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Monday, April 07, 2008

The weird asymmetry between federal and state spending powers

For the purposes of federalism, the most important case on the Court’s docket this term is Chamber of Commerce v Brown, argued on March 19th.  California has banned recipients of state grants from using grant money “to assist, promote, or deter union organizing.” The Chamber of Commerce has argued that such a restriction on the use of state funds is preempted by the National Labor Relations Act.  No one disputes that sections 7 and 8 of the NLRA would preempt California from simply prohibiting employers’ assisting, promoting, or deterring union organization.  But the Chamber wants to extend this argument for preemption to bar even conditions on state grants that have the same purpose as the preempted prohibition. 

Anyone familiar with the constitutional doctrine governing federal grants might think that the Chamber’s argument is a non-starter.  South Dakota v Dole held that the Congress could demand that states raise their drinking age as a condition for receiving federal highway funds.  The Dole Court reasoned that, because states voluntarily accept such funds, they cannot complain about the attached conditions, even when these conditions pursue purposes that the feds could not pursue directly through regulation.  In other words, the feds can pursue otherwise forbidden purposes if they use certain sorts of mechanisms deemed to be “consensual” like conditions on federal grants. 

So why cannot California have the same latitude to pursue an otherwise preempted purpose with the same consensual condition on a federal grant?    Because the Court cavalierly rejected the regulation-spending distinction when reviewing state grant conditions in Wisconsin Department of Industry v. Gould, Inc., 475 U.S. 282 (1986).  Gould unanimously held that Wisconsin could not refuse to purchase goods or services from any contractor with three violations of federal labor law.  All parties conceded that Wisconsin could not add its own sanctions to violations of the NLRA.  But Wisconsin reasoned that, just as private persons can “look for the union label” and refuse to patronize businesses that they regard as anti-union, so too, Wisconsin’s taxpayers should not be forced to patronize anti-union businesses. 

But the Court in an opinion by that legal giant, Justice Harry Blackmun, rejected this argument in a single cryptic sentence: “[The distinction between regulation and spending] seems to us a distinction without a difference, at least in this case, because on its face the debarment statute serves plainly as a means of enforcing the NLRA."


Why do the feds get to spend their money for purposes that could not justify regulation but the states can't? 

In any case, treating every condition on state money as a regulation turned out to be wholly impracticable. The whole point of NLRA Machinists preemption, after all, is to protect the autonomy of contractors to use their resources as they wish as a weapon of economic warfare. Thus, the Court held in Bldg. & Constr. Trades Council of the Metro. Dist. v. Associated Builders & Contractors of Mass./R.I., Inc., 507 U.S. 218 (1993), that Massachusetts could make a contract requiring a contractor cleaning up Boston Harbor to abide by a labor agreement, just to insure labor peace and a timely construction pace.

But now the lower courts have been spinning hopelessly tangled doctrine to distinguish  Boston Harbor-style bargaining (permitted) from Gould-style regulation (forbidden).  Hence, the Court’s cert grant in Chamber of Commerce v Brown.  Judging from oral argument on March 19th, the Court is closely divided.

Why not cut the Gordian knot and give states the same power over their revenue that the feds enjoy? 

Offhand, I can think of only three reasons for Gould's double standard:
(A) The Court just disliked organized labor during the mid-1980s and wanted to prevent unions from using federalism to obtain favorable political treatment;
(B) Blackmun had recently rejected the governmental-proprietary distinction in Garcia and did not want to revive it as an aspect of NLRA preemption doctrine;
(C) The SCOTUS, being a federal institution, is unconsciously but inexorably biased in favor of  federal power. 

Only the last is a currently relevant reason not to overruleGould.  And it is not a good one.  So why not just overrule Gould and give the states the same spending power that Dole gives to the feds? 

Posted by Rick Hills on April 7, 2008 at 11:21 AM in Constitutional thoughts | Permalink


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Yet another great post, Rick. It may be a stretch, though, to say unequivocally that the "feds can pursue otherwise forbidden purposes if they use certain sorts of mechanisms deemed to be 'consensual' like conditions on federal grants." It's clear that Dole allows Congress to regulate outside the bounds of the commerce power. But is it obvious that spending conditions face no First Amendment limits? The unconstitutional conditions doctrine is a mess. Reconciling Rust, Velasquez, American Libraries and the like is a tough task, at least for me.

In any event, suppose one accepts as settled the view that there is no First Amendment right to receive subsidies. Does that resolve your preemption question? I think we both agree that the goal of preemption doctrine is a pragmatic one -- either to effectuate congress's intent, or to strike the most normatively attractive balance between the supremacy clause and federalism norms for any given instance of regulation. How does the state's choice of regulatory instrument affect either the intent or balancing issue? For instance, if Congress says it wants to prevent multi-jurisdictional businesses from having to learn and make decisions about the labor laws of different states, wouldn't that be true regardless of whether local differences arise from direct regulation or conditional local grants?

Posted by: BDG | Apr 8, 2008 2:11:17 PM

Yes, I suspect that the SCOTUS will draw some nice distinction between conditions that apply to only "the state's own money" and conditions that require contractors to change their behavior in aspects "unrelated to" such state money.

But as my scare quotes suggest, I view these sorts of legalistic distinctions as patent public finance nonsense. Yes, they crop up all over the doctrine -- in Rust, as you note; in White's plurality opinion in Wunnicke, limiting the "market participant" exception of the dormant commerce clause; in the D.C. Circuit's opinion upholding Bush's executive order on pre-labor agreements in Building and Const. Trades Dept., AFL-CIO v. Allbaugh, 295 F.3d 28 (D.C. Cir. 2002). And on and on.

But such nexus requirements ignore the plain public finance wisdom that "all money is green." Telling a recipient of a grant that they must use the grant only for x but not for y means nothing if the recipient can take its own money previously being spent on x and use it for y, replacing its own x expenditures with the grant. In effect, the recipient has ignored the restrictive condition and used the grant to fund y. Only a really dense Supreme Court would be so dense as to think otherwise.

Rehnquist was not so dense in Dole (where the feds supply 90% of the funds for highways). This is why the Court ignores such nexus requirements when regulating conditions on federal grants. Sabri and section 666 would be the paradigmatic doctrinal example. But one can see federal conditions affecting states' own-source revenue all over the place: For instance, federal grants normally contain a "maintenance-of-effort" condition requiring states to continue using their own funds for the federally funded purpose and not merely displace pre-existing state money with federal dollars.

Dole would permit all such conditions. Why can't we extend Dole-style reasoning to state grants as well? Why oh why must the states be subject to this nonsensical accounting shell game that the Court in Brown is likely to inflict on them -- and, for con law people who like intelligible distinctions -- on us as well?

Posted by: Rick Hills | Apr 7, 2008 12:35:28 PM

Good post, Rick. But you should not concede so quickly that Brown is governed by Gould. In Gould, the state refused to do business with a contractor because the contractor had *previously* engaged in protected conduct -- the denial of the state "benefit," then, was arguably an unconstitutional condition imposed as a punishment for the employer having engaged in protected activity. In Brown, California is not refusing to do business with employers who have opposed unionization. Indeed, it is not treating employers differently *at all* based on what they have done or will do with their own money. Instead, the state is merely imposing a condition *on the future use of the state's own funds.* This is precisely the distinction Rehnquist articulates in Rust v. Sullivan, 500 U.S. at 196-199.

Posted by: Marty Lederman | Apr 7, 2008 12:06:17 PM

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