Federal grants, state decisions

Boston University Law Review

Volumn 88, Issue 4, 2008, Pages 875-936

  Galle, Brian ^a,b,c  

^a FLORIDA STATE UNIVERSITY   (United States)

^b GEORGETOWN UNIVERSITY LAW CENTER   (United States)

^c NONE

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[No Author keywords available]

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EID: 57349157012     PISSN: 00068047     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (430)

1. Cass R. Sunstein & Adrian Vermeule, Interpretation and Institutions, 1Mich. L. Rev. 885, 889-90 (2003).
2. Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17(1981).
3. See infra Part I.B.
4. Of course, I am not the first to note the importance of spending legislation. See, e.g., David Engdahl, The Spending Power, 44 DUKE L.J. 1, 2 (1994);
5. Edward M. Gramlich, Alternative Federal Policies for Stimulating State and Local Expenditures: A Comparison of Their Effects, 21 Nat'l Tax J. 119, 119-20 (1968);
6. Lewis B. Kaden, Politics, Money and State Sovereignty: The Judicial Role, 79 Colum. L. Rev. 847, 847-49 (1979);
7. Thomas R. McCoy & Barry Friedman, Conditional Spending: Federalism's Trojan Horse, 1988 Sup. Ct. Rev. 85, 86;
8. Albert J. Rosenthal, Conditional Federal Spending and the Constitution, 39 Stan. L. Rev. 1103, 1105-06 (1987);
9. Peter J. Smith, Pennhurst, Chevron, and the Spending Power, 110 Yale L J. 1187, 1188 (2001).
10. These programs include: the Individuals with Disabilities Education Act, 20 U.S.C. § 1407(a)(1) (2006); Title IX of the Education Amendments of 1972, 20 U.S.C. § 1681(a) (2006); No Child Left Behind, 20 U.S.C. § 6311(a)(1) (2006); Medicaid, 42 U.S.C. § 1396c (2006); Title VI of the Civil Rights Act of 1964, 42 U.S.C. § 2000d (2006); Clean Air Act, 42 U.S.C. §§ 7410, 7420 (2006). Lynn Baker and Mitchell Berman also observe the importance of conditional spending doctrine for the Religious Land Use and Institutionalized Persons Act of 2000 ("RLUIPA"), 42 U.S.C. § 2000 (2006), Congress's latest effort to require states to take greater account of the free exercise claims of individuals than the Supreme Court is willing to afford. Lynn A. Baker & Mitchell N. Berman, Getting Off the Dole: Why the Court Should Abandon its Spending Doctrine, and How a Too-Clever Congress Could Provoke it to Do So, 78 Ind. L.J. 459, 495-97 (2003) [hereinafter Baker & Berman, Getting Off the Dole]. For some basic discussions of the origins and structures of cooperative federalism, see Morton Grodzins, The American System: A New View of Government in the United States 7-10 (Daniel J. Elazar ed., 1966);
11. William H. Riker, Federalism: Origin, Operation, Significance 10-11 (1964);
12. Jerry L. Mashaw & Dylan S. Calsyn, Block Grants, Entitlements, and Federalism: A Conceptual Map of Contested Terrain, 14 Yale L. & Pol'y Rev. 297, 300-24 (1996);
13. Philip J. Weiser, Towards a Constitutional Architecture for Cooperative Federalism, 79 N.C. L. Rev. 663, 668-73 (2001).
14. In addition to debates over conditional spending per se, there has also been a fair amount of discussion of the fiscal dimensions of state and federal relations in the context of a related problem: the so-called "unfunded mandate." This scholarship, for the most part, focuses on the possibility that Congress is obligated to provide funds to accompany any regulatory demands it imposes on state or local governments. See Robert W. Adler, Unfunded Mandates and Fiscal Federalism: A Critique, 50 Vand. L. Rev. 1137, 1231-54 (1997);
15. David A. Dana, The Case for Unfunded Environmental Mandates, 69 S. Cal. L. Rev. 1, 3-5 (1995);
16. Rena I. Steinzor, Unfunded Environmental Mandates and the "New (New) Federalism": Devolution, Revolution, or Reform?, 81 Minn. L. Rev. 97, 103-11 (1996);
17. Edward A. Zelinsky, Unfunded Mandates, Hidden Taxation, and the Tenth Amendment: On Public Choice, Public Interest, and Public Services, 46 Vand. L. Rev. 1355, 1356 (1993).
18. But see Evan H. Caminker, State Sovereignty and Subordinacy: May Congress Commandeer State Officers to Implement Federal Law?, 95 COLUM. L. REV. 1001, 1081-87 (1995);
19. Julie A. Roin, Reconceptualizing Unfunded Mandates and Other Regulations, 93 Nw. U. L. Rev. 351, 386 (1999). This Article considers, in effect, the reciprocal question: how best should we interpret conditions Congress imposes when it in fact does fund its "mandates"?
20. Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 126 S. Ct. 2455 (2006). For other early commentary on the Arlington decision, see Ilya Somin, A False Dawn for Federalism: Clear Statement Rules After Gonzales v. Raich, in Cato Supreme Court Review 2005-2006, at 113, 131-33 (Mark K. Moller ed., 2006) [hereinafter Somin, False Dawn).
21. Arlington, 126 S. Ct. at 2457.
22. Id. at 2459-63.
23. Id. 2459, 2461.
24. See Baker & Berman, Getting Off the Dole, supra note 5, at 465; Brian Galle, Getting Spending: How to Replace Clear Statement Rules with Clear Thinking About Conditional Grants of Federal Funds, 37 Conn. L. Rev. 155, 162-66 (2004) [hereinafter Galle, Getting Spending]; Smith, supra note 4, at 1189-90.
25. Barnes v. Gorman, 536 U.S. 181, 186 (2002); Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981); Gregory v. Ashcroft, 501 U.S. 452, 465-67 (1991).
26. See Dan T. Coenen, The Rehnquist Court, Structural Due Process, and Semisubstantive Constitutional Review, 75 S. Cal. L. Rev. 1281, 1303-04 (2002);
27. David Freeman Engstrom, Drawing Lines Between Chevron and Pennhurst; A Functional Analysis of the Spending Power, Federalism, and the Administrative State, 82 Tex. L. Rev. 1197, 1242-46 (2004);
28. William N. Eskridge, Jr. & Philip P. Frickey, Quasi-Constitutional Law: Clear Statement Rules as Constitutional Lawmaking, 45 Vand. L. Rev. 593, 624 (1992);
29. Nicholas Quinn Rosenkranz, Federal Rules of Statutory Interpretation, 115 Harv. L. Rev. 2085, 2097, 2122-23(2002).
30. See Eskridge & Frickey, supra note 13, at 635; H. Geoffrey Moulton, Jr., The Quixotic Search for a Judicially Enforceable Federalism, 83 Minn. L. Rev. 849, 867, 911 (1999);
31. John C. Yoo, The Judicial Safeguards of Federalism, 70 S. Cal. L. Rev. 1311, 1319 (1997).
32. For a more detailed analysis on this point, see infra Part I.B.
33. See Roderick M. Hills, Jr., The Political Economy of Cooperative Federalism: Why State Autonomy Makes Sense and "Dual Sovereignty " Doesn 't, 96 MICH. L. Rev. 813, 862 (1998) [hereinafter Hills, Cooperative Federalism];
34. Ilya Somin, Closing the Pandora's Box of Federalism: The Case for Judicial Restriction of Federal Subsidies to State Governments, 90 Geo. L.J. 461, 465 (2002) [hereinafter Somin, Closing the Pandora's Box].
35. See Hills, Cooperative Federalism, supra note 16, at 874.
36. See, e.g., John Ferejohn, Accountability and Authority: Toward a Theory of Political Accountability, in Democracy, Accountability, and Representation 131, 137-38 (Adam Przeworski et al. eds., 1999);
37. Joseph P. Kalt & Mark A. Zupan, The Apparent Ideological Behavior of Legislators: Testing for Principal-Agent Slack in Political Institutions, 33 J.L. & Econ. 103, 103-06, 128 (1990).
38. See, e.g., Frank H. Easterbrook, The State of Madison's Vision of the State: A Public Choice Perspective, 107 Harv. L. Rev. 1328, 1332-33 (1994);
39. Daryl J. Levinson, Empire-Building Government in Constitutional Law, 118 Harv. L. Rev. 915, 921-22 (2005);
40. Jonathan R. Macey, Transaction Costs and the Normative Elements of the Public Choice Model: An Application to Constitutional Theory, 74 VA. L. Rev. 471, 480-87 (1988).
41. For an exception, see John O. McGinnis & Ilya Somin, Federalism vs. States' Rights: A Defense of Judicial Review in a Federal System, 99 Nw. U. L. Rev. 89, 121 (2004) [hereinafter McGinnis & Somin, Federalism vs. States' Rights] (arguing that state institutional structures in fact are insufficient to preserve federalism values). I take issue with this point herein.
42. See New York v. United States, 505 U.S. 144, 182 (1992) (contending that "powerful incentives might lead both federal and state officials to view departures from the federal structure to be in their personal interests").
43. See Lynn A. Baker, Conditional Federal Spending After Lopez, 95 Colum. L. Rev. 1911, 1933 (1995) [hereinafter Baker, Conditional Spending];
44. McCoy & Friedman, supra note 4, at 124; McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 90; Somin, Closing the Pandora's Box, supra note 16, at 462-63, 484, 496; Somin, False Dawn, supra note 7, at 137;
45. Richard B. Stewart, Federalism and Rights, 19 Ga. L. Rev. 917, 958 (1985);
46. Ernest A. Young, Two Cheers for Process Federalism, 46 Vill. L. Rev. 1349, 1385-92 (2001) [hereinafter Young, Two Cheers].
47. See Baker, Conditional Spending, supra note 22, at 1936 (describing how there is "no competitor to the federal government" to whom states could turn for alternative revenue);
48. McCoy & Friedman, supra note 4, at 86 (explaining how the federal tax burden has increased, making it harder to raise state revenue and thus increasing state reliance on federal funds);
49. Somin, Closing the Pandora's Box, supra note 16, at 468 (describing the horizontal competition between states because dissatisfied residents can move to another state);
50. Stewart, supra note 22, at 971 (explaining that states are subject to "nearly irresistible" internal pressures from taxpayers and external pressures from competing states to accept federal funds).
51. Baker, Conditional Spending, supra note 22, at 1936-39;
52. McCoy & Friedman, supra note 4, at 86, 124; Somin, Closing the Pandora's Box, supra note 16, at 484;
53. Stewart, supra note 22, at 971.
54. See McCoy & Friedman, supra note 4, at 124; cf McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 94-100 (arguing that because of "rational ignorance" among constituents, government officials undervalue costs of burdens associated with acceding to federal objectives).
55. See McCoy & Friedman, supra note 4, at 125 (citing as an example, the fact that voters perceive the minimum drinking age law to be imposed by state government); Stewart, supra note 22, at 958.
