Complaint, State of Ohio v. Yellen, No. 1:21-cv-00181 (S.D. Ohio), Doc. 1 (March 17, 2021)

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Complaint for Injunctive and Declaratory Relief, Case 1:21-cv-00181-DRC, Doc #: 1, filed 03/17/21, in the U.S. District Court for the Southern District of Ohio. Plaintiff State of Ohio sues Janet Yellen as Secretary of the Treasury, Richard K. Delmar as acting inspector general of the Department of Treasury, and the U.S. Department of the Treasury. The introduction states that the American Rescue Plan Act includes a $195.3 billion aid program, and that a provision in §9901 that the complaint calls the "Tax Mandate" forbids States from using the funds to offset a reduction in net tax revenue. The prayer asks the court to declare that the Tax Mandate violates the Tenth Amendment and to enjoin the defendants from recouping funds or otherwise enforcing it against Ohio. Benjamin M. Flowers signs as Solicitor General.

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“Complaint, State of Ohio v. Yellen, No. 1:21-cv-00181 (S.D. Ohio), Doc. 1 (March 17, 2021).” Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/complaint-state-of-ohio-v-yellen-no-1-21-cv-00181-s-d-ohio-doc-1-march-a06d83c45c/, SHA-256 55b34bf3cc2da2ea299668d988474518e296bbd2763962e5735c72de2d78aab0.

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Case: 1:21-cv-00181-DRC Doc #: 1 Filed: 03/17/21 Page: 1 of 12 PAGEID #: 1

IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF OHIO

STATE OF OHIO,
Plaintiff, No. 1:21-cv-181
v. COMPLAINT FOR INJUNCTIVE
AND DECLARATORY RELIEF
JANET YELLEN, in her official
capacity as Secretary of the
Treasury; RICHARD K. DELMAR, in
his official capacity as acting
inspector general of the Department
of Treasury; and U.S.
DEPARTMENT OF THE
TREASURY;
Defendants.
Case: 1:21-cv-00181-DRC Doc #: 1 Filed: 03/17/21 Page: 2 of 12 PAGEID #: 2

INTRODUCTION

1. This suit challenges an unconstitutional provision in the American

Rescue Plan Act—a provision that allows the federal government to commandeer

state taxing authority, and that the Act coerces the States into accepting.

2. The Act includes a $195.3 billion aid program intended to, among other

things, help States recover from the pandemic-caused downturn.

3. The aid program, which appears in §9901 of the Act, contains a provision

that this complaint calls the “Tax Mandate.”

4. The Tax Mandate forbids States from using funds received under the

Act to “directly or indirectly” offset a “reduction in net tax revenue” caused by a

change in tax policy. American Rescue Plan Act of 2021, Pub. L. No. 117-2, §9901

(2021) (adding §602(c)(2) to the Social Security Act (42 U.S.C. §801 et seq.)).

5. Another provision in §9901 empowers the Secretary of the Treasury to

recoup federal funds that she thinks the State used to offset revenue loss from a tax

reduction in violation of the Tax Mandate. Id. (adding §602(e) to the SSA).

6. Money is fungible, so any revenue lost from a tax credit, deduction,

rebate, delay, or decrease that Ohio legislators or executive officers may implement

would be “indirectly” offset by the $5.5 billion the State expects to receive pursuant

to the Act. Thus, the Tax Mandate effectively prohibits reductions in taxes: any State

that reduces taxes, and that experiences a loss in tax revenue, is subject to having

billions of dollars in federal funding recouped by the Department of the Treasury.

7. Congress has no direct authority to “require the States to govern

according to Congress’s” preferred tax regime. New York v. United States, 505 U.S.

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144, 162 (1992). And while the Spending Clause of the U.S. Constitution empowers

Congress to “provide for … the general Welfare,” Congress may not use its influence

under the Spending Clause to coerce the States to adopt Congress’s tax preferences,

Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 578 (op. of Roberts, C.J.).

8. Congress, through the Act, has coerced Ohio and its sister States into

accepting a limitation on their sovereign authority as a condition for their being

allowed to use badly needed federal funding.

9. Ohio seeks to enjoin federal officials from enforcing the unconstitutional

Tax Mandate, and seeks declaratory relief establishing that the State of Ohio, under

the Tenth Amendment to the U.S. Constitution, retains the freedom to manage its

own tax policy.

JURISDICTION AND VENUE

10. This Court has subject matter jurisdiction under 28 U.S.C. §1331 and

§§2201–02.

