752 F.

2d 795
8 Soc.Sec.Rep.Ser. 215

COMMONWEALTH OF PENNSYLVANIA and Pennsylvania

Department of
Public Welfare and Cohen, Walter W., in his
official capacity as Secretary of the
Pennsylvania Department of Public Welfare
v.
UNITED STATES of America and United States Department
of
Health and Human Services and Heckler, Margaret M., in her
official capacity as Secretary of the United States
Department of Health and Human Services and Social Security
Administration and Svahn, John A., in his official capacity
as Commissioner of the Social Security Administration.
Appeal of COMMONWEALTH OF PENNSYLVANIA and the
Pennsylvania
Department of Public Welfare and Walter W. Cohen,
Secretary of the Pennsylvania Department
of Public Welfare.
No. 84-5257.

United States Court of Appeals,

Third Circuit.
Argued Oct. 18, 1984.
Decided Dec. 6, 1984.

Kathleen F. McGrath (argued), Andrew S. Gordon, Deputy Attys. Gen.,

Allen C. Warshaw, Deputy Atty. Gen., and Chief, Litigation Section,
Carol Genduso, Asst. Gen. Counsel, Harrisburg, Pa., for appellants.
David Dart Queen, U.S. Atty., Harrisburg, Pa., Richard K. Willard, Acting
Asst. Atty. Gen., Robert S. Greenspan and John S. Koppel (argued),
Attys., Appellate Staff, Civil Division, U.S. Dept. of Justice, Washington,

D.C., for appellees.

Before GIBBONS, BECKER and VAN DUSEN, Circuit Judges.
OPINION OF THE COURT
VAN DUSEN, Senior Circuit Judge.

I. Procedural History
1

Plaintiffs are the Commonwealth of Pennsylvania, which partially funds the

Aid to Families with Dependent Children (AFDC) program, its Department of
Public Welfare (DPW), and the state agencies and officers responsible for
implementing the AFDC program. Defendants are the United States, its
Department of Health and Human Services (HHS), and its agencies and officers
responsible for administering the Supplemental Security Income (SSI)
program.

Plaintiffs appeal from a summary judgment in favor of defendants in an action

for declaratory and injunctive relief. Plaintiffs sought a declaratory judgment
that defendants' practice of deducting from SSI payments the amount of AFDC
payments made to SSI recipients during the period in which SSI eligibility is
determined, without returning any of that amount to the Commonwealth, is
illegal. Plaintiffs also sought a mandatory injunction ordering defendants to
reimburse the Commonwealth for the state-funded portion of the amount so
deducted.

Because no material facts were in dispute, the parties filed cross-motions for
summary judgment. The matter was referred to a magistrate for a
recommendation and report, pursuant to 28 U.S.C. Sec. 636(b) (1982). The
magistrate recommended that defendants' motion be granted and plaintiffs'
motion denied. Plaintiffs then filed objections to the magistrate's
recommendation. On March 15, 1984, the district court adopted the
magistrate's recommendation, and on April 9, 1984, plaintiffs filed a Notice of
Appeal from that order.

This court has jurisdiction pursuant to 28 U.S.C. Sec. 1291 (1982). We will
affirm the judgment of the district court.II. Facts

Aid to Families with Dependent Children (AFDC) is a public-assistance scheme

established by federal statute. See 42 U.S.C. Secs. 601-615 (1982). Under the

program, the federal government makes grants to partially fund eligible state
programs that provide cash assistance to low-income families with dependent
children. In Pennsylvania, 57% of the AFDC program is funded by the federal
government, and 43% is funded by the state government. Although the program
is jointly funded by the federal and state governments, it is administered by the
states. To receive grants from the federal government, a state must submit an
AFDC plan to HHS that conforms with both statutory and regulatory
requirements. See 42 U.S.C. Sec. 602 (1982).
6

The SSI program, which is another public assistance program established by

federal statute, see 42 U.S.C. Secs. 1381-1383 (1982), provides cash grants to
low-income individuals who are aged, blind, or disabled. 42 U.S.C. Sec. 1381
(1982). This program is fully administered by the federal government;
application for benefits is made to the Social Security Administration (SSA),
which determines eligibility and benefit levels. With minor exceptions not
relevant to this case, the SSI program is federally funded.

