On Appeal from the United States District Court for the District of New Jersey
(D.C. Civil Action No. 93-cv-05354) Argued June 10, 1996
BEFORE: STAPLETON, GREENBERG, and ALDISERT, Circuit Judges
GREENBERG, Circuit Judge.
Appellants, residents of New Jersey who currently receive welfare funding through the Aid to Families with Dependent Children ("AFDC") program, *fn1 challenge the exercise by the Secretary of Health and Human Services ("HHS") of her authority pursuant to section 1115 of the Social Security Act, 42 U.S.C. Section(s) 1315(a) ("section 1315(a)"), which permits her to waive requirements for state plans under the Act to enable individual states to test reforms to their AFDC programs through "demonstration projects." Specifically, appellants challenge the Secretary's grant of waivers to the State of New Jersey in July 1992 to allow implementation of the state's Family Development Program ("FDP") which, inter alia, contains the so-called "Family Cap" provision, *fn2 an amendment to existing state law that eliminates the standard increase provided by AFDC for any child born to a woman currently receiving AFDC.
Appellants claim that the Secretary's waiver was invalid and improper, that the FDP violates a number of federal statutes and regulations, and that it violates their constitutional rights to due process and equal protection. Both the appellants and the state and federal appellees moved for summary judgment in the district court on all legal issues. The court granted summary judgment for appellees on all counts and dismissed the complaint with prejudice. C.K. v. Shalala, 883 F. Supp. 991 (D.N.J. 1995). This appeal followed.
The district court had jurisdiction over this case pursuant to 28 U.S.C. Section(s) 1331 and 1343(3). We have jurisdiction under 28 U.S.C. 1291. Our review of the matter is plenary. Helen L. v. DiDario, 46 F.3d 325, 329 (3d Cir. 1995); Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 642 (3d Cir. 1991).
AFDC is a joint federal and state program established under Title IV-A of the Social Security Act, 42 U.S.C. Section(s) 601 et seq., to "enabl[e] each State to furnish financial assistance and rehabilitation and other services, as far as practicable under the conditions in such State, to needy dependent children and the parents or relatives with whom they are living . . . ." 42 U.S.C. Section(s) 601. Under the program, if a state submits an AFDC plan that meets the requirements of 42 U.S.C. 602, the federal government will reimburse it for a portion of the benefits it provides to aid recipients. In other words, the state will receive federal matching funds if it implements an AFDC plan that comports fully with the Social Security Act.
AFDC is a "scheme of cooperative federalism" in which states are given "considerable latitude" in the administration of their own programs. King v. Smith, 392 U.S. 309, 316-19, 88 S.Ct. 2128, 2133-34 (1968). Within the statute itself, Congress authorized financial aid:
[f]or the purpose of encouraging the care of dependent children in their own homes or in the homes of relatives by enabling each State to furnish financial assistance and rehabilitation and other services, as far as practicable under the conditions in such State, to needy dependent children and the parents or relatives with whom they are living to help maintain and strengthen family life and to help such parents or relatives to attain or retain capability for the maximum self-support and personal independence consistent with the maintenance of continuing parental care and protection . . . . 42 U.S.C. Section(s) 601.
In 1962, Congress added section 1115 of the Social Security Act, now 42 U.S.C. Section(s) 1315, in the Public Welfare Amendments of 1962, Pub. L. No. 87-543, 76 Stat. 192 (1962). Section 1315 provides, in relevant part:
In the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of subchapter I, X, XIV, XVI, or XIX of this chapter, or Part A or D of subchapter IV of this chapter, in a State or States--
(1) the Secretary may waive compliance with any of the requirements of section 302, 602, 654, 1202, 1352, 1382, or 1396a of this title, as the case may be, to the extent and for the period he finds necessary to enable such State or States to carry out such project . . . . 42 U.S.C. Section(s) 1315(a).
New Jersey's AFDC program is administered by the state's Department of Human Services ("DHS"). On July 1, 1992, the New Jersey legislature enacted the Family Development Program, now known as the Family Development Act, N.J. Stat. Ann. Section(s) 44:10-19 to -33, N.J. Stat. Ann. Section(s) 44:10-3.3 to -3.8 (West 1993). The FDP aims to reduce welfare dependency by, inter alia, developing educational and vocational skills. To advance these goals, one aspect of the FDP mandates that implementing state and county agencies provide individual recipients with contracts tailored to the individuals' needs, providing the recipients with such services as:
job development and placement in full-time permanent jobs . . . counseling and vocational assessment; intensive remedial education, including instruction in English-as-a-second language; financial and other assistance for higher education . . .; job search assistance; community work experience; employment skills training focused on a specific job; and on-the-job training in an employment setting. N.J. Stat. Ann. Section(s) 44:10-25(b).
The job training and education programs created by the FDP for New Jersey's AFDC recipients ("FDP-JOBS") are intended to serve as New Jersey's education, employment and job training programs under 42 U.S.C. Section(s) 681. *fn3 See N.J. Stat. Ann. Section(s) 44:10-19 note.
