Opinion ID: 2230022
Heading Depth: 2
Heading Rank: 2

Heading: The Hess Criteria

Text: While we presume that an entity's classification under § 1983 mirrors its classification under state law, we must test that presumption with the specific inquiries established in Hess. If these inquiries produce a consistent result, our analysis is at an end. If not, we must further analyze the entity at issue in light of the purposes of the Eleventh Amendment. Our ultimate quest is to determine whether the legislature intended to extend sovereign immunity to the entity. The first inquiry is whether the entity performs a traditionally state or local function. In this case, we cannot say that providing public assistance and other social services readily fits into either category. As we noted above, the Social Security Act allowed states to vest administration of its programs in either a state agency or political subdivisions. This inquiry neither advances our understanding of the § 1983 status of the county departments nor casts doubt on our presumptions. The second inquiry is whether the entity is subject to state or local control. As we concluded above, the county departments have been subject to a significant measure of state oversight since their inception in 1936. That measure of control would have been sufficient, under ordinary circumstances, to support the inference of an agency relationship between the county departments and the State Department. We might conclude, then, that the control inquiry supports the proposition that the county departments have always been arms of the state for § 1983 purposes. But the control inquiry cannot proceed in a vacuum. In 1936, our legislature chose to set up as decentralized a system as the Social Security Act permitted. The legislature created the county departments as distinct municipal corporations and provided for local appointments of not only the directors of the county departments but also the members of the county boards. The county departments approved grants of public assistance and provided other client-level human services. The Social Security Act required that if states chose to allow political subdivisions to administer programs in this way, the states had to retain supervisory authority. To view that supervision as necessarily transforming a political subdivision into an arm of the state would contradict the Social Security Act's offer of a choice between centralized and decentralized administration and would render the Act's use of the term political subdivision somewhat superfluous. We are unwilling to adopt that view. Although the State Department possessed supervisory control over the county departments before 1986, that control does not imply an extension of sovereign immunity, for the supervision was mandated under the Social Security Act's option for decentralized administration. The increased level of state control established in 1986, however, is a relevant indicator of legislative intent to draw the county departments under the state's umbrella. The control inquiry produces a result that is fully consistent with our presumption that the county departments were political subdivisions under § 1983 until the 1986 restructuring made them arms of the state. The third inquiry is whether funds for the entity are provided by the state or, in contrast, by either local government or the entity's own independent revenue-generating capacity. As we explained above, each county department is supported by a county welfare fund. Although a significant amount of revenue for this fund comes from the county welfare tax, the fund also benefits from substantial grants from the federal and state governments. [46] The diversity of funding sources reflects the obvious fact that public welfare activities in Indiana were intended to be cooperative endeavors among federal, state, and local governments. This inquiry does not significantly contribute to our ability to classify the county departments as state or local entities. The funding scheme is not necessarily inconsistent with our presumption. Furthermore, to the extent the state assumed an even greater financial role in the 1986 restructuring, the funding scheme supports the notion that the county departments became arms of the state at that time. Finally, we must consider whether the state was liable for the debts of the county departments, especially judgments against them. Both before and after the 1986 restructuring, the counties were legally responsible for many of the debts of the county departments. Awards of public assistance and other expenses related to providing human services constituted claims against the counties both before and after the amendments. See Ind.Code Ann. §§ 12-1-3-9 (West 1982 & Supp.1991) (repealed 1992). Also, the 1986 act expressly provided that it did not free the counties of their obligations to support bonds and loans they had issued to cover shortfalls in county department budgets. 1986 Amends., § 80(a), 1986 Ind. Acts at 469-70. On the other hand, while claims relating to the administrative expenses were county obligations before the 1986 amendments, see §§ 12-1-3-9, 12-1-11-3(a) (West 1982), the responsibility for paying those costs was transferred to the state in the restructuring, see id. §§ 12-1-3-8(a) (West Supp. 1991) (repealed 1992). [47] Courts holding that the county departments were arms of the counties and amenable to suit under § 1983 have focused on these fiscal obligations of the county governments. See Baxter v. Vigo County Sch. Corp., 26 F.3d 728, 732-33 (7th Cir.1994); Mackey v. Stanton, 586 F.2d 1126, 1130-31 (7th Cir.1978), cert. denied, 444 U.S. 882, 100 S.Ct. 172, 62 L.Ed.2d 112 (1979). We think those courts gave too little weight to our prior construction of Indiana law in attributing such significance to these fiscal matters. Claims involving the county departments whether for public assistance or pre-1986 administrative costswere payable only from the county welfare fund. See Ind.Code Ann. § 12-1-11-3(a) (West 1982 & Supp. 1991) (repealed 1992). Moreover, the counties issued bonds or obtained loans under the public welfare code only in order to provide advances to the county welfare fund. Id. § 12-1-11-3(b). Underlying these functions was a legal obligation of counties to support county welfare activities. As to management of the county welfare fund, we indicated in 1974 that the county governments were virtually financial agents of the autonomous county departments. See City of Indianapolis v. Indiana State Bd. of Tax Comm'rs, 261 Ind. 635, 638-39, 308 N.E.2d 868, 870 (1974). When the county departments were transformed into subordinate agencies of the states in 1986, the county governments becamewith respect to these activitiesfinancial agents of the state. We so hold as a matter of state law. We reach a similar result with respect to judgments rendered against a county department. Before the 1986 restructuring, the public welfare code provided that none of the officers or employees of the State Department or the county departments could be held personally liable, except to the state of Indiana or the county for any official act done or omitted in connection with the performance of their respective duties under the provisions of this act. Ind.Code Ann. § 12-1-4-3 (West 1982) (emphasis added) (repealed 1992). Given this kind of indemnification scheme, either the state or the counties could be held liable for judgments rendered against the county departments before 1986. However, the state and the counties were not jointly and severally liable. The Welfare Act established the county departments as municipal corporations, but, again, the Social Security Act required that the state retain supervisory authority. We think this structural oxymoron had implications for liability. The very existence of supervisory authority might lead one to conclude that the state should have been held strictly or vicariously liable for the official misconduct of a county department. But that result would contradict the status of the county departments as municipal corporations and would eliminate any need for the county indemnification permitted under § 12-1-4-3. The 1986 amendments swept away this tension. They made the county departments subordinate arms of the State Department and deleted the authority for county indemnification. 1986 Amends., § 17, 1986 Ind. Acts at 422; Ind.Code Ann. § 12-1-4-3 (West Supp.1991) (repealed 1992). Any misconduct by the county departments became directly attributable to the state. Even if the misconduct involved a denial of public assistanceand would consequently be compensated from the county welfare fund management of the county welfare fund became a state function. In fact, we think just as title to the property of the county departments was transferred to the state in 1986, so the county welfare funds effectively became special pools of state money. We so hold as a matter of state law. In summary, we conclude that under state law before the 1986 amendments, the county departments were responsible for certain debts and the state was likely liable for others. After 1986, the state, operating through the county departments and county governments, became responsible for all public welfare debts and judgments against the county departments. This result is generally consistent with our presumption that the county departments were amenable to suit under § 1983 until the 1986 amendments took effect. The only contradiction involves those instances in which the state might have been liable for a judgment before the restructuring. Excluding that contradiction, all the Hess factors converge to support our presumption.