11. Venue is proper in this judicial district under 28 U.S.C. §1391(e)(1).

12. The State of Ohio has standing to challenge the Tax Mandate, and to

seek injunctive and declaratory relief. The Mandate injures the State by

unconstitutionally intruding on the State’s sovereign authority, by interfering with

the State’s orderly management of its fiscal affairs, and by subjecting the State to the

risk that it may be made to return funding to the federal government. See Celebrezze

v. U.S. Dep’t of Transp., 766 F.2d 228, 232 (6th Cir. 1985); Alaska v. U.S. Dep’t of

Transp., 868 F.2d 441, 443 (D.C. Cir. 1989); Texas v. United States, 809 F.3d 134,

155–57 (5th Cir. 2015); see also Barnes v. E-Systems, 501 U.S. 1301, 1304 (1991)
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(Scalia, J., in chambers). Injunctive or declaratory relief would redress the State’s

injuries.

PARTIES

I. Plaintiff

13. Plaintiff, the State of Ohio, is a sovereign State of the United States of

America.

II. Defendants

14. Janet L. Yellen is the Secretary of the Treasury, and is named in her

official capacity. The Secretary of the Treasury is responsible for administering the

coronavirus local fiscal recovery fund created by §9901 of the American Rescue Plan

Act of 2021.

15. Richard K. Delmar is the Acting Inspector General of the Department of

Treasury, and is named in his official capacity. The Inspector General is responsible

for monitoring and oversight of existing coronavirus relief funds to the States, and is

generally responsible for informing the Secretary of the Treasury about programs

administered by the Department and advising on the necessity for corrective action.

16. The Department of the Treasury is an agency of the United States and

is additionally responsible for administering the coronavirus local fiscal recovery fund

created by §9901 of the American Rescue Plan Act of 2021.

FACTUAL ALLEGATIONS

I. The American Rescue Plan Act

17. On March 11, 2021, President Biden signed into law a $1.9 trillion

stimulus package, the “American Rescue Plan Act,” H.R. 1319. The text of the Act is

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available at https://www.congress.gov/bill/117th-congress/house-bill/1319/text.

18. The Act appropriates $195.3 billion in aid to the States and the District

of Columbia. Pub. L. No. 117-2, §9901 (adding §602(b)(3)(A) to the Social Security

Act). Of that amount, $25.5 billion is allocated equally among the States and the

District. The remainder, minus additional money for Washington, D.C., is distributed

based on each State’s average number of unemployed individuals from October

through December of 2020. Id. (adding §602(b)(3)(B) to the SSA).

19. The State of Ohio is expected to receive $5.5 billion in aid under the Act.

Jared Walczak, State Aid in American Rescue Pan Act is 116 Times States’ Revenue

Losses, TAX FOUNDATION (Mar. 3, 2021), https://taxfoundation.org/state-and-local-

aid-american-rescue-plan/. Additional billions will be sent to Ohio’s localities directly

and are not the subject of this suit. Id.

20. The American Rescue Plan Act’s funds are available to the States

“through December 31, 2024.” Pub. L. No. 117-2, §9901 (adding §602(a) to the SSA).

21. The Act’s “Tax Mandate” is the provision in §9901 of the Act that

provides:

A State or territory shall not use the funds provided under this
section or transferred pursuant to section 603(c)(4) to either
directly or indirectly offset a reduction in the net tax revenue of
such State or territory resulting from a change in law, regulation,
or administrative interpretation during the covered period that
reduces any tax (by providing for a reduction in a rate, a rebate,
a deduction, a credit, or otherwise) or delays the imposition of any
tax or tax increase.

(emphasis added).

22. If a State violates the Tax Mandate, the Secretary of the Treasury shall

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recoup the lesser of: (1) the amount of the applicable reduction to net tax revenue; or

(2) the amount of funds the State received from the federal government. Pub. L. No.

117-2, §9901 (adding §602(e) to the SSA).

23. The Act does not provide any process for a State to dispute an alleged

violation of the Tax Mandate.

24. The Act gives the Secretary broad authority to issue regulations

“necessary or appropriate to carry out” the program. Id. (adding §602(f) to the SSA).

II. Ohio’s Budget

25. The State expects to receive $5.5 billion from the American Rescue Plan

Act to help Ohio and its citizens recover from the devastating effects of the pandemic.

