Monday, April 09, 2012

Conditional Federal Spending and the Public Interest

Guest Blogger

Samuel Bagenstos

Thanks to Jack for inviting me to comment on Mitch's posts. Mitch's characteristic analytic sharpness is much in evidence in those posts. But, with respect, I find his argument deeply flawed. It is flawed because it would call into question a broad swath of post-New-Deal conditional spending programs, including Medicaid even before the ACA's expansion of that program. As Mitch candidly observes, his argument would require that Dole, the leading case on conditional federal spending, be overruled. And it is flawed because it rests on an unstated normative premise, one Mitch makes no effort to defend—and one that I find indefensible.

It might be useful to start with how I see the basic problem here before turning to Mitch’s attempted solution to it.

1. Many cooperative federal spending programs seek to induce the states to provide services that states have no obligation to provide—and that, indeed, states have a constitutional ‘right’ not to provide. Why might the federal government rely on state implementation of federal law in this context rather than simply providing the relevant services itself? One reason is, of course, money. If states would be willing to pay some, but not all, of the costs of providing the services at issue, then it would be a waste of federal revenues for the federal government to pay the whole thing. But there are other reasons, as well, even where (as in the new Medicaid provisions) the federal government is footing virtually all of the bill: relying on the states may permit a diversity of approaches to implementation, which promotes policy experimentation and respects value differences; state officials implementing cooperative programs may be closer and more responsive to the people; and cooperative programs may relate to policy domains that are already so heavily regulated by the states that an additional layer of federal bureaucracy will lead to friction and inefficiency.

Where cooperative spending programs seek to induce states to provide services they have no obligation to provide, their design typically results from a negotiation. Federal policymakers in Congress and the Executive Branch seek to create a mix of incentives and requirements that will (a) induce as many states as possible to participate in a program that serves their policy objectives and (b) do so at a politically acceptable cost to the federal budget. In designing this mix of incentives and requirements, federal policymakers must attend to state governments and their lobbyists in Washington. The more onerous or inflexible are the conditions attached to federal money, the more money the states will demand to accept them. And if, at the end of the day, a state determines that the amount of money offered by the federal government is not sufficiently attractive to warrant agreement to the conditions attached to it, the state can always turn the money down. Federal officials thus have a strong incentive to design cooperative programs that are as attractive to states as possible given their policy objectives.

If, at the end of this process, the federal government has designed a cooperative spending program whose terms are sufficiently attractive that all states agree to participate, and which does not threaten to take away from nonparticipating states anything to which the states are otherwise entitled, it is difficult to see any coercion. That, in any event, is one aspect of the argument that cocounsel and I made in a brief filed in the Affordable Care Act litigation on behalf of former Surgeon General David Satcher and 78 child welfare, disability, education, health care, veterans and other organizations with an interest in various conditional-spending programs. Although this argument reflects one of the standard accounts of coercion in the philosophical literature, Mitch finds it “very deeply mistaken” because “the entire point or insight of the unconstitutional conditions doctrine” is that it “is sometimes unconstitutional because coercive to threaten to withhold a benefit” (emphasis mine).

One way of responding to Mitch’s point is to note that coercion is not the only, or even the primary, basis for finding an unconstitutional condition. Kathleen Sullivan’s article on unconstitutional conditions does a great job of showing that coercion is only one of the alliterative concepts at play here (the others being corruption and commodification), and that none of the concepts offers a completely satisfying account of either the doctrine or our intuitions. Another way of putting my point is this: We may believe that it is unconstitutional to fire the policeman for talking politics not because he is coerced but because the police department’s action distorts the marketplace for ideas in a way that is inconsistent with our understanding of the goals and requirements of the First Amendment. Mitch might say that’s what makes the action coercive, but if that’s right it’s still our substantive understanding of the First Amendment, and not the concept of coercion, that’s doing the work here. In fact, I’d say one of the basic flaws in Mitch’s analysis, and in Sandy’s invocation of plea bargaining as an analogy here, is the suggestion that unconstitutional conditions problems can be resolved by a notion of coercion that is transsubstantive—that is, one that does not depend on the nature of the underlying constitutional right that is asserted. But that would take me beyond what I think is necessary here.

2. I think there is a more direct response to Mitch’s argument. Mitch’s argument would destroy basic understandings of post-New-Deal cooperative federalism—and would do so without sufficient normative justification. This consequence follows directly from Mitch’s understanding of what it means to punish a state for exercising its constitutional right not to regulate in a particular area. That understanding, as elaborated in Mitch’s most recent post, is this: The federal government punishes the state for exercising its right not to regulate if the federal government “does not have legitimate public-serving reasons for withholding” a grant when the state refuses to regulate. To determine whether the federal government has “legitimate public-serving reasons,” Mitch would ask whether the federal government, if it was “genuinely motivated to advance the public interest” and knew that the state would reject the condition, would nonetheless withhold the (increment of the) grant at issue.

Mitch argues that the federal government would never have a “legitimate public-serving reason” to withhold the Medicaid funds that pay for services for people with disabilities just because the state refuses to use the federal dollars to also cover the distinct population of nondisabled people with incomes below 133% of the federal poverty level (FPL). A federal government that really cared about promoting the public interest would in this instance prefer half a loaf to no loaf at all. And thus, because the ACA’s Medicaid expansion denies all Medicaid funds to states that refuse to cover the up-to-133%-of-FPL population, he believes that expansion to be unconstitutionally coercive.

