On June 20, 2013, the Supreme Court of the United States decided Agency for International Development v. Alliance for Open Society International, Inc., No. 12-10, holding that the First Amendment prohibits government from requiring persons receiving funding to affirm a belief that by its nature cannot be confined within the scope of the funding program. The Court applied precedents establishing that government cannot impose "unconstitutional conditions" on the receipt of government benefits or subsidies, even if the government has no obligation to offer the benefit or subsidy in the first instance.

Congress in 2003 authorized the appropriation of billions of dollars to fund efforts by nongovernment organizations to combat HIV/AIDS worldwide. That legislation imposed conditions on the funding: (1) no funds "may be used to promote or advocate the legalization or practice of prostitution" and (2) no funds may be used by an organization "that does not have a policy explicitly opposing prostitution" (the "Policy Requirement"). To enforce the second condition, the Department of Health and Human Services and the United States Agency for International Development required funding recipients to agree in their award documents that they oppose prostitution.

The Alliance for Open Society International, Inc. and some other domestic funding recipients wanted to remain neutral on prostitution, fearing that adopting an anti-prostitution policy could alienate some governments of foreign countries in which the organizations operate, diminish the organizations' effectiveness by making it more difficult to work with prostitutes in the fight against HIV/AIDS, and require them to censor their privately funded discussions about how best to prevent the spread of HIV/AIDS among prostitutes. They sought a declaratory judgment that the Policy Requirement violated their First Amendment rights. Both the district court and the Second Circuit held that the Policy Requirement violated the First Amendment, and enjoined the government from enforcing the requirement.

The Supreme Court affirmed in a 6-2 decision.

The Court explained that the Policy Requirement mandates that recipients of federal funds explicitly agree with the government's policy to oppose prostitution, while the First Amendment prohibits the government from telling people what they must say. Therefore, if the Policy Requirement were a direct regulation of speech, it plainly would violate the First Amendment. The question was whether the government nonetheless may impose that requirement as a condition of federal funding. The Court held that it cannot.

As a general matter, the Spending Clause grants Congress discretion to fund private programs or activities "for the general Welfare" and includes authority to limit the use of such funds to purposes that Congress intends. If a party objects to those limits, its usual recourse is to decline the funds. However, some funding conditions go too far. Past Supreme Court cases have distinguished between conditions that define the limits of the government spending program (that is, specify the activities that the government wants to subsidize) and conditions that seek to leverage funding to regulate speech outside the contours of the federal program itself. In Rust v. Sullivan, 500 U.S. 173 (1991), for example, the Court upheld a law that authorized grants to health care organizations offering family planning services, but barred federally funded programs from advocating abortions and required grantees to keep their federally funded programs separate from their other programs (grantees remained free to engage in abortion advocacy through independent programs). In contrast, FCC v. League of Women Voters of California, 468 U.S. 364 (1984), struck down a condition on federal financial assistance to noncommercial broadcast television and radio stations that prohibited all editorializing, including with private funds.

Acknowledging that the "line is hardly clear, in part because the definition of a particular program can always be manipulated to subsume the challenged condition," the Court held that the prostitution Policy Requirement fell on the unconstitutional side of that line. "This case is not about the Government's ability to enlist the assistance of those with whom it already agrees. It is about compelling a grant recipient to adopt a particular belief as a condition of funding. … [Under the challenged law, a] recipient cannot avow the belief dictated by the Policy Requirement when spending [federal] funds, and then turn around and assert a contrary belief, or claim neutrality, when participating in activities on its time and dime. … The Policy Requirement compels as a condition of federal funding the affirmation of a belief that by its nature cannot be confined within the scope of the Government program. In so doing, it violates the First Amendment and cannot be sustained."

Chief Justice Roberts delivered the opinion of the Court, in which Justices Kennedy, Ginsburg, Breyer, Alito, and Sotomayor joined. Justice Scalia filed a dissenting opinion, in which Justice Thomas joined. Justice Kagan took no part in the consideration or decision of the case.

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