McKee v. Department of Social Services

• Decision Date: 11 February 1986
• Docket Number: Docket No. 73470
• Citation: 381 N.W.2d 679,424 Mich. 404
• Parties: Gary McKEE, Lucinda Johndro, and all other persons similarly situated, Plaintiffs-Appellants, v. John Dempsey, Director, Michigan DEPARTMENT OF SOCIAL SERVICES, Defendant-Appellee. 424 Mich. 404, 381 N.W.2d 679
• Court: Michigan Supreme Court

Page 679

381 N.W.2d 679

Gary McKEE, Lucinda Johndro, and all other persons similarly

situated, Plaintiffs-Appellants, v. John Dempsey, Director, Michigan DEPARTMENT OF SOCIAL

SERVICES, Defendant-Appellee.

Docket No. 73470.

424 Mich. 404, 381 N.W.2d 679

Supreme Court of Michigan.

Argued April 3, 1985.

Decided Dec. 30, 1985.

Released Feb. 11, 1986.

Michael Malkovich, Legal Services of Eastern Michigan, Midland, for plaintiffs-appellants.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., Counsel of Record, Erica Weiss Marsden, Asst. Atty. Gen., Lansing, for defendant-appellee.

LEVIN, Justice.

The question presented is whether the Department of Social Services, charged with implementing and administering the Aid to Families with Dependent Children program may, consistently with federal and state law, deem an interest in real property held by an applicant or recipient to be "available" for support and maintenance, and hence countable in computing dollar-amount resource limits governing eligibility for benefits, whenever there is no legal impediment to the sale of the interest, although the applicant or recipient, despite good-faith efforts, has not been able to convert the interest to cash that could be used to feed, shelter, and clothe the applicant's or recipient's children. ¹ We hold that an interest in real property, not marketable after good-faith efforts to sell, is not an "available" resource for purposes of the AFDC limitation in effect at the time of the plaintiffs' claims.

I

The AFDC program was established by the Social Security Act. ² It is financed in large measure by the federal government on a matching-fund basis. Participating states are required to submit AFDC plans in conformity with the act and regulations promulgated by the Secretary of Health and Human Services. To be approved by the Secretary, a state plan must meet the specifications set out in the act, ³ which include, for purpose of determining eligibility, consideration of the resources and income of an applicant or recipient. The state agency administering the AFDC program compares the family's income to a standard of need set by the state, and measures the family's resources and income against a national standard. ⁴

A federal regulation ⁵ establishes guidelines for the implementation of the act ⁶ and requires state plans to take into consideration the resources and income of the applicant or recipient:

"Net income available for current use and currently available resources 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."

The Director of the DSS is also authorized to promulgate regulations concerning the AFDC program. ⁷ Pursuant to that authority, the director promulgated the following regulation: ⁸

"Only income and resources which are available in 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." (Emphasis supplied.)

II

Homestead real property is exempt from the resource limitation. ⁹ The question presented is whether it was proper for the DSS to include as "available" resources interests in "nonhomestead" real property, former marital homes in which the recipients were no longer residing and to which they had no intention of returning.

The plaintiff recipients contend that their real property interests were, although there was no formal legal barrier to sale, not in reality available to meet their current needs for support and maintenance. ¹⁰ The DSS contends that neither the federal nor the state regulation provides for a grace period during which, if a good-faith effort is made to dispose of the property, the property will be excluded from the determination of available resources. The DSS claims that a 1984 amendment of the act, ¹¹ authorizing the promulgation of a regulation allowing a grace period of six or nine months, demonstrates that when the disputes arose in these cases, before that amendment, the federal policy was that states were not required to provide grace periods.

The DSS relies on a statement in a congressional committee report:

"The conference agreement follows the House Bill with a modification establishing an AFDC policy on real property that is similar to SSI [Social Security Insurance] policy. The managers intend that by regulation, real property, which the family is making a good-faith effort to sell, would be exempt for six months (with State option for an additional 3 months) but only if the family agrees to use the proceeds from the sale to repay the AFDC paid. Any remaining proceeds would be considered a resource." H.R.Rep. No. 98-861, 98th Cong., 2d Sess. (1984), pp. 1395-1396; 1985 U.S.Code Cong. & Ad. News 2083-2084. (Emphasis supplied.)

