Brief (Non Appeal), State of Arizona v. Yellen, No. 2:21-cv-00514 (D. Ariz.), Doc. 59 (July 7, 2021)

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The State's final brief regarding permanent relief filed by Plaintiff State of Arizona in Case No. 2:21-cv-00514-DJH, U.S. District Court for the District of Arizona, against Janet Yellen, in her official capacity as Secretary of the Treasury, and others; the certificate of service is dated July 7, 2021. The brief argues that the Tax Mandate in the American Rescue Plan Act is unconstitutionally ambiguous and coercive, and that Defendants have not satisfied the relatedness requirement. It says the requirement has been subject to at least three mutually exclusive readings in this litigation. It argues that declaratory relief and a permanent injunction are appropriate and that the Court has jurisdiction. The brief is signed s/ Drew C. Ensign.

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“Brief (Non Appeal), State of Arizona v. Yellen, No. 2:21-cv-00514 (D. Ariz.), Doc. 59 (July 7, 2021).” Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/brief-non-appeal-state-of-arizona-v-yellen-no-2-21-cv-00514-d-ariz-doc-e8efba02c5/, SHA-256 8ceeab63f025b9b5d787afba7a7ae3db7589cbae95dffa48725dd9873282b17b.

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1 MARK BRNOVICH
ATTORNEY GENERAL
2 (Firm State Bar No. 14000)
3 Joseph A. Kanefield (No. 15838)
Brunn (Beau) W. Roysden III (No. 28698)
4 Drew C. Ensign (No. 25463)
5 Wilson Freeman (admitted pro hac vice)
Robert J. Makar (No. 33579)
6 2005 N. Central Ave
7 Phoenix, AZ 85004-1592
Phone: (602) 542-8958
8 Joe.Kanefield@azag.gov
Beau.Roysden@azag.gov
9
Drew.Ensign@azag.gov
10 Wilson.Freeman@azag.gov
Robert.Makar@azag.gov
11
Attorneys for Plaintiff State of Arizona
12 UNITED STATES DISTRICT COURT
13 DISTRICT OF ARIZONA
14
No. 2:21-cv-00514-DJH
15
State of Arizona,
16 STATE’S FINAL BRIEF
Plaintiff, REGARDING PERMANENT
17 v.
RELIEF
Janet Yellen, in her official capacity as
18 Secretary of the Treasury et al.;
19 Defendants.
20
21
22
23
24
25
26
27
28
1 TABLE OF CONTENTS
2 TABLE OF AUTHORITIES............................................................................................... ii
3 INTRODUCTION ............................................................................................................... 1
4 ARGUMENT ...................................................................................................................... 2
5 I. This Court Has Jurisdiction ........................................................................... 2
6 A. The Tax Mandate Inflicts Cognizable Injury-In-Fact On Arizona ............... 2
7 1. The Tax Mandate’s Ambiguity Alone Establishes Standing .............. 3
8 2. The Tax Mandate Raises A “Realistic Danger” Of Enforcement ....... 4
9 3. The Tax Mandate Imposes Compliance Costs On Arizona ................ 5
10 B. Arizona’s Claim Is Not Moot ........................................................................ 5
11 II. The Tax Mandate Is Unconstitutional ........................................................... 6
12 A. The Tax Mandate Is Unconstitutionally Ambiguous .................................... 7
13 1. Congress Must Present The State “Clear Notice” Of The
Conditions ........................................................................................... 7
14
2. The IFR Cannot Cure This Constitutional Deficiency ........................ 8
15
B. Defendants Have Not Satisfied The Relatedness Requirement .................... 9
16 C. The Tax Mandate Is Unconstitutionally Coercive ........................................ 9
17 III. Declaratory Relief And A Permanent Injunction Are Appropriate Here .... 11
18
CONCLUSION ................................................................................................................. 11
19
20
21
22
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28

i
1 TABLE OF AUTHORITIES
2 CASES
3 Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy
4 548 U.S. 291 (2006). ....................................................................................................... 7

