Appellants' brief, State of Texas v. Yellen, No. 22-10560 (5th Cir.), Doc. 26 (August 24, 2022)
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The Brief for Appellants filed August 24, 2022 as Document 26 in State of Texas, State of Mississippi and State of Louisiana v. Janet Yellen et al., No. 22-10560, in the United States Court of Appeals for the Fifth Circuit, on appeal from the Northern District of Texas. The brief states that the district court permanently enjoined the federal government from enforcing against the three plaintiff States a provision of the American Rescue Plan Act of 2021 that bars a State from using the new federal funds to offset a reduction in net tax revenue. It presents two questions: whether the judgment should be vacated because plaintiffs failed to submit evidence of a concrete controversy, and whether it should be reversed on the merits. It requests oral argument.
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
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“Appellants' brief, State of Texas v. Yellen, No. 22-10560 (5th Cir.), Doc. 26 (August 24, 2022).”
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Case: 22-10560 Document: 26 Page: 1 Date Filed: 08/24/2022
No. 22-10560
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
STATE OF TEXAS; STATE OF MISSISSIPPI; STATE OF LOUISIANA,
Plaintiffs-Appellees,
v.
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
the Treasury; UNITED STATES DEPARTMENT OF THE TREASURY; UNITED
STATES OF AMERICA,
Defendants-Appellants.
On Appeal from the United States District Court
for the Northern District of Texas
BRIEF FOR APPELLANTS
BRIAN M. BOYNTON
Principal Deputy Assistant Attorney
General
CHAD E. MEACHAM
United States Attorney
MARK B. STERN
ALISA B. KLEIN
DANIEL WINIK
Attorneys, Appellate Staff
Civil Division, Room 7245
U.S. Department of Justice
950 Pennsylvania Avenue NW
Washington, DC 20530
(202) 305-8849
Case: 22-10560 Document: 26 Page: 2 Date Filed: 08/24/2022
CERTIFICATE OF INTERESTED PERSONS
No. 22-10560
STATE OF TEXAS; STATE OF MISSISSIPPI; STATE OF LOUISIANA,
Plaintiffs-Appellees,
v.
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
the Treasury; UNITED STATES DEPARTMENT OF THE TREASURY; UNITED
STATES OF AMERICA,
Defendants-Appellants.
Under Fifth Circuit Rule 28.2.1, defendants—as governmental parties—need not
submit a certificate of interested persons.
/s/ Daniel Winik
Daniel Winik
Case: 22-10560 Document: 26 Page: 3 Date Filed: 08/24/2022
STATEMENT REGARDING ORAL ARGUMENT
The federal government respectfully requests oral argument. The district court
permanently enjoined the federal government from enforcing against the three plaintiff
States a provision of the American Rescue Plan Act of 2021, Pub. L. No. 117-2, 135
Stat. 4, that prohibits a State from using the new federal funds provided by the Act to
offset a reduction in the State’s net tax revenue. Oral argument is warranted given the
importance of the issue.
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Case: 22-10560 Document: 26 Page: 4 Date Filed: 08/24/2022
TABLE OF CONTENTS
Page
CERTIFICATE OF INTERESTED PERSONS ................................................................ i
STATEMENT REGARDING ORAL ARGUMENT ...................................................... ii
TABLE OF AUTHORITIES ................................................................................................iv
STATEMENT OF JURISDICTION ....................................................................................1
STATEMENT OF ISSUES ....................................................................................................1
STATEMENT OF THE CASE .............................................................................................2
A. Statutory Background........................................................................................ 2
B. Implementing Regulations ................................................................................ 3
C. This Action ......................................................................................................... 4
SUMMARY OF ARGUMENT ..............................................................................................5
STANDARD OF REVIEW....................................................................................................7
ARGUMENT ............................................................................................................................7
I. PLAINTIFFS FAILED TO SUBMIT EVIDENCE DEMONSTRATING A
CONCRETE CONTROVERSY OVER THE OFFSET PROVISION’S
CONSTITUTIONALITY ....................................................................................................7
II. THE OFFSET PROVISION IS NOT IMPERMISSIBLY COERCIVE AND DOES
NOT VIOLATE THE ANTI-COMMANDEERING DOCTRINE ................................... 11
CONCLUSION ..................................................................................................................... 15
CERTIFICATE OF COMPLIANCE
ADDENDUM
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Case: 22-10560 Document: 26 Page: 5 Date Filed: 08/24/2022
TABLE OF AUTHORITIES
Cases: Page(s)
Arizona v. Yellen,
34 F.4th 841 (9th Cir. 2022) ............................................................................................ 10
Bennett v. Kentucky Department of Education,
470 U.S. 656 (1985) ........................................................................................................... 14
Cheek v. United States,
498 U.S. 192 (1991) ........................................................................................................ 6, 9
Crowell v. Benson,
285 U.S. 22 (1932) ............................................................................................................... 9
Davidson v. Georgia-Pacific, LLC,
819 F.3d 758 (5th Cir. 2016).............................................................................................. 9
