Opinion ID: 6938518
Heading Depth: 2
Heading Rank: 2

Heading: The $1500 Automobile Equity Limit.

Text: The majority of courts that have examined the $1500 automobile equity limit regulation have upheld it. See Brown v. Secretary of Health and Human Servs, 46 F.3d 102 (1st Cir.1995); Hazard v. Shalala, 44 F.3d 399 (6th Cir.1995); Champion v. Shalala, 33 F.3d 963 (8th Cir.1994) (Heany, J., dissenting); Falin v. Shalala, 6 F.3d 207 (4th Cir.1993) (per curiam), cert. denied, — U.S. -, 114 S.Ct. 1551, 128 L.Ed.2d 200 (1994). We agree with these courts that the $1500 limit was valid when first established in 1982. We do not agree, however, that the $1500 limit, which has not been adjusted for inflation, continues to be valid. This case raises the difficult issue of whether there are any constraints on the federal government’s ability to cut costs and save money on one of its means-tested programs. We believe that there is one important constraint: an agency’s budgetary decisions must maintain a rational relation to Congress’s stated purposes for the means-tested program that is being cut. As will be discussed below, the Secretary’s failure to adjust the automobile equity $1500 limit for inflation since its adoption almost 15 years ago has thwarted Congress’s purpose in establishing the AFDC program and the Secretary’s own rationale for adopting the $1500 limit.
We review a grant of summary judgment de novo. Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir.1994). We must determine whether the evidence viewed in the light most favorable to the non-moving party presents any genuine issues of material fact and whether the district court correctly applied the relevant law. Id. We must give significant deference to an agency’s decision, especially here, where Congress has explicitly delegated to the Secretary the authority to issue implementing regulations. Under OBRA, Congress directed the Secretary to set the automobile resource exemption. 42 U.S.C. § 602(a)(7)(B)(i). We must not substitute our judgment for that of the agency. See Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866-67, 77 L.Ed.2d 443 (1983). Though our deference must be great, it is not unbounded. If the regulation is “arbitrary, capricious, or manifestly contrary to the statute” then we need not give it “controlling weight.” Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 843, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694 (1984). The agency has a duty to consider all “important aspeet[s] of the problem” and render a plausible decision that is the “product of agency expertise.” State Farm, 463 U.S. at 43, 103 S.Ct. at 2867. Our inquiry, though narrow, must be “searching and careful.” Marsh v. Oregon Natural Resources Council, 490 U.S. 360, 378, 109 S.Ct. 1851, 1861, 104 L.Ed.2d 377 (1989) (quoting Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 824, 28 L.Ed.2d 136 (1971)).
The plaintiffs’ first contention is that the $1500 eligibility requirement was invalid when it was promulgated in 1982. Plaintiffs offer three reasons for their position: (1) that the data of a 1979 food stamp survey relied upon by the Secretary did not apply to AFDC recipients; (2) that the 1979 survey was missing key data; and (3) that the Secretary did not respond properly to public commentary on the regulation. These arguments do not convince us.
The Secretary based the $1500 equity limit almost exclusively on a 1979 survey of food-stamp recipients contained in a 1981 report submitted to Congress. 2 Plaintiffs argue that using the 1979 survey to determine the AFDC automobile equity limit led to the adoption of an arbitrary and capricious rule. According to the plaintiffs, the data about food-stamp recipients is not applicable to the AFDC program. Plaintiffs further contend that the Secretary never offered any evidence to show that there was an overlap between the AFDC and food-stamp recipient populations. To be sure, the Secretary could have used data on AFDC families rather than food-stamp recipients. And the Secretary could have drawn a better connection between the data he used and the final rule. But we do not review for a perfect or ideal rule-making process. We look instead to whether the Secretary has acted reasonably, and we think he did. See Brown, 46 F.3d at 109. After announcing the final rule on the automobile equity limit, the Secretary stated that HHS chose $1,500 as the maximum equity value for an automobile on the basis of a Spring 1979 survey of food stamp recipients. Data from that survey suggest that 96 percent of all food stamp recipients who own cars had equity value in them of $1,500 or less. In that the Federal maximum limit should be set within the range of the vast majority of current recipients and given that the food stamp population tends to be, on the average, more affluent than AFDC recipients, this limit appears reasonable and supportable. 47 Fed.Reg. 5657 (1982). The district court, referring to a declaration of Paul Bordes, a director of research at HHS, found that there was a “substantial overlap” between the AFDC and food-stamp recipient populations-80% in 1979 and 87% today. Those figures, which other courts also have cited, reflect the number of AFDC recipients who also receive food stamps. See, e.g., Brown, 46 F.3d at 109. But those figures are not useful in evaluating whether a survey of food-stamp recipients is representative of the AFDC population. For that determination, we must know instead the percentage of food-stamp recipients who receive AFDC benefits. According to the Bordes declaration, that figure is much lower: 41% in 1993. Even though the 1979 survey did not accurately reflect the conditions of AFDC families, the Secretary acted reasonably in relying upon it. First, according to the Bordes declaration, resource data on aid recipients was scarce in 1982. Second, according to Bordes, the non-AFDC food-stamp recipients included in the survey were, on average, more affluent. Therefore, the automobile equity limit was based on a population that was likely to have more expensive cars. Plaintiffs challenge this conclusion, noting that the food-stamp program had an automobile equity limit of $4500 already in place when the survey was done, unlike the AFDC program at the time. They argue that the limit may have been higher if it had been derived from data of AFDC recipients alone. But as the Sixth Circuit noted in Hazard, “the 1979 vehicle asset limitation for food stamp recipients excluded only a small percentage of individuals who otherwise would have been eligible receive food stamps.” 