Application (23A53) to extend the time to file a petition for a writ of certiorari from August 1, 2023 to August 31, 2023, Yellen v. Kentucky, No. 23A53 (U.S.) (July 20, 2023)
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An application for an extension of time in the Supreme Court of the United States, with Janet Yellen, Secretary of the Treasury, et al. as applicants and Kentucky, et al. as respondents. The Solicitor General requests a 30-day extension, to and including August 31, 2023, to file a petition for a writ of certiorari to the United States Court of Appeals for the Sixth Circuit. The application states that the court of appeals entered its judgment on November 18, 2022, denied rehearing en banc on May 3, 2023, and that the petition would otherwise be due August 1, 2023. It describes the American Rescue Plan Act of 2021 and its offset provision. Attached opinion pages end with an order permanently enjoining the Treasury Secretary from seeking enforcement of the Tax Mandate against Tennessee and Kentucky.
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“Application (23A53) to extend the time to file a petition for a writ of certiorari from August 1, 2023 to August 31, 2023, Yellen v. Kentucky, No. 23A53 (U.S.) (July 20, 2023).”
Original at www.supremecourt.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/application-23a53-to-extend-the-time-to-file-a-petition-for-a-writ-of-c030af8343/
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IN THE SUPREME COURT OF THE UNITED STATES
_______________
No. 23A_____
JANET YELLEN,
SECRETARY OF THE TREASURY, ET AL., APPLICANTS
v.
KENTUCKY, ET AL.
_______________
APPLICATION FOR AN EXTENSION OF TIME
WITHIN WHICH TO FILE A PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_______________
Pursuant to Rules 13.5 and 30.3 of the Rules of this Court,
the Solicitor General, on behalf of Janet Yellen, Secretary of the
Treasury; Richard K. Delmar, Acting Inspector General of the
Treasury; and the Department of the Treasury, respectfully
requests a 30-day extension of time, to and including August 31,
2023, within which to file a petition for a writ of certiorari to
review the judgment of the United States Court of Appeals for the
Sixth Circuit in this case. The court of appeals entered its
judgment on November 18, 2022, and denied a timely filed petition
for rehearing en banc on May 3, 2023. Therefore, unless extended,
the time within which to file a petition for a writ of certiorari
will expire on August 1, 2023. The jurisdiction of this Court
2
would be invoked under 28 U.S.C. 1254(1). A copy of the opinion
of the court of appeals, which is reported at 54 F.4th 325, is
attached. App., infra, 1a-51a.
1. In the American Rescue Plan Act of 2021 (ARPA), Pub. L.
No. 117-2, Tit. IX, Subtit. M, 135 Stat. 223 (42 U.S.C. 802 et
seq.), Congress established a Coronavirus State Fiscal Recovery
Fund. 42 U.S.C. 802. The Fund provided nearly $200 billion in
new federal grants to help States and the District of Columbia
“mitigate the fiscal effects” of the COVID-19 pandemic. 42 U.S.C.
802(a)(1); see 42 U.S.C. 802(b)(3)(A).
Section 802(c) establishes parameters for States’ “Use of
funds.” 42 U.S.C. 802(c)(1) (emphasis omitted). Section 802(c)(1)
provides that a State may use fiscal recovery funds to cover
broadly defined categories of costs incurred through December 31,
2024, including costs related to the pandemic and certain
infrastructure investments. Ibid. As a corollary, in order to
ensure that States use the funds for the general purposes that
Congress specified, Section 802(c)(2) establishes two “restric-
tion[s] on [the] use” of fiscal recovery funds. 42 U.S.C.
802(c)(2) (emphasis omitted). The restriction at issue here, the
offset provision, provides 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
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
3
deduction, a credit, or otherwise) or delays the imposition
of any tax or tax increase.
42 U.S.C. 802(c)(2)(A). If a State does not use its fiscal
recovery funds in conformity with the conditions in Section 802(c),
the Treasury Department may require the State to repay “an amount
equal to the amount of funds used in violation of” Section 802(c).
42 U.S.C. 802(e).
Congress authorized the Treasury Department “to issue such
regulations as may be necessary or appropriate to carry out”
Section 802. 42 U.S.C. 802(f). In May 2021, the Treasury
Department published an interim final rule implementing Section
802, including the offset provision. Coronavirus State and Local
Fiscal Recovery Funds, 86 Fed. Reg. 26,786 (May 17, 2021); see id.
at 26,807-26,811, 26,823. In January 2022, the Treasury Department
issued a final rule, which implements the offset provision in
substantially the same manner as the interim final rule.
Coronavirus State and Local Fiscal Recovery Funds, 87 Fed. Reg.
4338 (Jan. 27, 2022); see id. at 4423-4429, 4452-4453. In brief,
the Act and regulations make clear that no recoupment of funds
will occur if a State cuts taxes but does not use fiscal recovery
funds to pay for the cuts.
2. The States of Kentucky and Tennessee have accepted their
allotments of fiscal recovery funds and received approximately
$2.1 billion and $3.7 billion respectively. D. Ct. Doc. 23, at 11
(June 21, 2021). They also filed this suit, asserting that the
4
offset provision is an unlawful condition on the grant of funds
they accepted. Id. at 19-25.
The U.S. District Court for the Eastern District of Kentucky
granted summary judgment to the States and permanently enjoined
enforcement of the offset provision against them. App., infra,
71a-87a. The court held that both States had Article III standing,
id. at 73a-75a, and that the offset provision was unduly coercive
and thus exceeded Congress’s power under the Spending Clause due
primarily to “the sheer size of the federal government’s offering”
of funds, id. at 79a; see id. at 75a-82a.
3. The court of appeals affirmed in part and reversed in
part. App., infra, 1a-51a. As an initial matter, the court held
that Kentucky’s claim was nonjusticiable and vacated the district
court’s injunction barring enforcement of the offset provision
against Kentucky. Id. at 20a.
The court of appeals determined, however, that Tennessee’s
claim was justiciable. App., infra, 20a-26a. According to the
court, Tennessee had a cognizable claim because it had showed that
the Treasury Department’s regulations (and the offset provision
itself) “burden the State with compliance costs,” including
“additional labor and other expenses that Tennessee must incur to
ensure that its recent and proposed tax cuts do not violate the
Offset Provision.” Id. at 4a.
On the merits, the court of appeals held that “the Offset
Provision is impermissibly vague under the Spending Clause.” App.,
5
infra, 4a. “As a matter of statutory interpretation,” the court
reasoned, the offset provision “does not clearly explain (1) how
to calculate a ‘reduction’ in net tax revenue, (2) how to determine
whether such a reduction resulted from a tax cut, or (3) how to
tell what particular conduct constitutes an ‘indirect’ offset.”
Id. at 28a. And the court stated that “Treasury’s attempted
liquidation of the Offset Provision via the Rule in no way followed
clearly from the Offset Provision’s text.” Ibid. Thus, the court
concluded, “Tennessee may legitimately discontinue the compliance
procedures entailed by the Rule,” and the Treasury Department is
permanently enjoined from enforcing the offset provision against
Tennessee. Ibid.
4. The court of appeals denied the government’s petition
for rehearing en banc. App., infra, 53a. Judge Griffin dissented
from the denial of en banc review, joined by Judges Clay, Gibbons,
and Stranch. Ibid.; see id. at 61a-70a. The dissent observed
that “[n]o prior Spending Clause case has ever prospectively
enjoined enforcement of an entire provision based on purported
vagueness in the statute, meaning the panel’s analysis lacks a
cognizable legal foundation.” Id. at 65a. And the dissent
emphasized that “[t]he terms of Congress’s offer were certain
enough to create a contract, permitting Tennessee to make its
choice knowingly and voluntarily.” Id. at 70a.
5. The Solicitor General has not yet determined whether to
file a petition for a writ of certiorari in this case. The addi-
6
tional time sought in this application is needed for further
consultation with the Treasury Department regarding the potential
legal and practical ramifications of the court of appeals’
decision. Additional time is also needed, if a petition is
authorized, to permit its preparation and printing.
Respectfully submitted.
ELIZABETH B. PRELOGAR
Solicitor General
Counsel of Record
JULY 2023
APPENDIX
Court of appeals opinion.......................................1a
Court of appeals denial of en banc review.....................52a
District court opinion........................................71a
RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 22a0245p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
┐
COMMONWEALTH OF KENTUCKY; STATE OF TENNESSEE,
│
Plaintiffs-Appellees, │
> No. 21-6108
v. │
│
JANET YELLEN, in her official capacity as Secretary of the │
U.S. Department of the Treasury; RICHARD K. DELMAR, in │
his official capacity as Acting Inspector General of the U.S. │
Department of the Treasury; UNITED STATES DEPARTMENT │
OF THE TREASURY, │
Defendants-Appellants. │
┘
Appeal from the United States District Court for the Eastern District of Kentucky at Frankfort.
No. 3:21-cv-00017—Gregory F. Van Tatenhove, District Judge.
Argued: July 21, 2022
Decided and Filed: November 18, 2022
Before: DONALD, BUSH, and NALBANDIAN, Circuit Judges.
_________________
COUNSEL
ARGUED: Daniel Winik, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellants. Brett R. Nolan, OFFICE OF THE ATTORNEY GENERAL OF
KENTUCKY, Frankfort, Kentucky, for Appellees. ON BRIEF: Daniel Winik, Alisa B. Klein,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants. Brett R.
Nolan, Barry L. Dunn, Matthew F. Kuhn, OFFICE OF THE ATTORNEY GENERAL OF
KENTUCKY, Frankfort, Kentucky, Andrée S. Blumstein, Brandon J. Smith, OFFICE OF THE
ATTORNEY GENERAL AND REPORTER OF TENNESSEE, Nashville, Tennessee, for
Appellees. Paul D. Clement, KIRKLAND & ELLIS LLP, Washington, D.C., Joseph D.
Henchman, NATIONAL TAXPAYERS UNION FOUNDATION, Washington, D.C., Sheng Li,
NEW CIVIL LIBERTIES ALLIANCE, Washington, D.C., Drew C. Ensign, OFFICE OF THE
ATTORNEY GENERAL OF ARIZONA, Phoenix, Arizona, for Amici Curiae.
(1a)
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BUSH, J., delivered the opinion of the court in which DONALD, J., joined in full, and
NALBANDIAN, J., joined in part. NALBANDIAN, J. (pp. 43–51), delivered a separate opinion
concurring in part and dissenting in part.
_________________
OPINION
_________________
JOHN K. BUSH, Circuit Judge. In response to the grave economic challenges posed by
COVID-19, Congress enacted the American Rescue Plan Act of 2021 (“ARPA” or “the Act”).
Pursuant to Congress’s spending power, ARPA set aside $195.3 billion in stimulus funds, to be
distributed by the Treasury Department to states and the District of Columbia. This appeal
concerns a challenge brought by Kentucky and Tennessee (“the States”) to what they allege is an
ambiguous, coercive, and commandeering condition attached to those funds. Specifically, to get
the money, the States had to certify that they would comply with the Act’s “Offset Provision.”
Its terms bar the States from enacting tax cuts and then using ARPA funds to “directly or
indirectly offset a reduction in [their] net tax revenue” resulting from such tax cuts. 42 U.S.C.
§ 802(c)(2)(A). And a related portion of the Act explains that should a State violate the Offset
Provision, Treasury may initiate a recoupment action to recover the misused funds. 42 U.S.C.
§ 802(e)(1)–(2).
What the Offset Provision actually means, however, is the subject of grave dispute.
Because money is fungible, enacting any tax cut and then spending ARPA funds could be
construed, the States say, as having impermissibly used those funds to “indirectly offset” a
revenue reduction from the tax cut. Appellees’ Br. at 12–13. As a result, should the States wish
to expend their ARPA funds, they are effectively barred from enacting any tax cuts1—despite
their desire to do so—for fear that Treasury could construe the cuts as implicating an “indirect
offset” and correspondingly pursue recoupment. Id. at 22–23; 38. Compounding the Act’s
indeterminacy, the Offset Provision itself never explains which fiscal year (“FY”) serves as the
baseline for calculating a “reduction” in net tax revenue. Id. at 13, 40. That omission allegedly
1
This alleged restriction applies at least during ARPA’s “covered period,” 42 U.S.C. § 802(g)(1), which
extends until “the last day of the fiscal year of such State . . . in which all funds received by the State . . . have been
expended or returned to, or recovered by, the Secretary,” § 802(g)(1)(B).
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leaves the States in the dark about when Treasury may deem them to have violated the Act. Id.
And even though a Treasury regulation has since offered a narrowing construction of the Offset
Provision, the States assert that this construction in no way follows clearly from the text of the
Offset Provision itself. Id. at 41. Thus, the States object that the Offset Provision failed to
provide them with clear notice of whatever conditions it entails. And because of those
indeterminacies, they contend that the Offset Provision is unenforceable under the clear-
statement rule the Supreme Court has long instructed governs spending legislation.
Worse yet, the States argue, they were coerced into relinquishing this control over their
sovereign taxing authority. Amended Complaint ¶74, R. 23. By offering such a massive aid
package—promising to confer on the States a sum equal to one-fifth of their annual budgets—in
a time of fiscal crisis no less, the federal government made the States an offer they couldn’t
refuse. Appellees’ Br. at 4, 12. Given these alleged intrusions upon their sovereignty, the States
filed suit against the Treasury Department. They sought an injunction of the Offset Provision’s
enforcement and a declaratory judgment that the provision is unenforceable.
Relying on the coercion rationale alone, the district court granted the States a permanent
injunction in September 2021. Treasury’s appeal of that order is now before us. It asserts that
the States’ challenges are nonjusticiable and that, in any event, their objections to the Offset
Provision fail on the merits.
We agree that Kentucky’s challenge is nonjusticiable. At the outset of their suit, both
Kentucky and Tennessee had standing to bring their pre-enforcement challenges, since the Offset
Provision itself at least arguably proscribed the post-acceptance enactment of any revenue-
reducing tax cut. Thus, the Offset Provision at least arguably threatened a significant intrusion
upon state taxing authority—an intrusion that arguably offended the Spending Clause because it
was not clearly authorized by the Offset Provision itself. But Treasury later promulgated an
implementing regulation (“the Rule”) that disavowed this interpretation of the Offset Provision
and established certain safe harbors permitting the States to cut taxes. See Coronavirus State and
Local Fiscal Recovery Funds, 86 Fed. Reg. 26,786 (proposed May 17, 2021) (interim final rule);
see also Coronavirus State and Local Fiscal Recovery Funds, 86 Fed. Reg. 4,338 (Jan. 27, 2022)
(final rule); 31 C.F.R. § 35 et seq. In response, Kentucky and Tennessee offered no additional
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evidence of a concrete plan to violate the Rule, so they failed to establish that Treasury will
imminently seek recoupment because of any demonstrated policy they wish to pursue.
And because Kentucky offered no evidence for any other theory of injury, the Rule mooted its
challenge to the Offset Provision. We thus reverse the district court’s conclusion that
Kentucky’s claim is justiciable and vacate the injunction to the extent that it bars enforcement of
the Offset Provision against Kentucky.
Tennessee, by contrast, did adduce additional evidence of a distinct theory of injury: that
Treasury’s Rule (and the underlying Offset Provision it implements) burden the State with
compliance costs. See Eley Dec., R. 25-3. These costs represent additional labor and other
expenses that Tennessee must incur to ensure that its recent and proposed tax cuts do not violate
the Offset Provision; expenses that it would not incur were enforcement of the Offset Provision
enjoined. Far from mooting the compliance-costs theory of injury, the Rule in fact exacerbated
the harm with its more detailed explanation of the measures required to comply with the Offset
Provision. Thus, we hold that Tennessee’s challenge is justiciable.
On the merits of Tennessee’s claim, we affirm the district court’s injunction on the basis
that the Offset Provision is impermissibly vague under the Spending Clause. Because the Offset
Provision is subject to a range of plausible meanings, Tennessee was deprived of the requisite
“clear notice” of ARPA’s conditions when it accepted the funds. Cummings v. Premier Rehab
Keller, P.L.L.C., 142 S. Ct. 1562, 1574 (2022) (quoting Arlington Cent. Sch. Dist. Bd. of Educ. v.
Murphy, 548 U.S. 291, 296 (2006)). As a result, Treasury cannot use its Rule to impose
compliance requirements upon Tennessee that are not clearly authorized by the Offset Provision
itself. And because this defect suffices to affirm, we need not consider Tennessee’s additional
objections to the Offset Provision.
I.
Congress enacted ARPA in March 2021 to make available almost $2 trillion in COVID-
related relief funding. Approximately $195.3 billion of that sum was set aside for distribution to
the states and the District of Columbia. “Kentucky’s allotment under the Act is about $2.1
billion,” while Tennessee’s is about $3.7 billion. Amended Complaint ¶¶26–27, R. 23. These
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No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 5
sums amount to nearly one-fifth of the States’ respective annual general revenues. Id. In the
States’ view, “[t]he financial aid the Act offer[ed] . . . is simply unparalleled in size.” Id. ¶28.
That offer also came with several conditions. For instance, the States may spend their
ARPA funds in only four particular areas that Congress deemed relevant to economic recovery
from the pandemic. Those four areas are as follows:
(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 households, small businesses, and nonprofits, or aid to impacted
industries such as tourism, 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.
42 U.S.C. § 802(c)(1)(A)–(D).
Conversely, the States are specifically forbidden from using ARPA funds for two
particular applications. First, “[n]o State or territory may use funds made available under this
section for deposit into any pension fund.” § 802(c)(2)(B). And second—the crux of this
lawsuit—the States may not use ARPA funds:
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.
§ 802(c)(2)(A). This is the so-called “Offset Provision”—the States have dubbed it the “Tax
Mandate”—that has provoked legal challenges across the country. See, e.g., Missouri v. Yellen,
39 F.4th 1063 (8th Cir. 2022); Arizona v. Yellen, 34 F.4th 841 (9th Cir. 2022); West Virginia v.
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No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 6
U.S. Dep’t of Treas., No. 7:21-cv-00465-LSC, 2021 WL 2952863, *1 (N.D. Ala. July 14, 2021);
Texas v. Yellen, No. 2:21-CV-079-Z, 2022 WL 1063066, *1 (N.D. Tex. Apr. 8, 2022).
Accompanying the Offset Provision are a couple of related enforcement mechanisms.
First is the statute’s reporting requirement, which instructs the states:
To 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.
§ 802(d)(2)(A)–(B). And second is the statute’s recoupment procedure. Should a state violate
the Act’s requirements, Treasury may initiate a recoupment action to seek reimbursement from a
state “equal to the amount of funds used in [the] violation.” § 802(e).
Kentucky and Tennessee were not alone, it turns out, in their apprehensions about this
statutory scheme. Several of their sister-states were similarly puzzled by the Offset Provision’s
requirements. So they wrote jointly to Secretary Yellen to seek clarification about the precise
obligations it imposed. Secretary Yellen—who elsewhere had acknowledged that the
“fungibility of money” presented “thorny questions” about the meaning of the Offset
Provision—wrote back to explain that the States could expect “further guidance” from Treasury
in the near future. Treasury Secretary & Federal Reserve Chair Testimony on COVID-19
Economic Recovery, C-SPAN (Mar. 24, 2021), at 58:00–59:11, available at https://www.c-
span.org/video/?510059-1/treasury-secretary-federalreserve-chair-testimony-covid-19-economic-
recovery; see Yellen Letter, R. 1-2.2 But she also explained that Treasury did intend to enforce
whatever prohibitions the Offset Provision was revealed to entail. See id. Perhaps
2
In particular, Senator Mike Crapo asked Secretary Yellen, “How do you intend to approach the question
of what is ‘directly or indirectly offsetting’ a tax cut?” The Secretary responded, “Well, when I said that we have
‘thorny questions’ to work through, you’ve just indicated why we do. We will have to define what it means to use
money from this Act as an ‘offset’ for tax cuts. And, given the fungibility of money, it’s a hard question to answer.”
Treasury Secretary & Federal Reserve Chair Testimony on COVID-19 Economic Recovery at 58:30–59:05
(emphasis added), available at https://www.c-span.org/video/?510059-1/treasury-secretary-federalreserve-chair-
testimony-covid-19-economic-recovery.
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unsurprisingly, given these lingering uncertainties, several states filed suit to restrain the Offset
Provision’s enforcement.
Kentucky and Tennessee brought their own challenge in April 2021. They each alleged
that because of the funds’ irresistible nature in the midst of an economic crisis, they intended to
accept their respective funding allotments.3 But they also alleged that the Offset Provision tied
to those funds injured the States with a coercive and ambiguous restriction that
“unconstitutionally intrud[es] on the [States’] sovereign authority, by interfering with their
ordinary management of their fiscal affairs, and by requiring them to forgo their constitutional
taxing powers or face an action to return much-needed federal funds after they have already been
spent.” Complaint ¶12, R. 1.
In response to this and other suits, Treasury attempted to clarify the Offset Provision by
promulgating an Interim Final Rule in May 2021. See 86 Fed. Reg. at 26,786. In relevant part,
the Interim Final Rule explained that Treasury did not read the Offset Provision to proscribe all
tax cuts during ARPA’s “covered period.” Id. at 26,807. Rather, it views the Provision as
proscribing only a tax cut that (1) results in a revenue reduction as compared to revenues for the
“fiscal year ending in 2019,” and (2) for which a state fails to identify a permissible, non-ARPA
source of additional funds to offset the revenue reduction. Id.; see also id. at 26,810.
In particular, Treasury said, it would not initiate a recoupment action even after a state enacted a
revenue-reducing tax cut and expended ARPA funds so long as the state could show that the
revenue reduction was offset with (1) a state tax increase on some other activity, (2) additional
inlays from macroeconomic growth, or (3) a state spending cut in an area the state is not
expending ARPA funds. Id.; see also Appellants’ Br. at 5; 31 C.F.R. §§ 35.1–35.12 (codifying
the Rule).
The States reacted with an amended complaint in June 2021. The Interim Final Rule
notwithstanding, the States reprised their contention that the Offset Provision functionally
3
Kentucky ultimately accepted the funds after the complaint was filed and certified that it would comply
with the Offset Provision, while Tennessee accepted the funds only after the district court entered its permanent
injunction. See Recording of Oral Arg. at 27:38–27:55. Additionally, Tennessee accepted the funds with a
reservation that it considered the Offset Provision invalid. Id.
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proscribes all future tax cuts to the extent a state wishes to expend its ARPA funds. Amended
Complaint ¶32, R. 23 (alleging that Congress, as a condition of ARPA, required the States to
“promise that [they] will not lower taxes on their residents for four years”). But they augmented
their complaint with an allegation about compliance costs. See id. ¶12. In addition to their
“imminent recoupment” and “sovereign authority” theories of injury, the States complained that
“the Tax Mandate w[ould] impose administrative burdens on [them] by obligating them to spend
resources on calculation and reporting requirements.” Id. And the States alleged that all of those
injuries “are traceable to the Tax Mandate and Defendants’ efforts to enforce it.” Id. Thus, they
continued to seek a declaratory judgment that the Offset Provision is unconstitutional and an
injunction to restrain Treasury from initiating an enforcement action.
Two days later, the States submitted their corresponding motion for summary judgment
and a permanent injunction. They reiterated their view that they have standing to challenge the
Offset Provision for the three aforementioned reasons: that it intrudes on state taxing authority,
could result in a recoupment action if the States were to pursue their desired tax cuts, and
imposes administrative burdens and compliance costs. As to the merits, they argued that the
Offset Provision is impermissibly ambiguous under the Spending Clause, not reasonably related
to ARPA’s nominal goal of fiscal recovery, and unconstitutionally coercive and commandeering.
Given Treasury’s strenuous objections to justiciability, the corresponding evidence the
States submitted in support of their motion for summary judgment deserves particular scrutiny.
Kentucky offered merely a confirmation email indicating its acceptance of the ARPA funds. See
Submission Confirmation, R. 25-1. By contrast, Tennessee submitted declarations from two
state officials. First was a declaration from N. Antonio Niknejad, Policy Director to Governor
Bill Lee. See Niknejad Dec., R. 25-2. Niknejad explained that Tennessee has “a long history of
cutting taxes and spending in order to spur economic growth,” that Tennessee had recently
enacted several tax cuts on gym memberships, professional licensing, agricultural products, and
broadband fiber optic cables, and that Tennessee is contemplating several future tax cuts. Id.
¶¶6, 8, 9–11. Yet he explained that uncertainty about how the Offset Provision could be
construed has caused policymakers in Tennessee to “defer, slow, or reconsider some of [their]
taxing decisions.” Id. ¶14.