56. Stephen Breyer, Active Liberty: Interpreting Our Democratic Constitution 64-65 (2005);
57. Laurence H. Tribe, American Constitutional Law § 6-25, at 479-81 (2d ed. 1988);
58. Laurence H. Tribe, American Constitutional Law § 6-28, at 1175-76 (3d ed. 2000); Engdahl, supra note 4, at 71;
59. William P. Marshall & Jason S. Cowart, State Immunity, Political Accountability, and Alden v. Maine, 75 Notre Dame L. Rev. 1069, 1078-79 (2000);
60. Thomas W. Merrill, Rescuing Federalism After Raich: The Case for Clear Statement Rules, 9 Lewis & Clark L. Rev. 823, 826, 833 (2005);
61. Smith, supra note 4, at 1203-04; Somin, False Dawn, supra note 7, at 115; Stewart, supra note 22, at 966-69;
62. Cass R. Sunstein, Nondelegation Canons, 67 U. Chi. L. Rev. 315, 339 (2000);
63. Young, Two Cheers, supra note 22, at 1354-55.
64. See infra note 231.
65. James R. Hines, Jr. & Richard H. Thaler, Anomalies: The Flypaper Effect, J. Econ. Persp., Autumn 1995, at 217, 218 (attributing the phrase to economist Arthur Okun).
66. See Laura S. Jensen, Federalism, Individual Rights, and the Conditional Spending Conundrum, 33 Polity 259, 277 (2000). For an overview of the structure of conditional spending (albeit not an especially sympathetic one), see David B. Walker, Toward a Functioning Federalism 144-51 (1981).
67. See Thomas R. Dye, American Federalism: Competition Among Governments 99-115 (1990);
68. David B. Walker, The Rebirth of Federalism: Slouching Toward Washington 182, 189-91 (1995).
69. U.S. Const, art. I, § 8.
70. See Kansas v. United States, 214 F.3d 1196, 1200 (10th Cir. 2000) (stating that "Kansas bears a very heavy burden in seeking to have the PRWORA [Personal Responsibility and Work Opportunity Reconciliation Act] declared unconstitutional" and discussing the lack of recent cases where conditions have been invalidated);
71. Baker & Berman, Getting Off the Dole, supra note 5, at 466, 524; Smith, supra note 4, at 1196-97.
72. South Dakota v. Dole, 483 U.S. 203, 207 (1987); see Baker & Berman, Getting Off the Dole, supra note 5, at 466-69;
73. Richard W. Garnett, The New Federalism, the Spending Power, and Federal Criminal Law, 89 CORNELL L. Rev. 1, 32-33 (2003). I have argued in an earlier work that this is a sensible conclusion. Galle, Getting Spending, supra note 11, at 229-30. It is true that on its face the Spending Clause might allow Congress to enact legislation that would go beyond the limits of its other main sources of authority, such as the Commerce Clause. But this fact is not troubling, given that Congress must literally pay a price, both in treasury dollars and political capital, for such expansions. Id. at 169-70, 187-91, 230. Thus, some of Congress's limits, as under the Commerce Clause, are textual, while others, as in the case of the Spending Clause, are structural or fiscal. Id. at 170.
74. Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17(1981).
75. See supra note 11.
76. See Smith, supra note 4, at 1188-89.
77. See Galle, Getting Spending, supra note 11, at 165.
78. See id. at 162-66.
79. Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 126 S. Ct. 2455 (2006).
80. See id. at 2457.
81. See id. at 2458-59. Congress appears not to have depended entirely on its Spending Clause power in enacting the IDEA, however. See id. at 2464 (Ginsburg, J., concurring) (stating that the IDEA was also enacted under the authority of Section 5 of the Fourteenth Amendment).
82. 20 U.S.C. § 1400(d)(1)(A) (2000).
83. 20 U.S.C. § 1415(i)(3)(B) (2000).
84. Arlington, 126 S. Ct. at 2463.
85. See id. at 2461 -63.
86. H.R. Rep. No. 99-687, at 5 (1986) (Conf. Rep.), 1986 U.S.C.C.A.N 1807, 1808. A Conference Committee Report is a report by the committee of the House and Senate whose job it is to reconcile any differences between the two Houses' versions of the bill. For a more detailed discussion of how conference reports may be utilized in statutory interpretation, see Robert A. Katzmann, Courts and Congress 46-68 (1997).
87. Arlington, 126 S. Ct. at 2459 (citations omitted).
88. Id. at 2463.
89. Id.
90. See Handicapped Children's Protection Act: Hearing on H.R. 1523 Before the Subcomm. on Select Education of the H. Comm. on Education and Labor, 99th Cong. 23-28 (1985) (statements of National School Boards Association) [hereinafter NSBA House Statement]; id. at 10, 13, 17 (statement of Linus Wright, General Superintendent of Schools, Dallas, Texas, representing the American Association of School Administrators); Handicapped Children's Protection Act of 1985: Hearing on S. 415 Before the Subcomm. on the Handicapped of the Comm. on Labor and Human Resources, 99th Cong. 61-79 (1985) (statement of National School Boards Association).
91. Cf. Nancy Lee Jones, Cong. Research Serv., The Individuals with Disabilities Education Act: Congressional Intent 5-6 (1995) (stating that the decision to structure the predecessor to the IDEA as a federal spending statute came in response to state advocate arguments that states could not themselves bear the costs).
92. Cf. Robin Kundis Craig, The Stevens/Scalia Principle and Why It Matters: Statutory Conversations and a Cultural Critical Critique of the Strict Plain Meaning Approach, 79 Tul. L. Rev. 955, 967-70 (2005) (claiming that statutes may be intended for interpretation by an audience with already-developed understandings of the statute and its context that exceed the courts' own understandings);
93. Jerry L. Mashaw, Norms, Practices, and the Paradox of Deference: A Preliminary Inquiry into Agency Statutory Interpretation, 57 Admin. L. Rev. 501, 511 (2005) (arguing that agencies may have superior information about the meaning of a statute because they were involved in its drafting, and therefore should be encouraged to use that information in the interpretive process);
94. Peter L. Strauss, When the Judge Is Not the Primary Official with Responsibility to Read: Agency Interpretation and the Problem of Legislative History, 66 Chi.-Kent L. Rev. 321, 329-31 (1990) (discussing how agencies have particularized knowledge about legislative history because they are "almost wholly the creature[s] of [their] statutes").
95. See NSBA House Statement, supra note 51, at 25 ("[R]egarding the definition of fees and other expenses ... we would prefer to see the committee adopt similar language to that used in other pieces of civil rights legislation, for instance, section 1988 ... that says the court, in its discretion, may allow the prevailing party a reasonable attorney's fee ...." (emphasis added)).
96. See Galle, Getting Spending, supra note 11, at 176; cf. Bell v. New Jersey, 461 U.S. 773, 790-91 (1983) (holding that the conditional spending statute need not provide "notice" to the State of particular remedies that will be available against it under the statute). The notice explanation is particularly puzzling in light of the fact that New York's IDEA-tied funding was re-authorized annually by Congress. So, regardless of whether the obligations of the statute were clear at the time the IDEA was enacted, they were overwhelmingly clear more than a decade later in 2000, when New York accepted its yearly appropriation and the Murphys prevailed in court. See Murphy v. Arlington Cent. Sch. Bd. of Educ, 86 F. Supp. 2d 354, 368 (S.D.N.Y. 2000) (ordering Arlington School District to pay for the cost of private schooling for the Murphys' child), aff'd, 297 F.3d 195 (2d Cir. 2002);
97. Brief for Respondents at 30-34, Arlington, 126 S. Ct. 2455 (No. 05-18) (arguing that, through 2002, numerous court decisions and administrative and legislative documents had interpreted the IDEA to impose expert costs on the losing government party). For more extensive discussion of the notice argument, see Samuel R. Bagenstos, Spending Clause Litigation in the Roberts Court, 58 Duke L.J. (forthcoming 2008).
98. For the early definitive work, see generally Frank I. Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of "Just Compensation" Law, 80 HARV. L. Rev. 1165(1967).
99. See Louis Kaplow, An Economic Analysis of Legal Transitions, 99 Harv. L. Rev. 509, 522-27 (1986) (suggesting that private actors should recognize legal changes may affect their investments).
100. Cf. Avishai Shachar, From Income to Consumption Tax: Criteria for Rules of Transition, 97 Harv. L. Rev. 1581, 1596 (1984). That is, the value of property should increase or decrease to reflect the risk of gains or losses.
101. See Kaplow, supra note 57, at 527-28.
102. See Ronald Dworkin, What is Equality? Part 2: Equality of Resources, 10 Phil. & Pub. Aff. 283, 294 (1981). There is considerable nuance to this claim. Barbara H. Fried, Ex Ante/Ex Post, 13 J. Contemp. Legal Issues 123, 129-31 &n.ll (2003).
103. Cf. Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981) (describing conditional grants as the outcome of a bargain between states and Congress);
104. Craig Volden, Intergovernmental Grants: A Formal Model of Interrelated National and Subnational Political Decision, 37 Publius: J. Federalism 209, 228 (2007) (describing bargaining between Congress and state governors over conditions of AFDC grants).
105. I assume here that it is reasonably evident that a state, unlike an individual, will be fully informed about the relevant legal context of its decision to accept an offer. Cf. Craig, supra note 53, at 1011-12, 1038 (observing that statutes governing a technically sophisticated audience need not be read according only to plain language because the audience is already familiar with the policy nuance of potential meanings).
106. Cf. Frank H. Easterbrook, Insider Trading, Secret Agents, Evidentiary Privileges, and the Production of Information, 1981 Sup. Cr. Rev. 309, 346-47 (arguing that bargainers should be free to exchange constitutional privileges for other consideration).
107. For example, in the lawmaking process that spawned the Arlington litigation, the states and Congress apparently agreed to leave the wording of the statute somewhat ambiguous as to expert fees, but to include a clear directive about fees in the Conference Report. See Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 126 S. Ct. 2455, 2462 (2006) (claiming that the conference report, in its interpretation of the statute's fee language, was attempting to "depart from ordinary meaning" (citing W. Va. Univ. Hosp., Inc. v. Casey, 499 U.S. 83, 92 n.5 (1991))). But see Brief for Respondents at 33-42, Arlington, 126 S. Ct. 2455 (No. 05-18) (arguing that there was strong reason to believe at the time of enactment that the language of the statute itself was not especially ambiguous, but rather that it was relatively clear to the authors that it included fees). One plausible interpretation of this sequence of events is that Congress and the states in effect agreed to disagree, or at a minimum, to take the chance that courts would decide how best to read the language of the statute. Yet Arlington rejects the very possibility of political agreements by the states to be governed by later interpretations, even where that seems to have been the intent of their negotiators. That is, the Arlington Court is willing to enforce only "what the States are clearly told," rather than what they are arguably or likely told. Arlington, 126 S. Ct. at 2463.
108. Kathleen M. Sullivan, Unconstitutional Conditions, 102 Harv. L. Rev. 1413, 1419-21, 1486-87 (1989); see also Michael C. Dorf & Charles F. Sabel, A Constitution of Democratic Experimentalism, 98 COLUM. L. Rev. 267, 426 (1998).
109. Sullivan, supra note 63, at 1480-83, 1495. That, of course, is the classic account of the basic justification for judicial review formulated by John Hart Ely, among others. See generally John Hart Ely, Democracy and Distrust (1980);
110. Bruce Ackerman, Beyond Carolene Products, 98 Harv. L. Rev. 713 (1985) (describing how judicial review defines "the ultimate limits imposed on pluralist bargaining by the American constitutional system");
111. Frank I. Michelman, Welfare Rights in a Constitutional Democracy, 1979 Wash. U. L.Q. 659 (1979) (adopting an "interpretivist" view of judicial review put forth by Ely and arguing that the judiciary supports a constitutional right to welfare through its review of statutes). That is not to say that the theory is without its own problems. See, e.g., Paul Brest, The Substance of Process, 42 Ohio St. L.J. 131, 134-37 (1981) (arguing against Ely's view that "courts are more competent to engage in representation-reinforcing judicial review" as opposed to "fundamental values review");
112. Laurence H. Tribe, The Puzzling Persistence of Process-Based Constitutional Theories, 89 Yale L.J. 1063, 1072-77 (1980) (questioning the ability to ascertain which groups are prejudiced, a point central to Ely's argument that "governmental action that burdens groups effectively excluded from the political process is constitutionally suspect").
