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October 4, 1972

William T. CAHILL, in his capacity as Governor and Chief Executive Officer of the State of New Jersey, et al., Defendants

Clarkson S. Fisher, District Judge.

The opinion of the court was delivered by: FISHER

CLARKSON S. FISHER, District Judge.

This case challenges those changes in New Jersey's Welfare Law which became effective on July 1, 1971. Both constitutional and statutory issues were raised. In June of 1971, a single judge, after considering plaintiffs' motion for a preliminary injunction against the institution of the disputed changes, granted a motion to dismiss proffered by the defendants. The plaintiffs then appealed and the Circuit Court of Appeals, 3rd Cir., 448 F.2d 1247, remanded the action to the District Court with instructions to allow plaintiffs additional time to complete their discovery and to convene a three-judge court to consider the constitutional issues. The three-judge court was convened on January 17, 1972 and its opinion has been separately filed today, D.C., 349 F. Supp. 491. The attack on the statutory portion of the action, delayed by problems of discovery between the parties, was heard by a single judge without a jury on June 6th, 7th and 9th, 1972. This opinion considers that aspect of the case.

 The statute which plaintiffs specifically contend that defendants contravene by their alteration of welfare regulations is 42 U.S.C. § 602(a) (23) *fn1" as interpreted by the Supreme Court in the case of Rosado v. Wyman, 397 U.S. 397, 90 S. Ct. 1207, 25 L. Ed. 2d 442 (1970). That case held, in essence, that after July 1, 1969 a state participating in the Federal Aid to Families with Dependent Children (AFDC) Program could not lower its standard of need for recipients of aid under that program's auspices. It is such an illegal reduction in the content of the standard of need of New Jersey's AFDC recipients which plaintiffs claim has occurred by the institution of the changes of July 1, 1971.

 The changes occurred as a result of Governor Cahill's desire to cut back on welfare abuses, to streamline the distribution of welfare to the state's needy citizens, and to increase the efficiency and lower the costs of the welfare system as a whole. *fn2" The Governor's Welfare Study Commission and his Task Force on Welfare Management both recommended that a consolidated flat grant payment system be adopted as a means for accomplishing this desired goal. It would be the culmination of gradual consolidations within the welfare system occurring over a period of years. Such flat grant consolidations were felt to give welfare recipients more control over their lives by eliminating second-guessing on expenditures by paternalistic welfare workers, to eliminate inequities among clients and between clients and non-clients, and to vastly increase efficiency in the administration of welfare. Prior to July 1, 1971, under the Manual of Distribution then in use, the Categorical Assistance Budget Manual (CABM), only one of the three categories of needs, personal and household needs, was met by a flat grant, which was determined by family size, composition and age of the eldest child. The other two categories, shelter and special circumstance grants, *fn3" were paid at cost, with the only limitation being that the costs were reasonable. Under the new system, distributed according to the Family Assistance Manual (FAM), all three need categories are given as a flat grant with almost no variations considered for actual cost. *fn4"

 The consolidated flat grant was initially arrived at through use of a methodology known as Benchmark I. As part of this methodology the Division of Public Welfare ordered each of its county offices to send to Trenton the case sheets (PA3A Forms) for December 1970, of all files whose numbers ended in certain predesignated digits. In this way it was hoped that a random sample of approximately 5% of all welfare cases could be collected and then all their component parts could be averaged. However, because of failure by certain county offices to fully comply with the Division's orders, a sample of only approximately 4% was received. The Division, however, proceeded to average all component parts of the returned case sheets.

 Averages were obtained by adding the total amount of expenditures per need category and dividing by the number of family budget units of the same size. For instance if there was a total of $120,000 spent in one month for shelter by all families of four in the sample and there were 1,000 such families, the amount to be allotted per family was $120 per month. If the average personal and household need of all families of four in the sample was $180 per month, and the average special circumstance grant for such families was $20 per month, *fn5" these two figures would be added to the $120 shelter figure and all recipient families of four would receive a check each month of $320. In addition a "creeping factor" to account for rises in the cost of living between the time of the study and the institution of the FAM, was added in. It amounted to fifty cents per person per month. In this manner a separate average was taken for each family size. The FAM merely listed the total amount to be given to each family varying in amounts only according to family size, without breaking it down to the three need categories plus the "creeping factor".

 In computing the averages under Benchmark I, only the actual amounts paid per family budget unit size was recognized in the averaging process. No attempt was made to separately compute the rent of those families living in privately owned housing as opposed to those living in public housing, and whose rents would therefore be cheaper. Again no attempt was made to separate a family from Bergen County which might be paying $180 per month for rent from one from Salem County which might be paying $75 per month. Nor were people who needed no special circumstance grants separated from those who had large special needs such as special diets, etc.

 The advantages in terms of administrative efficiency to be gained as a result of this flat grant consolidation are readily apparent. A welfare worker no longer had to worry whether a client's rental was reasonable or whether he or she needed special circumstance items and how much should be allotted for them. All the worker had to do was determine the size of the recipient family and then look at the FAM to find out how much that family should receive. The client, too, would know exactly how much he would receive and budget expenditures accordingly. He would not have to, nor would he be able to, run to the Welfare Department every time a need arose.

