Congress's spending power comes from the Taxing and Spending Clause of the Constitution, which gives Congress the power to spend federal funds to "provide for the common Defence and general Welfare of the United States."¹ The Supreme Court has interpreted this authority to include the power to place conditions on federal funding. The conditions need not be limited to how the funds are spent. Congress can, and often does, use its spending power to incentivize states to adopt Congress's preferred policies or practices. The focus of this report is the constitutional limit of this authority.

This report begins with a discussion of the broad reach of the Spending Clause, whose only express, textual limitation is the requirement that federal spending be in pursuit of the national defense or general welfare. Beyond that, there are four general limits on Congress's authority to condition federal funding, discussed in the second part of this report. Those limits are the requirements of: (1) clear notice; (2) relatedness; (3) anti-coercion; and (4) consistency with any independent constitutional bar. The third part of this report examines whether the four general limits on funding conditions apply equally to conditions on state and private recipients. The fourth part of the report discusses limitations on the executive branch's ability to impose federal funding conditions, including the separation-of-powers principle and the Administrative Procedure Act (APA).

Broad Spending Power for the General Welfare

In the earliest Spending Clause cases, the Supreme Court considered both whether Congress's spending power was limited to matters on which Congress had the express constitutional authority to legislate and who determines the needs of the "general Welfare."² As explained below, both of these questions were resolved in favor of Congress's broad spending authority. In addition, the Court has long affirmed Congress's authority to place conditions on federal funding, reasoning that the Necessary and Proper Clause allows Congress to ensure that funds are used to advance federal interests.

Not Limited to Enumerated Powers

Because the Constitution provides Congress with a limited set of enumerated powers,³ an early debate emerged among the Framers over whether the Constitution limits Congress's spending power to areas in which Congress could legislate directly, such as matters of interstate commerce.⁴ James Madison believed the Spending Clause's reference to "general Welfare" in the first clause of article I, section 8 "amounted to no more than a reference to the other powers enumerated in the subsequent clauses of the same section."⁵ In other words, Madison maintained that Congress could only exercise its spending power to carry out other powers that the Constitution expressly granted to Congress, such as the power to regulate interstate and foreign commerce or to establish post offices.⁶ In contrast, Alexander Hamilton "maintained the clause confers a power separate and distinct from those later enumerated" and that "Congress consequently has a substantive power to tax and to appropriate, limited only by the requirement that it shall be exercised to provide for the general welfare of the United States."⁷

In the 1936 case of United States v. Butler, the Supreme Court settled on "the Hamiltonian position."⁸ The Court held that while "the power to tax is not unlimited, its confines are set in the clause which confers it, and not in those of § 8 which bestow and define the legislative powers of the Congress."⁹ Thus, "the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution."¹⁰ The Butler Court nevertheless cautioned that this "broader construction leaves the power to spend subject to limitations," including that federal spending be in pursuit of the "common defence" or "general welfare."¹¹

Deference to Congress's Judgment on General Welfare Needs

Courts have the ultimate authority to determine whether an appropriation is "in aid of the 'general welfare'" within the meaning of the Spending Clause in light of their constitutional duty to "say what the law is."¹² However, the Supreme Court has emphasized that in deciding "whether a particular expenditure is intended to serve general public purposes, courts should defer substantially" to Congress's judgment.¹³

Helvering v. Davis, decided a year after Butler, illustrated this deference to Congress's judgment.¹⁴ There, the Court upheld the Social Security Act's provision of "old age benefits," which primarily took the form of a monthly pension payable to a retiree 65 years of age or older, funded by mandatory, wage-based contributions from employees and employers.¹⁵ The Court rejected a Tenth Amendment challenge to this statutory scheme because it came within Congress's power to spend for the general welfare.¹⁶ Courts should not second-guess Congress's decision, the Supreme Court stated, unless its "choice is clearly wrong, a display of arbitrary power, not an exercise of judgment," such that there is "no reasonable possibility" that the "legislation fall[s] within the wide range of discretion permitted to the Congress."¹⁷ The Court also observed that the general welfare is not a "static" concept because "[w]hat is critical or urgent changes with the times."¹⁸

The Court then cited two reasons to defer to Congress's judgment with respect to the Social Security Act. First, the Court concluded that the statute was not "a display of arbitrary power": "Congress did not improvise a judgment when it found that the award of old age benefits would be conducive to the general welfare."¹⁹ Instead, Congress had held hearings and made legislative findings showing that the "number of persons" aged 65 and older in the United States who are "unable to take care of themselves [was] growing at a threatening pace."²⁰ Second, the Court saw the "problem" as "plainly national in area and dimensions," and beyond the capacity of individual states to handle "effectively."²¹ The Court reiterated its limited role in evaluating whether spending legislation comports with the Spending Clause: "Whether wisdom or unwisdom resides in [this] scheme of benefits ... is not for us to say. . . . Our concern here, as often, is with power, not with wisdom."²²

Thus, while the Spending Clause's reference to "general Welfare" is technically a limit on Congress's spending authority, the Supreme Court has interpreted the concept broadly and with deference to Congress's judgment.²³

Conditions Permitted

Complementing its discretion to spend funds for a variety of purposes, Congress has "wide latitude to attach conditions to the receipt of federal assistance in order to further its policy objectives."²⁴ This latitude is reflected in the range of spending conditions that Congress has enacted over time. For example:

• Congress has required universities receiving federal funds to provide military recruiters with the same level of campus access as other recruiters;²⁵
• Congress has made it a crime to bribe officials of state and local entities that receive a certain level of federal funding;²⁶
• Congress has required libraries to install filtering software in order to receive federal funds to expand internet access for patrons;²⁷
• Congress has prescribed milestones for the disposal of radioactive waste in exchange for money generated by federally authorized state surcharges on that waste;²⁸
• Congress has incentivized states to adopt a minimum drinking age of 21 by withholding a percentage of federal highway funds;²⁹ and
• Congress has required state and local officials working on federally funded activities to comply with the Hatch Act's limitations on government officials' participation in political campaign activities.³⁰

The Supreme Court has upheld each of these laws when challenged on Spending Clause or other constitutional grounds.³¹

Congress's authority to condition the receipt of federal funds on compliance with certain mandates stems in part from the Necessary and Proper Clause, which supplements all of Congress's legislative powers.³² The Necessary and Proper Clause states that "Congress shall have Power . . . To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof."³³ This Clause, the Court has held, authorizes Congress to attach conditions to federal funds to ensure "that taxpayer dollars appropriated under that power are in fact spent for the general welfare."³⁴

In the seminal case McCulloch v. Maryland, the Supreme Court adopted a permissive standard for assessing whether a regulation is "necessary and proper" to carry out a federal power: "Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional."³⁵ While individual Justices have at times questioned whether a spending condition was "necessary and proper,"³⁶ the Supreme Court has never explicitly invalidated a spending condition for failure to meet that standard.³⁷ However, the Court has recognized other constitutional provisions and principles that limit Congress's authority to condition federal spending, which are discussed in the next section.

