GOVERNMENT AS PROPRIETOR

Constitutional litigants in disparate contexts have sought to characterize particular government acts as proprietary, rather than sovereign, in order to substitute for the constitutional standards otherwise applicable to government something like those applicable to private proprietors. Government at any level—local, state, or federal—not only may regulate and tax (the most coercive and quintessentially sovereign exercises of power), but may borrow, spend, buy or sell goods and services, build and operate offices or mass transit, manage property of many kinds, and employ workers. Our constitutional regime sharply differentiates between government and private spheres. When government acts in capacities that resemble the proprietary activities of private owners, managers, and employers, suggestions of modified constitutional analysis may be inevitable. Sometimes the litigant who suggests such a modification seeks to enlarge government power by skirting the constitutional limitations that normally bind federal or state sovereigns, but not private proprietors, in their treatment of individuals; the courts have grappled with this problem through the state action doctrine. Sometimes the objective is to dislodge sovereign immunity in its various forms and render government accountable to individuals or to subject it to regulation and taxation by superior sovereigns, just as other individuals are. As a double-edged sword that can cut down either constitutional obligation or constitutional immunity, the proprietary analogy is potentially a formidable and versatile tool.

This analogy's checkered past includes adoption, and later rejection, in some constitutional contexts and continuing influence in various forms in others. Courts that reject the government-proprietor distinction make two main arguments: first, it is impossible to draw a sensible line between government's proprietary and sovereign activities, and second, there is questionable legitimacy in drawing such a line in order to discount the value of using proprietary means to accomplish democratically chosen ends. The government-proprietor distinction's frequent recurrence and continued influence rests, in the strongest version, on the superficial appeal of the private analogy or, in a weaker version, on factors sometimes associated with the difference between proprietary and regulatory conduct. Proprietary activity sometimes may implicate other constitutional values to a lesser degree than does more "sovereign" activity: it may interfere less with individual freedom or other values such as interstate harmony; it may provide additional legitimate justifications for governmental policy; or, by analogy to the lesser constitutional protection afforded private commercial speech and activity than is afforded political speech and activity, sovereign immunity may be deemed less important for government's proprietary than for its "sovereign" behavior. But the proprietary designation is often too inexact a shorthand for these relevant elements of constitutional analysis. Furthermore, as a determinative or even very strong factor, the proprietary designation too readily slights other important considerations that sometimes should temper or overwhelm it. The designation's mixed success is partially attributable to the fact that it is far too broad and insensitive a constitutional measure and partially to the fact that stronger principles often obviate any value it might otherwise have.

Other drawbacks further limit the utility of treating government as if it were a private business. The government as proprietor may be analogous to a private proprietor, but it differs in its motivations and responsibilities. It is still government, subject to political as well as commercial or proprietary influences and to constitutional restraints inapplicable to private actors.

Imprecise and multiple meanings also limit the usefulness of the proprietary designation. Acting as an owner may differ from one kind of property to another and may differ from acting as a business, a consumer, or an employer. Not only are there varying kinds and gradations of proprietary activity, but the line between regulatory or other sovereign activity and proprietary activity is often blurred. The difference between management policy with respect to government property, business, or employees and regulation of the citizenry at large is a matter of degree, not kind.

Perhaps most fundamentally, in each kind of constitutional controversy, claims of proprietary prerogative or liability encounter varying responses depending on the perceived nature and strength of the countervailing constitutional values. According to public forum analysis, people free to speak at home may be prevented from speaking at will in government offices—an example of a proprietary justification for limiting the locations of freedom of speech—yet may not be prevented from speaking in parks or on street corners. Proprietary prerogatives of government thus may affect first amendment free speech analysis with respect to some but not all publicly owned property. Nor may a government business discriminate on an invidious basis, such as by race or political viewpoint, any more than it may so discriminate in a tax or regulatory capacity. These antidiscrimination restrictions on government behavior are so strong that they may apply fully whether government behaves in a sovereign or proprietary capacity.

The idea of government as proprietor thus has not worked as a categorical concept of overarching importance. It must be understood by reference to the particular kind of proprietary activity involved, the reasons why that activity is thought relevant to solving the specific constitutional controversy, the nature and strength of the constitutional values with which the activity competes, and the practical consequences of the concept. A survey of relevant constitutional controversies reveals this complexity. The controversies include intergovernmental claims by municipalities that their proprietary acts, just like those of private parties, are constitutionally protected from state interference; claims by states of constitutional immunity from control by Congress or the federal courts; state claims of freedom to prefer their own citizens over residents of other states with respect to proprietary policies; and claims by government at all levels that the constitutional rights of individuals may be more circumscribed on government property than on private property. Each set of controversies has its own story.

