Stewart & Irwin
Plews & Shadley
SUPREME COURT OF INDIANA
J.A.W., ) ) Appellant (Plaintiff Below ), ) ) v. ) 32S01-9510-CV-1199 ) in the Supreme Court STATE OF INDIANA, ) MARION COUNTY DEPT. OF PUBLIC ) WELFARE, et al. ) 32A01-9212-CV-415 ) in the Court of Appeals Appellees (Defendants Below ). )
SHEPARD, Chief Justice.
In April 1990, J.A.W. commenced this action against the County
Department of Public Welfare of Marion County ("Marion
), various other public entities, and several
individuals. He alleged that between 1978 and 1989, the Marion
Department failed to protect him from the extreme sexual abuse he
suffered in foster care and affirmatively conspired to suppress
information about the abuse. He contends that this behavior
violated the Civil Rights Act of 1871, 42 U.S.C. § 1983 (1994).
The Marion Department countered that it was not amenable to
suit under § 1983 because it was an arm of the state. The trial
court agreed and granted the Department's motion for summary
judgment. In an interlocutory proceeding, the Court of Appeals
reversed, holding that county departments could be sued under §
1983. J.A.W. v. State, 650 N.E.2d 1142 (Ind. Ct. App. 1995).
The Marion Department petitioned for transfer. Because this
question has generated persistent confusion in the courts,
granted the petition.
We now hold that a 1986 reorganization, Act
of Mar. 12, 1986, Pub. L. No. 16-1986, 1986 Ind. Acts 403, rendered
the county departments arms of the state for § 1983 purposes.
Consequently, we affirm the trial court's grant of summary
term "person." The U.S. Supreme Court has held that for § 1983 purposes that term does not include a state or its administrative agencies, Will v. Michigan Dep't of State Police, 491 U.S. 58 (1989). The term does include a state's political subdivisions, like cities and other municipal corporations. Monell v. Department of Soc. Serv., 436 U.S. 658 (1977). Because this distinction is a matter of federal statutory interpretation, it is binding on this
In distinguishing state agencies from political subdivisions, the U.S. Supreme Court applies the same methodology for determining whether a governmental entity shares the sovereign immunity of its
parent state. States and their agencies are generally immune from
nonconsensual suit in federal court because of either the Eleventh
Amendment, Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89
(1984), or implied limitations on Article III of the federal
Constitution, Seminole Tribe v. Florida, 116 S. Ct. 1114 (1996);
Hans v. Louisiana, 134 U.S. 1 (1890). Political subdivisions, even
though created by some kind of state law charter and generally
regulated by the state, do not share that immunity. Lincoln County
v. Luning, 133 U.S. 529 (1890); see Owen v. City of Independence,
445 U.S. 622 (1980). The question is whether "'the state is the
real, substantial party in interest'" when the entity is sued.
Pennhurst, 465 U.S. at 101 (quoting Ford Motor Co. v. Department of
Treasury, 323 U.S. 459, 464 (1945)); accord In re Ayers, 123 U.S.
443, 506 (1887).
The Court's approach to this question has evolved over the
years. The Ford Motor opinion seemed to propose a situational
approach, suggesting that a governmental entity's amenability to
suit depended on "the essential nature and effect of the
proceeding." 323 U.S. at 464. In that case, Ford sought
reimbursement for taxes that the Indiana treasury department had
unconstitutionally collected. Since any judgment would have
operated against the state treasury, the Court held that the state
was the real party in interest, even though the treasury department
was the normal party. Id.
The Burger Court shifted from this situational approach to a
categorical one. In Mt. Healthy City Sch. Dist. Bd. of Educ. v.
Doyle, 429 U.S. 274 (1977), it sought to determine, regardless of
the nature of the suit, whether an Ohio school district was a state
agency or a political subdivision. The Court acknowledged that the
school district was subject to some state control and received "a
significant amount" of financial support from the state. Id. at
280. It nevertheless concluded that the district was "more like a
county or city than it is like an arm of the State." Id. In
weighing the district's attributes, the Court pointed out that the
district was designated as a political subdivision under state law,
was "but one of many local school boards within the State," and had
"extensive powers to issue bonds and to levy taxes." Id.
