Edmonds v. Chao

United States Court of Appeals
For the First Circuit

No. 05-2009

JANE C. EDMONDS, Director, Commonwealth of MA
Department of Workforce Development,

Petitioner,

v.

ELAINE L. CHAO, Secretary of Labor;
UNITED STATES DEPARTMENT OF LABOR,

Respondents.

PETITION FOR REVIEW FROM AN ORDER OF
THE DEPARTMENT OF LABOR ADMINISTRATIVE REVIEW BOARD

Before

Boudin, Chief Judge,
Stahl, Senior Circuit Judge,
and Howard, Circuit Judge.

Sookyoung Shin, Assistant Attorney General of Massachusetts,
with whom Thomas F. Reilly, Attorney General of Massachusetts, was
on brief, for petitioner.
Frank P. Buckley, Attorney, Office of the Solicitor, with whom
Howard M. Radzely, Solicitor of Labor, Charles D. Raymond,
Associate Solicitor for Employment and Training Legal Services, and
Harry L. Sheinfeld, Counsel for Litigation, were on brief, for
respondents.

May 26, 2006
 STAHL, Senior Circuit Judge. This case stems from the

failure of the city of Lynn, Massachusetts, to responsibly handle

funds distributed to the Commonwealth of Massachusetts by the

federal government for use in employment training and

rehabilitation programs, and of the Massachusetts state government

to monitor Lynn's use of those funds according to procedures

specified by the federal Department of Labor (DOL). DOL has

ordered the state to repay some of the funds, and the state

objects. Because we find that the DOL has the better of the

arguments, we affirm the decision of the Administrative Review

Board (the Board) and deny the Commonwealth's petition for review.

I.

Under the (now defunct) Job Training Partnership Act

(JTPA), 29 U.S.C. § 1501 et seq. (1994) (repealed 2000), DOL made

funds available to the states for job training and rehabilitation

programs.1 The JTPA's stated purpose during the period pertinent

to this case was to "prepare youth and adults facing serious

barriers to employment for participation in the labor force by

providing job training and other services that will result in

increased employment and earnings." 29 U.S.C. § 1501. The statute

created a number of programs under its various titles. This case

1
The JTPA was enacted in 1982 and took effect July 1, 1983.
Pub. L. No. 97-300, §§ 161-172 (Oct. 13, 1982), 96 Stat. 1347. It
was repealed by statute in 1998, and the repeal became effective
July 1, 2000. Pub. L. No. 105-220, Title I, § 199(b)(2), (c)(1)(B)
(Aug. 7, 1998), 112 Stat. 1059.

-2-
deals with the disbursement of funds under Titles II and III of the

statute.

The Board characterized the programs under Title II as

designed to benefit "disadvantaged youth and adults" and those

under Title III as providing "employment training assistance for

dislocated workers." Under both titles the Act called upon DOL to

distribute funds to the state governors or their proxies in

participating states. In Massachusetts, it was the Department of

Employment and Training (DET) that administered the Title II funds

at the state level, while the Corporation for Business, Work, and

Learning (CBWL) and its predecessor agency, the Industrial Services

Program (ISP), administered the Title III funds. DET and CBWL/ISP

in turn parceled out the money for use in geographically distinct

Service Delivery Areas (SDAs).2 In order to do so, they would

designate a grant recipient (generally a local government), see 29

U.S.C. § 1511, 20 C.F.R. §§ 628.405 & .415, as well as an

administrative entity that would take ground-level responsibility

for implementing the various JTPA programs, 29 U.S.C. §§ 1503(2) &

1514; 20 C.F.R. §§ 628.405 & .415. This case involves the Service

Delivery Area for Lynn (Lynn SDA) and the efforts of DOL to recover

2
Title II authorized distribution only through the SDAs. See
29 U.S.C. §§ 1511 & 1514. Title III authorized distribution to
other classes of administrative entities in addition to the SDAs,
see id., §§ 1661-1661c, but this case involves only distribution
through the SDAs themselves.

-3-
funds from Massachusetts that are untraceable and may have been

substantively misspent.

