Regulation of Professions by Interstate Compact

By Joseph Zimmerman

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The regulation of various professions by the individual states has resulted in nonharmonious licensing standards, impeding individuals licensed by one state from practicing in sister states. This problem has become more serious in the practice of public accountancy because of the increased need for accountants to travel to many states to serve clients with multistate locations. More recently, however, federal legislation has raised issues regarding professional standards rather than licensing issues. When Congress enacted the Sarbanes-Oxley Act of 2002, it created the Public Company Accounting Oversight Board, granting it federal authority to establish auditing standards for public companies. Questions subsequently have arisen about commensurate authority for auditing standards for private entities.

Harmonious state regulatory standards for the accounting profession may be established on a regional or national basis by five nonjudicial methods. Each state legislature may enact (1) a reciprocity statute providing that a professional licensed by a sister state with identical standards automatically will be licensed; (2) the Uniform Accountancy Act drafted by the National Conference of Commissioners on Uniform State Laws; (3) a statute authorizing the head of a concerned state regulatory body to sign an interstate administrative reciprocity agreement with counterparts in other states; (4) an interstate compact; or (5) a federal-state compact. Congress, of course, may enact a complete or partial preemption statute based upon its constitutional power to regulate commerce among the several states. These same methods could also achieve uniform auditing standards, but the first two would be at a disadvantage because they would require such standards to be separately legislated, whereas the other methods could create a nonlegislative mechanism (in the form of a commission with the authority to promulgate regulations) to make them. This article focuses on interstate compacts and federal-state compacts because they offer advantages in dealing with both the licensing and the standards problem.

Interstate Compacts

Article I, section 10 of the United States Constitution grants states the authority to enter into an “agreement or compact with another state” with the consent of Congress. The constitution contains no restrictions on the subject matter of a compact and is silent about the process by which states may enter into compacts, with the exception of the required consent of Congress. The United States Supreme Court (359 U.S. 275 at 285) opined in 1959 that an interstate compact is a “contract” protected by the Constitution’s contract clause forbidding a state legislature to enact a “law impairing the obligation of contracts.” A compact may involve parts or all of two states or all 50 states, as well as the Commonwealth of Puerto Rico, the District of Columbia, United States territories, and Canadian provinces. As examples, the Interstate Compact on Juveniles has been enacted by all 50 state legislatures, and the Interstate Compact on Education has been enacted by 48 state legislatures, the District of Columbia City Council, and the legislatures in three territories. Many other compacts have been enacted by a smaller number of states, and a significant number of compacts have been enacted by only a single state legislature.

The Negotiation and Ratification Process

The process of enacting a compact involves three steps: negotiators reaching an agreement on a tentative compact; enactment of the compact by concerned state legislatures; and congressional grant of consent if the compact is political in nature (see below). Political obstacles typically arise during each step, even for relatively simple compacts established or proposed in the past, and may become an insurmountable obstacle.

Compact negotiations. Gubernatorially appointed members representing their state on joint commissions negotiated and drafted all interstate compacts until 1930. The advantages of this method include the prestige of the commission, staff assistance, and the ability to continue negotiations over a substantial period of time. This method has been supplemented with other approaches, as illustrated by the proposed Interstate Insurance Product Regulation Compact, which was drafted by the National Association of Insurance Commissioners (NAIC), and the Nurse Licensure Compact, which was drafted by the National Council of State Boards of Nursing.

Commissioners critically examine each draft compact provision and seek to include only provisions perceived to be acceptable to their respective state legislatures. Individual negotiators may raise major administrative, financial, substantive, and technical issues that must be resolved. Unanimity must be reached on each issue, often an extremely difficult task, before the compact can be submitted to each concerned state legislature.

A negotiated compact proposing creation of only a study commission charged with developing recommendations to solve a specific problem or of a commission financed entirely by user fees generally involves a limited financial commitment by each compacting state and may not encounter serious legislative opposition. One or more legislative leaders in each state, however, may inform negotiators that the compact will not be enacted unless it is amended to authorize specified forms of gubernatorial or legislative oversight. Fears that political checks on the activities of the proposed compact commission could impair its functioning provide additional impetus for prolonged negotiations. In addition, governors may instruct negotiators to ensure that their states’ political interests are safeguarded.

