Affidavit Makar Declaration Exhibits E-Z, State of Arizona v. Yellen, No. 2:21-cv-00514 (D. Ariz.), Doc. 11-2 (April 5, 2021)

Summary

Makar Declaration Exhibits E-Z, filed April 5, 2021 as Document 11-2 in State of Arizona v. Yellen, No. 2:21-cv-00514. The text opens with Exhibit E, a 3 On Your Side article from azfamily.com by Susan Campbell, posted Dec 14, 2020. It reports that Arizona's unemployment trust fund began 2020 at about $1.1 billion and had fallen to less than $100 million by December 2020, a 90% drop, and that Arizona has paid out more than $12.4 billion in unemployment benefits to more than 2 million people, according to a DES spokesman. The later text comes from a Tax Foundation page on the American Rescue Plan Act of 2021, which quotes Albany County Executive Daniel P. McCoy and Albany Mayor Kathy Sheehan and discusses the expanded child tax credit.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Cite this document

“Affidavit Makar Declaration Exhibits E-Z, State of Arizona v. Yellen, No. 2:21-cv-00514 (D. Ariz.), Doc. 11-2 (April 5, 2021).” Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/affidavit-makar-declaration-exhibits-e-z-state-of-arizona-v-yellen-no-edbbdbadcc/, SHA-256 e82d116a6d7729dfa76046999c83d8f51d12117b64e35cd5899e8a62dd8f3159.

Full text

Exhibit E
3/21/2021 Trust fund that covers Arizona employment plunged 90% this year | 3 On Your Side | azfamily.com

https://www.azfamily.com/news/investigations/3_on_your_side/originals/trust-fund-that-covers-arizona-
employment-plunged-90-this-year/article_15254750-3bfb-11eb-b4b1-a7d2c0202009.html

3 ON YOUR SIDE

Trust fund that covers Arizona
employment plunged 90% this year
CARES Act money could provide influx of cash

SUSAN CAMPBELL
POSTED DEC 14, 2020

PHOENIX (3 On Your Side) - Gov. Doug Ducey plans to use CARES Act money to support
Arizona's unemployment trust fund if it runs out of money in the coming months, 3 On Your Side
has learned.

During an interview in September, Department of Economic Services Director Michael Wisehart
predicted the state's unemployment trust fund could be exhausted in November 2020. At the
time, he said Arizona would be forced to borrow from the federal government to make
unemployment payments.

Interactive dashboard: Unemployment in Arizona

"You have to pay that money back through taxes on employers going forward," Wisehart said.

Things have changed since that September interview. The trust fund has hemorrhaged money,
but not as quickly as expected.

According to a review of state data, Arizona began 2020 with its unemployment trust fund sitting
at about $1.1 billion. By December 2020, the fund that provides a lifeline to unemployed
Arizonans had plummeted to less than $100 million, a 90% drop in less than one year.

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3/21/2021 Trust fund that covers Arizona employment plunged 90% this year | 3 On Your Side | azfamily.com

Trust fund balance drops
by 90% in 2020

Source: Brett Bezio, Arizona Department of Economic Security

It's really hard to predict things right
now because we've got two things
going on at once. On one hand, we're
very optimistic about the vaccine
and it rolling out and us getting back
to something that's more normal. On
the other hand, the pandemic is out
of control.
Dave Wells, Grand Canyon Institute

"That's the whole purpose of having an unemployment insurance trust fund, is having it there
when people need it. And we've needed it this year really badly," said Dave Wells, the research
director for the nonpartisan think tank Grand Canyon Institute.

Wells predicts the trust fund could reach zero sometime in March, but he expects it to rebound
quickly into positive territory.

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3/21/2021 Trust fund that covers Arizona employment plunged 90% this year | 3 On Your Side | azfamily.com

"Employers pay a tax to fund it, and the first tax is due at the end of the first quarter and mostly
paid in April," Wells explained. "In that scenario, I see the trust fund still having about $70 million
by the end of next year, a year from now.

The maximum weekly unemployment benefit in Arizona is $240 per week, the second-lowest in
the country. According to Wells, the rate of payments for state unemployment insurance will slow
down as people get jobs or exhaust their 26 weeks of benefits. But he is quick to point out there
is no crystal ball in such uncertain times.

"It's really hard to predict things right now because we've got two things going on at once," Wells
said. "On one hand, we're very optimistic about the vaccine and it rolling out and us getting back
to something that's more normal. On the other hand, the pandemic is out of control."

It is not unprecedented for the state's unemployment trust fund to dip into the red. During the
Great Recession, the fund hit zero, and the state borrowed money from the U.S. Department of
Labor to pay for benefits. Ben Petersen, a spokesman for Ducey, said the state has other options
during the pandemic.

"Arizona is planning to use some of its federal CARES Act funds to replenish the unemployment
trust fund should additional funds be needed," Petersen wrote in an email. "This will ensure that
Arizonans in need will continue to receive unemployment benefits and avoid a costly burden on
businesses and job creators."

Since the start of the pandemic, Arizona has paid out more than $12.4 billion in unemployment
benefits to more than 2 million people, according to DES spokesman Brett Bezio. The payments
include state unemployment insurance claims and federal Pandemic Unemployment Assistance
(PUA) claims.

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3/21/2021 Trust fund that covers Arizona employment plunged 90% this year | 3 On Your Side | azfamily.com

UI and PUA benefits paid
in Arizona
Total number of recipients:
2,063,833
Doing the math, that averages out to less than $6,050 per person.
It's not that straightforward, though, because some people will
have received more than others, depending on how long they
were unemployed.

Source: Arizona Department of Economic Security

More stories about unemployment in Arizona
New ID verification rules delay unemployment for some Arizonans

Hundreds of thousands of Arizonans could lose unemployment lifeline in weeks

Unemployment recipients will have to verify identity with new system through DES

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3/21/2021 Trust fund that covers Arizona employment plunged 90% this year | 3 On Your Side | azfamily.com

3.5M Arizona unemployment claims flagged for fraud while real claims fall through
cracks

AZ inundated with 3.4 million fraudulent unemployment claims

Criminals using dead Arizonans' information to file fraudulent unemployment claims

Ducey claims Arizona economy is 'booming' as unemployed lose federal relief

Arizona unemployment fraud victims wait more than a month for response from DES

Unemployment benefits showing up in random mailboxes in Arizona

Thousands of Arizonans receive bills for unemployment overpayments

Where Arizona stands 1 year into the coronavirus pandemic

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3/21/2021 Trust fund that covers Arizona employment plunged 90% this year | 3 On Your Side | azfamily.com
Susan Campbell

https://www.azfamily.com/news/investigations/3_on_your_side/originals/trust-fund-that-covers-arizona-employment-plunged-90-this-year/article_15254… 6/6
Exhibit F
ABOUT SERVICES STUDENTS CONTACT ~

0 Click here for COVID information and resources for New Yorkers.

•
Charles E. Leave a Help For

SCHUMER
UNITED STATES SENATOR FOR NEW YORK
COMMENT NEW YORK ERS

Newsroom Press Re leases

03.08.21

AFTER TIRELESS ADVOCACY, SCHUMER SECURES $23.8 BILLION IN
DIRECT AID FOR NEW YORK'S STATE & LOCAL GOVERNMENTS IN FIRST
MAJOR VICTORY AS MAJORITY LEADER, SCHUMER DELIVERS BILLIONS
FOR NY'S TAXPAYERS AND MUNICIPALITIES; BILL DELIVERS $35 BILLION
TO NYS AGENCIES, INCLUDING $12.6 BILLION TO NYS FOR FISCAL
RELIEF & SENATOR SECURES ADDITIONAL $10.8 BILLION DIRECT TO
LOCALITIES
State & Local Aid Has Been Top Schumer Priority Since Beginning Of Pandemic; Schumer Delivers Direct Federal Assistance To Every Community Of Every
S1ze, Keeping Local Economies Afloat, Frontline Workers on the Job & Main Streets Alive
State & Local Fiscal Relief Funds Provides a Whopping $12.568 To NYS, $6. 148 To Metro Cities, $3.98 For Counties, $825M For Small Cities, Towns, And
Villages, & $358M For NYS Broadband Program
Schumer To NY Municipalities and Taxpayers: Help Is On The Way'
Delivering on his promise of robust relief for New York State and localities, U.S. Senate Majority Leader Charles E. Schumer declared that "help is o n the way" and detailed the
contents of the $23.8 billion in state and local fiscal aid, including $12.56 billion for New York State's government and more than $10.8 billion for counties, cities, towns, and
villages, he secured for New York in the American Rescue Plan he led to passage in the Senate. Upon President Biden's signature, the American Rescue Plan will p rovide a vital
and substantial injection of funding for cash-strapped localities that can be used to pay for essential services, retain vital frontline workers, and offset lost revenues and increased
costs from the COVID-19 emergency.

Funds can also be LJSed for relief to small b usinesses, hard-hit industries, and infrastructure investments to help rebuild local economies. Schumer says the state and local funding
will keep local economies afloat and essential services running for communit ies, includ ing the roll out of vaccines. It is estimated that New York State's agencies and autho rities
will receive over $30 b illion from the American Rescue Plan, on top of the funds from t he state and local fiscal relief fund.

"After fighting this pandemic on the frontlines, New York's counties and municipalities were loud and clear: they needed help and they needed it now to keep frontline workers
on the job and prevent brutal service cuts. And today, to all towns, villages, cities, and counties throughout New York I say: help is on the way," said Senator Schumer. "As
Majority Leader, I was proud to make state and local funding my top priority as municipalities throughout New York and The American Rescue Plan will deliver the much deserved
relief for New York's local governments- to the tune of $23.8 billion - to get New York's municipalit ies the resources and funding they need to prevent layoff, to keep essential
services running, and to keep our Main Streets alive and able to rebound when we emerge from the pandemic."

The senator explained that the nation's econom ic recovery depends on the survival of state and local governments, which have been forced to make substantial layoff across the
nation as they struggle wit h revenue shortfalls caused by the COVID downturn. New York State lost billions of dollars in revenue compared to pre-pandemic years and counties
and other municipalit ies across the state have already had to cut thousands of jobs due to massive bLJdget shortfalls.

Concerned about the layoffs of public health care workers, firefighters, sanitation workers, teachers, and other vital public se!Vants across New York, Schumer has fought since the
beginning of the pandemic to deliver financial resources to help all counties, cities, towns, and villages recover. In addition to securing $150+ billion for New York in previous
COVID relief bill negotiations, Schumer visited the Southern Tier and Western New Yo rk and p ushed the previous administration to provide robust state and local aid that wo uld
benefit all Americans. After months of effort, the senator also successfully called for FEMA to provide 100% cost sharing to New York state, delivering billions more for the state to
cover costs related to the pandemic.

The state and local allocation for New York in the Schumer-driven American Rescue Plan will help local governments avoid further layoffs and local tax and fee increases that
would place a heavier burden on fam ilies and small businesses in crisis.

The full breakdown of the $23.8 b illion going to New York State and localit ies can be found here.

$23.8 Billion for New York - Total amount of fund ing p rovided to New York State through the state and local fiscal relief fund, to keep first responders, frontline health workers,
and other providers of vital services safely on the job as states and local governments roll out vaccines and fight to rebuild Main Street economies. Funding can be used for
assistance to households, small businesses, nonprofits, aid to impacted industries such as tourism, travel, and hospitality, investments in water, sewer, and broadband
infrast ruct ure, and to provide premium pay to frontline workers. Local governments o f every size, includ ing all count ies, cities, towns, and villages, receive dedicated federal aid
awards. A new $10 billion capital projects program also support state broadband deployment efforts. Funds are allocated in New York as follows:

• $12.569 Billion for New York Stat e Government
• $6.141 Billion for New York Metro Cities
• $3.907 Billion for New York's Counties
• $825 Million for New Yo rk's Small Cities, Towns, and Villages
• $358 Million for a New York State Broadband Investment Program

Eligible uses for the state and local funds as detailed in the American Rescue Plan, appear below. This information is subject to change:

Funds may be used by state and local governments for:

• Costs associated wit h responding to the COVID-19 public health emergency or its negative economic impacts, including but not lim ited to, assistance to households, small
businesses, and nonprofits or aid to impacted industries such as tourism, travel, and hospitality.
• To support workers performing essential work d uring the COVID-19 p ublic healt h emergency by provid ing premium pay to elig ible workers or by provid ing g rants to
eligible employers that have eligible workers who perform essential work.
• To cover revenue losses caused by the COVID-19 public health emergency.
• To make necessary investments in water, sewer, or broadband infrastructure.
Reactjons kom around New York·

"We acknowledge the leadership of Senator Schumer and the members of New York's Congressional Delegation who supported our local governments throughout this
pandemic. Without our Senator Schumer, this package wotJid not have included the federal assistance to counties and local governments. He has always been t here for New
Yorkers, and his resolve has only been strengthened d uring this this pandemic," said NYSAC Execut ive Director Stephen A cquario .

"Local governments have been on the frontline since the beginning o f the pandemic provid ing critical public health services and ensuring the well-being of our most vulnerable
citizens. For more than a year, we have continued this important work despite the immense challenges and fiscal uncertainty we have faced due to COVID-19 and the
subsequent economic fallout. We thank Senator Schumer for his continued advocacy, this support helps to ensure local governments throughotJt the nation, and the people they
employ, can continue the important and life-saving work they do every day," said New York Association of Counties President and Dutchess County Executive Marc Mo linaro.

·1 am profoundly thankful to Leader Schumer and his team for their tireless efforts to deliver COVID rel ief to state and local governments," said Erie County Executive M ark
Poloncarz. "Erie County has been on the frontline of the pandemic since day one, and this critical funding will allow us to continue fighting the virus and vaccinating o ur residents
while maintaining essential services and promoting the economic recovery. "

"We cannot have an adequate and full economic recovery w ithout direct aid to counties and localities t hat have been on the fro ntlines of the pandemic response. Senate Majo rity
Leader Schumer understood that and he fought for this historic funding included in the relief package passed on Saturday. Albany County will be receiving over $55. 1 m illion in
aid, while the combined total for o ur cities, towns and villages will come outto be more than $170 million, and I was proud to advocate for it overthe last year. I urge the Ho use
to take up this bill and get it passed quickly so it can be signed by President Biden and provide famil ies and businesses with the lifeline they desperately need," said A lbany
County Executive Daniel P. McCoy.

Albany Mayor Kathy Sheehan said , "The American Rescue Plan is going to help us keep our residents safe, frontline employees delivering essential services, businesses o pe n,
and cities thriving. A huge thank you to U.S. Senate Majority Leader Chuck Schumer fo r being a tireless advocate for this legislation and leading t he charge to secure its passage
in the US Senate. Our entire country needs this."

"We appreciate the tireless efforts of Senator Schumer, Senator Gillibrand, and Congressman Tonka to secure financial assistance for local communities, including the City of
Troy," said Troy Mayor Patrick Madden. "The Covid-19 pandemic has taken a significant financial toll on our community, impacting essential opera tions and services while
reducing much-needed revenues. We eagerly await final passage of the American Rescue Plan, and applaud President Biden and our federal representatives for their
commitment to rebuild our economy th rough this d irect emergency assistance program."

" Senator schumer has been working for most o f this past year to deliver local pandemic relief to municipalities like Schenectady. He visited City Hall this summer to redouble his
commitment and true to his word, in his first b ill as Majority Leader he has delivered. This funding w ill be enorm ously he lpfu l to us in dealing with the revenue we lost in the
pandemic and boosting our economic development moving forward, " said Schenectady Mayor Gary McCarthy.

"Buffalo has weathered immense challenges due to the COVID-19 pandemic," said Buffalo Mayor Bryon W. Brown. " I predicted the need for federal aid early on. Direct local
funding in this relief bill w ill ensure our recovery and I am confident Buffa lo will emerge st ronger and more resi lient than ever. I applaud President Biden, Leader Schumer, Speaker
Pelosi, Senato r Gillibrand, and Congressman Higgins for their leadership d uring this d ifficult time."

Rochester Mayor Lovely Warren said, "O ur City, and all local governments across the country, have been hit hard with both revenue shortfalls and expenses related to the
pandemic. Just like so many households, Rochester 's finances have been stressed and I'm grateful fo r Senator Schumer's leadership in delivering assistance for our city and all
the other localities across the nation that needed a boost . Working with his congressional colleagues and President Biden, Chuck Schumer d id w hat he does best-- fi ghting for all
of us here in New York. Thank you Senator Schumer for ensuring our city has the resources to keep fighting for ou r neighbors across every one of Rochester's neighborhoods."

"I commend Senator Schumer's leadership and determination. The American Rescue Plan will give Syracuse and communities across the nation the opportunity to not only
recover from the pandemic but to come back stronger and mo re compet itive," said Syracuse Mayor Ben Walsh. "It brings relief to people all over Syracuse w ho are suffering and
helps hundreds of city workers hurt by the fiscal impact of COVID-19. The aid com ing to Syracuse w ill help us offset what we've lost and prepare for the effects of the pandemic
that will surely li nger for years."

Monroe County Executive Adam Bello said, "The American Rescue Plan will deliver immediate and critical help to the families, workers, businesses and state and local
governments that have felt the brunt of t he econom ic downturn from the ongoing COVID-19 pandemic. I thank Sen Schumer for listening to the American people about w hat
they need to make it through this trying t ime, and for his leadership and determination that has delivered a plan that will provide real, tangible results for the people of Monroe
County and New York State. Funding provided by this p lan will help vaccination distribution, hire additional vaccinators, give strugg ling businesses t he chance to survive, further
address the needs of o ur schools and lift the weight of fear and worry from families facing eviction, foreclosure and food insecurity."

Onondaga County Executive McMahon said, "Local COLmties have been on the frontline since day one addressing the COVID-19 pandemic, and no one has understood that
better than Senator Schumer. Thanks to his t ireless efforts, Onondaga County will be able to receive desperately needed funding to not only make up for lost revenue but help us
recover stronger than ever. McMahon continued, "As we ramp up vaccinations, work to reopen schools and rebuild our economy, I know Onondaga County can rely on Senator
Schumer to be the advocate we need in Washington."

"Municipalities throughout New York State and the country have been negatively impacted by the Coronavirus pandemic. Because of strong advocat es like Senator Schumer, the
American Rescue Plan Act of 2021 provides m unicipalities wit h necessary resources to p rovide services and enhance the q uality of our residents. I commend the Senator for his
tireless efforts and thank him for his continued support," said Utica Mayor Robert M. Palm ieri

"When Westchester was facing our darkest days at the onset of t his pandemic, Leader Schumer instantly understood t he massive hole that would be left in our - and other local
governments'- btJdgets. With that in mind, he went to work. O ur Senate and House delegation tmderstood that the hole created in our btJdgets would result in less funding for
vital functions - like public health, safety and transportation - that County government provides. This funding is a lifeline that will allow us to keep these vital public functions
operating while easing the tax burden on already stressed residents. I sincerely thank Leader Schumer, Senator Gillibrand, Congressmen Bowman, Jones & Maloney and
President Joe Biden for their efforts on the American Rescue Plan," said W estchester County Executive Georg e Latimer.

The City of Newburgh has been extremely hard hit by the COVID-19 pandemic," said City of Newburgh Mayor Torrance Harvey. " The d irect funding for the City of Newburgh
that the American Rescue Plan provides will help LIS continue our efforts to defeat the virus and build back our City's economy. I thank Senator Schumer for his stead fast
leadership in making sure that the City of Newburgh and its residents have the tools needed to continue on despite the challenges that have come along w it h this cri sis."

"The American Rescue Plan is a huge win for every single American . This act restores faith that our government has our backs and can be a force for good when we are most in
need. On behalf of the 180,000 residents of Ulster County, I want to thank Majority Leader Chuck Schumer. None of this would be possible without his leadership, vision, and
relentless efforts, " said Ulster County Executive Pat Ryan.

"After a long and turbulent year, aid is finally here for Yonkers families, thanks to President Biden's and Senator Schumer's unwavering leadership. They recognized the needs of
cities like Yonkers, where the pandemic hit the hardest, devastating the economic and social progress achieved in recent years. Yonkers now has a clear path set for ourselves, our
schools, businesses and local community organizations to begin the road to recovery so we can continue to move forward," said City of Yonkers Mayor Mike Spano.

" The City of Kingston and our dedicated staff have worked around the clock to respond to this pandemic o n the frontlines, while as a city we d ealt w ith revenue loss and
econom ic hardship" said City of Kingst on Mayor Steve Nob le. "We thank Senator Schumer fo r his leadership in passing the American Rescue Plan, which will provide much-
needed d irect aid to the City of Kingston, and other cities across this nation, at a time when it is needed most so we can continue serving Kingst on residents. "

Rockland County Executive Ed Day said , "Just like many of our residents, Rockland County's finances have been hard hit by the added expenses and revenue shortfalls related to
the pandemic. While we took steps early on to limit the fiscal impacts of COVID-19, we in County government have been the boots on t he ground during this crisis and we have
done whatever was necessary to keep delivering the services that people count on, this funding will make that job just a little bit easier. I thank Senator Schumer and our entire
congressional delegation for delivering direct assistance to localities which will make all the difference as we work to fully recover from the pandemic."

