Petitioner Mayor of Boston, Mass., issued an executive order
requiring all construction projects funded in whole or in part by
city funds or funds that the city had authority to administer to be
performed by a workforce at least half of which are bona fide
residents of the city. The Massachusetts Supreme Judicial Court
held the order unconstitutional under the Commerce Clause.
Held: The Commerce Clause does not prevent the city
from giving effect to the Mayor's executive order. Pp.
460 U. S.
206-215.
(a) When a state or local government enters the market as a
participant, it is not subject to the restraints of the Commerce
Clause.
Hughes v. Alexandria Scrap Corp., 426 U.
S. 794;
Reeves, Inc. v. Stake, 447 U.
S. 429. In a case like the instant one, the only inquiry
is whether the challenged program constituted direct state or local
participation in the market. Pp.
460 U. S.
206-208.
(b) Insofar as the city expended only its own funds in entering
into construction contracts for public projects, it was a market
participant, and entitled to be treated as such under the rule of
Alexandria Scrap Corp. Even if implementation of the
Mayor's order might have a significant impact on specialized
construction firms employing out-of-state residents, this is not
relevant to the inquiry of whether the city is participating in the
marketplace when it provides funds for construction. Impact on
out-of-state residents figures in the equation only after it is
decided that the city is regulating the market, rather than
participating in it, for only in the former case need it be
determined whether any burden on interstate commerce is permitted
by the Commerce Clause. And, even if the Mayor's order is
characterized as sweeping too broadly, such characterization is
relevant only if the Commerce Clause imposes restraints on the
city's activity, and is no help in deciding whether those
restraints apply. Pp.
460 U. S.
209-211.
(c) Insofar as the Mayor's order was applied to projects funded
in part with funds obtained from certain federal programs, the
order was affirmatively sanctioned by the pertinent regulations of
those programs.
Page 460 U. S. 205
Where the restrictions imposed by the city on construction
projects financed in part by federal funds are directed by
Congress, then no dormant Commerce Clause issue is presented. Pp.
460 U. S.
212-213.
384 Mass. 466,
425
N.E.2d 346, reversed and remanded.
REHNQUIST, J., delivered the opinion of the Court, in which
BURGER C.J., and BRENNAN, MARSHALL, POWELL, STEVENS, and O'CONNOR,
JJ., joined. BLACKMUN, J., filed an opinion concurring in part and
dissenting in part, in which WHITE, J., joined,
post, p.
460 U. S.
215.
JUSTICE REHNQUIST delivered the opinion of the Court.
In 1979, the Mayor of Boston, Mass., issued an executive order
[
Footnote 1] which required
that all construction projects funded
Page 460 U. S. 206
in whole or in part by city funds, or funds which the city had
the authority to administer, should be performed by a workforce
consisting of at least half bona fide residents of Boston.
[
Footnote 2] The Supreme
Judicial Court of Massachusetts decided that the order was
unconstitutional, observing that the Commerce Clause "presents a
clear obstacle to the city's order." 384 Mass. 466, 479,
425
N.E.2d 346, 354 (1981). We granted certiorari to decide whether
the Commerce Clause of the United States Constitution, Art. I, § 8,
cl. 3, prevents the city from giving effect to the Mayor's order.
455 U.S. 919 (1982). We now conclude that it does not, and
reverse.
I
We were first asked in
Hughes v. Alexandria Scrap
Corp., 426 U. S. 794
(1976), to decide whether state and local governments are
restrained by the Commerce Clause when they seek to effect
commercial transactions not as "regulators," but as "market
participants." In that case, the Maryland Legislature, in an
attempt to encourage the recycling of abandoned automobiles,
offered a bounty for every Maryland-titled automobile converted
into scrap if the scrap processor supplied documentation of
ownership. An amendment to the Maryland statute imposed more
exacting documentation requirements on out-of-state than in-state
processors, and out-of-state processors, in turn, demanded more
exacting documentation from those who sold the junked automobiles
for scrap. As a result, it became easier for those in possession of
the automobiles to sell to in-state processors.
"The practical effect was substantially the same as if Maryland
had withdrawn altogether the availability of bounties on hulks
delivered by unlicensed suppliers to licensed non-Maryland
processors."
Id. at
426 U. S. 803,
n. 13. In upholding the Maryland
Page 460 U. S. 207
statute in the face of a Commerce Clause challenge, we said
that
"[n]othing in the purposes animating the Commerce Clause
prohibits a State, in the absence of congressional action, from
participating in the market and exercising the right to favor its
own citizens over others."
Id. at
426 U. S. 810
(footnotes omitted). Because Maryland was participating in the
market, rather than acting as a market regulator, we concluded that
the Commerce Clause was not "intended to require independent
justification,"
id. at
426 U. S. 809,
for the statutory bounty.
We faced the question again in
Reeves, Inc. v. Stake,
447 U. S. 429
(1980), when confronted with a South Dakota policy to confine the
sale of cement by a state-operated cement plant to residents of
South Dakota. We underscored the holding of
Hughes v.
Alexandria Scrap Corp., saying:
"The basic distinction drawn in
Alexandria Scrap
between States as market participants and States as market
regulators makes good sense and sound law. As that case explains,
the Commerce Clause responds principally to state taxes and
regulatory measures impeding free private trade in the national
marketplace. [Citation omitted.] There is no indication of a
constitutional plan to limit the ability of the States themselves
to operate freely in the free market."
