Nebraska, Dept. of Hhs v. U.S. Dept. of Hhs, CIV.A. 03-1873(EGS).

• Decision Date: 30 September 2004
• Docket Number: No. CIV.A. 03-1873(EGS).,CIV.A. 03-1873(EGS).
• Citation: 340 F.Supp.2d 1
• Parties: State of NEBRASKA, DEP'T OF HEALTH & HUMAN SVS., Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES et al, Defendants.
• Court: U.S. District Court — District of Columbia

Page 1

340 F.Supp.2d 1

State of NEBRASKA, DEP'T OF HEALTH & HUMAN SVS., Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES et al, Defendants.

No. CIV.A. 03-1873(EGS).

United States District Court, District of Columbia.

September 30, 2004.

COPYRIGHT MATERIAL OMITTED

Phyllis D. Thompson, Washington, DC, for Plaintiff.

Claire M. Whitaker, Washington, DC, for Defendants.

MEMORANDUM OPINION

SULLIVAN, District Judge.

I. Introduction

Plaintiff, the State of Nebraska Department of Health and Human Services ("Nebraska"), challenges the determination made by the Department of Health and Human Services Departmental Appeals Board ("DAB"). The determination, known as Decision 1882, disapproved Nebraska's amendment to its cost allocation plan. The amendment proposed by Nebraska allocates the costs of training Nebraska's protection and safety workers ("PSWs") exclusively to the Federal Foster Care and Adoption Assistance Program under Title IV-E of the Social Security Act. Plaintiff claims that this training is specifically developed and designed to meet the requirements of Title IV-E and that this training is only provided to trainees who handle or will handle Title IV-E cases. Pl. Resp. at 2 (citing A.R. 493-94). Nebraska seeks review of the DAB Decision under the Administrative Procedures Act ("APA"). 5 U.S.C. § 701 et seq.

Defendants are the U.S. Department of Health and Human Services ("HHS") and Tommy Thompson, in his capacity as Secretary of HHS. They argue that the DAB's decision upholding HHS's Division of Cost Allocation's ("DCA") disapproval of Nebraska's CAP was appropriate. Specifically, the DAB found that

[I]n enacting title IV-E, Congress made no commitment that the federal government would assume responsibility for overall funding of child welfare programs which have traditionally been funded by the states. Instead, Congress provided for funding of administrative expenditures, including training expenditures, only to the extent that the Secretary of the Department of Health and Human Services (HHS) finds them necessary for the provision of child placement services and the proper and efficient administrative of the state plan.

DAB Decision at 1 (A.R.1). Defendants request that the decision be affirmed and this case be dismissed with prejudice.

II. Background

A. Federal Cost Principles

States that receive funds under the Social Security Act. and other federal assistance programs incur some administrative costs to meet the requirements of the programs they administer. Pursuant to 45 C.F.R. § 95.501 et seq., each state is required to submit to the HHS Division of Cost Allocation a cost allocation plan ("CAP")¹ that details how funds will be spent. A state may claim federal financial participation ("FFP") "for costs associated with a program only in accordance with its approved cost allocation plan." 45 C.F.R. § 95.517.

In reviewing a CAP or CAP Amendment, DCA consults with the HHS division affected by the allocation, which in this case is the Administration for Children and Families ("ACF"). In determining whether Nebraska's CAP was appropriate, DCA applied the Office of Management and Budget ("OMB") Circular A-87, made applicable to the Title IV-E program by 45 C.F.R. §§ 74.27(a), 92.4(a)(3), and 92.22(b). DAB Decision at 3 (A.R.3). OMB Circular A-87 states that in order to be allowable, a cost must "be necessary and reasonable for proper and efficient performance and administration of Federal awards" and "[b]e allocable to Federal awards...." Pl.'s Mot. Attach. A at ¶ C.1. It further instructs, "[a] cost is allocable to a particular cost objective if the goods or services involved are chargeable or assignable to such cost objectives in accordance with relative benefits received." Pl.'s Mot. Attach. A at ¶¶ C.3.a, D, and E. OMB Circular A-87 provides that common costs should ordinarily be allocated among benefitting programs, but OMB Circular A-87 does not require it. Arizona v. Thompson, 281 F.3d 248, 259 (D.C.Cir.2002).

Defendants note that ACF has provided guidance to states concerning allocation of Title IV-E administrative expenses in three ACF transmittals: ACYF-PA-87-05², ACYF-PA-90-01³, and ACF-IM-91-15⁴ (hereinafter "ACF transmittals").

