National Wildlife Federation v. John O. Marsh, Secretary of the Army , 747 F.2d 616 ( 1984 )

KRAVITCH, Circuit Judge:

In a petition for panel rehearing, some of the appellants, namely individuals of low or moderate income, challenge our conclusion in National Wildlife Federation v. Marsh, 721 F.2d 767 (11th Cir.1983), that section 5304(b)(3) of the Housing and Community Development Act (the “HCDA” or “Act”), 42 U.S.C. § 5301 et seq. (1983), does not contain an implicit requirement that a funded project principally benefit low and moderate income persons.

The facts and procedural history of this case are set forth in the panel opinion, but a brief summary may be helpful. In 1968 the City of Alma formulated a plan under the Model Cities Program to revitalize the economy of the community and surrounding area. The plan featured four development projects: an air/rail industrial park, improved water and sewage treatment facilities, a modernized airport and the construction of a recreational lake, referred to as Lake Alma and the subject of over a decade of litigation. Lake Alma was considered the “urban shaper” of the four.

While funding for the lake under the Model Cities Program was being delayed by litigation over the environmental impact of the project, Congress enacted the HCDA in 1974. Alma sought funding under the Act and was awarded a $2.3 million block grant for fiscal years 1975 through 1977 and another $399,600 for fiscal years 1978 and 1979, but release of the money again was delayed by litigation over the environmental soundness of the proposed development. Finally, in 1982 the Department of Housing and Urban Development informed Alma it would release the funds if certain requirements were satisfied, including compliance with two 1978 HUD regulations, 24 C.F.R. § 570.302(b)(1) and (d),¹ requiring that the project “principally” benefit low and moderate income individuals, i.e., that more than fifty percent of the benefiting public be persons of low or moderate income.

The data Alma submitted to HUD satisfied most of the criteria, but did not quite reach the fifty percent threshold of the principal benefit regulation.² Notwithstanding the City’s failure to comply with the regulation, the Deputy Secretary of HUD, exercising his authority under 24 C.F.R. § 570.4,³ waived the principal benefit regulation and released the funds on grounds that to do otherwise would result in undue hardship and would frustrate the purpose of the block grant statute.⁴

Appellants requested a preliminary injunction to prevent the release of funds, which the district court denied. Although we reversed in part and entered a preliminary injunction on other grounds, we affirmed the district court’s conclusion that the principal benefit requirement was regulatory only and therefore was subject to waiver by HUD under appropriate circumstances. 721 F.2d at 786. Petitioners here ask us to reconsider our conclusion that the fifty percent principal benefit requirement was not an implied condition in 42 U.S.C. § 5304(b)(3). Finding no reason to modify the panel opinion, we deny the petition for rehearing.

One of the issues raised by petitioners, however, merits further discussion. On November 30,1983, shortly before the opinion in this ease was published, Congress amended 42 U.S.C. § 5304(b)(3) to require each grantee to certify that

[t]he projected use of funds has been developed so as to give maximum feasible priority to activities which will benefit low- and moderate-income families or aid in the prevention or elimination of slums or blight [;], and the projected use of funds may also include activities which the grantee certifies are designed to meet other community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community where other financial resources are not available to meet such needs, except that the aggregate use of funds received ... during a period specified by the grantee of not more than 3 years, shall principally benefit persons of low and moderate income in a manner that ensures that not less than 51 percent of such funds are used for activities that benefit such persons during such period;

42 U.S.C. § 5304(b)(3) (Supp.1984) (emphasis on 1983 amendment). Section 5304 previously required only that “maximum feasible priority” be given to activities that benefit low and moderate income individuals or aid in the prevention or elimination of slums or blight, and, based upon our review of the available legislative history to the HCDA, we held in National Wildlife v. Marsh, supra, that Congress rejected a strict percentage floor for use of funds and did not intend that at least fifty percent of the beneficiaries of every funded project should be lower income individuals. 721 F.2d at 779. Petitioners contend that the 1983 amendments, which expressly require that fifty-one percent of the grantee’s “aggregate use of funds received” principally benefit persons of low or moderate income, and accompanying legislative history, call for a different result than that reached by the panel.

