Application (24A259) to extend the time to file a petition for a writ of certiorari from September 23, 2024 to October 23, 2024, Yellen v. Texas, No. 24A259 (U.S.) (September 12, 2024)

Summary

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 Texas, et al. as respondents. The Solicitor General requests a 30-day extension, to and including October 23, 2024, to file a petition for a writ of certiorari to the United States Court of Appeals for the Fifth Circuit. The application states that the court of appeals entered its judgment on June 25, 2024 and that the petition would otherwise be due September 23, 2024. It sets out the American Rescue Plan Act of 2021, the Coronavirus State Fiscal Recovery Fund and the text of the offset provision. The attached court of appeals opinion ends by stating that the court affirms the district court's grant of a permanent injunction.

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Cite this document

“Application (24A259) to extend the time to file a petition for a writ of certiorari from September 23, 2024 to October 23, 2024, Yellen v. Texas, No. 24A259 (U.S.) (September 12, 2024).” Original at www.supremecourt.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/application-24a259-to-extend-the-time-to-file-a-petition-for-a-writ-of-bd45d3bd0f/, SHA-256 bd7c3e47c3c895294d6e71338fc656d3cebe55b4dadad880b957b0157177d541.

Full text

IN THE SUPREME COURT OF THE UNITED STATES

_______________

No. 24A_____

JANET YELLEN,
SECRETARY OF THE TREASURY, ET AL., APPLICANTS

TEXAS, 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 FIFTH CIRCUIT

_______________

Pursuant to Rules 13.5 and 30.2 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 October 23,

2024, within which to file a petition for a writ of certiorari to

review the judgment of the United States Court of Appeals for the

Fifth Circuit in this case. The court of appeals entered its

judgment on June 25, 2024. Therefore, unless extended, the time

within which to file a petition for a writ of certiorari will

expire on September 23, 2024. The jurisdiction of this Court would

be invoked under 28 U.S.C. 1254(1). A copy of the opinion of the
2

court of appeals, which is reported at 105 F.4th 755, is attached.

App., infra, 1a-25a.

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
deduction, a credit, or otherwise) or delays the imposition
of any tax or tax increase.
3

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),

up to the total amount of fiscal recovery funds received by the

State. 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. After accepting their allotments of fiscal recovery

funds, Texas, Louisiana, and Mississippi filed this suit,

asserting that the offset provision is an unlawful condition on

the grant of funds they accepted. App., infra, 3a. The United

States District Court for the Northern District of Texas granted
4

summary judgment to the plaintiff States and permanently enjoined

enforcement of the offset provision against them. Id. at 4a. The

court held that Congress’s offer of ARPA funds in exchange for

States’ acceptance of the offset provision was unduly coercive and

commandeered the States. Ibid.

3. The court of appeals affirmed on alternative grounds.

App., infra, 1a-25a. As an initial matter, the court held that

the States had Article III standing. Id. at 5a-9a. The court

determined that the States suffered injury in fact because ARPA

“coerces them into making a choice between losing potentially

billions of dollars or surrendering their ability to set state tax

policy.” Id. at 6a. And the court also found that the States

face a “threat of future recoupment” if they violate the offset

provision. Id. at 7a.

On the merits, the court of appeals held that the offset

provision violates the Spending Clause because it “impose[s] an

ambiguous condition on the States’ use of federal funds.” App.,

infra, 19. The court identified two aspects of the offset

provision that, in its view, rendered the provision ambiguous.

Ibid. First, the court reasoned that the meaning of “directly or

indirectly offset” “is not clear from the face of the statute,”

Id. at 20a. Second, the court observed that the statute “fail[s]

to identify a baseline against which any revenue reductions will

be measured.” Id. at 21a. Finally, the court found the Treasury

Department’s implementing regulation to be “of no help” in
5

clarifying the offset provision because, in the court’s view,

“statutory ambiguity can[not] be vitiated by regulatory enactments

in the context of the Spending Clause.” Id. at 23a.

5. The Solicitor General has not yet determined whether to

file a petition for a writ of certiorari in this case. The addi-

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

SEPTEMBER 2024
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United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit

____________ FILED
June 25, 2024
No. 22-10560 Lyle W. Cayce
____________ Clerk

State of Texas; State of Mississippi; State of
Louisiana,

Plaintiffs—Appellees,

versus

Janet Yellen, in her official capacity as Secretary of the Treasury;
Richard K. Delmar, in his official capacity as Acting Inspector General of
the Department of the Treasury; United States Department of
the Treasury; United States of America,

Defendants—Appellants.
______________________________

Appeal from the United States District Court
for the Northern District of Texas
USDC No. 2:21-CV-79
______________________________

Before Elrod, Ho, and Oldham, Circuit Judges.
Jennifer Walker Elrod, Circuit Judge:
The American Rescue Plan Act allocated nearly $200 billion to the
states and the District of Columbia to assist with economic recovery in the
wake of the COVID-19 pandemic. But the funds came with a catch. To
accept the money, states had to agree not to use it to “directly or indirectly
offset” reductions in state tax revenue. Several states filed a lawsuit seeking
to enjoin the enforcement of that provision.

