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McGraw v. Berger

decided: July 2, 1976.


Appeal from decision of United States District Court for the Southern District of New York, William C. Conner, J., that 18 N.Y.C.R.R. § 352.31(d)(1)(ii), permitting defendants to recoup AFDC overpayments to plaintiffs caused by agency error out of earnings disregarded in calculating plaintiffs' welfare needs pursuant to 42 U.S.C. § 602(a)(8)(A)(ii), is not inconsistent with that statute.

Friendly, Feinberg and Van Graafeiland, Circuit Judges.

Author: Feinberg

FEINBERG, Circuit Judge:

Josephine McGraw and her nine minor dependent children, recipients of public assistance benefits from New York State under the Aid to Families with Dependent Children (AFDC) program, appeal from a decision of the United States District Court for the Southern District of New York, William C. Conner, J., granting summary judgment for defendants, various New York welfare officials.*fn1 Plaintiffs seek to invalidate a New York welfare regulation, 18 N.Y.C.R.R. § 352.31(d)(1)(ii),*fn2 which permits the State to recoup overpayments of welfare benefits caused by agency errors out of the portion of a recipient's earnings that is disregarded in calculating welfare needs under 42 U.S.C. § 602(a)(8)(A)(ii),*fn3 as inconsistent with that statute. For reasons set forth below, we affirm.


The tangle of federal and state statutes and regulations in the welfare area now rivals the Internal Revenue Code and its attendant regulations as a marvel of complexity. The issues involved in this case will perhaps be easier to understand if put in the context of the structure of the AFDC program, as it particularly affects the McGraw family.

The AFDC program, established under Title IV-A of the Social Security Act, 42 U.S.C. §§ 601-10, aims to provide financial assistance to needy dependent children and the adults who care for them. The program is financed in large part by federal funds on a matching basis, but is administered by the states, which have "broad discretion in determining both the standard of need and the level of benefits." Shea v. Vialpando, 416 U.S. 251, 253, 40 L. Ed. 2d 120, 94 S. Ct. 1746 (1974). State plans, however, must conform to the requirements laid down by the Social Security Act and the regulations of the Department of Health, Education and Welfare (HEW).

"Under HEW regulations all AFDC plans must specify a statewide standard of need, which is the amount deemed necessary by the State to maintain a hypothetical family at a subsistence level. Both eligibility for AFDC assistance and the amount of benefits to be granted an individual applicant are based on a comparison of the State's standard of need with the income and resources available to that applicant." Id. The "standard of need" set by New York Social Services Law § 131-a(2) for a family of ten is $284 semi-monthly, plus an allowance for shelter that, under the applicable New York regulations, amounts for the McGraws to $59 semi-monthly.*fn4 This total of $343 is then compared with the "income and resources" of the family, in this case Ms. McGraw's earnings from her job as a cook's helper in a day care center.

Ms. McGraw earns $265.84 semi-monthly. Under 42 U.S.C. § 602(a)(7)*fn5 and 45 C.F.R. § 233.20(a)(3)(iv)(a), "expenses reasonably attributable to the earning of [this] income" must be deducted from this amount. In Ms. McGraw's case $49.77 is deducted under this provision. In addition, a further deduction, known as the "earned income disregard," is made. Under 42 U.S.C. § 602(a)(8)(A)(ii), the first $30 per month, and one-third of the remainder, of a working adult AFDC recipient's earnings are disregarded in calculating the family's "income and resources." This deduction amounts to $98.61 in Ms. McGraw's case.*fn6

As already indicated, the amount of the assistance payment is based on the difference between the applicant's resources and the state's standard of need, 45 C.F.R. §§ 233.20(a)(2), (3), but the state is not required to pay the full amount, or any particular amount or percentage, of that "budget deficit." Jefferson v. Hackney, 406 U.S. 535, 541, 32 L. Ed. 2d 285, 92 S. Ct. 1724 (1972); Rosado v. Wyman, 397 U.S. 397, 408-09, 25 L. Ed. 2d 442, 90 S. Ct. 1207 (1970). However, since New York does currently pay 100 per cent of the standard of need, New York Social Services Law § 131-a(3); Hagans v. Berger, 536 F.2d 525, 527 (2d Cir. 1976), the amount of assistance provided semi-monthly to Ms. McGraw and her family is $225.54, arrived at as follows: $343 (the total standard of need) minus $117.46 (Ms. McGraw's earnings of $265.84 less $49.77 work-related expenses and $98.61 earned income disregard).

Not surprisingly, in the course of making this intricate calculation, the agency made an error resulting in an overpayment of $47.16 to the McGraws in each semi-monthly pay period for some ten months, for a total overpayment of $990.36. There is no dispute that the agency was responsible for this error, and no contention that Ms. McGraw in any way caused or even noticed the mistake.*fn7 In April 1975, the New York City Department of Social Services notified the family of the overpayment, and of its intention to recoup the loss. This determination was upheld by the State Department of Social Services after a hearing in August 1975.

The New York regulations concerning recoupment distinguish between errors caused by wilful withholding of information by a recipient and other errors. In the former case, 18 N.Y.C.R.R. § 352.31(d)(2), see note 2 supra, permits recoupment from current assistance grants even if those grants are the recipient's only source of income. Thus, if a family comparable to the McGraws, with a state standard of need of $343 and no earnings or other resources, had wilfully misrepresented its circumstances so as to receive an additional $50 in aid, a state would be permitted under the regulation to reduce future grants below the level to which the family would otherwise be entitled until the amount overpaid was recovered.*fn8 When, however, the error was not caused by the wilful misconduct of the recipient, recoupment from the grant itself has been held inconsistent with the Social Security Act. National Welfare Rights Organization v. Weinberger, 377 F. Supp. 861 (D.D.C.1974). Accordingly, the applicable regulation permits recoupment only when "the recipient has currently available income or resources, exclusive of the current assistance payment." 18 N.Y.C.R.R. § 352.31(d)(1)(ii). The regulation further provides that "Exempted income and disregards shall be considered as being currently available." Thus, in Ms. McGraw's case, the State sought to recoup its overpayment from the part of Ms. McGraw's earnings that was disregarded under 42 U.S.C. § 602(a)(8)(A)(ii) in calculating the amount of her family's AFDC grant.

This recoupment is effected by deducting $34.30 from each semi-monthly AFDC payment.*fn9 Thus, the McGraws' income for a given semi-monthly period consists of the reduced AFDC grant of $191.24 ($225.54 minus the recoupment amount of $34.30), plus her earnings of $216.07 ($265.84 minus $49.77 in work-related expenses), for a total of $407.31. The family thus has $64.31 more than the state standard of need, which they would receive if Ms. McGraw did not work. If it were not for the ...

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