Pennhurst, Chevron, and the spending power.

AuthorSmith, Peter J.

Federalism, it seems, is ours once again.(1) Although not everyone is quite ready to observe the "new etiquette" of federalism,(2) in recent years the Court has restricted Congress's affirmative powers to legislate. The Court has revived limits on both the scope of Congress's power to regulate interstate commerce(3) and the means by which Congress may do so;(4) on Congress's power to enforce the Reconstruction Amendments;(5) and on Congress's authority to empower private parties to enforce federal rights against recalcitrant states.(6)

In contrast, although the Court has articulated a number of "general restrictions"(7) on Congress's spending power,(8) that power remains, at least at present, an effective source of congressional authority. One of those "general restrictions" is that Congress may impose binding conditions on states that accept federal funds only if, as the Court explained in Pennhurst State School & Hospital v. Halderman,(9) the conditions are expressed "unambiguously."(10) Because that requirement, at least at first blush, is not particularly restrictive--and because the Court has limited Congress's other sources of authority--the federal government increasingly has turned to the power of the purse as a means of advancing its agenda,(11) while advocates of a more limited federal role have begun to seek more trenchant limits on that power.(12) The spending power is a particularly effective tool when one considers that most federal spending programs are administered by federal agencies, whose interpretations of federal statutory provisions are, under the rule of Chevron U.S.A. v. Natural Resources Defense Council,(13) entitled to judicial deference. Indeed, the Court has, despite occasional rumblings to the contrary,(14) validated the administrative state by continuing to defer to administrative agencies' reasonable interpretations of statutory regulatory schemes.(15) When Congress legislates within its affirmative powers, it accordingly may delegate to agencies the authority to determine how its relatively broad statutory statements of policy should apply in particular circumstances.

Both the Pennhurst doctrine and the Chevron inquiry turn, at least in part, on congressional clarity--or, as the tests typically are expressed, on congressional ambiguity. Under Pennhurst, a court may conclude that Congress has imposed a condition on the grant of federal funds to a state recipient only if Congress unambiguously expressed its intent to do so; under Chevron, the existence of statutory ambiguity with respect to a particular issue requires the reviewing court to defer to a reasonable agency interpretation of the ambiguous statutory language. What, then, should a court do when the terms of a federal-state grant program's condition are not fully elaborated in the statute and when the agency charged with enforcing the statute has issued regulations that purport to define the terms of the condition? Does congressional ambiguity in defining the terms of the condition foreclose, under the Pennhurst doctrine, the court from considering the agency's interpretation? Or should the court apply traditional canons of statutory construction--including deference to agency interpretations of ambiguous statutory provisions--to determine if the agency's interpretation can bind the state grant recipient?

Suppose, for example, that the statute creating a federal-state grant program designed to promote strong science education provides that, as a condition of receiving funds, the state recipient must "assure that all public school students have reasonably individualized access to technology education." Educational experts in the state believe that the best means to accomplish the program's goal is to purchase enough computers to ensure a five-to-one student-to-computer ratio. The Department of Education, however, has issued a regulation that interprets the condition to require one science teacher for every ten students. The statutory provision is ambiguous, and both interpretations of the condition are reasonable; it is clear that, evaluated under Chevron's approach, the agency's interpretation is valid. If the state follows its own interpretation, can a student who wants smaller classes sue to enforce the condition? Can the Department of Education withhold funds until the state complies with the agency's interpretation?

Such controversies arise at the crossroads of administrative law and federalism principles. They raise the question whether Chevron deference, which is appropriate only when a statute is ambiguous, ever is warranted when the statutory provision at issue attaches a condition to a state's receipt of funds--a provision that must, in order to be effective under Pennhurst, attach the condition unambiguously. This Essay considers whether the usual principles of Chevron deference govern the interpretation of ambiguous statutory provisions in federal-state grant programs. Ordinarily, Congress provides a blueprint that outlines its objectives, and then relies on agencies--administrators in a co-equal branch--to implement those objectives in concrete circumstances. Phrased another way, then, the question here is whether Congress can continue to rely on agencies when it legislates pursuant to the spending power.

Resolution of this question depends principally on how one characterizes Pennhurst's clear-statement rule. The first approach, which I call the "accountability model," views Pennhurst through the lens of the later-decided case of Garcia v. San Antonio Metropolitan Transit Authority.(16) Garcia held that federalism-based limits on Congress's power to regulate the states inhere largely in the structure of the federal government itself, in which the interests of states are represented.(17) The accountability model treats Pennhurst's rule as a structural mechanism to ensure congressional accountability when Congress imposes burdens on the states. Under this framework, Congress (which, at least theoretically, represents the interests of the states), in contradistinction to administrative agencies (which do not), must unambiguously decide whether to impose a particular burden on the states. The accountability model thus expresses a concern about delegation: Congress, and not agencies, should make important decisions of policy, including whether to alter the federal-state balance, because only Congress is electorally accountable for such decisions. Accordingly, under the accountability model, reasonable agency interpretations of statutory grant conditions are not entitled to deference, even though Congress, by most conventional canons of statutory construction, can be thought to have delegated to the agency the authority to fill in gaps in the statute's application.

The second approach, which I call the "state choice model," views Pennhurst's rule as a means to ensure notice--and thus fairness--to the states when a federal grant program imposes a burden on the state recipients. Under this account, the question of which federal actor (that is, Congress or the agency) has imposed a condition on the state is not determinative; the inquiry focuses instead on whether, in light of the information available when the state accepted federal funds, the state can fairly be said to have understood the nature of the bargain, and thus had the opportunity "freely" to "choose" whether to accept the funds. Because a state can just as readily "ascertain what is expected of it"(18) from an agency regulation as from the statutory text itself, the state choice model accords Chevron deference to reasonable agency interpretations of statutory grant conditions.

This Essay argues that the accountability model upsets the delicate balance that Pennhurst achieved between federal and state interests and undermines the important values advanced by the Court's decision in Chevron. By requiring an unrealistic standard of congressional precision, the accountability model effectively converts Pennhurst's rule from an interpretive tool to a substantive limitation on Congress's power to regulate through the spending power. The state choice model, on the other hand, accommodates the values advanced by Chevron and limits Pennhurst's application to those cases that involve obvious unfairness to the states. An agency regulation provides a state with notice of its federal obligations just as effectively as a statute does, and states accordingly should be bound if the administering agency has issued an interpretation of the statutory grant condition before the state accepts funds.

This Essay pays particular attention to the most difficult case for Chevron deference: when the agency issues its interpretation of the statutory grant condition after the state accepts funds under the grant program. Because the accountability model categorically precludes Chevron deference for agency interpretations of statutory grant conditions, it a fortiori prohibits deference in such cases. The state choice model, on the other hand, draws a temporal line for determining the federal government's power to bind the states with grant conditions. Because the state choice model turns on notice--and because a state can hardly be said to have received notice of an agency interpretation that did not exist when the state accepted funds--application of that model leads to the conclusion that agency views cannot retroactively bind state recipients of federal funds. Although there is an obvious appeal to this approach--and although I ultimately think that it is the correct approach--there are strong countervailing (narrative) arguments that the interests served by Chevron deference are sufficiently weighty to justify application of deference even to agency interpretations that postdate a state's receipt of funds. This Essay therefore considers not only the state choice model, but also other possible judicial approaches to such cases: (1) entitling the court to interpret...

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