113. See Sullivan, supra note 63, at 1478-79, 1482, 1491. For other claims that third-party effects may justify unsettling bargains over rights, see Richard A. Epstein, The Supreme Court, 1987 Term - Forward: Unconstitutional Conditions, State Power, and the Limits of Consent, 102 Harv. L. Rev. 4, 26-28 (1988);
114. Daniel A. Farber, Another View of the Quagmire: Unconstitutional Conditions and Contract Theory, 33 FLA. St. U. L. Rev. 913, 916, 920 (2006);
115. John Ferejohn & Barry Friedman, Toward a Political Theory of Constitutional Default Rules, 33 Fla. St. U. L. Rev. 825, 829-30 (2006);
116. Tamar Frankel, What Default Rules Teach Us About Corporations; What Understanding Corporations Teaches Us About Default Rules, 33 Fla. St. U. L. Rev. 697, 703-13 (2006);
117. Seth F. Kreimer, Allocational Sanctions: The Problem of Negative Rights in a Positive State, 132 U. Pa. L. Rev. 1293, 1378-93(1984).
118. See Sullivan, supra note 63, at 1496-99.
119. See Hills, Cooperative Federalism, supra note 16, at 862-63 (suggesting that states will readily accept federal grants where "Congress has made a correct estimate of the nonfederal governments' opportunity costs of providing the requested services");
120. Somin, Closing the Pandora's Box, supra note 16, at 465.
121. Gregory v. Ashcroft, 501 U.S. 452, 464 (1991) ("[T]o give the state-displacing weight of federal law to mere congressional ambiguity would evade the very procedure for lawmaking on which Garcia relied to protect states' interests." (quoting Laurence H. Tribe, American Constitutional Law § 6-25, at 480 (2d ed. 1988)));
122. see also Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 197 (1824) (describing how "the wisdom and the discretion of Congress, their identity with the people, and the influence which their constituents possess at elections" are controls on Congress's power over the states);
123. Laurence H. Tribe, American Constitutional Law § 6-28, at 1175-76 (3d ed. 2000).
124. Richard Stewart also offered a similar argument, roughly contemporaneous with Tribe's account. See Stewart, supra note 22, at 963. For other, later commentators agreeing with this approach, see supra note 27.
125. The political safeguards theory has proven highly controversial. For more extensive discussions on either side, see Jesse H. Choper, Judicial Review and the National Political Process 175-84 (1980);
126. Lynn A. Baker & Ernest A. Young, Federalism and the Double Standard of Judicial Review, 51 Duke L.J. 75, 107-12 (2001);
127. Baker & Berman, Getting Off the Dole, supra note 5, at 475-77;
128. Elizabeth Garrett, Enhancing the Political Safeguards of Federalism? The Unfunded Mandates Reform Act of 1995, 45 U. Kan. L. Rev. 1113, 1121-27 (1997);
129. Larry D. Kramer, Putting the Politics Back into the Political Safeguards of Federalism, 100 Colum. L. Rev. 215, 278-87 (2000);
130. McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 103-04;
131. Saikrishna B. Prakash & John C. Yoo, The Puzzling Persistence of Process-Based Federalism Theories, 79 Tex. L. Rev. 1459, 1483-89 (2001);
132. Herbert Wechsler, The Political Safeguards of Federalism: The Role of the States in the Composition and Selection of the National Government, 54 COLUM. L. Rev. 543, 559-60 (1954).
133. See Gregory, 501 U.S. at 464.
134. See authorities cited supra note 13.
135. See Baker, Conditional Spending, supra note 22, at 1942, 1946 (hypothesizing that legislators may seek to "'entice' outlier states into amending or adopting some provision(s) of state constitutional or statutory law");
136. Hills, Cooperative Federalism, supra note 16, at 886-87 (stating that politicians may face different agency costs at the federal or state level based on the strength of constituents);
137. McCoy & Friedman, supra note 4, at 124-25;
138. McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 118;
139. Somin, Closing the Pandora's Box, supra note 16, at 465-66 (explaining how state politicians may have incentives to "yield to the preferences of national political majorities");
140. Stewart, supra note 22, at 958-59; see also Steven G. Calabresi, "A Government of Limited and Enumerated Powers": In Defense of United States v. Lopez, 94 Mich. L. Rev. 752, 797 (1995) (describing how state officials can politically act in a self-interested manner);
141. Levinson, supra note 19, at 941 (asserting that state officials may favor increased federal power if it leads to more federal spending on states).
142. See Hills, Cooperative Federalism, supra note 16, at 886-87. Professors McGinnis and Somin also emphasize that the states discount the costs to themselves of the federal tax dollars that pay for the grants they receive.See McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 118 (explaining the incentive for politicians to "acquire funds that are mostly paid for by taxpayers in other states"). While I disagree with this account, for my purposes here I accept it. In my analysis I assume that states treat the costs to themselves of federal grants as essentially $0.
143. See Baker, Conditional Spending, supra note 22, at 1942-46 (discussing public choice dynamics of grants);
144. cf. Hills, Cooperative Federalism, supra note 16, at 886-88 (describing how Congress may require public participation in accepting federal grants because of the view that "some constituents are over or underrepresented in the local political process").
145. See McCoy & Friedman, supra note 4, at 124 (stating that voters tend to view grants as gifts without considering the attached strings); Young, Two Cheers, supra note 22, at 1360-61 (describing how in a nontransparent political system "people cannot assign blame for an unpopular federal policy");
146. cf. McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 94-99 (describing sources of rational voter ignorance of federalism issues).
147. Cf. Edward J. McCaffery & Joel Slemrod, Toward an Agenda for Behavioral Public Finance, in Behavioral Public Finance 12-13 (Edward J. McCaffery & Joel Slemrod eds., 2006) (describing the effect on public officials of "present-tense bias").
148. Cf. Peter H. Aranson et al, A Theory of Legislative Delegation, 68 Cornell L. Rev. 1, 31 (1982) (suggesting that political "issues of immediate impact" will predominate over issues "carr[ying] a long-term impact").
149. See Daniel A. Farber, From Here to Eternity: Environmental Law and Future Generations, 2003 U. III. L. Rev. 289, 294-301;
150. Clayton P. Gillette & James E. Krier, Risk, Courts, and Agencies, 138 U. Pa. L. Rev. 1027, 1039-41 (1990);
151. Daniel Kahneman & Amos Tversky, Prospect Theory: An Analysis of Decision Under Risk, 47 Econometrjca 263, 265-66 (1979).
152. See Brian Galle, Designing Interstate Institutions: The Example of the Streamlined Sales and Use Tax Agreement ("SSUTA"), 40 U.C. Davis L. Rev. 1381, 1425 n.224 (2007) [hereinafter Galle, SSUTA].
153. See Aranson et al., supra note 76, at 38-39.
154. Galle, Getting Spending, supra note 11, at 177-81.
155. Merrill, supra note 27, at 833; see Roderick M. Hills, Jr., Against Preemption: How Federalism Can Improve the National Legislative Process, 82 N.Y.U. L. REV. 1, 16-39 (2007) (making this argument in the context of congressional decisions to preempt state law);
156. Sustein, supra note 27, at 317, 335 (making this argument in the context of delegations to agencies that would approach limits of federal power over states).
157. See Sunstein, supra note 27, at 317.
158. For purposes of this Part, I accept for the sake of argument, the possibility that externalities of any kind might justify federal judicial intervention. I will argue later that courts should be concerned only with certain kinds of third-party effects - that is, that state officials should be free to make bad decisions, except to the extent that their decisions infringe on federally-protected values. See infra Part IV.A.
159. Rationally self-serving public officials, this claim goes, will tend to favor the interests of their most intensely motivated group of constituents (or other interests involved in the legislative process). See McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 103, 118. The effect is the result of collective action problems among constituents, many of whom would prefer to free ride on the work of similarly situated others. Thus, the most intensely active groups will be those that are small and have much at stake in the legislation. For some basic summaries of public choice theory, see Mancur Olson, Jr., The Logic of Collective Action: Public Goods and the Theory of Groups 11-16, 21-22, 31, 35, 46-48 (1965);
160. Todd Sandler, Collective Action: Theory and Applications 19-62 (1992) (outlining several economic tools that aid in the study of collective action problems).
161. Hills, Cooperative Federalism, supra note 16, at 887 (arguing that well-organized opposition could stop a cost-effective initiative that would benefit people with "muted voices");
162. Somin, Closing the Pandora's Box, supra note 16, at 465-66;
163. Stewart, supra note 22, at 958.
164. See Somin, Closing the Pandora's Box, supra note 16, at 499; see also STEPHEN J. Bailey, Local Government Economics: Principles and Practice 97 (1999);
165. cf. Jonathan R. Macey, Federal Deference to Local Regulators and the Economic Theory of Regulation: Toward a Public-Choice Explanation of Federalism, 76 Va. L. Rev. 265, 278-79 (1990) (explaining how interest groups develop stakes in the legal status quo by favoring the jurisdiction in which they are expert).
166. For example, the IDEA appears to require contributions not only from state education departments but also from other agencies that might provide services to the disabled students. See 20 U.S.C. § 1412(a)(12)(B)(2006).
167. Baker, Conditional Spending, supra note 22, at 1950; Hills,
168. Stewart, supra note 22, at 958, 971; see also Dorf & Sabel, supra note 63, at 430-31 (arguing that conditional spending, like commandeering, essentially obliges states to accept funds and attached conditions).
169. See Hills, Cooperative Federalism, supra note 16, at 887 (recognizing that "nonfederal officials are themselves a powerful interest group with interests that can be inconsistent with the well-being of their constituents").
170. Theory predicts that bureaucrats should prove highly effective in influencing legislative decisions. See, e.g., Terry M. Moe, The New Economics of Organization, 28 Am. J. Pol. Sci. 739, 769 (1984).
171. See § 1412(a)(12)(B).
172. Highway Safety Act of 1966, Pub. L. No. 89-564, 80 Stat. 731 (1966); 23 C.F.R. § 204.4 (1969).
173. See Clay P. Graham, Helmetless Motorcyclists - Easy Riders Facing Hard Facts: The Rise of the "Motorcycle Helmet Defense," 41 Ohio St. L.J. 233, 238 (1980).
174. Federal-Aid Highway Act of 1976, Pub. L. No. 94-280, § 208(a), 90 Stat. 454 (1976) (codified as amended at 23 U.S.C. § 402(c) (2000)); Graham, supra note 93, at 238.
175. See Andreas Muller, Evaluation of the Costs and Benefits of Motorcycle Helmet Laws, 70 Am. J. Pub. Health 586, 586 (1980).
176. 42 U.S.C. §§ 7401-7671q (2006).
177. Daniel C. Esty, Revitalizing Environmental Federalism, 95 Mich. L. Rev. 570, 597-98 (1996) (explaining that states accept environmental regulation despite concentrated costs to particular industries and intangible benefits);
178. Richard B. Stewart, Pyramids of Sacrifice? Problems of Federalism in Mandating State Implementation of National Environmental Policy, 86 Yale L.J. 1196, 1213 (1977) (explaining the improved position of environmentalist groups when the federal government, rather than the states, sets policy).
