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December 6, 1983


The opinion of the court was delivered by: Moran, District Judge.


This action concerns the Illinois Department of Public Aid's (IDPA) administration of the Aid to Families with Dependent Children Program (AFDC). In question is IDPA's policy for determining eligibility for an earned income tax credit.

AFDC, Title IV-A of the Social Security Act, 42 U.S.C.A. §§ 601-615 (West Supp. 1982), is designed to enable dependent children and their families to "survive the hardships of poverty." Simpson v. Miller, 535 F. Supp. 1041, 1042 (N.D.Ill. 1982). See 42 U.S.C.A. § 601; Shea v. Vialpando, 416 U.S. 251, 253, 94 S.Ct. 1746, 1750, 40 L.Ed.2d 120 (1974). While funded with matching funds by the federal government, the programs are administered by the states. Participation by a state is voluntary, but once a state agrees to participate its administration of the program must conform to the provisions of the Social Security Act and the rules and regulations promulgated thereunder by the Department of Health and Human Services (DHHS). See King v. Smith, 392 U.S. 309, 316-17, 88 S.Ct. 2128, 2132-33, 20 L.Ed.2d 1118 (1968); Simpson v. Miller, 535 F. Supp. at 1044; Cannon v. Illinois Department of Public Aid, 76 Ill. App.3d 910, 912, 32 Ill.Dec. 502, 504, 395 N.E.2d 732, 734 (3d Dist. 1979).

The amount of aid given to needy families is determined by the states. A participating state calculates a standard of basic needs for its citizens. A family's income and resources, as defined by the regulations, see 45 C.F.R. § 233.20(a)(6)(iii-ix), are compared to the calculated standard. If a family's income and resources are below that standard the family is eligible for AFDC benefits and the amount it receives is dependent upon the difference. See 45 C.F.R. § 230.20(a)(2)-(3) (1982); Shea v. Vialpano, 416 U.S. at 253-54, 94 S.Ct. at 1750; Simpson v. Miller, 535 F. Supp. at 1042-43. Obviously, the higher the family's income, as calculated by the state, the less AFDC assistance the family will receive.

Under section 43 of the Internal Revenue Code, 26 U.S.C.A. § 43, an earned income credit (EIC) is granted for eligible low-income workers to supplement their income. To be eligible for an EIC the wage-earner must support a child who, for tax purposes, is considered a dependent of the recipient or the wage-earner must be unmarried and provide over half the support of the household. See I.R.C. §§ 2(a), 2(b) and 43(c). Dependency for tax purposes requires the individual claiming the dependent to supply the child with over half of the child's support. See I.R.C. § 152(a). For purposes of determining whether the wage-earner provides half of the child's support or half the support of the household, AFDC and certain other welfare payments count as support provided by the state and not by the wage earner. See 47 Fed.Reg. 5660 (1982). Thus, a wage-earner is only eligible for an EIC if AFDC and certain other transfer payments received are less than the wage-earner's income.

The Internal Revenue Code allows wage-earners eligible for an EIC to receive advance payment of the credit with their periodic wage payments if they apply for such with their employer. See I.R.C. § 3507. A wage-earner's EIC, whether paid in a lump sum at the end of the year or in the form of advance payments, is considered income for the purposes of determining eligibility for, and the amount of assistance receivable from, a state's AFDC program. See 42 U.S.C.A. § 602(d)(1). Under the regulations states are required to determine whether the AFDC recipient is eligible for an EIC and, if so, credit the recipient's monthly income with the amount of EIC advance payments that could be received if the individual applied for such. See 45 C.F.R. § 233.20(a)(6)(ix). This amount should be credited only if the state "reasonably expects that the individual will be eligible to receive the earned income credit for the current taxable year." 45 C.F.R. § 233.20(a)(6)(ix)(B)(1). The state is required to make the determination based upon the requirements specified in the Internal Revenue Code and the corresponding regulations which establish eligibility criteria for receipt of the EIC and its advance payments. Id.

