Reeves, which was hit hard by the shortage or cement supply and unable to find another supplier, challenged the South Dakota plan that prioritized supplying cement to its residents.
A state may act as a market participant and favor its residents over nonresidents in the market but it may not impose any conditions.
In 1919, South Dakota planned to build a cement plant in response to recent regional cement shortages that interfered with and delayed both public and private enterprises and that were threatening the people of the state. Buyers in more than nine nearby States purchased cement from South Dakota’s plant. Between 1970 and 1977, 40% of the plant’s output went outside the State. In 1978, difficulties at the plant slowed production but demand for cement increased nationally. Unable to meet all orders, South Dakota decided to supply cement to its residents first and then to honor other contracts. Reeves, which had no pre-existing long-term supply contract, was hit hard by this plan. Unable to find another supplier, Reeves was forced to cut production by 76%.
May South Dakota, in a time of shortage, confine the sale of the cement it produces solely to its residents?
Yes, because the petitioner’s argument that South Dakota favors its residents over nonresidents in violation of the Commerce Clause is weak at best and whatever negative impacts inheres are more then offset by countervailing considerations of policy and fairness. To forbid the state plan would discourage similar state projects, even though his project demonstrably has served the needs of state residents and has helped the entire region for more than a century. It would also take away South Dakota’s intended benefits of its foresight, risk, and industry. Thus, South Dakota’s plan to prioritize supplying of cement to its residents does not violate the Commerce Clause.
South Dakota’s policy represents precisely the kind of economic protectionism that the Commerce Clause was intended to prevent. The Commerce Clause would forbid legislation on private parties any restraint on commerce adopted by South Dakota. The marketing policy of South Dakota has cut off interstate trade. However, the State has no justification for favoring private, in-state customers over out-of-state customers. The discrimination constitutes a direct barrier to trade in violation of the Commerce Clause.
The petitioner argues that the State’s refusal to sell to buyers other than South Dakotans is protectionist. However, it is protectionist only in the sense that it limits benefits generated by a state program to those who fund the state treasury and whom the State was created to serve: its citizens. Petitioner’s argument would characterize as protectionist rules restricting to state residents the enjoyment of state education institutions, and police and fire protection and business development programs. Such policies, while perhaps protectionist in a loose sense, reflect the essential and unobjectionable purpose of state government. Moreover, the competitive disadvantage of out-of-state suppliers cannot be laid solely at the feet of South Dakota. It is attributable as well to their down States’ not providing or attracting alternative sources of supply and to the suppliers’ own failure to guard against shortages by executing long-term supply contracts with the South Dakota plant.