b'Constitutionality of Proposed Conditions\nto Senate Consent to the Interim Convention\non Conservation of North Pacific Fur Seals\nA proposed condition on the Senate\xe2\x80\x99s consent to the Interim Convention on Conservation of\nNorth Pacific Fur Seals that dictates how the United States representative to the international\nN orth Pacific Fur Seal Commission must vote on certain matters before the Commission is\nunconstitutional because, rather than setting forth the Senate\xe2\x80\x99s understanding o f the terms of\nthe convention, it would interfere w ith the ability of the President and his appointee to execute\nfaithfully the convention according to its terms.\n\nFebruary 6, 1986\nM\n\nem orandum\n\nO p in io n\n\nfor th e\n\nDepartm ent\n\nD\n\nof\n\nepu ty\n\nL e g a l A d v is e r ,\n\nState\n\nYou have asked for our views on the constitutionality of a proposed \xe2\x80\x9ccondi\xc2\xad\ntion\xe2\x80\x9d to the Senate\xe2\x80\x99s consent to the Protocol Amending the Interim Convention\non Conservation of North Pacific Fur Seals (Convention). The proposed condi\xe2\x80\xa2 tion would require the United States representative to the North Pacific Fur\nSeal Commission (Commission) to vote against any recommendation before\nthe Commission that would result in a commercial taking of fur seals within\nUnited States waters, and to abstain from voting on any recommendation that\nseeks to regulate taking of fur seals for subsistence purposes on the Pribilof\nIslands. For the reasons set forth below, we believe that this provision would\nimpermissibly interfere with the President\xe2\x80\x99s constitutional authority to execute\nthe laws, and therefore would violate the constitutionally mandated separation\nof powers between the Legislative and Executive Branches.\nThe Convention, originally signed in 1957, provides an international regime\nfor the protection and management of fur seals. Parties to the Convention\n(Canada, Japan, the Soviet Union, and the United States) have agreed to\ncoordinate scientific research programs and to cooperate in investigating the\nfur seal resources of the North Pacific Ocean. Art. II, \xc2\xa7 1. The Convention\nspecifically requires that the parties prohibit pelagic sealing (i.e., the killing of\nfur seals at sea). Art. III. The Convention also provides for establishment of\nthe Commission, which is composed of one member from each party.\nThe Commission is charged to:\n(a) formulate and coordinate research programs designed to\nachieve the objectives o f the Convention;\n12\n\n\x0c(b) recommend coordinated research programs to the parties\nfor implementation;\n(c) study the data obtained from the implementation of coor\xc2\xad\ndinated research programs;\n(d) recommend appropriate measures to the parties on the\nbasis of findings obtained from the implementation of coordi\xc2\xad\nnated research programs, including measures regarding the size\nand the sex and age composition of the seasonal commercial kill\nfrom a herd; and\n(e) recommend to the parties the methods of sealing best\nsuited to achieve the objectives of the Convention.\nArt. V, \xc2\xa7 2. Decisions and recommendations of the Commission must be\nunanimous, with each party having one vote. Art. V, \xc2\xa7 4.\nThe Interim Convention was extended by agreement of the parties in 1963,\n1969, 1976, and 1980. On October 12, 1984, the parties signed another proto\xc2\xad\ncol extending the Convention until October 13, 1988, which the President has\nsubmitted to the Senate for its advice and consent.1 See Message from the\nPresident of the United States Transmitting the Protocol, signed at Washington\non October 12, 1984, Amending the Interim Convention on Conservation of\nNorth Pacific Fur Seals between the United States, Canada, Japan, and the\nSoviet Union, S. Treaty Doc. No. 5, 99th Cong., 1st Sess. (1985).\nThe staff of the Senate Committee on Foreign Relations, which is now\nreviewing the Protocol, has proposed that the Senate\xe2\x80\x99s consent be subject to\nfour \xe2\x80\x9cconditions.\xe2\x80\x9d The first of these, which you have asked us to review,2\nwould provide:\nThat as a result of the decline of the fur seal population on the\nPribilof Islands and other factors, whenever the North Pacific\nFur Seal Commission, during the period of this Protocol, con\xc2\xad\nsiders recommendations to the Parties pursuant to Article V of\nthe Convention, the United States Commissioner shall vote\nagainst any recommendation that would result in the taking of\nfur seals for commercial purposes on lands or waters within the\njurisdiction of the United States. The Commissioner shall also\nabstain from voting on any recommendation that seeks to regu\xc2\xad\n1 In addition to extending the Convention, the parties agreed upon a \xe2\x80\x9cStatem ent o f C oncerns.\xe2\x80\x9d In that\nstatem ent, the parties take note o f concerns over declines in the fur seal population, current econom ic\nconditions, and other problems o f fur seal m anagem ent and conservation.\n2 The other three conditions provide that (1) the North Pacific fur seal herd shall be conserved, m anaged,\nand protected pursuant to U nited States dom estic laws to the extent such law s are m ore restrictive than\nprovided for under the C onvention; (2) the Secretary o f C om m erce is to take appropriate steps under the\nC onvention to develop and im plem ent a program o f cooperative research in the Bering Sea ecosystem to\ndeterm ine the causes o f the fur seal population decline and to increase the health and viability of the Bering\nSea ecosystem and the N orth Pacific fur seal population; and (3) the subsistence taking o f fur seals shall be at\nno cost to the governm ent You have not asked us to review these proposed conditions, and we therefore take\nno position as to their constitutionality.\n\n13\n\n\x0clate the taking of fur seals for subsistence purposes on the\nPribilof Islands.\nBecause of the interplay between the Convention and United States domestic\nlaw, the effect of this reservation would be to prohibit the commercial taking of\nfur seals on lands or waters within the jurisdiction of the United States,3 and to\nallow subsistence kills of fur seals on the Pribilof Islands only as permitted\nunder United States domestic law.4\nThis proposed condition does not purport to set out the Senate\xe2\x80\x99s understand\xc2\xad\ning of the scope of the international obligations imposed by the treaty or its\ndomestic effects;5 nor does it purport to limit the obligations or rights of the\nparties under the treaty.6 Rather, it would limit the discretion of the United\nStates representative, who is appointed by and answerable to the President, to\nimplement the Convention in accordance with its agreed-upon terms. The\ncondition thus reaches beyond the making of the treaty \xe2\x80\x94 i.e., delineating the\nlegal obligations and rights of the parties under the agreement \xe2\x80\x94 to the actual\nexecution of its terms. Because the execution of a treaty is clearly part of the\nPresident\xe2\x80\x99s \xe2\x80\x9cexecutive power\xe2\x80\x9d under Article II of the Constitution, we believe\n3 The killing o f fur seals w ithin United States w aters is effectively prohibited by the M arine Mammal\nP rotection A ct o f 1972, 16 U .S.C . \xc2\xa7\xc2\xa7 1361 et seq , except as authorized under the Fur Seal Act o f 1966, 16\nU .S.C . \xc2\xa7\xc2\xa7 1151 et seq., w hich w as passed to im plem ent the Fur Seal Convention. Pursuant to \xc2\xa7 107 o f the Fur\nSeal A ct, 16 U .S.C . \xc2\xa7 1157, the Secretary o f State, with the concurrence o f the Secretary o f C om m erce, is\nauthorized to accept o r reject any recommendation made by the C om m ission under A rticle V, and thereby to\nauthorize com m ercial fu r seal kills. B ecause recom m endations o f the Com m ission m ust be unanim ous, the\neffect o f the reservation w ould be to preclu d e the C om m ission from m aking any recom m endation to the\nSecretary o f S tate fo r a com m ercial kill in U nited States w aters.\n4 Indians, A leuts, and E skim os who live o n the coasts o f th e N orth Pacific Ocean are perm itted to take fur\nseals fo r subsistence purposes under the te rm s o f the Fur Seal Act and the M arine Mammal Protection Act.\nSee 16 U .S.C . \xc2\xa7\xc2\xa7 1152, 1379.\n5 The S enate has often included \xe2\x80\x9cunderstandings\xe2\x80\x9d as part o f its consent to ratification. In general, such\nunderstandings interpret o r clarify the obligations undertaken by a party to the treaty, and do not change those\noblig atio n s. For exam ple, the Senate F oreign Relations Com m ittee has recently approved the Genocide\nC onvention, subject to several understandings that set forth the Senate\xe2\x80\x99s interpretation of certain key\ndefin itio n s in the C onvention, and of the relationship betw een certain other provisions and obligations o f the\nU nited States un d er dom estic law. See S. E x . Rep. No. 2 , 99th Cong., 1st Sess. 1 6 ,2 1 -2 6 (1985). The Senate\nhas included sim ilar understandings as p a rt o f its consent to a num ber o f other treaties. See generally\nC ongressional R esearch S ervice, Treaties a n d Other International Agreements: The Role o f the United States\nSenate, 98th C ong., 2d Sess. 11, 109-10 (Comm. Print prepared for the Senate Com m ittee on Foreign\nR elations, 1984) (C R S Study); S. Rep. No. 2 9 , 97th Cong., 1st Sess. 45 (1981) (SALT II Treaty); S. Rep. No.\n47, 96th C ong., 1st Sess. 1 3-25 (1979) (P an am a Canal Treaty).