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The second was a declaration from Commissioner Howard H. Eley of Tennessee’s
Department of Finance and Administration. See Eley Dec., R. 25-3. Unlike Niknejad, who
focused on anticipated tax cuts, Eley described the administrative burdens and compliance costs
the Offset Provision (and Rule) would inflict on Tennessee. We quote three particularly relevant
paragraphs from his declaration below:
8. Tennessee is required by its state constitution to enact a balanced budget.
General fund expenditures, which include certain reductions in tax revenue due to
a statutory or regulatory change, are described by category, agency, program, and
the recurring or non-recurring nature of the expenditure. State revenues, which
include federal funds and reimbursements, are described by source. The enacted
budget appropriates a specific amount from the general fund and other funds to
fund the State’s programs and operations. But in determining whether the budget
is balanced, the Department of Finance and Administration generally compares
total expenditures to total revenues and does not typically connect expenditures to
specific revenue sources or “indirect” causes for those revenues. If the State
receives federal funds to offset certain state expenditures, the state funds that
would have been used to pay for those expenditures are not used and can be
returned to the general fund for future appropriation. To comply with the Tax
Mandate, the Department will be required to create new accounting processes
that specifically track whether federal funds received under the Rescue Plan are
being used to “directly or indirectly offset” any state expenditures resulting from
a reduction in tax revenue that otherwise would have been funded from state
appropriated tax revenues. That will include tracking whether any cost savings
resulting from the receipt of federal funds to offset certain state expenditures are
ultimately and indirectly used to offset a tax reduction. Establishing these
additional processes and preparing the required reports will require at least one
budget analyst and one revenue analyst to divert at least some of their work to
that task and other state employees to support and review that work.
9. To comply with the Secretary’s Regulations attempting to implement and
enforce the Tax Mandate, the State of Tennessee will be forced to expend
additional resources adjusting Tennessee’s “baseline” level of tax revenue for
inflation each year during the covered period “using the Bureau of Economic
Analysis’s Implicit Price Deflator for the gross domestic product of the United
States” and then using that adjusted figure to determine whether the State’s tax
policies may violate the Secretary’s interpretation of the Tax Mandate. 31 C.F.R.
§§ 35.3, 35.8(b).
10. The State of Tennessee would not incur these additional costs to determine
whether any revenue reductions could be said to have been “directly or indirectly
offset” by funds received under the Rescue Plan or to report its revenue
modifications to the Secretary but for the Tax Mandate.
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Eley Dec. ¶¶8–10, R. 25-3 (emphases added). Given both these compliance costs and the
asserted threat of a recoupment action should the States pursue their desired tax cuts, the States
asked the district court to grant them summary judgment and permanently enjoin the Offset
Provision’s enforcement.
Treasury cross-moved for summary judgment, or, alternatively, to dismiss the complaint.
It introduced no evidence of its own, and thus it did not attempt to controvert Niknejad or Eley’s
declarations. Rather, it argued that even taking the declarations as true, the States lacked
standing and that their merits challenges failed as a matter of law. See Mot. to Dismiss & Mot.
for Summ. J. at 8, 17, R. 32. Concerning a recoupment action, Treasury argued that none was
imminent. Id. at 10. For even if the States had established that they wish to cut taxes, they failed
to show that not only would such cuts result in revenue reductions, but also that they intended to
use ARPA funds to offset those reductions. Id. at 11. As to compliance costs, it argued that
(1) any administrative burdens were traceable solely to the reporting requirement, not the Offset
Provision, and (2) no injury occurs because the States are permitted to use ARPA funds “to cover
administrative costs.” Id. at 14–15. As to the merits, Treasury conceded that its Rule cannot
cure potential ambiguities in the Offset Provision for purposes of the Spending Clause. Id. at 30.
But it claimed that the text of the Offset Provision itself is unambiguous. Id. It likewise argued
that no precedents support the States’ view that the Offset Provision is unduly coercive or
commandeers state taxing authority. Id. at 18–26.
The district court rendered its opinion on these motions in September 2021. As to
justiciability, it concluded that both Kentucky and Tennessee had satisfied the pre-enforcement-
challenge standing test described in Susan B. Anthony List. See id. at 3–5 (citing Susan B.
Anthony List v. Driehaus, 573 U.S. 149 (2014)). First, both the States intended to accept ARPA
funds and yet asserted that doing so entailed compliance with the arguably unconstitutional “Tax
Mandate.” Op. & Order at 4–5. Second, the “Tax Mandate” at least arguably proscribed the
States’ desired efforts to cut taxes. Id. at 5. And third, Secretary Yellen had expressed intent to
enforce the Offset Provision in her earlier letter to the States, demonstrating a credible threat of
enforcement. Id. The district court thus held that both Kentucky and Tennessee had standing to
challenge the Offset Provision. Id.
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As for the merits, the district court concluded that ARPA violated the Spending Clause
because it had coerced the States into relinquishing control over their taxing authority to the
federal government. Id. at 11. In essence, it said, the economic crisis made the federal
government’s aid offer irresistible, and so it represented an “undue influence” on the States’
authority to tax. Id. at 6 (quoting Nat’l Fed. of Indep. Bus. v. Sebelius, 567 U.S. 519, 576 (2012)
(opinion of Roberts, C.J.)); see also id. at 11. The district court thus granted summary judgment
to the States and imposed a permanent injunction4 restraining enforcement of the Offset
Provision. Id. at 16–17.
II.
The district court’s order granting the States summary judgment and imposing a
permanent injunction was a final decision. See, e.g., Reform Am. v. City of Detroit, 37 F.4th
1138, 1147 (6th Cir. 2022) (citation omitted). Thus, 28 U.S.C. § 1291 gives us statutory
jurisdiction to handle Treasury’s appeal. We examine Article III jurisdiction over the States’
respective claims below.
As for our standards of review, we consider summary-judgment orders de novo. See
Jordan v. Howard, 987 F.3d 537, 542 (6th Cir. 2021) (citation omitted). Thus, drawing all
reasonable inferences in favor of the non-movant, we ask whether the party seeking summary
judgment demonstrated “that there is no genuine dispute as to any material fact” and that it is
“entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). On cross-motions for summary
judgment, we apply these same standards to each of the individual motions. See Taft Broad. Co.
v. United States, 929 F.2d 240, 248 (6th Cir. 1991) (citation omitted); accord Reform Am.,
37 F.4th at 1147; B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 592 (6th Cir. 2001).
Concerning the district court’s decision to grant a permanent injunction, several standards
of review are relevant. “[F]actual findings are reviewed under the clearly erroneous standard,
legal conclusions are reviewed de novo, and the scope of injunctive relief is reviewed for an
abuse of discretion.” Sec’y of Lab. v. 3Re.com, Inc., 317 F.3d 534, 537 (6th Cir. 2003) (quoting
4
By contrast, the district court denied the States’ requested declaratory judgment, reasoning that such relief
was subsumed into its order awarding a permanent injunction. Op. & Order at 14, R. 42.
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S. Cent. Power Co. v. Int’l Brotherhood. of Elec. Workers, Loc. Union 2359, 186 F.3d 733, 737
(6th Cir. 1999)).
III.
As is our obligation, we consider first whether Kentucky and Tennessee established that
their respective challenges to the Offset Provision are justiciable. See, e.g., Arbaugh v. Y&H
Corp., 546 U.S. 500, 514 (2006). We hold that Tennessee alone satisfied that showing. We then
explain our view that the text of the Offset Provision is insufficiently clear under the relevant
Spending Clause jurisprudence for Treasury, through promulgation of its Rule, to impose the
specific obligations that Tennessee complains have inflicted compliance costs upon it.
A. Justiciability
1. Kentucky and Tennessee’s Initial Standing to Sue
From the States’ original complaint onward, their central theory of standing has been as
follows. First, they said, they both intended to accept ARPA funds. Complaint ¶¶26–27, R. 1.
But second, the Offset Provision at least arguably proscribes enacting any post-acceptance tax
cut should the States wish to expend their funds. Id. ¶32. Indeed, because money is fungible,
spending ARPA funds and then cutting taxes (or vice versa) could arguably be construed as
having used those funds to “indirectly offset” a resultant revenue reduction. Id. ¶35. And
second, the States alleged, both Kentucky and Tennessee desire to enact (or have enacted) tax
cuts. Kentucky, for instance, recently enacted a tax-deferral bill to revitalize an area of
Louisville. Id. ¶41. Likewise, Tennessee is considering eliminating its professional-privilege
tax, and it has recently enacted cuts to several other taxes. Id. ¶42. But the States complained
that such tax cuts “could be construed to come within the Tax Mandate if they result in a revenue
decrease.” Id. They thus contended that the Offset Provision constrained their sovereign
authority to tax and exposed them to an imminent recoupment action should they wish to pursue
their preferred policies.
These original theories sufficed for standing. Whether a party has standing to redress an
injury is measured as of the time the injury is first asserted; here, in the original complaint. See
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Lynch v. Leis, 382 F.3d 642, 647 (6th Cir. 2004). As of that moment, therefore, we apply two
relevant frameworks to assess whether these “imminent-recoupment” and “sovereign-authority”
theories sufficed for standing. The first framework derives from the Supreme Court’s decision in
Lujan, which explained that plaintiffs must establish an injury that is (1) actual or imminent and
concrete and particularized, (2) traceable to the defendant, and (3) likely to be redressed by a
favorable decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Here at least,
elements (2) and (3) are not subject to serious dispute. A recoupment action initiated by
Treasury is no doubt traceable to Treasury, and an injunction restraining such a proceeding
would provide the States corresponding relief. But what about an injury in fact? No recoupment
action is now pending. So the question is whether a future such proceeding is sufficiently
imminent to say the States have suffered a de facto injury for purposes of Article III.
That brings us to the second, more specialized framework, which instructs us how to
determine whether an enforcement action is sufficiently imminent to support Article III
jurisdiction over a pre-enforcement challenge. See Susan B. Anthony List, 573 U.S. at 158–59.
Under that test, we ask whether the States, when they first asserted these injuries, had established
(1) an intention to engage in a course of conduct arguably affected with a constitutional interest,
(2) that this course of conduct was arguably proscribed by the Offset Provision, and (3) that if the
States should pursue such a course of conduct, there was a credible threat that Treasury would
pursue a recoupment action. See id. at 161–64. Before the eventual advent of the Rule, we
believe, the States had satisfied this tripartite showing.
First, Kentucky and Tennessee alleged that despite their intention to accept and expend
ARPA funds, they had either enacted or planned to enact tax cuts that could potentially result in
revenue reductions. Complaint ¶¶41–42, R. 1. And their decision to do so was at least arguably
affected with a constitutional interest, given that states have a powerful sovereign prerogative
under federalism principles to control their own internal taxation policies. See id. ¶40; see also
Lane County v. Oregon, 74 U.S. 71, 76 (1868) (describing states’ control over “the power of
taxation” as “indispensable” and “an essential function of government”); Dep’t of Revenue of
Oregon v. ACF Indus., Inc., 510 U.S. 332, 345 (1994) (“Subsection (b)(4), like the whole of
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No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 14
§ 11503, sets limits upon the taxation authority of state government, an authority we have
recognized as central to state sovereignty.”).
Second, this course of conduct was at least arguably proscribed by the Offset Provision.
As we noted before, “money is fungible.” Complaint ¶35, R. 1; see also United States v. Sperry
Corp., 493 U.S. 52, 62 n.9 (1989) (“Unlike real or personal property, money is fungible.”);
Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 79 (2011) (same); Ark Encounter, LLC v.
Parkinson, 152 F. Supp. 3d 880, 904 (E.D. Ky. 2016) (“Because money is fungible, such
benefits will to some extent have the incidental effect of allowing the institution’s other funds to
be used to advance their [other] purposes if they wish. Indeed any reimbursement, aid, or tax
exemption necessarily frees up other funds for other purposes.”). As a result, merely enacting a
revenue-reducing tax cut and expending ARPA funds could at least arguably be construed as
having used the funds to “indirectly offset” the revenue reduction, given that the ARPA funds
could support continued state spending rendered otherwise impossible by the tax cuts.5
Indeed, Treasury acknowledged in the commentary to its own Final Rule that this is at
least a plausible interpretation of the statute. For instance, it explained, “because money is
fungible, even if [ARPA] funds are not explicitly or directly used to cover the costs of changes
that reduce net tax revenue, those funds may be used in a manner inconsistent with the statute by
indirectly being used to substitute for the state’s or territory’s funds that would otherwise have
been needed to cover the costs of the reduction.” 87 Fed. Reg. at 4,424 (emphasis added). For
that matter, the plausibility of the States’ money-is-fungible interpretation is the very reason
Treasury had to promulgate its Rule—to disavow that interpretation and attempt to clarify the
Offset Provision. See, e.g., id. at 4,423–24. Thus, the States’ desire to cut taxes while spending
ARPA funds was at least arguably proscribed by the Offset Provision.
Last, the States had illustrated a credible threat of enforcement. For instance, the States
produced Secretary Yellen’s letter indicating that Treasury intended to enforce the Offset
5
The question may arise why a revenue reduction would necessarily make additional spending impossible,
since it would seem the States could continue to spend at the same levels by taking on debt. The answer is that this
sort of debt-financed spending is restricted under Kentucky and Tennessee’s respective constitutions, which have
balanced-budget amendments. See Ky. Const. §§ 49–50, 171; Tenn. Const. Art. II, § 24.
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Provision. See Yellen Letter, R. 1-2. The letter reiterated that “[ARPA] funding may not be
used to offset a reduction in net tax revenue resulting from certain changes in state law.” Id. at 1.
It also explained that Treasury would later promulgate “further guidance” about what sort of
changes in state law could provoke a recoupment action.6 Id. at 1–2. Thus, the letter itself
acknowledged that (1) the Offset Provision would be enforced, but (2) it was not yet clear, based
on the statute alone, how the States could comply with the Provision (and stave off recoupment).
So as of the original complaint, the States had satisfied the Supreme Court’s pre-enforcement-
challenge test. In addition to traceability and redressability, in other words, they had also
established a sufficiently imminent injury for jurisdiction.
2. The Interim Final Rule Complicates the Initial Imminent-Recoupment
and Sovereign-Authority Theories of Injury
A little over a month after the States had filed their original complaint, Treasury
promulgated its Interim Final Rule (“IFR”) offering its construction of the Offset Provision.
Several features of that Rule are relevant to this dispute. First, the IFR supplied the missing
baseline for calculating whether a tax cut results in a revenue reduction. It clarified that the
revenue baseline would be the state’s “fiscal year 2019 tax revenue adjusted for inflation.”
86 Fed. Reg. at 26,808.7 Second, the IFR attempted to provide guidance about when a state
would be understood to have “directly or indirectly offset a reduction in . . . net tax revenue.”
42 U.S.C. § 802(c)(2)(A). Treasury’s commentary explained as follows:
A recipient government would only be considered to have used Fiscal Recovery
Funds to offset a reduction in net tax revenue resulting from changes in law,
regulation, or interpretation if, and to the extent that, the recipient government
could not identify sufficient funds from sources other than the Fiscal Recovery
6
Technically, even this letter explained Secretary Yellen’s position that the Offset Provision does not
render tax cuts impermissible per se. See Yellen Letter at 1, R. 1-2. But the letter also acknowledged that the Offset
Provision created significant uncertainty about when tax cuts were permissible versus when they were not, which
was why Treasury intended to promulgate “further guidance” about when it would pursue recoupment actions. Id.
at 2. Thus, in the absence of those clarifying regulations, it was at least arguable that the tax cuts Kentucky and
Tennessee had enacted or planned to enact could provoke a recoupment action. Indeed, as this Circuit’s precedent
recognizes, a threatened enforcement action should only be understood as too remote to support jurisdiction when
the defendants have provided “clear assurances” they will not undertake the enforcement action. See, e.g., Universal
Life Church Monastery Storehouse v. Nabors, 35 F.4th 1021, 1035 (6th Cir. 2022).
7
The Final Rule likewise confirms that the fiscal year ending in 2019 is the relevant baseline. See
31 C.F.R. § 35.3; 87 Fed. Reg. at 4,423.
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Funds to offset the reduction in net tax revenue. If sufficient funds from other
sources cannot be identified to cover the full cost of the reduction in net tax
revenue resulting from changes in law, regulation, or interpretation, the remaining
amount not covered by these sources will be considered to have been offset by
Fiscal Recovery Funds, in contravention of the offset provision. The interim final
rule recognizes three sources of funds that may offset a reduction in net tax
revenue other than Fiscal Recovery Funds—organic growth, increases in revenue
(e.g., an increase in a tax rate), and certain cuts in spending.
86 Fed. Reg. at 26,807. The IFR thus provided the “further guidance” Secretary Yellen had
promised in her initial letter to the States. As we explained before, Treasury construed the Offset
Provision not to bar a revenue-reducing tax cut so long as a state identifies replacement funds
from (1) macroeconomic growth, (2) increased state taxation on some other activity, or (3) state
spending cuts in an area where the state is not expending ARPA funds. Id.; see also Appellants’
Br. at 5.
Yet this narrowing construction created apparent justiciability issues for the States’
challenge to the Offset Provision. In their initial complaint, the States had alleged only that they
have enacted or plan to enact tax cuts that may result in reduced state revenues. Complaint
¶¶41–42, R. 1. They never additionally alleged that they would then fail to identify a permissible
source of revenue—such as from macroeconomic growth or a reduction in certain state
spending—to offset the resultant reductions in inlays. And only if that contingency were to
occur, according to Treasury’s new Rule, would Treasury pursue a recoupment action against the
States. See 86 Fed. Reg. at 26,807; see also Appellants’ Br. at 5. The IFR thus rendered it
unclear why there was a reasonable prospect of a recoupment action.
And the States’ sovereign-authority theory now suffered from a similar issue. The States’
apparent view was that they had either been injured (1) in the past from the receipt of an
ambiguous or coercive offer, or (2) are being continuously injured because the Offset Provision
“prohibit[s] . . . tax relief.” Appellees’ Br. at 46. But an injunction cannot be used to redress a
purely past injury. See City of Los Angeles v. Lyons, 461 U.S. 95, 105 (1983). Rather, the States
had to show why they were likely to suffer some present or future harm. Id. So that leaves the
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claim that the Offset Provision “prohibits . . . tax relief.” Appellees’ Br. at 46.8 But the IFR
subsequently disavowed the States’ interpretation of the Offset Provision, clarifying that they
remain free to expend ARPA funds and enact tax cuts resulting in revenue reductions so long as
they identify a permissible source of offsetting funds. See, e.g., 86 Fed. Reg. at 26,807. And the
Final Rule crystallized precisely the same understanding. See, e.g., 87 Fed. Reg. at 4,426.9 Yet
the States never established that they would fail to meet that obligation. Thus, we do not see
how the sovereign-authority theory could support injunctive relief when the States identified no
specific course of conduct they wish to pursue but against which Treasury will initiate an
enforcement proceeding. See Whole Woman’s Health v. Jackson, 141 S. Ct. 2494, 2495 (2021)
(“[F]ederal courts enjoy the power to enjoin individuals tasked with enforcing laws, not the laws
themselves.” (citing California v. Texas, 141 S. Ct. 2104, 2115–16 (2021)).
3. The States File Their Amended Complaint and Motion for Summary
Judgment But Provide No Evidence that They Intend to Violate the
Rule
About a month after the IFR’s promulgation, the States filed their amended complaint
and corresponding motion for summary judgment and a permanent injunction. Despite the
advent of the IFR, the States made no allegations and adduced no specific evidence about how
8
In response to our request for supplemental briefing on mootness, the States emphasized their contention
that their “sovereign authority” theory remains live even despite the Rule because the Offset Provision still “limits
the range of policy options available to the[m].” Appellees’ Supp. Br. at 4 (quoting Appellees’ Br. at 20–21). Of
course, any law could be said to “limit the range,” in an abstract sense, of a plaintiff’s legitimate behavior. But
merely because enjoining the law’s enforcement could be said to expand the range of potential behaviors a plaintiff
might permissibly engage in does not alone establish the plaintiff’s standing to seek an injunction. Rather, the
plaintiff must show that he is “able and ready” to violate the law and that an enforcement action would realistically
and likely ensue in response to the violation. Carney v. Adams, 141 S. Ct. 493, 501–02 (2020); Babbitt v. United
Farm Workers Nat. Union, 442 U.S. 289, 298 (1979). Thus, as concerns the “sovereign authority” theory, the States
still had the burden to establish, with evidence, why they plan to imminently pursue some policy objective outside
the range of conduct permitted by the Rule and against which Treasury would correspondingly take action. Lujan,
504 U.S. at 561; cf. Whole Woman’s Health v. Jackson, 141 S. Ct 2104, 2495 (2021) (“[F]ederal courts enjoy the
power to enjoin individuals tasked with enforcing laws, not the laws themselves.” (citing California v. Texas, 141 S.
Ct. 2104, 2115–16 (2021))).
9
We do not hold today that the interim final rule itself necessarily mooted the imminent-recoupment and
sovereign-authority theories. Interim final rules are subject to revision after the notice-and-comment process, so a
rule’s content could still change from its interim form to its final form in some way relevant to justiciability. But
that concern is absent from this particular case, given that the final rule varied from the interim final rule in no way
material to this dispute. Both disavow enforcement in exactly the same way and present exactly the same safe
harbors for states and enforcement constraints on the Treasury Department.
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they have pursued or intend to pursue a course of conduct that would arguably violate the Rule.
In other words, they provided no declarations or other evidence about how they intend to enact
tax cuts that (1) would result in net revenue reductions compared to 2019 inlays, and (2) would
then fail to identify a permissible funding source (such as from growth or spending cuts) to offset
the revenue reduction. Indeed, the only evidence Kentucky adduced in the States’ motion for
summary judgment was its notification that it intended to accept the ARPA funds. See
Submission Confirmation, R. 25-1.
Those omissions are problematic for justiciability, since the States produced no evidence
about why there is a realistic risk of an enforcement proceeding. And justiciability must be
established with the degree of evidence required at each respective stage of the suit. See Lujan,
504 U.S. at 561. So the States were obliged to submit evidence—such as a sworn declaration—
detailing how they are “able and ready” to pursue a course of action that would run afoul of the
Rule. Carney v. Adams, 141 S. Ct. 493, 501–02 (2020). For only then would there be a
demonstrated risk of a recoupment action, which a federal court could redress by enjoining such
action. See Jackson, 141 S. Ct. at 2495 (citing California, 141 S. Ct. at 2115–16). In the
absence of that evidence, we conclude that Treasury’s disavowal of the money-is-fungible
interpretation dispelled the States’ claim that they run the risk of an imminent enforcement
action—as when, for instance, a prosecutor credibly disavows that he will enforce a challenged
statute. See, e.g., Mink v. Suthers, 482 F.3d 1244, 1256–57 (10th Cir. 2007); cf. Commodity
Trend Serv., Inc. v. Commodity Futures Trading Comm’n, 149 F.3d 679, 687 (7th Cir. 1998)
(explaining that courts will find a credible threat of enforcement when “the Government fails to
indicate affirmatively that it will not enforce the statute” (emphasis omitted)).
The only remaining question is what kind of justiciability defect Treasury’s disavowal
created. The parties initially framed the issue as one of the States’ “standing.” But we disagree
with that characterization. Whether an “intervening circumstance” arising after a suit has been
filed causes a plaintiff’s asserted injury to dissipate is really a question of mootness. See Genesis
Healthcare Corp. v. Symczyk, 569 U.S. 66, 72 (2013). And whether the Rule mooted the
imminent-recoupment and sovereign-authority theories comes down to whether we should credit
Treasury’s voluntary disavowal of a broad view of the Offset Provision; in essence, whether
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Treasury established10 that there is no “reasonable possibility” it will act as if the Offset
Provision forbids tax cuts per se. Resurrection Sch. v. Hertel, 35 F.4th 524, 529 (6th Cir. 2022)
(en banc).
We hold that Treasury satisfied this showing. Its Final Rule resulted from the notice-and-
comment process, and thus it may be rescinded only pursuant to that process as well. See
5 U.S.C. § 551(5); Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 101 (2015). And we have no
evidence that Treasury plans to pursue such rescission. Indeed, and more importantly, Treasury
has repeatedly taken the position in this litigation that its Rule necessarily follows from the plain
text of the Offset Provision itself. See, e.g., Reply Br. at 1; Appellants’ Supp. Br. at 2 n.2. So
even without the Rule, according to Treasury, it would pursue recoupment against Kentucky and
Tennessee—even if they were to enact a revenue-reducing tax cut and expend ARPA funds—
only if the States additionally failed to identify one of the permissible sources of offsetting funds,
such as a tax increase or macroeconomic growth.11 Id. On those bases, then, we conclude that
Treasury has affirmatively and credibly disavowed the money-is-fungible interpretation of the
Offset Provision. Thus, because the States failed to provide evidence that they intend to
10
Aside from how standing and mootness concern the parties’ interests at different stages of a lawsuit, they
can also present different burdens of proof. See Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 98 (1993).
