Brief, State of Ohio v. Yellen, No. 1:21-cv-00181 (S.D. Ohio), Doc. 43 (June 1, 2021)

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Brief of amicus curiae The Buckeye Institute in support of the State of Ohio's motion for permanent injunction, Doc #: 43 in Case No. 1:21-cv-181, filed 06/01/21, in the U.S. District Court for the Southern District of Ohio, Western Division. The brief addresses the Interim Final Rule that the Government contends cures any constitutional deficiency in the Tax Mandate. It argues that the Secretary of the Treasury cannot backfill Congress's failure to legislate with clarity, and that the rule makes the Secretary a "virtual viceroy" over the States. It asks the Court to grant Ohio's motion and permanently enjoin enforcement of the Tax Mandate. The certificate of service is signed /s/ Robert Alt.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

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“Brief, State of Ohio v. Yellen, No. 1:21-cv-00181 (S.D. Ohio), Doc. 43 (June 1, 2021).” Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/brief-state-of-ohio-v-yellen-no-1-21-cv-00181-s-d-ohio-doc-43-june-1-2-06789006b0/, SHA-256 dc2c8491777964cd8ebac49f49cc9eedce4d234d89452f23d0c8a5b0c4330728.

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Case: 1:21-cv-00181-DRC Doc #: 43 Filed: 06/01/21 Page: 1 of 19 PAGEID #: 689

IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION

STATE OF OHIO,

Plaintiff,

JANET YELLEN, in her official
capacity as Secretary of the
Case No. 1:21-cv-181
Treasury; RICHARD K. DELMAR,
in his official capacity as acting Judge Douglas R. Cole
inspector general of the Department
of Treasury; and U.S.
DEPARTMENT OF THE
TREASURY,

Defendants.

BRIEF OF AMICUS CURIAE THE BUCKEYE INSTITUTE
IN SUPPORT OF THE STATE OF OHIO’S
MOTION FOR PERMANENT INJUNCTION
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This Court has already determined that “Ohio has shown that it has a substantial like-

lihood of establishing that, as written, the Tax Mandate does not meet the floor for clarity

that the Spending Clause imposes on federal legislation offering money to the States.” Dkt.

36, Opinion and Order (hereinafter “Op.”), #564. Merely making heads or tails of it “seems

a Sisyphean task.” Id. at #562. Amicus curiae agrees and respectfully refers the Court to the

arguments it has previously made on that issue. See Dkt. 26, Amicus Curiae Brief.

In this brief, the amicus addresses the relevance of the Interim Final Rule, Dkt. 33-1,

that the Government contends cures any constitutional deficiency. The Secretary of the Treas-

ury (“the Secretary”) cannot backfill Congress’s failure to legislate with clarity. The Constitu-

tion requires Congress—not the Executive Branch—to draw clear lines when encroaching

upon the States’ sovereignty, so as to “enable the States to exercise their choice knowingly,

cognizant of the consequences of their participation.” Pennhurst St. Sch. & Hosp. v. Halderman,

451 U.S. 1, 17 (1981). It is Congress’s use of its purse power that has the effect of disrupting

the careful federal–State balance, and it is Congress’s responsibility to ensure that it does so

in a manner that enables States to police that incursion and in a manner that avoids miring

States in uncertainty and unduly freezing the exercise of their traditional authorities. Punting

the hard questions to discretion of the Executive Branch is inconsistent with our constitutional

system.
Even if the Executive Branch had the power to affect a cure, the Interim Final Rule

promulgated by the Secretary does not do so. Confirming the Tax Mandate’s deficiencies, the

rule appoints the Secretary as a virtual viceroy over the States, with authority to review prac-

tically every decision that could potentially affect tax revenue—i.e., potentially any exercise

of their tax and police powers—and discretion to approve or reject those decisions. Indeed,

the Secretary-as-viceroy exercises greater discretion in certain respects than State governors

over what States may do.

Worse still, because the Secretary’s Interim Final Rule is nothing more than a rule, the
Secretary retains the power to withdraw or amend it at any time, even without notice upon a

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claim of “good cause.” The Administrative Procedure Act is not equal to the requirement that

Congress impose conditions on the States’ receipt of funds unambiguously in advance of their

acceptance, confirming that the responsibility to legislate clearly in this area rests solely upon

Congress’s shoulders—not those of an executive official who lacks the power of commitment

that the Spending Clause requires when State sovereignty is in question.

