Dismiss for Failure to State a Claim, State of Texas et al. v. Yellen, No. 2:21-cv-00079 (N.D. Tex.), Doc. 19 (July 12, 2021)
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Defendants' motion to dismiss in State of Texas et al. v. Yellen, Civil Action No. 2:21-cv-0079-Z, U.S. District Court for the Northern District of Texas, Amarillo Division, Document 19, filed July 12, 2021. The defendants argue that the three Plaintiff States lack Article III standing and that the challenge is not ripe, because the States have not enacted any tax cut. They also argue that the offset provision, which bars States from using Rescue Plan funds to offset a reduction in net tax revenue resulting from changes in state law, is a valid exercise of Congress's Spending Clause authority. The brief contends that the provision is not coercive or commandeering, gives clear notice, and does not violate the Equal Sovereignty principle.
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“Dismiss for Failure to State a Claim, State of Texas et al. v. Yellen, No. 2:21-cv-00079 (N.D. Tex.), Doc. 19 (July 12, 2021).”
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Case 2:21-cv-00079-Z Document 19 Filed 07/12/21 Page 1 of 35 PageID 105
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
AMARILLO DIVISION
STATE OF TEXAS, et al.,
Plaintiffs,
Civil Action No. 2:21-cv-0079-Z
v.
JANET YELLEN, in her official capacity
as Secretary of the Treasury, et al.,
Defendants.
DEFENDANTS’ MOTION TO DISMISS
PURSUANT TO RULES 12(b)(1) AND 12(b)(6)
Case 2:21-cv-00079-Z Document 19 Filed 07/12/21 Page 2 of 35 PageID 106
TABLE OF CONTENTS
INTRODUCTION ........................................................................................................................ 1
BACKGROUND ........................................................................................................................... 3
Statutory and Regulatory Background ................................................. 3
Factual and Procedural Background ..................................................... 6
LEGAL STANDARDS ................................................................................................................. 7
ARGUMENT................................................................................................................................. 7
I. PLAINTIFFS LACK ARTICLE III STANDING............................................................... 7
II. PLAINTIFFS FAIL TO STATE A CLAIM ON THE MERITS........................................... 12
Congress validly exercised its Spending Clause authority to
restrict the use of Rescue Plan funds. .................................................. 13
The Rescue Plan is not coercive or commandeering......................... 18
The Rescue Plan provides clear notice of the funding
condition. ................................................................................................. 21
The Rescue Plan does not violate the Equal Sovereignty
principle. .................................................................................................. 25
CONCLUSION ........................................................................................................................... 25
i
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TABLE OF AUTHORITIES
Cases
Abbott Labs. v. Gardner,
387 U.S. 136 (1967) ................................................................................................................. 10
Alascom Inc. v. FCC,
727 F.2d 1212 (D.C. Cir. 1984) .............................................................................................. 10
Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy,
548 U.S. 291 (2006) ................................................................................................................. 22
Ashcroft v. Iqbal,
556 U.S. 662 (2009) ................................................................................................................... 7
Babbitt v. Farm Workers,
442 U.S. 289 (1979) ................................................................................................................... 8
Baptist Mem’l Hosp. – Golden Triangle, Inc. v. Azar,
956 F.3d 689 (5th Cir. 2020) .................................................................................................. 24
Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) ................................................................................................................... 7
Bell v. New Jersey,
461 U.S. 773 (1983) ................................................................................................................... 9
Bennett v. Kentucky Department of Education,
470 U.S. 656 (1985) ............................................................................................... 16, 17, 21, 23
Benning v. Georgia,
391 F.3d 1299 (11th Cir. 2004) ........................................................................................ 16, 23
Blum v. Bacon,
457 U.S. 132 (1982) ................................................................................................................. 24
Bucklew v. Precythe,
139 S. Ct. 1112 (2019) ............................................................................................................. 13
ii
Case 2:21-cv-00079-Z Document 19 Filed 07/12/21 Page 4 of 35 PageID 108
Caprock Plains Fed. Bank Ass’n v. Farm Credit Admin.,
843 F.2d 840 (5th Cir. 1988) ............................................................................................ 10, 11
Charles v. Verhagen,