447 U.S. at
447 U. S.
436-437. [
Footnote
3]
Page 460 U. S. 208
We concluded that South Dakota, "as a seller of cement,
unquestionably fits the
market participant' label," and applied
the "general rule of Alexandria Scrap." Id. at
447 U. S.
440.
Alexandria Scrap and
Reeves, therefore, stand
for the proposition that, when a state or local government enters
the market as a participant, it is not subject to the restraints of
the Commerce Clause. As we said in
Reeves, in this kind of
case, there is "a single inquiry: whether the challenged
program constituted direct state participation in the market.'"
447 U.S. at 447 U. S. 436,
n. 7. We reaffirm that principle now.
The Supreme Judicial Court of Massachusetts concluded that the
city of Boston is not participating in the market in the sense
described in
Alexandria Scrap Corp. and
Reeves
because the order applies where the city is acting in a
nonproprietary capacity, has a significant impact on interstate
commerce, is more sweeping than necessary to achieve its
objectives, and applies to funds the city receives from federal
grants. 384 Mass. at 479-480, 425 N.E.2d at 354-355. For the same
reasons the court found that the city is not a market participant,
it concluded that the executive order violated the substantive
restraints of the Commerce Clause. [
Footnote 4]
Ibid.
II
Petitioners and respondents both, to a greater or lesser extent,
seek to have us decide questions not presented by the record in
this case. In support of the Massachusetts court's finding that the
city is acting in a nonproprietary capacity, respondents urge that
much of the construction subject to the Mayor's order involved
nonpublic projects that were financed largely through private
funds. While the Mayor's order by
Page 460 U. S. 209
its terms would appear to apply to such construction, there is
simply nothing in the record before us to support the conclusion
that city funds were used for these types of construction projects.
Respondents, had they wished to raise this question, were obligated
to offer some evidence that city funds and private funds were used
jointly to finance construction of some of the projects which were
in fact subjected to the provisions of the Mayor's order; nothing
in the record supports such a conclusion. [
Footnote 5] The only issues before us, then, are the
propriety of applying the Mayor's executive order to projects
funded wholly with city funds and projects funded in part with
federal funds. We address first the application of the order to
city-funded projects.
The Supreme Judicial Court of Massachusetts expressed
reservations as to the application of the "market participation"
principle to the city here, reasoning that
"the implementation of the mayor's order will have a significant
impact on those firms which engage in specialized areas of
construction and employ permanent works crews composed of
out-of-State residents."
384 Mass. at 479, 425 N.E.2d at 354. Even if this conclusion is
factually correct, [
Footnote 6]
it is not relevant
Page 460 U. S. 210
to the inquiry of whether the city is participating in the
marketplace when it provides city funds for building construction.
If the city is a market participant, then the Commerce Clause
establishes no barrier to conditions such as these which the city
demands for its participation. Impact on out-of-state residents
figures in the equation only after it is decided that the city is
regulating the market, rather than participating in it, for only in
the former case need it be determined whether any burden on
interstate commerce is permitted by the Commerce Clause.
The same may be said of the Massachusetts court's finding that
the executive order sweeps too broadly, creating more burden than
is necessary to accomplish its stated objectives.
Id. at
480, 425 N.E.2d at 355. While relevant if the Commerce Clause
imposes restraints on the city's activity, this characterization is
of no help in deciding whether those restraints apply. The
Massachusetts court relied in part on our decision in
Hicklin
v. Orbeck, 437 U. S. 518
(1978), saying that "as in
Hicklin, supra, there is a
broadly drawn statute which sweeps far wider than merely favoring
unemployed or underemployed local residents." 384 Mass. at 480, 425
N.E.2d at 355.
In
Hicklin, we considered an Alaska statute which
required employment in all work connected with oil and gas leases
to which the State was a party to be offered first to "qualified"
Alaska residents in preference to nonresidents. The State sought to
justify the "Alaska Hire" law on the ground that
Page 460 U. S. 211
the underlying oil and gas were owned by the State itself.
Analyzing the case under the Privileges and Immunities Clause of
Art. IV, § 2, we held that mere ownership of a natural resource did
not in all circumstances render a state regulation such as the
"Alaska Hire" law immune from attack under that Clause. We
summarized our view of the Alaska statute in these words:
"In sum, the Act is an attempt to force virtually all businesses
that benefit in some way from the economic ripple effect of
Alaska's decision to develop its oil and gas resources to bias
their employment practices in favor of the State's residents."
437 U.S. at
437 U. S.
531.
Even though respondents no longer press the Privileges and
Immunities Clause holding of
Hicklin in support of their
Commerce Clause argument, we note that, on the record before us,
the application of the Mayor's executive order to contracts
involving only city funds does not represent the sort of "attempt
to force virtually all businesses that benefit in some way from the
economic ripple effect" of the city's decision to enter into
contracts for construction projects "to bias their employment
practices in favor of the [city's] residents." [
Footnote 7]
Page 460 U. S. 212
The Supreme Judicial Court of Massachusetts also observed that
"a significant percentage of the funds affected by the order are
received from Federal sources." 384 Mass. at 479, 425 N.E.2d at
354. The record does indicate that, of approximately $54 million
expended on projects affected by the Mayor's executive order, some
$34 million represented projects being funded in part through
UDAG's. [
Footnote 8] While the
record assigns specific dollar amounts only for UDAG's, the parties
also have stipulated that the executive order applies to Community
Development Block Grants (CDBG's) and Economic Development
Administration Grants (EDAG's). [
Footnote 9]
Page 460 U. S. 213
But all of this proves too much. The Commerce Clause is a grant
of authority to Congress, and not a restriction on the authority of
that body.
