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CITY OF NEW YORK v. CLINTON

February 12, 1998

CITY OF NEW YORK, et al., Plaintiff,
v.
WILLIAM J. CLINTON, et al., Defendant. SNAKE RIVER POTATO GROWERS, INC., et al., Plaintiff, v. ROBERT E. RUBIN, et al., Defendant.



The opinion of the court was delivered by: HOGAN

 This case requires the Court to adjudge the constitutionality of the Line Item Veto Act. Before reaching the constitutional challenge, however, the Court must first conclude that it has jurisdiction to hear the case, by determining that Plaintiffs in this action have Article III standing. Based on the briefs and exhibits submitted by the parties and amicus curiae,1 and argument at a hearing conducted on January 14, 1998, the Court finds that these Plaintiffs have demonstrated the requisite injury to have standing; furthermore, it finds that the Line Item Veto Act violates the procedural requirements ordained in Article I of the United States Constitution and impermissibly upsets the balance of powers so carefully prescribed by its Framers. The Line Item Veto Act therefore is unconstitutional.

 A. The Line Item Veto Act2

 Unable to control its voracious appetite for "pork," Congress passed, and the President signed into law, the Line Item Veto Act. Pub. L. No. 104-130, 110 Stat. 1200 (1996). *fn3" The Act is designed as an amendment to, and an enhancement of, Title X of the Congressional Budget and Impoundment Control Act of 1974 ("ICA"). 2 U.S.C. §§ 681 et seq. The ICA authorized the President to defer spending of Congressional appropriations during the course of a fiscal year or other period of availability, as long as Congress intended for those appropriations to be permissive rather than mandatory. Id. The President also could propose the total rescission of an appropriation to Congress, but unless Congress approved the rescission, the President was obligated to release the funds. Id. §§ 683(b), 688. Because it generally failed to make the rescissions recommended by the President, Congress found that arrangement to be an unsatisfactory mechanism for controlling deficit spending. *fn4"

 As large deficits persisted, Congress considered various amendments to the ICA to alleviate its perceived defects. One proposal, called "expedited rescission," would amend the ICA to streamline the process for Congressional approval of rescissions proposed by the President. See, e.g., H.R. 2164, 102d Cong. (1991). Other proposals included amending the Constitution to give the President a line item veto, see, e.g., H.R.J. Res. 6, 104th Cong. (1995), H.R.J. Res. 4, 103d Cong. (1993), or adopting a congressional procedure for presenting each spending provision to the President as a separate bill, for approval or veto. See, e.g., S. 137, 104th Cong. (1995); S. 238, 104th Cong. (1995). Congress settled on an "enhanced rescission" proposal, codified in the Line Item Veto Act, that makes Executive rescissions automatic in defined circumstances, subject to congressional disapproval. By making appropriations "conditional" during the period in which the President has authority to veto provisions, and "by placing the onus on Congress to overturn the President's cancellation of spending and limited tax benefits." H.R. Conf. Rep. No. 104-491, at 16 (1996), the Line Item Veto Act reverses the appropriation presumptions under the ICA.

 The Line Item Veto Act gives the President the authority to "cancel in whole," at any time within five days (excluding Sundays) after signing a bill into law, (1) "any dollar amount of discretionary budget authority;" (2) "any item of new direct spending;" and (3) "any limited tax benefit." 2 U.S.C. § 691a (1997).

 A "dollar amount of discretionary budget authority" is defined as "the entire dollar amount of budget authority" that is specified in the text of an appropriations law or found in the tables, charts, or explanatory text of statements or committee reports accompanying a bill. Id. at § 691e(7). An "item of new direct spending" is a specific provision that will result in "an increase in budget authority or outlays" for entitlements, food stamps, or other specified programs. Id. at §§ 691e(8), 691e(5). A "limited tax benefit" is a revenue losing provision that gives tax relief to 100 or fewer beneficiaries in any fiscal year, or a tax provision that "provides temporary or permanent transitional relief for ten or fewer beneficiaries in any fiscal year." *fn5" Id. at § 691e(9).

 To exercise cancellation authority, the President must submit a "special message" to Congress within five calendar days of signing a bill containing the item being canceled. Id. at § 691a(c)(1). The President's special message must set forth the reasons for the cancellation; the President's estimate of the "fiscal, economic, and budgetary effect" of the cancellation, an estimate of "the . . . effect of the cancellation upon the objects, purposes and programs for which the canceled authority was provided;" and the geographic distribution of the canceled spending. Id. at § 691a(b). The President may exercise this authority only after determining that doing so will "(i) reduce the Federal budget deficit; (ii) not impair any essential Government functions, and (iii) not harm the national interest." Id. at § 691(a)(A).

 A cancellation takes effect upon Congress' receipt of the President's special message. Id. at § 691b(a). Congress can restore a canceled item by passing a "disapproval bill," which is not subject to the President's Line Item Veto authority, but is subject to the veto provisions detailed in Article I. Id. Disapproval bills must comport with the requirements prescribed in Article I, section 7, although the Line Item Veto Act provides for expedited consideration of these bills. Id. at §§ 691e(6), 692(c). If a disapproval bill is enacted into law, the President's cancellation is nullified and the canceled items become effective Id. at § 691b(a).

 In terms of judicial review, the Line Item Veto Act provides that "any member of Congress or any individual adversely affected . . . may bring an action in the United States District Court for the District of Columbia, for declaratory judgment and injunctive relief on the ground that any provision of [the Act] violates the Constitution." Id. at § 692(a)(1). The Act provides for direct appeal to the Supreme Court and directs both Courts "to expedite to the greatest possible extent the disposition of any matter brought under [this provision.]" Id. at 692(b)-(c).

