From the rise of the New Deal through the constitutional litigation over the Affordable Care Act (ACA), conditional federal spending has been a major target for those who have sought to limit the scope of federal power. There are a couple of reasons for this.
First, as the Supreme Court narrowed Congress's power to regulate private primary conduct and state conduct in the last twenty years, (1) conditional spending looked like the way Congress might be able to circumvent the limitations imposed by the Court's decisions. Thus, members of Congress quickly sought to blunt the impact of the Court's decision to invalidate the Gun Free School Zones Act, as well as its sovereign immunity decisions. In the first case, they were successful; (2) in the second, less so. (3) But there is a longer, preexisting trend of federal spending conditioned on requirements that states must fulfill. This trend has grown over many decades, beginning with the New Deal, with some decline in the 1980s but a rebound after that. (4) And, perhaps surprisingly, even a number of conservative Republican governors have found themselves supporting conditional grants--notwithstanding the strings attached. (5) This dynamic is not surprising--actors at each level of government have an incentive to increase conditional federal spending. (6)
For these two reasons--the availability of conditional spending to circumvent the Supreme Court's recent limitations on federal power, and the longstanding role of conditional federal spending in the growth of federal programs--many scholars have attempted to develop a constitutional basis for the courts to limit the spending power. The Rehnquist and Roberts Courts offered a number of hints that their jurisprudence might move in the direction favored by these scholars. These hints were particularly evident in the Court's aggressive expansion of the notice requirement. (7) The notice requirement itself operated only incrementally to trim particular exercises of the spending power. But individual Justices and lower court judges suggested that a more fundamental set of limitations on the spending power was on its way. (8)
In this context, the Spending Clause holding of the National Federation of Independent Business v. Sebelius (9) (NFIB), looks like it ought to be a big deal. It looks, at least at first glance, like the taming of the federal leviathan that many conservatives have been waiting for. It represents the first time that the Supreme Court has ever held a spending condition unconstitutional because that condition coerces the States. (10) Although cases before NFIB had twice mentioned coercion as a possible limitation on the spending power, the Court had never invalidated a statute for unconstitutionally coercing the States. In Steward Machine Company v. Davis, (11) Justice Cardozo's majority opinion suggested there might be a point where "pressure turns into compulsion." (12) But though he thought there might be such a point, the Social Security Act provision that the Court considered did not cross it, and the Court emphasized that "to hold that motive or temptation is equivalent to coercion is to plunge the law in endless difficulties." (13) In South Dakota v. Dole, (14) Chief Justice Rehnquist's majority opinion quoted Steward Machine for the proposition that "in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which 'pressure turns into compulsion." (15) But, as did the Court in Steward Machine, the Dole Court concluded that the condition before it was nowhere close to the compulsion line. (16)
So how much does NFIB's Spending Clause holding tame the federal leviathan? Not very much. The Chief Justice's pivotal opinion renders a spending condition coercive only in very narrow circumstances: Where Congress takes a (1) very large (2) preexisting conditional spending program, and (3) tells the state that if it wants to continue participating in the program, it must also agree to participate in an entirely separate and distinct program. …