New Mexico Supreme Court Adopts New Separation-of-Powers Approach to Disbursing Federal Funds

When the federal government provides funding to a state — such as Covid-19 relief money — which branch of government gets to decide how to spend those funds?

In New Mexico, the governor and the legislature recently clashed over this very question. In State ex rel. Candelaria v. Grisham, the state supreme court sided with the legislature, crafting a new approach to resolving separation-of-powers disputes over the control of federal funds awarded to the state. The approach is similar to that used in Colorado, Oklahoma, and Massachusetts.

The New Mexico case concerned $1.75 billion allocated to the state in the American Rescue Plan Act of 2021 (ARPA). These federal funds were intended to help states respond to the pandemic and its economic impacts on households and businesses, assist essential workers, continue public services amid falling tax revenue, and invest in infrastructure. The New Mexico legislature sought to spend the funds through a general appropriations bill. Gov. Michelle Lujan Grisham vetoed the portions of the bill related to ARPA money, asserting that the executive branch, not the legislature, had the authority to control the administration of federal funds. The governor went on to spend approximately $600 million of the money without legislative approval.

In response to the governor’s veto and spending, two state senators filed an original petition with New Mexico’s highest court seeking to restrain the governor from spending any additional ARPA funds. Under New Mexico’s constitution and case law, a lawsuit seeking to stop allegedly unlawful acts by a state officer may be filed directly with the high court if it involves a question of “great public importance” in need of quick resolution. In this case, the senators argued that the governor’s expenditures violated a state constitutional provision holding that public money “shall be paid out of the treasury only upon appropriations made by the legislature.” Then-State Treasurer Tim Eichenberg also was named in the petition as an interested party because of his role, as an elected manager of the state’s accounts, in any disbursement of the disputed funds. Although a member of the executive branch, he sided with the senators in favor of legislative appropriation.

In answering the petition, Grisham urged the supreme court to adopt a bright-line rule that federal funds are always excluded from the legislature’s appropriation power. She relied primarily on State ex rel. Sego v. Kirkpatrick, a 1974 decision in which the New Mexico Supreme Court held that federal money granted to state universities was excluded from legislative appropriation. That case turned on a state constitutional provision giving the boards of regents authority to manage higher educational institutions. But the governor argued that Sego was not limited to the education context. Rather, she said, it created a broader categorical rule that the executive branch — not the legislative branch — has authority over federal funds. In support of her argument, she pointed out that the Sego court had approvingly quoted a contemporaneous holding by the Colorado Supreme Court that “federal contributions are not the subject of the appropriative power of the legislature.” (But, as explained below, Colorado has since changed its approach.)

Policy reasons also supported a rule vesting the governor with sole authority to distribute federal funds, she argued. Legislative control over funds raised through state taxes may be preferable, she said, so that New Mexicans, through their state representatives, have a say in how their state tax dollars are spent. But that concern did not apply to federal funds, which are raised and allocated by Congress. She also argued that the executive was in the best position to administer federal funds expeditiously, in part because the state’s legislature could only work during its short sessions and may reach impasse, while she was elected to exercise “supreme executive power” year-round.

In November 2021, the court rejected the governor’s arguments without explanation. But it was not until last month that the court set out the basis for its decision. In its opinion, the court adopted a case-by-case approach to determining whether federal money should be administered by the governor or appropriated by the legislature. In each situation, it depends on the amount of discretion left to the state by the federal government. Where the federal government allocated the funds with a clear pre-established purpose, the governor should control them. By contrast, if federal funds are “provided with a broad or discretionary purpose such that they can be put to a variety of uses” the legislature must exercise its “constitutional prerogative to assess ‘how, when, and for what purpose’” the funds will be spent. The amount of discretion left to the state in allocating any given funds should be determined based on the totality of the circumstances.

Considering the text of the American Rescue Plan Act and its implementing regulations, the court concluded that the scheme left “significant discretion” to the states. Ultimately, the court found, “the number of eligible uses contained within ARPA is simply too broad to allow the executive to administer or execute the funds without infringing on the Legislature’s constitutional duty to appropriate.”

The court drew on decisions by the high courts of other states looking to the nature and purpose of the particular federal funds at issue to resolve similar separation-of-powers disputes, including Colorado, Oklahoma, and Massachusetts. The high courts in Colorado, in a subsequent decision to the one cited by Sego, and Oklahoma have distinguished between custodial funds — designated by the federal government to be used in a particular way and so subject to executive control — and noncustodial funds — bestowed with broader flexibility and so, like general state funds, subject to legislative appropriation. Similarly, the Massachusetts high court has directed that when federal funds are conditioned on use for specific objectives, the money “is impressed with a trust” that places it outside legislative control.

Although Grisham’s holding related to American Rescue Plan Act funds, it is likely this case-by-case framework will be extended to decide which branch controls the large amounts of other federal funds made available to New Mexico. For example, the decision could also apply to funds distributed to the state to improve roads, bridges, broadband and other infrastructure as part of New Mexico’s $3.8 billion share of the Bipartisan Infrastructure Law. State Sen. Gregory Baca, one of the petitioners, characterized the opinion as having broad implications, predicting that it will “serve as a guidepost for the limited bounds of executive power.”

As local press on the opinion has noted, the drawback of a totality-of-the-circumstances inquiry is a lack of predictability in future disputes. Although the court did not directly address the governor’s concern about facilitating the “timely and effective” administration of federal money, the fact that the courts in Colorado, Oklahoma, and Massachusetts have not reconsidered similar approaches is a sign that their governors and legislators have not found these approaches to be impracticable. It remains to be seen whether New Mexico’s governor and legislature will be able to make case-by-case determinations about future federal awards in an expeditious way, or whether they will regularly seek court intervention, potentially delaying the transfer of federal funds to the people of New Mexico.

Sarah Kessler is an attorney and a contributing writer for State Court Report.