On the basis of this statement, the dissenting opinion concludes that the Congress, before the enactment of the 1984 amendment, did not require a state to provide a grace period. Although grace periods were provided in some states, they were not required.

III

The idea that a state should consider only income and resources actually available, known as the "availability principle," is well established in AFDC law. A 1940 Social Security Board Policy Statement required that a resource "actually exist," not be "fictitious" or "imputed" and "be actually on hand or ready for use when it is needed." ¹² The "purpose [of the availability principle] is to prevent the States from relying on imputed or unrealizable sources of income artificially to depreciate a recipient's need." Heckler v. Turner, --- U.S. ----, ----, 105 S.Ct. 1138, 1148, 84 L.Ed.2d 138, 150 (1985). This means that resources are available if they may be used today to provide food, clothing, and shelter. ¹³

The DSS contends that, by codifying grace periods as an exception within a general rule of ineligibility, the Congress indicated its preamendment intent was to deem nonexcluded real property interests to be currently available without regard to whether they were readily convertible into cash. Even if the 1984 amendment purported to clarify the intent of the 1981 Congress, which it did not, ¹⁴ such an assessment of the intent of the members of Congress who voted for an earlier enactment would not be conclusive. ¹⁵

Although the committee reports concerning the 1984 amendment might be read as indicating that the act prior to the 1984 amendment did not authorize or require grace periods, they can as readily be read as indicating that the amendment was designed to coordinate the AFDC program's grace period policy, whatever it was, with the policy of the Social Security Insurance program. ¹⁶ A California court said:

"Respondents view the good-faith-efforts amendment as Congress' first departure from a priorly inflexible rule of presuming current availability; but appellants will view the amendment as Congress' first constraint (i.e., by time limits and conditioned benefits) on a long standing policy of looking to actual or practical availability." Galster v. Woods, 161 Cal.App.3d 85, 101, 207 Cal.Rptr. 402, 413 (1984).

The legislative history relied on by the DSS does not support the argument that the 1984 amendment only made sense if prior law did not require grace periods. Reining in the availability principle by conditioning aid on eventual disposition of excess property, and making the aid paid during a grace period recoverable as an overpayment, as is the procedure in other portions of the Social Security Act, ¹⁷ would be a sensible reform in an amendment which was part of a "deficit reduction" act. ¹⁸ The 1984 amendment brought the AFDC policy in line with SSI policy by allowing grace periods only if the applicant or recipient agreed to pay back benefits from the proceeds.

There is nothing in either the legislative history of the 1984 amendment or in judicial decisions construing that amendment that indicates that the Congress intended to change the availability principle. The United States Supreme Court said that in enacting a 1981 amendment, the Congress implicitly approved the availability principle. ¹⁹ The 1984 amendment, rather than indicating a change in congressional policy, reaffirmed the prior understanding of the meaning of the statute and at the same time effected a reduction in unnecessary federal spending.

IV

In enacting the 1981 and 1984 amendments, the Congress did not intend to require applicants or recipients to liquidate immediately their resources at less than fair market value. This is apparent from the general objectives of the act, which states that the AFDC program is

"[f]or the purpose of encouraging the care of dependent children in their own homes or in the homes of relatives by enabling each State to furnish financial assistance and rehabilitation and other services ... to help maintain and strengthen family life and to help such parents or relatives to attain or retain capability for the maximum self-support and personal independence consistent with the maintenance of containing parental care and protection...." ²⁰ (Emphasis supplied.)

Requiring applicants or recipients to dispose of resources for less than they would bring in fair market transactions ²¹ would be inconsistent with the self-sufficiency goal of the AFDC program.

To the extent an applicant or recipient is required to dispose of a major resource, such as an interest in realty, at a "distress sale" or for less than the fair market value, the purpose of the act would be undermined. The more money that is received from the sale of a resource, the less money the state and federal government will pay in benefits. To the extent that the sale brings less money than it could have brought, the family may sooner return to the AFDC rolls.

V

The Michigan regulation--set forth in full at the...