For these reasons, the Court should permanently enjoin enforcement of the Tax Man-

date.

INTEREST OF AMICUS CURIAE 1

Amicus curiae the Buckeye Institute was founded in 1989 as an independent research

and educational institution—a “think tank”—to formulate and promote free-market solutions

for Ohio’s most pressing public policy problems. Through its Legal Center, the Buckeye In-

stitute engages in litigation in support of the principles of federalism enshrined in the U.S.

Constitution. The Buckeye Institute is dedicated to upholding the balance of power between

States and the federal government as prescribed by the U.S. Constitution. Federalism is per-

haps the greatest check on federal power that the Constitution enshrines. It is crucial to ensure

the Constitution’s system of dual sovereignty be maintained to allow the governments closest

to the people to determine policies that impact daily life and encourage States to compete with

one another to attract residents, businesses, jobs, and opportunities. The Tax Mandate is an
unprecedented arrogation of power by the federal government that ham-handedly disturbs

this careful balance in the name of pandemic response.

The Buckeye Institute is also dedicated to creating a pro-growth economic tax system

and ensuring responsible government spending. It strives to reform taxes to reward work and

encourage entrepreneurship, while also encouraging sustainable state spending to secure pros-

perity for Ohio residents. In recent years, the State of Ohio has been receptive to its arguments,

repeatedly implementing pro-growth rate reductions. The Tax Mandate’s capacious, open-

1
All parties have consented to the filing of this brief.

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ended prohibition on any state activity that could directly or indirectly offset a reduction in

the State’s tax revenue frustrates these efforts.

ARGUMENT

I. The Executive Branch Cannot Cure Congress’s Failure To Speak
“Unambiguously” in Imposing Conditions on States’ Receipt of Federal Funds
Congressional attempts “to condition the States’ receipt of federal funds” must be im-

posed “‘unambiguously, enabling the States to exercise their choice knowingly, cognizant of

the consequences of their participation.’” South Dakota v. Dole, 483 U.S. 203, 206 (1987) (quot-

ing Pennhurst, 451 U.S. at 17 (cleaned up)). This Court has already recognized that Tax Man-

date fails to meet this standard. Op., #564 (“the Tax Mandate does not meet the floor for

clarity that the Spending Clause imposes on federal legislation offering money to the
States”). This constitutional infirmity cannot be cured by the Secretary, via rulemaking or
otherwise.

A. Precedent dictates that Congress itself, when exercising its power under the

Spending Clause, must condition States’ receipt of federal funds unambiguously. If Congress

intends to alter the usual constitutional balance between the States and the Federal Govern-

ment, it must make its intention to do so “unmistakably clear in the language of the statute,”

Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 242 (1985) (emphasis added) (holding in the

equivalent Eleventh Amendment context), in a manner both “unequivocal and textual,”

Dellmuth v. Muth, 491 U.S. 223, 230 (1989) (same). Congress must draw a clear line demarking

the permissible from the impermissible. If Congress fails to clearly cabin an intrusion on State

autonomy in this way, then it is not legitimately legislating under the Spending Clause and

those vague provisions are facially invalid. Pennhurst, 451 U.S. at 17 (“The legitimacy of Con-

gress’ power to legislate under the spending power thus rests on whether the State voluntarily

and knowingly accepts the terms of the ‘contract.’”) Put simply, “when Congress desires to

impose a condition under the Spending Clause, it is Congress's burden to affirmatively impose

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the condition in clear and unmistakable statutory terms.” Sharp v. Johnson, 669 F.3d 144, 154

(3d Cir. 2012).

It necessarily follows that the Constitution does not permit Congress to issue vague

statements of principle, depriving States of the ability to guard the boundaries of its autonomy

and chilling otherwise acceptable exercises of State authority, while leaving it to the Executive

Branch to fill in the details. Reliance on an agency’s general gap-filling authority, see Long

Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 173 (2007), is not enough to satisfy the demands

of the Spending Clause.