Gruver v. Louisiana Board of Supervisors for the Louisiana State Univ. Agric. & Mech. Coll.,
959 F.3d 178 (5th Cir. 2020)............................................................................................ 13
Jennings v. Rodriguez,
138 S. Ct. 830 (2018)........................................................................................................... 9
Mayhew v. Burwell,
772 F.3d 80 (1st Cir. 2014) .............................................................................................. 14
Med-Cert Home Care, LLC v. Becerra,
19 F.4th 828 (5th Cir. 2021) .............................................................................................. 7
Mississippi Commission on Environmental Quality v. EPA,
790 F.3d 138 (D.C. Cir. 2015) ......................................................................................... 13
Missouri v. Yellen,
39 F.4th 1063 (8th Cir. 2022) ........................................................................ 4, 5, 8, 9, 14
Moore v. Brown,
868 F.3d 398 (5th Cir. 2017).............................................................................................. 8
National Federation of Independent Business v. Sebelius,
567 U.S. 519 (2012) ................................................................................................ 7, 11, 12
Sabri v. United States,
541 U.S. 600 (2004) ........................................................................................................... 12
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Case: 22-10560 Document: 26 Page: 6 Date Filed: 08/24/2022
South Carolina Department of Education v. Duncan,
714 F.3d 249 (4th Cir. 2013)............................................................................................ 14
South Dakota v. Dole,
483 U.S. 203 (1987) ........................................................................................................... 12
Texas v. Yellen,
2022 WL 1063088 (N.D. Tex. Apr. 8, 2022) ................................................. 5, 7, 11, 14
Statutes:
28 U.S.C. § 1291 ....................................................................................................................... 1
28 U.S.C. § 1331 ....................................................................................................................... 1
American Rescue Plan Act of 2021,
Pub. L. No. 117-2, 135 Stat. 4 ............................................................................................. 2
42 U.S.C. § 802 ................................................................................................................. 2
42 U.S.C. § 802(a)(1) .................................................................................................. 1, 2
42 U.S.C. § 802(b)(3)(A) ................................................................................................. 2
42 U.S.C. § 802(c)(1) ....................................................................................................... 2
42 U.S.C. § 802(c)(2) ................................................................................................ 2, 13
42 U.S.C. § 802(c)(2)(A)............................................................................................. 1, 2
42 U.S.C. § 802(c)(2)(B) .................................................................................................. 2
42 U.S.C. § 802(d)(1) ....................................................................................................... 3
42 U.S.C. § 802(e) ............................................................................................................ 3
42 U.S.C. § 802(f)............................................................................................................. 3
42 U.S.C. § 802(g)(1) ....................................................................................................... 2
Rule:
Fed. R. App. P. 4(a)(1)(B) ....................................................................................................... 1
Other Authorities:
Coronavirus State and Local Fiscal Recovery Funds,
86 Fed. Reg. 26,786 (May 17, 2021) .................................................................................. 3
Coronavirus State and Local Fiscal Recovery Funds,
87 Fed. Reg. 4338 (Jan. 27, 2022) ............................................................................. 3, 4, 8
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Case: 22-10560 Document: 26 Page: 7 Date Filed: 08/24/2022
STATEMENT OF JURISDICTION
Plaintiffs invoked the district court’s jurisdiction under 28 U.S.C. § 1331.
ROA.15. The district court entered final judgment in plaintiffs’ favor on April 8, 2022.
ROA.1106-1107. The federal government timely appealed from that judgment on June
6, 2022. ROA.1108-1109; see Fed. R. App. P. 4(a)(1)(B). This Court has appellate juris-
diction under 28 U.S.C. § 1291.
STATEMENT OF ISSUES
The American Rescue Plan Act provided nearly $200 billion in federal grants to
help States mitigate the fiscal effects of the COVID-19 pandemic. 42 U.S.C. § 802(a)(1).
The Act gives States considerable flexibility in determining how to use these new federal
funds but specifies that a State “shall not use the funds … to either directly or indirectly
offset a reduction in the net tax revenue of such State” resulting from changes in state
tax law during the covered period. Id. § 802(c)(2)(A) (the “Offset Provision”). The
district court permanently enjoined the federal government from enforcing the Offset
Provision against the three plaintiff States on the theory that it is unconstitutionally
coercive and violates anti-commandeering principles. The questions presented are:
1. Whether the district court’s judgment should be vacated because plaintiffs
failed to submit evidence demonstrating a concrete controversy over the Offset Provi-
sion’s constitutionality.
