Once, and only once, has the Supreme Court held that clawing back federal funding violates the principles of federalism. Under the Affordable Care Act (ACA), if a state refused to expand its Medicaid rolls, the federal government threatened to withhold all of its Medicaid funding. For example, the Obama administration warned Arizona that it stood to lose nearly $8 billion of federal funding, which was nearly a quarter of its state budget. The Supreme Court observed that across the board, “Medicaid spending accounts for over 20 percent of the average State’s total budget, with federal funds covering 50 to 83 percent of those costs.” In other words, states stood to lose on average 10 percent of their budgets for failing to comply with Obamacare. Back in 2012, California and a dozen other states urged the Supreme Court that this policy was perfectly lawful. “Although withdrawing from” Medicaid “may be difficult and politically unpopular,” they wrote, “it remains an option.”
Fortunately for California and other sanctuary states—today at least—seven Justices disagreed with their position. The ACA’s “financial ‘inducement,’” explained Chief Justice Roberts, “is much more than ‘relatively mild encouragement’—it is a gun to the head.” Because “pressure turned into compulsion,” the Court concluded, the ACA’s Medicaid expansion was unconstitutional. Today, blue states proudly shroud themselves in the Obamacare decision they once opposed.
Alas, not every effort to withhold money from noncompliant states is unconstitutional. Congress routinely dangles aid to encourage states to comply with federal programs. For example, South Dakota challenged a law that would withhold 5 percent of otherwise available federal highway funds if the state refused to raise its drinking age to 21. In 1987, the Supreme Court upheld this law, finding that “Congress has offered relatively mild encouragement to the States to enact higher minimum drinking ages than they would otherwise choose.” However, the amount at issue was miniscule. In the Obamacare case, the Court pointed out that “the federal funds at stake,” roughly $4 million, “constituted less than half of one percent of South Dakota’s budget at the time.”
President Trump’s recent executive order on immigration threatens to withhold from sanctuary jurisdictions all “Federal grants, except as deemed necessary for law enforcement purposes.” New York City’s comptroller general indicated that the City could lose roughly $9 million in grants. The Big Apple has a total budget of nearly $90 billion. The withheld funds would constitute less than one-hundredth of one percent of the City’s budget. This falls far short of the 10 percent figure at issue in the Obamacare case, an amount that progressive states told the Supreme Court was not coercive. But if California and New York seek to urge the Court to expand its federalism principles, and make it harder for the federal government to coerce states to act, I would be all too happy to join along in their fight.
As I wrote in on NRO shortly before the inauguration, Conservative attorneys general, rather than waiting on the sidelines, should gladly point out to the Court this necessary departure from the Obamacare case. And more specifically, they can flag all of the other federal programs, which threaten to withhold comparably small amounts—including many environmental regimes—are now at risk of invalidation in subsequent litigation. In the long run, a unanimous decision that puts more teeth into the spending-clause jurisprudence inures to the benefit of red states.