See American Power & Light Co. v. SEC,
329 U. S. 90
(1946);
Gibbons v.
Ogden, 9 Wheat. 1 (1824). Congress, unlike a state
legislature authorizing similar expenditures, is not limited by any
negative implications of the Commerce Clause in the exercise of its
spending power. Where state or local government action is
specifically authorized by Congress, it is not subject to the
Commerce Clause even if it interferes with interstate commerce.
Southern Pacific Co. v. Arizona, 325 U.
S. 761,
325 U. S. 769
(1945). Thus, if the restrictions imposed by the city on
construction projects financed in part by federal funds are
directed by Congress, then no dormant Commerce Clause issue is
presented.
An examination of the applicable statutes reveals that these
federal programs were intended to encourage economic
revitalization, including improved opportunities for the poor,
minorities, and unemployed. [
Footnote 10] Examination of the regulations set forth in
the margin indicates that the Mayor's executive order sounds a
harmonious note; the federal regulations for each program
affirmatively permit the type of parochial favoritism expressed in
the order. [
Footnote 11]
Page 460 U. S. 214
III
We hold that, on the record before us, the application of the
Mayor's executive order to the contracts in question did not
violate the Commerce Clause of the United States Constitution.
[
Footnote 12] Insofar as the
city expended only its own funds in entering
Page 460 U. S. 215
into construction contracts for public projects, it was a market
participant and entitled to be treated as such under the rule of
Hughes v. Alexandria Scrap Corp., 426 U.
S. 794 (1976). Insofar as the Mayor's executive order
was applied to projects funded in part with funds obtained from the
federal programs described above, the order was affirmatively
sanctioned by the pertinent regulations of those programs. The
judgment of the Supreme Judicial Court of Massachusetts is
therefore reversed, and the case is remanded to that court for
proceedings not inconsistent with this opinion.
It is so ordered.
[
Footnote 1]
The executive order provides:
"On any construction project funded in whole or in part by City
funds, or funds which, in accordance with a federal grant or
otherwise, the City expends or administers, and to which the City
is a signatory to the construction contract, the worker hours on a
craft-by-craft basis shall be performed, in accordance with the
contract documents established herewith, as follows:"
"a. at least 50% by bona fide Boston residents;"
"b. at least 25% by minorities;"
"c. at least 10% by women."
Only the residency requirement is being challenged.
[
Footnote 2]
In 1980, of approximately $483 million expended on construction
in the city of Boston, some $54 million, or 11%, was spent on
projects to which the executive order applied. Of this latter
amount, approximately $34 million represented projects being funded
in part through federal Urban Development Action Grants
(UDAG's).
[
Footnote 3]
We also noted the policy in support of this limitation on the
Commerce Clause:
"Restraint in this area is also counseled by considerations of
state sovereignty, the role of each State "
as guardian and
trustee for its people,'" Heim v. McCall, 239 U.
S. 175, 239 U. S. 191
(1915), quoting Atkin v. Kansas, 191 U.
S. 207, 191 U. S.
222-223 (1903), and"
"the long recognized right of trader or manufacturer, engaged in
an entirely private business, freely to exercise his own
independent discretion as to parties with whom he will deal."
"
United States v. Colgate & Co., 250 U. S.
300,
250 U. S. 307 (1919).
Moreover, state proprietary activities may be, and often are,
burdened with the same restrictions imposed on private market
participants. Evenhandedness suggests that, when acting as
proprietors, States should similarly share existing freedoms from
federal constraints, including the inherent limits of the Commerce
Clause."
447 U.S. at
447 U. S.
438-439 (footnotes omitted).
[
Footnote 4]
Respondents made several other challenges to the order, none of
which is before us. Respondents also directed challenges to
resident preferences contained in other state and local laws. None
of these provisions is before us.
[
Footnote 5]
The case was submitted below on an agreed statement of facts.
The only reference in that statement to the funds affected by the
order provides:
"The approximate dollar value of construction, both private and
public, within the City of Boston in 1980 was $482,886,000; of that
amount approximately [$]54,421,040 represented construction
projects"
"funded in whole or in part by City funds, or funds which, in
accordance with a federal grant or otherwise, the City expends or
administers, and to which the City is a signatory to the
construction contract"
"to which the Executive Order, by its terms, was applicable. Of
that $54,421,040 approximately $34,000,000 represented projects
involving Urban Development Action Grants."
Agreed Statement of Facts, at A42.
[
Footnote 6]
The record does not readily support a finding of "significant
impact" on firms employing out-of-state residents. The parties
stipulated that a
"
small number of plaintiff contractors are out-of-state
contractors who have regular and permanent work crews comprised
entirely of out-of-state residents. These contractors for the most
part are those who perform specialty work. . . ."
Id. at A41 (emphasis added). Although the parties also
stipulated that some out-of-state workers who would otherwise have
been employed on the projects would be unemployed, and that some
out-of-state contractors would be discouraged from bidding on
public construction work,
id. at A37, the record does not
reveal that any significant number of out-of-state workers or
contractors has withdrawn from the construction market because of
the order. Furthermore, the record does not show that the increased
employment of city residents in publicly funded construction
projects has been accompanied by a decline in the percentage of
out-of-state residents.
