Jefferson v. Hackney

delivered the opinion of the Court.

Appellants in this case challenge certain computation procedures that the State of Texas uses in its federally assisted welfare program. Believing that neither the Constitution nor the federal welfare statute prohibits the State from adopting these policies, we affirm the judgment of the three-judge court below upholding the state procedures.

I

Appellants are Texas recipients of Aid to Families With Dependent Children (AFDC). They brought two class *537 actions, which were consolidated in the United States District Court for the Northern District of Texas, seeking in-junctive and declaratory relief against state welfare officials. A three-judge court was convened pursuant to 28 U. S. C. § 2281.

The Texas State Constitution provides a ceiling on the amount the State can spend on welfare assistance grants. 1 In order to allocate this fixed pool of welfare money among the numerous individuals with acknowledged need, the State has adopted a system of percentage grants. Under this system, the State first computes the monetary needs of individuals eligible for relief under each of the federally aided categorical assistance programs. 2 Then, since the constitutional ceiling on welfare is insufficient to bring each recipient up to this full standard of need, the State applies a percentage reduction factor 3 in order to arrive at a reduced standard of need in each category that the State can guarantee.

Appellants challenge the constitutionality of applying a lower percentage reduction factor to AFDC than to *538 the other categorical assistance programs. They claim a violation of equal protection because the proportion of AFDC recipients who are black or Mexican-American is higher than the proportion of the aged, blind, or disabled welfare recipients who fall within these minority groups. Appellants claim that the distinction between the programs is not rationally related to the purposes of the Social Security Act, and violates the Fourteenth Amendment for that reason as well. In their original complaint, appellants also argued that any percentage-reduction system violated § 402 (a) (23) of the Social Security Act of 1935, as amended, 81 Stat. 898, 42 U. S. C. § 602 (a) (23), which required each State to make certain cost-of-living adjustments to its standard of need.

The three-judge court rejected appellants’ constitutional arguments, finding that the Texas system is neither racially discriminatory nor unconstitutionally arbitrary. The court did, however, accept the statutory claim that Texas’ percentage reductions in the AFDC program violate the congressional command of §402 (a) (23). 304 F. Supp. 1332 (ND Tex. 1969).

Subsequent to that judgment, this Court decided Rosado v. Wyman, 397 U. S. 397 (1970). Rosado held that, although § 402 (a) (23) required States to make cost-of-living adjustments in their standard-of-need calculations, it did not prohibit use of percentage-reduction systems that limited the amount of welfare assistance actually paid. 397 U. S., at 413. This Court then vacated and remanded the first Jefferson judgment for further proceedings consistent with Rosado. 397 U. S. 821 (1970).

On remand, the District Court entered a new judgment, denying all relief. Then, in a motion to amend the judgment, appellants raised a new statutory claim. They argued for the first time that although a percentage-reduction system may be consistent with the statute, the *539 specific procedures that Texas uses for computing that reduction violate the congressional enactment. The District Court rejected this argument and denied without opinion appellants’ motion to amend the judgment. This appeal under 28 U. S. C. § 1253 then followed, and we noted probable jurisdiction. 404 U. S. 820 (1971).

II

Appellants’ statutory argument relates to the method that the State uses to compute the percentage reduction when the recipient also has some outside income. Texas, like many other States, 4 first applies the percentage-reduction factor to the recipient’s standard of need, thus arriving at a reduced standard of need that the State can guarantee for each recipient within the present budgetary restraints. After computing this reduced standard of need, the State then subtracts any nonexempt 5 income in order to arrive at the level of benefits that the recipient needs in order to reach his reduced standard of need. This is the amount of welfare the recipient is given.

Under an alternative system used by other States, the order of computation is reversed. First, the outside income is subtracted from the standard of need, in order to determine the recipient’s “unmet need.” Then, the percentage-reduction factor is applied to the unmet need, in order to determine the welfare benefits payable.

