St. Amour v. Dept. of Social Welfare

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                       Nos. 90-472, 90-475 and 91-533

 Cynthia St. Amour                            Supreme Court

      v.                                      On Appeal from
                                              Human Services Board
 Department of Social Welfare
                                              December Term, 1991

 Olive Belanger

 Department of Social Welfare

 Cynthia Weed


 Department of Social Welfare

 John Wesley, Chair

 William R. Dysart and Donna Sutton, Paralegal (On the Brief), Vermont Legal
   Aid, Burlington, for plaintiffs-appellees St. Amour and Belanger

 William J. O'Neill, Vermont Legal Aid, St. Albans, for plaintiff-appellee

 Jeffrey L. Amestoy, Attorney General, Montpelier, and Christina Byrom,
   Assistant Attorney General, Waterbury, for defendant-appellant

 PRESENT:  Allen, C.J., Gibson and Johnson, JJ., and Peck, J. (Ret.),
           Specially Assigned

      GIBSON, J.   The Department of Social Welfare appeals from a decision
 of the Human Services Board ordering the Department to consider depreciation
 costs in calculating the net income of self-employed food stamp recipients.
 We reverse.
      Petitioners appealed to the Board from the Department's termination or
 reduction of their food stamp benefits. (FN1) They argued that by failing to
 consider depreciation as a cost of producing self-employment income, the
 Department overestimated their net incomes and improperly reduced their food
 stamp benefits.  The Department maintained that the applicable federal and
 state regulations (FN2) expressly state that depreciation is not an allowable
 cost to be subtracted from self-employment income.  Relying on legislative
 history from the Food Stamp Act of 1977, and ignoring legislative history
 from the Food Stamp Act Amendments of 1980, the Board concluded that
 Congress intended to include depreciation as a cost of producing self-
 employment income.  Based on its conclusion, the Board construed the current
 food stamp regulations to forbid self-employed food stamp applicants to
 subtract the accelerated forms of depreciation permitted by the Internal
 Revenue Service, but to allow such applicants to subtract "specific
 decreases in the value of [their] property and equipment through wear,
 deterioration, or obsolescence."  The Department appeals from that
      In order to review the Board's ruling, we must retrace the history of
 the food stamp statutes.  Upon the expiration of the Food Stamp Act of 1964,
 Congress passed the Food Stamp Act of 1977.  Pursuant to that act, "income
 for purposes of the food stamp program shall include all income from what-
 ever source excluding only . . . (9) the cost of producing self-employed
 income . . . ."  7 U.S.C. { 2014(d) (1988).  Subsequent amendments to the
 act have left this language unchanged.  The act is silent as to what
 constitutes "the cost of producing self-employed income"; however, the 1977
 House Committee on Agriculture noted that the existing regulations excepted
 depreciation from the costs of producing self-employment income, and then
 stated as follows:
             While there is no reason to permit for food stamp
           purposes the accelerated forms of depreciation afforded
           under the Internal Revenue Code, some factor for wear
           and tear of machinery and buildings, obsolescence and
           accrued replacement costs should be inherent in doing
           business.  The full amount of self-employment income
           would be recognized as income, but then there would be
           an exclusion for the cost of producing that income.

