The State, however, chose to proceed using Federal funds, and State and LEAA officials drafted an environmental impact statement (EIS). When the EIS met with public disapproval, the State decided to request withdrawal of the Federal block grant funds from the project and to divert the funds to other State projects. The State asserted that its transferral of the funds obviated the need to comply with NHPA and NEPA.
The Fourth Circuit reversed the district court's ruling that the transfer was permissible and its dismissal of the complaint, holding that the State's avoidance of NHPA and NEPA while retaining Federal funds that were granted with the understanding that they would be spent in compliance with NHPA and NEPA frustrated Congressional intent to preserve environmental and historic values. Accordingly, the State was not entitled to use Federal block grant money for any purpose unless it complied with both statutes. 497 F.2d at 256.
However, the court went on to find that the penal facility had not become an "irrevocably Federal project" at the time that the State withdrew its request for the grant money since no construction had begun, no Federal money had been spent, and no other Federal project was closely related. Therefore, the court held that the State could construct the facility without Federal aid without complying with NHPA or NEPA, but it could not retain the Federal money for other purposes. Id. at 257.
The court remanded the case to the district court for selection of a remedy: the State could proceed with the project if it reimbursed the Federal Government for funds allocated to the facility and then diverted to other projects; could reapply for Federal aid, knowing that LEAA must satisfy the requirements of NHPA and NEPA; or could abandon its plan to use the site as a penal facility, thereby giving residents relief similar to the injunction that they sought. The court concluded that if the State declined to undertake a course of action consistent with the court's opinion, then the district court should permanently enjoin construction of the penal facility. Id.
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