Two years later, the Court held that a regional planning commission created by an interstate compact between California and Nevada could not assert those states' sovereign immunity. Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391 (1979). The Court focused on a number of facts: the states disclaimed any intent to shield the commission from suit; the compact labeled the entity a "political subdivision"; counties appointed a majority of the commission's administrators; counties also provided its funding; the states were not liable for the commission's financial obligations; its primary activity, land-use regulation, was traditionally a local function; and the states
could not veto the commission's rules. Id. at 401-02. Following
the consistent thrust of these characteristics, the Court refused to extend sovereign immunity to the commission.
Taken together, Doyle and Lake Country Estates suggest that
the Court sought to attain, to the extent the record permitted, a
holistic understanding of a governmental entity's position and
function. The Court could then use that perspective as a backdrop
for making what are sometimes difficult classifications. However,
lower courts took these fact- and context-sensitive opinions and
promptly boiled them down to disparate "tests" of anywhere from two
to nine "factors." Alex E. Rogers, Note, Clothing State
Governmental Entities with Sovereign Immunity: Disarray in the
Eleventh Amendment Arm-of-the-State Doctrine, 92 Colum. L. Rev.
1243, 1269-71 (1992); see also Hess v. Port Auth. Trans-Hudson
Corp., 513 U.S. 30, 59 (1994) (O'Connor, J., dissenting). Rogers
blamed "conflicting results" arising from the disparate tests on
the Supreme Court's opinions, calling them "devoid of guidance with
respect to the relative weight or importance of each criterion."
Id. at 1269.See footnote
In 1994, the Court responded to the confusion. Writing for a
majority, Justice Ginsburg expounded at some length upon the
methodology for distinguishing administrative from political
subdivisions. See Hess, 513 U.S. at 43-51. Under Hess,
determining the status of a public entity became a three-step
process. A court should (1) establish a presumption as to a public
entity's status, (2) balance five general "[i]ndicators of
immunity," 513 U.S. at 44, and, if these indicators point in
different directions, (3) resolve the question in light of the
purposes of the Eleventh Amendment.
In Hess, the Court considered the status of the Port Authority
of New York and New Jersey, an entity created by interstate
compact. It expressly articulated a rule, originally implied in
Lake Country Estates, 440 U.S. at 401, that an interstate compact
entity is presumptively not protected by its parent states'
sovereign immunity. Hess, 513 U.S. at 43. The Court justified
this presumption by noting that a suit brought in federal court
against one of these entities would not be an affront to the parent
states because they had voluntarily transferred slices of
sovereignty to an interstate entity whose creation required federal
approval. Id. at 41-42. The presumption that interstate compact
entities are amenable to suit could be overcome if "good reason"
existed to think the states had intended to extend sovereign
immunity to it. Id. at 43-44.
The Court has not explicitly articulated a presumption with
respect to purely intrastate subdivisions, but Hess does provide
some guidance. There, the Court reasoned in part that a state's
cession of powers to an interstate entity insulated the state from
insult when a federal court exercised jurisdiction over the
Similarly, a state is not necessarily insulated if it has
intentionally ceded certain powers to a political subdivision over
which a federal court later exercises jurisdiction. The key is
whether the state has intended to create a quasi-sovereign
political subdivision. We think the manner in which an entity is
classified under state law is the best indicator of such an intent.
