Petition — Miller v. United States

{ MICH |

In the Supreme Court 0 Tees cue

United States

OCTOBER TERM, 1976

DE secuconiins 76-1523

Davin B. Swoap, as Director of the State Department of

Benefit Payments,

Petitioner,

vs.

MARGUARITA GARCIA and PALMIDA CASTANON,

Respondents.

Petition for a Writ of Certiorari to

the Supreme Court of the State of California

EVELLE J. YOUNGER,

Attorney General of the State

of California

N. EUGENE HILL

Assistant Attorney General

EDMUND E. WHITE

Deputy Attorney General

JEROLD A. PROD

Deputy Attorney General

555 Capitol Mall, Suite 350

Sacramento, California 95814

Telephone: (916) 445-8453

Attorneys for Petitioner

= =—=—

SORG PRINTING COMPANY OF CALIFORNIA, 346 FIRST STREET, SAN FRANCISCO 4105

SUBJECT INDEX

Page

Petition for 4a Writ of Certiorari to the Supreme Court of the :

State of California 1

Opinion Below . | 1

Jurisdiction | 1

Questions Presented ... 2

Statutory Provisions ai 2

Federal ......... 2

State 3

Statement of the Case 4

1. Factual Background 4

2. How the Federal Question Is Presented ae

Reasons for Granting the Writ ... 7

1. Efforts to Reform and Streamline Welfare Administra-

tion Cannot Succeed If Federal Policy Options Are

Eliminated by State Courts on a Selective and Incon-

sistent Basis 7

2. The Department of Health, Education and Welfare’s

Responsibility To Interpret And Implement the Social

Security Act Has Been Abrogated Regarding Critical

Aspect of Welfare Administration 7 11

Conclusion ... 17

TABLE OF AUTHORITIES CITED

CASES Pages

Dandridge v. Williams, 397 U.S. 471 (1970) ..... 12

Garcia v. Swoap, 60 Cal.App.3d 903 (1976) ....1, 6, 7, 9, 13, 14, 15

King v. Smith, 392 U.S. 309 (1968) seinesoisiiiieebinineniasnipione 8

Lewis v. Martin, 397 U.S. 552 (1970) -.------ccccccceccessssseessesessee 8, 12

New York State Dept. of Social Services v. Dublino, 413

U.S. 405 (1973) Lisical 12, 13

Pitts v. Perluss, 58 Cal.2d 824 (1962) - aE 13

Van Lare v. Hurley, 421 U.S. 338 (1975) -.....----------2-c-see00-0- 8

MISCELLANEOUS

California Eligibility and Assistance Standards Manual, Sec.

44-315 ase 3

STATUTES

California Welfare and Institutions Code, Sec. 11004 ............ 14

California Welfare and Institutions Code, Sec. 11004(e) .... 14

California Welfare and Institutions Code, Sec. 11450 .......... 14

California Welfare and Institutions Code, Sec. 11452 .......... 14

45 Code of Federal Regulations, Sec. 233.20(a)(3)(ii)(D) 3,8

Social Security Act, Sec. 402 (a) (7) tim ©

Social Security Act, Sec. 402 (a) (10) ; 12

Social Security Act, Sec. 406(a) .

United States Code, Title 28, Sec. 1275(3) 2

United States Code, Title 42, Sec. 601-610 -........-...-...----------- 4

United States Code, Title 42, Sec. 602 (a) (7) 2

INDEX TO APPENDICES iil

Appendix

Page

Appendix A. Opinion of the Court of Appeal, Second Ap-

pellate District, Division Five, State of California -........... 1

Appendix B. Order of the Court of Appeal, Second Appel-

late District, Division Five, State of California denying a

Petition for Rehearing ... " 17

Appendix C. Order of the Supreme Court of the State of

California denying a Petition for Hearing ow &

Appendix D. Memorandum of Office of the General Coun-

sel of the Department of Health, Education, and Welfare,

and transmittal thereof to petitioner -.... 19

In the Supreme Court of the

United States

OcTOBER TERM, 1976

a

Davin B. Swoap, as Director of the State Department of

Benefit Payments,

Petitioner,

vs.

MARGUARITA GARCIA and PALMIDA CASTANON,

Respondents.

Petition for a Writ of Certiorari to

the Supreme Court of the State of California

Petitioner, David B. Swoap, by his successor Marion J. Woods,

Director of the California State Department of Benefit Payments,

respectfully prays that a writ of certiorari issue to review the

judgment and opinion of the Court of Appeal of the State of

California, Second Appellate District, Division Five, and the order

of the California Supreme Court denying a petition for hearing.

OPINION BELOW

The opinion of the Court of Appeal, Second Appellate District,

Division Five, is reported at 63 Cal.App.3d 903 (1976) [134 Cal.

Rptr. 137} and also appears as Appendix A attached hereto.

The judgment of the Court of Appeal, Second Appellate Dis-

trict, Division Five, was entered on November 17, 1976. A

2

petition for rehearing was denied December 15, 1976 by that

court. See Appendix B attached hereto. On February 3, 1977, the

California Supreme Court denied the Director of the Department

of Benefit Payments’ petition for a hearing. See Appendix C

attached hereto.

The instant petition seeks to invoke this Court’s jurisdiction pur-

suant to the provisions of 28 U.S.C. 1275(3) in that the opinion

below was based on an erroneous interpretation of federal welfare

law that was precisely opposite from the interpretation thereof by

the Department of Health, Education, and Welfare, the federal

agency lawfully charged with sole administrative and quasi-

legislative responsibility therefor.

QUESTIONS PRESENTED

1. Can a State court nullify formal federal (HEW) approval

of State agency administration of a technical function requiring

specialized expertise upon which State law is silent by failing to

acknowledge or give any weight whatsoever to the federal agen-

cies’ interpretation of the Social Security Act for which it has sole

administrative and quasi-legislative responsibility ?

2. In performing the statutory federal mandate to consider

outside income of recipients in the Aid to Families with Dependent

Children program when computing grants, can a State welfare

director be required by a State court to use a case budgeting

method based on an estimate of income rather than a method

approved by HEW using the most recent actual income data?

STATUTORY PROVISIONS INVOLVED

Federal

1. United States Code, title 42:

Section 602(a)(7) [§ 402(a)(7) of the Social Security Act}:

“A State plan for aid and services to needy families with

children must . . . (7) except as may be otherwise provided

in clause (8), provide that the State agency shall, in deter-

3

mining need, take into consideration any other income and

resources of any child or relative claiming aid to families

with dependent children, or of any other individual (living

in the same home as such child and relative) whose needs

the State determines should be considered in determining

the need of the child or relative claiming such aid. . . .”

2. 45 Code of Federal Regulations, section 233.20(a) (3) (ii)

(D):

“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;”

State

1. California Eligibility and Assistance Standards Manual sec-

tion 44-315:

6 Budget Period

“The budget period for grant computation shall be the

calendar month ending not more than 34 days before the

first installment of the corresponding payment period. (See

Section 44-305.22.)

“The grant for the initial and second calendar months

shall be computed on the basis of known or estimated income

in each of those two calendar months.

“The grants for the third and subsequent payment periods

shall be based on actual income received in the budget

period.”

‘8 Supplemental Payments

“If unusual and unforseen substantial changes in a recip-

ient’s income occur, a supplemental payment may be made

when necessary to protect the welfare of the child(ren).

Supplemental payments shall be limited in any month to the

extent that the total grant, together with currently available

income, does not exceed the allowable Maximum Aid.

4

“When a recipient receives a supplemental payment in

more than one month, the total of such payments may not

exceed the recipient's total net nonexempt income during

the first and second months preceding a change in budgeting

method used by the country; or during the first and second

months for which aid payments are made.”