The en banc Fourth Circuit addressed that precise issue in Virginia Department of Educa-

tion v. Riley, 106 F.3d 559 (4th Cir. 1997), holding that in order to “commandeer from the

States their core function[s]” and sovereignty, Congress itself must “sp[eak] in affirmative and

unambiguous terms, so that there could be no question whatsoever of its intent.” 106 F.3d at

562.2 The Court rejected the argument that, in the event of ambiguity, the Court may defer to

a reasonable interpretation by the relevant agency. “In order for the States to be bound by a

condition upon the receipt of federal monies, the Congress must have affirmatively imposed

that condition in clear and unmistakable statutory terms. An adjustment to the critical balance

of power between the Federal Government and the States cannot be authorized implicitly.”

Id. at 563. It is “axiomatic,” therefore, that any statutory ambiguity “defeats altogether a claim
by the Federal Government that Congress has unambiguously conditioned the States’ receipt

of federal monies in the manner asserted.” Id. at 567. And it is not enough that Congress

indicate, generally, its intent to use its spending power to direct State activity: “a clear state-

ment is required not simply in determining whether a statute applies to the States, but also in

determining whether the statute applies in the particular manner claimed.” Id. at 568 (citing

Gregory v. Ashcroft, 501 U.S. 452, 460–70 (1991)). See also id. at 572 (Motz, J., concurring)

2
In reversing the panel opinion, the en banc Fourth Circuit adopted Judge Luttig’s dissenting
panel opinion. 106 F.3d at 561. Quotes from the opinion are from Judge Luttig’s original
panel dissent, reproduced by the en banc Court.

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(concurring because she did “not believe Congress has unambiguously required the states to

provide education services to disabled children.”); Doe v. Bd. of Educ. of Oak Park & River Forest

High Sch. Dist. 200, 115 F.3d 1273, 1278 (7th Cir. 1997) (agreeing with the Fourth Circuit in

Riley).

As this Court has recognized, Bennett v. Kentucky Department of Education, 470 U.S. 656

(1985) is not to the contrary. See Op., #564. While the Bennett court discussed regulations

promulgated under Title I of the Elementary and Secondary Education Act of 1965, the

Court’s analysis made clear that Title I itself was sufficiently clear itself to condition the grant

of federal funding to the States: “[t]he requisite clarity in this case is provided by Title I.”

Bennett, 470 U.S. at 666. Bennett therefore provides no support for the notion that the Secretary

may make up for Congress’s lapse.

“Clarity is demanded whenever Congress legislates through the spending power.”

Haight v. Thompson, 763 F.3d 554, 569 (6th Cir. 2014) (per Sutton, J.). The Constitution re-

quires that the legislature speak unambiguously when conditioning the grant of federal funds

to the States. It is Congress, not the Executive Branch, that must make “its intention clear and

manifest…if it intends to impose a condition on the grant of federal moneys.” Will v. Mich.

Dep’t of State Police, 491 U.S. 58, 65 (1989) (internal quotations omitted). As this Court recog-

nized, it is “[b]y insisting that Congress speak with a clear voice,” the courts “enable the States
to exercise their choice knowingly, cognizant of the consequences of their participation.”

Op., #545 (citing Pennhurst, 415 U.S. at 17). Lacking legislative power, the Executive can

enable no such thing.

B. The reason that Congress, and Congress alone, must shoulder the burden of

imposing conditions unambiguously is that the power being exercised is Congress’s, not the

Executive’s. It is Congress’s exercise of its Spending Clause power that has the potential dis-

rupt the careful balance between the federal and State governments. And it is therefore Con-

gress’s responsibility to ensure that this power be exercised in a manner consistent with the
Constitutional limits on what it can and cannot do. Spending Clause legislation is very “much

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in the nature of a contract,” and the “legitimacy of Congress’ power to legislate” under the

Clause depends on the clarity with which it acts. Pennhurst, 451 U.S. at 17. “In traditionally

sensitive areas, such as legislation affecting the federal balance, the requirement of clear state-

ment assures that the legislature has in fact faced, and intended to bring into issue, the critical

matters involved in the judicial decision.” United States v. Bass, 404 U.S. 336, 349 (1971).

