WASHINGTON -- In a largely uneventful term that appeared to plow little new legal ground, the Supreme Court nevertheless provided municipalities with a smattering of victories in ptotecting their finances and autonomy.

While states suffered some setbacks, the justices at times showed a deference and respect for state and local laws during the 1992-93 term, which ended Monday.

In United States v. California, for example, the court unanimously ruled that the federal government must follow state law when filing for refunds of state taxes that it asserts were unlawfully collected from federal contractors.

While the case involves narrow procedural matters, the ruling provides states with the ability to limit their exposure to tax refunds by undercutting the federal governments ability to avoid state refund procedures.

"It's a significant federalism precedent insofar as it accords due respect to state law and procedures for refunds notwithstanding it was the U.S. that was seeking the refunds." said Richard Ruda, chief counsel of the State and Local Legal Center. The center often files friend-of-the-court briefs on behalf of municipalities in cases involving state and local interests.

On the other hand, the court ruled in United States v. Texas that the Debt Collection Act of 1982 does not protect states from having to pay interest on debts they owe the federal government.

The court cited the U.S. government's rights under federal common law. Common law. also known as case law, is a collection of unwritten principles and rules that derive their authority from longstanding usage and custom, as recognized and enforced by courts.

The debt collection law requires the federal government to charge interest on debts "owed by a person," a term that does not include state or local governments. The court said the exemption means only that the federal government, when calculating interest on state debts, does not have to apply a rigid formula spelled out elsewhere in the law.

Charles Rothfeld, a lawyer in the local office of Mayer, Brown & Platt, said the court's approach to the California and Texas cases demonstrates that the justices have yet to develop a Rosetta stone for cases involving municipal interests.

"Even on these relatively narrow issues, the court has gone both ways," said Rothfeld, a former chief counsel at the State and Local Legal Center. "It's clear the court is just not thinking of cases like these in broad, jurisprudential terms. It was a very equivocal year for state and local governments."

The Harper Case

One example is the court's ruling in Harper v. Virginia Department of Taxation. There, the justices overturned a Virginia Supreme Court ruling that said the state did not owe tax refunds to federal retirees who had successfully challenged the legality of their taxes.

But the justices stopped short of ordering refunds, saying that under the 14th Amendment's due process clause refunds may not be necessary if Virginia can show it provided the retirees with a meaningful opportunity to challenge the levy before they paid their taxes.

At the heart of the Harper case was the question of whether and when lower courts can choose not to apply the justices' rulings retroactively.

The court said that when it has applied a rule of law to the parties before the court, all other courts must give retroactive effect to that decision. The justices appeared to rule out use of selective prospectivity, the granting of leeway to lower courts to consider the practical circumstances involved in retroactivitity.

For example, if the court struck down a state tax and ordered refunds or some other form of relief in one case, other courts would be bound to do the same in similar circumstances. Under selective prospectivity, other courts would have the flexibility to consider mitigating factors that might make refunds unfair.

The Chevron Test

Previously, the court had decided on a case-by-case basis whether to allow that flexibility, using a three-pronged analysis known as the Chevron test. Under the test, the court asked whether the legal principle used to declare a tax unconstitutional was new, whether the purpose of the Constitution's commerce clause would be furthered by retroactive relief, and whether requiring refunds would produce inequitable results.

The court in Harper, however, did not explicitly reject the Chevron test, leaving open the possibility that it could be revived. "The dissenters [in Harper] wrote as though they thought that's what the majority did, but I think it was an overreading of what the majority was doing," said Rothfeld of Mayer Brown, & Platt. "It remains an open. question."

Ferdinand P. Schoettle, a law professor at the University of Minnesota and a guest scholar at the Brookings Institution in Washington, said it would have been better if the court had buried Chevron. "It's just too unclear a standard to be workable," he said.

But he suggested it may be difficult for the court to abandon Chevron altogether. "The Supreme Court is always solicitous of the states, concerned about" the potential fiscal impact of its ruling on them, he said. Although the 1992-93 term did not produce blockbuster opinions, state and local interests expressed satisfaction with what they could get.

For example, analysts hailed the court's unanimous opinion in Moreau v. Klevenhagen, in which the justices sided with Harris County, Tex., in a dispute with deputy sheriffs over overtime pay. At issue in the case was whether the federal Fair Labor Standards Act allows public employers to provide compensatory time off instead of overtime pay when state law prohibits collective bargaining.

Texas is one of a handful of states that prohibit collective bargaining by public sector employees, though the Harris County deputy sheriffs have a union to represent their interests in such matters as workers' compensation claims.

Under the fair labor law, public sector employers can provide comp time instead of the generally mandated overtime pay only if there is an agreement between the union's representative and the employer. The question before the justices was whether that requirement applied in states that forbid public sector collective bargaining.

The court said that because Texas does not allow collective bargaining, the union did not have a representative authorized to enter an agreement on overtime and that this meant Harris County can offer comp time unilaterally.

"It's a case of great practical importance to state and local governments because of the financial implications" had the court ruled overtime pay was necessary, said Ruda of the legal center. "Doctrinally, it's important because of the primacy it gives to state law in labor relations."

While representatives of municipal interests found some cheer in the court's term, they expressed concerns about a court ruling in a Jacksonville, Fla., case making it easier to challenge set-aside programs.

Set-Aside Programs

In that case, the court said parties challenging set-asides need only show they were treated differently from minorities in order to press claims, rather than the more rigorous standard of having to show they would have received contracts if the programs did not exist.

"It's an important outcome because it makes it too easy to challenge a set-aside program," Ruda said. "They don't have to show they have been discernibly injured."

Even as municipal court watchers sort through the last term, they already are looking ahead to the 1993-94 term, which begins Oct. 4, because of the likely ascension of federal appeals court Judge Ruth Bader Ginsburg to the Supreme Court seat vacated by Byron R. White.

Ginsburg, 60, is considered a pioneer in legal circles for her work fighting sex discrimination. But since being appointed to the U.S. Court of Appeals for the District of Columbia Circuit in 1980 by President Carter, Ginsburg has proven difficult to characterize. While generally considered a liberal, she has voted most consistently with the conservative appointees of the Reagan-Bush era.

Glenn Lammi, chief counsel of the Washington Legal Foundation's legal studies division, said Ginsburg has proven somewhat conservative in business cases before the appeals court. "From an economic, regulatory standpoint, she's not a bad choice," he said. The Washington Legal Foundation supports a free market approach to cases and often files friend-of-the-court briefs in cases before the Supreme Court.

Rothfeld of Mayer, Brown & Platt said Ginsburg has had "very little opportunity to deal with federalism or issues of interest to state and local governments" while on the appeals court. "She has no track record and presumably no deep views on these issues," he said.

He said that like the late Justice Felix pegged as a liberal but has been an "apostle of restraint" while on the appeals court. He called her "an aggressive moderate."

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