Prof. Michael McConnell on the Spending Clause Holding in the Health Care Law Case

Prof. Michael McConnell (Stanford) passes along the following:

The Supreme Court’s Spending Clause holding, which commanded seven (!) votes, may be the most important aspect of yesterday’s health care decision, from the perspective of constitutional federalism. For the first time, the Court has held that the federal government may not use the threat of withdrawal of funds to force a state to adopt federal policies. This is a big deal. Even at the high point of the Federalism Blip (a/k/a “Federalism Revolution”) of the Rehnquist Court, it appeared that the Spending Clause would go unchecked. That was the message of South Dakota v. Dole and New York v. United States.

But the NFIB Court’s treatment of the issue is anything but crisp and clear. The Court framed the issue as whether a state has “a legitimate choice whether to accept the federal conditions in exchange for federal funds.” That question led the Court to rely a series of shades-of-grey distinctions: (1) the size of the grant that would be withdrawn (distinguishing between the 5% of federal highway funds at stake in Dole and the full amount of Medicaid funding here); (2) whether the newly imposed conditions make the law “in reality a new program” rather than a “modification” of the old; (3) whether the states are threatened with loss of “existing” funding or merely new sources of funding; and (4) whether the attached conditions are ones that “govern the use of the funds” or instead “take the form of threats to terminate other significant independent grants . . . as a means of pressuring the States to accept policy changes.” These considerations have a certain common sense to them, but the line-drawing problems are likely to prove intractable.

This area of constitutional doctrine could profit from serious thought.

Let me float an idea – more radical than the Court’s holding, but possibly more administrable, and rooted in the constitutional text as originally understood. The idea may not be appropriate for judicial review, and it may not hold up to scrutiny. I am hoping to generate some thought.

The so-called “Spending Clause,” Article I, Section 8, Clause 1, grants Congress the power “to pay the Debts and provide for the common Defense and general Welfare of the United States.” As is well known, James Madison contended that the Clause allowed the federal government to tax and spend only in service of the congressional powers elsewhere enumerated. Alexander Hamilton took a broader view, contending that the only real limit was that spending must be for “general, not local” purposes. In his Report on Manufactures, Hamilton wrote:

The only qualification of the generality of the phrase in question, which seems to be admissible, is this: That the object, to which an appropriation of money is to be made, be general, and not local; its operation extending, in fact, or by possibility, throughout the Union, and not being confined to a particular spot.

In the Founding period, the word “general” was used more precisely than we use it today; it was the term used for matters pertaining to the Union as a whole. Thus, they spoke of the “general” government (not the “national” government), and of “general” as opposed to “local” concerns. Hamilton’s position was thus based on the ordinary meaning of the text.

Hamilton’s position prevailed, more or less, during the antebellum period, and eventually was adopted by the Supreme Court in United States v. Butler. One of the first debates over the Clause involved construction of a lighthouse at Cape May, which was approved only in the context of broader legislation federalizing lighthouses up and down the Atlantic seaboard. President Andrew Jackson vetoed construction of the Maysville Road in Kentucky, which would have served only a local purpose, while signing an appropriation for the National Road, which connected the West to the East. The point is that Congress cannot tax the entire nation and spend the proceeds on merely local projects. This does not mean that Congress must always allocate funds evenly among the states, but that its spending decisions must be based on criteria that “extend[], in fact, or by possibility, throughout the Union.” (This leads me to the conclusion that congressional earmarks may violate the Clause – even if no one has standing to challenge them in Court. But that is a point for another day.)

My tentative suggestion is this: If Congress may spend only for the “general” welfare, it would be unconstitutional for Congress to set up a Medicaid system where funds are spent in all states except for one (or a few). In other words, the threat to withdraw Medicaid funds from states that do not agree to expand the program is unconstitutional. This does not render Congress powerless to impose conditions that ensure that funds are properly spent. Congress need not grant funds to state governments that refuse to comply with clearly stated funding conditions. But according to this theory, Congress’s remedy if a state refuses to comply is not to cut the state’s citizens off from the benefits of their tax dollars, but to bypass the state government and administer the program directly, through federal agencies or non-state grantees.

This, interestingly, is the way the ACA’s “health benefit exchanges” work. If a state declines to operate such an exchange in accordance with the statute’s dictates, the federal government will step in and do so, in that state. This satisfies the constitutional requirement that spending be for the “general welfare” because taxpayers in every state will receive the benefit. For Congress to cut off particular states, and deny their citizens any benefit, renders the program less than “general,” and hence unconstitutional.

We must not fall into the trap of thinking that federal grants are a gratuity, bestowed on the states out of the goodness of Congress’s heart. The moneys are forcibly extracted from the people of every state, and the people of every state are entitled to benefit from them. That is what the Court’s conception of “coercion” seems to overlook.

Justice Ginsburg’s dissent on the Spending Clause issue maintains that “[a] State . . . has no claim on the money its residents pay in federal taxes.” That is technically true. But if Hamilton was correct, the people of every state do have a constitutional right (whether or not judicially enforceable) to insist that federal spending be for “general” purposes, meaning extending to the entire Union. It arguably violates that principle to cut off a state’s residents as a means of pressuring their state government to adopt policies Congress otherwise has no authority to compel the states to adopt.

This obviously is a novel idea – never a good thing in law. But does it make sense and would it work?