the precedent most nearly in point here. In that case, which stemmed from a grant of Federal highway aid, the State objected to the enforcement of section 12 of the Hatch Act,21 in the case of a member of its Highway Commission. The State chose not to remove him and instituted proceedings for judicial review. It contended that the Hatch Act was unconstitutional as applied to it because "the so-called penalty provisions invade the sovereignty of a state in such a way as to violate the Tenth Amendment by providing for 'possible forfeiture of state office or alternative [financial] penalties against the state."" 22 The Court, after concluding that it was presented with a justiciable controversy,23 stated: 24

*** While the United States is not concerned with, and has no power to regulate, local political activities as such of state officials, it does have power to fix the terms upon which its money allotments to states shall be disbursed.25

"The Tenth Amendment does not forbid the exercise of this power in the way that Congress has proceeded in this case. As pointed out in United States v. Darby, 312 U.S. 100, 124, the Tenth Amendment has been consistently construed 'as not

53 Stat. 1147, as amended, 54 Stat. 767; 5 U.S.C. (1964 ed.) 118k (a). Section 12(a) prohibits an officer or employee of a State agency who is employed in connection with an activity financed by Federal grants from taking an active part in political management or campaigns. Section 12(b) provides that the Civil Service Commission shall give notice and opportunity for hearing to an individual charged with a violation and to the agency employing him. Upon a finding of a violation, the Commission may order the removal of the employee, in which case the State's failure to comply requires the appropriate Federal agency to withhold from its grants to the State an amount equal to two years' compensation of the employee. Section 12(c) authorizes judicial review of a Commission order.

29 330 U.S. at 142.

The Court distinguished Massachusetts v. Mellon, supra, by pointing to the provision of judicial review in the Hatch Act and by finding the existence of a legally enforceable right of a State to receive allocated highway grants "without unlawful deductions." It may be noted that section 131 (7) of the highway beautification law provides for judicial review of a determination by the Secretary of Commerce to withhold highway funds from a State under section 131 (b).

4330 U.S. at 143.

25 The Court in Palmer v. United States Civil Service Commission, 191 F. Supp. 495, 520, 521 (S.D. Ill. 1961) complained that the Supreme Court did not cite any constitutional authority to support this proposition. It went on to overturn a Civil Service Commission determination under section 12 of the Hatch Act on the ground that Congress lacked the authority to make conditions that intruded on a State's power to appoint and remove its officers and control its own finances. The Court of Appeals reversed. Palmer v. United States Civil Service Commission, 297 F.2d 450 (C.A. 7, 1962), cert. den. sub nom. Illinois v. United States Civil Service Commission, 369 U.S. 849.

depriving the national government of authority to resort to all means for the exercise of a granted power which are appropriate and plainly adapted to the permitted end.' The end sought by Congress through the Hatch Act is better public service by requiring those who administer funds for national needs to abstain from active political partisanship. So even though the action taken by Congress does have effect upon certain activities within the state, it has never been thought that such effect made the federal act invalid." [Italics added.]

It will be seen from this review of the Supreme Court's decisions on grants-in-aid that they do not provide support for the conclusion that the requirement of the payment of just compensation in 23 U.S.C. 131 as a prerequisite to a full allocation of highway funds is unconstitutional as to any State. In the language of the Court in the Oklahoma and Darby cases, the permitted end sought here is the elimination of objectionable outdoor advertising that appears along federally-aided highways, and the means-that is, the grant of money conditioned on the use by a State of its powers to determine and help pay just compensation to the billboard and land owners concerned-seems appropriate and adapted to that end. That a State, through the use of another power, could reach the statutory standard of beautification without paying anything to such persons cannot be convincingly adduced as evidence that its powers are being invaded by means of an unconstitutional bargaining process. In Oklahoma, the receipt of an undiminished grant of Federal funds was contingent on the exercise of a State power to remove a State official. Here it is contingent on a State's refraining from an exercise of power that will save a measure of State money. There seems to be no distinction in principle.