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In exercising its power under the Spending Clause, Congress has a
constitutional obligation to cut a clear deal with the states when they accept
federal funding. Because the challenged provision is not clear about what it
requires of the states, it falls short of that obligation and is impermissibly
ambiguous. Accordingly, we reach the same ultimate conclusion as have two
other circuit courts and AFFIRM the district court’s grant of a permanent
injunction.
I
Congress enacted the American Rescue Plan Act in March 2021 in the
wake of profound economic damage caused during the COVID-19 pandemic.
Pub. L. No. 117-2, § 9901(a), 135 Stat. 4 (2021) (codified at 42 U.S.C. § 801
et seq.). As one of its many provisions, ARPA allocates $195.3 billion to the
states and the District of Columbia to aid their economic recovery, and these
funds can be used to cover a range of costs. 42 U.S.C. §§ 802(b)(3)(A),
(c)(1). However, ARPA also imposes a condition on the states’ acceptance
of their allotted share. Section 802(c)(2)(A) provides that:
A State or territory shall not use the funds provided under this
section or transferred pursuant to section 803(c)(4) of this title
to either directly or indirectly offset a reduction in the net tax
revenue of such State or territory resulting from a change in
law, regulation, or administrative interpretation during the
covered period that reduces any tax (by providing for a
reduction in a rate, a rebate, a deduction, a credit, or otherwise)
or delays the imposition of any tax or tax increase.
In other words, ARPA broadly prohibits states from using their ARPA funds
to take any action that would reduce their net tax revenue.

Before receiving the funds, a state must certify that it will comply with
the restrictions imposed by Section 802(c). Id. § 802(d)(1). After accepting
the funds, states must continue to provide “a detailed accounting” of both

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how their funds are used and what “modifications” they make “to the
State’s or territory’s tax revenue sources.” Id. § 802(d)(2). A state that
accepts funds and subsequently fails to abide by Section 802(c)(2)(A) “shall
be required to repay to the Secretary [of the Treasury] an amount equal to
the amount of funds used in violation [thereof].” Id. § 802(e).

ARPA also authorizes the Secretary of the Treasury “to issue such
regulations as may be necessary or appropriate to carry out” the applicable
statutory provisions. Id. § 802(f). In May 2021, the Secretary published an
interim final rule. Coronavirus State and Local Fiscal Recovery Funds, 86 Fed.
Reg. 26786 (May 17, 2021). The Treasury Department released a final rule
in January 2022. Coronavirus State and Local Fiscal Recovery Funds, 87 Fed.
Reg. 4338 (Jan. 27, 2022). According to Treasury, the regulations interpret
Section 802(c)(2)(A) to prohibit states only from cutting tax revenue and then
using ARPA funds to account for that revenue cut, rather than using “organic
economic growth, increases in revenue from other sources, or spending
cuts” that are unrelated to where the state is putting their federal funds.

In May 2021, shortly before Treasury released its interim final rule,
the states of Texas, Louisiana, and Mississippi sued the named federal
defendants in the Northern District of Texas. The States challenged Section
802(c)(2)(A)’s constitutionality and requested declaratory and injunctive
relief. The funds that ARPA allocates to Texas, Louisiana, and Mississippi
amount to 13%, 7%, and 31%, respectively, of each state’s 2021 budget.

The federal defendants moved to dismiss the lawsuit for lack of
standing, but the district court denied their motion. The States moved for

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summary judgment on three of their claims.1 First, that Section 802(c)(2)(A)
violated the Spending Clause because it created an unlawfully coercive
condition. Second, that Section 802(c)(2)(A) was unconstitutionally
ambiguous and unrelated to the purposes of ARPA. Third, that Section
802(c)(2)(A) violated the anticommandeering doctrine by forcing states to
adopt certain tax laws. The federal defendants also moved for summary
judgment.
The district court granted summary judgment in favor of the States,
determining that “Congress’s offer of ARPA funds in exchange for
acceptance of Section 802(c)(2)(A) is unduly coercive and commandeers
Plaintiffs.” The court found Section 802(c)(2)(A) unduly coercive because
the amount of money at stake was too great to present the States with a real
choice. The billions of dollars on the table acted not as a genuine offer but as
a “gun to the head” given the States’ acute need for funding in response to
financial pressures caused by the pandemic. And the court found that
Section 802(c)(2)(A) violated the anticommandeering doctrine by
unlawfully forcing the States to adopt certain tax policies. The district court
held that because “there is no power more central to state sovereignty than
the power to tax,” the “federal government exceeds its authority when it
unduly influences a State’s power to set its own tax policies.” The district
court did not reach the States’ other arguments.
Having ruled in the States’ favor, the district court permanently
enjoined the enforcement of Section 802(c)(2)(A). It denied the States’
request for declaratory relief because the injunction already remedied their
ongoing harm. The federal defendants timely appealed. They argue that the
_____________________
1
The States’ complaint included a fourth claim that Section 802(c)(2)(A) violated
the principle of equal sovereignty between the states and the federal government, but the
States did not include this claim in their motion for summary judgment.

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district court erred in holding that the State plaintiffs had standing to bring
the suit, so the district court was without jurisdiction to reach the merits.
And they argue that even if the district court did have jurisdiction, it erred in
enjoining enforcement of Section 802(c)(2)(A).
II
We review rulings on standing de novo. Students for Fair Admissions,
Inc. v. Univ. of Tex. at Austin, 37 F.4th 1078, 1083 (5th Cir. 2022). We review
the district court’s grant of a permanent injunction for abuse of discretion,
and “the legal issues underlying the grant of the injunction de novo.” Med-
Cert Home Care, L.L.C. v. Becerra, 19 F.4th 828, 830 (5th Cir. 2021). And
“we may affirm for any reason supported by the record, even if not relied on
by the district court.” United States v. Gonzalez, 592 F.3d 675, 681 (5th Cir.
2009).
III
The federal defendants argue on appeal that the States lack standing.
We disagree.
To establish Article III standing, an injury must be “concrete,
particularized, and actual or imminent; fairly traceable to the challenged
action; and redressable by a favorable ruling.” Clapper v. Amnesty Int’l USA,
568 U.S. 398, 409 (2013) (internal quotation marks and citation omitted).
The federal defendants do not contest the traceability and redressability
requirements of standing, which are easily met here. The States’ alleged
injuries—their being coerced and commandeered by Section 802(c)(2)(A)—
are directly traceable to the federal defendants who are responsible for
enforcing it. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992). And the
injunction against Section 802(c)(2)(A)’s enforcement is “a sanction that
effectively abates that conduct and prevents its recurrence,” thereby