Placing the burden to speak on Congress is consistent with and reflective of the Con-

stitution’s interbranch separation of powers and respect for States’ traditional sovereign au-

thorities. The Constitution gives Congress, not the Executive Branch, the power to spend for

the “general Welfare of the United States.” Art. I, § 8, cl. 1. Cf. Douglas v. Indep. Living Ctr. of

S. Calif, Inc., 565 U.S. 606, 620 (2012) (Roberts, C.J., dissenting) (“[T]he States under the

Spending Clause agree only to conditions clearly specified by Congress, not any implied on

an ad hoc basis by the courts.”). It “carefully separates the ‘purse’ from the ‘sword’ by assign-

ing to Congress and Congress alone the power of the purse.” Tex. Educ. Agency v. U.S. Dep’t of

Educ., 992 F.3d 350, 361–62 (5th Cir. 2021); see The Federalist No. 78 at 402 (Alexander

Hamilton) (Gideon ed., 2001) (“The Executive…holds the sword of the community. The leg-

islature not only commands the purse, but prescribes the rules by which the duties and rights

of every citizen are to be regulated.”). And because the Founders viewed the “power over the

purse” as “the most complete and effectual weapon” in representing the interests of the peo-
ple, The Federalist No. 58 at 303 (James Madison)—wielded by a body that posed a “a special

threat to individual liberty”—they divided [the legislative] power to ensure that ‘differences

of opinion’ and the ‘jarrings of parties’ would ‘promote deliberation and circumspection’ and

‘check excesses in the majority.’” Seila Law LLC v. CFPB, 140 S. Ct. 2183, 2203 (2020).

In contrast, “no such institutional protection from abuse exists” when this power is

exercised by the “executive branch, where one individual…determined to impose his or her

policy preferences regardless of the will of Congress”—here the Secretary of the Treasury—

“could proceed unimpeded by the types of institutional checks present in the legislative body.”
City of Chicago v. Barr, 961 F.3d 882, 887 (7th Cir. 2020). And while “[t]he executive branch

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has significant powers[,]…the power of the purse is not one of them.” Id. It is one thing for

Congress, made up of the elected representatives of the People and bestowed with limited,

enumerated powers (including the spending power) to encumber the State’s actions. It can,

but it must do so carefully and unambiguously. It is quite another, more offensive thing, for

the Secretary to take the power for herself, on the basis of statutory ambiguity. The Constitu-

tion does not permit a single officer of the United States to serve as proto-receiver and Budget

Czar for the sovereign States, guided by nothing more than her view as to what is an appro-

priate use of the States’ police and taxing power. The States certainly never agreed to this

arrangement in exchange for joining the Union. Allowing this arrangement would obliterate

federalism. So while there is a “tendency to overlook the formalities of separation of powers

to address the issue-of-the-day [that] has been seen many times by the courts,…it is no more

persuasive now than it was in those cases.” Id. As the Supreme Court observed in Printz v.

United States, 521 U.S. 898, 933 (1997), “[m]uch of the Constitution is concerned with setting

forth the form of our government, and the courts have traditionally invalidated measures de-

viating from that form.” (citations omitted). While a given result “may appear ‘formalis-

tic’…because such measures are typically the product of the era’s perceived necessity….the

Constitution protects us from our own best intentions: It divides power among sovereigns and

among branches of government precisely so that we may resist the temptation to concentrate
power in one location as an expedient solution to the crisis of the day.” Id.

Not only does a clear-statement rule ground the policy and decision making as close

to the People as possible, allowing the People to “retain the ultimate decision as to whether

or not the State will comply” and “to decline a federal grant” if they “view federal policy as

sufficiently contrary to local interests,” but it also allows the same People to hold their repre-

sentatives in Congress accountable for the attempted impingement if they disagree with it.

New York v. United States, 505 U.S. 144, 168 (1992). “Inasmuch as this Court in Garcia [v. San

Antonio Metropolitan Transit Authority, 469 U.S. 528 (1985)] has left primarily to the political
process the protection of the States against intrusive exercises” of Congressional power, courts

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“must be absolutely certain that Congress intended such an exercise.” Gregory v. Ashcroft, 501

U.S. 452, 464 (1991). “‘[T]o give the state-displacing weight of federal law to mere congres-

sional ambiguity would evade the very procedure for lawmaking on which Garcia relied to

protect states’ interests.’” Id. (quoting L. Tribe, American Constitutional Law § 6–25, p. 480

(2d ed. 1988)).