An applicant for SSI benefits is entitled to those benefits as of the first day of
the month in which he or she satisfies all the eligibility requirements and has
applied for benefits. See 20 C.F.R. Secs. 416.330 & 416.335 (1984). Yet, after
a person applies for SSI benefits, the SSA takes a significant period of time to
determine the applicant's eligibility for benefits and to begin making payments.
This period of time--between the first date of SSI eligibility and the date of the
first SSI payment--will be hereinafter referred to as the "determination period."1
Once a person is deemed eligible for SSI benefits, he initially receives a
retroactive, lump-sum payment for all benefits accrued during the
determination period.

During the SSI determination period, some SSI applicants receive AFDC
payments. If an applicant is subsequently determined eligible for SSI benefits,
the SSA deducts from its initial, retroactive, lump-sum payment an amount
equal to the amount of AFDC aid received by that individual during the
determination period. The SSA does not transfer to the states any of the amount
so deducted.

Plaintiffs contend that because the Commonwealth contributes 43% of AFDC

funds paid to resident SSI recipients during the determination period, the SSA
should reimburse the Commonwealth 43% of the amount deducted from the
recipient's retroactive, lump-sum SSI payment covering that period. Plaintiffs
rely on the language of, and policies underlying, 42 U.S.C. Sec. 602(a)(24), a
provision of the AFDC program which states generally that, if a person is
receiving SSI benefits, he or she may not receive AFDC benefits for the period

for which SSI benefits are received. 42 U.S.C. Sec. 602(a)(24) (1982).
Plaintiffs argue that section 602(a)(24) requires that, for the SSI determination
period, eligible SSI recipients should receive full retroactive SSI benefits and,
further, that any AFDC payments made to the recipients during that period
should be returned. Therefore, plaintiffs contend, AFDC aid that is paid to SSI
recipients during the determination period is not "income" that is deductible
from SSI benefit payments under 42 U.S.C. Sec. 1382(b). Consequently,
plaintiffs argue, if the SSA continues its practice of deducting the amount of
AFDC payments from retroactive, lump-sum SSI payments, then the amount of
the state-funded portion of those AFDC payments should be returned to the
Commonwealth by the SSA. Finally, as an alternative argument, plaintiffs
contend that AFDC is a type of "interim assistance" provided by the
Commonwealth, the amount of which is deductible from SSI benefit payments
but which must be returned to the Commonwealth pursuant to 42 U.S.C. Sec.
1383(g)(1).
10

Defendants counter that section 602(a)(24) does not apply to SSI recipients
during the determination period. They further assert that AFDC assistance paid
to SSI recipients during the determination period is "income" to the recipients,
as defined by 42 U.S.C. Sec. 1382(b) (1982), which is deductible from SSI
payments. Finally, they argue that AFDC payments made during the
determination period do not fall within the definition of reimbursable "interim
assistance" under 42 U.S.C. Sec. 1383(g).

11

Before considering each of the statutory arguments raised by the defendants, it

is important to specify the scope of our review of the HHS policy at issue here.
It is now well settled that a reviewing court must accord substantial deference
to an agency's interpretation of a statute that the agency is directed by Congress
to implement. See, e.g., Blum v. Bacon, 457 U.S. 132, 141, 102 S.Ct. 2355,
2361, 72 L.Ed.2d 728 (1982); Thorpe v. Housing Authority, 393 U.S. 268, 276,
89 S.Ct. 518, 523, 21 L.Ed.2d 474 (1969). Accordingly, when a statutory
scheme or the statutory language fairly admits of several interpretations, a
reviewing court must uphold the agency's interpretation if it is reasonable,
notwithstanding the court's belief that some other policy was preferable. See,
e.g., Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616
(1965). The Commonwealth's burden of proof in this case is therefore
significant: it must persuade us that the statutory provisions of AFDC and SSI
and their underlying policies compel the Secretary to reimburse states for their
share of AFDC benefits paid to recipients during the SSI determination period.