2. Whether, assuming the district court had jurisdiction, its judgment should
be reversed on the merits.
Case: 22-10560 Document: 26 Page: 8 Date Filed: 08/24/2022
STATEMENT OF THE CASE
A. Statutory Background
In the American Rescue Plan Act of 2021, Pub. L. No. 117-2, 135 Stat. 4, Con-
gress created a Coronavirus State Fiscal Recovery Fund. 42 U.S.C. § 802. The Fund
provides nearly $200 billion in new grants to help States and the District of Columbia
mitigate the fiscal effects of the COVID-19 pandemic. Id. § 802(a)(1); see id.
§ 802(b)(3)(A). Section 802 allows States to use Fiscal Recovery Funds to cover broadly
defined categories of costs incurred through 2024, including to provide assistance to
households, businesses, and industries affected by the pandemic; to provide premium
pay to workers performing essential work during the pandemic; to pay for state govern-
ment services to the extent of revenue losses due to the pandemic; and to make neces-
sary investments in water, sewer, or broadband infrastructure. Id. § 802(c)(1).
In addition to identifying the permissible uses of Fiscal Recovery Funds, § 802
places two “[f]urther restriction[s]” on the use of the funds. 42 U.S.C. § 802(c)(2). One
is that a State may not deposit the funds into a pension fund. Id. § 802(c)(2)(B). The
other, which is at issue here, is that a State “shall not use the funds … to either directly
or indirectly offset a reduction in the net tax revenue of such State” resulting from a
change in state law during a covered time period. Id. § 802(c)(2)(A).1
1
The covered period began on March 3, 2021 and ends on the last day of the
state fiscal year “in which all funds received by the State … have been expended or
returned to, or recovered by,” the Treasury Department. 42 U.S.C. § 802(g)(1).
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The statute provides that, to receive a federal grant, a State must submit “a cer-
tification” that it “requires the payment … to carry out the activities specified in”
§ 802(c) and that it “will use any payment … in compliance with” that provision. 42
U.S.C. § 802(d)(1). If a State uses its Fiscal Recovery Funds for impermissible purposes,
it may be required to repay an amount equal to the funds misused. Id. § 802(e).
B. Implementing Regulations
Congress authorized the Treasury Department “to issue such regulations as may
be necessary or appropriate to carry out” § 802, which established the Fiscal Recovery
Fund. 42 U.S.C. § 802(f). In May 2021, the Department issued an interim final rule
detailing how it would implement the statutory conditions on the use of Fiscal Recovery
Funds, including the Offset Provision. Coronavirus State and Local Fiscal Recovery Funds,
86 Fed. Reg. 26,786 (May 17, 2021); see id. at 26,815. In January 2022, the Department
issued a final rule implementing the statutory conditions. Coronavirus State and Local
Fiscal Recovery Funds, 87 Fed. Reg. 4338 (Jan. 27, 2022); see id. at 4423-4429.
The regulations describe the circumstances in which a state tax cut may implicate
the Offset Provision. First, because the Offset Provision applies only when a State
experiences a reduction in net tax revenue, it is not implicated if the State cuts taxes but
maintains its prior level of state tax revenue as the result of economic growth. See 87
Fed. Reg. at 4427 (“Safe harbor”). Second, because the Offset Provision restricts only
the use of the new federal funds, it is not implicated if a State uses its own funds to
offset a reduction in its net tax revenue, by cutting its expenditures of state funds in a
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“department, agency, or authority” where it is not spending Fiscal Recovery Funds. See
id. (“Covered spending cuts”). As the rule explains, if a State were to cut its spending
of state funds in a “department, agency, or authority” in which it is using Fiscal Recov-
ery Funds, and if it were to use the saved state money to pay for a tax cut, then it would
be “indirectly” using Fiscal Recovery Funds to pay for the tax cut. Id. at 4427-4428.
But as long as the State can pay for a tax cut with its own funds, it is free to cut taxes.
The regulations thus clarify that “[t]he Offset Restriction simply prohibits states from
cutting taxes in a way that reduces net revenue more than a de minimis amount and
then failing to account for that reduction through … sources” other than Fiscal Recov-
ery Funds, “such as through organic economic growth, increases in revenue from other
sources, or spending cuts in” agencies where the State is not spending Fiscal Recovery
Funds. Missouri v. Yellen, 39 F.4th 1063, 1070 (8th Cir. 2022).