The burden to establish jurisdiction rests on the party invoking jurisdiction—here, the States—while the burden to
defeat jurisdiction with a mootness objection rests on the party asserting mootness—here, Treasury. Id. Because of
this burden-shifting issue, we ordered supplemental briefing to solicit Treasury’s affirmative case as to why the
States’ challenge is moot. See Order, ECF No. 45. After agreeing that mootness (rather than standing) is the
appropriate framework to assess the impact of the Rule’s advent, Treasury’s supplemental brief once again
disavowed the money-is-fungible interpretation of the Offset Provision and disclaimed that Treasury has any intent
to pursue recoupment in response to tax cuts per se. See Appellants’ Supp. Br. at 1. We thus understand Treasury,
through its supplemental briefing, to have discharged its duty to make an affirmative showing about why at least the
imminent-recoupment and sovereign-authority theories are moot.
11
In their supplemental briefing, the States contended that the Rule did not moot the imminent-recoupment
and sovereign-authority theories because it contains a reservation of authority. See Appellees’ Supp. Br. at 5 (citing
31 C.F.R. § 35.4(a)). And, true, the Rule provides that “[n]othing in this part shall limit the authority of the
Secretary to take action to enforce conditions or violations of law, including actions necessary to prevent evasions of
this subpart.” 31 C.F.R. § 35.4(a). But we have no evidence (or even argument) about how the States plan to
engage in conduct that Treasury would construe as an “evasion,” much less why Treasury would construe behavior
clearly permitted by other parts of the Rule to constitute such an “evasion.” Moreover, Treasury insists that the
Rule’s narrowing construction “flows naturally from the text of the Offset Provision itself.” Appellants’ Supp. Br.
at 2 n.2. So even if the Rule arguably did not bar Treasury from pursuing recoupment under, for instance, the
money-is-fungible interpretation, Treasury has solemnly represented before us that the Offset Provision itself would
preclude such an enforcement action. Again, Treasury’s position is that the Offset Provision itself unambiguously
dispels that interpretation of the statute. Reply Br. at 1; Appellants’ Supp. Br. at 2.
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specifically violate the Rule (and provoke recoupment), and because Treasury established that
there is no realistic prospect it will enforce the States’ expansive interpretation of the Offset
Provision, we deem the imminent-recoupment and sovereign-authority theories moot.
Moreover, that holding ends the case for Kentucky. Kentucky submitted nothing other
than an email indicating its intent to accept the ARPA funds. Submission Confirmation, R. 25-1.
It furnished no proof about how it intends to violate the Rule, or about why it suffers a
continuing sovereign injury when it identified no desired tax cut that, if enacted, would likely
provoke recoupment. It also offered no additional theory of injury, such as compliance costs,
that might sustain its challenge even in the absence of an imminent recoupment action. See
Recording of Oral Arg. at 30:38–30:45 (conceding that there is no evidence in the record about
Kentucky’s budgeting processes). Thus, the district court should have dismissed its challenge to
the Offset Provision as moot.12
4. Tennessee’s Challenge Remains Justiciable, However, Under a
Compliance-Costs Theory of Injury
The same cannot be said for Tennessee. Recall how, in their amended complaint, the
States made allegations about an additional injury the Offset Provision would inflict upon them:
12
Kentucky insists that its challenge to the Offset Provision is justiciable if we determine that Tennessee’s
challenge to the Offset Provision is justiciable. See, e.g., Recording of Oral Arg. at 30:15–30:20; Appellees’ Br. at
16 n.4. We disagree. “Standing is not dispensed in gross.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 353
(2006) (quoting Lewis v. Casey, 518 U.S. 343, 358 n.6 (1996)). Rather, to win summary judgment and obtain
injunctive relief, Kentucky and Tennessee each had to demonstrate, with evidence, why it was suffering
particularized continuing or imminent injuries in fact, and why that remained the case even after promulgation of
the Rule. Lujan, 504 U.S. at 561; see also id. at 560 n.1 (“By particularized, we mean that the injury must affect the
plaintiff in a personal and individual way.”); Trump v. New York, 141 S. Ct. 530, 534 (2020) (“A foundational
principle of Article III is that an actual controversy must exist not only at the time the complaint is filed, but through
all stages of the litigation.” (cleaned up)). Thus, the district court had no authority to issue an injunction protecting a
party that failed to demonstrate that its challenge was even justiciable. Instead, a “remedy must . . . be limited to the
inadequacy that produced the injury in fact that the plaintiff has established.” DaimerChrysler Corp., 547 U.S. at
353. The case that Kentucky cites to the contrary—Rumsfeld v. Forum for Academic & Institutional Rights, Inc.—is
inapposite. See Appellees’ Br. at 16 n.4 (citing 547 U.S. 47, 52 n.2 (2006)). There, determining the standing of
each individual plaintiff (and thus the legitimate scope of injunctive relief) was irrelevant; since plaintiffs had all
advanced the same non-meritorious claim, the Court needed to find standing only as to a single plaintiff to deem
their shared legal theory erroneous. Id. at 70. But while such cases “give courts license to avoid complex questions
of standing in cases where the standing of others makes a case justiciable, it does not follow that these cases permit a
court that knows that a party is without standing to nonetheless allow that party to participate in the case.” Nat’l
Rifle Ass’n of Am., Inc. v. McCraw, 719 F.3d 338, 344 n.3 (5th Cir. 2013). The proper course is, instead, to limit
relief only to those parties who established the district court’s jurisdiction to award it. DaimlerChrysler Corp.,
547 U.S. at 353.
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compliance costs. Amended Complaint ¶12, R. 23. Unlike Kentucky, Tennessee then submitted
uncontroverted evidence of those costs. Eley Dec. ¶¶8–10, R. 25-3. As Eley’s declaration
explains, the Offset Provision requires Tennessee to expend time and money that it would not
expend but for the Offset Provision to ensure that none of the tax cuts it has enacted or will enact
could be construed as having been “indirectly offset” by ARPA spending. Id. ¶8. Likewise, it
must also expend resources it would not otherwise have to expend “adjusting [its] ‘baseline’
level of tax revenue for inflation each year during the covered period” to determine whether its
tax policies may provoke a recoupment action. Id. ¶9. These injuries were not mooted by the
advent of the Rule, since Tennessee must still expend resources to maintain compliance with the
Offset Provision (and, for that matter, the Rule as well). See id.
And, unlike with the imminent-recoupment and sovereign-authority theories, we have no
similar imminence concern about the compliance-costs argument.13 Tennessee already accepted
the funds, so it must undertake compliance efforts at present. Given those facts, we conclude
that Tennessee satisfied its obligation to show an actual injury traceable to the defendants and
likely redressable by a favorable decision. Indeed, compliance costs are a recognized harm for
purposes of Article III. See, e.g., Federal Election Comm’n v. Ted Cruz for Senate, 142 S. Ct.
1638, 1646 (2022); Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 983 (2017) (“For standing
purposes, a loss of even a small amount of money is ordinarily an ‘injury.’”); see also State Nat.
Bank of Big Spring v. Lew, 795 F.3d 48, 53 (D.C. Cir. 2015) (Kavanaugh, J.) (“The Rule also
offers a safe harbor, but banks such as State National Bank must incur costs to ensure that they
are properly complying with the terms of that safe harbor. . . . Under Lujan, the Bank therefore
has standing to challenge the constitutionality of the Bureau.”); Grand River Enters. Six Nations,
Ltd. v. Boughton, 988 F.3d 114, 121 (2d Cir. 2021) (collecting cases). Tennessee’s expenditure
of those resources, as we explain below, is traceable to the Offset Provision. Its proscriptions are
why Tennessee must incur such costs—to maintain compliance with the Offset Provision and
stave off a recoupment action.14 And permanently enjoining the Offset Provision’s enforcement
13
We thus assess Tennessee’s standing argument under the ordinary Lujan framework. See supra at 12–13.
14
Supreme Court doctrine, we note, provides that a federal court has jurisdiction over a regulated entity’s
pre-enforcement challenge even when no enforcement action is imminent if the enforcement action’s remoteness
stems from the regulated entity’s own involuntary efforts to comply with the contested proscription. MedImmune,
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would redress that injury. For if enforcement of the Offset Provision were enjoined, Tennessee
would have no reason to continue expending resources to maintain compliance with an
unenforceable provision.
Still, however, Treasury disputes several aspects of this analysis. Its objections focus on
whether these compliance costs are a legitimate injury in fact, and, even assuming they are,
whether such an injury is truly traceable to the Offset Provision. After more fully describing
those objections below, we explain why none persuades us that we lack jurisdiction.
a. Treasury’s Objection that Tennessee’s Compliance Costs are
not an Injury in Fact
Treasury at points seems to dispute that the compliance costs the Offset Provision (and
Rule) inflict on Tennessee even constitute an injury in fact. See, e.g., Reply Br. at 4 n.1. Its
argument rests on a portion of the Final Rule—which, we note, acknowledges that ARPA
imposes an “administrative burden” on the States—but that permits states to use ARPA funds to
defray the costs of complying with ARPA’s reporting requirement. Id.; 87 Fed. Reg. at 4,444.
The theory seems to be that Tennessee cannot be injured by ARPA-related compliance costs
when ARPA funds may themselves be used to offset administrative expenses.
We perceive two central problems with this argument. The first is that even if the Rule
permits states to use ARPA funds to defray the costs of complying with the reporting
requirement, 87 Fed. Reg. at 4,444, that is simply beside the point as concerns Tennessee’s
compliance-costs argument. Tennessee complained of compliance costs distinct from those
imposed by the reporting requirement. See Eley Dec. ¶¶8–9, R. 25-3. Indeed, Eley’s declaration
draws an explicit distinction between the costs of reporting Tennessee’s uses of ARPA funds, on
the one hand, and the costs of tracking whether any such use could be construed as an “indirect
offset,” on the other. Id. ¶10. And that distinction makes perfect sense based on the statute’s
text. The reporting requirement explains that states must provide a “detailed accounting
Inc. v. Genentech, Inc., 549 U.S. 118, 128–30 (2007). MedImmune concerned a declaratory judgment, of course, but
the Declaratory Judgment Act did not expand federal courts’ jurisdiction beyond that which they already could have
exercised to award traditional remedies like money damages or an injunction. Skelly Oil Co. v. Phillips Petroleum
Co., 339 U.S. 667, 671–72 (1950). So since the court in MedImmune had jurisdiction to adjudicate a declaratory-
judgment action concerning alleviation of a prospective harm, it necessarily would have had jurisdiction to entertain
an injunctive suit (such as the one at issue here) as well.
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of . . . the uses of [ARPA] funds” and “all modifications to the State’s . . . revenue sources during
the covered period,” along with “other information as the Secretary may require[.]” 42 U.S.C.
§ 802(d)(2)(A)–(B). The Offset Provision, by contrast, presents a different obligation: that such
“uses” may not be for “indirect” offsets of revenue-reducing tax cuts. § 802(c)(2)(A). So a state
could violate the Offset Provision—indirectly offsetting tax cuts with ARPA funds—while
complying with the reporting requirement—by simply telling Treasury that it was using the
funds in an impermissible manner. Thus, even if we assumed that the States were not injured by
the reporting requirement, given that they may defray associated administrative expenses with
ARPA funds, that would in no way dispel Tennessee’s distinct injury from additional costs
incurred to comply with the Offset Provision.
Second, and more fundamentally, even if we assumed that the Rule permitted Tennessee
to use ARPA funds to defray its Offset Provision-related compliance costs, that would still
represent an injury in fact. Tennessee has an independent interest in expending its ARPA funds
on other legitimate uses; for instance, spending in one of the four areas that Congress deemed
necessary to recovery from the pandemic. 42 U.S.C. § 802(c)(1)(A)–(D). ARPA funds
expended on compliance with an invalid Offset Provision are necessarily ARPA funds not
productively expended on economic recovery. So a “diversion of resources” from useful areas to
compliance with an invalid condition would nonetheless constitute an injury in fact. Dep’t of
Com. v. New York, 139 S. Ct. 2551, 2565 (2019). Put simply, Tennessee has a live interest in not
wasting its ARPA funds on compliance with an invalid condition.
b. Additional Concerns about Traceability
Next, Treasury reframes the same argument as an objection to traceability—that all of
Tennessee’s compliance costs are traceable solely to the unchallenged reporting requirement,
rather than to the Offset Provision. Reply Br. at 4. But we reject this argument for the same
reason we rejected it above; again, that it is undercut by both law and fact. The reporting
requirement contains no prohibition on how funds may be used. It establishes only an obligation
that states inform Treasury of which uses a state pursues. The Offset Provision, by contrast,
contains a substantive prohibition on use—that the funds cannot be used to “indirectly offset”
revenue reductions resulting from tax cuts. 42 U.S.C. § 802(c)(2)(A). And Eley’s
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uncontroverted declaration establishes that these distinct obligations incur distinct sets of
compliance costs upon Tennessee.
That discussion appears to exhaust Treasury’s arguments about why the compliance-costs
injury is nonjusticiable. But given our independent obligation to ensure that we have
jurisdiction, we find a few additional comments about traceability in order. See, e.g., Arbaugh,
546 U.S. at 514. One important issue, we note, is whether Tennessee’s compliance costs are
truly traceable to the Offset Provision itself, or whether they are traceable merely to the Rule. In
our view, Tennessee’s costs are most proximately traceable to the Rule, rather than to the Offset
Provision’s text. If the Rule had never existed, after all, the statute alone arguably might have
entailed obligations wholly distinct from those described by the Rule, and thus a distinct set of
compliance costs as well. Absent the Rule’s safe harbors about growth, tax increases, and
spending cuts, for instance, the Offset Provision itself, under the money-is-fungible
interpretation, arguably proscribed all revenue-reducing tax cuts during ARPA’s “covered
period.” So compliance costs under that regime would have been much simpler: just don’t cut
taxes if you want to expend ARPA funds. But the Rule clarified that Tennessee may cut taxes
insofar as it establishes a new tracking procedure to ensure that funds offsetting a tax cut stem
from a permissible replacement revenue source (e.g., growth) rather than from ARPA funds.
Eley Dec. ¶8, R. 25-3. Likewise, Eley’s declaration explained that Tennessee must expend
additional resources to inflation-adjust its revenues for each year of the “covered period” and
then compare them with a 2019 baseline to determine whether any year during the “covered
period” witnessed a “reduction” in net tax revenue. That specific requirement only became clear
from the Rule. Id. ¶9 (citing 31 C.F.R. § 35.3, 35.8(b)).
Yet while these refined obligations’ origin in the Rule may highlight the indeterminacies
of the underlying Offset Provision, they do not establish that Tennessee’s injuries cannot be
traced to the Offset Provision itself. The Supreme Court recently confronted an analogous issue
in Federal Election Commission v. Ted Cruz for Senate. 142 S. Ct. at 1638. There, the Cruz
campaign challenged a campaign-finance restriction found in an agency regulation implementing
a statute but absent from the underlying statute’s text. Id. at 1648. Thus, the government argued,
“[a] challenge to the regulation . . . is separate from a challenge to the statute that authorized it.”
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Id. But the Court declined to endorse this distinction. To the contrary, it held that an injury from
a regulation implementing a statute was still traceable to the statute itself. Id. at 1649. “An
agency, after all, ‘literally has no power to act’—including under its regulations—unless and
until Congress authorizes it to do so by statute.” Id. (citations omitted). And “[a]n agency’s
regulation cannot ‘operate independently of’ the statute that authorized it.” Id. (citation omitted).
So even if Tennessee’s injuries are most proximately traceable to the Rule, we nonetheless
conclude that these injuries also suffice for standing to challenge the Offset Provision itself. For
if enforcement of the Offset Provision itself were enjoined, it would necessarily preclude
enforcement of the Rule, at least to the extent it implements the Offset Provision.
Last, we address the notion that Tennessee’s compliance costs are a “self-inflicted injury”
and are thus traceable solely to its own conduct in accepting the ARPA funds, rather than to
some wrongful conduct of the federal government.15 It is in some sense true that Tennessee
exposed itself to the risk of compliance costs when it accepted the ARPA funds. Of course,
Tennessee did so with a reservation about the Offset Provision, and it also insists that it took the
funds under duress. See Recording of Oral Arg. at 27:38–27:55; Appellees’ Br. at 29. But even
if we assumed that Tennessee took the money purely of its own volition, that would not make its
compliance costs “self-inflicted” in a way that would defeat jurisdiction. The Supreme Court
recently rejected a similar argument in, incidentally, Ted Cruz for Senate. 142 S. Ct. at 1647–48.
There, the Cruz campaign stipulated that its “sole and exclusive motivation” for violating the
campaign-finance restriction was to create a factual basis for challenging the restriction. Id. at
1647. The government accordingly argued that any resultant injury was traceable not to the
restriction, but to the Cruz campaign’s willful violation of it. Id. Again, however, the Court
unequivocally rejected this theory. As it explained, “[w]e have never recognized a rule of this
kind under Article III. To the contrary, we have made clear that an injury resulting from the
application or threatened application of an unlawful enactment remains fairly traceable to such
application, even if the injury could be described in some sense as willingly incurred.” Id.; see
15
The district court raised this concern at the permanent-injunction hearing, apparently sua sponte. See
9/8/2021 Tr. of Hearing at 4:15-23, R. 41. As the States point out, Treasury has declined to press it either below or
before us. See Appellees’ Br. at 18 n.5. We nonetheless address it because, again, we have independent obligation
to assure ourselves of jurisdiction. See, e.g., Arbaugh, 546 U.S. at 514.
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also id. at 1648 (“That appellees chose to subject themselves to those provisions does not change
the fact that they are subject to them, and will face genuine legal penalties if they do not
comply.”). So even if Tennessee had voluntarily chosen to subject itself to the Offset Provision,
it would not defeat (and, indeed, would establish) Tennessee’s standing to challenge it.
Moreover, Tennessee points out, such a jurisdictional bar would be irreconcilable with
the Supreme Court’s broader Spending Clause jurisprudence. See Appellees’ Br. at 18 n.5. In
any Spending Clause challenge, it could be argued, states that accepted federal funds assumed
the risk that an ambiguous condition could be construed against their interests. Id. For instance,
states might have recognized that the term “costs” in the Individuals with Disabilities Education
Act (“IDEA”) could be construed to include expert-witness fees. Arlington Cent. Sch. Dist. Bd.
of Educ., 548 U.S. at 293–94. That it did was, in fact, the position of three dissenting Justices.
See id. at 308 (Breyer, J., dissenting, joined by Stevens, J., and Souter, J.). Or, states might have
recognized, the term “appropriate relief” could be construed to include money damages—a
position that two dissenting Justices called “self-evident.” Sossamon v. Texas, 563 U.S. 277, 293
(2011) (Sotomayor, J., dissenting, joined by Breyer, J.). But in neither of those cases were the
states held subject to such obligations, since the question is not whether states could have
conceived of those liabilities when accepting the funds; it is instead whether they assumed an
obligation about which the relevant statute conferred notice clearly and unambiguously.
Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 298; Sossamon, 563 U.S. at 289–91.
Conversely, therefore, jurisdiction is not defeated by (and the merits of the challenge are
established by) a spending law’s omission of clear warnings about the obligations it entails.
B. The Merits
Having concluded that Tennessee’s challenge is justiciable, we now explain why we
agree with Tennessee that the Offset Provision did not establish, with the requisite clarity, the
putative obligations it was revealed to entail by the Rule.
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1. Under the Relevant Spending Clause Jurisprudence, the Offset
Provision Fails to Provide States Clear Notice of the Conditions It
Entails
At the outset, we note that the States have labeled their challenge as against an
“unconstitutionally ambiguous” piece of spending legislation. See, e.g., Amended Complaint
¶57, R. 23. Neither of those terms is entirely accurate. First, as a technical matter, the Offset
Provision is more than merely “ambiguous.” Ambiguity refers to situations in which language
has at least two definite meanings and a court must select between or among them. See Caleb
Nelson, Statutory Interpretation 77–80 (2011). (For instance, the word “bank” without further
context might refer to either a riverside or a financial institution.) Vagueness, by contrast, arises
when a term is open-ended and lacks inherent or definite content. Id. The Offset Provision is
better described as suffering from the latter defect. The States could not have known from the
statute itself the reticulated way that Treasury’s Rule would construe the Offset Provision, since
that construction was hardly obvious ex ante. Nor could they have reliably predicted which of
the several potential baselines Treasury would select to measure a “reduction,” nor when
Treasury might deem such a reduction to have “resulted” from a tax cut. To the contrary, the
statute’s open-endedness gave Treasury expansive discretion to construe its terms in the
particular way Treasury saw fit.
And second, the Offset Provision is not “unconstitutional” under the Spending Clause,
strictly speaking, just because of those indeterminacies. Rather, the Supreme Court has
explained that because Congress can cajole the states to enact policies indirectly (through a
spending inducement) that it could never directly order them to perform with its other
enumerated powers, we must employ a federalism-based clear-statement rule when construing
spending legislation as a matter of statutory interpretation. See, e.g., South Dakota v. Dole,
483 U.S. 203, 207 (1987); Cummings, 142 S. Ct. at 1570, 1574; Sch. Dist. of City of Pontiac v.
Sec’y of U.S. Dep’t of Educ., 584 F.3d 253, 283–84 (6th Cir. 2009) (en banc) (Sutton, J.,
concurring) (describing the clear-statement rule as a “statutory limitation on Congress’s spending
power”); see also Haight v. Thompson, 763 F.3d 554, 568 (6th Cir. 2014) (“One of the
distinguishing features of the spending power is that it allows Congress to exceed its otherwise
limited and enumerated powers by regulating in areas that the vertical structural protections of
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the Constitution would not otherwise permit.”). In other words, Congress does not necessarily
lack the constitutional power to enact vague spending laws in the same way that, for instance, it
lacks the power to enact a law “respecting an establishment of religion.” U.S. Const. amend. I.
But those laws may be unenforceable in certain circumstances when they fail to provide states
with clear notice of a purported funding condition.
So, as we explain below, we do not hold the Offset Provision “unconstitutional” under
the Spending Clause. Rather, our holding is this. As a matter of statutory interpretation, we
conclude that the Offset Provision does not clearly explain (1) how to calculate a “reduction” in
net tax revenue, (2) how to determine whether such a reduction resulted from a tax cut, or
(3) how to tell what particular conduct constitutes an “indirect” offset. And Treasury’s
attempted liquidation of the Offset Provision via the Rule in no way followed clearly from the
Offset Provision’s text. Thus, Tennessee may legitimately discontinue the compliance
procedures entailed by the Rule, and if, as a result, it should engage in conduct Treasury deems a
violation of the Offset Provision, Treasury may not initiate enforcement proceedings in response.
2. Applying the Spending Clause Clear-Statement Rule
It is undisputed that ARPA was enacted pursuant to the Spending Clause. Unlike ordinary
coercive legislation, “legislation enacted pursuant to the spending power is much in the nature of
a contract: in return for federal funds, the States agree to comply with federally imposed
conditions. The legitimacy of Congress’[s] power to legislate under the spending power thus
rests on whether the State voluntarily and knowingly accepts the terms of the ‘contract.’”
Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981). And “[s]tates cannot
knowingly accept conditions of which they are ‘unaware’ or which they are ‘unable to
ascertain.’” Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 296 (quoting Pennhurst,
451 U.S. at 17)). As a result, Congress must provide “clear notice” of the obligations a spending
law entails. Pennhurst, 451 U.S. at 25. “After all, when considering whether to accept federal
funds, a prospective recipient would surely wonder not only what rules it must follow, but also
what sort of penalties might be on the table.” Cummings, 142 S. Ct. at 1570. And this clear-
statement rule applies with particular force where “a State’s potential obligations under the Act
are largely indeterminate.” Pennhurst, 451 U.S. at 24. “Accordingly, if Congress intends to
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impose a condition on the grant of federal moneys, it must do so unambiguously” and with a
“clear voice.” Id. at 17. Applying these principles reveals that neither the “indirectly offset”
language nor the “reduction in the net tax revenue . . . resulting from” language provided the
states the requisite “clear notice” of whatever obligations such language entails. Id. To the
contrary, these are “largely indeterminate” provisions susceptible to a range of plausible
meanings. Id. at 24; cf. Boechler, P.C. v. Comm’r, 142 S. Ct. 1493, 1498 (2022) (“Where
multiple plausible interpretations exist—only one of which is jurisdictional—it is difficult to
make the case that the jurisdictional reading is clear.” (citation omitted)).
a. “Indirectly Offset”
In assessing justiciability, we spoke at length about the Offset Provision’s
indeterminacies; particularly, the prohibition on “indirect” offsets. So we briefly reiterate those
points here. The first core issue with the Offset Provision, again, is that its text does not clearly
explain what it means to “indirectly offset” revenue-reducing tax cuts with ARPA funds.
“Indirectly” means “not directly; obliquely; not straightforwardly, or the like; in an indirect,
roundabout, or subtle manner.” Indirectly, Webster’s New International Dictionary 1267 (2d ed.
