Opinion ID: 1369349
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Heading Rank: 3

Heading: States may discriminate constitutionally on the basis of residency when acting in a sovereign or proprietary capacity.

Text: The Washington statute applies only to those with whom the state or local government contracts to build a public work. By definition, money raised from residents finances the project. The State is, therefore, acting in a proprietary capacity when discriminating against nonresidents under RCW 39.16. The mutually reinforcing relationship between the privileges and immunities clause and the commerce clause stems from their common origin in the fourth article of the Articles of Confederation and their shared vision of federalism. Baldwin v. Fish & Game Comm'n, 436 U.S. 371, 379, 56 L.Ed.2d 354, 98 S.Ct. 1852 (1978). This unique relationship renders analogy to recent commerce clause proprietary cases particularly appropriate. The United States Supreme Court recently found permissible under the commerce clause a state policy which limited the sale of a state-owned resource to state residents. Reeves, Inc. v. Stake, 447 U.S. 429, 65 L.Ed.2d 244, 100 S.Ct. 2271 (1980). At stake in Reeves was the distribution policy of a cement plant owned and operated by the State of South Dakota. During a period of cement shortage, the State refused to supply cement to out-of-state customers. A Wyoming customer alleged that South Dakota's residents-only policy violated the commerce clause. Placing its support of the residents-only policy squarely on the rights of South Dakota when acting as a proprietor, the Supreme Court found no constitutional deficiency. Following the earlier case of Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 49 L.Ed.2d 220, 96 S.Ct. 2488 (1976), the Court found that the commerce clause did not restrict a state when acting as a proprietor from favoring its own citizens over others. As a general rule, states, when acting as market participants or as proprietors, were not engaged in the kind of action with which the Commerce Clause is concerned. Hughes, at 805. Reeves was grounded on three identifiable principles. First, states in their proprietary capacity should be free to set the terms of their own contracts. [W]hen acting as proprietors, States should similarly [to private market participants] share existing freedoms from federal constraints, including the inherent limits of the Commerce Clause. (Italics mine.) Reeves, at 439. See also Reeves, at 438 n. 10 (States may fairly claim some measure of a sovereign interest in retaining freedom to decide how, with whom, and for whose benefit to deal). Second, the favoring of residents comports with the very purpose of a state. The Wyoming customer had argued that the residents-only policy was protectionist and not an appropriate government objective. The Court disagreed, emphasizing the right of a state to limit state benefits to those it serves and by which it is funded. Third, the Court was influenced by considerations of state sovereignty and its related role as `guardian and trustee for its people. Reeves, at 438. Earlier authority held that Congress could not interfere with certain employment relations with state workers affecting integral state operations in areas of traditional governmental functions. Reeves, at 438 n. 10, quoting National League of Cities v. Usery, 426 U.S. 833, 852, 49 L.Ed.2d 245, 96 S.Ct. 2465 (1976) (Congress under the commerce clause could not apply Fair Labor Standards Act to state governments). Even when public welfare laws were regularly stricken, the Supreme Court allowed states to place beneficial labor conditions on public works contracts. Atkin v. Kansas, 191 U.S. 207, 48 L.Ed. 148, 24 S.Ct. 124 (1903). The Atkin Court could not imagine a possible ground limiting the right of a state to set 8-hour workdays on public works projects. The Court concluded this right belongs to the State, as the guardian and trustee for its people, and having control of its affairs, to prescribe the conditions upon which it will permit public work to be done on its behalf, or on behalf of its municipalities. Atkin, at 222-23. See also Equitable Shipyards, Inc. v. State, 93 Wn.2d 465, 611 P.2d 396 (1980), quoting Perkins v. Lukens Steel Co., 310 U.S. 113, 127, 84 L.Ed. 1108, 60 S.Ct. 869 (1940). Under the same theory, states may require state printing to be done by in-state companies. American Yearbook Co. v. Askew, 339 F. Supp. 719, 721-22 (M.D. Fla.), aff'd, 409 U.S. 904, 34 L.Ed.2d 168, 93 S.Ct. 230 (1972). In 1980, this court upheld the constitutionality of a statute granting a bidding preference to in-state companies for ferry construction contracts. Equitable Shipyards, Inc. v. State, supra . The statute was challenged only under the equal protection clause. However, the court found that the purpose of the state preference passed constitutional muster in part because construction of ferries within the state strengthens state and local economies. Equitable, at 479. We stated at pages 476-78: We have held the federal equal protection clause and the state privileges and immunities clause (Const. art. 1, § 12) are substantially identical. Olsen v. Delmore, 48 Wn.2d 545, 295 P.2d 324 (1956). While the State objects to considering the equal protection claim as not raised by Equitable in the trial court, we believe the issue should be addressed. In other contexts, the United States Supreme Court has stated that government, like private individuals and businesses, enjoys the unrestricted power to produce its own supplies, to determine those with whom it will deal, and to fix the terms and conditions upon which it will make needed purchases. Perkins v. Lukens Steel Co., 310 U.S. 113, 127, 84 L.Ed. 1108, 60 S.Ct. 869 (1940). See also Heim v. McCall, 239 U.S. 175, 191, 60 L.Ed. 206, 36 S.Ct. 78 (1915). The State asserts that equal protection guaranties are not applicable when the state acts in its proprietary capacity as a purchaser of goods. Relying on Heim, other state courts have upheld statutory in-state purchasing preferences against both equal protection and commerce clause challenges. See, e.g., City and County of Denver v. Bossie, 83 Colo. 329, 266 P. 214 (1928) (the state may buy of whom it will); State ex rel. Collins v. Senatobia Blank Book & Stationery Co., 115 Miss. 254, 76 So. 258 (1917) (rejecting equal protection challenge to a statute prohibiting state contracting with nonresident bidders). ... In this case, we need not go so far as to hold that because a contract is public and requires expenditure of public funds the legislature may, without reasonable basis, grant a preference. Here, as later discussed, a reasonable basis exists for the preference sufficient to withstand constitutional attack. ... We conclude the preference statute is most closely allied with economic legislation requiring only rational basis scrutiny. From reading Equitable it is clear that, without the 6 percent preference, the contract undoubtedly would have been awarded to Equitable. However, by its decision, the court, in effect, held that it was a legitimate state purpose to favor in-state corporations and contractors. All three principles relied upon by Reeves and other courts recognize the unique constitutional status of states when they distribute state benefits rather than regular private activity. Each principle respects states, as members of a federal form of government, where states practice primary state purposes. The Washington statute is justified by these doctrines. The privileges and immunities clause guarantees to nonresidents those rights of residents which properly belong to everyone. As Baldwin summarized, rights uniquely linked to residency such as suffrage, candidacy, and access to state services are not rights to which the privileges and immunities clause is directed. Distinctions favoring residents in these cases merely reflect the fact that this is a Nation composed of individual States, and are permitted. Baldwin, at 383.