"The American Rescue Plan includes critically needed funding for vaccinations, testing, schools and small businesses right here in Broom e County," said Jason Garnar, Broome
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Broome County Executive Jason Garnar. "A big thank you to Senator Schumer for helping make sure local governments in Broome County w ill get the funding we need to
supp ort our workers, fight COVID, and rebu ild our economy."

"Funding for State and Local Governments is a big win for mLmicipalities across the state and nation," said Richard C. David , Major of t he City of Binghamton. "As President of
the New York Conference of Mayors (NYCOM), I'm proud to have p layed a role working w ith Mayors throughout New York in advocating for this much needed direct relief. I'd like
to thank Senator Schumer for his relentless leadership and for working w ith municipalities, listening to us and fight ing fo r us. The funding for state and local governments w ill
allow m unicipalities to continue to support critical police, fire, EMS, and other essential services as we recover from the pandemic and rebuild o ur local economies."

###

ABOUT NEWSROOM SERVICES STUDENTS CONTACT OFFICES
Exhibit G
f 'I 1m a (foil 8TAX FOUNDATION subscribe w Donate ~
Federal Taxes State Taxes Global Taxes Tax Blog Pod casts Tax Basics About Us

March 3, 2021

State Aid in American Rescue Plan
Act Is 116 Times States' Revenue
177 Losses
& Jared Wa lczak 'I

Not e: The stat e and local revenue allocation table was u pdated on March 9th t o refl ect
Senate amendments modifying the state aid for mula.

Preliminary data suggest that states closed out calendar year 2020 w it h only $1.7 billion less
revenue than they gener ated in 20 19 (a decline of less t han 0.2 percent), not counting federal
assistance, while municipal governments actually experienced substant ial r evenue growt h
due to r ising property values. Yet the American Rescue Plan Act (ARPA) sets aside $350
billion in addit ional state and local aid. Incr easingly, federal proposals to provide a cash
infusion for stat e and local govern ment s has become a solution in search of a problem.
Ill Print this page

Forty-three states and the District of Columbia have now published revenue data for all 12
Subscribe
months of 2020; in t hose stat es, revenues are up $3.2 billion in aggregate compared to the
previous calendar year, t hanks to robust ga ins in financial market s and federal assistance that
• Support our work
has kept businesses afloat and provided benefits to individuals. Some of t hose are, indeed,
taxable benefits, in the case of enhanced and expanded unemployment compensation
benefits. For the remaining seven stat es, it is necessary to pr oject r evenues through the end
of t he calendar year based either on U.S. Census Bu reau dat a t hrough the t hree quarters, or,
in Nevada and New M exico, state data runn ing t hrough October and November respect ively.

These adjust ment s yield an aggregate $1.7 billion dec line in state revenues. Under the
American Rescue Plan Act, states wou ld r eceive $195.3 billion in aid, divided according to
each state's share of national unemployed wor kers. Under Senate amendments, a f urther
adjustment is made to ensure t hat each state receives, at minimum, the amou nt it was
allocat ed for purposes of the Coronavirus Relief Fund under the CARES Act. While some
conservat ive lawmakers have crit icized this allocation model (which benefits states w ith

steeper job losses) on the grounds that different st at e policies and approaches may yield
som e of this var iation and that the federal government should be neutral to these decisions,
we have argued previously t hat using t he change in unemp loyment is a more efficient
t arget ing method than allocat ing aid per capita. Far less defensible, however, is t he not ion
that aid to states should be 116 times the decline in state revenues-especially since the
federal government has already provided over $200 bill ion in fungible aid t o subnational
governments.

Local governments, meanwhile, would receive $130.2 billion, split evenly between cities and
counties, with aid to cities based on the existing formu la for Community Development Block
Grants (CD BGs) and county aid based on population. The CDBG formula takes into account
popu lation, poverty, and t he age and density of housing, as it was designed for grants
administered by the U.S. Department of Housing and Hu man Services (HUD) to promote
affordable housing and expand economic opportunit ies for low-income households. Dat a for
municipal r evenues are only available for the first t hree quart ers of calendar year 2020, but
local revenues actually rose by $29.8 bi llion over t hat period compared to the same period in
2019, and ther e is every reason t o believe that t his t raj ectory has continued. Local
governm ents have more revenue than they did a year ago, but t he American Rescue Plan Act
would still provide t hem w ith $130.2 billion.

The remaining $24.5 bill ion in the state and local aid packages would provide another $20
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the CARES Act, which allocated aid to the District of Columbia using the same formula used
for terr itories, the American Rescue Plan Act wou ld not only t reat D.C. as a state for purposes
of aid but wou ld provide the District w ith an add it ional $755 million payment to account for
what it would have received under the CARES Act under a state designation. The District of
Columbia r ecent ly announced a $526 million surplus.

Aid Distribution Amounts and Formulas
l evel of
Amount Distribution Formula
Government

State $195.3 Share of National Unemployment with CARES Act
Governments billion Minimum Payment

Local $13a .2 Popul ation ( Coun ties) and CDBG Criteria
Governments billion (Cities)

Territories $4.5 Base All ocation plus Population
billion

Tribal s2a .a Treasury Determination
Governments billion

Source: American Rescue Plan Act.

The following table shows each state's estimat ed revenue gains or losses in 2020, alongside
the state and local aid that would be allocated to each under the American Rescue Plan Act.
Federal aid as a percentage of loss is for t he state component only (state aid as a percentage
of state r evenue loss, w here states have lost revenue). A id per capit a incorporates aid to bot h
states and localities. The American Rescue Plan Act provides $1,066 in st ate and local aid per
capita nat ionw ide, and the $195.3 billion earmarked for st ate government s is almost 116
t imes the states' aggregate revenue losses. For state revenue data, we largely rely on monthly
t ax collections data collected by Marc Joffe at t he Reason Foundation, updated w here
appropriate and projected through t he end of t he year for the seven states w it h dat a
limitations.

State Revenues and State and Local Aid Under the Proposed American Rescue Plan Act
Change in State Revenue in Calendar Year 2020 vs. 2019, with Proposed Federal Aid Allocations
American Relief Act Aid Allocations Federal A id Calculat io ns

State Revenue Change Stat e Aid Local Aid Tot al Aid %of loss Per Capita

Alabama $563,716,794 $2, ass, 1a9, 9sa $1 'S9a ' 457 ' 564 $3 ' 97S , 567' 544 $S1 1

Alaska -$423' 777' 3S5 $1,2sa.aaa,aaa $257' 269 ' 324 $1' sa7 ' 269 ' 324 295% $2 , a6a

Arizona $359' 373' 4S6 $4, 727,3Sa,641 $2,545 , 326, 64a $7 ' 272 ' 7a7' 2S1 $999

Arkansas -$19,saa,aaa $1,625, sas , 134 $1' 19S, 939,47a $2 , S24 , 447,6a4 S21a% $936

California $6, 167,a9s,aaa $25 , 672,242,592 $14 , 943,2 11,S1S $4a, 615,454, 4a9 $1 ' azs

Colorado sss3, ss7, aaa $3 ' S94' as6' 649 $1 'S79 ' 159' Sl s $5 , 773 , 246, 467 $1 , aa3

Connecticut -$242,259, S47 $2,6a7,6S5,594 $1 , 64a , 619,sas $4 , 24S , 3a5 , 1a2 1a76% $1 ' 192

Delaware -$263' 695' 643 $1, 2sa, aaa,aaa $3a5 , 135 , 7a4 $1, 555 , 135,7a4 474% $1 ' 597

District of Columbia -$434. 62a , aaa $1 '712,325,4S7 $493,41a, 164 $2 , 2a5 , 735,651 sas% $2' a75

Florida -sz. 634, 9aa, aaa Sla, an . 563,954 $6 , a47' 5S5,455 $16,125,149 , 4a9 3S2% $751

Georgia Ss9s, 533, aaa $4, 5S4, 35a, 259 $3,565 , 534, as6 $S, 149 , SS4,345 $76S

Hawaii - $1 '1 51' 3SS' 697 $1 '6a7' 573 ' 544 $4S1 'a24' a7s sz, ass, 597,622 14a% $1 '475

Idaho $4S4' 1a3' S96 Sl, zsa,aaa, aaa $642 , 99, , , as $1 ' S92, 991 ' laS $1 'a 59

Illinois - $443' 2a9' 773 S7, 37S, 6aa, 932 $5,743,479,4 13 $13, 122,asa, 345 1665% $1 'a36

Indiana -s22s, 7aa, aaa $3,a14,2S7,495 $2,S31 , a54, lSS $5 , S45, 34 1 ' 6S4 131S% $S6S

Iowa - $43' 66a' 455 $1 '35S, 22S , 9S3 $1 ' 496 , 214, 69a $2,S54 , 443,673 3111% $9a5

Kansa s $13,514, S96 $1' 561 '95a, 9 1a $1,154 , 157,645 $2,716, 1aS,555 $932

Kent ucky $342' a 59' 355 $2' 4a3' Sa6' 436 $1 'S42, a16, 9S6 $4' 24 5' S23' 422 $95a

Louisiana -$514, S32, 133 $3, 16a,523,3S1 $1 '96a, 935,249 $5,12 1 '45S , 63a 614% $1' 1a2

Maine $11a,714,34S $1,2sa.aaa , aaa $645,944, 71S $1 ,S95,944 , 7 1S $1,41 a

Maryland -$2,6a4, 7S2, 91a $3' Sl 1 '534' 7SS $1 '952 ' 954' 533 $5 , 764 , 4S9,321 146% $953

Massac husetts $5a3, 15S, 772 $4,444,672 , 46S $3 ' 71 s ' 2S7' a46 $S, 162 ,959,514 $1' 1S4

Michigan s21 s, 473, aaa $5, 569' 433' 975 $4,394,51 a, 6a7 $9,963,944, 5S2 $99S

Minnesota - S47a. 979, aaa $2, 53S, 554,243 $2' as9' 2S7' 955 $4' 627' S42 ' 1 9S 539% $S21

Mississippi $1a6,565,S29 $1 '777' 3a2 ' 931 $1 , 259 , a9S,66S $3' a36' 4a1 ' 59S $1, a2a

Missouri $52' 965' 166 $2, 773,95a , sa6 $2 ' 499 ' 324' 557 $5, 273,275 , 363 $S59

Montana - $66, sss, aaa $1, zsa, aaa, aaa $4a9' 233' 237 $1 '659' 233' 237 1S7S% $1 '552

Nebra ska $162,771' 567 $1, zsa, aaa,aaa ssaz ' 7S1 '93S $2,a52 ,7S1 ,93S $1 'a6 1

Nevada -$65a' 334' 637 $2,9a2,454,9S2 $945,a7a,41S $3,S47,525 , 399 446% $1 '249
~· - · ·· ., ___ _.. --
.; ... <: ~ r. .......... ..... ..........
" ....<: ..... .............................. ,.. <: <:n "~ <: .. n"
" n"n "A <: ., n..,
New Hampsn1 r e -i)::>4, b t:H1, tltltl i) I, L::>tl, tltltl, tltltl i)OOH, L 4 0, l l:S.:S i) l , l:S tll:S, L4::>, l l:S.:S LLHY'1o

New Je r sey -$145, 193,999 $6,337 , 929,2 15 $2' 944 ' 569' 244 $9,281' 589,459 4365% $1 ' 945

New Mexico -$169,423 , 717 $1' 594 ,335,625 $838 , 789,675 $2,433, 11 6,399 994% $1 '1 6e

New Yo r k -$1 '229' 293' 949 $12' 379' 759 ' 682 $1e , 612 , 147,641 $22' 991 '997' 322 1een $1 '1 82

No r th Ca r olina $3 53 , 799, 999 $5 , 196 , 748,534 $3 ' 783 ' 654' 988 $8 ' 98e ' 493' 522 $856

No r th Dakota -$634, 998,998 $1 , 2se , eee, eee $278,536,341 $1 ' 528 , 536,341 197% $2 , ee6

Ohio $1 ,386, 444, ee9 $5,553 ,441 '961 $5' 41 5 ' 968' 242 $1e , 969, 41e, 294 $938

Oklahoma -$529, see , 99e $2,1 41,538,421 $1 '392 ' 397' 629 $3,533,936, e41 411% $893

Oregon -$634' 914 ' 734 $2,568,859,439 $1 , 54e , 499,474 $4 , 1e9 , 358,9 13 4e5% $974

Pennsylvania - $67 , 636,eee $7 ' 183 ' 557' 197 $5 , 765, 269, 175 $12 , 948 , 826,372 1e621 % $1 'e11

Rhode Island -$271 '333' 333 $1, 2se , eee,eee $592' 841 '749 $1 ' 842, 84 1 '749 461 % $1 ' 74e

South Carolina -$272 , 6ee , eee $2, e63 ' 612' 223 $1 , 626 , 6ee,e61 $3 , 69e , 212,284 757% $717

South Dakota $131,992,878 $1,2se,99e,999 $345 , e24, 191 $1 ' 595 , 924, 191 $1 ' ae3

Tennessee $135 , 46 5 ,e9e $3' 763' 168 ' 292 $2, 4 64 , 71e,251 $6 , 227 , 878,453 $912

Texas -$4,981 , a12, eee $16,445 ,2 51 , 2e4 $1e,337,277,468 $26 , 782,528,672 4e3% $924

Utah $727 , 6ee, eee $1 '493, 813, 67e $1 ' e12 , 752,533 $2 , 5e6 , 566,2e3 $782

Vermont $189,76e,eee $1, 2se , eee,eee $3e5' 917' 28e $1, 555, 917,28e $2 ' 494

Vi rginia $444 , 49e, e99 $3' 7e9' 339' e72 $2,676 , 624 , 514 $6 , 385 , 963,586 $748

Washington $637,67B,e99 $4, 188,785 , 928 $2' 4 35 , 472' 64e $6 , 624 , 257,668 $87e

West Virginia -$114 , 495,9ee $1,23e,617,479 $839' 792' 297 $2 , e7e, 319,777 1e75% $1' 155

Wisconsin $2 , 344 , 131 , 9ee $3' 158' 922 ' 885 $2,493 , 465,345 $5 , 651 ' 488, 23 1 $971

Wyoming -$192, 1ee , 7e7 $1, 2se, 9ee , e99 $131 , 3 11,647 $1 ,381 , 311,647 651% $2 ' 387

Tribal Gove r nments unknown s2e , eee, eee, eee s2e , eee, eee, eee n/a n/a

U.S. Territori es unknown $4, see, eee, eee $2 , 173 , 214 , 858 $6 , 673 , 214,858 n/a $1' 87e

State Subtotal - $7' 689, 7e2, 94e $795, 3ee, eee, eee $728, e26, 785, 742 $323' 326' 785, 742 77558% $983

u.s. Totals n/a $279, see, eee, eee $73e, 2ee. eee, eee $35e, eee, eee, eee n/ a $7, e66

Notes: State revenues are projected through the end of calendar 2020 in seven states where full -year data are not available (AK. MO. NV, NM. OR, Rl. W'f). Federal aid as a percentage of revenue losses is specifically for state aid as
a percentage of state revenue losses. States with revenue gains over the period are excluded. Per capita aid incorporates aid to both state and local governments.

Sources: American Rescue Plan Act; monthly state revenue reports (Reason Foundation data supplemented by the Tax Foundation); Tax Foundation analysis.

Prior federa l legislation in response to the COV ID -19 pandemic has already included
substantial aid to st ates, some of which was flexible enough to be used to backfill any st ate
revenue losses. The Families First Act, t he CARES Act, and t he Response and Relief Act
collectively provided about $212 bill ion in fungible aid to state and local governments, and
states have also been empower ed to use a substantial portion of the $150 billion provided
under t he Coronavirus Relief Fund to cover existing expenses, like t he salaries of public safety
and pu blic healt h officials. This relief compares favorably to t he $144 billion provided during
t he Great Recession, even t hough state tax revenues ult imately declined about 10 percent
du ring the Great Recession, compared to less t han 0.2 percent in 2020. W ith local revenues
up in aggregate, t he need for an additional $350 billion in aid is decidedly u nclear. Stat es were
understandably worried about t heir finances early in the pandemic, but as state revenue
outlooks brightened, the demand for aid became divorced f rom reality.

This is not to say that ever y state or local government is doing well. Stat es with a heavy
reliance on t he energy indust ry are str uggling, a problem w hich predates t he pandemic but
was exacerbated by it. Tou rism destination states have also been adversely impacted by t he
pandemic. Consequent ly, the worst losses are in energy states li ke A laska and North Dakota
(both of which facing losses in excess of 20 percent of revenue), while st ates like Florida,
H awaii, and Nevada also have losses ranging from 7 t o 14 percent , even t hough average
revenue losses are -0.2 percent , t he median is -0.4 percent, and 23 states saw revenue gains.

Similarly, most localit ies did well, but a few are clearly struggling, often because of t heir
chosen tax structure. Nationwide, property taxes account for 72 percent of local tax revenue,
w it h local sales tax responsible f or most of t he remainder. A handful of cities, however, lean
heavily o n loca l income taxes which only generate revenue if people are living or working in
t he city. N ew York City and Philadelphia, in particular, rely heavily on municipal income taxes
and face significant shortfalls even t hough local governments have seen annual revenue
growth as a whole. These cha llenge are real, but the federal legislat ion's $350 bil lion price tag
has no real connection to actual needs.

Where states ore struggling, however, is with the intense demands on their unemployment
compensation syst ems. Even though t he fed eral government is spending three dollars for
every dollar states spend on unemp loyment benefit payments, t he state share is st ill d aunting.
States paid out $ 144 bill ion in benefits in 2020, compared to about $30 billion in a typical
year, and t heir trust funds are deplet ed, with many st at es taking out repayable federal loans,
called Tit le XII Adva nces, to cover current needs. Eventually, states w ill have to replenish
t hese f unds, and to do so, t hey w ill have to raise employment t axes drastically-with taxes
po tentially going up by t housa nds of percent. To meet an immediat e state need and fend off
ruinous tax increases on rehir ing, t he federal government could consider shifting from a
system that provides general aid on t he basis of unemployment t o one that of fsets some of
t he st ates' unemployment compensation cost s. Short of this, states receiving federal aid well
in excess of general fund needs would do well to consider deposit ing t he money into their
unemployment compensation t rust f unds.

Enhancing t he solvency of unemployment trust funds meet s a real need. A $350 billion bailout
package w hen state revenues are fiat does not.

Related Resources

COVID-19 Tax Resource Center

American Rescue Plan: Details & Summary

U.S. COVID-19 Relief Provided More Than $60,000 in Benefits to Many
Unemployed Families

Does the American Rescue Plan Ban State Tax Cuts?

Which States Are Taxing Forgiven PPP Loans?

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About the Author

Jared W alczak
V ice Pr esident of State Projects
Jared is Vice President of State Projects with the Cent er for St at e Tax
Policy at the Tax Foundation. He previously served as legislative
director to a member of the Senate of Virginia and as political director
for a statewide campaign, and consulted on research and policy
development for a number of cand idates and elected officials.

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Exhibit H
3/22/2021 Senate’s $1.9 Trillion Spending Bill Criticized For Blocking State Tax Relief, Rewarding Bad Gubernatorial Behavior

Mar 6, 2021, 07:06am EST | 6,464 views

Senate’s $1.9 Trillion Spending
Bill Criticized For Blocking State
Tax Relief, Rewarding Bad
Gubernatorial Behavior
Patrick Gleason Contributor
Policy
I cover the intersection of state & federal policy and politics.

U.S. Senate Majority Whip Sen. Dick Durbin (D-IL) speaks as Senate Majority Leader Sen. Chuck ... [+]
GETTY IMAGES

“Why would you want to raise taxes when you don't have to?” That’s a
question Connecticut Governor Ned Lamont (D) rhetorically posed in
response to calls from fellow Democrats for tax hikes on upper income

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3/22/2021 Senate’s $1.9 Trillion Spending Bill Criticized For Blocking State Tax Relief, Rewarding Bad Gubernatorial Behavior

households. While Governor Lamont is rejecting calls to enact what would
be Connecticut’s third income tax increase in the past decade, the Nutmeg
State governor’s position is a departure from the norm in his party, as his
Democratic counterparts in other governors’ mansions are moving to
impose state-level tax increases this year to go along with whatever tax hikes
President Joe Biden is able to enact.

While prominent blue state governors have released new budget proposals
that call for state tax hikes in New York, Illinois, Pennsylvania, and
Wisconsin, congressional Democrats are now concerned that Republicans
will take red state fiscal policy in the opposite direction by cutting taxes in
the places where the GOP controls state government, which is nearly half of
the country. Senator Chuck Schumer (D-NY) has gone so far as to include
language in the new $1.9 trillion spending package that prevents federal aid
from being put toward state tax relief.

A managers amendment to the Senate version of the $1.9 trillion spending
package that passed the House on February 27, which sends another $350
billion to state governments on top of the hundreds of billions they’ve
already received through previous relief packages, stipulates that states or
territories “shall not use the funds provided under this section or
transferred pursuant to section 603(c)(4) 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.”