1960); see also Indirectly, New Practical Standard Dictionary 677 (1956) (“Not in direct relation;
not tending to a result by the shortest or plainest course; inferential.”); Indirectly, Compact
Edition of the Oxford English Dictionary 1418 (1971) (“By indirect action, means, connexion,
agency, or instrumentality; through some intervening person or thing; mediately.”). And
“offset,” in the relevant sense, simply means “to counterbalance” or “compensate” for
something. Offset, Webster’s New International Dictionary at 1691; see also Offset, New
Standard Practical Dictionary at 917 (“Anything regarded or advanced as a counterbalance or
equivalent; set-off.”); Offset, Compact Edition of the Oxford English Dictionary at 1981 (“To set
off as an equivalent against something else.”). So, as Treasury contends, this statutory language
apparently stands for the general proposition that states may not circumvent the use restriction
“with formalities.” Appellants’ Supp. Br. at 3. Beyond that general notion, however, what this
language actually obliges the States to do is difficult to say.
For instance, the States contend that an “indirect offset” could plausibly occur whenever
a state enacts a revenue-reducing tax cut and expends ARPA funds—no matter whether the state
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pours the ARPA funds into the precise area it cut taxes. See Appellees’ Br. at 38–39. This is the
money-is-fungible interpretation of the Offset Provision that we described above. See id.; see
also Amended Complaint ¶35, R. 23. Nothing about ARPA’s text or context suggests that this
interpretation is particularly far-fetched. The macroeconomic assumption underlying the Act
seems to be that recovery from a recession is best achieved by high levels of spending, rather
than static levels of spending accompanied by cuts in taxation. See, e.g., 86 Fed. Reg. at 26,786–
87 (explaining that the “demand for government services is high,” but that “State, local, and
Tribal government austerity measures can hamper overall economic growth, as occurred in the
recovery from the Great Recession.”). So, chilling tax cuts to facilitate high levels of spending
would seem consistent with ARPA’s purpose. Id. And even Treasury’s own Rule acknowledges
that the money-is-fungible interpretation is at least a plausible concern with the Offset
Provision.16 Once again, it explained, “because money is fungible, even if [ARPA] funds are not
explicitly or directly used to cover the cost of changes that reduce net tax revenue, those funds
may be used in a manner inconsistent with the statute by indirectly being used to substitute for
the state’s or territory’s funds that would otherwise have been needed to cover the costs of the
reduction.” 87 Fed. Reg. at 4,424 (emphasis added).17 The plausibility of this interpretation was
the very reason that Treasury had to shed so much ink attempting to disavow it with the Rule.
16
In its reply brief, Treasury invoked the canon of constitutional avoidance to suggest that the money-is-
fungible interpretation of the Offset Provision is implausible (though, we note, it raised this point in its objections to
justiciability rather than the merits). See Reply Br. at 3 (citing Jennings v. Rodriguez, 138 S. Ct. 830, 842 (2018)).
We find this canon of minimal importance to either justiciability or the merits for two key reasons. First, “[f]or
standing purposes, we accept as valid the merits of appellees’ legal claims.” Ted Cruz for Senate, 142 S. Ct. at
1647; see also Warth v. Seldin, 422 U.S. 490, 500 (1975) (“[S]tanding in no way depends on the merits of the
plaintiff’s contention that particular conduct is illegal.”). So it would be inappropriate for us, at the justiciability
stage, to render a merits interpretation of the Offset Provision and to then declare based on that merits interpretation
that the controversy is not even justiciable. See, e.g., Trump v. Hawaii, 138 S. Ct. 2392, 2416 (2018). After all, if
the laws of the United States when “given one construction” would establish jurisdiction and would defeat it when
“given another,” then the plaintiff has established jurisdiction. Bell v. Hood, 327 U.S. 678, 685 (1946). Second,
concerning the merits, the constitutional-avoidance canon would at most dispel the States’ money-is-fungible
interpretation of the Offset Provision. But establishing whatever obligations the Offset Provision does not impose
cannot suffice to defeat a Spending Clause challenge, for the critical question would still remain about whatever
obligations the Offset Provision does impose—such as those it is claimed to impose in the Rule—and whether it
does so clearly and unambiguously.
17
Or, once again, consider Secretary Yellen’s acknowledgement that “[w]e will have to define what it
means to use money from this Act as an ‘offset’ for tax cuts. And, given the fungibility of money, it’s a hard
question to answer.” Treasury Secretary & Federal Reserve Chair Testimony on COVID-19 Economic Recovery at
58:30–59:05, available at https://www.c-span.org/video/?510059-1/treasury-secretary-federalreserve-chair-
testimony-covid-19-economic-recovery.
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See, e.g., Yellen Letter, R. 1-1 (explaining that Treasury would promulgate “further guidance” so
that states could understand their obligations under the Offset Provision).
True, the Rule—as distinct from the Offset Provision itself—went on to clarify that
such an “indirect offset” would not be deemed to have occurred in three particular situations:
where the spending cut is offset with macroeconomic growth, another state tax increase, or a
state spending reduction. 87 Fed. Reg. at 4,423; see also Appellants’ Br. at 5. But why is the
presence of any safe harbor dictated by the underlying statute, much less clearly so? And why
do those particular safe harbors reside in the statutory text, much less clearly so? In reality, the
statute is silent on those questions. Precisely because the Offset Provision is so indeterminate
about what behavior might constitute an “indirect offset,” Treasury was necessarily left with a
huge range of discretion about which state behavior it would deem permissible versus
impermissible. As a result, the statute itself failed to provide “clear notice” to Tennessee about
whichever particular conduct Treasury would permit or proscribe. Arlington Cent. Sch. Dist. Bd.
of Educ., 548 U.S. at 296. And no doubt because of the Offset Provision’s lack of inherent
content, Treasury found it necessary to promulgate a Final Rule with a hundred pages of
commentary in its attempt to establish some concrete “guidance.” See Yellen Letter, R. 1-2.
b. “A Reduction in the Net Tax Revenue . . . Resulting From” a
Tax Cut
The Offset Provision’s language concerning “a reduction in the net tax
revenue . . . resulting from” a tax cut is similarly indeterminate. 42 U.S.C. § 802(c)(2)(A).
Several major issues prevent it from having provided the States “clear notice” of their
“obligations” under the statute. Cummings, 142 S. Ct. at 1574.
The first, as we mentioned before, is that this portion of the statute never actually
specifies which fiscal year’s revenue inlays serve as the baseline against which to determine
whether a state experienced a “reduction” in its revenues. See Appellees’ Br. at 40. And even
Treasury’s own Rule acknowledges how critical this omission was: “Measuring a ‘reduction’ in
net tax revenue requires identification of a baseline. In other words, a ‘reduction’ can be
assessed only by comparing two amounts.” 87 Fed. Reg. at 4,426. In response to that omission,
the Rule happened to set the baseline for the Offset Provision as “the fiscal year ending in 2019.”
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31 C.F.R. § 35.3; 87 Fed. Reg. at 4,423. Yet nothing in the Offset Provision’s text clearly
dictates why a 2019 baseline applies. For instance, Treasury might have selected a cascading
baseline, in which the Offset Provision was construed to “prohibit[ ] the States from cutting taxes
in any given year relative to the year prior.” Appellees’ Br. at 40. Or it might have set the
baseline as the fiscal year of ARPA’s enactment. And that might have been an especially
obvious baseline, given that we typically assess statutory meaning as of “the time Congress
enacted the statute.” Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2070 (2018) (quoting
Perrin v. United States, 444 U.S. 37, 42 (1979)).
The point is that the statute itself is “indeterminate” with respect to whatever baseline the
offer entailed. Pennhurst, 451 U.S. at 24. And that wasn’t because there was some inherent
obstacle to Congress’s specification of a baseline. For instance, compare the Offset Provision
with the provision just above it—§ 802(c)(1)(C)—which establishes one of the permissible uses
of ARPA funds. Congress there explained that states may spend the funds “for the provision of
government services to the extent of the reduction in revenue of such State . . . relative to
revenues collected in the most recent full fiscal year of the State . . . prior to the emergency.”
42 U.S.C. § 802(c)(1)(C) (emphasis added). So Congress specified a baseline there. Why not
specify a baseline for the Offset Provision itself?18
Second, setting aside the baseline issue, the Offset Provision contains further
indeterminacies about how states must assess whether a reduction in tax revenue “result[ed]
from a change” in state tax policy. § 802(c)(2)(A) (emphasis added). Put simply, the actual
effect of a tax cut may be hard to predict ex ante. See 87 Fed. Reg. at 4,406, 4,423, 4,426; see
18
The simultaneous enumeration of a baseline in § 802(c)(1)(C) and the omission of one in
§ 802(c)(2)(A)—the Offset Provision—creates further clear-notice issues. Treasury interprets the “most recent full
fiscal year . . . prior to the emergency” in § 802(c)(1)(C) as imposing a baseline consistent with revenues collected in
the fiscal year ending in 2019. 87 Fed. Reg. at 4,426. It also interprets the Offset Provision to impose the same
baseline, despite the Offset Provision having omitted the relevant language from § 802(c)(1)(C). Perhaps states
were supposed to extrapolate that the § 802(c)(1)(C) baseline also applied to the Offset Provision. See, e.g., 31
C.F.R. § 35.4. But the typical presumption is that when Congress omits specific language in one provision that it
includes in another, the omission implies a difference in meaning between the two provisions. See, e.g., Dean v.
United States, 556 U.S. 568, 573 (2009) (“[W]here Congress includes particular language in one section of a statute
but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and
purposely in the disparate inclusion or exclusion.” (quoting Russello v. United States, 464 U.S. 16, 23 (1983)). So
the differing text in §§ 802(c)(2)(A) and 802(c)(1)(C) would complicate the notion that states had clear notice that
differently worded provisions imposed the same baseline.
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Appellees’ Br. at 41–44. So states considering tax cuts must necessarily generate and rely upon
estimates of the real-world effects a tax cut will produce when assessing the cut’s potential
impact on their budgets. For instance, a state in one fiscal year might collect $10 million per
annum from a particular tax. But the state’s budget analysts might forecast that the state could
collect the same amount of tax—$10 million per annum—even if the state reduced the relevant
tax rate, as doing so might stimulate the occurrence of additional transactions subject to the tax.
So imagine that the state, acting upon that assumption, enacted a tax cut in the relevant area. But
during the next fiscal year, that same tax generated only $9 million in inlays. Did that fall in
inlays result from the tax cut?
The Offset Provision itself does not supply an answer, because it never specifies whether
it prohibits a reduction in expected tax revenues, which a state would be able to control ex ante,
or whether it prohibits a reduction in actual tax revenues, which a state could potentially
determine only ex post. Yet the difference matters. In the above hypothetical, for instance, the
state’s tax cut did not reduce its expected tax revenues, since the best information then available
to it suggested that the effect of the tax cut would be revenue-neutral. But the tax cut arguably
reduced its actual tax revenues, assuming that the only variable that changed from one year to
the next was the tax cut.19
Recognizing that the Offset Provision itself is silent on this issue, the Rule, perhaps
surprisingly, suggests that whether a revenue reduction “resulted” from a tax cut hinges on
whichever accounting method a state uses to determine the effect of the tax cut. 87 Fed. Reg. at
4,406–07. As it explains, “[i]n assessing whether a tax change has had the effect of reducing tax
revenue, recipients may either calculate the actual effect on revenue or rely on estimates
prepared at the time the tax change was adopted,” so long as those estimates were “based on
19
In real-world applications, of course, determining causation can be much more complicated. For
instance, as Treasury acknowledges, many variables “exogenous” to a tax cut itself affect whether the tax cut, even
if preceding a reduction in actual revenues, caused the reduction in actual revenues. 87 Fed. Reg. at 4,406. So
isolating whether a tax cut ultimately caused a reduction in actual revenues can be extremely difficult. Id. Treasury
attempted to resolve this problem by establishing a causation presumption that, whether sound policy or not, has
little apparent relationship to ARPA’s plain text: the IFR “included a presumption that all revenue loss is due to the
pandemic,” rather than to a tax cut. Id. The Final Rule then explained that this presumption applied to revenue
reductions experienced before January 6, 2022, but did not apply to revenue reductions experienced after January 6,
2022. Id.
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reasonable assumptions.” Id. (emphases added). So assuming that a state uses an “actual effect”
accounting method in the above example, the revenue reduction arguably resulted from the tax
cut. But if a state uses a “reasonable expectations” accounting method, the revenue reduction
seemingly did not result from the tax cut, as the state did not reasonably expect an actual revenue
reduction ex ante. Yet how were the States supposed to know about these critical points based
on the Offset Provision alone?
Or consider this issue: the Offset Provision itself never specifies the timespan during
which we assess whether a revenue reduction occurred. For instance, imagine a state recorded
$100 million in tax revenues in FY 2019, enacted a tax cut in FY 2020 that stimulated the
economy and produced $120 million in tax revenues, but then experienced a downturn in FY
2021 resulting in tax revenues of only $95 million (which arguably might have been higher
absent the FY 2020 tax cut). Does that scenario count as a “reduction . . . in net tax revenue”
resulting from the FY 2020 tax cut, given that the tax cut arguably resulted in reduced inlays in
FY 2021? Or did the state actually experience an increase in net tax revenues, since, combining
the inlays from FY 2020 and 2021, the state recorded a net gain of $15 million in inlays versus
FY 2019? Whatever the answer, it is at least unclear from the Offset Provision itself whether
such a “net reduction” is measured across the entire “covered period” or on a year-to-year basis
within the “covered period.” 42 U.S.C. § 802(c)(2)(A).
For those reasons, therefore, neither operative portion of the Offset Provision—
“indirectly offset” and “reduction in . . . net tax revenue . . . resulting from” a tax cut—provided
Tennessee “clear notice” about the measures required to maintain compliance. Cummings,
142 S. Ct. at 1570.20 Nor—as we explain below—can Treasury’s subsequent promulgation of its
Rule cure this vagueness defect.
20
Treasury emphasized in its reply brief that no court decision has ever “declared any . . . funding condition
to be ‘unconstitutionally ambiguous’ in the abstract, as a facial matter. Rather, the Supreme Court and other courts,
including this one, have relied on the clear-statement principle as a tool of statutory interpretation, to be used when
adjudicating concrete disputes over the application of particular funding conditions.” Reply Br. at 5. With today’s
opinion, the trend continues. Nowhere have we deemed the Offset Provision “unconstitutional” under the Spending
Clause because of its indeterminacies. We instead have conducted our analysis as a matter of statutory
interpretation. Likewise, that analysis has not unfolded “in the abstract,” but has focused on two concrete
obligations imposed by Treasury’s rule: (1) that Tennessee, should it wish to enact revenue-reducing tax cuts, must
trace any dollars arguably used to offset those reductions to three particular, ad hoc safe harbors, and (2) that in
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c. Why Treasury’s Rule Cannot Cure Spending-Law Vagueness
The question whether agency regulations construing spending legislation are entitled to
deference has generated some occasional academic interest. See, e.g., Peter J. Smith, Pennhurst,
Chevron, and the Spending Power, 110 Yale L.J. 1187, 1189–90 (2001). But we note at the
outset that this issue is not in the present case: Treasury categorically waived reliance on the
Rule to cure a vagueness defect under the Spending Clause. As it told the district court, “agency
regulations should have no bearing on the Spending Clause analysis.” Defs.’ Mot. to Dismiss &
Mot. for Summ. J. at 30, R. 32 (emphasis added). It argued instead that the Offset Provision
itself satisfied the Spending Clause, since at the very least it put the States on notice that the offer
came with “a condition”—no matter whether the contours of that condition presented significant
indeterminacies as a matter of the statutory text. Id. at 39.
Treasury has reprised these arguments before us. It does not argue that the Rule—even
though it was promulgated before the States accepted the ARPA funds—can provide clear notice
to the States of their obligations. Rather, it argues that it was the Offset Provision’s text alone
that “clearly place[d] States ‘on notice’ that their acceptance of Fiscal Recovery Funds ‘is
conditioned upon compliance with’ the requirement not to use those funds to pay for tax cuts.”
Reply Br. at 7; see also Appellants’ Supp. Br. at 2 n.2. So again, Treasury acknowledges that
whether Tennessee’s Spending Clause challenge succeeds hinges on whether the Offset
Provision itself is impermissibly vague about whichever obligations it imposes on the states.
But we note that even if we were bound to independently assess whether Treasury’s Rule
could provide clear notice of conditions left otherwise indeterminate by the statute, we still
would hold that it could not do so in these particular circumstances.21 Our primary concern here
assessing whether such a revenue reduction occurred, Tennessee must establish and use an accounting procedure to
compare its current inlays to its inflation-adjusted revenue in “its fiscal year ending in 2019.” 31 C.F.R. § 35.3.
Those are the relevant obligations, we conclude, of which Tennessee did not have clear notice from the Offset
Provision itself.
21
We confront the Rule’s effect even despite Treasury’s waiver because we recognize that there are serious
and unresolved disputes about, for instance, whether the government may validly waive Chevron deference.
Compare Guedes v. BATFE, 920 F.3d 1, 23 (D.C. Cir. 2019) (concluding that Chevron deference cannot be waived
if the “underlying agency action” would otherwise merit Chevron deference), with Guedes v. BATFE, 140 S. Ct.
789, 790 (2020) (Gorsuch, J., concurring in denial of certiorari) (arguing that the D.C. Circuit’s conclusion was
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is the legitimate domain of Chevron deference—whether we (or a state) must accept as binding
an agency regulation establishing an otherwise-uncertain spending-law condition. For instance,
Treasury suggested before us that deference might be appropriate at least if we understood the
relevant content of the Rule—the meaning of an “indirect” offset, the baseline for a revenue
reduction, and how to tell whether such a reduction “resulted from” a tax cut—to constitute mere
“implementation details.” Reply Br. at 7–8. And, to that end, it invoked a couple of circuit
decisions where we indeed deferred to agencies’ reasonable views about marginal ambiguities in
spending laws: one concerning whether the term “medical devices” includes “incontinence
products” and the other concerning whether “records maintained by a law enforcement unit of
[an] education agency or institution that were created by that law enforcement unit for the
purpose of law enforcement” includes student disciplinary records involving “serious criminal
conduct.” See id. (citing Harris v. Olszewski, 442 F.3d 456, 467–68 (6th Cir. 2006), and then
citing United States v. Miami Univ., 294 F.3d 797, 814–15 (6th Cir. 2002)).
Yet we find that whether deference was warranted on such arcane topics as those has
little relevance to the Offset Provision. It is difficult to see how the Rule represents mere
“implementation details” when it supplied content without which the Offset Provision literally
could not function. And, in any event, Treasury is wrong to suggest that we should act “as if we
were interpreting a statute which has no implications for the balance of power between the
Federal Government and the States.” Va. Dep’t of Educ. v. Riley, 106 F.3d 559, 567 (4th Cir.
1997) (en banc).22 Unlike the distribution of incontinence products or the release of disciplinary
records, control over taxation is a core aspect of state sovereignty. See Dep’t of Revenue of Or.,
510 U.S. at 345; Lane County, 74 U.S. at 76. For Congress to impose conditions in that area, it
must do so in clear and unmistakable terms. See, e.g., SWANCC v. U.S. Army Corps of Eng’rs,
531 U.S. 159, 172–73 (2001) (explaining that the Court “would not extend Chevron deference”
to an agency interpretation involving “federal encroachment upon a traditional state power.”);
see also Ala. Ass’n of Realtors v. Dep’t of Health & Hum. Servs., 141 S. Ct. 2485, 2489 (2021).
erroneous because the “[Supreme] Court has often declined to apply Chevron deference when the government fails
to invoke it”).
22
We quote from Judge Luttig’s dissenting panel opinion, the relevant portion of which a majority of the
full Fourth Circuit adopted upon en banc rehearing. See Va. Dep’t of Educ., 106 F.3d at 561.
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When such a clear-statement rule is in play, it is insufficient merely that an agency reasonably
liquidated ambiguities in the relevant statute. Id.; see also Va. Dep’t of Educ., 106 F.3d at 567
(declining to apply Chevron deference to an ambiguous spending statute because “[i]t is
axiomatic that statutory ambiguity defeats altogether a claim by the Federal Government that
Congress has unambiguously conditioned the States’ receipt of federal monies in the manner
asserted”); Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722, 731 (6th Cir. 2013) (Sutton, J.,
concurring) (“All manner of presumptions, substantive canons and clear-statement rules take
precedence over conflicting agency views.”). Rather, in such circumstances, Congress itself
must have spoken with a “clear voice.” Pennhurst, 451 U.S. at 17.23
3. Treasury’s Counterarguments
Before we close, we address a couple of Treasury’s counterarguments to our conclusions
above. We first discuss the import of our decision in Cutter v. Wilkinson, which affirmed the
Religious Land Use and Institutionalized Persons Act (“RLUIPA”) against a Spending Clause
challenge. 423 F.3d 579, 585–86 (6th Cir. 2005). We then address Treasury’s claim that
Tennessee should have enjoyed clear notice of the Offset Provision’s meaning because the
phrase “directly or indirectly” “appears more than a thousand times in the U.S. Code.”
Appellants’ Supp. Br. at 3.
a. Cutter v. Wilkinson and the RLUIPA Comparison
Resisting our merits analysis, Treasury asserts that our decision today conflicts with
circuit precedent sustaining RLUIPA against a Spending Clause challenge. Cutter, 423 F.3d at
585–86. We agree that RLUIPA is a helpful comparison—just not in the way Treasury thinks.
We begin with some background about RLUIPA itself. From 1963 to 1990, the Supreme
Court interpreted the Free Exercise Clause to require state officials to justify even incidental
23
Conversely, though, we note that this analysis has no effect on our earlier mootness determination
concerning Kentucky. Even if the Rule cannot fill in missing Spending Clause conditions, it can at least still bind
Treasury in how it will administer the statute. And neither Tennessee nor Kentucky sought vacatur of the Rule
under 5 U.S.C. § 706. Vacatur at least possibly could have revived the specter of Treasury enforcing the Offset
Provision consistent with the money-is-fungible interpretation. But even after vacatur, that possibility would still
seem rather remote, given Treasury’s insistence that the text of the Offset Provision alone precludes the money-is-
fungible reading. See, e.g., Appellants’ Supp. Br. at 2 n.2.
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burdens on religious free exercise under strict scrutiny. See, e.g., Sherbert v. Verner, 374 U.S.
398, 403 (1963). A plaintiff could make out a prima facie case of a constitutional violation if she
could establish that she had a sincere religious belief upon which the government had imposed a
substantial burden, even if the burden were merely incidental. Id. And if that showing were
made, the state then had to prove that its interest in imposing the burden was “compelling,” id.,
and that it had employed the means least restrictive on religious exercise in achieving its
compelling interest. Thomas v. Rev. Bd. of Ind. Emp. Sec. Div., 450 U.S. 707, 718 (1981).
During the quarter-century in which this framework prevailed, the Supreme Court produced a
sizeable corpus of decisions describing its particular contours. See, e.g., Sherbert, 374 U.S. at
398; Gillette v. United States, 401 U.S. 437 (1971); Wisconsin v. Yoder, 406 U.S. 205 (1972);
Thomas, 450 U.S. at 707; United States v. Lee, 455 U.S. 252 (1982); Goldman v. Weinberger,
475 U.S. 503 (1986); Bowen v. Roy, 476 U.S. 693 (1986); Hobbie v. Unemployment Appeals
Comm’n of Fla., 480 U.S. 136 (1987); Lyng v. Nw. Indian Cemetery Protective Ass’n, 485 U.S.
439 (1988); Frazee v. Ill. Dep’t of Emp. Sec., 489 U.S. 829 (1989). And the lower courts applied
it to hundreds of concrete disputes. See generally James E. Ryan, Smith and the Religious
Freedom Restoration Act: An Iconoclastic Assessment, 78 Va. L. Rev. 1407 (1992) (cataloging
lower-court applications).
In 1990, however, the Supreme Court functionally overruled this body of precedent,
holding that incidental burdens on religious practice merited only rational-basis review. Emp.
Div., Dep’t of Hum. Res. of Or. v. Smith, 494 U.S. 872, 878–79 (1990). But Congress, incensed
by the Smith decision, twice attempted to overrule it. See 42 U.S.C. § 2000bb et seq. (Religious
Freedom Restoration Act); 42 U.S.C. § 2000cc et seq. (RLUIPA). Its second attempt, RLUIPA,
restored strict-scrutiny analysis in the land-use and prison-administration contexts. § 42 U.S.C.
§§ 2000cc, 2000cc–1. Congress partially rooted its power to enact such a statute in the Spending
Clause, 42 U.S.C. § 2000cc-1(b)(1)–(2), and so it conditioned the receipt of certain federal funds
on compliance with the old strict-scrutiny framework. See, e.g., § 2000cc-1(a)(1)–(2). Ohio
(and various other states) argued that strict scrutiny was too indeterminate to form an enforceable
Spending Clause condition. See Gerhardt v. Lazaroff, 221 F. Supp. 2d 827, 841, 844 (S.D. Ohio
2002). But the district court rejected the argument, holding that strict scrutiny was such a well-
established framework before RLUIPA that even if it might present marginal indeterminacies in
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certain applications, the states could easily discern what core obligations the statute entailed in
the mine-run of cases. See, e.g., id. at 844 (“Courts have been enforcing that exact standard
against state action for years.”).