Therefore, we will presume that the classification of an intrastate
entity for Eleventh Amendment and § 1983 purposes is the same as
its classification under state law.See footnote
After establishing a presumption, we must balance indicators of immunity to see if they consistently support or contradict the presumptive immunity status. As we noted above, the Court's opinions in Doyle and Lake Country Estates suggest that this balancing involves any relevant attributes that can assist a court in making the classification decision. In Hess, however, the majority seemed to apply a stricter five-factor test. Under that
approach, a court should ask the following:
(1) whether the entity performs a traditionally state or local function;
(2) whether the entity is designated as a state agency or
political subdivision for state law purposes;
(3) whether the entity was subject to state control or local
(4) whether primary funding for the entity was provided by the
state or, in contrast, either local government or the entity's own
independent revenue-generating capacity; and
(5) whether the state was liable for the entity's debts,
including judgments against it.
See 513 U.S. at 44-46. By examining these indicators, a court
seeks to determine whether the legislature intended to render an
entity immune from federal suit.
If the presumption and the balancing of indicators are
consistent, the inquiry ends. See Lake Country Estates, 440 U.S.
at 402. If these indicators "point in different directions," Hess,
513 U.S. at 47, a court must further evaluate the entity's status
in light of the dual concerns that animate the Eleventh Amendment:
"the State's solvency and dignity," id. at 52. These
considerations may ultimately make the fifth indicator, state
liability for the public entity, determinative.See footnote
The concern for state solvency focuses directly on threats to
the state treasury. A court must ask, "If the expenditures of the
enterprise exceed receipts, is the State in fact obligated to bear
and pay the resulting indebtedness of the enterprise?" Id. at 51.
"When the answer is 'No'--both legally and practically--then the
Eleventh Amendment's core concern is not implicated." Id.
Presumably, when the answer is "Yes"--legally or practically--the
entity should be deemed an arm of the state.
The matter of state dignity is more difficult to quantify.
The Court has observed that states retain "attributes of
sovereignty" and are entitled to respect as "members of the
federation." Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy,
Inc., 506 U.S. 139, 146 (1993). Immunity from suit is an element
of that sovereignty. Id. According to the Court, a state's
dignity is threatened if a private party is able to subject a
state, without its consent, to compulsory judicial processes. In
re Ayers, 123 U.S. 443, 505 (1887). This notion of dignity does
not itself tell us which entities are state agencies entitled to
share that dignity.
Nevertheless, the key issue underlying dignity seems also to be state liability. In Ayers, the Court reasoned that in order fully to affirm state dignity, it would have to extend sovereign immunity to any suit "where the state, though not named as such, is, nevertheless, the only real party against which alone in fact the relief is asked, and against which the judgment or decree
effectively operates." Id. at 506. In the case of injunctive
relief, the affront would seemingly involve a federal court
instructing a state to control a public entity in a particular
manner. We shall now apply the Hess three-step process to the
There has been some ambiguity about the nature of the county departments. Their many dutiesSee footnote 9 make them fundamental components of the State's human services system, and the State Department of Public Welfare has always had authority to oversee their operation.See footnote 10 At the same time, county departments have always relied on county governments to manage their money.See footnote 11 In still other respects, county departments have possessed a measure of
Relying heavily on Mackey and focusing on financing, J.A.W.
contends that when he commenced this action in 1990, the Marion
Department was "a separate county-funded entity addressing separate
and distinct county concerns." (Appellant's Reply Br. at 4.)
Representing the Department, the Attorney General disagrees,
stressing the 1986 restructuring of the county departments in
arguing that they were state agencies long before J.A.W. filed
To resolve this controversy, we must weigh the relevant legal attributes of the county departments according to the Hess methodology. Because those attributes are matters of state law,See footnote 13 we have final authority to define their substance, as distinguished from their § 1983 import. Thus, we must apply a federal standard of review to state law "facts" that we may conclusively "find."
