Businesses Seek Federal Protection as States Strengthen Regulatory Role

Last month, state attorneys general drafting guidelines for more disclosure in airline advertising got word that the airline industry was attempting to cut short their efforts. The airlines were looking for a sponsor for an amendment to pending legislation that would have preempted the right of states to police airline advertising.

The amendment was not offered, but its proposal highlighted the growing tendency of the business community to seek federal protection against state regulation.

In recent years, as the federal government has reduced its regulatory role in a number of areas, some states have become more active. That state activism--coupled with concerns about the difficulty of complying with as many as 50 different standards--has produced a growing passion for federal regulation in parts of the business community.

Running for Cover

Elements of the business community have sought or claimed federal preemption in areas including land use, regulation of pesticides, rules for evacuating the area around a nuclear power plant, product liability, minimum health insurance benefits, warning labels for tobacco products and corporate takeovers--in some cases supported by the same Reagan Administration that pronounced the “new federalism.”

“More groups are running for cover,” said Christopher Ames, a California deputy attorney general involved in drafting the airline advertising guidelines. “What better situation than to have the states preempted by federal authority when you know it won’t be exercised? I think a year from now the trickle will be a substantial river as the states become more and more active.”

“It’s not surprising, despite the general tendency to favor states’ rights notions, business people are more concerned about the bottom line,” said Harvard law school professor Laurence Tribe, who has found himself arguing against business interests and the Reagan Administration in favor of local control. “To the extent the bottom line is advanced by getting states and localities off their backs and having to deal only with federal regulations, it’s not surprising.”

Nor are business interests the only ones to do a turnaround. The flip side of what is going on among businesses is that consumer activists, labor unions and environmental groups that might have looked to the federal government in years past now find that, at least for some issues, the cutting edge of regulation may be at the state level.

Easier to Work With Congress

“In the old days, federal preemption meant that the feds went further on a particular issue than the states wanted to go,” said Don Wasserman, collective bargaining director for the American Federation of State, County & Municipal Employees. “Now it’s almost the reverse--that the states want to go further than the feds.”

Several factors underlie increasing business interest in federal preemption, including the interwoven nature of the economy. “You don’t have local markets anymore,” said Jeffrey H. Joseph, vice president for domestic policy at the U.S. Chamber of Commerce. “Those business that are in interstate commerce logically would over time tend to favor federal standards,” he said.

“A lot of these companies feel it is easier to work with Congress than 50 state legislatures,” said Jim Jones, the Republican attorney general of Idaho. “Regardless of the long-term political implications and whether it makes for a healthy federal system, that seems to be the way they’re inclined,” he said.

“They don’t like ’50 Ways to Leave Your Lover’--but it’s our system,” said a lobbyist for state interests.

Business does not support federal preemption across the board. Joseph of the Chamber of Commerce and Jim Carty, the National Assn. of Manufacturers’ vice president of government regulation, both cited corporate support for state laws governing takeovers. The investment banking community, however, has argued that state laws that have been used to protect takeover targets should be preempted. Under the Reagan Administration, federal barriers to corporate takeovers, such as federal antitrust laws, have generally not been very high hurdles.

“The people who used to complain about the federal government over-regulating are now claiming that whatever the federal government does prevents the states from doing anything else,” said Alan Morrison, director of the Public Citizen Litigation Group. Morrison has argued against federal preemption of tougher state standards.

“The thing that is most egregious of all is not when the federal government does something and argues about whether the state can do more. The most egregious thing is when the federal government does nothing, and the federal government claims doing nothing also preempts the states,” he said.

From another point of view, however, that claim is consistent with the spirit of deregulation that has characterized the Reagan Administration. “Congress intended that the benefits of deregulation not be diminished by the substitution of state economic regulatory programs for the federal economic regulatory programs that it had eliminated,” the Air Transport Assn. argued in comments on proposed action by the state attorneys general. The ATA is the trade association for the airline industry.

A recent report by the Academy for State & Local Government, a foundation supported by a number of organizations representing state and local government, noted that federal participation in intergovernmental relations has been diminishing, reduced both by deregulation and cuts in federal aid. “The return of traditional state and local responsibility would seem to be a natural, perhaps inevitable development of these trends, fully in keeping with a concept of federal restraint,” the report said. But it hasn’t happened, the report concluded.

Major Issue for Governors

“State and local governmental authority continues to be preempted by federal actions, without apparent regard to form or function,” the report continued. “As federal financial involvement is shrinking, federal preemption of state and local activities--which grew along with the growth of federal intergovernment funding in the 1960s and 1970s--is no less prevalent in the 1980s. Why this should be is far from clear.”

The National Governors’ Assn. has made federal preemption a major issue this year, and other state and local government groups have also highlighted the issue. “Our concern is more one of process, not whether industry or labor or consumer groups see the political results they want,” said Bill Waren, senior program director for the National Conference of State Legislatures.

As a result, the state and local groups are as concerned about federal preemption in the area of setting speed limits and drinking age as they are about preemption on behalf of business.

“It’s not a matter of political philosophy. You can have liberal attorney generals and conservative attorney generals all being concerned about the preemption issue,” said Jones, the Idaho attorney general. “You can just name the areas one after another. It’s staggering, and a large part of the chipping away at the authority the states have had over the years is due to the federal government’s litigation posture,” he said. “I think that to a large degree this Administration is more sensitive to the needs of states, but there are a lot of folks out there in the federal agencies who haven’t gotten the message.

Last month President Reagan issued an executive order, reiterating the Administration’s stance on federalism. “In the absence of clear constitutional or statutory authority, the presumption of sovereignty should rest with the individual states,” it said in part. “Uncertainties regarding the legitimate authority of the national government should be resolved against regulation at the national level.”

State attorneys general failed to get some guarantees that federal officials would apply more stringent tests before deciding to act on the side of federal preemption. But even without them, the executive order is helpful, said Jones.

Even so, the conflict is likely to continue. For one thing, recent Supreme Court decisions have suggested that the court is “willing to give the states a little more leeway than was the case before,” said John Kincaid, director of research for the U.S. Advisory Commission on Intergovernmental Relations. Also, state governments are larger and have more resources than before to address regulatory issues.

“Some of the governors are feeling rather hampered by some of these federal actions, because it doesn’t necessarily leave them a great deal of room to maneuver, so you have a lot of energetic governors out there all dressed up to govern but with no place to go,” Kincaid said.

One area of conflict is in cases where the federal government sets minimum standards and the states seek to set higher standards--for instance, for allowable levels of pesticide residue in a product. A single state that is a large market can touch off yet another debate of the proper role of the states versus the federal government, with business often arguing in favor of federal regulation.

“What’s really new is that business is now seizing on these opportunities,” said Morrison. “They’re turning swords into shields. Now that they’ve persuaded the federal government not to get in, they’re saying that doesn’t mean the states should get in either.”