Advisory Opinion 2019-004

Use of LSC Funds as Non-Federal Matching Funds

QUESTION PRESENTED

Are LSC funds “non-federal funds” for purposes of the U.S. Department of Health and Human Services (“HHS”) requirement that non-federal funds be used to match HHS payments in the Federal Foster Care Program?

BRIEF ANSWER

Yes, LSC funds are non-federal funds once LSC receives them and remain non-federal funds when provided by LSC to grantees. Thus, they are “non-federal funds” for matching purposes in the HHS Federal Foster Care Program. If a state partners with an LSC grantee to represent children in qualifying child welfare proceedings, the state may count any LSC funds expended by the grantee toward the representation as part of its non-federal match. All uses of LSC funds must comply with LSC grant terms and conditions. Therefore, regardless of matching, the LSC grantee must ensure all LSC funded work in these cases meets those requirements.[1]

BACKGROUND

In December 2018, the U.S. Department of Health and Human Services (“HHS”) updated its Child Welfare Policy Manual regarding child welfare programs operated by the HHS Children’s Bureau. One such program, the Federal Foster Care Program, is authorized by title IV-E of the Social Security Act.

The policy manual update addressed whether a state agency administering a title IV-E program may receive reimbursement from HHS for administrative costs for attorneys to provide legal representation for (1) the title IV-E agency; (2) a candidate for title IV-E foster care; or (3) a title IV-E eligible child in foster care, as well as the child's parents. HHS answered in the affirmative, citing regulations authorizing federal financial participation at the rate of a 50% cost match for administrative expenditures necessary for the proper and efficient administration of the state’s title IV-E plan. See 45 C.F.R. § 1356.60(c) (implementing 42 U.S.C. § 674(a)(3)); HHS Children’s Bureau, Child Welfare Policy Manual Updates (8.1B Title IV-E, Question 30). HHS stated that the change in policy would “ensure that, among other things [] reasonable efforts are made to prevent removal and finalize the permanency plan; and parents and youth are engaged in and complying with case plans.” See HHS Children’s Bureau, Child Welfare Policy Manual Updates (8.1B Title IV-E, Question 30).

As a result of this policy change, states can now seek reimbursement from the federal government for half the cost of attorneys for children who are eligible for title IV-E foster care benefits as well as half the cost of attorneys for their parents. These funds are available at all stages of foster care legal proceedings. Costs must be paid through the state title IV-E agency and title IV-E grants must be matched by non-federal funds. It should also be noted that the federal government will pay only for legal representation based on a state’s proportion of income-eligible foster children and their parents, not for all foster children and their parents.[2]

States may partner with legal aid entities to provide these attorneys. In these situations, the state pays the legal aid entity for half of the costs with funds from HHS. To meet the matching requirement, the legal aid entity (or the state) must use non-federal funds to pay the remaining half of the total costs. The National Association of Counsel for Children (“NACC”) has been working with LSC grantees interested in partnering with state foster care agencies to provide representation to eligible children. Several grantees have asked NACC whether LSC funds can be used to satisfy a state’s requirement to match federal grants with non-federal funds. NACC relayed this question to LSC’s Office of Legal Affairs, requesting an opinion.

ANALYSIS

“When the federal government decides to provide financial assistance to an organization carrying out an activity, it may choose to fund the entire cost, but it is not required to do so.” See U.S. Government Accountability Office, “Principles of Federal Appropriations Law,” 3rd Ed., Vol. II, at 10-97 (Feb. 2006). Thus, the GAO explains, “a program statute may provide for full-funding, or it may provide for ‘cost-sharing,’ that is, financing by a mix of federal and nonfederal funds.” Id. Here, a state agency administering a title IV-E program may claim a 50% federal administrative cost match for attorneys to provide legal representation during foster care legal proceedings so long as those federal funds are matched by non-federal funds.

The question presented here is whether LSC funds constitute non-federal funds. For the following reasons, we conclude that LSC funds are non-federal funds.

LSC is not a government agency. 42 U.S.C. 2996d(a) (creating LSC as a D.C. nonprofit corporation). Congress, in establishing LSC as a nonprofit chartered in the District of Columbia, made clear that LSC “shall not be considered a department, agency, or instrumentality, of the Federal Government.” Id. § 2996d(e)(1). In light of this plain statutory language, the federal courts have consistently ruled that LSC is not an agency except when Congress specifically states otherwise. See, e.g.,Regional Management Corp. v. Legal Services Corp.,186 F.3d 457 (4th 1999) (LSC is not an agency under the Administrative Procedure Act).[3] Where Congress has applied an agency requirement to LSC by statute, it has explicitly done so, such as the provision of the LSC Act that subjects LSC to the Freedom of Information Act. 42 U.S.C. 2996d(g) (LSC “shall be subject to the provisions of section 552 of title 5” (relating to freedom of information)). The Government Accountability Office (GAO) has confirmed this conclusion and has issued several reports reaffirming LSC’s status as a non-agency for all statutory purposes, unless specifically provided to the contrary. See, e.g., GAO-07-993 (discussing the structure of LSC and that it is not a federal agency or a U.S. government corporation).