C. This Action
Texas, Mississippi, and Louisiana brought this action in May 2021, shortly after
the enactment of the American Rescue Plan Act. The premise of their suit is that the
Offset Provision—which plaintiffs dub the “Tax Mandate”—is not merely a restriction
on the use of the new federal funds. They claim that it instead “prohibits the Plaintiff
States from eliminating taxes, reducing tax rates, or increasing tax credits” or adopting
“enforcement policies regarding taxes which would lead to reduced tax revenues.”
ROA.13 ¶ 7. Based on that premise, the complaint alleged (as relevant here) that the
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Offset Provision is unconstitutionally coercive and violates anti-commandeering prin-
ciples. ROA.21-25 ¶¶ 53-79.
The district court denied the federal government’s motion to dismiss for lack of
jurisdiction and entered summary judgment for plaintiffs. Its ruling rested on the as-
sumption that the Offset Provision “prohibits tax cuts altogether.” Texas v. Yellen, 2022
WL 1063088, at *6 (N.D. Tex. Apr. 8, 2022). The court declared that although the
Offset Provision is “styled as a ‘[f]urther restriction on use of funds,’ in reality” it “‘cre-
ates an independent obligation on States accepting [American Rescue Plan Act] funds
to not reduce their own tax revenues.’” Id. at *4. On the basis of that premise, the
court held that the provision is unconstitutionally coercive and violates anti-comman-
deering principles.2
SUMMARY OF ARGUMENT
The district court’s judgment rests on an incorrect reading of the Offset Provi-
sion. As the Eighth Circuit recently explained, the Offset Provision does not prohibit
States from adopting tax cuts; it simply requires that a State offset revenue losses from
tax cuts by using its own revenue sources, including revenue increases from organic
growth, rather than Fiscal Recovery Funds. Missouri v. Yellen, 39 F.4th 1063, 1069-1070
2
The district court did not reach plaintiffs’ other constitutional challenges to the
Offset Provision, and it dismissed one of plaintiffs’ claims (asserting a violation of
equal-sovereignty principles) as moot given the relief it had entered. 2022 WL 1063088,
at *6.
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(8th Cir. 2022). If there were any doubt as to that interpretation, the canon of consti-
tutional avoidance would require the Court to adopt it, to the extent constitutional con-
cerns would arise if the provision actually forbade tax cuts. It is a court’s duty to pre-
serve the work of the Nation’s elected representatives. See, e.g., Cheek v. United States,
498 U.S. 192, 203 (1991) (“It is common ground that this Court, where possible, inter-
prets congressional enactments so as to avoid raising serious constitutional questions.”).
Plaintiffs failed to demonstrate a concrete controversy over the constitutionality
of the Offset Provision as correctly construed. At the summary-judgment stage, it was
plaintiffs’ burden to submit evidence establishing jurisdiction. But plaintiffs submitted
no evidence that the Offset Provision has actually hindered their ability to determine
policies for raising and spending state funds. Nor did plaintiffs establish any credible
threat that the Offset Provision will be enforced against them. They submitted no
evidence that tax cuts they have enacted or imminently plan to enact will result in a
reduction in their net tax revenue, or that that they intended to use Fiscal Recovery
Funds (rather than spending cuts or economic growth) to offset any such shortfall.
Assuming the Court reaches the merits, there is no plausible contention that the
Offset Provision is unconstitutionally coercive or violates the anti-commandeering doc-
trine. The statute simply specifies the permissible and impermissible uses of the new
federal funds that Congress provided. A State has no greater right to ignore the two
statutory restrictions on the use of these new federal funds—i.e., restrictions against
depositing the money in a pension fund or using it to offset a reduction in net tax
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revenue—than to ignore Congress’s specification of the permissible uses of the funds,
such as using the money to make necessary investments in certain infrastructure. Any
contrary argument is foreclosed by National Federation of Independent Business v. Sebelius
(NFIB), 567 U.S. 519 (2012). There, although the Court held that Congress could not
make a State’s preexisting Medicaid grant contingent on the expansion of eligibility for
Medicaid, the Court unanimously recognized Congress’s prerogative to make the Af-
fordable Care Act’s new federal funds—totaling hundreds of billions of dollars—con-
tingent on that expansion. Thus, if this Court reaches the merits, it should reverse the
judgment of the district court.
STANDARD OF REVIEW
The district court’s permanent injunction presents issues of law that this Court
reviews de novo. Med-Cert Home Care, LLC v. Becerra, 19 F.4th 828, 830 (5th Cir. 2021).
