Sebelius and the Spending Shift: What Impact will the Most Unassuming Part of National Federation of Independent Business v. Sebelius have on Congress’ Spending Power?

Posted by: Michael Fieldman, Armand Ganajian, Amanda Glass, Michael Gorelik, Zachary Graham, and Kia Grass

maxresdefaultWill the Supreme Court’s decision in National Federation of Independent Business v. Sebelius, finding the Medicaid expansion portion unconstitutionally coercive, prove to be an unnoticeable shift in Congress’ spending power? Or is it a sleeping giant that could have huge ramifications for how Congress and the states interact? Sebelius leaves unclear standards about Congress’ spending power that could lead to inconsistency and confusion among federal courts. This might be why courts have more readily distinguished cases from Sebelius than they have analogized to it. Medicaid represents an exceptionally large portion of a state’s federally funded budget, making the decision in Sebelius a unique one that is unlikely to have a significant impact on Congress’ spending power. However, Sebelius does give states greater power to negotiate when it comes to federally funded programs, thereby limiting congressional spending power.

National Federation of Independent Business v. Sebelius

National Federation of Independent Business v. Sebelius represents a turning point in the Court’s jurisprudence on the limits of Congressional conditions on federal funds allocated to the states. When Congress passed the Affordable Care Act, it conditioned all federal Medicaid funding on states expanding Medicaid from covering exclusively low-income children, pregnant women, elderly and disabled individuals to covering all people who fall within 133% of the federal poverty line. Various parties sued, claiming the ACA was unconstitutional for assorted reasons. Some of the cases were consolidated, and eventually the Supreme Court granted certiorari to three cases on the issue, including Sebelius.

The case identified four main issues with the ACA: (1) whether the Supreme Court had jurisdiction under the Anti-Tax Injunction Act; (2) whether the individual mandate of the ACA violates the Necessary and Proper portion of the Commerce Clause of the Constitution; (3) whether the individual mandate must be construed as imposing a tax, and if such a construction is reasonable; and finally, (4) whether the Medicaid expansion provision violates the Spending Clause of the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion.

Chief Justice Roberts, who authored the opinion, began by addressing the question of jurisdiction under the Anti-Tax Injunction Act. The Anti-Tax Injunction Act bars any person from bringing suit to prevent the collection of a tax in any jurisdiction. Taxpayers must either pay the tax first, then sue to get the money back, or must proceed in a special tax court. The Court held that the ACA inclusion of a penalty to be paid by any individual who did not obtain health insurance was, for the purposes of applying the Anti-Tax Injunction Act, intended by Congress to be treated as a “penalty”. This is evidenced by the fact that Congress called the payment a penalty in the Act itself while using the term “tax” in other provisions of the Act. Therefore, the Court decided the case was not precluded by the Anti-Tax Injunction Act, and was within their jurisdiction.

Next, Roberts addressed the individual mandate/Commerce Clause issue, proclaiming that the individual mandate portion of the ACA would not be constitutional under the Commerce Clause. While it ultimately had no bearing on the case, Roberts likely included this resolution as dicta to assuage conservatives who opposed the ACA.

The Court found that, although for the purpose of the Anti-Tax Injunction Act the fee for failing to obtain health insurance was considered a “penalty” and not a “tax,” the individual mandate itself must, for the purpose of the Constitution, be construed as imposing a tax. Although such a mandate would be considered unconstitutional under the Commerce Clause, it is constitutional when viewed as a tax under the Taxing Clause.

Finally, the Court addressed the provision central to this blog post – the Medicaid expansion and Congressional power under the Spending Clause. The Court held that the Medicaid expansion provision was unconstitutional because the provision was unduly coercive. States were threatened with the loss of 100% of their existing Medicaid funding if they declined to comply with the expansion. The case did not, however, provide a bright-line rule for what makes conditional federal funding coercive.