             Thus, the Department would be expected to revise its
           regulations in this regard to allow some form of
           depreciation in arriving at "net" business income.
 H. Rep. No. 464, 95th Cong., 1st Sess. 25, reprinted in 1977 U.S. Code Cong.
 & Admin. News 1978, 2001-02.  These comments were not discussed in the House
 or Senate conference reports, but the Department of Agriculture did revise
 its regulations to allow some types of depreciation to be subtracted as
 costs of producing self-employment income. (FN3)
      The Food Stamp Act Amendments of 1980 did not change the language of {
 2014(d)(9).  But in the House Conference Report, the conferees "note that
 the Department's regulations defining self-employment income . . . provide
 for allowing as a cost of producing self-employment income depreciation 'for
 equipment, machinery, or other capital investments necessary to the self-
 employment enterprise' and intend that the Secretary no longer permit
 depreciation to be subtracted in determining net self-employment income."
 H. Conf. Rep. No. 957, 96th Cong., 2d Sess. 29, reprinted in 1980 U.S. Code
 Cong. & Admin. News 1057, 1069-70 (emphasis in original).  As a result of
 the conferees' comments, (FN4) the new regulations promulgated in 1982 by the
 Department of Agriculture provided that "[i]n determining net self-
 employment income, the following items shall not be allowable as costs of
 doing business: . . . (D) Depreciation."  7 C.F.R. { 273.11(a)(4)(ii)
 (1991).  As noted, Vermont has adopted this regulation verbatim.
      Focusing on the 1977 House Committee Report, the Board concluded that
 Congress clearly intended to allow depreciation as a cost of producing self-
 employment income, and that the only way to reconcile the current regula-
 tions with that intent is by considering the term "depreciation" to mean
 "the IRS method of calculating depreciation."  (Emphasis in original.)
 Thus, the Board concluded that although the Department "need not be bound by
 any amounts claimed by the petitioner[s] as 'depreciation' on their IRS tax
 returns," it must allow decreases in the value of petitioners' property and
 equipment through wear, deterioration, or obsolescence, as a cost of pro-
 ducing self-employment income.  In support of the Board's decision,
 petitioners argue that the 1980 House Conference Report is not persuasive as
 to the intent of the statute because it is a statement of the members of a
 subsequent Congress regarding a provision that was not amended by the 1980
      At the outset of our review of the Board's decision, we point out that
 the Department of Agriculture explicitly stated that its proposed change
 disallowing depreciation as a cost of producing self-employment income was
 suggested by the 1980 Conference Report, which unequivocally stated an
 intention to no longer permit the subtraction of any type of depreciation
 from self-employment income.  See 46 Fed. Reg. 4646 (1981).  Therefore, the
 Board's construction of the Department regulation was a determination that,
 as written, the regulation is inconsistent with the federal food stamp
      The food stamp statute is silent as to what constitutes the costs of
 producing self-employment income, but it authorizes the Secretary of Agri-
 culture to issue regulations consistent with the act that are appropriate
 for the effective administration of the food stamp program.  7 U.S.C. {
 2013(c).  If a statute is silent with respect to a specific issue, the
 courts must determine if a challenged agency regulation "'is based on a
 permissible construction of the statute.'"  Lepage v. Yeutter, 917 F.2d 741, 743 (2d Cir. 1990) (quoting Chevron, U.S.A., Inc. v. Natural Resources
 Defense Council, Inc., 467 U.S. 837, 843 (1984)).  Because the instant
 statute is silent on the point at issue, we must consider whether the
 challenged regulation is a reasonable interpretation of congressional
 intent as expressed in the legislative history.  Davis v. Lukhard, 788 F.2d 973, 981 (4th Cir. 1986).
      We turn first to the 1977 House Committee Report.  "Although not
 decisive, the intent of the legislature as revealed by the committee report
 is highly persuasive."  2A N. Singer, Sutherland on Statutory Construction {
 48.06, at 332-33 (5th ed. 1992).  The statement in the 1977 committee report
 appears to constrain the Secretary to consider depreciaton as a cost to be
 subtracted from self-employment income, and the Secretary adopted a regu-
 lation that put the committee's expectation into effect.  But cf. Scalise v.
 Thornburgh, 891 F.2d 640, 645 (7th Cir. 1989) ("[a]n expression of an
 'expectation' by one committee of the House . . . does not establish
 congressional intent," particularly in the absence of any confirmation of
 this expectation in the Senate or House Conference Reports).
      Regarding the 1980 House Conference Report, which expressed an intent
 that the Secretary no longer permit depreciation to be deducted in deter-
 mining net self-employment income, petitioners argue that the report is
 merely post-enactment legislative history entitled to little or no weight in
 determining congressional intent as to the meaning of statutory language
 that was not amended in 1980.  Petitioners cite Pierce v. Underwood, 487 U.S. 552, 566-67 (1988), and other cases, in support of their position.
      In Pierce, the Court was called upon to interpret an act which
 authorized an award of attorney's fees against the Government "unless the
 court finds that the position of the United States was substantially
 justified."  In attempting to determine what Congress meant by the term
 "substantially justified," the Court gave no weight to an excerpt from a
