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Missouri Files Appeal Challenging Dismissal of ARPA Lawsuit 

Posted on July 19, 2021

The attorney general of Missouri has filed an appeal with the Eighth Circuit seeking to reverse a lower court’s dismissal of Missouri’s case over a provision in the American Rescue Plan Act that restricts states from using aid provided by the act to offset reductions in net tax revenue.

Attorney General Eric Schmitt (R) in a July 14 brief said the U.S. District Court for the Eastern District of Missouri erred when it dismissed the state’s motion to block the provision’s enforcement in a May 11 opinion, memorandum, and order in Missouri v. Yellen, No. 4:21-cv-376 HEA (E.D. Mo. 2021).

Schmitt sought to have the provision declared unconstitutional and severed from the act and filed a motion for preliminary injunction April 2 seeking to prevent Treasury from enforcing any interpretation of the provision “that is broader than prohibiting the deliberate and express use of the act’s relief funds to offset revenue losses from a specific tax cut.”

The district court judge determined that the court lacks jurisdiction to hear the case because Missouri failed to establish standing and its case was not yet ripe.

The attorney general has asked the Eighth Circuit to reverse the lower court’s decision and to enter a preliminary injunction blocking the federal government from enforcing a broad interpretation of the provision. 

Schmitt filed a lawsuit March 29 with the U.S. District Court for the Eastern District of Missouri against the Treasury DepartmentTreasury Secretary Janet Yellen, and acting Treasury Inspector General Richard K. Delmar.

At issue is a provision in section 9901 of the ARPA (P.L. 117-2) that restricts federal aid from being used by a state or territory to “either directly or indirectly offset a reduction in the net tax revenue of such state or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.” States that violate the provision are required to repay the funds. 

Missouri’s lawsuit is one of several that have been filed by state attorneys general to challenge the provision. A federal judge recently issued a ruling blocking Treasury from enforcing the provision against Ohio, in response to a lawsuit filed by Ohio Attorney General Dave Yost (R). 

Missouri argues in its appeal brief that issuing a preliminary injunction will “promote the public interest [of] the people of Missouri in having their state set their tax policy.”

According to the brief, Missouri received nearly $2.7 billion in relief funds under the act, which amounts to 13 to 14 percent of the state’s annual general revenue expenditures for the last two years. But the state claims it “cannot realistically turn down that money — especially in the context of recovery from the COVID-19 pandemic.”

The state argues that the Department of Justice, while defending Yellen in court, agreed with Missouri that a narrow reading of the provision — prohibiting “only the deliberate and express use of ARPA funds to pay for tax cuts” — was the best reading of the law and constitutional.

However, Missouri argues that the Justice Department doesn’t administer the law, Yellen does — and the Treasury secretary is interpreting the law more broadly than the Justice Department represented to the district court based on her statements and Treasury’s interim final rule. Ultimately published May 17 in the Federal Register, the rule was released May 10, a day before the district court issued its final judgment.

The Justice Department and Treasury could not be reached for comment by press time.

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