General Constitutional Limits on Federal Funding Conditions

The Supreme Court has identified four constitutional limits on Congress's power to attach conditions to federal funding.³⁸ First, Congress must provide clear notice of the funding condition. Second, the condition must relate to the program or funding stream it restricts. Third, the condition may not be unduly coercive. And fourth, the condition may not induce the recipient to violate an independent constitutional provision, such as the First Amendment's Free Speech or Establishment Clauses. These four constraints on Congress's spending power generally stem from constitutional provisions outside of the Spending Clause itself, such as the Tenth Amendment, which limits Congress's legislative power vis-à-vis the states, and other principles of state sovereignty reflected in the Constitution's text and structure.³⁹ Because of the centrality of federalism concerns in the Supreme Court's Spending Clause cases, the discussion below frequently refers to Congress's obligations when imposing conditions on states in exchange for federal funding. However, as discussed later in the report, some of these restrictions may also apply to funding conditions imposed on private entities.⁴⁰

Clear Notice

The clear notice principle requires conditions on federal funding to be unambiguous and prospective so that states have an opportunity to accept or reject the terms of the funding arrangement.⁴¹

Pennhurst's Clear Notice Standard

The seminal case on the clear notice standard is Pennhurst State School and Hospital v. Halderman.⁴² In Pennhurst, the Supreme Court considered a statute in which Congress provided funding for states to provide services to individuals with developmental disabilities.⁴³ As part of the plan, states had to make "satisfactory" "assurances" that they would "protect[]" the "rights" of persons with developmental disabilities "consistent with" the findings section of the act.⁴⁴ The statute also required states to take certain other actions "as a condition" of receiving assistance.⁴⁵ The parties disagreed, however, on the scope of the conditions. A findings section in the statute provided that persons with developmental disabilities "have a right to appropriate treatment" and that such treatment "should be provided in the setting that is least restrictive of the person's personal liberty."⁴⁶ The case presented the question whether these findings stated a condition on the federal funding.

In the course of considering this question, the Court examined "the possible sources of Congress'[s] power to legislate," including the Spending Clause.⁴⁷ The Court likened spending laws with conditions to a contract:

[L]egislation enacted pursuant to the spending power is much in the nature of a contract: in return for federal funds, the States agree to comply with federally imposed conditions. The legitimacy of Congress' power to legislate under the spending power thus rests on whether the State voluntarily and knowingly accepts the terms of the 'contract.' There can, of course, be no knowing acceptance if a State is unaware of the conditions or is unable to ascertain what is expected of it.⁴⁸

The Court held that "if Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously."⁴⁹ Applying this rule, the Court concluded that "Congress fell well short of providing clear notice to the States" that "by accepting funds under the Act, [they] would indeed be obligated to comply with [the findings section]."⁵⁰ Viewing this section in the context of the statute as a whole, the Court reasoned that the findings reflected "general statements of federal policy, not newly created legal duties."⁵¹ By contrast, the Court observed, in other parts of the statute, Congress used "clear terms" like "condition" when it intended to impose a requirement on a state in exchange for federal funding.⁵² The Court further noted that the statute lacked the typical method of enforcing a funding condition because it did not authorize the federal government to withhold funds for noncompliance with the findings section.⁵³ Accordingly, the Court concluded that the statute did not require states to provide for "appropriate treatment" in the "least restrictive" environment in exchange for federal funds.⁵⁴

The Pennhurst Court framed the clear notice principle as a "rule of statutory construction"—that is, in interpreting funding legislation, a reader should look for a clear expression of Congress's intent to impose a condition before concluding that the statute imposes one.⁵⁵ Nevertheless, the Court suggested that the "appropriate treatment" provision would violate the Constitution if it were a condition because it provided inadequate notice to the states of their obligations in accepting federal funds.⁵⁶ It is evident from the Court's Pennhurst discussion and the application of the clear notice principle in subsequent cases that clear notice is a constitutional requirement, not just an interpretive aid in construing statutory language.⁵⁷

Private Remedies for Violations of Funding Conditions

The clear notice requirement applies not only to the condition itself, but also to the remedy that a law imposes for a state's violation of that condition.⁵⁸ As the Pennhurst Court observed, "the typical remedy for state noncompliance with federally imposed conditions" is "action by the Federal Government to terminate funds to the State."⁵⁹ Some litigants, however, have argued that funding conditions may state generally applicable legal requirements that may be enforced in other ways, such as by private parties in court.

Supreme Court decisions applying the clear notice principle in the context of litigation by private parties have generally fallen into three categories. The first category involves cases where the plaintiff alleges that violation of a funding condition gives rise to a private cause of action—that is, a right to sue the violator in court to recover monetary damages or obtain injunctive relief.⁶⁰ The second category involves cases where parties dispute the scope of liability or remedies under an available private right of action. The third category involves cases where the plaintiff argues that a state has waived its sovereign immunity from suit.

Private Right of Action

Congress may create a private right of action against violators of a funding condition through express language in the authorizing legislation.⁶¹ However, in the absence of express text, a court will not readily infer the existence of a private right of action. Instead, a court will ask, first, whether Congress intended to create a private right, and second, whether Congress intended to create a private remedy.⁶² Pennhurst's clear notice standard guides both of these inquiries when the statute at issue is spending legislation.⁶³

For example, a federal statute, the Family Educational Rights and Privacy Act of 1974 (FERPA), provided that "[n]o funds shall be made available under any applicable program to any educational agency or institution which has a policy or practice of permitting the release of education records . . . of students without the written consent of their parents."⁶⁴ In Gonzaga University v. Doe, the Supreme Court considered whether this requirement, stated as a funding condition, would allow a student to sue a private university for the unauthorized release of his education records.⁶⁵ After overhearing allegations that the plaintiff had sexually assaulted another student, a university employee disclosed the allegations, without the plaintiff's knowledge, to state officials considering his application for a teaching certification.⁶⁶ The plaintiff sued the university for a violation of FERPA pursuant to "Section 1983"—a federal law that allows private individuals to sue persons who, acting "under color of" law, deprived them of their constitutional rights.⁶⁷