5 Babbitt v. United Farm Workers Nat. Union
442 U.S. 289 (1979) ........................................................................................................ 4
6
7 Bennett v. Kentucky Dep't of Educ.
470 U.S. 656 (1985) ........................................................................................................ 8
8
California v. Texas
9 141 S. Ct. 2104 (2021) ................................................................................................ 2, 4
10
Chafin v. Chafin
11 568 U.S. 165 (2013) ........................................................................................................ 6
12 Chong v. Dist. Dir., I.N.S.
13 264 F.3d 378 (3d Cir. 2001) ............................................................................................ 6

14 Com. of Va., Dep't of Educ. v. Riley
106 F.3d 559 (4th Cir. 1997) ........................................................................................... 9
15
eBay Inc. v. MercExchange, L.L.C.
16
547 U.S. 388 (2006) ...................................................................................................... 11
17
Lujan v. Defs. of Wildlife
18 504 U.S. 555 (1992) .................................................................................................... 2, 3
19 Mayweathers v. Newland
20 314 F.3d 1062 (9th Cir. 2002) ..................................................................................... 7, 8

21 McCulloch v. Maryland
17 U.S. 316 (1819) .......................................................................................................... 2
22
23 Nat’l Fed’n of Indep. Bus. v. Sebelius
567 U.S. 519 (2012). ................................................................................................. 4, 10
24
New York v. United States
25 505 U.S. 144 (1992) ...................................................................................................... 10
26
Ohio v. Yellen
27 No. 1:21-CV-181, 2021 WL 2712220 (S.D. Ohio July 1, 2021). ......... 2, 3, 6, 7, 8, 9, 11
28 Parker v. D.C.
478 F.3d 370 (D.C. Cir. 2007). ....................................................................................... 2

ii
1 Printz v. United States
521 U.S. 898 (1997) ...................................................................................................... 11
2
Sprint Commc'ns Co., L.P. v. APCC Servs., Inc.
3
554 U.S. 269 (2008) ........................................................................................................ 5
4
STATUTES
5
6 42 U.S.C. § 802(d)............................................................................................................... 5
7
REGULATIONS
8
Coronavirus State and Local Fiscal Recovery Funds
9 86 Fed. Reg. 26,786 (May 17, 2021)............................................................................... 1
10
OTHER AUTHORITIES
11
12 3533.1 Doctrinal Foundations
13B Fed. Prac. & Proc. Juris. § 3533.1 (3d ed.) .............................................................. 6
13
14
15
16
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28

iii
1 INTRODUCTION
2 The Tax Mandate in the American Rescue Plan Act (the “ARPA” or “the Act”) is
3 among the greatest infringements on State sovereignty in American history. ARPA has
4 coerced the States into accepting an ambiguous condition limiting their sovereign fiscal
5 authority through 2024, effectively threatening the States with billions in claw backs if they
6 enact policies that meet Defendants’ disapproval. This centralization of authority is
7 squarely contrary to the structure of the Constitution and should be enjoined.
8 The principal problem with the Tax Mandate is its ambiguity. The statutory
9 language, which has numerous significant gaps and prohibits any “indirect[] offset[s]” of
10 “net tax revenue,” gives States little-to-no clue as to what it means. In fact, the requirement
11 it imposes has been subject to at least three mutually exclusive readings in this litigation
12 alone. First, the Tax Mandate could be read expansively, to prohibit any change in tax
13 policy which reduces tax revenue against the previous year (“Manchin Interpretation”). See
14 Doc. No. 11 at 5-6. Second, Defendants have suggested that the Tax Mandate has no real
15 effect at all since, in their view, “indirectly” as an “adverb[]” “cannot alter the meaning of
16 … word[s].” Doc. 31 at 9 (“Narrow Interpretation”). Finally, in an Interim Final Rule
17 (“IFR”) published on May 17, 2021, the Treasury Department promulgated a
18 comprehensive reporting and monitoring scheme, purportedly to detect these indirect
19 offsets (“Treasury’s Interpretation”). Coronavirus State and Local Fiscal Recovery Funds,
20 86 Fed. Reg. 26,786 (May 17, 2021) (“IFR” or “Interim Final Rule”).
21 When this lawsuit was filed, it was impossible for Arizona to know which of these
22 shifting and contradictory interpretations would carry the day. Although confronted with
23 this ambiguity, Arizona nonetheless chose to accept the enormous funds offered under the
24 Act. Far from solving Arizona’s problems, this has multiplied them. Now, the State—
25 which has also passed substantial tax cuts in its latest budget—is facing a pall of uncertainty
26 for the next four years, a real risk of a recoupment action, and will be forced to make tax
27 policy essentially subject to the discretionary approval of the Secretary.
28 This situation is intolerable under the Constitution. The federal government’s