Not surprisingly, state legislators may redebate many of the issues addressed by compact negotiators. If the latter fail to keep in close contact with legislative leaders or the governor, the legislature may reject the compact bill or the governor may veto it. Negotiators also may be instructed to renegotiate certain contentious compact provisions.

The establishment of a compact also may be delayed or complicated by political concerns. The process of obtaining the approval of each state legislature can be lengthy because each statute must be identical to statutes enacted by the other states. There are many examples of prolonged delays prior to the enactment of an interstate compact by all concerned state legislatures. Five years were required to secure the necessary enactments for the Atlantic States Marine Fisheries Compact, which became effective in 1942. The Illinois, Indiana, Michigan, Minnesota, and Wisconsin state legislatures enacted the Great Lakes Basin Compact in 1955, but enactment was delayed in Pennsylvania (1956), New York (1960), and Ohio (1963).

Compact implementation also may be delayed or prevented if one or more of the concerned states make participation contingent upon specified other states enacting the compact, as illustrated by the Ohio River Valley Sanitation Compact. The party state legislatures or the compact also can make its execution conditional upon Congress initiating specific actions. Furthermore, a compact may not be self-executing and a governor may decide not to execute it. The 1936 New York State Legislature enacted a non-self-executing compact—the Interstate Compact for the Supervision of Parolees—and it was not executed for eight years because of the refusal of Governor Herbert H. Lehman to execute it.

Congressional Consent

Congressional consent is not required for all compacts. In 1845, the New Hampshire Supreme Court (17 N.H. 200) rejected the argument that an 1819 New Hampshire statute and an 1821 Maine statute authorizing construction of a bridge over navigable waters (the Piscataqua River) without congressional consent violated the compact clause of the U.S. Constitution. The court opined that no constitutional provision precluded each of the two states from authorizing the erection of a bridge to the middle of the river.

In 1893, the U.S. Supreme Court, in Virginia v. Tennessee (148 U.S. 503 at 520), specifically held such consent is required only for a compact tending to increase “the political power or influence” of the party states and to encroach “upon the full and free exercise of federal authority.” An interstate compact regulating accounting clearly would not be a political compact requiring the consent of Congress for execution.

The United States Steel Corporation challenged the constitutionality of the Multistate Tax Compact on the ground that it lacked congressional consent. In 1978, the Supreme Court (434 U.S. 452 at 473) upheld the compact’s constitutionality by declaring it did not “authorize the member states to exercise any powers they could not exercise in its absence.”

Consent types. Most compacts are submitted to Congress for its grant of consent, but a small number of compacts have been executed without such submittal and grant of consent. Congress can grant its consent prior to (permissive) and subsequent to (ratifying) enactment of a compact by the concerned state legislatures. In addition, Congress is free to grant consent-in-advance for each compact entered into by states or blanket approval in advance for all compacts relating to a specific subject.

The Supreme Court, in 1823’s Green v. Biddle (21 U.S. 1), noted the U.S. Constitution places no limitations on the duration of consent, and consent statutes typically do not contain a sunset clause. Chief Justice Charles Evans Hughes opined in 1937 (302 U.S. 134 at 148) that Congress may impose conditions in granting its consent. In granting consent, Congress typically reserves the right to “alter, amend, or repeal” its consent to a compact and always reserves its authority over navigable waters.

President Franklin D. Roosevelt in 1939 vetoed a bill granting consent-in-advance to states to enter into compacts relating to Atlantic Ocean fishing on the ground that their provisions were too general. Two years later, he disallowed the Republican River Compact, but in 1943 he signed a bill granting the consent of Congress to a modified compact (57 Stat. 86).

Congressional consent effects. Does congressional consent convert an interstate compact into federal law? The Supreme Court has changed its answer to this question. The Court opined in 1938 (304 U.S. 92) that such consent does not make a compact the equivalent of a U.S. treaty or statute. In 1940, however, the Court (310 U.S. 92) held that an interstate compact approved by Congress involving a federal question is subject to the Court’s review.