C. This structural argument is bolstered by basic tenets of administrative law: reg-

ulations interpreting statutes are only valid inasmuch as they either “match Congress’s unam-

biguous command or are clarifying a statutory ambiguity.” Tex. Educ. Agency, 992 F.3d at 361

(citing Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843–44 (1984)). Relying

on the relevant regulations to indicate what Congress intended, when it did not say so clearly

itself, is a tacit admission that the statute itself is too ambiguous to provide the constitutionally

required clarity.

Indeed, the clear-statement rule at issue here serves, in part, as a sort of “nondelegation

canon,” a rule that “forbid[s] administrative agencies from making decisions on their own.”

Peter J. Smith, Pennhurst, Chevron, and the Spending Power, 110 Yale L.J. 1187, 1204 (2001).

These sorts of canons “typically expressed as clear-statement rules similar to Pennhurst’s, are

an effort to link ‘important interests’ with ‘appropriate institutional design.’ The interests

served by Pennhurst’s rule, of course is state autonomy, which (on this account) finds its pro-
tection principally in the institutional structure of Congress.” Id. (quoting Cass R. Sunstein,

Nondelegation Canons, 67 U. Chi. L. Rev. 315, 317 (2000)). Allowing an agency to fill in the

gaps via regulation “not only creates the potential that the agency has attempted to impose a

condition that was not within Congress’s contemplation, but also risks doing so at the expense

of important values of federalism.” Id.

Accordingly, the only merits question for this Court is whether “Congress satisf[ied] the

Pennhurst clear-statement rule by ‘clearly’ describing ‘the conditions that go along with the

acceptance…of funds under the Act.’” Sch. Dist. of City of Pontiac v. Sec’y of U.S. Dep’t of Educ.,
584 F.3d 253, 281 (Sutton, J., concurring) (quoting Arlington Cent. Sch. Dist. Bd. of Educ. v.

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Murphy, 548 U.S. 291, 304 (2006)) (emphasis added). Because Congress did not, the Court

need go no further.

II. The APA’s Rulemaking Provisions Confirm that No Rule Can Cure the Tax
Mandate’s Fundamental Vagueness
Even if the Constitution permitted the Executive Branch to cure Congress’s failure to

unambiguously condition federal funding, the Administrative Procedure Act (“APA”) is un-

equal to the task. Whether or not Congress could enact some statutory scheme that might

allow durable clarification of vague statutory intrusions on State sovereignty, the APA’s fea-

tures render it insufficient to that end.

Where the APA falls short is its authorization for federal agencies to withdraw or

amend rules at their discretion. The APA “makes no distinction…between initial agency ac-

tion and subsequent agency action undoing or revising that action.” FCC v. Fox Television Sta-

tions, Inc., 556 U.S. 502, 515 (2009). It is generally enough that an agency “display awareness

that it is changing position” and that the agency has some reason to believe its new position

“to be better.” Id. Moreover, an agency may change position on a dime, without even provid-

ing advance notice and an opportunity for comment, by promulgating an interim final rule

(as the Secretary did here) based on some exigency. 5 U.S.C. § 553(b)(3)(B), (d)(3); see, e.g.,

Am. Transfer & Storage Co. v. Interstate Com. Comm’n, 719 F.2d 1283, 1303 (5th Cir. 1983). The

result is that an agency is powerless to commit itself to follow any set course and so cannot

speak with the durability of a duly enacted statute. Exacerbating the problem is the office

exercising rulemaking authority here: the Secretary of the Treasury, an individual executive

official who enjoys the “‘[d]ecision, activity, secrecy, and dispatch’ that ‘characterise the pro-

ceedings of one man.’” Seila Law, 140 S. Ct. at 2203 (quoting The Federalist No. 70 at 475

(Alexander Hamilton) (J. Cooke ed. 1961)).

Consider the contract-law analogy often applied in Spending Clause cases: if a statute

is a contract, then a rule like the one here is a post-execution e-mail from a counterparty to
the contract saying “I’ll interpret that provision this way for now.” That e-mail would not be

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considered part “of the terms of the contract,” City of Pontiac, 584 F.3d at 277, and could not

be said to be sufficient to inform a party of the contract’s obligations at the time of execution.