179. See Cary Coglianese, Social Movements, Law, and Society: The Institutionalization of the Environmental Movement, 150 U. Pa. L. Rev. 85, 94-99, 110-12 (2001);
180. Richard L. Revesz, Federalism and Environmental Regulation: A Public Choice Analysis, 115 Harv, L. Rev. 553, 564-65 (2001);
181. Christopher H. Schroeder, Rational Choice Versus Republican Moment - Explanations for Environmental Laws, 1969-73, 9 Duke Envtl. L. & Pol'Y F. 29, 50-59 (1998).
182. David F. Bradford & Wallace E. Oates, The Analysis of Revenue Sharing in a New Approach to Collective Fiscal Decisions, 85 Q.J. Econ. 416, 420-23, 434 (1971) (explaining how a lump sum distributed to a group may have diffuse economic benefit to all individuals through revenue sharing);
183. David F. Bradford & Wallace E. Oates, Towards a Predictive Theory of Intergovernmental Grants, 61 Am. Econ. Rev. 440, 443 (1971) (suggesting that given certain conditions, a system that gave grants to individuals could "leadQ via the political process to precisely the same equilibrium state of the community as does the grant to the collectivity");
184. Ronald C. Fisher, Income and Grant Effects on Local Expenditure: The Flypaper Effect and Other Difficulties, 12 J. Urb. Econ. 324, 325-26 (1982). That is, the grant shifts the state's demand curve for government services outward without changing its shape.
185. See Hines & Thaler, supra note 29, at 218. To be completely accurate, the state would likely make a small upward adjustment in highway spending as a result of the additional wealth represented by the grant. But one would expect this additional spending to be a fraction of the grant that resembles the percentage of the state's overall wealth devoted to highway spending prior to the grant. If citizens spent $.01 per dollar of income on highways, and the grant does not alter their preferences, they should spend $.01 of each grant dollar on highways.
186. Fisher, supra note 99, at 328; see Wallace E. Oates, An Essay on Fiscal Federalism, 37 J. Econ. Literature 1120, 1129 (1999).
187. This analysis does not work perfectly for matching grants, which for obvious reasons tend to encourage the state to spend more than it would otherwise prefer on the matched expenditure. Robert D. Cooter, The Strategic Constitution 116-19 (2000);
188. Stephen J. Bailey & Stephen Connolly, The Flypaper Effect: Identifying Areas for Further Research, 95 Pub. Choice 335, 336 (1998) ("[0]pen-ended matching grants have a greater stimulatory effect on grantee spending than equivalent lump-sum grants because they have both income and substitution effects.").
189. See Katherine Baicker, Government Decision-Making and the Incidence of Federal Mandates, 82 J. Pub. Econ. 147, 177-78 (2001);
190. Rebecca J. Campbell, Leviathan and Fiscal Illusion in Local Government Overlapping Jurisdictions, 120 Pub. Choice 301, 324 (2004);
191. Radu Filimon et al., Asymmetric Information and Agenda Control: The Bases of Monopoly Power in Public Spending, 17 J. Pub. Econ. 51, 60-61 (1982);
192. Nora Gordon, Do Federal Grants Boost School Spending? Evidence from Title I, 88 J. Pub. Econ. 1771, 1773 (2004);
193. Peter M. Mitias & Geoffrey K. Turnbull, Grant Illusion, Tax Illusion, and Local Government Spending, 29 Pub. Fin. Rev. 347, 361 (2001);
194. Geoffrey K. Turnbull, The Overspending and Flypaper Effects of Fiscal Illusion: Theory and Empirical Evidence, 44 J. Urb. Econ. 1, 15-22 (1998);
195. Byron F. Lutz, Taxation with Representation: Intergovernmental Grants in a Plebiscite Democracy 24 (Fin. & Econ. Discussion Series, Working Paper No. 2006-06, 2006), available at https://www.federalreserve.gov/ Pubs /FEDS/2006/200606/200606pap.pdf. But see Brian Knight, Endogenous Federal Grants and Crowd-out of State Government Spending: Theory and Evidence from the Federal Highway Aid Program, 92 Am. Econ. Rev. 71, 88 (2002) ("[F]ederal highway grants crowd out state highway spending, leading to little or no increase in net spending.").
196. Bailey & Connolly, supra note 102, at 337-38, 339 tbl.l;
197. G. Brennan & J.J. Pincus, A Minimalist Model of Federal Grants and Flypaper Effects, 61 J. Pub. Econ. 229, 230 (1996);
198. Fisher, supra note 99, at 329-30 & tbl.l; Hines & Thaler, supra note 29, at 219-20; Oates, supra note 101, at 1129;
199. Monica Singhal, Special Interest Groups and the Allocation of Public Funds, 92 J. Pub. Econ. 548, 554-56 (2008) (finding increases in state expenditures on tobacco control programs despite large tobacco industry lobby); Volden, supra note 61, at 225.
200. See supra note 29.
201. Gordon, supra note 103, at 1785-88; Lutz, supra note 103, at 19.
202. See Sang-Seok Bae & Richard C. Feiock, The Flypaper Effect Revisited: Intergovernmental Grants and Local Governance, 27 Int'l J. Pub. Admin. 577, 583-85 (2004);
203. Bailey & Connolly, supra note 102, at 336, 347; Fisher, supra note 99, at 324; Hines & Thaler, supra note 29, at 220-22.
204. See Bae & Feiock, supra note 107, at 581; Filimon et al., supra note 103, at 52.
205. Cf. Bae & Feiock, supra note 107, at 584-85, 591 (arguing that the flypaper effect may depend on the degree of accepters' control over the budget and finding a larger effect where control of the budget and acceptance of the grant is integrated).
206. Singhal, supra note 104, at 549.
207. Id.at 551.
208. Later in this Article, I argue that the best explanation for the observed flypaper data is a combination of official responses to incomplete voter understanding of fiscal information, together with the need to appease grantors. See infra text accompanying notes 244-254. This result, even if right, remains ambiguous as to the likely political economy results. Officials who respond to voter ignorance may be acting either self-interestedly or in the public welfare. Only the first set may reduce overall welfare by their choices, and available data to date do not allow us to distinguish between the two.
209. Caminker, supra note 6, at 1012-13 (using the Radioactive Waste Act as an example to discuss ways in which Congress can empower the states);
210. Oates, supra note 101, at 1127; Ernest A. Young, The Rehnquist Court's Two Federalisms, 83 Tex. L. Rev. 1, 113 (2004). That is, rather than designing their own institutions for bargaining, writing their own sets of rules for agenda setting and agreement, and consenting to a mutually satisfactory enforcement system, states wishing to agree amongst themselves simply take their issues to their congressmen. They can then write a proposed bill offering money in exchange for compliance and rely on federal regulators and courts to oversee the whole exchange. See Bruce H. Kobayashi & Larry E. Ribstein, Introduction to Economics of Federalism, at xiv-xv (Bruce H. Kobayashi & Larry E. Ribstein eds., 2007);
211. Somin, Closing the Pandora's Box, supra note 16, at 469-70.
212. Jonathan Gruber, Public Finance and Public Policy 120-28 (2d ed. 2007).
213. See Nina A. Mendelson, Chevron and Preemption, 102 Mich. L. Rev. 737, 767-68 (2004).
214. I am grateful to Rick Hills for suggesting a version of this point.
215. For purposes of this Article, though, I place relatively little weight on this possibility. My focus here is on whether state officials, on their own, will reject welfare-diminishing grants. I therefore presume, for the sake of argument, that essentially all federal grants are at best welfare-neutral.
216. Cf. Merrill, supra note 27, at 834 (arguing that the efficacy of political safeguards of federalism is an elusive, empirical question).
217. For a more mathematically rigorous model based on a similar premise, see Volden, supra note 61, at 215-23.
218. My results here do not depend on whether we conceive of costs to voters as average costs, costs to the median voter, or overall social welfare adjusted by some distributional preference.
219. I assume for simplicity that the official fully realizes the political benefit of having money to spend. Of course, exaggerated, discounted or diminishing political returns on spending as well as on revenue-raising also seem possible. See, e.g., John KENNETH Galbraith, The Affluent Society (4th ed. 1984);
220. Wallace E. Oates, On the Nature and Measurement of Fiscal Illusion: A Survey, in Taxation and Fiscal Federalism: Essays in Honour of Russell Mathews 65, 67 (Geoffrey Brennan et al. eds., 1988) (raising the possibility of exaggerated returns due to "a systematic misperception of fiscal parameters -a recurring propensity, for example, to underestimate one's tax liability associated with certain public programs"). I set aside those cases here.
221. I am not aware of any prior analysis in the legal literature of the possibility of local-source tax discounting.
222. That is, in the examples I have given, officials perceive only half of the costs of federal grant conditions, but perceive 80% of the costs of raising taxes. So the discount on grant conditions is larger, at 50%, as compared with 20% for the discount on tax increases.
223. Although net utility is negative in this example, note that the fact of tax discounting alongside grant-cost discounting has reduced the amount of negative utility incurred by the official's constituents. If own-sources taxes were not an available option, the utility loss would have been the full discount rate, 50%, of the costs of complying with the grant conditions. However, because of the tax consideration the loss is only 37.5%.
224. Admittedly, however, the possibility of tax constraints on discounting may reduce overall welfare in some situations. For example, I noted earlier that state officials may discount positive as well as negative spillovers. If a given grant would generate a net positive externality, then the opportunity for local revenue will induce officials to refuse the grant, reducing welfare.
225. See Edward J. McCaffery & Jonathan Baron, Heuristics and Biases in Thinking About Tax, in Nat'l Tax Assoc, Proceedings of the 96th Annual Conference on Taxation 434, 436 (2003) (measuring "tax aversion" - that is, a person's attitude toward calling something a "tax").
226. Cf. Gilbert E. Metcalf, Deductibility and Optimal State and Local Fiscal Policy, 39 Econ. Letters 217, 221 (1992) (suggesting that opportunities for tax exporting may have made retaining sales tax cheaper than other alternatives);
227. Stephen H. Pollock, Mechanisms for Exporting the State Sales Tax Burden in the Absence of Federal Deductibility, 44 Nat'l Tax J. 297, 299 (1991) (stating that the increase in state reliance on sales tax may be explained by the fact that "[t]he state sales tax is subject to a significant amount of exporting"). On the concept of tax exporting generally, see Robert Tannenwald, Fiscal Disparity Among the States Revisited, New Eng. Econ. Rev., July-Aug. 1999, at 3, 4; infra text accompanying notes 166-173.
228. See Tannenwald, supra note 127, at 7.
229. Charles E. McClure, Jr., Tax Exporting and the Commerce Clause, in Fiscal Federalism and the Taxation of Natural Resources 169, 171-83 (Charles E. McLure, Jr. & Peter Mieszkowski eds., 1983) [hereinafter McClure, Tax Exporting] (explaining, in a classic analysis, that the likely outcome of a tax levied on natural resources by a producing state will depend on "the conditions under which it is levied," including "the degree of geographic concentration and the mobility of resources or industry, cartelization by taxing states, international competition or price umbrella effects, natural substitutability, government regulation, the prevalence of long-term contracts, the importance of transportation costs and the way in which such costs are determined, unionization, and market structure"); see also Charles E. McClure, Jr., Incidence Analysis and the Supreme Court: An Examination of Four Cases from the 1980 Term, 1 SUP. Ct. Econ. REV. 69, 87-89 (1982) (concluding that coal sold under existing contracts would probably export the severance tax to non-resident consumers, but that this would not be the case for those sold under contracts negotiated after the passage of the tax);
230. cf. Pollock, supra note 127, at 300 (commenting that states are constrained in their use of exporting by the danger that such use may drive up costs of doing business, which may in turn reduce investment and jobs).
