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June 18, 1982

Constance JAMES, Individually and on behalf of others similarly situated, and Philadelphia Welfare Rights Organization, by its Executive Director Louise Brookins, on behalf of its members and all others similarly situated
Helen O'BANNON, Individually and as Secretary of DPW, and Don Jose Stovall, Individually and as Executive of the Philadelphia County Board of Assistance, et al.

The opinion of the court was delivered by: POLLAK

In this action the plaintiffs are Constance James and Philadelphia Welfare Rights Organization. They have brought this lawsuit seeking a declaratory judgment and injunctive relief on behalf of themselves and on behalf of a class.

 The class which is selected to be certified is a class of all Pennsylvania households which have earned income who have applied for or who are receiving assistance pursuant to the Aid to Families of Dependent Children Program, the Program popularly known as AFDC.

 The Philadelphia Welfare Rights Organization is an organization of mass membership including large numbers of persons who would be within the proposed class.

 Constance James is one such person. She is a working mother who is a recipient of AFDC supplemental assistance.

 The complaint in this matter was filed somewhat over two months ago, on April 8. The named defendants were Helen O'Bannon, the Secretary of the Pennsylvania Department of Public Welfare, and Don Stovall, who is the county official here in Philadelphia charged with administering the AFDC program in Philadelphia.

 At a conference in chambers on the 9th of April, I granted Constance James' motion to proceed in forma pauperis.

 The plaintiffs' motion for a temporary restraining order was withdrawn in light of the surfacing of an opinion in the District Court in Maine by Judge Cyr in Dickenson v. Petit, 536 F. Supp. 1100 (1982).

 The fact of that decision which represents in substance a rejection of the position which plaintiffs here are espousing was a counter-balance to the somewhat earlier decision in the Southern District of New York which plaintiffs were and have continued to be strongly reliant upon. The decision in New York is RAM v. Blum, 533 F. Supp. 933. That's a decision by Judge Wood of the Southern District of New York.

 On the 14th of April, the plaintiffs refiled or renewed not a motion for a temporary restraining order but a preliminary injunction and argument was held on that motion on the 16th of April. Meanwhile, the Pennsylvania defendants, Secretary O'Bannon and Mr. Stovall, had moved to join as an additional party defendant, the Honorable Richard Schweiker, Secretary of the Department of Health and Human Services. That motion I granted, and since that time Ms. Moskal has entered her appearance for and served as vigorous advocate of Secretary Schweiker's position, helping to enlarge and illuminate the debate very usefully.

 As of April 16, because we did not have the views of Secretary Schweiker, and the record did not seem in its other respects to be a really fit vehicle for determining the motion for preliminary injunction, I requested the parties to submit further briefs. Such further briefs, to which have been appended various documentary exhibits, have been submitted, and oral argument was held on the basis of those further submissions yesterday, June 17.

 At the outset this afternoon I think it appropriate to rule on the motion by plaintiffs for class certification. There appears to be no opposition to that motion, and there would appear to be no sound basis for opposing it. It seems evident that various conditions of a class certification set forth in Rule 23(a) and 23(b)(2) are fully met here. Regrettably, a fact of society is more than adequate numerosity in the class of AFDC applicants and/recipients. The central legal issue is one that is common to all members of the class.

 Plaintiff James' claim would appear to be typical of the claims, and plaintiff James is most assuredly represented by counsel highly versed in these problems and well qualified to carry the banner of the class. So, with plaintiff James as class president, as it were, the motion for class certification of the class as described will be granted.

 I would note that class certification was authorized in the two cases to which I have referred -- Judge Ward's RAM v. Blum in the Southern District of New York, and Judge Cyr's case, the Petit case in Maine.

 I turn now to the motion of the Commonwealth defendants for judgment on the pleadings. In the expanded state of this record, I am treating that as a motion for summary judgment pursuant to Rule 56.

 To rule on the motion, I think it would be helpful to give some description of the background of plaintiffs' claim. Briefly put, it is plaintiffs' contention that Pennsylvania's newly promulgated method for calculating the income of a family receiving supplemental AFDC assistance fails to conform with federal requirements. Specifically, it is plaintiffs' argument that Pennsylvania is bound by what plaintiffs contend to be long-standing federal statutory provisions and regulations to consider only net income which is actually available for current use when calculating the income level of AFDC recipients.

