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
Before the court is plaintiffs' motion for preliminary
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. Defendant also argues that since the
injury to plaintiff is pecuniary a remedy at law could be
created, refuting the claim of irreparable harm.
Generally, monetary damages, no matter how substantial, are not
sufficient for a finding of irreparable harm. American Hospital
Association v. Harris, 625 F.2d 1328, 1331 (7th Cir. 1980). In
the present case, however, those affected by the pecuniary loss
are not corporations or average citizens, but are citizens in the
"grip of poverty". Nelson v. Likins, 389 F. Supp. 1234, 1237
(D.Minn. 1974), aff'd 510 F.2d 414 (8th Cir. 1975). In Nelson,
Judge Lord wrote:
The loss to [plaintiffs] of a certain sum each month
is much more of an injury than it is to the average
individual. And it is the average individual who is
the basis for the rule that the loss of money is not
considered irreparable harm.
In Illinois the level of welfare benefits is designed to aid
those requiring help "in meeting basic maintenance requirements
for a livelihood compatible with health and well-being."
Ill.Rev.Stat., ch. 23, § 4-1. "For qualified recipients, welfare
provides the means to obtain essential food, clothing,
housing, and medical care." Goldberg v. Kelly, 397 U.S. 254, 264,
90 S.Ct. 1011, 1018, 25 L.Ed.2d 287 (1970). An unjustified
decrease in welfare payments could deprive a recipient and the
recipient's family of essential food, clothing, shelter and
health care. A subsequent payment by the state cannot adequately
compensate a recipient for being required to subsist for a period
in a manner incompatible with health and well-being. For those in
the "grip of poverty," living on the financial edge, even a small
decrease in payments can cause irreparable harm. This court is
unable to hold otherwise.*fn2 Findings of irreparable harm in
the reduction of welfare benefits have been upheld by the circuit
courts. See Banks v. Trainor, 525 F.2d 837, 842 (7th Cir. 1975),
cert. denied, 424 U.S. 978, 96 S.Ct. 1484, 47 L.Ed.2d 748 (1976);
Chu Drua Cha v. Noot, 696 F.2d 594, 599 (8th Cir. 1982), mod. on
denial of reh., 701 F.2d 750 (8th Cir. 1983).
Defendants argue that, pursuant to federal regulations, IDPA
reimburses current recipients for any underpayments made to the
recipients. Current recipients, therefore, will be reimbursed for
losses due to an incorrect crediting of the EIC. See
45 C.F.R. § 233.20(a)(13)(ii); Illinois Department of Public Aid Memorandum
Re: Medical and AFDC Program Revisions (Aug. 27, 1981). As stated
before, however, welfare recipients live on the financial edge
with their health and well-being depending on the level of
benefits received each month. An unjustified decrease in a
month's payments causes serious harm for the recipient in the
month of the shortfall. The possibility of future repayment is
not sufficient to counter this harm.
One final consideration counsels this court in finding
irreparable harm. Plaintiffs contend the possibility exists that
certain class members may lose AFDC eligibility completely
because of the IDPA's EIC policy. This could possibly happen if
the wage-earner's child is primarily supported by someone other
than the state, such as a separated spouse. If such a possibility
does exist it could mean a cutoff of not only AFDC benefits, but
also Medicaid payments. Even though a four-month delay exists
between cutoff of AFDC benefits and termination of Medicaid, the
results of loss of medical care could be tragic. "Termination of
benefits that causes individuals to forego such necessary medical
care is clearly irreparable injury." Massachusetts Association of
Older Americans v. Sharp, 700 F.2d 749, 753 (1st Cir. 1983).
Likelihood of Success on the Merits
Plaintiffs claim that IDPA's policy of assuming receipt of EIC
payments for all wage-earners without an investigation of whether
the recipient provides one-half of the child's or children's
support violates a number of statutes and regulations. Plaintiffs
argue that though exact certainty is not required the statutes
and regulations require the state to make a determination based
upon a number of Internal Revenue Service statutes and
regulations that the recipient is reasonably certain to be
eligible for an EIC. Defendants argue that the same statutes and
regulations cited by plaintiffs allow states wide latitude in
their determination of whether a recipient is eligible for EIC
payments. Defendants argue that IDPA's policy of finding all
wage-earning recipients eligible for EIC payments is reasonable
and therefore sufficient under the regulations. They state:
Potential eligibility for an EIC payment depends on
whether a child in an assistance unit is a dependent
of the person claiming such a payment. I.R.C. § 43;
26 C.F.R. § 1.43-2. One criterion of dependency is
that the person provides over one-half of the child's
support. I.R.C. § 152(a); 26 C.F.R. § 1.152-1. It is
reasonable to expect that a working individual
provides over one-half of his or her child's support.
Furthermore, it is reasonable that that individual
can, and will, claim his or her child as a dependent
and, therefore, is potentially eligible on a federal
tax return for an EIC payment.
(Defendant's Mem. in Opposition at 10.) The crucial question is
whether the statutes and regulations require a careful
examination of EIC eligibility under the Internal Revenue Code or
whether a reasonable assumption is enough. This court finds that
a careful examination of EIC eligibility based on Internal
Revenue statutes and regulations is required.