III. 42 U.S.C. Sec. 602(a)(24)

12

Section 602(a)(24) outlines the requirements for federal grants to state

programs that provide financial aid to families with dependent children. The
section states that if an individual is receiving SSI benefits, then "for the period
for which such benefits are received," such individual may not be regarded as a
member of the family for the purpose of determining the amount of AFDC
benefits his family receives. 42 U.S.C. Sec. 602(a)(24) (1982). In other words,
the section provides that a person may not receive AFDC aid for the period for
which he receives SSI benefits.

13

Plaintiffs contend that a proper interpretation of section 602(a)(24) requires

defendants to reimburse plaintiffs for the amount deducted from recipients'
retroactive, lump-sum SSI payments on account of AFDC aid received.
Plaintiffs claim that, without such reimbursement, plaintiffs are, in effect,
subsidizing the SSI program with AFDC payments contrary to section 602(a)
(24). Plaintiffs further contend that the longer the SSA takes to determine that a
Pennsylvania resident is eligible for SSI, the greater the amount of
subsidization. This is because the longer the determination period lasts, the
greater the amount of AFDC aid that is provided during the period and,
subsequently, the greater the amount deducted from retroactive SSI payments.
Thus, plaintiffs argue, the longer the determination period, the more money the
SSA saves through its deduction practice.2

14

Plaintiffs assert that there are three general congressional policies that are
contradicted by defendants' challenged practice. Two of these policies underly
the enactment of section 602(a)(24). First, there should be no simultaneous
payment of AFDC and SSI benefits to a person. Second, if a person is eligible
for both, he should receive SSI, not AFDC. The third policy is derived from the
legislative history of the SSI program itself: SSI should be fully funded by the
federal government.3 Defendants generally agree with the existence of these
policies but claim there is no conflict between the policies and the practice of
not reimbursing plaintiffs for deductions made from SSI on account of AFDC
aid. Defendants maintain that section 602(a)(24) is designed to prevent a
person from receiving full benefits from both SSI and AFDC simultaneously
("double-dipping"), see Zambardino v. Schweiker, 668 F.2d 194, 200 (3d
Cir.1981); Fitzgerald v. Schweiker, 538 F.Supp. 992, 1001 (D.Md.1982), and
that their policy of deducting AFDC payments from SSI benefits prevents
double-dipping.

15

Moreover, defendants argue that section 602(a)(24) does not apply to persons
who receive SSI benefits paid retroactively for the period during which the
SSA determined their eligibility. Defendants assert that the section applies to

persons once they receive their first SSI payment and only for the period
subsequent to that first payment. The district court agreed with defendants'
position, stating:
16 section speaks only to an individual's eligibility for AFDC benefits and
"That
renders an individual ineligible for such payments when he is 'receiving [SSI]
benefits under subchapter XVI of this chapter.' (emphasis added). It is clear that,
during the SSI determination period, an applicant does not receive SSI benefits,
although he may later be found eligible to receive such benefits.... Thus, 42 [U.S.C.]
Sec. 602(a)(24) does not restrict AFDC payments during the determination period,
nor does it require the adjustment suggested by plaintiffs. It addresses only the state's
obligation with respect to AFDC eligibility when an individual is receiving SSI
benefits."
17

Commonwealth of Pennsylvania v. United States, 581 F.Supp. 1238, 1240

(M.D.Pa.1984).

18

Notwithstanding the district court's analysis, it is not altogether clear whether

section 602(a)(24) applies only to the time period during which an individual is
actually receiving SSI benefit payments. For example, the language of the
provision directs that a person may not be considered a part of an AFDC family
"for the period for which such [SSI] benefits are received." Because an eligible
SSI recipient begins to accrue benefits at the time he or she applies for benefits
and because he or she is paid SSI benefits retroactively for the period between
application and determination of eligibility, it would be reasonable to conclude
that the SSI determination period is one for which SSI benefits are received.
See Fitzgerald v. Schweiker, 538 F.Supp. at 1002 (the intent of section 602(a)
(24) is "readily applied to the retroactive period"). On the other hand, the
district court's analysis is quite plausible, too. In light of our limited scope of
review of the Secretary's policy, however, it is enough that the policy is based
on a reasonable reading of section 602(a)(24).