Whether we ever actually adjudicated the correctness of that holding, we note, is
uncertain. It appears that Ohio’s officials pressed a different ambiguity argument on appeal to
this circuit: that RLUIPA did not clearly specify that it applied to existing federally funded
programs, rather than merely to programs established after its enactment. See Cutter, 423 F.3d at
585–86; see also Gerhardt, 221 F. Supp. 2d at 841 (distinguishing between the retroactivity
argument and the strict-scrutiny-is-too-indeterminate argument). But we held that RLUIPA
imposed that obligation clearly, since its text “explains that the Act applies to ‘any program or
activity that receives Federal financial assistance.” Cutter, 423 F.3d at 586 (citing 42 U.S.C.
§ 2000cc-1(b)(1)). And, given that statutory language, it is difficult to see how a different result
could have ensued.
Before us, however, Treasury appears to have erroneously exaggerated Cutter’s
precedential effect by claiming that our circuit also rejected the strict-scrutiny-is-too-
indeterminate argument. In particular, its reply brief claims that Ohio argued “RLUIPA’s ‘least
restrictive means standard’ constituted an ambiguous condition’ that was impermissible under
Pennhurst. Cutter, 423 F.3d at 586 (quotation marks omitted). But this Court disagreed,
explaining that ‘Congress need not ‘delineate every instance in which a State may or may not
comply with the least restrictive means test.’” Reply Br. at 6–7.24 In reality, the portions of
Cutter that Treasury quotes were describing a Seventh Circuit decision that had rejected “a
similar Pennhurst-based challenge to RLUIPA”—the strict-scrutiny-is-too-indeterminate
argument, not the anti-retroactivity argument before the panel in Cutter. Cutter, 423 F.3d at 586
(citing Charles v. Verhagen, 348 F.3d 601, 608 (7th Cir. 2003)).
24
Treasury doubled down on this representation at oral argument, stating, “[o]n the question of how much
has to be spelled out in the statute itself, Cutter involved a challenge to RLUIPA. RLUIPA said if you restrict the
religious exercise of people in covered institutions, you have to satisfy strict scrutiny. It’s of course highly unclear
how strict scrutiny is going to apply to a particular kind of policy. But the court said, and every other court to
consider the issue said, you don’t have to have spelled that out in the statute.” Recording of Oral Arg. at 16:46–
17:09.
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Set aside Treasury’s misreading of Cutter, however, and pretend that Cutter had actually
adjudicated the strict-scrutiny-is-too-indeterminate argument, so that we were bound today by a
holding that RLUIPA’s least-restrictive-means test satisfied the Spending Clause. What is that
supposed to tell us about the Offset Provision? There is no comparable quarter-century of
history in which the Supreme Court decided dozens of cases, and the lower courts decided
hundreds of cases, construing what it means to “directly or indirectly offset a reduction in the net
tax revenue . . . resulting from” a tax cut. 42 U.S.C. § 802(c)(2)(A). Indeed, Treasury conceded
at oral argument that it is aware of no example in which the phrase “directly or indirectly offset”
has ever even been used in a Spending Clause statute, much less been given an authoritative
construction by the Supreme Court in the context of tax cuts. Recording of Oral Arg. at 43:00–
43:50. So Treasury’s invocation of RLUIPA, it turns out, underscores a reason the Offset
Provision is impermissibly vague: given its terms’ apparent novelty, there is, unlike in the
context of religious free exercise, no expansive and authoritative corpus of federal-court
precedents which the states might have consulted in attempting to discern the nature of their
obligations.
b. “Directly or Indirectly” in the U.S. Code
Perhaps implicitly recognizing the dearth of relevant caselaw, Treasury last suggests that
Tennessee should have been able to ascertain its obligations under the Offset Provision because
various other federal statutes employ the phrase “directly or indirectly.” Appellants’ Supp. Br.
at 3. It “is commonly used simply to underscore that a restriction cannot be circumvented
through formalities,” Treasury says, and “appears more than a thousand times in the U.S. Code.”
Id. That is perhaps true, but this factoid seems of no consequence to us for at least three reasons.
First, as we noted above, Treasury conceded that it has no example of such a phrase in a
Spending Clause statute, much less one in the particular context of taxation, and, less still, one
that survived ambiguity challenges in federal court. Recording of Oral Arg. at 43:00–43:50.
Second, most of these other uses appear to have no conceivable relevance to the Offset
Provision. And, for that matter, they may make the vagueness issues even worse. For instance,
consider 22 U.S.C. § 9214(a)(3), which provides that Treasury may freeze the assets of anyone
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who “knowingly, directly or indirectly, imports, exports, or reexports luxury goods into North
Korea.” The phrase in that context seemingly bars the use of third-party intermediaries to
circumvent a trade restriction. So Company A, wishing to execute proscribed shipments to
North Korea, still violates the statute by shipping the goods to Company B in Shanghai for
reexport into Pyongyang. Or take 29 U.S.C. § 432(a)(2), which requires officers of labor
organizations to report on stock they hold “directly or indirectly” in the business they seek to
unionize. Once again, the statute seems to bar circumvention through the use of a third-party
intermediary, such as holding the stock indirectly in an index fund. Or last, consider 15 U.S.C.
§ 7410(b), which prohibits the award of a “grant or fellowship . . . directly or indirectly, to any
alien from a country that is a state sponsor of international terrorism.” Again, and for the third
time, the phrase seems to bar the use of a third-party intermediary to circumvent the restriction:
the grant cannot be distributed to an “institution of higher education” for redistribution to the
alien. § 7410(c). So at best, these other uses have nothing to do with the Offset Provision, and, at
worst, might have misleadingly suggested that it imposed some particularized bar on the use of
third-party intermediaries to launder ARPA funds.
Last, as the above examples suggest, the relevant phrase is not just “directly or
indirectly,” but “directly or indirectly offset.” 42 U.S.C. § 802(c)(2)(A). The issue here is not
establishing that the Offset Provision bars “circumvent[ion] through formalities” in some broad,
general sense, but in determining whatever conduct the Offset Provision might treat as having
“directly or indirectly offset” a tax cut. For only then could the states have “ascertain[ed]” their
obligations under the Act. Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 296 (quoting
Pennhurst, 451 U.S. at 17)). But that phrase, as far as we can tell from our research, occurs
exactly once in the entire U.S. Code—in the Offset Provision.
IV.
In closing, we reiterate the central conclusions we have reached today. Treasury’s
credible disavowal of the money-is-fungible interpretation mooted Kentucky’s challenge to the
Offset Provision, and so the district court erred when it enjoined Treasury from enforcing the
Offset Provision against Kentucky. We thus REVERSE the district court’s justiciability holding
as to Kentucky and VACATE the permanent injunction to the extent it bars enforcement of the
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Offset Provision against Kentucky. By contrast, we AFFIRM the district court’s injunction as to
Tennessee. We do so because “[c]larity is demanded whenever Congress legislates through the
spending power[.]” Haight, 763 F.3d at 568. Yet clarity is just what the Offset Provision lacks.
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______________________________________________________
CONCURRING IN PART AND DISSENTING IN PART
______________________________________________________
NALBANDIAN, Circuit Judge, concurring in part and dissenting in part. I concur with
nearly all of the majority’s well-reasoned opinion. Importantly, I agree with the majority that the
vagueness of the American Rescue Plan Act of 2021 (“ARPA”) violates the Spending Clause.
And I agree that Tennessee has standing for the reasons that the majority gives. My only
disagreement is about whether Kentucky can press its claim. In short, I believe that both
Tennessee and Kentucky (“States”) have standing for reasons related to the federal government’s
intrusion on their sovereign-taxing authority. And I don’t believe that the Department of
Treasury’s (“Treasury”) Rules on ARPA’s enforcement (“Rules”) affect justiciability.1 So I
concur with respect to Tennessee’s participation in the case, but respectfully dissent over
Kentucky’s.
I.
Standing arises here in three possible ways: through what the majority calls the
“imminent-recoupment,” “compliance-cost,” and “sovereign-authority” theories. My concern is
1
My analysis assumes that the majority is correct that the one-party rule doesn’t apply. (See Majority
Opinion, at 20 n.12.) But I’m not sure that’s the case. The rule allows courts to review claims so long as one
plaintiff has standing. Massachusetts v. EPA, 549 U.S. 497, 505 (2007). And courts have applied the rule to other
Article III requirements like mootness. Nat’l Rifle Ass’n of Am. v. Magaw, 132 F.3d 272, 278 n.4 (6th Cir. 1997);
see Nat’l Rifle Ass’n of Am., Inc. v. McCraw, 719 F.3d 338, 344 n.3 (5th Cir. 2013). But this doesn’t mean that a
party can obtain relief to which it is not entitled. So we can eventually address standing when a plaintiff would
obtain “attorney’s fees” or other “relief different from that sought by plaintiffs whose standing has not been
questioned.” Gen. Bldg. Contractors Ass’n v. Pennsylvania, 458 U.S. 375, 402 n.22 (1982); see 13B Charles A.
Wright & Arthur R. Miller, Federal Practice & Procedure, § 3531.15, at *4 (3d ed. 2022).
But a different situation arises when each plaintiff would obtain the same relief regardless. For cases involving
injunctive or declaratory remedies, the practical effects of granting relief may apply to each plaintiff even if we
dismiss one for lack of standing. For example, in Bowsher v. Synar, the Supreme Court applied the one-party rule to
avoid analyzing other plaintiffs’ standing. 478 U.S. 714, 721 (1986). Without returning to the standing questions,
the Court affirmed relief that declared a statute unconstitutional. See id. at 736. Because the standing
determinations wouldn’t affect how the Court distributed relief, the Court didn’t need to revisit its use of the rule.
See id.; accord McCraw, 719 F.3d at 344 n.3 (recognizing that courts “do not need to verify the independent
standing of the other co-plaintiffs” when one party with standing “rais[es] the same claims and issues” (quotation
omitted)). Here, Tennessee meets Article III’s requirements, and the relief granted to Tennessee applies to
Kentucky regardless: Treasury cannot enforce ARPA’s unconstitutional conditions. So we did not need to resolve
Kentucky’s mootness. That aside, I analyze why both States meet Article III’s requirements.
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with the last theory, under which I believe both States have standing. To establish standing
under any theory, of course, the States must assert an injury that is (1) actual or imminent and
concrete and particularized, (2) traceable to Treasury, and (3) likely to be redressed by a
favorable decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Looking at the
sovereign-authority theory, I believe that the only question here is whether the States assert an
imminent injury under the first inquiry. And I find that both Kentucky and Tennessee meet this
requirement.
With respect to “injury,” courts have recognized for over a century that states “are not
normal litigants for the purposes of invoking federal jurisdiction.” Massachusetts v. EPA,
549 U.S. 497, 518 (2007). This regard stems from each state’s “well-founded desire to preserve
its sovereign territory.” Id. at 519. For that reason, we don’t treat states as “mere provinces or
political corporations.” Alden v. Maine, 527 U.S. 706, 715 (1999). Instead, we recognize their
“residuary and inviolable sovereignty.” The Federalist No. 39, at 245 (James Madison) (Clinton
Rossiter ed., 1961). And we give “special” recognition to a case when a state sues the federal
government. Saginaw County v. STAT Emergency Med. Servs., Inc., 946 F.3d 951, 957 (6th Cir.
2020).
Although states hold a unique status in federal court, they cannot avoid “the
constitutional baseline” of Article III. Id. States must still prove a cognizable case or
controversy. Arizona v. Biden, 40 F.4th 375, 385 (6th Cir. 2022) (“Article III’s foundational
standing requirements remain for private and public litigants alike.”).
Still, states have “special solicitude” when they incur “quasi-sovereign” injuries. Id.
They cannot “bypass proof of injury in particular or Article III in general,” but they may incur
injuries that private parties cannot. Id. at 385–86. Among other things, states can allege
sovereign-related injuries like federal regulation over local-lawmaking authorities, threatened
intrusions on state territory, or public nuisances, in which a state seeks “to safeguard its domain
and its health, comfort and welfare.” Id at 386. (quoting Kentucky v. Biden, 23 F.4th 585, 596
(6th Cir. 2022)); see Massachusetts, 549 U.S. at 517, 521–23 (recognizing the sovereign and
quasi-sovereign interests in protecting coastal lands from rising sea levels).
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And the list doesn’t end there. This Court has acknowledged other ways that sovereign
or quasi-sovereign interests can support state standing. States can “plausibly allege[] that the
federal government has intruded upon an area traditionally left to the states.” Kentucky, 23 F.4th
at 599. They can allege that federal enforcement threatens current or future state policies. See
id. And they can allege federal threats to their economies. See id. at 599–601 (“[States] . . . have
a quasi-sovereign interest in defending their economies from the alleged negative ramifications
of [federal law].”). Indeed, as federal regulation has increased over the states, the list of
sovereign injuries has grown.
Finally, a quick note about the “imminence” part of the injury-in-fact inquiry. The
majority analyzes imminence using the “pre-enforcement” test from Susan B. Anthony List v.
Driehaus, 573 U.S. 149 (2014).2 And that is the way that we typically assess imminence when a
case concerns a pre-enforcement challenge. But because the States here allege sovereign and
quasi-sovereign injuries, we can assess imminence under a slightly different analysis.
A state can establish an imminent injury by showing a “risk of harm” to their sovereign
or quasi-sovereign interests. Massachusetts, 549 U.S. at 521 (quoting Lujan, 504 U.S. at 560).
In Massachusetts v. EPA, EPA’s refusal to regulate greenhouse gas emissions presented an
imminent injury to state interests related to climate change. Id. The “risk of harm” of sea levels
rising and damaging state-coastal property created the imminent injury. Id. at 521–23; see
Saginaw County, 946 F.3d at 957 (recognizing that the imminence in Massachusetts came from
this “risk”). And the Supreme Court reasoned that a state that has a procedural right to protect its
sovereign interests can satisfy Article III’s requirements “without meeting all the normal
standards for redressability and immediacy.” Massachusetts, 549 U.S. at 517–18.
We have analyzed imminent harms to sovereign interests in pre-enforcement challenges
too. In our recent decision in Kentucky v. Biden, which concerned a pre-enforcement challenge
to COVID-19 mandates, we found standing under the sovereign-authority theory. See 23 F.4th
2
Under the Susan B. Anthony test, the States needed to show (1) injuries in the original complaint that
establish an intention to engage in conduct arguably affected with a constitutional interest, (2) that ARPA arguably
proscribes this conduct, and (3) that if the States should pursue such conduct, a credible threat of recoupment action
exists. See 573 U.S. at 161–64.
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at 598–601. We held that the sovereign injuries alleged met Article III’s imminence
requirements because the states there “show[ed the] negative effects” of federal policy on their
sovereign interests. Id. at 602. And sister circuits applying the sovereign-authority theory have
also analyzed imminence similarly.3 Here, the States allege the same risk of harm to their
sovereign interests.
II.
Applying the sovereign-authority framework, the States have standing in this case. See
Massachusetts, 549 U.S. at 520. They allege that ARPA “unconstitutionally intrud[es] on their
sovereign authority, by interfering with the orderly management of their fiscal affairs, and by
requiring them to forgo their constitutional taxing powers or face an action to return much-
needed federal funds after they have already been spent.” (R. 1, Original Complaint, PageID 5
¶ 12.) Each threat poses an imminent “risk of harm to” their sovereign interests. Massachusetts,
549 U.S. at 521. As described below, they have alleged with particularity ARPA’s “negative
effects” on their taxing powers, citizens, and economy. Kentucky, 23 F.4th at 602.
This Court’s growing list of sovereign and quasi-sovereign injuries reinforces the States’
standing in three ways. First, they have “plausibly alleged that the federal government has
intruded upon an area traditionally left to the states”—state taxes on state citizens. Kentucky,
23 F.4th at 599; see (R. 1, Original Complaint, PageID 2–3, 5–6 ¶¶ 1–3, 12 (discussing the
federalism implications of ARPA); R. 1, Original Complaint, PageID 15–16 ¶ 40 (“[T]he power
to tax and spend is a sovereign function that lies at the core of State power.”)); see generally
Dep’t of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 345 (1994) (describing the tax power
as “central to state sovereignty”).
3
See, e.g., Texas v. Biden, 20 F.4th 928, 970 (5th Cir. 2021) (reasoning that a state’s “special solicitude in
the standing inquiry . . . means imminence and redressability are easier to establish [] than usual”), rev’d and
remanded on other grounds, 142 S. Ct. 2528 (2022); Texas v. United States, 809 F.3d 134, 154–55 (5th Cir. 2015)
(concluding that states had sovereign-authority standing in a pre-enforcement challenge to federal immigration law
without using the pre-enforcement framework); Sturgeon v. Masica, 768 F.3d 1066, 1073–74 (9th Cir. 2014)
(reasoning that a state failed to prove an “actual or imminent” injury by not identifying “any actual conflict”
between federal and state law that showed how a federal requirement would “interfere[] with the state’s control over
and management of” state affairs), vacated and remanded sub nom. on other grounds, Sturgeon v. Frost, 577 U.S.
424 (2016); Se. Fed. Power Customers, Inc. v. Geren, 514 F.3d 1316, 1322–23 (D.C. Cir. 2008) (concluding that
states had an injury-in-fact because they “credibly claim[ed] to fear” that proposed changes to water-storage uses
would result in diminished water flows).
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Second, after discussing their past tax cuts, they allege that ARPA’s vague restrictions
“chill[] legislative action” to enact similar policies. (R. 1, Original Complaint, PageID 17 ¶ 43;
see id. at PageID 16–17 ¶¶ 41–42.) Financial hardship in part led the States to cut taxes for
homeowners and businesses alike. (Id.) Kentucky, for example, enacted a bill intended to
“invest in and revitalize a predominantly minority community in Kentucky’s largest city.” (Id. at
PageID 16 ¶ 41 (citing 2021 Ky. H.B. No. 321 (NS)).) The tax cuts there fall within a “core part
of its sovereign duty” and will lead to a “decrease in net revenue.” (Id.) Likewise, Tennessee
seeks to cut its “professional privilege tax” to “attract new businesses and residents, continuing
Tennessee’s proven record in promoting economic growth that benefits the entire [s]tate.” (Id. at
PageID 16 ¶ 42 (citing H.B. 0987, S.B. 0184, 112th General Assembly (2021)).) Tennessee also
expects the bill to reduce state revenue. (Id.)
All this to say, ARPA’s vague conditions chill the States from enacting similar tax cuts.
The States allege they cannot confidently enact tax policy because they fear imminent
recoupment action for exercising their sovereign-taxing authority. (See id. at PageID 17 ¶¶ 43–
44.) And because of the “fungible” quality of money, the States construe ARPA to “potentially
affect[] all State legislative and executive actions that reduce net tax revenues,” even if they have
nothing to do with ARPA’s COVID-19 relief. (Id. at PageID 16, 17 ¶¶ 41, 44 (quotation
omitted).) ARPA then “likely implicates” the powers to “make and enforce policies and
regulations” and the “traditional prerogative to superintend” local taxes on state citizens.
Kentucky, 23 F.4th at 599.
To top it all off, the States have standing because ARPA’s chilling effect “threatens to
damage each of the [S]tates’ economies.” Id. at 599. The chilling effect to enact tax policies
that “invest in and revitalize” communities, (R. 1, Original Complaint, PageID 16 ¶ 41), or
“attract new businesses and residents” to promote “economic growth,” (id. at PageID 16 ¶ 42),
stagnates the States’ fiscal health and interest in helping their citizens. Kentucky and Tennessee
plausibly allege that resistance to ARPA will result in fewer tax cuts for homeowners and
businesses, “all to the detriment of their state economies.” Kentucky, 23 F.4th at 601. Because
the States have sovereign and quasi-sovereign interests in “defending their economies from the
alleged negative ramifications” of ARPA, they also “have standing to contest it.” Id.
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The States’ “sovereign prerogatives are now lodged in the Federal Government, and
Congress has ordered” Treasury to enforce the Offset Provision and initiate recoupment actions
to recover any misused funds. Massachusetts, 549 U.S. at 519; see 42 U.S.C. § 802(e). That the
States face threats from exercising their traditional-taxing authority only reinforces that they
have a sufficient stake in the case so as “to warrant the exercise of federal judicial power.”
Massachusetts, 549 U.S. at 519. So along with giving this case “special” recognition because the
States are suing the federal government, Saginaw County, 946 F.3d at 957, we should afford the
States “special solicitude in our standing analysis.” Massachusetts, 549 U.S. at 520.
Thus, I agree with the majority that the States allege imminent injuries that grant them
standing.4 Recognizing that the States suffer from sovereign injuries raises this question: Did
Treasury’s Rules moot the States’ legal interests in obtaining relief?
III.
This is where I part ways with the majority; I believe the answer is no. Treasury’s Rules
do not moot Kentucky or Tennessee’s controversy over their sovereign interests. Even with the
guidance, the States still suffer from the same harm explained above. And both meet Article
III’s requirements as a result.
A case only becomes moot “when the issues presented are no longer live or parties lack a
legally cognizable interest in the outcome.” Thomas v. City of Memphis, 996 F.3d 318, 323 (6th
Cir. 2021). Said differently, parties do not have a mootness problem if “the relief sought would,
if granted, make a difference to the legal interests of the parties.” Ford v. Wilder, 469 F.3d 500,
504 (6th Cir. 2006) (internal quotation omitted). Even with the Rules, the States still need
injunctive and declaratory relief to avoid Treasury’s enforcement of ARPA’s unconstitutionally
vague conditions.
4
One oddity about this case, it’s not crystal clear to me what the States’ cause of action is here—ARPA, for
example, doesn’t appear to recognize their right to sue the federal government. And this Court has held that a cause
of action must exist apart from standing, even in a sovereign-authority case. Kentucky, 23 F.4th at 602. It appears
to me, however, that the Supreme Court has recognized an action in cases that allege Spending Clause violations
under the Constitution itself. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 540, 575 (2012); New York v.
United States, 505 U.S. 144, 154, 172 (1992); South Dakota v. Dole, 483 U.S. 203, 205, 210–12 (1987). And,
tellingly, the government here does not contest the States’ ability to sue apart from their justiciability arguments.
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The States’ claims withstand mootness because their issues are still “live.” Thomas,
996 F.3d at 323. As they originally alleged, ARPA still fails to provide clear notice of a funding
condition. (R. 1, Original Complaint, PageID 17–19 ¶¶ 46–54.) And even later, the States
alleged that Treasury “cannot cure the inherent ambiguity in [ARPA] because Congress must
provide the recipients of federal funds with clear notice of any conditions on the use of the
funds.”5 (R. 23, Amended Complaint, PageID 148 ¶ 51.) (emphasis in original). With that in
mind, they allege the Rules “cannot save” ARPA from its unconstitutional conditions. (Id. at
PageID 150 ¶ 61.) This all rings true.
Although the Rules tried to fill in the blanks of ARPA, Treasury cannot resolve ARPA’s
open-endedness. The Rules tried to construct ARPA’s guidelines by providing what ARPA
didn’t: a revenue baseline and guidance on when Treasury would enforce the Offset Provision.
See 31 C.F.R. §§ 35.3; 35.8(b); see also Coronavirus State and Local Fiscal Recovery Funds,
87 Fed. Reg. 4338, 4423, 4428 (Jan. 27, 2022) (to be codified at 31 C.F.R. § 35). But Treasury
couldn’t provide the clear notice of the conditions ARPA entailed; Congress, through ARPA
alone, had that responsibility. And nothing in ARPA alludes to the Rules’ selected baseline or
construction of the Offset Provision. ARPA’s text does not clearly determine why a 2019
baseline applies or why another baseline (like a different year) does not. Nor does ARPA
address whether it prohibits a reduction in expected tax revenues or whether it prohibits a
reduction in actual tax revenues. Only the Rules purport to provide the answer (that states can
choose either), but that answer does not stem from ARPA’s text.
And, perhaps most importantly, the regulation does not fix the Offset Provision in three
other ways: Vagueness still exists from ARPA’s lack of explanation on how to (1) calculate a
“reduction” in net tax revenue, (2) determine whether such a reduction resulted from a tax cut,
and (3) tell what particular conduct constitutes an “indirect” offset.
5
Indeed, one scholar contends that only federal statutes―not federal agency conditions―can “defeat state
law.” Philip Hamburger, Purchasing Submission: Conditions, Power, and Freedom 130 (2021). As traditionally
recognized, statutes “enjoy the obligation of law” because “a legislative body representative of the people” adopts
them. Id. Hamburger notes that this logic does not legitimize a federal agency’s elaboration of a statute. Id. at 131.
Agencies, of course, do not represent the people in the same way Congress does, so their rules may not render state
law void. Id.