B. Title IV-E

Through the Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272, 94 Stat. 500, Congress amended the Social Security Act to establish a foster care and adoption assistance program, described in Title IV-E. 42 U.S.C. § 670 et seq. Title IV-E replaced the foster care program that had been funded under Title IV-A of the Aid to Families with Dependant Children ("AFDC") program. Title IV-E authorizes appropriations to enable states "to provide, in appropriate cases, foster care ... for children who otherwise would be eligible for assistance" under a state's former AFDC program and to provide for "adoption assistance for children with special needs." 42 U.S.C. § 670.

Concurrently with the enactment of Title IV-E, Congress enacted a revised Title IV-B (Child Welfare Services Program), which provides funding for a broad range of social services to families and may also be used for the same type of funds under Title IV-E. 45 C.F.R. §§ 1355.33(b)(1) and 1355.36(b)(4). Title IV-B has a funding cap; Title IV-E does not. 42 U.S.C. § 621. DAB Decision at 2 (A.R.2).

In addition to foster care maintenance payments and adoption assistance payments, Title IV-E provides for funding for expenditures "found necessary by the Secretary for the provision of child placement services and for the proper and efficient administration of the State plan." 42 U.S.C. § 674(a)(3). Section 674(a) provides for federal financial participation ("FFP") for most types of such administrative costs at the rate of 50%. 42 U.S.C. § 674(a)(3)(C). However, it provides for FFP at the rate of 75% for such expenditures that a state incurs to train personnel employed by or preparing for employment by the state or local agency administering the state's Title IV-E program. 42 U.S.C. § 674(a)(3)(A). DAB Decision at 3-4 (A.R.3-4).

A state's Title IV-B plan must include a training plan that covers training activities and costs funded under Title IV-E. 45 C.F.R. § 1357.15(t)(1). The HHS regulation implementing Title IV-E reiterates this training cost provision. 45 C.F.R. 1356.60(b)(2). It further directs that "the State's cost allocation plan shall identify which costs are allocated and claimed under this program." 45 C.F.R § 1356.60(c). Moreover, it explicitly states that the statewide automated child welfare information system expenditures "shall be treated as necessary for the proper and efficient administration of the State plan without regard to whether the system may be used with respect to foster or adoptive children other than those on behalf of whom foster care maintenance or adoption assistance payments may be made under this part." 45 C.F.R. § 1356.60(e).

However, Title IV-E regulations do not address how training costs should be allocated. Plaintiff maintains that ACF policy statements from the early years of Title IV-E advise that if at least 85% of training is directed toward Title IV-E foster care, all training for eligible trainees and for trainers may be charged to Title IV-E, and that training developed for and directly benefiting Title IV-E may be allocated entirely to Title IV-E even if the employees attending the training are not fully supported by the Title IV-E program. A.R. 254⁵ and A.R. 256-58.⁶

C. Nebraska's Foster Care Training Program

Nebraska Department of Health and Human Services ("NDHHS") employs protection and safety workers ("PSWs"), all of whom are expected to handle cases involving children who are eligible for or are candidates for foster care maintenance payments under Title IV-E. A.R. 492. PSWs also handle cases involving children receiving services under Title IV-B and children who are wards of the State. A.R. 491-92. Prior to assuming a caseload, NDHHS requires all newly hired PSWs to attend training at the University of Nebraska, which was specifically designed to comply with Title IV-E requirements. A.R. 491-94.

D. Nebraska's Proposed Cost Allocation Plan

Effective July 1, 1993, DCA approved Nebraska's CAP, which included a provision stating that the cost of new worker training was directly charged to Title IV-E. A.R. 574, 578. DCA attempted to rectify the situation in 1996 by requiring Nebraska to change the provision and begin allocating costs to all the benefitting programs. Defs.' Mot. at 31. Nebraska submitted a new CAP in 1997 that was drafted in a manner so as to arguably support an interpretation that the method it employed under the 1993 CAP was still permitted. Id. Nebraska continued to direct charge Title IV-E exclusively. Id. On September 30, 1999, Nebraska submitted several proposed amendments to its CAP. See DAB Decision at 5 (A.R.5). The CAP Amendments included a provision stating that the direct and indirect costs of its foster care training will be directly charged to Title IV-E. Id. In response, DCA informed Nebraska that these training costs "must be allocated to all programs that benefit. Title IV-E can only be charged a portion of the costs." Id. After a series of communications between DCA and Nebraska, Nebraska agreed to amend its CAP based on the number of active cases in each program. A.R. 961 Appendix B. On June 13, 2000, Nebraska notified DCA that it was withdrawing its agreement to amend the plan. A.R. 963. After Nebraska declined to amend its cost allocation plan, DCA disapproved the foster care training portion of Nebraska's CAP. DAB Decision at 6 (A.R.6).

The DCA disapproval letter cited OMB Circular A-87 as authority for DCA's decision, referring to the provision stating that a "cost is allocable to a particular cost objective if the goods or services involved are changeable or assignable to such cost objective in accordance with relative benefits." OMB Circular A-87,...