 Benchmark I was partially modified by an Expanded Study conducted after the remand of this case. It was done at the prompting of the Department of Health, Education and Welfare (HEW) which, although accepting the concept of averaging, did not feel that the study conducted pursuant to Benchmark I was extensive enough to ensure the proper averaging of a technically sufficient sample.

 The methodology of the Expanded Study was similar to that used in Benchmark I except that instead of only one month's PA3A forms being studied and averaged, samplings of four months were collected. The four months, June 1970, September 1970 and March 1971, in addition to the original December 1970 study, constituted, according to HEW, a more adequate basis for accounting for possible geographic and seasonal factors affecting the averaging process.

 Additionally, instead of averaging all payments according to family budget unit size as they were paid prior to July 1, 1971, regardless of all other factors which may have previously been considered in figuring the amount of that payment, certain discriminations were accorded to the averaging process in the Expanded Study. Under Benchmark I the shelter cost for all families in each family size were averaged whether the families were "square" or "non-square". *fn6" Since "non-square" families were assisted in payment of rent by the person or persons within their living unit not on welfare, such families' shelter needs under the CABM were proportionately lessened and including them in the averaging process had a tendency to depress the final average. Non-square families were not averaged in the Expanded Study. In Benchmark I figures from all segments, C, F and N were averaged together for all three need categories, whereas in the Expanded Study, the N Segment was eliminated from calculations for personal and household needs and for shelter, although not from special circumstance averages. The rationale for this difference, according to the defendants, was that the N Segment had been wholly financed by the State and assistance criteria for families under its auspices differed from those in the C and F Segments. Special circumstance grants were computed on an individual basis and criteria under all segments did not differ for that category. Another difference between Benchmark I and the Expanded Study was that in the former all special circumstance grants were considered in the averaging, whereas in the latter study four such grants were excluded from the averaging. The four, homemaker service, child care, expenses of training, and emergency assistance will continue to be paid for at cost.

 The results of the Expanded Study tended to corroborate the correctness of Benchmark I. Although the average four special circumstance grants rose from forty-eight cents per month per person to seventy-five cents, the only change in final averages was that computed for a family of five, for which it was determined that the proper flat grant payment should be $370 rather than $360 per month. An amendment to this effect in the FAM was instituted by the defendants on July 1, 1972.

 Plaintiffs, who allegedly represent those AFDC recipients who receive less money under the FAM than under the CABM, quarrel with both Benchmark I and the Expanded Study both as to technical statistical methodology and as to the component figures used in the averaging process. They claim that Benchmark I was technically deficient mainly for the same reasons that prompted HEW to request the Expanded Study: it was too narrow in scope and the county returns were inconsistent. However, since the present FAM is the product of the Expanded Study, arguments against Benchmark I are moot.

 Plaintiffs claim that averaging of shelter across the state is per se illegal since shelter costs vary greatly in different counties. They claim that artificially limited data, such as rent for recipients living in public housing, should not have been figured in the averaging. They further claim that the requirement under the CABM to pay shelter and special circumstance needs at cost contained a built-in cost of living increase requirement, which is now eliminated under the FAM. Plaintiffs contend that averaging of non-recurring special circumstance grants (i.e. moving expenses) is also per se illegal, as is averaging special circumstance grants from certain counties where it appears that figures for such grants were inordinately low and probably improperly distributed. Plaintiffs further contend that determination of a mean through averaging should not be the focus but there should rather be an assessment of typicality. The question should be, according to plaintiffs, what amount does the typical recipient receive, rather than have a mean which is altered by the extremes. In essence, the plaintiffs say that the defendants, in undertaking the project of consolidation from the former components of the CABM into the FAM's flat grant, did not consider the quality of the data used, did not consider significant aspects of the former standard of need, and did not take into account harm to recipients and reductions in needs. In this way they contend that the defendants have violated 42 U.S.C. 602(a) (23) as interpreted by Rosado, supra.

 The plaintiffs admit that the Supreme Court in Rosado did allow averaging of grants to AFDC recipients. However, they note that the Court allowed only fair averaging using figures that are fairly priced. Specifically, the Court said:


"Section 402(a) (23) (42 U.S.C. 602(2) (23)) invalidates any state program that substantially alters the content of the standard of need in such a way that it is less than it was prior to the enactment of § 402(a) (23), unless a State can demonstrate that the items formerly included no longer constituted part of the reality of existence for the majority of welfare recipients. We do not, of course, hold that New York may not, consistently with the federal statutes, consolidate items on the basis of statistical averages. Obviously such averaging may affect some families adversely and benefit others. Moreover, it is conceivable that the net payout, assuming no change in the level of benefits, may be somewhat less under a streamlined program. Providing all factors in the old equation are accounted for and fairly priced and providing the consolidation on a statistical basis reflects a fair averaging, a State may, of course, consistently with § 402(a) (23) redefine its method for determining need." 397 U.S. at 419, 90 S. Ct. at 1221, 25 L. Ed. 2d at 459.

