On November 2, 1981, I held a hearing and argument on plaintiffs' motion for a temporary restraining order. The following day, plaintiffs having failed to establish that they would suffer irreparable harm from denial of their motion, I denied their motion for a temporary restraining order and set the matter for final hearing and argument. On November 17, 1981, I heard final hearing and argument on plaintiffs' request for a declaratory judgment and permanent injunction.
For the reasons that follow, I hold that plaintiffs are entitled to both a declaratory judgment invalidating portions of the federal regulations and permanent injunctive relief preventing Commonwealth implementation of its current regulations.
I. Factual Background
A. The Omnibus Budget Reconciliation Act (OBRA)
Congress enacted the OBRA, Pub. L. No. 97-35, 95 Stat. 357 (1981), on August 13, 1981. Sections 2301 through 2321 of that statute legislated major changes in the joint federal/state welfare program known as Aid to Families With Dependent Children (AFDC), 42 U.S.C. §§ 601-675. The statutory changes, which mostly affect welfare payments to the working poor, were generally effective on October 1, 1981.
B. The HHS Interim Final Regulations
According to the testimony of Michael DeMaar, the Director of Policy for the Office of Family Assistance in the Social Security Administration, the planning that ultimately led to promulgation of the interim final regulations at issue in this case began with the formation of a study group in May 1981. Participants in this group included both federal and state bureaucrats. Its first order of business, according to Mr. DeMaar, was to formulate plans to implement a timetable to ensure timely promulgation of regulations under what was still only proposed OBRA legislation. At this time, almost six months before the actual effective date of OBRA, HHS decided to avoid the usual notice and comment procedures mandated by the Administrative Procedure Act (APA), 5 U.S.C. §§ 500-576, and instead to issue interim final regulations implementing OBRA.
The record is replete with testimony concerning the informal efforts of HHS to obtain comments on its proposed regulations. First, on July 2, 1981, HHS sent a letter to several large organizations representing various portions of the population requesting their input in the development of regulations on the proposed OBRA legislation. Only two organizations, the AFL-CIO and the Pacific Legal Foundation, responded to this first mailing.
Second, on July 22, 1981, Mr. DeMaar sent a letter to thirty-two organizations (Exhibit G-2) including the Philadelphia Welfare Rights Organization, one of the plaintiffs in this litigation. That letter informed the addressees that Congress was currently considering amendments to the AFDC program, that HHS had begun development of implementing regulations, and that the thoughts, suggestions, and comments of each addressee would be appreciated as part of that process. (Exhibit G-1) Only one of these thirty-two addressees, the National Association of Social Workers, responded. That response objected to HHS's use of the interim final regulation procedure and complained about the short time allowed for comment.
No draft regulations were enclosed with the HHS letter and HHS made no attempt to recontact any of the thirty-two organizations to whom the letter was addressed after development of draft regulations.
Third, on August 13, 1981, and again sometime early in September, HHS provided working drafts of proposed regulations to the Association of Public Welfare Administrators (APWA), an agency whose membership consists primarily of state welfare administrators. Although Mr. DeMaar testified that the August 13 draft (Exhibit P-2) involved no exercises of discretion by the federal Secretary, from my review of that draft I conclude otherwise. It is clear, however, that that draft was merely a preliminary working paper bearing little resemblance to the interim final regulations that were ultimately promulgated. It is also undisputed that this draft had not been submitted through normal clearance procedures in HHS. It appears from the record, however, that the draft of regulations distributed to the APWA in early September was essentially the same set of regulations that was ultimately published in the Federal Register.
Fourth, HHS conducted two conferences (one in Phoenix, Arizona and the other in Philadelphia, Pennsylvania) in mid-September for the benefit of state welfare administrators. Apparently, the major function of these conferences was to familiarize these administrators with the provisions of the then virtually completed interim final regulations. (See Exhibit P-3)
Mr. DeMaar testified that as of September 3, 1981 the proposed regulations had completed all internal clearance procedures within HHS. At that point, they were submitted to the Office of Management and Budget (OMB) pursuant to Executive Order 12291, 46 Fed.Reg. 13193 (Feb. 19, 1981). Following approval by OMB, the regulations were published on September 21, 1981. 46 Fed.Reg. 46750-73 (Sept. 21, 1981). Consistent with the decision made in May 1981, the regulations were published in interim final form with a sixty day post-publication comment period. Although that comment period is scheduled to conclude November 20, 1981, HHS had received only nine comments as of November 16.