But this argument would render virtually any broad cooperative-spending program (other than block grants) unconstitutionally coercive. As especially relevant to the present discussion, it would mean that the Medicaid Act was unconstitutionally coercive even before the amendments to that statute added by the ACA. The Medicaid Act has always required states that participated in the program to cover certain mandatory populations. Before the ACA’s coverage expansion, these populations included both certain classes of poor people (e.g., pregnant women and children under 6 in families that earned less than 133% of FPL) and certain classes of people with disabilities (e.g., those who receive Supplemental Security Income). The Act has also always required participating states to provide certain mandatory services to the individuals they cover. Even before the ACA, those services included: physicians’ services, hospital services; laboratory and x-ray services; early and periodic screening, diagnostic, and treatment (EPSDT) services for people under 21; nursing facility services for people 21 and older; home health care services; and others.

Although the Medicaid Act gave states substantial discretion over many other questions, a participating state could not pick and choose which of these mandatory populations to cover, or which of these services to offer. If it chose to enter Medicaid at all, it was required to offer all of the mandatory services to all of the mandatory populations. But under Mitch’s test as he applies it to the ACA, this would be unconstitutional. If a state wanted to provide physicians’ and hospital services to poor people, but nothing else, a federal government that really cared about the public interests underlying the Medicaid program would prefer that half of the loaf. It would not withhold all Medicaid money simply because the state refused to provide other services to other potential beneficiaries (such as nursing home services to people with disabilities on SSI).

One obvious objection to Mitch’s argument at this point is to ask why the desire to induce states to provide as many services to as wide a population as possible is not a “legitimate public-regarding reason.” Mitch implies, but doesn’t quite say, that the desire to obtain leverage to induce a state to give up its authority not to regulate in a given area can never be a “legitimate public-regarding reason” for the federal government. And where the federal government says a state cannot get federal money to provide one service unless it also accepts federal money to perform an analytically distinct service, he suggests that the desire to induce states to provide as many services as possible is merely a “further purpose” of the condition; the principal, direct purpose of the condition is to induce the state to give up its right not to perform the distinct service.

This formulation raises enormous questions of administrability. What constitutes an analytically distinct service? When Congress concludes that states can realize economies of scale by providing services to both poor people and people with disabilities? Are the services analytically distinct then? What if Congress concludes that covering only a small slice of people will increase administrative costs so covering more groups will enhance the efficiency of federal spending? What if the states disagree with Congress’s judgments on these empirical points? Does the constitutionality of Medicaid turn on how a court decides these and other empirical questions? (And once we bring multiple states into the mix, can Congress have a “legitimate public-serving reason” in avoiding races to the bottom by promoting the broadest possible coverage in as many states as possible?)

But the more fundamental question for Mitch’s argument, I think, is a normative one. Why should we interpret the Constitution as prohibiting Congress from offering to pay the states’ holdout price for regulating in a particular area? That, after all, is all Congress is doing when it offers to pay part of the cost of medical care for individuals with disabilities if the state will also agree to provide (federally reimbursed) care for poor people. Mitch appears to accept that Congress can use its conditional spending authority to offer single-purpose grants that use money as a sweetener to encourage states to regulate in an area in which they have no obligation to regulate. If that is right, what is the normative basis for saying that Congress cannot use the same authority to create grant programs that serve multiple purposes, the money for some of which will be the sweetener to induce states to accept the money for others? He does not offer one. (That we might find an argument analogous to Mitch’s plausible in the plea-bargaining context, where quite distinct interests are at stake, does not explain why the argument should hold here.)

A number of state constitutions contain a single-subject rule for state laws, though such rules are notoriously malleable in their interpretation. The upshot of Mitch’s analysis would be to constitutionalize a quite novel, and difficult to justify, single-subject rule for federal grants as well. Indeed, the implications may be even more radical than that. Even where a federal grant program has a single “subject,” Mitch would, in effect, constitutionalize a “single subset” rule.

* * *

As Sandy notes, the best minds in our business (far better minds than mine!) have attempted unsuccessfully to resolve the unconstitutional conditions problem. I think it’s widely recognized that their efforts have been undone by the “baseline problem,” which I would put something like this: On standard accounts, a coercive offer is one in which the offeree has two choices, both of which would deprive her of some baseline entitlement she has. Maybe in the days before Legal Realism, we could just reflexively think of the status quo or common-law rules as setting the baseline for comparison, but now we all basically understand that identifying the baseline requires normative judgment—and it turns out that there is often wide disagreement on the correct normative judgment in any given context.

Mitch proposes that his theory of coercion avoids the baseline problem. But I think it does nothing more than relabel that problem. Instead of having a normative fight over what is the appropriate baseline against which to measure an offer, under Mitch’s analysis we have to have a normative fight over what is a “legitimate public-regarding purpose.” And the only way Mitch can say that the ACA’s Medicaid expansion is unconstitutionally coercive is by ruling out of order one of the clear public-regarding purposes of the statute, without offering any normative justification.

Samuel R. Bagenstos is Professor of Law at University of Michigan Law School. You can reach him by e-mail at sbagen at

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