348 F.3d 601 (7th Cir. 2003) ............................................................................................ 23, 24
Children’s Hosp. Ass’n of Tex. v. Azar,
933 F.3d 764 (D.C. Cir. 2019) ................................................................................................ 24
Citizens Bank of Md. v. Strumpf,
516 U.S. 16 (1995) ................................................................................................................... 14
City of Los Angeles v. Barr,
929 F.3d 1163 (9th Cir. 2019) .......................................................................................... 22, 24
Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense Bd.,
527 U.S. 666 (1999) ........................................................................................................... 12, 21
Cutter v. Wilkinson,
423 F.3d 579 (6th Cir. 2005) .................................................................................................. 22
DaimlerChrysler Corp. v. Cuno,
547 U.S. 332 (2006) ................................................................................................................... 7
Davis ex rel. Lashonda D. v. Monroe Cnty. Bd. of Educ.,
526 U.S. 629 (1999) ........................................................................................................... 22, 23
Elam v. Kan. City S. Ry. Co.,
635 F.3d 796 (5th Cir. 2011) .................................................................................................... 8
Fac. Senate of Fla. Int’l Univ. v. Winn,
616 F.3d 1206 (11th Cir. 2010) .............................................................................................. 12
Gonzalez v. Raich,
545 U.S. 1 (2005) ..................................................................................................................... 25
Gruver v. La. Bd. of Supervisors for La. State Univ. Agric. & Mech. Coll.,
959 F.3d 178 (5th Cir. 2020) ............................................................................................ 19, 20
iii
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In re Complt. of RLB Contracting, Inc. v. Butler,
773 F.3d 596 (5th Cir. 2014) .................................................................................................... 7
Irving Indep. Sch. Dist. v. Tatro,
468 U.S. 883 (1984) ................................................................................................................. 24
Jackson v. Birmingham Bd. of Educ.,
544 U.S. 167 (2005) ........................................................................................................... 22, 23
Kansas v. United States,
214 F.3d 1196 (10th Cir. 2000) ........................................................................................ 16, 17
Lujan v. Defs. of Wildlife,
504 U.S. 555 (1992) ............................................................................................................... 7, 8
Machete Prods., LLC v. Page,
809 F.3d 281 (5th Cir. 2015) .................................................................................................... 7
Massachusetts v. Mellon,
262 U.S. 447 (1923) ............................................................................................................. 9, 10
Mayhew v. Burwell,
772 F.3d 80 (1st Cir. 2014) ..................................................................................................... 17
Mayweathers v. Newland,
314 F.3d 1062 (9th Cir. 2002) ................................................................................................ 23
McKinley v. Abbott,
643 F.3d 403 (5th Cir. 2011) .................................................................................................. 13
Miss. Comm’n on Env’t Quality v. EPA,
790 F.3d 138 (D.C. Cir. 2015) .......................................................................................... 19, 20
Missouri v. Yellen,
2021 WL 1889867 (E.D. Mo. May 11, 2021) .................................................................... 9, 11
Munaf v. Geren,
553 U.S. 674 (2008) ................................................................................................................... 7
iv
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Nat’l Fed’n of Indep. Bus. v. Sebelius,
567 U.S. 519 (2012) .......................................................................................................... passim
Nat’l Park Hosp. Ass’n v. Dep’t of Interior,
538 U.S. 803 (2003) ........................................................................................................... 10, 12
New York v. United States,
505 U.S. 144 (1992) ..................................................................................................... 16, 19, 21
Nw. Austin Mun. Util. Dist. v. Holder,
557 U.S. 193 (2009) ................................................................................................................. 25
Ohio v. Yellen,
2021 WL 2712220 (S.D. Ohio July 1, 2021).................................................................... 22, 23
Oklahoma v. U.S. Civ. Serv. Comm’n,
330 U.S. 127 (1947) ................................................................................................................. 15
Pennhurst State School & Hospital v. Halderman,
451 U.S. 1 (1981) ............................................................................................................... 21, 22
Pub. Serv. Comm’n of Utah v. Wycoff Co.,
344 U.S. 237 (1952) ................................................................................................................. 12
Religious Sisters of Mercy v. Azar,
2021 WL 191009 (D.N.D. Jan. 19, 2021)............................................................................... 19
