How Courts Should Address SB 7 and Similar, Future Legislation
SB 7—and the recent superior court decision upholding it—are troubling on several levels. Although the Legislature has attempted to characterize the legislation as merely providing a “financial incentive,” it effectively holds charter cities hostage, requiring that they relinquish their home rule authority over locally-funded projects to receive needed state funding. And should SB 7 be held constitutional, that decision would almost certainly open the floodgates for similar legislation, leading to the complete erosion of home rule powers.
For example, the Legislature has long sought to impose interest arbitration for public safety employees. The California Supreme Court in County of Riverside v. Superior Court(29) rejected that as an improper invasion of home rule principles. Why not impose it as a condition of state funding? As another example, voters in charter cities are free to determine whether they elect their city council members by district or at large. Under the SB 7 approach, the Legislature could seek to condition disbursement of state funds on a city’s acquiescence to district elections.
Unfortunately, there is very little California case law addressing the extent to which the State may use its spending powers to impinge upon charter cities’ home rule powers. But with the SB 7 case pending in the court of appeal and the predictable interest of the Legislature in passing similar laws in the future, this will change—for better or worse.
Clearly, one of the most significant obstacles charter cities face in challenging such legislation is the first prong of the California Federal test: demonstrating an “actual conflict” between the state statute and a charter cities’ home rule authority. Cities face this conundrum because, in theory, a charter city can always elect to forego state funding and preserve its authority to regulate the activity at issue, obviating any “actual conflict.” While this argument by the State has superficial appeal, it runs contrary to the judicially- recognized maxim that the State may not do indirectly what it is prohibited from doing directly.(30)
This principle was recognized and applied by the California Supreme Court in Sonoma County Organization of Public Employees v. County of Sonoma (SCOPE).(31) SCOPE involved a challenge to a state statute conditioning the distribution of post-Proposition 13 “bail-out” money on local agencies’ agreement to withhold from employees cost-of- living raises in excess of the raises given to state employees.
The SCOPE Court concluded that the law violated charter cities’ home rule authority to provide for the compensation of their employees. In reaching this conclusion, the Court noted that “while the state may impose conditions upon the granting of a privilege, including restrictions upon the expenditure of funds distributed by it to other government bodies … ‘constitutional power cannot be used by way of a condition to attain an unconstitutional result….’”(32)
While the SCOPE decision appears directly on point, proponents of SB 7 claim that the case is distinguishable because it addressed an unconstitutional impairment of contracts, not a violation of home rule principles. Consequently, courts may choose to look elsewhere for guidance in evaluating the constitutionality of SB 7 and similar legislation.
One source courts may examine is federal precedent addressing Congress’s ability to impose conditions on the receipt of federal funding under the Spending Clause.(33) These cases, however, appear to set a rather high bar: a party challenging Congress’s exercise of its spending authority must demonstrate what amounts to coercion—in some cases, this means that there is so much money on the line that the states cannot, as a practical matter, say no.(34)
This view of “coercion” is not necessarily helpful on a facial challenge to a law such as SB 7 because the question of whether the legislation amounts to impermissible coercion is both highly factual, and ultimately subjective.(35) Some cities could not reasonably give up state construction funds; others may be in a position to do so, even if it would be financially painful. In each case, it depends on how much funding is involved, the importance of future projects, and the cost of complying with the state demand.
Ultimately, the coercion analysis misses the point. The proper focus is whether the government—or, more precisely for purposes of this article, the State—has the authority to regulate the underlying activity in the first instance, not how much money is at stake. Indeed, as California Federal and City of Vista make clear, for state law to permissibly intrude upon a charter city’s home rule authority it must be both designed to address a matter of statewide concern and narrowly- tailored to accomplish that end.
Consequently, any time the State demands that a city relinquish home rule powers under threat of losing state funding for unrelated projects, the presumption should be that the State is attempting to impermissibly regulate a matter that the Constitution reserves for local control. Only if the State can demonstrate a legitimate statewide concern justifying its otherwise unlawful interference with purely municipal affairs, should the regulation be allowed to stand.
This proposed test is consistent with the California Supreme Court’s SCOPE decision. It also mirrors the “preemption” doctrine federal courts use to assess the extent to which the National Labor Relations Act (NLRA) displaces state and municipal regulations on matters related to labor-management relations—a doctrine that involves the same type of balancing of governmental interests that is at the heart of the home rule doctrine.(36)
Under the NLRA preemption doctrine, whether state or local government regulations are preempted turns on whether the agency is acting to regulate matters that are encompassed by the NLRA. If the government is attempting to regulate labor-management relations already covered by the NLRA, then such regulations are preempted. This is true regardless of whether the government agency is attempting to regulate matters directly through its police powers, or indirectly through its spending powers.(37)
However, if the government is merely acting to protect its own proprietary interest, then the regulations are not preempted. In evaluating whether a government agency is acting as a “market participant,” courts will examine (1) whether the challenged action essentially reflect the agency’s own interest in its efficient procurement of needed goods and services, and (2) whether the narrow scope of the challenged action defeats any inference that its primary goal was to encourage a general policy, rather than address a specific proprietary problem.(38)
The federal “preemption” doctrine strikes a proper balance in determining when and how state regulation may be preempted with respect to matters that the Constitution expressly reserves for local control. In particular, the doctrine—including the market participant exception—ensures that the State has sufficient “skin in the game” in the underlying activity that it would otherwise be prohibited from regulating directly.
Specifically with regard to SB 7, this approach would require that the underlying public works projects be funded, in whole or in part, with state money before the State would be allowed to regulate what would otherwise qualify as purely municipal affairs. This approach would preserve the division of governmental authority established by constitutional home rule principles.