\n6 The S enate m ay, by \xe2\x80\x9creservation\xe2\x80\x9d o r \xe2\x80\x9c am endm ent,\xe2\x80\x9d condition its consent to a treaty on a revision or\nlim itation o f its term s. See generally Restatement o f the Law, Foreign Relations o f the United States\n(Tentative Draft No. 6) ( Restatement) \xc2\xa7 3 1 3 ; CRS Study, supra, at 109-10. The resolution o f ratification for\nthe G enocide C onvention, as reported by th e Senate Foreign R elations Com m ittee, would condition the\nS enate\xe2\x80\x99s co n sen t to the C onvention on tw o su ch reservations: that the specific consent o f the U nited States is\nrequired befo re any dispute to which the U n ited States is a party may be submitted to the jurisdiction o f the\nInternational C ourt o f Justice, and that n o th in g in the C onvention requires or authorizes legislation or other\naction b y the U nited States \xe2\x80\x9cprohibited by th e C onstitution o f the United States as interpreted by the United\nS tates.\xe2\x80\x9d S. Ex. R ep. No. 2, supra, at 1 7-20. R eservations have also been attached by the Senate (or by the\nP resid en t) to ratificatio n o f numerous o th er treaties, including the Panam a Canal T reaty, see S Rep. No. 47,\nsupra , at 2 4 -2 5 and the SA L T II Treaty, see S. Rep. No. 29, supra , at 44 -4 5 . See generally CRS Study, supra ,\nat 10 9 -1 0 ; L. H enkin, Foreign Affairs and the Constitution 134 & n. 23 (1972). U nder international law, a\nsubstan tiv e revision to the treaty obligations (w hether characterized as a \xe2\x80\x9creservation\xe2\x80\x9d or an \xe2\x80\x9cam endm ent\xe2\x80\x9d)\nm ust be accepted by the o th er contracting states. See Restatement, supra, \xc2\xa7 313.\n\n14\n\n\x0cthe proposed condition transgresses the \xe2\x80\x9cenduring\xe2\x80\x9d and \xe2\x80\x9ccarefully defined\nlimits\xe2\x80\x9d imposed by the Framers on the powers of the coordinate branches. See\nINS v. Chadha, 462 U.S. 919, 957-58 (1983).\nThe powers of the national government were deliberately divided by the\nFramers among three coordinate branches because they considered the concen\xc2\xad\ntration of governmental power to be the greatest threat to individual liberty.\n\xe2\x80\x9cBasic to the constitutional structure established by the Framers was the\nrecognition that \xe2\x80\x98[t]he accumulation of all powers, legislative, executive, and\njudiciary, in the same hands . . . may justly be pronounced the very definition\nof tyranny.\xe2\x80\x99\xe2\x80\x9d Northern Pipeline Co. v. Marathon Pipe Line Co., 458 U.S. 50,\n57 (1982) (quoting The Federalist No. 47, at 300 (J. Madison) (H. Lodge ed.\n1888)). Accordingly, \xe2\x80\x9c[t]he Constitution sought to divide the delegated powers\nof the new Federal Government into three defined categories. Legislative,\nExecutive, and Judicial, to assure, as nearly as possible, that each branch of\ngovernment would confine itself to its assigned responsibility.\xe2\x80\x9d INS v. Chadha,\n462 U.S. at 951; see also Buckley v. Valeo, 424 U.S. 1, 122 (1976). The\nSupreme Court has long acknowledged that the partitions separating each\nbranch of government from the others must be maintained inviolable if liberty\nis to be preserved. \xe2\x80\x9cThe hydraulic pressure inherent within each of the separate\nBranches to exceed the outer limits of its power, even to accomplish desirable\nobjectives, must be resisted.\xe2\x80\x9d INS v. Chadha, 462 U.S. at 951.\nThe Framers recognized nonetheless that the peculiar nature of treaty-mak\xc2\xad\ning warranted a limited exception to the strict separation of powers between the\nbranches because the negotiation and acceptance of treaties incorporates both\nlegislative and executive responsibilities:\n[T]he particular nature of the power of making treaties indicates\na peculiar propriety in that union. Though several writers on the\nsubject of government place that power in the class of executive\nauthorities, yet this is evidently an arbitrary disposition; for if\nwe attend carefully to its operation it will be found to partake\nmore of the legislative than of the executive character, though it\ndoes not seem strictly to fall within the definition of either of\nthem. The essence of the legislative authority is to enact laws,\nor, in other words, to prescribe rules for the regulation of the\nsociety; while the execution of the laws and the employment of\nthe common strength, either for this purpose or for the common\ndefense, seem to comprise all the functions of the executive\nmagistrate. The power of making treaties is, plainly, neither the\none nor the other. . . . The qualities elsewhere detailed as indis\xc2\xad\npensable in the management of foreign negotiations point out\nthe executive as the most fit agent in those transactions; while\nthe vast importance of the trust and the operation of treaties as\nlaws plead strongly for the participation of the whole or a\nportion of the legislative body in the office of making them.\n15\n\n\x0cThe F ederalist No. 75, at 450-51 (A. Hamilton) (C. Rossitered. 1961); see also\nThe F ederalist No. 64, at 390-93 (J. Jay); The F ederalist No. 66, at 402-03 (A.\nHamilton); see generally CRS Study, supra, at 25-28. Rather than vest either\n\nthe Congress or the President with the sole power to make treaties, the Framers\nsought to accommodate the interests of both, providing that the President shall\nmake the treaties, but subject to the \xe2\x80\x9cadvice and consent\xe2\x80\x9d of the Senate.7\nIn practice, the Senate\xe2\x80\x99s formal participation in the treaty-making process\nhas been to approve, to approve with conditions, or to disapprove treaties\nnegotiated by the Executive.8 Although the Senate\xe2\x80\x99s practice of conditioning\nits consent to particular treaties is well-established, its authority is not unlim\xc2\xad\nited merely because it may withhold its consent.9 The general principle that\nCongress cannot attach unconstitutional conditions to a legislative benefit or\nprogram merely because it has authority to withhold the benefit or power\nentirely applies equally to the Senate\xe2\x80\x99s advice and consent authority.10 For\nexample, the requirement that the Senate consent to appointments of executive\nofficers does not, by inference, empower the Senate to exert control over the\nremoval of officers once approved. See M yers v. United States, 272 U.S. 52,\n126 (1926).11 The Senate cannot use its advice and consent power to alter the\nconstitutional distribution of powers or to impair constitutionally protected\nrights, any more than the President and the Senate together can override the\nrequirements of the Constitution:\n[N]o agreement with a foreign nation can confer power on the\nCongress, or on any other branch of Government, which is free\nfrom the restraints of the Constitution.\n*\n\n*\n\n*\n\nThe prohibitions of the Constitution were designed to apply to\nall branches of the National Government and they cannot be\n7 A rticle II, \xc2\xa7 2, cl. 2 o f the Constitution provides in part that the President \xe2\x80\x9cshall have Power, by and with\nthe A dvice and C onsent o f the Senate, to m ake Treaties, provided two thirds of the Senators present concur."\n8 P resident W ashington attempted to co n su lt with the Senate, with lim ited success, on the negotiation of\nseveral treaties w ith the Indians. By 1816 th e practice had becom e so firm ly established that the Senate would\ngrant its \xe2\x80\x9cadvice and consent\xe2\x80\x9d to treaties alread y negotiated by the President or his representatives. See CRS\nStudy, supra , at 3 4 -3 6 ; L. Henkio, Foreign Affairs and the Constitution , supra, at 131-32.\n9 T he S enate adopted a resolution advising and consenting to the T reaty of 1797 w ith Tunis on condition\nthat a certain article be suspended and renegotiated. The S enate later gave its advice and consent to the treaty\nand tw o o th er articles after they had b een renegotiated. C RS Study, supra , at 36. The Supreme C ourt has\nrecognized the validity o f the practice, b u t has never delineated the o u te r limits o f the Senate\xe2\x80\x99s pow er to\ncondition its consent. See Fourteen Diamond Rings v. United States , 183 U.S. 176, 182 (1901) (Brown, J.,\nconcurring); Haver v. Yaker, 76 U.S. (9 W all.) 32, 35 (1869).\n10 F o r exam ple. C ongress could, if it ch o se, bar aliens from our shores, but could not admit them under\nconditions w hich deprive them of constitutional rights such as the right to a fair trial. Wong Wing v. United\nStates , 163 U .S. 228, 237 (1896).\n11 S im ilarly, the Senate m ay not use its advice and consent pow er with respect to treaties to impose\nconditions affecting only the domestic asp ects o f a treaty. See Power Authority v. Federal Power Comm\'n ,\n247 F.2d 538 (D.C. C ir.), vacated as moot , 355 U.S. 64 (1957). The S enate could not, for exam ple, condition\nits consent to the C onvention on a p rovision depriving the Secretaries of State and Commerce o f their\nauthority u n d er the Fur Seal Act to adopt recom m endations o f the C om m ission. Such a condition would in\neffect am end the existing statutory discretion o f those Executive Branch officers, and could be accom plished\nonly through plenary legislation. See INS v. Chadha, 462 U .S. at 9 52-54.\n\n16\n\n\x0cnullified by the Executive or by the Executive and the Senate\ncombined.\nR eid v. Covert, 354 U.S. 1, 16-17 (1957). See also Geofroy v. Riggs, 133 U.S.\n258, 267 (1890); The Cherokee Tobacco, 78 U.S. (11 Wall.) 616, 620-21\n(1871); Fourteen Diamond Rings v. United States, 183 U.S. at 183 (1901)\n\n(Brown, J. concurring).\nThus, it is critical that the \xe2\x80\x9cJOINT AGENCY of the Chief Magistrate of the\nUnion, and of two-thirds of the members of the Senate\xe2\x80\x9d 12 embodied in Article\nII, \xc2\xa7 2, cl. 2, extends only to the making of treaties, i.e., the negotiation and\nagreement with other nations as to the legal obligations and rights of the\nparties. Nothing in the text of the Constitution or the deliberations of the\nFramers suggests that the Senate\xe2\x80\x99s advice and consent role in the treaty-making\nprocess was intended to alter the fundamental constitutional balance between\nlegislative authority and executive authority. In fact, the Framers included the\nSenate in the treaty-making process precisely because the result of that process,\njust as the result of the legislative process, is essentially a law that has \xe2\x80\x9cthe\neffect of altering the legal rights, duties and relations of persons .. . outside the\nLegislative Branch.