In 1981, the Court (449 U.S. 433) issued a momentous decision opining that congressional consent makes a compact federal law in addition to state law. U.S. courts since 1874 (87 U.S. 590) had been required to apply the interpretation of a concerned state law by the highest court in the state. The reversal of this precedent allowed the court to interpret the concerned Pennsylvania statute and disregard its interpretation by the Pennsylvania Supreme Court. The U.S. Court of Appeals for the District of Columbia Circuit in 1997 opined: “While the Compact [Washington Area Metropolitan Transit Compact] may be treated as a federal law, it does not follow that the Commission is a federal agency government by the Administrative Procedure Act.” (129 F.3d 201 at 204)

Is a public authority created by an interstate compact with congressional consent cloaked with immunity from suit in federal court by the Eleventh Amendment to the U.S. Constitution? The Supreme Court (513 U.S. 30) in 1994 answered this question in the negative, explaining that the Port Authority Trans-Hudson Corporation is a self-financing entity and that subjecting it to suit in the U.S. District Court does not place a burden upon either the New Jersey or the New York treasury.

The proposed Interstate Insurance Product Regulation Compact would establish a commission funded entirely by fees paid by insurance companies when filing products and apparently would not be cloaked with Eleventh Amendment immunity from suit. Nevertheless, it is improbable the commission would be sued, because its functions would be limited to the establishment of regulatory standards and
the acceptance of filings by insurance companies.

Are federal statutes containing inconsistent provisions invalidated by the grant of congressional consent to an interstate compact? Courts would probably hold that such consent repeals conflicting federal statutes. What effect would a new congressional statute with conflicting provisions have on an interstate compact previously granted consent by Congress? The conflicting provisions in the consent would be repealed, with the exception of any vested rights protected by the Fifth Amendment to the U.S. Constitution.

The grant of consent suggests that Congress may enforce compact provisions, but enforcement in practice usually is left to courts. The validity of a compact may be challenged in state or U.S. court. Similarly, an individual or a state may bring suit to enforce the provisions of a compact. The Eleventh Amendment forbids a U.S. court to consider a suit in law or equity against a state brought by a citizen of a sister state or a foreign nation. A citizen, however, can challenge a compact or its execution in a state or U.S. court against an individual or in a proceeding to prevent a public officer from enforcing a compact. A suit brought in a state court could be removed to the U.S. District Court under provisions of the Removal of Causes Act of 1920 (41 Stat. 554) on the ground that the state court “might conceivably be interested in the outcome of the case.”

States party to an interstate compact have occasionally filed an original suit in the Supreme Court seeking an interpretation of one or more compact provisions. For example, Kansas filed a suit against Colorado in an attempt to resolve disputes pertaining to the Arkansas River Compact. In 1955, the Court (514 U.S. 669) ruled unanimously in favor of Colorado. Kansas continued its disagreement with Colorado by filing another original suit against Colorado. The Supreme Court (533 U.S. 1) in 2001 rejected Colorado’s contention that a special master’s recommendation of a damages award for Colorado’s violation of the compact was barred by the Eleventh Amendment on the grounds that the damages were losses suffered by individual Kansas farmers.

Amendment and Termination

Proposed compact amendments are subject to all the procedural requirements required for the original enactment of the compact, including enactment by each state legislature, approval of each governor, and consent of Congress and approval of the president if the original compact received such approvals.

The U.S. Constitution (Article I, section 10) delegates authority to Congress to revise state statutes levying import and export duties, but does not delegate similar authority to Congress to revise interstate compacts. Congress, nevertheless, withdrew its consent to a Kentucky-Pennsylvania Interstate Compact stipulating the Ohio River would be kept free of obstructions. The Supreme Court in Pennsylvania v. Wheeling and Belmont Bridge Company (50 U.S. 647) opined in 1855 that the statute was constitutional under the supremacy of the laws clause of Article VI and that approval of a compact by Congress does not restrict its power to regulate the compact. A similar opinion was rendered by the court in 1917 in Louisville Bridge Company v. United States (242 U.S. 409). It held that Congress may amend a compact in the absence of a compact provision specifically reserving to Congress authority to alter, amend, or repeal the compact. It is apparent that a congressional statute terminating a compact is not subject to the U.S. Constitution’s Fifth Amendment’s due process of law guarantee, because this protection is extended only to persons.

