In case you hadn’t realized it, our economy is in a bad, bad way. In the last year, the stock markets lost more than a third of their value, over 3,000,000 Americans lost their jobs, and over 2,000,000 homes have been lost to foreclosure. If there was ever a time when we needed Congress to promote the general welfare, this is it.

One controversial federal response to our economic woes has been to bail out failing banks and businesses. I am not an economist, but my general understanding is that if these businesses are allowed to fail, then our economy will, too. In the last few days, Congress exercised its conditional spending power by placing salary caps on the executive officers of ailing businesses that accept government bailout money in the future. That cap is set at $500,000 per year. This is significantly less than the compensation of the top executive officers of businesses, which can range in the millions.

While this measure fills me with schadenfreude (a German word I’m particularly of, which means “malicious pleasure at the misfortune of others”), it also fills me with concern. This measure signals that our government is willing use its conditional spending power to regulate administrative functions. I realize that Congress’ conditional spending power involves its relationship with state, not corporate, sovereignty. However, there is another fiscal problem looming over our nation.

Like these businesses, the majority of our states also are strapped for cash. How bad is it? As of Monday, the state of California started paying its bills with IOUs. Will the federal government seek to apply similar restrictions upon states that require bailouts? Will it regulate the compensation of the executive officers of those states? Or will it try to craft other punitive measures? And if so, where will Congress draw the line when it decides how much administrative control it wishes to impose on states that need bailouts? For that matter, what funding condition wouldn’t relate to a financial bailout?

It seems to me that recent events have imposed a mandate upon Congress to use its conditional spending power to address our economic problems. In the coming days (and I do mean days, not months or years), we may see a significant shift in how Congress exercises its conditional spending power, and soon thereafter, the judicial responses to that shift. Stay tuned.

Today, we discussed the limits of Congress’ conditional spending power. In brief, South Dakota v. Dole, 483 U.S. 203 (1987) provided four restrictions on conditional spending by Congress: it must “promote the general welfare”; it must give clear notice of the funding conditions; the funding conditions must relate to the federal spending program imposing the restrictions; and it must not fall afoul of other independent Constitutional bars. These requirements are fairly lenient. According to Dole, Congress doesn’t have to be right in its reasoning, just rational. In Kansas v. United States 24 F.Supp.2d 1192 (D.Kan. 1998), the court ruled that the states’ choice “receiving federal funds and complying with certain statutory mandates, or not receiving such funds” is not coercive. Taken together, these cases give very broad discretion to Congress in regards to the restrictions it can impose through conditional spending.

In case you hadn’t realized it, our economy is in a bad, bad way. In the last year, the stock markets lost more than a third of their value, over 3,000,000 Americans lost their jobs, and over 2,000,000 homes have been lost to foreclosure. If there was ever a time when we needed Congress to promote the general welfare, this is it.

One controversial federal response to our economic woes has been to bail out failing banks and businesses. I am not an economist, but my general understanding is that if these businesses are allowed to fail, then our economy will, too. In the last few days, Congress exercised its conditional spending power by placing salary caps on the executive officers of ailing businesses that accept government bailout money in the future. That cap is set at $500,000 per year. This is significantly less than the compensation of the top executive officers of businesses, which can range in the millions.

While this measure fills me with schadenfreude (a German word I’m particularly of, which means “malicious pleasure at the misfortune of others”), it also fills me with concern. This measure signals that our government is willing use its conditional spending power to regulate administrative functions. I realize that Congress’ conditional spending power involves its relationship with state, not corporate, sovereignty. However, there is another fiscal problem looming over our nation.

Like these businesses, the majority of our states also are strapped for cash. How bad is it? As of Monday, the state of California started paying its bills with IOUs. Will the federal government seek to apply similar restrictions upon states that require bailouts? Will it regulate the compensation of the executive officers of those states? Or will it try to craft other punitive measures? And if so, where will Congress draw the line when it decides how much administrative control it wishes to impose on states that need bailouts? For that matter, what funding condition wouldn’t relate to a financial bailout?

It seems to me that recent events have imposed a mandate upon Congress to use its conditional spending power to address our economic problems. In the coming days (and I do mean days, not months or years), we may see a significant shift in how Congress exercises its conditional spending power, and soon thereafter, the judicial responses to that shift. Stay tuned.