Brief amicus curiae of The Buckeye Institute, Ohio v. Yellen, No. 22-880 (U.S.) (April 13, 2023)
Summary
A brief of The Buckeye Institute as amicus curiae in support of the petitioner in State of Ohio v. Janet Yellen, et al., No. 22-880, on petition for a writ of certiorari to the United States Court of Appeals for the Sixth Circuit, dated April 2023. The Questions Presented state that the brief addresses the second question presented by the petition, whether the American Rescue Plan Act of 2021's prohibition on using federal funds to offset a reduction in net tax revenue satisfies the requirement that conditions on federal funds be stated unambiguously. The table of contents lists three argument sections, including that the Tax Mandate is vague and that the Court's review is inevitable. The brief concludes that the Court should grant the petition.
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“Brief amicus curiae of The Buckeye Institute, Ohio v. Yellen, No. 22-880 (U.S.) (April 13, 2023).”
Original at www.supremecourt.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/brief-amicus-curiae-of-the-buckeye-institute-ohio-v-yellen-no-22-880-u-b5f18df74e/
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No. 22-880
IN THE
Supreme Court of the United States
___________
STATE OF OHIO,
Petitioner,
v.
JANET YELLEN, IN HER OFFICIAL CAPACITY AS
SECRETARY OF THE TREASURY, ET AL.,
Respondents.
___________
On Petition for Writ of Certiorari to the
United States Court of Appeals
for the Sixth Circuit
___________
BRIEF FOR THE BUCKEYE INSTITUTE AS
AMICUS CURIAE IN SUPPORT OF
PETITIONER
___________
ANDREW M. GROSSMAN
ROBERT ALT Counsel of Record
DAVID C. TRYON KRISTIN SHAPIRO
THE BUCKEYE INSTITUTE BAKER & HOSTETLER LLP
1050 Connecticut Ave., N.W.
NICHOLAS A. CORDOVA Washington, D.C. 20036
BAKER & HOSTETLER LLP (202) 861-1697
agrossman@bakerlaw.com
Counsel for Amicus Curiae
i
QUESTIONS PRESENTED
This amicus curiae brief addresses the second ques-
tion presented by the Petition: Whether the American
Rescue Plan Act of 2021’s prohibition of using federal
funds to “either directly or indirectly offset a reduc-
tion in the net tax revenue” through “a change in law,
regulation, or administrative interpretation…that re-
duces any tax,” 42 U.S.C. § 802(c)(2)(A), satisfies the
constitutional requirement that “if Congress desires
to condition the States’ receipt of federal funds, it
‘must do so unambiguously..., enabl[ing] the States to
exercise their choice knowingly, cognizant of the con-
sequences of their participation.’” South Dakota v.
Dole, 483 U.S. 203, 207 (1987).
ii
TABLE OF CONTENTS
Page
INTEREST OF THE AMICI CURIAE .................... 1
INTRODUCTION AND SUMMARY OF
ARGUMENT.......................................................... 2
ARGUMENT ............................................................ 4
I. The Court’s Review Is Urgently Needed To
Clarify the Tax Mandate’s Impact on States’
Exercise of Their Core Police and Taxing
Powers ................................................................ 4
II. The Tax Mandate Is Fundamentally Vague and
Therefore Unenforceable ................................. 10
III. The Court’s Review Is Inevitable, and This
Case Presents an Ideal and Timely Vehicle ... 16
CONCLUSION ....................................................... 17
iii
TABLE OF AUTHORITIES
CASES
Arlington Cent. Sch. Dist. Bd. of Educ. v.
Murphy,
548 U.S. 291 (2006) ........................................... 10
Davis Next Friend LaShonda D. v. Monroe
Cnty. Bd. of Educ.,
526 U.S. 629 (1999) ........................................... 11
Gregory v. Ashcroft,
501 U.S. 452 (1991) ..................................... 11, 12
Kentucky v. Yellen,
54 F.4th 325 (6th Cir. 2022) ................. 12, 15, 16
Nat’l Fed’n of Indep. Bus. v. Sebelius,
567 U.S. 519 (2012) ........................................... 11
Pennhurst State Sch. & Hosp. v.