The two systems of accounting for outside income yield different results. 6 Under the Texas system all *540 welfare recipients with the same needs have the same amount of money available each month, whether or not they have outside income. Since the outside income is applied dollar for dollar to the reduced standard of need, which the welfare department would otherwise pay in full, it does not result in a net improvement in the financial position of the recipient. Under the alternative system, on the other hand, any welfare recipient who also has outside income is in a better financial position because of it. The reason is that the percentage-reduction factor there is applied to the “unmet need,” after the income has been subtracted. Thus, in effect, the income-earning recipient is able to “keep” all his income, while he receives only a percentage of the remainder of his standard of need. 7

*541 Each of the two systems has certain advantages. Appellants note that under the alternative system there is a financial incentive for welfare recipients to obtain outside income. The Texas computation method eliminates any such financial incentive, so long as the outside income remains less than the recipient’s reduced standard of need. 8 However, since Texas’ pool of available welfare funds is fixed, any increase in benefits paid to the working poor would have to be offset by reductions elsewhere. Thus, if Texas were to switch to the alternative system of recognizing outside income, it would be forced to lower its percentage-reduction factor, in order to keep down its welfare budget. Lowering the percentage would result in less money for those who need the welfare benefits the most — those with no outside income — and the State has been unwilling to do this.

Striking the proper balance between these competing policy considerations is, of course, not the function of this Court. “There is no question that States have considerable latitude in allocating their AFDC resources, since each State is free to set its own standard of need and to determine the level of benefits by the amount of funds it devotes to the program.” King v. Smith, 392 U. S. 309, 318-319 (1968) (footnotes omitted). 9 So long as the State’s actions are not in violation of any specific provision of the Constitution or the Social Security Act, appellants’ policy arguments must be addressed to a different forum.

*542 Appellants assert, however, that the Texas computation procedures are contrary to § 402 (a) (23):

“(a) A State plan for aid and services to needy families with children must

“(23) provide that by July 1, 1969, the amounts used by the State to determine the needs of individuals will have been adjusted to reflect fully changes in living costs since such amounts were established, and any máximums that the State imposes on the amount of aid paid to families will have been proportionately adjusted.”

Recognizing that this statutory language, by its terms, hardly provides much support for their theory, appellants seek to rely on what they perceive to have been the broad congressional purpose in enacting the provision.

In Rosado v. Wyman, supra, the Court reviewed the history of this section and rejected the argument that it had worked any radical shift in the AFDC program. Id., at 414 and n. 17. AFDC has long been referred to as a “scheme of cooperative federalism,” King v. Smith, 392 U. S., at 316, and the Rosado Court dismissed as “adventuresome” any interpretation of § 402 (a) (23) that would deprive the States of their traditional discretion to set the levels of payments. 397 U. S., at 414-415 and n. 17. Instead, the statute was meant to require the States to make cost-of-living adjustments to their standards of need, thereby serving “two broad purposes”:

“First, to require States to face up realistically to the magnitude of the public assistance requirement and lay bare the extent to which their programs fall short of fulfilling actual need; second, to prod the States to apportion their payments on a more equitable basis,” Id., at 412-413.

*543 Texas has complied with these two requirements. Effective May 1, 1969, the standard of need for AFDC recipients was raised 11% to reflect the rise in the cost of living, and the State shifted from a maximum-grant system to its present percentage-reduction system. In this way, the State has fairly recognized and exposed the precise level of unmet need, and by using a percentage-reduction system it has attempted to apportion the State’s limited benefits more equitably.

Although Texas has thus responded to the “two broad purposes” of §402 (a) (23), appellants argue that Congress also intended that statute to increase the total number of recipients of AFDC, so that more people would qualify for the subsidiary benefits that are dependent on receipt of AFDC cash assistance. 10 The Texas computation procedures are thought objectionable since they do not increase the welfare rolls to quite the same extent as would the alternative method of recognizing outside income.

