Court Opinion

ID: 9571779
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:35:07.034591+00
Date Added: 2024-06-11T12:30:56.343586
License: Public Domain

RICHARDSON, J.*
I respectfully dissent.
Our function is to assure that the policy adopted by the California Department of Social Services (DSS) is “not in conflict with the law” as contained in the applicable statutes and regulations. (Welf. & Inst. Code, §§ 10600, 10604; cf. Allen v. Bergland (4th Cir. 1981) 661 F.2d 1001, 1005 [“the relevant inquiry is whether the department’s interpretation is inconsistent with the regulations and not whether some other interpretation is consistent with those same regulations”].) I conclude that the state’s treatment of income tax refunds is in compliance with federal requirements. The necessary analysis should begin with an acknowledgment that 42 United States Code section 602(a)(8) requires that the states “take into consideration any other income or resources of any child or relative claiming aid to families with dependent children” except as otherwise specifically required.
Two years ago, Congress enacted the Omnibus Budget Reconciliation Act of 1981 (OBRA). The federal regulations promulgated pursuant to OBRA are relevant to the issue before us. They require that in determining financial eligibility for, and the amount of, assistance payments “Net income avail*765able for current use and currently available resources shall be considered; income and resources are considered available both when actually available and when the applicant or recipient has a legal interest in a liquidated sum and has the legal ability to make such sum available for support and maintenance.” (45 C.F.R. § 233.20(a)(3)(ii)(D).) “Earned income” includes “income in cash or in kind earned by a needy individual through the receipt of wages, salary, [and] commissions . . . .” (Id., (a)(6)(iii).) Such “earned income” is comprised of the total amount of wages, salary, and commissions “irrespective of personal expenses, such as income-tax deductions, lunches, and transportation to and from work . . . .” (Id., (a)(6)(iv).)
The federal regulations further provide for specific “disregards” of income for work related expenses, child care and a percentage of the earned income. Although no provision specifically permits disregarding income tax deductions at the time they are withheld, there is authority that “the Congressional purposes underlying the AFDC statutes indicate that the Social Security Act requires subtraction from gross income of mandatory payroll deductions in addition to subtraction of $75.00 per month ‘work expenses’ disregard.” (Italics in original, Turner v. Woods (N.D.Cal. 1982) 559 F.Supp. 603, 615, affd. (9th Cir. 1983) 707 F.2d 1109, cert, granted sub nom. Heckler v. Turner (1984) — U.S. — [79 L.Ed.2d 739, 104 S.Ct. 1412].) In so deciding, the district court relied upon a long line of cases holding that Congress intended to encourage work and that this purpose was best served by “limiting the amount of ‘income’ counted against a recipient to funds that are actually and currently available. ” (Italics added, ibid.) Because amounts withheld for taxes are not so available, they may not be considered as income. However, when such withheld amounts are returned to the taxpayer in the form of refunds, their status changes and they become “available” and must be treated as income.
Previous federal regulations required state plans to provide that “In establishing financial eligibility and the amount of the assistance payment, only such net income as is actually available for current use on a regular basis will be considered . . . .” (Italics added, former 45 C.F.R. § 233.90(a)(1).) The foregoing language requiring receipt “on a regular basis” has been expressly deleted from the regulations. In my view, this deletion has interpretive significance. Nonetheless, my colleagues continue to rely on cases which construed the earlier, now inapplicable requirement. In County of Alameda v. Carleson (1971) 5 Cal.3d 730, 749 [97 Cal.Rptr. 385, 488 P.2d 953], Kaisa v. Chang (D. Hawaii (1975) 396 F.Supp. 375, 377, and Anderson v. Morris (1976) 87 Wn.2d 706 [558 P.2d 155, 158-159], each court relied upon the “regular basis” terminology in concluding that tax refunds could not be considered as income under the then applicable regulations. For example, the Kaisa court reviewed the argument that in *766considering eligibility and the amount of assistance payments due, “income must meet all three requirements: (1) actually available; (2) for current use; and (3) on a regular basis.” The court concluded that “Since a tax refund can be expected, at best, once a year, it is not available on a regular basis and, therefore, cannot be considered as income.” (Italics added, 396 F.Supp. at p. 377, fn. omitted.)