STATEMENT OF THE CASE

1. Factual Background

This action concerns the manner in which welfare grants are

computed in one of the major cash assistance programs, Aid to

Families with Dependent Children (AFDC), 42 U.S.C. §§ 601-

610.

Both federal and state law dictate that in computing periodic

welfare grant payment amounts, net outside income and resources

must be considered. In the case of income, consideration is

synonymous with deduction from the statutorily established maxi-

mum permissible payment. This principle is not here in question,

nor is there at issue any question of the nature of the income

considered. There are innumerable rules and guidelines that

revolve around exemptions, percentage disregards, and definitional

exclusions that are applied to gross income. It is only after appli-

cation of all of these rules and guidelines that net nonexempt

income is considered, or deducted from the statutory maximum

permissible payment. It is this resultant amount that is being

referred to when the word income is used in connection with

welfare case payment budgeting procedure.

Every state must necessarily employ some mechanism to measure

recipient income against the grant level to determine the amount

of the actual welfare check each recipient periodically receives.

Nowhere is it dictated in federal law or regulation, or in state

law, precisely how this concededly necessary function is to be per-

formed. Federal law and regulations provide that recipients have

a duty to report income, and welfare administrators have a duty

to consider it.

5

In California there are about one and one-half million AFDC

recipients who are in about 500,000 families. Case workers main-

tain case folders for each family, which is treated as an individual

family budget unit. Prior to the 10th of each month, every family

submits a form report to the welfare department. The report

contains, among other things, information about the nonwelfare

income, if any, for the family for the past month. The case worker

then computes the actual amount of the welfare entitlement by

deducting income as appropriate from the grant level for that

family. The monthly entitlement thus computed is then disbursed

in the form of two equal installment checks on the 1st and 15th

of the following month.

A moment's reflection immediately focuses attention on the fact

that it is impossible to know the amount of outside income for

a given month and factor it into the welfare checks for the same

month. When, for example, sometime in June, the computation

is made to determine the grant for July, the actual amount of

income to be received in July cannot be known unless one resorts

to some form—no matter how sophisticated—of guesswork.

Prior to 1972, California used what may be called a “concur-

rent month” budgeting system. The case worker estimated what

the income to the family would be in the month about to begin.

The entitlement for the coming month, taking into account the

estimate of future income, was then computed accordingly. Be-

cause this computation was based on an estimate, errors were

frequent, resulting in numerous overpayments and underpayments.

To deal with the large numbers of inaccuracies that predictably

surfaced after the fact in a following month when the actual

amount of income was established, a complicated system of re-

coupments, offsets, and applications for supplemental checks was

utilized to correct the effects of the guesswork employed the

month before. This was a constant, continuous, and burdensome

appendage to an already complex welfare program.

Commencing in 1972, California began to use a modified sys-

tem which came to be known as “prior month budgeting” (here-

6

inafter PMB). When the case worker received the report of

income early in June, the May income documented therein was

used to compute the Ju/y grant. This is the existing procedure

that flows from the state regulations set forth above. It should be

noted that the PMB method HEW approved for use in California

has no effect on the determination of need or initial eligibility.

The system does not commence until the third month. For the first

two months eligibility and grant amount are determined by the

“concurrent” method.

There are two significant differences between PMB and the

concurrent method. First, the PMB system deals with known

income received in the immediate past rather than estimated

income to be received in the immediate future. The errors asso-

ciated with the guesswork are thus eliminated. Secondly, there

exists a short-term opportunity for windfall and/or misfortune

when income changes. If income increases, the effect is not fac-

tored into welfare checks for two months. The recipient has the

temporary benefit of both higher income and an unadjusted wel-

fare check. If income decreases, the effect is potentially the oppo-

site. The recipient would have reduced total income for two

months before his welfare check increases were it not for a system

of supplements. Many recipients subject to the potential of tem-

porarily decreased total income are eligible for supplementary

checks as provided for in the quoted regulation.

With regard to the second difference, however, it should be

noted that the windfall or misfortune, if any, associated with

PMB could and often did visit itself upon welfare families under

the concurrent system formerly used due to mistakes in the

monthly prognostications of future income. See concurring opinion, -

63 Cal.App.3d at 915, Appendix A, p. 16.

2. How the Federal Question Is Presented

In late 1974, state director Swoap specifically requested that the

Department of Health, Education, and Welfare review Califor-

nia’s PMB procedure. On December 12, 1974, HEW replied that

>

the procedure was consistent with its regulation as a matter of

law, and that as a matter of policy it was fully endorsed as a

proper and efficient method of administration. The opinion of the

HEW office of the general counsel and the transmittal of the

program administrator were before all levels of the California

court system. They are set forth herein as Appendix D for the

convenience of this Court.

Respondent Garcia filed suit in Los Angeles County Superior

Court on behalf of herself and all whose grants were reduced

based on income received in the immediate past. She sought to

enjoin the use of prior month budgeting on the ground that it was

an unlawful manner of administering the AFDC program. The

trial court denied the relief requested and ruled in favor of peti-

tioner herein.

The Court of Appeal, Second Appellate District, Division Five,

reversed the trial court decision on the basis of “controlling fed-

eral law and policy governing the AFDC program . . . the man-

datory requirements established by the Social Security Act, as

interpreted and implemented by regulations promulgated by the

Department of Health, Education, and Welfare.” 63 Cal.App.3d

at 909, Appendix A, page 8. Although the interpretation by

HEW of its own regulation implementing the act it is charged

to administer was before the court and was argued and discussed,

no mention or acknowledgment thereof appears in the opinion.

A timely petition for rehearing was denied (Appendix B), and

the California Supreme Court denied a hearing (Appendix C).

1. Efforts to Reform and Streamline Welfare Administration Can-

not Succeed If Federal Policy Options Are Eliminated by State

Courts on a Selective and Inconsistent Basis

Computation of welfare grants, consideration of outside income

and resources, and the constant need for the timely disbursement

1. HEW refers to the regulation by its former number, 45 CFR sec-

tion 233.20(a) (3) (ii) (c).

8

of millions of reasonably accurate assistance checks combine to

create a technical and logistical problem of almost mind-boggling

complexity. It is not surprising that HEW, the agency charged

with meeting the most pressing of human needs with as much

precision and compassion as government can muster, is the largest

bureaucracy in the federal government. The same is true of

equivalent agencies at the state level throughout the nation.

The need to reform the way welfare is administered in this

country, and the public support of the present effort to do so, has

become an almost daily topic of public conversation. The con-

sensus around the need for speedy and comprehensive overhaul

of the entire massive system of rules, regulations and guidelines

and their sporadic and inconsistent application is too well recog-

nized to require documentation. It is shared by virtually all con-

nected with program administration at every level of government.

This case involving the matching of outside income against

a statutory entitlement presents both an excellent example of

the need for administrative streamlining, and at the same time

a serious threat to the remedial action for which the current situa-

tion cries out.

The key to the legal treatment of outside income is obviously

in the meaning of the words “available for current use” in the

federal regulation 45 C.F.R. § 233.20(a)(3)(ii)(D) set forth

above. It is self evident that the administrative logistics of grant

computation forces one to face the fact that it is impossible to

know the amount of outside income and factor it into the

welfare checks all in the same month. One must either resort

to estimated assumptions about future income or use the informa-

tion on hand regarding income received in the immediate past.

There is a well founded proscription against inclusion in the

eligibility and grant determination process of sources of income

or support that are hypothetical or presumed as opposed to actual

or tangible. See e.g. King v. Smith, 392 US. 309, 329-30 (1968);

Lewis v. Martin, 397 US. 552, 558-60 (1970); Van Lare v.

