APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA -- SCRANTON
Before Hunter and Higginbotham, Circuit Judges, and Weiner,*fn* District Judge.
This appeal is from a judgment of the United States District Court for the Middle District of Pennsylvania vacating a decision of the Secretary of Health and Human Services which reduced plaintiff's benefits under the Supplemental Security Income ("SSI") program of Title XVI of the Social Security Act, 42 U.S.C. §§ 1381-1383c (1976) (the "statute"). The district court held that 20 C.F.R. § 416.1125(d) (1980),*fn1 which includes, as countable unearned income for purposes of the SSI program, support and maintenance received for less than fair market value, is inconsistent with the Social Security Act and unconstitutional as applied to plaintiff. We will reverse.
In June of 1978, plaintiff Isabelle Nunemaker, a recipient of SSI benefits, received notice from the Secretary of Health and Human Services ("Secretary") that her benefits would be reduced by $83.13 per month because she was receiving unearned, in-kind income in the form of a private rental subsidy. Nunemaker was living in a mobile home owned by her daughter and son-in-law for which she paid $50.00 per month rent; the Secretary determined that the current rental value of the mobile home was $150.00 per month.*fn2 Pursuant to section 416.1125(d) and other relevant regulations, which count shelter provided for less than current market value as income to the SSI claimant, the Secretary determined that Nunemaker received a rental subsidy of $100.00 per month (i.e., the difference between the current market value and the rent actually paid for the mobile home). The Secretary did not, however, reduce Nunemaker's monthly benefits by the amount of $100.00. Rather, because section 416.1125(d) provides that the value of in-kind support and maintenance "is presumed to be one-third of the (monthly) payment standard," Nunemaker's benefits were reduced by $83.13.*fn3
Plaintiff claims that section 416.1125(d) is not a valid implementation of the Social Security Act for two reasons: a) because it deprives her of the benefit of a bargain struck for the provision of shelter, and b) because the benefit she received through her reduced rental is not "actually available" to her. Plaintiff further argues that the regulation is unconstitutional as applied to her, since by failing to take account of her actual contribution to rent, it treats her identically with a claimant in the same position who makes no such contribution,*fn4 and it arbitrarily and irrationally treats her differently from similarly situated claimants who, because they live in federally subsidized housing, are exempt from its operation.
The district court did not discuss plaintiff's first two arguments. With respect to the third argument, the court did not decide whether the failure to take account of plaintiff's contribution to her rent was in itself improper. Rather, the court ruled that the regulation improperly discriminated between plaintiff and other claimants who contributed nothing to their rent:
Based upon Defendant's determination that the current market value of the premises rented by Plaintiff was $150.00, (and plaintiff's $50.00 contribution to her rent,) income of $100.00 was imputed to her. Yet, since the regulations provide that benefits not be reduced by greater than 331/3%, and $100.00 is greater than 331/3% of Plaintiff's benefits, Plaintiff is treated in precisely the same manner as would be an S.S.I. recipient living in similar circumstances who made absolutely no contribution to her own domicile maintenance. This Court is unable to reconcile this disparity in the treatment of S.S.I. recipients to whom the unearned income provisions apply with the purposes of the Act, and therefore concludes that Defendant's application of § 462.1125(d) (sic) in this manner is both invidiously discriminatory and patently arbitrary.
Appendix at 55. Regarding plaintiff's fourth argument, the district court agreed that there was no rational basis for distinguishing between claimants in plaintiff's position and those living in federally subsidized housing, whose rental subsidies are exempt from the operation of the benefit-reducing regulation. This, the court held, rendered application of the regulation to plaintiff unconstitutional. Appendix at 54.
We cannot accept plaintiff's arguments concerning the applicability of the Secretary's regulations to her situation. We also cannot agree with the district court's conclusion that the regulation is unconstitutional. We believe that the Secretary's regulations validly implement the statute, that the statute and regulations were properly applied to plaintiff, and that the regulations are rationally related to a legitimate governmental objective. Therefore, the judgment of the district court will be reversed.
The SSI program*fn5 guarantees a minimum, subsistence level income to the aged, blind and disabled. See S.Rep.No.92-1230, 92d Cong., 2d Sess. 383 (1972); H.R.Rep.No.92-231, 92d Cong., 1st Sess. 4, reprinted in 1972 U.S.Code Cong. & Ad.News 4989, 4992. In order to be eligible for payments, a claimant's income or resources*fn6 may not exceed statutorily prescribed limits. 42 U.S.C. § 1382(a). The basic entitlement, a flat rate governed by a statutory formula, is paid to every eligible claimant, but is reduced by the amount of "countable" income that the individual receives from other sources. 42 U.S.C. §§ 1381a, 1382a(b). In defining countable income, the statute includes earned and unearned income, in cash or in kind, although certain narrow categories of income are excluded. 42 U.S.C. § 1382a(a)-(b).
In order to implement the statutory mandate to reduce benefits by the amount of unearned income in kind received by the claimant, the Secretary has promulgated regulations which further define income as "the receipt by an individual of any property or service which he can apply, either directly or by sale or conversion, to meeting his basic needs for food, clothing, and shelter." 20 C.F.R. § 416.1102(a) (1980). Section 416.1120 further provides that in determining the amount of unearned income, "the amount actually available to the individual is considered. The gross amount is reduced by any ordinary and necessary expenses incurred in getting or receiving the unearned income." (Emphasis added.) Several regulatory provisions govern the calculation of unearned income received in the form of housing. Section 416.1125(a) provides:
General. Unearned income includes support and maintenance furnished in cash or in kind .... Support and maintenance in kind encompasses food, clothing, and shelter or any portion of any or all of such items. Unless otherwise specified herein, the value of in-kind support and maintenance refers to its current market value.
20 C.F.R. § 416.1125(a) (1980). The regulations define precisely how food or shelter received "in kind" is to be valued in a variety of situations, including the case of a claimant who lives in his own household or the household of another. 20 C.F.R. § 416.1125(d)(1)-(2) (1980). Most importantly, the regulations provide for the situation reflected in the ...