Halderman,
451 U.S. 1 (1981) ..................................... 2, 10, 13
South Dakota v. Dole,
483 U.S. 203 (1987) ................................. 2, 10, 12
United States v. Bass,
404 U.S. 336 (1971) ........................................... 11
W. Virginia by & through Morrisey v. U.S.
Dep’t of the Treasury,
59 F.4th 1124 (11th Cir. 2023) ......................... 16
iv
Whitman v. Am. Trucking Ass’ns,
531 U.S. 457 (2001) ........................................... 13
CONSTITUTIONAL PROVISION
U.S. Const. art. I, § 8, cl. 1 ............................... 12, 13
FEDERAL STATUTE
42 U.S.C. § 802 ......................................................... 2
FEDERAL REGULATIONS
31 C.F.R. §35.1 ......................................................... 3
31 C.F.R. § 35.4 .................................................. 3, 15
31 C.F.R. § 35.8 ...................................................... 14
Coronavirus State and Local Fiscal
Recovery Funds,
87 Fed. Reg. 4338 (Jan. 27, 2022) .......3, 4, 14, 15
STATE STATUTES
Ala. Code §§ 40-23-211–213 ..................................... 7
Ariz. Rev. Stat. § 48-701 .......................................... 9
Iowa Code § 423.3 .................................................... 7
Ohio Rev. Code § 5739.02 ........................................ 7
Okla. Admin. Code. § 710:65-13-511 ....................... 7
S.C. Code § 12-36-2120 ............................................ 7
v
W. Va. Code § 11-15-9s ............................................ 7
W. Va. Code § 11-24-3 .............................................. 9
OTHER AUTHORITIES
Fla. Dep’t of Revenue, Tax Holidays and
Exemption Periods .............................................. 7
Larry J. Obhof, Federalism, I Presume? A
Look at the Enforcement of Federalism
Principles Through Presumptions and
Clear Statements Rules,
2004 Mich. St. L. Rev. 123 (2004) .................... 11
Patrick Gleason, Rate-Cutting, Flattening
Tax Reform Rolls On In Ohio,
Wisconsin, Iowa, Kansas And Beyond,
Forbes, Feb. 24, 2023 .......................................... 5
The Quarterly CARES Act Report to
Congress: Hearing before the S. Comm.
on Banking, Housing, and Urban
Affairs, 117th Cong., at 1:11:47–1:13:30
(Mar. 24, 2021) (testimony of Secretary
Yellen) ................................................................. 3
1
INTEREST OF THE AMICI CURIAE1
The Buckeye Institute was founded in 1989 as an in-
dependent research and educational institution—a
think tank—to formulate and promote free-market
solutions for Ohio’s most pressing public policy prob-
lems. Through its Legal Center, the Buckeye Institute
engages in litigation in support of the principles of
federalism and separation of powers as enshrined in
the U.S. Constitution. The Buckeye Institute is dedi-
cated to upholding the balance of power between
States and the federal government that the U.S. Con-
stitution prescribed. It is also dedicated to creating a
pro-growth tax system that rewards work and encour-
ages entrepreneurship. The “Tax Mandate” chal-
lenged in this case directly threatens Buckeye’s policy
priorities, including those related to federalism, clear
lines of government accountability, and pro-growth
tax policy.
1 Pursuant to Sup. Ct. R. 37.6, amicus curiae states that no coun-
sel for any party authored this brief in whole or in part, nor did
any person or entity, other than amicus, its members, or its
counsel make a monetary contribution to the preparation or sub-
mission of this brief. All parties were timely notified of the filing
of this brief.