9

Hurley, 421 US. 338, 345-46 ( 1975). That fact was acknowl-

edged by the court below. 63 Cal.App.3d at 909-10, Appendix

A, p. 9. However, that court also acknowledged that “.. . It

is true that the federal regulation does not prohibit a welfare

agency from considering income other than that which is in the

recipient's pocket at the time of the current grant in computing

the amount of the payment. . . .” 63 Cal.App.3d at 913, Appendix

A, p. 13.

Having noted that grant computation requires a mechanism

more sophisticated than counting cash on hand once a month

and that availability of income cannot be taken too literally with-

out producing an absurd and impossible result, the problem before

the court became one of harmonizing the law with the realities

of the technical logistical problems of welfare administration.

This the court utterly failed to do. In marked contrast to the

trial court whose proceedings it was reviewing, the appellate

court attempted to solve the dilemma it dimly perceived (see

concurring opinion, 63 Cal.App.3d at 915, Appendix A, pp. 15-16)

by totally ignoring the expertise and opinions of the responsible

executive agencies, state and federal, on an extremely technical

and cumbersome, but critical, administrative function. It must

be emphasized that we are not only addressing a failure to follow

the federal agency opinion on a federal question on grounds of

disagreement, but also a failure to even acknowledge its existence.

The opinion struck down the procedure now in use, which

embodied HEW’s and petitioner's opinion that the measuring

period defining “available for current use” is not subject to a

rigid specification, but does reasonably admit of a case budgeting

methodology whereby income received in the last complete month

can be counted against the payment level in the next complete

month as long as no income is double counted or ignored, thus

permitting the use of the latest available actual information

10

rather than estimates, presumptions or guesswork. See Appendix

D. That view was not lightly or capriciously arrived at, but was

a result of a careful weighing and balancing of many factors

including those alluded to herein.

Having eliminated the preferred methodology without even

acknowledging the considerations behind its approval and en-

dorsement, the court left no usable guidance as to alternatives.

It is impossible to speculate as to how the court would in further

proceedings inform petitioners what its holding means without

creating a conflict not only with decisions of this Court but with

federal welfare law in the rest of the nation.

California’s consternation with this state of affairs, however,

is not the point here. The question that must be asked is how

we are ever to approach a more sensible and uniform way of

administering welfare. Let us assume a desire to make some form

of prior month budgeting a nationwide practice in the interest of

accuracy, consistency and lower administrative overhead, not at

all a far-fetched proposition given HEW’s present views. Shall

the courts of every state feel free to ignore the opinion of the

cognizant administrative agency and come to their own con-

clusions about the technical matter of welfare case budgeting

practices? Is there any limit to the number of technical admin-

istrative issues that are subject to a similar fate? The welfare

machinery is not running smoothly now. How much sand can

we throw into it and still expect it to function as we contem-

plate reforms?

Unless certiorari is granted and the decision below is vacated,

there can be no assurance that all hope of repairing and stream-

lining the welfare system will not be lost before the effort is

seriously begun. It is impossible to even speculate as to how many

federal options will be foreclosed in this way, perhaps in some

states, perhaps not in others, and how many among a myriad of

possible alternatives might be substituted therefor. Should this

decision stand, it will be a constant warning to all concerned

11

with welfare administration and reform that any state court can

at any time ignore the expertise of not only its own adminis-

trative agency, but that of HEW in the role of custodian of the

Social Security Act as well; and on federal questions upon which

state law is silent. .

We are now faced with the fact that an important welfare

administrative policy option favored by HEW is foreclosed in the

nation’s largest state. The situation elsewhere is now uncertain.

The point being made here is not that the views of adminis-

trative agencies are sacrosanct, or that their actions ought not-to

receive appropriate judicial scrutiny. The point is that unless

the judicial review function is performed properly according to

rules long articulated by this and other courts, including Cali-

fornia’s, the entire nation’s welfare programs will suffer crippling

limitations upon efforts toward badly needed comprehensive

restructuring.

il. The Department of Health, Education and Welfare's Respon-

sibility to Interpret and Implement the Social Security Act Has

Been Abrogated Regarding a Critical Aspect of Welfare

Administration

It has long been well established that in reviewing the actions

of the government, courts should not substitute their judgment

for that of an administrative agency that acts in a quasi-legislative

capacity regarding a technical and complex subject matter, absent

a showing of arbitrary and capricious action. This Court has

recognized the wisdom of this general rule many times and has

applied it in specific instances regarding HEW’s responsibility

for welfare administration.

The portion of the Social Security Act dealing with welfare

is written in broad and general terms. Although programs have

proliferated and grown more complex over a period of some 40

years due to both legislative action and the increasing need to

accommodate formal process into program functioning, through

12

all the years of change there has been one constant characteristic.

The AFDC program has always been operated as a scheme of

cooperative federalism, characterized by deference to HEW’s in-

terpretation of the Social Security Act, and broad latitude to

States in allocating scarce resources among many competing

priorities through a variety of acceptable administration delivery

systems. See New York State Dept. of Social Services v. Dublino,

413 U.S. 405, 413 (1973) and cases there cited.

For example, section 406(a) of the Social Security Act was

interpreted by HEW to mean that only income from a natural

or adoptive father and not an unrelated adult male is actually

available for the support of the minor children of the caretaker

mother. Caiifornia in that instance was contending that the income

of a man assuming the role of spouse should be held to be avail-

able to the children. This Court gave HEW the deference due

the agency charged with administration of the Act and held that

agency's interpretation valid, rejecting California's proffered

alternative construction. Lewis v. Martin, supra, 397 US. 552,

557-560 (1970).

In Dandridge v. Williams, 397 US. 471 (1970), HEW had

approved Maryland's allocation of resources to its recipients based

on a system of maximum grants, which had the effect of reducing

per capita aid for large families based on the rationale of

economics of scale. This Court, in upholding the State program

approved by HEW in its interpretation of section 402(a) (10)

of the Social Security Act, noted that the problem of allocating

limited funds for the maintenance of the dependent poor was

complex and could be handled in a myriad of ways and that those

responsible for so doing were to be accorded considerable latitude

in policy and methodology. 397 U.S. at 478-482.

In New York State Dept. of Social Services v. Dublino, supra,

413 US. 405 (1973), this Court exhaustively addressed the com-

plex problem of the relationship of work incentive and training

13

provisions to welfare eligibility. Great weight was placed on

HEW’s responsibility for administering the Social Security Act

and its interpretation of that Act as not precluding approval of

AFDC State plans containing work requirements. The New York

plan was approved, this Court stating once again that “. . . the

construction of a statute by those charged with its execution

should be followed unless there are compelling indications that

it is wrong... .' 413 US. at 420-421.

This general principle is likewise deeply embedded in Cali-

fornia law, a fact which was acknowledged below. 63 Cal.App.

3d at 908-909; Appendix A, p. 7; Pitts v. Perluss, 58 Cal.2d 824,

832 (1962).

The many possible ways of dealing with the technical problem

of matching outside income of recipients against maximum per-

missible grant entitlements is hinted at by the difficulties encoun-

tered by the court below, and illustrated by HEW’s analysis of

the problem, which observes:

“With respect to the first issue, this Office issued an

opinion on June 7, 1973, specifically approving prior month

budgeting. That opinion stated, in pertinent part, as follows:

““A literal reading of the language in 45 CFR section

233.20(a) (3) (ii)(c) would mean that unless the indivi-

dual has his total income in hand when the assistance check

is issued (or maybe even received), that income may not be

deducted in determining the amount of his grant. This would

mean that the only time income could be counted would be

when it was received at the same time the assistance check

was issued (or received). Otherwise the agency would be

counting income that the individual had spent (or at least

begun to spend) and that was no longer available to him.

