Supreme Court Cases Examine Federal Spending Programs as Contracts

Why it matters locally: The Supreme Court's reinterpretation of federal spending programs as contracts could affect how federal funds are administered to state and local agencies in Indiana, including for correctional facilities, educational programs, and healthcare services that rely on federal grants. This shift in legal interpretation may alter the avenues available for challenging grant terminations or enforcing conditions related to federal funding received by entities like the Indianapolis City-County Building, the Fort Wayne City Hall, or the Lake County Government Center / County Administration.

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**WASHINGTON** — The Supreme Court concluded its term by issuing opinions on cases that included new interpretations of federal spending programs, viewing them through the lens of contract law. This approach has appeared in recent rulings related to the enforcement of federal statutes and challenges to the termination of federal grants. One such decision, *Landor v. Louisiana Department of Corrections*, issued on June 23, involved a man named Damon Landor. Landor, a Rastafarian whose religious beliefs prohibit cutting his hair, was incarcerated in Louisiana. When guards attempted to cut his hair, Landor presented a Fifth Circuit Court of Appeals ruling stating that the Religious Land Use and Institutionalized Persons Act (RLUIPA) bars prisons from cutting Rastafarians' hair. Guards disregarded the ruling and forcibly shaved his head. Landor subsequently sued under RLUIPA, a statute stating that state and local governments receiving federal funds for correctional facilities cannot infringe on religious beliefs unless doing so is necessary for a compelling government purpose. The lawsuit addressed whether Landor could sue individual prison guards, given RLUIPA authorizes courts to provide “appropriate relief against a government.” The Supreme Court, in a 6-3 decision, determined that lawsuits against individual government officials under RLUIPA could not proceed unless those officials consented to being sued. Justice Neil Gorsuch authored the majority opinion, stating that RLUIPA functions as a federal spending program with specified conditions. Gorsuch wrote about the court’s traditional use of contract principles to determine if consent exists and if a condition attached to spending legislation is enforceable. The court concluded that individual prison guards did not consent to be sued under the act. This decision affects the ability to enforce RLIUPA against government officers, as individuals are not expected to consent to such lawsuits. The court’s reasoning also prompted questions regarding the Necessary and Proper Clause of Article I, Section 8 of the Constitution, which allows Congress to choose means to carry out its powers. Gorsuch addressed this by stating such an interpretation could allow Congress too much power, enabling the “extraction of money damages” from individuals violating conditions in Spending Clause legislation. The interpretation of federal spending programs as contracts has also influenced cases concerning the termination of federal grants. In two rulings last year, the Supreme Court determined that federal district courts lacked authority to hear challenges to the Trump administration's termination of federal grants. These decisions, both 5-4, stipulated that lawsuits for breach of contract against the United States must be filed in the U.S. Court of Federal Claims. In *Department of Education v. California*, the court halted a temporary restraining order issued by a federal district court that blocked the termination of $65 million in federal teacher training grants. The district court had found the Department of Education violated the Administrative Procedure Act in terminating the grants. However, the Supreme Court categorized the action as a suit for breach of contract, citing the Tucker Act, which grants the Court of Federal Claims jurisdiction over cases involving “any express or implied contract with the United States.” The court applied this precedent again in *National Institutes of Health v. American Public Health Association*. A federal district court’s preliminary injunction against the termination of National Institutes of Health grants for violating the Administrative Procedure Act was stayed by the Supreme Court. Justice Gorsuch issued a concurring opinion, referencing the *Department of Education v. California* ruling and stating that such challenges belong in the Court of Federal Claims. Justice Ketanji Brown Jackson, in a dissenting opinion in one of these cases, expressed concern over treating federal grants as contracts. She noted that the Court of Federal Claims has limitations on the relief it can provide. The Supreme Court has also applied this contractual view to limit relief for plaintiffs in lawsuits brought under 42 U.S.C. §1983. This statute allows lawsuits against state or local officials for violating federal laws or the Constitution. Many federal statutes enacted under the spending power impose requirements on grant recipients but do not explicitly authorize enforcement lawsuits. In *Medina v. Planned Parenthood of South Atlantic* last year, the court ruled that plaintiffs could not sue under Section 1983 to enforce provisions of the federal Medicaid statute. South Carolina had enacted a law preventing Planned Parenthood from receiving state Medicaid funds, despite federal law requiring patients to choose any qualified healthcare provider. The plaintiffs argued that federal law required South Carolina to allow Medicaid funds for any qualified provider, including Planned Parenthood. Justice Gorsuch, writing for the majority, stated that the Medicaid statute did not clearly confer individual rights enforceable under Section 1983. The decision’s premise was that spending power legislation functions as contracts between the federal government and recipients. The court stated, “Because spending-power legislation is ‘in the nature of a contract’ a grantee must ‘voluntarily and knowingly’ consent to answer private § 1983 enforcement suits before they may proceed.” Critics of this approach, such as Justice Jackson in her *Landor* dissent, argue that previous Supreme Court cases rejected this analogy or applied it in more limited contexts. These critiques suggest that while *Pennhurst State School and Hospital v. Halderman* (1981) established that Congress must explicitly state conditions on federal grants to state governments, this does not mean all federal spending programs should be treated as contracts for all analytical purposes. The Constitution grants Congress the power to spend for the general welfare, a power affirmed in *United States v. Butler* (1936).