Illinois participates in the AFDC program. The policy of the IDPA in determining eligibility of recipients for an EIC is set out in Regulation PO-615.4(g) of the state's AFDC manual. Regulation PO-615.4(g) states: "If the client is potentially eligible for the EIC payment, budget it as earned income even if the client does not receive the payment." See also Illinois AFDC Manual, PO-510.1(f). The IDPA credits wage-earners for receipt of the EIC without a determination of whether or not the wage-earner supplies over half the support of the wage-earner's child and is therefore eligible for the EIC. The state claims "[i]t is reasonable to expect that a working individual provides over one-half of his or her child's support."*fn1

Plaintiffs Sharon and Jimmie Moore and their three children are recipients of AFDC. Mrs. Moore was employed for four months in 1981, earning approximately $1,300. Mr. Moore did not work. Over half of the Moore's support was provided by AFDC and other transfer payments. Because of this Mrs. Moore was not eligible for an EIC. Pursuant to its policies IDPA budgeted Mrs. Moore with a $35 EIC payment for November, 1981, and reduced the Moore's AFDC grant that month by $23. Plaintiff Johnny Jefferson and her four children are also AFDC recipients. In 1981 Ms. Jefferson received approximately $3,519 in gross earned income. Over half of the Jefferson's support was provided by AFDC and other transfer payments. For this reason Ms. Jefferson was not eligible for an EIC. Pursuant to its policies IDPA credited Ms. Jefferson with EIC payments of $41 and $36 in October 1981 and November 1981, respectively, and reduced the Jefferson's AFDC grant for 1981 by $52.

Plaintiffs brought suit in this court on behalf of themselves and all persons similarly situated against Jeffrey Miller, Director of the IDPA, and the IDPA itself. Plaintiffs are claiming IDPA policies concerning the crediting of EIC payments violate applicable federal regulations, applicable Illinois statutes, and the due process and equal protection clauses of the Fourteenth Amendment to the United States Constitution. Plaintiffs asked for declaratory and injunctive relief. The parameters of plaintiffs' class are not disputed by the parties. This court's jurisdiction rests on 28 U.S.C. § 1331. The court exercises pendent jurisdiction over the state claims. See United Mineworkers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).

Before the court is plaintiffs' motion for preliminary injunction.

Standards for Determination

In granting or denying a request for a preliminary injunction this court must examine four factors: (1) whether the plaintiff will have an adequate remedy at law or will be irreparably harmed if the injunction does not issue; (2) whether the plaintiff has at least a reasonable likelihood of success on the merits; (3) whether the threatened injury to the plaintiff outweighs the threatened harm the injunction may inflict on the defendant; and (4) whether the granting of a preliminary injunction will disserve the public interest. Martin v. Helstad, 699 F.2d 387, 389 (7th Cir. 1983); Atari Inc. v. North American Philips Consumer Electronics Corp., 672 F.2d 607, 613 (7th Cir. 1982), cert. denied, 459 U.S. 880, 103 S.Ct. 176, 74 L.Ed.2d 145 (1982). None of these factors is decisive and a court's decision must be based on a totality of the factors. Reinder Brothers, Inc. v. Rain Bird Eastern Sales Corp., 627 F.2d 44, 49 (7th Cir. 1980). Plaintiffs carry the burden of persuasion as to all the prerequisites to the granting of a preliminary injunction. Ciechon v. City of Chicago, 634 F.2d 1055, 1057 (7th Cir. 1980).

Irreparable Injury and Absence of an Adequate Remedy at Law.

Plaintiffs claim the class is being irreparably harmed by the IDPA's reduction in AFDC benefits. They claim the reduction in benefits deprive the class members of essential food, shelter and medical assistance. In addition, they claim the Eleventh Amendment bars the court from awarding back benefits. See Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974). The defendant, on the other hand, argues that the IDPA has a system for reimbursement of underpayments that will remedy any shortfalls in AFDC payments. ...

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