Pesky strings from Dillon’s Rule may complicate formation of public/private partnerships

As interest in snagging a piece of the broadband stimulus builds to fever pitch, it may be a good idea to sound a cautionary note with respect to one obscure, but potentially important, quirk in U.S. law that could mess up a lot of plans. (We have previously reported – here, here, and here – both on the American Recovery and Reinvestment Act of 2009, a/k/a the Stimulus Package, and on the various administrative efforts being made by the FCC, NTIA and RUS to flesh out the skeletal details provided by Congress in the Act itself.) 

I’m talking about Dillon’s Rule. Never heard of it? Not surprising. Despite its importance, it’s easy to overlook, unless you happen to have an interest in the jurisprudence of state and local governments. But overlook it at your peril. Dillon’s Rule could effectively bar, or at least seriously complicate, efforts by private entities to successfully dip into the deep pool of stimulus funds through the device of public/private partnerships (a device recommended by a number of supposed gurus).

The fascination for public/private partnerships as a means of reaching Stimulus El Dorado derives from Section 6001(e)(1) of the Act. That section provides automatic NTIA stimulus fund eligibility not only to States, but also to their political subdivisions, the District of Columbia, United States territories and possessions, Indian tribes, native Hawaiian organizations, and non-profit groups. 

Missing from that list of automatic eligibles are commercial interests – the folks who are the most likely to actually offer broadband services, and who have the most practical knowledge of the area. Folks like cable system operators, telephone companies, cellular phone companies and WiMax providers. Under Section 6001(e)(1)(C), these commercial entities must confine themselves to the more rural-oriented RUS funds except to the extent the NTIA promulgates a regulation that includes them.

So the line for stimulus cash forms here if you’re anybody but a commercial entity. All you commercial entities, get in line over there – and depending on the final rules that NTIA adopts, that line might be waaaaay over there.

As a quicker means of accessing the funds that will be automatically available, some seers and savants have suggested that commercial interests partner up with State or local governments to receive the NTIA funds. After all, say the gurus, those governmental units are already guaranteed automatic access to the gold mine; why take your chances that NTIA might eventually open the doors to commercial aspirants?

Let’s assume for the moment that the gurus are right and public/private partnerships are the way to go. And let’s assume also that you think that some local government – county, city, town, etc. – would make an ideal partner. 

This is where Dillon’s Rule rears its ugly head.  Dillon’s Rule is a court-created doctrine (circa 1886, but still alive and kicking today) which provides that a political subdivision of a State has only those powers expressly conferred on it by charter or law. If a court finds that an act of a local government is beyond the local government’s powers, the local government does not have authority to engage in the act. And without that authority, even the most willing county, or town, or city, would be powerless to enter into a public/private partnership.

How many States have conferred upon their constituent counties, towns, parishes or cities the power to provide broadband services to their residents – either specifically or by categorical grant of power to provide communications services to residents and businesses? I admit that I have not conducted a survey, but anyone thinking about doing a deal with one or another particular local government would be well-advised to research that point thoroughly before jumping in. 

Dillon’s Rule or some variant of it is in effect in most States, although it is not necessarily included in State statutes or constitutions.  In many instances Dillon’s Rule is a non-statutory doctrine enforced by the courts of a State. In other cases, Dillon’s Rule is codified. In many States, the State legislature has enacted “home rule” provisions for its counties and/or municipalities which allow the county and/or municipality to engage in some activities that are not traditional local governmental activities. These activities may or may not include operating or owning a broadband service business. In some other States where Dillon is construed very narrowly, counties or cities have no power independent from the State. 

In other words, without careful research there is no safe and simple way of knowing whether any particular local government is going to be able to partner up with you, even if they really want to. 

But wait, you say – the Stimulus Package is a Federal law. How can individual States somehow override Uncle Sam?   Simple. Dillon’s Rule involves the power of each State to regulate its own affairs. It has twice survived attacks on its constitutionality before the United States Supreme Court. As a matter of conventional federalism, the Feds are not in a position to waive it or declare it inoperative. 

If you are a municipality, a county, a parish or a town with its eye on broadband stimulus money, I suggest that you closely review your authority to seek out and use this money. If you are a commercial organization that is considering partnering with a local government to qualify for, or assure better access to, NTIA grants, I suggest that you look carefully at the authority of the local government partner to seek out and use this money.