The deletion of the requirement that income be available “on a regular basis” appears related to the broader change effected by Congress through OBRA in the treatment of lump-sum payments in general. Formerly, such payments were considered as income in the month received and as resources thereafter. The practical effect of this treatment was that once a sum was regarded as a resource, to the extent that it did not exceed applicable limits on the amount of resources, it was ignored in computing either eligibility or the amount of a grant.
The current version of section 602(a)(17)(A) of title 42 of the United States Code provides that if a recipient in a particular month receives income which exceeds the applicable standard of need, the family will be ineligible “for the whole number of months that equals (i) the sum of such amount and all other income received in such month, . . . divided by (ii) the standard of need applicable to such family . . . .” Any balance of such income which is less than the applicable monthly standard is treated as income received in the following month. This is significant fiscal tightening.
Income tax refunds are employment-generated sums withheld in the expectation of a certain tax liability, which are then returned to the taxpayer if the actual tax liability is less than anticipated. Such sums must be classified as “net income” because they are “income . . . earned . . . through the receipt of wages, salary, [and] commissions ...” and are not subject to any of the permissible “disregards” of income. (45 C.F.R. § 233.20 (a)(ll)(i).)
This conclusion is bolstered by an examination of the statutory treatment of tax refunds and credits in related portions of the federal codes. For example, sections 43 and 3507 of title 26 of the United States Code provide that specified low-income individuals may be permitted “earned income credits,” which are tax credits against income taxes which are otherwise imposed. The credits are in an amount equal to 10 percent of earned income not in excess of $5,000. Under 26 United States Code section 3507, an employer is required to pay an employee an additional sum if the employee has filed an eligibility certificate for an earned income credit. For tax purposes, these payments are not treated as additional compensation and their source is sums which normally would be withheld by the employer as pay*767roll deductions for taxes and FICA. Thus, depending on whether or not the employee has filed a certificate with his or her employer, earned income credits will be received either as an additional amount in the employee’s paycheck, or when income taxes are due and a refund is made.
In 1980, Congress mandated that “any refund of Federal income taxes made by reason of section 43 . . . [or] 3507 of Title 26 . . . shall be considered earned income” to be taken into consideration in determining need. (Italics added, former 42 U.S.C. § 602(d).) As amended in OBRA, the statute now provides that “an individual’s ‘income’ shall also include . . . an amount (which shall be treated as earned income for purposes of this part)” which is equal to the earned income credit advance to which he or she would be entitled, whether or not a certificate has actually been filed with the employer. (42 U.S.C. § 602(d)(1); 45 C.F.R., § 233.20(a)(6)(ix).) The apparent reason for this change was to encourage “an increased number of AFDC recipients [to] file for an advanced [earned income credit].” (Dept. of Health and Human Services, Social Security Administration, Corns, to Final Regs., 47 Fed.Reg. 5648, 5660 (Feb. 5, 1982).)
The effect of the foregoing is that Congress has considered earned income credits as refunds or credits of otherwise due taxes which must be counted as income for purposes of AFDC. Although careful to avoid double counting of such sums when they are deemed received in a paycheck and when they are actually received in a lump sum (47 Fed.Reg., supra, at pp. 5660-5661), the clear congressional intention is that such refunds of taxes are not to be ignored in determining eligibility or the amount of assistance to which AFDC recipients are entitled.
Congressional treatment of income tax refunds afforded under the Food Stamp Program is also illuminating. Section 2014(d) of title 7 of the United States Code in determining food stamp eligibility specifically excludes from income “moneys received in the form of nonrecurring lump-sum payments, including, but not limited to, income tax refunds . . . .” (Italics added.) In the food stamp sector, Congress expressly eliminated income tax refunds from the definition of income. It has not similarly excluded such sums in the area of AFDC benefits. I think that therein lies a revealing lesson— Congress clearly could have provided analogous treatment had it so intended. It did not do so.