2
INTRODUCTION AND
SUMMARY OF ARGUMENT
The American Rescue Plan Act of 2021 (“ARPA”)
conditions federal funding to States on a vague prohi-
bition against using federal funds to “either directly
or indirectly offset a reduction in the net tax revenue”
through “a change in law, regulation, or administra-
tive interpretation…that reduces any tax…or delays
the imposition of any tax or tax increase.” 42 U.S.C.
§ 802(c)(2)(A). What precisely this language pro-
scribes is anyone’s guess, as practically any action by
a State may, intentionally or not, reduce tax reve-
nues. The Tax Mandate’s radical indeterminacy mires
States in uncertainty and chills the exercise of their
core taxing and police powers, violating the constitu-
tional mandate that, “if Congress desires to condition
the States’ receipt of federal funds, it ‘must do so un-
ambiguously..., enabl[ing] the States to exercise their
choice knowingly, cognizant of the consequences of
their participation.’” South Dakota v. Dole, 483 U.S.
203, 207 (1987) (quoting Pennhurst State Sch. &
Hosp. v. Halderman, 451 U.S. 1, 17 (1981)). The
Court’s review is urgently needed so that States may
again exercise those powers free from federal interfer-
ence and legal uncertainty.
To get a sense of the Cartesian doubt the Tax Man-
date imposes on States, consider some questions it
raises. For example, what does it mean to use ARPA
funds to “directly or indirectly” offset a reduction in
tax revenue? Even the Secretary of the Treasury ad-
mitted to Congress that this is a “thorny” issue, and
“[g]iven the fungibility of money, it’s a hard question
3
to answer.”2 To this day, Treasury has never offered a
definition of an “indirect offset”—despite being
pressed for an answer by multiple federal courts. Nor
does the Tax Mandate define what “a change in law,
regulation, or administrative interpretation” is. Is re-
newal of existing tax credits a “change” or continua-
tion? Must States assess every administrative adjudi-
cation, zoning variance, and guidance letter for its ef-
fect on tax revenue? States can play it safe only by
making no policy change that may decrease tax reve-
nue until the funding condition expires in 2026.
The Department of the Treasury, charged with ad-
ministering the Tax Mandate, and recognizing these
problems, attempted to provide some answers in a
117-page regulation. Coronavirus State and Local
Fiscal Recovery Funds, 87 Fed. Reg. 4338 (Jan. 27,
2022) (codifying 31 C.F.R. §35.1 et seq.). These regula-
tions not only fail to clarify the fundamental vague-
ness of the Tax Mandate, but also effectively appoint
the Secretary as a virtual viceroy over the States,
with authority to review practically every decision
that might affect tax revenue—i.e., potentially any ex-
ercise of tax and police powers—and discretion to ap-
prove or reject those decisions. To rub salt in the
wound, the Final Rule states that the Rule does not
limit the Secretary’s discretion “to take action to en-
force conditions or violations of law,” 31 C.F.R.
§ 35.4(a), and that Treasury may change the regulations
2 The Quarterly CARES Act Report to Congress: Hearing before
the S. Comm. on Banking, Housing, and Urban Affairs, 117th
Cong., at 1:11:47–1:13:30 (Mar. 24, 2021) (testimony of Secretary
Yellen).
4
at any time without notice and comment, 87 Fed. Reg.
at 4445.
When Ohio and other States accepted ARPA fund-
ing, they had no way of knowing what the Tax Man-
date’s condition on those funds prohibited, and that
uncertainty remains today. The lower courts mean-
while, are divided on when and how a State may ob-
tain clarity on its obligations under ARPA, and a se-
ries of decisions have given legal assurance to some
States—but not all—that the Tax Mandate is uncon-
stitutional and does not constrain their policymaking
discretion. The Constitution does not tolerate this dis-
parate treatment of the States, and the pall over the
exercise of their core powers, to persist. The Court’s
intervention is urgently needed, and this case is an
ideal vehicle for it to resolve the question of the Tax
Mandate’s constitutionality once and for all, restore
uniformity among the States, and permit the States
to exercise their core taxing and police powers free
from legal doubt.