Citing Pennhurst, the Court held that "unless Congress 'speaks with a clear voice,' and manifests an 'unambiguous' intent to confer individual rights, federal funding provisions provide no basis for private enforcement by § 1983."⁶⁸ The Court acknowledged that "[p]laintiffs suing under § 1983 do not have the burden of showing an intent to create a private remedy because § 1983 generally supplies a remedy for the vindication of rights secured by federal statutes."⁶⁹ However, such plaintiffs still have to demonstrate the existence of a private, federal right.⁷⁰ In the Court's view, there was "no question that FERPA's nondisclosure provisions fail[ed] to confer enforceable rights."⁷¹ For one, the Court reasoned, the provisions "lack[ed] the sort of 'rights-creating' language" present in other laws, such as Titles VI and IX,⁷² which state that "no person shall be subjected to discrimination."⁷³ Instead, the Court observed, "FERPA's provisions speak only to the Secretary of Education, directing that 'no funds shall be made available'" to an institution with a noncompliant policy, and thus lacked a focus on individual students' interests.⁷⁴ Moreover, the Court reasoned, the plaintiff was not without recourse because FERPA empowered the Secretary to investigate violations of the act and terminate funds under certain circumstances.⁷⁵

Scope of Liability or Remedy

Even if a spending condition establishes a privately enforceable right, a court may still need to determine the scope of liability or the available remedies if that right is violated. In particular, a court may need to decide whether the law allows for compensatory damages, punitive damages, or certain costs or fees.⁷⁶ The Supreme Court has held that funding recipients' potential liability, like the condition itself, "must be set out 'unambiguously.'"⁷⁷ The reviewing court must "view the [statute] from the perspective of a state official who is engaged in the process of deciding whether the State should accept [the statute's] funds and the obligations that go with those funds."⁷⁸ The relevant consideration is "whether such a state official would clearly understand" that the state might incur the type of liability in question in the event of a statutory violation.⁷⁹ Increasingly, the Supreme Court has required the text of the statute to supply the requisite notice, particularly for laws enacted after Pennhurst.

In Barnes v. Gorman, the Court considered whether a plaintiff could recover punitive damages for discrimination in violation of certain provisions of the Americans with Disabilities Act of 1990 (ADA) and the Rehabilitation Act of 1973.⁸⁰ Both sets of provisions adopted the remedial scheme of Title VI of the Civil Rights Act of 1964, under which, per a prior Supreme Court decision, "a federal court may order any appropriate relief."⁸¹ Until Barnes, however, the Court had not elaborated on the meaning of "appropriate relief."⁸²

The Barnes Court reasoned that given the "contractual nature" of spending legislation, "a remedy is 'appropriate relief' only if the funding recipient is on notice that, by accepting federal funding, it exposes itself to liability of that nature."⁸³ The Court stated that a "funding recipient is generally on notice that it is subject not only to those remedies explicitly provided in the relevant legislation, but also to those remedies traditionally available in suits for breach of contract," which include compensatory damages and injunctive relief, but "generally not" punitive damages.⁸⁴ Accordingly, the Court held that punitive damages were not available for violations of the nondiscrimination provisions in the ADA and the Rehabilitation Act.⁸⁵

Three years later, in Jackson v. Birmingham Board of Education, the Supreme Court again suggested that "notice" to a funding recipient of its potential liability for violating a funding condition need not come from the statute alone.⁸⁶ The Jackson Court listed three reasons why states were on notice that they could be liable in a private Title IX action for intentional retaliation.⁸⁷ First, the Court noted that its decisions since the late 1970s apprised states that they could be liable for "diverse forms of intentional sex discrimination" in violation of Title IX.⁸⁸ Second, "regulations implementing Title IX clearly prohibit[ed] retaliation and ha[d] been on the books for nearly 30 years."⁸⁹ Third, appellate courts had ruled that Title IX covered retaliation at the time of the conduct in question in the case.⁹⁰ In these circumstances, the Court concluded, the school board "could not have realistically supposed that . . . it remained free to retaliate against those who reported sex discrimination."⁹¹

Although the Barnes and Jackson Courts recognized remedies not "explicitly provided in the relevant legislation,"⁹² both cases involved statutes whose remedial schemes were adopted before Pennhurst. In contrast, the Supreme Court demanded more textual clarity in Arlington Central School District Board of Education v. Murphy—a case involving a post-Pennhurst statute that expressly provided for a private right of action.⁹³ In Arlington Central, the Court held that the Individuals with Disabilities Education Act (IDEA) did not provide "clear notice" to the states that, by accepting funds under IDEA, they might be liable for the prevailing parties' expert fees in litigation brought under IDEA.⁹⁴ The statute authorized the award of "reasonable attorneys' fees as part of the costs" to a prevailing party.⁹⁵ The Court reasoned that neither "attorneys' fees" nor "costs" clearly encompassed expert fees.⁹⁶

While the Court cited its prior opinions on the meaning of "costs" as strong support for its interpretation,⁹⁷ it concluded that a contrary statement of congressional intent in the legislative record did not supply the requisite notice to funding recipients. Specifically, the conference committee report for IDEA stated: "The conferees intend that the term 'attorneys' fees as part of the costs' include reasonable expenses and fees of expert witnesses and the reasonable costs of any test or evaluation which is found to be necessary for the preparation of the ... case."⁹⁸ "Whatever weight this legislative history would merit in another context," the Court reasoned, "it is not sufficient here."⁹⁹ The Court stated that "[i]n a Spending Clause case, the key is not what a majority of the Members of both Houses intend but what the States are clearly told regarding the conditions that go along with the acceptance of those funds."¹⁰⁰

Thus, the Court today is likely to demand explicit statutory language to indicate that Congress has authorized a particular remedy beyond agency action to terminate funding. Such questions, however, will be decided on a case-by-case basis under the principles discussed above: for example, at least one lower federal court has cited judicial decisions as putting funding recipients "on notice" of their obligations under an express, post-Pennhurst condition.¹⁰¹

Waiver of State Sovereign Immunity

The Supreme Court has held that under the Constitution, states retain sovereign immunity—that is, immunity from lawsuits filed by private citizens.¹⁰² The Eleventh Amendment is "one particular exemplification of" this principle,¹⁰³ providing that courts may not entertain federal actions "commenced or prosecuted against one of the United States" by private citizens.¹⁰⁴ Although individual states are free to waive their sovereign immunity and consent to certain types of lawsuits, Congress can only abrogate—or remove—a state's sovereign immunity under limited circumstances.¹⁰⁵

Even if Congress cannot waive the states' sovereign immunity for a particular purpose, it may use its spending power to incentivize states to waive their own immunity. Specifically, Congress may condition the receipt of federal funds on a state's consent to be sued in certain types of actions.¹⁰⁶ Effectuating such a waiver requires a "clear statement from Congress and notice to the States" that, by accepting federal funds, the states agree to give up their immunity from suits by private citizens.¹⁰⁷ It is well settled that "the mere receipt of federal funds cannot establish that a State has consented to suit in federal court."¹⁰⁸ Nor does a state "necessarily consent[] to suit in federal court by participating in programs funded under the statute."¹⁰⁹ Instead, the Supreme Court has held that a "State's consent to suit must be 'unequivocally expressed' in the text of the relevant statute"—consistent with Pennhurst's clear notice standard.¹¹⁰