1
1 response—rather than to defend this policy on the merits—is largely to assert that this
2 Court lacks jurisdiction to reach them. Under Defendants’ view, Arizona can either:
3 (1) make all tax policy for four years under a Sword of Damocles, while prepared to fight
4 the Secretary’s inevitable recoupment proceedings; or (2) surrender State taxing
5 authority—a core element of State sovereignty. See McCulloch v. Maryland, 17 U.S. 316,
6 429 (1819). Neither of these “solutions” is required—or even tenable—under Article III.
7 The Southern District of Ohio recently granted a permanent injunction against
8 enforcement of the Tax Mandate against Ohio. Ohio v. Yellen, No. 1:21-CV-181, 2021 WL
9 2712220, at *2 (S.D. Ohio July 1, 2021). The Ohio court correctly determined both that
10 Ohio had standing to challenge the Tax Mandate and that it was unconstitutional. Id. This
11 Court should as well.
12 ARGUMENT
13 I. This Court Has Jurisdiction
14 Defendants have raised two main jurisdictional objections: contending that
15 (1) Arizona lacks standing or this case is not ripe, as Arizona has not suffered any injury
16 in fact, or alternatively that (2) this case is moot by virtue of Arizona’s acceptance of ARPA
17 funds. See Tr.30-32. Neither objection has merit.
18 A. The Tax Mandate Inflicts Cognizable Injury-in-Fact on Arizona
19 A plaintiff has standing if it can “allege personal injury fairly traceable to the
20 defendant’s allegedly unlawful conduct and likely to be redressed by the requested relief.”
21 California v. Texas, 141 S. Ct. 2104, 2113 (2021). The existence of that injury depends on
22 “the facts as they exist when the complaint is filed.” Lujan v. Defs. of Wildlife, 504 U.S.
23 555, 569 n.4 (1992). For purposes of evaluating whether jurisdiction exists, this Court
24 “must assume arguendo the merits of [the State’s] legal claim.” Parker v. D.C., 478 F.3d
25 370, 377 (D.C. Cir. 2007).
26 Applying these principles, Arizona has suffered a personal and concrete injury from
27 the unconstitutional ambiguity in the Tax Mandate in at least three ways. First, Arizona has
28 suffered sovereign injury from bare presentment of the Tax Mandate’s unconstitutional

2
1 ambiguity. Second, Arizona recently signed a budget providing for a $1.9 billion tax cut,
2 confirming that Arizona faces a real risk of a Tax Mandate enforcement action against it.1
3 Third, the Tax Mandate and its IFR directly impose irrecoverable compliance costs.
4 1. The Tax Mandate’s Ambiguity Alone Establishes Standing
5 Although Congress has discretion under the Spending Clause to determine how
6 federal money is spent, when it places conditions on grants to the States those conditions
7 must be expressed “unambiguously” to enable the States to engage in “knowing and
8 voluntary” acceptance. See Doc. 11 at 8-12. If Congress violates this requirement, State
9 sovereignty is unconstitutionally encroached because States must plan and execute policy
10 against a background of uncertainty. Most significantly, this includes the States’
11 determination of whether to exercise their sovereign prerogative to accept or decline the
12 federal offer. The Ohio court recognized this as a key injury which supported Ohio’s
13 standing, determining that the presentment of an unconstitutionally ambiguous deal is
14 alone fully sufficient to confer Article III standing. Ohio, 2021 WL 2712220 at *6. This is
15 consistent with common sense: if a State cannot even understand what an offer means at
16 the time that it can make a choice to accept, that injures the State.
17 This injury to Arizona’s sovereign interests was ongoing when Arizona’s Complaint
18 was filed. Under ARPA, Arizona had the power to accept or decline the funding
19 immediately. Arizona’s rights were thus violated when the ambiguous Tax Mandate was
20 signed into law. Arizona’s subsequent, post-Complaint acceptance cannot affect the
21 standing injury. See Lujan, 504 U.S. at 569 n.4. In addition, Arizona has argued that the
22 State was coerced into accepting the Tax Mandate. As this Court acknowledged at
23 argument, this is a post-pandemic world, where States are being offered 40% of their
24 budget in funding attached to a condition capable of at least three interpretations. See Tr.36.
25 In this context, States that surrender any taxing authority to the Federal Government suffer
26
27 1
See, e.g., Jonathan J. Cooper, Gov. Doug Ducey signs budget that includes major tax cut
plan, AZFamily (June 30, 2021),
28 https://www.azfamily.com/news/politics/arizona_politics/arizona-governor-doug-ducey-
signs-budget/article_fa8ff2e4-58cd-53dd-887f-6f514e56a2e4.html.