The Court should grant the petition.
ARGUMENT
I. The Court’s Review Is Urgently Needed To
Clarify the Tax Mandate’s Impact on States’
Exercise of Their Core Police and Taxing
Powers
States cannot freeze their policies in place to en-
sure they do not make a “change” that inadvertently
violates the Tax Mandate, as interpreted by the Sec-
retary. States must set budgets and respond in real-
5
time to changing conditions, and the Constitution pre-
serves their power as sovereigns to do so. But because
they all accepted ARPA funds subject to undefined
federal oversight, States now exercise their core pow-
ers to set internal tax, health, and safety regulations
in trepidation that doing so will violate the Tax Man-
date.
States’ most obvious concerns stem from the appli-
cation of the phrase “indirectly offset” to changes to
their tax laws. Any State that both spends ARPA
funds and alters tax provisions in ways that may re-
duce tax revenues has arguably “indirectly offset” the
revenue reduction with ARPA funds because what-
ever the State spends these funds on would otherwise
have been funded by taxation. So how can States tell
which changes (if any) are permissible and which are
not? Neither Congress nor Treasury has explained.
See § II.C, infra (addressing regulations). But States
need certainty about the Tax Mandate’s meaning to
make informed decisions about legislative proposals
like Ohio’s House Bill 1, which would set a flat income
tax.3 Wisconsin, Kansas, Montana, Arkansas, Iowa,
North Carolina, and Arizona are also currently con-
sidering changes to their tax laws that may reduce
3 Patrick Gleason, Rate-Cutting, Flattening Tax Reform Rolls On
In Ohio, Wisconsin, Iowa, Kansas And Beyond, Forbes, Feb. 24,
2023, https://www.forbes.com/sites/patrickgleason/2023/02/24
/rate-cutting-flattening-tax-reform-rolls-on-in-ohio-wisconsin-
iowa-kansas-and-beyond/.
6
revenues.4 As of now, they do not know whether act-
ing on these proposals would violate the Tax Man-
date. Their only safe option is to do nothing.
Changes to tax law, however, are just the tip of the
iceberg, given the Tax Mandate’s sweeping language.
After all, practically any exercise of State power may
affect tax revenues. To wit, what qualifies as a
“change in law, regulation, or administrative inter-
pretation” subject to the Tax Mandate? Does an ad-
ministrative adjudication that reduces just one indi-
vidual’s tax liability qualify as a “change in…admin-
istrative interpretation” such that States must pre-
vent any Rescue Plan funds from “indirectly off-
set[ting]” its result? How will the Secretary view
State agencies’ application of existing definitions to
new facts? Imagine an administrative decision that
individuals with “long COVID syndrome” qualify for
an existing tax credit for “disabled” persons. This de-
cision would reduce taxes for those with long COVID,
but is it a “change” in “administrative interpreta-
tion”? By what criteria will the Secretary decide? Does
the answer turn on whether a Treasury bureaucrat
thinks the decision is a straightforward application of
the existing law defining “disabled” or a novel exten-
sion of it? If such a credit is due to expire, would re-
newing it be a “change in law”? Similarly, are new
property tax assessments that might reduce new con-
struction and thereby tax revenues a “change in law”
subject to federal oversight?
