Yearly Archives: 2020

The Nondelegation Doctrine and a Deep Dive Into Federal Taxation of Real Estate in 1798 That You Didn’t Even Know You Needed

Dec 15, 2020 Richard MurphyAdd a Comment

Not so long ago, teaching the nondelegation doctrine in Administrative Law class was straightforward. Assign students an excerpt from Whitman v. American Trucking Association. Maybe add a bit of Justice Scalia’s dissent in Mistretta. Discuss the emptiness of the intelligible-principle principle. Everyone in class agrees that, whether you like it or not, a nondelegation doctrine that can accommodate delegations to act in the “public interest” or set “fair and equitable” prices does not do very much to limit the scope of the modern regulatory state.

But change has been in the air for several years—as most clearly demonstrated by Gundy v. United States (2019). As readers of this website will likely recall, the Court in Gundy addressed a nondelegation challenge to the Sex Offender Registration and Notification Act (SORNA), which requires sex offenders to register before completing their sentences of imprisonment. Barring time travel, this requirement would have been hard to apply to persons who had completed their sentences before SORNA’s enactment. To deal with them, SORNA delegated to the Attorney General the authority to “specify the applicability” of registration requirements and to “prescribe rules for registration.” Justice Kagan, writing for a controlling plurality, found sufficient constraints in SORNA’s text, purpose, and history to reject the nondelegation challenge. Just as about a century’s worth of the Court’s precedents might lead one to expect.

Justice Alito, concurring, expressed willingness to reexamine the nondelegation doctrine in a future case if a majority proves willing to do so, but thought singling out SORNA would otherwise be a bit “freakish.”

Justice Gorsuch, in a dissent joined by the Chief Justice and Justice Thomas, condemned the intelligible-principle principle as a liberty-destroying “misadventure” that “has no basis in the original meaning of the Constitution, in history, or even in the decision from which it was plucked.” He explained that delegations of rulemaking authority to agencies to govern private conduct are permissible in just three circumstances. First, if Congress makes the policy decisions, agencies can “fill up the details.” Second, Congress can impose conditional rules that come into force only if an agency later finds some triggering fact to be true. Third, Congress does no harm when it “delegates” authority to the other branches that they already possess under the Constitution.

Take Gundy, mix in Justice Kavanaugh and maybe Justice Barrett, and we appear to have a solid majority of the Court interested in overhauling the nondelegation doctrine in a way that is at least consistent with the conclusion that much agency regulation of private conduct is unconstitutional.

In response to this prospect, three leading scholars of administrative law have recently produced two major law review articles that deploy originalist arguments to debunk the nondelegation doctrine. Professors Julian Mortenson and Nicholas Bagley, based on a wide-ranging survey of Anglo-American legal thought before and after 1789, conclude that “the overwhelming majority of Founders didn’t see anything wrong with delegations as a matter of legal theory.” (Delegation at the Founding, 121 Columbia L. Rev. (forthcoming 2021)) Turning to practice, they identify numerous delegations of generous grants of discretionary rulemaking authority to administrative authorities from the very early years of the Republic. In their view, squaring this history with a meaningful nondelegation doctrine requires too many gerrymandered exceptions to be remotely persuasive. Delegation at the Founding, which does not pull any punches, has already generated a great deal of discussion in law reviews and the blogosphere. For one of several rejoinders, you might check out, Ilan Wurman’s Nondelegation at the Founding, forthcoming in the Yale Law Journal.

The other major salvo, and the subject of the remainder of this jot, is Professor Nicholas Parrillo’s splendid article with the really long title, A Critical Assessment of the Originalist Case Against Administrative Regulatory Power: New Evidence from the Federal Tax on Private Real Estate in the 1790s, which will be published next year in the Yale Law Journal. This article, too, examines early congressional legislation to shed light on whether the original understanding of the Constitution demands a nondelegation doctrine with sharp teeth. Rather than go for the magisterial sweep in the fashion of Mortensen and Bagley, however, Parrillo instead goes for the deep dive, exploring for over one hundred pages the discretionary powers that Congress granted to administrators to implement a tax on real estate that Congress imposed in 1798.