The Supreme Court applied this rule in the 2011 case Sossamon v. Texas. In that case, the Court considered whether an inmate at a state correctional facility could sue the State of Texas, a federal funding recipient, for money damages for alleged violations of the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA).¹¹¹ RLUIPA grants institutionalized persons at federally funded facilities a right of action against state entities for actions that "substantial[ly] burden" their religious exercise.¹¹² An individual that prevails on a RLUIPA claim can "obtain appropriate relief against a government."¹¹³

The Supreme Court concluded that this language failed to show that Texas waived its immunity from private suits for damages.¹¹⁴ Specifically, it held that "RLUIPA's authorization of 'appropriate relief against a government,' is not the unequivocal expression of state consent that our precedents require."¹¹⁵ The Court described the language as "open-ended and ambiguous about what types of relief it includes."¹¹⁶ In light of this ambiguity, the Court reasoned, it must apply the background rule that waivers of sovereign immunity are construed narrowly, in favor of the sovereign, and thus did not allow actions for damages.¹¹⁷

Although a state's waiver of sovereign immunity must be clear from the text of the spending law (rather than its structure or purpose), that does not necessarily mean that Congress must employ "magic words" to effect such a waiver.¹¹⁸ At least two federal appellate courts have held that Congress need not use words like "condition" or "waiver" to validly effect a waiver of state sovereign immunity in spending legislation.¹¹⁹ In 1999, the U.S. Court of Appeals for the Fourth Circuit held that a state university consented to waive its sovereign immunity in Title IX suits as a condition of receiving federal education funds under a 1986 statute.¹²⁰ The 1986 law provided that a "State shall not be immune under the Eleventh Amendment of the Constitution ... from suit in Federal court for a violation of" certain federal statutes, including Title IX.¹²¹ The Fifth Circuit, sitting en banc (i.e., as a full panel), reached a similar conclusion in 2005 when interpreting the interplay between the 1986 provision and another law that it referenced: section 504 of the Rehabilitation Act.¹²² Importantly, however, both appellate cases involved laws that Congress explicitly listed in the 1986 provision, putting states on notice that they could be sued under those laws if they accepted federal funds. In contrast, the 1986 provision did not expressly list RLUIPA, and the Supreme Court in Sossamon therefore rejected the plaintiff's argument that the 1986 law had put Texas "on notice that it could be sued for damages under RLUIPA."¹²³

Pennhurst's clear notice standard thus serves as the test for evaluating whether a spending law adequately apprises a state of requirements tied to that funding as well as the state's potential legal exposure for violations of those conditions. Under that standard, Congress should state expressly whether it intends for a funding condition also to create a private right of action, and such a clear and unequivocal statement is even more critical if Congress intends to authorize private suits against state governments.

Relatedness

A second consideration that a court would likely include in determining the constitutionality of a spending condition is whether the condition is related to the underlying purpose of the spending.

The Supreme Court has suggested that "federal grants might be illegitimate if they are unrelated 'to the federal interest in particular national projects or programs,'" but has set a relatively low bar for the relationship between the condition and the federal interest.¹²⁴ In South Dakota v. Dole, the Court held that Congress permissibly conditioned certain federal highway funds on states' adoption of a national minimum drinking age because the condition was "directly related" to the federal government's interest in highway safety.¹²⁵ The Dole Court did not need to examine the precise interests served by the individual highway grants tied to the condition, reasoning that a minimum drinking age related to "one of the main purposes for which highway funds are expended—safe interstate travel" and that "[t]his goal ... had been frustrated by varying drinking ages among the States."¹²⁶

A spending condition may also satisfy the relatedness requirement if the purpose of the condition is to ensure that federal funds are "properly spent."¹²⁷ In Sabri v. United States, the Supreme Court upheld a statute that prohibited the "bribery of state, local, and tribal officials of entities that receive at least $10,000 in federal funds," even without specific proof of a "connection with federal money as an element of the offense."¹²⁸ While the Court framed its discussion in terms of Congress's authority under the Necessary and Proper Clause rather than the relatedness limitation, the Court still focused on the link between the bribery offense and the government's interest.¹²⁹ The Necessary and Proper Clause, the Court reasoned, gives Congress the authority "to see to it that taxpayer dollars . . . are in fact spent for the general welfare, and not frittered away in graft or on projects undermined when funds are siphoned off or corrupt public officers are derelict about demanding value for dollars."¹³⁰

Lower courts have extended Sabri's reasoning to uphold nondiscrimination requirements in federal spending legislation against relatedness challenges. The D.C. Circuit has concluded, for example, that "Congress reasonably can insist that decisions regarding the expenditure of federal funds not be based on irrational discrimination."¹³¹ The Third Circuit has suggested that limiting a nondiscrimination requirement to programs or activities receiving federal funds "helps ensure the waiver accords with the 'relatedness' requirement articulated in Dole."¹³²

In practice, the relatedness requirement is a "low bar."¹³³ Neither before nor after Dole has the Supreme Court struck down a spending condition as insufficiently related to the underlying purpose of the spending.¹³⁴ While lower courts sometimes have concluded that a condition fails to satisfy the relatedness prong,¹³⁵ in general, they have not interpreted the relatedness standard to be particularly demanding.¹³⁶ For example, the Ninth Circuit has cited the Supreme Court's description of the relatedness requirement in New York v. United States (decided five years after Dole), in concluding that "the conditions need only 'bear some relationship to the purpose of the federal spending.'"¹³⁷ Other courts, such as the Tenth Circuit, have described the "required degree" of connection between the condition and the federal interest in the funded program as "one of reasonableness or minimum rationality"—a low standard in legal terms.¹³⁸ At least one Supreme Court Justice, Justice Thomas, has framed the relatedness standard in a potentially more stringent way, suggesting that "there must be 'some obvious, simple, and direct relation' between the condition and the expenditure of the funds."¹³⁹ The Sixth Circuit, however, has observed that notwithstanding Justice Thomas's formulation of the standard, "Dole remains the controlling law on conditional grants of federal money."¹⁴⁰

Anti-Coercion

The third element of judicial review of spending conditions is whether the condition is unconstitutionally coercive. Generally speaking, Congress can offer states "powerful incentive[s]" to carry out federal policies as long as states remain free to opt out by declining the federal funding.¹⁴¹ Congress may not, however, "compel" states to adopt federal policies due to a constitutional doctrine called anti-commandeering.¹⁴²