4 Id.
7
These questions are not merely hypothetical. Ohio
law provides for an annual sales tax “holiday” each
August.5 During that weekend, unofficially kicking off
the “Back to School” period, sales of clothing items
costing less than $75 and school supplies are exempt
from sales and use tax. What if Ohio changes the
dates to be more convenient for parents or to prevent
crowding in stores? Can the State add additional sup-
plies to the approved list, such as hand sanitizer? Ei-
ther decision could lower tax revenue. If ARPA funds
indirectly offset that reduction, has Ohio violated the
Tax Mandate? Ohio has no way of knowing, nor does
Alabama, Iowa, and at least four other States with
similar sales tax holidays.6
Even had the Tax Mandate informed States what
constitutes a relevant “change,” States still may not
know whether a given change is one that “reduces any
tax.” That phrase, on its face, extends beyond pur-
poseful tax cuts to every potentially revenue-reducing
decision. That includes prohibiting sale of otherwise-
taxable Cannabidiol products, increasing access to
justice by reducing filing fees, mandating increased
electrical vehicle sales causing reduced gas-tax collec-
tions, and requiring licensure of a profession thereby
reducing taxable services.
5 Ohio Rev. Code § 5739.02.
6 Ala. Code §§ 40-23-211–213; Iowa Code § 423.3(68)(a)(2); Okla.
Admin. Code. § 710:65-13-511; S.C. Code. § 12-36-2120(57); W.
Va. Code § 11-15-9s; Fla. Dep’t of Revenue, Tax Holidays and
Exemption Periods, https://floridarevenue.com/pages/sales-
taxholidays.aspx.
8
One can imagine that a new wave of COVID-19 or
another infectious disease might lead a State to pro-
hibit property-tax assessors from making their
rounds during an outbreak. That decision would “de-
lay[] the imposition of any tax or tax increase” and so
seemingly violate the Tax Mandate. Likewise, a gov-
ernor, responding to the same crisis, might prohibit
indoor dining, causing a drop in sales-tax revenue.
Would the Tax Mandate really put States to the Hob-
son’s choice between forgoing such health and safety
regulations and violating ARPA? Less dramatically,
lowering the speed limit to save lives is likely also to
reduce gas-tax collections and taxable commerce. So
must States make traffic regulations cognizant of Tax
Mandate concerns?
These are the sort of policy decisions that form the
core of States’ police powers constitutionally reserved
from federal oversight. The States need this Court’s
intervention to clarify how, if at all, the Tax Mandate
limits the exercise of their core powers.
Besides questions of scope are questions of
method. How are States to know whether a particular
policy decision results in a “reduction” in “net tax rev-
enue”? The statute provides no baseline against
which to measure a “reduction” and no timeframe for
assessing a policy’s effects. If a State reduces income
tax rates based on a forecast that the cut will increase
tax revenue by stimulating economic growth, has that
State violated the Tax Mandate? Such questions are
not merely hypothetical. The Buckeye Institute’s Eco-
nomic Research Center performs dynamic analysis of
9
state budgets to model just these kinds of questions—
i.e., whether decreasing tax rates will stimulate eco-
nomic growth, and correspondingly increase tax reve-
nues—and it has done so in 11 states to date. If a
State reduces income tax based on The Buckeye Insti-
tute’s dynamic analysis, how quickly must the fore-
casted growth materialize, and how must States
prove the growth resulted from the rate cut?
Finally, when a “reduction” does occur, what
funds, if any, may States draw on without having “in-
directly offset a reduction” using ARPA funds? Can
the State issue bonds or draw on a rainy-day fund to
cover the difference? Are streams of tax revenue from
different sources assessed separately such that a drop
in say, income tax revenue, might permissibly be off-
set by an increase in revenue from sales tax? The Tax
Mandate does not say.
Then there are equitable considerations. What, for
example, will be the fate of Arizona, which conformed
its own tax policy to federal law by exempting from
state income tax the first $10,000 in employment aid
and forgiven Paycheck Protection Program loans?7
West Virginia made similar changes for conformity’s
sake.8 These decisions reduced tax revenue. Did these
States violate the Tax Mandate by following Con-
gress’s lead?
Congress has not given the States a light to legis-
late by. Unless and until the Court acts, States cannot
7 Ariz. Rev. Stat. § 48-701.
8 W. Va. Code § 11-24-3.
10
see where the boundaries of federal and state power
have been redrawn.