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Indeed, Kentucky and Tennessee allege that the Rules made their concerns over their
tax authorities even worse. (See R. 23, Amended Complaint, at PageID 147 ¶ 50.) If ARPA
is impermissibly vague, as the States allege and the majority concludes, then Kentucky and
Tennessee still face “an unlawfully-imposed quandary in determining how to exercise its
sovereign taxing power.” Ohio v. Yellen, 547 F. Supp. 3d 713, 725 (S.D. Ohio 2021).
The States’ legislators considering tax changes may delay, second guess, or abandon parts of tax
policies because ARPA does not explain the impact that such changes will have on their ability
to retain ARPA funds. See id.
And even if the Rules could clarify ARPA’s open-endedness, the States still face a live
threat to their sovereign authority. The Rules seek to allow states to enact tax cuts resulting in
revenue reductions so long as they identify permissible sources of offsetting funds. See, e.g.,
87 Fed. Reg. at 4428. Although allowing for some tax cuts, the Rules still narrow the range of
permissible tax policies the States may enact, which in turn takes a toll on the States’ citizens and
economies.
What’s more, the Rules do not ease the States’ concern regarding Treasury’s enforcement
against them. Secretary Yellen’s threat to enforce the Offset Provision in her earlier letter to the
States still stands. (See R. 1-2, Yellen Letter, PageID 33–34.) Indeed, the Rules make matters
worse. They expressly reserve the Secretary’s broad authority to enforce ARPA’s requirements
and provide that “[n]othing” in the Rules “shall limit the authority of the Secretary to take action
to enforce conditions or violations of law . . . .” 31 C.F.R. § 35.4(a) (2022). So the Rules do not
limit ARPA’s enforcement; they instead provide the Secretary broad enforcement discretion. If a
state accepts the funds and the Secretary believes that the state violates ARPA, that state must
“repay to the Secretary an amount equal to the amount of funds used in violation [thereof].”
42 U.S.C. § 802(e). All this considered, a credible threat of enforcement still stands.
Next, while facing “live” issues, the States continue to have “a legally cognizable interest
in the outcome” of this case. Thomas, 996 F.3d at 323. The Rules do not “mak[e] it ‘impossible
for the [C]ourt to grant any effectual relief[.]’” Id. at 330 (quotations omitted). The Court can
still grant injunctive and declaratory relief given the States’ continued stake in the case without
creating an “advisory opinion that Article III prohibits.” Id. That such relief “would have [a]
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practical effect” on the States reaffirms that mootness does not pose a problem here. Id.; see
Ford, 469 F.3d at 504. Because ARPA’s vague conditions still restrict States from enacting tax
cuts in their sovereign capacities and Treasury-recoupment actions remain a credible threat, the
relief sought affects the parties’ current legal interests. See Ford, 469 F.3d at 504–05. If
granted, the States’ relief would help them avoid enforcement of ARPA’s unconstitutionally
vague conditions.
For these reasons, I do not find the claims moot like the majority. I acknowledge that the
States did not allege they would fail to offset their funds with a permissible revenue source. See
87 Fed. Reg. at 4428. But I don’t believe that moots Treasury’s threat of recoupment action.
Again, the Rules still limit the States from enacting tax policies if they do not offset a net
reduction with permissible revenue sources. This restraint makes the States fear that they
“cannot lower their citizens’ tax burdens without suffering a penalty.” (R. 23, Amended
Complaint, PageID 131 ¶ 1.) And seeing that the Rules do not “limit the authority of the
Secretary” to enforce ARPA, a credible threat of recoupment action still stands. 31 C.F.R.
§ 35.4(a). Or if the States wish to comply with the Rules, they must do something—either raise
other taxes or lower expenditures elsewhere in the budget to offset a revenue reduction. That
something creates an ongoing injury. On that note, the Rules also leave the States’ claims of
vagueness intact, which leads ARPA to intrude upon the States’ tax powers—“an area
traditionally left to the states.” Kentucky, 23 F.4th at 599. And the chilling effects and the threats
to the States’ economies remain. See id. at 599–601. Because the States still face the effects of
ARPA’s vagueness, the Rules do not moot this case.
IV.
I concur with almost all of the majority opinion. But I respectfully dissent in part only to
explain why I believe the Rules do not moot the States’ controversy over their sovereign-tax
interests. Thus, I would grant both Kentucky and Tennessee their sought-after relief.
52a
RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 23a0091p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
┐
COMMONWEALTH OF KENTUCKY; STATE OF
│
TENNESSEE,
│
Plaintiffs-Appellees, │
> No. 21-6108
│
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, │
Defendants-Appellants. │
┘
On Petition for Rehearing En Banc
United States District Court for the Eastern District of Kentucky at Frankfort.
No. 3:21-cv-00017—Gregory F. Van Tatenhove, District Judge.
Decided and Filed: May 3, 2023
Before: BUSH and NALBANDIAN, Circuit Judges.*
_________________
COUNSEL
ON PETITION FOR REHEARING EN BANC: Daniel Winik, Alisa B. Klein, UNITED
STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants. ON RESPONSE:
Matthew F. Kuhn, Michael R. Wajda, OFFICE OF THE ATTORNEY GENERAL OF
KENTUCKY, Frankfort, Kentucky, Andrée S. Blumstein, J. Matthew Rice, OFFICE OF THE
ATTORNEY GENERAL AND REPORTER OF TENNESSEE, Nashville, Tennessee, for
Appellees.
*In view of the retirement of Hon. Bernice Bouie Donald, the third member of the original panel in this
appeal, this order is entered by a quorum of the panel. 28 U.S.C. § 46(d).
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No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 2
BUSH, J. (pp. 3–9), issued a statement, in which KETHLEDGE, THAPAR, and
NALBANDIAN, JJ., joined, regarding the denial of rehearing en banc. GRIFFIN, J. (pp. 10–
19), delivered a separate opinion, in which CLAY, GIBBONS, and STRANCH, JJ., joined,
dissenting from the denial of the petition for rehearing en banc.
_________________
ORDER
_________________
The court received a petition for rehearing en banc. The original panel has reviewed the
petition for rehearing and concludes that the issues raised in the petition were fully considered
upon the original submission and decision. The petition then was circulated to the full court.
Less than a majority of the judges voted in favor of rehearing en banc.
Therefore, the petition is denied.
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_________________
STATEMENT
_________________
JOHN K. BUSH, Circuit Judge, issuing a statement regarding the denial of en banc.
During the debates over ratification of the Constitution, Alexander Hamilton, writing as
Publius, insisted that states would retain their authority over their own taxation “in the most
absolute and unqualified sense”—keeping any power to infringe that authority out of the new
federal government’s hands. See THE FEDERALIST NO. 32, at 154 (Alexander Hamilton) (George
W. Carey & James McClellan eds., 2001) (arguing that “an attempt on the part of the national
Government to abridge [the States] in the exercise of [their taxing authority] would be a violent
assumption of power, unwarranted by any article or clause of its constitution”). As Hamilton
explained, other than “the power of imposing taxes . . . on exports and imports,” which would
vest exclusively at the national level, “the power of imposing taxes” would be “manifestly a
concurrent and co-equal authority in the United States and in the individual states.” Id. at 156;
see also THE FEDERALIST NO. 34, at 162 (Alexander Hamilton) (George W. Carey & James
McClellan eds., 2001) (“[T]he particular states, under the proposed constitution, would have co-
equal authority with the union in the article of revenue, except as to duties on imports.”).
Because taxing power would be held concurrently by the federal government on the one hand
and the states on the other, there would be “no power on either side to annul the acts of the
other.” Id. at 163.
This appeal tested Hamilton’s argument. The state of Tennessee claimed that, as part of
the American Rescue Plan Act of 2021 (ARPA), Congress included a component—the “Offset
Provision”—that could be read to give the federal government control over that state’s taxing
power.1 Specifically, as Tennessee argued, the Offset Provision, codified at 42 U.S.C.
1The states of Tennessee and Kentucky both sued to challenge the application of the Offset Provision.
Although the panel majority held that Kentucky’s claim was nonjusticiable because its claim had been mooted by a
Department of Treasury rule that stated how Treasury would enforce the Offset Provision, Tennessee’s claim
remained viable based on its alleged injury from costs of compliance with the Treasury rule and the underlying
Offset Provision. Our court then held the Offset Provision was unconstitutionally vague and therefore was an
unenforceable spending condition under Pennhurst State School & Hospital v. Halderman, 451 U.S. 1 (1981).
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§ 802(c)(2)(a), could be read to bar the states from enacting any tax cuts—a key part of their
sovereign taxing authority, see, e.g., Dep’t of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332,
345 (1994) (noting that “the taxation authority of state government” is “an authority we have
recognized as central to state sovereignty”) (citing Tully v. Griffin, Inc., 429 U.S. 68, 73 (1976);
Union Pac. R.R. Co. v. Peniston, 85 U.S. 5, 29 (1873)).
How did the federal government infringe on state taxing authority, according to
Tennessee? ARPA offered states billions of dollars to help address the public health and
economic consequences of COVID-19, to help compensate essential workers, and for
investments in water and broadband infrastructure. See 42 U.S.C. § 802(c)(1)(A)–(D). But the
Offset Provision purportedly forbids the states from using ARPA funds
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.
Id. § 802(c)(2)(A). This directive “does not clearly explain (1) how to calculate a ‘reduction’ in
net tax revenue, (2) how to determine whether such a reduction resulted from a tax cut, or
(3) how to tell what particular conduct constitutes an ‘indirect’ offset.” Kentucky v. Yellen, 54
F.4th 325, 347 (6th Cir. 2022). As a result, Tennessee argued (and we agreed) “that an ‘indirect
offset’ could plausibly occur whenever a state enacts a revenue-reducing tax cut and expends
ARPA funds—no matter whether the state pours the ARPA funds into the precise area it cut
taxes.” Id. at 348.
Under this “money-is-fungible interpretation of the Offset Provision,” id. at 349,
executive officials could use Congress’s vague statutory language to control the taxation policy
of any state that accepts ARPA funds. Indeed, that’s what Treasury’s Rule implementing the
Offset Provision seems to say: “because money is fungible, even if [ARPA] funds are not
explicitly or directly used to cover the costs of changes that reduce net tax revenue, those funds
may be used in a manner inconsistent with the statute by indirectly being used to substitute for
Judge Nalbandian disagreed with the panel majority regarding whether Kentucky could proceed but otherwise
agreed on all other aspects of the decision.
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the state’s or territory’s funds that would otherwise have been needed to cover the costs of the
reduction.” 87 Fed. Reg. at 4,424 (emphasis added).
The dissental does not seem to dispute that, through use of Spending Clause legislation,
Congress could control state tax policy in this way. And the ramifications of the dissental’s
reasoning are far-reaching. The dissental apparently would allow Congress to control large
aspects of a state’s sovereign power, so long as the state agreed to give up that authority by
“contracting” with the federal government through acceptance of federal grant money.
Could a state, for a sum of money paid by the federal government, give up all of its
powers of governance? Of course not. So what are the limits to a state’s ability to sell its
sovereign powers to the federal government? As even the dissental must acknowledge, there are
limits: a spending condition on states is valid only “if the essence of their statehood is
maintained without impairment.” Charles C. Steward Mach. Co. v. Davis, 301 U.S. 548, 597
(1937).
For purposes of the appeal, we didn’t need to decide when this impairment occurs in the
context of states receiving federal grant money dispensed with conditions under the Spending
Clause. Instead, the case turned on whether Congress clearly stated one such condition—the tax
limitation that is embodied in the Offset Provision. For, as the Supreme Court has directed, “if
Congress intends to impose a condition on the grant of federal moneys [under its Spending
Clause authority], it must do so unambiguously.” Pennhurst State Sch. & Hosp. v. Halderman,
451 U.S. 1, 17 (1981) (citing Emps. v. Dep’t of Pub. Health & Welfare of Mo., 411 U.S. 279, 285
(1973)). This threshold requirement—that Congress speak clearly as to a condition it imposes—
at least provides assurance that, before a state gives up some of its power in exchange for federal
grant money, the state’s eyes are wide open: it knows what the consequences are.
This requirement that Congress clearly state its conditions was applied in Pennhurst in
the context of federal grant funds for services for people with mental disabilities. Attached to the
grant money was a “bill of rights” that stated that (1) people with developmental disabilities
“have a right to appropriate treatment” and (2) such treatment “should be provided in the setting
that is least restrictive of the person’s personal liberty.” Id. at 13. The Court held that
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“appropriate treatment” and “least restrictive” are indeterminate terms, so “Congress fell well
short of providing clear notice to the [s]tates” of what the bill-of-rights provisions meant or that
they were compulsory. Id. at 24–25.
A similar vagueness existed here in the Offset Provision. Indeed, Secretary Yellen
acknowledged as much when she stated that “[w]e will have to define what it means to use
money from this Act as an ‘offset’ for tax cuts. And, given the fungibility of money, it’s a hard
question to answer.” Treasury Secretary & Federal Reserve Chair Testimony on COVID-19
Economic Recovery at 58:30-59:05, available at https://www.c-span.org/video/?510059-
1/treasury-secretary-federalreserve-chair-testimony-covid-19-economic-recovery. Because it
was “a hard question to answer”—that is, the meaning of the Offset Provision was vague—that
condition is unenforceable under Pennhurst.
The dissental attempts to clarify the vagueness by asserting that the Offset Provision
simply “prohibits a state from using the funding to help balance its books.” Dissental at 10.
That is one reading of the statute. But because of the lack of clear content, it is not obvious what
the provision requires. Another possible reading—acknowledged by Treasury—is that the Offset
Provision allows Congress to control any tax cut of a state, regardless of whether the tax cut is
directly tied to the receipt of ARPA funds. The availability of other interpretations like this one,
which would tie the hands of a state when it comes to cutting taxes, renders the Offset Provision
unenforceable under the Pennhurst clear-statement rule.
The dissental contends that Pennhurst and its progeny apply “when the Treasury seeks to
recoup funds from a state for an alleged violation of a specific condition attached to a grant of
funds.” Dissental at 13. But that was not exactly the situation in Pennhurst itself. In that case,
the Supreme Court considered whether the “bill of rights” provision was a valid exercise of
Congress’s authority under the Constitution’s Spending Clause—not whether a recoupment
action was valid. 451 U.S. at 25.
The dissental also asserts: “No prior Spending Clause case has ever prospectively
enjoined enforcement of an entire provision based on purported vagueness in the statute,
meaning that the panel’s analysis lacks a cognizable legal foundation.” Dissental at 14. But
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Pennhurst essentially did just that by nullifying the bill-of-rights provisions. Similarly, in NFIB
v. Sebelius, 567 U.S. 519 (2012), the Supreme Court held that Congress could not use the
spending power to force states to expand Medicaid. As Chief Justice Roberts explained,
Section 1396c gives the Secretary of Health and Human Services the authority to
. . . withhold all “further [Medicaid] payments . . . to the State” if she determines
that the State is out of compliance with any Medicaid requirement, including
those contained in the expansion. 42 U.S.C. § 1396c. In light of the Court's
holding, the Secretary cannot apply § 1396c to withdraw existing Medicaid funds
for failure to comply with the requirements set out in the expansion. That fully
remedies the constitutional violation we have identified.
Id. at 586 (opinion of C.J. Roberts).2 While NFIB v. Sebelius was decided on coercion and not
vagueness grounds, the Court in that case nevertheless invalidated, on a pre-enforcement basis,
new conditions purportedly required to retain Medicaid funds.
Other Supreme Court cases have approved prospective relief based on the Pennhurst
clear-statement rule. Consider Sossamon v. Texas, 563 U.S. 277 (2011), a case about the
Religious Land Use and Institutionalized Persons Act of 2000, Pub L. No. 106-274, 42 U.S.C.
§ 2000cc et seq., which authorized “appropriate relief against a government” for burdens on
prisoners’ religious exercise. 563 U.S. at 282. Noting that “[d]ual sovereignty is a defining
feature of our Nation’s constitutional blueprint,” id. at 283, the Supreme Court held this relief
provision ambiguous and forbade future damages suits against states under the statute as
violative of sovereign immunity. Id. at 288. Similarly, in Gonzaga University v. Doe, 536 U.S.
273 (2002), the Supreme Court held that “federal funding provisions provide no basis for private
enforcement by [42 U.S.C.] § 1983” absent a clear statement, thus barring future § 1983 actions
under the Family Educational Rights and Privacy Act of 1974. Id. at 279–80.
The dissental presses that “[w]hatever vagueness exists in the Act is of no moment to our
prospective inquiry today; at most, it may make recoupment actions for the government more
difficult tomorrow.” Dissental at 19. But the purpose of the Pennhurst rule is to provide clarity
2Although the NFIB opinion was fractured, a majority of the court believed the spending condition was
unconstitutional. 567 U.S. at 689. Based on the narrowest possible holding under the Marks rule, see Marks
v. United States, 430 U.S. 188 (1977), it is fair to say the court held that the spending condition was unenforceable
against the states for the purpose of withdrawing existing Medicaid funds.
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to states when Congress passes the law, not just when the Executive chooses to enforce it. The
states are entitled to know clearly what conditions they must abide by when they take the grant
money, not live with the uncertainty of how vague conditions will be enforced in the future. See
Pennhurst, 451 U.S. at 25 (“Though Congress’ power to legislate under the spending power is
broad, it does not include surprising participating States with postacceptance or ‘retroactive’
conditions.”).
The dissental further appears to question the panel’s reliance on statutory interpretation,
but such reasoning is not out of the ordinary in cases involving challenges based on the Spending
Clause. Such cases usually follow a clear-statement rule as a matter of statutory interpretation—
namely, that Congress must condition the states’ receipt of federal funds “unambiguously.”
South Dakota v. Dole, 483 U.S. 203, 207 (1987) (quoting Pennhurst, 451 U.S. at 17); see, e.g.,
Sch. Dist. of City of Pontiac v. Sec’y of U.S. Dep’t of Educ., 584 F.3d 253, 283–84 (6th Cir.
2009) (en banc) (Sutton, J., concurring) (describing the clear-statement rule as a “statutory
limitation on Congress’s spending power”). Consistent with these and other precedents, our
court decided this case based on statutory interpretation rather than invalidating the condition as
unconstitutional. However, had the court taken the latter approach, as did the Eleventh Circuit,
that mode of reasoning would have changed little about the outcome of the case. See West
Virginia v. U.S. Dep’t of Treasury, 59 F.4th 1124, 1146 (11th Cir. 2023). Indeed, as the dissental
recognizes in a footnote, the reasoning it advocates would create a circuit split with the Eleventh
Circuit. Dissental at 19 n.4.
Lastly, the dissental suggests that if the vagueness is “severe enough,” the entire statute
should be void under contract principles. Dissental at 17. Although Spending Clause legislation
is “much in the nature of a contract,” id. at 7 (quoting Barnes v. Gorman, 536 U.S. 181, 186
(2002)), that hardly means that every contract principle should be imported into the interpretation
of spending legislation that infringes on state sovereign interests. This view would be difficult to
square with Supreme Court precedent. Returning to Pennhurst, the Supreme Court did not
invalidate the entire statute by treating it as a “contract” but instead deemed only the portion of
the statute containing the vague conditions to be unenforceable. 451 U.S. at 23–25. Our court
here followed a similar course with respect to the vague Offset Provision.
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As Pennhurst and other precedents recognize, more is at stake when Congressional
spending legislation threatens state sovereign interests than is at issue in a run-of-the-mill private
contract dispute. “In traditionally sensitive areas, such as legislation affecting the federal
balance, the requirement of clear statement assures that the legislature has in fact faced, and
intended to bring into issue, the critical matters involved in the judicial decision.” United States
v. Bass, 404 U.S. 336, 349 (1971). And the idea that cursory statutory language could slice state
taxing authority stabs at the heart of Hamilton’s defense of the Constitution in The Federalist
Nos. 32 and 34, where he insisted that the federal government would have no control over
retained state taxing authority. These are among the reasons that, particularly in the context of
taxing policy, Congress must speak with a clear voice when it imposes conditions on states for
the receipt of federal funds—a principle from Pennhurst that our court faithfully implemented in
this case.
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_________________
DISSENT
_________________
GRIFFIN, Circuit Judge, dissenting.
The American Rescue Plan Act (ARPA) appropriated nearly two trillion dollars to help
mitigate the COVID-19 pandemic and its economic impact. Two hundred billion dollars went to
the states if they agreed to comply with the conditions imposed by the Act. Every state did so
and accepted the funding.
Yet despite the largesse the Act bestowed, many states took issue with it. See, e.g.,
Arizona v. Yellen, 34 F.4th 841, 847–48 (9th Cir. 2022) (collecting cases). Relevant here,
Tennessee complained, not about the money, but about a particular condition attached to the
receipt of those funds. Under the Act, a state must use the funds in several ways, all generally
related to the COVID-19 pandemic—to respond to the “public health emergency,” to assist
“workers performing essential work,” to bolster “government services,” and to make “necessary
investments” in infrastructure. 42 U.S.C. § 802(c)(1)(A)–(D).1 The Act also explicitly prohibits
a state from using the funding to help balance its books:
A State . . . 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
reduction in the net tax revenue of such State . . . resulting from a change in law,
regulation, or administrative interpretation during the covered period that reduces
any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or
otherwise) or delays the imposition of any tax or tax increase.
Id. § 802(c)(2)(A) (emphasis added).
This “Offset Provision” drew Tennessee’s ire. It sought to prospectively enjoin the
Department of the Treasury from enforcing the Provision, claiming, among other things, that the
1A fifth permissible use of the funds was later added, allowing the states “to provide emergency relief from
natural disasters or the negative economic impacts of natural disasters.” 42 U.S.C. § 802(c)(1)(E).
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Provision was an unconstitutionally ambiguous condition in violation of the Spending Clause.2
See, e.g., South Dakota v. Dole, 483 U.S. 203, 207, 211 (1987). The panel held that the
Provision was vague because it failed to adequately explain: “(1) how to calculate a ‘reduction’
in net tax revenue, (2) how to determine whether such a reduction resulted from a tax cut, or
(3) how to tell what particular conduct constitutes an ‘indirect’ offset.” Kentucky v. Yellen, 54
F.4th 325, 347 (6th Cir. 2022). Yet while the panel explicitly declined to hold the Provision
“‘unconstitutional’ under the Spending Clause, strictly speaking, just because of those
indeterminacies,” it still provided the requested injunctive relief. Id. It concluded that, “[a]s a
matter of statutory interpretation,” the provision was statutorily unenforceable and severable by
operation of the Spending Clause’s clear-statement rule. Id. This analysis, conclusion, and
remedy is extraordinary, erroneous, and in conflict with Supreme Court precedent. See Fed. R.
App. P. 35(a)(1).
This case also involves a question of exceptional importance. See Fed. R. App.
P. 35(a)(2). It has significant, wide-reaching implications. Every state accepted ARPA funding
and agreed to its conditions, so a correct interpretation of the Offset Provision is critical not only
for the states in our circuit, but also on a national level. In addition, the panel’s decision will
significantly impair Congress’s ability to impose conditions in future legislation. Cf. Bennett
v. Ky. Dep’t of Educ., 470 U.S. 656, 669 (1985) (noting that Congress need not “prospectively
resolve every possible ambiguity” in Spending Clause legislation). This impacts Congress’s
relationship with the states and its ability to further its own policy objectives through Spending
Clause legislation.
I therefore respectfully dissent from the denial of the petition for rehearing en banc.
2Kentucky joined Tennessee in bringing this suit, but Kentucky’s claim, as with other states’ parallel suits,
foundered on jurisdictional issues based on the injuries (or lack thereof) alleged in the individual complaints.
Compare Kentucky v. Yellen, 54 F.4th 325, 341 (6th Cir. 2022), Ohio v. Yellen, 53 F.4th 983, 985 (6th Cir. 2022),
and Missouri v. Yellen, 39 F.4th 1063, 1070–71 (8th Cir. 2022), with West Virginia v. U. S. Dep’t of Treasury, 59
F.4th 1124, 1138–40 (11th Cir. 2023), and Arizona, 34 F.4th at 853.
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I.
Incident to the Spending Clause of the U.S. Constitution, “Congress may attach
conditions on the receipt of federal funds, and has repeatedly employed the power to further
broad policy objectives by conditioning receipt of federal moneys upon compliance by the
recipient with federal statutory and administrative directives.” Dole, 483 U.S. at 206 (internal
quotation marks omitted); see also U.S. Const. art. I, § 8, cl. 1. These conditions and policy
objectives may exceed the Constitution’s “enumerated legislative fields” because “the power of
Congress to authorize expenditure of public moneys for public purposes is not limited by the
direct grants of legislative power found in the Constitution.” Dole, 483 U.S. at 207 (citation
omitted). With this, the Supreme Court has “repeatedly characterized” Spending Clause
legislation as “much in the nature of a contract: in return for federal funds, the [states] agree to
comply with federally imposed conditions.” Barnes v. Gorman, 536 U.S. 181, 186 (2002)
(citation omitted). States, as sovereigns, are therefore free to contract with Congress under the
Spending Clause “if the essence of their statehood is maintained without impairment.” Charles
C. Steward Mach. Co. v. Davis, 301 U.S. 548, 597 (1937).
Yet Congress’s power under the Spending Clause is not unlimited, for if Congress
imposes a condition on the receipt of funds, it “must do so unambiguously,” thereby enabling the
states “to exercise their choice knowingly, cognizant of the consequences of their participation.”