19

The Secretary's implementation of section 602(a)(24) is consistent with other

parts of the AFDC and SSI statutory schemes. In 42 U.S.C. Sec. 1383(g),
Congress provided for the withholding of an amount from the lump-sum
benefits paid to new SSI recipients sufficient to reimburse the states for certain
assistance payments made to SSI applicants during the SSI determination
period. Congress did not, however, provide in this section (or in any other
section of the SSI enabling legislation) for the repayment to states for their
share of AFDC benefits paid during the SSI determination period. Such an
omission from the provision that specifically controls the repayment to states
for benefits that they provide to SSI applicants is significant. The

Commonwealth's argument simply puts too much emphasis on a statutory

provision (42 U.S.C. Sec. 602(a)(24)) that was intended to establish rules for
the state administration of the AFDC program, rather than to control federal
reimbursements to states for the benefits that they pay to SSI applicants during
the determination period.
20

Finally, we believe that it is important to point out that Congress could have
required the Secretary to reimburse the states for their share of AFDC benefits
paid during the SSI determination period by including explicit language in
either of the two statutes. No such language was included. Given its
responsibility for the federal fisc, we cannot say that it was unreasonable for
Congress not to so require. Cf. Schweiker v. Wilson, 450 U.S. 221, 230, 101
S.Ct. 1074, 1080, 67 L.Ed.2d 186 (1981). We are therefore unable to conclude,
given our narrow scope of review, that the Secretary's policy is contrary to law.

IV. "Income" Under 42 U.S.C. Sec. 1382(b)

21

Plaintiff's second argument is that AFDC benefits paid during the SSI
determination period do not constitute income for purposes of SSI. SSI benefits
paid to a recipient are required to be reduced by the amount of income that a
recipient receives. 42 U.S.C. Sec. 1382(b) (1982). The SSI program excludes
certain types of income from the deduction requirement. 42 U.S.C. Sec.
1382a(b)(1-13) (1982). Plaintiffs contend that AFDC payments made to SSI
recipients during the SSI determination period should fall under the exclusion
created by 42 U.S.C. Sec. 1382a(b)(6).

22

Section 1382a(b)(6) excludes from the definition of income "assistance,

furnished to or on behalf of such individual (and spouse), which is based on
need and furnished by any State or political subdivision of a State." 42 U.S.C.
Sec. 1382a(b)(6) (1982). Plaintiffs contend that the state-paid portion of AFDC
satisfies the definition of section 1382a(b)(6) because AFDC aid is based on
need and the state-funded portion of the aid is furnished by a state. Plaintiffs
therefore argue that the amount of the state-funded portion of AFDC aid paid to
persons during the SSI determination period should not be deducted from SSI
benefit payments. Alternatively, they argue, it should be deducted and
transferred to the Commonwealth so as to cause the same financial result for
the Commonwealth as if the AFDC payments had never been made during the
determination period and eligible SSI recipients had instead received their full
SSI benefits for that period.

23

Nevertheless, the Secretary of Health and Human Services has promulgated a

regulation interpreting section 1382a(b)(6) that clearly prevents AFDC aid

from falling within the scope of that section. The regulation states that section
1382a(b)(6) refers to assistance that is "wholly funded by a state or one of its
political subdivisions." 20 C.F.R. Sec. 416.1124(c)(2) (1984). Because AFDC
payments are only partially funded by the state, they do not fall within the
scope of section 1382a(b)(6) and thus are not excludable income for the
purpose of determining the amount of SSI benefits. In fact, the regulation
specifically mentions AFDC as a type of aid not qualifying for exclusion.4
24

This court has considered a challenge to 20 C.F.R. Sec. 416.1124(c)(2) and has
held that, in promulgating this regulation, the Secretary has reasonably
construed section 1382a(b)(6).5 Zambardino v. Schweiker, 668 F.2d 194, 199200 (3d Cir.1981). In Zambardino, this court reviewed the legislative history of
section 1382a(b)(6) and determined that the section was designed to encompass
"emergency and special needs assistance," not long-term assistance such as
AFDC. Id. at 199; see S.Rep. No. 1265, 94th Cong., 2d Sess. 29, reprinted in
1976 U.S.Code Cong. & Ad.News 5997, 6023. We agree with the holding in
Zambardino that 20 C.F.R. Sec. 416.1124(c)(2) is consistent with Congress's
intent in enacting section 1382a(b)(6) as expressed in the legislative history of
the Unemployment Compensation Amendments of 1976. See Zambardino, 668
F.2d at 201.