What that means is Senate Majority Leader Schumer and congressional
Democrats want to block state legislators and governors from returning the
next round of federal aid to states back to taxpayers in the form of tax cuts
or rebates. Yet lawmakers in many states across the country have already
begun moving forward with various forms of state-level tax relief to enact in

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3/22/2021 Senate’s $1.9 Trillion Spending Bill Criticized For Blocking State Tax Relief, Rewarding Bad Gubernatorial Behavior

2021 that is not subject to these restrictions included in the $1.9 trillion
spending bill.

Governors and legislators in West Virginia and Mississippi are advancing
legislation to phase out their state income tax. In New Hampshire, a state
where Republicans won back control of the statehouse in 2020, lawmakers
have proposed legislation to eliminate the Granite State’s tax on investment
income (the state already does not tax wage income).

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Tennessee is another no-income-tax state with one of the lowest tax burdens
in the country. But as in New Hampshire, lawmakers in Tennessee are still
finding ways to provide tax relief. Tennessee Representative Ron Gant (R)
has proposed legislation to eliminate the remnants of the Volunteer State’s
professional privilege tax, which used to apply to more than 20 professions
but now applies to only seven thanks to enactment of a 2019 bill that
repealed the levy for most jobs. Legislation to enact income tax cuts and
other forms of tax relief have been proposed or will soon be introduced in a
number of other states where Republicans control both chambers of the
state legislature.

Senate restrictions on the next round of state aid do not affect state tax relief
efforts already in the works and others soon to be proposed. But this
prohibition will prevent state officials from using any of the $350 billion in
additional funds to replenish state unemployment compensation funds,
which is among the most pressing needs and, according to the Tax
Foundation’s Jared Walczak, “would be one of the most responsible ways

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3/22/2021 Senate’s $1.9 Trillion Spending Bill Criticized For Blocking State Tax Relief, Rewarding Bad Gubernatorial Behavior

states could spend a large, but one-time, infusion that isn’t substantially
needed to backfill lost revenues.”

In addition to the restrictions on the use of state aid, the formula by which
state aid is divvied out in the $1.9 trillion spending bill is also coming under
fire. A bipartisan group of 22 governors issued a joint statement on
February 27 urging the Senate to amend the formula. The new spending bill
determines the amount of federal aid based on state unemployment rates,
which these governors see as rewarding bad behavior and poor, unjustified
decisions about restricting commerce.

“Unlike all previous federal funding packages, the new stimulus proposal
allocates aid based on a state’s unemployed population rather than its actual
population, which punishes states that took a measured approach to the
pandemic and entered the crisis with healthy state budgets and strong
economies,” notes the joint statement, which was organized by South
Carolina Governor Henry McMaster (R) and signed by nearly half of the
nation’s governors.

"A state’s ability to keep businesses open and people employed should not
be a penalizing factor when distributing funds,” the gubernatorial coalition

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3/22/2021 Senate’s $1.9 Trillion Spending Bill Criticized For Blocking State Tax Relief, Rewarding Bad Gubernatorial Behavior

statement added. “If Congress is going to provide aid to states, it should be
on an equitable population basis.”

Senator Lindsay Graham proposed an amendment to the $1.9 trillion
spending package that would revert back to the state aid funding formula
used in the CARES Act. That amendment was defeated by a 48 to 51 vote in
the wee hours of Saturday, March 6, shortly after 2:00 AM.

“The Democratic proposal creates a totally new formula for state and local
government, which disproportionately rewards blue states like New York
and California,” Senator Graham said. “My amendment retains and keeps in
place the CARES formula that was used in the bipartisan package that
passed 96-0. It’s a much fairer and better allocation for the country as a
whole. Many states benefitted from the CARES formula and it should
remain in place.”

In addition to thwarting state-level tax relief and basing the next round of
federal aid to states on a contested funding formula, the new federal
spending bill also entices states to commit to higher levels of spending in
perpetuity. It does so by increasing the federal funding match for states that
expand Medicaid in accordance with Obamacare. This promise of more
money from Washington is an attempt to get governors and lawmakers in
the dozen states that have yet to impose Obamacare’s Medicaid expansion to
finally do so. Critics of Obamacare’s Medicaid expansion point out that
imposing it will make future state tax relief less likely and future tax hikes a
greater possibility, as it adds pressure to the category of state spending that
is already growing fastest.

Between its restrictions on state tax relief, a controversial funding formula
that many believe rewards bad gubernatorial behavior, and its provision
enticing states to permanently grow the size of their governments, it’s not
surprising that governors from both parties have spoken out against the $1.9
trillion spending package now working its way to President Biden’s desk.
What would be surprising is if enough Democratic senators shared these
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3/22/2021 Senate’s $1.9 Trillion Spending Bill Criticized For Blocking State Tax Relief, Rewarding Bad Gubernatorial Behavior

objections such that it derailed the whole package. That’s not expected to
happened but only time will confirm.

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Exhibit I
COVID-19 Policy Update

Summary of American Rescue Plan Act of 2021 Contact Information
If you have any questions
March 10, 2021 concerning this alert,
please contact:
G. Hunter Bates
On Wednesday, March 10, the House passed the Senate-approved version of H.R. Partner
1319, the American Rescue Plan Act of 2021, on a 220-211 vote (title-by-title hbates@akingump.com
summary available here). No Republicans supported the bill, and one Democrat, Rep. Washington, D.C.
Jared Golden (D-ME), opposed the bill. Rep. Kurt Schrader (D-OR), who previously +1 202.887.4147
voted against the bill, voted to support the measure, which aims to accelerate activities Brian Arthur Pomper
to address the virus and provide additional economic support to individuals, state and Partner
local governments, and small businesses. The bill provides for a total of $1.88 trillion in bpomper@akingump.com
federal investments. Washington, D.C.
+1 202.887.4134
Below, please find a summary of key provisions in the package.
Charles W. Johnson IV
Vaccines and Testing Partner
johnsonc@akingump.com
The measure notably provides a total of $91 billion for the Department of Health and Washington, D.C.
+1 202.887.4295
Human Services (HHS) for a number of coronavirus activities, including for
accelerated research, development, manufacturing and distribution of vaccines and James Romney Tucker Jr.
therapeutics; diagnostic testing and contact tracing; and increasing the health care Partner
workforce, among other things. jtucker@akingump.com
Washington, D.C.
$7.5 billion is set aside for the Centers for Disease Control and Prevention (CDC) to +1 202.887.4279
prepare, promote, administer, monitor and track vaccines. $7.6 billion is also included Casey Christine Higgins
for vaccination, testing and associated activities at Community Health Centers, as well Senior Policy Advisor
as $7.7 billion for HHS to establish, expand and sustain a public health workforce. cchiggins@akingump.com
Washington, D.C.
The package provides $47.8 billion for HHS activities to detect, diagnose, trace and +1 202.887.4223
monitor COVID-19 infections, directing HHS to implement a national strategy for
Christopher A. Treamor
testing, contact tracing, surveillance and mitigation. Approved use of these funds
Counsel
includes facilitating activities related to the distribution and administration of tests and ctreanor@akingump.com
other supplies for testing; expanding testing and contact tracing capabilities with Washington, D.C.
respect to laboratory capacity, community-based testing sites and mobile testing units, +1 202.887.4551
among other things; and supporting the nation’s public health workforce.
Taylor M. Daly
$6.1 billion is set aside for research, development, manufacturing, production and Senior Public Policy Specialist
tdaly@akingump.com
purchase of vaccines, therapeutics and ancillary medical products, and $10 billion is
Washington, D.C.
set aside to support the production, purchase and distribution of critical materials and
+1 202.416-5541
equipment under the Defense Production Act (DPA).

1
The measure provides $50 billion, to remain available through fiscal year (FY) 2025, to
the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund in order
to reimburse state and local governments for COVID-19-related expenses. Also of
note, the amended version of the bill includes $8.5 billion for rural health care
providers.

Relief to State and Local Governments
The bill provides $219.8 billion, available through December 31, 2024, for states,
territories and tribal governments to mitigate the fiscal effects stemming from the
public health emergency with respect to COVID-19. Of this amount, a total of $195.3
billion is set aside for direct federal aid to states and D.C., $4.5 billion in payments to
territories, and $20 billion for payments to tribal governments. Further, the language
sets aside additional funds for D.C. in the form of $755 million in retroactive
Coronavirus Aid, Relief and Economic Security (CARES) Act funding. The bill also
provides $50 million, to remain available until expended, for the costs of administration
of these funds.

The bill provides a total of $130.2 billion, to remain available through December 31,
2024, for metropolitan cities, municipalities and counties. Of this amount, $45.57 billion
is set aside for payments to metropolitan cities using the formula for Community
Development Block Grants, $65.1 billion for counties with populations of 200,000 or
more, and $19.53 billion for cities and counties with populations under 50,000. The
language stipulates that amounts provided to a locality cannot exceed 75 percent of
the local government’s budget as of January 27, 2020.

These funds for state governments, metropolitan cities, municipalities and counties
may be used to cover costs incurred to:
• Respond to the public health emergency with respect to COVID-19 or its negative
economic impacts, including assistance to households, small businesses and
nonprofits, or aid to impacted industries such as tourism, travel and hospitality.
• Respond to workers performing essential work during the public health emergency
by providing premium pay to eligible workers or grants to eligible employers.
• Provide government services to the extent of the reduction in revenue of states,
territories or tribal governments due to the public health emergency.
• Make investments in water, sewer or broadband infrastructure.

Two restrictions on the use of funds are outlined in the language. States and territories
are barred from using funds either to directly or indirectly offset a reduction in their net
tax revenue resulting from a change in law, regulation or administrative interpretation
during the covered period that reduces or delays any tax or tax increase. Further,
states, territories, metropolitan cities, municipalities and counties are also prohibited
from using funds for deposit into any pension fund.

With respect to reporting requirements, all states, territories, tribal governments,
metropolitan cities, municipalities and counties receiving payments must submit
“periodic reports” with a detailed accounting of the uses of funds.

A breakdown of estimated allocations to state and local governments is available here.

Relief to Individuals

© 2021 Akin Gump Strauss Hauer & Feld LLP 2
For individuals, the package includes an additional $1,400 in recovery rebates in order
to supplement the $600 provided in December and fulfill Democrats’ promise to
provide $2,000 in economic impact payments for taxpayers.

The measure includes an expansion of the Child Tax Credit (CTC) and Earned Income
Tax Credit (EITC), nearly tripling the maximum EITC for childless workers. The
package increases the amount of the CTC, from $2,000 to $3,000, with a higher
$3,600 credit for children under the age of 6, also allowing the CTC to be fully
refundable.

Additionally, this bill includes an expansion of the Child and Dependent Care Tax
Credit, which includes increasing the credit so households can receive a total of up to
$4,000 for one child or $8,000 for two or more children.

After the House initially adopted the legislation and it moved to the Senate, Democratic
leadership negotiated a $300-per-week unemployment supplement in lieu of the
House-passed $400, as well as lower income thresholds for those receiving the
$1,400 recovery rebate, to secure the legislation’s passage.

In the previous House bill, the phaseout began at $75,000 adjusted gross income
(AGI) and ended at $100,000 AGI. In the subsequent Senate version of the measure,
the phaseout still begins at $75,000 but ends at $80,000 instead of $100,000.
Similarly, for joint filers, the phaseout still begins at $150,000 but ends at $160,000
rather than $200,000 AGI.

Other provisions of note in the package include $21.55 billion in Emergency Rental
Assistance; $5 billion to support communities’ efforts to provide supportive services
and safe housing solutions; and $9.961 billion in funding through the Department of
the Treasury to states, territories, tribes and tribally designated housing entities to
provide direct assistance to homeowners.

Relief to Businesses
The American Rescue Plan Act notably includes the Restaurants Revitalization Fund,
which is based on the original $109 billion Real Economic Support That Acknowledges
Unique Restaurant Assistance Needed To Survive (RESTAURANTS) Act passed by
the House last year and provides $28.6 billion in relief for small and mid-sized
restaurants. It also added an additional $1.25 billion in funding for the $15 billion
Shuttered Venue Operator Grant (SVOG) program passed in December to provide
relief to independent live music venues, performing arts centers, movie theaters and
museums.

The measure contains new funds to support small businesses, providing $15 billion in
new funding for Targeted Economic Injury Disaster Loan (EIDL) grants. Regarding the
Paycheck Protection Program (PPP), the bill expands program eligibility to include
additional nonprofits such as 501(c)(5) labor and agricultural organizations and
community locations of larger nonprofits, allocating $7 billion for this purpose. In
addition, it permits recipients of SVOG funding also to apply for a second PPP loan.
The measure also provides $10 billion for the State Small Business Credit Initiative
(SSBCI) to allow state governments to create programs which utilize private capital for
low-interest loans and other investment to support entrepreneurs.

© 2021 Akin Gump Strauss Hauer & Feld LLP 3
The bill extends and expands the Employee Retention Tax Credit (ERTC) through
December 31, 2021; allows certain businesses to claim the credit for a greater share
of employee wages; and expands the credit to cover newly formed businesses.

Regarding paid sick leave, the package provides an extension and expansion of the
paid sick and Family and Medical Leave Act (FMLA) leave tax credits created in the
Families First Coronavirus Response Act of 2020. Specifically, it provides payroll tax
credits for employers who voluntarily provide paid leave through the end of September
2021 and expands eligibility to state and local governments that provide this benefit.

akingump.com

© 2021 Akin Gump Strauss Hauer & Feld LLP 4
Exhibit J
3/22/2021 Latest COVID-19 Relief Bill Brings State Tax Policy To A Halt | McDermott Will & Emery - JDSupra

March 17, 2021
Latest COVID-19 Relief Bill Brings State Tax Policy To A Halt
Eric Carstens, Stephen Kranz, Mark Nebergall
McDermott Will & Emery
+ Follow Contact

On March 11, 2021, US President Joe Biden signed the American Rescue Plan Act of 2021
(ARPA), the COVID-19 relief bill that includes $350 billion in relief to states and localities. To
prevent states from using federal relief funds to finance tax cuts, Congress included a clawback
provision requiring that any relief funds used to offset tax cuts during the next three years be
returned to the federal government. Here is the text of the provision:

A State or territory shall not use the funds provided under this section or transferred
pursuant to section 603(c)(4) 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.

This language broadly prohibits states from taking legislative or administrative action through
the end of 2024 that reduces state tax revenues by any means (deduction, credit, delay, rate
change, etc.) if doing so could be characterized as the use of federal relief funds to offset, directly
or indirectly, the tax reduction. Practically speaking, this limitation will completely hamstring
state and local governments from the normal ebb and flow of tax policy changes, adjustments and
interpretations. Taken to its logical conclusion, this language freezes state legislative and
administrative tax policy development out of fear anything they may do would require the return
of federal relief funds. We expect the US Department of the Treasury will issue guidance
clarifying this provision in the coming weeks.

Practice Note: This provision of ARPA is, in our view, the most significant federal pre-emption
of state tax policy in history. For the next three years, legislators and tax administrators alike will
be scrutinized as their tax policy decisions are evaluated through the lens of this prohibition. This

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level of congressional control over state tax policy decisions and fiscal autonomy likely violates
the Tenth Amendment of the US Constitution and would dismay the framers’ basic notions of
federalism.

While Congress has the ability to limit the use of federal funds in ensuring its policy goals are
accomplished, the overly broad state tax limitation adopted by Congress goes far beyond its
stated purpose and prevents states from furthering ARPA’s goals by using tax policy to craft their
own COVID-19 relief measures. Any regulation or administrative interpretation that reduces state
tax revenue or delays the implementation of a tax is, effectively, barred by the unprecedented
intrusion into state tax policy-making.

The effects of ARPA’s state tax limitation are immediate and far-reaching. It will chill continuing
state efforts to couple/decouple state tax codes to or from the Tax Cuts and Jobs Act of 2017.
Additionally, ARPA already stalled legislation pending in Maryland that would delay, for one
year, implementation of its digital advertising services gross receipts tax, restoring return filing
and tax payment deadlines due this April. These a just a few of the many examples of state tax
bills, regulations and administrative guidance abruptly halted by Congress through the
enactment of ARPA.

Legislative Fix?

While it is too early to tell whether Congress will take remedial action walking back this intrusion
into state tax policy, there is a proposal pending in the US Senate that would do so. Specifically,
on March 11, Senator Mike Braun (R-IN) introduced a bill (S. 730, the Let States Cut Taxes Act)
that would remove the prohibition. The bill was referred to the US Senate Committee on Finance
upon introduction and, if enacted, would retroactively repeal the jaw-dropping congressional
intervention in state tax and fiscal policy. Stay tuned for more on this development.

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Exhibit K
Four Questions Treasury Must Answer
About the State Tax Cut Prohibition in
the American Rescue Plan Act
FISCAL Jared Walczak
FACT Vice President of State Projects
No. 754
Mar. 2021

Key Findings
• The American Rescue Plan Act’s restriction on states’ Fiscal Recovery Funds
being used to directly or indirectly offset a net tax cut is vague and raises
difficult questions of interpretation and application. A broad interpretation of
this prohibition may be unconstitutional.

• This restriction potentially implicates a wide range of tax decisions, not just
rate reductions but also federal tax conformity, excluding unemployment
benefits from income taxation during the pandemic, adjusting standard
deductions, or awarding discretionary tax incentives.

• States will require answers to many questions, but particularly: (1) what
constitutes a net tax reduction? (2) how is a net tax reduction determined to
have resulted from a policy change? (3) which potential expenditures could
be deemed to create fiscal capacity for a net tax cut? and (4) how would
offsetting a tax reduction be defined, especially across multiple years?

• U.S. Department of Treasury guidance will be crucial as states seek to
navigate this new environment.

The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
organization.

Editor, Rachel Shuster
Designer, Dan Carvajal

Tax Foundation
1325 G Street, NW, Suite 950
Washington, DC 20005

202.464.6200

taxfoundation.org
TA X FOUNDATION | 2

Introduction
States are set to receive $195.3 billion in fiscal relief under the American Rescue Plan Act (ARPA),
equivalent to 20 percent of the annual tax collections of state governments.1 With state revenues
essentially flat in 2020 (a net decline of less than 0.2 percent), the greatest challenge for states may
be figuring out what to do with it. The State and Local Fiscal Recovery Funds can only be used for
certain enumerated types of expenditures, and they specifically cannot be used to cut state taxes
(there is no similar prohibition for localities), either directly or indirectly, or for deposits into pension
funds.2

That prohibition on indirectly offsetting a state tax cut is extremely vague and potentially quite
expansive, and it has created significant consternation in state capitols. A Treasury spokesperson
stipulated on Wednesday that the provision does not prohibit states from enacting tax cuts so long
as those reduction do not rely on federal aid. 3 This may signal that Treasury guidance will construe
the provision narrowly. If this assurance is to mean anything, however, Treasury will need to answer
several important questions, outlined in this paper.

The restriction on the state tax cuts is brief and vague, but potentially quite broad:

“A State or territory shall not use the funds provided under this section or transferred
pursuant to section 603(c)(4) 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.”4

At the same time, however, the list of expenditures to which states can put federal aid is relatively
short, particularly given that most states have either no revenue shortfall or only a modest one,
and that many have struggled to spend the $150 billion in Coronavirus Relief Fund assistance
appropriated under the CARES Act for economic and public health responses to the pandemic, a
purpose to which state Fiscal Recovery Funds can also be dedicated. States may use this latest aid to:

1. Respond to the public health emergency or its negative economic impacts, which includes
aid to households, businesses, and impacted industries, and is likely to include covering the
compensation of state health and public safety officials and current unemployment benefit
claims, consistent with Treasury’s guidance on the Coronavirus Relief Fund, which was
dedicated to similar purposes;

2. Supplement the pay of essential workers;

1 For state allocations and revenue gains or losses, see Jared Walczak, “State Aid in American Rescue Plan Act Is 116 Times States’ Revenue Losses,” Tax
Foundation, Mar. 3, 2021, https://www.taxfoundation.org/state-and-local-aid-american-rescue-plan/.
2 H.R. 1319 (2021), Section 9901.
3 David A. Lieb, “Treasury says state tax cuts OK if separated from virus aid,” Associated Press, Mar. 17, 2021, https://www.wfmj.com/story/43514133/
treasury-says-state-tax-cuts-ok-if-separated-from-virus-aid.
4 H.R. 1319 (2021), Section 9901.
TA X FOUNDATION | 3

3. Pay for general government services to the extent of any pandemic-induced revenue losses in
the most recent full fiscal year; and

4. Make necessary investments in water, sewer, or broadband infrastructure.

Notably, assuming that this list is all-encompassing, states would be prohibited from using the
funding to cover general operating expenses beyond what is necessary to backfill revenue losses.
They cannot use the money to increase their general fund expenditures, nor, presumably, could they
deposit the aid in a rainy day fund or use it to replenish their depleted unemployment compensation
trust funds. And they certainly cannot use it on tax cuts (or pension plans, where deposits are also
prohibited).

The restriction on direct use to facilitate a tax cut is largely uncontroversial. While some policymakers
might have contemplated giving away the state aid in the form of temporary tax cuts absent the
restriction, the federal government’s prohibition is reasonable and clearly within its authority to
impose.