This ridiculous result was clearly not intended by the

regulation.

“‘On the contrary, the regulation was intended to pre-

clude the consideration or income that was, in fact, never

14

available to the individual, or that had not been available

to him for a substantial period of time... .

"In fact, States have been permitted considerable admin-

istrative latitude in determining the period for which income

is reflected in the assistance grant, with the result that income

is not always (indeed, is not usually) deducted from the

assistance check for the month the income is received .

Appendix D, p. 21.

It must be noted that HEW in its transmittal to petitioner was

not mandating the use of the prior month budgeting method. It

was approving the use thereof as a preferred option among others.

Appendix D, p. 1. Had the court below held that the Social

Security Act permitted the option of prior month budgeting but

that petitioner herein was constrained from selecting that option

in California, this particular reason for granting the writ would

be less forceful.

However, the court was quite plain in its holding that PMB

was invalidated because it was perceived to constitute a violation

of the Social Security Act and HEW’s regulation. 63 Cal.App.3d

at 909, Appendix A, p. 8. State law is mentioned in only a

peripheral fashion. The court alludes to certain state statutes

concerning recoupment (Welf. & Inst. Code § 11004) and the

State’s standard of need and payr.ent level (Welf. & Inst. Code

§§ 11450 and 11452). It is plain beyond question, however, that

State law is silent on the question of the method of computation

of payment amounts. In fact, section 11004(e) specifically refers

to computation of available resources “ . . . according to the

department standard. . . .” 63 Cal.App.3d at 911, fn. 10, Appen-

dix A, p. 11. State welfare administration is structured like the

federal system in this regard. Welfare case payment budgeting

methodology is left by the Legislature to the administrative

agency.

The question of when income is legally available for purposes

of grant payment computation is central and critical in welfare

15

administration, not only in terms of State and national program

budget planning, but as a matter of the program's effect on case

workers and on recipients in literally millions of day-to-day

transactions. As the HEW opinion above quoted from indicates,

constructions of the phrase ‘‘available for current use’ can range

from the literal absuridity of a constant and continuous counting

of cash on hand to a definition based on an accrual formula similar

to that used by the Internal Revenue Service in computing the

more complex tax obligations.

Respondents herein have contended for a determination that no

income can be deducted from the maximum statutory entitlement

unless it is actually in hand. Strained toward its breaking point,

this leads inexorably to the unworkable conclusion that the pres-

ence of any money income must be verified monthly, weekly, daily,

or as each bill or mealtime approaches, to determine availability

to meet current needs. The court below did realize it could not

accept this contrived interpretation. 63 Cal.App.3d at 913, Appen-

dix A, p. 13.

The court, however, did not deal at all with any of the reasons

that impelled the nation’s two largest welfare agencies toward the

favoring of prior month budgeting (PMB). Respondents at all

stages of the proceedings and also the court below seemed obsessed

with the notion that the government agencies involved were

attempting to save grant costs at the recipient’s expense. At no time

whatsoever has program cost, grant level, or income amount been

an issue in this litigation. Petitioner does not claim that grant

costs will rise if PMB is not maintained.

The virtues of the system lie in another direction. Accuracy,

certainty, and predictability are greatly enhanced because actual

data is used instead of guesswork. Most of the hardship and

trauma connected with constant adjustment and recoupment to

repair the effects of faulty estimating is eliminated. Administrative

costs, as opposed to grant costs, are reduced and the resultant

savings of public funds make greater program enrichment attain-

16

able. These are things upon which petitioner as director of an

agency serving needy people, places a high value.

When the court below chose to ignore the sound counsel of this

and other tribunals and substitute its judgment for that of the

administrative agencies on a teci:nical matter, it was not only errors

in logic and legal consequences that predictably followed, but the

loss of the court's ability to blend the social objectives of the

AFDC program with valuable advice on what is in fact accom-

plishable in the field. This petitioner and HEW have sought to do.

HEW has not here stricken down any particular type of budget-

ing system in favor of another. It has ruled, by regulation and by

interpretation thereof, that California’s PMB system is consistent

with its regulation, and as a matter of policy is a preferred option.

The court below chose to ignore the opinion of the agency charged

with sole administrative and quasi-legislative responsibility for the

subject matter, an opinion required by law to be viewed as the

most authoritative. The omission is the more glaring because the

existence of HEW’s opinion was not even acknowledged. That

opinion was not merely the most authoritative judgment, but the

only judgment on question before the court.

HEW’’s interpretation of the Social Security Act on a vital ques-

tion concerning welfare administration will not be applicable in .

California, with over 12% of the nation’s caseload, unless cer-

tiorari is granted. There is also now a serious question in the other

states that use prior month budgeting and also in another group

of yet other states desiring to switch to prior month budgeting

for the same reasons petitioner and HEW have favored it. Those

states cannot proceed with any degree of certainty unless they

know that HEW’s interpretation of its own regulation is authorita-

tive and will be given the weight that is its due, or at least will be

applied in a uniform and ascertainable way. Uniformity can now

be accomplished only by a grant of certiorari in this case.

17

CONCLUSION

For the foregoing reasons, a writ of certiorari should issue to

review the decision of the California Court of Appeal, Second

Appellate District, Division Five.

Respectfully submitted,

EVELLE J. YOUNGER,

Attorney General of the State

of California

N. EuGENE HILL

Assistant Attorney General

EDMUND E. WHITE

Deputy Attorney General

JeROLD A. Prop

Deputy Attorney General

(Appendices Follow)

Appendix A

[Civ. No. 47086. Second Dist., Div. Five. Nov. 17, 1976.}

MARGUARITA GARCIA et al., Plantiffs and Appellants, v.

DAVID B. SWOAP, as Director, etc., Defendant and Respondent.

SUMMARY

In a class action against the Director of the State Department of

Benefit Payments, recipients of the Aid to Families with Depend-

ent Children (AFDC) program, challenged the validity of a reg-

ulation known as “Prior Month Budgeting,” under which an

AFDC grant for the current month is calculated on the basis of

the net nonexempt income that is received two months prior to

the actual payment of the grant. By application of the regulation,

plaintiffs had their AFDC grants reduced to reflect income received

in prior months, but which was not available when the grant was

paid. Plaintiffs contended that the prior month budgeting scheme

was contrary to state and federal law, and in particular was in

direct conflict with the purpose of AFDC, which was to provide

for the current needs of dependent children, and with a federal

regulation requiring that grants to needy families be based on

currently available income and resources. The trial court denied

the prayer for a preliminary injunction, and judgment was entered

for defendant. (Superior Court of Los Angeles County, No. 47086,

David N. Eagleson, Judge.)

The Court of Appeal reversed and remanded for further pro-

ceedings holding the regulation imposing a system of prior month

budgeting for the computation of AFDC assistant payments to be

invalid. The Court, noting that the primary and almost exclusive

purpose of the AFDC program was the protection of dependent

children through the provision of assistant payments to meet their

current needs, held the prior month budgeting regulation vio-

lated standards establishing that a state welfare agency may not

presume that income is in fact available to the needy family

2 Appendix A

whether the income is only a hypothetical one, or whether the

income was actually received, but in a past payment period, and

further that a dependent child cannot be punished, through the

reduction of assistance grants, for parental mismanagement of

income. (Opinion by Stephens, J., with Hastings, J., concurring.

Separate concurring opinion by Kaus, P. J.)