\xe2\x80\x9d INS v. Chadha, 462 U.S. at 952.\nUnder the Constitution, only the President is given the \xe2\x80\x9cexecutive power,\xe2\x80\x9d\nand is charged with the specific responsibility to \xe2\x80\x9ctake Care that the Laws be\nfaithfully executed.\xe2\x80\x9d U.S. Const, art. II, \xc2\xa7\xc2\xa7 1 and 3. It is indisputable that\ntreaties are among the laws to be executed by the President,13 and that \xe2\x80\x9cthe very\ndelicate, plenary and exclusive power of the President as the sole organ of the\nfederal government in the field of international relations,\xe2\x80\x9d which necessarily\nincludes fulfilling obligations under international agreements or treaties, is part\nof the executive power. See United States v. Curtiss-W right Export Corp., 299\nU.S. 304, 320 (1936); see also Haig v. Agee, 453 U.S. 280, 291-92 (1981);\nChicago & Southern A ir Lines v. Waterman S.S. Corp., 333 U.S. 103, 190\n(1948).\nThe condition proposed by the staff of the Senate Foreign Relations Com\xc2\xad\nmittee would strike at the heart of the President\xe2\x80\x99s executive prerogatives.\nAbsent such a condition, the United States representative to the Fur Seal\nCommission would be free to follow the directions of the President in evaluat\xc2\xad\ning the complex questions that come within the jurisdiction of the Commission.\nThe proposed condition, however, would eliminate that discretion with respect\nto two issues likely to come before the Commission. Such a limitation on the\ndiscretion of the President\xe2\x80\x99s representative \xe2\x80\x94 a limitation that takes effect only\nafter the scope of the legal obligations of all parties has been agreed upon14 \xe2\x80\x94\n12 The Federalist No. 66, at 406 (A. H amilton) (C. R ossiter ed. 1961).\n13 A rticle VI, cl. 2 o f the C onstitution provides in part that \xe2\x80\x9call Treaties m ade, o r which shall be made, under\nthe A uthority o f the U nited States, shall be the supreme Law o f the Land.\xe2\x80\x9d The President\xe2\x80\x99s constitutional duty\nunder A rticle II extends to treaties as w ell as to statutes and the C onstitution itself. See In re Neagle, 135 U.S.\n1, 64 (1890); 1 Op. A tt\xe2\x80\x99y Gen. 566, 570 (1822).\n14 The condition is thus different from a reservation that w ould seek to lim it the legal authority o f the\nC om m ission to consider recom m endations for com m ercial fur seal kills within U nited States waters, or for\nContinued\n\n17\n\n\x0cwould directly undercut the President\xe2\x80\x99s authority \xe2\x80\x9cas the sole organ of the\nfederal government in the field of international relations.\xe2\x80\x9d The Senate cannot\nconstitutionally impose such a condition to its consent to ratification of a\ntreaty, any more than it could consent to the appointment of an ambassador on\nthe condition that the ambassador refrain from taking certain positions in\nnegotiations or discussions with his designated country. See generally M yers v.\nUnited States, 272 U.S. at 126; 3 Op. Att\xe2\x80\x99y Gen. 188, 189-90 (1837).\nC harles\n\nJ.\n\nC ooper\n\nA ssistant Attorney General\nOffice o f Legal Counsel\n\n14 ( . . . continued)\nsubsistence harvests on the Pribilof Islands. Such a reservation would be consistent w ith the constitutional\nseparation o f pow ers, as it would be a leg itim ate exercise o f the treaty-m aking pow er to define the legal\nobligatio n s and rights o f the parties, prior to conclusion o f the treaty. O f course, any such reservation would\nhave to be subm itted to the o th er parties fo r their agreem ent prior to taking effect. See supra note 6.\n\n18\n\n\x0c'


b"June 3, 1977\n\n77-33\n\nMEMORANDUM OPINION FOR THE\nSECRETARY OF THE DEPARTMENT OF\nHOUSING AND URBAN DEVELOPMENT\nConstitutionality of S. 1397\xe2\x80\x94Federal National\nMortgage Association\n\nThe A ttorney General has asked that we respond to your request for\nan opinion concerning the constitutionality of the provisions of S. 1397.\nThe proposed legislation would amend the Federal National Mortgage\nAssociation Charter Act to increase the size of the Board of Directors\nof the Federal National M ortgage Association (FNMA), and would\nmake FN M A subject to the Freedom of Information Act.\nF N M A \xe2\x80\x99s counsel has prepared a legal memorandum arguing that S.\n1397 raises Fifth Amendment questions regarding the prohibitions\nagainst the taking of private property without \xe2\x80\x9cdue process of law\xe2\x80\x9d or\n\xe2\x80\x9cjust compensation.\xe2\x80\x9d Your legal counsel prepared a rebuttal paper to\nFN M A counsel\xe2\x80\x99s arguments, and concluded that FN M A \xe2\x80\x99s arguments\nwere without merit. We have reviewed the proposed legislation and\nrelevant case law and it is our conclusion that the enactment of S. 1397\nwould constitute a legal exercise of congressional power and clearly\nstand within the boundaries of the Constitution.\nA t present, the Board of Directors of FNMA (the Board) consists of\n15 persons, 5 appointed annually by the President and 10 elected annu\xc2\xad\nally by the common stockholders.1 S. 1397 would amend \xc2\xa7 308(b) of\nthe National Housing Act to allow the President to appoint 9 directors\nwhile leaving the number elected by the common stockholders at 10.\nThis proposed amendment raises four questions of law that require\ndiscussion in order to determine the ultimate question of the constitu\xc2\xad\ntionality of S. 1397.\n(1) Did the charter granted to FN M A by the Government create\ncontractual rights between the Government, FNM A, and the\nstockholders?\n1 See 12 U.S.C. \xc2\xa7 1723(b) (1970). Initially, F N M A \xe2\x80\x99s preferred stock was held by the\nSecretary o f the T reasury. It was retired in accordance w ith the A ct, and F N M A became\na privately ow ned corporation. See 12 U.S.C. \xc2\xa7 1718 (1970).\n\n126\n\n\x0c(2) Are contractual rights derived from a legislative act protect\xc2\xad\ned by the Constitution?\n(3) D o the stockholders of FNM A have vested rights to the\ncontinuation of FNM A\xe2\x80\x99s charter in its present form?\n(4) If the proposed legislation were enacted into law, would it\neffect a \xe2\x80\x9ctaking\xe2\x80\x9d of FN M A\xe2\x80\x99s stockholders property without \xe2\x80\x9cdue\nprocess of law\xe2\x80\x9d or \xe2\x80\x9cjust compensation\xe2\x80\x9d?\nIn our opinion, the answer to the first two questions is yes and to the\nlatter two is no.\nThe starting point, more out of tradition than legal necessity, is the\nDartmouth College Case.2 The Supreme Court held that the granting of\na charter by the State of New Hampshire to the school created a\ncontract between the State, the trustees, and the individuals who con\xc2\xad\nveyed property to the corporation. When the State of New Hampshire\nattempted to amend the charter to increase the number of trustees, the\nSupreme Court held that the legislation amending the charter violated\nArticle I, \xc2\xa7 10 of the United States Constitution, which, inter alia, states\nthat \xe2\x80\x9c [n]o state shall . . . pass any . . . Law impairing the obligation\nof Contracts.\xe2\x80\x9d\nWhile the congressional action proposed in S. 1397 is analogous to\nthat involved in the Dartmouth College Case, it is well settled that \xe2\x80\x9c[t]he\nContract Clause . . . is a limitation on state rather than federal\naction.\xe2\x80\x9d 3 And, the question whether the Federal Government can pass\nlaws that modify, amend, or repeal contracts between it and private\nparties has been answered in the affirm ative.4 However, \xe2\x80\x9ca measure of\nprotection against contract impairment by the federal government is\ngiven by the Fifth Amendment.\xe2\x80\x9d 5 The Supreme Court, in Lynch v.\nUnited States* held that rights under a contract with the Government\nare property, which the Fifth Amendment protects from a statutory\n\xe2\x80\x9ctaking\xe2\x80\x9d without just compensation.7\nIt seems clear that (1) the Federal Government is not restrained by\nArticle I, \xc2\xa7 10 of the Constitution from impairing the obligation of\ncontracts; (2) the Federal Government, through legislation, can create\ncontractual rights with private parties; and (3) these contractual rights\nare property that is protected by the Fifth Amendment. Thus, we\nconclude that the Federal Government has the power to alter the\nobligation of contracts and \xe2\x80\x9cneed only adhere to the due process\nrequirements of the Fifth Amendment.\xe2\x80\x9d 8\n2 Dartmouth College v. Woodward, 17 U.S. (4 W heat) 518 (1819).\n3 John McShain, Inc. v. District o f Columbia, 205 F. 2d 882, 883 (D.C. Cir., 1953).\n4 See cases cited infra, at notes 9, 10, and 12.\n5 John McShain. Inc. v. District o f Columbia, supra, note 3, 205 F. 2d at 884.\n\xe2\x80\xa2292 U.S. 571 (1934).\n7 Id. at 579.\n8 United States v. One 1962 Ford Thunderbird, 232 F. Supp. 1019, 1021 (N .D . 111., 1964).\n\n127\n\n\x0cThe case law supports the foregoing conclusion.9 As the Supreme\nCourt stated in Federal Housing Administration v. The Darlington, Inc.,10\n\xe2\x80\x9c \xe2\x80\x98[s]o long as the Constitution authorizes the subsequently enacted\nlegislation, the fact that its provisions limit or interfere with previously\nacquired rights does not condemn it. Immunity from federal regulation\nis not gained through forehanded contracts.