Setting the Stage for Sebelius

Under the Spending Clause of the U.S. Constitution, U.S. Const., Art. I, §8, cl.1, Congress has the power to “…pay the Debts and provide for… the general Welfare of the United States.”. While the Court has construed this power to be quite broad by allowing Congress to condition federal funds on state actions, it has also recognized that “the legitimacy of Congress’s exercise of the spending power ‘thus rests on whether the State voluntarily and knowingly knew whether the Medicaid expansion portion of the Affordable Care Act (ACA) coerced states into accepting the expansion and therefore violated constitutional limits on the congressional spending power. Under the Medicaid expansion proposed in the ACA, states would have to “…expand their Medicaid programs by 2014 to cover all individuals under the age of 65 with incomes below 133 percent of the federal poverty line.” The costs of the additional individuals covered under the new Medicaid expansion would be funded by the federal government through 2016. After 2016, the federal government would continue funding the newly covered individuals but would gradually decrease funding to a minimum of 90 percent of the new costs. Under 42 U.S.C. 1396a(a)(10), the ACA only requires that states cover certain categories of needy individuals including pregnant women, children, needy families, the blind, the elderly, and the disabled. Under the original Medicaid program, states were not required to accept the terms of the “contract.”‘”

In Sebelius, the most understated ruling was about expanding Medicaid to cover childless adults and the amount of flexibility over coverage for the parents of needy families. In short, the number of individuals the states would have to cover would increase substantially under the new Medicaid provisions in the ACA, but the federal government would provide almost all of the funding.

The Spending Clause issue stems from how the ACA plans to enforce the Medicaid expansion. If states do not adopt the Medicaid expansion in the ACA, the Secretary of Health and Human Services (the named defendant in the case, Kathleen Sebelius) can withhold all of the Medicaid funding that goes to that state. Medicaid accounts for over 20 percent of the average State’s total budget and the federal government covers 50 to 83 percent of those costs. The majority in Sebelius held that withholding the entire Medicaid budget from a state was coercive, not “relatively mild encouragement”; and thus, exceeded Congress’ spending power. The majority then took away the “gun to the head” component of the Act and severed the ability to withhold all Medicaid funding, leaving the rest of the Act intact.

Historically, the Court has recognized the Spending Power to be extremely broad. The court first established a limit on Congress’ spending power in United States v. Butler (1936). In Butler, the Court held that the Agriculture Adjustment Act was an unconstitutional exercise of Congress’ taxing and spending power. The Court reasoned that Congress’ taxing and spending power could not be used to indirectly regulate and control areas reserved to the state. However, in Steward Machine Co. v. Davis (1937), the Court upheld a federal payroll tax imposed on employers by the Social Security Act. Under the Social Security Act, employers who paid into a federally certified state unemployment compensation fund would be permitted to credit the amount they pay towards the state program against the federal tax to satisfy up to ninety percent of the payroll tax. The Court held that the tax was not coercive because it did not present a situation of undue influence or infringe on the autonomy of the states. Unfortunately, the Court did not give a definitive answer to what constitutes an “undue influence” in Steward.

In Oklahoma v. United States Civil Service Commission (1947), the Federal Government determined that there had been improprieties on the part of a state official on the highway commission and advised the state to remove him from the state highway commission. Oklahoma elected not to remove him. As a result, the government decided to withhold federal highway funds allocated to Oklahoma in an amount equal to two years salary of the official in question. As articulated by Justice Reed, “[Congress] does have power to fix the terms upon which its money allotments to states shall be disbursed. The Tenth Amendment does not forbid the exercise of this power…the Tenth Amendment has been consistently construed ‘as not depriving the national government of authority to resort to all means for the exercise of a granted power which are appropriate and plainly adapted to the permitted end.’” It was established here that Congress has broad discretion in the means it chooses to use when exercising an enumerated power. That includes conditioning grants of federal funds to the states, even when such conditions have the effect of regulating activities that Congress otherwise lacks the authority to regulate.