Dole, 483 U.S. at 207 (quoting Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17
(1981)). The seminal case on unambiguity is Pennhurst. The dispute there was whether
Pennsylvania was required to provide certain types of treatment to mentally disabled persons
after it accepted funds under the Developmentally Disabled Assistance and Bill of Rights Act of
1975. 451 U.S. at 6–10. The plaintiffs alleged that the state violated its obligations under the so-
called patient “bill of rights” provision of the act by not affording patients the right to
“appropriate treatment” in the “least restrictive” setting. Id. But the Court held that this was not
a condition on the receipt of funding and thus the state did not agree to it as a binding obligation
when it accepted the funding. Id. at 27. In context, that provision merely “serve[d] as a nudge”
in Congress’s preferred direction and did “no more than express a congressional preference for
certain kinds of treatment.” Id. at 19 (citation omitted). Because the Provision “lack[ed]
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conditional language,” Congress intended it to be “hortatory, not mandatory,” and “fell well
short of providing clear notice to the States that they, by accepting funds under the Act, would
indeed be obligated to comply with [it].” Id. at 24, 25.
Pennhurst thus established the contours of the clear-statement rule. This rule applies
when the Treasury seeks to recoup funds from a state for an alleged violation of a specific
condition attached to a grant of funds. When a state has allegedly violated a condition and we
are called to determine whether that purported condition is, in fact, a condition on the receipt of
funds, we look for a clear statement from Congress. This is a matter of “statutory construction.”
Id. at 24. We must determine whether Congress gave “clear notice” that it intended the alleged
condition to be a binding obligation on the acceptance of funds. Id. at 25. If it did, the condition
applies. But if not, the disputed provision is simply not a condition, and a state—like
Pennsylvania in Pennhurst—need not comply with it. See id. at 25, 27.
Subsequent cases have not deviated from this analysis. For example, the Supreme Court
in Bennett held that Kentucky had to comply with an “unambiguous” funding-calculation
condition in Title I even if ambiguities existed in other applications of the statute—“Pennhurst
does not suggest that . . . every improper expenditure [must be] specifically identified and
proscribed in advance.” 470 U.S. at 666, 673. In Arlington Central School District Board of
Education v. Murphy, the Court concluded that compensation of expert fees was not an
unambiguous condition in the Individuals with Disabilities Education Act: when viewing the
Act “from the perspective of a state official” deciding whether to accept the funds, the act did not
clearly express that the “liability at issue” (i.e., expert fees) was a condition on the receipt of
funding. 548 U.S. 291, 296–98 (2006). And our court has followed the same framework.
Though we divided as to application, the entire en banc court applied this statutory interpretation
principle in School District of City of Pontiac v. Secretary of the United States Department of
Education, 584 F.3d 253 (6th Cir. 2009) (en banc), when determining whether the “unfunded
mandate” in the No Child Left Behind Act required a state to comply with the act, even if doing
so increased the costs of compliance. See id. at 271–72 (opinion of Cole, J.); id. at 284–85
(Sutton, J., concurring); id. at 310–11 (Gibbons, J., concurring in part). See also Cutter
v. Wilkinson, 423 F.3d 579, 585–86 (6th Cir. 2005) (“The plain language of RLUIPA provides
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ample notice to potential funding recipients” that the statute applies to “any program or activity
that receives Federal financial assistance.” (citation omitted)). In each of these cases, the state
was accused of violating a Congressional requirement attached to funding. Then, to evaluate
each claim, each court was tasked with determining whether the specific “liability at issue” was
clearly articulated and unambiguous such as to require the state to comply with the condition.
Cf. Arlington, 548 U.S. at 296.
The panel’s decision to use the clear-notice standard in such a novel manner conflicts
with this caselaw. The Treasury has not claimed that Tennessee violated the Offset Provision;
rather, Tennessee prospectively challenges the provision’s ambiguity and asks us to enjoin its
future enforcement. Pennhurst’s clear-statement rule nowhere near encompasses this situation.
Thus, it is inapplicable here, for “a decision based on a certain set of facts should not control the
outcome of a later case with a factual context that the court adjudicating the earlier case had no
opportunity to consider.” See Bryan A. Garner, et al., The Law of Judicial Precedent 82 (2016).
By applying the “clear notice” language in an unprecedented manner, wholly unsupported by
prior caselaw, the panel “cherry-pick[ed] a sentence” from Pennhurst to divine a rule that “has
no precedential force” in this analysis. Id.; see also In re Flint Water Cases, 53 F.4th 176, 207
(6th Cir. 2022) (opinion of Griffin, J.) (“To derive a rule from a case that did not address the
pertinent question is to build a syllogism upon a conjecture.” (citation and internal quotation
marks omitted)). No prior Spending Clause case has ever prospectively enjoined enforcement of
an entire provision based on purported vagueness in the statute, meaning that the panel’s analysis
lacks a cognizable legal foundation.
The decision also creates intractable tension with other areas of law. Despite recognizing
that the Offset Provision is not “unconstitutional” because of its purported vagueness, the panel
still enjoined enforcement of the provision “[a]s a matter of statutory interpretation.” Kentucky,
54 F.4th at 347. But a party is entitled to a permanent injunction like this only “if it can establish
that it suffered a constitutional violation . . . .” Schmitt v. LaRose, 933 F.3d 628, 637 (6th Cir.
2019) (citation omitted; emphasis added). Statutory interpretation, by contrast, does not give a
court this authority. Rather, “[i]n the interpretation of statutes, the function of the courts is easily
stated. It is to construe the language so as to give effect to the intent of Congress.” United States
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v. Am. Trucking Ass’ns, 310 U.S. 534, 542 (1940). Thus, Tennessee could be entitled to a facial
injunction if it could demonstrate that ARPA were unconstitutional, but such a challenge would
face a high bar—we presume statutes to be constitutional and require litigants to establish that no
set of circumstances exist under which the statute is valid. See United States v. Morrison,
529 U.S. 598, 607 (2000); United States v. Salerno, 481 U.S. 739, 745 (1987). The panel’s
opinion thus recasts a constitutional analysis as a statutory one, allowing it to provide a
constitutional remedy (injunctive relief) while avoiding the high hurdles of a constitutional
analysis. But this it could not do, for “[e]ven though this clear-statement rule has constitutional
roots, it remains a rule of statutory interpretation, one constrained by other canons of statutory
interpretation.” City of Pontiac, 584 F.3d at 284 (Sutton, J, concurring); accord id. at 271–73
(Cole, J.). No authority allows a court to enjoin enforcement of a statute under the Spending
Clause simply because it is vague “as a matter of statutory interpretation.”
To resolve Tennessee’s ambiguity argument, we should instead apply traditional contract
law principles. As noted above, the Supreme Court has “repeatedly characterized Spending
Clause legislation as ‘much in the nature of a contract’” and “regularly applied the contract-law
analogy in cases defining the scope of conduct for which funding recipients may be held liable
for money damages.” Barnes, 536 U.S. at 186 (quoting Pennhurst, 451 U.S. at 17). “Just as a
valid contract requires offer and acceptance of its terms,” Spending Clause legislation “rests on
whether the [state] voluntarily and knowingly accepts the terms of the ‘contract.’” Id. (citation
omitted). The “crucial inquiry” is “whether Congress spoke so clearly that we can fairly say that
the State could make an informed choice.” Pennhurst, 451 U.S. at 25. These principles apply
here, as Tennessee complains of an “unconstitutionally ambiguous” condition attached to an
offer of funding (with which it agreed to comply).3
Through this lens, ARPA is a valid exercise of Congress’s Spending Clause power at this
juncture. A valid contract requires “reasonably certain” terms—ones that “provide a basis for
3While Barnes did note that not “all contract-law rules apply to Spending Clause legislation,” that is no
barrier here. 536 U.S. at 186. That was a reference to Bennett’s conclusion that “ambiguities in the requirements
should [not] invariably be resolved against the Federal Government as the drafter of the grant agreement.” 470 U.S.
at 669. Therefore, this admonition from Barnes merely makes clear that we should not automatically hold any
ambiguity here against the government.
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determining the existence of a breach and for giving an appropriate remedy.” Restatement
(Second) of Contracts § 33 (Am. L. Inst. 1981). And the terms of Congress’s offer are indeed
reasonably certain. For one, states know that the Offset Provision is one of the “[r]equirements”
on the use of funds, § 802(c), so the Act does not “lack conditional language,” Pennhurst,
451 U.S. at 25. A state also knows that it must “use” the money only in the ways enumerated by
the Act: by providing (1) assistance or aid to industries affected by the pandemic; (2) pay or
grants to essential workers; (3) “government services” in those areas where funding was
impacted by the pandemic; (4) “necessary investments” in infrastructure, or (5) “emergency
relief from natural disasters.” 42 U.S.C. § 802(c)(1). Conversely, the Offset Provision itself
conveys that the states cannot “use” the money to balance the books by offsetting a tax
reduction. Id. § 802(c)(2)(A). Together, these conditions convey that a state must use the money
in certain ways to provide direct assistance, while clarifying that offsetting tax breaks is not a
permitted use of ARPA funds.
That some vagueness may exist in the Offset Provision itself does not change that a state
can reasonably understand its obligations. First, § 802(g)(1) reasonably conveys the baseline
year—states should know that this is 2019, the last full fiscal year before the “covered period”
outlined by ARPA and before the beginning of the COVID-19 pandemic. Second, the statute
provides a mechanism for determining whether a state’s tax revenues are “reduce[d]”—the
Secretary of the Treasury is empowered to provide “necessary or appropriate” guidance to carry
out the section under § 802(f). States would reasonably know that that guidance would fill in
the missing pieces, including whether the Offset Provision applies to expected or actual
tax revenues. And courts have deferred to an agency’s explicit authority to implement Spending
Clause legislation. See Bennett, 470 U.S. at 668–73; Mowbray v. Kozlowski, 914 F.2d 593, 600–
01 (4th Cir. 1990) (“[A]mbiguit[ies] in the Medicaid scheme . . . require some deference to [the
Secretary of Health’s] interpretation.”). Third, the term “indirectly offset” is not so broad as to
deprive a state of the ability to understand its obligations. The directives in § 802(c)(1) convey
how a state must use ARPA money, and the Offset Provision clarifies that tax cuts are not a
mode of “assistance” that states can provide. Read in context with § 802(c)(1), if Tennessee uses
ARPA funds in compliance with the enumerated “use” requirements, it will comply with
ARPA’s conditions, even if it enacts other tax cuts. Whether § 802(c)(2)(A) conveys the precise
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contours of “indirectly offset” is immaterial here, for no interpretation of the Offset Provision
can override or conflict with the provisions of § 802(c)(1). See Food & Drug Admin. v. Brown
& Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (“[W]ords of a statute must be read in
their context and with a view to their place in the overall statutory scheme.”(citation omitted));
A. Scalia & B. Garner, Reading Law: The Interpretation of Legal Texts 180 (2012) (“The
provisions of a text should be interpreted in a way that renders them compatible, not
contradictory.”). For this reason, it is unambiguously clear that the phrase does not rise to the
level of prohibiting all tax cuts, meaning that the Act does not abridge a state’s “indispensable”
and “essential” power of taxation. See Lane Cnty. v. State of Oregon, 74 U.S. 71, 76–77 (1868).
So the agreement is valid because “the essence of their statehood is maintained without
impairment.” Steward Mach. Co., 301 U.S. at 597. In sum, as long as a state complies with
§ 802(c)(1), it knows it is not performing an indirect offset and that the government cannot
recoup the spent funds.
The panel’s decision to ignore these contract-law principles is particularly problematic
here. For one, in contract law, an ambiguous or vague term never leads to invalidation of only
one part of a contract. If the vagueness is severe enough, there is no meeting of the minds and
the agreement itself is void: “If the essential terms are so uncertain that there is no basis for
deciding whether the agreement has been kept or broken, there is no contract.” Restatement
(Second) of Contracts § 33, comment a. But if the agreement stands, a court will interpret it and
provide the requisite clarity. “When parties agree to a patently ambiguous term, they submit to
have any dispute over it resolved by interpretation. That is what courts and arbitrators are for in
contract cases—to resolve interpretive questions founded on ambiguity.” Colfax Envelope Corp.
v. Local No. 458-3M, Chi. Graphic Commc’ns Int’l Union AFL-CIO, 20 F.3d 750, 754 (7th Cir.
1994). In no instance will a court determine that a contract exists but that one provision is
categorically unenforceable simply because its scope may be initially unclear. Cf. Texas v. New
Mexico, 482 U.S. 124, 129 (1987) (“[G]ood-faith differences about the scope of contractual
undertakings do not relieve either party from performance.”). If the Provision’s terms were
indeed vague, Tennessee and the Treasury did not contract, the entire contract is void, and
Tennessee must return the funding. Conspicuously (and unsurprisingly), Tennessee has never
volunteered to do so.
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Further, this conclusion causes particular discord in the Spending Clause context as
Congress must now speak with greater clarity than courts have ever required. Congress does not
need to “prospectively resolve every possible ambiguity” or identify “every improper
expenditure” when offering funds to states. Bennett, 470 U.S. at 666, 669; see also Pennhurst,
451 U.S. at 24–25 (noting that a condition is valid if “Congress spoke so clearly that we can
fairly say that the State could make an informed choice,” even if a state’s potential obligations
may otherwise be “largely indeterminate”). Requiring it to do so would have a chilling effect on
Congress’s ability to impose discretionary conditions, even though courts have held that those
pass Spending Clause muster. See, e.g., Penn., Dep’t of Pub. Welfare v. Sebelius, 674 F.3d 139,
153 (3rd Cir. 2012) (noting that a “discretionary” condition does not defy Pennhurst, which
“merely requires that states have clear notice of conditions on accepting federal funds, and
imposes no requirement that such conditions be unconditional”). And requiring this much
specificity will likely prove to be unworkable. See Mayweathers v. Newland, 314 F.3d 1062,
1067 (9th Cir. 2002) (“Congress is not required to list every factual instance in which a state will
fail to comply with a condition. Such specificity would prove too onerous, and perhaps,
impossible.”).
Moreover, the panel’s decision wrongly allows the states to receive ARPA funds but
escape their agreement with Congress to comply with the Offset Provision—to essentially have
their cake and eat it too. Every state agreed to accept ARPA funding on the condition that it
would not use the money to offset tax breaks. Allowing states to renege on this agreement not
only contravenes the Spending Clause and basic contract law, but it also goes against principles
of equity and fairness. And allowing states to do this harms the public—rather than use ARPA
funds only for the public benefits outlined in § 802(c)(1), states may keep some funding to
balance their own books.
Finally, Tennessee had the option to accept or decline ARPA’s conditional funding, and
we should honor its decision to take the money, conditions and all. If indeed it was concerned
about the Offset Provision and did not want to comply with it, Tennessee could have, and should
have, said no to the federal government’s offer of assistance. Turning down Congress’s
substantial funding offer may have been a difficult one, but doing so would have been a
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legitimate way for Tennessee to defend its sovereign prerogatives. In this circumstance, Chief
Justice Roberts’s words are particularly poignant:
In the typical case we look to the States to defend their prerogatives by adopting
“the simple expedient of not yielding” to federal blandishments when they do not
want to embrace the federal policies as their own. The States are separate and
independent sovereigns. Sometimes they have to act like it.
National Federation of Independent Business v. Sebelius, 567 U.S. 519, 579 (2012) (opinion of
Roberts, C.J.) (quoting Massachusetts v. Mellon, 262 U.S. 447, 482 (1923)).
In sum, ARPA’s offer of funding passes muster at this juncture. The terms of Congress’s
offer were certain enough to create a contract, permitting Tennessee to make its choice
knowingly and voluntarily. Pennhurst, 451 U.S. at 17. The panel’s use of the clear-statement
rule to enjoin the Offset Provision contravenes fundamental tenets of the Spending Clause
analysis.4 Whatever vagueness exists in the Act is of no moment to our prospective inquiry
today; at most, it may make recoupment actions for the government more difficult tomorrow.
II.
For these reasons, I respectfully dissent and would grant the government’s petition for
rehearing en banc.
ENTERED BY ORDER OF THE COURT
___________________________________
Deborah S. Hunt, Clerk
4I acknowledge that the Eleventh Circuit subsequently held the Offset Provision to be unconstitutional.
West Virginia, 59 F.4th at 1146. But that case is of little support to the panel decision here—while it reached the
same basic result as the panel, it enjoined the Offset Provision as unconstitutional, not as a matter of statutory
interpretation. That conclusion departs from all established precedent that the clear-statement rule is a matter of
statutory interpretation that does not allow such an injunction. See Pennhurst, 451 U.S. at 24–25; accord City of
Pontiac, 584 F.3d at 284 (Sutton, J., concurring); Sandoval v. Hagan, 197 F.3d 484, 495 (11th Cir. 1999), rev’d on
other grounds, Alexander v. Sandoval, 532 U.S. 275 (2001). Consequently, that opinion suffers from similar
downfalls to those described here.
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION
FRANKFORT
)
COMMONWEALTH OF KENTUCKY, et )
al., ) Civil No. 3:21-cv-00017-GFVT-EBA
)
Plaintiffs, )
)
V. ) OPINION
)
JANET YELLEN, et al., ) &
) ORDER
Defendants. )
)
)
*** *** *** ***
This case is informed by an old conversation between Thomas Jefferson and Alexander
Hamilton. The topic was one of trust. Hamilton put his in a strong federal government with
considerable power. 1 Jefferson, the agrarian, fought against the expansion of federal power at
the expense of the States. 2 Here, the federal government wants to give Kentucky and Tennessee
a lot of money. These funds are desperately needed in the midst of a pandemic. But, they come
with a price—states must forego the exercise of important flexibility and power when it comes to
making their own taxing decisions.
As explained below, this is a coercive grant of federal money. The spending power of the
federal government does not go so far. The price for accepting the funds is unconstitutional.
1
See Alexander Hamilton, Report on a National Bank, in ALEXANDER HAMILTON: WRITINGS, 647, 575, 599
(Joanne B. Freeman ed., 2001) (“[A national] Bank is not a mere matter of private property, but a political machine
of the greatest importance to the State”).
2
See Thomas Jefferson Letter to George Washington, Feb. 15, 1791, Opinion on Bill for Establishing a National
Bank (“I consider the foundation of the Constitution as laid on this ground that ‘all powers not delegated to the U.S.
by the Constitution, not prohibited by it to the states, are reserved to the states or to the people’ … To take a single
step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless
field of power, no longer susceptible of any definition”).
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Accordingly, summary judgment will be GRANTED in favor of the Commonwealth of
Kentucky and the State of Tennessee.
I
President Biden signed into law the American Rescue Plan Act on March 11, 2021. Pub.
L. No. 117-2, § 9901(a) (codified at 42 U.S.C. § § 802–805). The ARPA appropriates funds in
order for the States to respond to pandemic-related expenses. Id. The ARPA provides that,
through December 31, 2024, the States may use the recovery funds “to cover costs incurred”:
(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 households, small businesses, and nonprofits, or aid to impacted industries such
as tourism, 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.
Id. § 802(c)(1). The ARPA also includes restrictions or conditions on the grant of federal funds.
Id. § 802(c)(2). The condition of importance here (the “Tax Mandate”) prohibits a State from
using the federal funds to “directly or indirectly offset a reduction in net tax revenue of such
State [] resulting from a change in law, regulation, or administrative interpretation during the
covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction,
a credit, or otherwise).” Id. § 802(c)(2)(A). If a State accepts the funds and fails to comply with
the Tax Mandate, it “shall be required to repay the Secretary [of the Treasury] an amount equal
to the amount of funds used in violation [thereof].” Id. § 802(e). In other words, the State will
be required to repay either the amount of funds used to offset the “reduction to net tax revenue”
2
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or “the amount of funds received,” whichever is less. Id. Further, on May 17, 2021, the
Treasury Department published an Interim Final Rule, seeking to clarify the Tax Mandate and
the eligible uses of ARPA funds. See 86 Fed. Reg. 26,786 (May 17, 2021).
Plaintiffs Kentucky and Tennessee bring the present suit and move for summary
judgment. [R. 25.] Plaintiffs seek both a declaratory judgment finding the Tax Mandate
unconstitutional and a permanent injunction enjoining the Treasury Secretary’s enforcement of
the Tax Mandate. [Id.] Plaintiffs argue that they have standing on two grounds, arguing that the
Tax Mandate: (1) unconstitutionally narrows the range of permissible tax policies States may
enact, injuring the Plaintiffs; and (2) imposes administrative burdens, injuring Plaintiffs. [R. 25
at 23–24.] Plaintiffs then cite four different ways in which the Tax Mandate of the ARPA is
unconstitutional. Plaintiffs believe that the Tax Mandate is unconstitutionally ambiguous and
coercive in violation of the Spending Clause, that it is not reasonably related to the federal
interest in passing the ARPA, and that it violates the anticommandeering doctrine. [R. 25.]
Defendants, in response, argue: (1) that Plaintiffs are attempting to manufacture standing where
it does not exist; (2) that this case is not ripe; and (3) that Congress has not exceeded the bounds
of its authority for Spending Clause purposes. [R. 31.]
II
A
It is well-established that standing is a threshold inquiry in every federal case. See, e.g.,
Warth v. Seldin, 422 U.S. 490, 498 (1975); Planned Parenthood Ass'n of Cincinnati, Inc. v.
Cincinnati, 822 F.2d 1390, 1394 (6th Cir. 1987). Each federal court is “under an independent
obligation to examine their own jurisdiction, and standing is perhaps the most important of the
3
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jurisdictional doctrines.” FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990) (internal
quotations and citation omitted).
“To satisfy the ‘case’ or ‘controversy requirement’ of Article III, which is the ‘irreducible
constitutional minimum’ of standing, a plaintiff must, generally speaking, demonstrate that he
has suffered an ‘injury in fact,’ that the injury is ‘fairly traceable’ to the actions of the defendant,
and that the injury will likely be redressed by a favorable decision.” Bennett v. Spear, 520 U.S.
154, 162 (1997) (citations omitted). To show injury-in-fact, a plaintiff must show “an invasion
of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent,
not conjectural or hypothetical.” Lujan v, Defenders of Wildlife, 504 U.S. 555, 560 (1992).
In pre-enforcement challenges, like this one, the “Supreme Court has recognized that an
allegation of future injury may satisfy the injury-in-fact requirement if the alleged threatened
injury is certainly impending, or there is a substantial risk that the harm will occur.” McKay v.
Federspiel, 823 F.3d 862, 867 (6th Cir. 2016) (quoting Susan B. Anthony List v. Driehaus, 573
U.S. 149, 158 (2014) (cleaned up)). More specifically, plaintiffs satisfy the injury-in-fact
requirement where they allege: (1) “an intention to engage in a course of conduct arguably
affected with a constitutional interest,” (2) that is “proscribed by a [law],” and (3) “there exists a
credible threat of prosecution thereunder.” Susan B. Anthony List, 573 U.S. at 159, 134 S.Ct.
2334 (citation omitted). As sovereign entities, Kentucky and Tennessee also enjoy “special
solitude in [the Court’s] standing analysis. Massachusetts v. E.P.A., 549 U.S. 497, 518–20
(2007). The Court will consider, in turn, whether Plaintiffs have met each element.
In order to satisfy the first Dreihaus factor in this context, the Court must, necessarily,
look to the substance of the “constitutional interest” at issue in this case. Plaintiffs Kentucky and
Tennessee are alleging that the Tax Mandate, a condition attached to the receipt of funds under
4
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the ARPA, is unconstitutional on a variety of grounds. [R. 25.] The States contend that they
wish to accept the funds—indeed, that they need the funds—but seek to enjoin the Treasury
Department from enforcing the Tax Mandate. [Id.] There is at least one valid argument that the
Tax Mandate is unconstitutional. See generally Ohio v. Yellen, 2021 WL 2712220, 1:21-cv-
00181-DRC (S.D. Ohio July 1, 2021). Accordingly, the States have met the first factor. Next,
the Tax Mandate may fairly be considered a guardrail as to how States may spend ARPA funds.
Tennessee and Kentucky, however, interpret the Tax Mandate as proscribing use of the funds for
their “preferred tax policies in the coming years.” [R. 25 at 11.] The second factor is met.
Finally, Treasury Secretary Yellen penned a letter to various attorneys general on March 23,
2021, indicating her intent to enforce the Tax Mandate. [See R. 1-2.] Thus, a credible threat of
prosecution exists, Plaintiffs have met their burden, and this Court has standing to turn to the
merits of the case.
B
Plaintiffs, in their summary judgment motion, cite four different ways in which the Tax
Mandate of the ARPA is unconstitutional. [R. 25.] The Court will begin by addressing the
Plaintiffs’ contention that the Tax Mandate is unconstitutionally coercive and then turn to
remaining arguments, as needed.