Can an interstate compact be terminated? Yes, with the exception of interstate boundary compacts. Other types of compacts typically contain a termination provision. The Colorado River Compact, for example, allows termination only by unanimous agreement of the member states. Several compacts stipulate that a state desiring to terminate the compact must provide advance notice, typically 60 days, before the effective date of its withdrawal.

The Florida State Legislature on several occasions withdrew from and subsequently rejoined the Atlantic States Marine Fisheries Compact; in 1995, the Virginia General Assembly enacted a statute withdrawing from the compact on the ground that fishing quotas for Virginia were too low. The Maryland General Assembly withdrew from the Interstate Bus Motor Fuel Tax Compact in 1967 and the National Guard Mutual Assistance Compact in 1981.

There is no provision in international law for citizens of a nation signatory to a treaty to be involved in its termination. The U.S. Supreme Court in 1838 applied this principle in Georgetown v. Alexander Canal Company (37 U.S. 91 at 95–96) by opining that citizens whose rights would be affected adversely by a compact are not parties to a compact and hence are not involved directly in terminating a compact.

Types of Compacts

Interstate compacts can be classified as bilateral, multilateral, sectional, and national. Twenty-five specific types of compacts, administered by a compact-established commission or by departments and agencies of member states, have been enacted, each dealing with a different issue (see the Exhibit).

Economic interest groups seeking to discourage congressional exercise of its preemption powers are primarily responsible for the establishment of regulatory compacts. These groups argue that a compact obviates the need for national government regulation since formal interstate action has solved a major problem.

The number of new regulatory interstate compacts has declined since 1965, attributable to Congress exercising more frequently its powers of preemption to remove regulatory authority completely or partially from the states. New York Governor Nelson A. Rockefeller promoted the Mid-Atlantic States Air Pollution Control Compact, which was entered into by Connecticut, New Jersey, and New York in the mid-1960s. Congress did not grant its consent to the compact and followed President Lyndon B. Johnson’s advice to enact the Air Quality Act of 1967 (81 Stat. 485) preempting state responsibility for air pollution abatement. In 2001, Congress failed to act upon a bill extending congressional consent for the Northeast Dairy Compact.

Regulatory Compact Experience

Regulatory compacts may be administered by a commission or by departments and agencies of party states.

Compact commissions. Each interstate compact declares that its commission is a body corporate and politic, and an instrumentality of the compacting states. The Potomac River Fisheries Compact is regulatory, traceable in origin to a 1785 compact between Maryland and Virginia which created a commission to regulate “all species of finfish, crabs, oysters, clams, and other shellfish,” issue licenses, and impose fees. This compact appears to be successful.

A unusual 1953 bistate compact, consented to by Congress (67 Stat. 541), established the two-member Waterfront Commission of New York Harbor, which achieved its goals of eliminating organized crime and corruption within a short period of time. This compact is the only one granting a commission the power of taxation; its budget requests submitted to each governor became effective unless either the New Jersey or the New York governor vetoed or reduced an item within 30 days.

Six state legislatures enacted the Ohio River Valley Water Sanitation Compact, which received congressional consent (54 Stat. 752) in 1940 but did not become effective until 1948 because of delays in its enactment by other concerned state legislatures. The compact’s drafters assumed the commission would appeal to the courts to enforce its regulations, but there has been no need for judicial enforcement. This compact is credited with converting one of the most polluted rivers in the country into one of the cleanest.

The Interstate Environmental Compact (formerly the Interstate Sanitation Compact) was enacted by the New Jersey State Legislature and the New York State Legislature, granted congressional consent (49 Stat. 932) in 1935, and enacted by the Connecticut General Assembly in 1941. The unique feature of this regulatory compact is its inclusion of specific water-quality standards for two classes of water. The compact commission during its early decades concentrated on the construction and improvement of wastewater treatment facilities, and achieved major successes.