The 1983 amendments potentially affect the panel opinion in two ways. If applied retrospectively, the revisions would require Alma officials to demonstrate how their project benefits low and moderate income individuals in accordance with the standards set forth therein, particularly 42 U.S.C. §§ 5304 and 5305(c) (Supp.1984).⁵ Were we to apply the new law, we would be compelled to remand the case to the -district court and HUD to give Alma the opportunity to demonstrate compliance with the new requirements and to give the agency the opportunity to make findings and issue a decision prior to our review. See Watkins Motor Lines v. I.C.C., 641 F.2d 1183 (5th Cir.1981). Alternatively, even if the new law is not applied retrospectively, it may affect our opinion if its provisions and legislative history indicate that our interpretation of the old law was erroneous.

A new statute should not be applied retrospectively to cases pending on the date of its enactment if there is a statutory directive or legislative history favoring prospective application or if manifest injustice would result. Bradley v. Richmond School Board, 416 U.S. 696, 94 S.Ct. 2006, 40 L.Ed.2d 476 (1974); Corpus v. Estelle, 605 F.2d 175 (5th Cir.1979). Neither the amendments nor the legislative history indicates congressional intent to apply the new requirements to funds released in pri- or years under predecessor appropriations bills. Although there is no express statement that the law should be applied only prospectively, there are a number of indirect references to that effect. Most prominent is section 5303, which repeals authorization for funds disbursed in fiscal years 1982 and 1983 and appropriates $3.468 billion in block grants for each of fiscal years 1984, 1985 and 1986. The most logical interpretation is that the changes'in application requirements apply only to requests for funding in fiscal years 1984 through 1986 and should not affect grants already released under prior appropriations bills. See also amended section 5307(a) (setting forth amount available for disbursement in discretionary fund for fiscal years 1984 through 1986).

This view is supported by other sections that refer to application requirements for fiscal years beginning in 1984 without suggesting that funds released in prior years are affected by the new law. Section 5304(a)(1), for example, which requires the grantee to submit a statement of project objectives and use of block grants in prior years, applies only to “cases beginning in fiscal year 1984.” Two other amendments use fiscal year 1983 as a benchmark for determining the qualifications of applicants in future years: section 5305(a)(8) looks to the amount awarded in fiscal year 1983 as a standard for determining the maximum amount of money available in later years for the activities enumerated therein; and section 5302(a)(4) allows a city or county to retain its status as a “metropolitan city” or “urban county” if it enjoyed such a status in 1983. By using 1983 as a starting point, both sections imply that the new provisions pertain only to money appropriated for distribution in fiscal years beginning in 1984.⁶

Additional evidence of congressional intent to affect only block grants applied for and released in fiscal years 1984 through 1986 may be found in the absence of any legislative history even suggesting that applicants for funds released in prior years would have to reapply under the new law. On numerous occasions Congressmen criticized HUD funding of various projects, but no one indicated that the 1983 amendments would require the grantee to requalify for the released funds.

Even in the absence of an express legislative directive, under Bradley we also may decline to apply a statute retrospectively if manifest injustice will result. A new law will not be applied if it adversely affects a party’s vested rights. Cox v. Schweiker, 684 F.2d 310, 318-19 (5th Cir. Unit B 1982). HUD approved Alma’s first entitlement of over $2.3 million for fiscal years 1975 and 1976 on the condition that the City would complete an environmental impact statement. After completing the EIS, an additional $399,600 was approved for fiscal years 1978 and 1979 on the condition that the City would comply with the newly promulgated HUD principal benefit regulations set forth in sections 570.-302(b)(1) and (d). Finally, on May 14, 1982, HUD formally released the money, waiving its principal benefit regulations and finding all other conditions satisfied. At least until this latest suit was filed, Alma reasonably believed it had satisfied all of the statute’s requirements and had acquired the authorir ty to spend the released funds. The City’s vested interest in the funds is evidenced by its expenditure of over $100,000 in block grant money to date on the EIS and administrative expenses. When HUD released the money in 1982, Alma had a legitimate expectation that it would receive the grant. It would be manifestly unjust to impose different application requirements than those in force when Alma applied for and obtained HUD’s release of the block grant funding.