1. Classification Before 1986. The Social Security Act, ch. 531, 49 Stat. 620 (1935), required that states participating in its federally subsidized programs establish a state agency to either directly "administer" the programs or "supervise" their administration by "political subdivisions." Social Security Act, §§ 2, 402, 1002, 49 Stat. at 620, 627, 645. The Indiana legislature chose the decentralized option in the Welfare Act of 1936, ch. 3, 1936 Ind. Acts 12. The state act created the county departments, id. § 18, 1936 Ind. Acts at 25, and charged them with "administration" of most of the programs, id. § 21, 1936 Ind. Acts
at 29.See footnote
The act also created the State Department, id. § 2, 1936
Ind. Acts at 14, with the authority to "administ[er] or supervis[e]
. . . all public welfare activities of the state," id. § 5, 1936
Ind. Acts at 16. Most significantly, the Act obligated the State
Department to "organiz[e] and supervis[e]" the county departments
as a service "to county governments." Id. § 5(f), 1936 Ind. Acts
at 17. It vested direct governance of the county departments in
local bodies, county boards of public welfare ("county boards").
Id. § 18, 1936 Ind. Acts at 25.
The influence of the federal act is manifest. We think the
grant of "supervisory" power to the State Department demonstrates
legislative intent to establish a system of decentralized
administration by political subdivisions anticipated by the federal
act. Because the relationship between the State Department and the
county departments remained relatively unchanged over the ensuing
fifty years, we conclude that for state law purposes, the county
departments were not administrative arms of the state before the
Principles of agency are relevant in considering whether the
county departments were arms of the counties or separate political
subdivisions under state law. County governments have never had
significant authority over the daily operations of county
departments. For instance, county governments had no authority to
review a department's approval of aid to a client. Ind. Code Ann.
§ 12-1-3-9 (West 1982) (repealed 1992). Before 1986, county
governments were responsible for the administrative expenses of the
county departments, id. § 12-1-11-3(a), including facilities, id.
§ 12-1-3-4(b), but not even in these matters did county governments
possess unfettered discretion. See County Council v. Department of
Pub. Welfare, 400 N.E.2d 1187 (Ind. Ct. App. 1980) (holding county
government could not control number of employees of county
department) [hereinafter Bartholomew Council].
County governments have had a role in managing the financial affairs of the county departments, but their duties have been largely ministerial. Before 1986, the expenses of each county department were paid from a separate county welfare fund. That fund was composed of state and federal grants combined with revenue from a distinct county property tax, levied annually "in an amount . . . necessary to raise the portion of such fund which the county is obliged to raise." Ind. Code Ann. § 12-1-11-1 (West 1982) (repealed 1992). Each year, a county department and board adopted a budget and recommended a tax levy, which were submitted to the county government "for consideration" after approval by the State Department. Id. § 12-1-11-2. The county council had a legal duty
to make necessary annual appropriations from the county welfare
fund "to maintain the welfare services of the county and to defray
the cost of the administration of such services." Id. § 12-1-11-
3(a). The council was also obligated to levy the county welfare
tax in an amount necessary to cover the appropriations. Id.
Counties also had a continuing obligation to make additional
appropriations or borrow money to cover deficits that arose in
their respective county departments. Id. § 12-1-11-3(b). County
governments had little real discretion in these matters.
Although a county government had some authority to deviate from the budget and recommended tax levy, see id. § 12-1-11-4; Newsom v. Pennsylvania Railroad Co., 133 Ind. App. 582, 181 N.E.2d 240 (1962), its discretion was sharply circumscribed by the legal obligation to support local welfare services adequately, see § 12- 1-11-3(a) (using mandatory language); 1950 Op. Att'y Gen. 201, 202; 1947 Op. Att'y Gen. 288, 291. A county board could--and at the request of the State Department was required to--appeal any deviations to the state board of tax commissioners. Id. § 12-1-11- 4. Indeed, we once held that a county government lacked standing to challenge an order of the state board of tax commissioners adjusting the appropriation or tax levy. We concluded that a county government was essentially an agent through which the public welfare tax was collected, and local taxpayers, not the county government, were the real parties in interest in controversies involving tax. City of Indianapolis v. Indiana State Bd. of Tax
Comm'rs, 261 Ind. 635, 638-39, 308 N.E.2d 868, 870 (1974).