More recently, the Court affirmed this decision in South Dakota v. Dole (1987). Similar to Oklahoma, Dole dealt with the Federal Government conditioning highway funds on the behavior of the states. When the drinking age around the country was lowered to 18 there was a substantial rise in alcohol related traffic fatalities. As a result, Congress sought to raise the drinking age to 21 around the country. In order to accomplish this, Congress would deny five percent of federal highway funds to any state that elected not to raise the drinking age to 21. Chief Justice Rehnquist noted that such a condition must be expressed unambiguously at the outset so the states are able to make an informed decision about whether or not to take the funds and accept the conditions. Additionally, Rehnquist noted that conditions on federal funds should be related to the federal program that the funds are conditioned on, or the purposes thereof. Because raising the drinking age was aimed at making the roads and interstate highways safer, the condition on highway funds of raising the drinking age was appropriately related. Furthermore, while Dole was an example of “relatively mild encouragement,” there is a point where encouragement, in the form of conditional funds, does become unduly coercive. However, Chief Justice Rehnquist failed to specify exactly where that line should be drawn. From Dole, it seems the line is somewhere north of five percent of overall federal highway funding. Additionally, Dole establishes that conditions on funds must be stated unambiguously at the outset, and related to the purpose of the funds. Prior to Sebelius, Dole was the controlling test in defining whether a conditioning of federal funding for state implementation could be considered constitutional under the Spending Clause.

Did Sebelius Specify Clear Standards to Guide Congress and the Lower Courts?

The Supreme Court has held that Congress may place conditions on federal grants so long as the conditions are expressly stated, have some relationship to the purpose of the spending program, and are not unduly coercive.

Sebelius is a turning point in the Court’s jurisprudence on the limits of Congressional conditions on federal funds allocated to the states. When Congress passed the ACA, it conditioned all federal Medicaid funding on the state expanding Medicaid coverage to all people that fall within 133% of the federal poverty line. Chief Justice Roberts explained that In this case, the financial ‘inducement’ Congress has chosen is much more than ‘relatively mild encouragement’ – it is a gun to the head. . . Medicaid spending accounts for over twenty percent of the average State’s total budget, with federal funds covering fifty to eighty-three percent of those costs. . . The threatened loss of over ten percent of the State’s overall budget, in contrast, is economic dragooning that leaves the States with no real option but to acquiesce to the Medicaid expansion.”

In Sebelius, Chief Justice Roberts made it clear that conditioning all pre-existing funding for an established federal program that happens to be the single largest, and arguably most important, program in any given state, on cooperation with a new program, constitutes a condition that is unduly coercive. However, where exactly the line is between acceptable encouragement and inappropriate coercion remains unclear. In her dissent, Justice Ginsburg foreshadows future difficulties in determining how and where the line is to be drawn between acceptable encouragement and impermissible compulsion.

Sebelius was a momentous decision in that it was the first time that the Court invalidated conditional federal funding as unduly coercive; however, it does not provide us with much guidance moving forward. One can say that this instance is an example of Congress acting coercively, but the decision gives no clearly discernible standards to determine whether a future condition will be considered acceptable or coercive. All that can be said with certainty is conditioning the 5 percent of highway funds in Dole was acceptable, but conditioning the entirety of Medicaid funding, the largest federal program, was too much and therefore coercive. So, somewhere in-between these two examples lies the elusive line between acceptable encouragement and unconstitutional coercion.