To explain why this 1798 tax is so important, Professor Parrillo notes that proponents of a strong nondelegation doctrine often try to explain away early congressional delegations by arguing that they fall into exceptions that allow more constitutional room for rulemaking. For instance, greater administrative discretion is permissible for foreign and military affairs because they fall within the natural domain of the executive in any event. Also, Congress can grant rulemaking discretion to administrative authorities to determine how to allocate benefits, services, and privileges. On this view, the nondelegation doctrine does, however, bar Congress from delegating to administrative authorities the power to promulgate “coercive regulation[s] of private rights and private conduct.” (P. 9.)

One way to combat the nondelegation doctrine in this limited form is to contend, as Mortensen and Bagley do, that the exceptions represent an implausible effort to save the doctrine from the evidence of history. Another way is to find early congressional delegations that in point of fact did grant agencies coercive power over private rights. And, in the form of the 1798 federal real estate tax, Professor Parrillo has found just such a delegation.

He explains that, in its first decade, Congress relied on import duties and excise taxes to fund the federal government. In 1798, however, Congress needed another revenue stream to help pay for a military buildup. In the Lay and Collect Act, Congress therefore imposed a direct tax of 2 million dollars, which it apportioned across the states according to their populations. (P. 22.) This tax fell, in the first instance, on slaveowners, who were to pay a tax of 50 cents per slave. The remainder of the states’ quotas were to be covered first by a progressive tax on houses and then, if necessary, by a flat tax on land. (Pp. 22-23.)

The Lay and Collect Act instructed that taxes on real estate should be calculated according to the terms of the Valuation Act. This statute, which Congress had enacted just a week earlier, provided that real estate should be valued at its “worth in money.” (P. 22.) As Professor Parrillo deftly explains, the extreme vagueness of this standard was intentional.

The Valuation Act divvied up states into tax districts. Each district got a federal tax commissioner who had been nominated by the President and confirmed by the Senate. Together, the commissioners of a given state formed its federal tax board. There were 94 commissioners in all. They appointed, on a conservative estimate, over 2100 principal and assistant assessors to aid them in their work. For those keeping score at home, that’s a bigger administrative apparatus than the Post Office had at the time. (P. 27.)

To enable the boards to carry out their functions, Congress delegated significant rulemaking powers to them. For instance, the Valuation Act gave each board authority to “establish all such regulations, as to them, or a majority of them, shall appear suitable and necessary, for carrying this act into effect; which regulations shall be binding on each commissioner and assessor, in the performance of the duties enjoined by, or under this act.” (P. 27 (quoting Valuation Act).) The boards’ “greatest” rulemaking power, however, enabled them to ensure fair allocation of the tax burden across districts by revising all the valuations in a district at once by rule. To this end, boards “had the power to raise or lower the tax assessments of thousands of property owners all at once, by any percentage amount, so long as the change ‘shall appear to be just and equitable.’” (P. 30 (quoting Valuation Act).)

“Just and equitable.” That sure sounds like a lot of regulatory discretion.

After explaining the structure, operation, and powers of the federal tax boards, Professor Parrillo explores:

• The informational and methodological difficulties of real estate valuation in the 1790s—and the wide discretion that the boards necessarily had in carrying out mass-revision rulemakings as a result;
• The political and contentious nature of the boards’ authority to allocate tax burdens across different geographic areas with different economic interests (e.g., determining assessments for coastal areas versus backcountry);
• The binding nature of the boards’ mass revisions, which were “final and absolutely binding on taxpayers” with no avenue for judicial review (P. 15); and
• The wide and bipartisan acceptance of the boards’ powers—and the notable absence of constitutional objections to them in connection with the 1798 tax or to similar taxes that Congress imposed in later decades.

Professor Parrillo has, by poring over centuries-old records of an almost forgotten tax and placing them in historical context, produced a truly impressive piece of legal scholarship. His Critical Assessment should play an indispensable role in the post-Gundy evolution of the nondelegation doctrine.

(Also, did I mention it has 695 footnotes?)

Administrative Law All the Way Up

Nov 6, 2020 Mila SohoniAdd a Comment

There’s a legal black hole at 1600 Pennsylvania Avenue where there shouldn’t be—or so argues Professor Kathryn Kovacs in a spirited new article, Constraining the Statutory President. A “legal black hole,” as Adrian Vermeule defined it, exists when statutes or legal rules create a zone in which the rule of law, including the constraints of administrative procedure and the checks of judicial review, cannot penetrate. And, as Vermeule pointed out, the Court created just such a black hole in Franklin v. Massachusetts by flatly excluding the President from the ambit of the Administrative Procedure Act: “the President is not an agency within the meaning of the APA.” Franklin is probably not what most people would call a “fixed star in our constitutional constellation.” But it is now a fixed “black hole” in the (administrative) constiution—a holding subsequently reaffirmed by the Court, abided by lower courts, left undisturbed by Congress, and treated as a given by many scholars.