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“provid[ing] a form of redress.” Friends of the Earth, Inc. v. Laidlaw Env’t
Servs. (TOC), Inc., 528 U.S. 167, 185–86 (2000).
Instead, the federal defendants contest only whether the States’
alleged injuries are sufficiently concrete to satisfy the requirements of
standing. “A concrete injury must be de facto; that is, it must actually exist,”
and it must be “real” rather than “abstract.” Spokeo, Inc. v. Robins, 578 U.S.
330, 340 (2016) (internal quotation marks and citations omitted). We
consider the “nature and source of the claim asserted,” not the merits of
whether the plaintiff’s legal theory is correct. 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 . . . .”). This means that we
assume that the plaintiff’s interpretation of a challenged statute is correct
before examining whether the alleged harms—posited to be real—are
cognizable injuries. See Virginia v. Am. Booksellers Ass’n, Inc., 484 U.S. 383,
392 (1988) (assuming that the plaintiffs’ interpretation of the relevant statute
was correct when undertaking standing analysis).
Here, assuming that the States’ interpretation of ARPA is correct,
they have suffered at least two concrete injuries. First, ARPA coerces them
into making a choice between losing potentially billions of dollars or
surrendering their ability to set state tax policy.
The Supreme Court has “repeatedly characterized Spending Clause
legislation as ‘much in the nature of a contract.’” Nat’l Fed’n of Indep. Bus.
v. Sebelius, 567 U.S. 519, 576–77 (2012) (NFIB) (internal ellipses and citation
omitted). Coercion in the bargaining process is a familiar injury—the “denial
of a benefit in the bargaining process can itself create an Article III injury,
irrespective of the end result.” Clinton v. City of New York, 524 U.S. 417, 433
n.22 (1998). Here, according to the States’ interpretation of ARPA, they
stand to forego either billions of dollars in federal funds by rejecting the

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government’s offer, or their authority over taxation by accepting it. As the
district court observed, the States “face possible harm whichever choice they
choose.” This is not so much a choice as it is a double bind.
Not surprisingly, the Supreme Court has exercised jurisdiction over
disputes in which states allege that the federal government is unlawfully using
its Spending Clause powers to coerce the states into accepting conditional
offers. See, e.g., South Dakota v. Dole, 483 U.S. 203, 205 (1987). So too have
other circuit courts that have already confronted state-mounted challenges
to Section 802(c)(2)(A). West Virginia ex rel. Morrisey v. U.S. Dep’t of the
Treasury, 59 F.4th 1124, 1136 (11th Cir. 2023); Arizona v. Yellen, 34 F.4th 841,
852 (9th Cir. 2022) (“States have standing when an allegedly
unconstitutional funding offer is made to them . . . .”).
Second, the States face injury from the threat of a future recoupment
proceeding pursuant to Section 802(e). A plaintiff has met the injury-in-fact
requirement for standing under a pre-enforcement theory where it: “(1) has
an ‘intention to engage in a course of conduct arguably affected with a
constitutional interest’ (2) [its] intended future conduct is ‘arguably . . .
proscribed by [the law in question],’ and (3) ‘the threat of future enforcement
of the [challenged law] is substantial.’” Speech First, Inc. v. Fenves, 979 F.3d
319, 330 (5th Cir. 2020), as revised (Oct. 30, 2020) (quoting Susan B. Anthony
List v. Driehaus, 573 U.S. 149, 161–64 (2014)).
The Eleventh Circuit has persuasively explained why state plaintiffs
challenging Section 802(c)(2)(A) suffer an injury-in-fact under this pre-
enforcement theory. For starters, “[t]here is no question that the States
intend to continue cutting taxes and modifying their overall revenue.” West
Virginia ex rel. Morrisey, 59 F.4th at 1137. Here, the States aver as they did
before the district court that they will continue, as all states do, to set their

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own tax policy, including by cutting taxes.2 This conduct implicates an
authority “central” to the federal structure outlined in the Constitution. See
Dep’t of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 345 (1994).
Because the States accepted the condition imposed by Section
802(c)(2)(A), some exercises of this taxing authority are “arguably”
proscribed. Should the States nonetheless choose to exercise such authority
in violation of Section 802(c)(2)(A), they will be subject to a recoupment
action under Section 802(e). The States argue that they are unable to
accurately guess what exactly Section 802(c)(2)(A) prohibits and must
therefore budget under a Sword of Damocles—guess correctly, or
retroactively lose federal funding. Therefore, “[t]he only way for the States
to achieve unequivocal compliance with the Act is to refrain from cutting
taxes during the covered period.” West Virginia ex rel. Morrisey, 59 F.4th at
1138.
And there is a “substantial” threat of future enforcement, as Section
802(e)’s requirement is mandatory. 42 U.S.C. § 802(e) (a state violating
Section 802(c)(2)(A) “shall be required to repay” ARPA funds so used).
Although Treasury’s subsequent regulations adopted a narrow construction
of Section 802(c)(2)(A)’s prohibition, the regulations still contemplate
recoupment of funds from the states. Arizona, 34 F.4th at 850 (9th Cir. 2022)
(citing 31 C.F.R. § 35.10); see also West Virginia ex rel. Morrisey, 59 F.4th at
1137 (citing Coronavirus State and Local Fiscal Recovery Funds, 86 Fed. Reg. at
26808). The States therefore have “an actual and well-founded fear that the
law will be enforced against them.” Driehaus, 573 U.S. at 160.

_____________________
2
That being said, as the district court correctly noted, “a violation of Section
804(c)(2)(A) is not a prerequisite to standing.” See also Driehaus, 573 U.S. at 163.