II. The Tax Mandate Is Fundamentally Vague
and Therefore Unenforceable
A. Conditions on States’ Receipt of Federal
Funds Must Be “Unambiguous[]”
“The legitimacy of Congress’ power to legislate un-
der the spending power…rests on whether the State
voluntarily and knowingly accepts the terms of the
‘contract.’” Pennhurst, 451 U.S. at 17. Accordingly,
this Court has consistently emphasized that “if Con-
gress desires to condition the States’ receipt of federal
funds, it ‘must do so unambiguously..., enabl[ing] the
States to exercise their choice knowingly, cognizant of
the consequences of their participation.’” Dole, 483
U.S. at 207 (quoting Pennhurst, 451 U.S. at 17); see
also Arlington Cent. Sch. Dist. Bd. of Educ. v. Mur-
phy, 548 U.S. 291, 296 (2006) (same). To determine
whether a condition is clear enough, a court “must
view the [funding offer] from the perspective of a state
official who is engaged in the process of deciding
whether the State should accept [the] funds and the
obligations that go with those funds.” Arlington, 548
U.S. at 296. “There can, of course, be no knowing ac-
ceptance if a State is unaware of the conditions or is
unable to ascertain what is expected of it.” Pennhurst,
451 U.S. at 17 (emphasis added). Congress therefore
must provide “clear notice regarding the liability”
that comes with the funding. Arlington, 548 U.S. at
296.
11
As this Court recently explained, the limits on
Congress’s Spending Clause authority are “critical to
ensuring that Spending Clause legislation does not
undermine the status of the States as independent
sovereigns in our federal system.” Nat’l Fed’n of In-
dep. Bus. v. Sebelius, 567 U.S. 519, 577 (2012); see also
Davis Next Friend LaShonda D. v. Monroe Cnty. Bd.
Of Educ., 526 U.S. 629, 655 (1999) (“A vital safeguard
for the federal balance is the requirement that, when
Congress imposes a condition on the States’ receipt of
federal funds, it must do so unambiguously.” (quota-
tion marks omitted)) (Kennedy, J., dissenting).
The requirement that federal funding conditions
be unambiguous is one of several related clear-state-
ment rules that preserve the vertical separation of
powers. See generally Larry J. Obhof, Federalism, I
Presume? A Look at the Enforcement of Federalism
Principles Through Presumptions and Clear State-
ments Rules, 2004 Mich. St. L. Rev. 123, 132 (2004).
Such rules “acknowledg[e] that the States retain sub-
stantial sovereign powers under our constitutional
scheme, powers with which Congress does not readily
interfere.” Gregory v. Ashcroft, 501 U.S. 452, 461
(1991). Thus, “[i]n traditionally sensitive areas, such
as legislation affecting the federal balance, the re-
quirement of clear statement assures that the legisla-
ture has in fact faced, and intended to bring into is-
sue, the critical matters involved in the judicial deci-
sion.’” United States v. Bass, 404 U.S. 336, 349 (1971).
For these reasons, the Court has refused “to give the
12
state-displacing weight of federal law to mere con-
gressional ambiguity.” Gregory, 501 U.S. at 464
(cleaned up).
B. The Tax Mandate Is Anything But Unam-
biguous
The Tax Mandate imposes a fundamentally am-
biguous condition on States’ receipt of ARPA funds. It
therefore violates the Spending Clause and impermis-
sibly intrudes on States’ exercise of the internal police
and taxing powers the Constitution withholds from
the national government. See U.S. Const. art. I, § 8,
cl. 1. The open questions discussed above illustrate
that, when the States accepted ARPA funds, they
could not have been “cognizant of the consequences of
their participation.” Dole, 483 U.S. at 207. Congress
failed to set forth any clear condition.