See id. at A48.
[
Footnote 7]
JUSTICE BLACKMUN's opinion dissenting in part,
post, p.
460 U. S. 215,
argues that the Mayor's order goes beyond market participation
because it regulates employment contracts between public
contractors and their employees. We agree with JUSTICE BLACKMUN
that there are some limits on a state or local government's ability
to impose restrictions that reach beyond the immediate parties with
which the government transacts business.
Cf. Hicklin v.
Orbeck, 437 U. S. 518,
437 U. S.
529-531 (1978). We find it unnecessary in this case to
define those limits with precision, except to say that we think the
Commerce Clause does not require the city to stop at the boundary
of formal privity of contract. In this case, the Mayor's executive
order covers a discrete, identifiable class of economic activity in
which the city is a major participant. Everyone affected by the
order is, in a substantial if informal sense, "working for the
city." Wherever the limits of the market participation exception
may lie, we conclude that the executive order in this case falls
well within the scope of
Alexandria Scrap and
Reeves.
[
Footnote 8]
Not all UDAG projects in Boston have been subjected to the
executive order. Department of Housing and Urban Development (HUD)
publications indicate that, in 1980, Boston received $28,600,000
through UDAG's, and that this money was to be spent on projects
costing a total of $397 million. U.S.Dept. of HUD, UDAG Project
Approval List, Region I, p. 1 (Boston, Mass. Feb. 9, 1982). While
we do not know what percentage of the $34 million spent on projects
affected by the executive order was in fact UDAG money, we do know
that overall UDAG funds constituted 7% of the total costs of
projects they were expended on.
[
Footnote 9]
UDAG's are administered by HUD pursuant to the Housing and
Community Development Act of 1977, 42 U.S.C. § 5318 (1976 ed.,
Supp. V). The HUD regulations governing the program are found at 24
CFR pt. 570, subpart G (1982). CDBG's are administered by HUD
pursuant to the Housing and Community Development Act of 1974, 42
U.S.C. § 5301
et seq. (1976 ed. and Supp. V), and the
implementing regulations at 24 CFR pt. 570 (1982). EDAG's are
administered by the Department of Commerce in accordance with the
Public Works and Economic Development Act of 1965, 42 U.S.C. § 3131
et seq. (1976 ed. and Supp. V), and the implementing
regulations at 13 CFR pt. 305 (1982).
Respondents have asserted in this Court that the executive order
also applies to funds the city receives from the Department of
Transportation. In the agreed statement of facts, the parties
stipulated that a resident preference in a state statute challenged
below applied to DOT funds. Agreed Statement of Facts, at A45.
There is, however, nothing in the record to indicate that DOT funds
are affected by the order. In fact, the parties stipulate that the
affected federal funds come from UDAG's, CDBG's, and EDAG's.
Id. at A43-A44. Without support in the record for a
contrary conclusion, we decide this case as though DOT funds are
not involved.
See Ramsey v. Mine Workers, 401 U.
S. 302,
401 U. S. 312
(1971);
Tyrrell v. District of Columbia, 243 U. S.
1,
243 U. S. 4-6
(1917).
[
Footnote 10]
See 42 U.S.C. § 5318 (1976 ed., Supp. V) (UDAG's); §
5301 (1976 ed. and Supp. V) (CDBG's); § 3131 (EDAG's).
[
Footnote 11]
In issuing implementing regulations to carry out its authority
under the UDAG program, HUD requires that a city certify that its
project would not be undertaken by the private sector without
public funds, and that the project will alleviate economic distress
by helping the poor, minorities, and unemployed. 24 CFR §
570.458(c) (1982). The regulations further provide that the city
must "comply with . . . Section 3 of the Housing and Urban
Development Act of 1968, as amended, and implementing regulations
at 24 CFR Part 135." 24 CFR § 570.458(c)(14)(ix)(D) (1982). The
regulations implementing that Act provide that,
"to the greatest extent feasible opportunities for training and
employment arising in connection with the planning and carrying out
of any project assisted under any such program be given to lower
income persons
residing in the area of such project. . .
."
24 CFR § 135.1(a)(2)(i) (1982) (emphasis added).
Similarly, CDBG regulations provide that a recipient of funds
must
"comply with section 3 of the Housing and Urban Development Act
of 1968, as amended, requiring that to the greatest extent feasible
opportunities for training and employment be given to
lower-income residents of the project area and contracts for
work in connection with the project be awarded to eligible business
concerns which are located in, or owned in substantial part by,
persons residing in the area of the project."
24 CFR § 570.307(m) (1982) (emphasis added). EDAG regulations
provide:
"The maximum feasible employment of local labor shall be made in
the construction of public works and development facility projects
receiving direct grants and loans. Accordingly, every contractor
and subcontractor undertaking to do work on any such project which
is or reasonably may be done as on-site work, shall be required to
employ in carrying out such contract work, qualified
persons
who regularly reside in the designated area where such project is
to be located, or in the case of economic development centers,
qualified persons who regularly reside in the center or in the
adjacent or nearby redevelopment areas within the economic
development district. . . ."