My colleagues rely on King v. Smith (1968) 392 U.S. 309 [20 L.Ed.2d 1118, 88 S.Ct. 2128] and Lewis v. Martin (1970) 397 U.S. 552 [25 L.Ed.2d 561, 90 S.Ct. 1282] (see ante, pp. 757-758). However, these cases are of dubious analytical value, for each involved the invalidation of regulations *768which improperly assumed the availability to the recipient of income. In our case, the moneys are in the hands of the recipients; availability is simply not in issue.
In my view, the Internal Revenue Service (IRS) will be surprised to learn that tax refunds are “forced” savings accounts as described by the majority. (Ante, p. 760.) Such refunds have few of the attributes of a “savings account.” They may not be withdrawn at will and do not accrue interest. The IRS requires that refunds of state taxes be reported as income in the year of receipt, further demonstrating that such funds bear little resemblance to money placed in a savings account. More importantly, however, under the majority’s analysis, the DSS is not permitted to count amounts withheld as “earned income” either when they are deducted or when they are refunded. The effect of this reasoning is that such funds will escape entirely the requirement that income be considered in determining eligibility and the amount of assistance to which a recipient is entitled, all of which is contrary to the clear mandate of 42 United States Code section 602(a)(8) cited above.
Nor does the majority’s reliance on Carleson, supra, 5 Cal.3d 730, survive scrutiny. We held there that “the [applicable] HEW [Department of Health, Education and Welfare] regulation . . . permits the state to consider as income only those funds received ‘on a regular basis.’ Consequently, California’s distinction between recurring and nonrecurring payments comports fully with the federal requirements.” (Italics added, id., at p. 749.) As the majority notes, “the Carleson court needed only to find that the regulation was consistent with federal law.” (Ante, p. 761.) From this premise, that the approach adopted in California was consistent with the governing federal statutory and regulatory scheme, the majority now argues that the DSS, when it changed its policy after our decision in Carleson, was required to show that “its abrupt reversal of policy in the wake of explicit judicial approval executed an expressed legislative intent and resulted in a policy consistent with federal law.” (Ante, p. 761, italics added, fn. omitted.) Thus, the majority has transformed a requirement of consistency to a requirement that the department show, in addition, “an expressed legislative intent” before it may adopt a new approach and new regulations. The practical effect of this holding is to restrict an agency to its initial approach, despite the fact that its choice was one among several acceptable methods of implementing a statutory scheme, unless the Legislature expressly approves an alternative approach.
My colleagues’ reliance on Cooper v. Swoap (1974) 11 Cal.3d 856 [115 Cal.Rptr. 1, 524 P.2d 97], and California Welfare Rights Organization v. Carleson (1971) 4 Cal.3d 445 [93 Cal.Rptr. 758, 482 P.2d 670], in support of this novel requirement is misplaced. In each of those cases, we held that *769state regulations were in conflict with the statutory provisions which they were designed to implement, not that the regulations failed for lack of a newly expressed legislative intent approving a shift from one consistent approach to another equally consistent approach. Thus, in Cooper, we found that new regulations regarding treatment of noncash benefits as income were inconsistent with express legislative history, incompatible with the general “flat grant” approach utilized under the state plan, and explicitly precluded by applicable statutory provisions. Similarly, in California Welfare Rights Organization we found that new state regulations imposed following a federal court ruling that the state scheme did not comport with federal requirements were in part invalid because the regulations were neither necessary for conformity with federal requirements nor authorized by statute.
