How the federal government could use conditional spending to force the removal of Times Square billboards (UPDATED)

New York's CBS2 is reporting that the federal government is threatening to pull highway funding from New York because there are too many billboards in Times Square.

It is known as the "Crossroads of the World," the "Center of the Universe" and "the Great White Way," but Times Square could become like the "Black Hole of Calcutta" if the federal government has its way, CBS2's Marcia Kramer reported Tuesday.

The feds say many of Times Square's huge and neon-lit billboards must come down or the city will lose about $90 million in federal highway money. . . .

The edict comes from a 2012 law that makes Times Square an arterial route to the national highway system. And that puts it under the 1965 Highway Beautification Act, which limits signs to 1,200 square feet. It took the feds until now to realize that Times Square was included, Kramer reported.

According to the story, New York's transportation commissioner is exploring the city's options, including seeking an exemption for Times Square. Capital New York has more here.

The edict itself may seem a bit ridiculous—and the threat of pulling highway funds heavy-handed—but this use of federal funds to induce local compliance is likely permissible under existing case law. Courts would be unlikely to find the amount of money at stake to be large enough to create problems under NFIB v. Sebelius, and I don't believe the restrictions imposed by the Highway Beautification Act are stringent enough to raise significant First Amendment concerns.

UPDATE: Marc Scribner explains why the threat to Times Square's billboards is not the fault of the Obama administration or Transportation Department bureaucrats. Rather, it "is a classic example of Congress passing stupid laws, ordering regulators to implement them stupidly, and then forgetting about them until unintended consequences spring up down the line." Added irony: NYC's current transportation commissioner, Polly Trottenberg, was Transportation undersecretary for policy when one of the statutory provisions that now poses a threat to Times Square was passed.

SECOND UPDATE: The Federal Highway Administration (FHWA) has issued the following statement:

FHWA has been working with the New York State DOT and the New York City DOT for nearly a year to correct this unintentional consequence of extending the National Highway System (NHS). At no time has FHWA asked NYCDOT to remove the billboards from Times Square or threatened to withhold federal funds. FHWA and NYSDOT have discussed the possibility of removing the NHS designation from specific roadways, and FHWA stands ready to act if we receive that request from the state.