13 CFR § 305.54(a) (1982) (emphasis added).
[
Footnote 12]
Respondents ask us to decide whether the executive order offends
the Privileges and Immunities Clause of Art. IV, § 2, which
provides: "The Citizens of each State shall be entitled to all
Privileges and Immunities of Citizens in the several States." In
addressing this issue, the Massachusetts court said:
"The preference is for inhabitants of the city, and its
'negative' effect is felt in significant part by other citizens of
the Commonwealth, as well as by residents of other States. In such
circumstances, it may be more difficult to find a violation of the
privileges and immunities clause because the discrimination
adversely affects citizens of the Commonwealth as well."
384 Mass. 466, 478,
425
N.E.2d 346, 354 (1981). Because of its disposition under the
Commerce Clause, however, the court did not resolve this issue.
This question has not been, to any great extent, briefed or
argued in this Court. We did not grant certiorari on the issue, and
remand without passing on its merits.
See General Talking
Pictures Corp. v. Western Electric Co., 304 U.
S. 175,
304 U. S.
177-178 (1938).
JUSTICE BLACKMUN, with whom JUSTICE WHITE joins, concurring in
part and dissenting in part.
I agree with the Court that this case presents two issues: (1)
the validity of the Mayor's executive order as applied to projects
funded entirely by the city of Boston with its own revenues, and
(2) the validity of the order as applied to projects funded in part
with federal revenues pursuant to certain congressionally created
grant programs.
I
Respecting the second issue, I am in agreement with the Court's
conclusion that Congress, in creating the grant programs in
question, specifically authorized "the type of parochial favoritism
expressed in the order."
Ante at
460 U. S. 213.
As the Court holds, Congress unquestionably has the power to
authorize state or local discrimination against interstate commerce
that otherwise would violate the dormant aspect of the Commerce
Clause.
Prudential Ins. Co. v. Benjamin, 328 U.
S. 408,
328 U. S.
418-427 (1946). [
Footnote
2/1]
Page 460 U. S. 216
II
I do not agree, however, with the Court's holding that the
executive order is immune from Commerce Clause scrutiny insofar as
it applies to city activities undertaken without specific
congressional authorization.
The Court rejects certain arguments advanced by the Supreme
Judicial Court of Massachusetts as relevant only if the order were
"regulation of," rather than "participation in," the market.
Ante at
460 U. S.
210-211. The Court holds that the order is the latter,
rather than the former, because, in the Court's view, it "falls
well within the scope,"
ante at
460 U. S. 211,
n. 7, of the Court's decisions in
Hughes v. Alexandria Scrap
Corp., 426 U. S. 794
(1976), and
Reeves, Inc. v. Stake, 447 U.
S. 429 (1980). With due respect, this plainly is not
so.
In
Alexandria Scrap, the effect of the Maryland statute
was to offer a subsidy only to scrap processors located within the
State.
See 426 U.S. at
426 U. S. 803,
n. 13. The Court held that a State, free from Commerce Clause
scrutiny, may enter "the market as a purchaser, in effect, of a
potential article of interstate commerce" and "restric[t] its trade
to its own citizens or businesses within the State."
Id.
at
426 U. S. 808.
Alexandria Scrap thus permits a State to prefer its
residents as direct recipients of certain subsidies.
See
Reeves, 447 U.S. at
447 U. S. 440,
n. 14 (discussing
Alexandria Scrap).
In
Reeves, South Dakota refused to sell cement to
out-of-state consumers until the orders of all in-state customers
were filled. The Court held that the Commerce Clause is not
implicated when a State prefers its own residents as direct
purchasers of state-produced goods. Neither
Reeves
Page 460 U. S. 217
nor
Alexandria Scrap, however, went beyond ensuring
that the States enjoy
"'the long-recognized right of trader or manufacturer, engaged
in an entirely private business, freely to exercise his own
independent discretion as to parties with whom he will deal.'"
Reeve, 447 U.S. at
447 U. S.
438-439, quoting
United States v. Colgate &
Co., 250 U. S. 300,
250 U. S. 307
(1919).
Boston's executive order goes much further. The city has not
attempted merely to choose the "parties with whom [it] will deal."
[
Footnote 2/2] Instead, it has
imposed as a condition of obtaining a public construction contract
the requirement that
private firms hire only Boston
residents for 50% of specified jobs. [
Footnote 2/3] Thus, the order directly restricts the
ability of private employers to hire nonresidents, and thereby
curtails nonresidents' access to jobs with private employers. I had
thought it well established that, under the Commerce Clause, States
and localities cannot impose restrictions granting their own
residents either the exclusive right, or a priority, to private
sector economic opportunities.
See H. P. Hood & Sons v. Du
Mond, 336 U. S. 525
(1949);
Pennsylvania v. West Virginia, 262 U.
S. 553 (1923);
cf. Hicklin v. Orbeck,
437 U. S. 518
(1978) (decided under the Privileges and Immunities Clause).
Such restrictions are not immune from attack under the Commerce
Clause solely because the city has imposed them as conditions to
its contracts with private employers. In
Reeve, the Court,
I thought, carefully explored reasons the policy there at issue
might not have been entitled to the market participant exemption,
notwithstanding the policy's essentially proprietary nature. 447
U.S. at
447 U. S.
440-447. The
Page 460 U. S. 218
Court also observed that the line between "market participant"
and "market regulator" is not always bright:
"South Dakota, as a seller of cement, unquestionably fits the
'market participant' label more comfortably than a State acting to
subsidize local scrap processors."
Id. at
447 U. S. 440.
See id. at
447 U. S. 440,
n. 14 ("We have no occasion here to inquire whether subsidy
programs unlike that involved in
Alexandria Scrap warrant
characterization as proprietary, rather than regulatory,
activity").
