by Judah Lifschitz and Scott D. Burke, Shapiro, Lifschitz & Schram P.C.
The Supreme Court ruling in National Federation of Independent Business v. Sebelius (NFIB) likely will have much broader implications than judging aspects of the Patient Protection and Affordable Care Act, also known as “Obamacare.”
The Supreme Court’s holding in the NFIB case likely will affect many aspects of law substantially, including offering new lines of attack against the Clean Air Act (CAA) and its regulations. In NFIB, the Supreme Court held that the Affordable Care Act’s requirement of penalizing individuals who have not bought medical insurance was constitutional under Congress’ taxation powers. The court ruled Congress cannot condition all of a state’s federal Medicaid funds on whether the state accepted and implemented the Affordable Care Act’s expansion of the program. This aspect of the NFIB decision likely will impact litigation involving the CAA because regulation of power generators under the CAA invokes similar considerations, such as the constitutional connection among the rights of individuals, the rights of state, and the enumerated powers of the federal government. The court’s treatment in its NFIB decision of Congress’ power under the Constitution’s Spending Clause is applicable to CAA litigation.
Spending Clause After NFIB Decision Creates CAA Challenge
The Spending Clause gives Congress the power to spend money to provide for “the general welfare of the United States.” Constitutional scholars since Alexander Hamilton have argued the broad mandate of this clause allows Congress to spend money to encourage favored conduct, commonly called the “carrot and stick approach.” Congress uses federal funding as a carrot to encourage states to take certain actions, such as raising the drinking age to 21 in the Supreme Court’s 1987 decision in South Dakota v. Dole, or to write a pollution-reduction plan. Congress also threatens removal of federal funds—the stick—when a state fails to comply with the federal mandate for which the funds have been granted.
The Supreme Court explained and expanded the modern Spending Clause in its South Dakota v. Dole decision. South Dakota challenged Congress’ conditioning of the grant of 5 percent of federal highway funds upon states’ raising the legal drinking age to 21. The Supreme Court held that such conditioning was appropriate because Congress satisfied a five-prong test:
- The condition imposed was in pursuit of the general welfare;
- The condition was not unconstitutional;
- The condition was clear and unambiguous;
- There was a sufficient relationship between the funds at risk and the purpose of the condition; and
- The condition was not coercive.
The court’s recent landmark Affordable Care Act decision was a rare instance of a federal court’s holding that Congress exceeded its power under the Spending Clause. The ruling might prove to be a significant part of the court’s decision because of its potentially wide application.
In South Dakota, the amount of federal money at issue was 5 percent of federal highway funds, less than 1 percent of South Dakota’s budget. The Supreme Court considered this amount to be “relatively mild encouragement;” however, the federal Medicaid funds at issue in NFIB were significant: Medicaid spending averages more than 20 percent of a state’s budget, with half of those funds coming from Congress. By placing such a large amount of money in jeopardy, the court held that states were not left with any meaningful choice regarding accepting or rejecting the Affordable Care Act’s extension of Medicaid. The court found that the states were being coerced into acceptance.
According to Chief Justice John Roberts, the states had a “gun to the head.” The chief justice of the United States made clear that the Supreme Court was not “fixing a line” for where federal “persuasion gives way to coercion,” stating that “wherever that line may be, (the Affordable Care Act) is surely beyond it.”
The NFIB decision opens the door to litigation concerning the constitutionality of the CAA funding provision.
Under the CAA, states that fail to comply with federal environmental regulation risk nearly all their federal highway construction funds except funds necessary for safety and pollution reduction. States spend an average 4 to 5 percent of their entire budgets on maintaining and constructing highways—far more than the issue in South Dakota—and about half the money at risk in NFIB. That aspect of the NFIB likely will result in a challenge to the constitutionality of the CAA provision.
Other Spending Clause Challenges to CAA
NFIB likely will inspire more attacks on the conditioning of federal funds upon compliance with CAA. In NFIB, the Supreme Court was troubled by Congress’ attempt to violate the requirement that a clear relationship exist between the funds at risk and the purpose of the condition placed on those funds.
“While Congress may have styled the expansion a mere alteration of existing Medicaid, it recognized it was enlisting the states in a new health care program,” Roberts said.
This leveraged one federal program to require states’ compliance with another federal program. This likely will lay the foundation for a CAA challenge. For example, the link between pollution standards for stationary fossil fuel-burning generating stations and federal highway funds is tenuous at best. In South Dakota, the Supreme Court under Chief Justice William Rehnquist held that raising the drinking age to combat drunk driving was “directly related to one of the main purposes for which highway funds are expended: safe interstate travel.” NFIB signals that a seven-vote Supreme Court majority might exist, which would be troubled by the weak connection between regulation of greenhouse gas emissions from an electricity generating plant and funds to improve roads and signage. If such a challenge were brought, it would mean the federal government would be required to provide highway funds to states irrespective of a state’s compliance with regulations.
The stricter application of the Spending Clause, signaled by NFIB, raises questions about whether the conditions for federal funds under the CAA are properly “clear and unambiguous.” Highway projects might take years, potentially even decades, to complete. During that time, environmental law unlikely will remain static, not through acts of Congress but through rulemaking and enforcement actions brought by the Environmental Protection Agency (EPA). The “clear and unambiguous” regulations, which a state accepts when taking federal money to begin a highway project, might be completely different by the time the project nears completion. Deciding whether to accept more federal money and associated regulations might represent a decision between curtailing a project or shouldering a burdensome program of federally mandated regulation. A consortium of states and related interests, in a pending lawsuit in the U.S. Court of Appeals for the District of Columbia Circuit, sued the EPA to prevent among other things the EPA’s acceleration of federal requirements related to state implementation plans. Following the EPA’s enactment of regulations that limit the production of greenhouse gases, the states allege the EPA then shortened the usual three-year time for state revision of their individual prevention of significant deterioration programs to 18 months. The states have attacked this provision relying on the Supreme Court’s Affordable Care Act decision.
Potential Responses to NFIB’s Impact Likely in Congress
The response to NFIB-type challenges might be addressed most in the legislature. The additional scrutiny on laws based on the Spending Clause likely will result in more carefully drafted legislation mindful of the Supreme Court’s NFIB Spending Clause ruling. In addition, because the Supreme Court is reluctant to substitute its judgment on policy issues for that of lawmakers, proponents of more regulation likely will increase congressional fact-finding efforts and draft detailed legislative preambles and statements of purpose in attempt to justify the connection between the conditions attached to federal funds and the purpose of the policy being enacted. The coercive power of federal funding might be a difficult hurdle. The Supreme Court’s decision in South Dakota supplied an important data point for noncoercive spending within the bounds of law. The NFIB decision supplies an important data point for coercive spending beyond the constitutional limit. Whether the link between highway spending and the CAA falls closer to South Dakota or NFIB likely will be decided soon. The Supreme Court will continue to consider constitutional law and limits.
Judah Lifschitz is co-president and head of the construction and litigation and trial practice groups at Shapiro, Lifschitz & Schram P.C. He has experience in construction-related matters and represents clients in complex commercial litigation. Reach him at firstname.lastname@example.org.
Scott D. Burke is an associate in the litigation and trial practice at Shapiro, Lifschitz and Schram P.C. He has experience as a federal prosecutor and in private practice. Reach him at email@example.com