Programs for the Lynn SDA were administered by an entity

called Northshore Employment Training (Northshore). In 1993,

Northshore received its first warning from DET: the Commonwealth

had been reviewing Northshore's financial records, and had

identified "relatively minor" problems. The state directed

Northshore to develop a plan to ensure better reporting. Over the

course of the next two years, however, Northshore's financial

accounting did not improve, and Massachusetts progressively

increased its oversight of Northshore and eventually decertified

it. At all stages, DOL, through its Boston office, appears to have

been apprised of Northshore's increasingly apparent financial

mismanagement, and to have been involved in cooperative efforts

with Massachusetts to monitor the program, contain the damage, and

get the Lynn SDA back on track. Despite the best efforts of the

federal, state, and local authorities, however, Northshore inched

towards complete failure. In the summer of 1995, DET accused

Northshore of financial mismanagement and took over partial control

of some of the Lynn programs. In October of that year, Lynn SDA

was formally designated as a "high risk" grantee for its failure to

comply with the various corrective plans imposed by the

Commonwealth agencies in charge of monitoring Northshore. In April

1996, DET described Northshore's financial system as "not

-4-
operational or coherent" and decertified Northshore as a JTPA

funding recipient, and in June 1996, Northshore closed its doors

and the Greater Lowell Regional Employment Board took over its

employment service responsibilities. Subsequently, Massachusetts

began proceedings to collect from the city of Lynn $6,340,397 that

it considered misspent because Lynn had not maintained adequate

records. Lynn made efforts to avoid repayment.

During and after this period of decline, Massachusetts

authorities received public plaudits from the Boston office of the

DOL for their efforts to manage the Lynn SDA crisis and to recover

wasted funds from Lynn, tempered by reminders that as the immediate

recipient of the JTPA funds Massachusetts was ultimately

individually responsible to the DOL for any funds not recovered

from Lynn. In 1997, DOL's Office of the Inspector General received

its own audit, performed under contract by Deloitte and Touche,

LLP, CPAs, of the Lynn program. The audit noted that Massachusetts

had made a determination against Lynn that disallowed to Lynn

$7,137,698 in JTPA Title II funds3 and $1,970,288 in Title III

funds. Later that year, DOL began administrative proceedings

seeking a declaration that Massachusetts had misspent federal funds

from 1994 to 1996 by distributing the same $9,107,986 to the local

agency when Massachusetts had not guaranteed that Lynn was

3
The full Title II figure was in fact $7,189,920, but of this
amount $52,222 was related to a program that did not fall under the
purview of the DOL.

-5-
complying or capable of complying with the federal accounting

requirements. In May 1998 the Grant Officer responsible for

prosecuting the case made a formal determination charging the

Commonwealth with just over $9 million in misspent funds. The

Commonwealth appealed to an administrative law judge (ALJ), who

directed the Grant Officer to permit the state to show evidence on

certain points that could reduce its liability. The Grant Officer

did so but arrived again at her initial conclusion, and the

Commonwealth appealed to the ALJ for a second time. The ALJ then

reversed roughly $5 million of the original $9 million in charges

to the state, finding that the Commonwealth had adequately

documented this portion of the expenditures and that these funds

had been spent responsibly. The Grant Officer appealed to the

Administrative Review Board, DOL's final and authoritative

adjudicative body. The Board remanded to the ALJ, requiring

greater clarity with respect to certain points.4 On remand, after

making the required findings, the ALJ abandoned his former

disposition and affirmed the Grant Officer's original position that

4
The most vital point in the remand order was a determination
that the ALJ had erroneously applied certain outdated provisions of
the regulations and had misconstrued the weight to be given to
judicial and agency precedent as to certain points. There was also
some confusion in the record about the time period during which
certain events took place: the confusion arose from the fact that
when DOL speaks of, for example, Program Year 1995, it is referring
to the period from July 1, 1995 through June 30, 1996, while when
Massachusetts speaks of Fiscal Year 1995, it is referring to the
period from July 1, 1994 through June 30, 1995.