\xe2\x80\x99 \xe2\x80\x9d 11\nM oreover, at least one case suggests that the Federal Government\ncan modify or rescind a contract by later legislation without regard to\nthe prohibitions of the Fifth Amendment, except where rights are\nvested.12 This raises the question whether the stockholders of FNM A\nhave a vested right to the continuance of FN M A \xe2\x80\x99s charter in its present\nform.\nThe case of Fahey v. O'Melveny & Myers 13 teaches that, to determine\nwhether the stockholders o f FNMA have a vested right in its present\nform, one must look first at the nature of the contract. Although not\nthe same case, O'Melveny & Myers points to the right legal direction in\nthe present matter. Like FNM A, the privately owned corporation in\nO'Melveny & Myers was a creature of Federal legislation. The predeces\xc2\xad\nsor of the Federal Home Loan Bank Board had abolished the Federal\nHome Loan Bank of Los Angeles and Portland (Oregon) and merged\nthem into a new Federal Hom e Loan Bank of San Francisco. The court\nreviewed the Home Loan Bank Act and the contractual obligations it\nestablished, and concluded that\n\xe2\x80\x9c . . . a Federal Home Loan Bank is a federal instrumentality . . .\nneither the bank nor its association members, although they are\nnominally stockholders, acquire under the provisions of the Bank\nAct, any vested interest in the continued existence o f said bank or\nany legally protected private rights which would enable them to\ninvoke the due process clause.\xe2\x80\x9d14\nThe court noted that \xe2\x80\x9c[t]his legislatively created system of Home Loan\nBanks exemplifies the principle that whatever rights and privileges\nCongress may constitutionally confer, it may withhold. . . .\xe2\x80\x9d 15\nSimilarly, the Federal National M ortgage Association Charter Act\nprovides the only authority for the creation o f FNMA, and expressly\n9 See, Norman v. B. & O. R. Co.. 294 U.S. 240, 309-310 (1935), holding that \xe2\x80\x9c [t]here is\nno constitutional ground for denying to the C ongress the p o w er expressly to prohibit and\ninvalidate c o n tracts although previously made, and valid w hen made, w hen they interfere\nw ith the carry in g out o f the policy it is free to adopt;\xe2\x80\x9d Hart v. Aluminum Co. o f America,\n73 F. Supp. 727, 728 (W .D. Pa., 1947), stating th at \xe2\x80\x9c[b]y a subsequent statute C ongress\nmay w ith d raw rights granted by a statute w ithout violating any provision o f the C onstitu\xc2\xad\ntion\xe2\x80\x9d ; and Home Building & Loan Association v. Blaisdell, 290 U.S. 398, 437 (1934), w here\nthe C o u rt stated th at \xe2\x80\x9c [t]he econom ic interests o f the State m ay justify the exercise o f its\ncontinuing and dom inant protective pow er notw ithstanding interference w ith contracts.\xe2\x80\x9d\n10 358 U.S. 84 (1958).\n'\xe2\x96\xa0 Id. at 91.\n'\xe2\x80\x98\xe2\x80\x98 Southwestern Petroleum Corporation v. Udall, 361 F. 2d 650, 654 (10th Cir., 1966).\n\xe2\x80\x9d 200 F. 2d 420 (9th Cir., 1952).\n14 Id. at 446.\n11 Ibid.\n\n128\n\n\x0cauthorizes its business existence. While, under the statute, after a transi\xc2\xad\ntion period, it was to become a privately owned corporation, it is a\ncorporation of the United States. Unlike O'Melveny & Myers, the\ncharter did not invest FNMA \xe2\x80\x9cwith all the attributes and characteris\xc2\xad\ntics of a purely private corporation and immediately clothed it and all\nof the properties in its control and possession with all of the protections\nprovided by general law as in a case where a purely private corporate\nenterprise was involved.\xe2\x80\x9d 18\nThe legislative history demonstrates that FNM A was to be a \xe2\x80\x9cG ov\xc2\xad\nernment-sponsored private corporation\xe2\x80\x9d with \xe2\x80\x9ca status analogous to\nthat of the Federal land banks and the Federal home loan banks.\xe2\x80\x9d 17\nMoreover, 12 U.S.C. \xc2\xa7 1723a(h) provides that \xe2\x80\x9c[t]he Secretary of Hous\xc2\xad\ning and Urban Development shall have general regulatory power over\nthe Federal National Mortgage Association and shall make such rules\nand regulations as shall be necessary and proper to insure that the\npurposes of this subchapter are accomplished.\xe2\x80\x9d 17\nFNMA was organized to carry out a public policy.18 Its organization\nand incorporation are pursuant to a law of Congress which authorized\nits undertaking. Thus, all obligations on the part of the Government\nand any rights of the shareholders derived from those obligations \xe2\x80\x9cmust\nbe understood as having been made in reference to the possible exercise\nof the rightful authority of the Government, and that no obligation o f a\ncontract \xe2\x80\x98can extend to the defeat\xe2\x80\x99 of that authority.\xe2\x80\x9d 19\nAs previously noted, it is true that Congress intended that the stock\nof FNMA be privately owned, but it also intended that the hand of the\nFederal Government would continue to rest upon its shoulder; it re\xc2\xad\nmains subject to the regulatory oversight of both the Department of\nHousing and Urban Development and the Department of the\nTreasury.20 It has been stated that \xe2\x80\x9c [t]hose who do business in the\nregulated field cannot object if the legislative scheme is buttressed by\nsubsequent amendments to achieve the legislative end.\xe2\x80\x9d 21\nIt is our opinion that FNM A\xe2\x80\x99s stockholders have no vested rig h t22 to\nthe continued existence of FNM A in its present form and no protected\nprivate right that would enable them to invoke the prohibitions of the\nFifth Amendment.23 To vest them with such a right would be to tie the\n16 Fahey v. O \xe2\x80\x99Melveny & Myers, supra, note 13, 200 F. 2d at 442.\n17 See S. Rep. N o. 1123, 90th Cong., 2d Sess. 79 (1968).\n18 12 U.S.C. \xc2\xa7 1723a(h) states that \xe2\x80\x9c [t]he Secretary may require that a reasonable\nportion o f the co rporation\xe2\x80\x99s m ortgage purchases be related to the national goal o f\nproviding adequate housing for low and m oderate incom e families. . . .\xe2\x80\x9d\n. ' \xe2\x80\xa2 Norman v. B. & O. R\xe2\x80\x9e supra, note 9, 294 U.S. at 305. \xe2\x80\x9cN ot only are existing law s\nread into co n tracts in o rd e r to fix obligations as betw een the parties, but the reservation\nof essential attributes o f sovereign pow er is also read into contracts as postulate o f th e\nlegal ord er . . . .\xe2\x80\x9d Home Building & Loan Association v. Blaisdell, supra, note 9, 290 U.S. at\n435.\n\xe2\x80\x9c See 12 U .S.C. \xc2\xa7\xc2\xa7 1717(a)-(b), 1718, 1719, and 1723a(h) (1970).\n21 FHA v. The Darlington. Inc., supra, note 10, 358 U.S. at 91.\n22 See text, supra at pages 5-7 and note 35, infra21 See text, supra at notes 14 and 15, and note 35, infra.\n\n129\n\n\x0chands of Congress in its attempt, through legislation, to provide ade\xc2\xad\nquate housing for its citizens.24 Only recently, the Supreme Court stated\nthat \xe2\x80\x9c[a]s is customary in reviewing economic and social regulation,\nhowever, courts properly defer to legislative judgment as to the neces\xc2\xad\nsity and reasonableness of a particular measure.\xe2\x80\x9d25\nThe final question on this matter is whether S. 1397 would result in\n\xe2\x80\x9ctaking\xe2\x80\x9d of FN M A \xe2\x80\x99s stockholders\xe2\x80\x99 property without \xe2\x80\x9cdue process of\nlaw \xe2\x80\x9d or \xe2\x80\x9cjust compensation\xe2\x80\x9d? For the reasons set forth above, we\nrespond in the'negative. W e concluded above that FNM A stockholders\nhave no vested rights in the continuation of the FNM A charter in its\npresent form. However, even if FN M A \xe2\x80\x99s stockholders have an \xe2\x80\x9cincho\xc2\xad\nate\xe2\x80\x9d or a \xe2\x80\x9cvested\xe2\x80\x9d right that is protected by the Fifth Amendment, we\ndo not think the action contemplated by the proposed legislation would\nenable them to invoke the prohibitions of the Fifth Amendment. As\nwas pointed out in El Paso v. Simmons,26 \xe2\x80\x9c . . . it is not every modifica\xc2\xad\ntion of a contractual promise that impairs the obligation of contract\nunder federal law . . . .\xe2\x80\x9d 27 particularly, where a revision of law makes\nno real substantive change.\nFurtherm ore, Congress expressly reserved the right to dissolve\nF N M A \xe2\x80\x99s charter.28 Because Congress has the right under the enabling\nlaw to abolish FNMA, it arguably has the right to amend or otherwise\nalter the charter as it sees fit.29 But, if FN M A\xe2\x80\x99s stockholders had an\n\xe2\x80\x9cinchoate\xe2\x80\x9d or \xe2\x80\x9cvested\xe2\x80\x9d right to its continuing in its present form, then a\nstockholder\xe2\x80\x99s right could be materially affected differently if the corpo\xc2\xad\nration continued under a different managerial scheme than if it were\ndissolved and liquidated.30 These considerations, however, carry little\nimport in the present matter.\nAs noted above, the proposed legislation would increase the number\nof persons appointed to the Board by the President from five to nine,\nleaving the number elected by the common stockholders standing at 10.\nTherefore, S. 1397 would have the effect of reducing the number of\ndirectors elected by FN M A\xe2\x80\x99s stockholders from two-thirds to one more\nthan one-half. But, what effect would this contemplated action have on\n24 \xe2\x80\x9c T h e presum ption is that such a law is not intended to create private contractual or\nvested rights but m erely declares a policy to be pursued until the legislature shall ordain\no therw ise.\xe2\x80\x9d Dodge v. Board o f Education, 302 U.S. 74, 79 (1937).\n25 United States Trust Company v. New Jersey, 431 U.S. 1, at 23-24 (1977).\n\xe2\x80\x9c 379 U.S. 497(1965).\n27Id. a t 506-507.\n28See 12 U.S.C. \xc2\xa7 1717(a)(2)(B) (1970).