Unpublished Disposition, 940 F.2d 668 (9th Cir. 1990)

MEMORANDUM^* 

Hub Cities Consortium petitions from an order of the Secretary of Labor, affirming the denial by the Governor of California of the Consortium's application for designation as a Service Delivery Area ("SDA") under the Job Training Partnership Act ("JTPA"). We have jurisdiction pursuant to 29 U.S.C. § 1578(a) (1). We reverse and remand.

Under the JTPA, the governor of a state must designate as an SDA any unit or consortium of contiguous units of general local government that complies with the requirements of 29 U.S.C. § 1511(a) (4) (A), i.e., that contains at least 200,000 people and serves a substantial part of a labor market area. Hernandez-Colon v. Secretary of Labor, 835 F.2d 958, 962 (1st Cir. 1988); Consortium of Cities v. Department of Labor, 811 F.2d 1316, 1316 (9th Cir. 1987). The statute affords the governor no room to ignore these express statutory requirements. As we stated in Consortium, " [w]hat is mandatory is mandatory." 811 F.2d at 1317.

In reviewing the denial of an application under this statutory scheme, the Secretary of Labor's discretion is similarly circumscribed. " [W]hen a denial is appealed to the Secretary of Labor, the Secretary must uphold the Governor's action unless it is 'contrary to' or 'inconsistent with' Sec. 1511." Romero-Barcelo v. Donovan, 722 F.2d 882, 883-84 (1st Cir. 1983) (citing 29 U.S.C. § 1511(a) (4) (C); 20 C.F.R. Sec. 628.1(c) (4)) (emphasis in original).

We conclude that the Secretary departed from the "relatively limited, altogether clearcut margins of [this] inquiry." Hernandez-Colon, 835 F.2d at 961 n. 4. In denying the Consortium's application, Governor Dukemejian relied in large part on the fact that the Consortium had failed to meet Sec. 1511's "substantial part" requirement. In affirming that denial, however, the Secretary expressly declined to consider whether the substantiality requirement had been met. Rather, the Secretary relied on the purported existence of two "competing requests" for mandatory SDA designation.¹  This was clear error. The Secretary must first determine whether the Consortium's application meets the requirements of Sec. 1511. In all but exceptional circumstances, see Consortium, 811 F.2d at 1317, the statute will provide both the beginning and end of the Secretary's inquiry. At all times, however, the inquiry must begin with the statute.

We therefore reverse and remand to the Secretary. On remand, the Secretary must determine whether the Consortium's application meets the mandatory requirements of Sec. 1511. Because our reversal is based on the Secretary's failure to comply with the statute, we need not reach the alternate grounds on which she relied, and express no opinion on the applicability of our previous decision in Consortium to this case.²  We reiterate, however, that her final decision must be firmly grounded in the express terms of the statute.

REVERSED AND REMANDED.

FERGUSON, Circuit Judge, concurring separately:

I concur in the disposition of this case for the following reasons:

This case arose when Hub Cities Consortium, a group of six cities within Los Angeles County, requested the Governor of California to approve its designation as a Service Delivery Area ("SDA") under the Job Training Partnership Act ("JTPA"), 29 U.S.C. § 1511 et seq., and he denied its request. As provided in Sec. 101 of the Act, 29 U.S.C. § 1511(a) (4) (C), the Consortium then appealed to the Secretary of Labor, who affirmed on grounds which were different than those stated by the Governor. The Consortium now petitions this court for review as provided by Sec. 168 of the Act, 29 U.S.C. § 1578(a).

Hub Cities' main contention on appeal is that it meets all criteria for SDA redesignation, since it is a consortium of contiguous local governments, contains at least 200,000 people, and serves a "substantial part of a labor market area" ("LMA"), and therefore approval of its petition is mandatory. The Governor denied the application, stating that Hub Cities did not meet the "substantial part" test. On review, the Secretary conceded that Hub Cities had met the first two criteria, but did not determine nor discuss whether the "substantiality" requirement had been satisfied. We reverse and remand to the Secretary to determine whether Hub Cities constitutes a "substantial part of a labor market area" in Los Angeles County. If so, it is a mandatory designee under the statute.