3
1 a sovereign injury at the point they “accept” the funds.
2 The viability of the injury at this stage is underscored by NFIB v. Sebelius, 567 U.S.
3 519 (2012). NFIB involved a Spending Clause challenge brought by States to a provision
4 of the Affordable Care Act that did not go into effect until four years after the challenge
5 was filed. See id. Yet none of the several opinions of the Supreme Court Justices even
6 hinted at doubts as to whether States had standing to raise their pre-enforcement challenges.
7 This strongly implies that standing must exist in the present context, where the
8 unconstitutional condition is being imposed immediately.
9 2. The Tax Mandate Raises A “Realistic Danger” Of Enforcement
10 Injury in fact is present when a party faces a “realistic danger of sustaining a direct
11 injury as a result of the statute’s operation or enforcement.” California, 141 S. Ct. at 2114
12 (quoting Babbitt v. United Farm Workers Nat. Union, 442 U.S. 289, 298 (1979)). Arizona
13 easily faced—and, given its subsequent $1.9 billion tax cut, continues to face—such a
14 danger. Requiring the State to wait to challenge an unconstitutional enforcement action is
15 neither required by—nor appropriate under—Article III. Arizona has a significant stake in
16 the meaning of the Tax Mandate now.
17 The Tax Mandate is so impossible to understand as to be unconstitutionally
18 ambiguous. Nor have Defendants disavowed bringing recoupment actions against the
19 State. On the contrary, Treasury has recently promulgated an IFR with a complex scheme
20 for monitoring subsequent developments for unlawful indirect offsets. This is just like
21 Babbitt: there, the statute also had never been applied, and the State had not disavowed the
22 intent to enforce the statute. Babbitt, 442 U.S. at 302. As the Court explained, standing
23 existed there because “Appellees [we]re thus not without some reason in fearing
24 prosecution.” Id. So too here.
25 Arizona’s decision to certify that it did not intend to violate the ARPA does not
26 undermine this conclusion. First, as Arizona has alleged, the Tax Mandate’s sweep is so
27 broad and uncertain, Arizona could reasonably certify under its own reasonable reading of
28 the language. Further, even under Treasury’s regulations, the Tax Mandate extends to