The line between regulation and market participation, for
purposes of the Commerce Clause, should be drawn with reference to
the constitutional values giving rise to the market participant
exemption itself. As the Court recognized in
Reeves, the
most important of these is that, historically, the "Commerce Clause
responds principally to state taxes and regulatory measures
impeding free private trade in the national marketplace"; it was
not designed "to limit the ability of the States themselves to
operate freely in the free market."
Reeves, 447 U.S. at
447 U. S. 437.
The Court also observed that the distinction between participation
and regulation rests on core notions of state sovereignty, coupled
with the traditional right of private traders to determine the
identities of their bargaining partners free from governmental
interference.
Id. at
447 U. S.
438-439. The legitimacy of a claim to the market
participant exemption thus should turn primarily on whether a
particular state action more closely resembles an attempt to impede
trade among private parties, or an attempt, analogous to the
accustomed right of merchants in the private sector, to govern the
State's own economic conduct and to determine the parties with whom
it will deal.
The simple unilateral refusals to deal that the Court
encountered in
Reeves and
Alexandria Scrap were
relatively pure examples of a seller's or purchaser's simply
choosing its bargaining partners, "long recognized" as the right of
traders in our free enterprise system. The executive order in this
case, in notable contrast, by its terms is a direct attempt to
Page 460 U. S. 219
govern private economic relationships. The power to dictate to
another those with whom he may deal is viewed with suspicion and
closely limited in the context of purely private economic
relations. [
Footnote 2/4] When
exercised by government, such a power is the essence of
regulation.
Page 460 U. S. 220
Attempts directly to constrict private economic choices through
contractual conditions are particularly akin to regulation because,
unlike simple refusals to deal but like conventional market
regulation, they threaten to extend their regulatory impact well
beyond the transaction in which the State has an interest. A
requirement that firms wishing to deal with the State hire a
certain percentage of their workforce from among state residents in
practice may constrict the opportunities of nonresidents to work on
projects with no connection whatever with the governmental entity
imposing the condition. A firm that relies to any significant
degree on a permanent workforce will be compelled to favor local
residents for these positions. An analogous requirement that such
firms purchase only from in-state suppliers the goods used in state
projects also might constrict interstate trade wholly unrelated to
government business. If economic considerations counsel in favor of
stable relationships with suppliers, a firm wishing to deal with
the State will be compelled to favor local firms across the board.
The effect of such "conditions" on the ability of nonresidents to
deal with affected firms would be virtually identical to the effect
of a conventional market regulation requiring such practices.
In
Reeves, the Court cited "considerations of state
sovereignty" as another factor counseling restraint in applying the
Commerce Clause to "proprietary" activity. The States have a
sovereign interest in some freedom from federal interference when
hiring state employees. It might be argued that, because the city
could have chosen to build the projects covered by the order itself
and, free from dormant Commerce
Page 460 U. S. 221
Clause restraint, could have hired local residents, the city may
contract to have the work done by private firms on the condition
that the firms hire local residents. [
Footnote 2/5] But the Court never has suggested that the
State's special sovereign interest in determining whom it will
hire, and in setting the terms and conditions of public employment,
extends to dictating whom private parties with which it contracts
will hire, or the terms and conditions of private employment. In my
view, the State's interest in managing its relations with its
employees is fully safeguarded by its power to do the work itself
if it so chooses, with such immunity from the Commerce Clause as
attaches in that situation. The Court's observation in
Reeves, 447 U.S. at
447 U. S.
438-439, tying concerns for state sovereignty to a
merchant's customary power to exercise his independent discretion
as to the parties with whom he will deal, is fully consistent with
this view. But when a State attempts to arrogate unto itself the
"independent discretion" of others to deal with whom they please,
it exercises regulatory power that must be consistent with the
requirements of the Commerce Clause.
See generally Varat,
State "Citizenship" and Interstate Equality, 48 U.Chi.L.Rev. 487,
560-564 (1981).
This approach fully safeguards the power of the State to limit
to state residents the direct benefits of subsidy programs
supported with state funds. It permits a State to prefer local
businesses as providers of the goods it purchases in the
marketplace, and to prefer local residents as direct purchasers or
recipients of state-created bounty. But it does not permit a State
to impose clear market regulations as a condition of a contract or
of a subsidy, using the tremendous power of the state treasury
directly to impede the free flow of private trade in interstate
commerce, or, what may be worse, to discriminate against such
commerce. South Dakota should not be immune from the Commerce
Clause if, for
Page 460 U. S. 222
example, it imposes as a condition on the sale of state-owned
cement that purchasers employ only South Dakota residents, or
resell the cement only to South Dakota customers.
Cf.
Reeves, 447 U.S. at
447 U. S. 444,
n. 17 ("Nor has South Dakota cut off access to its own cement
altogether, for the policy does not bar resale of South Dakota
cement to out-of-state purchasers"). Similarly, Maryland should not
be free of Commerce Clause scrutiny if it imposes as a condition of
receiving a bounty, like that at issue in
Alexandria
Scrap, that scrap processors employ only Maryland residents,
or resell the processed scrap only in-state. In my view, such
conditions, like the condition at issue here, directly intrude upon
the historic Commerce Clause concern with "measures impeding free
private trade in the national marketplace."
Reeves, 447
U.S. at
447 U. S.
437.