-6-
the state owed the full $9 million. Massachusetts once again

appealed the ALJ's disposition to the Board, which affirmed in all

respects.

The Board's basic theory was that Massachusetts had

violated its obligation to ensure that the regional agencies that

received its funds (often referred to in the bureaucratic argot as

"subrecipients") maintained financial records capable of

demonstrating how those funds were spent. As an initial matter,

Massachusetts had failed to compel the Lynn SDA to conduct the

annual audit required by the Single Audit Act, 31 U.S.C. §§ 7501-

7507 (1994) (SAA), and implementing regulations. This failure, on

the Board's interpretation, opened up the possibility of repayment

liability, and the state was then given an opportunity to

demonstrate that the Lynn SDA had in fact spent its federal funds

for JTPA-appropriate purposes. As a practical matter, the Grant

Officer and various reviewing entities were looking for rigorously

collected and properly thorough "source documentation" consisting

of receipts, invoices, cancelled checks, and the like. Where

Massachusetts was able to produce such documentation, the Grant

Officer dropped claims of misspending, but where the state could

not produce the documentation, the Board charged it for the

unaccounted-for funds.

In lieu of some of the missing source documentation, the

Commonwealth submitted a detailed accounting, called a

-7-
"Reconstructed Trial Balance" (RTB), in which the state's own

auditor attempted to reconstruct Northshore's finances throughout

the period at issue. In the Board's words, the RTB "represented an

accounting consultant's reconstruction of the Lynn SDA records,

which was undertaken in an effort to produce an auditable set of

financial records." The state also submitted statements by its own

agents that they had themselves consistently reviewed Northshore's

source documents with respect to certain aspects of the program.

In the Commonwealth's view, the post hoc accounting and state agent

testimony constituted substitute evidence of Northshore's

essentially proper management of its financial affairs, and it

argued that in light of this uncontradicted evidence the Board

should have found that the funds were properly spent.

The state thus contended that the record-keeping

requirements of the JTPA and regulations are not substantive

obligations, but are instead simply one way of enforcing the

underlying requirement that a state take sufficient care to direct

its JTPA funds towards JTPA-related activities. The state's

position was that it had provided satisfactory substitute

assurances of good financial management and should not have been

penalized for failing to abide by the particular requirements of

the relevant record-keeping provisions.

The Board in fact adopted roughly this legal position,

but rejected the state's specific claims because the evidence the

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state provided was not sufficient to convince the Board that the

funds were properly spent. The Board crucially noted that the RTB

was not itself based on source documentation, but was in essence

nothing more than an accountant's speculation as to what probably

happened to the funds disbursed by Northshore. It likewise found

insufficient the state agents' testimony that they had themselves

reviewed source documentation at Northshore. Massachusetts now

petitions for review of the Board's decision.

In its petition, Massachusetts raises three questions,

asking: whether the Board acted within its authority in determining

that as a legal matter Massachusetts could have violated the terms

of the JTPA on the facts alleged by the Grant Officer; whether the

Board's decision to disallow the expenses and seek repayment was

not supported by substantial evidence because the Board chose not

to accept as sufficient the evidence proffered by the state; and

whether the Board abused its discretion when it decided not to

forgive the state its obligation to repay.

II.

The JTPA requires a state to comply with a host of rules

in order to qualify for funding. The rules relevant to this case

fall into two broad categories. On one side of the line, the JTPA

imposes limitations on the uses to which federal funds may be put.

These substantive regulations govern expenses incurred by regional

agencies in providing employment training services. Among other

-9-
requirements, the regulations prescribe that an agency spending

JTPA funds can only incur costs that are "necessary and reasonable

to the proper and efficient administration of the program." 29

U.S.C. § 1574(a)(2); 20 C.F.R. § 627.435(a). The agency must also

classify its expenditures according to the categories prescribed by

statute,5 and the statute and regulations prescribe maximum

expenditures for certain categories -- for example, the regulations

specify that (depending on the program) administrative costs can

amount to no more than fifteen or twenty percent of total

expenditures.