 House Committee Report pertaining to the 1985 reenactment of the 1980
 statute where the phrase initially appeared.  The House Report stated that
 the term "substantially justified" must denote a higher standard than
 reasonableness because the 1980 Congress rejected a standard of "reasonably
 justified."  The Court held that the statement in the House Report was not
 controlling for two reasons: (1) the statement could not be an authoritative
 interpretation of what the 1980 statute meant because "it is the function of
 the courts and not the Legislature, much less a Committee of one House of
 the Legislature, to say what an enacted statute means"; and (2) the
 statement could not be an authoritative expression of what the 1985 Congress
 intended because it did not explain language drafted by the 1985 Committee,
 because it accepted "the 1980 meaning of the terms as subsisting," and
 because there was no indication that the 1985 Congress intended to do
 anything but reenact the 1980 legislation with regard to the standard of
 review at issue.  Id.
       We believe that the instant situation is distinguishable from the one
 in Pierce.  In Pierce, the House Committee Report offered its view of the
 meaning of the phrase that constituted the standard of review to be employed
 by the courts in determining whether to award attorneys fees.  It is for the
 courts, not an administrative agency, to apply and construe that standard of
 review.  Here, on the contrary, the administering agency is directed to
 promulgate regulations appropriate for the effective administration of the
 food stamp program.  7 U.S.C. { 2013(c).  This duty necessarily includes the
 promulgation of regulations detailing what types of deductions would be
 allowed as costs of producing self-employment income.  The 1980 Congress had
 no incentive to change the actual wording of the statute because the details
 that were to be changed were those outlined in the agency regulations, not
 the statutory language.  Further, in amending the regulation, the agency was
 implementing the intent of a joint conference of both houses of Congress.
 See Davis, 788 F.2d  at 981 (a conference report is the most persuasive
 evidence of Congressional intent behind the enactment of a statute because
 it "represents the final statement of terms agreed upon by both houses of
      The instant situation is more analogous to Lepage v. Yeutter than
 Pierce v. Underwood.  In Lepage, food stamp recipients challenged an agency
 regulation redefining the term "head of the household" to mean the "primary
 wage earner" rather than the person who had applied for the stamps.  The
 Food Stamp Act disqualifies a household from receiving food stamp benefits
 for ninety days when the "head of the household" voluntarily quits his or
 her employment.  Congress had not defined the term "head of the household"
 in the original enactment or any subsequent amendment.  In a decision that
 was reversed on appeal, the federal district court held the new regulation
 to be invalid.  Dubuque v. Yeutter, 728 F. Supp. 303, 315 (D. Vt. 1989).
      The Secretary originally defined "head of the household" to mean the
 person who had applied for the food stamps.  See Lepage, 917 F.2d  at 744.
 The House Agriculture Committee reiterated that definition in the 1977
 House Report when it discussed a new provision of the food stamp program
 penalizing heads of households who voluntarily leave their jobs.  In 1979,
 the Secretary promulgated a regulation concerning the voluntary-quit
 provision that substituted the term "primary wage earner" for "head of the
 household."  Congress amended the voluntary-quit provision in 1981 to
 include households already receiving benefits.  Although the term "head of
 the household" remained undefined and unchanged in the statute, the House
 Conference Report on the 1981 amendments stated that applicant households
 would be temporarily disqualified if the "primary wage earner" has volun-
 tarily quit a job without good cause.  See id. at 744.
      The court of appeals overruled the district court and concluded that
 Congress's statements of purpose in amending the voluntary-quit provision in
 1981 were entitled to great weight.  Id. at 745.  Pointing to the uncer-
 tainty of the statement in the 1977 House Report, the authority of the
 Secretary to promulgate appropriate regulations, and the extensive rule-
 making record, the court found that the challenged regulation was
 consistent with the goals of the food stamp program.  Id. at 745-46.
      We come to a similar conclusion here.  Given the Secretary's mandate to
 promulgate appropriate regulations, the instant regulation must be upheld
 unless it is inconsistent with the purpose of the statute. (FN5) The statutory
 language is silent as to what constitutes the costs of self-employment
 income.  After submitting its proposed rule change for public comment, the
 Department concluded that allowing depreciation as a cost of producing self-
 employment income would result "in an exemption of amounts not constituting
 'actual costs' to the households."  46 Fed. Reg. 4646 (1981).  Petitioners
 do not challenge that statement, but instead point to recent amendments of
 the Food Stamp Act aimed at increasing the participation of farmers in the
 food stamp program and assuring that farmers will be able to average their
 income and expenses over the year.  We cannot conclude that these amendments
 indicate an intent by Congress to allow depreciation as a cost of producing
 self-employment income.  Rather, we conclude that the amended regulation is
 neither inconsistent with the statutory language nor in contravention of the
 intent of Congress.
      Reversed and remanded.