HEADNOTES

Classified to California Digest of Official Reports, 3d Series

(1a, 1b) Public Aid and Welfare § 30—Aid to Families With

Dependent Children—Determination of Eligibility and Aid; Ju-

dicial Review.—A state regulation for “Prior Month Budgeting,”

providing that an Aid for Families With Dependent Children

grant for the current month is calculated on the basis of the non-

exempt income that is received two months prior to the actual

payment of the grant, was invalid as being in direct conflict with

the purpose of the program, which is to provide for the current

needs of dependent children, and with a federal regulation requir-

ing that grants to needy families be based on currently available

income and resources. In order to be in compliance with state and

federal law, an aid for dependent children budgeting system

should, at a minimum, consider income in the same month or within

a 31-day period in which assistance payments are to be made. Fur-

thermore, the deficiencies in the prior month budget system could

not be alleviated simply by the application of an emergency pay-

ment or supplemental payment provision. However, if the regula-

tion should be amended so as to provide payments to protect the

children, the system would then comply with federal regulations.

[See Cal.Jur.2d, Social Security and Retirement Funds, § 29;

Am.Jur.2d, Welfare Laws, § 19.]

(2) Administrative Law § 115—Judicial Review—Scope and

Extent—Presumptions; Regularity; Validity of Rules and Regula-

tions.—In reviewing an administrative regulation, an appellate

Appendix A 3

court cannot superimpose its own policy judgment upon that of a

state administrative agency which acts in a quasi-legislative ca-

pacity.

(3) Public Aid and Welfare § 2—State and Federal Legisla-

tion—Regulations.—A state welfare administrator may not opex-

ate welfare programs which alter, impair, or impede their statutory

schemes, and, to the extent that a regulation is inconsistent with

controlling state and federal statutes, fundamental principles of

administrative law require that it be declared invalid, and its fur-

ther operation may properly be enjoined.

(4) Public Aid and Welfare § 26—Aid to Families With De-

pendent Children—State Compliance With Federal Law.—States

which qualify for Aid to Families With Dependent Children

funding and which elect to participate, must comply with the man-

datory requirements established by the Social Security Act, as

interpreted and implemented by regulations promulgated by the

Department of Health, Education and Welfare.

(5) Public Aid and Welfare § 26—Aid to Families With De-

pendent Children—Purpose.—The Federal Aid to Families With

Dependent Children program was designed to provide welfare

for families without a ‘‘bread winner,” ‘wage earner,” or “father,”

a need unfulfilled by other welfare programs. As such, it has as

its primary and almost exclusive purpose the protection of such

dependent children through the provisions of assistance payments

to meet their current needs. The state welfare agency may not frus-

trate that purpose to advance otherwise valid concerns such as

state fiscal and deterrent objectives.

COUNSEL

Daniel M. Luevano, Rosalym M. Chapman, Philip L. Goar, Dor-

othy T. Lang, Warren Weinstein and Ronald S. Javor for Plaintiffs

and Appellants.

4 Appendix A

Evelle J. Younger, Attorney General, Ronald V. Thunen, Jr., and

Ronald Gold, Deputy Attorneys General, for Defendant and Re-

spondent.

OPINION

Stephens, J—In a class action against the Director of the

State Department of Benefit Payments (Department) plaintiffs

and appellants challenged the validity of a department regula-

tion in a complaint for injunctive and declaratory relief. The pre-

liminary injunction was denied, and judgment was entered for the

defendant. Plaintiffs then entered the instant appeal.

Facts

Plaintiffs Marguarita Garcia and Palmida Castanon, represent

themselves and a class of persons who are recipients of the Aid

to Families With Dependent Children (AFDC) program. The

administrative regulation challenged by them, EAS 44-315.6,

provides as follows:

“Budget Period

“61 The budget period in counties without an approved

alternate payment system:

“611 The budget period for AFDC-FG and AFDCU cases

shall be the second prior calendar month before the first install-

ment of the corresponding payment period.

“62 The budget period in counties with approved alternate

payment systems:

“621 The budget period for AFDC-FG and AFDCU cases

shall be a 28 to 31-day period ending not more than 31 days nor

less than 28 days before the first installment of the corresponding

payment period. The budget period is not limited to a calendar

month.”

Appendix A 5

Under the instant regulation, known as “Prior Month Budget-

ing,” an AFDC grant for the current month is calculated on the

basis of the net nonexempt income that is received two months

prior to the actual payment of the grant.’ Since the budget period

precedes the payment period by two months, a grant in April

is based on a recipient's February income, a grant in May is based

on March income, and so forth. All AFDC recipients are required

to submit a monthly report of all income received during the

budget period. In the intervening month between the budget

period and the payment period, the County Welfare Department

computes the welfare grant based upon that reported income,

and issues the grant at the start of the payment period.

Appellant Garcia and her four children received an AFDC

check for $355 in July 1974.* For the four preceding years, her

only source of support was the AFDC program. In both June

and July 1974, she received, in addition to the AFDC grant,

$200 in child support from her ex-husband. No child support

money was received in August or September. She reported the

income to her caseworker on the two occasions that she received

it, but claims that her caseworker never told her that the income

would be used to lower her AFDC grant two months later. In

August and September her AFDC grant was reduced $155 to

reflect her June and July income. Appellant Garcia had no other

available income in August or September other than the AFDC

grant since the child support payments received in June and July

had been spent on past due bills.

In July 1974, Mr. Castanon was residing with his wife and

child and earned from part-time work net nonexempt income of

approximately $250. Appellant Castanon declares that her hus-

1. Because the budget period precedes the payment period by two

months, Prior Month Budgeting cannot commence for a new recipient

until the third month of receipt of AFDC.

2. No evidence was adduced at trial, and findings of fact were waived.

The record consists solely of the complaint, answer, exhibits thereto, and

three declarations.

6 Appendix A

band spent all of the income in July by contributing $180 toward

his father’s funeral and the remainder on his own personal needs.

In August, Mr. Castanon left his family and has not returned;

appellant's grant was reduced to $86 to reflect Mr. Castanon’s

July income.

Contentions

Appellants Garcia and Castanon contend, on behalf of them-

selves and the class of welfare recipients receiving aid under

California’s AFDC program, that the Prior Month Budgeting

scheme (PMB) is contrary to state and federal law and that the

regulation which implemented this scheme (EAS 44-315.6) is

therefore beyond the rule-making authority of the Director of

Benefit Payments. (ia) In particular, appellants claim that

the PMB regulation is in direct conflict with the purpose of

AFDC—to provide for the current needs of dependent children,

and with a federal AFDC regulation (45 C.F.R. § 233.20(a) (3)

(ii) (D)) requiring that grants to needy families be made based

on currently available income and resources. It is further claimed

that the PMB system contravenes California statutes setting mini-

mum aid standards (Welf. & Inst. Code, § 11450) and limiting

reductions of current grants to effect recoupment for prior over-

payments (Welf. & Inst. Code, § 11004).

Discussion

Before reaching appellants’ objections to California's current

AFDC budgeting scheme we note that there may be an inde-

pendent ground for reversal of the judgments against Mrs.

Garcia and Mrs. Castanon. At the time of trial, the federal

“imcome and resources” regulations then in effect allowed con-

sideration only of “such net income as is actually available for

current use on a regular basis” in determining the amount of

AFDC assistance. (45 C.F.R. § 233.20(a) (3) (ii) (C), effective

Appendix A 7

January 29, 1969; italics added.)* By implication, nonregular or

sporadic income was not to be considered by the welfare agency.

Clearly, Mrs. Garcia's income could have been classified as

“sporadic,” though it is not clear that the part-time earnings of

Mr. Castanon could have been so classified. Thus, Mrs. Garcia's

reduction of payment could be attributed not to the operation of

PMB, but rather to the possibly erroneous consideration of

sporadic income in reducing a subsequent assistance grant. But

because Mrs. Castanon’s complaint more likely arises from the

operation of the PMB system itself, we cannot avoid an evalua-

tion of such a system in this appeal. Further, since the income

and resources regulation has since been amended to delete the

regular income restrictions (45 C.F.R. § 233.20(a) (3) (ii) (D),

effective August 1, 1975)* cases such as Mrs. Garcia’s will prop-

erly come within the scope of PMB, and in such cases the lower

court will need our guidance as to the propriety of injunctive

relief.

