Last summer, Samuel Bagenstos, a professor at the University of Michigan Law School, argued that Chief Justice John Roberts had articulated an “anti-leveraging principle” to govern the federal government’s relationship to state governments in National Federation of Independent Business v. Sebelius:
The Chief Justice relied on what I will call the anti-leveraging principle. That principle, directly stated, is this: When Congress takes an entrenched federal program that provides very large sums to the states and tells states that they can continue to participate in that program only if they also agree to participate in a separate and independent program, the condition is unconstitutionally coercive. The Chief Justice’s application of that principle explicitly rested on the convergence of three aspects of the Medicaid expansion: that the ACA put a very large amount of money at stake in a state’s decision whether to agree to the expansion; that Congress was threatening to shut off access to an entrenched grant program in which states had participated for years; and that, as the Chief Justice understood them, the expansion provisions did not simply change the existing Medicaid program but leveraged states’ desire to remain in that program to induce them to agree to participate in an importantly distinct and independent program. All three of these aspects are necessary to the analysis that is set forth in the Chief Justice’s opinion.
Bagenstos goes on to explore the implications of this anti-leveraging principle for how Congress might structure cooperative federalism programs. He expresses skepticism as to the wisdom or utility of this principle, particularly because the question of whether a program is “distinct and independent” is necessarily very subjective, yet he offers an “uneasy defense.”
One issue that might be of interest to conservative reformers is that, according to Bagenstos, the anti-leveraging principle does not preclude Congress from radically revising an existing program:
If Congress wishes to massively restructure its program of aid to the states in a particular area—as it did in PRWORA and NCLB—the Chief Justice’s analysis does not prevent it from doing so.
Yet at the same time, Congress can not allow:
Things are different when Congress does wish to continue the old program, with its old rules, but simply wants states also to agree to accept “significant independent grants.” In that case, Congress has declared that the old program, with its old rules, still serves the public interest—that is why it has left the old program in place. It simply would like to tie that program to a separate new one that, in its view, also serves the public interest. Allowing the states to continue to participate in the old program without also participating in the new one does not prevent Congress from spending according to its current understanding of the general welfare. Congress just has to provide a separate enticement to the states for each program.
So, for example, Congress can restructure the Medicaid program by introducing per capita caps. But it presumably can’t threaten to remove all federal Medicaid funding if a state refuses to also accept new pre-K matching funds.
As Michael Greve explains, however, the Medicaid expansion that was at issue is not best understood as a coercion problem but rather as an incentive problem:
Conditional grants programs, the Supreme Court says, are “in the nature of a contract.” They’re permissible on two key conditions: (1) states must have a choice to participate (they can’t be commandeered); and (2) the grant conditions must be cleared stated at the front end. That’s sensible as far as it goes, but it misses two incentive problems. First, all federal grant programs create a fiscal asymmetry: taxpayers in non-participating states will pay “their” share of the program one way or the other. The state as a state can say “no” only to the proceeds, not to its taxpayers’ contributions. Second, funding programs create powerful lock-in effects. Political and fiscal considerations make it well-nigh impossible to exit or even limit the programs. Every unspent or cut state dollar is a federal dollar (or some fraction or multiple thereof) left on the table. [Emphasis added]
And so Greve anticipates that the hold-out states will quickly knuckle under, as the incentive to take part in the Medicaid expansion will eventually prove too powerful. He offers another approach to addressing the fiscal asymmetry created by federal grant programs:
Medicaid is somewhere around eight percent of federal expenditures (growing fast). For taxpayers in non-participating states, let’s rebate those eight percent against their income tax returns. Each state could then freely decide whether it wishes to participate in the federal program or rather exit, let its taxpayers keep the rebate, and run a comparable program—presumably on a smaller scale—on its on nickel.
Would that reform wring all the crazed incentives, cross-subsidies, and fiscal illusions out of Medicaid? No, but it would go a long way. [Emphasis added]
State governments would be free to increase their taxes by a commensurate amount, or to pursue some other strategy entirely. Greve’s proposal would, without question, introduce an element of instability into federal finances. Yet it would discourage the creation of new federal grant programs. Congress would instead create new initiatives that were either entirely federal, with no cost-sharing component, thus making the full cost of new federal programs plainly visible, or it would become somewhat more inclined to leave responsibilities to state and local governments.