The Secretary's affirmance of the Governor's denial on other grounds, i.e. that two "competing requests" existed, was impermissible as a matter of law and unsupported by any evidence. The record demonstrates that seven other SDA's currently coexist within the County's boundaries, and that the existing County SDA filed no "competing request" to continue serving the Hub Cities area.

STATUTORY AND REGULATORY BACKGROUND

The Job Training Partnership Act ("JTPA") was enacted in 1982 to replace the Comprehensive Employment and Training Act, codified at 29 U.S.C. § 1593 ("CETA"). Pub. L. 97-300, 96. Stat. 1322, codified at 29 U.S.C. § 1501 et seq. Its purpose is to provide appropriate job training to economically disadvantaged individuals, including welfare recipients, unemployed youth, and dislocated workers. 29 U.S.C. § 1501; S.Rep. No. 469, at 2, reprinted in 1982 U.S.Code Cong. & Admin.News 2636 [hereafter Sen.Rept.]. Job training services are provided through state-wide or sub-state areas called Service Delivery Areas or SDA's, which are comparable to "prime sponsors" under CETA. 29 U.S.C. § 1511(a). The JTPA extensively revamped the administration of the program and gave state governors sweeping new powers to designate SDA's and supervise local programs. See Sen.Rept. at 2-3; 29 U.S.C. §§ 1501, 1511, 1512.¹  On the other hand, Congress also expressed its concern that local expertise be preserved and that large, "unwieldy" delivery systems not be created. Therefore, the legislation was carefully drafted in order to balance state and local power. See H.R.Conf.Rep. No. 889 at 88, reprinted in 1982 U.S.Code Cong. & Admin.News 2636, 2710.

Where designation of SDA's was concerned, Congress carved out three narrow and very specific exceptions to the Governor's otherwise broad discretion. While the Governor "may approve" most requests for designation as an SDA, he or she "shall approve" all requests from consortia which consist of contiguous units of local government, contain a total population of at least 200,000, and meet the additional requirement of serving "a substantial part of one or more labor market areas." 29 U.S.C. §§ 1511(a) (4) (A) (ii) & (B).² 

In turn, the Act defines a "labor market area" as:

an economically integrated geographic area within which individuals can reside and find employment within a reasonable distance or can readily change employment without changing their place of residence. Such areas shall be identified in accordance with criteria used by the Bureau of Labor Statistics of the Department of Labor in defining such areas or similar criteria established by a Governor.

29 U.S.C. § 1503(13). California has established no separate criteria for LMA's, but has chosen to adopt the Department of Labor definition of all Los Angeles County as one labor market area.³ 

The Governor is authorized by law to establish procedures, deadlines, and forms for designation applications. See 29 U.S.C. § 1511; 20 C.F.R. Sec. 628.1(c) (4). In California, the state Employment Development Department has established detailed procedures for initial designation applications. Subsections (a) (3) and (b) of Sec. 1511 also provide for comments from units of local government, business organizations, and "other affected persons or organizations" to be submitted to the Governor and reviewed before any final designations are made.⁴ 

The statute also specifically provides that service delivery areas may be redesignated every two years upon request by an eligible entity. 29 U.S.C. § 1511(c).⁵  However, neither the state nor the federal government have developed specific procedures or regulations for such redesignations, nor have they required existing SDA's to apply for redesignation. However, the statute treats redesignation applications identically to applications for initial designation.

FACTS

The facts are undisputed. On August 14, 1989, the Hub Cities Consortium applied to the Governor of California for designation as a Service Delivery Area under Sec. 101(a) (4) (A) (ii) of the Act, 29 U.S.C. § 1511(a) (4) (A) (ii).⁶  The Consortium includes six contiguous cities located within Los Angeles County: Compton, Cudahy, Huntington Park, Lynwood, Maywood, and South Gate.⁷  These cities are among the poorest in the nation. They include over 300,000 residents, most of whom are members of ethnic minorities and speak languages other than English. Approximately one-third of their residents are economically disadvantaged.