(2) In reviewing the Prior Month Budgeting regulation we

recognize that we cannot superimpose our own policy judgment

upon that of a state administrative agency which acts in a quasi-

legislative capacity. (Pitts v. Perluss, 58 Cal.2d 824, 832 [27 Cal.

Rptr. 19, 377 P.2d 83].) But the latitude which an adminis-

trator has in implementing a state and federal statutory scheme

is not unlimited. (3) It is well settled that a state welfare

administrator may not operate welfare programs which alter,

3. That clause provided that in establishing the amount of AFDC

assistance, “‘only such net income as is actually available for current use

on a regular basis will be considered, and only currently available resources

will be considered; . . .”

4. This clause now reads as follows: “. . . 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; .. . .”

8 Appendix A

impair, or impede their statutory schemes (Morris v. Williams,

67 Cal.2d 733, 748 [63 Cal.Rptr. 689, 433 P.2d 697}; see also

California Welfare Rights Organization v. Carleson, 4 Cal.3d

445, 458 [93 Cal.Rptr. 758, 482 P.2d 670}; Daley v. State Dept.

of Social Welfare, 276 Cal.App.2d 801, 804 [81 Cal.Rptr. 318}),

and it is this court’s obligation to strike down regulations effec-

tuating such welfare operations. (Morris v. Williams, supra.)

Thus, to the extent that the PMB regulation is inconsistent with

controlling state and federal statutes, fundamental principles of

administrative law require that it be declared invalid, and its

further operation may properly be enjoined. (See Cooper v.

Swoap, 11 Cal.3d 856, 864-865 [115 Cal.Rptr. 1, 524 P.2d 97}.)

We proceed now to an evaluation of the controlling federal

law and policy governing the AFDC program. (4) _ Initially

we note that states which qualify for AFDC funding and which

elect to participate, must comply with the mandatory require-

ments established by the Social Security Act, as interpreted and

implemented by regulations promulgated by the Department of

Health, Education and Welfare. (Ogdon v. Workmen's Comp.

Appeals Bd., 11 Cal.3d 192, 199 [113 Cal.Rptr. 206, 520 P.2d

1022}; County of Alameda v. Carleson, 5 Cal.3d 730, 739 {97

Cal.Rptr. 385, 488 P.2d 953}.) Title IV of the Social Security

Act, 42 United States Code, section 602(a)(7), requires that a

state AFDC plan “must . . . provide that the state agency shall,

in determining need, take into consideration any other income

and resources of any child or relative claiming aid. . . .” The

regulation adopted pursuant to this directive provides that “net

income [actually] available for current use” shall be considered

in determining need and the amount of assistance. (45 C.F.R.

§ 233.20(a) (3) (ii) (D).) Once a family is found to be eligible

for AFDC assistance the federal statute further requires that aid

to dependent children “be furnished with reasonable prompt-

ness... .” (42 US.C. § 602(a) (10).)

Appendix A 9

(5) The federal AFDC program was designed to provide wel-

fare for families without a “breadwinner,” “wage earner,’ or

“father,” a need unfulfilled by other welfare programs. (King v.

Smith, 392 U.S. 309, 328 [20 L.Ed.2d 1118, 1131-1132, 88 S.Ct.

2128}.) As such, it has as its primary and almost exclusive pur-

pose the protection of such dependent children through the pro-

vision of assistance payments to meet their current needs. (42

U.S.C. § 601 (1970)); King, supra, at p. 325 [20 L.Ed.2d at p.

1130}; see Rodriguez v. Vowell (5 Cir. 1973) 472 F.2d 622,

627.)° It has been recognized, in addition, that a state welfare

agency may not frustrate this purpose to advance otherwise valid

concerns such as state fiscal and deterrence objectives.® (See King,

supra, at p. 320 [20 L.Ed.2d at p. 1127}.) Two corollaries have

developed out of these principles: first, cases interpreting the

“income and resources” regulations (45 C.F.R. § 233.20(a) (3)

(ii) (D)) have all recognized that the state welfare agency may

not presume that income is in fact available to the needy family

whether the income is only a hypothetical one (e.g., King, supra, at

p. 319, n. 6 [20 L.Ed.2d at pp. 1126-1127}; Van Lare v. Hurley,

421 US. 338 [44 L.Ed.2d 208, 95 S.Ct. 1741, 1747]), or whether

the income was actually received, but in a past payment period.

(National Welfare Rights Organization v. Weinberger (D.D.C.

1974) 377 F.Supp. 8(', 868.) Second, cases interpreting the

5. ‘The AFDC program was enacted “for the purpose of encouraging

the care of dependent children in their own homes . . . by enabling each

state to furnish financial assistance and rehabilitation and other services,

_. , to needy dependent children. (42 U.S.C. § 601 (1970).)

6. Among such objectives are the following: promotion of fiscal in-

tegrity; recovery of overpaid funds to those who might otherwise be de-

prived of aid; deferrence of fraudulent claims; and removal of the stigma

of an uncontrollable “handout” program.” (See Note, Due Process and

Statutory Limitations on AFDC Recoupment Procedures (1974) 74

Colum.L.Rev. 1464, 1475-1476.)

10 Appendix A

federal recoupment regulation (45 C.F.R. § 233.20(a) (12) (i) )’

have established that the dependent child cannot be punished

(through the reduction of assistance grants) for parental mis-

management of income. (Hagans v. Wyman (E.D.N.Y. 1975)

399 F.Supp. 421, 425; Cooper v. Laupheimer (E.D. Pa. 1970)

316 F.Supp. 264, 269.)®

A close analysis of the Prior Month Budgeting scheme reveals

several basic shortcomings in light of the foregoing standards.

In actual operation PMB is little different from its precursor,

concurrent month budgeting,® in cases in which family income

remains constant—either at a low level, or at the zero level. As

long as income remains static no hardship is suffered by a family

receiving a current assistance grant based on its financial status

two calendar months earlier. However, in cases in which AFDC

families receive sporadic income in one month (the Garcia case),

or where an income source which was available one month has

since ceased to be available (the Castanon case), the vagaries of

this system of retrospectively applied payments become apparent.

7. Since National Welfare Rights Organization v. Weinberger, supra,

377 F.Supp. 861, the federal recoupment regulation was modified to pro-

hibit recoupment in cases in which the family has insufficient funds on

hand to make up for a reduced grant. The Weinberger court declared the

existing federal recoupment regulation invalid since it was based on the

conclusive por ee that overpayment funds were currently available

even though spent prior to the time of recoupment. (/d., at p. 868.)

8. Cooper, supra, 316 F.Supp. 264, cites four remedies short of reduc-

ing assistance payments in such situations: “[{1]} [T]he state may provide

guidance and counseling services regarding the proper use and manage-

ment of AFDC funds, 42 U.S.C. § 605; [2] it may provide for protective

payments, 42 U.S.C. § 606(b) (2); [3] it may appoint a guardian or legal

representative to receive and manage the funds for the child, 42 U.S.C.

§ 1311; or [4] it may remove a child from a home upon a judicial deter-

mination that the parent is not — the funds for the benefit of the child,

42 U.S.C. §§ 605, 608(a) (1). Only if the state rovides other care and

assistance can it withhold AFDC aid from a n , dependent child. 42

U.S.C. § 604(b).”

9. Under concurrent month budgeting in use in California prior to

the adoption of PMB in 1972, receipt of income in one month affects

assistance payments in the same month.