To assist recipients in pursuing their educational and vocational goals, the FDP provides specific benefits, such as financial assistance for higher education (N.J. Stat. Ann. Section(s) 44:10-25(f)), day care services (N.J. Stat. Ann. Section(s) 44:10-25(g)(1)), transportation services (N.J. Stat. Ann. Section(s) 44:10-25(g)(2)), and the extension of Medicaid benefits for up to two years for persons who "graduate" from the AFDC program as a result of increased earned income (N.J. Stat. Ann. Section(s) 44:10-25(g)(3)).
The provision challenged in this action is section 3.5 *fn4 of the chapter, an amendment to then-existing state law that eliminates the standard AFDC grant increase (e.g., $102 for a second child and $64 for a third child) for any child conceived by and born to an AFDC recipient. In legislative findings and declarations accompanying the enactment of section 3.5, the New Jersey legislature declared that:
[t]he welfare system in this State should be designed to promote family stability among AFDC recipients by eliminating the incentive to break up families created by AFDC program regulations, which undermines the ability of AFDC-enrolled mothers to achieve economic self-sufficiency and thereby perpetuates their dependence, and that of their children, on welfare. N.J. Stat. Ann. Section(s) 44:10-3.7(c).
Briefly stated, after an initial ten-month grace period to provide notice to affected recipients, the FDP denies additional benefits to families receiving AFDC upon the birth of an additional child conceived while the family was receiving AFDC, N.J. Admin. Code tit. 10, Section(s) 82-1.11 (1996). A family affected by the provision is entitled to retain a larger amount of earned income, permitting the family not only to offset the denial of additional benefits but to realize an overall increase in financial benefits through earnings. See N.J. Stat. Ann. Section(s) 44:10-3.5 and -3.6.
Section 3.5 directly conflicts with existing federal law. Even though the FDP was enacted as a permanent, statewide change to New Jersey's AFDC program, its implementation could not occur without the state losing its federal matching funds, absent a waiver from the Secretary of HHS. Consequently, following the bills' passage, the New Jersey Commissioner of Human Services applied to HHS pursuant to 42 U.S.C. Section(s) 1315(a) for waivers of the conflicting provisions of the federal act.
B. THE ADMINISTRATIVE RECORD
The administrative record submitted by the federal appellees is important for resolution of the legal issues involved in the case. Therefore, we will present the contents of the record in some detail, as did the district court.
In mid-May 1992, HHS Assistant Secretary for Children and Families Jo Anne B. Barnhart met with a coalition of welfare advocacy groups to receive their commentary on and objections to New Jersey's proposed waiver application. App. at 41, 43. Following this meeting, on May 19, 1992, Melville D. Miller, President of Legal Services of New Jersey, Inc., submitted on behalf of his organization and 12 other advocacy groups a memorandum to Assistant Secretary Barnhart that detailed certain preliminary objections to New Jersey's AFDC waiver request. App. at 43-68.
On June 5, 1992, DHS submitted its formal application to HHS for a waiver under section 1315(a) that would authorize, inter alia, the state's implementation of section 3.5 as well as the FDP-JOBS program as a five-year experimental project. App. at 174. The application included a proposal by the agency that described counterproductive results of current welfare policies and described how New Jersey's FDP would address these deficiencies with the goal of ultimately breaking the "cycle of poverty." App. at 175-288. While DHS conceded that depriving children of AFDC benefits might seem "harsh," it nevertheless justified section 3.5 by stating that its purpose was to encourage parents to be responsible in their decision to have additional children while receiving welfare. App. at 183-85. Indeed, DHS explicitly described the choice to have a child while receiving public support as "irresponsible [and] not socially desirable." App. at 183. DHS stated that it would offer financial incentives to encourage AFDC parents with children born after section 3.5 became effective to offset the benefits they otherwise would have received through priority for employment and training services in FDP-JOBS and through the increase in the earned income disregard. App. at 184-85.
On July 2, 1992, Assistant Secretary Barnhart submitted a memorandum to then-Secretary Louis Sullivan that formally recommended approval of New Jersey's waiver request. App. at 40. Shortly thereafter, on July 9, 1992, the aforementioned advocacy groups sent a letter to Assistant Secretary Barnhart to supplement their earlier submission, predicated upon their "review of the final application submitted by the State, together with [their] review of the implementing regulations for the FDP as published in the New Jersey Register . . . ." App. at 36. In a reply letter dated August 7, 1992, Assistant Secretary Barnhart informed Legal Services of New Jersey that HHS had considered their supplemental objections but that the waiver still was granted, in part because the New Jersey program "represented a new and innovative approach aimed at promoting self-sufficiency and reducing long-term welfare dependency." App. at 17.
