A federal judge has denied Ohio’s request to block the U.S. Treasury Department from enforcing a provision in the recently adopted federal COVID-19 relief act that prevents states from using the aid it provides to offset reductions in net tax revenue.
U.S. District Judge Douglas R. Cole on May 12 denied the request without prejudice so that the state can raise the issue later. The decision in Ohio v. Yellen comes a day after another federal judge dismissed Missouri’s case over the provision.
Ohio and Missouri are among several states suing the federal government over a provision in section 9901 of the American Rescue Plan Act of 2021 (P.L. 117-2) that restricts the act's 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.”
In the opinion, Cole determined that the court has jurisdiction and that the state has “established a substantial likelihood (although by no means a certainty) of success on at least an aspect of its Spending Clause claim, and that Ohio is currently suffering irreparable harm.”
But the judge also found that the relief requested “does not prevent the irreparable harm that Ohio asserts as the basis for its request.”
“Ultimately, the court determines that, although the matter is justiciable, the preliminary relief that Ohio seeks is not warranted,” Cole said.
Ohio Attorney General Dave Yost (R) said in a May 12 release that “the trial court here agreed with our core argument: The federal government does not have the right to tell the states what to do with [their] tax policy. Imagine if a conservative federal government required states to reduce taxes as a condition for receiving emergency funding. We look forward to a final judgment."
According to the release, the state is requesting expedited final judgment.
Yost filed a motion for preliminary injunction March 17 in the U.S. District Court for the Southern District of Ohio seeking to block the provision’s enforcement, at least as applied to Ohio. Yost also filed a complaint against Treasury, Treasury Secretary Janet Yellen, and acting Treasury Inspector General Richard K. Delmar.
The federal government responded April 16, arguing that Ohio lacks standing to challenge the provision.
In the motion, Ohio argues that Congress exceeded its power under the spending clause when it passed the provision and violated the anti-commandeering doctrine.
The complaint argues that “Congress, through the Act, has coerced Ohio and its sister States into accepting a limitation on their sovereign authority as a condition for their being allowed to use badly needed federal funding.”