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States' ARPA Suit Should Be Tossed, DOJ Argues

Posted on Sep. 1, 2021

A lawsuit challenging a COVID-19 relief act provision that bars states from using federal funds provided by the act to offset reductions in net tax revenue should be dismissed because the 13 plaintiff states have failed to establish standing or state a claim, according to the Department of Justice

In an August 26 brief, the Justice Department argues in defense of the Treasury Department, Treasury Secretary Janet Yellen, and acting Treasury Inspector General Richard K. Delmar that the states have failed to establish standing and that the states’ burden of proof to establish standing has increased at this point in the suit, which means actual evidence must be provided. The brief says the states' motion for final judgment should also be dismissed.

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 Tenth Amendment and exceeds Congress’ authority under the Spending Clause.”

The August 26 brief comes in support of the defendants' August 12 combined motion to dismiss and opposition to the plaintiffs' motion for permanent injunction and declaratory relief.

The lawsuit 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). Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, Utah, and West Virginia are listed as plaintiffs.

ARPA appropriates nearly $200 billion in federal aid for states to respond to the COVID-19 pandemic, but the provision restricts that 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.

The plaintiff states assert that the provision violates the 10th Amendment and exceeds Congress’s authority under the spending clause because it is unconstitutionally ambiguous.

The states argue in response to the defendants' motion to dismiss that the court should enjoin enforcement of the provision and declare it unconstitutional. They claim they are entitled to relief as they have suffered significant injury by their loss of sovereignty. 

But the federal government argues in its reply brief that “states are not without recourse if they dislike the offset provision or have ambiguity concerns: they may decline the Rescue Plan funds, seek a better bargain in the halls of Congress, or work cooperatively with the Treasury Department.”

The defendants say the states have failed to establish each element required for pre-enforcement standing under Susan B. Anthony v. Driehaus because they haven’t alleged or established an intent to use federal funds to offset a reduction in net tax revenue and the Treasury Department hasn’t yet tried to recoup any funds under the act. They also claim that sovereign interest is not at issue and that “the only course of conduct implicated by the offset provision is using federal funds to pay for reduction in net tax revenue.”

The defendants also say the states have misinterpreted the unambiguity requirement in Pennhurst State Sch. & Hosp. v. Halderman, which established that funding conditions “may be ‘largely indeterminate’ so long as Congress gives ‘clear notice to states that they by accepting funds under the act, would be obligated to comply with’ the condition.”

“That the offset provision provides far more information than the Spending Clause requires — explaining the nature and scope of the funding condition — only underscores the impropriety of invalidating it,” according to the defendants.

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