White v. Massachusetts Council of Construction Employers, Inc.

Justice Rehnquist

delivered the opinion of the Court.

In 1979 the Mayor of Boston, Mass., issued an executive order1 which required that all construction projects funded *206 in whole or in part by city funds, or funds which the city had the authority to administer, should be performed by a work force consisting of at least half bona fide residents of Boston.2 The Supreme Judicial Court of Massachusetts decided that the order was unconstitutional, observing that the Commerce Clause “presents a clear obstacle to the city’s order.” 384 Mass. 466, 479, 426 N. E. 2d 346, 354 (1981). We granted certiorari to decide whether the Commerce Clause of the United States Constitution, Art. I, §8, cl. 3, prevents the city from giving effect to the Mayor’s order. 455 U. S. 919 (1982). We now conclude that it does not and reverse.

We were first asked in Hughes v. Alexandria Scrap Corp., 426 U. S. 794 (1976), to decide whether state and local governments are restrained by the Commerce Clause when they seek to effect commercial transactions not as “regulators” but as “market participants.” In that case, the Maryland Legislature, in an attempt to encourage the recycling of abandoned automobiles, offered a bounty for every Maryland-titled automobile converted into scrap if the scrap processor supplied documentation of ownership. An amendment to the Maryland statute imposed more exacting documentation requirements on out-of-state than in-state processors, and out-of-state processors in turn demanded more exacting documentation from those who sold the junked automobiles for scrap. As a result, it became easier for those in possession of the automobiles to sell to in-state processors. “The practical effect was substantially the same as if Maryland had withdrawn altogether the availability of bounties on hulks delivered by unlicensed suppliers to licensed non-Maryland processors.” Id., at 803, n. 13. In upholding the Maryland *207 statute in the face of a Commerce Clause challenge, we said that “[njothing in the purposes animating the Commerce Clause prohibits a State, in the absence of congressional action, from participating in the market and exercising the right to favor its own citizens over others.” Id., at 810 (footnotes omitted). Because Maryland was participating in the market, rather than acting as a market regulator, we concluded that the Commerce Clause was not “intended to require independent justification,” id., at 809, for the statutory bounty.

We faced the question again in Reeves, Inc. v. Stake, 447 U. S. 429 (1980), when confronted with a South Dakota policy to confine the sale of cement by a state-operated cement plant to residents of South Dakota. We underscored the holding of Hughes v. Alexandria Scrap Corp., saying:

“The basic distinction drawn in Alexandria Scrap between States as market participants and States as market regulators makes good sense and sound law. As that case explains, the Commerce Clause responds principally to state taxes and regulatory measures impeding free private trade in the national marketplace. [Citation omitted.] There is no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market.” 447 U. S., at 436-437.3

*208 We concluded that South Dakota, “as a seller of cement, unquestionably fits the ‘market participant’ label” and applied the “general rule of Alexandria Scrap.” Id., at 440.

Alexandria Scrap and Reeves, therefore, stand for the proposition that when a state or local government enters the market as a participant it is not subject to the restraints of the Commerce Clause. As we said in Reeves, in this kind of case there is “a single inquiry: whether the challenged ‘program constituted direct state participation in the market.’” 447 U. S., at 436, n. 7. We reaffirm that principle now.

The Supreme Judicial Court of Massachusetts concluded that the city of Boston is not participating in the market in the sense described in Alexandria Scrap Corp. and Reeves because the order applies where the city is acting in a nonpro-prietary capacity, has a significant impact on interstate commerce, is more sweeping than necessary to achieve its objectives, and applies to funds the city receives from federal grants. 384 Mass., at 479-480, 425 N. E. 2d, at 354-355. For the same reasons the court found that the city is not a market participant, it concluded that the executive order violated the substantive restraints of the Commerce Clause.4 Ibid.

II

Petitioners and respondents both, to a greater or lesser extent, seek to have us decide questions not presented by the record in this case. In support of the Massachusetts court’s finding that the city is acting in a nonproprietary capacity, respondents urge that much of the construction subject to the Mayor’s order involved nonpublic projects that were financed largely through private funds. While the Mayor’s order by *209 its terms would appear to apply to such construction, there is simply nothing in the record before us to support the conclusion that city funds were used for these types of construction projects. Respondents, had they wished to raise this question, were obligated to offer some evidence that city funds and private funds were used jointly to finance construction of some of the projects which were in fact subjected to the provisions of the Mayor’s order; nothing in the record supports such a conclusion.5 The only issues before us, then, are the propriety of applying the Mayor’s executive order to projects funded wholly with city funds and projects funded in part with federal funds. We address first the application of the order to city-funded projects.