We do not agree that Congress intended § 402 (a) (23) to invalidate any state computation procedures that do not absolutely maximize individual eligibility for subsidiary benefits. The cost-of-living increase that Congress mandated would, of course, generally tend to increase eligibility, 11 but there is nothing in the legislative history *544 indicating that this was part of the statutory purpose. Indeed, at the same time Congress enacted § 402 (a) (23) it included another section designed to induce States to reduce the number of individuals eligible for the AFDC program. 12 Thus, what little legislative history there is on the point, see Rosado v. Wyman, 397 U. S., at 409-412, tends to undercut appellants’ theory. See Lampton v. Bonin, 304 F. Supp. 1384, 1391-1392 (ED La. 1969) (Cassibry, J., dissenting). See generally Note, 58 Geo. L. J. 591 (1970).

Appellants also argue that the Texas system should be held invalid because the alternative computation method results in greater work incentives for welfare recipients. 13 The history and purpose of the Social Security Act do indicate Congress’ desire to help those on welfare become self-sustaining. Indeed, Congress has specifically mandated certain work incentives in §402 (a)(8). There is no dispute here, however, about Texas’ compliance with these very detailed provisions for work incentives. Neither their inclusion in the Act nor the language used by Congress in other sections of the Act supports the inference that Congress mandated the States to change their income-computation procedures in other, completely unmentioned areas.

Nor are appellants aided by their reference to Social Security Act §402 (a) (10), 42 U. S. C. § 602 (a) (10), which provides that AFDC benefits must “be furnished *545 with reasonable promptness to all eligible individuals.” That section was enacted at a time when persons whom the State had determined to be eligible for the payment of benefits were placed on waiting lists, because of the shortage of state funds. The statute. was intended to prevent the States from denying benefits, even temporarily, to a person who has been found fully qualified for aid. See H. R. Rep. No. 1300, 81st Cong., 1st Sess., 48, 148 (1949); 95 Cong. Rec. 13934 (remarks of Rep. Forand). Section 402 (a) (10) also prohibits a State from creating certain exceptions to standards specifically enunciated in the federal Act. See, e. g., Townsend v. Swank, 404 U. S. 282 (1971). It does not, however, enact by implication a generalized federal criterion to which States must adhere in their computation of standards of need, income, and benefits. 14 Such an interpretation would be an intrusion into an area in which Congress has given the States broad discretion, and we cannot accept appellants’ invitation to change this longstanding statutory scheme simply for policy consideration reasons of which we are not the arbiter.

I — I h — I H-t

We turn, then, to appellants'" claim that the Texas system of percentage reductions violates the Fourteenth Amendment. Appellants believe that once the State has computed a standard of need for each recipient, it is arbitrary and discriminatory to provide only 75% of that standard to AFDC recipients, while paying 100% of recognized need to the aged, and 95% to the disabled and the blind. They argue that if the State adopts a *546 percentage-reduction system, it must apply the same percentage to each of its welfare programs.

This claim was properly rejected by the court below. It is clear from the statutory framework that, although the four categories of public assistance found in the Social Security Act have certain common elements, the States were intended by Congress to keep their AFDC plans separate from plans under the other titles of the Act. 15 A State is free to participate in one, several, or all of the categorical assistance programs, as it chooses. It is true that each of the programs is intended to assist the needy, but it does not follow that there is only one constitutionally permissible way for the State to approach this important goal.

This Court emphasized only recently, in Dandridge v. Williams, 397 U. S. 471, 485 (1970), that in “the area of economics and social welfare, a State does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect.” A legislature may address a problem “one step at a time,” or even “select one phase of one field and apply a remedy there, neglecting the others.” Williamson v. Lee Optical Co., 348 U. S. 483, 489 (1955). So long as its judgments are rational, and not invidious, the legislature’s efforts to tackle the problems of the poor and the needy are not subject to a constitutional strait jacket. The very complexity of the problems suggests that there will be more *547 than one constitutionally permissible method of solving them.