\n\xe2\x80\x9c C ongress has the constitutional pow er to abolish a legislatively created corporation,\neven if it does not expressly reserve such pow er. W hatever rights and privileges Congress\nis authorized to give, it is also authorized to take aw ay. See text, supra at note 15. It seems\nunnecessary to say th at an existing legislature could not pass a law that a subsequent\nlegislature could not amend or repeal.\n\xe2\x80\x9c U pon liquidation the stockholders w ould be entitled to a pro rata share o f the\nc o rp o ra tio n \xe2\x80\x99s assets after paym ent o f all indebtedness. U nder a new m anagerial scheme,\nassum ing they decided to end their association w ith the corporation, they w ould be\nforced to sell th eir stock at th e m arket price, w hich m ight be m ore o r less than they\nw ould receive if th e corportion w as dissolved.\n\n130\n\n\x0cany \xe2\x80\x9cinchoate\xe2\x80\x9d or \xe2\x80\x9c vested\xe2\x80\x9d rights of FN M A\xe2\x80\x99s stockholders? On its face\nit would appear to impair their ability to exercise control over the\npolicies and business judgments of the corporation.31\nFirst, as the Supreme Court stated in Norman, \xe2\x80\x9c[c]ontracts, however\nexpress, cannot fetter the constitutional authority of the Congress. Con\xc2\xad\ntracts may create rights of property, but when contracts deal with a\nsubject matter which lies within the control of the Congress, they have\na congenital infirmity.\xe2\x80\x9d 32\nThus, as was pointed out in O'Melveny & Myers, \xe2\x80\x9c. . . men do not go\nblindly into these Home Loan Bank ventures\xe2\x80\x94they assume all of the\nobligations with all of the legislative and administrative \xe2\x80\x98strings\xe2\x80\x99 at\xc2\xad\ntached when a charter is granted to them by the Board.\xe2\x80\x9d 33 In the\npresent matter, the stockholders entered the arrangement with \xe2\x80\x9call of\nthe legislative and administrative \xe2\x80\x98strings\xe2\x80\x99 attached.\xe2\x80\x9d One of those\n\xe2\x80\x9cstrings\xe2\x80\x9d was the chance that a subsequent legislature would exercise its\nconstitutional authority and amend FN M A\xe2\x80\x99s charter.\nSecond, \xc2\xa74.09 and \xc2\xa7 4 .12(b) of the bylaws make clear that policies\nand business judgments can be made by a simple majority.34 Thus,\nstockholders would still elect a majority of the Board\xe2\x80\x99s members.\nMoreover, the extent to which the Board of Directors sets policies\nand makes business judgments must be considered in light of the fact\nthat 12 U.S.C. \xc2\xa7 1723a(b) provides that \xe2\x80\x9c [n]o stock, obligation, security,\nor other instrument shall be issued by the corporation without the prior\napproval of the Secretary.\xe2\x80\x9d 35 This requirement stands whether the\nmajority vote on a particular matter is 51 percent or 100 percent.36\nThus, the proposed legislation would leave the stockholders close to\nwhere it found them; the harm, if any, is relatively small when all of\nthe appropriate factors are considered.37\nAs we stated at the beginning, S. 1397 also would make FNMA\nsubject to the provisions of the Freedom o f Information Act. Little\n51 It should be noted that the proposed legislation in no way tam pers w ith F N M A \xe2\x80\x99s\ncom m on stock, and thus does not diminish its value to the stockholders o r its voting\nstrength.\nMNorman v. B. & O. R. Co., supra note 9, 294 U.S. at 307-308.\n\xe2\x80\x9d Fahey v. O'Melveny & Myers, supra note 13, 200 F.2d at 444.\nS4A tw o-thirds affirm ative vote o f the Board o f D irectors is required to alter, amend,\no r repeal the bylaws. See A rticle 7 o f the ByLaw s o f the Federal National M ortgage\nAssociation, as amended.\n\xc2\xbb\xe2\x80\x9c\nvested right * \xe2\x80\xa2 * [is] one w hich is absolute, com plete, and unconditional to the\nexercise o f w hich no obstacle exists, and w hich is imm ediate and perfect in itself and not\ndependent upon a contingency.\xe2\x80\x99 \xe2\x80\x9d Hutton v. Autoridad Sobre Hogares De La Capital, 78 F.\nSupp. 988, 994 (Puerto Rico, 1948). U nder 12 U.S.C. \xc2\xa7 1723a(h), the Board o f D irectors\nd o not have this absolute, com plete, and unconditional right, the stockholders\xe2\x80\x99 right can\nbe no greater. See also note 18, supra.\n3\xc2\xaeIt could be argued that the Secretary is m ore likely to approve a decision o f the\nBoard if its vote is 10 to 5 as opposed to 10 to 9. But the m atter in question calls for an\ninterpretation o f the law , not a forecast o f the Secretary\xe2\x80\x99s probable actions.\n57 \xe2\x80\x9c Law s w hich restrict a party to those gains reasonably to be expected from the\ncontract are not subject to attack under the C ontract Clause, notw ithstanding that they\ntechnically alter an obligation o f a contract.\xe2\x80\x9d E l Paso v. Simmons, supra, note 26, 379 U.S.\nat 515.\n\n131\n\n\x0cneed be said on this issue except that Congress, as a matter of public\npolicy, has the constitutional power to subject the FNM A to the\nFreedom of Information Act. It is w orth noting that Amtrak, a private\xc2\xad\nly owned corporation,38 is already subject to the Act.39\nFor the foregoing reasons we are of the opinion that S. 1397 is\nconstitutional.\nJohn M . H\n\narm on\n\nActing Assistant Attorney General\nOffice o f Legal Counsel\n\n38 L ike F N M A , A m trak is a privately ow ned corporation that was created by an A ct o f\nCongress.\n38See 45 U .S.C. \xc2\xa7 546(g) (Supplement V, 1975).\n\n132\n\n\x0c"


b"Use of Law Enforcement Assistance Administration\nProgram Grant Funds for Administrative Purposes\nF u n d s o rig in a lly a w a rd e d to sta te s by th e L aw E n fo rc e m e n t A ssistan ce A d m in istratio n\nfo r p ro g ra m m a tic p u rp o ses, u n d er T itle I o f th e O m nibus C rim e C o n tro l an d Safe\nS tre e ts A c t o f 1968, m ay be used to su p p le m e n t ex h au sted ad m in istrativ e funds.\nA lu m p sum a p p ro p ria tio n can be used for any p u rp o se c o n sisten t w ith th e purp o ses o f\nth e a u th o riz in g sta tu te , an d an a g e n c y \xe2\x80\x99s re p re se n ta tio n to C o n g re ss as to h o w it\np ro p o ses to a llo c a te a p p ro p ria te d funds is legally b in d in g on th e ag en cy o n ly to the\nex ten t its p ro p o sed a llo catio n finds its w ay in to th e lan g u ag e o f th e a p p ro p ria tio n\nsta tu te itself.\n\nJune 5, 1980\nM EM ORANDUM OPIN IO N FOR\nTH E D EPUTY ATTORNEY G EN ER A L\nThis responds to your request for our opinion on the question\nwhether the states may be permitted to use a portion of certain unex\xc2\xad\npended federal grant funds in their possession for purposes other than\nthose for which they were originally intended. We conclude that they\nmay.\nThe funds in question have been awarded to the states over the past\nseveral years pursuant to agreements with the Law Enforcement Assist\xc2\xad\nance Administration (LEAA ) under Title I of the Omnibus Crime\nControl and Safe Streets Act of 1968, 42 U.S.C. \xc2\xa7\xc2\xa7 3701-3796 (1976)\n(hereafter Crime Control A ct).1 Under the terms of these agreements,\ncertain sums have been awarded to the states for administrative or\nplanning purposes under Part B of the Crime Control Act, 42 U.S.C.\n\xc2\xa7\xc2\xa7 3721-25, and certain sums for programmatic purposes under Parts C\nand E of that Act, 42 U.S.C. \xc2\xa7\xc2\xa7 3731-39, 3751-74. By the end of the\npresent fiscal year funds awarded under Part B for administrative pur\xc2\xad\nposes will have been entirely obligated by the states; however, there\nwill remain to be administered and expended over the next two years\n1\nFunds w ere aw arded by L E A A to the states for FY 1980 in accordance w ith categories estab\xc2\xad\nlished by the Justice System Im provem ent A ct o f 1979, Pub. L. No. 96-157, 93 Stat. 1167 (hereafter\n1979 A ct). H ow ever, this A ct w as not passed by C ongress until after the beginning o f the 1980 fiscal\nyear, so that aw ards w hich had already been m ade for FY 1980 w ere m ade under authority o f the\nC rim e C o n tro l A ct. T ransition provisions in the 1979 A ct intended to facilitate the shift to a new\naw ard system provided au th o rity for L E A A to aw ard funds already appropriated \xe2\x80\x9c in accordance w ith\nthe provisions o f the p rio r A ct . . . .\xe2\x80\x9d H .R. Rep. No. 655, 96th C ong., 1st Sess. 80 (1979) (conf. rep.).\nS e* \xc2\xa7 1301 (d), (0. (h) o f the 1979 A ct, 93 Stat. 1167, 1221.\n\n674\n\n\x0csome $600 million in programmatic funds awarded under Parts C and\nE .2 The practical necessity of devoting some portion of these funds to\nadministration has arisen because of Congress\xe2\x80\x99 tentative decision to\nappropriate no new monies for any formula grant awards by LEA A for\nFY 1981. The question is whether LEA A \xe2\x80\x99s agreements with the states\ncan now be modified to permit states to use funds originally awarded\nfor programmatic purposes to supplement their exhausted administra\xc2\xad\ntive funds.\nThe statutory provisions authorizing LEAA to make grants under\nParts B, C, and E of the Crime Control Act set no relevant limits on\nthe amount of money which LEAA can lawfully allocate to each\nPart.3 In theory, LEAA could, consistent with its authorizing act, enter\ninto agreements with states under which grant funds could be used\neither for administration and planning or for programmatic purposes.\nThere is, therefore, no obstacle in the authorizing statute to using some\nprogrammatic funds for administrative purposes.4\nNor do LEA A \xe2\x80\x99s appropriation statutes constrain it in this regard.\nLEA A \xe2\x80\x99s is a lump sum appropriation, and as such can be used for any\npurpose consistent with the purposes of the authorizing statute. See,\ne.g., In re Newport News Shipbuilding & Drydock Co., 55 Comp. Gen.