The Supreme Judicial Court of Massachusetts expressed reservations as to the application of the “market participation” principle to the city here, reasoning that “the implementation of the mayor’s order, will have a significant impact on those firms which engage in specialized areas of construction and employ permanent works crews composed of out-of-State residents.” 384 Mass., at 479, 425 N. E. 2d, at 354. Even if this conclusion is factually correct,6 it is not relevant *210 to the inquiry of whether the city is participating in the marketplace when it provides city funds for building construction. If the city is a market participant, then the Commerce Clause establishes no barrier to conditions such as these which the city demands for its participation. Impact on out-of-state residents figures in the equation only after it is decided that the city is regulating the market rather than participating in it, for only in the former case need it be determined whether any burden on interstate commerce is permitted by the Commerce Clause.

The same may be said of the Massachusetts court’s finding that the executive order sweeps too broadly, creating more burden than is necessary to accomplish its stated objectives. Id., at 480, 425 N. E. 2d, at 355. While relevant if the Commerce Clause imposes restraints on the city’s activity, this characterization is of no help in deciding whether those restraints apply. The Massachusetts court relied in part on our decision in Hicklin v. Orbeck, 437 U. S. 518 (1978), saying that “as in Hicklin, supra, there is a broadly drawn statute which sweeps far wider than merely favoring unemployed or underemployed local residents.” 384 Mass., at 480, 425 N. E. 2d, at 355.

In Hicklin we considered an Alaska statute which required employment in all work connected with oil and gas leases to which the State was a party to be offered first to “qualified” Alaska residents in preference to nonresidents. The State sought to justify the “Alaska Hire” law on the ground that *211 the underlying oil and gas were owned by the State itself. Analyzing the case under the Privileges and Immunities Clause of Art. IV, § 2, we held that mere ownership of a natural resource did not in all circumstances render a state regulation such as the “Alaska Hire” law immune from attack under that Clause. We summarized our view of the Alaska statute in these words:

“In sum, the Act is an attempt to force virtually all businesses that benefit in some way from the economic ripple effect of Alaska’s decision to develop its oil and gas resources to bias their employment practices in favor of the State’s residents.” 437 U. S., at 531. .

Even though respondents no longer press the Privileges and Immunities Clause holding of Hicklin in support of their Commerce Clause argument, we note that on the record before us the application of the Mayor’s executive order to contracts involving only city funds does not represent the sort of “attempt to force virtually all businesses that benefit in some way from the economic ripple effect” of the city’s decision to enter into contracts for construction projects “to bias their employment practices in favor of the [city’s] residents.”7

*212 The Supreme Judicial Court of Massachusetts also observed that “a significant percentage of the funds affected by the order are received from Federal sources.” 384 Mass., at 479, 425 N. E. 2d, at 354. The record does indicate that of approximately $54 million expended on projects affected by the Mayor’s executive order, some $34 million represented projects being funded in part through UDAG’s.8 While the record assigns specific dollar amounts only for UDAG’s, the parties also have stipulated that the executive order applies to Community Development Block Grants (CDBG’s) and Economic Development Administration Grants (EDAG’s).9

*213 But all of this proves too much. The Commerce Clause is a grant of authority to Congress, and not a restriction on the authority of that body. See American Power & Light Co. v. SEC, 329 U. S. 90 (1946); Gibbons v. Ogden, 9 Wheat. 1 (1824). Congress, unlike a state legislature authorizing similar expenditures, is not limited by any negative implications of the Commerce Clause in the exercise of its spending power. Where state or local government action is specifically authorized by Congress, it is not subject to the Commerce Clause even if it interferes with interstate commerce. Southern Pacific Co. v. Arizona, 325 U. S. 761, 769 (1945). Thus, if the restrictions imposed by the city on construction projects financed in part by federal funds are directed by Congress then no dormant Commerce Clause issue is presented.

An examination of the applicable statutes reveals that these federal programs were intended to encourage economic revitalization, including improved opportunities for the poor, minorities, and unemployed.10 Examination of the regulations set forth in the margin indicates that the Mayor’s executive order sounds a harmonious note; the federal regulations for each program affirmatively permit the type of parochial favoritism expressed in the order.11

*214 I — I J — I HH

We hold that on the record before us the application of the Mayor’s executive order to the contracts in question did not violate the Commerce Clause of the United States Constitution.12 Insofar as the city expended only its own funds in en *215 tering into construction contracts for public projects, it was a market participant and entitled to be treated as such under the rule of Hughes v. Alexandria Scrap Corp., 426 U. S. 794 (1976). Insofar as the Mayor’s executive order was applied to projects funded in part with funds obtained from the federal programs described above, the order was affirmatively sanctioned by the pertinent regulations of those programs. The judgment of the Supreme Judicial Court of Massachusetts is therefore reversed, and the case is remanded to that court for proceedings not inconsistent with this opinion.

