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Dismissal of Missouri's ARPA Challenge Should Be Upheld, DOJ Says

Posted on Sep. 21, 2021

The Department of Justice is urging the Eighth Circuit to affirm a lower court ruling dismissing Missouri’s lawsuit challenging a COVID-19 relief act provision that restricts states from using federal funds provided by the act to offset reductions in net tax revenue.

In a September 17 brief in Missouri v. Yellen, attorneys with the Justice Department said the U.S. District Court for the Eastern District of Missouri correctly dismissed the state’s lawsuit over a provision in section 9901 of the American Rescue Plan Act (P.L. 117-2) after determining that the state failed to establish standing and that the case was not yet ripe. 

The brief says Missouri’s concern that Treasury might interpret the provision broadly to deny states the ability to cut taxes is inconsistent with the plain text of the provision, adding that “the government has repeatedly disavowed” that interpretation. It also argues that the “statute establishes, and the Department’s implementing regulations confirm, that tax cuts alone do not contravene” the provision, but rather the provision restricts only the use of federal aid provided by the act “to offset the revenue effects of tax cuts.”

The ARPA provision at issue 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 Attorney General Eric Schmitt (R) filed a lawsuit March 29, seeking a narrow interpretation that says the provision bars “only the deliberate and express use of ARPA funds to pay for tax cuts.” He argues that Treasury Secretary Janet Yellen, who is responsible for enforcing the provision, says it “requires states to institute a revenue-neutral tax policy,” which presents significant constitutional issues. 

The state 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.”

U.S. District Judge Henry Edward Autrey in May dismissed the motion seeking to block the provision’s enforcement, saying that the court lacks jurisdiction to hear the case because Missouri “failed to establish Article III standing, and its claim is not ripe for adjudication.”

Schmitt filed an appeal with the Eighth Circuit seeking to reverse the lower court’s dismissal of the case, arguing that the lower court erred in its ruling and the circuit court should instruct the district court to enter a preliminary injunction, barring the federal government from enforcing a broad interpretation of the provision. 

In its September 17 brief, the Justice Department argues that even if the state "had established standing, it failed to demonstrate that a preliminary injunction was necessary to prevent irreparable harm during the pendency of district court proceedings."

Schmitt has asked the court for 15 minutes of oral arguments per side in the appeal. The federal government said it “believes that the judgment should be affirmed without oral argument but stands ready to present argument if the court would find it helpful.”

The case is among six state challenges to the provision. Arizona Attorney General Mark Brnovich (R) has also filed an appeal seeking to overturn a lower court’s decision dismissing Arizona’s lawsuit over the provision.

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