In order to ensure compliance with these and other

substantive limitations on expenditures, the statute and

regulations place a heavy emphasis on financial management and

accountability, and the other category of relevant regulations is

the set of rules specifying the state and agency responsibilities

to account for their use of funds. These oversight provisions

specify the mechanisms through which states and their JTPA

subrecipients must demonstrate to DOL that they are fulfilling

their obligations under the substantive provisions of the Act.

5
For some Title II funds in the programs at issue here, the
funds must be expended either on 1) administration, 2) what are
called training-related services/supportive services, or 3) direct
training services. 29 U.S.C. § 1518(b); 20 C.F.R. § 627.440(d)(1)-
(5). Title III funds must be categorized as related to 1) rapid
response services, 2) basic readjustment services, 3) retraining
services, 4) needs-related payment and supportive services, and 5)
administration. 29 U.S.C. § 1661c(a); 20 C.F.R. § 631.13(a)(1).

-10-
Among them is the requirement that "[e]ach State shall establish

such fiscal control and fund accounting procedures as may be

necessary to assure the proper disbursal of, and accounting for,

Federal funds paid to the recipient under subchapters II and III of

this chapter." Id., § 1574(a)(1). The statute goes on to specify

that "[s]uch procedures shall ensure that all financial

transactions are conducted and records maintained in accordance

with generally accepted accounting principles applicable in each

State." Id.

Massachusetts maintains that it and the Lynn SDA were

largely in compliance with all relevant substantive provisions of

the Act and regulations throughout the relevant time periods. The

state contends that the roughly $9 million at stake in these

proceedings (except for a few small sums it has conceded were

misused) was spent to procure job training services as directed by

the JTPA, and that DOL is wrong to try to recoup the money.

Massachusetts ran into trouble, however, when it came time to

demonstrate to the agency that the funds were appropriately spent.

The usual method for demonstrating substantive compliance is

through the completion of an independent audit. Such an audit is

required by the SAA, as implemented at 29 C.F.R. Part 96 and made

applicable to JTPA programs by 20 C.F.R. § 629.1(b).

An SAA audit would have reviewed the substate agency's

financial records, examined receipts, invoices, and cancelled

-11-
checks, and made a determination as to the degree of the agency's

compliance with the applicable regulations. Where such an audit

indicated that funds had been misspent, the right response would

generally be twofold: the imposition of financial sanctions on the

state to the degree of the misexpenditure, and the proposal of

remedial measures designed to prevent future misspending. Here,

however, no such audit was conducted. Neither the statute nor the

regulations specify precisely what ought to happen where an audit

is never undertaken, but through its adjudication processes the

Board has developed a rule for determining what a fair

reimbursement is under these circumstances.

Section 627.802(e) in the Code of Federal Regulations

specifies that, where a determination under the JTPA is entrusted

to a Grant Officer in the first instance, the Grant Officer bears

the burden of producing evidence to support a determination against

a party. Thereafter, the regulation says, the party seeking to

overturn the Grant Officer's determination has the burden of

persuasion. In this case, the Board determined that the Grant

Officer made a prima facie case that funds were misspent under 29

U.S.C. § 1574(d) by offering evidence that an SAA audit was not

carried out. The state's burden in response was to demonstrate

that it either "met the specific requirements imposed by the JTPA"

-- i.e., that it had actually carried out an SAA-compliant audit --

-12-
or that it had "compensated for any deficiencies through other

means."

As a technical matter, under this system the DOL charges

the state with misspending simply because it has failed to properly

put in place the appropriate accounting safeguards: the failure to

conduct an audit constitutes a repayment-worthy violation of the

JTPA in itself. DOL then limits the amount of the charged

repayment to the amount which the state cannot demonstrate was

spent in compliance with the substantive regulations. In order to

demonstrate that compliance, the state must show source

documentation, and where it does, it earns the right to avoid

repaying the funds to the DOL. The practical effect of this system

is that the state is responsible for repaying to DOL any funds it

cannot prove were spent in compliance with the substantive

regulations. In the words of the Board, "Lynn was obligated not

only to implement and maintain fiscal controls that ensured that

Northshore funds were expended in compliance with all pertinent

JTPA requirements, but also to maintain adequate records to

demonstrate that such expenditures complied with the Act."