The standard of judicial review is not altered because of appellants’ unproved allegations of racial discrimination. The three-judge court found that the “payment by Texas of a lesser percentage of unmet needs to the recipients of the AFDC than to the recipients of other welfare programs is not the result of racial or ethnic prejudice and is not violative of the federal Civil Rights Act or the Equal Protection Clause of the 14th Amendment.” The District Court obviously gave careful consideration to this issue, and we are cited by its opinion to a number of subsidiary facts to support its principal finding quoted above. There has never been a reduction in the amount of money appropriated by the legislature to the AFDC program, and between 1943 and the date of the opinion below there had been five increases in the amount of money appropriated by the legislature for the program, two of them having occurred since 1959. 16 The overall percentage increase in appropriation for the programs between 1943 and the time of the District Court’s hearing in this case was 410% for AFDC, as opposed to 211% for OAA and 200% for AB. The court further concluded:

“The depositions of Welfare officials conclusively establish that the defendants did not know the racial make-up of the various welfare assistance categories prior to or at the time when the orders here under attack were issued.”

Appellants in their brief in effect abandon any effort *548 to show that these findings of fact were clearly erroneous, and we hold they were not.

Appellants are thus left with their naked statistical argument: that there is a larger percentage of Negroes and Mexican-Americans in AFDC than in the other programs, 17 and that the AFDC is funded at 75% whereas the other programs are funded at 95% and 100% of recognized need. As the statistics cited in the footnote demonstrate, the number of minority members in all categories is substantial. The basic outlines of eligibility for the various categorical grants are established by Congress, not by the States; given the heterogeneity of the Nation’s population, it would be only an infrequent coincidence that the racial composition of each grant class was identical to that of the others. The acceptance of appellants’ constitutional theory would render suspect each difference in treatment among the grant classes, however lacking in racial motivation and however otherwise rational the treatment might be. Few legislative efforts to deal with the difficult problems posed by current welfare programs could sur *549 vive such scrutiny, and we do not find it required by the Fourteenth Amendment. 18

Applying the traditional standard of review under that amendment, we cannot say that Texas’ decision to provide somewhat lower welfare benefits for AFDC recipients is invidious or irrational. Since budgetary constraints do not allow the payment of the full standard of need for all welfare recipients, the State may have concluded that the aged and infirm are the least able of the categorical grant recipients to bear the hardships of an inadequate standard of living. While different policy judgments are of course possible, it is not irrational for the State to believe that the young are more adaptable than the sick and elderly, especially because the latter have less hope of improving their situation in the years remaining to them. Whether or not one agrees with this state determination, there is nothing in the Constitution that forbids it. 19

Similarly, we cannot accept the argument in Mr. *550 Justice Marshall’s dissent that the Social Security Act itself requires equal percentages for each categorical assistance program. The dissent concedes that a State might simply refuse to participate in the AFDC program, while continuing to receive federal money for the other categorical programs. See post, at 577. Nevertheless, it is argued that Congress intended to prohibit any middle ground — once the State does participate in a program it must do so on the same basis as it participates in every other program. Such an all-or-nothing policy judgment may well be defensible, and the dissenters may be correct that nothing in the statute expressly rejects it. But neither does anything in the statute approve or require it. 20

*551 In conclusion, we re-emphasize what the Court said in Dandridge v. Williams, 397 U. S., at 487:

“We do not decide today that the [state law] is wise, that it best fulfills the relevant social and economic objectives that [the State] might ideally espouse, or that a more just and humane system could not be devised. Conflicting claims of morality and intelligence are raised by opponents and proponents of almost every measure, certainly including the one before us. But the intractable economic, social, and even philosophical problems presented by public welfare assistance programs are not the business of this Court. . . . [T]he Constitution does not empower this Court to second-guess state officials charged with the difficult responsibility of allocating limited public welfare funds among the myriad of potential recipients.”

Affirmed.

Mr. Justice Stewart joins in Part III of the Court’s opinion.

Mr. Justice Douglas, with whom Mr. Justice Brennan concurs, dissenting.