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The federal defendants raise several additional arguments against
standing, but each fail. First, they cite the Eighth Circuit’s opinion in
Missouri v. Yellen, 39 F.4th 1063 (8th Cir. 2022). In that case, the Eighth
Circuit held that Missouri lacked standing to challenge Section 802(c)(2)(A)
because it did not “challeng[e] the [provision] as written, but rather a specific
potential interpretation of the provision—the ‘broad interpretation.’” Id. at
1069. But the Missouri case is inapposite here. In fact, the Eighth Circuit
expressly distinguished Missouri’s lawsuit from a similar suit brought by
Arizona in the Ninth Circuit, where that court held that Arizona had
standing. In the Ninth Circuit case, Arizona “argued that, as written, the
Offset Restriction is unconstitutionally ambiguous and unduly coercive.” Id.
at 1069 n.5 (citing Arizona, 34 F.4th at 852). Here, the States press the same
argument as did Arizona.
Next, the federal defendants argue that the canon of constitutional
avoidance should guide our interpretation of Section 802(c)(2)(A). They
assert that “it would have been appropriate to construe the Offset Provision
narrowly in order to avoid any serious constitutional issues that would have
arisen from a different construction.” But this touches on the merits of the
States’ claims, which we do not reach when examining standing. Warth, 422
U.S. at 500.3 We assume that the States’ reading of the challenged statute is
the correct one. Am. Booksellers Ass’n, Inc., 484 U.S. at 392.

_____________________
3
To the extent that constitutional avoidance might be implicated as to the merits,
we note that it is of no relevance as to the States’ claim arising from the Spending Clause’s
clarity requirement, examined below. “[T]he canon of constitutional avoidance has no
application in the absence of statutory ambiguity.” United States v. Oakland Cannabis
Buyers’ Co-op., 532 U.S. 483, 494 (2001). Therefore, this canon cannot apply to resolve
ambiguous conditions imposed through the spending power, where the entire
constitutional question is whether the condition is ambiguous in the first place. See Dole,
483 U.S. at 207. To apply that canon here would be to essentially reason that, given Section
802(c)(2)(A)’s ambiguity, we should interpret it to be unambiguous. But constitutional

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Finally, the federal defendants also contend that whatever injury the
States may have feared suffering from the face of the statute, those fears have
since been “put to rest” by the Treasury’s subsequent regulations. We do
not read this as a true standing argument, however, as this litigation predates
the issuance of those regulations. See Friends of the Earth, 528 U.S. at 189
(standing inquiry examines plaintiff’s interests at the commencement of
litigation); Davis v. Fed. Election Comm’n, 554 U.S. 724, 734 (2008) (“[T]he
standing inquiry remains focused on whether the party invoking jurisdiction
had the requisite stake in the outcome when the suit was filed.”); Pool v. City
of Houston, 978 F.3d 307, 312 (5th Cir. 2020) (same). Rather, this argument
sounds in mootness. Friends of the Earth, 528 U.S. at 189. A case becomes
moot when it becomes “impossible for the court to grant any effectual relief
whatever to a prevailing party.” Church of Scientology v. United States, 506
U.S. 9, 12 (1992) (internal quotation marks and citation omitted).
The problem for the federal defendants is that the States’ injuries
remain even if their magnitude is reduced. Enjoining enforcement of the
statute to which they mount a constitutional challenge is not suddenly
ineffectual just because the States are on the hook for less money, and their
sovereign powers are less constrained. See id. As the Eleventh Circuit stated
when confronting this exact argument, “[w]e see no basis in mootness
doctrine to conclude that the Secretary’s willingness to provide a lesser
remedy (a narrower construction) to address the States’ constitutional
challenge moots the States’ request for a more substantial remedy (facial
invalidation).” West Virginia ex rel. Morrisey, 59 F.4th at 1139; see also
Kentucky v. Yellen, 54 F.4th 325, 363 (6th Cir. 2022) (Nalbandian, J.,

_____________________
avoidance is a means of choosing between multiple possible meanings, not of asserting that
there was one clear meaning all along. We therefore “do not find guidance in this avoidance
principle.” See Oakland Cannabis Buyers, 532 U.S. at 494.

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concurring in part and dissenting in part) (“[T]he regulation does not fix
[Section 802(c)(2)(A)] 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.”). And the
question whether Treasury’s regulations can cure an unconstitutionally
vague statutory funding condition in the first place is itself vigorously
disputed between the parties.
Having concluded that the States have standing to challenge the
enforcement of Section 802(c)(2)(A), and that their challenge is not moot,
we proceed to evaluate its merits.
IV
A
The federal government is one of limited power in our constitutional
structure. “The constitution confers on Congress not plenary legislative
power but only certain enumerated powers.” Murphy v. Nat’l Collegiate
Athletic Ass’n, 584 U.S. 453, 471 (2018). The People and the states retain all
else. U.S. Const. amend. X. “[C]onspicuously absent” from Congress’s
enumerated powers is the ability to order the state governments to enact
legislation or policies to the federal government’s liking. Murphy, 584 U.S.
at 471.
Congress may, however, dictate how states spend federal dollars so
long as such directives are consistent with state sovereignty. The Spending
Clause grants Congress the power to “lay and collect Taxes, Duties, Imposts
and Excises, to pay the Debts and provide for the common Defence and
general Welfare of the United States.” U.S. Const. art. I, § 8, cl. 1. “Incident
to this power, Congress may attach conditions on the receipt of federal
funds[.]” Dole, 483 U.S. at 206. In Dole, the Supreme Court held that