The counterparty could change its mind about what it thinks the relevant contract provision

means and seek enforcement of the contract against a party that it believes to be infringing.

All the Secretary has to do is issue a new rule.

A clear-statement rule ensures any intrusion into State power is cabined to its precise

scope. It allows States to jealousy guard their sovereignty, exercise what of it remains to the

fullest extent, and police against attempted usurpations. It serves as “concrete safeguard,”

giving the States themselves the power to “guard against excessive federal intrusion into state

affairs and be vigilant in policing the boundaries of federal power.” Davis v. Monroe Cnty. Bd.

of Educ., 526 U.S. 629, 655 (1999) (Kennedy, J., dissenting).

A rule promulgated under the APA can achieve none of these things. It provides States

with no durable line demarking the limits of the federal government’s incursion into its au-

thority. And a rule, even a “final” rule, provides no finality sufficient for a State to order its

affairs around its content. It is only an announcement of the Executive’s current view, which

remains subject to revision through a new rule promulgated at the Secretary’s discretion. Put

another way, merely because the Secretary has said how she intends to interpret and apply

the Tax Mandate now, does not mean that she will maintain those views going forward, even
with respect to policy choices that States are making now and in the coming months. States

will, therefore, be boxed in by the reality that the terms of the contract may change, leaving

them in the lurch.

Even if one were to assume that the current Secretary will stick with the current rule,

that still gives the States only limited certainty. A new Secretary, should one take office, could

promulgate a new rule. Likewise, a new administration could change course entirely, altering

the terms of the “contract” with the States and unilaterally obligating the States to pay the

Treasury recoupment for taxing and revenue decisions it had thought were permissible under
the current Administration’s rules. This Administration’s exercise of discretion could

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suddenly become an unanticipated cost for the States, contrary to the very purposes underly-

ing the clear-statement rule.

The APA and rules promulgated pursuant to it simply cannot cure the fundamental

vagueness problem that exists here. Even rules drawn with perfect clarity, but see § III infra,

are still subject to unilateral amendment and revision. If a State cannot rely on the lines drawn

via regulation, it will almost certainly be chilled in the exercise of its retained sovereignty.

And, in that way, it cannot be said to be able to make a knowing decision now as to whether

or not the offered funds are worth the strings that may be attached in the future.

III. The Secretary’s Interim Final Rule Only Highlights the Tax Mandate’s
Fundamental Vagueness
Even if the Department of the Treasury could theoretically cure the ambiguity of the

American Rescue Plan Act through rulemaking, the Interim Final Rule promulgated by the

Department of the Treasury falls far short. Despite answering some questions at the margins

and providing more information about the procedures that the Treasury will require the States

to follow, the Interim Final Rule still leaves crucial questions unanswered about the broad

scope of this unprecedented arrogation of State power, while introducing further complica-

tions in other ways.

A. The rule leaves many central questions unanswered, to the point that what is

required of States is anything but clear. As one example, the Interim Final Rule does not

define what sorts of “changes in law, regulation or interpretation” are covered by the Tax

Mandate. The rule defines “covered change” to include “any final legislative or regulatory

action, a new or changed administrative interpretation, and the phase-in or taking effect of

any statute or rule where the phase-in or taking effect was not prescribed prior to the covered

period.” Interim Final Rule, Dkt. 33-1, #444. Does this include changes in property tax as-

sessments? Or a decision to delay sending property tax assessors out to do rounds, due to the

pandemic, which might have the effect of lowering revenues? Would it cover the decision to
end “to go” sales of alcohol, which have provided restaurants—and state tax collectors—with

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revenue, over the course of the next year? Does it matter that ending “to go” alcohol sales by

restaurants would be a return to the pre-COVID status quo ante in most places? Even if such

changes are not forbidden under the rule because of the exceptions it recognizes, States are

still subject to a federal mandate (contained nowhere in the Tax Mandate itself) to assess those

changes’ “measured or predicted reductions in tax revenue,” which is itself an intrusion on

their sovereignty. Id. at #505.

On that score, the Interim Final Rule states that “Treasury will provide additional

guidance and instructions [sic] the reporting requirements at a later date.” Id. at #454. To be

clear, these “instructions” and “requirements” are additional conditions imposed on States.