Compacts without commissions. Member state departments and agencies administer 34 interstate compacts, including many service provision ones. Two motor vehicle compacts are in effect regulatory. The Driver License Compact requires each of 45 party states to report each conviction of a driver from another party state for a motor vehicle violation to the home state licensing authority. The compact directs the home state to treat the reported violation as if it occurred in that state. The licensing authorities of party states are required to determine whether an applicant for a driver’s license has held or currently holds a driver’s license issued by another party state. A savings clause authorizes a party state to apply any of its other statutes relating to a driver’s license and stipulates that the compact does not affect any driver’s license cooperative agreement between a party state and a nonparty state.

Forty-four state legislatures enacted the Nonresident Violator Compact, which seeks to ensure that nonresident drivers answer appearance tickets or summons for moving violations. The New York State Legislature did not enact the compact, but did authorize the Commissioner of Motor Vehicles to execute the compact. The Nonresident Violator Compact, like the Driver License Compact, requires each member state to report each conviction for a motor vehicle violation to the home state licensing authority. The purpose of this compact is to ensure that nonresident motorists are treated in the same manner as resident motorists and that their due-process-of-law rights are protected. Drivers failing to respond to an appearance ticket or summons will have their license suspended by the issuing state. Both compacts have been successful.

Federal-State Compacts

A new type of compact—the federal-interstate compact—became effective in 1961 when four state legislatures—Delaware, New Jersey, New York, and Pennsylvania—and Congress enacted the Delaware River Basin Compact, establishing a commission with broad water allocation powers subject to a provision that the commission may not alter a 1954 U.S. Supreme Court water allocation decree without the consent of the party states. An identically worded Susquehanna River Basin Compact became effective in 1971 upon enactment by Congress. Both compacts are considered to be successful in achieving their respective goals. Congress subsequently enacted the Alabama-Coosa-Tallapoosa River Basin Compact and the Apalachicola-Chattahoochee-Flint River Basin Compact.

Analysis

With one exception, compacts entered into under the U.S. Constitution until 1900 dealt with the establishment of boundary lines. The 1921 Port of New York Authority Compact was the first to create a commission, and within a relatively short period of time it universally was recognized as a successful compact. Subsequent experience with compacts reveals that they possess great potential as a mechanism for facilitating regional and national cooperation by states seeking to achieve a wide variety of goals.

A regulatory compact can be national in scope, but the prospects of persuading every state legislature to enact a draft compact are not good, based upon experience to date. Greater success might be achieved by the enactment of several regional interstate regulatory compacts on a given subject tailored to the particular needs of each region, with the possibility that future negotiations might lead to a merger of two or more regional compacts.

Should the promoters of a regulatory compact seek to persuade all state legislatures to enact the compact, an opt-out procedure, such as found in Article VII, section 4 of the Insurance Product Regulation Compact (drafted by the NAIC), will facilitate its enactment. The cost of such an opt-out procedure, however, may be considerably less regulatory uniformity, thereby increasing the threat of congressional enactment of a statute preempting state authority over part or all of the regulatory field, including the authority of an interstate compact commission.

The flexibility of a regulatory compact will be enhanced if it grants the administering commission relatively broad discretionary authority to adopt and revise bylaws, thereby avoiding the need to amend the compact and the attendant need to obtain all necessary approvals, legislative and gubernatorial, for each amendment.

Unnecessary controversies can be avoided by including in a regulatory compact sunshine provisions and a requirement that the commission, in promulgating rules and regulations, must follow the procedures contained in the Model State Administrative Procedures Act, drafted by the National Conference of Commissioners on Uniform State Laws, or by directing the commission to include in its bylaws similar administrative procedures.

In conclusion, the process of negotiating compacts to resolve complex issues is typically very time-consuming and on a number of occasions has not been successful. Prospects for enactment of a regulatory compact also will decrease should a statewide elected official, particularly the attorney general, object to a draft compact.


Joseph Zimmerman, PhD, is a professor of political science at Rockefeller College, State University of New York at Albany.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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