 Much of the outcome of this case turns on the interpretation given to the above paragraph.

 In Rosado, supra, the Supreme Court reviewed an attempt by New York State to convert its prior system of distribution of welfare aid into a flat grant system such as that before this Court. The Rosado Court held that New York violated 42 U.S.C. 602(a) (23) in that it did not include certain special needs in its averaging process and thereby impermissably lowered the content of its prior standard of need.

 En route to rendering its decision, the Supreme Court in Rosado explored the legislative history of Section 602(a) (23) and reached some conclusions as to the purpose which Congress intended that section to serve and the interpretation that it should be given in the future.

 The Court, noting that Section 602(a) (23) was a child of legislative compromise, Congress having rejected plans to require annual updating of the participating state's standard of need, determined that that section had two main purposes:


"First, to require States to face up realistically to the magnitude of the public assistance requirement and lay bare the extent to which their programs fall short of fulfilling actual need; second, to prod the States to apportion their payments on a more equitable basis." 397 U.S. at 412-413, 90 S. Ct. at 1218.

 The Court emphasized that Section 602(a) (23) does not force states to spend more money nor prohibit them from spending less on their public assistance programs. It concerns standards of need rather than levels of payments. After enumerating the two main purposes of Section 602(a) (23), the Court continued:


"(A) State may, after recomputing its standard of need, pare down payments to accommodate budgetary realities by reducing the percent of benefits paid or switching to a percent reduction system, but it may not obscure the actual standard of need." (Emphasis in text) 397 U.S. at 413, 90 S. Ct. at 1218.

 The standard of need is thus to be considered separate from the level of payment. The standard of need is the State's yardstick for stating need and measuring whether any particular family is needy and therefore eligible for assistance. States have been given a great deal of leeway both in determining the standard of need within the state and the amount of that need which will be met through public assistance. Rosado, supra, at 408, 90 S. Ct. at 1215.

 New Jersey purports to pay its recipients 100% of their need although there is no federal requirement for doing so. Rosado only requires that the standard of need cannot be reduced, not the attempts by the state to meet that standard.

 Yet Section 602(a) (23) was not to be a meaningless exercise in bookkeeping. By forcing the standard of need to remain unaltered and unobscured while the levels of payments could be reduced the Court said that Congress ultimately hoped to require the states "to recognize and accept the responsibility for those additional individuals whose income falls short of the standard of need as computed in light of economic realities and to place them among those eligible for the care and training provisions" and to force a State which cuts back on its level of benefits "to accept the political consequence of such a cutback and (bring) to light the true extent to which actual assistance falls short of the minimum acceptable". 397 U.S. at 413, 90 S. Ct. at 1218.

 It is plaintiffs' contention that defendants have altered the standard of need through an improper averaging process and then obscured the actual standard of need by denying any alterations and by claiming that the new standard is as indicative of the same minimal needs as the old.

  Discussion of these charges requires a comparison between the standard of need in existence prior to July 1, 1971 with that under the FAM, both of which were figured on different bases, one on meeting individual needs and one on a flat grant. The District Court on remand in Rosado, 322 F. Supp. 1173, 1180 (E.D.N.Y.1970), termed the process "comparing base year apples with current year pears".

 The relationship between the two standards was, of course, the conversion of one into the other through averaging. Any discussion thus must start with a consideration of that process.


 Plaintiffs initial concern with methodology is with the concept of a consolidated flat grant in itself. Although conceding that it can be legal plaintiffs argue that it has a great potential for obscuring the standard of need.

 It is true that under a consolidated flat grant system an individual's personal standard of need is no longer fully considered; however, there are definite advantages to such system which outweigh defects both in regard to policy and law. A consolidated flat grant system, besides being specifically approved by the Court in Rosado, has the advantage of eliminating welfare paternalism, creating a certainty as to the amount of monthly payment and helping to eliminate inequities in welfare distribution, a goal of Section 602(a)(23) according to the Court in Rosado. Furthermore, instead of obscuring the standard of need it would seem to further clarify it. Instead of computing various budget figures and expenses subject to subjective standards of reasonableness a needy individual need only look at one figure to determine if he is eligible for assistance, a far simpler process.

 The selection of cases to be used in computing averages for consolidation was done by the process of random sampling, a process specifically approved in numerous cases, including the Rosado opinion of the District Court after remand, 322 F. Supp. at 1180. Although Benchmark I was determined to be inadequate there has been little dispute as to the technical sufficiency of the Expanded Study. The standard deviation and standard error tables for the data compiled under the Expanded Study are as follows: From December 1970 Data STANDARD DEVIATIONS Family Personal Budget and Special Unit Shelter Household Circumstances Size (a) Needs (b) (c) 2 $30.74 $11.96 $ 6.51 3 33.62 21.28 7.27 4 35.50 20.44 6.37 5 37.28 23.54 4.92 6 39.87 35.64 2.09 7 35.92 18.49 2.78 8 35.21 21.68 0.72 9 39.50 31.78 1.10 10 25.50 11.31 4.57 11 41.11 12.65 9.85 12 39.24 9.28 3.86


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