The simplest story is the unsuccessful attempt of local government to carve out a proprietary-rights exception from the principle that each state's power over its political subdivisions generally is unrestricted by the federal Constitution. The Supreme Court easily rejected municipal claims that constitutional provisions like those prohibiting impairment of the obligations of contracts or the taking of property without just compensation should limit state interference, not only with private contracts and property, but with city contracts and property used in the city's proprietary activities. Even with respect to contract and property rights that the state had originally granted to a private business, that the business then assigned to a city, the Court refused in City of Trenton v. New Jersey (1923) to adopt a proprietor-sovereign distinction that would impose on the states constitutional obligations toward the "proprietary" acts of their constituent governments. Originally a judge-made distinction designed to circumvent the sovereign immunity doctrine of common law and hold municipalities liable for tortious injuries caused by their proprietary conduct, the proprietor-sovereign distinction lacked a principled basis or definable content and would not be transferred to this area of constitutional law.

The proprietary notion had already been adopted in disputes about the extent of Congress's power to tax state activities, however, though it was ultimately rejected for some of the same reasons in this very different context. Congress expanded its tax programs at the turn of the century just as state trading activity increased. The Supreme Court, in cases like South Carolina v. United States (1905), sustained federal taxes on state-sold liquor and other commodities by holding that the constitutional doctrine of intergovernmental tax immunity, which otherwise prohibited federal taxation of state operations, did not extend to state proprietary operations. This proprietary exception was designed to preserve common federal-revenue sources and, possibly, in this area of strong constitutional protection for private enterprise (lochner v. new york also was decided in 1905), to equalize the competitive positions of state and private business. But by 1947, in New York v. United States, the Court, in sustaining a federal tax on state-bottled water, adopted new standards that were more generous to congressional authority and expressly rejected "limitations upon the taxing power of Congress derived from such untenable criteria as "proprietary' against "governmental' activities of the States."

Congress's power to regulate, rather than tax, state operations has followed a different story line. Even if some form of state tax immunity might be important to preserve, United States v. California (1936) established for forty years that, when Congress exercised a plenary regulatory power like the power to regulate interstate commerce, there was no need to distinguish between sovereign and proprietary operations because both were subject to federal regulation. Federal safety, price control, and labor regulations could be applied to state operations because, as the Court said in Maryland v. Wirtz (1968), "the Federal Government, when acting within a delegated power, may override countervailing state interests whether these be described as "governmental' or "proprietary."

The overruling of the Wirtz decision, by a 5–4 vote, in national league of cities v. usery (1976) did backtrack and protect certain state operations from federal regulatory as well as taxing power. Ostensibly, the boundary was not drawn according to whether a state operation was governmental or proprietary, but by whether it was an "integral" or "traditional" government function. However, this formulation led to distinguishing between impermissible federal labor regulation of state police and fire-department employees and permissible labor regulation of the employees of state-owned railroads. The state as employer would sometimes be immune, but not with respect to employees providing services like those the private sector traditionally provided.

The Usery case was soon itself overruled, however, by the 5–4 decision in garcia v. san antonio metropolitan transit authority (1985), which held that, at least with respect to congressional regulation—if not possibly taxation—the states must rely on their political influence in Congress, not on judicial enforcement of the Constitution, for protection against burdensome congressional interference with state operations. By withdrawing from the task of defining any core of state sovereignty, the Garcia decision again obviated the need to draw a government-proprietor or similar distinction. The Court had now concluded that such distinctions were not only "unworkable in practice," but "unsound in principle" because they wrongly devalued an important principle of federalism—each state's lawful and democratically selected means of carrying out its legitimate policy objectives should be equally respected, however unconventional the choice of means might be.

The complete rejection of the proprietor-sovereign distinction in virtually all hierarchical intergovernmental disputes—whether invoked by municipalities claiming more constitutional protection from state control for proprietary than for governmental activities or by states conversely claiming more constitutional immunity from Congress for governmental than for proprietary activities—so far has not been replicated outside the constitutional clashes between superior and subordinate levels of government. Yet, doctrinal turbulence and perennial dissatisfaction with reliance on proprietary notions remain.

