Bargaining with the State
The Doctrine of Unconstitutional Conditions Can Rein in State Power
AUGUST 01, 1994 by JONATHAN H. ADLER
Filed Under : Free Markets, U.S. Constitution
In Takings: Private Property and the Power of Eminent Domain (Harvard University Press, 1985), University of Chicago law professor Richard Epstein challenged the constitutional legitimacy of nearly every federal government action since 1937. He could scarcely do it again: “Once the New Deal has been declared unconstitutional (as only an academic can do), it is hard to do it a second time.” Therefore, with his newest book he has moved to a more limited but intricately related project to ensure “that useful projects go forward in a sensible fashion.” Where Takings focused on constitutional limits to the power of government to regulate and “take” private property without giving compensation, Bargaining with the State assesses the lesser known doctrine of unconstitutional conditions which limits the government’s power to “give.”
This doctrine holds that the state should not be permitted to condition the conferring of benefits “upon the individual waiver of constitutional rights.” To protect freedom of speech, government must restrain privileging certain forms of speech, through subsidies and the like, just as it must refrain from censorship. As Epstein notes, “The power to contract and to grant, when lodged in the hands of government, may well prove to be as dangerous as the power to take and to regulate.” For instance, by controlling access to highways and selectively granting incorporation privileges the state can wield an inordinate amount of influence over the lives of individuals. Because of the potential for abuse, this doctrine “is the necessary counterweight to the federal government’s exercise of monopoly power.” When state power is increased through a Byzantine array of tax codes and regulatory strictures, the dangers posed by its improper use increase exponentially. If the size of the state itself cannot be controlled, the doctrine of unconstitutional conditions can at least rein in its destructive power. Epstein describes this approach as “a ‘second-best’ approach to controlling government discretion.”
To illustrate the doctrine of unconstitutional conditions, consider the recent Supreme Court case Nollan v. California Coastal Commission. The Nollans owned beachfront property in Ventura County, California, upon which they wished to build a home. The California Coastal Commission, however, refused to issue a building permit unless the Nollans were willing to allow public access to a path along their property. The Nollans rightfully objected, claiming that the only grounds for attaching such a condition to a construction permit would be if the state could prove that the proposed house “would have a direct adverse impact on public access to the [public] beach.”
In his majority opinion, Justice Antonin Scalia ruled that if the California Coastal Commission (CCC) needed land for a public pathway, it could use the power of eminent domain to take a portion of the Nollans’ property and compensate them for their loss. However, the CCC was in no way entitled to hold hostage the Nollans’ right to build a house on their own land to achieve its objective. Scalia ruled that “unless the permit condition serves the same governmental purpose as the development ban, the building restriction is not a valid regulation of land use but ‘an out-and-out plan of extortion.’” The Court ruled that the only means that the CCC could use to obtain the desired path was to pay the Nollans for it. Only then would the CCC be abiding by the Fifth Amendment dictum “nor shall private property be taken for public use without just compensation.”
The Nollan decision was not nearly as sweeping as one might like, but it illustrates the general principles behind the doctrine of unconstitutional conditions. The court did not challenge the state’s power to regulate land-use decisions, but it did proscribe how the state could exercise that power. This doctrine holds that even if the state is granted a particular power, that does not imbue the state with unlimited discretion in how that power is used. If the state is empowered to build and manage roads, for example, there are still limits to what conditions the state can impose on those who use the roads. Reasonable limitations might include prohibitions against drunk driving, speed limits, and include generic guidelines, such as driving on the right side of the road. However, the state is in no position to condition access to a “public” road on anything that does not promote the state’s interest in maintaining a usable road. Constitutional conditions require some “nexus” between the benefit provided or right protected and the condition imposed. “Some ‘related’ conditions may be improper,” writes Epstein, “but the nexus requirement weeds out many ‘unrelated’ conditions that are manifestly improper.”
Even when the state owns, manages, or doles out a good, service, or privilege, it cannot act as would a private owner in attaching strings to various operations. This is because “unlike a private monopolist, its power cannot be eroded by the entry of new firms, but is perpetuated by a legal prohibition against entry by new rivals.” As in the Nollan case, if the state is the only entity empowered to issue building permits, landowners cannot take their business elsewhere, so to speak, if the state attaches unreasonable conditions to the permit. If such permitting powers are to exist (hardly a forgone conclusion) the doctrine of unconstitutional conditions is necessary to limit their use.
While the argument put forward in Bargaining is highly persuasive, some may be uncomfortable with its reliance on utilitarian analysis. Epstein wants to carve out as much space for the competitive marketplace as is possible in today’s constrained political climate. His justification is that infringing upon the market “leads to suboptimal social results.” In his view, “The goal of constitutional law should be to maximize overall surplus by the maintenance of competitive markets.” Epstein’s conclusion is sound, though some may question how he got there.
Nonetheless, Richard Epstein has provided us with another immensely important work. Epstein’s thought is a refreshing departure from the mainstream of legal thought that preaches an extension of state power at the expense of the individual. Voices such as his should be heard more often. 
Jonathan H. Adler is Associate Director of Environmental Studies at the Competitive Enterprise Institute in Washington, D.C.