4
1 inadvertent decreases in tax revenue and contemplates Treasury effectively reviewing past
2 conduct for indirect offsets. See, e.g., IFR, https://www.federalregister.gov/d/2021-
3 10283/p-398. Given the size and scope of Arizona’s tax cuts and the breadth of the Tax
4 Mandate’s unconstitutionally ambiguous language, it defies reason to insist that Arizona’s
5 certification is sufficient to protect it from prosecution.
6 3. The Tax Mandate Imposes Compliance Costs On Arizona
7 Apart from the threat of enforcement and the injury to Arizona’s sovereignty,
8 Arizona has standing to challenge the Tax Mandate because it directly imposes compliance
9 costs on the State. Defendants’ response points to a section of the ARPA, which requires
10 States to make a “detailed accounting” of “all modifications to the State’s … tax revenue
11 sources.” See Tr.43-44 (citing 42 U.S.C. § 802(d)). That contention is specious because
12 Section 802(d) is far less broad than the Tax Mandate/IFR. Among other things, the Tax
13 Mandate, as implemented in the IFR, requires the States to break out and “identify any
14 sources of funds that have been used to permissibly offset” tax changes. See IFR,
15 https://www.federalregister.gov/d/2021-10283/p-393 (requiring the States to “identify and
16 calculate the total value of changes that could pay for revenue reduction due to covered
17 changes and sum these items” and describing the procedures for doing so). Nothing in
18 Section 802(d) requires States to do so. Identifying revenue reduction sources and tracing
19 offsets is not even arguably within the ambit of “the uses of [ARPA] funds” or
20 “modifications to the State’s … tax revenue sources.” 42 U.S.C. § 802(d).
21 Nor is the size of the marginal compliance costs relevant to the standing inquiry:
22 Injury that is “personal” and “concrete” suffices regardless of size. See Sprint Commc’ns
23 Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 289 (2008) (upholding jurisdiction, noting
24 that injury of “perhaps only a dollar or two” would even be sufficient).
25 B. Arizona’s Claim Is Not Moot
26 Given this Court’s Rule 65(a)(2) consolidation, this Court can issue a declaratory
27 judgment and also enjoin the Secretary from enforcing the Tax Mandate against Arizona.
28 Accordingly, this case is clearly not moot. A case is only moot when it is impossible to

5
1 grant any effectual relief whatsoever. See Chafin v. Chafin, 568 U.S. 165, 172 (2013).
2 Furthermore, the burden of demonstrating mootness falls on the party claiming it. See §
3 3533.1 Doctrinal Foundations, 13B Fed. Prac. & Proc. Juris. § 3533.1 (3d ed.) (citing
4 cases). Defendants have conceded that the IFR has no implication on mootness and have
5 only briefly argued that the State’s acceptance of the funding “moots [Arizona’s] injury.”
6 Tr.31-32. Not so.
7 As the Ohio court explained, even if this Court considers Arizona’s uncertainty on
8 whether to accept ARPA funding the “primary” injury and fears that no injunction can cure
9 it, the existence of any “secondary or collateral injuries” suffices to defeat mootness. Ohio,
10 2021 WL 2712220, at *7 (citation omitted). A variety of secondary injuries exist, all of
11 which would can be cured by this Court, thereby ensuring that Arizona retains a concrete
12 stake in this lawsuit. For example, any of the injuries described above constitute such
13 secondary injuries, as Ohio recognized. Id. But any change in policy that Arizona
14 experiences as a result of the unconstitutional ambiguity would also suffice as an interest—
15 “however small”—to defeat mootness. And any uncertainty the State experiences in
16 policymaking as a result of the unconstitutionality would also suffice—for example, in
17 planning tax policy, or in determining how to use spending cuts to offset tax cuts, or in
18 how to spend ARPA funds.
19 Because an injunction against the enforcement of the Tax Mandate and a declaration
20 as to its unconstitutionality would remedy these harms, this case is not moot.
21 II. The Tax Mandate Is Unconstitutional
22 There are four main reasons why the Tax Mandate—which was hastily added to the
23 ARPA, as its drafting reflects—is unconstitutional. First, the Tax Mandate is
24 unconstitutionally ambiguous, and fails to allow States to “knowingly and voluntarily”
25 accept the amorphous conditions it imposes. See Doc. No. 11 at 8-12. Second, the Tax
26 Mandate violates the requirement that conditions on spending be related to the “purpose of
27 the federal spending.” See id. at 12-13. Third, the Tax Mandate induces the States to sell
28 the “essence of their statehood.” See id. at 13-14. Finally, the Tax Mandate is coercive—

