Drawing Lines between Chevron and Pennhurst: A Functional Analysis of the Spending Power, Federalism, and the Administrative State

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I. Introduction

A dominant theme of the Rehnquist Court has been the revival of serious federal-state balancing. In the past ten years alone, the Court has imposed meaningful limits on the power of Congress to regulate interstate commerce,1 expanded Tenth Amendment limits on the means by which Congress can exercise its enumerated powers against states,2 reinvigorated state sovereign immunity under the Eleventh Amendment,3 and scaled back Congress's power to enforce the Reconstruction Amendments.4 But throughout this revolution in federal-state relations, the Court has left untouched one of Congress's most potent powers: the Spending Clause. Given the Court's dramatic efforts in other areas of federalism, this is surprising. In the postwar period, vast policymaking areas have been brought within the control of the federal government through its ability to offer money to state and local governments in exchange for compliance with federal regulations.5 Moreover, foreclosure of federal regulation of states through Congress's other enumerated powers has made the spending power a much more attractive source of federal authority.6 Many now see the Spending Clause as a "loophole"7 and a "back door"8 that must be closed if courts are to enforce a sensible federal-state balance.9

It is not at all obvious, however, how to bridle Congress's spending power. One problem is that the governing test set forth in South Dakota v. Dole10 does not provide much in the way of a doctrinal foothold.11 Dole's relatedness requirement-that federal funding conditions relate to the purpose of the spending program-was the subject of a strenuous dissent by Justice O'Connor, but was liberally construed by the majority, and rendered a "contentless restriction."12 Moreover, Dole's requirement that spending programs serve the "general welfare" is, by the Court's own admission, nonjusticiable.13 Finally, the "coercion" concept touched upon in Dole and earlier cases is notoriously slippery both as a matter of political theory and of legal doctrine. Indeed, courts and commentators alike have puzzled over how one might know when the line between encouragement and coercion has been crossed.14 Only Dole's, clear-statement prong, which requires that states have fair notice of spending conditions before assenting to spending programs,15 seems to hold any potential at all for narrowing the reach of the spending power.16

Similar problems afflict broad covering theories that purport to capture the ways that conditional spending programs undermine core federalism values. A good example is the concern that conditional spending programs leave voters confused about the governmental level at which regulatory initiatives originate, a concern advanced most famously by Justice O'Connor in the Tenth Amendment context in New York v. United States.17 As a number of commentators have noted, the political accountability rationale is both under-specified and over-inclusive as a means of constraining federal power.18 Two other broad theories fare just as badly, and for the same reasons. One is the "tax crowd-out" theory: the constitutionally superior taxation power of the federal government allows congressional use of the spending power to crowd out state-level taxation and thereby constrains the ability of states to engage in salutary competition with the federal government in policy innovation efforts.19 The other is the "strategic-state effect": states that would engage in particular kinds of regulation anyway will invite federal-level regulation as a means of negating the competitive advantages (e.g., in attracting mobile capital and labor) of states that would otherwise not adopt such regulations on their own.20 Both of these theories provide a plausible description of the coercive potential of conditional spending programs. But, as with the political accountability rationale advanced in New York, neither lends itself to clear line-drawing that balances federal and state interests. …