Rimini St., Inc. v. Oracle USA, Inc.,
139 S. Ct. 873 (2019) ............................................................................................................... 14
Rostker v. Goldberg,
453 U.S. 57 (1981) ..................................................................................................................... 3
S.C. Dep’t of Educ. v. Duncan,
714 F.3d 249 (4th Cir. 2013) .................................................................................................. 17
Sabri v. United States,
541 U.S. 600 (2004) ................................................................................................................. 15
v
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Shelby Cnty. v. Holder,
570 U.S. 529 (2013) ................................................................................................................. 25
South Dakota v. Dole,
483 U.S. 203 (1987) ................................................................................................. 9, 12, 16, 21
Steward Mach. Co. v. Davis,
301 U.S. 548 (1937) ........................................................................................................... 19, 21
Susan B. Anthony List v. Driehaus,
573 U.S. 149 (2014) ................................................................................................................... 8
Tex. Educ. Agency v. U.S. Dep’t of Educ.,
992 F.3d 350 (5th Cir. 2021) .................................................................................................. 24
Trump v. New York,
141 S. Ct. 530 (2020) ............................................................................................................... 10
United States v. Lipscomb,
299 F.3d 303 (5th Cir. 2002) .................................................................................................. 16
United States v. Louisiana,
363 U.S. 1 (1960) ..................................................................................................................... 25
United States v. Morrison,
529 U.S. 598 (2000) ................................................................................................................. 13
United Transp. Union v. Foster,
205 F.3d 851 (5th Cir. 2000) .................................................................................................. 12
Van Wyhe v. Reisch,
581 F.3d 639 (8th Cir. 2009) .................................................................................................. 23
Voisine v. United States,
136 S. Ct. 2272 (2016) ............................................................................................................. 14
W. Va. Dep’t of Health & Hum. Res. v. Sebelius,
649 F.3d 217 (4th Cir. 2011) .................................................................................................. 23
vi
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Wash. State Grange v. Wash. State Republican Party,
552 U.S. 442 (2008) ................................................................................................................. 13
Whitman v. Am. Trucking Ass’ns,
531 U.S. 457 (2001) ................................................................................................................. 24
Constitutional Provisions
U.S. Const. art. I, § 8, cl. 1 .......................................................................................................... 12
Statutes
20 U.S.C. § 241e (1970) ............................................................................................................... 17
42 U.S.C. § 801 .............................................................................................................................. 3
42 U.S.C. § 802 ..................................................................................................................... passim
American Rescue Plan Act. See Pub. L. No. 117-2, § 9901(a), 135 Stat. 4 (2021)
(codified at 42 U.S.C. §§ 802–805) ..................................................................................... 1, 3
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Pub. L. No. 116-
137, § 5001, 134 Stat. 281, 501 (2020) (codified at 42 U.S.C. § 801) .................................... 3
Rules
Federal Rule of Civil Procedure 12(b)(1) .................................................................................. 7
Federal Rule of Civil Procedure 12(b)(6) .................................................................................. 7
Regulations
86 Fed. Reg. 26,786 (May 17, 2021) .................................................................................. 5, 6, 15
vii
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INTRODUCTION
As part of the American Rescue Plan Act, Pub. L. No. 117-2, 135 Stat. 4 (2021) (“Res-
cue Plan” or “Act”), Congress appropriated nearly $200 billion in new funding for state
governments. 42 U.S.C. § 802. Congress made these new federal funds available for State
efforts to respond to the public health emergency created by the COVID-19 pandemic
and to its economic effects and gave States considerable flexibility to use these new fed-
eral funds, including by funding state-level government services and by providing assis-
tance to households, small businesses, and industries. Id. § 802(c). To ensure that States
would use these new funds for the broad categories of state expenditures it identified,
Congress specified that States cannot use the federal funds to offset a reduction in net tax
revenue resulting from changes in state law. Id. § 802(c)(2)(A) (the “offset provision”).