(emphasis in original).

Although Massachusetts attempted to prove substantive

compliance with the JTPA in lieu of presenting a clean audit, the

Board concluded that the evidence it presented was not sufficiently

"detailed, reliable, and extensive" to meet its burden. Our review

-13-
of the final determination of the Board under the JTPA is

deferential. We are bound by the Board's findings of fact so long

as they are supported by substantial evidence. 29 U.S.C. §

1578(a)(3). While the statute grants us authority to review the

legal determinations of the Board, see id., as a general matter we

defer to "an agency's reasonable interpretation of a statute that

it administers." P. Gioioso & Sons, Inc. v. Occupational Safety &

Health Review Comm'n, 115 F.3d 100, 107 (1st Cir. 1997) (citing

Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S.

837, 843-44 (1984); Strickland v. Comm'r, Me. Dep't of Human

Servs., 96 F.3d 542, 547 (1st Cir. 1996)). We similarly defer to

an agency's reasonable interpretation of its own regulations (so

long as those regulations and the interpretation are themselves

reasonable given the statute), and will "respect an agency's

interpretation of its own regulation as long as the interpretation

meshes sensibly with the regulation's language and purpose." Id.

(citing Martin v. Occupational Safety & Health Review Comm'n, 499

U.S. 144, 151 (1991)).

As we have noted, the statute here commands that "[e]ach

State shall establish such fiscal control and fund accounting

procedures as may be necessary to assure the proper disbursal of,

and accounting for, Federal funds paid to the recipient under

subchapters II and III of this chapter." 29 U.S.C. § 1574(a)(1).

It requires that those procedures "ensure that all financial

-14-
transactions are conducted and records maintained in accordance

with generally accepted accounting principles applicable in each

State." Id. The regulations that implement these statutory

provisions require inter alia that "[r]ecipients and subrecipients

shall ensure that their own financial systems as well as those of

their subrecipients provide fiscal control and accounting

procedures." 20 C.F.R. § 627.425(b)(1). Among other things, these

procedures must require the state to provide "[s]ource

documentation to support accounting records." Id., §

627.425(b)(1)(iv).

The Commonwealth's argument is that the § 627.425 record-

keeping requirement could not rationally be a factor in considering

whether funds are misspent. It claims, in essence, that a

misspending determination should be a determination of substantive

malfeasance, and that the failure to monitor that is the basis of

the record-keeping requirement does not rise to that level. The

Board's interpretation is that a violation of the financial

accountability rules can give rise to liability. This view lies

well within the statutory boundaries. 29 U.S.C. § 1574(d) is the

source of the Secretary's authority to demand repayment of funds,

and provides that "[e]very recipient shall repay to the United

States amounts found not to have been expended in accordance with

this chapter." The fiscal control provisions are provisions of the

same chapter (indeed, the same section) as contains the repayment

-15-
provision, and the DOL reasonably concluded that violations of

those provisions could justify demanding repayment.6

The Board's conclusion is bolstered by the fact that the

statute itself and the regulations implementing it evince a strong

concern for proper record-keeping and financial accountability,

evidenced in the above-cited sections and elsewhere throughout the

texts. There is also reason to believe that increased

accountability was a motivating factor in the passage of the

legislation that substituted the programs under the JTPA for those

provided by its predecessor statute, the Comprehensive Employment

Training Act (CETA). See S. Rep. No. 97-469, at 26, reprinted in

1982 U.S.C.C.A.N. 2636, 2661 (1982) ("The General Accounting Office

reports have made clear that the internal controls in CETA programs

are unacceptably weak despite numerous Department of Labor

regulations and publications which provide internal control

guidance and requirements. These conditions make the grantees

vulnerable to misuse of funds and unintentional errors.").