\n812, 819-21 (1976). An agency\xe2\x80\x99s representation to Congress as to how it\nproposes to allocate appropriated funds is legally binding on the agency\nonly to the extent that its proposed allocation finds its way into the\nlanguage of the appropriation statute itself. Nothing in the language of\nLEA A \xe2\x80\x99s appropriations acts for the past three years suggests that funds\nawarded under Part B for administrative expenses could not be in\xc2\xad\ncreased by agreement between LEAA and a particular state, or that\nobligated funds originally earmarked for programmatic purposes could\nnot in the same manner be shifted to administration if necessary.\nIn sum, we see no bar either in the authorizing statute or the appro\xc2\xad\npriations acts to LEA A \xe2\x80\x99s entering into a modification of its grant\nagreements whereby the states will be permitted to use funds previously\ndesignated for programmatic purposes to accomplish necessary adminis\xc2\xad\ntrative tasks.\n2 Under \xc2\xa7 520 o f the C rim e C ontrol A ct, 42 U.S.C. \xc2\xa7 3768, funds appropriated under T itle 1 remain\navailable for obligation until expended. U nder the term s o f L E A A \xe2\x80\x99s agreem ents w ith the states, funds\nnot obligated by the states by the end o f the th ird .y e ar after their appropriation, revert to L E A A .\n3 Section 205 o f the A ct provides for a minimum sum to be aw arded every state under Part B, w ith\n\xe2\x80\x9c the rem ainder o f such funds available\xe2\x80\x9d allocated am ong the states in accordance w ith a form ula based\non population. 42 U:S.C. 3725. Section 520(a) provides that the sum allocated by L E A A to Part E will\nbe no less than 20 percent o f the am ount allocated to Part C. 42 U.S.C. \xc2\xa7 3768(a). O th e r than these\ntw o provisions, how ever, there is nothing in this authorizing statute w hich obligated L E A A to\nallocate appropriated funds am ong Parts B, C, and E in any particular manner.\n4 T he 1979 A ct does set a ceiling on funds to be allocated for adm inistrative purposes, see\n\xc2\xa7 401(c)(1), 93 Stat. 1167, 1181. H ow ever, since none o f the m oney in question was appropriated under\nauthority o f that A ct, see note 1 supra, this ceiling w ould pose no obstacle to modifying agreem ents\nentered into under authority o f the Crim e C ontrol Act.\n\n675\n\n\x0cSection 8 of the Department of Justice Appropriation Authorization\nAct for Fiscal Year 1980, Pub. L. No. 96-132, 93 Stat. 1040, 1046-47\n(1979), contains a provision requiring each organizational component of\nthe Department of Justice to give 15 days notice to specified congres\xc2\xad\nsional committees of any decision to \xe2\x80\x9creprogram\xe2\x80\x9d funds in excess of a\ncertain amount. In the case o f LEAA, this amount is $500,000. Under\nthe terms of the statute, notification must be given whenever funds are\nshifted within an agency from one \xe2\x80\x9cprogram\xe2\x80\x9d to another, as that term\nis defined in the Department of Justice\xe2\x80\x99s submission to Congress in\nsupport of its authorization request. The notification requirement would\napply, therefore, when LEAA shifts funds from one line item in its\nauthorization submission to another, even though LEA A \xe2\x80\x99s appropria\xc2\xad\ntion itself is in a lump sum.5 While the present situation could perhaps\nbe distinguished from the more typical agency \xe2\x80\x9creprogramming\xe2\x80\x9d\naction, some public action by LEA A will be necessary in any event to\npermit the states to accomplish the desired shift of programmatic funds.\nWe therefore think that the appropriate congressional committees\nshould be notified of LEA A \xe2\x80\x99s intention to take this course of action.\nL a r r y L . S im m s\n\nDeputy Assistant Attorney General\nOffice o f Legal Counsel\n\n5\nThis notification requirem ent is discussed in the com m ittee reports on the Justice D epartm ent's\nappropriation statute for 1980. See S. Rep. No. 251, 96th Cong., 1st Sess. 8 (1979); H .R . Rep. No. 247,\n96th C ong., 1st Sess. 6 (1979).\n\n\x0c"


b"Compatibility of New York City Local Law 19 with\nFederal Highway Act Competitive Bidding Requirements\nNew York City Local Law 19, which allows bidders who do not make the lowest bid to be\nawarded contracts in cases where the lowest bidder has not signed an anti-apartheid certifi\xc2\xad\ncate, is incom patible with \xc2\xa7 112 o f the Federal Aid Highway Act, which requires that\ncontracts for federally funded highway projects be awarded on the basis o f competitive\nbidding. The Departm ent of Transportation is therefore obligated to withhold funding for\nsuch contracts awarded subject to Local Law 19.\nWhen Congress elects to distribute federal funds to states it may attach conditions to their\ndistribution and, so long as those conditions are valid and clearly expressed, a state has no\nsovereign right to obtain or retain those federal funds without complying with the stated\nconditions. The Act\xe2\x80\x99s conditioning o f federal highway construction grants on compliance\nwith com petitive bidding requirements is valid and clearly expressed.\nBy imposing disadvantages on a class o f responsible contract bidders, Local Law 19 discourages\nresponsible contractors from bidding and undermines the competitive bidding process. This\ndeparture from competitive bidding procedures was not justified by considerations of costeffectiveness, as required by the Act.\n\nJune 30, 1986\nM\n\nem orandum\n\nD\n\nO p in io n\n\nfor t h e\n\nepa rtm en t of\n\nG eneral C oun sel,\n\nT r a n s p o r t a t io n\n\nI. Introduction and Summary\nThis memorandum responds to your request for the opinion of the Attorney\nGeneral on the question whether the Secretary of Transportation must withhold\napproval for payments under the Federal Aid Highway Act (Act) for any\ncontract which has been awarded pursuant to a bidding process subject to New\nYork City Local Law 19 (Local Law 19).' Section 112 of the Federal Aid\nHighway Act of 1958, as amended, 23 U.S.C. \xc2\xa7 112, requires the Secretary to\nwithhold approval for contracts for locally administered highway construction\nprojects funded in whole or in part by the federal government unless the\ncontracts are awarded through competitive bidding.\nThe provisions of Local Law 19 impose certain disadvantages in the bidding\nprocess for city contracts on bidders who fail to sign an anti-apartheid certifi\xc2\xad\ncate stating that they have not, within the previous twelve months and for the\n1 The Attorney G eneral has delegated his responsibility for rendering opinions to governm ent agencies to\nthe Assistant A ttorney General, O ffice o f Legal Counsel. 28 C.F.R. \xc2\xa7 0.25.\n\n101\n\n\x0cterm of the impending contract, done business with, and have neither bought\nfrom nor sold goods to certain agencies of the government of the Republic of\nSouth Africa or Namibia. Moreover, in the case of a contract to supply goods,\nthe City requires the contractor to certify that none of the goods to be supplied\nto the City originated in South Africa or Namibia. 13 N. Y.C. Code \xc2\xa7 343.11.0(a).2\nThese certification conditions are not required by any federal law or executive\norder.3\nSection 343.11.0(b) provides that if a bidder complying with the anti\xc2\xad\napartheid certification makes a bid no more than five percent higher than a low\nbid submitted by a non-complying contractor, both bids are to be passed on to\nthe New York Board of Estimate which \xe2\x80\x9cmay determine that it is in the public\ninterest that the contract shall be awarded to other than the lowest responsible\nbidder.\xe2\x80\x9d4 New York City has declared that it will apply Local Law 19 to\nfederally funded projects.\n2 Section 3 4 3 .1 1.0(a) provides:\nW ith respect to contracts described in subdivision b and c o f this section, and in accordance\nw ith such provisions, no city agency shall contract for the supply o f goods or services with any\np erson w ho does not agree to stipulate to the follow ing as material conditions o f the contract if\nth ere is an o th er p erson w ho will contract to supply goods o r services o f com parable quality at the\nco m p arab le price:\n(1) that the co n tracto r and its substantially ow ned subsidiaries have not within the tw elve\nm onths p rio r to the aw ard of such contact sold o r agreed to sell, and shall not during the term of\nsuch co n tract sell o r agree to sell, g o o d s o r services other than food o r medical supplies directly\nto the follow ing agencies o f the S outh African governm ent or directly to a corporation owned or\nc o n tro lled by such government and established expressly fo r the purpose o f procuring such goods\nand services fo r such specific agencies: (a) the police, (b) the m ilitary, (c) the prison system, or\n(d) the d epartm ent o f cooperation an d developm ent; and\n(2) in the case o f a contract to su p p ly goods, that none o f the goods to be supplied to the city\norig in ated in the R epublic of South A frica o r Namibia.\nA lthough the term \xe2\x80\x9ccom parable pnce\xe2\x80\x9d in th is section is not defined, \xc2\xa7 343.11.0(b) makes clear that an agency\nm ust re fe r any contract in w hich a com plying bid is w ithin five percent o f a non-contract bid to the Board of\nE stim ate, w hich w ill m ake the final decision as to its award.\n3 E xecutive O rd er No. 12S32 forbids governm ent agencies from providing export aid to corporations doing\nbusin ess in South A frica unless they certify that they are adhering to certain principles o f nondiscrim ination\nw ith respect to their em ployees. The o rd e r also forbids the supply o f com puters to certain South African\nagencies but co n tain s no general prohibition against contracting with these agencies. See 21 W eekly Comp.\nPres. D oc. at 10 5 1 -5 4 (Sept. 9, 1985).