Three states challenging a provision under the American Rescue Plan Act that restricts states from using the act’s aid to offset reductions in net tax revenue claim they have standing because they were injured when Congress offered federal funds on the condition that they accept unconstitutional terms.
Louisiana, Mississippi, and Texas argue in a November 8 brief in Texas v. Yellen that the Biden administration’s motion to dismiss the case and motion for summary judgment should be denied. They also argue that the provision should be declared unconstitutional and permanently enjoined.
At issue is a provision in section 9901 of ARPA (P.L. 117-2) that restricts aid provided by the act from being used to “either directly or indirectly offset a reduction in the net tax revenue” of a state “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.”
The plaintiff states argue that the provision is unconstitutionally ambiguous and that it “not only prohibits the plaintiff states from eliminating taxes, reducing tax rates, or increasing tax credits; it also prohibits the adoption of enforcement policies regarding taxes which would lead to reduced tax revenues.”
The states say they have standing to bring their claims because they “were injured by Congress’s offer of federal funds on the condition that they agree to unconstitutional conditions,” and they reiterated their argument that the states suffered a “‘constitutionally cognizable injury’ when forced to choose between the ‘loss of federal funds’ or the invasion of their constitutional authority.”
Meanwhile, the Biden administration has urged the court to deny the states’ motion for summary judgment, saying the case should be dismissed for lack of standing and failure to state a claim.
The administration has argued that the states haven’t met requirements for pre-enforcement standing because they rely on “only mistaken interpretations of the offset provision or speculation about enforcement.” It claims that the states have misread the statute as forbidding states from changing taxes or reducing state tax revenues, when the provision only restricts states “from using Rescue Plan funds to ‘offset a reduction in the net tax revenue . . . resulting from a change in law.’”
But the states argue that they have standing to challenge the provision “before the Treasury attempts to recoup funds under ARPA.”
“The states have considered and passed tax legislation and will continue to do so. Those legislative acts could subject the states to recoupment by the Treasury Department. And there is a substantial threat of enforcement because ARPA authorizes the Secretary to attempt to recoup funds where the provision has been violated,” the plaintiff states say in the brief.
The states assert that the Biden administration is wrong in attempting to tie the question of ripeness to standing because they "suffered a concrete injury when ARPA was passed and continue to suffer one" and that their claims are "ripe for review because they are neither premature nor abstract."
The suit was filed in May in the U.S. District Court for the Northern District of Texas against the Treasury Department, Treasury Secretary Janet Yellen, acting Treasury Inspector General Richard K. Delmar, and the United States.