A caveat is warranted. Although both the Massachusetts and Oklahoma cases contain language suggesting that the United States has virtually a free hand in setting the conditions on which the States may obtain grants-in-aid, it is nevertheless clear that it cannot be arbitrary. One of the Social Security Act cases, Steward Machine Co. v. Davis,26 makes this point. The Court there considered the validity of the Federal unemployment compensation tax on employ

20 301 U.S. 548 (1937).

ers, against which is granted up to a 90 per cent credit for contributions made to an unemployment fund established by a State law meeting Federal criteria. The Court held that the tax is not void as involving the coercion of the States in contravention of the Tenth Amendment but went on to say: "In ruling as we do, we leave many questions open. We do not say that a tax is valid, when imposed by act of Congress, if it is laid upon the condition that a state may escape its operation through the adoption of a statute unrelated in subject matter to activities fairly within the scope of national policy and power. *** It is one thing to impose a tax dependent upon the conduct of the taxpayers, or of the state in which they live, where the conduct to be stimulated or discouraged is unrelated to the fiscal need subserved by the tax in its normal operation, or to any other end legitimately national. *** It is quite another thing to say that a tax will be abated upon the doing of an act that will satisfy the fiscal need, the tax and the alternative being approximate equivalents. In such circumstances, if in no others, inducement or persuasion does not go beyond the bounds of power. We do not fix the outermost line. * * * Definition more precise must abide the wisdom of the future." 27

Whatever may be the "outermost line" in relation to a federally subsidized highway program, the inducement in 23 U.S.C. 131 to a State to provide for and join in the compensation of persons who are adversely affected by compliance with beautification standards seems to be well within it. The action of the State sought by the Federal Government will not be unduly burdensome and, as to each State, constitutes a reasonable means of effectuating the removal of the billboards necessary to achieve the objective of the statute.

To repeat, I have concluded that section 131 requires every State to provide just compensation as a condition of receiving the whole amount of Federal-aid highway funds apportioned to it by the Secretary of Commerce on or after January 1, 1968, and I see no basis for concluding that this requirement is unconstitutional as to any State.

Sincerely,

RAMSEY CLARK, Acting Attorney General.

301 U.S. at 590-91.

SECOND LIBERTY BOND ACT, AS AMENDED-PARTICIPATION CERTIFICATES ISSUED BY FEDERAL NATIONAL MORT

GAGE ASSOCIATION

Participation certificates issued under section 302 of the Federal National Mortgage Association Charter Act, 12 U.S.C. 1717, are not included among the Government "obligations" whose aggregate amount may not exceed the ceiling set by section 21 of the Second Liberty Bond Act, September 24, 1917, c. 56, 40 Stat. 288, as modified by Public Law 89-472 of June 24, 1966, 80 Stat. 221 (31 U.S.C. 757b). Section 21 of the Second Liberty Bond Act is only concerned with debt that arises from borrowing.

In marketing participation certificates, the Federal National Mortgage Association is selling ownership interests in mortgage notes and similar assets rather than borrowing money.

Many guaranties which create valid and binding obligations of the United States, entitled to its full faith and credit, are not obligations within the more limited meaning of section 21 of the Second Liberty Bond Act.

THE SECRETARY OF THE TREASURY.

February 3, 1967.

MY DEAR MR. SECRETARY: This is in response to your request of January 30, 1967, for my views on a question relating to the outstanding participation certificates that have been issued by the Federal National Mortgage Association (FNMA) under section 302 of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717). More particularly, that question is whether those certificates are to be included among the Government "obligations" whose aggregate amount may not exceed the $330,000,000,000 ceiling set by section 21 of the Second Liberty Bond Act (September 24, 1917, c. 56, 40 Stat. 288), as modified by Public Law 89-472 of June 24, 1966, 80 Stat. 221 (31 U.S.C. 757b). Section 21 now reads as follows in pertinent part: "The face amount of obligations issued under the authority of this Act [all of which are direct Treasury obligations] and the face amount of obli