44 F.3d at 405. Therefore, the $4500 limit probably did not have a significant effect on the limit. 3 The plaintiffs further argue that using the 1979 survey undermined a goal of the AFDC program: to allow individuals to be self-reliant and independent. We think it was reasonable for the Secretary to conclude from the 1979 survey that, in 1981, a $1500 auto equity limit would allow AFDC recipients to own functional cars. Other courts have agreed. See, e.g., Hazard, 44 F.3d at 405; Brown, 46 F.3d at 108-09; Champion, 33 F.3d at 966. 4
Plaintiffs also contend that the 1979 study relied on stale and incomplete data. Plaintiffs, however, offer no evidence for their theory that the three-year-old data was not sufficient to support the Secretary’s finding that the overwhelming majority of food-stamp recipients owned automobiles with equity of $1500 or less in 1982. More convincing is plaintiffs’ claim that the data from the food-stamp survey is incomplete. Plaintiffs note that in the 1979 study about 35% of the recipients surveyed did not know the value of the equity they had in their automobiles. Therefore, in concluding that 96% of food-stamp recipients who owned automobiles had equity of $1500 or less, the Secretary must have assumed that the individuals who did not know the amount of equity in their automobiles mirrored that of the survey participants who did know the amount of equity they had. But there is no evidence in the record to support this assumption. The Secretary also included in the 96% figure people who did not own any cars at all. Plaintiffs cite St. James Hosp. v. Heckler, 760 F.2d 1460, 1468 (7th Cir.1985), cert. denied, 474 U.S. 902, 106 S.Ct. 229, 88 L.Ed.2d 228 (1985), for the proposition that an agency cannot rely on inadequate data when it makes a rule. While the data used by the Secretary in fashioning the $1500 limit may have been incomplete, the Secretary did not commit “a clear error of judgment” in relying on the incomplete data in setting the $1500 figure. Id. at 1468.
Plaintiffs also claim that the equity limit was invalid when the Secretary adopted it in 1982 because the Secretary allegedly failed to respond adequately to criticisms of the figure during the rule-making process. The Secretary received numerous comments that criticized the $1500 equity limit. For example, the National Urban League commented that: In setting this standard, the Secretary ignores at least one important factor, namely what minimum value is necessary to assure the ability to retain a car which is in good enough mechanical order to provide satisfactory and safe transportation without constant repair costs. In response to all the comments, the Secretary stated: We stand by our original position. The choice of $1,500 as the maximum equity value for an automobile was based on the data from a Spring 1979 survey of food stamp recipients. We regard the limit of $1,500 equity value in an automobile as reasonable and supportable. 47 Fed.Reg. at 5657. Plaintiffs contend that the Secretary’s brief response to the comments violated the notice and comment provisions of the Administrative Procedure Act, 5 U.S.C. § 553(c). 5 We disagree. An agency must state why the criticisms it received were invalid “where apparently significant information has been brought to its attention, or substantial issues of policy or gaps in its reasoning raised....” Natural Resources Defense Council, Inc. v. United States Nuclear Regulatory Comm’n, 547 F.2d 633, 646 (D.C.Cir.1976), rev’d on other grounds sub nom., Vermont Yankee Nuclear Power Corp. v. NRDC, 435 U.S. 519, 98 S.Ct. 1197, 55 L.Ed.2d 460 (1978). An agency must give a “reasoned response” in which the agency points to evidence in the record supporting its view. Id.; see also Kenneth Culp Davis & Richard J. Pierce, Jr., I Administrative Law Treatise 312 (1994) (“If a comment criticizes in detail some characteristic of the agency’s proposed rule, and the agency retains that characteristic in the final rule without including in its statement of basis and purpose a relatively detailed response to that criticism, a reviewing court is likely to hold the rule unlawful on the grounds that ... the rule is arbitrary and capricious”). The agency bears the burden of showing that the regulations it formulates are well considered. See St. James Hosp., 760 F.2d at 1467 n. 5 (“[I]t is an agency’s duty to establish the statistical validity of the evidence before it prior to reaching conclusions based on that evidence, not the public’s duty to inform the agency of statistical invalidities in its evidence”). Commentators are not required to supply their own data to refute an agency’s findings. We, however, agree with the First Circuit’s conclusion in Brown that “[g]iven the nature of the comments ... the Secretary’s brief response [was not] so inadequate as to violate § 553(c).” 46 F.3d at 110. Indeed, only one dozen comments were submitted, and they were all brief and general. Id.