I would read the Act more generously than does the Court'. It is stipulated that 87% of those receiving AFDC aid are blacks or Chicanos. I would therefore *552 read the Act -against the background of rank discrimination against the blacks and the Chicanos and in light of the fact that Chicanos in Texas fare even more poorly than the blacks. See L. Grebler, J. Moore, & R. Guzman, The Mexican-American People, pts. 2 and 3 (1970) ; J. Burma, Mexican-Americans in the United States 143-199 (1970); Schwartz, State Discrimination Against Mexican Aliens, 38 Geo. Wash. L. Rev. 1091 (1970); U. S. Commission on Civil Rights, The Mexican American (1968); U. S. Commission on Civil Rights, Mexican Americans and the Administration of Justice in the Southwest (1970). In Rosado v. Wyman, 397 U. S. 397, 413, we said that in administering such a program a State “may not obscure the actual standard of need.” Texas does precisely that by manipulating a mathematical formula.

In Rosado, we described how some States establish upper limits or máximums of aid, while others, like Texas, “curtail the payments of benefits by a system of 'ratable reductions’ whereby all recipients will receive a fixed percentage of the standard of need.” Id., at 409. Then in footnote 13 we described what that meant: “A 'ratable reduction’ represents a fixed percentage of the standard of need that will be paid to all recipients. In the event that there is some income that is first deducted, the ratable reduction is applied to the amount by which the individual or family income falls short of need.” Id., at 409 n. 13 (emphasis added).

If Texas first deducted outside income and then made its ratable reduction, the welfare recipient would receive a somewhat more generous payment, as the opinion of the Court illustrates in footnote 6 of its opinion. Not only does the Texas system avoid this generous approach, but it also impermissibly constricts the standard of need in conflict with Rosado, Dandridge v. Williams, 397 U. S. *553 471, and Townsend v. Swank, 404 U. S. 282. Under Texas’ method of computation, a family — otherwise eligible for AFDC benefits but with nonexempt income greater than the level of benefits and less than the standard of need — is denied both AFDC cash benefits and other noncash benefits such as medicaid. 1 It seems inconceivable that Congress could have intended that noncash benefits be denied those with incomes less than the standard of need solely because that income was earned rather than from categorical assistance. Yet this is precisely the result sanctioned by the Court today because eligibility for these programs is tied to the receipt of cash benefits. 2

*554 One of the stated purposes of the AFDC program is “to help such parents or relatives [of needy dependent children] to attain or retain capability for the maximum self-support and personal independence.” 42 U. S. C. § 601 (emphasis added). The Senate Finance Committee has stated, “A key element in any program for work and training for assistance recipients is an incentive for people to take employment.” S. Rep. No. 744, 90th Cong., 1st Sess., 157 (1967) (emphasis added). The majority acknowledges that “[t]he history and purpose of the Social Security Act . . . indicate Congress' desire to help those on welfare become self-sustaining.” Ante, at 544. But it nonetheless ignores the explicit congressional policy in favor of work incentives and upholds a system which provides penalties and disincentives for those who seek employment. 3

*555 The California Supreme Court in Villa v. Hall, 6 Cal. 3d 227, 490 P. 2d 1148, struck down the system this Court approves today, where California used a statutory maximum of payments rather than a ratable reduction. The California Supreme Court quite properly said that what the State was attempting was inconsistent with Rosado. Moreover, it had an additional reason:

“The conclusion that the Social Security Act requires outside income to be subtracted from standards of need rather than from statutory máximums or ratable reductions is also founded on a strong public policy of encouraging welfare recipients to become constantly more self-supporting. Yet deducting income from statutory máximums makes gainful employment significantly less attractive to the recipient. This follows because all nonexempt income will be offset directly against the amount of the grant and not against the standard of need to determine actual need; for every nonexempt dollar earned, the amount of aid will therefore be decreased one dollar. Since the grant is always less than the standard of need, in many instances the system adopted by the Welfare Reform Act will result in an individual’s need not being met even after adding both exempt and nonexempt income to the AFDC payment. Such recipients will be forced to exist below the bare minimum necessary for adequate care, even though they have commenced, by obtaining employment, to break free from the debilitating ‘welfare syndrome.’ The practice thus conflicts with *556 the stated federal policy to provide incentives to obtain and maintain an employment status.” Id., at 235-236, 490 P. 2d, at 1153-1154.