What is more, the Board's position here is consistent

with longstanding views in various courts that seeking repayment

6
Notably, the Board limited its request for repayment to the
amount that may have been actually squandered through the failure
of the state's oversight, seeking only funds that the state could
not prove were spent in accordance with the substantive provisions
themselves. This seems an important limiting principle, and we are
not faced with the more difficult case that would be presented were
the federal government to seek repayment of funds even where the
state offered reliable evidence that the funds were spent properly
under all relevant substantive rules.

-16-
where faulty accounting makes it impossible to determine whether

funds have been properly spent is an appropriate remedy to allow in

the context of the JTPA and its predecessor statutes. Dealing with

a similar circumstance under the CETA program, the Fourth Circuit

held twenty years ago that "by failing to comply with the

record-keeping requirements of CETA and its regulations, the County

'misspent' federal funds within the meaning of the statute."

Montgomery County v. Dep't of Labor, 757 F.2d 1510, 1513 (4th Cir.

1985). This was because "[r]ecord keeping is at the heart of the

federal oversight and evaluation provisions of CETA and its

implementing regulations. Only by requiring documentation to

support expenditures is the DOL able to verify that billions of

federal grant dollars are spent for the purposes intended by

Congress." Id. at 1513. See also La. Dep't of Labor v. United

States Dep't of Labor, 108 F.3d 614, 618 (5th Cir. 1997); City of

Oakland v. Donovan, 703 F.2d 1104, 1107 (9th Cir. 1983). Similarly

here, rigorous record-keeping was essential to ensure that

thousands of JTPA grant subrecipients used the money they received

for its intended purpose.

Finally, even if we were not convinced that the DOL's

interpretation of its authority to seek repayment here was

otherwise sound and deserving of deference, the catchall remedial

provision of § 1574(h), which specifies that "[t]he remedies under

this section shall not be construed to be exclusive remedies,"

-17-
would provide a strong argument that there is no reason to give the

§ 1574(d) provision a particularly crabbed reading, as Congress

evidently meant to give the Secretary a broad arsenal of powers in

seeking to enforce the terms that the states accept when they elect

to receive JTPA funds.

The Commonwealth makes a secondary argument that even if

the Board permissibly construed the statute and regulations to mean

that a failure to make a proper accounting would result in a

repayment obligation unless the state made a sufficient alternative

showing that it complied with the substantive regulations at issue,

its determination that the state did not make such a showing here

was improper. Our review under the substantial evidence standard,

however, is limited even in the general case, and we are the more

reluctant to second-guess agency accounting policies in areas where

the agency must oversee vast and complex programs and its

experience with such oversight presumably informs those policies.

Tracking and authenticating the numerous retail-level transactions

that implementing the JTPA requires is a mammoth task, and "[i]n

such an area '(m)atters of accounting, unless they "be the

expression of a whim rather than an exercise of judgment, are for

the agency."'" Cheshire Hosp. v. New Hampshire-Vermont

Hospitalization Serv., Inc., 689 F.2d 1112, 1117 (1st Cir. 1982).

The Board determined that, without direct evidence in the form of

source documentation to back it up, the state's evidence that funds

-18-
were properly spent was unreliable guesswork and there remained

reason to be concerned that the funds disbursed to Lynn SDA had not

been spent on procuring JTPA-related services. The state complains

that its evidence was good enough, but without a terribly strong

showing indicating that the Board's evaluation and rejection of the

proffered evidence was pure caprice, we could not conclude that the

evidence compelled a contrary decision.

The state's final argument is that even if DOL was within

its rights in disallowing the costs at issue in the first place,

the Secretary of Labor was authorized to waive the repayment

obligation and abused her discretion in not doing so. Where the

Board has determined that a state grant recipient may be charged

for misspent funds, the statute grants the Secretary discretion to

forgive the repayment obligation. See 29 U.S.C. § 1574(e)(3). The

statute does not give the Secretary unbounded discretion, however.