That is a straightforward exercise of Congress’s well-settled Spending Clause authority
to attach conditions that “preserve its control over the use of federal funds.” Nat’l Fed’n
of Indep. Bus. v. Sebelius, 567 U.S. 519, 579 (2012) [hereinafter “NFIB”] (plurality opinion).
In their Complaint, the three Plaintiff States argue that this provision violates the
“anti-coercion principle[]” and “unconstitutionally commandeer[s] the governments of
the Plaintiff States” by limiting the States’ ability to exercise their “sovereign taxing pow-
ers.” Compl. ¶¶ 6, 8–9, ECF No. 1. Plaintiffs’ Complaint, however, suffers from multiple
jurisdictional defects and rests on a fundamental misunderstanding of both the chal-
lenged statute and the governing law.
First, the challenged statute. Because the offset provision’s plain text addresses
only a reduction in a State’s “net tax revenues,” 42 U.S.C. § 802(c)(2)(A) (emphasis added),
a State is free to cut some taxes and increase others and may change its tax law as it be-
lieves appropriate. And even if a State chooses to make changes that result in a reduction
in net tax revenue, the Act bars a State only from using Rescue Plan funds—as opposed
to other means—to offset that reduction. Id. The Act also makes clear that if a State
chooses to use Rescue Plan funds to offset a reduction in net tax revenue resulting from
1
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changes in state law, the only consequence would be a loss of monies commensurate with
the amount of federal funding misused for that offset. See id. § 802(e).
Second, the law. As an initial matter, Plaintiffs lack Article III standing because the
States have not enacted any tax cut, let alone alleged that any hypothetical tax cut under
consideration will decrease net tax revenue or that they plan to use Rescue Plan funds to
offset that theoretical reduction. Because Plaintiffs have not alleged any intention to use
the federal funds in a way not permitted under the Act, they lack standing to challenge
the offset provision. Relatedly, the States’ challenge is not ripe because Plaintiffs have not
alleged conduct that could result in recoupment, and the Treasury Department has not
indicated any imminent plans to recoup from the Plaintiff States. Particularly given the
extraordinary nature of Plaintiffs’ request for pre-enforcement injunctive relief based on
the purported unconstitutionality of a federal statute, it is critical to ensure that they have
satisfied the jurisdictional prerequisites for this suit. They have not.
Plaintiffs’ Complaint also fails to state a claim on the merits. Federal statutes that
place conditions on how a State can use federal funds are commonplace and present no
constitutional concern. Such provisions reflect the common-sense proposition that when
Congress gives money to States for a particular purpose, it may place conditions on a
State’s acceptance of the funds to ensure that the funds are in fact used for the intended
purpose. The Rescue Plan allows States to deploy the considerable funds provided for a
broad array of purposes related to the COVID-19 pandemic and its effects. Congress
acted well within constitutional bounds by conditioning the receipt of Rescue Plan funds
on the State’s agreement to use funds for those purposes and not to offset a reduction in
net tax revenue resulting from changes in state law.
Plaintiffs’ Complaint seeks to invalidate portions of the Rescue Plan based on the
States’ speculative concerns about possible future disputes. Because declaring an Act of
Congress unconstitutional is “the gravest and most delicate duty that” federal courts are
2
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“called on to perform,” Rostker v. Goldberg, 453 U.S. 57, 64 (1981) (quotation marks omit-
ted), this Court should dismiss the Complaint.
