners, unless otherwise specified in the document of ownership. If the client verifies that the other owners do not agree to the sale of the share, it is not available and none of it is counted toward the asset limit." DSS Assistance Payments Manual, Item 211 (subject: Assets) pp. 4-5.

It is plaintiff's position that this policy creates a presumption, inconsistent with federal and state regulation, that, with the exception of joint ownership with a nonspouse or a separated spouse, mere ownership of nonhomestead real property makes that property available to the owner for AFDC purposes. She claims that it is impermissible to [126 MICHAPP 565] presume "that a nonsalable or nonmarketable resource is available to meet the needs of an indigent family". She argues that the value of the sawmill should have been disregarded for purposes of determining her family's AFDC eligibility since the sawmill was not "actually available" or "available in fact for current use".

The United States Supreme Court has repeatedly held that state AFDC eligibility standards cannot exclude persons who satisfy federal standards of eligibility. See Pease v. Director of Michigan DSS, supra, pp. 696-697, 308 N.W.2d 432, and cases cited therein. Courts examining state plans "have routinely invalidated presumptions which assume the availability of resources or income that do not in fact exist." Jamroz v. Blum, 509 F.Supp. 953, 959 (N.D.N.Y.,1981), and cases cited therein. The seminal case is King v. Smith, supra, where the Supreme Court struck down a state regulation which was inconsistent with the federal statute in denying AFDC benefits to children of a mother who cohabited with a man who was not her husband. See also Lewis v. Martin, 397 U.S. 552, 90 S.Ct. 1282, 25 L.Ed.2d 561 (1970).

In Hinderer v. Dep't of Social Services, 95 Mich.App. 716, 291 N.W.2d 672 (1980), lv. den. 409 Mich. 930 (1980), this Court rejected the plaintiff's challenge to the lag budgeting system used by DSS in making reductions from AFDC benefits....