The majority somehow transforms these holdings that the regulations at issue were incompatible with federal or state law into a new requirement that a new regulation follow only after a new expression of legislative intent. There is no such requirement in law, statutory or decisional, so far as I am aware. Any regulation which comports with the existing underlying legislative scheme is permissible; no additional legislative approval is needed. Such regulation should clearly be afforded the great weight which we normally give to the interpretations of a statute by the administrative agency which is empowered to promulgate applicable regulations. (See, e.g., Judson Steel Corp. v. Workers Comp. Appeals Bd. (1978) 22 Cal.3d 658, 668 [150 Cal.Rptr. 250, 586 P.2d 564].)
Nor does the majority point to an actual incompatability here. Instead, it ignores fundamental rules of statutory construction in attempting to reconcile its conclusion with the governing state and statutory schemes. I note only a few instances of the convoluted paths of reason which my colleagues are thereby forced to tread. First, and most obviously, as noted my colleagues fail to give any effect to the federal regulatory action in response to the passage of OBRA in specifically deleting the requirement of regularity. This alteration took place after several courts had expressly relied on that requirement in concluding that income tax refunds were not to be counted as income. Despite this excision, the majority continues to “intuit” a federal intention to require regularity.
The United States Senate Report regarding the altered treatment of lump sums in OBRA is also instructive. The majority cites language in the report which gives as an example of a lump sum payment retroactive social security benefits. (Ante, p. 763.) From this, it concludes that only money “ordinarily” received on a regular and recurring basis will comprise the lump sum of which Congress speaks. However, the report expressly states that “The committee believes that lump-sum payments should be considered *770available to meet the ongoing needs of an AFDC family . . . any amount of the income that exceeds the initial month’s needs standards would be divided by the monthly needs standard, and the family would be ineligible for aid for the number of months resulting from that calculation. ” (Sen. Rep. No. 97-139, reprinted in 1981 Code Cong. & Admin. News at p. 771, italics added.) Instead of relying on the express and unqualified statement of intent regarding the treatment of “lump sum payments,” the majority seizes upon a reference to one possible source of such funds and there discerns an unspoken legislative intent.
Similarly, the majority’s reliance on the State Department of Social Services, Eligibility and Assistance Standards Manual, section 44-111.44 is misplaced. The section expressly excludes certain irregularly received income from consideration as income for purposes of computing AFDC, indicating that “but for” the stated exemptions, such irregular income must be considered. (See ante, p. 763, fn. 8.) Ignoring the application of the basic rule of statutory interpretation, inclusio unius est exclusio alterius, the majority instead reads in an exception for the unmentioned tax refunds.
In summary, in order to find a conflict, the majority must reject a straightforward reading of the applicable statutes and instead intuitively glean congressional and administrative intent from selected portions of the applicable statutes and regulations. The conflict is, I submit, a manufactured one.
Justice Potter Stewart wisely cautioned 14 years ago: “Conflicting claims of morality and intelligence are raised by opponents and proponents of almost every measure .... But the intractable economic, social, and even philosophical problems presented by public welfare assistance programs are not the business of this Court. The Constitution may impose certain procedural safeguards upon systems of welfare administration [citation] . . . But the Constitution does not empower this Court to second-guess state officials charged with the difficult responsibility of allocating limited public welfare funds among the myriad of potential recipients. [Citations.]” (Dandridge v. Williams (1970) 397 U.S. 471, 487 [25 L.Ed.2d 491, 503, 90 S.Ct. 1153].) In similar fashion, our role is not to articulate policy, but to determine whether the challenged state regulations are permitted by federal law.
The injunction from which the director appeals may well have been proper when issued. Inasmuch as an injunction operates in futuro, however, its validity on appeal must be determined as of the date of the appellate decision. (Sears, Roebuck & Co. v. San Diego County Dist. Council of Carpenters (1979) 25 Cal.3d 317, 323 [158 Cal.Rptr. 370, 599 P.2d 676].) OBRA and an amendment to 45 Code of Federal Regulations section *771233.90(a)(1) have intervened. I would, therefore, reverse the injunction and deny the petition for writ of mandate.
Kaus, J., and Grodin, J., concurred.

 Retired Associate Justice of the Supreme Court sitting under assignment by the Chairperson of the Judicial Council.