Turner v. Woods

• Decision Date: 15 October 1982
• Docket Number: No. C 81-4457 TEH.,C 81-4457 TEH.
• Citation: 559 F. Supp. 603
• Parties: Sandra TURNER; Debra Scruggs; Jerrylean Baker; and California Coalition of Welfare Rights Organizations; on behalf of themselves and all others similarly situated, Plaintiffs, v. Marion J. WOODS, individually and in his official capacity as the Executive Director of the Department of Social Services of the State of California; Kyle McKinsey, individually and in his official capacity as Deputy Director of the Department of Social Services of the State of California; Department of Social Services of the State of California; Mary Ann Graves, individually and in her capacity as Director of the Department of Finance of the State of California; and the Department of Finance of the State of California, Defendants.
• Court: U.S. District Court — Northern District of California

559 F. Supp. 603

Sandra TURNER; Debra Scruggs; Jerrylean Baker; and California Coalition of Welfare Rights Organizations; on behalf of themselves and all others similarly situated, Plaintiffs, v. Marion J. WOODS, individually and in his official capacity as the Executive Director of the Department of Social Services of the State of California; Kyle McKinsey, individually and in his official capacity as Deputy Director of the Department of Social Services of the State of California; Department of Social Services of the State of California; Mary Ann Graves, individually and in her capacity as Director of the Department of Finance of the State of California; and the Department of Finance of the State of California, Defendants.

No. C 81-4457 TEH.

United States District Court, N.D. California.

July 29, 1982.

Motions for Reconsideration October 6, 1982.

Order Prohibiting Recoupment October 15, 1982.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Mark N. Aaronson, S.F. Lawyers' Committee for Urban Affairs, Steven A. Lewis, Diane A. King, John E. Peer, Guy Calladine, Long & Levit, San Francisco, Cal., for plaintiffs.

George Deukmejian, Atty. Gen., John J. Klee, Jr., Deputy Atty. Gen., George Stoll, Asst. U.S. Atty., San Francisco, Cal., Richard Martland, Asst. Atty. Gen., Jeffrey J. Fuller, Deputy Atty. Gen., Sacramento, Cal., for defendants.

Motions for Reconsideration, Stay Pending Appeal and Civil Contempt Oct. 6, 1982.

OPINION AND ORDER

THELTON E. HENDERSON, District Judge.

In this case involving the calculation of welfare benefits under California's Aid to Families with Dependent Children AFDC program, the question presented is whether mandatory payroll deductions, such as income tax withholdings, constitute "work expenses" subject to the $75.00 limit of the standardized work expenses exclusion from gross income, or whether they constitute non-income items properly excluded from gross income in their entirety.

I. PROCEDURAL POSTURE OF THE CASE

The Court has jurisdiction of the action pursuant to 28 U.S.C. §§ 1331, 1343(3) and 1343(4), and 42 U.S.C. § 1983.

Plaintiffs are the class of all past, present and future California AFDC recipients who have been or will be affected by a substantive change recently implemented in the AFDC program as a result of the enactment of the Omnibus Budget Reconciliation Act of 1981, Pub.L. No. 97-35, § 2302, 95 Stat. 357, 844-45 (1981) (codified at 42 U.S.C. § 602(a) (1976 and Supp.1982)) hereinafter cited as "OBRA". The class representatives are Sandra Turner, Debra Scruggs, Jerrylean Baker, and the California Coalition of Welfare Rights Organizations. The individual representatives have been adversely affected by the recent substantive change in California's AFDC program. The Coalition is a statewide association whose membership includes AFDC recipients.

Defendants are Marion J. Woods, Kyle McKinsey, Mary Ann Graves, and the Departments of Social Services and of Finance of the State of California. Woods and McKinsey are Director and Deputy Director of the Department of Social Services. Graves is Director of the Department of Finance.

The third-party defendant is Richard J. Schweiker, Secretary of the United States Department of Health and Human Services DHHS.

The substantive change in the AFDC program whose legality plaintiffs challenge is implemented by California Department of Social Services regulations EAS 44-113.211, 44-113.212 and 44-113.213, as amended November 10, 1981, in the wake of OBRA. These regulations change the methods by which AFDC benefits are calculated: the state defendants, guided by the third-party defendant's instructions, now consider mandatory payroll deductions as "work expenses" incurred by working AFDC recipients in obtaining "income," rather than as non-income items.

Plaintiffs move for a permanent injunction restraining defendants from including mandatory payroll deductions within the definition of "income" for purposes of determining AFDC eligibility and calculating AFDC grants.¹ Defendants in turn move for summary judgment against the third-party defendant, binding the third-party defendant to any judgment issued against defendants on plaintiffs' motion.

After considering the memoranda of all parties, and the oral argument of counsel, including the memoranda and argument of the third-party defendant, for the reasons hereinafter stated, the Court grants both motions.

II. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Defendants argue persuasively that, as a practical matter, they are bound to follow the third-party defendant's instructions regarding calculation of AFDC benefits. The AFDC program is one of several joint federal-state public assistance programs. Each participating state administers benefits according to a state plan which must be approved by the third-party defendant, DHHS Secretary Schweiker. If the state plan received DHHS approval, the federal government reimburses the state for a large percentage of the benefits paid and the administrative costs incurred. But if the state plan does not receive DHHS approval, the state must foot its AFDC bill alone. See 42 U.S.C. §§ 603-04 (1976 and Supp.1982).

With respect to the issue raised by plaintiffs' motion in the instant case, the Secretary has taken the position that mandatory payroll deductions should be considered "work expenses" for purposes of calculating AFDC benefits. See Declaration of John J. Klee, Jr., ¶ 2 (May 27, 1982). The Secretary has stated that a state plan which treats mandatory payroll deductions as non-income items rather than as work expenses would be violating DHHS regulations, id., and presumably such a state plan would not receive DHHS approval absent a court order. For this reason, the Secretary has not opposed defendants' motion for summary judgment against DHHS in the event that plaintiffs' motion for a permanent injunction is granted.

Since this Court is granting plaintiffs' motion, infra pp. 607-615, defendants' motion for summary judgment is also granted.

III. PLAINTIFFS' MOTION FOR A PERMANENT INJUNCTION

A. BACKGROUND

Congress enacted the AFDC program under Title IV, Part A, of the Social Security Act of 1935, Pub.L. No. 271, 49 Stat. 627-29 (1935) (current version at 42 U.S.C. §§ 601-676 (1976 and Supp.1982)). The AFDC program serves two Congressional purposes: to provide for the needs of families with dependent children, 42 U.S.C. § 601 (1976), and to encourage AFDC families to secure and retain employment, Shea v. Vialpando, 416 U.S. 251, 264, 94 S.Ct. 1746, 1755, 40 L.Ed.2d 120 (1974). Explication of the complex statutory scheme by which these twin goals are implemented is significantly aided by an historical approach.

Pursuant to the 1935 enactment of the Social Security Act, participating states established statewide "standards of assistance." The "standard of assistance" is the minimum dollar amount that, in the state's judgment, an AFDC family of a given size requires to provide for its essential needs. Shea v. Vialpando, 416 U.S. at 253, 94 S.Ct. at 1750. The "standards of assistance" established a mechanism for states accurately to provide for the needs of non-working families with dependent children, but the Social Security Act did not in its original form require that states decrease the size of grants paid to needy families with other income sources. Hence the Act created at least the theoretical possibility that working recipients might be overpaid. See Hearings Relative to the Social Security Amendments Act of 1939, 76th Cong., 1st Sess. at 2254 (1939) (colloquy between Representative Duncan and Arthur Altmeyer).

In 1939, Congress responded to this over-payment problem by requiring that grants must be referenced to recipients' other income sources:

the state agency shall, in determining need, take into consideration any ... income and resources other than AFDC payments of any child claiming AFDC.

Social Security Amendments Act of 1939, Pub.L. No. 76-379, § 401(b), 53 Stat. 1360, 1379-80 (1939) (codified at 42 U.S.C. § 602(a)(7)(A) (1976 and Supp.1982)). In other words, each AFDC recipient's grant was to be decreased by an amount exactly corresponding to the recipient's non-AFDC income. This income-referencing requirement served the first of the twin AFDC goals mentioned above, by ensuring that working recipients were not paid more AFDC benefits than they actually needed. However, in practice the income-referencing requirement disserved the second purpose of encouraging work, because working AFDC recipients received nothing extra to cover the costs—such as, for example, transportation and special clothing—incurred in obtaining non-AFDC income. Since non-working AFDC recipients did not incur these costs, the 1939 Amendments Act left working AFDC recipients worse off than non-working AFDC recipients. See Social Security Board State Letter No. 4, "Facilitating Employment of Assistance Recipients Through Means of Sound Determination of Need" (April 30, 1942), published in Handbook of Public Assistance Administration at § 3140 (1962); Hearings on Public Assistance Act of 1962 before the Senate Committee on Finance, 87th Cong., 2d Sess. 152 (1962) (testimony of HEW Secretary Ribicoff); S.Rep. No. 1589, 87th Cong., 2d Sess. 17-18, reprinted in 1962 U.S.Code Cong. & Ad.News 1943, 1959-60.

In 1962, Congress solved this underpayment problem by mandating that "any expenses reasonably attributable to the earning of ... income" were to be disregarded from gross income in calculating the amount of the recipient's "income" to be used in decreasing AFDC benefits. In other words, "work expenses" operated as a credit for AFDC recipients.² Public Welfare Amendments Act of 1962, Pub.L. No. 87-543, § 106(b), 76 Stat. 172, 188 (1962), amended by OBRA, supra, p. 606, § 2302, 95 Stat. at 844-45 (codified at 42 U.S.C. § 602(a)(8)(A)(ii)-(iii) (1976 and Supp. 1982)). The Supreme Court interpreted this "work expenses" disregard to...