The Treasury Department's interpretation of a COVID-19 relief act provision that restricts states from using the act's federal funds to offset reductions in net tax revenue can't fix the provision's ambiguity, according to the Ohio attorney general.
In an October 12 brief in Ohio v. Yellen, Attorney General Dave Yost (R) urges the Sixth Circuit to uphold a lower court's decision blocking the department from enforcing the provision against Ohio. He argues that the provision is unconstitutionally ambiguous and that the Treasury Department's interim rule on the provision fails to "cure the ambiguity."
He notes that Treasury Secretary Janet Yellen's "primary argument is that the Mandate, even if it is ambiguous on its own, is adequately clarified by the Interim Rule." But Yost says that argument fails. "The question whether Congress properly exercised its Spending Clause authority turns on whether the statutory conditions it enacted are unambiguous. Thus, as every circuit to have addressed the issue has held, agency regulations cannot save an ambiguous statute from being held unconstitutional,” according to the brief (emphasis in original).
According to Yost, Yellen cited decisions in which the Sixth Circuit gave "Chevron deference to regulations interpreting ambiguities in Spending Clause legislation," suggesting that the court can defer to the interim rule's interpretation of the provision. But "none of those cases address whether an agency's interpretation can save a condition from being held unconstitutionally ambiguous," Yost argues, saying that "even if the court could defer to an agency regulation in these circumstances, the Interim Rule is entitled to no deference."
At issue is a provision in section 9901 of the American Rescue Plan Act of 2021 (P.L. 117-2) that restricts states and territories from using emergency funds provided by the act to directly or indirectly offset a reduction in net tax revenue. States or territories that do so must repay the funds.
In July Judge Douglas R. Cole of the U.S. District Court for the Southern District of Ohio granted the state’s motion for permanent injunction to prevent Treasury from enforcing the provision against the state, finding that the provision’s language is overly ambiguous and falls short of passing muster with the spending clause.
The federal government on August 27 filed a notice of appeal with the Sixth Circuit. Attorneys at the Department of Justice argued in a brief filed September 21 that the district court's “injunction rests on a series of independent legal errors” and that Ohio lacks Article III standing to sue because it failed to establish a “concrete controversy” over the provision. The provision doesn’t prevent state tax cuts but “merely prohibits a state from using the new federal funds to pay for a reduction in net tax revenue,” they argued.
But Yost says in his October 12 brief that Ohio does in fact have Article III standing to sue because the provision has injured the state in at least five ways, including by “denying the state of its legal entitlement to an unambiguous, non-coercive offer” and interfering with the state’s sovereign authority.
Yost also points out that the secretary failed to challenge the district court’s finding that the phrase “reduction in the net tax revenue of [a] state” is too ambiguous. “Based on the Secretary’s failure to challenge this independently dispositive portion of the district court’s opinion, [the Sixth Circuit could] affirm the judgment . . . and go no further.”
The Department of Justice declined to comment.
At the Sixth Circuit, Yellen v. Ohio is Docket No. 21-3787.