BACKGROUND
Statutory and Regulatory Background
In March 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Se-
curity Act (“CARES Act”). See Pub. L. No. 116-137, § 5001, 134 Stat. 281, 501 (2020) (codi-
fied at 42 U.S.C. § 801). The CARES Act established a $150 billion “Coronavirus Relief
Fund” for States, tribal governments, and localities for 2020. See 42 U.S.C. § 801(a). That
fund covers costs that are “necessary expenditures incurred due to the public health
emergency” that “were not accounted for in the budget[s]” of those governments. Id.
§ 801(d). If recipients do not use the funds for the permitted purposes, the Act permits
the Treasury Department to recoup the amount of any misused funds. Id. § 801(e).
On March 11, 2021, Congress enacted the American Rescue Plan Act. See Pub. L.
No. 117-2, § 9901(a) (codified at 42 U.S.C. §§ 802–805). The Rescue Plan establishes an
additional “Coronavirus State Fiscal Recovery Fund,” allocating another $220 billion to
broadly “mitigate the fiscal effects” of the pandemic on States, territories, and Tribal gov-
ernments through 2024. 42 U.S.C. § 802(a)(1); see id. § 803(a) (additional $130 billion for
localities). Nearly $200 billion is allocated for the States and the District of Columbia. Id.
§ 802(b)(2)(A).
The Rescue Plan provides States with considerable latitude, in scope and duration,
to use the funds for pandemic-related purposes. Through 2024, a State may use the funds
“to cover costs incurred”:
(A) to respond to the public health emergency with respect to the Corona-
virus Disease 2019 (COVID–19) or its negative economic impacts, including
assistance to households, small businesses, and nonprofits, or aid to im-
pacted industries such as tourism, travel, and hospitality;
(B) to respond to workers performing essential work during the COVID–19
public health emergency by providing premium pay to eligible workers of
the State, territory, or Tribal government that are performing such essential
3
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work, or by providing grants to eligible employers that have eligible work-
ers who perform essential work;
(C) for the provision of government services to the extent of the reduction
in revenue of such State, territory, or Tribal government due to the COVID–
19 public health emergency relative to revenues collected in the most recent
full fiscal year of the State, territory, or Tribal government prior to the emer-
gency; or
(D) to make necessary investments in water, sewer, or broadband infra-
structure.
Id. § 802(c)(1). While CARES Act funds were limited to covering previously unbudgeted
costs of necessary expenditures incurred due to the public health emergency, the Rescue
Plan allows States to use the funds for “government services” to the extent the pandemic
has resulted in a “reduction in revenue.” Id. § 802(c)(1)(C). The Rescue Plan also permits
recipients to use the funds to respond broadly to the public-health emergency and its
negative economic effects, to support essential workers during the pandemic, and to in-
vest in certain infrastructure areas. Id. § 802(c)(1)(A), (B), (D).
The Rescue Plan includes two “further restrictions” to ensure that the broad outlay
of funds is used for the identified purposes while funds are available. 42 U.S.C.
§ 802(c)(2). One limitation (not challenged here) provides that a State may not “deposit”
Rescue Plan funds “into any pension fund.” Id. § 802(c)(2)(B). The other limitation (at is-
sue here) provides in relevant part that a State:
shall not use the funds provided under [§ 802] . . . to either directly or indi-
rectly offset a reduction in the net tax revenue of such State or territory re-
sulting from a change in law, regulation, or administrative interpretation
during the covered period that reduces any tax (by providing for a reduc-
tion in a rate, a rebate, a deduction, a credit, or otherwise) or delays the
imposition of any tax or tax increase.
Id. § 802(c)(2)(A).1
1 The “covered period” began on March 3, 2021 and “ends on the last day of the
fiscal year of such State . . . in which all funds received by the State . . . have been ex-
pended or returned to, or recovered by, the Secretary.” 42 U.S.C. § 802(g)(1).
4
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By its terms, this funding condition applies only to reductions in “net” tax revenue.