6
1 offering the States a “deal” with many-possible interpretations, at a time of serious
2 economic hardship. See id. at 14-16.
3 The State renews all of these arguments. A few points bear emphasis: (1) the statute
4 remains unconstitutionally ambiguous; (2) the condition imposed is unrelated to the
5 purpose of the spending; and (3) the Tax Mandate is unconstitutionally coercive.
6 A. The Tax Mandate Is Unconstitutionally Ambiguous
7 Defendants have always recognized—out of court—that the language of the Tax
8 Mandate, at the very least, raises “a host of thorny questions.” See Makar Decl. Ex. Y
9 (testimony of Secretary Yellen). If a State cannot understand and therefore cannot
10 knowingly accept a spending condition—even if a State ultimately “accepts” the funds—
11 the statute violates the Constitution. In this respect, the State is in good company: Secretary
12 Yellen—by her own admission—also finds the Tax Mandate to be hopelessly ambiguous,
13 raising a “host of thorny questions” that no unambiguous statute would.
14 Defendants’ response to the State’s argument is twofold. First, Defendants have
15 argued the Spending Clause does not require Congress to present clear conditions, and only
16 requires that the existence of conditions be clear. Tr.36 (citing Mayweathers v. Newland,
17 314 F.3d 1062, 1067 (9th Cir. 2002)). Second, Defendants have argued that the IFR can
18 clarify any unconstitutionality. See, e.g., Tr.35.
19 1. Congress Must Present the State “Clear Notice” of the Conditions
20 The Supreme Court in Arlington Central could not be clearer: “when Congress
21 attaches conditions…, the conditions must be set out unambiguously.” Arlington Cent. Sch.
22 Dist. Bd. of Educ. v. Murphy, 548 U.S. 291, 296 (2006). The Court emphasized that this
23 analysis is analogous to contract, and the question must be viewed “from the perspective
24 of the state official” who must be able to “clearly understand” “the obligations” imposed.
25 Id. The Ohio court agreed: “it is not sufficient that the State receives funds merely knowing
26 that some kind of strings are attached … Congress must also tell States what those
27 conditions are.” Ohio, 2021 WL 2712220, at *12.
28 Mayweather (which predated Arlington) is not to the contrary. Mayweather stands

7
1 for the far-more limited proposition that, as the Ohio Court recognized, “exactitude is not
2 necessary.” Id. Accord Mayweather, 314 F.3d at 1067 (“Congress is not required to list
3 every factual instance in which a state will fail to comply with a condition.”)
4 But the Tax Mandate’s language provides no meaningful guidance as to what is
5 prohibited, uses an incredibly expansive framing, and has several critical gaps, which the
6 Ohio court ably explains in detail. 2021 WL 2712220 at *12-*15. By contrast, the condition
7 in Mayweather had decades of case law behind it and was well understood by practitioners.
8 To illustrate the ambiguity of the Tax Mandate, at oral argument, Defendants tried to
9 explain the difference between a “direct offset” and an “indirect offset,” explaining that the
10 former would involve receiving $2 billion and then “appl[ying] the money to a tax cut”
11 whereas the latter would involve receiving $2 billion, then cutting $2 billion of the State’s
12 spending and using “that” money for a tax cut. Tr.35. But the Ohio court effectively
13 demolished that artifice, explaining that it “amounts to two slightly different ways of saying
14 the same thing.” 2021 WL 2712220, at *14. Money is fungible, as the Secretary
15 acknowledged. Doc. 11 at 2. Moreover, Defendants previously argued that “indirectly” has
16 no meaning at all. Supra at 1. Defendants’ own admissions, indecision, and shifting
17 positions provide powerful evidence of the Tax Mandate’s ambiguity.
18 The ambiguity in the Tax Mandate goes well beyond a failure to lay out exhaustive
19 factual applications, and cannot be knowingly and voluntarily accepted.
20 2. The IFR Cannot Cure This Constitutional Deficiency
21 The IFR cannot cure these deficiencies. Defendants suggest that Bennett v. Kentucky
22 Dep’t of Educ., 470 U.S. 656, 666 (1985) states otherwise, but this ignores that, in Bennett,
23 the Court relied on the fact that “the requisite clarity” was provided by the statute itself. Id.
24 And Defendants have ignored the Fourth Circuit’s en banc decision in Riley, which stated:
25 “It is axiomatic that statutory ambiguity defeats altogether a claim by the Federal
26 Government that Congress has unambiguously conditioned the States’ receipt of federal
27 monies” notwithstanding any subsequent regulation. Va. Dep’t of Educ. v. Riley, 106 F.3d
28 559, 567 (4th Cir. 1997) (en banc) (adopting opinion of Luttig, J., dissenting below). The