The Spending Clause gives Congress the power “to pay the Debts and provide for the ...
general Welfare of the United States.” U.S. Const., Art. I, § 8, cl. 1. As a part of its Spending
Clause powers, Congress may offer conditioned funds to the States. See South Dakota v. Dole,
483 U.S. 203, 208 (1987) (threatening to withhold federal funds if South Dakota did not raise
drinking age to twenty-one). To that end, Spending Clause legislation has often been
characterized as “much in the nature of a contract” between two co-sovereigns. Pennhurst State
5
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School and Hospital v. Halderman, 451 U.S. 1, 17 (1981). In exercising its spending power,
however, Congress itself must abide by certain limitations. The limitation pertinent here holds
that Congress may not enact Spending Clause legislation that uses “financial inducements to
exert a ‘power akin to undue influence.’ ” National Federation of Independent Business v.
Sebelius, 567 U.S. 519, 577 (2012) (quoting Steward Machine Co. v. Davis, 301 U.S. 548, 590
(1937)). Although Congress may “encourage a State to regulate in a particular way, [and]
influenc[e] a State’s policy choices,” Id. (quoting New York v. United States, 505 U.S. 144, 166
(1992)), Congress oversteps its powers when “pressure turns into compulsion.” Id. at 576–77.
(quoting Steward Machine Co., 301 U.S. at 590).
Article III courts exercise restraint in second-guessing the policy judgments of Congress.
Members of Congress are subject to the political whims of the American citizens; Article III
courts are insulated from political processes and “possess neither the expertise nor the
prerogative to make policy judgments.” NFIB, 567 U.S. at 538. Courts must step in, however,
where Congress’s policy judgments threaten the independent sovereignty of the States.
“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.” Id. at 577. In
keeping with the contract analogy, when a State alleges coercion, courts must consider whether
the State is able to “voluntarily and knowingly accept[] the terms of the ‘contract.’ ” Pennhurst,
451 U.S. at 17.
The Supreme Court, in South Dakota v. Dole, considered whether Congress overstepped
its spending powers where it threatened to withhold five percent of South Dakota’s federal
highway funds if the State refused to raise the minimum-drinking age to twenty-one. 483 U.S.,
at 211. The Supreme Court determined that the conditional offer was not coercive because
6
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“Congress ha[d] offered relatively mild encouragement to the States to enact higher minimum
drinking ages than they would otherwise choose.” Id. In other words, the State was not so
reliant on the five percent of highway funds—“otherwise obtainable under specified highway
grant programs”—to the point where they had no real choice; the decision to comply with the
condition “remain[ed] the prerogative of the States not merely in theory but in fact.” Id., at 211–
12.
NFIB, on the other hand, represents the sole example of the Supreme Court enforcing the
anticoercion principle where Congress’s spending legislation deprived the States of any
meaningful choice. 567 U.S., at 519. In 2010, Congress passed the Patient Protection and
Affordable Care Act (“ACA”), seeking to expand healthcare access for millions of Americans.
The ACA contained a Medicaid expansion, which threatened the States with a complete loss of
federal funding of Medicaid—funding equal to ten percent of a State’s total budget—if any State
refused to comply with the expansion. Chief Justice Roberts, delivering the opinion of the
Court, found the Medicaid expansion provision to violate “the basic principle that the ‘Federal
Government may not compel the States to enact or administer a federal regulatory program.’ ”
NFIB, 567 U.S., at 575 (quoting New York, 505 U.S., at 188)). In finding the Medicaid
provisions of the ACA coercive, the Supreme Court considered: (1) the expanded obligations
that States must comply with; (2) the fact that Congress threatened to withhold both new and
existing funding for the States’ Medicaid programs; 3 and (3) whether Congress’s “financial
inducement” was “mild encouragement” or “a gun to the head.” 4 Id. at 581.
3
While the issue of existing funds was a factor considered by the Supreme Court in NFIB, it was one of many
factors weighed. Accordingly, the Court will not accept Defendants’ argument that NFIB is factually distinct from
the present case. [See R. 31.]
4
See Dole, 483 U.S., at 211 (“all South Dakota would lose if she adheres to her chosen course as to a suitable
minimum drinking age is 5% [of her highway funds]”). In fact, South Dakota was only poised to lose “less than half
of one percent of South Dakota’s budget at the time.” NFIB, 567 U.S., at 581.
7
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Similarly, in his concurring Opinion in School Dist. of City of Pontiac v. Secretary of
U.S. Dept. of Educ., Judge Sutton noted the coercive nature of the contract that States were
offered at the onset of the No Child Left Behind Act. 584 F.3d 253, 284 (6th Cir. 2009) (Sutton,
J, concurring). Stuck between Congress’s funding conditions and “fiscally challenging times …
[no State] would have the fortitude to turn down hundreds of millions of dollars in education
funding.” Id. The “choice-bending” nature of Congress’ s contract of adhesion was underscored
by the fact that “no State refused aid under the Act, notwithstanding the conditions that came
with it.” Id.
The States here know, as Kentucky and Tennessee show, that “refusing to accede to the
conditions set out in the [law] is not a realistic option.” See NFIB, 567 U.S., at 681 (Scalia, J.,
dissenting). Whereas roughly ten percent of a State’s annual budget was at stake in NFIB, the
ARPA offers States and the District of Columbia $195.3 billion dollars. See Jared Walczak,
Four Questions Treasury Must Answer About the State Tax Cut Prohibition in the American
Rescue Plan Act, Tax Found. (Mar. 18, 2021), https://bit.ly/3cYu0YB. For context, that is
roughly twenty percent of the annual state tax collections brought in by state governments. Id. If
both Kentucky and Tennessee choose to accept the ARPA funds—if it can be referred to as a
choice—they will both receive amounts equal to roughly one-fifth of their general fund revenues
for the preceding year. 5 See How the COVID-19 Pandemic is Transforming State Budgets, Urb.
Inst. (last visited June 25, 2021), https://urbn.is/3jsU9ni; see also Jared Walczak, State Aid in
American Rescue Plan Act is 116 Times States’ Revenue Losses, Tax Foundation (Mar. 3, 2021),
5
Kentucky will receive roughly $2.4 billion from the ARPA. [See R. 1 at 11] Relative to the $11.2 billion in
revenue that Kentucky received from the General Fund during the last fiscal year, the ARPA aid package for
Kentucky amounts to more than one-fifth of Kentucky’s entire yearly General Fund revenue. [Id.] Tennessee will
receive roughly $3. Billion from the ARPA. [Id.] Relative to the $17.8 billion in revenue that Tennessee received
from the General Fund during the last fiscal year, the ARPA aid package for Kentucky amounts to more than one-
fifth of Tennessee’s annual general revenue. [Id.]
8
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https://taxfoundation.org/state-and-local-aid-american-rescue-plan/. The amount of money at
stake is especially pressing for Kentucky and Tennessee who, unlike the federal government, are
constitutionally required to enact balanced budgets. See Ky. Const. §§ 49–50, 171; Tenn. Const.
Art. II, § 24.
Putting aside the sheer size of the federal government’s offering, the past year-and-a-half
has presented anything but ordinary and stable conditions for the States. Not only have the
States been forced to combat the health ramifications of the coronavirus, the pandemic has
thrown many States and citizens into severe economic hardship. Amici Curiae Chamber of
Commerce and National Federation of Independent Business Small Business Legal Center
highlight some of the economic devastation the pandemic has brought:
Small businesses, in particular, have faced unprecedented economic hardship. In
surveys of small business owners, 81% of participants reported losing sales
opportunities because of a labor shortage. 6 More than half had employees take
pandemic-related sick leave or family leave; 87% of those businesses reported at
least some of that leave was paid leave. 7 The hospitality industry was also ravaged:
At the beginning of this year, foodservice sales were down $240 billion from
expected levels in 2020. 8 Nearly a third of all restaurant and hospitality workers
lost their jobs in the first few months of the pandemic, 9 and many have yet to
return. 10 More than 100,000 businesses of all stripes have permanently shuttered
6
See NFIB Res. Ctr., Covid-19 Small Business Survey (18) at 10 (June 30, 2021), https://bit.ly/3y Mg4KD.
7
See NFIB Res. Ctr., Covid-19 Small Business Survey (17) at 8-9 (Apr. 28, 2021), https: //bit.ly/3ycOcyO.
8
See Nat’l Restaurant Ass’n, Restaurant Sales Fell to Their Lowest Level Since June (Jan. 15, 2021), https://
bit.ly/3d5gVwu; see also Alex Sherman, Five Charts That Show How COVID-19 Stopped the U.S. Economy In Its
Tracks, CNBC (Mar. 11, 2021), https://cnb.cx/3cZ97O0.
9
Erin Huffer & Aravind Boddupalli, The Leisure & Hospitality Sector Has an Employment Crisis—and It Might Be
Getting Worse, Urb. Wire (July 20, 2020), https://urbn.is/397ptlz.
10
See Nat’l Restaurant Ass’n, 49 States and DC Added Restaurant Jobs in May 2021 (June 24, 2021),
https://bit.ly/3hn5jHA (restaurant employment in all but four states remains below its prepandemic level); Nat’l
Restaurant Ass’n, Restaurant Employment Fell for the Third Consecutive Month (Feb. 5, 2021),
https://bit.ly/31b0pG3 (nearly 450,000 restaurant jobs lost in the three months preceding February 2021); State-by-
State Job Loss: COVID-19 Continues to Devastate Hotel Industry, Am. Hotel & Lodging Ass’n (Feb. 2021),
https://bit.ly/3uG0H47 (hospitality industry unemployment rate 300% higher than rest of economy); Michael
Ettlinger & Jordan Hensley, Covid-19 Economic Crisis: By State, Univ. of N.H. Carsey Sch. of Pub. Pol’y (June 29,
2021), https://bit.ly/3dBzklI (nationwide employment in the accommodation and food services industry is down
13.9% since last year).
9
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their doors, 11 and the country has lost more jobs since February 2020 than were lost
during the Great Recession of December 2007 to June 2009. 12
[R. 34 at 24–25.] Looking beyond the impacts on private businesses, state and local
governments have likewise felt the economic brunt of the pandemic. Many state and local
governments are grappling with “severe budget shortfalls.” Anshu Siripurapu & Jonathan
Masters, How COVID-19 Is Harming State and City Budgets, Council on Foreign Relations
(Mar. 19, 2021), https://on.cfr.org/3f9vjqm. This, in part, can be explained by the necessary
steps these governments have been forced to take in response to the pandemic, including: making
budgetary cuts, freezing spending and hiring, laying off workers, and drawing down rainy day
funds. Id. State and local officials have even remarked in the public sphere that the money
available through the ARPA represents a life preserver thrown to drowning governmental bodies.
See Manny Fernandez & Sabrina Tavernise, Stimulus Bill Transforms Options for State and
Local Governments, N.Y. TIMES, Mar. 15, 2021, https://www.nytimes.com/2021/03/13/us/
stimulus-biden-states-cities.html (“The American Rescue Plan – that’s a proper term for the
situation we’re in … it’s pretty amazing that we’re still standing up”). Local governments have
incurred “[t]hree quarters of the the more than 1.3 million jobs lost among state and local
governments since February 2020 … the vast majority of them from school districts.” Id. In
fact, the full extent of the fiscal damage incurred by local governments may not yet be known, as
many counties have “complained that funds from previous rounds of pandemic stimulus had not
reached them because the funds were routed through states for smaller counties.” Id.
11
Anne Sraders & Lance Lambert, Nearly 100,000 Establishments That Temporarily Shut Down Due to the
Pandemic Are Now Out of Business, Fortune (Sept. 28, 2020), https://bit.ly/3t6dpci; Paul Davidson, Vaccines Could
Help Steady Economy; Yet Pandemic Isn’t Over, Effects Are Likely to Linger, USA Today at 3B (Dec. 31, 2020).
12
Michael Ettlinger & Jordan Hensley, supra n.8; see also Congressional Rsch. Serv., Global Economic Effects of
COVID-19 at Fig. 19 (June 17, 2021), https://bit.ly/3AitAqJ (in none of sixteen measured sectors has the number of
jobs lost in April 2020 been fully recovered); U.S. Bureau of Labor Statistics, All Employees, Total Nonfarm
[PAYEMS], retrieved from FRED, Fed. Rsrv. Bank of St. Louis (July 8, 2021), https://bit.ly/3dPMhbQ (total
nonfarm employment in the United States is still more than 6.7 million jobs below its February 2020 level).
10
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At the risk of straining the analogy, the pandemic has many state and local governments
treading water. The federal government’s rescue boat has arrived in the form of the ARPA, but
instead of offering a hand to hoist up its sinking co-sovereigns, it has offered a pen and paper
listing conditions of rescue. The States have no voluntary or knowing choice in the matter,
Pennhurst, 451 U.S. at 17, and face a “gun to the head” contract of adhesion. NFIB, 567 U.S., at
575. This is exemplified by the fact that all but thirteen States, to-date, have certified to receive
ARPA funds, with more likely to follow. See, e.g., ARPA State Fiscal Recovery Fund
Allocations, National Conference of State Legislatures, https://www.ncsl.org/research/fiscal-
policy/arpa-state-fiscal-recovery-fund-allocations.aspx (last visited Sept. 17, 2021). Further, an
untold number of local governments and cities will likewise receive funding directly from the
Treasury Department. See, e.g. American Rescue Plan Act (ARPA), Lexington-Fayette Urban
County Government, https://www.lexingtonky.gov/ARPA (last visited Sept. 17, 2021). The
numbers speak for themselves. See City of Pontiac, 584 F.3d 253, at 284. Given the “choice
bending” nature of Congress’s offer, id., the Court finds the Tax Mandate of the ARPA coercive,
and the condition cannot be sustained under the spending power. 13
If you think about it, the coercion presented in the ARPA is exactly the kind of intrusion
on state sovereignty that the Constitution prohibits. Accordingly, the Court rests on the
abovementioned considerations in finding the federal government’s offer coercive, but feels
compelled to mention the particularly injurious nature of the Tax Mandate. The Constitution
recognizes limitations on the States, but does not abolish the States’ “residuary and inviolable
sovereignty.” The Federalist No. 39, p. 245 (C. Rossiter ed. 1961). Accordingly, our federalist
13
As a note, whereas an Interim Final Rule from the Treasury Department has the potential to clarify an
unconstitutionally ambiguous offer, see Ohio, 2021 WL 2712220, at *3–4, such a Rule has no bearing on whether
Congress’s offer is unconstitutionally coercive. Accordingly, the Treasury Department’s May 17, 2021 IFR, see
86 Fed. Reg. 26,786 (May 17, 2021), has no bearing on this Court’s coercion analysis.
11
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system is one of dual sovereignty. See Murphy v. National Collegiate Athletic Ass’n, 138 S. Ct.
1461, 1475 (2018). Out of all of the powers reserved to the States, there is no power more
central to a state government’s sovereignty than the power to tax, Dep’t of Revenue v. ACF
Indus., Inc., 510 U.S. 332, 345 (1994), which the Supreme Court, long ago, recognized as
“indispensable to [the States’] existence.” Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 199 (1824).
In fact, the “power of self-government … cannot exist distinct from the power of taxation.”
Providence Bank v. Billings, 29 U.S. (4 Pet.) 514, 546, 548 (1830). Thus, where the federal
government unduly influences the States’ power to set their own tax policies, the federal
government oversteps its bounds. Not only does this threaten the dual nature of our federalist
system, but such federal overreach threatens individual liberties that “derive[] from the diffusion
of sovereign power.” Bond v. United States, 564 U.S. 211, 221 (2011). As mentioned above, the
Court draws no conclusion here as to whether, for instance, the Tax Mandate violates the
anticommandeering doctrine. [See R. 25.] The Court simply notes that the federal government’s
condition implicates not only powers at the core of state sovereignty, but individual liberties
reserved to citizens, as well. See Bond, 564 U.S. 211, at 222 (“When government acts in excess
of its lawful powers, [individual] liberty is at stake”).
C
Beyond the anticoercion principle, Plaintiffs contend that the Tax Mandate is
unconstitutional in three other respects. [R. 25.] Plaintiffs argue that the Tax Mandate: (1)
violates the anticommandeering doctrine because it seizes powers reserved to the States, via the
Tenth Amendment, to set their own tax policies [id. at 34]; (2) is not reasonably related to the
federal interest in passing the ARPA, which Plaintiffs define as “providing relief to the States
12
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(and their citizens) from hardships caused by Covid-19” [id. at 36]; and (3) is unconstitutionally
ambiguous in violation of the Spending Clause where the plain language of the Tax Mandate is
simply incomprehensible. [Id. at 27.]
Kentucky and Tennessee may very well be correct about these alternative grounds. But,
having found the Tax Mandate unconstitutionally coercive, this Court will refrain from
anticipating further questions of constitutional law “in advance of the necessity of deciding
[them].” Wash. St. Grange v. Wash. St. Republican Party, 552 U.S. 442, 450–51 (2008) (quoting
Ashwander v. TVA, 297 U.S. 288, 346–47 (1936)). 14
D
Turning to the remedies, Plaintiffs pray for both declaratory relief and a permanent
injunction enjoining the Treasury Secretary from enforcing the Tax Mandate provision of the
ARPA. [R. 1 at 24.] To obtain a permanent injunction, a plaintiff “must first establish that [she
has] suffered a constitutional violation.” Womens Med. Prof'l Corp. v. Baird, 438 F.3d 595, 602
(6th Cir. 2006). As explained above, Tennessee and Kentucky have clearly suffered violations of
their constitutional rights as a result of the Tax Mandate’s coercive nature. The four factors for
courts to consider before granting a request for a permanent injunction also weigh in the
Plaintiffs’ favor. These factors require the Court to find (1) that the Plaintiffs have suffered an
irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate
to compensate for that injury; (3) that an equitable remedy is warranted upon considering the
balance of hardships between the parties; and (4) that the public interest would not be disserved
14
Suffice it to say, for an excellent exposition on the question of the Tax Mandate’s ambiguity, see generally Ohio,
2021 WL 2712220. Further, for additional opinions regarding the constitutionality of the Tax Mandate or district
courts’ standing to hear them, cf. W. Va., et al. v. U.S. Dep’t of Treasury, et al., 2021 WL 2952863 (N.D. Al. July
14, 2021) (denying preliminary injunction, citing lack of irreparable injury); Ariz. v. Yellen, 2021 WL 3089103 at
*3–4 (D. Ariz. July 22, 2021) (denying ambiguity challenge where ARPA provides clear notice that conditions are
attached to funds, whether or not conditions are largely indeterminate).
13
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by a permanent injunction. See eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391, 126
(2006); see also Wedgewood Ltd. Partnership I v. Twp. of Liberty, 610 F.3d 340, 349 (6th Cir.
2010). First, the Plaintiffs’ irreparable harm flows naturally from the constitutional violation.
See Overstreet v. Lexington–Fayette Urban Cnty. Gov't, 305 F.3d 566, 578 (6th Cir. 2002)
(explaining that “a denial of an injunction will cause irreparable harm if the claim is based upon
a violation of the plaintiff's constitutional rights”). Next, whereas monetary damages might
otherwise be an adequate remedy if recoupment were to take place, Defendants enjoy sovereign
immunity against such relief. See F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994) (“Absent a
waiver, sovereign immunity shields the Federal Government and its agencies from suit”). The
balance of hardships also weighs in Plaintiffs’ favor. As explained above, Plaintiffs will endure
hardship if forced to accept this unconstitutional contract of adhesion that impedes on their
sovereign powers. Defendants, on the other hand, will suffer no hardship if this Court enjoins
them from enforcing the Tax Mandate. The Court sees no cognizable interest of the federal
government in enforcing the Tax Mandate and, given the limited scope of the permanent
injunction, the Defendants will be free to enforce every other provision of the ARPA as they see
fit. Lastly, “it is always in the public interest to prevent the violation of a party’s constitutional
rights.” G & V Lounge, Inc. v. Mich. Liquor Control, Comm'n, 23 F.3d 1071, 1079 (6th Cir.
1994). The public interest is safeguarded with a decision in favor of the Plaintiffs; the States’
ability to set their taxing policy as a co-sovereign enhances, rather than threatens, individual
liberty. Bond, 564 U.S., at 221.
A permanent injunction is proper in this case, as enjoining the enforcement of the Tax
Mandate alleviates the constitutional harm. Because a permanent injunction fully rectifies the
Plaintiffs’ harm, the Court need not address the issue of a declaratory judgment.
14
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Lastly, the Court must consider the scope of its injunction. The Sixth Circuit has held
that a “district court should limit the scope of [an] injunction to the conduct ‘which has been
found to have been pursued or is related to the proven unlawful conduct.’ ” Howe v. City of
Akron, 801 F.3d 718, 753 (6th Cir. 2015) (quoting E.E.O.C. v. Wilson Metal Casket Co., 24 F.3d
836, 842 (6th Cir.1994)). The Defendant has made an unconstitutionally coercive offer to
Plaintiffs Tennessee and Kentucky. Defendants have made identical offers, however, to every
State in the country. While it is true that the evidence presented by the parties primarily relates
to Kentucky and Tennessee, this Court’s ruling rests on the coercive elements that are
universally present in the federal government’s offer to all of the States. Consequently, this
Court must consider the breadth of its injunction: Should it enjoin the Treasury Secretary’s
enforcement of the Tax Mandate as it relates to (1) the Eastern District of Kentucky (this Court’s
District); (2) Tennessee and Kentucky (the entities before the Court); or (3) all of the States (both
parties and non-parties).
In Trump v. Hawaii, —U.S.—, 138, S. Ct. 2392, 2424 (2018) (Thomas, J., concurring)
Justice Thomas discussed the increasing frequency of “universal” or “nationwide injunctions.”
Justice Thomas expressed his skepticism of such injunctions, noting: (1) historical principles of
equity in Article III courts; (2) the recency of nationwide injunctions; (3) and the properly
limited role of district courts. Id. at 2425–2429 (“[In the past, as] a general rule, American
courts did not provide relief beyond the parties to the case”). Justice Thomas found that the
sweeping relief brought by nationwide injunctions likewise brings “forum shopping” and makes
“every case a national emergency for the courts and the Executive Branch.” Id. at 2425. Instead,
district courts should allow legal questions to percolate through the federal court system. Id.
Justice Gorsuch affirmed this notion in Department of Homeland Sec. v. New York, 140 S. Ct.
15
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599, 600 (2020) (Gorsuch, J.J., concurring). Noting that “[e]quitable remedies, like remedies in
general, are meant to redress the injuries sustained by a particular plaintiff in a particular
lawsuit,” Justice Gorsuch found that nationwide injunctions “raise serious questions about the
scope of courts’ equitable powers under Article III.” Id. Not only are such injunctions
impracticable, they “force judges into making rushed, high-stakes, low-information decisions.”
Id. Careful review by multiple district and circuit courts, on the other hand, allows the Supreme
Court the benefit of thoughtful and, at times, competing outcomes. Id. The current state of
affairs in the Sixth Circuit is a key example of this careful and deliberate process. One district
court has answered a similar legal question regarding the Tax Mandate on dissimilar grounds.
see Ohio, 2021 WL 2712220. The Sixth Circuit will likely consider both district court
injunctions and issue its own opinion. Thereafter, the Supreme Court may choose to address the
constitutionality of the Tax Mandate, with the added benefit of many competing views to inform
its decision. Even if this Court were to consider relief beyond Tennessee and Kentucky,
however, the Sixth Circuit has already defined the outer-bounds of this Court’s powers. See Gun
Owners of America, Inc. v. Garland, 992 F.3d 446, 474 (6th Cir. 2021) (“we do not decide the
scope of the injunction, except to say that the scope may not exceed the bounds of the four states
within the Sixth Circuit’s jurisdiction and, of course, encompasses the parties themselves”).
Although the debate over the proper scope of injunctions is ongoing, this Court believes
that redressability in the present case is properly limited to the parties before the Court.
Consequently, the scope of the permanent injunction shall apply to both Tennessee and
Kentucky, in equal force.
III
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Some might view Hamilton as having gotten the better of Jefferson in terms of the
balance between federal and state powers. 15 Nevertheless, the balance exists. And here, the
federal action intrudes on state sovereignty. Accordingly, and the Court being sufficiently
advised, it is hereby ORDERED as follows:
1. The Plaintiffs’ Motion for Summary Judgment [R. 25] is GRANTED;
2. The Treasury Secretary is PERMANENTLY ENJOINED from seeking enforcement of
the Tax Mandate, 42 U.S.C. § 802(c)(2)(A), against Plaintiffs Tennessee and Kentucky;
3. The Plainitffs’ request for declaratory relief, as argued in [R. 25], is DENIED; and
4. Defendant’s Motion to Dismiss [R. 32] is DENIED;
5. Judgment shall enter promptly.
This the 24th day of September, 2021.
15
See McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579 (1819).
17
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