Because money is fungible, however, it is very difficult to be sure what sort of uses of state aid might
be interpreted as indirectly offsetting a net tax cut, even if the state had the resources to cut taxes in
the absence of the federal assistance. Violation of the provision would result in the U.S. Department
of the Treasury recouping the funds, previously transferred to a state, which were deemed to have
been instrumental in facilitating the tax cut.

A great deal is at stake. At a theoretical level, the principle of fiscal federalism is implicated here,
as a broad interpretation of the federal prohibition would represent an unprecedented degree of
state entanglement in state fiscal policy, using federal dollars to dictate state policy in a way that
vastly exceeds what has been attempted in the past. And at a practical level, the potential field of
preemption is vast, not just what most people might think of as tax cuts.

What might run afoul of the prohibition? A non-exhaustive list would include states acting to:

• Inflation-adjust their standard deduction or personal exemption;

• Expand the earned income tax credit;

• Tinker with sales tax exemptions;

• Adjust tax incentives;

• Follow the federal government’s lead in excluding $10,200 of unemployment compensation
from taxation;

• Offset local property tax burdens;
TA X FOUNDATION | 4

• Conform to the federal government’s revised treatment of forgiven loans under the Paycheck
Protection Program; or

• Take administrative action to stave off a large unemployment insurance tax increase that might
otherwise be triggered by the insolvency of their trust funds.

It is, therefore, vital that the federal government provides greater clarity on what does and doesn’t
constitute indirectly offsetting a net tax cut.

Four Questions
Treasury guidance should provide greater clarity for states. Particularly, states would benefit from
answers to the following questions:

1. What constitutes a net tax reduction?

The bill language prohibits offsetting a “reduction in the net tax revenue of such State or territory.”
No baseline is specified. If a current policy baseline is intended, then any provision that would result
in a reduction in revenue compared to the continuation of the status quo would be subject to the
restriction, even if state revenues increased.

Imagine, for instance, that state revenues were projected to rise $500 million and the state increased
a deduction for low-income filers, resulting in an increase in only $450 million. Because this is lower
than the amount that would have been raised in the absence of a policy change, is this a net tax cut
(the current policy baseline position), or because net tax revenue is higher than in the previous year, is
it outside the prohibition?

Since the intention of the restriction is to prevent the recovery funds from facilitating a tax cut, using
a collections baseline is eminently more sensible. Clearly, in the above scenario, the tax reduction was
facilitated through state revenue growth, not any assistance provided by the federal government.
But while this seems clearly right as a matter of policy and intent, it is not as clear as it might be in the
language, even though the inclusion of the word “net”—in addition, presumably, to allowing changes
in multiple taxes to offset each other—does suggest it. Treasury should make the logic explicit and
provide important clarity for states on this point.

2. How is a net tax reduction determined to have resulted from a policy change?

This may seem like a foolish question, and in some instances it would be. The law speaks to
reductions in net tax revenue “resulting from a change in law, regulation, or administrative
interpretation during the covered period [March 3, 2021 through December 31, 2024] 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.” This raises two questions, one of measurement and one of
timing.
TA X FOUNDATION | 5

On measurement, how does Treasury propose to determine exactly how much revenue was forgone
by the implementation of a tax reduction? States make estimates, of course, both before and after,
but how much of any change in overall state revenues came from a tax reduction cannot be known
with precision. How does Treasury plan to calculate it for purposes of deciding whether to claw back
state aid, and how much?

On timing, the question is, what constitutes a change in law, regulation, or administrative
interpretation during the covered period. If a state adopted a multiyear phasedown of a tax rate
prior to the covered period, set to continue in the coming years, would the implementation of these
reduced rates—provided for in law, prospectively—constitute a change in law? If a revenue agency
had to sign off on the reduction by confirming that certain preestablished conditions had been met,
but lacked discretion beyond that administrative determination, would this count as a regulation or
administrative interpretation? What governs in determining what took place prior to the covered
period and what takes place within it, current law or current policy?

Or if a state has rolling conformity with the Internal Revenue Code and the federal government
amends its provisions in a way that might generate a net tax cut—say, by excluding a portion of
unemployment benefits from tax (a provision to which many states conform) or by expanding the
child tax credit (which has some limited mirroring in state laws)—does the automatic update to these
new provisions implicate the provision? This would be particularly ironic, given that ARPA both
threatens to claw back state aid if states implement net tax cuts (at least under some circumstances)
and provides for tax reductions, within the covered period, to which some states automatically
conform.

Again, relying on the presumption that the prohibition is only intended to apply to tax reductions
states could not undertake with their own resources, future changes already enacted or contingently
provided for under existing law should not come under the restrictions spelled out in ARPA. This too,
however, is ambiguous, and Treasury should clarify this point.

3. Which potential expenditures could be deemed to create fiscal capacity for a net
tax cut?

It is easy to imagine indirectly offsetting a tax cut in a way that Congress might legitimately wish to
proscribe. If these new federal relief dollars cannot be directly funneled into tax relief, it is rational
that Congress would not want states to be able to play a shell game by which they use federal aid to
cover expenses in the general operating budget, using the state revenue freed up by this infusion to
cut taxes. Gimmicks like this were undoubtedly at the heart of the restriction not only on direct but
also on indirect offsetting of state tax cuts, and guardrails against this activity may be appropriate—
and are certainly obligatory under the legislation.

But with such broad and vague language, it is equally easy to imagine scenarios in which the mere
concept of the fungibility of money is sufficient to trigger the restriction, even where federal aid did
not create the fiscal capacity for a tax change.
TA X FOUNDATION | 6

It matters, therefore, what states can spend the money on, and which of these expenses might
reasonably be interpreted as offsetting any policy a state may adopt resulting in a reduction in net
tax revenue. Is the list of four categories of expenditures exhaustive? It would seem to be. Will those
categories be interpreted expansively? That remains to be seen. Nothing in the language of the
provision would seem to allow depositing money into any sort of fund for future use, for instance,
yet Congress expressly prohibits deposits into pension funds. Does that mean that other deposits,
perhaps into a rainy day fund or an unemployment compensation trust fund, might be permissible as
responses to the negative effects of the pandemic, particularly if those funds were depleted in the
past year?

Some officials, moreover, seem to regard this relief as their ticket for funding long-languishing
transportation projects or growing the state’s annual budget. It is hard to understand how these
expenditures could meet with approval under the text of the bill, but some, at least, are hoping for a
remarkably generous Treasury ruling on this question.

Assume, for now, that the enumerated expenses are the only ones on which this federal aid can be
spent, and that the most straightforward interpretations (if such a thing is possible) are adopted. The
only federal aid dollars that can be clawed back are those which are unused by 2024 or are put to an
impermissible use, like offsetting a tax cut or spending in a way not authorized under the bill.

It seems implausible that a new round of grants to businesses or individuals, permitted in the first
bucket (responding to the public health emergency and its negative economic effects), could be
understood as offsetting a tax cut, since such grants are not ordinary governmental expenses or
part of a general operating budget. They are supplemental to the state’s ordinary activities and
specific to the coronavirus crisis, so the expenditure creates no fiscal capacity for a tax cut, provided
the state doesn’t use this aid to allow a reduction in the state’s general outlays. (How would this be
determined?) Presumably aid money spent this way could not be recouped if a state implemented a
net tax cut because, by definition, it did not contribute to it (even indirectly). States would appreciate
having this assurance from Treasury.

The same can likely be said of supplemental wages to private sector essential workers. This is not an
expenditure currently found in any state budget, so offering this assistance with federal aid doesn’t
free up a single dollar for tax cuts. It would be extremely surprising if aid spent this way could be
recaptured.

The limited set of infrastructure projects authorized under the bill—water, sewer, and broadband—
pose a more interesting question. Infrastructure projects usually come out of the capital budget,
which is distinct from the general fund budget. Some taxes flow directly to capital projects, while
most general taxes go to the general fund, which is for operating expenses. (Terminology sometimes
varies across states, but the concepts are the same.) A state might already have, say, a rural
broadband project in the works, and could fund it with these aid dollars. That frees up money in the
capital budget, but not the general fund budget. Were a state to cut a tax that flows into the general
fund (like, usually, income or sales taxes), could that lead to the recoupment of aid which created
additional capacity in capital accounts? (Presumably it would for taxes that flow to capital projects,
like, for instance, the motor fuel tax.)
TA X FOUNDATION | 7

States can theoretically shift money from the general fund to the capital budget, or divert tax
revenues from general taxes there, and sometimes do. Does the mere possibility of a future transfer
govern, or would a state actually have to do so during the covered period to create a situation in
which an authorized infrastructure investment could be deemed to offset a net tax cut?

That leaves two remaining allowable expenses. The first is a subset of a prior category. Assuming
states can cover payroll for public health and public safety officials, this reduces state outlays in a way
that creates fiscal capacity—money they would have budgeted otherwise, but which is now available.
This might well be interpreted as providing an indirect offset for a net tax cut. The second is the
final broad category, but one only available to some states: the relief can be used to cover general
government expenditures to the extent of revenue losses arising from the pandemic, and if a state
turned around and provided a net tax cut at the same time, that would almost certainly violate the
prohibition.

However, that the above seems logically consistent with the provision, and maybe even necessary for
making it logically coherent, does not mean that such an interpretation is assured. Treasury should
provide clear guidance on which expenses can and cannot be deemed to contribute to offsetting a
tax cut.

4. How would offsetting a tax reduction be defined, especially across multiple years?

Imagine that a state experienced a revenue loss of $200 million due to the economic effects of
the COVID-19 pandemic, a loss it is permitted to offset with the Recovery Funds. (This raises an
additional question: how does Treasury propose to determine what portion of any revenue losses in
the relevant fiscal year are attributable to the coronavirus crisis?) In subsequent years, however, this
state experiences substantial growth, with revenues rising $400 million the next year and a further
$100 million the year after that. The revenue baseline is now $300 million higher than it was pre-
pandemic. If the state were to cut taxes by $100 million per year after that, this would still leave it
with revenues above not only its pandemic-level receipts but also its pre-pandemic high. The $500
million in revenue growth is more than enough to facilitate the tax cut—if the state prioritizes it over
government growth—whether or not the state had ever received that $200 million to offset pandemic
losses.

Money, however, is fungible. If the state never received that aid, it would still have enough money
to cut taxes without reducing revenues, but in that case, it would have had less to set aside for
additional government expenditures or to set aside for a rainy day. Does the original $200 million get
clawed back?

And if it has the potential to—contingent on whether this is even a net tax cut (see the first
question)—does it matter if the expenditure and the cut were in different years? In other words,
can federal aid used in one year be deemed to offset a tax cut made in another, or is each year (or
possibly, in states with biennial budgets, each budget cycle) discrete?

Each of these questions and many more deserve to be answered. The constitutionality of the
provision, moreover, may well hinge on how these ambiguities are resolved. The federal government
TA X FOUNDATION | 8

undeniably has the power to impose certain conditions on the direct expenditure of the funds it
provides states, but it does not possess the blanket authority to commandeer state policy as a
condition of receiving federal funds. States unambiguously have the power to establish their own
revenue levels. It would certainly raise red flags, for instance, if the federal government withheld
Medicaid funding from states which legalized marijuana or tried to dictate state immigration policy via
Community Development Block Grants. Such provisions would be presumptively unconstitutional.

Clawing back federal aid under a broad interpretation of indirect offsets to tax cuts would run into
the same constitutional problems. If funding is contingent on states accepting a constraint on their
policymaking ability, that constraint must be unambiguously related to the federal interest served by
the funding, and not be so coercive as to reach the point where pressure turns into compulsion, under
the precedent set in South Dakota v. Dole (1987).5 In that case, the Supreme Court approved a federal
provision that made 5 percent of federal highway funding contingent on adopting 21 as the drinking
age, but cautioned that if significantly more of the funding had been predicated on it, that would have
been unduly coercive.

In National Federation of Independent Business v. Sebelius (2012), 6 meanwhile, the Court held that
the federal government could not make Medicaid funding contingent on a state’s willingness to
implement Medicaid expansion. Although that case is a maze of plurality opinions, this particular
holding was considerably less controversial, with three justices in the 5-4 majority upholding the
Affordable Care Act agreeing that this provision was unconstitutional. A broad policy tying states’
hands for three years, therefore, is constitutionally dubious at best, while a narrow interpretation—a
prohibition on directly funding a tax cut, which would be inconsistent with Congress’s purpose, and
some narrow guardrails to avoid shell games—would likely stand.

Conclusion
Given the narrow range of possible uses of the federal aid that could reasonably be interpreted as
offsetting a tax cut, many states might be at minimal risk regardless of the tax policy choices they
make. However, the vague language of this prohibition has every state nervous and unsure of what it
can do.

Can California, which suspended certain structural deductions within its tax code when it anticipated
a massive revenue shortfall, reverse those changes now that it has a $26 billion surplus without
incurring a reduction in its federal aid? Can governors dip into their “opportunity funds” to provide
discretionary tax incentive packages to businesses, or does that result in a dollar-for-dollar recapture?
Does the decision to conform to the provisions of ARPA itself potentially run afoul of its tax provision
by reducing taxes on unemployment benefits?

States need answers to these questions, and they need them soon.

5 South Dakota v. Dole, 483 U.S. 203 (1987).
6 National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012).
Exhibit L
Vox BIDEN ADMINISTRATION CORONAVIRUS OPEN SOURCED RECODE THE GOODS FUTURE PERFECT MORE T

DUVeen Fortifyyour potential
A TIAA Comp•n> )

The new suit attacking Biden's stimulus law,
explained
Ohio wants red states to be able to get something for nothing from the federal
government.
By ian Millhiser I Updated Mar 19, 2021, 9 :32am EDT

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IOSTREA__IA

Ohio Attorney General David Yost meets with law enforcement and members of the Ohio National Guard posted at the Ohio
Capitol building on January 17, 2021. I Zach D. Roberts/NurPhoto/Getty Images

A few t hings in life are certain. The sun rises in the east and sets in the west. Everyone d ies.
Taxes must be paid.

And if a Democratic president signs a historic piece of legislation, a Republican state attorney
general will file a lawsuit claiming that the new law is unconstitut ional. Matt Gaetz's disastrous Tucker Carlson
interview, explained

Indeed, by the standards of such lawsuits, the claim in Ohio v. Yellen, a lawsuit f iled by Ohio's
Republican Attorney General Dave Yost, is fairly m ild. Yost does not seek a court order striking
down t he entire $1.9 trillion American Rescue Plan, the stimulus law passed in March. Rather,
he makes a fairly targeted attack on a provision he labels the law's "tax mandate."

This lawsuit follows a letter from 21 state attorneys general to Treasury Secretary Janet
Yellen, which makes similar argument s to t hose raised by Yost , so it's likely addit ional suit s will
Ut:: l llt::U bUUII.

The American Rescue Plan appropriates $195.3 billion in aid to states, and Ohio's share is about
Millennials are stuck in the world boomers built
$5.5 billion. Like every other state, Ohio has the option to turn down the fund s. If it does decide
to take this free money, however, it must comply with a provision of the law specifying that "a
State or territory shall not use the funds provided under this section ... to either directly or
indirectly offset a reduction in the net tax revenue of such State or territory."

Essentially, Congress wanted to make sure the money it provided to help states fund public
programs would actually go to fund public programs, not to cut taxes.

Congress's power to provide conditional grants to states is broad but not unlimited, and Ohio
argues that the tax-cut restriction exceeds two constitutional limits on this power to place
conditions on federal grants. A super-famous TikTok star appeared on Jimmy
Fallon. It didn't go great.

As explained below, one of the state's arguments is quite radical and could do significant harm
to major federal programs such as Medicaid if the courts take it seriously. Ohio's second
assertion is stronger and more plausible - indeed, it's the sort of argument likely to prevail in a
conservative judiciary- although t here is some language in the court filings that might
undercut its reasoning.

You can't go looking for ball lighting. It finds you.

Joe Biden's $2 trillion infl astructure and jobs
plan, explained

The case will be heard by Judge Douglas Cole, a Trump appointee, so there's avery good
chance that Ohio will have a receptive audience from the trial court However Cole decides the
case, his decision will likely be appealed to the United States Court of Appeals for the Sixth
Circuit, which is dominated by very conservative Republican appointees, and then potentially
to a Supreme Court with a 6-3 conservative majority.

So there's a decent chance that Ohio ultimately prevails, and that states will be allowed to take
t he money offered under the Rescue Plan without having to comply with the requirement not
to spend that money on tax cuts. It is less clear, however, whether the coLrr ts will embrace the
more radical of Ohio's two legal arguments.

Conditional federal grants,
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aspect of this power to raise and spend money Friday.
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In a 1987 case, South Dakota v. Dole, however, the Supreme Court held that there are some
constitutional limits on the federal government's power to impose such conditions on grants to SUBSCRIBE

t he states - and two of these limits are relevant in the Ohio case.

First, if Congress wants to place a condition on a grant to states, it "must do so unambiguously
... enabl[ing] t he States to exercise their choice knowingly, cognizant of the consequences of
their participation." So, if the terms of the grant are confusing or uncertain, the state typically
won't be required to comply with those terms.

The second limit that's relevant to t he Ohio case is t hat a condition on a federal grant may be
struck down if the "financial inducement" offered by Congress is not "so coercive as to pass
the point at which pressure turns into compulsion" - an argument that will be familiar to
anyone who followed the first round of litigation challenging the Affordable Care Act.

Ohio's argument that the tax-cut restriction is unconstit ut ionally ambiguous is a fairly strong
legal claim - largely because of uncertainty about what it means to "indirectly offset a
reduction" in tax revenue. As Daniel Hemel, a law professor at the Universit y of Chicago and an
expert on tax law, told me, "money is fungible, so I'm not quite sure what it means for the funds
to ind irectly offset a reduction in net tax revenue result ing f rom a tax cut."

That said, Ohio only briefly lays out its claim that the "tax mandate" is unconstitutionally
coercive in its court filings, and there's some language in one of its motions that cuts against
it s argument that the ban on using federal funds to pay for tax cuts is unconstitutionally
ambiguous.

"Because 'money is fungible,"' the state argues, "any money received t hrough t he Act w ill
'indirectly,' at least, 'offset a reduction in t he net tax revenue' of a State that red uces the tax
burdens on its cit izens by law, regulation, or ad ministrat ive interpretatio n. So every change in
tax policy that leads to a decrease in tax revenue violates the Tax Mandate."

The state, in other words, appears t o concede that the word "ind irectly" is not ambiguous.
Under the state's reading of the law, the Rescue Plan bans states from enacting any tax cut.
Ohio may not like that condit ion, but the fact that Ohio views t his cond it ion as too onerous
does not make it ambiguous.

That said, on Thursday the Treasury Depart ment put out a statement offering it s own
interpretation of the contested provision - t he Biden administration says that states may cut
taxes so long as t hey don't use Rescue Plan funds specif ically to pay for t hose tax cuts.

That could diminish t he stakes of t he Ohio lawsuit
considerably. But t he fact that Treasury's
interpretat ion of the law conflicts w ith Ohio's does
suggest that the wo rd " indirectly" is open to
mult iple interpretat ions.

Ohio's other argument against the
"tax mandate" is quite radical
The state's other argument is that the tax-cut FACTS. $1 A WEEK.
rest riction is unconstitutionally coercive. This Benefit from expert reporting on the
argument is quit e a stretch. The federal government subjects that matter to you. Subscr. ..
is offering Ohio $5.5 billion in f ree money. Ohio has
an absolute right to refuse t his money if it chooses II The New York
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against the state if it turns down t his free money.

Yes, the money comes with a condition that Ohio doesn't like. But the only penalty if Ohio
decides that it does not want to accept the money and t he cond itions that come with it is that
Ohio will not receive free money if it doesn't agree to t he conditions. That's hardly coercion.

The Supreme Court hasn't placed much emphasis on Dole 's warning t hat , in rare cases, a
condit ional grant may be "so coercive" as to become unconstitutional, but there is one very
high-profile case w here t he Court did strike down a condition as unconstitutionally coercive.

In NF/8 v. Sebe/ius (2012), the Supreme Court struck down a provision of the Affordable Care
Act intended to encourage every single state to expand its Medicaid program. As originally
drafted, Obamacare required every state to either expand Medicaid to cover everyone under
age 65 who earned less than 133 percent of the federal poverty rate, or else a state could lose
all of its existing Medicaid funding.

As Chief Justice John Roberts explained in an opinion comparing this kind of condit ional grant
to a "gun to the head," "Medicaid spending accounts for over 20 percent of the average State's
total budget, with federal funds covering 50 to 83 percent of those costs." So st ates that did
not agree to expand their Medicaid program risked losing at least 10 percent of their operating
funds.

That kind of condition, Roberts claimed, amounted to coercion, and so he concluded that
states must have the option to turn down the new Medicaid funds without losing funding for
their existing Medicaid programs.

Ohio, for what it's worth, argues that the Rescue Plan's aid to states is similar to the condit ional
grant struck down in NF/8 because the Rescue Plan is very generous.