26. $5.5 billion fills such a large and urgent need in Ohio’s budget that Ohio

has no real choice except to take the funds, especially while attempting to respond to

the economic instability wrought by the COVID-19 pandemic.

27. The pandemic brought a drastic economic slowdown, substantially

affecting available funds and thus Ohio’s ability to support needed programs.

28. The State of Ohio is obligated to maintain a balanced budget. If

anticipated receipts and available balances in the State’s general revenue fund will

likely be less than appropriations from that fund, the Governor must order spending

reductions to prevent a deficit. Ohio Rev. Code §126.05; see also Ohio Legislative

Service Commission, A Guidebook for Ohio Legislators at 98–99 (2021),

https://www.lsc.ohio.gov/documents/reference/current/guidebook/17/Guidebook.pdf.

29. In April 2020, tax revenues fell $866.5 million below estimate, a 35.3

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percent drop. See Monthly Financial Report at 13, Ohio Office of Budget and

Management (May 11, 2020), https://archives.obm.ohio.gov/Files/Budget_and

_Planning/Monthly_Financial_Report/2020-05_mfr.pdf. In May 2020, Governor

DeWine ordered $775 million in spending cuts, including to K-12 schools and

Medicaid. See Randy Ludlow, Coronavirus in Ohio: $775 million in budget cuts due

to pandemic include $300 million reduction to schools, THE COLUMBUS DISPATCH (May

5, 2020), https://www.dispatch.com/news/20200505/coronavirus-in-ohio-775-million-

in-budget-cuts-due-to-pandemic-include-300-million-reduction-to-schools.

30. Tax revenues for fiscal year 2020 fell $1.1 billion below estimate. More

broadly, total non-federal revenues finished the fiscal year $1.2 billion below

estimate. See Monthly Financial Report at 11, Ohio Office of Budget and

Management, (July 10, 2020), https://archives.obm.ohio.gov/Files/Budget_and_

Planning/Monthly_Financial_Report/2020-07_mfr-final.pdf.

31. Ohio’s economy contracted 3.5 percent between the end of 2019 and the

third quarter of 2020, mirroring the national economy, which experienced the largest

economic decline since just after World War II. See Monthly Financial Report at 2,

Ohio Office of Budget and Management (Mar. 10, 2021), https://archives.obm.ohio.gov

/Files/Budget_and_Planning/Monthly_Financial_Report/2021-03_mfr.pdf; Baseline

Forecast Testimony at 1, Ohio Legislative Service Commission, available at

https://www.lsc.ohio.gov/documents/budget/134/mainoperating/IN/HF%20forecast%

20testimony.pdf (last visited Mar. 16, 2021).

32. Meanwhile, demand for various state services has increased. Medicaid

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enrollment, for example, has increased by 369,100 individuals since February 2020.

See Monthly Financial Report at 22, Ohio Office of Budget and Management (Mar.

10, 2021), https://archives.obm.ohio.gov/Files/Budget_and_Planning/Monthly

_Financial_Report/2021-03_mfr.pdf.

33. For fiscal year 2019, a comparatively “normal” year, which ran July 1,

2018, through June 30, 2019, the State of Ohio budgeted $78 billion and spent $71

billion. For fiscal year 2020, which ended June 30, 2020, the State budgeted $77.9

billion and spent $74.6 billion. For fiscal year 2021, Ohio budgeted $93.3 billion, and

through the first nine-and-a-half months of the fiscal year, it has spent 62.1 percent

of that budget. See Ohio Office of Budget and Management, Ohio Checkbook, https:

//checkbook.ohio.gov/State/Budgets/default.aspx (last visited Mar. 15, 2021) (to view

the data for each year, select the dropdown menu under “Fiscal Year,” which is

located at the top of the graph).

34. The amount of money at stake—$5.5 billion—represents 7.7 percent of

Ohio’s 2019 expenditures, 7.4 percent of Ohio’s 2020 expenditures, and 5.9 percent of

Ohio’s anticipated 2021 budget.

35. Looking at the nation as a whole, total state spending reached $2.26

trillion in fiscal year 2020, up from $2.1 trillion in fiscal year 2019. See Summary:

2020 State Expenditure Report at 1, National Association of State Budget Officers,

https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-

0fca152d64c2/UploadedImages/Issue%20Briefs%20/Summary_of_2020_State

_Expenditure_Report.pdf. Thus, the $193.6 billion package to the fifty States

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(subtracting $1.7 billion for the District of Columbia), represents 8.6 percent of total

state expenditures for 2020 and 9.2 percent for 2019.