Id. This limitation on the use of federal funds is not implicated at all by a State’s choice to
modify its tax code—including by cutting taxes—if the changes, taken together, do not
result in a reduction of net tax revenue. If a State chooses to reduce its net tax revenue, it
may not use the Rescue Plan funds to “offset” that reduction. If a State chooses to do so,
the State will be required to repay only the amount of funds used to offset the “reduction
to net tax revenue” or “the amount of funds received,” whichever is less. 42 U.S.C.
§ 802(e).
The Rescue Plan also authorizes the Secretary of the Treasury “to issue such regu-
lations as may be necessary or appropriate to carry out” the applicable statutory provi-
sions. Id. § 802(f). On May 10, 2021, Treasury posted an Interim Final Rule implementing
the Rescue Plan, which was published in the Federal Register the following week. See 86
Fed. Reg. 26,786 (May 17, 2021) (“the Rule”). The Rule sets forth a framework for deter-
mining when a State has used Fiscal Recovery Funds to “directly or indirectly offset” a
reduction in net tax revenue:
1. For each year during the covered period, a State will generally use its ordi-
nary budget-scoring process to evaluate whether changes in law, regulation, or interpre-
tation will result in a reduction in tax revenue. If so, the amount of the reduction is the
amount a State needs to “pay for” with sources other than Fiscal Recovery Funds.
2. A State need not show how reductions are paid for if the reductions are de
minimis, defined as less than 1% of the State’s inflation-adjusted 2019 tax revenue. Under
those circumstances, a State will not be subject to recoupment.
3. A State will consider the amount of actual tax revenue recorded in the re-
porting year. If the State’s actual tax revenue is greater than its inflation-adjusted 2019
tax revenue, the State did not violate the offset provision (regardless of what changes it
made to its tax laws) because it experienced no reduction in net tax revenue.
5
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4. If a State’s actual tax revenue in the reporting year is less than the State’s
inflation-adjusted 2019 tax revenue, the State will identify any sources of funds that have
been used to permissibly offset the total value of covered tax changes. These include any
tax changes that increase tax revenue and any spending cuts in areas where the State is
not spending Fiscal Recovery Funds. The State then subtracts those permissible offsets
from the total value of revenue-reducing changes calculated in Step 1 to determine what
portion of the revenue-reducing changes has not been paid for. The State is then poten-
tially subject to recoupment for that amount or the difference between the State’s actual
tax revenue and its inflation-adjusted 2019 tax revenue, whichever is greater.
5. If there are any amounts that could be subject to recoupment, Treasury will
provide notice to the State and the State will have an opportunity to respond.
See 86 Fed. Reg. at 26,806–10.
Factual and Procedural Background
On May 3, 2021, Texas, Louisiana, and Mississippi brought this suit alleging that
the offset provision of § 802(c)(2)(A) is unconstitutional. Compl. ¶ 10. On May 10, 2021,
Mississippi certified to the Department of the Treasury its intent to use Rescue Plan funds
for permissible purposes under 42 U.S.C. § 802(d)(1), and the Department of the Treasury
subsequently issued Mississippi its first tranche payment of $903,186,672.95. Louisiana
certified on June 1, 2021, and received payment of $3,011,136,886.60. Texas has not yet
certified but alleges that it will do so and that it expects to receive $16.45 billion. Id. at
¶ 47. Plaintiffs nowhere allege that they have enacted changes in state law during the
covered period that would reduce net tax revenue, or that they intend to use Rescue Plan
funds to offset any hypothetical reduction in net tax revenue. See generally id. ¶¶ 1–79.
Plaintiffs nonetheless request injunctive and declaratory relief against enforcement of the
offset provision. See id. (Prayer for Relief).
6
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LEGAL STANDARDS
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), a
plaintiff bears the burden to establish a court’s jurisdiction. Lujan v. Defs. of Wildlife, 504
U.S. 555, 561 (1992). It is “presume[d] that federal courts lack jurisdiction unless the con-
trary appears affirmatively from the record.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332,
342 n.3 (2006) (citation omitted).