The American Rescue Plan Act provides Ohio $5.5 billion in federal funds. That is a
tremendous amount of money; it equals roughly 7.4 percent of Ohio's total expenditure
in 2020. No State, in the current economic situation, can turn down this "financial
inducement." So here, as in NF/8, the States have "no real option" but to take the funds
on offer.

Essentially, Ohio claims that, because t he states are being offered so much money - and
because they are being offered that money after t he pandemic eviscerated many states'
budgets - those states don't really have t he option of turning down the Rescue Plan's funding.

But there's a big difference between the stimulus law and the provision of Obamacare struck
down in NFIB. As originally drafted, Obamacare would have stripped states of funding for
existing state programs unless the state agreed to accept new funds and expand t hose
programs. The Rescue Plan, by contrast, does not threaten any of Ohio's existing federal
grants.

If Ohio turns down the funding it's entitled to under I~

t he Rescue Plan, then Ohio w ill be in exactly the Looking to
same position it would have been in if the federal
government had never offered it new money in the
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unconstitutional.

The Medicaid program is riddled with conditions imposed by the federal government - among
other things, federal law requires states to spend Medicaid funds on health care for low-
income people, and not on highways or policing or a fancy new wardrobe for the state's
governor. And, as Roberts noted in NF/8, the Medicaid program funds at least 10 percent of the
typical state's budget .

No state would reasonably turn down all of this money. But that doesn't make Medicaid
coercive, it just makes it a very good deal.

In any event, the bottom line in t he Ohio case is t hat the stat e's claim t hat the tax-cut
restriction is unconstitut ionally ambiguous is strong enough that it has a very good chance of
prevailing, especially in a conservative judiciary. Ohio's coercion argument, by contrast, would
so radically transform the legal doctrines governing condit ional federal grants that major
programs like Medicaid could be in danger.

And yet, it's still possible such a radical argument might prevail in a conservative judiciary.
Exhibit M
A Last-Minute Add to Stimulus Bill Could
Restrict State Tax Cuts
Republicans say Congress is infringing on state sovereignty by
trying to limit the ability of local governments to control their
finances.

Subscribe for $1 a week. Ends today.
--

President Biden signing the $1.9 trillion economic relief plan into law on Thursday at the White
House. The restriction is intended to ensure that states use federal funds to keep their local economies
humming. Doug Mills/The New York Times

By Alan Rappeport
March 12, 2021

WASHINGTON -A last-minute change in the ~ 1.9 trillion
economic relief packag~ that President Biden signed into law this
week includes a provision that could temporarily prevent states
that receive government aid from turning around and cutting
taxes.

The restriction, which was added by Senate Democrats, is intended
to ensure that states use federal funds to keep their local
economies humming and avoid drastic budget cuts and not simply
use the money to subsidize tax cuts. But the provision is causing
alarm among some local officials, primarily Republicans, who see
the move as federal overreach and fear conditions attached to the
money will impede upon their ability to manage their budgets as
they see fit.

Officials are scrambling to understand what strings are attached to
the $220 billion that is expected to be parceled out among states,
territories and tribes and are already pressing the Treasury
Department for guidance about the restrictions they will face if
they take federal money.

Under the new law, $25 billion will be divided equally among
states, while $169 billion will be allocated based on a state's
unemployment rate. States can use the money for pandemic-
related costs, offsetting lost revenues to provide essential
government services, and for water, sewer and broadband
infras tructure projects.
But they are prohibited from depositing the money into pension
funds - a key worry of Republicans in Congress - and cannot use
funds to cut taxes by "legislation, regulation or administration"
through 2024.

Dig deeper into the moment.
Special offer: Subscribe for $1 a week.

Democrats slipped the new language into the legislation last week
after several senators from the party's moderate wing expressed
concern that some states would seize on the opportunity to use
emergency relief money to subsidize tax cuts. They worked with
Senator Chuck Schumer, the majority leader, on language for the
amendment, according to a Democratic Senate aide.

Senator Joe Manchin III, Democrat of West Virginia, explained
why he pushed for the language in a briefing this week, arguing
that states should not be cutting taxes at a time when they need
more money to combat the virus. He urged states to postpone their
plans to cut taxes.

"How in the world would you cut your revenue during a pandemic
and still need dollars?" Mr. Manchin said.

Senator Ron Wyden, Democrat of Oregon, said the funds were
meant "to keep teachers and firefighters on the job and prevent the
gutting of state and local services that we saw during the Great
Recession."

"It's important that there are guardrails to prevent these funds
from being used to cut taxes for those at the top:' he added.

But some Republican-led states are pointing to the apparent
prohibition as a violation of their sovereignty and calling for that
part of the law to be repealed. They see the requirement that states
refrain from cutting taxes as an unusual intervention by the federal
government in state tax oolicv.
u- . ---------- - --- - ----- ----- ~.- ---- ..;·

"It is an intrusion into what would traditionally be a state
prerogative of how we balance our budget," said Ben Watkins, the
director of the Florida Division of Bond Finance. " If they want to
give us this money to deal with Covid, then they should just give it
to us with no strings attached."

Funding for state and local governments was one of the most
contentious issues during stimulus talks, with Republicans saying
Democrat-led states were being rewarded for mismanaging their
finances and labeling the aid as a "blue-state bailout."

Those concerns were amplified in the latest legislation, which
allocates money to a state based on a formula that considers its
unemploy:ment rate rather than its population. Conservative-
leaning states, many of which had less onerous coronavirus
restrictions and did not shut down as much business activity, claim
they are essentially being penalized for prioritizing their
economies during the pandemic.

But early analyses of the bill show that both conservative-leaning
and liberal-leaning states will receive big chunks of cash.
California, Florida, New York and Texas will each get more than
$10 billion in aid, according to a Tax Foundation tally.

Still, the tax language has angered Republicans - none of whom
voted for the rescue package - and on Thursday, Senator Mike
Braun, Republican of Indiana, introduced legislation to reverse it.
"Democrats are trying to ban states from cutting taxes with a
sneaky amendment to the $1.9 trillion so-called Covid relief
package," Mr. Braun said. "Not only did this blue-state bailout bill
penalize states for reopening by calculating state funds based on
unemployment, now they are trying to use it as a back door to ban
states fro m cutting taxes."

Frequently Asked Questions About the New Stimulus Package

How big are the stimulus payments in the bill, and who is eligible? "'

The stimulus payments would be $1,400 for most recipients. Those who are
eligible would also receive an identical payment for each of their children. To
qualify for the full $1,400, a single person would need an adjusted gross
income of $75,000 or below. For heads of household, adjusted gross income
would need to be $112,500 or below, and for married couples filing jointly
that number would need to be $150,000 or below. To be eligible for a
payment, a person must have a Social Security number. Read more.

What would the relief bill do about health insurance? v

What would the bill change about the child and dependent care tax
v
credit?

What student loan changes are included in the bill? v

What would the bill do to help people with housing? v

The restrictions have created a conundrum for states because,
while many: cities are facing budget crunches, state finances have
turned out to be relatively healthy.

A New York Times analy:sis this month found that, on balance, state
revenues were generally flat or down slightly last year compared
with 2019 as expanded unemployment benefits allowed consumer
spending and tax revenues to keep flowing.

"Idaho would potentially subsidize poorly managed states simply
because we are using our record budget surplus to pursue historic
tax relief for our citizens," Gov. Brad Little of Idaho said this week.
"We achieved our record budget surplus after years of responsible,
conservative governing and quick action during the pandemic, and
our surplus should be returned to Idahoans as I proposed."

Gov. Jim Justice, a Republican of West Virginia, criticized Mr.
Manchin in an interview this week with CNN.

"He's hurting his own people in the state of West Virginia," Mr.
Justice said. "I do not condone it."

The provision is also raising questions about what actually
constitutes a tax cut and whether the law could prevent states from
other types of tax relief. The language of the legislation appears to
offer states little wiggle room.

Jared Walczak, the vice president for state projects at the Tax
Foundation's Center for State Tax Policy, said that the fine print in
the law raised many complicated questions for states that, in some
cases, would be awarded money for things that they either do not
need or that they already had plans to pay for out of their budgets.
It is not clear, for example, if a state could use aid money for an
expense related to the coronavirus that it was already planning to
pay for and then offer tax credits with the additional surplus.

"If the federal government intends to forbid any sort of revenue
negative tax policy, no matter what its size, because a state
received some funding, that would be a radical federal
entanglement in state fiscal policy that may go beyond what was
intended," Mr. Walczak said.

Such questions will largely hinge on how Treasury Secretary Janet
L. Yellen interprets the legislation and what guidance the Treasury
Department gives to states.

A department official noted that the law says that states and
territories that receive the aid cannot use the funds to offset a
reduction in net tax revenue as a result of tax cuts because the
money is intended to be used to support the public health response
and avoid layoffs and cuts to public services. More guidance on the
matter is coming, the official said.

The lack of clarity also raises the risk that states use the money for
projects or programs that do not actually qualify under the law and
then are forced to repay the federal government. States are
required to submit regular reports to the Treasury Department
accounting for how the funds are being spent and to show any
other changes that they have made to their tax codes. The
department will also be setting up a system of monitoring how the
funds are being used.

Emily Swenson Brock, the director of the Federal Liaison Center at
the Government Finance Officers Association, said that the eligible
uses of the federal aid appeared to be relatively limited for the
states and that some might actually find it challenging to deploy
the money in a useful way.

"It's complicated here for the states:' Ms. Brock said, adding that
her organization had asked the Treasury Department for an
explanation. "Congress is reaching in and telling these states how
they can and can't use that money."

Projcd &timau

Before they receive federal funds, states will have to submit a
certification promising to use the money according to the law. They
could also decline funding or, if they are set on tax cuts, they could
offset them with other sources of revenue that do not include the
federal funds.

For many states, the federal money is welcome even if they do not
necessarily need it for public health purposes.

Melissa Hortman, the speaker of the Minnesota House of
Representatives, said that she was hopeful that the federal
O'()VPrn m Pnt O'iVPC:: C::t ::l t PC:: thP fl pvihiJi tv t() ll C::P thP m()nPV t() m::lkP
o- · _ ................ _ ......... o ... · -- _ ............. __ ......... _ .... _ ....... _ ...... ,. . ... J .... _ --- ......... _ ........ _ ...... _J ... _ .. .............. .. _

up for lost revenue from the virus. She suggested that the state
should look to make new investments in education and
transportation. Minnesota is expected to have a budget surplus for
the next two years and will receive more than $2 billion in aid.

"It's not too much money," said Ms. Hortman, a Democrat. "Our
country has just lived through a once-in-a-hundred-year
pandemic."

Congress Clears $1.9 Trillion Aid Bill, Send ing It to
Biden
March 10, 2021

What's in the Stimulus Bill? A Guide to Where the
$ 1.9 Trillion Is Going
March 7, 2021

....... ,...............
( ' - • '-HOt ...... , . -

Virus Did Not Bring Financial Rout That Many
States Feared
March 1, 2021

Alan Rappeport is an economic policy reporter, based in Washington . He covers the
Treasury Department and writes about taxes, trade and fiscal matters. He previously
worked for The Financial Times and The Economist. @araP.P.eP.ort

A version of this article appears in print on March 13, 2021, Section B, Page 1 of the New York edition With the
headline: Stimulus Bill Limits States On Tax Cuts. Order ReP-rints I TodaY.'s PaQer I Subscribe

f
Exhibit N
3/23/2021 Treasury Clears States to Cut Taxes -- But Not With Stimulus - Bloomberg

Politics

Treasury Clears States to Cut Taxes -- But Not
With Stimulus
By Laura Davison
March 18, 2021, 9:24 AM MST
Updated on March 18, 2021, 2:32 PM MST

Biden administration oﬀers response on use of aid funds
Republicans are seeking answers to tax-cut questions

The Biden administration said in a response to concerns raised by Republicans that state
governments accepting pandemic-relief money from Washington are allowed to cut taxes, but
only if they don’t use the federal aid to oﬀset those reductions.

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https://www.bloomberg.com/news/articles/2021-03-18/u-s-states-approved-to-cut-taxes-but-not-with-federal-money 1/3
3/23/2021 Treasury Clears States to Cut Taxes -- But Not With Stimulus - Bloomberg

The Treasury Department’s statement addresses a provision in the recently enacted $1.9 trillion
stimulus law that provided more than $360 billion in aid to states and cities. The measure said
states couldn’t use the money to pay for net revenue reductions through 2024.

The law does not prohibit states from cutting taxes nor does it mandate them to return the
funding if a state reduces levies, a Treasury spokesperson said in an emailed statement. States
must replace that revenue from those tax reductions using other money in their budget, the
Treasury said. If states did use relief-fund money to pay for a tax cut, then they could be
required to reimburse the federal government for that, the department said.

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The response addresses a growing concern, particularly among politicians from Republican-led
states, that accepting federal-rescue funds would prohibit them from reducing taxes through
2024. Uncertainty about the restrictions on the funds prompted Oklahoma Attorney General
Mike Hunter and 20 other state attorneys general to send a letter to Treasury Secretary Janet
Yellen earlier this week asking her to clarify whether the provision strips states of their “core
sovereign authority to enact and implement basic tax policy.”

Asked during a phone brieﬁng Thursday how the Treasury will enforce the law if states shift
money within their budgets, department oﬃcials said the agency is in the process of crafting
rules that will explain how the restrictions work.

On Wednesday, Ohio sued the Biden administration over the provision, claiming the rule illegally
restricts the state’s power to change its tax structure and economic policy. Ohio Attorney
https://www.bloomberg.com/news/articles/2021-03-18/u-s-states-approved-to-cut-taxes-but-not-with-federal-money 2/3
3/23/2021 Treasury Clears States to Cut Taxes -- But Not With Stimulus - Bloomberg

General Dave Yost said the last-minute addition by Senate Majority Leader Chuck Schumer holds
hostage the $195 billion portion of the money for states.

Seeking Guidance

Several House Republicans have also sent a letter to Yellen asking her to advise on whether
various forms of tax relief, including making unemployment beneﬁts tax exempt or issuing state-
wide stimulus checks, would violate the rules in the stimulus bill.

Republicans say the issue needs to be resolved in relatively short order. The law gives the
Treasury Department 60 days to establish the fund, release the rules and distribute the funding.
Most state legislatures only meet part time. Many are in session now, but adjourn in late spring
or early summer.

The aid to states was a point of contention during debate on the stimulus. Republicans objected
to including the money, arguing that it would serve as a bailout for Democratic-run states that
had mismanaged their budgets and that many states hadn’t suﬀered severe revenue shortfalls as
a result of the pandemic.

The provision added by Schumer was intended to focus the money on where it’s needed most,
by targeting it based on state population and unemployment levels. It bars states from “either
directly or indirectly” using the funds to oﬀset a reduction in tax revenue “resulting from a
change in law, regulation, or administrative interpretation.”

Democrats say the provision was a necessary guardrail to prevent states from using federal
money to ﬁnance tax cuts. Schumer has said governors should use the money to focus on ending
the pandemic, including on public health and social-assistance programs.

(Updates with Treasury comment from brieﬁng in ﬁfth paragraph.)

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https://www.bloomberg.com/news/articles/2021-03-18/u-s-states-approved-to-cut-taxes-but-not-with-federal-money 3/3
Exhibit O
3/22/2021 Ducey calls for $600 million in permanent income tax cuts

Ducey calls for $600 million in
permanent income tax cuts
By Jeremy Duda - January 15, 2021

More than six years after he was first elected governor on a platform of getting Arizona’s income tax
rates “as close to zero as possible,” Gov. Doug Ducey is looking to follow through on one of the core
promises of his 2014 campaign.

It’s unclear exactly how close to zero Arizona’s income tax rates will go. Nor is it clear exactly what
his tax cuts will look like and who they will affect. Much may depend on negotiations with the
legislature.

But what is clear is that Ducey will push to make $600 million income tax cuts, phased in over the
next three years, and that he wants those cuts to be broad-based so they will affect as many
Arizonans as possible.

The tax cut is part of the governor’s $12.6 billion budget plan for the upcoming fiscal year, which his
administration unveiled on Friday. Ducey is earmarking $200 million in his budget proposal for the
fiscal year 2022 for tax cuts. That total will rise to $400 million in 2023 and $600 million in 2024.

Ducey signaled his intent for a larger-than-usual tax cut — he’s made much smaller tax cuts each
year he’s been governor, another of his 2014 campaign pledges — in his State of the State address
on Monday, telling the Republican-controlled legislature, “On tax reform, let’s think big.”

The tax cut idea is the result of surprisingly good revenue projections following a year of economic
downturn caused by the COVID-19 pandemic and subsequent restrictions on economic activity.
Arizona’s general fund, which faced a projected budget deficit of as much as $1.1 billion in April of
last year, is now expected to have a surplus of $352 million at the end of the fiscal year in July, the
governor’s office said.

“Arizonans have been through a lot. Our small businesses have been through a lot. So, with some of
that additional revenue, he wants to make sure that they get to keep their money that they have
earned,” Daniel Scarpinato, the governor’s chief of staff, told reporters on Friday.

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3/22/2021 Ducey calls for $600 million in permanent income tax cuts

Arizona’s graduated income tax rates range from 2.59% for individuals earning up to $10,602 to
4.5% for people earning $158,996 or more annually. Individuals who earn at least $250,000 per year,
and couples earning at least $500,000, will also face a 3.5% surcharge on income above those
amounts as a result of Proposition 208, which the voters approved in November. Two lawsuits seek to
overturn that tax hike.

Scarpinato said the governor wants to reduce and simplify income taxes for as many Arizonans as
possible. In addition to cuts to the actual tax rates, that could also include things Ducey’s proposal
from last year to eliminate income taxes on veterans’ pensions.

“What we’re looking at is how to bring the rates down, how to make it more simple, and how to make
sure that as many, if not all taxpayers, see a reduction in their income tax,” Scarpinato said.

Individual income taxes brought in about $4.5 billion in the last fiscal year, making up the second
largest chunk of state revenue after sales taxes, which generated nearly $5.4 billion. The governor’s
budget plan projects that the state will still bring in about $5.6 billion in individual income tax
revenue in fiscal year 2022, nearly $6 billion in fiscal year 2023, and nearly $6.2 billion in fiscal year
2024.

Those figures don’t include projected revenue from Proposition 208. That money goes into a new
student support and safety fund created by the ballot initiative, not into the general fund.

Because of the way Arizona’s income rates are structured, any cut will likely affect taxpayers across
the board, including those who will pay the Proposition 208 surcharge.

Scarpinato defended the governor’s decision to cut taxes amid the ongoing economic uncertainty of
the COVID-19 pandemic. He noted that Ducey’s budget still puts a record $6.1 billion into K-12
education, and that there’s still new money for other priorities as well.

“This isn’t a situation of having to pick or choose. This is a situation of being able to fulfill our
commitments and our obligations to the people of Arizona and the programs that we know are going
to continue to help keep the state moving forward, while also recognizing that we still have additional
revenue,” he said.

However, history has shown that today’s surplus can quickly turn into a deficit, and that tax cuts that
go into effect when revenues are strong can become a drag on the state’s budget when the economy
goes south. And while spending increases can be reversed with a simple majority vote in the
legislature, it takes a two-thirds vote in each chamber to raise taxes.

In 2011, then-Gov. Jan Brewer signed sweeping legislation that reduced corporation income tax rates,
commercial property tax rates and other taxes, with the cuts scheduled to begin phasing in several
years later to allow Arizona’s economy to recover from the shock from the Great Recession before
they went into effect. Legislative Democrats and K-12 education advocates have long blamed those
tax cuts for reducing funding schools and other budget priorities, including in 2015, when Ducey, in
his first year as governor, had to grapple with a budget deficit.

Joe Thomas, president of the Arizona Education Association, worried about the revenue that K-12
schools could lose from Ducey’s proposed tax cut.

“It’s reckless. I don’t understand what the governor is thinking,” Thomas said.

Thomas added the state would be better served using that money to prepare for the coming fiscal
cliff in 2025. That’s when Proposition 123, a 10-year plan approved by voters in 2016 that settled a

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3/22/2021 Ducey calls for $600 million in permanent income tax cuts

long-running K-12 funding lawsuit by using state trust land to increase funding, expires.

Phoenix Mayor Kate Gallego also took aim at the tax cut plan, noting that it will reduce the cities’
allotment of the state’s shared revenue pool. Gallego said that will cost Phoenix $25 million per year
when the full cuts go into effect, a cut that will be “felt most profoundly” by the city’s police and fire
departments.

“I firmly believe we must build up our first responders and provide the resources they need, not
recklessly slash their ability to do their jobs and continue the necessary reforms we have already
begun,” Gallego said in a press statement.

Senate Minority Leader Rebecca Rios, D-Phoenix, said she hopes the tax cut isn’t an attempt to
“backfill” the money that top earners will pay under Prop. 208. But if the governor is going to cut
taxes, Rios said she and her Democratic colleagues in the legislature would prefer to see them
targeted toward low-income and working class families.