231. McClure, Tax Exporting, supra note 129, at 169-70, 186-87.
232. See Daniel Shaviro, An Economic and Political Look at Federalism in Taxation, 90 Mich. L. Rev. 895, 956 (1992) [hereinafter Shaviro, Federalism in Taxation] (explaining that a severance tax may be directly borne by out-of-state consumers, but its real economic burden, even in the short term, cannot be determined without analyzing a multitude of factors).
233. Id. at 957.
234. See Charles E. McClure, Jr., Rethinking State and Local Reliance on the Retail Sales Tax: Should We Fix the Sales Tax or Discard It?, 2000 BYU L. Rev. 77, 91-92.
235. See James M. Buchanan & Richard E. Wagner, Democracy in Deficit: The Political Legacy of Lord Keynes 129 (1977); Campbell, supra note 103, at 305-06.
236. Aradhna Krishna & Joel Slemrod, Behavioral Public Finance: Tax Design as Price Presentation, 10 Int'l Tax & Pub. Fin. 189, 190-95 (2003);
237. Edward J. McCaffery & Jonathan Baron, The Humpty Dumpty Blues: Disaggregation Bias in the Evaluation of Tax Systems, 91 Organizational Behav. & Hum. Decision Processes 230, 231 -32 (2003).
238. Krishna & Slemrod, supra note 135, at 192.
239. That is, choices about how to structure a tax, and how to allocate its economic burden on various individuals and activities, might change public preferences for more or less tax. See, e.g., Daniel Shaviro, Beyond Public Choice And Public Interest: A Study Of The Legislative Process As Illustrated By Tax Legislation in the 1980s, 139 U. Pa. L. Rev. 1, 53, 57-63 (1990). For instance, one might think that a tax on an activity that is unlikely to change in response to taxation will reduce the amount of economic distortion that accompanies the tax, so although the total tax might remain the same, the societal costs of taxing decrease.
240. Cf. Singhal, supra note 104, at 560 (emphasizing the possibility that lawsuits brought by interest groups may have a public-educative function that changes popular preferences for services related to the lawsuit).
241. See Timothy Besley & Anne Case, Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition, 85 Am. Econ. Rev. 25, 30 (1995).
242. See John E. Roemer, Distribution and Politics: A Brief History and Prospect, 25 Soc. Choice & Welfare 507, 510-13, 523-24 (2005).
243. Kenneth J. Arrow, Social Choice and Individual Values 97-100 (2d ed. 1963) (proving that the no social welfare function can satisfy all four conditions of social choice theory); see also Amartya K. Sen, Collective Choice and Social Welfare 35-51 (1970). For cogent explanations of Arrow's theorem in laymen's terms, see Kenneth A. Shepsle & Mark S. Bonchek, Analyzing Politics: Rationality, Behavior, and Institutions 63-81 (1997);
244. Hebert Hovenkamp, Rationality in Law & Economics, 60 Geo. Wash. L. Rev. 293, 318-28 (1992).
245. See Bernard Grofman, Some Notes on Voting Schemes and the Will of the Majority, 7 Pub. Choice 65, 75 n.4 (1969);
246. Richard D. McKelvey, Intransitivities in Multidimensional Voting Models and Some Implications for Agenda Control, 12 J. Econ. Theory 472, 472 (1976) ("[I]t is theoretically possible to design voting procedures which, starting from any given point, will end up at any other point in the space of alternatives ...."); Steven Slutsky, Equilibrium Under a-Majority Voting, 47 ECONOMETRICA 1113, 1119 (1979).
247. See Saul Levmore, Voting Paradoxes and Interest Groups, 28 J. Legal Stud. 259, 260 (1999); McKelvey, supra note 142, at 480-81.
248. See William H. Riker, Liberalism Against Populism: A Confrontation Between the Theory of Democracy and the Theory of Social Choice 214-32 (1982).
249. See Kenneth A. Shepsle, Congress Is a "They," Not an "It": Legislative Intent as Oxymoron, 12 Int'l Rev. L. & Econ. 239, 241-42 (1992). Relatedly, positive political theory suggests that the end results of legislative processes may be produced more by the structure of the decision-making process than the underlying preferences of voters and legislators. See McNollgast, Legislative Intent: The Use of Positive Political Theory in Statutory Interpretation, 57 Law & Contemp. Probs. 3, 7-8 (1994).
250. Of course, it is possible that there are easy short-cuts for estimating state officials' attitudes towards tax increases. For instance, if a state's electorate had a strong preference for increased spending that persisted over time, but the state nonetheless did not raise taxes, that might suggest the perceived political costs of tax increases were quite large. There is an argument that the "flypaper effect" I described earlier could be evidence of just such a tax shortfall. See infra Part V.
251. Baker, Conditional Spending, supra note 22, at 1950-53, 1972-73; Baker & Berman, Getting Off the Dole, supra note 5, at 474.
252. E.g., John Hart Ely, Democracy and Distrust 73-183 (1980) (setting out, and justifying as consistent with existing doctrine, the author's theory that the U.S. Supreme Court's role is primarily to protect fair democratic processes, not to impose what it perceives as best policy results). For an example of how expansive the welfare-maximization theory could reach, consider that an anonymous Note author in the Harvard Law Review applies much the same analysis in effect to condemn generally any federal legislation crafted during a period in which the same political party controls both the White House and Congress. Note, No Child Left Behind and the Political Safeguards of Federalism, 119 Harv. L. Rev. 885, 900-01 (2006) [hereinafter Note, No Child Left Behind].
253. See Baker, Conditional Spending, supra note 22, at 1948;
254. Baker & Berman, Getting Off the Dole, supra note 5, at 470 (stating that the judicial enforcement of states' rights serves the function of protecting states "from federal homogenization in areas in which they deviate from the national norm," which increases and preserves "diversity among the states"); Engdahl, supra note 4, at 85; Neil S. Siegel, Commandeering and its Alternatives: A Federalism Perspective, 59 Vand. L. Rev. 1629, 1651 (2006);
255. Somin, Closing the Pandora's Box, supra note 16, at 464; Stewart, supra note 22, at 919-20.
256. See Michael C. Dorf, Foreword: The Limits of Socratic Deliberation, 112 Harv. L. Rev. 4, 60-61, 64-65 (1998) (explaining that the states can serve as experimental laboratories and thus the Supreme Court should limit the federal government's ability to uniformly deny recognition of a right on a national level "before there has been a substantial period for experimentation").
257. Edward L. Rubin & Malcolm Feeley, Federalism: Some Notes on a National Neurosis, 41 UCLA L. Rev. 903, 914-26 (1994) (arguing that "federalism allows the states to vary as they choose, pursuing their own policies instead of the national one," and thus "can be justified only by arguments favoring a variety of policies, not by arguments favoring the implementation of a single policy by a variety of methods").
258. Robert P. Inman & Daniel L. Rubinfeld, The Political Economy of Federalism, in Perspectives on Public Choice 73, 83-85 (Dennis C. Mueller ed., 1997);
259. McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 106.
260. For a sampling of the many interesting discussions on these points see, for example, Gregory v. Ashcroft, 501 U.S. 452, 458 (1991);
261. Geoffrey Brennan & James M. Buchanan, The Power to Tax: Analytical Foundations of a Fiscal Constitution 173-86 (1980);
262. Breyer, supra note 27, at 56-65;
263. Michael W. McConnell, Federalism: Evaluating the Founders' Design, 54 U. Chi. L. Rev. 1484, 1493-1500 (1987);
264. Kobayashi & Ribstein, supra note 113, at xii-xiv; Oates, supra note 101, at 1122-23; Stewart, supra note 22, at 918.
265. See Gregory, 501 U.S. at 458; Andrzej Rapaczynski, From Sovereignty to Process: The Jurisprudence of Federalism After Garcia, 1985 Sup. Ct. Rev. 341, 380-95; Stewart, supra note 22, at 918.
266. My arguments here also tend to demonstrate that conditional spending on average is welfare enhancing overall. However, my argument does not rest on that point because, as I contend in the main text, determining the net welfare effect of a policy is the province mainly of legislatures, not federal courts.
267. See generally Oates, supra note 101.
268. See Shaviro, Federalism in Taxation, supra note 131, at 931-34; Mark Tushnet, Rethinking the Dormant Commerce Clause, 1979 Wis. L. Rev. 125, 130-33.
269. See Advisory Comm'n on Intergovernmental Relations, Interjurisdictional Tax and Policy Competition: Good or Bad for the Federal System? 60-63 (1991);
270. William A. Fischel, The Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land-Use Policies, at ix (2001) (stating that the homeowner voters' stake in local politics which makes them attentive to public policy may explain local governments' race to the top in public education and environmental protection);
271. Abraham Bell & Gideon Parchomovsky, Of Property & Federalism, 115 YaleL.J. 72, 103 (2005).
272. In a relatively unregulated system of interjurisdictional competition, citizens lack information on which to compare the performance of their public officials. Some empirical research suggests that voters may make up for this gap by using heuristics, or mental shortcuts, such as rough comparisons between their own officials and those in other nearby jurisdictions, or perhaps between local and federal officials from their own jurisdiction. Besley & Case, supra note 139, at 29-31. Thus, a candidate's success in keeping taxes low may be judged, not in absolute terms, but in comparison to trends in tax rates in neighboring jurisdictions. Id.
273. See Paul E. Peterson, The Price of Federalism 17-18 (1995) (stating that local governments must provide public services that meet local businesses' and residents' needs to keep the citizens in-state because marginal businesses and marginal residents determine the market value of property in the locality);
274. William W. Bratton & Joseph A. McCahery, The New Economics of Jurisdictional Competition: Devolutionary Federalism in a Second-Best World, 86 Geo. L.J. 201, 207-09 (1997) (stating that under Tiebout's model, a rational individual will choose a jurisdiction based on its taxes and available public goods); McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 109 (arguing that there is an incentive to compete because if state governments can increase their tax base, they can use the increase in tax revenue to fund popular programs and gain the support of powerful interest groups).
275. See Lee Anne Fennell, Beyond Exit and Voice: User Participation in the Production of Local Public Goods, 80 Tex. L. Rev. 1, 88 (2001); McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 109.
276. See Brennan & Buchanan, supra note 153, at 178; cf Mancur Olson, Dictatorship, Democracy, and Development, 87 Am. Pol. Sci. Rev. 567 (1993), reprinted in Readings in Political Economy 130, 139 (Kaushik Basu ed., 2003).
277. See Bratton & McCahery, supra note 160, at 207-09.
278. Susan Rose-Ackerman, Risk Taking and Reelection: Does Federalism Promote Innovation?, 9 J. Legal Stud. 593, 594-95 (1980);
279. David Lazer, Regulatory Capitalism as a Networked Order: The International System as an Informational Network, 598 Annals Am. Acad. Pol. & Soc. Sci. 52, 55, 60 (2005);
280. Koleman S. Strumpf, Does Government Decentralization Increase Policy Innovation?, 4 J. Pub. Econ. Theory 207, 208 (2002);
281. Lars P. Feld et al., Federalism, Decentralization, and Economic Growth 10 (Marburg Working Paper on Econ., No. 30/2004, 2004), available at http://www.uni-marburg.de/fb02/makro/forschung/gelbereihe/artikel/2004- 30-FederalismGrowthDP_gesamt.pdf.
282. Brian Galle & Joseph Leahy, Laboratories of Democracy? Policy Innovation in Decentralized Governments 81-82 (Aug. 6, 2008) (unpublished manuscript), available at http://ssrn.com/abstract=l198835 (exploring whether states have an incentive to innovate despite the threat of free-riding).