In relevant part, the statute permits the Secretary to forgive

repayment obligations only where the recipient state has

demonstrated that it has:

(A) established and adhered to an appropriate
system for the award and monitoring of
contracts with subgrantees which contains
acceptable standards for ensuring
accountability;
(B) entered into a written contract with such
subgrantee which established clear goals and
obligations in unambiguous terms;
(C) acted with due diligence to monitor the
implementation of the subgrantee contract,
including the carrying out of the appropriate

-19-
 monitoring activities (including audits) at
reasonable intervals; and
(D) taken prompt and appropriate corrective
action upon becoming aware of any evidence of
a violation of this chapter or the regulations
under this chapter by such subgrantee.

Id., § 1574(e)(2). DOL's position is that, because Massachusetts

continued making payments to Lynn SDA for two years, a period

during which it either overlooked or chose to look past Lynn SDA's

faulty record-keeping, it was wasting the federal government's

money. While the ultimate exercise of discretion is committed to

the Secretary, we can review the agency's predicate factual and

legal determinations -- but we accord those determinations the

usual deference.

Massachusetts had to meet all four criteria specified in

the statute in order to qualify for waiver consideration, and a

supportable finding by the Board that it did not meet any one of

those criteria dooms the state's claim. The Board determined that

the efforts that Massachusetts made to staunch the flow of

unaccounted-for funds to Northshore did not merit waiver

consideration because Massachusetts failed to meet three of the

four criteria. Specifically, Massachusetts had not "established

and adhered to an appropriate system for the award and monitoring

of contracts with subgrantees which contains acceptable standards

for ensuring accountability" under § 1574(e)(2)(A) because it had

not adhered to the system it had established; had not acted with

the requisite diligence under § 1574(e)(2)(C) in monitoring

-20-
Northshore; and had not responded with the requisite alacrity under

§ 1574(e)(2)(D) in taking appropriate measures to correct the

developing problem with Northshore once it was detected.

The state raises arguments contesting the Board's

determinations as to each of these criteria. As to the last of

them, the requirement that the state move with speed and force to

correct violations of the JTPA, the state's arguments are

particularly weak. The agency is entrusted in the first instance

with determining whether a state has taken sufficiently diligent

steps to justify a waiver, and it is the agency's job to determine

what standards to apply to such a determination. Under the

circumstances of the case, given the drawn-out period over which

Northshore declined and the length of time that elapsed before

Massachusetts decided to decertify the program, the agency's

determination that Massachusetts should have leaned harder on Lynn

or moved to decertify it earlier does not appear unreasonable.

The statutory requirement is that the state take "prompt

and appropriate corrective action" once it detects a problem. It

seems sensible to think that whether an action taken was

"appropriate" should be determined by looking to information

available at the time, which is to say that retroactively declaring

Massachusetts not to have taken "appropriate corrective action"

because its plan did not work in the end might well be an

unreasonable approach to take under § 1574(e)(2)(D). Massachusetts

-21-
suggests that the agency made such an error here, arguing that

"[t]he fact that Lynn did not adequately implement the corrective

measures imposed on it by the Commonwealth does not support the

conclusion that the Commonwealth itself was not diligent in its

actions" and that "[t]he Board erred in holding otherwise." This

pure legal argument does not have any basis in the Board's

decision, for the Board did not rely on the corrective program's

failure in determining that the state moved with less than the

necessary speed.

Instead, the Board made a fact-bound determination that

the efforts Massachusetts did make to bring Northshore back into

compliance were not sufficient to qualify it for waiver

consideration. It noted federal and state requirements that

corrective action be taken within six months when financial

irregularities were detected, and concluded that on the basis of

information then known, Massachusetts ought to have downgraded Lynn

SDA to "out of compliance" status as early as September 1994. To

defeat the agency's determination in a petition to this court, the

state had at least to describe, making reference to the record, the

particular efforts it made to revitalize the Lynn program and

explain why it would be unreasonable to conclude that those efforts

did not meet the statutory threshold. Without such an explanation,

we cannot see our way to overturning the agency's determination and

-22-
we therefore affirm the Board's decision to deny a waiver in this

case.

For the foregoing reasons, the decision of the

Administrative Review Board is affirmed. The petition for review

is denied.

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