State & Local News Vol. 21, No. 1, Fall 1997 Washington's Labyrinthine Ways By tto J. Hetzel Otto J. Hetzel is a professor of law emeritus at Wayne State University and practices law in Washington, D.C. Budget Agreement and Tax Reduction Legislation Signed Allowing President and Congress to Go on Vacation in August. On July 30 Congress and the President finally agreed to detailed provisions for both budget and tax bills. While the economy may produce a balanced budget by 2002, further steps are likely to be needed to keep it in balance after that date given the potential for some of the items to start to generate significant tax reductions in the longer run. But, heck, let those who will be around after that worry about it then. As Representative Gephardt commented in voting against it, "[t]his agreement sacrifices tomorrow's hopes for today's headlines." Several matters, however, are likely to be challenged in the coming sessions by Republicans, including whether persons moving from welfare to work under state programs should be paid the minimum wage. Democrats are likely to continue to try to reverse some of the hardships caused by the welfare revisions above and beyond the funds restored for certain benefits for legal immigrants. President Exercise Line Item Veto Power, Providing Basis for Judicial Review of His Authority. Shortly on the heels of signing the tax and budget legislation, following the Supreme Court's 7 2 decision in Raines v. Byrd, refusing to hear a challenge as premature to legislation giving the President power to veto specific items in appropriations and tax legislation, the President obliged by exercising his power. The Court had rejected review at this time on grounds of lack of standing of legislators for an "institutional injury" and on undertaking review prior to exercise of the veto. Thus, the President, with an eye toward future litigation, set up a constitutional challenge by vetoing two special tax provisions and an appropriation item in the budget agreement within five days after he signed them. The three vetoed items total roughly $600 million over five years; the two tax provisions would have had a limited effect, on less than 100 taxpayers, a requirement for exercising the power on tax measures. The items he selected were not those normally characterized as pork-barrel spending, although tax measures can have that effect as well. Nor were the provisions necessarily without merit. In one, estimated at $98 million in tax relief, taxes on sale of sugar beet processing plants by a private corporation to a farmer's cooperative would have deferred taxes on both parties. The other tax provision, involving $317 million, would have allowed a small number of bank, securities, and insurance companies to avoid current taxes on their overseas operations by using overseas tax havens, while other companies could take advantage of the tax relief for two more years. The latter was vetoed because it would have permitted major tax loopholes for these specific companies. The former was rejected because it did not adequately provide that deferred taxes would eventually be paid and it was not targeted on small and medium sized cooperatives. The vetoed spending measure, involving $200 million, would have shielded the State of New York from the effects of a Health and Human Services Department ruling that it improperly included in the state's share of Medicaid payments (reimbursable from the federal government) state taxes it imposed on some hospitals. This gave New York higher Medicaid payments than would otherwise occur. The veto justification was that the item's application was limited to New York and that it would have allowed continued use of provider taxes to finance the Medicaid program. Proponents of these specific measures may attempt to override his vetoes because the selected items had been subject to bipartisan negotiations. That is likely to be a difficult task, but it is clear that Senator Byrd will again support a challenge to the concept in federal court. Line item veto avoidance strategies are also being crafted to prevent future vetoes. Of course, any provision can be exempted by inserting "not withstanding any other provision of law" language. In the case of taxes, an item veto can be evaded by ensuring that more than 100 persons are affected, such as benefitting shareholders directly rather than the firm, or by pairing multiple tax breaks, one for a few and the other for a larger number of beneficiaries. Spending measures can be protected by including them in provisions favored by the President, since an entire provision must be vetoed and cannot simply be reduced in part. In large part the existence of the power is likely to be more influential than its exercise and provides yet another bargaining chip in the continuing legislative-executive policy battles, even unrelated to taxes or expenditures. Lifetime Legislative Term Limits Challenged in California and Michigan. A federal district court struck down California's lifetime term limits for state legislators as insufficiently narrow to survive federal constitutional review under the First and Fourteenth Amendments. Similar grounds have been raised in Michigan. A state constitutional disqualification is at issue in the two cases. Each of the challenged provisions would prevent a person from running for that office after completing three terms in the state house or two terms in the state senate. In California the disqualification has been imposed for several years while the litigation has been proceeding. Argued in August to the Ninth Circuit, the court's decision should issue shortly. In Michigan, the challenge has been brought before the effects of the law are felt next spring when candidates mus qualify for primary elections. Twenty-one states have adopted term limits but only seven have been in the form of a lifetime disqualification. Others limit consecutive service but permit running for that office after a break. State provisions are subject to First Amendment review in regards to rights of voters. While candidate rights are obviously affected, the constitutional injury is to voters' rights to vote for a candidate of their choice. Given the decision last term in Raines v. Byrd on congressional