After Sebelius, we are left with the same conditional spending limitations we saw in Dole:

  1. Congressional spending must be designed and reasonably calculated to serve the general welfare. (Art.I Sec. 8 of the Constitution of the United States; expounded upon in Dole)
  2. Conditions on federal grants must be related to the federal interests that the program is intended to serve, or the purposes thereof. (Massachusetts v. United States; Affirmed in Dole)
  3. Conditions on federal grants must be expressed unambiguously, at the outset, with sufficient notice, so that the states are able to make an informed decision about whether or not to take the funds and accept the conditions. (Dole)
  4. Any conditions cannot be unduly coercive. (Dole; Refined slightly in Sebelius)

Problems arise in trying to define what “unduly coercive” means. In Sebelius the court seemed to focus on a few key factors in making that determination. First, the Court found that the Medicaid expansion was essentially a wholly new and independent program that was conditioned on all of the funding for the original, separate, independent, and pre-existing Medicaid program. Second, the states had insufficient notice that they would have to comply with the new conditions or else lose their existing Medicaid funding. Third, the states were “economically dragooned” into compliance. In other words, they had no real choice but to comply.

In addition to the standards above, some additional considerations that may be significant after Sebelius are:

  1. Are the threatened funds for the program (or expansion) that they are being conditioned on?
  2. Are the funds at issue new or pre-existing funds?
  3. Are the funds at issue already tied to an existing program (or existing conditions)?
  4. Could the state reasonably have declined to accept the terms? Or were they essentially “economically dragooned” into acquiescence?

It is perfectly appropriate for Congress to condition the granting of federal funds to a state on particular behavior relating to the purpose of the funds. However, creating new conditions on existing funds is a different story. There is an important distinction between not giving money because a state will not agree to conditions, and taking money that states have already accepted and been using because they have elected not to accept new conditions that were unforeseeable at the outset. When Congress threatens to take away existing funds if new conditions are not met, then those conditions are inherently suspect because there is no fair warning allowing for adequate consideration. Furthermore, because of the unique nature of the Medicaid program, the precedent set here may only apply in situations where Congress conditions funding for an enormous existing program on cooperation with a new program or an expansion, in which case the applicability would be exceedingly limited. So limited, in fact, that this case may present the only occasion where we will ever see a Congressional conditional grant struck down as unduly coercive.

The guidelines we are left with are vague. There are no clear and concise guidelines for discerning when a condition will be coercive in a case that differs from Sebelius. The Court will continue to use the standards accumulated from Dole and Sebelius, but no clear rule has emerged. This could lead to a great deal of confusion and inconsistency in the federal courts. The Supreme Court should have provided more substantively clear guidelines moving forward. There is a substantial policy interest in the law being reliable and predictable. If the law is unpredictable, if we cannot even accurately articulate it, then how can we both adhere to it and justify enforcing it?

Reaction of the Lower Courts and Congress to the Decision

As there is no line designating what amount of funding is coercive and what is not, the federal government is more than likely going to try to stay in an area which it knows is safe from a constitutional challenge. In terms of percentages of a state’s total budget, Funding in Dole accounted for less than one percent of a state’s total budget, and represents the known safe end of the spectrum. If the federal government is going to apply new conditions to existing laws, it is safe to assume that the courts will deem any new requirements not coercive if the funds that may be lost constitute around one percent of the state’s total budget. The amount of Medicaid funding states would have lost represented around 20 percent of their total state budgets. It is reasonable to think that any retractions of federal funding that constitute near twenty percent of a state’s budget will be deemed unduly coercive by the courts. It is also likely that any changes that Congress makes in federal funding to states will be closer to the percentages in Dole than to those in Sebelius.

Additionally, federal programs that are started in the future will most likely contain plenty of explicit language giving notice of possible changes to the program in the future. In Sebelius, the majority opinion considered the Medicaid expansion a new program, rather than a change to the old program. The Chief Justice stated that the expansion of the program “accomplishes a shift in kind, not merely degree.” It was this shift which was used as justification to deem the expansion a brand new program and not simply a change to the existing Medicaid program. It is very likely that any future programs will be carefully worded to include the possibility of expansion or change detailed enough so there is no doubt that the drafters may intend future conditions to be applied to the program. This “constructive notice” when drafting a new program will not automatically prevent a future change in funding from being found coercive, but it could prevent an addition to an existing program from being declared a new program. In this way, the states will be on notice that change is possible when originally opting in to the program.