Furthermore, taxes levied "[t]o meet the requirements of the county
welfare fund" have not been included in the calculation of a
county's maximum permissible level of taxation. Ind. Code Ann. §
6-1.1-18-3(b)(6) (West 1989 & Supp. 1997). In light of the limited
measure of control that county governments could exercise over the
county departments, we conclude as a matter of state law that the
county departments were not arms of county governments before the
We believe the county departments would have been most
appropriately classified as municipal corporations before the 1986
restructuring. Under Indiana law, a "municipal corporation" is
defined as any
[county, city, town, township], school corporation, library district, local housing authority, fire protection district, public transportation corporation, local building authority, local hospital authority or corporation, local airport authority, special service district, or other separate local governmental entity that may sue and be sued.
Ind. Code Ann. § 36-1-2-10 (West 1997) (emphasis added). The county departments are not enumerated in this list, nor has the public welfare code ever expressly declared them to be municipal corporations.See footnote 15 Nevertheless, we think they would have qualified
under the catch-all phrase before 1986.
Under the catch-all phrase, a local governmental entity is a
municipal corporation if it can litigate in its own name and if it
is "separate" from other local entities. Like the enumerated
the county departments possessed the right to sue and
be sued.See footnote
Moreover, our analysis of the relationship between the
county departments and county governments suggests that the county
departments were separate local governmental entities.
Other reasoning supports our conclusion that the county
departments were "separate" local governmental entities before
1986. We have held that in determining whether an entity is a
municipal corporation, we must consider whether the legislature has
intended the entity to exercise limited sovereign powers, Joint
County Park Bd. v. Stegemoller, 228 Ind. 103, 113, 88 N.E.2d 686,
690 (1949) (quoting Brinkmeyer v. City of Evansville, 29 Ind. 187,
In addition to exercising discretion in making awards of
public assistance and carrying out other human services functions,
the administrative structure of the county departments suggested
that the legislature intended them as distinct entities. Before
1986, the county departments were administered by the county
boards. The members of those boards were appointed and removable
for cause only by the local circuit court, Ind. Code Ann. § 12-1-3-
2(a), (d) (West 1982) (repealed 1986);See footnote
they had to be county
residents, id. § 12-1-3-2(a)(1); and they could not simultaneously
hold any elective county position, id. § 12-1-3-2(a)(4). This
Court held that members of the county boards were public officers,
not county employees. State ex rel. Newkirk v. Sullivan Circuit
Court, 227 Ind. 633, 637, 88 N.E.2d 326, 327-28 (1949). Each board
had immediate administrative authority over its respective county
and appointed its director.See footnote
This structure suggests the
legislature went to great pains to insulate the county departments-
-and the public welfare system--from control by other local
We are also aided by the doctrine of ejusdem generis,See footnote 21 which invites us to compare the county departments to the enumerated municipal corporations. The enumerated entities exhibit some common attributes of limited sovereignty.See footnote 22 As noted above, they may sue and be sued in their own names.See footnote 23 They also possess at least limited contractual authority.See footnote 24 Some may also acquire, hold, or transfer propertySee footnote 25 and exercise the power of eminent domain.See footnote 26 Finally, municipal corporations almost always have authority to raise revenue, whether by levying taxes, collecting fees, issuing bonds, or borrowing funds.See footnote 27 The oversight authority of local governmental units is generally limited to creating the
municipal corporations and appointing their administrators.See footnote
Local governmental units also have authority to review fiscal
operations of some municipal corporations.See footnote
Before 1986, the county departments generally fit this model of the municipal corporation. Although the public welfare code contained no broad charter of enumerated powers, it did grant the departments a few attributes of limited sovereignty. They could sue and be sued in their own name. Ind. Code Ann. § 12-1-3-6(a) (West 1982) (repealed 1992). They also had some limited contractual and property rights.See footnote 30 Moreover, the fiscal powers of the county departments were similar to those of fire protection districts, see Ind. Code Ann. § 36-8-11-18 (West 1997), county building authorities, see id. § 36-9-13-35, and airport authorities, see id. § 8-22-3-23 (West Supp. 1997). Finally, county departments possessed "all other rights and powers . . . necessary to administer" their human services responsibilities, id. § 12-1-3-6(a) (West 1982) (repealed 1992). Although the county departments differed from other municipal corporations in that
their powers were subject to rules promulgated by the State
Department, id. § 12-1-3-4(a), this supervision was necessary to
meet the requirements of the Social Security Act.