It is so ordered.

The executive order provides:

“On any construction project funded in whole or in part by City funds, or funds which, in accordance with a federal grant or otherwise, the City expends or administers, and to which the City is a signatory to the construction contract, the worker hours on a craft-by-craft basis shall be performed, in accordance with the contract documents established herewith, as follows:

“a. at least 50% by bona fide Boston residents;

“b. at least 25% by minorities;

“c. at least 10% by women.”

Only the residency requirement is being challenged.

In 1980, of approximately $483 million expended on construction in the city of Boston, some $54 million, or 11%, was spent on projects to which the executive order applied. Of this latter amount, approximately $34 million represented projects being funded in part through federal Urban Development Action Grants (UDAG’s).

We also noted the policy in support of this limitation on the Commerce Clause:

“Restraint in this area is also counseled by considerations of state sovereignty, the role of each State ‘“as guardian and trustee for its people,’” Heim v. McCall, 239 U. S. 175, 191 (1915), quoting Atkin v. Kansas, 191 U. S. 207, 222-223 (1903), and ‘the long recognized right of trader or manufacturer, engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.’ United States v. Colgate & Co., 250 U. S. 300, 307 (1919). Moreover, state proprietary activities may be, and often are, burdened with the same restrictions imposed on private market participants. Evenhandedness suggests that, when acting as proprietors, States should similarly share existing *208 freedoms from federal constraints, including the inherent limits of the Commerce Clause.” 447 U. S., at 438-439 (footnotes omitted).

Respondents made several other challenges to the order, none of which are before us. Respondents also directed challenges to resident preferences contained in other state and local laws. None of these provisions is before us.

The case was submitted below on an agreed statement of facts. The only reference in that statement to the funds affected by the order provides:

“The approximate dollar value of construction, both private and public, within the City of Boston in 1980 was $482,886,000; of that amount approximately [$]54,421,040 represented construction projects ‘funded in whole or in part by City funds, or funds which, in accordance with a federal grant or otherwise, the City expends or administers, and to which the City is a signatory to the construction contract’ to which the Executive Order, by its terms, was applicable. Of that $54,421,040 approximately $34,000,-000 represented projects involving Urban Development Action Grants.” Agreed Statement of Facts, at A42.

The record does not readily support a finding of “significant impact” on firms employing out-of-state residents. The parties stipulated that a “small number of plaintiff contractors are out-of-state contractors who have regular and permanent work crews comprised entirely of out-of-state residents. These contractors for the most part are those who perform *210 specialty work. .. .” Id., at A41 (emphasis added). Although the parties also stipulated that some out-of-state workers who would otherwise have been employed on the projects would be unemployed and that some out-of-state contractors would be discouraged from bidding on public construction work, id., at A37, the record does not reveal that any significant number of out-of-state workers or contractors has withdrawn from the construction market because of the order. Furthermore, the record does not show that the increased employment of city residents in publicly funded construction projects has been accompanied by a decline in the percentage of out-of-state residents. See id., at A48.

Justice Blackmun’s opinion dissenting in part, post, p. 215, argues that the Mayor’s order goes beyond market participation because it regulates employment contracts between public contractors and their employees. We agree with Justice Blackmun that there are some limits on a state or local government’s ability to impose restrictions that reach beyond the immediate parties with which the government transacts business. Cf. Hicklin v. Orbeck, 437 U. S. 518, 529-531 (1978). We find it unnecessary in this case to define those limits with precision, except to say that we think the Commerce Clause does not require the city to stop at the boundary of formal privity of contract. In this case, the Mayor’s executive order covers a discrete, identifiable class of economic activity in which the city is a major participant. Everyone affected by the order is, in a substantial if informal sense, “working for the city.” Wherever the limits of the market participation exception may lie, we conclude that the executive order in this case falls well within the scope of Alexandria Scrap and Reeves.