Some lower courts have already begun to incorporate the precedent set by Sebelius into their decision making. For example, in Mississippi Commission on Environmental Quality v. EPA, Congress used 7407(d)(1)(B) of the Clean Air Act (CAA) to impose highway funding sanctions on a state for noncompliance with the requirement to submit or implement an approved plan to achieve the EPA’s National Ambient Air Quality Standards (NAAQS). Petitioners from the state of Texas and Mississippi argued that the CAA exceeded Congress’ authority under the Spending Clause, at least to the extent that it authorizes the EPA to declare a county to be a nonattainment area (where air quality is lower than the NAAQS) and subsequently receive federal transportation funding sanctions on transportation projects and applicable grants.

The District of Columbia Circuit Court of Appeals used the standards outlined in Sebelius to determine whether 7407(d)(1)(B) of the CAA exceeded Congress’ power under the Spending Clause. The circuit court held that because Texas did not risk losing a percentage of its federal funding for either the program at issue or of its overall budget near the percentages found to be detrimental in Sebelius, Congress did not exceed its constitutional spending power.

First, the court notes that unlike the situation in Sebelius, a noncompliant state would not risk losing all federal funding for an existing program. In Sebelius, the Court holds that Congress is not free to penalize states that do not participate in the Medicaid expansion by taking away their existing Medicaid funding. This would not give states a genuine choice whether to accept the Medicaid expansion and would thus be coercive. In contrast, the CAA provision at the center of the claim in Mississippi Commission only prohibits funding for transportation projects or grants applicable to nonattainment areas rather than to all federal transportation funding. Because States would continue receiving transportation funding, they continue to have a meaningful choice regarding whether they wish to comply with the CAA provision.

Second, the court noted that had all federal highway and transit funds been withheld from the state of Texas due the CAA provision, it would only amount to less than four percent of the State’s budget. The court notes that this is significantly less than the percentage of the State’s funding to be withheld in Sebelius, and thus would not be coercive. In Sebelius, Roberts stated that the loss of near twenty percent of the State’s overall budget for noncompliance with the Medicaid expansion was akin to “economic dragooning that leaves the States with no real option but to acquiesce in the Medicaid expansion.” In the present case, the Court reasoned that because the funds to be withheld amounted to a smaller percentage of state funding than those in Sebelius, this could not have been coercive to the state petitioners.

Mississippi Commission is therefore evidence of the way in which lower courts have used Sebelius as the standard for state coercion in determining when Congress has exceeded its spending power. However, lower courts have been more likely to distinguish cases from Sebelius than they are to follow its decision.

Speculating on the Significance of Sebelius on the Congressional Spending Power

Arguably the most significant aspect of the Sebelius ruling is that it was the first time the Supreme Court struck down conditional federal funding for the states as coercive. Since Sebelius, many commentators have speculated about what affect the decision will have on different types of law. According to Erin Ryan, the Sebelius decision creates three ways that cooperative state-federal programs can exceed Congress’ spending power: “(1) the new offer changes the terms of an entrenched partnership, (2) the new offer conditions existing funds on compliance with indirectly related terms, and (3) the size of the grant at issue is so large that the state could not forgo it without excessive economic harm.” Ryan further concluded that though the Clean Air Act would likely not be affected by the decision, the threat of litigation itself can change the behavior of agencies implementing the Act. For example, when two cases were decided clouding the scope of the Environmental Protection Agency’s jurisdiction over wetlands’ regulation, nearly 1,500 investigations were dropped because of the regulatory uncertainty. Lastly, Ryan predicted that the costs for agencies to find the legal limits will increase because the states have a better chance of prevailing in court after Sebelius. The costlier it is for agencies, the more negotiating power the states will have.