Therefore, we hold as a matter of state law that the county
departments were classified as municipal corporations under Indiana
law before 1986. In applying the Hess standards, we will presume
that the county departments would also have been deemed municipal corporations under § 1983 before the restructuring.
2. Classification After 1986. The 1986 amendments to the
public welfare code radically changed the administrative structure
of the county departments. They abolished the county boards, made
the employees of the county departments full-fledged state
employees, altered the method of financing operating expenses, and
transferred the property of the county departments from county to
state ownership. These significant changes persuade us that the
legislature intended to abandon the decentralized structure it had
adopted in 1936. The legislature effectively transformed county
departments into subordinate units of the State Department.
Perhaps the most telling change was the abolition of the county boards, which had provided the only mechanism for local control of the county departments. The 1986 amendments eliminated the county boards as they had previously existed, see 1986 Amends.,
§ 84, 1986 Ind. Acts at 471 (repealing § 12-1-3-2).See footnote
significant powers of the county boards were transferred to either the State Department,See footnote 32 or the county departments.See footnote 33
Before the 1986 amendments, employees of the county departments were in some vague sense shared employees of the state and county.See footnote 34 For instance, although each county board appointed the director of its respective county departmentSee footnote 35 and reviewed the director's hiring decisions,See footnote 36 the State Board of Public Welfare could remove the director for cause and, if the county board refused to appoint a successor, could appoint one itself.See footnote 37 In addition, the county director and other employees of a department had to be selected from candidates on state personnel lists.See footnote 38 In
fact the definition of "state service" in the State Personnel Act
has always included the director and employees of the county
The were entitled to compensation according to
state salary schedules,See footnote
and county governments could be forced to
appropriate funds to provide those levels of pay, County Council v.
Monroe County Bd. of Pub. Welfare, 402 N.E.2d 1285 (Ind. Ct. App.
1980) [hereinafter Monroe Council]; Bartholomew Council, 400 N.E.2d
1187 (Ind. Ct. App. 1980). Furthermore, the state had a duty to
reimburse counties for half of the costs of retirement
contributions for county office employeesSee footnote
and to provide fringe
benefits consistent with state personnel rules if counties failed
to do so, State Employees' Appeals Comm'n v. Brown, 436 N.E.2d 321
(Ind. Ct. App. 1982).
The 1986 amendments clarified this muddled employment status. With the abolition of the county boards, the State Department was empowered to appoint the directors of the county departmentsSee footnote 42 , and to approve the directors hiring decisions.See footnote 43 The enactment also added the county directors and employees to the state employees
retirement systemSee footnote
and deleted language requiring partial state
reimbursement to counties for retirement contributions.See footnote
The restructuring also altered the financing of the county
departments. Before 1986, the county governments were solely
responsible for administrative costs, see Ind. Code Ann. § 12-1-3-9
(West 1982) (repealed 1992), including facilities, id. § 12-1-3-
4(b). In the 1986 amendments, the legislature created a new
structure for covering administrative costs. It created a new
public welfare tax, to be collected by the counties and forwarded
to the state welfare fund on a monthly basis. Ind. Code Ann. ch.
12-1-11.1 (West Supp. 1991) (repealed 1992). The State Department
assumed responsibility for the administrative costs of the county
departments, including facilities. § 12-1-3-8 (West Supp. 1991)
(repealed 1992). Title to all the property of the county
departments was also transferred from the counties to the State
Department. 1986 Amends., § 82(c), 1986 Ind. Acts at 471. With
regard to administrative expenses, county governments were largely
rendered tax collectors for the State Department.