25

Plaintiffs contend that the Zambardino decision was based, at least in part, on
the recognition that a state could still recoup the state-funded portion of AFDC
aid it provided to SSI recipients during the SSI determination period without
causing the recipients to have a net loss in benefits for that period. This is
because, at the time of the Zambardino decision, the SSA treated the state
portion of AFDC payments that were subsequently recouped by a state as a
"loan." The SSA would, therefore, not deduct as "income" the amount of such
loans from retroactive, lump-sum, SSI benefit payments. See Zambardino, 668
F.2d at 197; Moore v. Colautti, 483 F.Supp. 357, 362 (E.D.Pa.1979), aff'd, 633
F.2d 210 (3d Cir.1980).

26

The SSA has now informed plaintiffs that it will no longer consider AFDC
payments as loans under any circumstances (see 16A-17A). Thus, SSA will
reduce retroactive SSI benefit payments by the amount of AFDC payments
made during the SSI determination period even if the state recoups all or part of
the AFDC payments from the recipient.6 Nevertheless, this change in practice
by the SSA does not warrant a departure by this court from its decision in
Zambardino. AFDC payments made during the SSI determination period still
clearly constitute "income" that must be deducted from SSI payments under
section 1382a(b)(6) and 20 C.F.R. Sec. 416.1124(c)(2).

27

Moreover, there is no reason for the SSA to return the amounts so deducted.
The SSA is not, as plaintiffs assert, retaining the Commonwealth's portion of
AFDC payments. The recipient retains any AFDC payments made during the
determination period. The SSA merely deducts the amount of those payments
from retroactive, lump-sum payments as part of the calculation of total SSI
benefits. The recipient is entitled to no more SSI benefits for the determination
period than that which he receives from the SSA. Thus, there is no state subsidy
of the SSI program.

V. "Interim" Assistance Under 42 U.S.C. Sec. 1383(g)

28
29

The SSA is statutorily authorized to withhold from SSI benefit payments an

amount sufficient to reimburse states for "interim assistance" provided to SSI
recipients during the SSI determination period. 42 U.S.C. Sec. 1383(g) (1982).
Plaintiffs contend, as an argument in the alternative, that the state-funded
portion of AFDC provided to eligible SSI recipients during the SSI
determination period is such "interim assistance," for which they should be
reimbursed.

30

For the purposes of section 1383(g), "interim assistance" is defined as "...

assistance financed from State or local funds and furnished for meeting basic
needs ..." during the SSI determination period. 42 U.S.C. Sec. 1383(g)(3)
(1982). The Secretary of HHS has promulgated a regulation narrowing this
definition to exclude assistance payments "... financed wholly or partly with
Federal funds." 20 C.F.R. Sec. 416.1902 (1984). Thus, although AFDC aid is
assistance furnished to meet recipients' basic needs, it does not qualify as
reimbursable "interim assistance" because it is partly financed by federal funds.
Plaintiffs contend that the Secretary's regulation interpreting section 1383(g)(3)
is arbitrary, capricious, an abuse of discretion, or otherwise contrary to law.

31

The Secretary's interpretation of section 1383(g) is substantially supported by

the legislative history of that provision. Senator Taft, the sponsor of the
amendment that later was codified at 42 U.S.C. Sec. 1383, stated that the
legislation was designed to encourage states to develop new "emergency
assistance programs" for SSI applicants awaiting determination of their
eligibility status. 120 Cong.Rec. 20968 (remarks of Senator Taft); see also
Inman v. Department of Social Services, 98 Mich.App. 266, 271, 296 N.W.2d
232, 235 (1980) (section 1383(g) was enacted to provide an incentive for states
to develop interim assistance programs "where there [was] no duty to so
provide"). The AFDC program had already been in existence for a long time
prior to the enactment of section 1383(g).7 Moreover, AFDC aid cannot be
characterized properly as "emergency" assistance. Given our narrow scope of

review of the Secretary's action, we must conclude that the promulgation of 20

C.F.R. Sec. 416.1902 (1984) was a lawful exercise of the Secretary's
discretion.8
VI.
32