ARGUMENT
I. PLAINTIFFS FAILED TO SUBMIT EVIDENCE DEMONSTRATING A CON-
CRETE CONTROVERSY OVER THE OFFSET PROVISION’S CONSTITU-
TIONALITY
The district court’s summary-judgment ruling rested on the premise that the Off-
set Provision “prohibits tax cuts altogether.” Texas v. Yellen, 2022 WL 1063088, at *6
(N.D. Tex. Apr. 8, 2022). The court declared that although the Offset Provision is
“styled as a ‘[f]urther restriction on use of funds,’ in reality” it “‘creates an independent
obligation on States accepting [American Rescue Plan Act] funds to not reduce their
own tax revenues.’” Id. at *4. Based on that premise, the court enjoined enforcement
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of the Offset Provision on the theory that it is unconstitutionally coercive and violates
anti-commandeering principles.
That injunction rests on an incorrect reading of the Offset Provision, and there
is no concrete controversy over the provision as correctly construed. As the Eighth
Circuit recently explained in affirming the dismissal of Missouri’s similar challenge for
lack of jurisdiction, “[t]he Offset Restriction simply prohibits states from cutting taxes
in a way that reduces net revenue more than a de minimis amount and then failing to
account for that reduction through … sources” other than Fiscal Recovery Funds,
“such as through organic economic growth, increases in revenue from other sources,
or spending cuts in” agencies where the State is not spending Fiscal Recovery Funds.
Missouri v. Yellen, 39 F.4th 1063, 1070 (8th Cir. 2022); see also 87 Fed. Reg. at 4427-4428
(explaining that a State would be using Fiscal Recovery Funds to “indirectly” offset a
reduction in net tax revenue if the State were to use Fiscal Recovery Funds to replace
its own spending in a given “department, agency, or authority,” and use the saved state
money to pay for a tax cut).
Assuming arguendo that plaintiffs might once have feared that the Treasury De-
partment would adopt a broader interpretation, that fear was put to rest by the regula-
tions that the Treasury Department issued. As this Court has explained, in affirming a
district court’s finding that it lacked jurisdiction, the Court “generally defer[s] to a nar-
rowing construction by government officials that avoids a finding of unconstitutional-
ity.” Moore v. Brown, 868 F.3d 398, 407 n.3 (5th Cir. 2017) (per curiam). And even absent
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the Treasury Department’s construction, it would have been appropriate to construe
the Offset Provision narrowly in order to avoid any serious constitutional issues that
would have arisen from a different construction. See, e.g., Jennings v. Rodriguez, 138 S. Ct.
830, 842 (2018) (“When ‘a serious doubt’ is raised about the constitutionality of an act
of Congress, ‘it is a cardinal principle that this Court will first ascertain whether a con-
struction of the statute is fairly possible by which the question may be avoided.’” (quot-
ing Crowell v. Benson, 285 U.S. 22, 62 (1932))); Cheek v. United States, 498 U.S. 192, 203
(1991) (“It is common ground that this Court, where possible, interprets congressional
enactments so as to avoid raising serious constitutional questions.”); see also Davidson v.
Georgia-Pacific, LLC, 819 F.3d 758, 763 (5th Cir. 2016) (holding that “[t]he duty to avoid
constitutional difficulties when interpreting a statute warrant[ed] a narrow reading of ”
a statutory provision).
As in the Missouri case, plaintiffs here sought “a quintessential advisory opinion”:
they challenged “a hypothetical interpretation of the Offset Restriction that the Secre-
tary [of the Treasury] has explicitly disclaimed, without alleging any concrete, imminent
injury from the Secretary’s actual interpretation.” 39 F.4th at 1070. At the summary-
judgment stage, it was plaintiffs’ burden to submit evidence demonstrating a concrete
controversy. But plaintiffs submitted no evidence that the Offset Provision has actually
hindered their ability to determine policies for raising and spending state funds. To the
contrary, they submitted evidence showing that Texas had in fact enacted tax cuts after
accepting Fiscal Recovery Funds and that Mississippi’s governor and legislature were
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considering tax-cut proposals. See ROA.201 (plaintiffs’ brief in opposition to the gov-
ernment’s motion to dismiss); see also ROA.415-418; ROA.420; ROA.423-424;
ROA.429-437; ROA.439; ROA.442-447; ROA.449; ROA.452-457; ROA.459; ROA.464;
ROA.468; ROA.471-482; ROA.484 (evidence cited in plaintiffs’ brief).
Moreover, plaintiffs submitted no evidence showing a credible threat that the
Treasury Department will take action to enforce the Offset Provision against them.