I do not intend to suggest that the Court necessarily would
decide these variations of
Alexandria Scrap and
Reeves as it has decided this case; evidently, the Court
acknowledges that "restrictions that reach beyond the immediate
parties with which the government transacts business" pose Commerce
Clause questions more profound than did the restrictions at issue
in
Alexandria Scrap and
Reeves. Ante at
460 U. S. 211,
n. 7. The Court indicates that it upholds the executive order on
the understanding that, with the exception of the federal grant
programs, it is applied solely to construction projects funded
entirely by the city.
Ante at
460 U. S.
208-209. Because many construction contractors hire a
substantially different work crew for each project they undertake,
applied to such projects the Mayor's order is arguably limited, as
the Court says, to a "discrete, identifiable class of economic
activity in which the city is a major participant."
Ante
at
460 U. S. 211,
n. 7. [
Footnote 2/6]
Page 460 U. S. 223
This unique aspect of employment in the construction industry --
and of public works construction projects -- must also underlie the
Court's related justification that "[e]veryone affected by the
order is, in a substantial if informal sense,
working for the
city.'" Ibid.
I am not persuaded, however, that even the comparatively limited
terms of the executive order constitute "market participation,"
rather than "market regulation." The "sense" in which those
affected by the Mayor's order "work for the city" is so "informal,"
in my view, as to lack substance altogether. The city does not hire
them, fire them, negotiate with them or their representative about
the terms of their employment, or pay their wages. In the case of
the employees of subcontractors regulated by the order, the city
does not even pay, or contract directly with, their employers. In
short, the economic choices the city restricts in favor of its
residents are the choices of private entities engaged in interstate
commerce. Thus, the executive order directly impedes "free private
trade in the national marketplace," and, for that reason, I would
not hold it immune from Commerce Clause scrutiny. I therefore reach
the question whether the order imposes an impermissible burden on
interstate commerce.
III
As the Court recognizes, the order constitutes "parochial
favoritism" of Boston residents over nonresidents of Boston and
Massachusetts for access to private sector jobs.
Ante at
460 U. S. 213.
Thus, the order is a "protectionist measure" subject to the rule of
virtually
per se invalidity established by many of this
Court's cases.
See, e.g., Philadelphia v. New Jersey,
437 U. S. 617,
437 U. S. 624
(1978). [
Footnote 2/7]
Page 460 U. S. 224
That the order burdens Massachusetts residents living outside
Boston to the same extent as residents of other States does not
save the order from this rule. First, the order derives in part
from a state statute encouraging all Massachusetts communities to
institute similar measures. Mass.Gen.Laws Ann., ch. 149, § 26 (West
1982). [
Footnote 2/8] That statute
is clearly designed to benefit all Massachusetts residents at the
expense of all residents of other States. In carrying out this
statutory mandate, Boston, a creature of the Commonwealth, is
tainted by participation in the Commonwealth's larger and clearly
discriminatory scheme.
Second, and more significant, the order would be improper under
Dean Milk Co. v. Madison, 340 U.
S. 349 (1951), even absent the state statute. In
Dean Milk, this Court held that a Madison, Wis., city
ordinance "plainly discriminate[d] against interstate commerce,"
even though "Wisconsin milk from outside the Madison area [was]
subjected to the same proscription as that moving in interstate
commerce."
Id. at
340 U. S. 354, and n. 4. This was so because the
ordinance "erect[ed] an economic barrier protecting a major local
industry against competition from without the State."
Id.
at
340 U. S. 354.
The
Page 460 U. S. 225
Court held that the ordinance was invalid because "reasonable
nondiscriminatory alternatives, adequate to conserve legitimate
local interests, [were] available."
Ibid.
Boston has at its disposal reasonable alternatives to accomplish
its central goal -- the alleviation of unemployment among Boston
residents. It can create training programs for its unemployed
residents or establish aggressive referral practices aimed at
promoting employment for its residents at all construction projects
in the city without implicating Commerce Clause concerns. It also
can undertake some of the construction projects itself, and hire
Boston residents to work on them, without imposing discriminatory
restraints on the private market.
Moreover, as in
Hicklin v. Orbeck, 437 U.
S. 518 (1978), the order is ill-suited to eliminating
unemployment, because it applies the preference to all Boston
residents, not just the underemployed or undertrained.
See
id. at
437 U. S.
527-528. Finally, since
Dean Milk, the Court
has indicated that a discrimination against interstate commerce is
unjustified unless there is a legitimate reason, apart from their
out-of-state origin, to treat differently articles of commerce or
individuals engaging in commerce originating outside the State.
Philadelphia v. New Jersey, 437 U.S. at
437 U. S.
626-627. No such reason has been shown in this case.
Insofar as the Massachusetts court held Boston's executive order
violative of the Commerce Clause as applied outside the context of
federal grant programs, I would affirm its judgment. To this
extent, therefore, I respectfully dissent.
[
Footnote 2/1]
Because the Court does not pass on the possible invalidity of
the executive order under the Privileges and Immunities Clause,
U.S.Const., Art. IV, § 2, cl. 1, it has no occasion to determine
whether Congress may authorize, through affirmative legislation,
what otherwise would be a violation of that Clause. This question
may present considerations different from those presented by the
dormant Commerce Clause.
See L. Tribe, American
Constitutional Law § 6-31, p. 403, n. 18 (1978). For the reasons
given by the Court,
ante at
460 U. S.
214-215, n. 12, I also decline to reach this issue.