***UPDATED: This story has been updated to include additional comments.

Jeremy Duda
Associate Editor Jeremy Duda is a Phoenix native and began his career in journalism in 2003 after graduating from the
University of Arizona. Prior to joining the Arizona Mirror, he worked at the Arizona Capitol Times, where he spent eight
years covering the Governor's Office and two years as editor of the Yellow Sheet Report. Before that, he wrote for the
Hobbs News-Sun of Hobbs, NM, and the Daily Herald of Provo, Utah. Jeremy is also the author of the history book “If
This Be Treason: the American Rogues and Rebels Who Walked the Line Between Dissent and Betrayal.”

https://www.azmirror.com/2021/01/15/ducey-calls-for-600-million-in-permanent-income-tax-cuts/ 3/3
Exhibit P
Arizona Senate bill would allow some to avoid Proposition
208surtax
lit Print ll l"tJ Order Reprints I

THE BUSINESS JOURNALS

\;1C.N TAL Ht.ALT H
N l HE WORKPLACE 2021
THURSDAY APRil 211

CLICK TO RIO liSTER

Proposition 208 would increase fu nding for Arizona teachers. support staff and education programs through a surtax on high [@ Menninger
earners.
PHOTOS BY ROCIO HERNANDEZ AND SKY SCHAUDT/KJZZ ~
Paycor.
By Jeff Gifford - Digital Editor, Phoenix Business Journal
ASSOCIATION PARTNER

IN THIS ARTICLE
Feb 26, 2021, 4:26pm EST

A bill in the Arizona Senate would alter the state's tax system
==
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AMU ICAN
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AIIOCIATION

Government &
and let some businesses avoid paying a new tax surcharge
Regulations passed by voters las t November.
Industry

The Arizona Capitol Times reported that Senate Billl783 creates
a new tax category that didn't exist when Proposition 20 8 was
passed and therefore would not be subject to the ballot
initiative. Rather, it would be an alternative option for business
owners.

The measure would allow small business owners whose
business incomes pass through to them to compute their tax on
their personal income tax forms after deducting business
expenses, the Times reported.

Those owners would be able to choose the cheaper option
between paying a 4.5% tax on their adjusted business income
or paying the Prop 208 surcharge of 3.5% surcharge on adjusted
personal income of more than $250,000 for individuals or
$500,000 for married couples in addition to previous income
tax rate.

The bill's sponsor, Chandler Republican Sen. J.D. Mesnard, told
the Times that the bill ensures that small business are not
affected by the proposition, but one of the key advocates of the
initiative, David Lujan, said the surcharge already only touched
net income, after business and other deductions.

What's more, Lujan said, the bill creates the same 4.5% tax rate
for income from estates and trusts, the Times reported.

Proposition 208 passed with 52% of the votes in November.
Proceeds from the surtax would go to Arizona schools. One
economist told the Phoenix Business Journal approximately 3%
of Arizona's tax filers will be affected by the measure.

Opponents of the measure have filed several lawsuits aiming to
stop the surtax from going into effect. Earlier in February, a
Maricopa County Superior Court judge denied a request for an
injunction to halt the implementation of the surtax, saying that
the constitutionality of the proposition will likely be decided in
the case, but it was not appropriate to make a decision now.

The measure must be debated by the fu ll Senate before coming
to a vote.
Exhibit Q
3/22/2021 Arizona vehicle registration fee will stay at full $32 through 2021

ARIZONA

Drivers will have to pay the $32 Arizona
car registration fee for two more years
Maria Polletta The Republic | azcentral.com
Published 7:54 p.m. MT Jun. 3, 2019 Updated 2:21 p.m. MT Jun. 7, 2019

Arizona drivers, don't say goodbye to that $32 vehicle-registration fee just yet.

Motorists will continue to pay the full amount for the next two years rather than seeing a
gradual phase-out before the fee's repeal, state officials confirmed Monday.

"The fee will remain at $32 for fiscal year 2020 and fiscal year 2021 … then drops to $0 by
July 1, 2021," Governor's Office spokesman Patrick Ptak said via email.

The Department of Transportation said it does not plan to pro-rate registration fees for
drivers who must renew before the fee is repealed, however.

For example, a driver whose registration is up in December 2020 would pay the full $32 fee
upon renewing for one year, even though the fee would disappear halfway through that
person's registration period.

Budget face-off prompted repeal
The planned elimination of the unpopular public-safety fee, which for months had angered
drivers and lawmakers alike, emerged from a drawn-out budget stalemate last month.

Sen. Michelle Ugenti-Rita, who pushed for a repeal in the Senate, refused to vote for any
budget plan that didn't address the fee.

A five-year phase-down deal reached by Gov. Doug Ducey's office and Republican leadership
in the Legislature failed to appease the Scottsdale Republican, whose vote was critical in GOP
budget talks. And the two-year phase-down she countered with initially went nowhere.

But after a few days of gridlock, Ugenti-Rita announced she had reached a deal with Ducey to
get rid of the "very unpopular" and "very unnecessary" fee by July 2021.

https://www.azcentral.com/story/news/politics/arizona/2019/06/03/arizona-vehicle-registration-fee-stay-full-32-through-2021/1332361001/ 1/2
3/22/2021 Arizona vehicle registration fee will stay at full $32 through 2021

At the time, she did not elaborate on what would happen to the fee between now and then.
The details later were published in state budget documents.

How does this affect state coffers?
The Legislature passed a bill creating the public-safety fee — and giving the director of the
Arizona Department of Transportation the authority to set it — last April.

State Rep. Noel Campbell, R-Prescott, sponsored the legislation because he wanted a
permanent funding source for the highway patrol.

For years, lawmakers had covered highway-patrol needs by taking money collected for road
repairs, a strategy that left roads and bridges crumbling throughout the state. The fee was
intended to cover the highway patrol budget.

At the time, state officials estimated the fee would cost $18 and generate about $149
million. ADOT later announced the fee would be nearly double that amount, providing an
updated revenue estimate of $185 million.

It was not immediately clear whether drivers wanting to take advantage of the state's two-
and five-year registration options should avoid doing so until the fee disappears.

Reach the reporter at maria.polletta@arizonarepublic.com or 602-653-6807. Follow her on
Twitter @mpolletta.

Support local journalism. Subscribe to azcentral.com today.

https://www.azcentral.com/story/news/politics/arizona/2019/06/03/arizona-vehicle-registration-fee-stay-full-32-through-2021/1332361001/ 2/2
Exhibit R
Office of the Attorney General Office of the Attorney General Office of the Attorney General
State of Georgia State of Arizona State of West Virginia

March 16, 2021

VIA EMAIL & U.S. MAIL

The Honorable Janet L. Yellen
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
(202) 622-1100
correspondence@treasury.gov

Re: Treasury Action to Prevent Unconstitutional Restriction on State’s
Fiscal Policy through American Rescue Plan Act of 2021

Dear Secretary Yellen:

The undersigned State Attorneys General request that the Department of the
Treasury take immediate action to confirm that certain provisions of the American
Rescue Plan Act (the “Act”) do not attempt to strip States of their core sovereign
authority to enact and implement basic tax policy. Those provisions, found in section
9901 of the Act,1 forbid States from using COVID-19 relief funds to “directly or
indirectly offset a reduction in … net tax revenue” resulting from state laws or
regulations that reduce tax burdens—whether by cutting rates or by giving rebates,
deductions, credits, “or otherwise[.]”2 This language could be read to deny States the
ability to cut taxes in any manner whatsoever—even if they would have provided such
tax relief with or without the prospect of COVID-19 relief funds. Absent a more sensible
interpretation from your department, this provision would amount to an unprecedented
and unconstitutional intrusion on the separate sovereignty of the States through federal
usurpation of essentially one half of the State’s fiscal ledgers (i.e., the revenue half).
Indeed, such federal usurpation of state tax policy would represent the greatest attempted
invasion of state sovereignty by Congress in the history of our Republic.

1
https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf.
2
Id. at pp. 1319-223.

2005 NORTH CENTRAL AVENUE, PHOENIX, AZ 85004-1592  PHONE 602.542.4266  WWW.AZAG.GOV
Letter to Secretary Janet L. Yellen
March 16, 2021
Page 2

Section 9901 of the American Rescue Plan Act, which amends sections 602 and
603 of the Social Security Act, explains what States may and may not use COVID-19
recovery funds for. Most pertinent here, subsection 602(c)(2)(A) (the “Tax Cut
Prohibition”) prohibits the States from “us[ing] the funds provided under this section …
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.”3 States must certify that they will use any COVID-19 relief funds provided
under the Act “in compliance with subsection (c) of this section[,]” and if a State fails to
comply, the Act requires the State to repay the funds in “an amount equal to the amount
of funds used in violation of such subsection[.]”4

The import of the Act’s prohibition against “offsetting” reductions in state tax
revenue is unclear, but potentially breathtaking. This provision might have been intended
merely to prohibit States from expressly taking COVID-19 relief funds and rolling them
directly into a tax cut of a similar amount. But its prohibition on “indirectly” offsetting
reductions in tax revenue, combined with the list of prohibited kinds of tax reductions
(rate cuts, rebates, deductions, credits, or “otherwise”), could also be read to prohibit tax
cuts or relief of any stripe, even if wholly unrelated to and independent of the availability
of relief funds. After all, money is fungible, and States must balance their budgets. So,
in a sense, any tax relief enacted by a state legislature after the State has received relief
funds could be viewed as “using” those funds as an “offset” that allows the State to
provide that tax relief.

Several real and hypothetical examples of state tax policy sharpen this troubling
point:

 Arizona voters at the 2020 election voted for a large tax increase related to
education that has nothing to do with COVID-19 and the Arizona Legislature
may seek to provide an alternative tax structure for small businesses—again
having nothing to do with COVID-19 or the federal funds.

 Arizona is phasing out law-enforcement fees on vehicle registration renewals.

3
“Covered period” is defined in Section 602(g)(1) as the period that begins on March 3, 2021, and “ends
on the last day of the fiscal year of such State … in which all funds received by the State … from a
payment made under this section or a transfer made under section 603(c)(4) have been expended or
returned to, or recovered by, the Secretary.”
4
It further provides that “in the case of a violation of subsection (c)(2)(A), the amount the State … shall
be required to repay shall be the lesser of—(1) the amount of the applicable reduction to net tax revenue
attributable to such violation; and (2) the amount of funds received by such State … pursuant to a
payment made under this section or a transfer made under section 603(c)(4).”
Letter to Secretary Janet L. Yellen
March 16, 2021
Page 3

 During the current legislative session and prior to the passage of the Act,
Georgia’s House of Representatives passed a bill, now under consideration by
its Senate, that would extend a tax credit for families who adopt a child out of
foster care.

 Also during the current legislative session and prior to the passage of the Act,
Georgia’s House of Representatives passed a bill that raises the standard
deduction, which would provide Georgians with an estimated $140 million in
state income tax relief that largely benefits those of lower to middle incomes.

 The West Virginia Legislature is considering a bill to extend the Neighborhood
Investment Tax Credit (a charitable program) and increase the annual tax credit
cap from $3 million to $5 million. These changes are projected to reduce West
Virginia tax revenue by roughly $2 million per year in future years.

 Another bill in West Virginia would expand a limited aircraft repair and
maintenance sales tax exemption to all such activities. This change will result
in a small reduction in sales tax collections.

 Alabama legislators are currently considering legislation that would allow tax
exemptions for organizations that provide care for the sick and terminally
ill, offer services for children who are victims of sexual or physical abuse,
furnish new homes for victims of natural disasters, and respond to
emergencies and provide life-saving, rescue, and first-aid services; tax
deductions that would benefit people with special needs and enable citizens to
purchase storm shelters to protect their families from tornadoes; and tax credits
for hospitals and universities engaged in research and development beneficial
to society.

 The Indiana General Assembly is considering a tax credit for donations to
public school foundations as well as a tax credit for donations to qualified
foster care organizations. It is also considering various sales tax exemptions
for purchases such as public safety equipment.

 Kansas is considering decoupling part of its income tax code from the federal
tax code, to end a state-level income tax increase caused by pass-through
changes from prior federal tax law revisions.

 Kansas is considering giving property or income tax deferrals or credits to
small businesses impacted by closure orders during the COVID-19 pandemic.
Letter to Secretary Janet L. Yellen
March 16, 2021
Page 4

 Under bipartisan legislation proposed in Kentucky, homeowners in a proposed
tax increment financing district meant to revitalize a predominantly minority
area of Louisville hurt by decades of disinvestment would pay property taxes
for the next three decades based on their property’s assessed value this year.
And a housing developer would be able to defer 80% of its annual property
taxes, up to $7.64 million, to offset construction costs.

 Montana’s Legislature is considering a very slight income tax cut for most
income earners.

 Montana’s Legislature is also considering increasing its current education tax
credit for families.

 In Oklahoma, a bill has passed the House that would, among other things,
restore the refundability of the state’s Earned Income Tax Credit.

 Suppose a property decreases in value resulting in a decrease of legally
assessed value, and the state keeps the assessed tax rate consistent—which
results in a decrease in assessed tax amount.

 Similarly, suppose a property increases in value, but the State decreases the
assessed rate such that the amount of tax assessed remains unchanged.

 Assume that projected state revenue is set to increase 10%, and a state
legislature adopts measures such that the state’s revenue collection “only”
increases 8%.

Not one of these common changes to state tax policy has any real or direct
connection to the State’s potential receipt of COVID-19 relief funds, yet each of them
could be deemed a tax “rebate,” “deduction,” “credit,” or “otherwise” that could result in
a “reduction in the net tax revenue” of the State. Thus, each of these otherwise lawful
enactments could be construed as violations of the Act’s prohibition on “offsetting” tax
cuts.

Put aside the gross federal overreach inherent in trying to take state tax policy
hostage in this way. If this expansive view of this provision were adopted, it would
represent an unprecedented and unconstitutional infringement on the separate sovereignty
of the States. When Congress attaches conditions to a States’ receipt and use of federal
funds, those conditions must (1) be placed “‘unambiguously[,]’” (2) relate to “‘the federal
interest’” for which the spending program was established, (3) not violate other
constitutional provisions, and (4) not contain a financial inducement “so coercive as to
pass the point at which ‘pressure turns into compulsion.’” See generally South Dakota v.
Letter to Secretary Janet L. Yellen
March 16, 2021
Page 5

Dole, 483 U.S. 203, 207-208, 211 (1987); National Federation of Independent Business
v. Sebelius, 567 U.S. 519 (2012). Spending conditions imposed on States that do not
meet these requirements are not “necessary and proper” for exercising Congress’
spending power and also infringe on powers “reserved to” the States. U.S. Const. Art. I,
Section 8, Clause 18; U.S. Const. Amd. X. The Act’s Tax Cut Prohibition violates these
requirements.

First, if the Tax Cut Prohibition were interpreted to place any limits on how States
could enact tax relief not directly connected to the relief funds provided by the Act, it
would impose a hopelessly ambiguous condition on federal funding. The examples listed
above make the point: how is a State to know, when accepting the relief funds, whether
any of these kinds of commonplace and sensible tax relief measures are “indirectly”
offset by COVID-19 relief funds? Is it enough that the funds help balance a state budget
that also contains tax relief measures? What if the presence of relief funds in 2021’s
budget effectively frees up funds to offer tax relief in 2022? Absent a clear and narrowing
construction by Treasury regulation, States cannot possibly know the bargain they are
striking in accepting the relief funds. Yet the “legitimacy of Congress’ power to legislate
under the spending power … rests on whether the State voluntarily and knowingly
accepts the terms of the ‘contract.’” Pennhurst State School and Hospital v. Halderman,
451 U.S. 1, 17 (1981).

Second, for similar reasons, a maximalist construction of the Tax Cut Prohibition
would result in federal conditions that do not relate to the federal interest for which the
spending program was established: relief from the economic harms caused by COVID-
19. It is one thing to require that coronavirus-stimulus-related money be spent on
coronavirus-related stimulus. It is quite another, and beyond Congress’s Spending
Power, to forbid States from providing tax relief of any kind, for any reason, merely to
ensure that federal funds are spent for their intended purpose.

Third, a broad construction of the Tax Cut Prohibition would violate separation of
powers and fundamental democratic principles, and would effectively commandeer half
of the State’s fiscal ledgers, compelling States to adopt the one-way revenue ratchet of
the current Congress for the next three years. For example, if citizens wish to lower their
overall tax burden in the next two election cycles, they cannot elect a candidate for state
office that could actually carry out such a policy. Similarly, elected officials who wish to
spend more public funds would now have a ready excuse for why state surpluses cannot
be used to cut taxes: Congress forbids that, so we “have” to spend it instead. Such a
system would eliminate the democratic accountability that federalism serves to protect.
See, e.g., New York v. United States, 505 U.S. 144, 169 (1992) (“Accountability is thus
diminished when, due to federal coercion, elected state officials cannot regulate in
accordance with the views of the local electorate[.]”). The upshot is that, for purposes of
setting tax policy, there would now be a single sovereign in the United States: Congress.
Letter to Secretary Janet L. Yellen
March 16, 2021
Page 6

But fundamental to our Constitution is separate federal and state sovereigns, who can
each set their own taxing policies based on their own independent legislatures.

In addition, a governor could—by mere stroke of a pen—accept the stimulus funds
and thereby bind both (1) the legislature of that state and (2) his or her successor as
governor from cutting any tax or tax assessment. Congress has no such power to intrude
upon the democratic structures of the States, whose republican forms of government are
guaranteed by Article IV. Notably, the 117th Congress cannot even bind the 118th
Congress from enacting legislation contrary to its legislation. Yet a broad construction of
the Tax Cut Prohibition would let the governors of the States in 2021 prohibit future state
governors and legislatures from enacting revenue-reducing measures in 2024.

Fourth, the expansive view of the Tax Cut Prohibition is unconstitutionally
coercive. No one could dispute that Congress cannot force States to pursue certain tax
policies at the state level. Cf. Sebelius, 567 U.S. at 577 (plurality) (“‘[T]he Constitution
has never been understood to confer upon Congress the ability to require the States to
govern according to Congress’ instructions.’ Otherwise the two-government system
established by the Framers would give way to a system that vests power in one central
government, and individual liberty would suffer.” (quoting New York, 505 U.S. at162)).
Congress may not micromanage a State’s fiscal policies in violation of anti-
commandeering principles nor coerce a State into forfeiting one of its core constitutional
functions in exchange for a large check from the federal government. Such “economic
dragooning” of the States cannot withstand constitutional scrutiny. Id. at 582.

Yet the Act arguably compels that result. The COVID-19 pandemic has wreaked
economic havoc across much of the Nation, leaving many citizens in need of short-term
financial support, and Congress determined that some of that support would flow through
the States. Although some States have weathered the crisis better than others, it is
difficult to envision many, if any, turning down this support for their citizens. For
example, Arizona has an annual budget of around $12.4 billion from its general fund, and
the moneys from the State Recovery Fund are anticipated to be $4.8 billion—40 percent
of one year’s general fund budget. As another example, West Virginia’s share represents
over 25% of one year’s budget. Many States put to the Hobson’s choice of taking this
financial support or maintaining their sovereign independence to set their own tax policy
will be hard pressed to decline the federal funds.

Given the foregoing, we ask that you confirm that the American Rescue Plan Act
does not prohibit States from generally providing tax relief through the kinds of measures
listed and discussed above and other, similar measures, but at most precludes express use
of the funds provided under the Act for direct tax cuts rather than for the purposes
specified by the Act. In the absence of such an assurance by March 23, we will take
appropriate additional action to ensure that our States have the clarity and assurance
Letter to Secretary Janet L. Yellen
March 16, 2021
Page 7

necessary to provide for our citizens’ welfare through enacting and implementing
sensible tax policies, including tax relief. We look forward to hearing from you
promptly. Please direct your response to joe.kanefield@azag.gov, and we will forward.5

Sincerely,

Mark Brnovich Christopher M. Carr Patrick Morrisey
Attorney General of Arizona Attorney General of Georgia Attorney General of West
Virginia

Steve Marshall Leslie Rutledge Ashley Moody
Attorney General of Attorney General of Attorney General of Florida
Alabama Arkansas

Lawrence G. Wasden Theodore E. Rokita Derek Schmidt
Attorney General of Idaho Attorney General of Indiana Attorney General of Kansas

Daniel Cameron Jeff Landry Lynn Fitch
Attorney General of Attorney General of Attorney General of
Kentucky Louisiana Mississippi

Eric S. Schmitt Austin Knudsen Douglas J. Peterson
Attorney General of Attorney General of Attorney General of
Missouri Montana Nebraska

Mike Hunter Alan Wilson Jason R. Ravnsborg
Attorney General of Attorney General of South Attorney General of South
Oklahoma Carolina Dakota

Ken Paxton Sean D. Reyes Bridget Hill
Attorney General of Texas Attorney General of Utah Attorney General of
Wyoming

5
Please note this letter is not intended to be and is not in any way a waiver of any legal rights, claims,
defenses, or immunities possessed by the States regarding this matter.
Exhibit S
Case: 1:21-cv-00181-DRC Doc #: 1 Filed: 03/17/21 Page: 1 of 12 PAGEID #: 1

IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF OHIO

STATE OF OHIO,
Plaintiff, No. 1:21-cv-181
v. COMPLAINT FOR INJUNCTIVE
AND DECLARATORY RELIEF
JANET YELLEN, in her official
capacity as Secretary of the
Treasury; RICHARD K. DELMAR, in
his official capacity as acting
inspector general of the Department
of Treasury; and U.S.
DEPARTMENT OF THE
TREASURY;
Defendants.
Case: 1:21-cv-00181-DRC Doc #: 1 Filed: 03/17/21 Page: 2 of 12 PAGEID #: 2

INTRODUCTION

1. This suit challenges an unconstitutional provision in the American

Rescue Plan Act—a provision that allows the federal government to commandeer

state taxing authority, and that the Act coerces the States into accepting.