Apart from the question of retrospective application, petitioners maintain the recent legislative history supports their position that Congress initially imposed in section 5304 a strict requirement of fifty-one percent project benefit to low and moderate income individuals. In assessing the relevance of the most recent statements of Congress, we again are mindful that “the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one.” National Wildlife Federation v. Marsh, 721 F.2d at 776 (quoting Consumer Products Safety Commission v. GTE Sylvania, 447 U.S. 102, 117, 100 S.Ct. 2051, 2061, 64 L.Ed.2d 766 (1980) (quoting United States v. Price, 361 U.S. 304, 313, 80 S.Ct. 326, 332, 4 L.Ed.2d 334 (1960))). Nevertheless, we perceive the most recent legislative pronouncement as reenforcing our conclusion that the phrase “maximum feasible priority”, as originally enacted in section 5304, does not embody a principal benefit requirement.

We initially observe that the 1983 amendments do not significantly affect the regulations waived by HUD in this case. The amendment to section 5304(b)(3), the provision relied upon most heavily by petitioners, was a legislative reaction to a 1982 HUD proposal that would have eliminated a regulation not at issue here — the seventy-five percent principal benefit requirement for the grantee’s “program as a whole,” which is codified at 24 C.F.R. § 570.-302(b)(2) and (3).⁷ See 47 Fed.Reg. 43912 (Oct. 4, 1982). The regulations waived by the Deputy Assistant Secretary in this case were 24 C.F.R. § 570.302(b)(1) and (d), which impose a fifty-one percent principal benefit test on individual “activities” within an overall program of wider scope. HUD’s proposed 1982 regulations did not significantly modify the requirements of § 570.-302(b)(1) and (d). See 47 Fed.Reg. 43912 and 43932 (Oct. 4, 1982).⁸

The two sets of regulations address two entirely different concerns. Under the block grant statute, a project can be funded if it qualifies under any of three criteria: (1) benefiting low or moderate income families, (2) preventing or eliminating slums or blight, or (3) meeting other urgent community needs. 42 U.S.C. § 5304(b)(3). Sections 570.302(b)(2) and (3) become operative only when a program consists of individual projects qualifying for funds under the latter two criteria. When a “program as a whole” includes individual projects that did not qualify under the first criterion, compliance with §§ 570.302(b)(2) and (3) ensures that the entire program will benefit low or moderate income persons. Concluding in 1982 that Congress wanted each of the three criteria to be given equal weight in the funding decisions, HUD proposed to remove this regulatory requirement because it elevated one purpose of the Act— benefit to low or moderate income persons — above the other two.⁹ Reacting to HUD’s proposal, Congress in 1983 demonstrated its disapproval of the agency’s interpretation by amending section 5304(b)(3) to require that the “aggregate use of funds” must principally benefit lower income individuals. As amended, section 5304(b)(3) essentially codifies the “program as a whole” requirement that previously existed in regulations 570.302(b)(2) and (3). It does not affect §§ 570.302(b)(1) and (d), which set forth the requirements for funding individual projects under the low or moderate income prong of the Act.

Although amended section 5304(b)(3) does not purport to govern the funding of individual activities within an overall program of wider scope, Congress, in the 1983 amendments, did enact statutory guidelines for determining when a particular activity, such as Lake Alma, qualifies as benefitting low and moderate income individuals. See 42 U.S.C. § 5305(c) (Supp.1984). Significantly, however, the guidelines do not impose a rigid rule that to qualify as an activity benefiting persons of lower income the project must serve an area of at least fifty-one percent lower income residents. Under section 5305(c)(2), a project not satisfying a fifty-one percent benefit test will nonetheless qualify for funding if it serves an area comprised of a larger proportion of low and moderate income residents than seventy-five percent of the other areas in the jurisdiction of the recipient. 42 U.S.C. § 5305(c)(2) (Supp.1984). This evidences the belief of the current Congress that each activity need not meet a rigid fifty-one percent principal benefit test.