8
1 Ohio court did not see the need to reach this issue, instead correctly concluding that
2 ordinary interpretive principles precluded the use of a regulation to cure ambiguous
3 statutory language. Ohio, 2021 WL 2712220, at *19.
4 The ultimate takeaway from the IFR, however, is that, even in a rulemaking where
5 Defendants are filling the statutes’ innumerable gaps, they were unable to articulate
6 coherent guidelines on what violates the Tax Mandate. The IFR, rather than clarifying the
7 meaning of the Tax Mandate, simply parrots the statute in several places, or adds new,
8 similarly, vague language. As a result, the IFR merely perpetuates and demonstrates the
9 Tax Mandate’s ambiguity.
10 B. Defendants Have Not Satisfied The Relatedness Requirement
11 Spending Clause conditions must be related to the purpose of the spending.
12 Although this is generally a “low-threshold” test, see Mayweathers, 314 F.3d at 1067, there
13 must still be “some relationship” between the condition imposed and “the purpose of the
14 federal spending.” Id. Here, there is no relationship at all—Congress expressly adopted
15 numerous tax cuts in the ARPA, and permits municipalities (but not the States) to cut taxes,
16 implicitly recognizing the importance of tax cuts to macroeconomic recovery. See Doc.
17 No. 11, Makar Dec. Exs. G, Z. Further, the Tax Mandate bars tax cuts as far down the road
18 as 2024—well beyond the limits of even “some relationship.”
19 Defendants have only made a token response (Doc. 31 at 10), asserting that because
20 the Tax Mandate only limits “uses to which a State may and may not devote federal funds,”
21 the relatedness requirement is not applicable. But the “indirect offset” language reaches far
22 broader than that and effectively establishes a “Tax cuts for me, but not for thee” that is
23 both utterly irrational and completely undefended. And if that is the Tax Mandate’s true
24 reach—as the IFR asserts—Defendants have offered no constitutional defense of it. That
25 concession alone requires judgment for the State.
26 C. The Tax Mandate Is Unconstitutionally Coercive
27 The ARPA provides Arizona with $4.9 billion in a time of unparalleled economic
28 challenges. As explained previously, this is nearly 10% of Arizona’s projected FY2022

9
1 budget. See Makar Decl. Ex. T. In NFIB, the Court addressed Medicaid spending which
2 “account[ed] for over 20 percent of the average State’s total budget, with federal funds
3 covering 50 to 83 percent of those costs.” 567 U.S. at 581. These funds are similar in their
4 scale, and this is apart from the fact that the pandemic created unique economic pressures,
5 making this money especially important.2 In the context of an ambiguous condition, this is
6 coercive: States can treat the Tax Mandate as a black box. They can sign on for the
7 enormous money and certify compliance because they do not know what it means. But as
8 the IFR makes clear, this does not mean the Tax Mandate lacks teeth—only that States
9 have no choice but to hope that it does not bite them.
10 Defendants argue that, because NFIB involved the withdrawal of existing funding,
11 and the Tax Mandate involves only new funding, it cannot be coercive. See, e.g., Tr.43-44.
12 This misunderstands NFIB; nothing in NFIB’s reasoning is limited to preexisting funding.
13 Rather, the fact that preexisting Medicaid funding was at stake was important because that
14 illustrated the amount of funds which the States stood to lose. NFIB, 567 U.S. at 581. The
15 crucial question is whether the money at stake is a “relatively mild encouragement” or a
16 “gun to the head.” Id. If it is the latter, then the State is not really “accepting” a condition
17 as a sovereign; rather, its sovereign powers are being unconstitutionally commandeered.
18 Id. at 577.
19 Accordingly, the Tax Mandate is unconstitutionally coercive, amounting to a
20 commandeering of the State taxing power. It should be enjoined.
21
22
2
While it is true that the Tax Mandate, if violated, will only cause the State to lose a
23 proportional share of the funds received, this does not undermine the State’s coercion
24 argument. First, given the Tax Mandate’s ambiguity, there is no way for the State to sure
how much it is putting at stake with a particular tax cut; this is an insidious and coercive
25 structure by itself. And given scope of the tax cuts Arizona actually enacted—almost $2
billion—there is still is an enormous sum of money at stake. Second, the harm here is that
26 the State’s policymaking apparatus is being commandeered, which happens as long as the
State is coerced to enter the program. Even if the State never cut taxes and wholly complied
27 with the Mandate, if it did so because of coercion, this would still violate the values inherent
in dual sovereignty. See New York v. United States, 505 U.S. 144, 162 (1992) (“[T]he
28 Constitution has never been understood to confer upon Congress the ability to require the
States to govern according to Congress’ instructions.”).

