The spending power after NFIB v. Sebelius.

Author:Baker, Lynn A.
Position:The Federal Leviathan: Is There Any Area of Modern Life to Which Federal Government Power Does Not Extend?

What is the challenge confronting modern spending power doctrine? And what is the Court's spending power doctrine after National Federation of Independent Business v. Sebelius (1) (NFIB)? This Essay takes up these questions, and concludes by posing two further questions.

Prior to the Supreme Court's 1992 decision in New York v. United States, (2) which kicked off the so-called federalist revival, (3) there was not much reason to care about the spending power. In a world in which Congress had virtually plenary direct regulatory power over the States, there was little reason to worry about any limits that might exist on indirect federal regulation of the States via conditional spending. (4)

The task for a modern spending power doctrine, however, is not as simple as, for example, prohibiting any conditional offer of federal funds to the States that, if accepted, might regulate the States in a way that Congress could not directly mandate. Since at least 1936, in United States v. Butler, the Court has been clear that Congress's power to spend is greater and broader than its power to regulate the States. (5)

At the same time, however, our spending power doctrine cannot permit Congress to impose any conditions it chooses on its offers of federal funds to the States on the simplistic ground that a state that does not like the conditions can always decline the offer. Such a doctrine would strip all meaning from the Constitution's notion of a federal government of limited, enumerated powers. (6)

Simply put, the problem for modern spending power doctrine is this: How can the courts distinguish and invalidate those conditional offers of federal funds to the States that threaten to render meaningless the Tenth Amendment and its notion of a federal government of limited powers, while at the same time affording Congress a power to spend for the general welfare that is greater than its power to directly regulate the States?

In its 1987 derision in South Dakota v. Dole, the Court provided a controversial and highly imperfect doctrine as a response to this problem. (7) Until the Court's 2012 decision in NFIB, the Dole doc trine was thought to be essentially toothless, particularly with regard to the coercion prong of its test. (8) Never before had the Court invalidated any offer of federal funds to the States on the grounds that it was unconstitutionally coercive. (9) It is also significant that the NFIB Court, while claiming to be applying the Dole doctrine and finally giving its "coercion" inquiry some bite, has unquestionably left us with a substantially altered doctrine. (10)

The spending power question raised in NFIB involved the "Medicaid expansion" provision of the Affordable Care Act (ACA), which would have increased the number and categories of individuals that participating states must cover. (11) The ACA would increase federal funding to cover some, but arguably not all, of the States' cost of expanding Medicaid coverage in the specified ways. (12)

If a state did not comply with the ACA's new coverage requirements, it would lose not only the federal funding for those new requirements but all of its federal Medicaid funds. (13) The 26 states and others who challenged the ACA contended that this Medicaid expansion provision exceeded Congress's authority under the Spending Clause, and seven Justices across two opinions agreed. (14)

The two opinions were signed by the Roberts group, which includes Chief Justice Roberts and Justices Breyer and Kagan, and the so-called joint dissenters (who actually agree with the Roberts group on this issue), which include Justices Scalia, Kennedy, Thomas, and Alito. (15)

In reaching their decisions in NFIB, both groups of Justices claimed to be applying the test set out in the Court's 1987 decision in Dole. (16) In fact, however, both opinions deviate significantly from that decision. At issue in Dole was a federal statute that famously withheld five percent of federal highway funds from any state that did not have a minimum drinking age of 21. (17) In upholding the challenged statute, the Dole Court held that the spending power is not unlimited, and went on to set out five restrictions. (18)

Two of the five prongs of the Dole test played no role in the NFIB decision. The requirement that the spending power must be exercised "in pursuit of 'the general welfare'" has long been viewed by the Supreme Court as essentially nonjusticiable, (19) and that did not change in NFIB. (20) Similarly, the independent constitutional bar prong of the Dole test, which precludes Congress from using the spending power "to induce the States to engage in activities that would themselves be unconstitutional," (21) did not come into play in NFIB. (22)

It is the third prong of the Dole test, the so-called "clear notice" or Pennhurst prong, where things begin to get interesting. (23) The Roberts group invoked this provision in reaching its result. (24) The joint dissenters did not. (25) More critically, the Roberts group significantly changed the meaning of this restriction. (26) Historically, this prong of the Dole test has been read as seeking to ensure that the terms of the conditions on the offer made to the state are clear at the time the offer is made so that the state can make an informed decision whether to accept the offer. (27) In Pennhurst itself, for example, the issue was whether the obligation of States to provide certain institutionalized persons "appropriate treatment in the least restrictive environment" or to be answerable in damages was stated clearly as a condition on the relevant federal funds at the time the States were deciding whether to accept the funds. (28)

Under that traditional understanding of the Pennhurst prong, the Medicaid expansion provision of the ACA should pose no problem. The terms of the offer are clear. (29) No state has contended that it does not know what its obligations would be if it accepted the deal, nor what the implications would be if it turned it down.

The Roberts group, however, read the Dole test's Pennhurst prong in an entirely new way, such that the question became whether the States could have known at the time they agreed to participate in the original Medicaid plan that those funds might later be at risk unless additional conditions--to be disclosed at some unknown point in the future--were met. (30) Thus stated, it seems clear that even the sort of obviously prospective...

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