Kovacs dissents from this acceptance of Franklin. Her article is one of a noteworthy set of recent articles that have examined presidential power and the constraints that should be imposed upon it. This boomlet of scholarship has addressed, among other topics, frameworks for judicial review of presidential orders, the importance of presidential fact finding, and the internal White House process of crafting presidential proclamations, directives, and orders. Speaking on a more conceptual plane, one new article offers a comprehensive defense of the thesis that the “duality” of the Presidency—i.e., that the President is both a mortal man and a public office—is a “defining ambiguity” of public law.

Kovacs’s subject is a different Presidential “duality.” At times, the President acts as the constitutional President—for example, when he vetoes a bill or nominates a justice. At other times, the President acts as if he were an agency—for example, when he issues proclamations or orders under color of statutory authority. When the President acts like an agency, Kovacs argues, then he ought to be treated like an agency. (Pp. 7, 49.) The Statutory President, she contends, should comply with the same administrative procedural and substantive requirements with which Congress’s other statutory delegates (i.e., ordinary agencies) must comply when they issue rule-like regulatory commands.

Franklin now blocks that possibility, but Kovacs argues that Franklin was both wrong and harmful: wrong as a matter of text, legislative history, and constitutional structure, and harmful as a matter of policy and administrative law values. The APA did not expressly exclude the President from its capacious definition of agency—and, she argues, if the APA’s drafters did think that the President wasn’t an agency, then that is because they couldn’t and didn’t anticipate how much consequential regulatory action modern presidents are liable to produce. (P. 35.) Kovacs notes that reversing Franklin would leave a wide swath of presidential action outside the scope of APA review, including many actions involving treaties, tariffs, or military affairs. (Pp. 29-30.) But in other regulatory realms, including in the domain of some immigration policymaking, the APA’s constraints would apply. All in all, Franklin should be reversed by the Court, she concludes. (P. 36.) And if the Court does not do so, Kovacs urges that Congress take action, either by amending the APA to legislatively override Franklin (P. 60) or by refraining from entrusting more power to the unconstrained actor at the apex of the executive branch. (Pp. 60-61.)

What turns on the President being an “agency” within the meaning of the APA? Savvy lawyers today are often able to frame their suits to evade Franklin—for example, by seeking nonstatutory review or by suing a subordinate officer. But Kovacs is not satisfied by such routes around Franklin; she would prefer to deep-six it altogether. To Kovacs, the stakes appear high: “Failing to curb the Statutory President,” writes Kovacs, “will further enable our nation’s descent into authoritarianism.” (P. 9.) On the other hand, she argues, imposing administrative procedural constraints upon the President would promote a suite of virtues and values familiar to administrative law, among them greater deliberation, enhanced political accountability, more robust public participation, and increased transparency. (Pp. 37-46.)

One important element of Franklin was Justice Scalia’s concurrence in that case. Kovacs correctly observes that Scalia “believed that [Massachusetts] lacked standing” (P. 14), but his opinion said a bit more than just that. Scalia offered a full-throated rejection of the proposition that any federal court could enjoin the President in the performance of his official actions. Indeed, Scalia rebuked the notion that a federal court could issue even a declaratory judgment that runs directly against the President: to his mind, it was a sad commentary on the degraded state of legal understanding that the district court in Franklin “entered this order against the President without blinking an eye.”

If the President had been held to be an agency within the meaning of the APA in Franklin, then obviously many more such decrees against Presidential agency action would have been in the offing—orders that (on Scalia’s view) would have been not just unconstitutional, but embarrassingly unconstitutional. Writing for a slim 5-4 majority in the relevant portion of Franklin, Justice O’Connor accommodated that concern by reading the APA as excluding the President on constitutional avoidance grounds. But O’Connor also hedged about the consequences of that holding by expressing the Court’s confidence “that the President and other executive and congressional officers would abide by” a district court’s “authoritative interpretation . . . even when though they would not be directly bound by such a determination.” If that assumption is unwarranted, then that would provide another reason to question Franklin’s outcome.