2. The Act includes a $195.3 billion aid program intended to, among other

things, help States recover from the pandemic-caused downturn.

3. The aid program, which appears in §9901 of the Act, contains a provision

that this complaint calls the “Tax Mandate.”

4. The Tax Mandate forbids States from using funds received under the

Act to “directly or indirectly” offset a “reduction in net tax revenue” caused by a

change in tax policy. American Rescue Plan Act of 2021, Pub. L. No. 117-2, §9901

(2021) (adding §602(c)(2) to the Social Security Act (42 U.S.C. §801 et seq.)).

5. Another provision in §9901 empowers the Secretary of the Treasury to

recoup federal funds that she thinks the State used to offset revenue loss from a tax

reduction in violation of the Tax Mandate. Id. (adding §602(e) to the SSA).

6. Money is fungible, so any revenue lost from a tax credit, deduction,

rebate, delay, or decrease that Ohio legislators or executive officers may implement

would be “indirectly” offset by the $5.5 billion the State expects to receive pursuant

to the Act. Thus, the Tax Mandate effectively prohibits reductions in taxes: any State

that reduces taxes, and that experiences a loss in tax revenue, is subject to having

billions of dollars in federal funding recouped by the Department of the Treasury.

7. Congress has no direct authority to “require the States to govern

according to Congress’s” preferred tax regime. New York v. United States, 505 U.S.

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144, 162 (1992). And while the Spending Clause of the U.S. Constitution empowers

Congress to “provide for … the general Welfare,” Congress may not use its influence

under the Spending Clause to coerce the States to adopt Congress’s tax preferences,

Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 578 (op. of Roberts, C.J.).

8. 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.

9. Ohio seeks to enjoin federal officials from enforcing the unconstitutional

Tax Mandate, and seeks declaratory relief establishing that the State of Ohio, under

the Tenth Amendment to the U.S. Constitution, retains the freedom to manage its

own tax policy.

JURISDICTION AND VENUE

10. This Court has subject matter jurisdiction under 28 U.S.C. §1331 and

§§2201–02.

11. Venue is proper in this judicial district under 28 U.S.C. §1391(e)(1).

12. The State of Ohio has standing to challenge the Tax Mandate, and to

seek injunctive and declaratory relief. The Mandate injures the State by

unconstitutionally intruding on the State’s sovereign authority, by interfering with

the State’s orderly management of its fiscal affairs, and by subjecting the State to the

risk that it may be made to return funding to the federal government. See Celebrezze

v. U.S. Dep’t of Transp., 766 F.2d 228, 232 (6th Cir. 1985); Alaska v. U.S. Dep’t of

Transp., 868 F.2d 441, 443 (D.C. Cir. 1989); Texas v. United States, 809 F.3d 134,

155–57 (5th Cir. 2015); see also Barnes v. E-Systems, 501 U.S. 1301, 1304 (1991)
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(Scalia, J., in chambers). Injunctive or declaratory relief would redress the State’s

injuries.

PARTIES

I. Plaintiff

13. Plaintiff, the State of Ohio, is a sovereign State of the United States of

America.

II. Defendants

14. Janet L. Yellen is the Secretary of the Treasury, and is named in her

official capacity. The Secretary of the Treasury is responsible for administering the

coronavirus local fiscal recovery fund created by §9901 of the American Rescue Plan

Act of 2021.

15. Richard K. Delmar is the Acting Inspector General of the Department of

Treasury, and is named in his official capacity. The Inspector General is responsible

for monitoring and oversight of existing coronavirus relief funds to the States, and is

generally responsible for informing the Secretary of the Treasury about programs

administered by the Department and advising on the necessity for corrective action.

16. The Department of the Treasury is an agency of the United States and

is additionally responsible for administering the coronavirus local fiscal recovery fund

created by §9901 of the American Rescue Plan Act of 2021.

FACTUAL ALLEGATIONS

I. The American Rescue Plan Act

17. On March 11, 2021, President Biden signed into law a $1.9 trillion

stimulus package, the “American Rescue Plan Act,” H.R. 1319. The text of the Act is

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available at https://www.congress.gov/bill/117th-congress/house-bill/1319/text.

18. The Act appropriates $195.3 billion in aid to the States and the District

of Columbia. Pub. L. No. 117-2, §9901 (adding §602(b)(3)(A) to the Social Security

Act). Of that amount, $25.5 billion is allocated equally among the States and the

District. The remainder, minus additional money for Washington, D.C., is distributed

based on each State’s average number of unemployed individuals from October

through December of 2020. Id. (adding §602(b)(3)(B) to the SSA).

19. The State of Ohio is expected to receive $5.5 billion in aid under the Act.

Jared Walczak, State Aid in American Rescue Pan Act is 116 Times States’ Revenue

Losses, TAX FOUNDATION (Mar. 3, 2021), https://taxfoundation.org/state-and-local-

aid-american-rescue-plan/. Additional billions will be sent to Ohio’s localities directly

and are not the subject of this suit. Id.

20. The American Rescue Plan Act’s funds are available to the States

“through December 31, 2024.” Pub. L. No. 117-2, §9901 (adding §602(a) to the SSA).

21. The Act’s “Tax Mandate” is the provision in §9901 of the Act that

provides:

A State or territory shall not use the funds provided under this
section or transferred pursuant to section 603(c)(4) 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.

(emphasis added).

22. If a State violates the Tax Mandate, the Secretary of the Treasury shall

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recoup the lesser of: (1) the amount of the applicable reduction to net tax revenue; or

(2) the amount of funds the State received from the federal government. Pub. L. No.

117-2, §9901 (adding §602(e) to the SSA).

23. The Act does not provide any process for a State to dispute an alleged

violation of the Tax Mandate.

24. The Act gives the Secretary broad authority to issue regulations

“necessary or appropriate to carry out” the program. Id. (adding §602(f) to the SSA).

II. Ohio’s Budget

25. The State expects to receive $5.5 billion from the American Rescue Plan

Act to help Ohio and its citizens recover from the devastating effects of the pandemic.

26. $5.5 billion fills such a large and urgent need in Ohio’s budget that Ohio

has no real choice except to take the funds, especially while attempting to respond to

the economic instability wrought by the COVID-19 pandemic.

27. The pandemic brought a drastic economic slowdown, substantially

affecting available funds and thus Ohio’s ability to support needed programs.

28. The State of Ohio is obligated to maintain a balanced budget. If

anticipated receipts and available balances in the State’s general revenue fund will

likely be less than appropriations from that fund, the Governor must order spending

reductions to prevent a deficit. Ohio Rev. Code §126.05; see also Ohio Legislative

Service Commission, A Guidebook for Ohio Legislators at 98–99 (2021),

https://www.lsc.ohio.gov/documents/reference/current/guidebook/17/Guidebook.pdf.

29. In April 2020, tax revenues fell $866.5 million below estimate, a 35.3

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percent drop. See Monthly Financial Report at 13, Ohio Office of Budget and

Management (May 11, 2020), https://archives.obm.ohio.gov/Files/Budget_and

_Planning/Monthly_Financial_Report/2020-05_mfr.pdf. In May 2020, Governor

DeWine ordered $775 million in spending cuts, including to K-12 schools and

Medicaid. See Randy Ludlow, Coronavirus in Ohio: $775 million in budget cuts due

to pandemic include $300 million reduction to schools, THE COLUMBUS DISPATCH (May

5, 2020), https://www.dispatch.com/news/20200505/coronavirus-in-ohio-775-million-

in-budget-cuts-due-to-pandemic-include-300-million-reduction-to-schools.

30. Tax revenues for fiscal year 2020 fell $1.1 billion below estimate. More

broadly, total non-federal revenues finished the fiscal year $1.2 billion below

estimate. See Monthly Financial Report at 11, Ohio Office of Budget and

Management, (July 10, 2020), https://archives.obm.ohio.gov/Files/Budget_and_

Planning/Monthly_Financial_Report/2020-07_mfr-final.pdf.

31. Ohio’s economy contracted 3.5 percent between the end of 2019 and the

third quarter of 2020, mirroring the national economy, which experienced the largest

economic decline since just after World War II. See Monthly Financial Report at 2,

Ohio Office of Budget and Management (Mar. 10, 2021), https://archives.obm.ohio.gov

/Files/Budget_and_Planning/Monthly_Financial_Report/2021-03_mfr.pdf; Baseline

Forecast Testimony at 1, Ohio Legislative Service Commission, available at

https://www.lsc.ohio.gov/documents/budget/134/mainoperating/IN/HF%20forecast%

20testimony.pdf (last visited Mar. 16, 2021).

32. Meanwhile, demand for various state services has increased. Medicaid

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enrollment, for example, has increased by 369,100 individuals since February 2020.

See Monthly Financial Report at 22, Ohio Office of Budget and Management (Mar.

10, 2021), https://archives.obm.ohio.gov/Files/Budget_and_Planning/Monthly

_Financial_Report/2021-03_mfr.pdf.

33. For fiscal year 2019, a comparatively “normal” year, which ran July 1,

2018, through June 30, 2019, the State of Ohio budgeted $78 billion and spent $71

billion. For fiscal year 2020, which ended June 30, 2020, the State budgeted $77.9

billion and spent $74.6 billion. For fiscal year 2021, Ohio budgeted $93.3 billion, and

through the first nine-and-a-half months of the fiscal year, it has spent 62.1 percent

of that budget. See Ohio Office of Budget and Management, Ohio Checkbook, https:

//checkbook.ohio.gov/State/Budgets/default.aspx (last visited Mar. 15, 2021) (to view

the data for each year, select the dropdown menu under “Fiscal Year,” which is

located at the top of the graph).

34. The amount of money at stake—$5.5 billion—represents 7.7 percent of

Ohio’s 2019 expenditures, 7.4 percent of Ohio’s 2020 expenditures, and 5.9 percent of

Ohio’s anticipated 2021 budget.

35. Looking at the nation as a whole, total state spending reached $2.26

trillion in fiscal year 2020, up from $2.1 trillion in fiscal year 2019. See Summary:

2020 State Expenditure Report at 1, National Association of State Budget Officers,

https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-

0fca152d64c2/UploadedImages/Issue%20Briefs%20/Summary_of_2020_State

_Expenditure_Report.pdf. Thus, the $193.6 billion package to the fifty States

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(subtracting $1.7 billion for the District of Columbia), represents 8.6 percent of total

state expenditures for 2020 and 9.2 percent for 2019.

CLAIMS FOR RELIEF

FIRST CLAIM FOR RELIEF
Violation of U.S. Constitution, Article I; Violation of the Spending Clause,
U.S. Const., Art. I, §8, cl.1

36. The State incorporates by reference the allegations of the preceding

paragraphs.

37. Article I of the U.S. Constitution enumerates Congress’s legislative

powers.

38. Article I does not give Congress the power to “issue direct orders to the

governments of the States.” Murphy v. NCAA, 138 S. Ct. 1461, 1476 (2018).

39. Congress may not use the Spending Clause, art. I, §8, cl. 1, to “indirectly

coerce[] a State to adopt a federal regulatory system as its own.” Nat’l Fed’n of Indep.

Bus. v. Sebelius, 567 U.S. 519, 578 (2012) (op. of Roberts, C.J.). Congress violates its

Spending Clause power when it coerces States into agreeing to limit their sovereign

authority by offering financial inducements that States cannot practically refuse. Id.

40. In the current economic climate, Ohio has “no real choice,” id. at 587,

but to accept the $5.5 billion available through the American Rescue Plan Act—a

figure that represents 7.4 percent of Ohio’s total expenditures in fiscal year 2020.

41. By accepting that money, the State must sacrifice its sovereign

authority to set tax policy as it sees fit, because changes to tax policy that reduce

revenues violate the Tax Mandate. Such violations could be used to force the State

to return funding received through the Act.
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42. Because Ohio and other States are coerced into accepting the limitations

on their sovereign authority that the Tax Mandate imposes, Congress exceeded its

authority under the Spending Clause when it enacted the Tax Mandate.

43. In addition, Spending Clause legislation must articulate

“unambiguously” the conditions it imposes on the States, enabling them to

understand the consequences of accepting funds. South Dakota v. Dole, 483 U.S. 203,

207 (1987). The Tax Mandate runs afoul of this requirement, because it is ambiguous

regarding what precisely constitutes a change in state tax policy that “indirectly”

offsets a loss in tax revenue.

44. None of Congress’s other enumerated powers authorized it to enact the

Tax Mandate.

SECOND CLAIM FOR RELIEF
Violation of the U.S. Constitution, Tenth Amendment; Violation of
Anticommandeering Principle

45. The State incorporates by reference the allegations of the preceding

paragraphs.

46. The Tenth Amendment states: “The powers not delegated to the United

States by the Constitution, nor prohibited by it to the States, are reserved to the

States respectively, or to the people.”

47. “[T]he Constitution has never been understood to confer upon Congress

the ability to require the States to govern according to Congress’ instructions.” New

York v. United States, 505 U.S. 144, 162 (1992). This prohibition against

commandeering state governments serves important values, such as safeguarding

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individual liberty and promoting political accountability. Murphy, 138 S. Ct. at 1477.

48. The Constitution neither takes the power to set state tax policy from the

States, nor empowers the federal government to commandeer state taxing authority.

49. Because the Tax Mandate commandeers the States’ sovereign authority

to set tax policy, it violates the Tenth Amendment.

PRAYER FOR RELIEF

50. The State requests that this Court:

a. Declare the Tax Mandate in §9901 of the American Rescue Plan Act

of 2021—the provision amending the Social Security Act to include

the new §602(c)(2)(A), see Pub. L. No. 117-2, §9901—to be in excess

of Congress’s powers enumerated in Article I, and thus

unenforceable;

b. Declare that the Tax Mandate violates the Tenth Amendment to the

Constitution of the United States, and is thus unenforceable;

c. Enjoin the defendants, and any other agency or employee of the

United States, from recouping funds, as provided in Pub. L. No. 117-

2, §9901, based on a violation of the Tax Mandate; and

d. Enjoin the defendants, and any other agency or employee of the

United States, from otherwise enforcing the Tax Mandate against

Ohio.

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Dated: March 17, 2021 DAVE YOST
Ohio Attorney General

/s/ Benjamin M. Flowers
BENJAMIN M. FLOWERS* (0095284)
Solicitor General
*Counsel of Record
ZACHERY P. KELLER (0086930)
MAY DAVIS (PHV application pending)
Deputy Solicitors General
30 East Broad Street, 17th Floor
6l4-466-8980
benjamin.flowers@ohioattorneygeneral.gov

Counsel for the State of Ohio

11
Exhibit T
Exhibit U
4/2/2021 How Senator Joe Manchin’s Move To Block Tax Relief In His Own State Costs All U.S. Taxpayers

Mar 16, 2021, 08:38am EST | 12,122 views

How Senator Joe Manchin’s Move To
Block Tax Relief In His Own State
Costs All U.S. Taxpayers
Patrick Gleason Contributor
Policy
I cover the intersection of state & federal policy and politics.

Sen. Chuck Schumer (D-NY) passes Sen. Joe Manchin (D-WV) as Manchin speaks on the phone outside the ... [+]
GETTY IMAGES

The prohibition of state tax relief included in the $1.9 trillion spending bill signed
into law by President Joe Biden on March 11, dubbed the American Rescue Plan Act
(ARPA), has emerged as one of the most controversial aspects of the package. While
this ban on state tax cuts, believed by many to be unconstitutional, was inserted as
an amendment by Senate Majority Leader Schumer (D-N.Y.), it turns out this

https://www.forbes.com/sites/patrickgleason/2021/03/16/how-senator-joe-manchins-move-to-block-tax-relief-in-his-own-state-costs-all-us-taxpayers/?s… 1/5
4/2/2021 How Senator Joe Manchin’s Move To Block Tax Relief In His Own State Costs All U.S. Taxpayers

provision was the demand of Senator Joe Manchin (D-W. Va.), the supposedly
moderate Democrat who effectively controls the fate of the filibuster.

Senator Manchin’s demand for the insertion of language banning state tax cuts was
reportedly motivated by his opposition to West Virginia Governor Jim Justice’s (R)
proposal to phase out the state income tax. Senator Manchin took action to make
sure that none of the billions West Virginia is set to receive from the new spending
package will be used to facilitate the state income tax phaseout sought by Governor
Justice and West Virginia state legislators. So in an effort to block state income tax
relief for his constituents, Manchin has imposed a federal restriction on relief for
taxpayers nationwide, one of questionable legality to boot.

“He’s hurting his own people in the state of West Virginia,” Governor Jim Justice
said of Senator Manchin’s amendment prohibiting state tax relief. “I do not condone
it.”

At the same time that the ARPA seeks to prohibit states from cutting taxes, it does
nothing to stop states from accepting billions in additional federal aid and then
turning around and raising state taxes. In fact, lawmakers in Hawaii are moving to
do just that right now with a proposal to raise the top marginal state income tax rate
to 16%, which would be the highest in the U.S.

Though Hawaii is the state most dominated by Democrats, it’s not the only state
where Democratic lawmakers are looking to raise state taxes. New York Governor
Andrew Cuomo (D), Illinois Governor J.B. Pritzker (D), and others are also pushing
for blue state tax increases despite the windfall of federal aid they have already
received in the past year and are scheduled to collect under the ARPA. Governors
Tim Walz (D-Minn.), Tony Evers (D-Wis.), and Tom Wolf (D-Pa.) are also proposing
tax hikes this year. But unlike in New York and Illinois, Republicans in the
Wisconsin, Minnesota, and Pennsylvania state legislatures have the ability to stop
the tax increases proposed by their Democratic governors.

MORE FOR YOU

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Level Cash Grab

Senate’s $1.9 Trillion Spending Bill Criticized For Blocking State Tax Relief,
Rewarding Bad Gubernatorial Behavior

https://www.forbes.com/sites/patrickgleason/2021/03/16/how-senator-joe-manchins-move-to-block-tax-relief-in-his-own-state-costs-all-us-taxpayers/?s… 2/5
4/2/2021 How Senator Joe Manchin’s Move To Block Tax Relief In His Own State Costs All U.S. Taxpayers

West Virginia Governor’s Income Tax Elimination Plan Is Met With Misinformation
& Misdirection

In his attempt to block state income tax relief for his own constituents, some legal
experts think Senator Manchin may have blocked what many believe to be among
the most sensible uses of one-time ARPA money, which is the refilling of
unemployment insurance (UI) trust funds and the repayment of federal
unemployment insurance loans. According to the Tax Foundation’s Jared Walczak,
filling unemployment insurance funds and repaying federal UI loans “would be one
of the most responsible ways states could spend a large, but one-time, infusion that
isn’t substantially needed to backfill lost revenues.”

Some state legislators this author has spoken to, in states that already have budget
surpluses even before receiving any ARPA funds, plan to ignore the ARPA’s legally
dubious prohibition on state tax relief and proceed with planned tax cuts that have
been in the works for months. In fact, some of these state lawmakers will dare the
Biden administration to sue them if the White House thinks states don’t have the
sovereignty to set fiscal policy as they see fit.

It’s not only Republican legislators and governors who will be inclined to ignore this
federal attempt to bar state tax relief. In New Mexico, where Democrats control the
governor’s mansion and both chambers of the legislature, state officials are planning
to forestall tax increases by putting ARPA funds into the unemployment trust fund.
As mentioned, some legal experts believe such a move is prohibited by Senator
Manchin’s amendment blocking the use of ARPA funds for state tax relief both
directly and indirectly. As such, moves by lawmakers in New Mexico and elsewhere
to fill UI trust funds could be met with legal challenges.

Senator Mike Braun (R-Ind.) has introduced Senate legislation that would repeal the
ARA’s prohibition of state tax relief. Congressman Dan Bishop (R-N.C.) has
introduced a companion bill in the House.

“Democrats are trying to ban states from cutting taxes with a sneaky amendment to
the $1.9 trillion so-called COVID relief package,” Senator Braun said in a March 11
press release. “Not only did this blue state bailout bill penalize states for reopening
by calculating state funds based on unemployment, now they are trying to use it as a
back door to ban states from cutting taxes. My bill would make sure they don’t get
away with it.”
https://www.forbes.com/sites/patrickgleason/2021/03/16/how-senator-joe-manchins-move-to-block-tax-relief-in-his-own-state-costs-all-us-taxpayers/?s… 3/5
4/2/2021 How Senator Joe Manchin’s Move To Block Tax Relief In His Own State Costs All U.S. Taxpayers

Unless repealed, the state tax relief prohibition language in the ARPA is expected to
produce lawsuits for years to come. As Reason Magazine’s Eric Boehm explained
during the March 15 Reason Roundtable podcast, the provision Senator Manchin
had added to the ARPA seeks to give the federal government “the ability to basically
take states to court for the next few years if they try to do anything that would be
considered a reduction in taxes or a rebate or a tax credit program, something like
that.”