According to Ellen K. Howard, while Sebelius might not have a huge impact on Congress’ spending power, it now gives states the opportunity to challenge federal conditions on funding. Specifically, Howard analyzes the impact of the Sebelius decision on the No Child Left Behind Act, the Clean Air Act, and Meghan’s Law. Howard breaks down the coerciveness of each Act into whether a condition was used as leverage to force states into implementing an independent new program (independence), as well as the amount of money at stake and amount of reliance involved (significance). Howard ultimately concludes that while the decision will likely not affect the three Acts, it does give states the option to challenge the Acts in court.

The Sebelius decision might also prove to be a very unpredictable and risky precedent due to its displacement of enumerated Congressional authority. The decision effectively supports a type of judicial review that forces Congress to justify their use of spending power in court every time a prospective opponent wishes to challenge a “take it or leave the funding” program. The decision could very well cripple judicial deference for future spending power cases of this type. Overall, the arbitrary line-drawing from the plurality may alter Congress’s traditional approach by now subjecting it to a myriad of coercion arguments from states whenever it suggests that it will cease spending for projects that were formerly funded by Congress.

In Mayhew v. Burwell, 2014, the Court recognized the difficulty it faces under the Sebelius coercion analysis, stating that “an attempt to determine when inducement to comply with a condition on the use of federal funds crosses the line into “compulsion” would plunge the law into “endless difficulties”…the courts are not suited to evaluating whether the states are faced…with an offer they cannot refuse or merely a hard choice.” Under the pressure of the Sebelius opinion, these “endless difficulties” dramatically increase transaction costs for Congressional drafting of spending power legislation and plague the analysis of subsequent judicial interpretation in the court.

Regarding the arbitrary nature of the coercive analysis in Sebelius, the plurality effectively provides two separate points of analysis that paint a picture for how Sebelius will influence future Congressional spending power legislation. According to Elizabeth Weeks Leonard, Nicole Huberfield, and Kevin Outterson, these two standards are “a quantitative analysis focused on financial figures and the more qualitative concept of political accountability.”

While the traditional coercive analysis approach was open to determining whether Congress was offering the states too much money, or whether they were threatening to take away too much money, the Sebelius case has solidified that only the latter is relevant. Congress must now partake in an added financial analysis when drafting spending power legislation, taking into consideration data such as the percentage of a state’s budget that is dedicated to the program, the federal government’s expenditures on the program, and the legislative/funding efforts historically taken by the state in order to pursue the program. Regardless of these seemingly clear points of analysis, the Sebelius court failed to explain which of these inquiries ultimately determines the constitutionality of a program, simply stating that “If a state has no genuine choice in the matter, it is overly coercive.” Without a specific limit defining an acceptable amount of withheld funds, this will undoubtedly confuse the courts and Congress attempting to determine the boundaries of Congress’s spending power.

The second influential aspect of the Sebelius coercion opinion determines of the effect of coercion on properly allocating political accountability. For example, Justice Roberts wrote, “Permitting the Federal Government to force the States to implement a federal program would threaten the political accountability key to our federal system.” He also stated that “When states have a real choice about whether to accept federal conditional funding, state officials may fairly be held politically accountable for their decisions…but when there is no choice, the federal government accomplishes its policy objectives without being held politically accountable.” Although it may be important for voters to understand who is responsible for favored and unfavored policy decisions, this determination, that lack of accountability is a result of forced federal implementation, provides the Court with an unclear rule for why and when coercion should be avoided. This very same issue was discussed in New York v. United States, 1992, where Justice O’Connor explains why the “take title” provision of Congress’s Radioactive Waste Policy Act was unconstitutionally implemented. O’Connor prophetically stated that “Even when the States are not forced to absorb the costs of implementing a federal program, they are still put in the position of taking the blame for its burdensomeness and for its defects.” Regarding “take it or leave the funding” programs that aren’t as prominent as health care overhaul and are more hidden from public visibility, this accountability examination lacks threshold standards declaring when a federally coerced program unduly imposes political accountability on the state and not on the government themselves, likely to cause future confusion among courts and Congressional drafters alike.