standing to sue over the item-veto legislation, despite congressional authorization to members to sue, only the voters may have standing. The cases raise the issue of rotation versus experience as the basis for selection of legislators. Greater reliance on legislative staff and input from lobbyists seems likely under term limits. The legislative branch would also be inadequately prepared to challenge successfully executive branch initiatives. In August, Massachusetts' highest court invalidated its legislatively enacted term limits on state constitutional grounds. On Another Front, Several States Challenge Loss of Federal Welfare Funding for Immigrants. Florida and New York City, among others, have challenged denial of federal benefits to legal immigrants, alleging a violation of equal protection in federal legislation targeting legal immigrants for loss of Supplemental Security Income, food stamps, and other benefits as part of last election year's welfare legislation. Florida claimed the federal action improperly imposed economic burdens on it to maintain current benefits to noncitizens who are legal residents, estimating that the state would ultimately have to come up with $1 billion to replace the benefits taken from the immigrants. Those that are otherwise eligible to receive SSI benefits must be indigent, elderly, or the disabled, who cannot work. Over 72 percent who will lose benefits under SSI are over sixty-four. A portion of those affected would be protected under the new budget agreement adopted by Congress and signed by the President. In New York's case, the federal district court ruled that despite the fact legal immigrants served in the military and paid taxes, Congress could make distinctions based on immigrant status to deny generally available benefits. The court supported one city argument, however, ordering the federal government not to withhold benefits to 10,000 elderly and disabled noncitizens who reside in New York, Connecticut, and Vermont who were entitled to monies prior to the bill's signing by the President. The court acknowledged the burden on New York to replacements could be substantial. Budget Agreement Restores Some Immigrant Benefits. To what extent the litigation over loss of welfare benefits will continue is unclear given the budget agreement's provision to restore funds to some legal immigrants who would otherwise have lost disability and Medicaid benefits. SSI benefits are restored to those receiving them this last August, but not to those who may become disabled in the future. Medicaid would also be made available to from 20,000 to 30,000 children who would otherwise have lost those benefits. Welfare Rolls Decline. All states managed to comply with welfare changes required under the federal July 1 deadline. Probably assisted by the economy's continuing robust status and low unemployment rates, welfare rolls have decreased 1.2 million since the enactment of welfare reform, by 3.1 million since January 1993. Only roughly 11 million, or 4 percent of the population, receive public assistance, the lowest since 1970. HUD's Budget Still Being Worked Out Along with Final Senate Substantive Legislation Affecting HUD Programs. The budget agreement provided for funds for extension of section 8 subsidies requested by Secretary Cuomo and for provision of more empowerment zones. Final appropriations measures await conference committee resolution. The legislation that would make significant changes in HUD programs is still pending in the Senate at press time. The House passed its version earlier. Current predictions now suggest that it has only a 50 percent potential for enactment at this time. Many states, however, will not meet the more critical October 1 deadline to obtain thirty-five hours of employment per week for 75 percent of two-parent families, thus potentially triggering federal penalties of up to 5 percent of total annual federal welfare payments. HUD to Cut 3,000 from Work Force by 2002. These reductions will further reduce HUD's work force to 7,500 from 13,500 employees in 1993. Subjected to strong criticism, especially in Congress, for its operations over the last two decades, Secretary Cuomo has started to significantly reorganize HUD's operations with substantial additional delegation of responsibility to the field along with a long overdue consolidation of operations by function, rather than by each program office. Under restructuring plans he issued, HUD field offices will be augmented and its Washington, D.C., staff will be reduced and many sent to the field. Public-Private Partnership of Additional $97 million to Go to Nonprofit Community Development Corporations. Substituting private funds as government housing program funds are reduced, new funding commitments bring a ten-year pledge to about $250 million for funding housing and business ventures by community organizations, all but $10 million from private sources such as Prudential Insurance, Chase Manhattan Bank, and the Rockefeller Foundation. Federal Government Announces War on Misuse of Federal Housing Funds. HUD Secretary Andrew Cuomo and Attorney General Janet Reno join in a "Get Tough" partnership to prosecute landlords who abuse federal funds provided to such programs as the section 8 rental assistance. One focus will be on landlord failures to properly maintain units, thus creating intolerable living conditions, while continuing to pocket federal funds provided to supplement tenant rent payments. Foreclosure and repossession, restrictions through legislation on landlord bankruptcies, stiffer civil penalties, and increases in criminal prosecutions are to be part of the HUD-DOJ initiative. As part of the reinventing government movement, outside contractors will be hired by HUD under a requested $50 million program to investigate and prepare cases for prosecution, using a cadre of 100 federal employees to be specially trained in enforcement activities. New York City is to be the proposed site of an enforcement office under proposed HUD restructuring plans to investigate misuse of funds. Congressional Campaign Funding Hearings Continue, But Have Not Established a Major Scandal to Date. While Congress continues to avoid real changes in campaign funding laws, Republicans in the