“Money is fungible of course,” Boehm adds, “so what dollars are used for what, who
knows, but if any of these bailout dollars are connected either directly or indirectly,
the law says, to those offsets, states could end up in court.”

It seems that in an attempt to block his own constituents from receiving state income
tax relief, Senator Manchin has possibly thwarted tax relief in states across the
country while precluding some of the most sensible uses of ARPA funds. In the
process, Manchin’s amendment has created a nationwide legal mess that will take
some time, and costly lawsuits, to sort out.

“It’s childishness,” Governor Justice said of Senator Manchin’s effort to block state
tax relief, adding “Joe needs to grow up and get by that. For God’s sake, he’s hurting
his own people.”

UPDATE: hours after publication of this article, a coalition of 21 state attorneys
general sent a joint letter to U.S. Treasury Secretary Janet Yellen “seeking immediate
confirmation that the most recent COVID-19 stimulus bill does not strip states of
their well-established authority to tax or not tax their citizens,” stated the press
release issued by West Virginia Attorney General Patrick Morrisey.

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https://www.forbes.com/sites/patrickgleason/2021/03/16/how-senator-joe-manchins-move-to-block-tax-relief-in-his-own-state-costs-all-us-taxpayers/?s… 4/5
4/2/2021 How Senator Joe Manchin’s Move To Block Tax Relief In His Own State Costs All U.S. Taxpayers

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Patrick Gleason

I am Vice President of State Affairs at Americans for Tax Reform, a Washington-based advocacy
and policy research organization founded in 1985 at the request of President… Read More

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Exhibit V
4/2/2021 Justice blames Manchin for stimulus provision limiting use for tax reform | News, Sports, Jobs - Weirton Daily Times

BREAKING NEWS Car rams into police at Capitol barricade; officer killed

Justice blames Manchin for
stimulus provision limiting use
for tax reform

Photo Courtesy/WV Legislative Photography BRIEFING — Gov. Jim Justice speaks to the public and
media during a virtual briefing Monday.

4 articles remaining...

https://www.weirtondailytimes.com/news/local-news/2021/03/justice-blames-manchin-for-stimulus-provision-limiting-use-for-tax-reform/ 1/5
4/2/2021 Justice blames Manchin for stimulus provision limiting use for tax reform | News, Sports, Jobs - Weirton Daily Times

CHARLESTON — President Joe Biden’s COVID-19 relief package could be
approved by the U.S. House of Representatives as soon as today, but a
provision placed in the bill triggered Gov. Jim Justice on a rant against
West Virginia’s lone Democratic U.S. Senator.

Justice, during his Monday morning virtual COVID-19 briefing with press
from the State Capitol Building, cast blame on U.S. Sen. Joe Manchin, D-
W.Va., for a provision in the $1.9 trillion stimulus package that would limit
any use of federal coronavirus relief dollars to offset losses due to legislated
changes in state tax revenues.

“This is terrible, this is absolutely terrible,” Justice said. “What was
written into the law was written in there primarily by Joe Manchin. Joe
Manchin is supposed to be your representative, West Virginia. You know
what he is doing? He’s trying to hit at me. That’s all there is to it.”

The provision states that “A state … shall not use the funds provided … to
either directly or indirectly offset a reduction in the net tax revenue of
such state … resulting from a change in law, regulation, or
administrative interpretation … that reduces any tax … or delays the
imposition of any tax or tax increase.”

“In this situation, (Manchin) has absolutely bent back double triple to hit
at me for some reason,” Justice said. “What he is doing is hurting West
Virginia. It’s just a slap at West Virginians.”

A spokesperson for Manchin would neither confirm nor deny the senator’s
involvement with that provision. But in a statement Monday, Manchin said
Justice should be working with him instead of criticizing him.

“Instead of political attacks that do nothing to help hard working West
Virginians, I welcome the opportunity to speak with Governor Justice
about the best possible ways to improve the lives of West Virginians with
the more than $2 billion in federal funding that I secured for our state in
this bill,” Manchin said.

Justice unveiled his tax reform legislation last week, though the bill has yet
to4be formally
articles introduced in either the House of Delegates or state Senate.
remaining...

https://www.weirtondailytimes.com/news/local-news/2021/03/justice-blames-manchin-for-stimulus-provision-limiting-use-for-tax-reform/ 2/5
4/2/2021 Justice blames Manchin for stimulus provision limiting use for tax reform | News, Sports, Jobs - Weirton Daily Times

It includes a one-year 60 percent cut in most personal income tax
classifications, along with a $52 million tax rebate for families making less
than $35,000 per year. The total tax reductions total more than $1.087
billion.

The Justice tax reform plans also includes $902.6 million in proposed tax
increases in the consumer sales and use tax; a tiered severance tax for
fossil fuels; a tax on certain luxury goods; and increased taxes on
cigarettes, tobacco products, e-cigarettes, beer, wine, liquor, and soda.
Even with additional savings and efficacies, the plan leaves a $90 million
gap.

The $1.9 trillion Biden package includes $350 billion in aid to state,
county, and municipal governments. The funding can be used to offset
losses in tax revenue attributed to the COVID-19 pandemic and
shutdowns, though the bill includes provisions prohibiting states from
using the funding for state pension plans as well as offsetting tax cuts.

Manchin said the $1.9 trillion package includes $1.25 billion for the state
and $624 million in direct funding for county and municipal governments.
The bill also includes $800 million for state education funding, $260
million for childcare, $10 million for Head Start, $140 million for
broadband expansion as well as $2 million for Wi-Fi hotspots, and millions
more in funding for vaccine distribution and rural healthcare.

“Policy differences do not justify personal attacks,” Manchin said. “I want
to work with Governor Justice in the best interest of our state.”

Manchin has been a vocal critic of Justice’s handling of the $1.25 billion
sent to West Virginia for state and local government COVID-19 expenses
last April through the $2.2 trillion federal C.A.R.E.S. Act. Manchin accused
Justice last year of taking too long to send money out to local governments
in the hope of the federal government easing restrictions to allow
C.A.R.E.S. Act funds for budget backfill.

According to the State Auditor’s Office, more than $660 million of the
$1.25 billion of C.A.R.E.S. Act reimbursement dollars remains in the
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accounts of the State Treasurer’s Office.
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4/2/2021 Justice blames Manchin for stimulus provision limiting use for tax reform | News, Sports, Jobs - Weirton Daily Times

Justice and state revenue officials said that $400 million of that balance is
needed to pay off a $157 million interest-free loan through the U.S.
Department of Labor to keep West Virginia’s unemployment trust fund
solvent as well as additional funding to replenish the fund. The interest-
free period was set to end March 14.

During his Feb. 10 State of State address, Justice called for the creation of
a third Rainy Day Fund to help cover possible shortfalls as the personal
income tax is phased out. During his remarks before lawmakers, he
speculated about the federal government possibly forgiving the state’s
unemployment loan, freeing up that $660 million to put into the new rainy
day “bucket.”

“What do you think’s going to happen with the Biden Stimulus package?
What could happen? They could forgive all of the dollars that we’ve put
out towards unemployment,” Justice said last month. “What if we had
hundreds and hundreds and hundreds more millions of dollars? Put them
in the bucket. Don’t spend them.”

Justice walked back that idea Monday while also criticizing the Biden
coronavirus package for limiting how the state can use those dollars.

“My additional rainy day bucket had nothing … in the world to do with
taking C.A.R.E.S. money and putting it over here in a rainy day bucket
that is for tax relief,” Justice said. “If we have just happened to run our
state better than other states that are absolutely run by Democrats and
totally out of control … should we not have the option to do with those
monies whatever we want to do with those monies that will only help
West Virginians and help us become better and bring more and more
opportunities to us?”

The Biden plan includes $1,400 in direct payments to individuals making
less than $75,000, a $3,000 child tax credit and makes it fully refundable,
and extends enhanced unemployment benefits until Sept. 6 at $300 per
week — a deal pushed for by Manchin after the House of Representative
passed a $400-per-week extension through August.
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4/2/2021 Justice blames Manchin for stimulus provision limiting use for tax reform | News, Sports, Jobs - Weirton Daily Times

Both Manchin and U.S. Sen. Shelley Moore Capito, R-W.Va, attempted to
make the package less broad and more specifically tailored to the economic
issues created by the pandemic. During those negotiations, Justice was on
the record calling for a large stimulus package. He stood by those
statements Monday, though admitted the bill had unneeded items.

“I frankly believe that really and truly a bigger stimulus package at this
point and time is what is needed to finally get up the steepest part of the
mountain,” Justice said. “To be perfectly honest, our federal government
has a way of putting in so much pork into the situation that … it’s a
terrible mistake, but it’s what happens all the time.”

(Adams can be contacted at sadams@newsandsentinel.com)

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Exhibit W
4/2/2021 Opinion: Democrats to States: No New Tax Cuts - WSJ

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https://www.wsj.com/articles/democrats-to-states-no-new-tax-cuts-11615333751

OPINION | REVIEW & OUTLOOK

Democrats to States: No New Tax Cuts
The Covid bill says more spending is ine, but cutting taxes is barred.

By The Editorial Board
March 9, 2021 6 49 pm ET

Senate Majority Leader Chuck Schumer holds a press conference on COVID Relief and Rescue
package passed by the Senate, New York, March 7.
PHOTO: LEV RADIN ZUMA PRESS

Listen to this article
4 minutes

Democrats in Congress aren’t satisﬁed with spending $1.9 trillion to help blue states and
union friends. They’ve also launched a sneak attack against conservative states. Read
their legislation’s lips: No new state tax cuts.

That’s the news from a provision added last week by Senate Democrats that limits how
states and localities can use their $360 billion windfall. States can use the loot to provide
government services, cover revenue losses during the pandemic and “respond to the
public health emergency” or “its negative economic impacts, including assistance to
households, small businesses, and nonproﬁts, or aid to impacted industries such as
tourism, travel, and hospitality.”

https://www.wsj.com/articles/democrats-to-states-no-new-tax-cuts-11615333751 1/4
4/2/2021 Opinion: Democrats to States: No New Tax Cuts - WSJ

OPINION: POTOMAC WATCH

Passing Covid-19 To Find Out What's In It

00 00 1x

Much of the relief will invariably ﬂow to government union pension funds, which are
underfunded in states like Illinois, New Jersey and Connecticut. To inoculate themselves
from GOP attacks, Democrats speciﬁed in the bill that relief funds may not be used “for
deposit into any pension fund.” But money is fungible. States can pay out of their general
funds for pensions and use the federal cash for something else.

Majority Leader Chuck Schumer also snuck a provision into his “perfecting amendment”
allowing states to use federal funds to provide “premium pay” of up to $13 an hour (and
$25,000 total) to workers who are “performing such essential work” as deﬁned by the
Governor of each state.

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But here’s the political gut punch. The bill explicitly bars states from cutting taxes. States
“shall not use the funds,” the bill says, “to either directly or indirectly [our emphasis]
oﬀset a reduction in the net tax revenue” that results “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.”

https://www.wsj.com/articles/democrats-to-states-no-new-tax-cuts-11615333751 2/4
4/2/2021 Opinion: Democrats to States: No New Tax Cuts - WSJ

Wow. Democrats in Washington are trying to dictate to governors and state legislatures
that they can’t change their tax laws if they accept their share of the $1.9 trillion. The
sweeping prohibition would last through 2024, and the bill grants Treasury Secretary
Janet Yellen authority to write regulations “as may be necessary or appropriate to carry”
it out.

The language is so expansive that states could be limited from making any changes to
their tax codes that reduce revenue even if they don’t use federal funds as direct oﬀsets.
Much will depend on how Ms. Yellen deﬁnes “indirectly.” States that don’t comply with
her interpretation will have to repay federal funds.

Several states including West Virginia, Mississippi, Arkansas and Idaho are considering
tax cuts to attract people and business. Some GOP legislatures also want to start or
expand private-school choice programs that give tax credits to businesses and individuals
that donate money for scholarships. Treasury could say these policies break the law.
Beltway Democrats are essentially barring GOP-led states from improving their
competitiveness against high-tax Democratic states.

Democrats in California recently approved $600 stipends for low-income residents and
undocumented immigrants, and these and other handouts to liberal constituencies
appear permissible under the bill as “assistance to households.” A corporate tax cut? No
way.

The constitutionality of this is open to question. The Supreme Court’s “anti-
commandeering” doctrine prohibits Congress from using federal funds to coerce states.
But even if the tax cut ban doesn’t meet the Court’s legal test of coercion, it’s still an
egregious aﬀront to constitutional federalism. In the 2020 election, Democrats failed in
their goal of retaking statehouses, but now they plan to control them anyway from
Washington.

Appeared in the March 10, 2021, print edition.

https://www.wsj.com/articles/democrats-to-states-no-new-tax-cuts-11615333751 3/4
4/2/2021 Opinion: Democrats to States: No New Tax Cuts - WSJ

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https://www.djreprints.com.

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Exhibit X
4/2/2021 Variety of last-minute changes made to Senate aid package - Roll Call

CONGRESS

Variety of last-minute changes made to
Senate aid package
Fixes would restore aid to cities and counties; boost child
care, Medicaid funds; expand eligibility for rural health
care fund and more

Senate Majority Leader Charles E. Schumer oﬀered a “perfecting amendment” that was adopted
before passage of the relief bill. The amendment added billions of dollars in aid. (Tom Williams/CQ
Roll Call)

By Paul M. Krawzak

https://www.rollcall.com/2021/03/08/variety-of-last-minute-fixes-made-to-senate-aid-package/ 1/7
4/2/2021 Variety of last-minute changes made to Senate aid package - Roll Call
Posted March 8, 2021 at 6:00am, Updated at 11:07am

A “perfecting amendment” that the Senate adopted just before ﬁnal passage of a $1.9
trillion aid package would add billions of dollars for local governments, restaurants and
child care grants to states.

The changes came in a 58-page amendment from Majority Leader Charles E. Schumer, D-
N.Y., covering various sections of the wide-ranging relief bill. Further modiﬁcations to
initial amendment text obtained by CQ Roll Call before it was adopted by voice vote
Saturday morning were written into the margins.

The biggest changes involved restoring $10 billion in direct aid to cities and counties,
which had been cut from the initial Senate substitute amendment to the House-passed aid
bill. The restored funds bring the total for local governments to $130.2 billion while
preserving a $10 billion fund for state broadband infrastructure projects that the earlier
amendment made room for.

In addition, the ﬁnal amendment would create a $1 billion annual program, championed
by Senate Finance Chair Ron Wyden, D Ore., for communities and tribal governments
that have historically been harmed by federal government policies.

In a statement for the record, Wyden cited communities across the Western United States,
including his home state, that are situated on federal lands without a substantial local tax
base to pay for government services. Federal environmental and wildlife protection laws
have sapped rural counties’ ability to beneﬁt from revenue-sharing arrangements involved
in extraction of resources like timber, oil and gas.

Eligible communities include counties, parishes or boroughs, as well as the District of
Columbia, Puerto Rico, Guam and the U.S. Virgin Islands. The fund would presumably
beneﬁt communities that have complained of the ﬁscal impact of Biden administration
regulations prohibiting oil and gas exploration.

The money in Wyden’s program is available so far only for the 2022 and 2023 ﬁscal years, so
more would need to be appropriated in subsequent legislation. Of the $2 billion, $500
million would be set aside for tribal governments.
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4/2/2021 Variety of last-minute changes made to Senate aid package - Roll Call

Changes to state, local funds

Restrictions on direct aid to states would change somewhat under Schumer’s perfecting
amendment.

Gone is a requirement that the $195.3 billion be split into two tranches, with the second
allotment made available 12 months later; instead, Treasury Secretary Janet Yellen would
be given the optional authority to withhold 50 percent of the funds upfront. The language
stipulates that Yellen “shall” exercise that authority based on each state’s unemployment
rate.

In addition, the prescribed uses of funds for both states and localities would be revised
from the earlier substitute amendment. A restriction on the uses of funds based on the
need to provide government services would be tightened to stipulate that states and
localities could use the money only to replace the amount of revenue lost during the
pandemic compared with the prior full ﬁscal year.

State and local governments would gain the ability to use their allotments to provide
“premium pay” to essential workers of up to $13 per hour, capped at a maximum of
$25,000. Essential workers are deﬁned as those “needed to maintain continuity of
operations of essential critical infrastructure sectors” or others as designated by state and
local oﬃcials as critical to “health and well-being” of their residents.

States would also gain more federal help with Medicaid costs associated with providing
home- and community-based services. A 7.35 percentage-point boost in the federal
matching percentage in the original version would jump to 10 percentage points in
Schumer’s perfecting amendment.

State grants for child care services would increase by $5 billion over a decade from the
underlying Senate version.

And as restaurants and bars earlier celebrated on Saturday after the bill passed, an extra
$3.6 billion for those hard-hit businesses was freed up in Schumer’s amendment, bringing
total grants to $28.6 billion.

https://www.rollcall.com/2021/03/08/variety-of-last-minute-fixes-made-to-senate-aid-package/ 3/7
4/2/2021 Variety of last-minute changes made to Senate aid package - Roll Call

Disabled children, rural hospitals

It wasn’t immediately clear how Democrats ﬁt all the changes into the ﬁscal 2021 budget
resolution’s $1.89 trillion ceiling.

But there were changes made tightening eligibility for nonproﬁts to beneﬁt from forgivable
loans under the Paycheck Protection Program, which a source involved in the discussions
said was how the restaurant grants grew in size. Both provisions were in the jurisdiction of
the Senate Small Business Committee.

The ﬂurry of activity on Friday and Saturday that resulted in trimming added
unemployment beneﬁts from $400 to $300 per week, coupled with a one-week extension
to Sept. 6, also probably freed up substantial extra funds for Medicaid, child care and state
and local funds in the Senate Finance Committee’s jurisdiction.

Other health care-related changes wouldn’t cost additional money but would
expand eligibility to receive slices of an $8.5 billion fund for rural health care providers and
suppliers. For instance, the perfecting amendment would strike a requirement that the
parent organization receiving the funds remit all of the money directly to the provider.

It would also expand the deﬁnition of rural provider to include hospitals in rural census
tracts within metropolitan statistical areas or others that serve rural patients, including in
urban areas with fewer than 500,000 residents. Providers of home health, hospice or long-
term care services at an individual’s home located in a rural area would also qualify under
the expanded deﬁnition, as would rural health clinics owned by hospitals or other
providers.

Changes were also made in the Senate Health, Education, Labor and Pensions
Committee’s jurisdiction. The ﬁnal amendment took $3 billion out of funds set aside for K-
12 education technology grants primarily for low-income and disabled children, instead
creating a new $3 billion pot for grants under the Individuals with Disabilities Education
Act. Of that funding, $550 million would be reserved for programs for preschools and
infants and toddlers.

https://www.rollcall.com/2021/03/08/variety-of-last-minute-fixes-made-to-senate-aid-package/ 4/7
4/2/2021 Variety of last-minute changes made to Senate aid package - Roll Call

Also, a new workers’ compensation fund for federal workers who came down with COVID-
19 between Jan. 27, 2020, and Jan. 27, 2023, removed from the earlier version, would be
restored in the ﬁnal Senate bill. Federal employees who only worked remotely during that
time wouldn’t be eligible.

Out of $26.1 billion in the bill for urban transit agency grants, a provision that would have
allowed some local transit agencies to claim an additional amount was removed,
presumably to more evenly distribute the remaining funds.

‘Injurious species’

And it appears the “Byrd rule” — named for former Sen. Robert C. Byrd, D W.Va. —
intended to restrict what can be included in ﬁlibuster-proof budget reconciliation bills,
struck a couple of other provisions in the earlier substitute.

The late amendment removes language that would have restricted access to $10 billion in
small-business credit allocations unless states presented plans for how minority-owned
and community development ﬁnancial institutions would participate. A requirement that
states draw up plans for how the money would beneﬁt “business enterprises owned and
controlled by socially and economically disadvantaged individuals” was also removed.

The amendment also removes prescriptive language on $10 million appropriated for the
U.S. Fish and Wildlife Service. The agency was supposed to use the money to identify and
track species that would potentially transmit pathogens that could make humans sick, as
well as “develop regulations to make emergency listings for injurious species.”

The preliminary Schumer amendment would have removed only the requirement that the
Fish and Wildlife Service develop the emergency listings regulations; handwritten changes
would strike all of the prescribed uses of the $10 million, however. Instead, the money
would have to be used under the existing statute governing illegal traﬃcking in wildlife and
plants, known as the Lacey Act.

A ﬁnal handwritten ﬁx at the end of the 58-page amendment would change the way in
which $280 million for Native American community development block grants is

https://www.rollcall.com/2021/03/08/variety-of-last-minute-fixes-made-to-senate-aid-package/ 5/7
4/2/2021 Variety of last-minute changes made to Senate aid package - Roll Call

distributed. The underlying bill would have made the money available “without
competition,” but those two words were struck by the perfecting amendment.

Peter Cohn, David Lerman, Jennifer Shutt and Tia Yang contributed to this report.

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