The tale of changing Supreme Court responses to state policies that give preference to their residents in the distribution of "proprietary" commercial benefits is a major example. To further political and economic union, the privileges and immunities clause of Article IV, Section 2, generally prohibits each state from discriminating against citizens of other states, and the dormant commerce clause prohibits state discrimination against interstate business. However, each state's primary obligation to serve its own residents necessitates some resident preference. Various proprietary concepts have been employed to mediate the Constitution's interstateequality demands and its conflicting recognition of state sovereignty.

Under the privileges and immunities clause, no state, absent substantial justification, may limit nonresident access to private-sector commercial opportunities more severely than it limits resident access. Beginning in the nineteenth century, however, the Court permitted resident preference regarding commercial exploitation of state-owned natural resources. The Court concluded that government property owners, like private owners, generally may be selective in sharing what they own with whom they wish. This proprietary escape hatch from the regulatory nondiscrimination rule was criticized as "a fiction," but not fully abandoned, in toomer v. witsell (1948), just a year after the decision in New York v. United States had discarded the proprietor-sovereign distinction as a standard for demarcating the line between federal taxing authority and state tax immunity. Toomer rejected South Carolina's attempt to justify charging nonresidents 100 times more than it charged its own residents for a license to shrimp in state coastal waters; the Court called the state's claim to "own" the shrimp and the sea extravagant. Since then, even true state resource ownership does not render the privileges and immunities clause wholly inapplicable. Although ownership is "often the crucial factor" in evaluating the constitutionality of discriminatory resource distribution, the Court in hicklin v. orbeck (1978) limited resident preference to the state's direct proprietary dealings and disallowed conditional policies requiring those in the immediate proprietary relationship to prefer residents in "downstream" relationships.

The proprietary idea followed a similar but not identical course in dormant-commerce-clause jurisprudence. At the end of the nineteenth century, the Court carved a generous proprietary exception from the usual rule that a state may not prevent the shipment of local goods to other states. In Geer v. Connecticut (1896), for example, it allowed a complete ban of shipping game birds out of state; the Court applied the fictitious theory that the state owned the wildlife within its borders and thus could control its disposition, even after the birds lawfully had been reduced to private possession. Geer was eventually overruled a year after Hicklin in Hughes v. Oklahoma (1979), which applied the same dormant-commerce-clause standards applicable to regulation of private goods to the regulation of wildlife. At a minimum, Hughes limited the proprietary justification to instances of actual, not pretended, state ownership.

Moving in the other direction, several decisions in the last two decades have allowed states to discriminate against interstate commerce on the basis of a different kind of proprietary prerogative—that of the state acting as a commercial buyer or seller, rather than just as owner of property. Whether favoring in-state suppliers for government purchases, as in Hughes v. Alexandria Scrap Corp. (1976), or preferring in-state customers when demand for state-manufactured goods exceeds supply, as in Reeves v. Stake (1980), states have been exempted from the normal dormant-commerce-clause antidiscrimination limits when acting as "market participants" rather than as regulators of private buyers or sellers in the interstate market. The Court's position articulated in United Building and Construction Trades Council v. Mayor and Council of the City of Camden (1984) is that the grant to Congress of the power to regulate interstate commerce serves only as an "implied restraint upon state regulatory powers." Thus, the nonregulatory activities of the states are not subject to dormant-commerce-clause scrutiny—a rationale that assumes a ready distinction between state regulatory and proprietary activity. Even so, the Court sought to limit the state-as-trader exception in two ways. First, as with proprietary prerogatives under the privileges and immunities clause, the market-participant doctrine allows local favoritism only in the state's dealings with its direct trading partners and disallows requiring those partners to favor residents in their independent economic relationships with others. Second, the Court in the Camden case held that discriminatory state market participation, which is free from dormant-commerce-clause restraints, is not wholly exempt from privileges-and-immunities-clause analysis. The latter provision directly restrains state action in the interests of interstate harmony, whether regulatory or not. Both these attempts to confine the damage that might be done by a wholesale lifting of interstate equality obligations for state proprietary activity are familiar symptoms of the beguiling but dubious use of proprietary justifications.