Appendix A 11

In the case of sporadic income, Prior Month Budgeting can be

viewed as a streamlined form of recoupment—struck down in

Weinberger, supra, in contravention to the fundamental policy of

providing for the current needs of the dependent child, and in

violation of the current AFDC recoupment regulations. (45

C.F.R. §233.20(a)(12)(i).) In this respect, PMB also avoids

the specific recoupment limitations set forth in Welfare and In-

stitutions Code section 11004, which parallel the federal stand-

ards."° Both federal and estate recoupment provisions proscribe

the reduction of a subsequent assistance payment in the amount

of a prior overpayment unless the recipient has sufficient income

or resources available to meet the current needs of the needy

child. (45 C.F.R. § 233.20(a) (12) (i) (A) (1); Welf. & Inst. Code,

10. Subdivision (c) and (e) of the Welfare and Institutions Code

provide as follows:

“(c) Any person who makes full and complete disclosure of those

facts as explained to him pursuant to subdivision (a) is entitled to

rely upon the award of aid as being accurate, and that the warrant

he receives correctly reflects the award made, except that the county

paying the aid shall be allowed a period of six months following the

month of payment, or six months following the hearing provided in

subdivision (e), within which to adjust any errors or changes in

amount of grant resulting from changes in income or need which

occur too late to be reflected in the grant of the current month.

Whenever possible, adjustments or overpayments shall be prorated

evenly over the adjustment period.

“(e) Current grants may be reduced because of prior overpay-

ments only if the recipient has income or resources available in the

amount by which the county proposes to reduce payment except;

that where there is evidence which clearly establishes that a recipient

willfully withheld information about his income or resources, such

income or resources may be considered in the determination of need

to reduce the amount of the grant in current or future periods. Prior

to effecting any reduction of current grants to recover prior overpay-

ments, the recipient shall be advised the proposed reduction zo of

his entitlement to a hearing on the propriety of the reduction. J”

no event shall the grant to a needy child be reduced unless the

parents or other responsible persons have sufficient available re-

sources or income to meet the current needs of the needy child

according to the department standard during the period of reduc-

tion.” (Italics added.)

12 Appendix A

§ 11004, subd. (e).) Subdivision (e) of section 11004 is clearly

worded to protect the children in these situations, while regula-

tion EAS 44.315.8 (fn. 11) is designed to alleviate the problem

and is not mandatory. We emphasize this point because it is

believed that Prior Month Budgeting is a helpful and, if properly

applied, reasonable method for computing welfare grants. The

regulation should be amended so as to provide payments to pro-

tect the children. If this were accomplished, the PMB system

would then comply with federal regulations. However, as PMB

is presently applied, a prior “overpayment” occurs under these

recoupment provisions when income is received in a particular

month but is not reflected in the assistance grant for that month.

(See Oliva v. Swoap, 59 Cal.App.3d 130, 137 [130 Cal.Rptr.

411}.) In the guise of “retrospectively applied assistance pay-

ments,” PMB provides for the same sort of correction for ‘“‘over-

payment” in instances of sporadic family income, but without

the concomitant protective feature which assures that the child’s

current needs will not go wanting. In Mrs. Garcia's case, an

isolated $200 child support payment received in June, together

with a full AFDC payment that month, was the basis for an

“automatic” $200 reduction in her AFDC grant for August,

despite the fact that, in the interim, the “extra” funds were no

longer available (having been spent on past due bills). Mrs.

Garcia and her four children were thus left with $155, well below

subsistence standards," on which to survive the month. It is this

very result which is explicitly prohibited in both state and federal

AFDC law and policy, no matter what characterization the

budgeting system is given.

In other than sporadic income cases, the PMB system suffers

from similar shortcomings, although the analogy to recoupment

11. Welf. & Inst. Code, § 11452. The provision sets the subsistence

standards for AFDC families according to the number of needy persons

in the family.

Appendix A 13

may no longer apply. As an example, consider the situation in

which an AFDC recipient has a regular income which, in January,

suddenly ceases. The last month for which income was available

is used, under PMB, to compute the AFDC payment two months

later. Thus, the March grant reflects a reduction from the full

AFDC payment in the amount of the January income, even

though the recipient has been without any income for over a month,

and even though the January income has been spent prior to the

current grant or was never available to the child (as in the case of

Mrs. Castanon). Here again, the disparity between current need

and current, though retrospectively applied, payment is impermis-

sible under federal AFDC law. (See 45 C.F.R. § 233.20(a) (3)

(viii); Cooper v. Laupheimer, supra, 316 F.Supp. 264, 269.)

Whether PMB is viewed in this instance as entertaining a presump-

tion of current availability of past income, or as effectively pun-

ishing the needy child for parental mismanagement of funds, it

is fundamentally at odds with AFDC policies and provisions.

Respondent insists that Prior Month Budgeting is a reasonable

means of computing aid and is consistent with state and federal

law. Specifically, he claims that the latitude allowed the states in

computing AFDC grants (Jefferson v. Hackney, 406 U.S. 535,

545 [32 L.Ed.2d 285, 295, 92 S.Ct. 1724}), has not been exceeded

in the adoption of the PMB regulation since PMB is far more

accurate in this regard than its predecessor—concurrent month

budgeting, and since it takes into consideration only such income

as is actually available for current use as specified by federal

regulation. While it is true that PMB does not suffer from the

defect suffered by several budgeting methods which consider

“hypothetical” income, we cannot agree with respondent's con-

tention that the income considered under PMB is available for

current use. It is true that the federal regulation does not prohibit

a welfare agency from considering income other than that which

is in the recipient's pocket at the time of the current grant in

computing the amount of the payment. However, the disparity

14 Appendix A

permitted between current need and current payment cannot be

countenanced when such payment is based upon income earned

two months earlier, even where such a system may promote ad-

ministrative efficiency or conserve public funds. (See King v.

Smith, supra, 392 U.S. 309, 320 [20 L.Ed.2d 1118, 1127}.) Cur-

rent AFDC payments must be made to meet the current needs of

the dependent child. (Cooper v. Laupheimer, supra, 316 F.Supp.

264, 269.) Whether the income used to compute aid is no longer

available at the time of payment because it was spent or because

it was never actually available, as in Mrs. Castanon’s case, the

child cannot, in effect, be punished by the reduction of AFDC

assistance. (Hagans v. Wyman, supra, 399 F.Supp. 421, 425;

Cooper v. Laupheimer, supra, at p. 269.) Such a system not only

ignores the currency requirements for the consideration of income,

but also the practical economic realities facing AFDC families,

who, living at bare subsistence levels, cannot be expected to

budget sporadic income for a payment period two months in

the future.

An AFDC budgeting system, to be in compliance with state

and federal law, should, at a minimum, consider income in the

same month or within a 31 day period in which assistance pay-

ments are to be made. The inherent inaccuracies in the concurrent

month budgeting system, to the extent that income must be

estimated, can be quickly adjusted through the provisions of

Welfare and Institutions Code section 11004. The vagaries in the

existing PMB system, apparent in such cases as those of Mrs.

Garcia and Mrs. Castanon, cannot be alleviated simply by the

application of an emergency payment or supplement payment

provision.’* Rather, the goal of conservation of public funds can

12. We reiterate that the basic design of Prior Month Budgeting,

though it works hardship in only a few instances, is incorrect. Further, the

supplemental payment regulation is purely discretionary in its application.

That regulation, EAS 44.315.8, provides as follows:

Appendix A 15

be enforced in conjunction with a concurrent month budgeting

system through the application of civil sanctions against the

parent or guardian and through programs which encourage the

proper management of income.

Accordingly, we hold regulation EAS 44-315.6, imposing a

system of prior month budgeting for the computation of AFDC

assistance payments, to be invalid.