As shown above, the Tax Mandate fails to define
the critical phrases “indirectly offset,” “change in law,
regulation, or administrative interpretation,” and “re-
duces any tax.” Having accepted needed funds in the
midst of an unprecedented public-health emergency,
the States now have not an inkling of an idea of what
“the consequences of their participation” will be. See
Dole, 483 U.S. at 207. As the Sixth Circuit observed
in a companion case, the Tax Mandate is marked by a
startling “lack of inherent content.” Kentucky v.
Yellen, 54 F.4th 325, 350 (6th Cir. 2022).
In short, the only thing the Tax Mandate’s lan-
guage communicates clearly is that it imposes some
kind of condition on funding offered to States. But the
13
Constitution requires that, “when the Federal Gov-
ernment takes over...local radiations in the vast net-
work of our national economic enterprise and thereby
radically readjusts the balance of state and national
authority, those charged with the duty of legislating
[must be] reasonably explicit.’” BFP v. Resolution
Trust Corp., 511 U.S. 531, 544 (1994) (quotation
marks omitted). Because the Tax Mandate fails to
provide such clarity, it is unconstitutional.
C. Treasury’s Regulations Are Irrelevant
and Inadequate
Treasury’s regulations attempting to provide con-
tent to the Tax Mandate cannot and do not fix the
problem.
As a constitutional matter, funding conditions
must be clear prior to acceptance “so that the States
can knowingly decide whether or not to accept those
funds.” Pennhurst, 451 US. at 24. Treasury’s Final
Rule was promulgated after Ohio and other States ac-
cepted ARPA funds, too late to contribute to a know-
ing decision.
More fundamentally, no agency action could ever
cure an ambiguous spending condition. The Constitu-
tion assigns the power to spend for the general wel-
fare to Congress alone, see U.S. Const. art. I, § 8, cl. 1,
so it follows that Congress alone must decide what
conditions, if any, accompany its spending. Cf. Whit-
man v. Am. Trucking Ass’ns, 531 U.S. 457, 472–73
(2001) (rejecting the proposition that “an agency can
cure an unlawful delegation of legislative power by
adopting in its discretion a limiting construction of
14
the statute”). Also, a legislative condition is more per-
manent than a regulatory one, and only legislative de-
cisionmakers are electorally accountable. These safe-
guards for States are especially necessary when a con-
dition impinges on their core tax and police powers.
And nothing prevents Treasury from changing the
rules of the game after a State has already played its
hand. Regulations are subject to change with little or
no notice. See 5 U.S.C. § 553(a) & (b) (listing excep-
tions to notice and comment). Indeed, Treasury
claims that the Final Rule here was exempt from no-
tice and comment as a “matter relating to
agency…grants” and for “good cause.” 87 Fed. Reg. at
4445 (quoting 5 U.S.C. § 553). In Treasury’s view, it
may unilaterally rewrite States’ obligations under the
Tax Mandate at the drop of a hat. Whether or not that
position is consistent with the Administrative Proce-
dure Act, it underscores that agency rulemaking can-
not backfill Congress’s failure to enact unambiguous
and durable conditions on States’ acceptance of fed-
eral funds.
In any event, Treasury’s Final Rule fails to provide
the certainty and clarity required of funding condi-
tions. It tries and fails to answer some of the ques-
tions raised above, while refusing to answer others.
For example, the Final Rule’s 117 pages include a
complex page-long formula at 31 C.F.R. § 35.8(b) that,
along with an additional seven preamble pages, at-
tempts to define how Treasury will determine what
constitutes a Tax Mandate “violation.” That pur-
ported guidance leaves States with no “explanation on
how to (1) calculate a ‘reduction’ in net tax revenue,
(2) determine whether such a reduction resulted from
15
a tax cut, and (3) tell what particular conduct consti-
tutes an ‘indirect’ offset.” Kentucky v. Yellen, 54 F.4th
at 363 (Nalbandian, J. concurring in part and dissent-
ing in part). And even if the regulatory formula were
crystal clear, an adjacent provision renders it incon-
sequential by stating that no part of the Rule “shall
limit the authority of the Secretary to take action to
enforce conditions or violations of law, including ac-
tions necessary to prevent evasions of this subpart.”