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Congress had permissibly employed “relatively mild encouragement to the
States to enact higher minimum drinking ages” by conditioning “5% of the
funds otherwise obtainable under specified highway grant programs” on the
states’ enacting such laws. Id. at 211.
But Congress may not use its spending power to functionally
commandeer the states.4 It may not coerce the states into accepting federal
grant programs by presenting offers that are, for practical purposes,
impossible to refuse. NFIB, 567 U.S. at 581; Pennhurst State Sch. & Hosp. v.
Halderman, 451 U.S. 1, 17 (1981) (a state must “voluntarily and knowingly
accept[]” a grant of funds made under the Spending Clause (emphasis
added)). In NFIB, for example, the Supreme Court examined a provision in
the Affordable Care Act providing that if a state opted out of the Act’s
expansion of healthcare coverage, the state could lose all future Medicaid
funding. 567 U.S. at 581 (Roberts, C.J., joined by Breyer & Kagan, JJ.).
Numerically, this would amount to a threatened loss of “over 10 percent of a
State’s overall budget.” Id. at 582. This “economic dragooning” was
impermissibly coercive and therefore unconstitutional. Id.
The point at which permissible inducement crosses over to
impermissible coercion is not always easy to discern under the Supreme
Court’s precedent, but it lies somewhere between Dole and NFIB. If the
States are correct that Section 802(c)(2)(A) conditions ARPA funds on the
_____________________
4
The anticommandeering doctrine and the limits of Congress’s spending powers
are distinct constitutional protections safeguarding our system of dual federalism. In this
case, however, they are interwoven. As the district court noted, “both the Spending Clause
and Tenth Amendment require the Court to ask whether the challenged ‘provision is
inconsistent with the federal structure of our Government established by the
Constitution.’” A coercive offer is, after all, virtually the same as a command. Therefore,
a conditional grant of funding can violate both the Spending Clause and the
anticommandeering doctrine by operating as a command to the states to adopt certain
policy objectives that Congress could not otherwise pursue.

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States’ signing away their ability to reduce taxes, and that ARPA funding is
so vital for state budgets as to be impossible to refuse, then Congress has
indeed impermissibly used the Spending Clause to bootstrap a federal power
alien to our constitutional scheme: the power to decide state tax policy.
However, we note that there is some reason to be skeptical of the district
court’s statement that “the States must choose whether to surrender their
sovereignty or forgo billions of dollars in federal funds.” This is because
unlike the provision at issue in NFIB, Section 802(c)(2)(A) operates to
require repayment only of the difference between offset reductions in tax
revenue and total ARPA funding, not the entire sum of ARPA funding. 42
U.S.C. § 802(e).
The parties’ disagreement also turns on a more fundamental question
of framing. On the one hand, if Section 802(c)(2)(A) is merely a condition
on the spending of ARPA funds themselves, then it simply “ensures that the
funds are spent according to Congress’s view of the ‘general Welfare,’” and
is not unconstitutionally coercive. Gruver v. La. Bd. of Supervisors for La.
State Univ. Agric. & Mech. Coll., 959 F.3d 178, 183 (5th Cir. 2020) (quoting
NFIB, 567 U.S. at 580). In this telling, Section 802(c)(2)(A) acts like a
“maintenance-of-effort” provision that requires a state to continue spending
whatever amount it was already spending in the area that it is receiving the
grant. For example, a state that spends $20 million on education and receives
a $10 million education grant with a maintenance-of-effort provision would
be required to continue spending $20 million of its own funds on education
to accept the grant. See, e.g., Bennett v. Ky. Dep’t of Educ., 470 U.S. 656, 659
(1985) (“In order to assure that federal funds would be used to support
additional services that would not otherwise be available, the Title I program
. . . prohibited the use of federal grants merely to replace state and local
expenditures.”).

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On the other hand, if Section 802(c)(2)(A) is so expansive as to
require the States to accept policy changes, then it triggers the coercion
analysis. Congress could not impose on the States a policy forbidding all tax
cuts. And Section 802(c)(2)(A) is no typical “maintenance-of-effort”
provision. It does not hold state expenditures constant; it governs state
revenues. As the district court correctly pointed out, “[n]either ARPA nor
Section 802(c)(2)(A) prohibit a State from replacing state expenditures with
ARPA funds.”
The difference in perspective comes from the tricky fact that
“[m]oney is fungible.” See Holder v. Humanitarian Law Project, 561 U.S. 1,
37 (2010). We need not decide here, however, who has the better argument.
Section 802(c)(2)(A) fails constitutional muster for the related but much
simpler reason that the condition it imposes is impermissibly ambiguous. In
short, the district court held that Section 802(c)(2)(A) was unconstitutional
because it “prohibits tax cuts altogether.” We, however, hold that it is
unconstitutional because it might. The States are unable to tell one way or
the other. In so holding, we embrace in full the reasoning of the Eleventh
Circuit, which has already confronted a similar challenge to Section
802(c)(2)(A). See West Virginia ex rel. Morrisey, 59 F.4th at 1140.5
B
Return to the Spending Clause. As explained above, the conditions
that Congress attaches to federal grants may not have the effect of functionally
commandeering the states. But the Supreme Court has also outlined
“restrictions” on the manner in which such conditions may be

_____________________
5
We note that in a January 26, 2024, letter to Congress, the United States
Department of Justice disclaimed any intention to seek Supreme Court review of the
Eleventh Circuit’s opinion in West Virginia ex rel. Morrisey.

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constitutionally imposed. Dole, 483 U.S. at 207. Such conditions must: (1)
“be in pursuit of the general welfare”; (2) be unambiguous, “enab[ling] the
States to exercise their choice knowingly, cognizant of the consequences of
their participation”; (3) not be “unrelated ‘to the federal interest in
particular national projects or programs’”; and (4) not be independently
barred by “other constitutional provisions.” Id. at 207–08 (internal
quotation marks and citation omitted).
The second restriction—the clarity requirement—is in play here.
The States argue that Section 802(c)(2)(A) “is ambiguous as to its scope.”6
Therefore, they argue, they are unable to knowingly exercise their choice to
accept ARPA funding.
“[I]f Congress intends to impose a condition on the grant of federal
moneys, it must do so unambiguously.” Pennhurst, 451 U.S. at 17. This
requirement is rooted in the observation that congressional exercises of the
spending power can operate “much in the nature of a contract,” where states
bind themselves to comply with federally imposed conditions in return for
federal funding. Id. “The legitimacy of Congress’ power to legislate under
the spending power thus rests on whether the State voluntarily and
knowingly accepts the terms of the ‘contract.’” Id. “By insisting that
Congress speak with a clear voice, we enable the States to exercise their
choice knowingly, cognizant of the consequences of their participation.” Id.;
see also NFIB, 567 U.S. at 676 (Scalia, J., dissenting) (“[A]ny such conditions
must be unambiguous so that a State at least knows what it is getting into.”).