These significant structural changes clearly reflect a legislative desire to centralize management of the public welfare system in the State Department. Consequently, we will presume that the county departments were political subdivisions under § 1983
before the 1986 amendments and arms of the state afterwards.
With these presumptions established, we now apply the
remaining Hess criteria.
While we presume that an entity's classification under § 1983
mirrors its classification under state law, we must test that
presumption with the specific inquiries established in Hess. If
these inquiries produce a consistent result, our analysis is at an
end. If not, we must further analyze the entity at issue in light
of the purposes of the Eleventh Amendment. Our ultimate quest is
to determine whether the legislature intended to extend sovereign
immunity to the entity.
The first inquiry is whether the entity performs a
traditionally state or local function. In this case, we cannot say
that providing public assistance and other social services readily
fits into either category. As we noted above, the Social Security
Act allowed states to vest administration of its programs in either
a state agency or political subdivisions. This inquiry neither
advances our understanding of the § 1983 status of the county
departments nor casts doubt on our presumptions.
The second inquiry is whether the entity is subject to state
or local control. As we concluded above, the county departments
have been subject to a significant measure of state oversight since
their inception in 1936. That measure of control would have been
sufficient, under ordinary circumstances, to support the inference
of an agency relationship between the county departments and the
State Department. We might conclude, then, that the control
inquiry supports the proposition that the county departments have
always been arms of the state for § 1983 purposes.
But the control inquiry cannot proceed in a vacuum. In 1936, our legislature chose to set up as decentralized a system as the Social Security Act permitted. The legislature created the county departments as distinct municipal corporations and provided for local appointments of not only the directors of the county departments but also the members of the county boards. The county departments approved grants of public assistance and provided other client-level human services. The Social Security Act required that if states chose to allow political subdivisions to administer programs in this way, the states had to retain supervisory authority. To view that supervision as necessarily transforming a political subdivision into an arm of the state would contradict the Social Security Act's offer of a choice between centralized and decentralized administration and would render the Act's use of the term "political subdivision" somewhat superfluous. We are unwilling to adopt that view.
Although the State Department possessed supervisory control over the county departments before 1986, that control does not imply an extension of sovereign immunity, for the supervision was mandated under the Social Security Act's option for decentralized administration. The increased level of state control established in 1986, however, is a relevant indicator of legislative intent to draw the county departments under the state's umbrella. The control inquiry produces a result that is fully consistent with our presumption that the county departments were political subdivisions under § 1983 until the 1986 restructuring made them arms of the state.
The third inquiry is whether funds for the entity are provided by the state or, in contrast, by either local government or the entity's own independent revenue-generating capacity. As we explained above, each county department is supported by a county welfare fund. Although a significant amount of revenue for this fund comes from the county welfare tax, the fund also benefits from substantial grants from the federal and state governments.See footnote 46 The diversity of funding sources reflects the obvious fact that public welfare activities in Indiana were intended to be cooperative
endeavors among federal, state, and local governments. This
inquiry does not significantly contribute to our ability to
classify the county departments as state or local entities. The
funding scheme is not necessarily inconsistent with our
presumption. Furthermore, to the extent the state assumed an even
greater financial role in the 1986 restructuring, the funding
scheme supports the notion that the county departments became arms
of the state at that time.
