The Fourth Circuit's Latest Word on NEPA and Federal Funds for State Projects: Ely II

In the most recent decision of the almost ten years of litigation on Virginia's prison medical center project the U.S. Court of Appeals for the Fourth Circuit held on May 8 that the State of Virginia must either comply with the dicates of NEPA or lose federal funds allocated under LEAA's block grant program.¹

Section 102(2)(c) of NEPA requires impact statements to be filed on "major Federal actions significantly affecting the quality of the human environment." The degree of federal involvement in state projects necessary to bring NEPA's action-forcing mechanism into effect has frequently been litigated. As noted by Frederick R. Anderson in NEPA in the Courts, federal block grants and revenue sharing measures were intended by Congress to maximize states' authority to use funds as they saw fit, with minimal federal control and involvement. In the first appellate decision in Ely v. Velde (Ely I), the Fourth Circuit held notwithstanding congressional intention to insure independence of federally assisted state projects, federal agency administration of block grant funding was sufficient "overall" federal involvement to require compliance with § 102(2)(c). That decision indicated that although such federal involvement required LEAA preparation of an impact statement, no duties were imposed directly upon the states.²

The Ely I court left open serious questions about the ability of state agencies, faced with substantial delays and attendant cost increases due to NEPA requirements imposed on the federal funding agency, to withdraw their request for federal assistance and proceed with construction ignoring environmental effects. Federal courts in other jurisdictions have held that state agencies must comply with NEPA after they have committed themselves to federally assisted highway projects, on such theories as waiver of immunity and pendent jurisdiction. The Fourth Circuit in Arlington Coalition on Transportation v. Volpe,³ a case decided after Ely I, in holding NEPA applicable to state agencies, followed the latter theory. That circuit's recent holding in Ely v. Velde (Ely II) represents a new definition of permissible state action where federal funds were originally allocated to state projects and later diverted by the state to avoid judically ordered NEPA compliance.

After the court in Ely I found NEPA applicable to the construction of a medical center for prisoners, the state of Virginia assisted the LEAA in preparation of a draft impact statement on the proposed construction. Comments received on the draft statement indicated that further delays in construction could be anticipated because of adverse opinions. The state agencies involved decided to withdraw their request for federal funds for the project but announced their intention to keep the funds allocated for use on other projects. The plaintiffs again filed suit, challenging what they saw as a juggling of funds to evade the requirements of NEPA and the National Historic Preservation Act (NHPA). The district court held that the state's action was legal, but the Court of Appeals [4 ELR 10093] reversed, finding that the state was attempting to circumvent congressional policy as expressed in the two statutes. Although the court does not specifically repudiate the language of Ely I, in which it stated that NEPA and the NHPA "impose no duties on the states," the effect of the decision is clear: the acceptance of federal funds, even though such funds are eventually used for other projects, necessitates compliance with the requirements of federal environmental laws. The appeals court imposes no particular remedy upon the lower court on remand, instead allowing the state a variety of choices. The decision holds that the state may proceed with construction of their project, disregarding the dictates of NEPA and the NHPA, but at the cost of returning all federal funds that were originally allocated for the project and subsequently used elsewhere. Alternatively, the state may keep the monies allocated but must either wait until LEAA has complied with NEPA and the NHPA before proceeding or scrap the project completely under threat of a permanent injunction. The court's decision is another roadblock in the way of those who would attempt to avoid the strings attached by federal law to federal funds.

1. 4 ELR 20369 (4th Cir. May 8, 1974). See S. McCracken, The Application of Federal Environmental Standards to the General Revenue-Sharing Program: NEPA and Unrestricted Federal Grants, 60 Va. L. Rev. 114.

2. 451 F.2d at 1139, 1 ELR at 20615.

3. 458 F.2d 1323, 2 ELR 20162 (4th Cir.), cert. den. sub nom. Fugate v. Arlington Coalition, 409 U.S. 1000 (1972).