This amounts to an acknowledgement that, even with the Interim Final Rule in hand, the

States still cannot know the full extent of their obligations under the Tax Mandate. Worse, it

indicates that the Secretary anticipates that she or her subordinates will impose these further

conditions on States through mere guidance.

One category that the Treasury specifically exempts from the Tax Mandate are “in-

come tax changes—even those made during the covered period—that simply conform with

recent changes in Federal law (including those to conform to recent changes in Federal taxa-

tion of unemployment insurance benefits and taxation of loan forgiveness under the Paycheck

Protection Program).” Id. at #445. While a sensible policy choice, it is difficult to see how
that choice follows from the text of the Tax Mandate and impossible to predict whether that

limitation will survive legal challenge. And this limitation, though an attempt to clarify, itself

raises numerous questions that are unanswerable without further exercise of the Secretary’s

discretion. Will future changes to federal income taxes, including those presently proposed

by the Administration, qualify for this exemption? And if these conforming changes raise

revenue, can they be considered changes that “pay for,” id. at #450, other tax decreases?

One potential answer to these and other questions is: “Don’t worry about it.” The

Interim Final Rule contemplate a system wherein a State adds up all their revenues and tries
to identify pay-fors to make up any difference. See id. at #442. But it remains unclear what

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inputs are supposed to be considered as part of this calculation. Nor is it apparent that this

formula-based approach is even consistent with the Tax Mandate. And how does the rule

handle the possibility that tax revenues are reduced because of changes in the economy due

to unforeseen circumstances? Are these to be considered when evaluating covered changes?

All of this is further exacerbated by the Interim Final Rule’s charge to the States to

“determine the cost of changes in law, regulation, or interpretation that reduce tax revenues

and to identify and value the sources of funds that will offset—i.e., cover the cost of—any

reduction in net tax revenue resulting from such changes” at the beginning of the year. Id. at

#440. The rule requires states to “identify and value covered changes that [the State] predicts

will have the effect of reducing tax revenue in a given reporting year…based on estimated

values produced by a budget model, incorporating reasonable assumptions” and that “aligns

with the [State’s] existing approach for measuring the effects of fiscal policies.” Id. at #447–

48. But this requirement only highlights the ambiguity of and confusion created by the Tax

Mandate. How is a State supposed to know at the beginning of a year the extent to which a

“change in interpretation [will] result in a reduction in net tax revenue”? To take one obvious

example, States’ predictions at the beginning of 2020 were sure to have been off by multitudes.

And what if the Treasury concludes that the assumptions that States make or their “existing

approach for measuring the effects of fiscal policies” is unreasonable? Ultimately, this does
not serve to make things any more clear for States. They do not have a crystal ball, nor can

they read the Secretary’s mind. This ambiguity remains fatal to the Tax Mandate.

Perhaps to blunt these criticisms, the Interim Final Rule establishes a “de minimis

level” of acceptable reduced revenue, “1 percent of the reporting year’s baseline,” to accom-

modate the “small changes [that] alter the composition of their tax revenues” and “other pol-

icies with marginal effects on tax revenues.” Id. at #449. The “de minimis level” also attempts

to account for “projected revenue effects that turn out to differ from actual effects.” Id. The

creation of this zone of discretion to account for potential ambiguity, though, simply proves
the constitutional infirmity in the first place: neither the Tax Mandate, nor the complicated

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regulatory scheme meant to enforce it, provide sufficient clarity for States to understand their

obligations and the potential costs. That the Secretary intends to use her discretion not to

recoup certain monies—a decision she has the discretion to change in an instant, see § II su-

pra—does not make the text of the statute or regulations any more clear. Ultimately, the ob-

ligations imposed on the States must be “unequivocal and textual,” Dellmuth, 491 U.S. at 230.

This is neither.