_____________________
6
The States also make a related claim that the provision is “far too overinclusive
and underinclusive to bear any reasonable relationship to any legitimate purpose underlying
the Act’s funding provisions.” We need not reach this argument and, like the district
court, decline to do so.

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Naturally, for a state’s acceptance to be knowing, the terms to which it agrees
must be knowable.
At the threshold, the federal defendants dispute the applicability of
the Pennhurst-Dole clarity requirement. They argue that the requirement is
merely a clear-statement rule applied as a “tool of statutory interpretation”
that cannot render statutory provisions “categorically unenforceable because
they [are] ambiguous in certain respects.” In other words, they argue that
the test is applied to answer whether a condition exists, not whether, a
condition being present, it is enforceable as a constitutional matter. Because
the offset provision undoubtedly imposes a condition, so the argument goes,
the clarity requirement is not implicated.
We do not believe that this account of Dole and Pennhurst is tenable.
First, Dole gave no indication that any of the four constitutional
“requirements” and “limitations” that “restrict[ed]” the bounds of
Congress’s spending power were mere rules of statutory construction. Dole,
483 U.S. 207–08 (explaining that conditions may be rendered “illegitimate”
for example, if unrelated to federal interests); see also id. at 213 (O’Connor,
J., dissenting) (agreeing with the majority that “there are four separate types
of limitations on the spending power,” one of which is that “the conditions
imposed must be unambiguous” (emphasis added)). The Supreme Court
nowhere suggested that a hierarchy existed between any of these
“limitations,” each of which is “equally important and equally required.”
West Virginia ex rel. Morrisey, 59 F.4th at 1142. We see no reason to treat the
clarity requirement any differently. While Pennhurst does contain some
language helpful to the federal defendants’ reading—for example, that clarity
is particularly important when a state’s obligations are “largely
indeterminate,” 451 U.S. at 25—the Supreme Court still counseled that a
condition would be impermissibly ambiguous if a state is “unable to ascertain
what is expected of it.” Id. at 17.

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Second, Dole and Pennhurst are explicit in relying on principles of
contract in explaining the limitations on the spending power. So, contract
law provides a useful analog here. As the Eleventh Circuit observed, “the
problem of indefiniteness is not always a mere issue of construction . . . ; it
may go to the validity of the contract itself.” West Virginia ex rel. Morrisey,
59 F.4th at 1143 (citing Restatement (Second) of Conts. § 33 cmt. a).
Pennhurst confirms that the clarity requirement goes to that question of
validity. The Supreme Court explained in that case that “[t]he legitimacy of
Congress’ power to legislate under the spending power [] rests on whether
the State voluntarily and knowingly accepts the terms of the ‘contract.’”
Pennhurst, 451 U.S. at 17 (emphasis added). If ambiguity makes knowing
acceptance impossible, then the condition is unenforceable, and the bargain
is invalid.
Finally, the federal defendants’ account of the Pennhurst-Dole clarity
requirement would lead to questionable results. If all that the requirement
does is ensure that a condition be unambiguously mandatory and not
hortatory, then it seems inevitable that any number of mandatory but
content-less conditions could be imposed on the states. Take a hypothetical
statute passed by Congress that provides modest funding to the states to
invest in their healthcare infrastructure. But as a condition of receiving those
funds, the states must agree that “no portion of these funds shall be used to
advance injustice,” subject to a recoupment provision. “Injustice” in such
a context has no discernable content. It is hopelessly ambiguous, far more so
than the putative command at issue in Pennhurst to provide “appropriate
treatment” to the intellectually disabled in the “least restrictive” setting. Id.
at 25. But the condition, whatever it means, is indisputably mandatory. Any
future administration could fill in its expansive contours with whatever
requirements that the administration sees fit, and which the states could have
never anticipated. Are we to believe that the Spending Clause’s clarity

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requirement has nothing to say about such a provision, which could be
interpreted in any number of divergent—indeed, mutually exclusive—ways?
We think that such a condition must be unconstitutionally ambiguous.
It is true, as the federal defendants point out, that the Sixth Circuit has
reached a slightly different conclusion, even though it ultimately sided with
the state plaintiffs in that case on the merits.7 That court observed that
“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.” Kentucky, 54 F.4th at 347
(internal quotation marks and citations omitted). Therefore, “strictly
speaking,” Section 802(c)(2)(A) “is not ‘unconstitutional’ under the
Spending Clause.” Id. But we think that the better framing is that Congress
lacks the constitutional power—not to enact vague spending laws—but to
impose mandatory conditions through the enactment of vague spending laws.
Any attempt to do so is ultra vires and the corresponding law is
unconstitutional under the Spending Clause. We therefore join the Eleventh
Circuit in holding that the Pennhurst-Dole clarity requirement “is a binding
constitutional command,” imposing a constitutional bar on ambiguous
spending conditions and providing grounds for an injunction against the
enforcement of such conditions. West Virginia ex rel. Morrisey, 59 F.4th at
1142–43.
Continuing to fight the clarity requirement’s application here, at oral
argument the federal defendants pointed to Biden v. Missouri, in which the
Supreme Court upheld the authority of the Department of Health and

_____________________
7
The Sixth Circuit held that Section 802(c)(2)(A) did not clearly explain how to
identify a tax offset, and, therefore, were a state to “engage in conduct Treasury deems a
violation of the Offset Provision, Treasury may not initiate enforcement proceedings in
response.” Kentucky, 54 F.4th at 347.

