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KELLY v. PERALE

June 29, 1983

In the Matter of the Application of MARIAN KELLY on Behalf of her minor child JOHN LOFSTOCK, Plaintiffs, CARMELINA BUCHANAN, on behalf of her two minor children and on behalf of all others similarly situated, Intervenor-Plaintiff,
v.
CESAR PERALES, as Commissioner of the New York State Department of Social Services, NOAH WEINBERG, as Commissioner of the Rockland County Department of Social Services, JOSEPH D'ELIA, as Commissioner of the Nassau County Department of Social Services, MARGARET HECKLER, as Secretary of Health and Human Services, Defendants



The opinion of the court was delivered by: LASKER

LASKER, D.J.

 I. Introduction

 Carmelina Buchanan, on behalf of her two minor children and all others similarly situated, challenges the legality of New York State's method of determining the amount of income deemed available for meeting the needs of a family receiving federal Aid to Families with Dependent Children ("AFDC") benefits, for families in which the household includes an employed stepparent. The challenged method of computation was adopted by New York in response to amendments to the AFDC program enacted by Congress in the Omnibus Budget Reconciliation Act of 1981 ("OBRA"), §§ 2301-21, Pub.L. No. 97-35, 95 Stat. 357, 843-60.

 Under the AFDC program, which is administered under Title IV, Part A of the Social Security Act, 49 Stat. 627 (1935) (codified as amended at 42 U.S.C. §§ 601-76), states receiving AFDC funds must adopt a plan for administering their programs which complies with the provisions of the Act and the regulations promulgated by the United States Department of Health and Human Services ("HHS"). Since 1939, when Section 402(a)(7) was added to the Act, the Act has required that state agencies in determining a family's level of need, take into account any non-AFDC income and resources available to the family. See Social Security Amendments Act of 1939, Pub. L. No. 76-379, § 401(b), 53 Stat. 1360, 1379-80.

 Before OBRA was enacted, amounts withheld from an individual's paycheck as mandatory payroll deductions (such as income taxes and FICA taxes) were not included in the amount deemed available for the family's support, nor were amounts spent on job-related expenses such as transportation, child care, uniforms, and the like. Section 402(a)(7) of the Act, 42 U.S.C. 602(a)(7), provided prior to OBRA that:

 
"(7) except as may be otherwise provided in clause (8), [a state 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 to families with dependent children . . . as well as any expenses reasonably attributable to the earning of any such income."

 Section 402(a)(8) of the Act, 42 U.S.C. § 602(a)(8), provided for various "disregards" -- that is, amounts not to be considered in computing available income. The Act did not then, nor does it now, define "income" as used in Section 402(a)(7).

 OBRA amended Section 402(a)(7) of the Act to provide that:

 
"(7) except as may be otherwise provided in paragraph (8) or (31) and section 615 of this title [a state plan must] provide that the State agency --
 
(A) shall, in determining need, take into consideration any other income and resources of any child or relative claiming aid to families with dependent children . . ."

 Section 402(a)(8) of the Act was also amended to provide, inter alia, for a disregard of "the first $75 of the total of [an individual's] earned income" for the month. In addition, a provision governing the treatment of stepparents' income was added, which provides that the first $75 of the stepparent's monthly income is also to be disregarded, as well as any amounts paid by the stepparent to support dependents other than those covered by AFDC benefits, such as alimony and child support payments.

 Following the enactment of OBRA, the State of New York, in accordance with HHS's interpretation of the amendments to the AFDC program, modified its calculation of AFDC benefits so as to deduct the new $75 disregard from gross income -- that is, income without reduction by mandatory payroll deductions for federal, state and local taxes. See Exs. A & B to Pl. Ex. F. *fn1" Thus, whereas prior to OBRA the actual expenses of a family for payment of mandatory payroll deductions and for job-related expenses were deducted from the income considered available to meet the needs of an AFDC household, the provisions enacted in OBRA were interpreted by the State to replace those deductions with a flat $75 disregard to cover tax withholdings and all job-related expenses.

 On February 9, 1982, Judge Ward of this Court preliminarily enjoined the New York State and City Departments of Social Services from implementing this proposed method of calculating the income available to an AFDC family. See RAM v. Blum, 533 F. Supp. 933 (S.D.N.Y. 1982). Judge Ward concluded, in light of the legislative and administrative history of Sections 402(a)(7) and (a)(8) of the Act, that the term "income" as used in Section 402(a)(7) refers to income net of mandatory payroll deductions, and therefore that mandatory payroll deductions are to be subtracted from recipients' income before the disregards set forth in Section 402(a)(8) (including the new $75 disregard) are subtracted. Judge Ward granted a permanent injunction to the same effect on May 17, 1983. RAM v. Blum, 564 F. Supp. 634 (S.D.N.Y. 1983).

 The class that was certified in the RAM litigation consisted of "all individuals who live in New York State who have earned income under Section 402(a)(8) of the Social Security Act (42 U.S.C. 602[a][8]), as amended by the Omnibus Budget Reconciliation Act of 1981, P.L. 97-35, 95 Stat. 843 (§ 2301), and apply for and/or receive Aid to Families with Dependent Children from and after December 15, 1981." Order of February 25, 1982 (Def. Ex. C). The class did not include AFDC households in which a stepparent has income that must be considered in determining the AFDC ...


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