On July 20, 1992, Secretary Sullivan approved the waiver to allow the entire FDP to be implemented as a five-year project under section 1315(a). App. at 18-35. The waiver allowed DHS to implement section 3.5 statewide commencing on October 1, 1992. App. at 20-21. Included among the terms and conditions of the waiver was the requirement that New Jersey conduct a demonstration project whereby families subject to the provisions of the FDP would be "randomly assigned to either a treatment group whose eligibility will be determined based on FDP provisions, or to a nontreatment (or control) group for whom eligibility will be determined based on existing program provisions." App. at 21. DHS was permitted to phase in FDP-JOBS, first in Essex, Hudson, and Camden counties, and then in the remaining 18 counties of the state according to a DHS-sponsored schedule, but "by no later than June 1995." App. at 22. DHS adopted regulations to implement the FDP on September 21, 1992. 24 N.J. Reg. 3352 (Sept. 21, 1992). The regulations became operative on October 1, 1992, and provide that every child born after August 1, 1993, to a parent receiving AFDC for any month within the ten months preceding the birth of the child "shall be excluded from the eligible unit" and the parent "shall not be entitled to incrementally increased AFDC benefits as a result of the birth of a child(ren)." N.J. Admin. Code tit. 10, Section(s) 82-1.11(a). The only exception to section 3.5's mandate is for the children of new AFDC applicants that are born within ten months of their families' application for benefits. N.J. Admin. Code tit. 10, Section(s) 82-1.11(a)(2).
II. VALIDITY OF THE HHS WAIVER UNDER THE APA
Appellants first challenge the district court's decision to uphold the Secretary's grant of the waiver to New Jersey under 42 U.S.C. Section(s) 1315(a). *fn5 Appellants claim that the Secretary's decision to grant the waiver violated the Administrative Procedure Act ("APA") in two ways. First, they claim that the Secretary *fn6 failed to articulate or explain in the record how her decision complied with the statutory requirements of 42 U.S.C. Section(s) 1315(a) and how it addressed the other statutory and constitutional issues raised during the administrative process. Second, the appellants claim that the Secretary exceeded her authority under section 1315(a) by granting a waiver that is not likely to assist in promoting the objectives of AFDC, is imposed beyond the extent necessary to carry out the project, and is not a valid experimental project. *fn7
We note at the outset that a court, in reviewing informal agency action, "is not empowered to substitute its judgment for that of the agency." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824 (1971). Nor will we presume even to comment upon the wisdom of New Jersey's effort at welfare reform. Although our inquiry into the propriety of the Secretary's waiver here "is to be searching and careful, the ultimate standard of review is a narrow one." Id. Because we believe that this narrow standard of review forbids us to disturb the Secretary's decision, we will explain the standard of review in some detail.
The Supreme Court in Overton Park explained the contours of judicial review of informal agency action under the APA. At issue in that case was the Secretary of Transportation's approval of plans to construct a federally-funded interstate highway through a city park located near the center of Memphis, Tennessee. Two statutes prohibited the Secretary from authorizing the use of federal funds to finance the construction of highways through public parks absent findings that no "feasible and prudent" alternative route existed and that there has been "all possible planning to minimize harm" to the park. 401 U.S. at 405, 91 S.Ct. at 818 (quoting the Department of Transportation Act of 1966, as amended, 49 U.S.C. Section(s) 1653(f), and the Federal-Aid Highway Act of 1968, 23 U.S.C. Section(s) 138). The Court noted that these statutory provisions were "clear and specific directives" to the Secretary, operating as "plain and explicit bar[s] to the use of federal funds for construction of highways through parks--only the most unusual situations are exempted." Id. at 411, 91 S.Ct. at 821. "Despite the clarity of the statutory language," id., the Secretary announced his approval of the highway project without providing any statement of factual findings: "He did not indicate why he believed there were no feasible and prudent alternative routes or why design changes could not be made to reduce the harm to the park." Id. at 408, 91 S.Ct. at 819.
The Court held that such formal findings were not required. "Undoubtedly, review of the Secretary's action is hampered by his failure to make such findings, but the absence of formal findings does not necessarily require that the case be remanded to the Secretary." Id. at 417, 91 S.Ct. at 824. The Court noted that "the Secretary's decision is entitled to a presumption of regularity," but cautioned that the APA nonetheless "require[s] the reviewing court to engage in a substantial inquiry." Overton Park, 401 U.S. at 415, 91 S.Ct. at 823. *fn8
The parties do not challenge the district court's determination that here, as in Overton Park, this "substantial inquiry" is pursuant to APA "arbitrary or capricious" review: "[A]gency action must be set aside if the action was 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law' . . . ." Id. at 414, 91 S.Ct. at 822 (quoting 5 U.S.C. Section(s) 706(2)(A)). The APA thus requires a finding that the actual choice made was neither arbitrary nor capricious. To make this finding, the court must confine its review to "the full administrative record that was before the Secretary at the time he made his decision," and "consider ...