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Human Services to require medical facilities to enforce vaccination
requirements on covered staff as a condition of receiving Medicare and
Medicaid funds. 595 U.S. 87, 91 (2022). The relevant statute authorized the
Secretary to promulgate “as a condition of a facility’s participation in the
programs . . . requirements as [he] finds necessary in the interest of the health
and safety of individuals who are furnished services.” Id. at 90 (internal
quotation marks and citation omitted) (alteration in original). The federal
defendants take this to mean that Congress may delegate the task of fleshing
out the details of a funding condition, and that the statute itself need not
contain all those details to be valid.
But Biden v. Missouri was not a case about the Pennhurst-Dole clarity
requirement. Nowhere did the Supreme Court’s opinion cite either of those
two earlier cases, and for good reason. The dispute in Biden v. Missouri did
not arise from the imposition of potentially ambiguous spending conditions
on state governments. Rather, the question that the Supreme Court
confronted was whether the HHS’s vaccination rule, imposed on healthcare
facilities and providers, “fit[] neatly within the language of the statute.” Id.
at 92. A majority of the Court answered that it did, holding as a matter of
statutory interpretation that Congress had authorized HHS to impose such
“infection control measures” on facilities that received federal funds. Id. at
95–96.
Here, by contrast, the statute at issue itself raises an entirely different
question: whether Congress has impermissibly imposed an ambiguous
condition on the States’ use of federal funds. We conclude that it has, for
two reasons.
The first problem is with the phrase “directly or indirectly offset.”
Section 802(c)(2)(A) prohibits states from using ARPA funds to “either
directly or indirectly offset a reduction in the net tax revenue of such State or

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territory resulting from a change in law, regulation, or administrative
interpretation during the covered period that reduces any tax.” The States
aptly point out that if the federal defendants are indeed correct that Section
802(c)(2)(A) excludes at least some tax reductions, then there must be a line
separating such permissible reductions from reductions that ARPA funds
“directly or indirectly offset.” Where that line lies, however, is not clear
from the face of the statute.
The issue primarily stems from the capacious meaning of the term
“indirectly.” Take as an example a state with $20 billion in annual tax
revenue that receives $10 billion in ARPA funding. If that state spends those
ARPA funds permissibly and then alters its tax regime such that its annual
tax revenue is reduced to $15 billion, Treasury might conclude that the state
is using $5 billion in ARPA funding to indirectly offset that loss. This is true
even if the state altered its tax regime for completely unrelated reasons, as
Section 802(c)(2)(A) takes no account of the motivation behind the measures
that result in lost tax revenue. Treasury might argue that but for the state’s
ARPA funding, the state would not have restructured its tax regime in the
way that it did.
Indeed, even Treasury Secretary Janet Yellen, in a hearing before
Congress, was unable to offer any clarification, stating that the effect of
Section 802(c)(2)(A) would be hard to predict “given the fungibility of
money.” The Quarterly CARES Act Report to Congress: Hearing Before the Sen.
Comm. on Banking, Hous. & Urb. Affairs, 117th Cong. 18 (Mar. 24, 2021)
(statement of Janet L. Yellen, Secretary, Department of the Treasury).
Secretary Yellen also admitted that this issue raises a “host of thorny
questions.” Id.
Courts across the country have likewise struggled. See, e.g., Ohio v.
Yellen, 539 F. Supp. 3d 802, 818 (S.D. Ohio 2021) (“Despite poring over this

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statutory language, the Court cannot fathom what it would mean to
‘indirectly offset a reduction in the net tax revenue’ of a State, by a ‘change
in law . . . that reduces any tax (by providing for a reduction in a rate, a rebate,
a deduction, a credit, or otherwise).’” (omission in original)). And turning
to dictionary definitions offers no help in coloring the boundaries of these
“extraordinarily expansive” statutory terms. West Virginia ex rel. Morrisey,
59 F.4th at 1144–45 (citing Oxford English Dictionary (online ed. Dec.
2022)); see also Kentucky, 54 F.4th at 348 (citing Webster’s New
International Dictionary 1267 (2d ed. 1960) and Compact Edition of the
Oxford English Dictionary 1418 (1971)).
The second problem is the failure to identify a baseline against which
any revenue reductions will be measured. Section 802(c)(2)(A) thereby sets
no standard by which the States can measure whether they are in compliance.
As the States point out, the very premise of reducing “net tax revenue”
means that there must be some prior level from which revenue is reduced. A
prohibition on such a reduction “presupposes a baseline against which to
measure” it. West Virginia ex rel. Morrisey, 59 F.4th at 1144. ARPA’s “lack
of a baseline affects whether a state policymaker can understand and comply
with the statute.” Id.
Return to the hypothetical $20 billion-revenue state. Only now, we
cannot even say with certainty what its revenue is for purposes of Section
802(c)(2)(A). Let us suppose that the $20 billion figure was its tax revenue
for 2020. But in 2019, its revenue was closer to $15 billion. Depending on
which year Treasury uses as the baseline, the state could be on the hook for
$0 (if 2019 is used), $5 billion (if 2020 is used), or anything in between,
depending again on how Treasury interpreted “indirectly offset.”
Even if a temporal baseline could be divined from the otherwise silent
text, a numerical standard would still be absent. As the Sixth Circuit