In summary, defendants may legally deduct from retroactive SSI benefit

payments the amount of AFDC aid received by an SSI recipient during the SSI
determination period. AFDC aid received during that period constitutes
"income" to the recipient, which is not excludable from SSI benefit calculations
under 42 U.S.C. Sec. 1382a(b)(6). Moreover, AFDC aid does not constitute
"interim assistance" as defined by 42 U.S.C. Sec. 1383(g)(3), and thus
defendants may not reimburse plaintiffs for the state-funded portion of such aid
provided to SSI recipients during the SSI determination period.9

33

The district court order and judgment of March 15, 1984, will therefore be
affirmed.

It is alleged by plaintiffs and not refuted by defendants that this period often
exceeds six months and is sometimes as long as nine months

Plaintiffs do not contend that the SSA purposely delays its determination of SSI
eligibility in an effort to save money

See H.R.Rep. No. 231, 92nd Cong., 2d Sess. 4, reprinted in 1972 U.S.Code
Cong. & Ad.News 4989, 4992 ("... the cost of maintaining these basic benefit
levels for the aged, blind, and disabled will be borne entirely by the Federal
Government"); Schweiker v. Gray Panthers, 453 U.S. 34, 38, 101 S.Ct. 2633,
2637, 69 L.Ed.2d 460 (1981) ("Under SSI, the Federal Government displaced
the States by assuming responsibility for both funding payments and setting
standards of need.")

20 C.F.R. Sec. 416.1124(c)(2) states in part:

"Assistance based on need includes State supplementation of Federal SSI
benefits as defined in Subpart T of this part but does not include payments
under a Federal/State grant program such as Aid to Families with Dependent
Children under title IV-A of the Social Security Act; ...."

At the time the Zambardino case was initiated, the regulation at issue was
codified at 20 C.F.R. Sec. 416.1151(a)(2) (1979)

Prior to the recent policy change by the SSA, the Commonwealth of

Pennsylvania could avoid the loss of the state-funded portion of AFDC
payments made during the determination period without causing a net loss in
benefits to the recipient. The Commonwealth could seek reimbursement from
the SSI recipient of the state-funded portion of AFDC benefits paid during the
determination period, and the SSA would then not deduct as income the
amount recouped by the Commonwealth. Under the present SSA policy, if the
Commonwealth recoups AFDC payments from SSI recipients, the amount
recouped will still be deducted as income from retroactive SSI benefit
payments. The recipient will, therefore, suffer a net loss of the amount of aid
recouped by the state. It is for this reason that the Commonwealth chooses not
to seek recoupment of AFDC payments made to SSI recipients during the SSI
determination period, though the state may be statutorily entitled to do so. See
Pa.Stat.Ann. tit. 62 Sec. 1974 (Purdon 1968)

The AFDC program was originally established by the Social Security Act of
1935, Pub.L. No. 271, 49 Stat. 620

Furthermore, we reject plaintiffs' contention that the state-funded portion of an

AFDC assistance payment can be separated out from the entire payment and be
considered as wholly state-funded interim assistance. Interim assistance is
defined by 20 C.F.R. Sec. 416.1902 to "not include assistance payments
financed wholly or partly with Federal funds." Plaintiffs' proposal to construe
the state portion of jointly funded assistance as reimbursable "interim
assistance" would render meaningless the phrase "or partly" in section
416.1902 because all assistance not wholly funded by the federal government
would then qualify as at least partially reimbursable interim assistance under 42
U.S.C. Sec. 1383(g)

Our decision does not leave plaintiffs without a forum in which to present their
argument that the interaction between the AFDC and SSI statutory schemes
effectively results in state subsidization of SSI benefit payments during the SSI
determination period. Plaintiffs are still free to persuade the Congress that
statutory changes are necessary to rectify any inequities in the present system