Moreover, Townsend v. Swank, 404 U. S. 282, calls for a reversal in the present case. It is conceded that plaintiff Maria T. Davilla and 2,470 other families are denied aid in Texas by reason of its new formula, see 304 F. Supp. 1332, 1343, despite the fact that their income is below the standard of need and that of those receiving AFDC aid only 75% of their needs is met. 4

Under § 402 (a) (10) of the Social Security Act (which governs AFDC) “aid to families with dependent children shall be furnished with reasonable promptness to all eligible individuals.” 42 U. S. C. §602 (a) (10). In Townsend children 18 through 20 years of age who attended high school or vocational training were eligible for AFDC benefits but such children in college were not eligible. We held that “a state eligibility standard that excludes persons eligible for assistance under federal AFDC standards violates the Social Security Act and is therefore invalid under the Supremacy Clause.” 5 404 U. S., at 286.

*557 What Texas does here is to exclude large numbers of AFDC beneficiaries by application of a state eligibility test that is narrower than the one we approved in Rosado. "While a State has some discretion in its use of federal funds, it may not manipulate by its own formula groups of “needy” claimants. The decision to participate or not in the federal program is left to the States. Townsend v. Swank, supra, at 290-291. When, as here, federal and state funds are in short supply, the problem is not to lop off some categories of those in “need” but to design a way of managing the system of “need” so as not to raise equal protection questions. 6 Id., at 291.

*558 Section 402 (a) (10) of the Social Security Act provides that AFDC shall be furnished with reasonable promptness to all eligible individuals. The House Report in commenting on it said:

“Shortage of funds in aid to dependent children has sometimes, as in old-age assistance, resulted in a decision not to take more applications or to keep eligible families on waiting lists until enough recipients could be removed from the assistance rolls to make a place for them. . . . [T]his difference in treatment accorded to eligible people results in undue hardship on needy persons and is inappropriate in a program financed from Federal funds.” H. R. Rep; No. 1300, 81st Cong., 1st Sess., 48 (1949).

As the Court said in Dandridge v. Williams, 397 U. S., at 481, “So long as some aid is provided to all eligible families and all eligible children, the statute itself is not violated.” It is violated here because nearly 2,500 families that satisfy the requirements of “need” are denied any relief. 7

Mr. Justice Marshall, with whom Mr. Justice Brennan joins, and with whom Mr. Justice Stewart joins as to Part I only, dissenting.

Appellants, recipients of Aid to Families With Dependent Children (AFDC) in Texas, brought this action to challenge two distinct aspects of the Texas AFDC program. First, appellants challenge the manner in which *559 Texas arrives at the amount it will pay to persons who are needy. Second, they urge that Texas acts illegally in providing more money for persons receiving aid under other social welfare legislation than for persons receiving AFDC aid. The Court rejects both claims. I dissent.

Before proceeding to explain why I disagree with the Court, I would like to illustrate what the disputes in this case are all about. If a State is unable or unwilling to establish a level of AFDC payments to meet all the needs of all recipients, federal law permits the State to use a percentage-reduction factor as a method of reducing payments in a somewhat equitable manner. Texas has adopted a system in which the percentage-reduction factor is applied against the standard of need before outside income is deducted. Appellants contend that federal law requires the State to deduct outside income before the percentage-reduction factor is applied. While describing the differences between the two alternatives is a Herculean task, the figures themselves are not difficult to comprehend. Footnote 6 of the Court’s opinion, for example, demonstrates that the Texas system provides less aid to a family with outside income than the alternative system. It is also immediately obvious that under the Texas system, as soon as the family’s income reaches $150, it no longer receives anything from the State, whereas under the alternative, a family earning the same $150 would continue to receive some state funds. Hence, the Texas method of computation contracts the class of families eligible to receive state aid. Appellants contend that the characteristics of the Texas system are inconsistent with federal legislation and that only the alternative system comports with the intent of Congress. I agree.

Appellants also claim that the percentage-reduction factor employed by Texas is illegal, irrespective of the *560 method of computing payments, because it is lower than the factor used in other social welfare programs that have participants with identical standards of need. I also agree with appellants on this point, but for slightly different reasons from those they have urged.

