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Judge Rules in Favor of Kentucky and Tennessee in ARPA Challenge

Posted on Sep. 27, 2021

A judge has ruled in favor of Kentucky and Tennessee in a lawsuit over a provision in COVID-19 relief legislation that bars the aid from being used to offset reductions in net tax revenue, blocking the federal government from enforcing the provision against the states. 

In a September 24 opinion and order in Kentucky v. Yellen, Judge Gregory F. Van Tatenhove of the U.S. District Court for the Eastern District of Kentucky granted the states’ motion for summary judgment and permanently enjoined Treasury Secretary Janet Yellen from enforcing the provision. The states “have clearly suffered violations of their constitutional rights as a result of the tax mandate’s coercive nature,” he said, finding that the provision is a “coercive grant of federal money” and that the “price for accepting the funds is unconstitutional.”

The provision, found in section 9901 of the American Rescue Plan Act of 2021 (P.L. 117-2), restricts aid from the act 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.

Kentucky Attorney General Daniel Cameron (R) and Tennessee Attorney General Herbert Slatery III (R) filed suit in the district court earlier this year, arguing that the restriction is “an unprecedented power grab by the federal government.”

“At a time when the states are focused on helping their constituents overcome the devastating effects of the pandemic, Congress chose to use the pandemic to extend its control over state sovereignty in an unprecedented way,” the states said in the suit. 

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