Plaintiffs next contend that even if the Secretary properly set the $1500 equity limit in 1982, the figure is no longer reasonable as it fails to account for more than fourteen years of inflation. In support of their position, plaintiffs point out that $1500 in 1979 is the equivalent of $3242 in 1993, and that for the average urban household, the price of a used car more than doubled during that time period. 6 Further, $1,500 in 1992 represented just 9% of the average selling price of a new domestic ear. Cars worth only $1500 are now between ten and fifteen years old and have more than 85,000 miles on them. Compared to newer cars, these cars are unreliable as well as more costly in terms of gas and repairs. 7 Based on these changed economic circumstances, we find that in 1996, there is “ ‘no rational connection between the facts found and the choice made’ ” by the Secretary in 1982. State Farm, 463 U.S. at 43, 103 S.Ct. at 2866 (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 246, 9 L.Ed.2d 207 (1962)). Although many courts have noted that the $1500 automobile equity limit may be now unfair, see, e.g., Dist. Ct. Op. at 12-13, 14, 1993 WL 738386; Falin, 776 F.Supp. at 1101; Champion, 33 F.3d at 968, these courts have upheld the regulation because they found that the decision whether or not to adjust for inflation was within the Secretary’s sole discretion. See, e.g., Falin, 776 F.Supp. at 1102; Champion, 33 F.3d at 967. However, whether the Secretary has properly exercised its discretion in not adjusting the automobile equity limit for inflation, depends on what Congress intended when it granted the Secretary the authority to establish the automobile equity limit. This inquiry is complicated by the existence of two acts of Congress that pertain to the automobile equity limit. The first is the Social Security Act of 1935 which created the AFDC program and authorized the Secretary to administer it. See Pub.L. No. 94-271, 49 Stat. 627 (1935). Congress established AFDC to provide financial assistance 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.... 42 U.S.C. § 601. The second legislation relevant to congressional intent is the Omnibus Budget Reconciliation Act of 1981 (“OBRA”), which directed the Secretary to establish the AFDC automobile equity limit. Pub.L. No. 97-35 § 2302. The purpose of that statute was “to reduce federal spending.” Minnesota v. Heckler, 739 F.2d 370, 375 (8th Cir.1984). Some courts have found it proper for the Secretary to use the purpose behind OBRA as the primary indicator of congressional intent because OBRA was the statute that directed the Secretary to establish the automobile equity limit. See, e.g., Brown, 46 F.3d at 111; Falin, 776 F.Supp. at 1101. These courts hold that on the basis of OBRA alone, the Secretary’s failure to account for inflation is reasonable because as inflation diminishes the value of $1500, fewer people are eligible for AFDC, and thus federal spending is reduced. But this analysis is overly simplistic and not supported by the record. While it is true that the purpose of OBRA was to reduce spending, there is no evidence to suggest that Congress intended to cut spending progressively past 1981. Congress accomplished its goal of cutting costs when it reduced the resource limit from $2000 to $1000. There is also no indication in OBRA or its legislative history that Congress intended to use the automobile equity limit itself as a cost-cutting measure. Therefore, to discern Congress’s intent, we must look beyond OBRA and consider the general purposes of the AFDC program. We must interpret a statute’s provision in a way that is consistent with the policies of other provisions. See United Sav. Ass’n v. Timbers of Inwood Forest Assocs., 484 U.S. 365, 371, 108 S.Ct. 626, 630, 98 L.Ed.2d 740 (1988) (“[statutory construction ... is a holistic endeavor”). The position that we should focus primarily or exclusively on the cost-cutting purpose behind OBRA’s amendments to AFDC and not on the general purpose of the AFDC program to foster “self-suppoit and personal independence” for needy families runs afoul of this canon of statutory interpretation. To the extent that the Secretary can further both purposes-reduee federal spending for the AFDC program in 1981 and also encourage self-sufficiency and independence among AFDC recipients-that is the only course that effectuates Congress’s multiple intentions. We believe that periodically adjusting the automobile equity limit for inflation is the only reasonable way to achieve Congress’s competing goals. Instead of following this course, the Secretary has ignored the general purpose of AFDC program and allowed the automobile equity limit to serve as a cost-cutting measure. Although Congress may have wanted to prevent AFDC recipients from having expensive cars-because before OBRA’s passage there was no limit on automobile equity-Congress did not necessarily want to exclude from the AFDC program needy families that owned safe, functioning cars. We believe that by granting the Secretary the discretion to set the automobile equity limit