GAO and several other federal agencies have reached a similar conclusion with respect to LSC funds, concluding that LSC funds are not “federal funds” for matching purposes. See U.S. Government Accountability Office, “Principles of Federal Appropriations Law,” 3rd Ed., Vol. II, at 10-97 (Feb. 2006). The Department of the Treasury, the Department of Justice, and the GAO have released opinions stating that LSC funds are not “federal funds” subject to federal grant policy. See, e.g.Department of Treasury Memorandum GLS-107648 (Mar. 26, 2011) (stating that “LSC funds provided through grants are not federal funds for purposes of federal grant matching restrictions”); U.S. Government Accountability Office, Legal Services Corporation: Governance and Accountability Practices Need to Be Modernized and Strengthened (2007). In a 1977 determination, the Comptroller of the Currency, an independent bureau within the Department of the Treasury, stated that LSC funds are not public because they lack several common indicia of public money. First, the Comptroller explained, neither LSC nor its equipment and property are owned by the government. Second, under its chartering statute, LSC specifically is not to be considered a government department, agency, or instrumentality. Third, there is no direct governmental control or regulation of the funds after payment to LSC. Therefore, upon receipt by LSC, the appropriated funds become private money. Comptroller of the Currency Opinion Letter to LSC, dated September 2, 1977. Similarly, in a recent letter to LSC, the Department of Justice stated that LSC is not a federal agency for federal matching purposes and that LSC funds can be used to meet the match requirement for the Victims of Crime Act Victim Assistance Program. Department of Justice, Office of Justice Programs, Office for Victims of Crime opinion letter dated June 16, 2016.

Although LSC funds have long been considered non-federal funds for purposes of federal grant matching restrictions,[4] LSC’s regulations – until recently – confused the issue. In 2017, LSC amended Part 1630 to eliminate a requirement that agencies whose funds are being matched make a written determination that LSC funds may be used for federal matching purposes. 81 Fed. Reg. 75006, Oct. 28, 2016; 45 C.F.R. Part 1630. Recipients may now use LSC funds to satisfy cost-sharing or matching requirements of federal awards without having to receive written approval. It is unclear from the regulatory history why LSC believed, when it instituted this previous requirement in 1986, that it was appropriate for a different agency to determine what LSC funds could be used for. The preamble to the 1986 version of Part 1630 describes this requirement as “a standard federal provision to ensure that [matching funds for federal grants] must be raised from a source other than the federal treasury and taxpayer.” 51 Fed. Reg. 29076, 29077, Aug. 13, 1986. While the 1986 preamble was correct that federal funds cannot be used to satisfy the matching requirement of another federal grant unless specifically authorized by law, LSC funds are not federal funds once LSC receives them.

CONCLUSION

LSC is not a government agency and its funds are not “federal funds” for matching purposes. Reflecting these facts, LSC has eliminated its prior requirement that grantees obtain a written determination from the agency whose grant LSC funds are intended to match. State child welfare agencies may partner with LSC grantees and count LSC grant funds used to represent children in eligible child welfare proceedings toward the cost-sharing requirements of the title IV-E program. LSC grantees must continue to use any LSC funds counted toward the cost-sharing requirement consistent with all LSC grant terms and conditions.

RONALD S. FLAGG
Vice President for Legal Affairs and General Counsel

STEFANIE K. DAVIS
Assistant General Counsel

BRADLEY S. O’NEIL
Graduate Law Fellow


[1] See U.S. Government Accountability Office, “Principles of Federal Appropriations Law,” 3rd Ed., Vol. II, at 10-97 (Feb. 2006) (“Where any funds are used as non-federal matching funds for another grant, such use must be consistent with the grant under which they were originally awarded as well as the grant they are intended to implement.”).

[2] Mark Hardin, Claiming Title IV-E Funds to Pay for Parents’ and Children’s Attorneys: A Brief Technical Overview, ABA (Feb. 25, 2019), https://www.americanbar.org/groups/public_interest/child_law/resources/child_law_practiceonline/january---december-2019/claiming-title-iv-e-funds-to-pay-for-parents-and-childrens-attor/

[3] Some courts have treated LSC as a federal agency for constitutional purposes. See, e.g., Legal Servs. Corp. v. Velazquez, 531 U.S. 533 (2001) (noting that the “LSC Act funds constitutionally protected expression,” and holding that “restriction[s] on the use of funds granted by [LSC] to engage in activities involving welfare reform . . . were invalid under [the] First Amendment.”); Legal Aid Soc. of Hawaii v. Legal Servs. Corp., 961 F. Supp. 1402 (D. Haw. 1997) (holding that restrictions on non-LSC funds “represents an unconstitutional condition in violation of Plaintiffs' right under the First Amendment.”).

[4] See LSC Opinion Letter to Prairie State Legal Services, dated July 30, 1980 (referencing Comptroller of the Currency opinion dated September 2, 1977 and stating that LSC funds do not constitute public money and are not federal funds for purposes of the federal matching requirement of the Older American Act); LSC Opinion Letter to West Tennessee Legal Services, dated June 15, 1995 (referencing Comptroller of the Currency opinion dated September 2, 1977 and explaining that LSC funds lack “several indicia of public federal funds” and advising that LSC funds may be used to match a Department of Agriculture Food Stamp OutReach grant); LSC Opinion Letter to Central Pennsylvania Legal Services, dated March 14, 1997 (referencing LSC opinion letter dated June 15, 1995 and advising that LSC funds may be used to match a Department of Commerce Telecommunications and Information Infrastructure Assistance Program grant); LSC Opinion Letter to Land of Lincoln Legal Assistance Foundation, dated October 22, 1997 (referencing LSC opinion letter dated June 15, 1995 and advising that LSC funds may be used to match a Victims of Crime Act grant); LSC Opinion Letter to Legal Services Corporation of Virginia, dated March 13, 2000 (advising that LSC funds are non-federal funds and may be used for matching Department of Commerce Technology Assistance Program grants); LSC Opinion Letter to Legal Services of North Carolina, dated July 20, 2000 (referencing LSC opinion letter dated October 22, 1997 and advising that LSC funds may be used to match Victims of Crime Assistance Act grants).