Since the inception of the JTPA program in 1983, the County as a whole has been divided into eight separate SDA's, of widely varying sizes. These include the Cities of Long Beach and Los Angeles, and five groups (or "consortia") of cities, including Carson/Lomita/Torrance, the Verdugo area (including Burbank, La Canada and Flintridge), the Foothill area (including Pasadena), Southeast Los Angeles ("SELACO"), and the South Bay.⁸  Finally, all unincorporated areas and non-affiliated cities are served by the "catch-all" Los Angeles County SDA, which currently encompasses the six Hub Cities. The County SDA serves about 3.2 million or 33.45% of the total County population of 8 million, 16% of whom are economically disadvantaged. Five of the existing consortia have similar or smaller total populations than the proposed new consortium, while at least three have fewer economically disadvantaged residents and/or smaller labor forces.⁹ 

Hub Cities' application represents their second attempt to formally withdraw from the County SDA, for whom Compton and the other Hub Cities currently act as "prime agents" or subcontractors and deliver JTPA job-training services and programs directly to area residents. According to the Cities and the State Job Training Coordinating Council ("SJTCC"), which recommended the change, the redesignation would effectively allow state-administered grant funding of approximately $3 million per year to flow directly to the Consortium, rather than first to the County of Los Angeles as program administrator and only then to the city/providers. The Cities also contend that such a reorganization would promote the purposes of the statute by allowing more efficient service delivery at the local level, eliminating an unnecessary layer of bureaucracy, and substantially increasing funds available to local residents.

Despite the SJTCC's recommendation, the Los Angeles County Private Industry Council ("PIC") opposed the redesignation. On February 7, 1990, the Governor denied Hub Cities' application on the grounds that the proposed Consortium does not serve "a substantial part of one or more labor market areas" as required by 29 U.S.C. § 1511(a) (4) (A) (ii). According to the denial letter,

Los Angeles County Labor Market Area (LMA) data shows that the Hub Cities contains [sic] far less than a substantial portion of that LMA population, labor force, and economically disadvantaged population. The Hub Cities only contains 4.09% of its LMA's population, 3.33% of its LMA's labor force, and 6.47% of its LMA's population of economically disadvantaged individuals.

In addition, your proposed consortium does not promote effective delivery of job training services and is not consistent with the administration of welfare programs (GAIN) in the State of California. Redesignating your area as a separate SDA would only contribute to the fragmentation of services in that LMA.

As permitted by the Act and applicable regulations,¹⁰  the Consortium appealed the Governor's denial to the Department of Labor within 30 days, and the Governor filed a written response to the appeal. See 29 U.S.C. § 1511(a) (4) (C); 20 C.F.R. Sec. 628.1(c). In his response, the Governor reiterated his finding that the Consortium was not "substantial."¹¹  In addition, for the first time he presented a new rationale for his decision: that the request was denied and the existing County SDA retained because "two competing requests" were before him.

In response, Hub Cities submitted an Addendum to their appeal, arguing that the Governor had no discretion to deny the Consortium's request to secede from the County SDA, and pointing out that the "competing request" referred to was merely the PIC "comment" letter recommending denial of Hub Cities' application. In addition, it contended that the Governor's definitions of Labor Market Area and "substantial part" violate 29 U.S.C. § 1503(13) of the JTPA and do not reflect the reality of commuting distances in Los Angeles.

The Secretary of Labor denied Hub Cities' appeal, but relied on different grounds than those cited by the Governor. She did not reach the issue of whether the proposed Consortium comprised a "substantial part" of the relevant labor market area. Instead, she affirmed on the basis of the "two valid competing requests" argument. Hub Cities filed a timely petition for further review, and was joined by the Cities of San Diego, Anaheim, and Santa Ana as amici curiae.