Despite the lack of legislative history directly addressing the regulations at issue here, and the principal benefit requirement for individual activities within a program embodied therein, the debate over the 1983 amendments may have some relevance. The amendments do manifest congressional concern that HUD was funding or, under the 1982 proposed regulations, could fund projects inconsistent with the purposes of the HCDA. In the broadest context, the legislative history can be construed as demonstrating a general disapproval of HUD’s failure to adhere to rigid principal benefit thresholds for both “a program as a whole” and the individual activities within. But even if this were true, the history reveals that Congress was proposing a change in policy and was not merely reiterating or redefining what it had enacted earlier. See e.g., H.R.Rep. No. 123, 98th Cong., 1st Sess. 2 (1983) (“efforts are specifically aimed at strengthening the Community Development Block Grant Program”) (emphasis added); Cong.Rec. H10501 (daily ed. Nov. 18, 1983) (“the Community Development Block Grant Program is modified in a number of ways ____) (emphasis added); id. at 10521 (“the principal policy change deals with the so-called ‘principal benefit’ issue”) (emphasis added).

It is not a simple task to divine the intended meaning of each provision in complex socio-economic legislation such as the HCDA. Our role as interpreters is made no less difficult, and correspondingly no less subject to criticism, when Congress employs ambiguous operative language in setting forth the criteria for obtaining the benefit of its programs. Our problem here is determining what Congress meant when it stated that “the projected use of funds [must be] developed so as to give maximum feasible priority to activities which will benefit low- and moderate-income families ....” 42 U.S.C. § 5304(b)(3) (1983). When Congress enacted the HCDA in 1974, it considered and refused to adopt a Senate version that would have further defined “maximum feasible priority” by imposing a rigid percentage limiting the amount of funds available for activities that do not benefit low or moderate income individuals. 721 F.2d at 775. We remain convinced that when it declined to enact a strict principal benefit provision, Congress intended to allow HUD to exercise its discretion in determining which projects were best suited for funding. Over the years, HUD has found it difficult but has used its best efforts to further the purposes of the Act and to predict the will of the majority of Congress.¹⁰ After a few years of experience, and prompted by HUD’s 1982 proposed regulations, Congress decided to remove some of the agency’s discretion and has now enacted more strict principal benefit requirements, but that does not affect our holding that there was no principal benefit requirement in the statute when HUD waived its regulation. If anything, it supports our reasoning that had Congress intended a rigid fifty-one percent test, it would have, as it now has, enacted one.

The petition for rehearing by the panel is DENIED.

1 . 24 C.F.R. § 570.302(b)(1) (1983) provides:

All projects and activities must either principally benefit low- and moderate-income persons, or aid in the prevention or elimination of slums and blight, or meet other community development needs having a particular urgency.

24 C.F.R. § 570.302(d) (1983) provides in part:

A project or activity will be considered to principally benefit low- and moderate-income persons if it is designed to meet identified needs of low- and moderate-income persons ... and it meets one of the following standards:

(1) the project has income eligibility requirements that limit the benefits of the project to low- and moderate-income persons.

(2) the project does not have income eligibility requirements but the majority of the beneficiaries are low- and moderate-income persons____

2 . The Deputy Assistant Secretary of HUD concluded that "the high percentage of low- and moderate-income persons residing in the service area (41.9) and especially in Bacon County (46.-2) makes the call a close one.”

3 . 24 C.F.R. § 570.4 (1983) provides:

The Secretary may waive any requirement of this part not required by law whenever it is determined that undue hardship will result from applying the requirement and where application of the requirement would adversely affect the purposes of the Act.