The anti-commandeering doctrine reflects "a fundamental structural decision" in the Constitution—"the decision to withhold from Congress the power to issue orders directly to the States."¹⁴³ Under the U.S. system of "dual sovereignty," both the federal government and the states "wield sovereign powers."¹⁴⁴ The Constitution allocates powers between the federal and state governments in a number of ways. The Supremacy Clause of Article VI provides that federal law "shall be the supreme Law of the Land," giving Congress the power to preempt state law.¹⁴⁵ At the same time, Congress's legislative authority is limited to powers enumerated in the Constitution.¹⁴⁶ The Tenth Amendment provides that all other legislative powers are "reserved to the States."¹⁴⁷ The Supreme Court developed the anti-commandeering doctrine to help preserve this structure by prohibiting Congress from commanding states to legislate or regulate—or to refrain from legislating or regulating—on the federal government's behalf.¹⁴⁸

In the spending context, these same considerations undergird the anti-coercion analysis,¹⁴⁹ which essentially asks whether a state "has 'a legitimate choice whether to accept the federal conditions in exchange for federal funds.'"¹⁵⁰ As the Supreme Court recognized in South Dakota v. Dole, sometimes "the financial inducement offered by Congress might be so coercive as to pass the point at which 'pressure turns into compulsion.'"¹⁵¹ On the facts of that case, the Dole Court concluded that Congress's incentive for states to adopt the national minimum drinking age was "relatively mild encouragement."¹⁵² In Dole, non-acceptance would cost a state "a relatively small percentage of certain federal highway funds"—in South Dakota's case, "5% of the funds otherwise obtainable under specified highway grant programs."¹⁵³

While the Supreme Court recognized the potential for coercion in Dole, it did not strike down a spending condition on anti-coercion grounds until its 2012 decision in National Federation of Independent Business (NFIB) v. Sebelius.¹⁵⁴ In that case, seven Justices, across two different opinions, concluded that Congress violated the anti-coercion principle by conditioning all of a state's Medicaid funds on its acceptance of Medicaid expansion in the Affordable Care Act.¹⁵⁵ Chief Justice Roberts authored a plurality opinion on the Spending Clause analysis on behalf of himself and Justices Breyer and Kagan, while four Justices—Justices Scalia, Kennedy, Thomas, and Alito—discussed their reasoning in a joint dissent.¹⁵⁶ Because the plurality concluded that the condition was invalid on narrower grounds than the joint dissent, several appellate courts have described Chief Justice Roberts's opinion as precedential.¹⁵⁷

The Chief Justice highlighted the states' dependence on existing Medicaid funding and the expansion's resemblance, in the plurality's view, to a "new health care program."¹⁵⁸ The plurality noted that "[f]ederal funds received through the Medicaid program ha[d] become a substantial part of state budgets, ... constituting over 10 percent of most States' total revenue."¹⁵⁹ The plurality observed, by comparison, that the highway funds at issue in Dole constituted less than 0.5% of South Dakota's budget.¹⁶⁰ Echoing the clear notice requirement, the plurality also reasoned that Congress's spending power to enact the Medicaid program did not permit it to "surpris[e] participating States with postacceptance or 'retroactive' conditions."¹⁶¹

Because the Court decided NFIB less than ten years ago, case law on the anti-coercion principle is limited. Lower courts have used the facts and reasoning of Dole and NFIB as guideposts in the anti-coercion analysis, asking: (1) whether a post-acceptance condition marked a change in "degree" or "kind" for the program at issue;¹⁶² and (2) what percentage of a state's budget was at risk if the state did not comply with the condition.¹⁶³ Additionally, some lower courts have interpreted NFIB to say that the anti-coercion limit does not apply to conditions on how states use funds—as opposed to policy requirements that might otherwise violate the anti-commandeering doctrine if imposed directly. For example, the Fifth Circuit reasoned that a "direct restriction on how a state uses federal funds" is not coercive, because it simply "'ensures that the funds are spent according to [Congress's] view of the general Welfare.'"¹⁶⁴

Thus, while the line between permissible incentive and unconstitutional coercion remains blurry, the anti-coercion principle is now a recognized limit on Congress's power to condition federal funding.

Independent Constitutional Bar

Spending legislation that meets the clear notice, relatedness, and anti-coercion tests is constitutional unless it violates some other "independent constitutional bar." There are two general formulations of the independent constitutional bar principle. Additionally, arguments about the constitutionality of a funding condition often implicate a cross-cutting legal doctrine called "unconstitutional conditions."

Two General Formulations

As articulated in South Dakota v. Dole, a funding condition runs afoul of an independent constitutional bar when it would require or encourage the recipient to violate the Constitution.¹⁶⁵ To use an example from Dole, if Congress were to condition funding for state prisons on the use of a "cruel and unusual punishment[]," the Eighth Amendment would independently bar such a condition because it prohibits states from using such forms of punishment.¹⁶⁶ The Supreme Court considered—and ultimately rejected—an independent constitutional bar argument of this nature in United States v. American Library Association.¹⁶⁷ In the Children's Internet Protection Act, Congress had required public libraries receiving federal assistance for internet and information services to install filtering software on library computers to block patrons' access to pornographic websites and other materials deemed "harmful to minors."¹⁶⁸ Challengers to the law contended that this condition required public libraries—which are governmental entities—to violate the First Amendment rights of library users.¹⁶⁹ Six Justices, for different reasons, concluded that the law did not induce the libraries to violate their patrons' First Amendment rights, and the condition for receiving federal funds was therefore within Congress's power.¹⁷⁰

Some courts and litigants appear to take a broader view of the independent constitutional bar principle than the Dole formulation, treating it as a catchall for analyzing not only whether a condition induces the recipient to violate the Constitution, but also whether the condition itself exceeds Congress's authority. For example, according to the Eighth Circuit, this factor "requires a consideration of whether other constitutional provisions prohibit these particular conditions on federal funding."¹⁷¹ States have sometimes invoked the "independent constitutional bar" language to raise federalism-based objections, such as the argument that a funding condition violates states' rights under the Tenth Amendment.¹⁷² However, because federalism considerations are already embedded in the clear notice and anti-coercion principles,¹⁷³ some courts have concluded that the Tenth Amendment "does not apply" to otherwise "valid spending legislation" that clears these initial hurdles.¹⁷⁴ Other courts have analyzed Tenth Amendment objections as separate constitutional claims.¹⁷⁵

Unconstitutional Conditions Doctrine

The unconstitutional conditions doctrine "examines the extent to which government benefits may be conditioned or distributed in ways that burden constitutional rights or principles."¹⁷⁶ A core principle of this doctrine is that once the government has established a benefit, it may not deny that benefit to a person "on a basis that infringes his constitutionally protected interests."¹⁷⁷

The unconstitutional conditions doctrine is not unique to the funding context. In contrast to the four tests discussed above, it has developed as a constraint on Congress's authority generally, rather than the Spending Clause alone, and it has generated a large body of case law that touches on a variety of Congress's powers.¹⁷⁸ However, the unconstitutional conditions doctrine frequently arises in cases involving funding conditions, especially conditions that restrict or compel speech. In such circumstances, the Court generally has upheld conditions that "define the limits of the government spending program—those that specify the activities Congress wants to subsidize," but it has applied heightened scrutiny to conditions that "seek to leverage funding" in a way that burdens constitutional rights "outside the contours of the program itself."¹⁷⁹