                               FOR THE COURT:

                               Associate Justice

 FN1.    Three cases that concern the same legal issue are consolidated on

 FN2.    The food stamp program is a federally funded and regulated program
 administered locally by the states.  7 U.S.C. { 2020 (1988); see 33 V.S.A. {
 1701 (authorizing program).  The Commissioner of Social Welfare, who
 administers the food stamp program in accordance with federal standards, has
 adopted verbatim the relevant federal regulation.  See 7 C.F.R. {
 273.11(a)(4) (1991); 4 Code of Vermont Rules, Food Stamps { 273(a)(4), at
 207 (1989).

 FN3.    The regulations provided as follows:
               Depreciation shall be allowed as a cost of
          producing self-employment income for equipment,
          machinery or other capital investments necessary to the
          self-employment enterprise.  The Federal or State income
          tax form for the most recent tax year shall be used for
          calculating depreciation on an annual basis.  No
          depreciation shall be allowed on a capital asset unless
          it is documented by the appropriate State or Federal
          income tax form.  Households which did not file a tax
          return or did not claim depreciation may still receive
          consideration for depreciation by filing a regular or
          amended tax form for that year and presenting a copy of
          that amended return to the State agency.
 43 Fed. Reg. 47,912 (1978).

 FN4.    In proposing the rule change, the Department of Agriculture noted
 that the prior provision allowing depreciation as a cost was promulgated in
 compliance with the legislative history of the 1977 Act, and that the
 proposed change had been suggested by the Conference Report of the 1980
 Amendments.  46 Fed. Reg. 4646 (1981).  The Department went on to explain
 that allowing depreciation as a cost of producing self-employment income
 "results in an exemption of amounts not constituting 'actual costs' to the
 households; households are, in a sense, given a deduction in advance for the
 cost of capital goods which is otherwise not allowed."  Id.  In adopting the
 provision, the Department stated that the few comments it had received in
 response to the proposed rule change had come from state welfare agencies
 and were generally favorable.  47 Fed. Reg. 17,757 (1982).

 FN5.    We point out that deference to an administering agency's regulations
 is appropriate even when the agency has changed its position, as long as
 "there appears to have been good reason for the change."  Defenders of
 Wildlife, Friends of Animals v. Lujan, 911 F.2d 117, 124 (8th Cir. 1990).