I

A. In considering the question whether Texas’ method of computing eligibility for AFDC payments comports with the federal statute, 42 U. S. C. § 601 et seq., it is important to keep in mind the words of Mr. Justice Cardozo: “When [federal] money is spent to promote the general welfare, the concept of welfare or the opposite is shaped by Congress, not the states.” Helvering v. Davis, 301 U. S. 619, 645 (1937). Mr. Justice Harlan reiterated this point in Rosado v. Wyman, 397 U. S. 397, 422-423 (1970), when he stated that irrespective of the policies that a State might wish to pursue by utilizing AFDC money in one way or another, the ultimate question to be answered in each case is whether the action of the State comports with the requirements of federal law.

The Court concludes in the instant case that there is no general congressional policy violated by Texas’ choice between the alternative methods of applying a percentage-reduction factor to its determined standard of need, and also that no specific statutory provision prohibits Texas from choosing one alternative rather than the other. In concluding that the legislative history is inconclusive and that “what little legislative history there is on the point . . . tends to undercut appellants’ theory,” the Court has, in my opinion, taken only a superficial look into the history of the statute and has ignored the intent of Congress in various sections of *561 the AFDC legislation as interpreted by this Court in prior cases.

B. I begin by considering the impact of § 402 (a) (23) of the Social Security Act of 1935, as amended, 81 Stat. 898, 42 U. S. C. § 602 (a) (23), on appellants’ argument. That section provides that

“(a) A State plan for aid and services to needy families with children must

“(23) provide that by July 1, 1969, the amounts used by the State to determine the needs of individuals will have been adjusted to reflect fully changes in living costs since such amounts were established, and any máximums that the State imposes on the amount of aid paid to families will have been proportionately adjusted.”

Consideration of this section must, of. course, begin with Rosado v. Wyman, supra, where we examined the derivation of this section in great detail.

The relevant facts in Rosado are concisely stated in 397 U. S., at 416. New York State had changed its AFDC program so that it no longer determined need on an individualized basis, but instead substituted a system fixing maximum family allowances based on the number of individuals per family. The result was a drastic reduction in overall payments. New York State welfare recipients brought the suit in Rosado, claiming that by changing its AFDC system from an individualized-grant program to a maximum-grant program, New York had violated § 402 (a) (23).

Despite our recognition that “[t]he background of § 402 (a) (23) reveals little except that we have before us a child born of the silent union of legislative compromise,” 397 U. S., at 412, we determined to discover *562 what Congress had in mind in adding the section to the pre-existing AFDC legislation. We concluded that two general purposes could be ascribed to the section:

“First, to require States to face up realistically to the magnitude of the public assistance requirement and lay bare the extent to which their programs fall short of fulfilling actual need; second, to prod the States to apportion their payments on a more equitable basis.” 397 U. S., at 412-413.

These conclusions led us to reject the holding of the District Court, 304 F. Supp. 1354, 1377, that Congress intended to prevent any reduction whatever in AFDC payments, and to reject the argument of the welfare recipients that if payments could be reduced § 402 (a) (23) would be meaningless. We decided that “a State may, after recomputing its standard of need, pare down payments to accommodate budgetary realities by reducing the percent of benefits paid or switching to a percent reduction system, but it may not obscure the actual standard of need.” 397 U. S., at 413 (emphasis in original). Far from emasculating the statute, our reading recognized that the statute had at least three specific salutary effects, and that these were the effects that Congress intended in enacting the legislation:

“It has the effect of requiring the States to recognize and accept the responsibility for those additional individuals whose income falls short of the standard of need as computed in light of economic realities and to place them among those eligible for the care and training provisions. Secondly, while it leaves the States free to effect downward adjustments in the level of benefits paid, it accomplishes within that framework the goal, however modest, of forcing a State to accept the political *563 consequence of such a cutback and bringing to light the true extent to which actual assistance falls short of the minimum acceptable. Lastly, by imposing on those States that desire to maintain 'máximums’ the requirement of an appropriate adjustment, Congress has introduced an incentive to abandon a flat 'maximum’ system, thereby encouraging those States de