283. See Ernest J. Brown, The Open Economy: Justice Frankfurter and the Position of the Judiciary, 67 YALE L.J. 219, 228-33 (1957);
284. Donald H. Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 Mich. L. Rev. 1091, 1191 (1986);
285. Shaviro, Federalism in Taxation, supra note 131, at 910-12.
286. See Del. Dep't of Transp., Delaware Transportation Facts 2006, at 60-61 (2006), http://www.deldot.gov/information/pubs_forms/fact_book/pdf/2006/ 2006_deldot_ fact_book.pdf?22608; Federation of Tax Administrators, 2005 State Tax Collection by Source, http://www.taxadmin.org/fta/rate/05taxdis.html (last visited Aug. 13, 2008) (sourcing 43.9% of Delaware's collected taxes as coming from sources other than the individual income tax, corporate income tax and excise tax). For more detailed Delaware fiscal data, see State of Delaware, Government Information Center, Chapter 7: State Finance, http://gic.delaware. gov/lwv/body/dgbody-09.shtml (last visited Aug. 13, 2008).
287. See Galle, SSUTA, supra note 78, at 1399-1400.
288. See, e.g., Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U.S. 564, 576 (1997) ("We have 'consistently ... held that the Commerce Clause ... precludes a state from mandating that its residents be given a preferred right of access, over out-of-state consumers, to natural resources located within its borders or to the products derived therefrom." (quoting New England Power Co. v. New Hampshire, 455 U.S. 331, 338 (1982)));
289. West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994) (finding a program unconstitutional "that simultaneously burdens interstate commerce and discriminates in favor of local producers");
290. Boston Stock Exch. v. State Tax Comm'n, 429 U.S. 318, 331 (1977) (discussing a tax where "[t]he obvious effect... [was] to extend a financial advantage to sales on the New York exchanges at the expense of the regional exchanges").
291. See Geoffrey R. Stone et al., Constitutional Law 232 (5th ed. 2005).
292. Id.
293. See Choper, supra note 68, at 190-93.
294. See Shaviro, Federalism in Taxation, supra note 131, at 931-32; Tushnet, supra note 157, at 130-33.
295. A typical solution for the out-of-state interest in this situation is to seek national legislation preempting the state and local rules. See Jonathan R. Macey, Federal Deference to Local Regulators and the Economic Theory of Regulation: Toward a Public-Choice Explanation of Federalism, 76 Va. L. Rev. 265, 271-73 (1990);
296. Revesz, supra note 98, at 564. The fierceness of many of these preemption battles, I believe, nicely demonstrates the scale of what local jurisdictions perceive to be at stake in their opportunity to set their own rules. It follows that the price for accepting uniformity as a condition of a federal grant may be quite high.
297. Galle, SSUTA, supra note 78, at 1394-1400.
298. See Jim Chen, A Vision Softly Creeping: Congressional Acquiescence and the Dormant Commerce Clause, 88 Minn. L. Rev. 1764, 1767-68 (2004);
299. Dan T. Coenen, Business Subsidies and the Dormant Commerce Clause, 107 Yale L.J. 965, 984-97 (1998);
300. Peter D. Enrich, Saving the States from Themselves: Commerce Clause Constraints on State Tax Incentives for Business, 110 Harv. L. Rev. 377, 442-43, 453-58 (1996);
301. Maxwell L. Stearns, A Beautiful Mend: A Game Theoretical Analysis of the Dormant Commerce Clause Doctrine, 45 Wm. & Mary L. Rev. 1, 154-55 (2003).
302. For more detailed discussion of the political and economic aspects of the 1986 reform, see W. Elliot Brownlee, Federal Taxation in America: A Short History 124-50 (1996);
303. Alan J. Auerbach & Joel Slemrod, The Economic Effects of the Tax Reform Act of 1986, 35 J. Econ. Literature 589, 589-99 (1997).
304. Tax Reform Act of 1986, Pub. L. No. 99-514, § 134(a)(1), 100 Stat. 2085, 2116 (1986). Congress has since repealed this provision and taxpayers can now choose between a deduction of state and local sales tax or state and local income tax. American Jobs Creation Act of 2004, Pub L. No. 108-357, §501(a), 118 Stat. 1418 (2004).
305. 26 U.S.C. § 164(2006).
306. See Charles E. McClure, Jr. & George R. Zodrow, Treasury I and the Tax Reform Act of 1986: The Economics and Politics of Tax Reform, 1 ECON. Persp. 37, 55 (1987).
307. U.S. Dep't of the Treasury, The President's Tax Proposals to the Congress for Fairness, Growth, and Simplicity 65 (1984); Bruce Bartlett, The Case for Eliminating Deductibility of State and Local Taxes, 28 Tax Notes 1121, 1122-23 (1985) ("[Deductibility of state and local taxes has been estimated to increase total state and local government spending by as much as 20.5 percent....");
308. Douglas Holtz-Eakin & Harvey Rosen, Federal Deductibility and Local Property Tax Rates, 27 J. Urb. Econ. 269, 270-71, 289, 291 (1990).
309. Paul N. Courant & Edward M. Gramlich, The Impact of the Tax Reform Act of 1986 on State and Local Behavior, in Do Taxes Matter? The Impact of the Tax Reform Act OF 1986, at 243, 244-63 (Joel Slemrod ed., 1990);
310. Gilbert E. Metcalf, Tax Exporting, Federal Deductibility, and State Tax Structure, 12 J. Pol. Analysis & Mgmt. 109, 111 (1993);
311. Pollock, supra note 127, at 298.
312. Professor Pollock estimates that, as a result of the mechanics of deductibility, sales-tax deductibility resulted in about a six percent savings to states prior to 1986. Pollock, supra note 127, at 298. He deems this a small amount, although for many states it amounted to half a billion dollars or more per year. Id.
313. Contrary to some suggestions, it is not uncommon for states to refuse conditional federal grants. For example, many states initially refused Aid to Families with Dependent Children grants. Volden, supra note 61, at 227. Others refused Clinton-era grants to pay for local teachers and police officers. Id.
314. See Pollock, supra note 127, at 299. On the relative difficulty of tax exporting with income taxes, see supra text accompanying notes 166-169.
315. The economics literature includes two other hypotheses for the unexpected adherence to sales taxes in the wake of the 1986 Act. As Gilbert Metcalf points out, less-than-full deductibility of sales taxes prior to 1986, together with the lower tax benefit of deductibility that came with 1986's lower federal tax brackets, may have compounded the allure of the opportunity to keep sales taxes as a tool for exporting taxes onto other jurisdictions. Metcalf, supra note 127, at 220-21. Howard Chernick also suggests that states may have adjusted their mix of sales and other taxes in order to restore a desired level of progressivity following the changes of the 1986 Act. Howard Chernick, A Model of the Distributional Incidence of State and Local Taxes, 20 Pub. Fin. Q. 572, 572-75 (1992).
316. Cf Fred S. McChesney, Money for Nothing: Politicians, Rent Extraction, and Political Extortion 26-29 (1997) (claiming that public officials enact regulatory regimes in order to demand rents from private parties for granting exemptions or forbearing from further regulation); id. at 124-31 (applying rent extraction theory to taxes and user fees).
317. Cf. Saul Levmore, Precommitment Politics, 82 Va. L. Rev. 567, 572-776, 586-91 (1996) (arguing that Congress can extract greater rents where it can offer interest groups assurances that it will be able to fulfill their demands in the future).
318. See Volden, supra note 61, at 219 (claiming that state governments likely prefer not to share credit for successful programs with the federal government).
319. See Christine Jolls, Behavioral Economics Analysis of Redistribute Legal Rules, 51 Vand. L. Rev. 1653, 1662-63 (1998);
320. Edward J. McCaffery & Jonathan Baron, Thinking About Tax, 12 Pyschol. Pub. Pol'y & L. 106, 119-20 (2006).
321. See Krishna & Slemrod, supra note 135, at 193-94.
322. The 1986 Act may have in fact accelerated the move to sales taxes by decreasing their salience. Taxpayers who deducted their sales taxes presumably had to tally them, thereby realizing the full extent of the burden they were bearing each year.
323. New York v. United States, 505 U.S. 144, 183 (1991) ("The interests of public officials... may not coincide with the Constitution's intergovernmental allocation of authority."); Somin, False Dawn, supra note 7, at 137-38 (recognizing that "state politicians often have incentives to undermine federalism rather than promote it").
324. See, e.g., Gordon Tullock, The Politics of Bureaucracy 134-36, 167-70 (1965); Aranson et al., supra note 76, at 38, 47-48.
325. See Steven Kelman, Making Public Policy 244-45 (James Q. Wilson ed., 1987) (recognizing that people may "reserve certain decisions to self-interest and others to altruism");
326. Edward L. Rubin, Getting Past Democracy, 149 U. Pa. L. Rev. 711, 767 (2001);
327. Mark Tushnet, Non-Judicial Review, 40 Harv. J. ON Legis. 453, 455 (2003).
328. See Jon Elster, The Cement of Society: A Study of Social Order 130-31 (1989);
329. Robert Cooter, Expressive Law and Economics, 27 J. Legal Stud. 585, 585-86 (1998);
330. Richard H. McAdams, The Origin, Development, and Regulation of Norms, 96 Mich. L. Rev. 338, 355-66(1997).
331. I have argued this point elsewhere. Galle, SSUTA, supra note 78, at 1433-34.
332. See supra note 26 and accompanying text.
333. See Hills, Cooperative Federalism, supra note 16, at 825-27 (arguing the voter confusion point could be applied to all intergovernmental arrangements, but stating that this is a reason to believe the argument proves too much); McGinnis & Somin, Federalism vs. States' Rights, supra note 20, at 91; Deborah Jones Merritt, The Guarantee Clause and State Autonomy: Federalism for a Third Century, 88 Colum. L. Rev. 1, 48-50 (1988);
334. Stewart, supra note 22, at 958; Note, No Child Left Behind, supra note 148, at 902-03.
335. Hills, Cooperative Federalism, supra note 16, at 826; McCoy & Friedman, supra note 4, at 124; Siegel, supra note 149, at 1657; Somin, Closing the Pandora's Box, supra note 16, at 485; Stewart, supra note 22, at 958; Young, Two Cheers, supra note 22, at 1360; Rebecca E. Zietlow, Federalism's Paradox: The Spending Power and Waiver of Sovereign Immunity, 37 WAKE FOREST L. Rev. 141, 203 (2002); Note, Federalism, Political Accountability, and the Spending Clause, 107 Harv. L. Rev. 1419, 1420 (1994) [hereinafter Note, Federalism]; Note, No Child Left Behind, supra note 148, at 902-03.
336. See McCoy & Friedman, supra note 4, at 124-25; Somin, Closing the Pandora's Box, supra note 16, at 485; Young, Two Cheers, supra note 22, at 1360-61; Zietlow, supra note 198, at 203; Note, Federalism, supra note 198, at 1420, 1429.
337. Cf. Erwin Chemerinsky, Protecting the Spending Power, 4 Chap. L. Rev. 89, 100 (2001) (arguing that officials remain free to point out to their constituents that they are not responsible for decisions of other officials). Notably, in recent political events voters seem to have had little trouble in blaming what they perceive as maladministration of the war in Iraq on President Bush's administration as well as the Congress that voted to authorize it. In any event, as I have noted before, careful institutional design can largely cure any structural distortions in the correct allocation of political accountability. Galle, Getting Spending, supra note 11, at 200-02.