Cases applying this test illustrate why the distinction is "not always self-evident."¹⁸⁰ In Rust v. Sullivan, the Court upheld regulations prohibiting recipients of funding for family planning projects under Title X of the Public Health Service Act from providing abortion services, counseling, or referrals, or advocating for abortion through their written materials, speakers, or lobbying efforts.¹⁸¹ Grantees had to maintain physical and financial separation, as defined in the regulations, between the Title X project and any prohibited abortion-related activities.¹⁸² In the Court's view, the regulations did not amount to "suppress[ion]" of abortion-related expression, but instead prohibited "a project grantee or its employees from engaging in activities outside of the project's scope," consistent with Title X's focus on family planning rather than prenatal care.¹⁸³

The Court also upheld a statutory funding condition against an unconstitutional conditions challenge in American Library Association.¹⁸⁴ As previously noted, that case involved a requirement that public libraries implement filtering software in exchange for funds to improve internet services.¹⁸⁵ The Court concluded that the condition did not violate the libraries' First Amendment rights.¹⁸⁶ A plurality of the Court reasoned that, as in Rust, the condition defined the limits of the funded program.¹⁸⁷ By blocking online materials that libraries traditionally would have excluded from their print collections, the Court reasoned, filtering software helps libraries to "fulfill their traditional role of obtaining material of requisite and appropriate quality for educational and informational purposes."¹⁸⁸

By contrast, the Court found it unconstitutional for Congress to require the recipients of funding for global HIV/AIDs programs to have "a policy explicitly opposing prostitution and sex trafficking."¹⁸⁹ The Court reasoned that the condition exceeded the program's scope because it forced grantees to "adopt—as their own—the Government's view on an issue of public concern," which necessarily required fidelity to that view inside and outside of the program.¹⁹⁰ It did not matter that the federal government allowed funding recipients to work with organizations that did not have the specified policy so long as the recipients retained "objective integrity and independence from any affiliated organization."¹⁹¹ The Court reasoned that this approach required the recipient to either distance itself from its affiliate and the affiliate's message, or clearly identify with its affiliate while espousing the government's message "only at the price of evident hypocrisy."¹⁹²

Thus, the independent constitutional bar principle and the related unconstitutional conditions doctrine both serve as a check on Congress's authority to condition federal funding.¹⁹³

Conditions on States Versus Private Funding Recipients

Both governmental and nongovernmental entities may be subject to federal funding conditions,¹⁹⁴ but many of the cases discussed above have arisen in the context of federal funding for states and their political subdivisions.¹⁹⁵ The foregoing discussion demonstrates that some of the limits on Congress's power to impose conditions are rooted in concerns about federalism. This notion raises a question of whether each of those general, constitutional limits applies when a spending provision and its corresponding conditions are directed solely at private-sector entities, rather than states, or when a spending law regulates states and private entities "in an identical manner."¹⁹⁶

The Supreme Court has never expressly confined the general limits on spending authority to conditions placed on states. Additionally, as discussed below, some of those limits arguably reflect or serve interests beyond those of preserving state sovereignty, such as preventing Congress from infringing the individual liberties that the Constitution guarantees to the people.

With regard to the clear notice requirement, the Supreme Court often has referred to Spending Clause legislation as akin to a "contract" between the federal government and a funding recipient.¹⁹⁷ The reasoning behind the contract analogy—the need for a clear offer and knowing acceptance—does not appear to depend on the recipient being a state, even if the rule is often framed in terms of federal-state funding arrangements.¹⁹⁸ Thus, in Gonzaga University v. Doe, the Supreme Court invoked the clear notice principle in rejecting a claim against a private university receiving federal funds, suggesting that, at a minimum, the clear notice requirement applies regardless of the public or private status of the funding recipient.¹⁹⁹

The relatedness requirement reflects the structural decision of the Constitution to vest Congress with specific, enumerated powers, and ultimately, appears to stem from federalism concerns. The Supreme Court has reasoned that without a relatedness requirement, "the spending power could render academic the Constitution's other grants and limits of federal authority."²⁰⁰ In other words, Congress already has the power to fund legislative policies that it could not enact directly because they fall outside of its enumerated powers.²⁰¹ Allowing Congress to impose conditions untethered to the purpose of the spending legislation could enlarge Congress's powers to a degree that encroaches on powers that the Tenth Amendment reserves to the states.²⁰²

The third test discussed above, the anti-coercion principle, was also developed out of the constitutional principles of federalism that apply to the relationship between Congress and the states.²⁰³ The test relies on the principle that Congress, despite its power to compel or prohibit private behavior in some areas, cannot compel state action.²⁰⁴ At least one federal court has questioned whether a private party can raise an anti-coercion claim. That case involved a challenge by private, long-term care facilities to certain Medicare and Medicaid requirements involving arbitration agreements with residents.²⁰⁵ In a ruling that has been appealed, the U.S. District Court for the Western District of Arkansas concluded that the plaintiffs' asserted dependence on Medicare and Medicaid funding was of their own making, stating that "Courts of Appeals have held time and time again that the participation of private entities in Medicare and Medicaid is always voluntary."²⁰⁶ The court also observed that "no part" of the NFIB decision "touched on the government's power to place conditions on private entities."²⁰⁷ In the district court's view, the Eighth Circuit is unlikely to "conclude that private entities are protected from coercion by the federal government on the same terms as states."²⁰⁸ Thus, it seems unlikely that a court would apply the anti-coercion rationale in a challenge to a spending condition that applies solely to private parties, though the Eighth Circuit may weigh in on the question.

Under the Dole formulation, the independent constitutional bar principle concerns conditions that induce a state or other governmental entity to violate the Constitution.²⁰⁹ Under its broader formulation, and the closely-related unconstitutional conditions doctrine, Congress also may not use its spending power in ways that violate a private recipient's constitutional rights.²¹⁰ Accordingly, whether a condition violates a constitutional provision other than the Spending Clause itself is an important consideration regardless of whether the intended funding recipients are states or private entities.

Thus, while open questions remain, there are at least some grounds for a court to conclude that the clear notice and independent constitutional bar limits apply to spending legislation that imposes conditions on states, private recipients, or both. In contrast, because of the centrality of federalism concerns to the relatedness requirement and the anti-coercion principle, it is less clear whether those principles may limit the kinds of conditions that Congress imposes on funding to private parties. However, some case law suggests that private funding recipients or beneficiaries may have standing to raise a federalism-based objection under some circumstances.²¹¹

Conditions from the Executive Branch

In many of the cases discussed above, Congress has imposed a spending condition by statute, and courts have considered whether that condition is constitutional. A spending condition may also come from the executive branch—for example, from a federal agency in the course of administering a federal program. In such cases, the courts may consider whether the executive branch has statutory authority from Congress to impose the condition, and if so, whether that condition is consistent with federal statutes and with the Constitution.

