update on United

Earlier this month I posted on the competition between Denver, San Francisco, and Chicago to win the relocation of United Airlines' corporate headquarters. The game appears now to be over, as the Chicago Tribune (subscription req'd) reports that last week "the company announced it would move into the former R.R. Donnelley & Sons Co. building at 77 W. Wacker Drive [in Chicago]. The company will get $5.25 million in tax increment financing from the city and $1.35 million on top of that in infrastructure improvement and job-training funds from the state."

In addition, Illinois state lawmakers are willing to give United a break on the highest jet-fuel taxes in the country. Don't expect other carriers to stand idle while United receives a major expense reduction from a state government.

American Airlines and Southwest Airlines say they want the same fuel-tax breaks the City of Chicago and State of Illinois pledged to work out for United.

"We think the presumption is it would be unfair, and probably discriminatory, to affect the jet-fuel taxes of one carrier and not another," said Mary Frances Fagan, spokeswoman for American Airlines, United's largest competitor at O'Hare International Airport.

"I'm sure you'll find other carriers lining up, saying we want to be part of this too."

Southwest Airlines, the largest carrier at Midway Airport and United's primary competition in several markets, including Denver, also is interested.

"We would certainly want to look at the incentive package to see how we could participate in the savings," said Whitney Eichinger, spokeswoman for the Dallas-based discount carrier.

"A pledge to seek fuel-tax relief was among the promises state and local leaders made to UAL Corp., United's parent company, in exchange for the airline agreeing to keep its headquarters in Illinois." At issue is whether there will be a level playing field for all major carriers or, instead, a fuel-tax break in favor of a single company.

How many large users of fuel could be helped by a cap in Illinois would depend on the way the law is written.

If Illinois lawmakers wanted to, they likely could fashion a bill that would benefit only United Airlines, even if the new law never mentioned the airline by name, said Daniel Hamilton, a professor with expertise in legislative issues at Chicago Kent College of Law.

"It happens all the time. Legislation is written with earmarks for very specific projects," he said.

Such laws have withstood legal challenges arguing they unfairly benefit one group over another, Hamilton said.

"I would never say never, but my impression is competitors would not have a constitutional claim to challenge a narrowly tailored set of benefits for a company," he said. "It may be the most effective court would be the court of public opinion. At some point the legislature's generosity can draw negative criticism."

Professor Hamilton is probably right. The Fourteenth Amendment provides that no state shall "deny to any person within its jurisdiction the equal protection of the laws." As an economic policy decision, state tax breaks are presumed consitutional and "must be upheld against equal protection challenge if there is any reasonably conceiveable state of facts that could provide a rational basis for the classification." FCC v. Beach Commc'ns, Inc., 508 U.S. 307, 313 (1993).

In other words, if Southwest and American do not receive the break that ends up being given to United and they bring suit on an equal protection claim, they will have an extremely difficult time in convincing a court that Illinois did not act rationally in favoring United: "[T]he burden is one the one attacking the legislative arrangement to negative every conceivable basis which might supoprt it, whether or not the basis has a foundation in the record." Heller v. Doe, 509 U.S. 312, 320 (1993).

Nonetheless, I would like to see another airline bring suit if United is given preferential treatment. Further, these circumstances are interesting to consider in light of a recent decision by a federal judge in Maryland.

The case concerned the Maryland Fair Share Health Care Fund Act, also known as the Wal-Mart law. The Wal-Mart law, as the Baltimore Sun reported, "requires that companies with more than 10,000 workers spend at least 8 percent of their payroll for employee health care or make up the difference in an equivalent payment to [Maryland]. Of the four companies that size operating in the state, only Wal-Mart matched the criteria set out in the law, leading the company to charge that it had been singled out unfairly."

Because of this unfair treatment, the Retail Industry Leaders Association, on behalf of Wal-Mart, sued the Maryland Secretary of Labor to prevent him from enforcing the law. Besides a state law claim, RILA claimed, first, that the Maryland law was pre-empted by federal employment law and, second, that the Maryland law violated the Equal Protection Clause.

Wal-Mart won, but not on an Equal Protection basis. The federal, Employment Retirement Income Security Act of 1974 (ERISA) preempt "any and all State laws insofar as they may now or hereafter relate to any emlpoyee benefit plan" covered by ERISA (the judge in the Wal-Mart ruling seems to have justifiably assumed that Wal-Mart's plan is covered by ERISA). 29 U.S.C. sec. 1144(a). Noting that the "main objective of ERISA's preemption clause is 'to avoid a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans,'" New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 657, Judge Frederick Motz found that the Wal-Mart law "is preempted . . . in accordance with long established Supreme Court law that state laws which impose employee health or welfare mandates on employers are invalid under ERISA."

That is far too brief of a summary of ERISA and its application to this case, but I am more concerned with equal protection anyways. In this Wal-Mart case, a scenario in which a company has been hurt by a legislatively enacted competitive disadvantage, the court found no equal protection violation. Because of this, in situations like what may occur in Illinois, those situations where one receives a legislatively enacted competitive advantage are that much less likely to be in violation of theEqual Protection Clause. If it's okay to single out Wal-Mart for burdensome regulations, it should be okay, under the Constitution, to single out United for a tax break.

This thought process is consistent with Judge Motz's citation of Supreme Court equal protection precedent. Quoting the Beach Commc'ns case, he suggested that "equal protection is not a license for courts to judge the wisdom, fairness, or logic of legislative choices" and that "the Constitution presumes that . . . even improvident decisions will eventually rectified by the democratic process and that judicial intervention is generally unwarranted no matter how unwisely a political branch has acted." Beach Commc'ns, 508 U.S. at 313-14.

Not that I agree with current Supreme Court equal protection analysis. When you have companies that use the "democratic process" to actively campaign for legislation that directly and adversely affects their competition on an individual basis (Judge Motz noted that Giant Food "actively lobbied for enactment" of the Wal-Mart law), isn't it time for the judiciary to play a stronger role when it comes to equal protection?

For an interesting analysis on the Wal-Mart/Maryland saga, go here.