338. Baker, Conditional Spending, supra note 22, at 1936-39.
339. Lynn A. Baker, Conditional Federal Spending and States' Rights, 574 Annals Am. Acad. Pol. & Soc. Sci. 104, 106 (2001) ("[T]he federal government has a monopoly power over the various sources of state revenue, which renders any offer of federal funds to the states presumptively coercive." (emphasis added)); see Baker, Conditional Spending, supra note 22, at 1936-39; Baker & Berman, Getting Off the Dole, supra note 5, at 519-21.
340. See Baker, Conditional Spending, supra note 22, at 1935-38.
341. See Engdahl, supra note 4, at 82-83.
342. Cf. Baker & Berman, Getting Off the Dole, supra note 5, at 520, 535-36 (acknowledging that states may have a "choice" to decline funds, but arguing that as a normative matter, the states' choices are unfairly narrow).
343. Perhaps the argument in response would be that voters will attach too much blame to their state officials, relative to some outside, objective standard of political blameworthiness. But any such argument would depend on a theory of political accountability that to date no one on either side of the spending debate has articulated.
344. Cf. Sullivan, supra note 63, at 1492-96 (arguing that conditions attached to grants of aid may be deserving of closer judicial attention if political failures result in the federal government assuming too much power relative to ideal constitutional design, and that such an arrangement might be described as "coercive" in some sense).
345. See Siegel, supra note 149, at 1656. Professor Baker straightforwardly acknowledges the difficulty of defining these concepts; indeed, one of her arguments for her own approach to the Spending Clause is that it presents a bright-line alternative that approximates her sense of the best notion of coerciveness. See Baker, Conditional Spending, supra note 22, at 1972-74; Baker & Berman, Getting Off the Dole, supra note 5, at 485, 521-22.
346. See Siegel, supra note 149, at 1644.
347. Again, this may be largely another way of restating the diversity argument. See supra Part IV.B.
348. See D. Bruce La Pierre, Political Accountability in the National Political Process-The Alternative to Judicial Review of Federalism Issues, 80 Nw. U. L. Rev. 577, 644-46 (1985); cf. Stewart, supra note 22, at 966.
349. Cf. La Pierre, supra note 211, at 658-60 (arguing that cost exporting is not a concern where the federal government requires a state to act as a condition of the federal government's refrain from preempting the state, on the theory that if the state refuses the federal government it would in fact have to pay costs of preemption).
350. See Hills, Cooperative Federalism, supra note 16, at 880-83.
351. See Galle, Getting Spending, supra note 11, at 188-89.
352. Cf. Volden, supra note 61, at 218-19 (arguing that local governments expend their own funds on top of federal grants in order to ensure they will receive some credit for programs, and may turn down some grants in order to avoid sharing credit).
353. There also is an argument that there are some federal goods we should be happy to see "over-produced." For example, if we think that for other political-process reasons Congress does not ordinarily do enough to protect the rights of oppressed or neglected political minorities, then cost exporting would be a way of subsidizing more expansive federal efforts. If those costs are borne by state governments who themselves underproduce rights regulations, then the state governments probably have little grounds for complaint.
354. See supra Part V.A.
355. See supra Part V.B.
356. Cf. Adler, supra note 6, at 1208 ("The degree of coercion imposed by a particular program also may vary from state to state, depending on relative social and economic needs and conditions as well as on each state's independent capacity to address the need without federal aid.").
357. A complicating point here is that while it may be demonstrably cheaper to regulate at one level or another, we have to be certain to compare the costs of similar quality outputs. Federal regulation may be cheaper, but of lower quality, or vice-versa.
358. For example, suppose it would cost Congress $100 to implement the Widget Protection Act of 2008 in the state of South Utopia ("SU"). It will similarly cost the SU government $100 in real dollars to implement the Act. SU residents believe they receive no benefit at all from the Act. However, Congress offers SU a $90 grant on the condition that it will agree to administer the Act. Because of various discounting effects, SU lawmakers perceive the cost of implementation as $80. I claimed in Part III that the determining factor in whether SU officials will accept the grant offer is their perceived cost of raising $90 from the SU tax base. If they perceive the cost as less than $80, they will reject Congress's offer. Congress must then bear the entire $100 itself. If SU perceives their tax cost as higher than $80, they will accept the grant, and Congress will have succeeded in exporting some of the costs of implementing the Widget Protection Act.
359. To review, we should expect that unmatched grants would on average have only a weak impact on recipient spending. Giving a state of 1,000 people a $1 million grant is fiscally identical to giving each resident $1,000. If residents generally prefer to spend eight cents of each dollar on government services, then the grant will simply increase spending by $80 per capita, or $80,000 of the $1 million, allocated in proportion to preferences for various services. Tax cuts or spending reductions will "offset" the remainder. In the flypaper effect studies, however, grants tended to increase spending by far more than the existing rate, sometimes by as much as dollar-for-dollar (or, in rare cases, even more). Additionally, grants tend to be spent largely in their targeted category, rather than being redistributed according to existing distributions of government spending. See supra Part II.B.
360. Cf. Lutz, supra note 103, at 24 n.22 ("Low income communities, which have relatively high [property] tax rates, may be constrained from their optimal education expenditure from fear of losing their commercial real estate base.").
361. Jonathan H. Hamilton, The Flypaper Effect and the Deadweight Loss from Taxation, 19 J. Urb. Econ. 148, 148-50, 153-54 (1986); see also Brennan & Pincus, supra note 104, at 232, 238-39 (proposing a model for the flypaper effect based on "differential tax efficiency"); Volden, supra note 61, at 221, 224-25 (modeling the assumption that federal grants are more attractive to local governments when the federal government is more efficient at raising funds).
362. See Gary S. Becker & Casey B. Mulligan, Deadweight Costs and the Size of Government, 46 J.L. & Econ. 293, 303 (2003);
363. Hamilton, supra note 224, at 153 (explaining how individuals avoid state taxes by moving away from the jurisdiction or purchasing goods in other jurisdictions, thereby decreasing the revenue efficiency of state taxes); Volden, supra note 61, at 224-25.
364. See Becker & Mulligan, supra note 225, at 306, 308; Brennan & Pincus, supra note 104, at 236, 238; Hamilton, supra note 224, at 153. Here is another simple numeric example. Suppose South Utopian ("SU") citizens prefer to spend $.08 per dollar of their personal income on government services paid for with SU tax funds. To obtain that $.08 in tax, the SU government in fact causes other economic distortions that result in an actual economic burden of $.12 per dollar on each SU citizen. So the citizens actually were willing to pay $.12 per dollar for services, but received only $.08 per dollar in value. Now suppose that federal taxation of $.08 per dollar, combined with attendant distortions, produces a burden of only $.10 per dollar on SU citizens. If the federal government gives SU a $ 1 million grant, SU citizens should be willing to spend more of it than their own income. They can spend more and still bear only a $.12 per dollar burden. To be precise, they should be willing to spend 80% of $.12 (.08/. 10 = x/.12), or $.096 on the dollar.
365. Cf. Fisher, supra note 99, at 342 ("[F]iscal illusion may cause individuals to perceive different tax increases than those that actually occur or individuals may respond to tax increases on the basis of some perceived use of the money.").
366. Peter Mieszkowski, Comments on Chapter 5, in Modern Public Finance 157, 159-60 (John M. Quigley & Eugene Smolensky eds., 1994).
367. See Bailey & Connolly, supra note 102, at 339-42; Gordon, supra note 103, at 1773.
368. See Fisher, supra note 99, at 324; Hines & Thaler, supra note 29, at 220-22; Lutz, supra note 103, at 1.
369. A reasonable question for the reader to ask at this point would be whether there might be a more direct measure of a state's fiscal situation. Unfortunately, the most common economic tools for measuring state "fiscal capacity" and "financial need" are themselves problematic in a number of ways. See Stephen M. Barro, State Fiscal Capacity Measures: A Theoretical Critique, in Measuring Fiscal Capacity 51, 81-84 (H. Clyde Reeves ed., 1986); Max B. Sawicky, The "Total Taxable Resources" Definition of State Revenue-Raising Ability, in 1 U.S. Dep't of the Treasury, Federal-State-Local Relations: Technical Papers 63, 78-94 (1986); Tannenwald, supra note 127, at 4. A particular problem for our purposes is that there appears to be no neutral way of measuring the financial "needs" of a state without first defining what forms and levels of services state and local governments ought to provide. Id. at 7. For instance, the leading measure of "need" simply analyzes the costs a state would incur if it provided the same bundle of services offered by the "average" U.S. state. Id. at 7-8. As authors of these studies note, many states that appear "needy" under this metric in fact may have a preference for a low level of government services, such that they could comfortably provide those services even under fairly tight budgets. ,Id. at 16, 19-22. Thus, the appeal of the inferential flypaper approach I suggest here is that it might account for the local jurisdiction's own perception of its fiscal capacity and its "need" for government services. It is worth noting, though, that the flypaper studies deal almost exclusively with unconditional grants, so that applying their findings to conditional grants does require a bit of an inferential leap.
370. See Bailey & Connolly, supra note 102, at 342-47.
371. See Becker & Mulligan, supra note 225, at 306, 308; Brennan & Pincus, supra note 104, at 230, 232; Hamilton, supra note 224, at 153; Lutz, supra note 103, at 24 n.22.
372. Bae & Feiock, supra note 107, at 580-81; Bailey & Connolly, supra note 102, at 348-49; William R. Dougan & Daphne A. Kenyon, Pressure Groups and Public Expenditures: The Flypaper Effect Reconsidered, 26 Econ. Inquiry 159, 160 (1988);
373. Lars P. Feld & Christoph A. Schaltegger, Voters as a Hard Budget Constraint: On the Determination of Intergovernmental Grants, 123 Pub. Choice 147, 151, 167 (2005);
374. Filimon et al., supra note 103, at 52; Hines & Thaler, supra note 29, at 223; Lutz, supra note 103, at 29-30; Mitias & Turnbull, supra note 103, at 347-48; Turnbull, supra note 103, at 3-7.
375. See Feld & Schaltegger, supra note 234, at 149-52; Filimon et al., supra note 103, at 57; Hines & Thaler, supra note 29, at 223.
376. See Bae & Feiock, supra note 107, at 580-81; Filimon et al, supra note 103, at 52, 57.
377. Bailey & Connolly, supra note 102, at 343, 346-47; James W. Fossett, On Confusing Caution and Greed: A Political Explanation of the Flypaper Effect, 26 Urb. Aff. Q. 95, 95-97, 106-07 (1990);
378. Volden, supra note 61, at 227; cf. Gordon, supra note 103, at 26 ("If districts do not anticipate permanent changes in revenue, they may be hesitant to increase total spending."). Thus, this version of the theory depends on the assumption that the political costs of raising taxes tend to be larger than the political rewards of cutting taxes. There is a fair amount of empirical research to support that assumption. E.g., Bae & Feiock, supra note 107, at 585; Fossett, supra, at 107-09; Louise Marshall, New Evidence on Fiscal Illusion: The 1986 Tax "Windfalls," 81 Am. Econ. Rev. 1336, 1342 (1991); Mitias & Turnbull, supra note 103, at 355, 361.
379. See Knight, supra note 103, at 71-72 (modeling a legislative bargaining model of intergovernmental grants); Singhal, supra note 104, at 8 n.9.
380. See Baicker, supra note 103, at 150; Fisher, supra note 99, at 338.
381. See supra notes 99-107 and accompanying text.
382. See Baicker, supra note 103, at 152.
383. See Singhal, supra note 104, at 549.
384. Id.
385. See Hines & Thaler, supra note 29, at 222.
386. See Singhal, supra note 104, at 549.
387. Cf. Knight, supra note 103, at 72 (observing that state officials may help federal officials determine how best to allocate grant dollars); Volden, supra note 61, at 226 (arguing the grant-maker will target grants to subject areas in which there is high public demand).