Because Congress alone holds the "power of the purse," the executive branch cannot unilaterally authorize spending or impose conditions on federal funding.²¹² To do so would violate the constitutional separation of powers.²¹³ A funding condition from the executive branch is considered constitutional only if Congress has "delegated authority" to the executive branch to impose that condition.²¹⁴

As a practical matter, challenges to an agency's decision to adopt or enforce a particular funding condition often arise under the APA instead of, or in addition to, a separation-of-powers challenge. Under the APA, courts have jurisdiction to set aside agency action that is "in excess of statutory jurisdiction, authority, or limitations."²¹⁵ Challenges to an agency's authority to impose a funding condition therefore may be resolved on statutory, rather than constitutional grounds, based on the APA and the underlying statute that established the spending program. Some case law, however, has suggested that when an agency imposes a spending condition that Congress has not authorized, it violates not only the underlying statute but also the Constitution.²¹⁶

Other disputes over funding conditions may arise without any basis for direct statutory review under the APA, and in such cases, constitutional considerations may be foremost. For example, on January 25, 2017, President Donald Trump issued an executive order concerning "sanctuary jurisdictions" that "willfully violate Federal law in an attempt to shield aliens from removal from the United States."²¹⁷ The order directed the Attorney General and the Secretary of the Department of Homeland Security to "ensure that jurisdictions that willfully refuse to comply with 8 U.S.C. 1373 (sanctuary jurisdictions) are not eligible to receive Federal grants, except as deemed necessary for law enforcement purposes."²¹⁸ The referenced statute, Section 1373, prohibited state and local officials from "in any way restrict[ing]" the exchange of information regarding an individual's immigration status with federal immigration authorities. In a constitutional challenge to the order, the Ninth Circuit found that the Executive Order concerned "funding that Congress ha[d] not tied to compliance with § 1373."²¹⁹ "Because Congress did not authorize withholding of funds," the court held, "the Executive Order violate[d] the constitutional principle of the Separation of Powers."²²⁰

In 2019 and 2020, courts around the country adjudicated separation-of-powers and APA challenges to funding conditions in two, separate sets of cases. The first set of legal challenges involved immigration-related conditions on state and local criminal justice funding under the Edward Byrne Memorial Justice Assistance Grant Program (Byrne JAG Program). The second set of cases involved a Department of Health and Human Services (HHS) rule regarding grantee noncompliance with federal "conscience" statutes. These cases illustrate the challenges of discerning whether Congress has authorized an agency generally charged with administering a program to impose conditions on program funds.

Litigation over Byrne JAG Program Conditions

The Edward Byrne Memorial Justice Assistance Grant Program is "the primary source of federal criminal justice funding available to state and local governments."²²¹ Administered by the Department of Justice (DOJ), the program provides federal grants to states and localities "to provide additional personnel, equipment, supplies, contractual support, training, technical assistance, and information systems for criminal justice" in eight program areas.²²² While a statutorily prescribed formula dictates the amount of funding that each state receives, states still must apply for Byrne JAG funding.²²³ The application must include, among other items, a "certification, made in a form acceptable to the Attorney General" that "the applicant will comply with all provisions" of the Byrne JAG statute²²⁴ and "all other applicable Federal laws."²²⁵

The Byrne JAG cases discussed in this section concerned grant conditions that the Attorney General adopted for fiscal years 2017 and 2018.²²⁶ One of the challenged conditions—the certification condition—required grantees to certify their compliance with 8 U.S.C. § 1373.²²⁷ As noted in the previous section, Section 1373 prohibits states and localities from restricting the exchange of information about an individual's citizenship or immigration status with federal immigration authorities.²²⁸ In the litigation, DOJ argued that the Byrne JAG statute authorized the condition because the statute itself requires applicants to certify compliance with "applicable Federal laws" and, in DOJ's view, Section 1373 was one such law.²²⁹

The First, Third, and Seventh Circuits disagreed, holding that DOJ's grant condition was inconsistent with the underlying Byrne JAG statute.²³⁰ They construed "applicable Federal laws" to refer to laws that apply to Byrne JAG grant programs, rather than all laws that apply to Byrne JAG applicants.²³¹ Because Section 1373 generally applied to state and local governments and officials without referencing grant programs or federal funding, the courts reasoned that it was not an "applicable" federal law.²³² Accordingly, these three circuits held that the Attorney General exceeded his statutory authority in imposing the certification condition.²³³

One court, the Seventh Circuit, also characterized this as a constitutional violation. The Seventh Circuit expressly held that, because of the lack of statutory authorization, "the Attorney General's decision to attach the conditions to the FY 2017 and FY 2018 Byrne JAG grants violated the constitutional principle of separation of powers."²³⁴

In contrast, in a lawsuit filed by New York City, the Second Circuit held that the Attorney General neither exceeded his statutory authority nor violated the constitutional separation of powers by imposing the certification condition.²³⁵ The court reasoned that the Byrne JAG statute authorized the Attorney General to identify "other applicable Federal laws" for purposes of the compliance certification by mandating certification in a "form acceptable to the Attorney General."²³⁶ In the court's view, "form" embraced both format and content.²³⁷ The court also construed the phrase "applicable Federal laws" to refer to laws applying to the grant program and laws applying to the applicant.²³⁸ The court concluded that Section 1373 applied to the plaintiff-states and localities that had applied for Byrne JAG grants.²³⁹ Even if Congress did not make the condition explicit, therefore, DOJ's condition fell within the discretionary authority that Congress had given to DOJ to specify certification requirements for the Byrne JAG program.

The Second Circuit then rejected a Pennhurst-based Spending Clause challenge to the certification condition, holding that the plaintiffs had adequate notice of the certification condition.²⁴⁰ "To be sure," the court observed, "that notice was provided by DOJ rather than Congress."²⁴¹ However, the court did not find this distinction to be dispositive, pointing to cases where the Supreme Court recognized that "Congress cannot always 'prospectively resolve every possible ambiguity concerning particular applications of the [program's statutory] requirements.'"²⁴²

Lastly, the Second Circuit rejected a Tenth Amendment, anti-coercion challenge to the certification condition.²⁴³ Specifically, the court interpreted NFIB to focus on the "amount of funding that a State would lose by not acceding to the federal conditions," asking whether that amount "is so significant to the [state's] overall operations as to leave it with no real choice but to agree."²⁴⁴ For "most grant conditions," the court posited, the potential "funding loss" does "not raise such coercion concerns."²⁴⁵ The court found the certification condition at issue to be "much more akin to Dole than to NFIB" because loss of the 2017 Byrne award would affect "less than 0.1%" of New York's annual budget—less than the percentage loss at issue in Dole.²⁴⁶ While New York City initially petitioned the Supreme Court for a writ of certiorari to resolve the circuit split, the parties agreed to dismiss the case on March 4, 2021, after DOJ, under the Biden Administration, reportedly "agreed to remove the challenged conditions" from Byrne JAG grants.²⁴⁷

Litigation over HHS's 2019 Conscience Rule

States also raised Spending Clause challenges after HHS issued a rule regarding steps that it would take to enforce a range of "Federal conscience and antidiscrimination laws" (the 2019 Conscience Rule).²⁴⁸ One of the central issues in these cases was whether HHS could terminate all HHS funding to a grant recipient for noncompliance with certain statutes.