 B. Factual Background in New York City v. Clinton

 The City of New York plaintiffs consist of the City itself, two hospital associations (Greater New York Hospital Association, or GNYHA, and New York City Health and Hospitals Corporation, or NYCHHC) one hospital (the Jamaica Hospital Medical Center), and two unions that represent health care employees (District Council 37, American Federation of State, County and Municipal Employees and Local 1199, National Health and Human Service Employees).

 The City of New York plaintiffs' claims arise out of a dispute over Federal Medicaid payments to the State of New York. The Health Care Financing Administration of the Department of Health and Human Services ("HCFA") provides federal financial participation ("FFP") to match certain state Medicaid expenditures. (See Brown Decl., Defs.' Ex. 1 at P3.) The FFP provided by the federal Medicaid program to match state expenditures is reduced by the revenue that the state receives from health care related taxes. Id. at P4. The FFP is not reduced, however, by tax revenue that meets specified criteria, including that the taxes are "broad-based" (i.e., applied to all health care providers within the same class) and "uniform" (i.e., applied equally to all taxed providers). Id.

 New York State taxes its health care providers and uses this tax revenue to pay for health care for the poor. (See Wang Decl., Pls.' Ex. 2 at P4.) The State exempts certain revenues (e.g., those derived from particular charities) of some health care providers (e.g., the plaintiff health care providers) from the health care provider tax. (See van Leer Decl., Pls.' Ex. 3 at P3.) That is, New York exempts plaintiff health care providers from taxes that other health care providers must pay.

 If HCFA ultimately deems New York's taxes impermissible, New York State law provides that those health care providers that were previously excluded from the taxes must pay them retroactively. (See Wang Decl. at P8.) For example, NYCHHC's tax liability is estimated to be more than $ 4 million for each year at issue. In total, $ 2.6 billion may be subject to recoupment from New York State. Id. at PP7-8.

 The Balanced Budget Act of 1997, Pub. L. No. 105-33, included a provision, section 4722(c), that would have alleviated this exposure to liability. It established that New York State expenditures derived from certain health care provider taxes qualified for FFP under the Medicaid program. Id. at P9. This section signified that New York State would not have to return the funds in question to HCFA; for Plaintiffs, it meant that they were relieved of their liability to New York State should HCFA deny New York's waiver requests.

 The President signed the Balanced Budget Act into law on August 5, 1997. Six days later, he identified section 4722(c) as an item of new direct spending and canceled it, thus reinstating Plaintiffs' exposure to liability. Cancellation No. 97-3, 62 Fed. Reg. 43,263 (1997). The President adopted the Congressional Budget Office's estimate that the cancellation of section 4722(c) would reduce the federal deficit by $ 200 million in FY 1998. Id.

 C. Factual Background in Snake River Potato Growers, Inc. v. Rubin

 Snake River Potato Growers, Inc. is, according to Plaintiffs, an "eligible farmers' cooperative" within the meaning of Section 968 of the Taxpayer Relief Act. (See Cranney Decl., Pls.' Ex. 2 at P9.) Its membership consists of approximately 30 potato growers located throughout Idaho, who each owns shares of the cooperative. Plaintiff Mike Cranney, a potato grower with farms located in Idaho, is a member, Director and Vice Chairman of the cooperative. Id. at P2. Snake River was formed in May 1997 to assist Idaho potato growers in marketing their crops and stabilizing prices, in part through a strategy of acquiring potato processing facilities. Id. at P9. These facilities allow individual growers to aggregate their crops and process and deliver them to market jointly. Furthermore, they allow members to retain revenues formerly paid out to third-party processors. Id. at P13.

 On August 5, 1997, the President signed into law the Taxpayer Relief Act, Pub. L. No. 105-34, 111 Stat. 788 ("TRA") Section 968 of the TRA amended the Internal Revenue Code to allow the owner of the stock of a qualified agricultural refiner or processor to defer recognition of capital gains on the sale of such stock to an eligible farmers' cooperative. That is, it would have allowed a processor to sell its facilities to an eligible cooperative without paying tax currently on any capital gain. The stated purpose of section 968 was to aid farmers' cooperatives in the purchase of processing and refining facilities. *fn6" (See Dear Colleague Letter by Reps. Roberts and Stenholm of 12/1/95, Pls' Ex. 5.) On August 11, 1997, the President identified this provision as a "limited tax benefit," within the meaning of the Line Item Veto Act, and canceled it. Cancellation No. 97-2, 62 Fed. Reg. 43,267 (1997). In his cancellation message, the President estimated that sellers could have used section 968 to defer paying $ 98 million in taxes over the next five years, and $ 155 million over the next ten. Id.

 II. Justiciability

 Before tackling the merits of this case, the Court must first determine whether it has jurisdiction to hear it. Under Article III, section 2 of the Constitution, the federal courts have jurisdiction over a dispute only if it is a "case" or "controversy." See Raines v. Byrd, 138 L. Ed. 2d 849, 117 S. Ct. 2312 (1997). The Supreme Court has regarded the case or controversy prerequisite as a "bedrock requirement" and has observed that "no principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies." Id. citing Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 471, 70 L. Ed. 2d 700, 102 S. Ct. 752 (1982).

 The central jurisdictional requirement that controls the analysis of these consolidated cases is the doctrine of standing. The Supreme Court has emphasized that the standing inquiry is "especially rigorous when reaching the merits of the dispute would force us to decide whether an action taken by one of the other two branches of the Federal Government was unconstitutional." Raines, 117 S. Ct. at 2317-18. It has cautioned,

 
"the law of Art. III standing is built on a single basic idea -- the idea of separation of powers." In the light of this overriding and time-honored concern about keeping the Judiciary's power within its proper constitutional sphere, we must put aside the natural urge to proceed directly to the merits of this ...

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