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1 III. Declaratory Relief And A Permanent Injunction Are Appropriate Here
2 Because this Court has consolidated this action, the only remaining question is
3 whether declaratory relief and a permanent injunction are warranted. All of the
4 requirements for such relief are met here. As to the former, there is no apparent reason (and
5 Defendants have offered none), why this Court should not declare the Tax Mandate to be
6 unconstitutional since it is so. See 28 U.S.C. § 2201(a). This Court should similarly issue
7 a permanent injunction, for which all the applicable requirements are met.3
8 As explained above regarding standing, Arizona is suffering several injuries
9 resulting from the Tax Mandate, including injuries to its sovereignty, its policymaking
10 apparatus, and in the form of compliance costs. These injuries plainly cannot be remedied
11 by money damages. See Ohio, 2021 WL 2712220, at*21.
12 With respect to the balance of hardships, as the Ohio court recognized, “the
13 Secretary has no judicially cognizable interest in enforcing a provision (like the Tax
14 Mandate) that is unconstitutionally ambiguous. Id. Under such an injunction, the Secretary
15 would still be free to enforce the other aspects of ARPA—including the limitations on how
16 ARPA funds are spent, and thus would suffer no cognizable harm. Id.
17 Finally, as to the public interest, the Supreme Court has repeatedly explained that
18 the limits on Congress’s spending clause power, and federalism limitations generally, serve
19 to protect our system of “dual sovereigns.” This system protects important values, such as
20 political accountability, and encourages individual liberty. See, e.g., Printz v. United States,
21 521 U.S. 898, 921 (1997). See also Ohio, 2021 WL 2712220 at *21.
22 CONCLUSION
23 This Court should enjoin the operation of the Tax Mandate against Arizona as
24 unconstitutional and declare it as beyond Congress’s power under the Spending Clause.
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3
26 Under eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006), an injunction is
appropriate where a party can show that: (1) that it has suffered an irreparable injury; (2)
27 that remedies available at law, such as monetary damages, are inadequate to compensate
for that injury; (3) that, considering the balance of hardships between the plaintiff and
28 defendant, a remedy in equity is warranted; and (4) that the public interest would not be
disserved by a permanent injunction.

11
1 MARK BRNOVICH
2 ATTORNEY GENERAL

3 By s/ Drew C. Ensign
4 Joseph A. Kanefield (No. 15838)
Brunn W. Roysden III (No. 28698)
5 Drew C. Ensign (No. 25463)
6 Wilson Freeman (admitted pro hac vice)
Robert J. Makar (No. 33579)
7 Assistant Attorneys General
8 Attorneys for Plaintiff Arizona
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1 CERTIFICATE OF SERVICE
2 I hereby certify that on this 7th day of July, 2021, I caused the foregoing document
3 to be electronically transmitted to the Clerk’s Office using the CM/ECF System for Filing,
4 which will send notice of such filing to all registered CM/ECF users.
5
6 s/ Drew C. Ensign
7 Drew C. Ensign

8 Attorney for Plaintiff State of Arizona
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