Not all UDAG projects in Boston have been subjected to the executive order. Department of Housing and Urban Development (HUD) publications indicate that in 1980 Boston received $28,600,000 through UDAG’s and that this money was to be spent on projects costing a total of $897 million. U. S. Dept. of HUD, UDAG Project Approval List, Region I, p. 1 (Boston, Mass., Feb. 9, 1982). While we do not know what percentage of the $34 million spent on projects affected by the executive order was in fact UDAG money, we do know that overall UDAG funds constituted 7% of the total costs of projects they were expended on.

UDAG’s are administered by HUD pursuant to the Housing and Community Development Act of 1977, 42 U. S. C. §5318 (1976 ed., Supp. V). The HUD regulations governing the program are found at 24 CFR pt. 570, subpart G (1982). CDBG’s are administered by HUD pursuant to the Housing and Community Development Act of 1974, 42 U. S. C. § 5301 et seq. (1976 ed. and Supp. V), and the implementing regulations at 24 CFR pt. 570 (1982). EDAG’s are administered by the Department of Commerce in accordance with the Public Works and Economic Development Act of 1965, 42 U. S. C. § 3131 et seq. (1976 ed. and Supp. V), and the implementing regulations at 13 CFR pt. 305 (1982).

Respondents have asserted in this Court that the executive order also applies to funds the city receives from the Department of Transportation. In the agreed statement of facts the parties stipulated that a resident preference in a state statute challenged below applied to DOT funds. Agreed Statement of Facts, at A45. There is, however, nothing in the record to indicate that DOT funds are affected by the order. In fact, the parties stipulate that the affected federal funds come from UDAG’s, CDBG’s, and EDAG’s. Id., at A43-A44. Without support in the record for a contrary conclusion, we decide this case as though DOT funds are not in *213 volved. See Ramsey v. Mine Workers, 401 U. S. 302, 312 (1971); Tyrrell v. District of Columbia, 243 U. S. 1, 4-6 (1917).

See 42 U. S. C. §5318 (1976 ed., Supp. V) (UDAG’s); §5301 (1976 ed. and Supp. V) (CDBG’s); §3131 (EDAG’s).

In issuing implementing regulations to carry out its authority under the UDAG program, HUD requires that a city certify that its project would not be undertaken by the private sector without public funds and that the project will alleviate economic distress by helping the poor, minorities, and unemployed. 24 CFR § 570.458(c) (1982). The regulations further provide that the city must “comply with . . . Section 3 of the Housing and Urban Development Act of 1968, as amended, and implementing regulations at 24 CFR Part 135.” 24 CFR § 570.458(c)(14)(ix)(D) (1982). The regulations implementing that Act provide that “to the greatest extent feasible opportunities for training and employment arising in connection with the planning and carrying out of any project assisted under any such pro- *214 grain be given to lower income persons residing in the area of such project. . . .” 24 CFR § 135.1(a)(2)© (1982) (emphasis added).

Similarly, CDBG regulations provide that a recipient of funds must “comply with section 3 of the Housing and Urban Development Act of 1968, as amended, requiring that to the greatest extent feasible opportunities for training and employment be given to lower-income residents of the project area and contracts for work in connection with the project be awarded to eligible business concerns which are located in, or owned in substantial part by, persons residing in the area of the project.” 24 CFR § 570.307(m) (1982) (emphasis added).

EDAG regulations provide:

“The maximum feasible employment of local labor shall be made in the construction of public works and development facility projects receiving direct grants and loans. Accordingly, every contractor and subcontractor undertaking to do work on any such project which is or reasonably may be done as on-site work, shall be required to employ in carrying out such contract work, qualified persons who regularly reside in the designated area where stick project is to be located, or in the case of economic development centers, qualified persons who regularly reside in the center or in the adjacent or nearby redevelopment areas within the economic development district. . . .” 13 CFR § 305.54(a) (1982) (emphasis added).

Respondents ask us to decide whether the executive order offends the Privileges and Immunities Clause of Art. IV, § 2, which provides: “The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” In addressing this issue, the Massachusetts court said:

“The preference is for inhabitants of the city, and its ‘negative’ effect is felt in significant part by other citizens of the Commonwealth, as well as by residents of other States. In such circumstances it may be more difficult to find a violation of the privileges and immunites clause because the discrimination adversely affects citizens of the Commonwealth as well.” 384 Mass. 466, 478, 425 N. E. 2d 346, 354 (1981).

Because of its disposition under the Commerce Clause, however, the court did not resolve this issue.

*215 This question has not been, to any great extent, briefed or argued in this Court. We did not grant certiorari on the issue and remand without passing on its merits. See General Talking Pictures Corp. v. Western Electric Co., 304 U. S. 175, 177-178 (1938).