They submitted no evidence that Texas will experience a reduction in its net tax revenue
as a consequence of the tax cuts it has made: Texas (like other States) has seen signifi-
cant revenue growth in the past several years. And they submitted no evidence showing
that they lack sufficient state funds to offset any (hypothetical) reductions in their net
tax revenue from any tax cuts they have enacted or imminently plan to enact. Accord-
ingly, the judgment of the district court should be vacated for lack of jurisdiction.3
3
Although the Ninth Circuit found jurisdiction in another case challenging the
Offset Provision, that case (unlike this one) had been resolved at the pleading stage, and
the court of appeals simply accepted as true the allegations of the complaint. See Ari-
zona v. Yellen, 34 F.4th 841, 849 (9th Cir. 2022). The court thus found that Arizona had
established jurisdiction by merely “alleg[ing] … harms to its ability to exercise its sover-
eign prerogatives,” id. at 852 (emphasis added), as a consequence of the Offset Provi-
sion, as well as by alleging a credible threat of recoupment due to a large tax cut it had
enacted. Judge Ryan Nelson disagreed with part of the majority’s reasoning in a con-
curring opinion that anticipated the Eighth Circuit’s holding. He explained that “[a] tax
cut, on its own, does not fall within the Offset Provision’s ambit,” and thus that a State
could show a reasonable fear of enforcement of the Offset Provision based on a tax
cut only if—in addition to showing that it had cut taxes—it also showed that the “tax
cut [would] not be offset by macroeconomic growth” or in another permissible fashion
(i.e., an increase in other state taxes or a “cut[] in spending” in an area where the State
was not spending Fiscal Recovery Funds). Id. at 856 (R. Nelson, J., concurring).
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II. THE OFFSET PROVISION IS NOT IMPERMISSIBLY COERCIVE AND DOES
NOT VIOLATE THE ANTI-COMMANDEERING DOCTRINE
As explained above, the district court’s injunction rests on the incorrect premise
that the Offset Provision “prohibits tax cuts altogether.” 2022 WL 1063088, at *6. That
premise is wrong for the reasons already explained. And as correctly construed, the
Offset Provision falls easily within Congress’s power to restrict the use of new federal
grants.
The Supreme Court has repeatedly “upheld Congress’s authority to condition
the receipt of funds on the States’ complying with restrictions on the use of those
funds, because that is the means by which Congress ensures that the funds are spent
according to its view of the ‘general Welfare.’” National Fed’n of Indep. Bus. v. Sebelius
(NFIB), 567 U.S. 519, 580 (2012) (plurality opinion). Congress possesses that authority
even when the new federal grants are very large, as illustrated by NFIB. There, a ma-
jority of the Justices held that Congress could not make a State’s preexisting Medicaid
funding contingent on the State’s agreement to extend coverage to all low-income
adults—an expansion that the majority regarded as a new program. See id. at 580-585
(plurality opinion); id. at 681-689 (joint dissent). But a different majority upheld the
same requirement as a condition on the new funds offered by the Affordable Care Act,
which totaled $100 billion per year. See id. at 576, 585-586 (Roberts, C.J., joined by
Breyer, J., and Kagan, J.) (emphasizing that “[n]othing in our opinion precludes Con-
gress from offering funds under the Affordable Care Act to expand the availability of
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health care, and requiring that States accepting such funds comply with the conditions
on their use”); id. at 646 (Ginsburg, J., joined by Sotomayor, J., agreeing with this aspect
of the plurality opinion). Even the dissenting Justices agreed that “Congress could have
made just the new funding provided under the [Affordable Care Act] contingent on
acceptance of the terms of the Medicaid Expansion”; they simply disagreed with the
majority about whether that funding condition was severable. Id. at 687-688 (joint dis-
sent).
Even if NFIB had not foreclosed the argument, moreover, common sense re-
futes the notion that Congress loses its power to determine how grants will be used if
the grants exceed a certain (unspecified) size. For example, if Congress offered States
a multi-billion-dollar grant to build bridges and roads, a State could not seek to invali-
date that condition and use the grant for other purposes simply because, given its pre-
sent degree of economic hardship, it could not reasonably turn down the funds. There
is no generosity exception to the rule that “[t]he power to keep a watchful eye on ex-
penditures … is bound up with congressional authority to spend in the first place,”
Sabri v. United States, 541 U.S. 600, 608 (2004).
