STATE REGULATION OF COMMERCE (Update 2)

The Supreme Court has continued to decide cases involving challenges to state regulations of commerce at a rate of one or two each year. A few cases involve statutes that are clearly designed to promote local commerce at the expense of out-of-state commerce. A larger portion, however, seem to critics of the Court's work to involve statutes aimed at achieving socially beneficial goals without any design to harm out-of-state commerce. The decisions have increasingly focused on the presence of geographical terminology (local versus out-of-state) used to distinguish activities that are regulated from those that are not, even when it seems unlikely that the government used the terminology merely to disadvantage out-of-state commerce. There have been no significant majority opinions applying the balancing test in which the burdens on interstate commerce are balanced against the benefits conferred by the statute, although some separate opinions have applied the test.

C & A Carbone, Inc. v. Clarkstown (1994) invalidated an ordinance directing that all solid waste generated within the town be delivered to a privately owned local recycling plant, rather than shipped out of the town or out of the state. The town planned to take over the plant after the private operator recouped the construction costs, and it adopted the flow-control ordinance to ensure that the recycling plant would be financially viable until the town took over the plant. The Court held that the ordinance discriminated against out-of-state plants that stood ready to accept solid waste from Clarkstown. Justice david h. souter, writing for three dissenters, argued that the ordinance was clearly not protectionist in any traditional sense.

The Court confronted an issue that had lurked in earlier cases when it invalidated a subsidy to Massachusetts milk producers in West Lynn Creamery, Inc. v. Healy (1994). Subsidies can serve the same protectionist purposes as discriminatory regulations: Instead of raising the prices out-of-state producers must charge to offset the cost of complying with a discriminatory regulation, a subsidy permits local producers to reduce their charges. The subsidy in Healy was paid to local milk producers from a fund created by a tax imposed on all milk sales in the state. Every producer, local and out-of-state, paid the tax, but only local producers received the subsidy. The Court rejected the argument that the statute should be upheld because both of its components were permissible when taken separately: The tax was nondiscriminatory, and the subsidy was a typical payment of state funds to state residents. Justice antonin scalia, concurring in the judgment, asserted that a subsidy from general tax revenues would be constitutional, but the more focused Massachusetts system was not.

Carbone has been particularly troubling to commentators, who see the ordinance as a sensible attempt to deal with the problem that consumers ordinarily do not have strong financial incentives to engage in environmentally beneficial recycling. Consumers who generate solid waste will send it to the cheapest disposal site, which may make it impossible to create a financially viable recycling industry. Also, once Clarkstown takes the recycling plant over, acting as a market participant, presumably it could charge lower fees to local consumers who send it their solid wastes for recycling than it charges people from other towns or from out-of-state.

The Court's insistence that states and localities avoid drafting statutes that use geographical terminology may be justified, but not on the ground that using such terms definitively establishes that the state is attempting to discriminate against out-of-state commerce in a classic protectionist sense, that is, attempting to direct business away from out-of-state businesses and toward local ones. The Court's approach may be justified in two ways. First, the use of geographical terminology characterizes most protectionist legislation, and it rarely is necessary for nonprotectionist legislation. The Court must design rules that give clear guidance to legislatures and lowers courts, and barring the use of geographical terminology does so. The rule also invalidates most protectionist statutes and only a few nonprotectionist ones. A balancing test would make it too easy for legislators to enact, and lower courts to uphold, statutes that were truly protectionist. Second, a rule against using geographical terminology discourages legislators from thinking about commercial regulation in ways that lead them to treat out-of-state interests as irrelevant to their concerns. It thereby reinforces the thought underlying the Court's commerce clause doctrine that the relevant economic unit is the nation, not the state or city.

Healy is easier to understand, because the separate fund device made it transparent that the subsidy was a substitute for discriminatory regulation. State and local subsidies to local businesses are quite widespread—to encourage construction of a sports stadium or location of a new manufacturing plant. The entire point of such subsidies is to discriminate in favor of local activities and against out-of-state ones. Full-fledged judicial action against discriminatory subsidies would be an ambitious program. This may be a situation in which Congress's power to preempt local regulations, or to specify a national regime for local subsidies, might offer a better solution than any judicial effort to police the use of these subsidies.

Mark Tushnet
(2000)

(see also: State Tax Incentives and Subsidies to Business.)

Bibliography

Coenen, Dan T. and Hellerstein, Walter 1997 Suspect Linkage: The Interplay of State Taxing and Spending Measures in the Application of Constitutional Antidiscrimination Rules. Michigan Law Review 95:2167–2233.

Heinzerling, Lisa 1995 The Commercial Constitution. Supreme Court Review 1995:217–276.