Finally, we must consider whether the state was liable for the debts of the county departments, especially judgments against them. Both before and after the 1986 restructuring, the counties were legally responsible for many of the debts of the county departments. Awards of public assistance and other expenses related to providing human services constituted claims against the counties both before and after the amendments. See Ind. Code Ann. §§ 12-1-3-9 (West 1982 & Supp. 1991) (repealed 1992). Also, the 1986 act expressly provided that it did not free the counties of their obligations to support bonds and loans they had issued to cover shortfalls in county department budgets. 1986 Amends., § 80(a), 1986 Ind. Acts at 469-70. On the other hand, while claims relating to the administrative expenses were county obligations before the 1986 amendments, see §§ 12-1-3-9, 12-1-11-3(a) (West 1982) (repealed 1992), the responsibility for paying those costs was transferred to the state in the restructuring, see id. §§ 12-1-
3-8(a) (West Supp. 1991) (repealed 1992).See footnote
Courts holding that the county departments were arms of the counties and amenable to suit under § 1983 have focused on these fiscal obligations of the county governments. See Baxter v. Vigo County Sch. Corp., 26 F.3d 728, 732-33 (7th Cir. 1994); Mackey v. Stanton, 586 F.2d 1126, 1130-31 (7th Cir. 1978), cert. denied, 444 U.S. 882 (1979). We think those courts gave too little weight to our prior construction of Indiana law in attributing such significance to these fiscal matters. Claims involving the county departments--whether for public assistance or pre-1986 administrative costs--were payable only from the county welfare fund. See Ind. Code Ann. § 12-1-11-3(a) (West 1982 & Supp. 1991) (repealed 1992). Moreover, the counties issued bonds or obtained loans under the public welfare code only in order to provide advances to the county welfare fund. Id. § 12-1-11-3(b). Underlying these functions was a legal obligation of counties to support county welfare activities. As to management of the county welfare fund, we indicated in 1974 that the county governments were virtually financial agents of the autonomous county departments. See City of Indianapolis v. Indiana State Bd. of Tax Comm'rs, 261 Ind. 635, 638-39, 308 N.E.2d 868, 870 (1974). When the county
departments were transformed into subordinant agencies of the
states in 1986, the county governments became--with respect to
these activities--financial agents of the state. We so hold as a
matter of state law.
We reach a similar result with respect to judgments rendered
against a county department. Before the 1986 restructuring, the
public welfare code provided that none of the officers or employees
of the State Department or the county departments could be held
personally liable, "except to the state of Indiana or the county
for any official act done or omitted in connection with the
performance of their respective duties under the provisions of this
act." Ind. Code Ann. § 12-1-4-3 (West 1982) (emphasis added)
(repealed 1992). Given this kind of indemnification scheme, either
the state or the counties could be held liable for judgments
rendered against the county departments before 1986.
However, the state and the counties were not jointly and severally liable. The Welfare Act established the county departments as municipal corporations, but, again, the Social Security Act required that the state retain supervisory authority. We think this structural oxymoron had implications for liability. The very existence of supervisory authority might lead one to conclude that the state should have been held strictly or vicariously liable for the official misconduct of a county department. But that result would contradict the status of the
county departments as municipal corporations and would eliminate
any need for the county indemnification permitted under § 12-1-4-3.
The 1986 amendments swept away this tension. They made the county departments subordinate arms of the State Department and deleted the authority for county indemnification. 1986 Amends., § 17, 1986 Ind. Acts at 422; Ind. Code Ann. § 12-1-4-3 (West Supp. 1991) (repealed 1992). Any misconduct by the county departments became directly attributable to the state. Even if the misconduct involved a denial of public assistance--and would consequently be compensated from the county welfare fund--management of the county welfare fund became a state function. In fact, we think just as title to the property of the county departments was transferred to the state in 1986, so the county welfare funds effectively became special pools of state money. We so hold as a matter of state law.
In summary, we conclude that under state law before the 1986
amendments, the county departments were responsible for certain
debts and the state was likely liable for others. After 1986, the
state, operating through the county departments and county
governments, became responsible for all public welfare debts and
judgments against the county departments.
This result is generally consistent with our presumption that the county departments were amenable to suit under § 1983 until the 1986 amendments took effect. The only contradiction involves those instances in which the state might have been liable for a judgment
before the restructuring. Excluding that contradiction, all the
Hess factors converge to support our presumption.
Dickson, Selby, and Boehm, JJ., concur.
Sullivan, J., not participating.
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