The judgment is reversed and the case is remanded for further

proceedings in accordance with this opinion.

Hastings, J., concurred.

KAUS, P. J.—I reluctantly concur in the result as applied to

these particular plaintiffs. I feel, however, compelled to express

certain reservations:

(1) As footnote 1 of the court’s opinion indicates, Prior Month

Budgeting (PMB) does not go into effect until the third month

after payments commence. Therefore, for the first two months

of eligibility the recipient receives a full grant without deduction

for additional income during either month. The federal require-

ment is that payments begin “with reasonable promptness . . . .”

Obviously, if a state cannot recoup overpayments necessarily made

because of the impossibility of making immediate payments that

reflect additional income not yet in the hands of the recipient,

the pressures to give an elastic interpretation to the “reasonable

promptness” requirement may prove irresistible. Thus, while

“If unusual and unforeseen substantial changes in a recipient's

income occur, a supplemental payment may be made when necessary

to protect the well are of the child(ren). Supplemental payments

shall be limited in any month to the extent that the total grant,

together with currently available income, does not exceed the allow-

able Maximum Aid.

“When a recipient receives a supplemental payment in more than

one month, the total of such payments may not exceed the recipient's

total net nonexempt income during the first and second months pre-

ceding a change in budgeting method used by the county, or during

the first and second months for which aid payments are made.

16 Appendix A

taking care of the problems of these plaintiffs, the net effect of

our opinion may not be beneficial to welfare recipients in general.

(2) Without expressly disagreeing, I wish to disassociate my-

self from the court's discussions of Mrs. Garcia’s problems under

the former regulation referring to “. . . income . . . actually

available for current use on a regular basis .. . .” Quite argu-

ably this regulation intended to withdraw from consideration only

true windfalls, but not child support payments which should be

regularly paid, even if they are not.

(3) If current law compels the result which we reach in this

case—as I agree it does—I am not nearly as sanguine as the

court that “the inherent inaccuracies in the concurrent month

budgeting system . . . can be quickly adjusted through the pro-

visions of Welfare and Institutions Code section 11004.” I suspect

that the result of this opinion will not be a return to concurrent

month budgeting but rather an attempt to scuttle, insofar as

permissible, the present “pay now, recoup later’ scheme.

Appendix B

In the Court of Appeat of the State of California

Second Appellate District

Division Five

MINUTES OF DIVISION FIVE

DECEMBER 15, 1976

GARCIA VS. SWOAP

2d CIVIL 47086

THE COURT: PETITION FOR REHEARING IS DENIED.

[Clerk's Stamp Certification}

eee...

Appendix C

ORDER DUE

February 15, 1977

ORDER DENYING HEARING

AFTER JUDGMENT BY THE COURT OF APPEAL

2nd District, Division 5, Civ. No. 47086

In the Supreme Court of the State of California

In Bank

GARCIA ET AL.

v.

SWOAP, AS DIRECTOR, ETC.

Respondent's petition for hearing DENIED.

[Clerk’s Stamped Certification]

SUPREME COURT

FILED FEB. 3, 1977

C. E. BISHEL, Clerk

Acting Chief Justice

Appendix D

DEPARTMENT OF HEALTH, EDUCATION,

AND WELFARE

SOCIAL AND REHABILITATION SERVICE

Washington, D.C. 20201

Dec. 12, 1974

David B. Swoap

Director

State Department of Benefit Payments

744 ‘P’ Street

Sacramento, California 95814

Attention: James Moose

Deputy Director, Legal Affairs

Dear Mr. Swoap:

This is in response to your departments request that we review

your State’s method for computing AFDC budgets and provide

the Departments views regarding the legality of such procedures.

Enclosed is a copy of an opinion from the office of General Coun-

sel, HEW, setting forth the Department's views. We fully endorse

this method of accounting for recipient income and consider it a

proper and efficient method of administration.

Yours very truly,

JaMes S. DWIGHT, JR.

Enclosure

20 Appendix D

MEMORANDUM

DEPARTMENT OF HEALTH, EDUCATION,

AND WELFARE

OFFICE OF THE SECRETARY

OFFICE OF THE GENERAL COUNSEL

Human Resources Division

DATE: December 10, 1974

To: Donald M. Thayer

Director, Office of Policy Control, SRS

From: _ Robert P. Jaye

Deputy Assistant General Counsel

Subject: Legality of Prior Month Budgeting

Prior month budgeting is a procedure used for computing the

amount of an AFDC grant on the basis of income actually avail-

able in the month prior to the computation month, which is itself

one month before the payment month. For example, a computa-

tion would be made in December of a recipient's January grant.

The computation would be based upon the actual income received

by the recipient during November. You have first asked whether

this method of “prior month budgeting” is permited by our avail-

able income regulations appearing at 45 CFR section 233.20(a)

(3) (ii) (c). Second, you have stated that, for purposes of prior

month budgeting, an erroneous overpayment of a welfare grant

may be treated as income in a manner identical to all other inflows

during the month! (with the sole exception of the exact amount

of the welfare payment to which the recipient is actually entitled).

1. Except for those inflows which are treated as resources pursuant

to the State plan.

Appendix D 21

We have concluded that neither of these practices violates our

regulations.

With respect to the first issue, this Office issued an opinion

on June 3, 1973, specifically approving prior month budgeting.

That opinion stated, in pertinent part, as follows:

A literal reading of the language in 45 CFR section

233.20(a) (3) (ii) (c) would mean that unless the individual

has his total income in hand when the assistance check is

issued (or maybe even received), that income may not be

deducted in determining the amount of his grant. This would

mean that the only time income could be counted would be

when it was received at the same time the assistance check

was issued (or received). Otherwise the agency would be

counting income that the individual spent (or at least

begun to spend) and that was no longer available to him.

This ridiculous result was clearly not intended by the regula-

tion.

On the contrary, the regulation was intended to preclude

the consideration of income that was, in fact, never avail-

able to the individual, or that had not been available to

him for a substantial period of time. But when a person has,

for example, regular earnings, the fact that he spends part

of his paycheck before the assistance check arrives does not

mean that the entire amount of the paycheck is not to be

deducted in determining the amount of the assistance grant.

In fact, States have been permitted considerable admin-

istrative latitude in determining the period for which income

is reflected in the assistance grant, with the result that income

is not always (indeed, is not usually) deducted from the

assistance check for the month the income is received and

available to the individual. Instead, many States find it ad-

ministratively simpler and more accurate to deduct the

income received in one month from the assistance check for

the next month or even for the month after that. This is

permitted under Federal policy as a reasonable method of

administration, as long as it is applied uniformly and con-

sistently, and it presents no conflict with our interpretation

of the regulation on available income.

a (rr, |

22 Appendix D

With respect to your second question, the regulations do not

preclude treatment of any check received from the welfare agency

in excess of the amount to which the recipient was entitled, as

income. This is subject to the caveat that, unless the recovery of

that overpayment is permitted by our recoupment regulations

appearing at 45 CFR section 233.20(a) (12) (i), the State agency

could (in the example given at the beginning of this memo-

randum) treat as currently available income for purposes of a

December computation of a January welfare check, only over-

payments received by the recipient during the month of

November.

If the overpayment does not come to the agency's attention

until January (or thereafter) the overpayment cannot be con-

sidered as a currently available income or resource, unless the

money is, in fact, still currently available during the budget

month.? Nevertheless, an excess payment by the welfare agency

in November may be treated as income for purposes of a Decem-

ber computation in States chat utilize prior month budgeting.

2. Of course, recoupment under the circumstances delineated in our

cited recoupment regulation would be permitted at a later date.

Prepared by RJaye:nmo, x50540

12/10/74