Interstate Compact

A voluntary arrangement between two or more states that is designed to solve their common problems and that becomes part of the laws of each state.

Interstate compacts in the United States were first used by the American colonies to settle boundary disputes. After the American Revolution, states continued to use interstate compacts to meet their various needs. Although these compacts were necessary for peaceful interaction between the states, they posed a threat to the future of the United States: if states were allowed to form powerful coalitions, they might be tempted to break away from the rest of the country and fracture the Union.

Under Article I, Section 10, Clause 3, of the U.S. Constitution, "No State shall, without the Consent of Congress … enter into any Agreement or Compact with another State." This clause, the Interstate Compact Clause, was adopted with no debate. Moreover, it received only cursory discussion in subsequent papers written by the Constitution's Framers, so its purpose and scope were not developed.

Most courts followed the lead of Justice JOSEPH STORY (1779–1845), of the Supreme Court, an influential legal commentator of the nineteenth century. According to Story, the clause was meant to protect the supremacy of the federal government. With this general principle as guidance, courts interpreted the clause to give Congress the power to nullify an interstate compact if it frustrated federal aims.

Over the years, four steps have evolved to guide courts in their review of interstate compact cases. First, there must be an agreement between two or more states. If no concerted effort is actually undertaken by two or more states, Congress has no power to review the state actions under the Interstate Compact Clause. In determining whether there is an agreement, the court may ask whether the states have officially formed a joint organization, whether a state's action is conditioned on action by another state, and whether any state is free to modify its position without consulting other states.

If the court finds that there is an agreement, the court will examine the agreement to determine whether it infringes on federal sovereignty. Not all interstate compacts infringe on federal supremacy. The question the court asks is whether the agreement between the states interferes with federal statutes or initiatives. For example, consider the federal legislation that outlaws certain automatic and semiautomatic assault weapons: title XI of the Public Safety and Recreational Firearms Use Protection Act (Pub. L. No. 103-322, 108 Stat. 1807 [codified as amended in scattered sections of 42 U.S.C.A.]). The purpose of the legislation is to limit firearm ownership. An interstate compact that legalized the banned assault weapons, and thus expanded firearm ownership, would infringe on the federal statute, whereas an interstate compact that outlawed additional assault weapons, and thus further limited firearm ownership, would not infringe on the federal statute.

If an interstate compact is found to infringe on federal initiatives, the court will then determine whether Congress has given its approval for the compact. Congress may grant approval before or after a compact is formed. Congress may also give indirect approval to a compact. For example, Congress may give its tacit approval to a compact on state boundaries if it subsequently approves the federal elections, appointments, and tax schemes of the states.

Finally, Congress may seek to amend or change an interstate compact after it has been approved. Congress may amend a compact or completely revoke its approval of a compact. Congress may also grant its approval with conditions attached.

The most common interstate compacts concern agreements to share natural resources, such as water; build regional electric power sources; share parks and parkways; conserve fish and wildlife; protect air quality; manage radioactive and other hazardous wastes; control natural disasters, such as floods; share educational resources and facilities; share police and fire departments; and grant reciprocity for driver's licenses. Congress has passed statutes that require prior congressional approval for many such compacts.

If Congress has not asserted its authority over an interstate compact prior to its formation, the compact probably does not violate the Interstate Compact Clause. In Northeast Bancorp v. Board of Governors, 472 U.S. 159, 105 S. Ct. 2545, 86 L. Ed. 2d 112 (1985), Massachusetts and Connecticut passed statutes that allowed out-of-state holding companies in the New England region to acquire in-state banks. These statutes applied only if the state in which the out-of-state company was based also allowed out-of-state holding companies to acquire in-state banks. When the FEDERAL RESERVE BOARD (FRB) approved the interstate acquisition of banks in Massachusetts and Connecticut, three banking companies brought suit against the board.

The plaintiffs argued, in part, that the statutes constituted an interstate compact, and that the compact required congressional approval that had not been received. The U.S. Supreme Court disagreed. Assuming the statutes did create an interstate compact, they did not require congressional approval because they did not encroach on any asserted power of the federal government. In fact, Congress had authorized interstate bank acquisitions in an amendment to the Bank Holding Company Act of 1956 (70 Stat. 133 [as amended, 12 U.S.C.A. § 1841, 1842(d)). The amendment prevented the FRB from approving interstate bank acquisitions unless the states had reciprocating statutes. Massachusetts and Connecticut had merely accomplished what was implicitly authorized by the amendment, and the High Court cleared the way for final approval of the acquisitions.

In practice, few interstate compacts are held to violate federal imperatives. Despite the freedom of states to form interstate compacts, the trend is toward increased federal participation and control. Congress has inserted itself into the negotiations over, administration of, and participation in interstate compacts. This level of control may decrease as the United States seeks to trim its budget. However, Congress will remain constitutionally required to prevent states from forming coalitions that wield powers challenging those of the federal government.