In 2008, HHS issued a rule designating its Office for Civil Rights (OCR) to receive complaints of alleged violations of three "federal health care conscience protection statutes" commonly referred to by their sponsors' names.²⁴⁹ The first statute, the Church Amendments, prohibits any entity that receives funding under the Public Health Service Act from discriminating in the form of firing or other employment actions against health care workers who perform or assist in the performance of lawful abortions or sterilization procedures, or who refuse to do so on religious or moral grounds.²⁵⁰ The second statute, the Coats-Snowe Amendment, prohibits federal funding recipients from discriminating against health care entities that refuse to perform abortions or provide training on abortion procedures, or individuals whose medical education did not include such training.²⁵¹ The third statute, the Weldon Amendment, is a provision that Congress has included in every Labor-HHS appropriations act since 2004.²⁵² The Weldon Amendment prohibits the disbursement of federal funds to agencies, programs, or states that discriminate against health care entities (including individual providers) because they do not "provide, pay for, provide coverage of, or refer for abortions."²⁵³

The 2008 rule required grantees to certify compliance with these nondiscrimination provisions when applying for or renewing a grant, contract, or other funding instrument.²⁵⁴ In 2011, HHS issued a new rule that "partially rescind[ed]" the 2008 rule by removing the certification requirement.²⁵⁵ The 2011 rule retained OCR's authority to "coordinate the handling of [discrimination] complaints with the Departmental funding component(s) from which the entity" named in the complaint "receives funding," but did not specify the penalty for noncompliance.²⁵⁶

The 2019 Conscience Rule amended the 2011 rule to state expressly that HHS could enforce compliance with more than 30 federal "conscience" provisions (including the Church, Coats-Snowe, and Weldon Amendments) through the denial, temporary withholding, or termination of HHS-administered federal funds.²⁵⁷ By its terms, the 2019 Conscience Rule was broad enough to include the complete termination of all HHS funding, including Medicaid funds.²⁵⁸ The rule also specifically authorized OCR to "[c]onduct investigations," "[s]eek voluntary resolutions of complaints," "utilize existing regulations for involuntary enforcement," and "coordinate other appropriate remedial action."²⁵⁹ If, following an investigation or compliance review, OCR found that an entity violated a conscience provision, the rule allowed OCR to coordinate with the relevant HHS funding component to "effect[]" compliance through laws governing contracts, grants, and other funding arrangements.²⁶⁰

Three different district courts considered challenges to the conditions and the newly-stated penalties in the 2019 Conscience Rule, and all three held those conditions to be invalid based on the principles discussed above. First, on November 6, 2019, the U.S. District Court for the Southern District of New York held that the 2019 rule violated both the APA and the Constitution. As to the APA claim, the court concluded that the Church, Coats-Snowe, and Weldon Amendments did not authorize HHS to promulgate substantive regulations, either expressly or by implication.²⁶¹ The court held that no statute authorized HHS to withhold or terminate all HHS funding to noncompliant recipients—the rule's termination penalty.²⁶² The latter conclusion also formed the basis for the court's separation-of-powers analysis because, the court reasoned, an "agency may not withhold funds in a manner, or to an extent, unauthorized by Congress."²⁶³ By adopting the termination penalty without statutory authority, the rule "aggrandize[d] the Executive Branch at Congress's expense" in violation of the separation of powers.²⁶⁴

The district court also held that the termination penalty violated the clear notice and anti-coercion principles from the Supreme Court's Spending Clause jurisprudence. In particular, citing NFIB, the court expressed concern that a state that had "organized its programs (e.g., its Medicaid program) in anticipation of a promised outlay" would have "no way to know at the time it accepted such funds that HHS would later claim the right to close these spigots based on a breach of a Conscience Provision."²⁶⁵ The court found coercion because of the "scale of funding" at stake and the "new standards of conduct" the rule imposed.²⁶⁶ However, the court concluded that the rule did not violate the relatedness principle or another independent constitutional bar.²⁶⁷

Second, on November 19, 2019, the U.S. District Court for the Northern District of California held, consistent with the Southern District of New York, that HHS exceeded its authority in issuing the 2019 Conscience Rule "by adding expansive definitions in conflict with the statutes and imposing draconian financial penalties."²⁶⁸ Because the court vacated the rule on APA grounds, it declined to reach the constitutional claims presented.²⁶⁹

Third, on November 21, 2019, the U.S. District Court for the Eastern District of Washington expressly adopted the Southern District of New York's conclusions, holding that the 2019 Conscience Rule exceeded HHS's authority and violated the Constitution.²⁷⁰

Appeals from the New York, California, and Washington cases are pending before the Second and Ninth Circuits.²⁷¹ The appellate courts have postponed oral arguments at the government's request so that new leadership at HHS can evaluate the government's position in the litigation.²⁷²

As the litigation over the Byrne JAG certification condition and the 2019 Conscience Rule illustrates, an agency that imposes a new condition on federal funding or an enhanced penalty for grantee noncompliance must have express or implied statutory authority from Congress to take those actions. Otherwise, the challenged action may violate the APA or the Constitution's separation of powers.

Conclusion

Congress has broad constitutional authority to authorize spending for the general welfare. In exercising that authority, Congress may place conditions on federal funding given to states and private entities. However, courts reviewing the constitutionality of a condition generally assess whether the condition meets these four general constitutional limits: (1) the statute provides clear notice of the condition; (2) the condition is related to the purposes of the underlying spending; (3) the condition does not coerce state or local governments; and (4) the condition does not violate any independent constitutional bar, or the related unconstitutional conditions doctrine. While many of these principles are rooted in federalism concerns (i.e., states' rights), taken together, they cabin Congress's authority to condition funding to states and private entities. Lastly, the specificity with which Congress has addressed a spending condition in a statute, and the degree of discretion it has accorded to the executive branch, likely will affect the legality of an executive order, agency rule, or other executive branch action that imposes or enforces a requirement as a spending condition.