DISCUSSION

Subject matter jurisdiction over petitions for review of SDA status is created by the JTPA. 29 U.S.C. §§ 1511(a) (4) (C) & 1578(a) (1). The JTPA also specifies that judicial review "shall be limited to questions of law and the Secretary's findings of fact shall be conclusive if supported by substantial evidence." 29 U.S.C. § 1578(a) (3). We review an agency's construction of the JTPA de novo, taking "a new and independent look at the meaning of the statute interpreted by the Secretary." Consortium of Cities v. Dept. of Labor, 811 F.2d 1316, 1317 (9th Cir. 1987); Wash. Pub. Utility Group v. U.S. District Court, 843 F.2d 319 (9th Cir. 1987). The court "must be leery of constructions ... which tend to 'frustrate the policy that Congress sought to implement' " by enacting the JTPA. Hernandez-Colon v. Secretary of Labor, 835 F.2d 958, 965 (1st Cir. 1988) (quoting FEC v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 32 (1981)).

When reviewing any administrative decision, courts must attempt to give effect to "the unambiguously expressed intent of Congress." Sierra Pacific Industries v. Lyng, 866 F.2d 1099, 1105 (9th Cir. 1989) (citing Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984)). "If the statute is silent or ambiguous with respect to the specific issue, then the court is limited to considering whether the agency's interpretation is based on a permissible construction of the statute." Sierra Pacific, 866 F.2d at 1105 (citation omitted).¹² 

Administrative decisions must be based on substantial evidence, which has been defined as "more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Affiliation of Ariz. Indian Ctrs. v. U.S. Dept. of Labor, 709 F.2d 602, 605 (9th Cir. 1983) (construing CETA, the predecessor to JTPA). " [T]he agency must articulate a ... 'rational connection between the facts found and the choice made.' " Sierra Pacific, 866 F.2d at 1105 (quoting Motor Vehicles Mfrs. Ass'n v. State Farm Mutual Auto. Ins. Co., 463 U.S. 29, 43 (1983)), and neither counsel for the agency nor the reviewing court may substitute their own discretion for that of the agency. Most importantly, "an agency's discretionary order [must] be upheld, if at all, on the same basis articulated in the order by the agency itself." Burlington Truck Lines v. U.S., 371 U.S. 156, 169 (1962).

[A] simple but fundamental rule of administrative law ... is to the effect that a reviewing court, in dealing with a determination or judgment which an administrative agency alone is authorized to make, must judge the propriety of such action solely by the grounds invoked by the agency. If those grounds are inadequate or improper, the court is powerless to affirm the administrative action....

Id., quoting SEC v. Chenery Corp., 332 U.S. 194, 196 (1947) (Chenery II) . Where, as here, the Secretary affirms a gubernatorial decision on different grounds but fails to address the Governor's actual reasons, this fundamental rule is violated.

II. Gubernatorial Discretion and Competing Mandatory

Requests

The rather complex system of checks and balances which the JTPA establishes between federal, state, and local governments, service providers, and private business interests has variously been described as a "delicate balance between state and local power," Hernandez-Colon v. Secretary of Labor, 835 F.2d 958, 962 (1st Cir. 1988), and "a tension between the competing policies of efficient planning and decentralized administration," Romero-Barcelo v. Donovan, 722 F.2d 882, 886 (1st Cir. 1983). As the House Conference Report explained,

It is not intended that the Job Training Partnership Act should establish an arbitrary design of new substate jurisdictions which will not enhance services to citizens. The conferees agree that the Governor should be allowed to structure the service delivery areas in the state to enhance coordination to serve labor market areas and increase the effectiveness of the job training services.

It is also the belief of the conferees, however, that the expertise of local governments not be lost, nor should the population areas become so large as to create an unwieldy delivery system. The conferees, therefore, have provided for the automatic designation of single units of local government ... and consortia of 200,000 or more. These population thresholds are intended to reduce the overall number of administrative units without compromising effective service.

