The opinion of the court was delivered by: RICHEY
This case is before the Court on a motion of over 1200 plaintiffs (seven states and the rest, political subdivisions) and the plaintiff-intervenors, the Louisiana Municipal Association and seventy-four Louisiana municipalities, for a preliminary injunction to enjoin the defendants from implementing the Unemployment Compensation Amendments of 1976. These Amendments would require the state and local governments to finance unemployment benefits for these governments' former employees. This litigation is of monumental significance because the allegations indicate that the denial of the injunction may result in the firing of 100,000 state and local government employees and possibly the curtailment of some vital government services, while the granting of the injunction may result in some 2 million state employees and hundreds of thousands of local government employees being unable to obtain unemployment compensation should they become unemployed.
For the reasons hereinafter stated, the Court will deny the motion for a preliminary injunction. Upon consideration of all the memoranda filed, the affidavits, and the lengthy hearing held on the motion, the Court, under Fed. R. Civ. P. 52(a) and 65(d), makes the following findings of fact and conclusions of law.
1. Plaintiffs challenge the requirements of Pub. L. No. 91-373 and Pub. L. No. 94-566, as amended by Pub. L. No. 95-19 ("challenged Amendments") which require that plaintiffs, beginning January 1, 1978, assume the financing of unemployment benefits for their former employees. Plaintiffs assert that these statutes trespass upon the state's sovereignty in violation of the tenth amendment to the Constitution.
2. Plaintiffs remain, even under the challenged amendments, immune from the Federal unemployment payroll tax, 26 U.S.C. § 3301.
4. The state must, under the challenged amendments, forward funds to the defendant Secretary of the Treasury to be held in the Federal Unemployment Trust Fund.
5. Beginning January 1, 1978, plaintiffs may, if they enact conforming legislation, need to set aside tax payments or accrue reserves against reimbursements to finance unemployment compensation benefits for plaintiffs' former government employees; however, any liability for weeks of unemployment prior to July 1, 1978 will be reimbursed by the federal government, 26 U.S.C. § 3304 note.
6. Plaintiff states and local governments often have reached limits set by state constitutions and statutes on incurring new debts and raising new revenues through taxes. If states do enact conforming legislation, these limits may induce the states and local governments to raise the needed revenue by curtailing or eliminating government services and by firing government employees. To prevent this, plaintiffs seek this injunction.
7. The issuance of an injunction will injure public employees who may become eligible for unemployment compensation; they will be injured to the extent that state and local laws do not provide for them because the Special Unemployment Assistance program, 26 U.S.C. § 3304 note, by which the federal government has paid for the unemployment compensation of these employees since 1975, will expire on December 31, 1977.
8. Several of the states -- most prominently plaintiff State of New Hampshire -- have not enacted conforming legislation. The other plaintiff states have enacted legislation which purports to conform to the federal requirements.
9. The consequence -- unless an injunction is granted -- of a state's failure to enact conforming legislation, is (a) denial of a tax credit against the Federal unemployment payroll tax levied on private employer Federal taxpayers within these nonconforming states, 26 U.S.C. §§ 3301, 3302; (b) shifting of the expenses of administering the state unemployment compensation law to the state treasury; and (c) termination of the present federal ...