The chief reward of Kovacs’ article lies in its focused exploration of the road left untaken in Franklin. Additional rewards lie in the interesting nuggets she has scattered throughout her discussion. For example, as Kovacs notes, the Court decided Franklin in an unusually short span of time—just over three months elapsed between the initial notice of appeal and the decision. And I learned for the first time from Kovacs that Franklin has caused a circuit split to “hatch” between the D.C. Circuit and the Federal Circuit concerning the availability of nonstatutory review. (P. 21.) Finally, I always enjoy reading about instances in which the sitting Justices litigated a particular position in their earlier careers as government lawyers or in private practice—and, as it happens, Franklin was argued for the United States by one John G. Roberts, Esquire. (P. 12.)

Today, of course, whether the Court would decide this issue differently may depend in part on the vote of the former government lawyer—Chief Justice Roberts—who successfully argued the Franklin appeal. For that and other reasons, persuading the Court to reverse Franklin may be an uphill fight. And, as Kovacs recognizes, the prospect of a Congressional override of Franklin “seems like a long shot” as well. (P. 60.) If the end result would seem to be that Franklin, warts and all, is likely to remain a fixture in the firmament of our administrative law, then that should perhaps not come as a surprise. As any physicist (not to mention Adrian Vermeule) could tell you, it’s not easy to fill up a black hole.

How Commercial Secrets Become Government Secrets

Oct 6, 2020 Margaret KwokaAdd a Comment

The breadth of exemptions to mandatory disclosure of government records under the Freedom of Information Act (FOIA) has long been criticized. The exemptions for national security, the agency privileges, and privacy are among those that have rightly come under fire. Even Congress has tried to rein in some of the most sweeping of these exemptions with recent amendments to the statute itself, capping the applicability of one exemption, the deliberative process privilege, to records less than twenty-five years old. But FOIA usually stands alone. Rarely is there an analogous body of law to learn from or to which it compares.

Deepa Varadarajan’s terrific forthcoming article, Business Secrecy Expansion and FOIA, demonstrates that FOIA’s trade secrets exemption is an exception. Varadarajan traces the history of trade secrets litigation back to its common law origins, documenting its steadfast march toward an ever-broader understanding of what constitutes a trade secret. Now, she explains, trade secrecy law protects any information of commercial value not generally known in the industry and which the owner has taken measures to protect.

In parallel, however, Varadarajan explains that FOIA jurisprudence stubbornly took a narrower view when interpreting the exemption for “trade secrets” and “confidential” commercial information. The “trade secrets” prong was limited to information tied to a production process (like formulas, plans, or devices), and the “confidential commercial information” provision was limited to information the release of which would cause substantial competitive injury. While information that firms voluntarily provided to the government qualified as exempt from disclosure under a broader interpretation, the generally narrower definition led to litigation successes in obtaining a wide variety of records regarding, for example, government contracting, private prisons, and more.

That is, the narrow construction prevailed until the Supreme Court’s decision last year in Food Marketing Institute v. Argus Leader Media. (Disclosure: I was amicus curiae in FMI.) Varadarajan artfully describes how FMI discarded the stricter FOIA standard in favor of aligning FOIA with modern trade secrets litigation. In effect, it rendered exempt from the FOIA disclosure mandate any information submitted by a firm that the firm does not routinely share and provided to the government under an assurance of privacy.

While details of how this standard is applied are being hashed out in the lower courts now, I was struck by Varadarajan’s central observation about the relationship between this development and trade secrets litigation. Not only does it move FOIA towards modern trade secrecy, she theorizes critically important ways in which it may make FOIA’s exemption cover even more business information than is protected by trade secrecy. Since trade secrets litigation is typically brought against former employees, there are certain inherent limits to how it might apply. To begin, it cannot be applied to limit employees from using their general professional knowledge and skills and it cannot apply to that which is generally known within the industry (even if not known in the general public).  In addition, and maybe even more importantly, it is limited to that which has some actual commercial value to the trade secret owner. Yet none of those limitations appear in the FMI standard under FOIA or would arise in litigation between a member of the public and a government agency.

Varadarajan’s work is important in several respects, not the least of which is exposing the relationship between trade secrets litigation and the application of the trade secrets exemption under FOIA. Beyond that, she describes how government-held trade secrets are precisely the ones that should be more narrowly defined. After all, these claims are used to keep hidden from public view the activities of private companies performing essential government functions—everything from private prisons to algorithms used in law enforcement to pricing in publicly provided healthcare services. As more and more functions are privatized, this exemption grows in size. It may shield from the public information that is critical to FOIA’s oversight and accountability aims.