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explained, ARPA “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.” Kentucky, 54 F.4th at 351. By what accounting
metric are states supposed to know whether they have impermissibly lowered
tax revenue in violation of Section 802(c)(2)(A)? And should states be
looking at pre-pandemic revenues, mid-pandemic revenues, or post-
pandemic revenues? Given the extreme economic disruptions caused by the
COVID-19 pandemic—indeed, the very disruptions ARPA was meant to
address—one can expect the time period chosen to have a major impact on
the ultimate amount of funding for which states could be on the hook. At oral
argument the federal defendants acknowledged that, at least on the face of
the statute, ARPA does not answer this question.
These questions inject such uncertainty into the enforcement of the
statute that the states are prevented from knowing the terms of the deal that
they are agreeing to. The likely upshot is that Section 802(c)(2)(A) will
discourage states from cutting taxes, lest they find themselves caught within
the provision’s uncertain scope. The Constitution prohibits this use of the
spending power.
Stepping back, it is helpful to compare the statutory provision here to
the one at issue in Dole. That case examined a clear condition on federal
funds: states could either raise their legal drinking age to 21 or lose 5% of their
federal highway funding. Every state knew what it was signing up for when
it chose to either decline or acquiesce in the bargain because each side of the
equation was obvious. Dole, 483 U.S. at 211. But here, neither is. When does
a state tax cut violate Section 802(c)(2)(A) and trigger an obligation to repay
the federal government under Section 802(e)? And because there is no clear
baseline revenue to measure such reduction, how much must be paid back?

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There is no clarity to this bargain. There is only the bureaucrat’s abacus,
usable only by the offeror and invisible always to the offeree.
The federal defendants proceed to argue that any ambiguity has been
eliminated by Treasury’s subsequent regulations. But the regulations are of
no help. In arguing that statutory ambiguity can be vitiated by regulatory
enactments in the context of the Spending Clause, the federal defendants
claim a remarkably broad power for federal administrative agencies. But this
claim is remarkably wrong.
As we have previously explained:
[W]hen Congress places conditions on the States’ receipt of
federal funds, it must do so unambiguously . . . . Regulations
that interpret statutes are valid only if they either match
Congress’s unambiguous command or are clarifying a statutory
ambiguity. Relying on regulations to present the clear
condition, therefore, is an acknowledgment that Congress’s
condition was not unambiguous, so that method of analysis
would not meet the requirements of Dole.
Tex. Educ. Agency v. U.S. Dep’t of Educ., 992 F.3d 350, 361 (5th Cir. 2021)
(internal quotation marks and citation omitted); cf. Whitman v. Am. Trucking
Ass’ns, Inc., 531 U.S. 457, 458 (2001) (“An agency cannot cure an unlawful
delegation of legislative power by adopting in its discretion a limiting
construction of the statute.”). In other words, regulations cannot divest a
statute of the very feature that permitted those regulations in the first place.
The promulgated regulations thus suffer from an inescapable
dilemma. They are legally relevant if and only if the statute is ambiguous.
Mexican Gulf Fishing Co. v. U.S. Dep’t of Commerce, 60 F.4th 956, 963 (5th
Cir. 2023). But if the statute is ambiguous, then it violates the Spending
Clause. Pennhurst, 451 U.S. at 17 (“[I]f Congress intends to impose a
condition on the grant of federal moneys, it must do so unambiguously.”).

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Therefore, the regulations cannot aid the federal defendants in saving the
statute’s constitutionality. Indeed, in leaning so heavily throughout their
argument on the clarifications provided by the regulations instead of the
clarity contained within the statutory text, the federal defendants implicitly
reveal the fatal ambiguity that infects Section 802(c)(2)(A).
V
Having found that Section 802(c)(2)(A) violates the Spending Clause,
we now turn to examine the remedy that the district court granted. We must
determine whether permanently enjoining enforcement of Section
802(c)(2)(A) was an abuse of discretion. We hold that it was not. In so doing,
we follow the lead of both the Sixth and Eleventh Circuits in affirming
permanent injunctions against Section 802(c)(2)(A)’s enforcement against
state plaintiffs. Kentucky, 54 F.4th at 348 (affirming injunction as to the state
of Tennessee); West Virginia ex rel. Morrisey, 59 F.4th at 1149.
First, we address severability. “After finding an application or
portion of a statute unconstitutional, we must next ask: Would the legislature
have preferred what is left of its statute to no statute at all?” Ayotte v. Planned
Parenthood of N. New England, 546 U.S. 320, 330 (2006). At oral argument,
counsel for the federal defendants stated that Congress would have meant to
provide states with Fiscal Recovery Funds even without Section
802(c)(2)(A). And even absent Section 802(c)(2)(A), “[t]he remainder of
the Act ‘function[s] independently.’” See United States v. Booker, 543 U.S.
220, 259 (2005) (quoting Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 684
(1987)). No one has argued that ARPA rises and falls with the validity of that
provision. Section 802(c)(2)(A) is severable. West Virginia ex rel. Morrisey,
59 F.4th at 1149 (holding the same).
A party seeking a permanent injunction must show: “(1) that it has
suffered an irreparable injury; (2) that remedies available at law, such as

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monetary damages, are inadequate to compensate for that injury; (3) that,
considering the balance of hardships between the plaintiff and defendant, a
remedy in equity is warranted; and (4) that the public interest would not be
disserved by a permanent injunction.” eBay Inc. v. MercExchange, L.L.C., 547
U.S. 388, 391 (2006).
For the reasons stated by the district court, we agree that the States
have made that requisite showing. The States’ injuries are irreparable
because Section 802(c)(2)(A) impacts their sovereign authority over tax
policy. Money damages are inadequate because the federal government is
generally entitled to sovereign immunity against such lawsuits. F.D.I.C. v.
Meyer, 510 U.S. 471, 475 (1994). The balance of hardships favors the States,
as losing sovereign authority is a far greater inconvenience than losing the
ability to recoup ARPA funds. And the public interest is clearly served by
enjoining unconstitutional exercises of Congress’s spending power and
preserving the federal character of our constitutional structure.
* * *
For these reasons, we AFFIRM the district court’s grant of a
permanent injunction.

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