 The contention as phrased comes into focus as a critical contention at the point at which it is translated into plaintiffs' central position namely, that to comply with the requirement of considering only that income which is actually available for current use Pennsylvania must exclude from its calculation of an AFDC applicant's income any and all mandatory payroll deductions: that is to say, deductions for federal, state and city income and wage taxes withheld at the source, and Social Security taxes also withheld.

 According to the plaintiffs, because the portion of one's total income which is withheld due to such mandatory payroll deductions isn't currently available for immediate use, it may not under a proper reading of the federal statute and supporting regulations be counted as part of a family's income in determining the eligibility for, and, if eligible, the proper level of AFDC assistance.

 Now, in order to analyze these contentions it will be necessary to explore in some detail the statutory and, indeed, the regulation framework of AFDC.

 A convenient summary which can be used as a predicate is taken from, with proper attribution, the Supreme Court. In Shea v. Vialpando, 416 U.S. 251, 253, 94 S. Ct. 1746, 1750, 40 L. Ed. 2d 120, the Court described the program as follows:

The AFDC Program is designed to provide financial assistance to needy dependent children and the parents or relatives who live with and care for them. A principal purpose of the program, as indicated by 42 U.S.C. Section 601, is to help such parents and relatives "to attain or retain capability for the maximum self-support and personal independence consistent with the maintenance of continuing parental care and protection . . . ." The program "is based on a scheme of cooperative federalism," King v. Smith, 392 U.S. 309, 316 [88 S. Ct. 2128, 2133, 20 L. Ed. 2d 1118] (1968). It is financed in large measure by the Federal Government on a matching-fund basis, and participating States must submit AFDC plans in conformity with the Act and the regulations promulgated thereunder by the Department of Health, Education and Welfare (HEW). The program is, however, administered by the States, which are given broad discretion in determining both the standard of need and the level of benefits. [Citations omitted].
Under HEW regulations all AFDC plans must specify a statewide standard of need, which is the amount deemed necessary by the State to maintain 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 the applicant. 45 C.F.R. § 233.20(a)(2)(i). The "income and resources" attributable to an applicant, defined in 45 C.F.R. §§ 233.20(a)(6)(iii-viii), consist generally of "only such net income as is actually available for current use on a regular basis . . . and only currently available resources". 45 C.F.R. § 233.20(a)(3)(ii)(c). See also HEW Simplified Methods for Consideration of Income and Resources (1965). In determining net income, any expenses reasonably attributable to the earning of income are deducted from gross income. 42 U.S.C. § 602(a)(7). If, taking into account these deductions and other deductions not at issue in the instant case, the net amount of "earned income" is less than the predetermined statewide standard of need, the applicant is eligible for participation in the program and the amount of the assistance payments will be based upon that difference. 45 C.F.R. §§ 233.20(a)(3)(ii)(a) and (c).

 Mr. Justice Powell's careful exposition for the Court in Shea is better than any precis or paraphrase in setting a description, a backdrop, for the discussion which follows.

 Now, because of the mechanism to which Justice Powell referred of comparing a standard of need with income, the calculation of a family's earned income level is critically important in determining eligibility for, and, if eligible, the level of AFDC assistance. In brief, the greater the family's income, the less assistance it will receive from AFDC, and if the family income is too high, of course, there will be no eligibility.

 Now, the manner in which states calculate a family's income level was significantly changed by the piece of legislation in 1981 called the Omnibus Budget Reconciliation Act of 1981, more familiarly known as OBRA.

 Now, much of the dispute between the parties in this case centers on these 1981 changes in the AFDC program, as those changes were accomplished by OBRA. Hence, the protection of the AFDC income calculation methods both pre- and post-OBRA require some exploration.

 Before OBRA, the starting point for calculating a family's income was the requirement of section 402(a)(7) of the Act, the section referred to by Justice Powell as 42 U.S.C. section 602(a)(7), that:

A state plan for aid and services to needy families with children must [exceptions referred to in Clause 8] provide that the state agency shall, in determining need, take into consideration any other income and resources of any child or relative. . . .

 Now, this statutory language was added in 1939 to the Social Security legislation originally adopted by Congress in 1935, and it has remained the same since, but before the enactment of OBRA in 1981, in addition to this mandate to consider income adopted in 1939, Congress had provided that states make two principal deductions, or what are known in the welfare jargon as "disregards," from a recipient's income in calculating the level of need.

 The first disregard provision was added in 1962 amendments to the Social Security Act. This amended section 402(a)(7), the provision from which I have just quoted, by adding the phrase, "as well as any expenses reasonably attributable to the earning of such income," so that the entirety was a directive to the states to take into consideration any other income ...

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