B. It is also doubtful that the Interim Final Rule can provide any certainty to the

States in the areas where it arguably departs from the Tax Mandate’s text, such as its exclusion

of conforming changes to taxation and the de minimis exemption. States’ reliance on these

provisions of the rule may be subject to challenge in litigation seeking the invalidation of State

law as conflicting with the Tax Mandate. Although such issues probably could not arise in

federal-court litigation, see generally DaimlerChrysler Corp. v. Cuno, 547 U.S. 332 (2006), many

State courts do recognize taxpayer standing. See generally Edward Zelinsky, Putting State Courts

in the Constitutional Driver’s Seat: State Taxpayer Standing After Cuno and Winn, 40 Hastings

Const. L.Q. 1, 36–46 (2012) (surveying States’ approaches). That includes Ohio. See State ex

rel. Ohio Acad. of Trial Lawyers v. Sheward, 715 N.E.2d 1062, 1082 (Ohio 1999) (“[W]hen the

issues sought to be litigated are of great importance and interest to the public, they may be

resolved in a form of action that involves no rights or obligations peculiar to named parties.”).
Thus, in addition to grappling with the uncertain obligation of the Tax Mandate itself, States

must additionally assess whether and to what extent they may rely on the Secretary’s “fix.”

In this way, the Secretary’s attempt to clarify the Tax Mandate by departing from its text

through such regulatory provisions as the de minimis exemption actually increases the uncer-

tainty to States as to the exercise of their sovereign powers.

C. In many ways, the Interim Final Rule simply confirms the overwhelming

sweep of the Tax Mandate. It establishes a proto-receivership, under which State governments

and their budget offices are mere functionaries reporting to a federal overseer. It requires the
State to identify and quantify every policy decision that it makes, and then enact an offset for

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any that reduces revenue to the satisfaction of the Treasury Department. See Interim Final

Rule at #454 (“To facilitate the implementation of the framework above…each State and

territory will report to Treasury the following items:…” “[e]ach revenue-reducing change

made to date during the covered period and the in-year value of each change;” “[e]ach reve-

nue-raising change made to date during the covered period and the in-year value of each

change;” and “[e]ach covered spending cut made to date during the covered period, the in-

year value of each cut, and documentation demonstrating that each spending cut is covered

as prescribed under the Interim Final Rule.”). And, despite all that, it indicates that the Treas-

ury will be monitoring the States and indicates that the Treasury—in its discretion—may de-

termine that a State is evading the restrictions and seek recoupment of funds, notwithstanding

compliance the onerous procedures it has put in place. Id. at #452.

***

To the Government’s mind, the Interim Final Rule clarifies the lines and boundaries

marking the federal government’s sweeping incursion into State sovereignty. It does no such

thing. Rather than allowing States to police the boundaries of the federal intrusion into every

aspect of governance and ensuring that they will not be chilled in the exercise of retained

sovereign power, Davis, 526 U.S. at 655 (Kennedy, J., dissenting), its 151 pages of instruction,

explication, and regulatory text create a labyrinth that States can hardly hope to understand,
let alone police. It is anything but clear.

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CONCLUSION

The Court should grant the State of Ohio’s motion and permanently enjoin enforce-

ment of the Tax Mandate.

Dated: May 21, 2021 Respectfully submitted,

/s/ Robert Alt ____________
Robert Alt (0091753)
Counsel of Record
THE BUCKEYE INSTITUTE
88 East Broad Street, Suite 1300
Columbus, Ohio 43215
Telephone: 614.224.4422
robert@buckeyeinstitute.org

Andrew M. Grossman
Sean Sandoloski
BAKER & HOSTETLER LLP
Washington Square, Suite 1100
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Telephone: 202.861.1500
Facsimile: 202.861.1783
agrossman@bakerlaw.com

Counsel for Amicus Curiae
The Buckeye Institute

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CORPORATE DISCLOSURE STATEMENT
The Buckeye Institute was founded in 1989 and is an independent research and edu-

cational institution whose mission is to advance free-market public policy in the states. It has

no parent corporation, nor does any publicly held corporation own 10% or more of its stock.

No publicly held corporation or its affiliate that is not a party to this case or appearing amici

curiae has a substantial financial interest in the outcome of this litigation by reason of insur-

ance, a franchise agreement, or an indemnity agreement.
Case: 1:21-cv-00181-DRC Doc #: 43 Filed: 06/01/21 Page: 19 of 19 PAGEID #: 707

CERTIFICATE OF SERVICE
I hereby certify that on June 1, 2021, a copy of the foregoing was filed electronically.

Notice of this filing will be sent to all parties for whom counsel has entered an appearance by

operation of the Court’s electronic filing system.

/s/ Robert Alt______
Robert Alt (0091753)
Counsel for Amicus Curiae

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