The U.S. government has asked a federal court to dismiss a suit filed by 13 states challenging a provision in a COVID-19 relief act that prevents states from using funds provided by the act to offset reductions in net tax revenue, arguing that the states have failed to show standing and can’t succeed on the merits.
The states filed a motion July 29 for permanent injunction and declaratory judgment in West Virginia v. Yellen, after a U.S. district court judge denied the states’ motion for preliminary injunction on July 14. The states claim that the provision "unconstitutionally infringes on the plaintiff states’ sovereignty under the 10th Amendment and exceeds Congress’ authority under the Spending Clause.”
The lawsuit, led by West Virginia and styled in some documents as West Virginia v. U.S. Department of the Treasury, was filed March 31 in the U.S. District Court for the Northern District of Alabama to challenge a provision found in section 9901 of the American Rescue Plan Act of 2021 (P.L. 117-2). The provision restricts federal aid from being used 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.
Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, and Utah are also listed as plaintiffs. The lawsuit is one of six filed by state attorneys general to challenge the provision.
Judge L. Scott Coogler said he denied the 13 states’ request for preliminary injunction “because they have failed to show that this court can provide preliminary relief that would address the harm they will suffer in the absence of the injunction.”
The judge explained that it wouldn’t make sense to issue a preliminary injunction stopping Treasury Secretary Janet Yellen from recouping federal funds because it is extremely unlikely that Treasury would be able to recoup funds from a state “between now and this court’s final decision.” However, the judge ruled that the states have standing to pursue their claims and that those claims are ripe.
The Department of Justice, which is defending the Treasury Department, Yellen, and acting Treasury Inspector General Richard K. Delmar in the suit, argued in an August 12 brief that the complaint should be dismissed because the states can’t succeed on the merits.
The plaintiff states assert that the provision is an unconstitutional exercise of federal power that violates the 10th Amendment and the anti-commandeering doctrine. But the federal government claims the provision is “a modest restriction on an otherwise generous outlay of federal funds” that “simply ensures that Congress’s substantial monetary outlay will be used as intended for the public-health and economic-recovery purposes.”
If the plaintiff states “disliked the offset provision, they were (and are) free to simply decline the federal money,” the defendants say.
The defendants claim the provision isn’t ambiguous under the spending clause as the plaintiff states contend, noting that “precedent on Spending Clause unambiguity establishes that Congress must only make clear that acceptance of federal money obligates the States to comply with a condition.”
The defendants argue that the provision “provides far more information than the Spending Clause requires, explaining the nature and scope of the funding condition.”
The federal government noted that district courts in Missouri and Arizona dismissed similar complaints for lack of standing and urged the Northern District of Alabama to do the same.
While the defendants argue that the court should deny the request for permanent injunction and dismiss the case, they say that if the court were to enjoin or declare unconstitutional any part of the act, that ruling “should be tailored to the portion of the program that the Court believes to be unconstitutional and only to the plaintiff states."