Moreover, the Supreme Court and this Court have never employed a coercion
analysis to a condition, like this one, on the use of federal funds. In South Dakota v. Dole,
483 U.S. 203 (1987), the Supreme Court applied a coercion analysis to a condition on
federal highway funds (which the Court upheld) because “the condition was not a re-
striction on how the highway funds … were to be used,” NFIB, 567 U.S. at 580 (plurality
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Case: 22-10560 Document: 26 Page: 19 Date Filed: 08/24/2022
opinion) (emphasis added); rather, it required States accepting highway funds to do
something else (impose a minimum drinking age) as a condition of receiving the full
amount of funds. This Court has recognized the same distinction between a “re-
striction on how a state uses federal funds,” which “is constitutional because it ensures
that the funds are spent according to [Congress’s] view of the ‘general Welfare,’” and
“conditions that do not directly ‘govern the use of the funds’ and instead attempt to
‘pressur[e] the States to accept policy changes,’” which are subject to “the coercion in-
quiry.” Gruver v. Louisiana Bd. of Supervisors for the La. State Univ. Agric. & Mech. Coll., 959
F.3d 178, 183 (5th Cir. 2020) (quotation marks omitted); see also Mississippi Comm’n on
Envtl. Quality v. EPA, 790 F.3d 138, 179 (D.C. Cir. 2015) (per curiam) (recognizing a
similar distinction). Because the Offset Provision is simply a “restriction on use of
[federal] funds,” 42 U.S.C. § 802(c)(2) (heading), it “is constitutional,” Gruver, 959 F.3d
at 183. Rather than coercing or commandeering a State’s use of its own funds; it governs
only the State’s use of newly appropriated federal funds.
The operation of the Offset Provision should be familiar to any State that has a
balanced-budget requirement, as all plaintiffs do. Such States routinely encounter the
need to “offset” any negative revenue effects of a tax cut in order to balance their
books. They can do so with either an increase in state revenue, whether from economic
growth or from increases to other taxes, or with a reduction in state spending. The sole
effect of the Offset Provision is that, when States determine how to balance the nega-
tive revenue effects of a tax cut on their budgets, they may not use the federal Fiscal
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Case: 22-10560 Document: 26 Page: 20 Date Filed: 08/24/2022
Recovery Funds funds “as part of that balancing process.” Missouri, 39 F.4th at 1070
n.6. Rather, they must be able to offset any negative revenue effect of a state tax cut
with state revenue increases or state spending reductions alone.
In this regard, the Offset Provision resembles the maintenance-of-effort require-
ments that are a longstanding feature of Spending Clause legislation: It prevents States
from choosing to eliminate a source of non-federal revenue ordinarily used to pay for
a state expenditure, replacing that source with Fiscal Recovery Funds, and using the
saved state funds to pay for a tax cut. See, e.g., Bennett v. Kentucky Dep’t of Educ., 470 U.S.
656, 659 (1985) (Title I of the Elementary and Secondary Education Act “from the
outset prohibited the use of federal grants merely to replace state and local expendi-
tures”); Mayhew v. Burwell, 772 F.3d 80 (1st Cir. 2014) (upholding Medicaid maintenance-
of-effort requirement); South Carolina Dep’t of Educ. v. Duncan, 714 F.3d 249, 252 (4th
Cir. 2013) (describing maintenance-of-effort requirement in the Individuals with Disa-
bilities Education Act). The district court noted that the Offset Provision gives States
greater flexibility than typical maintenance-of-effort provisions, 2022 WL 1063088, at *6,
but failed to explain why that makes the provision constitutionally problematic, aside
from the unsupported view that the provision “prevents tax cuts altogether,” id.
In short, because the Offset Provision simply specifies the terms on which States
may use the new allocation of Fiscal Recovery Funds, it does not implicate the coercion
or commandeering doctrines.
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Case: 22-10560 Document: 26 Page: 21 Date Filed: 08/24/2022
CONCLUSION
The district court’s judgment should be reversed.
Respectfully submitted,
BRIAN M. BOYNTON
Principal Deputy Assistant Attorney
General
CHAD E. MEACHAM
United States Attorney
MARK B. STERN
ALISA B. KLEIN
/s/ Daniel Winik
DANIEL WINIK
Attorneys, Appellate Staff
Civil Division, Room 7245
U.S. Department of Justice
950 Pennsylvania Avenue NW
Washington, DC 20530
(202) 305-8849
daniel.l.winik@usdoj.gov
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Case: 22-10560 Document: 26 Page: 22 Date Filed: 08/24/2022
CERTIFICATE OF COMPLIANCE
This brief complies with the type-volume limit of Federal Rule of Appellate
Procedure 32(a)(7)(B) because it contains 3,804 words. This brief also complies with
the typeface and type-style requirements of Federal Rule of Appellate Procedure
32(a)(5)-(6) because it was prepared using Word for Microsoft 365 in 14-point Gara-
mond, a proportionally spaced typeface.