Senate hearings appear to be savoring each new revelation as their hearings on campaign funding abuses resumed after the August break. Of primary note has been where Vice President Gore's fundraising efforts took place, whether at a Buddhist temple or in his office, as the basis for establishing Democratic improprieties. Flirting with allegations of an Asian connection that attempted to influence U.S. policy, including Chinese contributions, the hearings do not yet seem to have made a significant blip on radar screens outside the Washington Beltway. Attorney General Reno's decision to trigger the first steps in activating independent counsels, both as to the President and Vice President, could result in creating longer term investigations after 120 days. First Reports Received on Impact of Federal Act Making Federal Security Fraud Cases Ineligible for Class Action Treatment. Litigation involving security fraud is still alive and well despite a bill enacted over President Clinton's veto making security fraud more difficult to establish and preventing class action treatment of such claims. Congress for the first time overrode the President's veto on heavily lobbied legislation reducing exposure for firms accused in securities fraud cases. The President announced his opposition only at the last minute and, thus, many Democrats in Congress had already announced their support and did not change. He opposed provisions that make it extremely difficult to establish a violation since plaintiffs in these cases have to allege facts at the time of filing sufficient to demonstrate a clear intent to defraud, a stiffer test than even under Federal Rule of Civil Procedure 9's requirements for pleading fraud. The measure appeared to benefit from pubic discontent with large verdicts that paid lawyers rather than class plaintiffs and allegations of frivolous lawsuits being brought. The latter is now more than adequately covered under Federal Rule 11, but the new Act reverses recent amendments to that rule, and again requires judges to impose mandatory sanctions in security fraud lawsuits. The measure was strongly supported by accountants, who have been exposed to extremely high damage claims and settlements as a result of charges their audits of the savings and loan industry were inadequate, and by the high technology companies, who have encountered damage claims based on failure to achieve promised results. The law will make it more difficult to sue accountants for "aiding and abetting" security law violations, the source of substantial judgments against some accounting firms. The basis for damages is also more limited. Since state law was not directly affected, however, a study of claims since the law came into force found that most claims Congress intended to discourage were simply filed in state courts, including as class actions. Where there is fodder for attorneys, they will still find a way. What did decrease were claims against companies making inflated estimates of profits to support stock values. Newly proposed federal legislation would attempt to apply the restrictions to state actions as well. Talk about federal mandates! Federal Interest in Municipal Youth Curfews. Showing that nothing is beyond federal notice, particularly at election time, the President endorsed youth curfews late last year as a means to reduce crime and urged local governments throughout the country to consider night curfews to combat juvenile delinquency. Curfews need to be carefully drafted to survive legal challenge, therefore, Attorney General Reno is distributing guidelines to mayors along with information about their effectiveness in a number of cities where they have been enacted. A Justice Department survey has determined that 73 percent of the largest 200 cities have adopted some form of youth curfew. Curfews that include fines for parents whose children are caught in violation of a curfew have survived challenge. In New Orleans, where the President made his initial announcement, youths under seventeen must be off the street by 8 p.m. on weekdays during the school year, 9 p.m. in the summer, and by 11 p.m. on weekends. New Orleans Mayor Marc Morial cites a 27 percent reduction in youth crime during the curfew's first year of operation. Reflecting the difficulties involved in narrowly drafting a provision that can pass federal muster the Ninth Circuit Court of Appeals struck down this summer San Diego's curfew that it found violated freedom of expression and parents' "fundamental right to rear children without undue interference." The 1947 curfew made it a crime for those under eighteen to "loiter, idle, wander, stroll or play" after 10 p.m. in a public place. How to Get Votes, New Style. Calling his colleagues "linguistically . . . out of touch with the American people," Congressman Frank Luntz, a drafter of last session's "Contract With America" of the House Republicans, has produced a 222-page treatise for Republican lawmakers to help them market themselves more effectively. Among his suggestions in "The Language of the 21st Century" are: be more friendly; talk in seven second sound bites; attack Washington bureaucrats; abolish the National Endowment for the Arts; and, stop calling Newt Gingrich by his first name. Acknowledging the President's success in relating to the electorate on environmental, education, and women's issues, he calls for and provides examples of language to counter Democratic positions. He urges Republicans to attract minorities, noting that Hispanic voters will be critical in large states such as California, Texas, Florida, and New York. To reach them, he suggests members support issues positively impacting on Puerto Rico. To counter the President on education, he recommends Republicans include four key phrases when responding on this issue: "safe, parental involvement, child-centered, and equality." He also notes family values can be better presented using phrases including the words: "values, morality, spirituality and faith in God." To respond to the gender gap reflecting low support by women, he suggests empathizing with over-worked women who must "bring home the bacon and fry it up in a pan." Will these phrases really have an effect on voters? Check it out in 1998! Your correspondent