C. Pennsylvania's Regulations
The Commonwealth asserts that it has inherent authority independent of the federal Secretary's issuance of regulations to implement OBRA. As discussed below, I need not decide on the facts of this case whether this assertion of authority by the Commonwealth is valid. In any event, Pennsylvania promulgated its own state regulations implementing the provisions of OBRA and the federal regulations on November 7, 1981 to be effective November 9, 1981. 11 Pa.Bull. 3954-82 (Nov. 7, 1981).
The record also shows that Pennsylvania welfare officials attended the Philadelphia conference sponsored by HHS in the middle of September 1981. The Commonwealth, however, according to the testimony of Gregory O'Beirne, Director of the Office of Policy in the Commonwealth Department of Public Welfare, began drafting its regulations in July 1981. At that time, the policy analysts were using congressional material and documents and information supplied to them by the APWA.
D. OBRA's Effect on Pennsylvania AFDC Recipients and the State Fisc
As noted earlier, the major effects of OBRA will be felt by AFDC households containing at least one working member. According to the official projections of the Pennsylvania Department of Public Welfare, 17,840 households containing 53,520 persons currently receiving AFDC benefits will be rendered ineligible under the standards of OBRA. An additional 23,950 households composed of 57,050 individuals face reductions in their AFDC benefits as a result of the Commonwealth's implementation of OBRA.
The Commonwealth's figures also demonstrate that the size of the reductions mandated by OBRA is quite substantial. The average benefit loss per month for each household facing termination of AFDC assistance as a result of OBRA is $ 133.49, ranging from $ 4 to $ 270, depending on the number of individuals in the household and the specific provisions affecting the particular household. Further, the average benefit loss per month for each household facing a reduction in benefits as a result of the Commonwealth's implementation of OBRA is $ 64.24, with a range from $ 6 to $ 263.
Any delay in the Commonwealth's implementation of the cuts in the AFDC program prescribed by OBRA will have a substantial effect on Pennsylvania's state treasury. These effects can be analytically divided into two distinct categories. First, the Commonwealth stands to save in excess of $ 2.2 million dollars each month of implementation.
Second, if Pennsylvania fails to implement the OBRA cuts, and continues to pay benefits at the old payment level, it is possible that HHS will deny Pennsylvania federal financial participation for benefits paid inconsistent with the requirements of OBRA. If HHS denied the Commonwealth federal financial participation for this reason, Pennsylvania would be forced to expend in excess of an additional $ 2.9 million dollars for each month that it was found not in compliance with federal standards. Thus, the total potential drain on the Pennsylvania state treasury should the OBRA cuts not be implemented and should federal financial participation be denied is in excess of $ 5.2 million dollars each month.
II. Validity of the Federal Regulations Under the APA
It is plaintiffs' position that, in promulgating the OBRA implementing regulations without a prior notice and comment period, the federal defendant violated the provisions of the APA. They ask that I therefore declare those regulations invalid. The federal defendant argues, however, that he had "good cause" under the APA to dispense with that statute's normal rule-making procedures. The first key issue to resolve, therefore, is whether the federal Secretary had good cause for proceeding in the manner in which he did. For the reasons that follow, I hold, both as a matter of law and as a matter of fact, that good cause did not exist for dispensing with normal rulemaking procedures and, therefore, that HHS's promulgation of implementing regulations for OBRA was invalid.
A. THE APA
My decision of this first crucial issue turns on the following statutory section:
(b) General notice of proposed rulemaking shall be published in the Federal Register, unless persons subject thereto are named and either personally served or otherwise have actual notice thereof in accordance with law. The notice shall include-