388. See Baicker, supra note 103, at 152; Singhal, supra note 104, at 259.
389. Gordon, supra note 103, at 1773.
390. Id. at 1773, 1787-88, 1790-91; Lutz, supra note 103, at 19. But see Singhal, supra note 104, at 562 (finding the flypaper effect persisted in an instance where the source of funds was litigation against a tobacco company rather than a grant from another government entity).
391. See Lutz, supra note 103, at 19.
392. Robert A. Dahl, Dilemmas of Pluralist Democracy: Autonomy vs. Control 57 (1982);
393. Steven G. Calabresi, Political Parties as Mediating Institutions, 61 U. Chi. L. Rev. 1479, 1512-15(1994).
394. See Filimon et al, supra note 103, at 52 (considering but rejecting this possibility); Lutz, supra note 103, at 24 n.22; Marshall, supra note 237, at 1342 (discussing the role of the media in informing voters and constituencies about grants); cf. Baicker, supra note 103, at 156 n. 15 (noting that some stickiness of categorical spending may result from the fact that budgets of different agencies are allocated by different committees of the legislature, so that legislators do not initially consider budgets of other agencies when setting the budget level of the agency overseen by their own committee).
395. Professor Singhal argues against a "learning story," pointing to evidence from her own work indicating that anti-tobacco spending increased only after states received funds from their lawsuits against tobacco companies, rather than during the course of the litigation. Singhal, supra note 104, at 559-60. She suggests that if increased spending is the result of improved voter information, the lawsuit itself should have served that function. Id. That argument mistakes the point of the "learning" hypothesis. The theory emphasizes that what voters do not understand is the fiscal situation of their government. There was nothing about the tobacco litigation Singhal studied that would have improved voter information on that front.
396. More challenging for my theory is Singhal's finding that flypaper effects were persistent for five years. Id. at 562. However, as she notes, the funds at issue in her study derived from successful lawsuits against tobacco companies, rather than intergovernmental grants. Id. at 563-64. This difference may well be significant. Part of what voters may learn over time is the fact that the source of the intergovernmental grant includes tax dollars they have paid to the grant-making government. This could make them less inclined to be taxed, in effect, twice for the same services: once by the grant-maker, and again by the grant-recipient. Since the recipient is smaller, it is politically easier to offset the received grant with reduced local taxes than to reduce the grant by the amount of their contribution. In any event, Singhal's version of the repeated-game story is, like the combination repeated-game/voter-learning story I tell here, consistent with the view that state and local governments are free to decline federal grants.
397. Lutz, supra note 103, at 3, 25.
398. Id. at 7-8 (discussing New Hampshire's unique town hall system, which creates involvement on the individual level).
399. Pablo Camacho Gutierrez, Essays on Mexican Fiscal Federalism: A Positive Analysis 145-47 (Aug. 2005) (unpublished Ph.D. dissertation, University of Texas at Austin), available at http://www.lib.utexas.edu/etd/d/2005/ camachogutierrezpl3970/camacho gutierrezpl3970.pdf; see also David N. King, Fiscal Tiers: The Economics of Multi-Level Government 114-17 (1984) (noting the possibility that flypaper effects may result from highly impoverished local government). For a discussion of the challenges of decentralized revenue-raising in developing economies, see Oates, supra note 101, at 1142-44.
400. See Baker, Conditional Spending, supra note 22, at 1918.
401. See Sabri v. United States, 541 U.S. 600, 603-05 (2004) (deciding on the constitutional validity of 18 U.S.C. § 666(a)(2) (2000), which imposes federal criminal penalties on anyone who bribes a government agent, where the government agency has received federal benefits greater than $10,000 via a grant or other form of federal assistance).
402. 26 U.S.C. § 501 (2000). Of course, this section does impose some conditions on the taxpayer in order to obtain exempt status, but none on the local governments who need not duplicate the services offered by the non-profits.
403. There are also other explanations for the deduction. For some excellent surveys of the field, see Rob Atkinson, Theories of the Federal Income Tax Exemption for Charities: Thesis, Antithesis, and Syntheses, 27 Stetson L. Rev. 395, 402-26 (1997);
404. Johnny Rex Buckles, The Case for the Taxpaying Good Samaritan: Deducting Earmarked Transfers to Charity Under Federal Income Tax Law, Theory and Policy, 70 FORDHAM L. Rev. 1243, 1282-96 (2002);
405. Mark P. Gergen, The Case for a Charitable Contributions Deduction, 74 Va.L.Rev. 1393, 1396-1433 (1988).
406. See Henry Hansmann, The Rationale for Exempting Nonprofit Organizations from Corporate Income Taxation, 91 Yale L.J. 54, 72-75 (1981).
407. 26 U.S.C. § 164 (2000). For a more detailed discussion of the arguments in favor of and against the explanation of § 164 as a subsidy for local governments, see Brian Galle, A Republic of the Mind: Cognitive Biases, Fiscal Federalism, and Section 164 of the Tax Code, 82 Ind. L.J. 673, 680-701 (2007).
408. See Brian D. Galle & Ethan Yale, Can Discriminatory State Taxation of Municipal Bonds Be Justified?, 117 Tax Notes 153, 154-55 (2007); Clayton P. Gillette, Fiscal Federalism and the Use of Municipal Bond Proceeds, 58 N.Y.U. L. Rev. 1030, 1044-46 (1983);
409. Douglas J. Watson & Thomas Vocino, Changing Intergovernmental Fiscal Relationships: Impact of the 1986 Tax Reform Act on State and Local Governments, 50 Pub. Admin. Rev. 427, 428-50 (1990).
410. 26 U.S.C. § 42 (2000). For a review of the low-income housing tax credit and its mechanics, see Andrew Zack Blatter & Elena Marty-Nelson, An Overview of the Low Income Housing Tax Credit, 17 U. Balt. L. Rev. 253, 255-70 (1988); Sagit Leviner, Affordable Housing and the Role of the Low Income Housing Tax Credit Program: A Contemporary Assessment, 57 Tax Law. 869, 871-75 (2004); U.S. Dep't of Housing and Urban Development, HOME and Low Income Housing Tax Credits (LIHTC), http://www.hud.gov/offices/cpd/ affordablehousing/training/web/lihtc/ (last visited Aug. 13, 2008).
411. Julie Roin, The Consequences of Undoing the Federal Income Tax, 70 U. Chi. L. Rev. 319, 331(2003).
412. Galle, supra note 261, at 676-81, 685-87.
413. Bratton & McCahery, supra note 160, at 248 & n.196; see Kirk J. Stark, Fiscal Federalism and Tax Progressivity: Should the Federal Income Tax Encourage State and Local Redistribution?, 51 UCLA L. Rev. 1389, 1410, 1431 (2004);
414. Lior Jacob Strahilevitz, The Uneasy Case for Devolution of the Individual Income Tax, 85 Iowa L. Rev. 907, 927-32 (2000). Recall that competition among states for mobile capital and high-income taxpayers tends to reduce state and local tax levels. E.g., Oates, supra note 101, at 1121 & n.3. For a more general discussion of central government fiscal counters to the problem of local tax competition, see Sam Bucovetsky & Michael Smart, The Efficiency Consequences of Local Revenue Equalization: Tax Competition and Distortions, 8 J. Pub. Econ. Theory 119, 120-22(2006).
415. See Michael Smart, Taxation and Deadweight Loss in a System of Intergovernmental Transfers, 31 Can. J. Econ. 189, 206 (1998); Tannenwald, supra note 127, at 4.
416. 2 U.S. Dep't of the Treasury, Tax Reform for Fairness, Simplicity, and Economic Growth 63-64 (1984); Christian Kelders & Marko Kothenburger, Tax Incentives in Fiscal Federalism: An Integrated Perspective 3-4 (Nov. 2005) (unpublished manuscript), available at http://www.lrz-muenchen.de/ ∼ces/Marko/FiscalFederalism.pdf.
417. I acknowledge, however, that the Treasury offered their views before it was clear for how many households the Alternative Minimum Tax ("AMT") would effectively eliminate the § 164 deduction. The AMT obliges taxpayers above a certain income threshold to recompute their tax without many deductions, including § 164. 26 U.S.C. § 56(b)(l)(A)(ii) (2006). Critically, that threshold is not indexed for inflation, so budget projections now suggest that in short order it will be more expensive to repeal the AMT than to repeal the entire rest of the individual income tax. Cong. Budget Office, Revenue & Tax Policy Brief, The Alternative Minimum Tax 1, 8 (2004), http://www.cbo.gov/ showdoc.cfm?index=5386&sequence=0.
418. I am grateful to Ilya Somin and Todd Zywicki for raising this argument.
419. Peterson, supra note 160, at 17-18, 25-26. Regarding the effects of tax competition on tax rates, see generally Michael Keen & Christos Kotsogiannis, Leviathan and Capital Tax Competition in Federations, 5 J. Pub. Econ. Theory 177 (2003) (analyzing how tax competition both horizontally between states and vertically between various levels of government may increase tax rates in a competitive environment).
420. There is an extensive debate in the public finance literature over whether this competition is, on balance, welfare-enhancing. For summaries of the conflicting views, see Wallace E. Oates, Fiscal Competition and European Union: Contrasting Perspectives, 31 Regional Sci. & Urb. Econ. 133, 133-43 (2001);
421. John Douglas Wilson & David E. Wildasin, Capital Tax Competition: Bane or Boon?, 88 J. PUB. Econ. 1065, 1088 (2004);
422. George R. Zodrow, Tax Competition and Tax Coordination in the European Union, 10 Int'l Tax & Pub. Fin. 651, 651-66 (2003).
423. See Jonathan H. Adler, The Ducks Stop Here? The Environmental Challenge to Federalism, 9 Sup. Ct. Econ. Rev. 205, 224-25 (2001).
424. See Richard Revesz, Federalism and Environmental Regulation: A Normative Critique, in The New Federalism: Can the States Be Trusted? 97, 104-05 (John Ferejohn & Barry R. Weingast eds., 1997) (arguing that the existence of tax competition may induce states to set superoptimal levels for other regulation, in order to avoid drawing in capital in excess of local infrastructural capacity).
425. Moreover, although I have for the most part here assumed that federal grants will be offered in the worst possible form, in reality Congress has a number of incentives to cultivate competition among states. Competition enables Congress to gather experimental data about alternative approaches which it can then appropriate for use in national legislation, as well as to diversify the risks of such experiments. And, of course, if competition in fact increases national welfare, and officials are judged on the performance of the economy, congresspersons have at least some reason to be interested in the welfare effects of grants.
426. On the other hand, it is possible the architecture of some fiscal supports may reduce competition by undermining the exit or participation incentives of local taxpayers. See Galle, supra note 261, at 696-701. But that is a question of program design, not one about the merits of grants generally.
427. U.S. Const, art. IV; cf. Stewart, supra note 22, at 930-31 (mentioning that courts have traditionally left claims about proper or just allocation of societal resources to the political process).
428. See Ferejohn & Friedman, supra note 65, at 855-58 (arguing that many supposed default rules may simply become legislative rules, due to difficulty in mobilizing Congress and other actors to displace them).
429. E.g., Nicholas Quinn Rosenkranz, Federal Rules of Statutory Interpretation, 115 Harv. L. Rev. 2085, 2097 (2002).
430. For a more extensive discussion of this point, see Brian Galle & Mark Seidenfeld, Administrative Law's Federalism: Preemption, Delegation, and Agencies at the Edge of Federal Power, 58 Duke L.J. 1933, 2005 (2008).