Congress wanted to ensure that needy families would not be cut from the AFDC program simply because they owned automobiles. In fact, at oral argument, the Secretary conceded that it has never been the Secretary’s position that the $1500 limit was set and not adjusted for inflation to make it more difficult for needy families to qualify for AFDC benefits. Thus, allowing the automobile equity limit to be progressively diminished by inflation has rendered meaningless Congress’s statutory purpose in recognizing the need for an automobile equity exception to the resource limit. Because inflation has lowered the value of the $1500 limit, functioning cars have increasingly cost more than $1500. As a result, more and more families have been disqualified from receiving AFDC benefits. Because the $1500 limit automatically eliminates otherwise eligible families from the AFDC program, the regulation is no longer reasonable and therefore is arbitrary and capricious. Further, by failing to adjust the automobile equity limit for inflation the Secretary also has thwarted the reasoning that HHS itself advanced for the figure when it was established in 1982. The Secretary set the automobile equity limit at an amount that would not eliminate otherwise eligible families from the AFDC program. As the Secretary explained, “the Federal maximum limit should be set within the range of the vast majority of current recipients.” 47 Fed.Reg. at 5657. We should defer to the Secretary’s interpretation of the purpose for the automobile equity limit. See Dioxin/Organochlorine Center v. Clarke, 57 F.3d 1517, 1525 (9th Cir.1995) (“[a] court should accept the ‘reasonable’ interpretation of a statute chosen by an administrative agency except when it is clearly contrary to the intent of Congress”). We believe that the Secretary reasonably interpreted Congress’s purpose in establishing the automobile equity limit to be to preserve eligibility and not to- cut costs. In addition, “an agency’s action must be upheld, if at all, on the basis articulated by the agency itself.” State Farm, 463 U.S. at 50, 103 S.Ct. at 2870. The effect of more than fourteen years of inflation means that the Secretary’s stated purpose no longer supports the $1500 limit and provides a separate basis to vacate the regulation. The fact that there is no mandate in OBRA that the Secretary review the automobile equity limit and adjust it for inflation is not dispositive. We are reluctant to read any meaning into Congress’s silence on the issue of whether periodic review of the effects of inflation on the automobile equity limit is necessary. We have recognized that an agency “is obligated to reevaluate its policies when circumstances affecting its rule-making proceedings change.” See California v. FCC, 905 F.2d 1217, 1230 (9th Cir.1990). Even if that were not so, when, as here, a regulation’s rationality depends on economic conditions, periodic review is essential. The Secretary responds that Congress did revisit the automobile equity limit and decided not to adjust it for inflation. In 1987, Congress considered a proposal for experiments in a few states to explore using the $4500 food stamp automobile equity exemption for AFDC families. But the resulting 1987 OBRA did not contain such a provision. See Pub.L. No. 100-203, 101 Stat. 1330 (1987). Again in 1988, Congress considered the proposal, but made no change to the $1500 limit. Instead, a conference committee directed the Secretary to revise the regulation “if he determines revision would be appropriate.” H.R. Conf. Rep. No. 998, 100th Cong., 2nd Sess. 188-89, reprinted in, 1988 U.S.C.C.A.N. at (102 Stat.) 2776, 2977. The Secretary conducted a review, but did not change the regulation. See Champion, 33 F.3d at 967. Other circuits have interpreted this inaction to mean that inflation adjustments are not necessary under OBRA. See Brown, 46 F.3d at 111-12; Champion, 33 F.3d at 967. We, however, do not. The Supreme Court instructs us that inaction by Congress “lacks persuasive significance.” Brown v. Gardner, — U.S.-,-, 115 S.Ct. 552, 557, 130 L.Ed.2d 462 (1994) (quoting Central Bank of Denver, N.A. v. First Interstate Bank of Denver, — U.S.-,-, 114 S.Ct. 1439, 1453, 128 L.Ed.2d 119 (1994)). Thus, the decision by Congress not to increase the $1500 limit does not change our view that the Secretary’s failure to adjust the $1500 automobile equity limit for inflation has rendered the regulation unreasonable. We also note that the Secretary has allowed various states to waive the $1500 limit and set a higher automobile equity limit. Apparently, California has raised the automobile equity limit to $4500, while Virginia and Colorado, among others, exempt one vehicle entirely regardless of its value. Such waivers are not only a recognition that in many states the $1500 limit is unreasonable but, more importantly, are consistent with this court’s view that the purpose of the automobile equity limit is not to reduce federal spending but to ensure that eligible families are not excluded from the AFDC program simply because they own a reliable car.