31 C.F.R. § 35.4(a). So much for providing guidance.
Among the questions Treasury refused to answer
is “whether covered changes must be broad-based pol-
icies or whether administrative decisions applicable
to individuals would be considered covered changes.”
87 Fed. Reg. at 4425. Treasury responded that an ad-
ministrative decision applicable to just one individual
is a covered change if it “result[s] from a change in
law, regulation, or administrative interpretation”
(i.e., a covered change), id., which is equivalent to say-
ing that a decision is a covered change if it is a covered
change. In the end, the Final Rule tells States only
that a violation of the Tax Mandate is whatever the
Secretary says it is.
Ultimately, the Final Rule only confirms the all-
encompassing sweep and fundamental ambiguity of
the Tax Mandate. It establishes a proto-receivership
under which State governments and their budget of-
fices are mere functionaries reporting to a federal su-
perintendent. It requires States to quantify every pol-
icy decision that they make, and then identify an off-
set for any decisions that reduce revenue to the satis-
faction of the Treasury Department. And, despite all
that, it indicates that the Treasury will be monitoring
16
the States and—at its discretion—may determine
that an unsuspecting State is evading the restrictions
and seek recoupment of funds, notwithstanding com-
pliance with the onerous procedures it has put in
place. This regime is inimical to constitutional feder-
alism.
III. The Court’s Review Is Inevitable, and This
Case Presents an Ideal and Timely Vehicle
Two courts of appeals have ruled that the Tax
Mandate is unconstitutionally vague, affirming per-
manent injunctions against enforcement of the Tax
Mandate with respect to thirteen States. W. Virginia
by & through Morrisey v. U.S. Dep’t of the Treasury,
59 F.4th 1124, 1140 (11th Cir. 2023); Kentucky v.
Yellen, 54 F.4th 325, 358 (6th Cir. 2022). Meanwhile,
the remaining States are still subject to the Tax Man-
date’s uncertain requirements. Those States and their
citizens should not have to bear this uneven applica-
tion of the law. It is practically inevitable that the
Court will review the constitutionality of the Tax
Mandate, and there is no reason, after so much perco-
lation on that issue in the lower courts, for this Court
to delay its review.
This case presents a clean and timely vehicle for
the Court to resolve the issue once and for all. The
State of Ohio has consistently challenged the Tax
Mandate’s constitutionality from day one, and its cir-
cumstances are identical to those of other states
whose exercise of core powers lays beneath a cloud of
uncertainty. Although the Court below held Ohio’s
17
challenge to be moot, that determination was inter-
twined with its view of the merits, in particular its
acceptance of the view that Treasury’s rulemaking
could cure or at least obviate the injury inflicted by
the statutory Tax Mandate. See Pet.App.16a–18a.
And the question of mootness is itself independently
worthy of review. Not only has it split the appeals
courts, see Pet.23–25, but it is also indisputably im-
portant, given the apparent injury a State suffers
when federal law casts a pall over the exercise of its
core police and taxing powers. If the Court does grant
review on the mootness question, which it should do,
it should also grant review on the Tax Mandate’s con-
stitutionality so as to provide the States the certainty
of law that they desperately need.
CONCLUSION
The Court should grant the petition.
Respectfully submitted,
ANDREW M. GROSSMAN
ROBERT ALT Counsel of Record
DAVID C. TRYON KRISTIN SHAPIRO
THE BUCKEYE INSTITUTE BAKER & HOSTETLER LLP
1050 Connecticut Ave., N.W.
NICHOLAS A. CORDOVA Washington, D.C. 20036
BAKER & HOSTETLER LLP (202) 861-1697
agrossman@bakerlaw.com
Counsel for Amicus Curiae The Buckeye Institute
APRIL 2023
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