H.R.Conf.Rep. No. 889 at 88, reprinted in 1982 U.S.Code Cong. & Admin.News 2636, 2709-10. The drafters thus struck a balance between concerns of state control and efficient administration, on the one hand, and empowering local governments. Fragmentation, hierarchy, and bureaucratic interference were to be avoided or minimized. However, the statute does not clarify what should be done in cases of conflicts between mandatory designees. See Consortium of Cities v. Dept. of Labor, 811 F.2d 1316, 1317 (9th Cir. 1987). Furthermore, although several reported decisions under the Act have addressed conflicts between governors and municipalities, no court has yet construed the redesignation provisions. See id.; Hernandez-Colon, 835 F.2d at 965.¹³  However, we may presume that Congress anticipated the inevitable geographic overlap between existing and proposed consortia, cities and counties when it specifically made redesignations mandatory when certain standards were reached.

The Department of Labor concedes that the Hub Cities Consortium is a contiguous group of local governmental units with an aggregate population of over 200,000 as required by 29 U.S.C. § 1511(a) (4) (A) (ii). Thus, the only issue remaining as to Hub Cities' mandatory designee status is whether it serves "a substantial part of a labor market area." On appeal, Hub Cities challenges both the Governor's legal definition of Los Angeles County as one LMA and his failure to define "substantial part," and his factual conclusion that Hub Cities does not serve a substantial part as required by the statute, however that term is defined.

It is true that the JTPA itself provides a definition of a LMA which differs somewhat from the criteria adopted by the Department of Labor. See 29 U.S.C. § 1503(13). However, the section refers explicitly to existing Labor Department Criteria, and authorizes governors to redefine LMA's to reflect local needs and realities. See, e.g., Bureau of Labor Statistics "Criteria for Defining Major LMA's." It is certainly possible that the unusual size and traffic congestion of Los Angeles County may require it to be subdivided into more than one LMA under the JTPA's "reasonable commuting distance" standard. However, the Department of Labor and the Governor share a level of technical expertise in this area that makes it inappropriate for a Court of Appeals to attempt to anticipate their decisions. On remand, the Secretary is directed to ascertain whether the Governor's definition of Los Angeles County as one LMA is consistent with the statute and with commuting patterns in the County. Cf. Romero-Barcelo v. Donovan, 722 F.2d 882 (1st Cir. 1983); Hernandez-Colon v. Secretary of Labor, 835 F.2d 958 (1st Cir. 1988).

The more serious problem here is that the Governor's denial of Hub Cities' application was based primarily on his determination that Hub Cities failed to meet the "substantial part" requirement. However, he neglected to define what is required to meet this test, stating only that Hub Cities is not big enough. Furthermore, his statistical comparison of Hub Cities only to the LMA as a whole disregarded the fact that several equally small consortia have already been approved, and that therefore, as Hub Cities contends, a de facto definition of "substantiality" has already been established. The Governor's failure to compare Hub Cities' application to existing SDA's renders his denial unsupported by substantial evidence. For her part, the Secretary declined to affirm or reject this aspect of the Governor's decision, choosing instead to affirm on completely different grounds, as discussed below. Therefore, the "substantiality" requirement, the only statutory basis for denial of mandatory designation, was never addressed. The case must be remanded so that the Secretary may analyze whether Hub Cities meets the criteria for "substantial part" as currently defined for SDA's within Los Angeles County.

B. Alternative Grounds for Governor's Denial

The Governor also cited several alternative grounds for denying Hub Cities' application, including concerns of "effective delivery," coordination with existing GAIN program services, and "fragmentation." See 29 U.S.C. §§ 1511(a) (1) (B) & (C) (ii) (suggesting general criteria). However, the Secretary admits that such considerations are impermissible reasons for denying mandatory designation, and so held in a recent decision involving Orange County, California.¹⁴  We agree.