Several elements in the history of proprietary adjustments to interstate equality doctrine also appear in the history of proprietary adjustments to free-speech doctrine. The general question is whether government has power to deny the right to communicate on public property what freely may be communicated on private property. In the late nineteenth century era, when the Supreme Court forcefully protected private property from government intrusion and state property from nonresident demands of equal access, the excessive attribution of plenary control to property ownership prevailed. In Davis v. Massachusetts (1897) the Court affirmed a ruling by oliver wendell holmes, jr. , then a state judge, that "[f]or the legislature absolutely or conditionally to forbid public speaking in a highway or public park is no more an infringement of rights of a member of the public than for the owner of a private house to forbid it in the house." By the late 1930s, however, as the Court found constitutional room for extensive government regulation of private property, it also found government's proprietary claims insufficient to justify complete denial of public communication in streets and parks. The power associated with property, governmental or private, would not categorically overwhelm other important considerations.

Neither was ownership always irrelevant. What ensued, with frequent division within the Court, was the development of public-forum doctrine, which sometimes distinguishes among different kinds of public property to determine what rights of access private speakers may enjoy. The core First Amendment principle that government may not discriminate against viewpoints it dislikes is so strong that it applies to all public property. Moreover, quintessential public forums like streets and parks cannot be completely closed to speech, even though banning all access would be viewpoint neutral. Yet, the Court remains excessively influenced by proprietary prerogatives. Rather than directly weighing the particular property-management interests of government against the First Amendment importance of speaker access to the particular public location, the Court has permitted government to deny access altogether—at least when the denial is not viewpoint selective—to other forms of public property, ranging from prison grounds to schools to offices to military bases, even where the speech would not interfere with the property's intended purpose. In the leading case of perry education association v. perry local educators association (1983) the Court said, "The existence of a right of access to public property and the standard by which limitations upon such a right must be evaluated differ depending on the character of the property at issue." In that and other cases where access claims have been denied, the Court has hearkened back to Justice hugo l. black's statement for the majority in the jail-grounds case of adderley v. florida (1966): "The State, no less than a private owner of property, has power to preserve the property under its control for the use to which it is lawfully dedicated." The Court's deference to government's proprietary prerogatives thus depends not on property ownership alone, but at least formally, on distinctions among different kinds of public property.

If the fact of ownership is sometimes still weighed too heavily in public-forum doctrine generally, that weight may be even more excessive when, as with the market-participant exception to dormant-commerce-clause doctrine, government property is used in a commercial setting. Normally, if the government, with respect to public property that could be closed to all, voluntarily makes it available for speech on some subjects, it cannot deny access to speakers on other subjects. In Lehman v. Shaker Heights (1974), however, the Court allowed a city that sold space on its buses for commercial and public-service advertising to refuse to sell space for political and public-issue advertising. Putting aside First Amendment norms of equal treatment of subject matter in the "voluntary" public forum, four Justices emphasized that the city was "engaged in commerce" and acting "in a proprietary capacity."

Some deference to government's proprietary powers in managing its property, its business dealings, or its public employees is undoubtedly appropriate, at least so long as those powers are not exercised for invidiously selective reasons. The Court's opinion in rutan v. republican party of illinois (1990) is a recent example of the limits of such deference; Rutan invalidated government personnel decisions based on political patronage over the dissent of three Justices, who complained that government should be less restricted as employer than as lawmaker. The extent to which proprietary interests permit regulation that otherwise would violate the individual rights of the general populace should, and sometimes (if not often enough) does, depend on additional considerations, such as the importance of the competing constitutional right and its claim to affirmative public support, including the availability of alternative opportunities to exercise that right and the degree to which government monopolizes those opportunities. These considerations surely support the Court's willingness to override proprietary prerogatives in favor of free speech in the streets, parks, and other traditional areas of popular assembly. (Although the recent 5–4 decision in United States v. Kokinda upheld a postal regulation barring solicitation on postal property as applied to soliciting political contributions on a sidewalk separating a post office from its parking lot, only four Justices relied on proprietary justifications for the exclusion; even they agreed that the "Government, even when acting in its proprietary capacity, does not enjoy absolute freedom from First Amendment constraints, as does a private business.") Having safeguarded these public locales, perhaps the Court is more comfortable in approving limits on access rights in others.

In determining whether government has left too little room for individual liberty, however, the proprietary idea is too indirect and blunt an instrument, just as it is too imprecise a measure in determining whether state autonomy should be protected against congressional regulation and in determining whether a state's preferences for its own residents will threaten interstate harmony. The government-proprietor distinction's complete rejection in some spheres and its resilience and mutations in others counsel us to acknowledge its intuitive appeal, but to beware excessive reliance on its seductive power.

Jonathan D. Varat
(1992)

Bibliography

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