/s/ Daniel Winik
Daniel Winik
Case: 22-10560 Document: 26 Page: 23 Date Filed: 08/24/2022
ADDENDUM
Case: 22-10560 Document: 26 Page: 24 Date Filed: 08/24/2022
TABLE OF CONTENTS
42 U.S.C. § 802 ........................................................................................................................A1
Case: 22-10560 Document: 26 Page: 25 Date Filed: 08/24/2022
42 U.S.C. § 802
§ 802. Coronavirus State Fiscal Recovery Fund
(a) Appropriation
In addition to amounts otherwise available, there is appropriated for fiscal year
2021, out of any money in the Treasury not otherwise appropriated—
(1) $219,800,000,000, to remain available through December 31, 2024, for making
payments under this section to States, territories, and Tribal governments to mitigate
the fiscal effects stemming from the public health emergency with respect to the Coro-
navirus Disease (COVID-19)..
(b) Authority to make payments
…
(3) Payments to each of the 50 States and the District of Columbia
(A) In general
The Secretary shall reserve $195,300,000,000 of the amount appropriated under sub-
section (a)(1) to make payments to each of the 50 States and the District of Columbia.
…
(6) Timing
(A) States and territories
(i) In general
To the extent practicable, subject to clause (ii), with respect to each State and territory
allocated a payment under this subsection, the Secretary shall make the payment re-
quired for the State or territory not later than 60 days after the date on which the certi-
fication required under subsection (d)(1) is provided to the Secretary.
…
(c) Requirements
(1) Use of funds
Subject to paragraph (2), and except as provided in paragraph (3), a State, territory, or
Tribal government shall only use the funds provided under a payment made under this
section, or transferred pursuant to section 803(c)(4) of this title, to cover costs incurred
by the State, territory, or Tribal government, by December 31, 2024—
(A) to respond to the public health emergency with respect to the Coronavirus
Disease 2019 (COVID-19) or its negative economic impacts, including assistance to
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Case: 22-10560 Document: 26 Page: 26 Date Filed: 08/24/2022
households, small businesses, and nonprofits, or aid to impacted industries such as tour-
ism, travel, and hospitality;
(B) to respond to workers performing essential work during the COVID-19
public health emergency by providing premium pay to eligible workers of the State,
territory, or Tribal government that are performing such essential work, or by providing
grants to eligible employers that have eligible workers who perform essential work;
(C) for the provision of government services to the extent of the reduction in
revenue of such State, territory, or Tribal government due to the COVID-19 public
health emergency relative to revenues collected in the most recent full fiscal year of the
State, territory, or Tribal government prior to the emergency; or
(D) to make necessary investments in water, sewer, or broadband infrastructure.
(2) Further restriction on use of funds
(A) In general
A State or territory shall not use the funds provided under this section or transferred
pursuant to section 803(c)(4) of this title to either directly or indirectly offset a reduc-
tion 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.
(B) Pension funds
No State or territory may use funds made available under this section for deposit into
any pension fund.
…
(d) Certifications and reports
(1) In general
In order for a State or territory to receive a payment under this section, or a transfer of
funds under section 803(c)(4) of this title, the State or territory shall provide the Secre-
tary with a certification, signed by an authorized officer of such State or territory, that
such State or territory requires the payment or transfer to carry out the activities speci-
fied in subsection (c) of this section and will use any payment under this section, or
transfer of funds under section 803(c)(4) of this title, in compliance with subsection (c)
of this section.
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Case: 22-10560 Document: 26 Page: 27 Date Filed: 08/24/2022
(2) Reporting
Any State, territory, or Tribal government receiving a payment under this section shall
provide to the Secretary periodic reports providing a detailed accounting of—
(A) the uses of funds by such State, territory, or Tribal government, including,
in the case of a State or a territory, all modifications to the State's or territory's tax
revenue sources during the covered period; and
(B) such other information as the Secretary may require for the administration
of this section.
(e) Recoupment
Any State, territory, or Tribal government that has failed to comply with subsection (c)
shall be required to repay to the Secretary an amount equal to the amount of funds
used in violation of such subsection, provided that, in the case of a violation of sub-
section (c)(2)(A), the amount the State or territory shall be required to repay shall be
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 or territory pursuant to a payment
made under this section or a transfer made under section 803(c)(4) of this title.
(f) Regulations
The Secretary shall have the authority to issue such regulations as may be necessary or
appropriate to carry out this section.
(g) Definitions
In this section:
(1) Covered period
The term “covered period” means, with respect to a State, territory, or Tribal govern-
ment, the period that--
(A) begins on March 3, 2021; and
(B) ends on the last day of the fiscal year of such State, territory, or Tribal
government in which all funds received by the State, territory, or Tribal government
from a payment made under this section or a transfer made under section 803(c)(4) of
this title have been expended or returned to, or recovered by, the Secretary.
…
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