She ends with a compelling case that there are real paths forward, even after FMI. While various legislative fixes she proposes might be the obvious starting point, there are also interesting litigation strategies that can be employed. For example, her suggestion of using the 2016 amendment to FOIA requiring agencies to apply exemptions only when there is a “foreseeable harm” from release of the records could be interpreted to alter the substantive standard for trade secrecy claims.

Even more promising, she proposes government contracting terms that impose clear disclosure requirements, thereby negating any claim that the firm expected or was promised secrecy or was closely guarding that information. This sort of built in transparency on the front end has gained traction more broadly, and agency officials I have spoken with have sometimes referred to this concept as “FOIA-ready” record keeping, or other times “transparency by design.” The idea is if we make records in releasable forms at the outset, we can open more of the government to the public.

Varadarajan is exactly right when she writes that the relationship between trade secrecy and FOIA’s commercial exemption “has thus far gone unnoticed.” But her outstanding contribution provides the foundation that is greatly needed by scholars and advocates to imagine commercial secrets beyond the FMI decision.

AI Agents in Federal Agencies

Sep 4, 2020 Christopher WalkerAdd a Comment

The use of artificial intelligence is on the rise at federal agencies, and administrative law scholars aren’t paying enough attention. In a forthcoming article, Ryan Calo and Danielle Citron question whether this increasingly “automated administrative state” presents a legitimacy crisis. After all, legislatures delegate broad law-implementation authority to administrative agencies because of regulators’ “ability to accrue expertise and the prospect of flexible and nimble responses to complex problems.” Yet these agencies are increasingly subdelegating such implementation authority to “systems in which they hold no expertise, and which foreclose discretion, individuation, and reason-giving almost entirely.” Despite these concerns, Calo and Citron ultimately do not demand a deconstruction of the automated administrative state. Instead, they argue that “agencies should consciously select technology to the extent its new affordances enhance, rather than undermine, the [expertise] rationale that underpins the administrative state.”

The Calo-Citron article deserves its own Jot. But it also raises a more fundamental question: How automated is the federal administrative state today? Although some work has documented the use of artificial intelligence and machine learning (AI/ML) at a handful of federal agencies, we had lacked a system-wide study. Recognizing this deficiency, the Administrative Conference of the United States commissioned an all-star group of scholars to comprehensively examine this regulatory landscape. In February, those scholars—David Freeman Engstrom, Daniel E. Ho, Catherine M. Sharkey, and Mariano-Florentino Cuéllar—issued their 122-page report, entitled Government by Algorithm: Artificial Intelligence in Federal Administrative Agencies.

There is so much to like *lots* in this report—too much to cover in this short Jot. But I’ll flag a few highlights.

Part I of the report takes inventory of AI/ML across the federal bureaucracy. To do so, the researchers—including the report authors and a large team of law students, political scientists, and computer scientists—focus on the 142 most significant federal agencies. They find that 45% (64 agencies) have embraced AI/ML to some degree. As depicted in Figure 2 of the report, the most common use of AI/ML is for “regulatory resource, analysis, and monitoring,” followed by (in order) enforcement, public services and engagement, internal management, and adjudication. Roughly half of AI/ML use cases (84 of 157) were developed in house. Part I also breaks down the data by agency, subject matter, and implementation stage, among other things. A 43-page online appendix provides even more granularity, including details on all 157 use cases identified at these agencies. In reviewing the findings, I was struck by the fact that most agencies (though not all) experimenting with AI/ML have substantial resources. Many under-resourced agencies, such as agencies focused on immigration and veterans affairs, don’t seem to be doing much AI/ML innovation. I’ll return to this observation later.

After presenting the big picture in Part I, Part II details eight fascinating case studies into how federal agencies have utilized AI/ML. The case studies were not chosen at random, but as illustrations of how agencies utilize AI/ML in various regulatory settings. To illustrate agency enforcement practices, the report has case studies on the Securities and Exchange Commission and Customs and Border Protection. On regulatory analysis, it presents case studies on two pilot programs at the Food and Drug Administration. The report includes three case studies on citizen engagement—at the Consumer Financial Protection Bureau, the Federal Communications Commission, and the U.S. Postal Service.

