447 U.S. 429 (1980)
In 1919, shortly after South Dakota's admission to the Union, the state established a cement plant near Rapid City through its Cement Commission to develop natural resources and provide an affordable supply of cement for residents and highway construction needs.1
The plant was financed by revenue bonds and required to be self-supporting without relying on general state revenues.2 Over the years the plant produced more cement than South Dakotans could use, with buyers in nine nearby states purchasing cement and between 1970 and 1977 some 40 percent of output going outside the state.3
As the 1978 construction season approached, production difficulties at the plant coincided with high regional and national demand, leading the Commission to reaffirm its policy of supplying all South Dakota customers first and allocating remaining volume on a first-come, first-served basis to others.4 The plant was producing at 100% of its capacity, but demand for cement in the region was running at about 120% of capacity.
Reeves, Inc., a Wyoming corporation operating ready-mix concrete plants in that state, had purchased approximately 95 percent of its cement from the South Dakota plant since 1958, including $1,172,000 worth in 1977, and had supplied over half the ready-mix needs in three northwestern Wyoming counties.5 On June 30, 1978, the plant informed Reeves it could not continue filling orders, and on July 5 it turned away a Reeves truck, forcing Reeves to cut production by 76 percent after failing to find another supplier.6
On July 19, 1978, Reeves brought suit in the United States District Court for the District of South Dakota against the Commission, seeking injunctive relief.7 The District Court granted a permanent injunction after finding no substantial issue of material fact.8 The United States Court of Appeals for the Eighth Circuit reversed the judgment.9 The Supreme Court granted certiorari.10
Whether the Commerce Clause prohibits South Dakota from confining sales of cement produced at its state-owned plant to in-state residents during a shortage?11
The Commerce Clause does not invalidate a state's preference for domestic purchasers when the state participates in the market as a seller of commodities. The Clause responds principally to state taxes and regulatory measures impeding free private trade rather than to a state's actions as a market participant.12
No. The basic distinction between states as market participants and states as market regulators makes good sense.13 Nothing in the purposes animating the Commerce Clause forbids a state, when acting as a market participant, from favoring its own citizens.14 South Dakota established its cement plant in 1919 to develop natural resources and provide an affordable supply for residents and highway needs, financing it through revenue bonds that required the plant to be self-supporting. Over the years the plant sold cement to buyers in nine nearby states, with 40 percent of output going outside South Dakota between 1970 and 1977.15 When production difficulties coincided with high demand in 1978, the Commission reaffirmed its policy of supplying all South Dakota customers first and allocating remaining volume on a first-come, first-served basis.16
Reeves, a Wyoming corporation that had purchased 95 percent of its cement from the plant since 1958, was informed on June 30 that orders could not continue and had a truck turned away on July 5, forcing a 76 percent production cut.17 These facts show the state acting solely as seller of its own product, not as regulator imposing burdens on private trade, so the resident preference falls outside Commerce Clause restrictions.18
The Commerce Clause does not prohibit South Dakota from confining sales of cement produced at its state-owned plant to in-state residents during a shortage.19
Related opinions on this issue
Joined by Justices White And Brennan
Justice Powell dissented on the ground that the Commerce Clause was designed to prevent economic Balkanization.20 It forbids a state from preferring its residents when acting in its sovereign capacity.21 He argued that the state's monopoly power over cement sales gave it the same power to burden interstate commerce as if it were regulating the market.22
The majority's reliance on Hughes v. Alexandria Scrap Corp. was misplaced because here the state was the only seller rather than one purchaser among many.23 Powell concluded that the policy constituted precisely the kind of economic protectionism the Commerce Clause was intended to prevent and would have reversed the judgment of the Court of Appeals.24
Whether a state's actions as a market participant selling goods are subject to Commerce Clause restrictions that apply to its regulatory actions?25
A state's actions as a market participant selling goods are not subject to the Commerce Clause restrictions that apply to its regulatory actions. The Clause was directed only at regulatory and taxing actions taken by states in their sovereign capacity.26
No. The basic principle that the Commerce Clause was designed to prevent states from promulgating economic regulations whose burdens fall principally upon those outside the regulating state is not applicable to a state's actions when it participates in the market as a purchaser or seller of commodities.27 South Dakota's Cement Commission set prices and determined to whom the plant would sell, marketing through independent dealers while operating the facility as a self-supporting enterprise.28 The 1978 policy of preferring in-state customers was a direct exercise of the state's proprietary power to decide with whom it would deal, not a regulatory measure like a tax or embargo imposed on private parties.29 Because the state was selling its own cement rather than regulating private cement sales, the resident preference is exempt from the nondiscrimination rules that would apply to regulatory action.30
A state's actions as a market participant selling goods are not subject to Commerce Clause restrictions that apply to its regulatory actions.31