[
Footnote 2/2]
Had the city decided to limit its
own hiring to Boston
residents, its decision would almost certainly have been
permissible under
McCarthy v. Philadelphia Civil Service
Comm'n, 424 U. S. 645
(1976), as well as
Reeves and
Alexandria
Scrap.
[
Footnote 2/3]
That the order limits the preference to 50% of the covered jobs
is, of course, not relevant to the applicability of the market
participant exemption. If such preferences do not implicate the
dormant Commerce Clause, they are immune even if they apply to 100%
of a contractor's jobs.
[
Footnote 2/4]
Compare United States v. Colgate & Co.,
250 U. S. 300,
250 U. S. 307
(1919) (unquestioned right of trader unilaterally to refuse to deal
with those retailers who do not adhere to retail price schedule),
relied upon in
Reeves, 447 U.S. at
447 U. S. 439,
with United States v. Parke, Davis & Co., 362 U. S.
29,
362 U. S. 45-46
(1960) (trader violates Sherman Act by inducing wholesalers to
refuse to deal with retailers who will not adhere to price
schedule),
United States v. Arnold, Schwinn & Co.,
388 U. S. 365,
388 U. S. 382
(1967) ("Once the manufacturer has parted with title and risk, he
has parted with dominion over the product, and his effort
thereafter to restrict territory or persons to whom the product may
be transferred" violates the Sherman Act), and
Continental T.
V., Inc. v. GTE Sylvania Inc., 433 U. S.
36,
433 U. S. 49
(1977) (overruling
Schwinn in part; nonprice vertical
market restrictions are not
per se unlawful, but should be
judged individually under the "rule of reason" to determine whether
they "should be prohibited as imposing an unreasonable restraint on
competition").
Conditioning a willingness to deal with potential bargaining
partners on their derivative refusals to deal with others is
particularly suspect where those whom the trader attempts to
isolate are its competitors.
See Lorain Journal Co. v. United
States, 342 U. S. 143,
342 U. S.
154-155 (1951). Here, the citizens of Boston, through
their Mayor, have sought to do just this by requiring those wishing
to deal with their city government to refuse to hire nonresidents
competing with citizens for jobs. This anticompetitive and suspect
goal will be present whenever a unit of state or local government
requires recipients of public contracts or government subsidies to
deal only with that government's constituents.
Congress, in § 8(e) of the National Labor Relations Act, has
expressly prohibited labor organizations from requiring employers
to agree
"to cease or refrain from handling, using, selling, transporting
or otherwise dealing in any of the products of any other employer,
or to cease doing business with any other person,"
and has declared any such agreement to be void. 29 U.S.C. §
158(e). On the other hand, permitting labor unions to refuse to
deal with the primary employer is the staple of federal labor
policy, and nothing prevents an employer from refusing unilaterally
to deal with others for any lawful reason. To be sure, in the
construction industry, at issue in the executive order, collective
bargaining agreements are expressly exempted from this proscription
of "hot cargo" clauses.
Ibid.; see Woelke & Romero Framing,
Inc. v. NLRB, 456 U. S. 645
(1982). That Congress has chosen, however, for reasons peculiar to
labor policy and the history and nature of collective bargaining in
the construction industry, to exclude collective agreements in that
industry from this restriction does not detract from my basic
point: there is a world of difference between the kind of
"proprietary" activity at issue here and the kind exempted from
dormant Commerce Clause scrutiny in
Reeves and
Alexandria Scrap.
[
Footnote 2/5]
Indeed, the Court appears to rely on this argument.
See
ante at
460 U. S. 211,
n. 7.
[
Footnote 2/6]
See S.Rep. No. 187, 86th Cong., 1st Sess., 27 (1959)
("The occasional nature of the employment relationship makes [the
construction] industry markedly different from manufacturing and
other types of enterprise. An individual employee typically works
for many employers, and for none of them continuously. Jobs are
frequently of short duration, depending upon various stages of
construction"). It is noteworthy, however, that, in this case, the
parties have stipulated that the order affects some "contractors
who have regular and permanent work crews." Agreed Statement of
Facts, App. to Pet. for Cert. A41.
[
Footnote 2/7]
I reject the suggestion that the record does not establish a
cognizable burden on interstate commerce.
See ante at
460 U. S.
209-210, and n. 6. The city has stipulated that, as a
result of this order, some construction workers who are
nonresidents of Massachusetts will be unemployed; contractors from
outside Massachusetts will be discouraged from bidding on affected
projects; and the costs of construction on affected projects will
increase. Agreed Statement of Facts, App. to Pet. for Cert.
A37.
[
Footnote 2/8]
The Mayor's executive order itself states that one of its
purposes is to satisfy the city's
"statutory obligation to give preference to its residents in
hiring for public[ly] funded construction projects pursuant to
[Massachusetts] G.L. c. 149, § 26."
App. to Pet. for Cert. A19. The statute to which the order
refers provided:
"Each county, town or district in the construction of public
works, or persons contracting or subcontracting for such works,
shall give preference [in hiring] to veterans and citizens who are
residents of such county, town or district."
Mass.Gen.Laws Ann., ch. 149, § 26 (West 1982). In its decision
holding the city order unconstitutional, the Supreme Judicial Court
of Massachusetts also struck down this statute. 384 Mass. 466,
476-478,
425
N.E.2d 346, 352-353 (1981). The Commonwealth has not appealed
that ruling.