On administrative adjudication, the report presents case studies on the Social Security Administration and the U.S. Patent and Trademark Office. As Cary Coglianese and Lavi Ben Dor have observed, federal agencies—compared to Article III federal courts—seem much more willing to embrace and experiment with AI/ML when adjudicating. Such experimentation in adjudicating individual claims may seem particularly concerning to many observers. The report explores how the Social Security Administrative has tried to improve the quality of administrative adjudication through the use of AI/ML—by clustering appeals by issue to be decided by specialized appellate adjudicators, by accelerating appeals based on predicted likelihood of success, and by leveraging natural language processing for quality assurance. Similarly, in its case study of informal adjudication at the U.S. Patent and Trademark Office, the report explores how the agency has utilized AI/ML with respect to patent classification, patent prior art search, trademark classification, and prior trademark search. In the patent prior art search context, for instance, the agency developed an in-house tool called Sigma. Yet it ultimately did not implement Sigma agency-wide because the pilot program revealed that the tool “improve[d] efficiency only for examiners with a computer science background.”

Each case study could be the subject of a standalone law review article. Indeed, for scholars looking for research agenda ideas in this area (or law students for student note topics), check out the implications section of each case study, which flags some of the most pressing issues related to that use of AI/ML.

The final part of the report (Part III) zooms back out to examine several cross-cutting implications of the report’s findings. The authors focus on six categories of implications and recommendations:

(1) building internal capacity;

(2) transparency and accountability;

(3) bias, disparate treatment, and disparate impact;

(4) hearing rights and algorithmic governance;

(5) gaming and adversarial learning; and

(6) the external sourcing challenge.

Similar to the case studies in Part II, these half-dozen implications categories could each be the subject of a full-length article. Consider, for instance, the first category of building internal capacity. The report recognizes that federal agencies generally face a “make-or-buy” decision when it comes to incorporating AI/ML in their regulatory activities. The procurement and development of AI/ML will continue to be a challenge for federal agencies. Outsourcing development has important advantages, as those outside of the agency likely have much deeper expertise in developing these AI/ML tools. Yet, as the report underscores, subject-matter expertise can be critical in developing the AI/ML, such that outsourcing the entire process to outside groups would be problematic.

Outsourcing in some circumstances may also be in tension with core values of administrative governance. As Calo and Citron argue, AI/ML developments at federal agencies should be

oriented toward the furthering of substantive commitments and values, such as access, quality, and self-assessment. They are not designed simply to save costs (and in the process undermine procedural commitments without garnering more efficiency) but rather to enhance the capabilities of the administrative state itself—both agencies and officials—to engage in more effective and fair governance. In general, they would not outsource agency functions requiring expertise and discretion to third parties whose software and hardware deliver neither. These efforts have potential to enhance the justification of the bureaucratic state by, ideally, generating knowledge, enhancing expertise, tailoring outcomes, and increasing responsiveness—the purported reasons Congress created agencies to carry out its will in the first place.

Not surprisingly, the report authors strongly recommend internal development even when an agency procures AI/ML from outside the agency. This internal development includes: (1) increasing technical infrastructure and data capacity; (2) developing staff capacity and competency; (3) investing in AI/ML strategy and “regulatory sandboxes”; and (4) incorporating “accountability and transparency by design.” The remaining implications categories in Part III similarly explore how AI/ML should be developed across the administrative state to address some of the dangers of automating regulatory activities.

A critical challenge to developing AI/ML internally, as I hinted above, is that federal agencies face significant budget constraints. Buying off-the-shelf solutions may thus be more tempting for agencies with limited resources, yet such outsourcing often carries greater risks from a Calo-Citron legitimacy perspective. And some agencies that may benefit the most from AI/ML innovations face greater budgetary challenges than others, such that buying AI/ML is not even possible. In the final implications category, the report wisely observes that make or buy are not the only options. Federal agencies can also borrow. These approaches include collaborating with outside non-commercial entities to develop AI/ML, sponsoring AI/ML innovation competitions, and collaborating with other administrative agencies. This borrowing category deserves much more attention in the literature and in the real world. Indeed, we may find similar parallels and helpful lessons from the history of military software procurement, as my colleague Bryan Choi explores in Software as a Profession, where the government pursued such a hybrid development and procurement strategy.

Government by Algorithm is a massive contribution to the administrative law literature, and it lays the foundation for an ambitious research agenda for this emerging subfield of administrative law. The report could not have come at a better time, as federal agencies turn more and more to AI/ML to regulate.