CLAIMS FOR RELIEF

FIRST CLAIM FOR RELIEF
Violation of U.S. Constitution, Article I; Violation of the Spending Clause,
U.S. Const., Art. I, §8, cl.1

36. The State incorporates by reference the allegations of the preceding

paragraphs.

37. Article I of the U.S. Constitution enumerates Congress’s legislative

powers.

38. Article I does not give Congress the power to “issue direct orders to the

governments of the States.” Murphy v. NCAA, 138 S. Ct. 1461, 1476 (2018).

39. Congress may not use the Spending Clause, art. I, §8, cl. 1, to “indirectly

coerce[] a State to adopt a federal regulatory system as its own.” Nat’l Fed’n of Indep.

Bus. v. Sebelius, 567 U.S. 519, 578 (2012) (op. of Roberts, C.J.). Congress violates its

Spending Clause power when it coerces States into agreeing to limit their sovereign

authority by offering financial inducements that States cannot practically refuse. Id.

40. In the current economic climate, Ohio has “no real choice,” id. at 587,

but to accept the $5.5 billion available through the American Rescue Plan Act—a

figure that represents 7.4 percent of Ohio’s total expenditures in fiscal year 2020.

41. By accepting that money, the State must sacrifice its sovereign

authority to set tax policy as it sees fit, because changes to tax policy that reduce

revenues violate the Tax Mandate. Such violations could be used to force the State

to return funding received through the Act.
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42. Because Ohio and other States are coerced into accepting the limitations

on their sovereign authority that the Tax Mandate imposes, Congress exceeded its

authority under the Spending Clause when it enacted the Tax Mandate.

43. In addition, Spending Clause legislation must articulate

“unambiguously” the conditions it imposes on the States, enabling them to

understand the consequences of accepting funds. South Dakota v. Dole, 483 U.S. 203,

207 (1987). The Tax Mandate runs afoul of this requirement, because it is ambiguous

regarding what precisely constitutes a change in state tax policy that “indirectly”

offsets a loss in tax revenue.

44. None of Congress’s other enumerated powers authorized it to enact the

Tax Mandate.

SECOND CLAIM FOR RELIEF
Violation of the U.S. Constitution, Tenth Amendment; Violation of
Anticommandeering Principle

45. The State incorporates by reference the allegations of the preceding

paragraphs.

46. The Tenth Amendment states: “The powers not delegated to the United

States by the Constitution, nor prohibited by it to the States, are reserved to the

States respectively, or to the people.”

47. “[T]he Constitution has never been understood to confer upon Congress

the ability to require the States to govern according to Congress’ instructions.” New

York v. United States, 505 U.S. 144, 162 (1992). This prohibition against

commandeering state governments serves important values, such as safeguarding

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individual liberty and promoting political accountability. Murphy, 138 S. Ct. at 1477.

48. The Constitution neither takes the power to set state tax policy from the

States, nor empowers the federal government to commandeer state taxing authority.

49. Because the Tax Mandate commandeers the States’ sovereign authority

to set tax policy, it violates the Tenth Amendment.

PRAYER FOR RELIEF

50. The State requests that this Court:

a. Declare the Tax Mandate in §9901 of the American Rescue Plan Act

of 2021—the provision amending the Social Security Act to include

the new §602(c)(2)(A), see Pub. L. No. 117-2, §9901—to be in excess

of Congress’s powers enumerated in Article I, and thus

unenforceable;

b. Declare that the Tax Mandate violates the Tenth Amendment to the

Constitution of the United States, and is thus unenforceable;

c. Enjoin the defendants, and any other agency or employee of the

United States, from recouping funds, as provided in Pub. L. No. 117-

2, §9901, based on a violation of the Tax Mandate; and

d. Enjoin the defendants, and any other agency or employee of the

United States, from otherwise enforcing the Tax Mandate against

Ohio.

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Dated: March 17, 2021 DAVE YOST
Ohio Attorney General

/s/ Benjamin M. Flowers
BENJAMIN M. FLOWERS* (0095284)
Solicitor General
*Counsel of Record
ZACHERY P. KELLER (0086930)
MAY DAVIS (PHV application pending)
Deputy Solicitors General
30 East Broad Street, 17th Floor
6l4-466-8980
benjamin.flowers@ohioattorneygeneral.gov

Counsel for the State of Ohio

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