\n4 Section 3 4 3 .1 1.0(b) provides:\nIn the case o f contracts subject to public letting under sealed bids pursuant to section 343 o f the\nch arter, w henever the lowest responsible bidder has not agreed to stipulate to the conditions set\nfo rth in subdivision a o f this section and another b id d er who has agreed to stipulate to such\nco n d itio n s has subm itted a bid w ithin five percent o f the lowest responsible bid for a contract to\nsupply g o o d s o r services of com parable quality, the contracting agency shall refer such bids to\nth e board o f estim ate which, pursuant to such rules as it may adopt, and in accordance with\nsu bdivision b o f section 343 of the charter, may determ ine that it is in the public interest that the\nco n tract shall be aw arded to other th a n the lowest responsible bidder.\nSection 343 o f the N .Y .C. C harter requires a tw o-thirds vote and the approval o f the corporation counsel and\nthe c o m p tro ller before any such decision is made. New York C ity observes that \xc2\xa7 343 o f the charter applies to\nall co n tracts fo r goods and services ex ceed in g $5,000 and thus allow s the Board o f Estim ate to award\ncontracts to co n tracto rs o th er than the low bidder regardless o f the applicability o f Local Law 19. Therefore,\nNew Y ork C ity argues. Local Law 19 c an n o t be deem ed to violate \xc2\xa7 112, because it does no more than refer\ncertain co n tracts fo r consideration under a standing procedure to which the Secretary o f Transportation has\nnot h ereto fo re objected. The short an sw er to this argum ent is that the Secretary is not disabled from\nC ontinued\n\n102\n\n\x0cWe conclude that application of Local Law 19 to federally funded highway\nprojects administered by New York City would violate 23 U.S.C. \xc2\xa7 112.\nSection 112 clearly reflects a congressional judgment that the efficient use of\nfederal funds afforded by competitive bidding is to be the overriding objective\nof all procurement rules for federally funded highway projects, superseding\nany local interest in using federal funds to advance a local objective, however\nlaudable, at the expense of efficiency. By imposing disadvantages on a class of\nresponsible bidders, Local Law 19 distorts the process of competitive bidding\nin order to advance a local objective unrelated to the cost-effective use of\nfederal funds. Accordingly, the Department of Transportation is obligated to\nwithhold funding for highway construction contracts subject to Local Law 19.5\nII. Analysis\nUnder the Supremacy Clause,6 state or local action must give way to federal\nlegislation passed pursuant to one of Congress\xe2\x80\x99 enumerated powers where the\n\xe2\x80\x9cact of Congress fairly interpreted is in actual conflict with the law of the State\xe2\x80\x9d\nor state subdivision. Florida Lime & Avocado, Inc. v. Paul, 373 U.S. 132, 14243 (1963). It is well-settled that Congress, pursuant to its taxing and spending\npowers under Article I, \xc2\xa7 8 of the Constitution, is authorized to disburse federal\nfunds to the states for particular programs and to \xe2\x80\x9cfix the terms on which it shall\ndisburse federal money.\xe2\x80\x9d Pennhurst State School and Hospital v. Halderman,\n451 U.S. 1, 17 (1981). Accordingly, when Congress elects to distribute federal\nfunds to states, it may attach conditions to their distribution. So long as the\nconditions are valid and clearly expressed, id., \xe2\x80\x9c[rjequiring States to honor\ntheir obligations voluntarily assumed as a condition of federal funding.. .\nsimply does not intrude on their sovereignty.\xe2\x80\x9d Bell v. New Jersey, 461 U.S.\n773, 790 (1983). \xe2\x80\x9cIf the conditions [are] valid, the State has no sovereign right\nto retain [federal] funds without complying with those conditions.\xe2\x80\x9d Id. at 791.\n\n4 ( . . . continued)\nchallenging the application o f a provision to federal contracts which has not been brought to h e r attention\npreviously. W hile the issue o f the legality o f \xc2\xa7 343, considered by itself, is not d irectly before us, we believe\nthat its application to federally funded highway projects would raise many o f the same issues as does\napplication o f Local Law 19. We note, how ever, that Local Law 19 is different from \xc2\xa7 343 in that it singles\nout a specific group o f contractors and d eclares that, in certain circum stances, their low bids must be referred\nto the Board o f Estim ate fo r potential disapproval. Therefore, the Secretary is w holly justified in being more\nconcerned about Local Law 19 than \xc2\xa7 343, because the latter does not single out a particular class o f contracts\nfor m andatory reference to the Board o f Estimate.\n5 This O ffice has been informed that legislation is being considered by C ongress that w ould direct the\nSecretary to approve paym ents under the Federal Aid Highway Act for contracts entered by New York City\nbefore O ctober 1, 1986, regardless o f the application o f Local Law 19. The stated purpose o f this legislation\nis to provide time for the Department o f Justice to render an opinion on the issue o f the legality o f the\napplication o f Local Law 19 to federal program s. O ur opinion, o f course, considers the legality o f Local Law\n19 under existing federal law and does not purport to evaluate the effect o f pending legislation on the\nS ecretary's obligation or authority to w ithhold approval for New York City highw ay construction projects\nusing federal funds.\n6 U.S. C onst, art. VI, \xc2\xa7 2.\n\n103\n\n\x0cThe Supreme Court has specifically upheld Congress\xe2\x80\x99 attachment of condi\xc2\xad\ntions to the distribution of federal highway funds. In Oklahoma v. United States\nCivil Service Comm\xe2\x80\x99n, 330 U.S. 127 (1947), the Court upheld a federal denial\nof highway funds to Oklahoma because of the state\xe2\x80\x99s failure to observe the\nrequirements of the Hatch Act. Congress had conditioned states\xe2\x80\x99 receipt of\nfederal highway funds on compliance with that Act. The Court stated: \xe2\x80\x9cWhile\nthe United States is not concerned with, and has no power to regulate, local\npolitical activities of state officials, it does have the power to fix the terms upon\nwhich its .money allotments to states shall be disbursed.\xe2\x80\x9d Id. at 143.\nNew York City does not dispute that the competitive bidding conditions\nimposed by \xc2\xa7 112 of the Federal Aid Highway Act are valid exercises of the\ncongressional spending power and conditions which DOT is therefore obli\xc2\xad\ngated to enforce. Careful examination reveals that Local Law 19 is in clear\nconflict with these conditions.7\nSection 112 applies to all highway projects using federal funds \xe2\x80\x9cwhere\nconstruction is to be performed by the State highway department or under its\nsupervision.\xe2\x80\x9d 23 U.S.C. \xc2\xa7 112(b).8 The first two sentences of \xc2\xa7 112(b) provide:\nConstruction of each project. . . shall be performed by contract\nawarded by competitive bidding, unless the State highway de\xc2\xad\npartment demonstrates, to the satisfaction of the Secretary, that\nsome other method is more cost effective. Contracts for the\nconstruction of each project shall be awarded only on the basis\nof the lowest responsive bid submitted by a bidder meeting\nestablished criteria of responsibility.9\nA version of this provision has governed the process for awarding highway\ncontracts since 1954, when the Senate insisted on amending the Federal Aid\n7 B ecause o u r o pinion rests on the actu al conflict betw een Local Law 19 and 23 U .S.C. \xc2\xa7 112, w e need not\nreach the question w hether application o f Local Law 19 to federally funded projects imperm issibly burdens\nforeign com m erce o r intrudes into a fie ld o f foreign affairs which is uniquely the concern o f the federal\ngovernm ent.\n8 Section 112(d) m akes clear that the ph rase \xe2\x80\x9cunder [the] supervision [o f the State highw ay departm ent]'\xe2\x80\x99 in\n\xc2\xa7 112(a) is intended to m ake that section apply to local subdivisions, such as New York City, as well as to\nState highw ay departm ents. Section 112(d) provides:\nN o co n tract aw arded by com petitive bidding pursuant to subsection (b) o f this section, and\nsubject to the provisions of this sectio n , shall be entered into by any State highw ay departm ent or\nlocal subdivision o f the State w ith o u t com pliance w ith the provisions o f this section, and w ithout\nthe p rio r concurrence o f the Secretary in the aw ard thereof.\n(E m phasis added.)\n9 T he last sentence o f \xc2\xa7 1 12(b) provides:\nN o requirem ent o r obligation sh all be imposed as a condition precedent to the award o f a contract\nto such bidder fo r a project, or to the Secretary\xe2\x80\x99s concurrence in the award o f a contract to such\nbid d er fo r a project, unless such requirem ent o r obligation is otherw ise law ful and is specifically\nset forth in the advertised specifications.\nThis sentence was added to the Federal Highway A ct o f 1968, Pub. L. No. 9 0 -495, 82 Stat. 830 (1968), in\nord er to assure that the federal requirem ents o f equal em ploym ent opportunity m andated by Executive Order\nNo. 11246 be advertised before the bid d in g so that contractors w ould know what w as expected o f them. See S.\nRep. No. 1340, 90th C ong., 2d Sess. 16\xe2\x80\x9418 (1968). The provision is manifestly not a carte blanche for the\nstate to im pose additional requirements o f its own choosing unrelated to cost-effective use o f federal funds.\nBy the term s o f this provision, any state requirem ent must be \xe2\x80\x9cotherw ise law ful\xe2\x80\x9d and therefore cannot\ninterfere w ith the com petitive bidding requirem ent established by the first two sentences o f the section.\n\n104\n\n\x0cHighway Act of 1954 to require competitive bidding \xe2\x80\x9cunless the Secretary\nfinds some other method is in the public interest.\xe2\x80\x9d Pub. L. No. 83-350, \xc2\xa7 17,68\nStat. 