Lawrence County v. Lead-Deadwood School District No. 40-1

1985-01-09

Headline: Court struck down a state law forcing counties to distribute federal in-lieu-of-tax payments like regular tax revenue, ruling counties have federal discretion to spend those funds for any governmental purpose.

Holding: The Court held that the federal Payment in Lieu of Taxes Act gives counties discretion to use in-lieu payments for any governmental purpose, so a state law forcing tax-like distribution is invalid under the Supremacy Clause.

Real World Impact:

Invalidates state laws forcing tax-like distribution of federal in-lieu payments.
Gives counties discretion to spend in-lieu payments for any governmental purpose.
Limits school districts’ ability to demand fixed shares of these federal funds.

Topics: federal funding for counties, local government budgeting, school funding disputes, payments in lieu of taxes

Summary

Background

A county in South Dakota (Lawrence County) received federal payments meant to compensate local governments for tax-exempt federal lands. South Dakota had a law requiring counties to distribute such payments in the same proportions as ordinary tax revenues, which would have given local school districts about 60% of the funds. The county refused and a state school district sued to force the distribution. The state supreme court upheld the state law, and the case reached the U.S. Supreme Court.

Reasoning

The central question was whether the federal Payment in Lieu of Taxes Act lets States control how local governments spend the funds they receive. The majority looked at the statute’s wording that a local unit “may use the payment for any governmental purpose,” the Interior Department’s consistent regulation saying local units have spending discretion, and congressional history showing Congress wanted funds to go directly to local units without earmarks. The Court concluded that the South Dakota rule would undermine Congress’s goal of giving counties flexibility and therefore conflicted with federal law under the Supremacy Clause. The Court reversed the state supreme court and invalidated the state statute.

Real world impact

Counties that receive these federal in-lieu payments may now decide how to spend them without being forced to match the state’s tax-distribution formula. School districts and other local bodies lose a guaranteed share based solely on tax formulas. The decision also makes clear that States may reallocate these funds only when Congress has given explicit authority to do so.

Dissents or concurrances

Justice Rehnquist (joined by Justice Stevens) dissented, arguing traditional state control over counties means the South Dakota law should stand and the majority misreads the statute and legislative history.