While many have speculated how the Sebelius ruling will influence federal-state relations and Congress’ spending power, this influence has yet to be seen. Not only has the Sebelius opinion altered the authority of Congress to expand Medicaid, but it has potentially created a complicated spending power coercion analysis that will hamper Congress’s future ability to modify and expand all “take it or leave the funding” based legislation. As of now, what is certain is that the Sebelius decision is the first time the Supreme Court has struck down part of a Congressional Act as being unduly coercive; thus, it introduces a new limit on Congress’ spending power by giving states political and legal leverage against legislative acts. Although this leverage has the potential to cause enormous waves in the federal-state relationship, there likely is not a portion of federal funding to a state’s budget large enough to create the level of coerciveness that Medicaid creates.

Comparative Study: Can Supreme Court Reaction to Medicaid Expansion in Sebelius Be Expected to Extend to Federal Education Funding?

Team 5 blog post image 2In answering the question of whether the Supreme Court’s ruling in Sebelius will have an effect on future federally funded programs that are voluntarily administered by the states, an informative comparison exists between the ACA and the Every Student Succeeds Act (ESSA), the most recent reauthorization of the Elementary and Secondary Education Act (ESEA). After Medicaid, federal education funding is the largest use of federal money by the states, making it the most logical area to which the decision in Sebelius might extend.

Like Medicaid, the Elementary and Secondary Education Act (ESEA) is an example of a program creating federal-state cooperation for the purpose of serving the Nation’s general welfare. ESEA was passed in 1965 by President Lyndon B. Johnson as part of his “war on poverty.” Title I funding under the Act provided federal grants to school districts serving low-income students to help with the costs of books, funding for special education, college scholarships, and to generally improve the quality of elementary and secondary education in these low-income areas. This Act has been reauthorized under various names over the years, including as the No Child Left Behind Act (NCLB) in 2002, and most recently as Every Student Succeeds Act (ESSA) in 2015.

The reauthorization of ESEA as NCLB required increased accountability from schools in order to maintain federal funding. NCLB mandated annual standardized tests to measure student performance, and schools were held responsible for publishing annual report cards with information on student demographics and performance. Schools receiving Title I funding were subject to punitive measures if they failed to make “Adequate Yearly Progress,” as well as if states did not have an approved assessment system. These punitive measures included restrictions on how schools could spend their federally granted Title I money.

Like the expansion of Medicaid under the ACA, these stringent accountability measures under NCLB have been challenged. There was widespread complaint among states that NCLB provided inadequate funding given the strict requirements it mandated. Two lawsuits arose challenging NCLB as an unfunded mandate, and one, City of Pontiac v. Sec’y of U.S. Dep’t of Educ., included a complaint under the Spending Clause that the Act was coercive. Ultimately, these suits were unsuccessful. These suits took place prior to the Sebelius decision, and so the Court’s reasoning in Sebelius is not cited as precedent. However, NCLB was reauthorized under President Obama in 2015 as the Every Student Succeeds Act, and the reauthorization has yet to be challenged in court.

Using three factors identified by Eloise Pasachoff in her American University Law Review article, the recent ESEA reauthorizations are compared to the Medicaid expansion under the ACA, which was found unconstitutional in Sebelius. The first question is whether the changes to ESEA in the reauthorization represent old funding conditioned on compliance with a new program. In Sebelius, the Court deemed Medicaid expansion to be the creation of a new and independent program that conditioned existing federal funds on state compliance in the new program. Modifications to Medicaid in years prior to the ACA were considered conditions of the use of federal funds, but were not a new and independent program. It is unlikely a court would view NCLB or the more recent ESSA as new independent programs, as these are simply the newest iterations of ESEA, which has existed and enjoyed reauthorization since 1965. Even if NCLB or ESSA were considered new and independent programs, this fact alone would not establish coercion on the part of the federal government. NCLB and ESSA would then need to pass the next factor established by Sebelius, which requires that notice of potential new mandates be part of the states’ original understanding of the program.