When the Government Breaks Its Financial Promises

Jul 20, 2020 Eloise PasachoffAdd a Comment

What happens when Congress enacts a permanent commitment to pay for some ongoing activity, but then fails to appropriate the funds necessary to do so? Until recently, this phenomenon was almost unheard of. But contemporary examples abound. For example, Congress failed to fund different two different provisions of the Affordable Care Act that had committed the federal government to pay insurers through the “risk corridors” program and through “cost-sharing reductions”; failed to fund tribes who had elected under the Indian Self-Determination and Education Act to provide services that had previously been provided by the federal government; and failed to fund the Children’s Health Insurance Program, a complex cooperative federalism program that is deeply entrenched, albeit in different ways, in states’ health care coverage for children. These examples either reflect or generate inter-branch conflict, implicating the executive branch, and often courts, in what may at first glance seem to be simply an intra-legislative breakdown.

We need a vocabulary to identify and describe this phenomenon and a framework through which to understand and assess it. Matthew Lawrence’s new article Disappropriation does just that.¹

Disappropriation, as Lawrence defines it, is “legislative failure to appropriate funds necessary to honor a government commitment in time to honor that commitment.” Disappropriation results from “the dissonance between Congress’s legislative power and its appropriations power.” In other words, Congress can enact laws committing the federal government to pay for something, but unless it also designates a source of funds, it has not provided an actual appropriation, as required by the Appropriations Clause.

Sometimes, Congress enacts legislation that harmonizes these powers, providing both a commitment to pay and an ongoing permanent appropriation. Think, for example, of Social Security and Medicare. Other times, however, Congress enacts legislation that reflects dissonance between these powers, committing the government to pay but depending for funding on the annual appropriations process. Food stamps and Medicaid, as “appropriated entitlements,” fall into this category.

When the dissonance between Congress’s legislative and appropriations powers results in a disappropriation, or even comes close to it, negative consequences can ensue. For example, those relying on the government’s anticipated payments can face devastating financial losses, with a particularly burdensome disparate impact on less well-capitalized smaller businesses and individuals without the means to survive the delay associated with a legal or political battle over payment. The rule of law also suffers, in that the executive branch is forced to violate a statutory command because it is without the means to do so. Disappropriation can also result in a problematic kind of delegation, where the executive branch is left to pick and choose how to dole out whatever minimal funds exist to support the commitment in the absence of an intelligible principle, because the law never contemplated this kind of executive discretion.

At the same time, as Lawrence points out, strategic exploitation of dissonance between Congress’s legislative and appropriations powers can result in a threat of disappropriation that may have salutary consequences. While permanent commitments shift inter-branch powers towards the executive branch to implement those commitments, annual appropriations pull some of the power back towards Congress. This fact may strengthen Congress’s oversight function. For example, Congress can use the threat of disappropriation to extract executive commitments to produce documents or testify in committee. The threat of disappropriation can also empower blocks in Congress other than party leadership, so that issues of importance to other groups (members of the minority, committees) can rise to salience.

Is there a way to prevent the negative consequences of dissonance that result from an actual disappropriation while retaining the benefits that accrue from strategic exploitation of the threat of disappropriation? Lawrence suggests that there is a category of rules that does just this: rules that “promote durability (the likelihood that a policy will stay in place and so its capacity to engender reliance) but not entrenchment (the difficulty of changing policy for a majority that wishes to do so).” The key, he argues, is to prevent “bargaining failure,” where a disappropriation results because of either “uncertainty surrounding the impact of legislative action or inaction” or “private information about the consequences of disappropriation.”

In light of this goal, he proposes that courts adopt an interpretive presumption against disappropriation of unambiguous legal commitments; welcome lawsuits by civil servants to enforce disappropriation as a superior alternative to resolving questions about legislative standing; offer expedited declaratory (rather than injunctive) relief when there is a dispute about whether a disappropriation has occurred; and “seek to minimize interference with the political branches and reduce uncertainty surrounding the potential impacts of future disappropriations” when considering claims for damages in any individual disappropriations case. Lawrence’s careful analysis of each of these suggestions provides a critical tool for courts and litigants in thinking through the long-term, systemic implications of different paths for resolving discrete legal controversies.

Lawrence’s contribution is a welcome addition to the growing body of administrative law scholarship on federal funding. In a world where inter-branch disputes increasingly involve money—building a wall at the southern border with funds that far exceed Congress’s appropriations, placing a hold on aid to Ukraine while asking for investigations of political rivals, limiting oversight over Coronavirus relief—insights like the ones Lawrence offers in this excellent article are vital.