71 (1954).10\nThe Surface Transportation Assistance Act of 1982, Pub. L. No. 97-424, 96\nStat. 2106 (1983), strengthened the competitive bidding requirement by elimi\xc2\xad\nnating the public interest exception and imposing the current requirement that\ndepartures from competitive bidding be justified by a demonstration by the\nlocal highway department that the alternative is more cost-effective. The\nlegislative report accompanying the amendment reflects the concern of Con\xc2\xad\ngress that cost-effectiveness be the only criterion by which to award contracts\nto responsible bidders for highway projects funded by the federal government.\nSee H.R. Rep. No. 555,97th Cong., 2d Sess. 11 (1982). The 1982 amendments\ntherefore make clear that the efficient use of federal funds is the touchstone by\nwhich the legality of state procurement rules for federally funded highway\nprojects is to be tested.\nLocal Law 19 contravenes the clear requirement of \xc2\xa7 112 that all contracts be\nawarded through a process of competitive bidding to the responsible bidder\nwho submits the lowest bid; the local ordinance frustrates the manifest con\xc2\xad\ngressional mandate reflected in the statute and its legislative history to make\nthe most cost-effective use of federal highway funds.11 By imposing disadvan\xc2\xad\ntages on a certain class of contractors, New York City discourages responsible\ncontractors from bidding and undermines the competitive bidding process.12\nNew York City has failed to justify, as required by the statute, its departure\nfrom competitive bidding procedures by considerations of cost- effectiveness.13\n>0The Senate proposed the amendment requiring com petitive bidding. See S. Rep. No. 1093, 83d Cong , 2d\nSess 14 (1954) (stating that the requirem ent is designed to prevent \xe2\x80\x9ccollusion or any other action in restraint\nof free com petitive bidding\xe2\x80\x9d). A fter the House acceded to the Senate amendm ents, one Senator hailed the\nbidding provision as one o f the most im portant achievem ents o f the entire bill. 100 Cong. Rec. 5124 (1954)\n(remarks o f Sen. Gore).\n11 New York City argues that this congressional mandate is somehow undercut by 23 U.S.C \xc2\xa7 145, which states:\nThe authorization o f the appropriation o f Federal funds or their availability under this chapter\nw ill in no way infringe on the sovereign rights o f the States to determ ine which projects will be\nfinanced. The provisions o f this chapter provide for a federally-assisted State program.\nA provision perm itting states to choose their own projects obviously has no bearing on the issue of w hether\nC ongress has restricted the perm issible procurem ent procedures fo r such projects in the interest o f the costeffective use o f federal funds.\n12 There can be no doubt that an otherw ise qualified contractor who fails to furnish an anti-apartheid\ncertificate is still a \xe2\x80\x9cresponsible\xe2\x80\x9d bidder. Local Law 19 itself acknow ledges that the requirem ents o f the antiapartheid statute are not criteria o f responsibility, because \xc2\xa7 343.11.0(b) refers to \xe2\x80\x9cthe low est responsible\nbidder w ho has not agreed to [the anti-apartheid certificate].\xe2\x80\x9d (Em phasis added.)\n13 Indeed, because the prim ary purpose o f the anti-apartheid certification requirem ent is \xe2\x80\x9cto send a message\nto the governm ent o f the Republic o f South A frica and to encourage those who do business there to support\nchange,\xe2\x80\x9d see New York C ity Local Law 19, \xc2\xa7 2, Local Law 19 is not designed to promote cost efficiency, but\nto express a w ell-justified abhorrence o f apartheid. To be sure, the ordinance states that it \xe2\x80\x9c also seeks to\nprotect the financial interest o f the city by limiting the num ber o f city contracts which may depend for their\nsatisfaction on the internal security o f South Africa, where relentless oppression has led to increasing civil\ndisturbances, making sabotage o f business interests and even revolution possible.\xe2\x80\x9d Under certain circum \xc2\xad\nstances, such considerations may very well affect the cost-effectiveness o f a given contractual arrangem ent.\nNew York C ity has not, however, provided the Secretary w ith any evidence for the proposition that a\nparticular co m p an y 's contractual agreem ent with an agency in South A frica w ill endanger an unrelated\ncontractual agreem ent to be perform ed in New York City on a highw ay construction project.\n\n105\n\n\x0cNew York City has attempted to defend the legality of its ordinance by\nobserving that all contractors that have bid for its contracts have furnished the\nanti-apartheid certificate and that there is no evidence that any potential bidder\nwould not be able to comply with the requirement. Thus, the City argues that its\nanti-apartheid certification requirement has not been shown to affect adversely\nthe efficient use of federal funds. This argument is unavailing, however,\nbecause it attempts to reverse the burden of proof that \xc2\xa7 112 requires to justify\ndepartures from competitive bidding. In order to satisfy this burden, New York\nCity must demonstrate that its procedures lead to a more cost-effective use of\nfederal funds; it cannot shift the burden to the Secretary of Transportation to\ndemonstrate that the City\xe2\x80\x99s procedures detract from cost-effectiveness.14\nSecond, New York City argues that its ordinance does not violate \xc2\xa7 112\nbecause it is not an absolute bar to the award of contracts to contractors who\nsubmit the lowest bid for a project but fail to provide an anti-apartheid certifi\xc2\xad\ncate. According to the provisions of Local Law 19, a non-complying bidder is\nawarded the contract unless a complying bidder is within five percent of the\nlow bid. Moreover, New York City emphasizes that even when there is less\nthan a five percent differential between a complying and non-complying bid\xc2\xad\nder, the Board of Estimate must still vote by a two-thirds majority to award the\ncontract to the complying bidder rather than the non-complying bidder. The\nshort answer to this argument is that \xc2\xa7 112 requires that the contracts be\nawarded through a process of competitive bidding, not simply that contracts be\nawarded by a process that may lead to the award of the contract to the lowest\nbidder. This distinction is important, because the knowledge that a contract will\nbe awarded through a strict process of competitive bidding in itself contributes\nto the cost-effective use of federal funds by encouraging the submission of bids\nby contractors who might not otherwise participate. Conversely, a contractor\xe2\x80\x99s\nknowledge that he may submit the low bid and yet not win the contract would\ndeter him from entering the bidding process and incurring bid preparation\ncosts.15 Only a process which strictly adheres to the competitive bidding\nrequirement comports with Congress\xe2\x80\x99 overriding objective of cost-effective\xc2\xad\n14 W e do n o t read 28 C .F .R . \xc2\xa7 635 108 a s a decision by the Secretary through regulation to shoulder the\nburden o f p ro o f on the issue o f cost-effectiveness. Section 635.108 provides:\nN o procedure o r requirement for prequalification o r licensing o f contractors w ill be approved\nw hich, in the ju d g m en t o f the Federal Highway A dm inistration, may operate to restrict com peti\xc2\xad\ntion, to prevent subm ission of a bid b y , o r to prohibit the consideration of a bid submitted by, any\nresp o n sib le co n tracto r whether re sid en t or nonresident o f the state w herein the work is to be\nperform ed.\n(E m phasis added.)\nB ecause th e adm inistrator must still disapprove the procedure if the procedure may restrict com petition\n(i.e., has the potential to restrict com petition), the burden o f showing that the procedure does not restrict\nc om petition still rests w ith th e locality.\n15 The co n tracto r w ho does not sign th e anti-apartheid certificate know s that in the event o f a com plying bid\nthat is w ith in five percent o f his bid, he w ill have to persuade the B oard o f Estimate to award the contract to\nhim , n o tw ithstanding h is refusal to com ply. The rational bidder w ould therefore revise his price to reflect the\ncosts asso ciated w ith lob b y in g the Board o f Estim ate on this issue. Thus, even if the contract is aw arded to the\nn on -com plying bidder, it is reasonable to expect that h is bid would be higher than it would be w ithout the\napplicatio n o f L ocal Law 19.\n\n106\n\n\x0cness by maximizing the number of contractors who will bid for the contract and\nincreasing the likelihood that the contract will be let for the lowest possible\nprice.16\nSince the provisions of Local Law 19 conflict with the requirement of\ncompetitive bidding contained in \xc2\xa7 112(b), it is clear that 23 U.S.C. \xc2\xa7 112(d)\nrequires the Secretary to withhold approval for contracts let subject to the\nprovisions of Local Law 19.\nFor the foregoing reasons, we believe that the Secretary of Transportation is\nobligated to withhold federal funds under the Federal Aid Highway Act for the\npayment of contracts whose award is subject to the procurement provisions of\nLocal Law 19.\nC h a r l e s J. C o o p e r\nAssistant Attorney General\nOffice of Legal Counsel\n\n16 New York C ity \xe2\x80\x99s argum ent that the Secretary o f Transportation may not disapprove contracts awarded\nunder Local Law 19 until New York City actually w ithholds a contract from a low bidder under that ordinance\nm erits a sim ilar response. The Secretary is obligated to act when New York C ity 's procurement procedures\ndepart from the process o f com petitive bidding required by federal law, rather than when New York City\ndeclines to accept a low bid.\n\n107\n\n\x0c"