Agency enforcement of spending clause statutes: a defense of the funding cut-off.

Author:Pasachoff, Eloise
Position:II. Deconstructing the Case Against Funding Cut-offs B. Undercutting Federalism 2. Prevention Coercion through Conclusion, with footnotes, p. 297-335
 
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  1. Preventing Coercion

    As the Supreme Court recently underscored in NFIB v. Sebelius, expansive though the spending power may be, it does not permit coercion of states into following federal dictates. (269) The doctrinal case against funding cut-offs is thus that agency action to withhold funds for grantee noncompliance is unconstitutionally coercive. (270)

    While the Court's introduction of the new coercion doctrine in NFIB was hardly a model of clarity, the best reading of the case is that the doctrine has three parts: for a condition to be unconstitutionally coercive, (1) the condition must "threaten to take away funds for a program that is separate and independent from the program to which the condition in question is attached"; (2) states must not have had "sufficient notice at the time they accepted funds for the first program that they would also have to comply with the second program"; and (3) "the amount of funding at stake" must be "so significant that the threat to withdraw it constitutes what the [NFIB] plurality calls 'economic dragooning.'" (271) Put more thematically, the doctrine sets forth an "anti-leveraging principle," under which a condition is unconstitutionally coercive "when Congress takes an entrenched federal program that provides large sums to the states and tells states they can continue to participate in that program only if they also agree to participate in a separate and independent program." (272)

    Against this background, the doctrinal case against funding cut-offs begins to disintegrate. First, because the Supreme Court rooted the rationale for coercion in the states' existence as sovereigns, (273) and because (as explained above) the law does not treat localities as sovereigns, (274) the coercion doctrine seems limited to the protection of state governments, not local governments, at least as a formal matter. (275) It is not inconceivable that the doctrine could be extended to apply to local governments as well, (276) but for both constitutional reasons (that is, states have a constitutional status that local governments do not) (277) and practical reasons (that is, the ambiguity of the proper denominator against which to measure the significance of the amount of funding at stake), (278) the extension seems unlikely. (279) Any coercion argument against withholding funds from local grantees thus seems doomed.

    Second, the coercion argument seems to be limited to formula grants and inapplicable to project grants. Project grants are typically much smaller than formula grants; their conditions are typically tied clearly to the funding offered; and grantees typically have clear expectations about the length of the project and any intermediate metrics to meet, or steps to follow, in order to release subsequent sums of project money. (280) These characteristics do not overlap with the NFIB Court's concerns.

    Even when the coercion argument is limited to state governments' formula grants, the argument is no stronger. The coercion claim is not really about the act of withholding funds, after all, but about the constitutionality of the underlying statute. At bottom, the argument challenges the offer of funds in the first place, not the act of moving to take them away; Congress's action matters, not the agency's. (281) The NFIB Court made this clear by focusing on the statutory text permitting the Secretary of Health and Human Services to withhold all Medicaid funds for a state not participating in the Medicaid expansion, even though there was no indication that the Secretary actually would have used that authority. (282) This distinction between coercion in the context of agency action and coercion in the context of congressional action makes sense. Given the substantive and procedural protections for participants in the withholding process, (283) an agency action to withhold funds is simply not the right subject of a coercion challenge, even though an action challenging the constitutionality of the underlying statute might be. (Nor would a coercion challenge brought in response to agency withholding likely be successful on the merits, as I discuss in Part II.C, where I explain why agencies ought not fear the prospect of a coercion challenge to the grant statutes they implement.)

  2. Promoting Diversity

    State and local government diversity is one of the values that the American system of federalism is supposed to protect. In Justice Brandeis's famous metaphor, each state is a "laboratory" of democracy that may "try novel social and economic experiments without risk to the rest of the country." (284) The contemporary version of this principle posits that subnational governmental entities should be encouraged to experiment, both because different policies will work differently in different places and because experimentation may lead to a better understanding of what programs work and should be replicated more broadly. (285) The federalism-as-diversity case against agency funding cut-offs holds that agencies should not act to cut off federal funds from noncompliant grantees--states and localities alike--because to do so would suppress valuable diversity in the service of less optimal uniformity. (286)

    Like the sovereignty argument, however, the diversity argument erroneously assumes that grantee noncompliance reflects substantive policy disagreements rather than mismanagement, insufficient effort, or some other reason not in keeping with the value of policy diversity. (287) The diversity argument also erroneously assumes that any move to withhold funds would be for non compliance with a uniform federal policy. That is far from the case. States can be found out of compliance with their own state plans in formula grants, (288) for example, and all grantees may be found out of compliance with their own specific applications in competitive grants. (289)

    Moreover, even when the possibility of withholding is due to noncompliance with a uniform federal policy, the diversity argument is better directed toward the initial design of the uniform federal policy than to the back end of grant enforcement. The diversity argument does not meaningfully speak to whether grantees that have accepted federal funds to do something--even something arising from a one-size-fits-all policy--should be relieved of the obligation to comply.

    It is possible, however, that agency reluctance to cut off funds could be seen as relevant to policy diversity if the decision to continue providing funds is a substitute for this front-end design change. In other words, if it is easier for advocates to persuade an agency not to cut off funds to grantees that are engaging in impermissible program variance than to persuade Congress to redesign a grant program in a way that furthers policy diversity, then the former choice makes more sense. Although I am not aware of any evidence that this is true as a descriptive matter, it is a plausible story.

    As a normative matter, however, if agency reluctance to cut off funds for noncompliance is traceable to agency interest in furthering policy diversity even when the statute does not permit it, such action (or inaction) is destructive, rather than something to celebrate. Justice Brandeis also wrote in praise of openness and transparency, after all: "Sunlight is said to be the best of disinfectants; electric light the most efficient policeman." (290) Our system relies on the existence of laws that are public. If the law on the books--the federal conditions --is without force because agency enforcers are encouraged to look away for unrelated policy reasons, our democracy suffers. In such a context, it would be better for the agency to grant a waiver (publicly, on the record) than to fail to enforce grant conditions.

    In any event, regardless of whether the story is true, the diversity case against funding cut-offs seems to be a cover for a broader objection to the federal grant regime, and so should be taken in that light.

    Another value the system of federalism promotes is political accountability. (291) Under this principle, intergovernmental relations should be structured so that voters know which level of government to hold accountable for each political decision. Unlike the previous federalism arguments, the accountability version of the argument is relevant at the back end of grant enforcement as well as at the front end of grant design and acceptance. The argument is that the state or locality wants to do X, but the conditions in the federal grant require it to do Y. To get the federal funds (at the front end) or avoid losing them (at the back end), the state or locality does Y, thereby blurring the lines of accountability, in that voters may blame state or local officials for doing Y when it is really the federal government that should be held to account for choosing Y as the appropriate action. (292) This argument is sometimes framed as one particular to the states, but not always, and the accountability principle applies to devolution to sub-national governments more generally. (293)

    There are at least three problems with the accountability argument against funding cut-offs. First, at some level, it makes sense to hold the grantee accountable for choosing to do Y, even in response to an agency threat to withhold funds. (294) If Y is truly a bad decision, then the grantee should not have agreed to do it in the first place. If the grantee has agreed, then it is fair for voters to express their dissatisfaction with the grantee. (295)

    Second, recall that grantee noncompliance is not always linked to a competing policy choice but instead can be rooted in bureaucratic mismanagement, insufficient effort, or other problems. (296) Where a funding cut-off brings to voters' attention instances of this kind of noncompliance, accountability is actually increased.

    Third, a threat to withhold funding can be a perfect moment to clarify lines of accountability. Jessica Bulman-Pozen and Heather...

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