4 . The Deputy Assistant Secretary concluded that undue hardship would result for a number of reasons. First, Lake Alma was considered one of the cornerstones of the City's development program. Second, the “hold harmless" provisions of the Housing and Community Development Act of 1974 "assured Alma-Bacon County of receiving block grant funding through the fiscal year 1979.” Third, not to grant the waiver would, in effect, hold "hostage” $2.3 million awarded under the program prior to the promulgation of HUD’s principal benefit regulation in 1978. Fourth, although the Lake Alma project did not definitively meet the requirements of section 570.302(b)(1) and (d), it nearly did so; see supra note 2. See May 12, 1982, Memorandum to Michael B. Janis, Acting Area Manager, from Donald G. Dodge, Deputy Assistant Secretary of HUD.

The Deputy Assistant Secretary also found that not waiving the requirement would adversely affect the purposes of the block grant statute by frustrating some of the objectives of the Act. He concluded that "it would not allow the grantees to carry out community development activities which are consistent with longstanding comprehensive local and area-wide development planning, which the grantees continue to believe to be relevant. In addition ..., granting the waiver is consistent with the directions of the Housing and Community Development amendments of 1981, as well as the President’s goal that local jurisdictions become self-reliant and better able to determine their own community development needs and priorities without federal interference.” Id.

5 . 42 U.S.C. § 5305(c)(2) (Supp.1984), as amended, provides:

In any case in which an assisted activity described in subsection (a) of this section is designed to serve an area generally and is clearly designed to meet identified needs of persons of low and moderate income in such area, such activity shall be considered to principally benefit persons of low and moderate income if (A) not less than fifty-one percent of the residents of such area are persons of low and moderate income; or (B) in any jurisdiction having no areas meeting the requirements of subparagraph (A), the area served by such activity has a larger proportion of persons of low and moderate income than not less than 75 percent of the other areas in the jurisdiction of the recipient.

6 . Further support may be found in section 110 of the amendments, which appears under the heading "Transition Provisions." Subsection 110(b) states, "The amendments made by this section shall apply only to funds available for fiscal year 1984 and thereafter." Cong.Rec. H10625 (daily ed. Nov. 18, 1983). Both appellants and local appellees have pointed out that the Council for the House Subcommittee for Housing and Community Development, which prepared the original House version of the 1983 amendments, has informed them that the reference in section 110(b) to "this section" was in error, that it should have applied to all amendments made by “this title,” and that the error would be corrected in the technical amendments. We are, of course, bound to interpret the statute as enacted, not as it might have been, but this scenario is consistent with our conclusion. It is a plausible construction because section 110(b) makes little sense when applied only to the two technical changes made in subsection 110(a) and not to the remainder of Title I. It becomes even more plausible in light of the fact that the original House bill consisted of only one section (§ 101(a)-(n)). As originally drafted, section 110(b) (then section 101(n)) applied to the entire title, including the new principal benefit requirement. See Cong.Rec. H5008 (daily ed. July 12, 1983).

7 . 24 C.F.R. § 570.302(b)(2) (1983) provides: "Each annual application for funds under this subpart must provide that the applicant’s program as a whole shall principally benefit low- and moderate-income persons.”

24 C.F.R. § 570.302(b)(3) (1983) provides in part:

An application shall be presumed to principally benefit low- and moderate-income persons, absent substantial evidence to the contrary, where not less than seventy-five percent of the program funds to be available during the three-year period ... shall be used for projects and activities which principally benefit low- and moderate-income persons under the standards in paragraph (d) of this section

8 . Section 570.901 of the 1982 proposed regulations provides in part: "The following activities, in the absence of substantial evidence to the contrary, will be considered to benefit low and moderate income persons: (i) any activity, other than residential rehabilitation, which is so designed or located that at least a majority of the beneficiaries are low and moderate income persons.” 47 Fed.Reg. 43912 (Oct. 4, 1982). Compare 24 C.F.R. § 570.302(b)(1) and (d), supra note 1.

9 . Statement of John J. Knapp, General Counsel, United States Department of Housing and Urban Development, Dec. 7, 1982, Hearing Before the Subcommittee on Housing and Community Development at 35.

10 . Statement of Stephen J. Bollinger, Assistant Secretary for Community Planning and Development, United States Department of Housing and Urban Development, Dec. 7, 1982, Hearing Before the Subcommittee on Housing and Community Development at 94.