Sebelius indicates that states must be given notice of the possibility of a new program, with new conditions, being tied to the existing program before agreeing to take federal funding for the initial program. If one views NCLB and ESSA as wholly new programs only tied to the funding of ESEA, there would have to have been notice given to states in 1965, when ESEA was first authorized, of the possibility that additional requirements for receipt of Title I funding might be made through new and independent programs in the future. It is unlikely such notice was given to the states when President Johnson first enacted ESEA. If no notice was given, we turn to the final factor used by the Court in Sebelius – economic dragooning.

Economic dragooning, or coercion through threat of funding loss, is not defined with a bright line rule by Sebelius. In Dole, refusal to participate in the federal program meant a loss of less than half of one percent of the state’s budget, an amount small enough numerically and proportionally not to be considered economic dragooning. In Sebelius, states would lose 100% of Medicaid funds, which represents at least ten percent of state budgets, and the ultimate finding of unconstitutional coercion indicates that threatening ten percent of a state budget constitutes economic dragooning. Title I funds under ESEA, and subsequently NCLB and ESSA, constitute less than one percent of state budgets. Therefore, Title I education funding is closer in terms of proportionality of state budgets to Dole than it is to Sebelius, meaning it would not likely satisfy the economic dragooning requirement. Furthermore, unlike Medicaid, the right to education is promised in most state constitutions regardless of federal funding. ESEA and its reauthorizations were never meant to fully fund education in states – they were meant only as a supplement to target low-income populations.

This attempt to compare Medicaid to federal education funding supports the conclusion that the restraints on conditional federal grants established in Sebelius are unlikely to be extended to any other federally funded programs that are voluntarily administered by the states. Federal education money distributed to states under Title I of the ESEA and its reauthorizations represents the next-largest use of federal money by the states after Medicaid. Medicaid represented approximately ten percent of state budgets and the Court found the threat of revoking that funding to be coercive. In Dole, failure to voluntarily comply with the federal law resulted in a loss of five percent of federal highway funds, funding that represented less than half of one percent of the state budget, and the Court found this amount was not coercive. Federal education funding under ESEA and its reauthorizations lies between these two: it constitutes less than one percent of total state budgets, meaning its loss has greater impact than the loss of funds in the Dole case, but considerably less impact than the loss of Medicaid funds. Although it is possible that courts will find this less-than-one-percent loss of funding for states that opt out of NCLB or ESSA coercive and unconstitutional, the fact that the percentage of funding involved is much closer to that of Dole than to that of Sebelius suggests ESEA and its reauthorizations will not be found coercive if challenged. One can further extrapolate that because federal education funding represents the next largest use of federal money by the states after Medicaid, if the Sebelius finding does not extend to federal education funding programs, it will not extend to any other federally funded program that is voluntarily administered by the states.

Sebelius: Serious Shift or Anomalous Blip?

Sebelius will likely prove to be an anomalous blip in the evolving case law that has helped to define congressional spending power, because it has not and likely will not affect other large federally funded programs, such as ESSA. Furthermore, lower courts have more readily applied Dole standards to cases and distinguished them from Sebelius, rather than cite Sebelius as binding precedent. There are no other federally funded programs that represent a comparable portion of a state’s total budget to be considered as coercive as the Medicaid expansion. However, the Court’s decision has opened the door for states to challenge conditional federal funding, with a chance that the states will prevail. Likewise, the Court’s reluctance to establish clear standards about what constitutes “unduly coercive” will leave lower courts to define standards for themselves, at least until another Spending Clause case reaches the Supreme Court. For now, no other federally funded program represents a large enough portion of a state’s total budget to make congressional conditioning of its receipt coercive. Yet, the slight possibility remains that Sebelius could eventually result in a serious shift that disrupts Congress’ spending power.

Sebelius and the Spending Shift: What Impact will the Most Unassuming Part of National Federation of Independent Business v. Sebelius have on Congress’ Spending Power?