Under both Rule 12(b)(1) and Rule 12(b)(6), to survive a motion to dismiss, a com-
plaint must contain “enough facts to state a claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “plausibility” standard “asks for
more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (citation omitted). “Where a complaint pleads facts that are ‘merely
consistent with’ a defendant’s liability, it ‘stops short of the line between possibility and
plausibility of ‘entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557). While the
Court accepts well-pleaded factual allegations as true, “mere conclusory statements” and
“legal conclusion[s] couched as . . . factual allegation[s]” are “disentitle[d] . . . to th[is]
presumption of truth.” Id. at 678, 681 (citation omitted).
While courts apply the plausibility standard under both rules, “in examining a
Rule 12(b)(1) motion, a district court is empowered to find facts as necessary to determine
whether it has jurisdiction.” Machete Prods., LLC v. Page, 809 F.3d 281, 287 (5th Cir. 2015).
Accordingly, “the district court may consider evidence outside the pleadings and resolve
factual disputes.” In re Compl. of RLB Contracting, Inc. v. Butler, 773 F.3d 596, 601 (5th Cir.
2014).
ARGUMENT
I. PLAINTIFFS LACK ARTICLE III STANDING.
In assessing the Plaintiff States’ Complaint, this Court must determine whether
they have established jurisdiction, including Article III standing. Munaf v. Geren, 553 U.S.
674, 691 (2008). To satisfy the “irreducible constitutional minimum” of standing, the
7
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States must first demonstrate “a concrete and particularized” injury in fact that is “actual
or imminent.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). When a plaintiff seeks
to enjoin the future enforcement of a statute, “the injury-in-fact requirement” demands
that the plaintiff “allege[] ‘an intention to engage in a course of conduct arguably affected
with a constitutional interest, but proscribed by a statute, and [that] there exists a credible
threat of [enforcement] thereunder.’” Susan B. Anthony List v. Driehaus, 573 U.S. 149, 159
(2014) (quoting Babbitt v. Farm Workers, 442 U.S. 289, 298 (1979)); see id. at 161–67 (analyz-
ing the three elements separately). In other words, the prospect of enforcement must be
“sufficiently imminent” to create a concrete injury. Id. at 159.
Plaintiffs cannot meet that standard because their asserted injuries are hypothet-
ical and speculative. The Complaint is silent as to how the States intend to use Rescue
Plan funds, nowhere even suggesting that they plan to use them in a manner inconsistent
with the offset provision. Under that provision, a State may not use the new federal funds
to offset a reduction in net tax revenue that results from certain changes in state law. 42
U.S.C. § 802(c)(2)(A). But the Plaintiffs do not allege that any State has enacted any tax
cuts―or even that they are considering tax cuts―let alone tax cuts that would (taken to-
gether with any tax increases) reduce net tax revenue. And there is no allegation that any
State intends to use Rescue Plan funds to offset any reductions in its net tax revenue that
might result from any changes a State ultimately chooses to adopt. Merely proposing or
adopting a tax cut is not itself the “course of conduct arguably affected with a constitu-
tional interest” and “proscribed by a statute” required for pre-enforcement standing.
Driehaus, 573 U.S. at 159 (quoting Babbitt, 442 U.S. at 298). The offset provision restricts
only a State’s using Rescue Plan funds to offset a reduction in net tax revenue resulting
from a change in state law; it does not prohibit the proposal or adoption of any tax change
on its own. The States are the proverbial “master of [their] complaint” and must take
responsibility for the allegations included—or not included—therein. Elam v. Kan. City S.
Ry. Co., 635 F.3d 796, 803 (5th Cir. 2011).
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Unable to demonstrate that the Rescue Plan restricts any conduct that the Plaintiff
States intend to undertake, let alone that any recoupment is imminent, the States assert a
general intrusion on their “sovereign authority.” Compl. ¶ 19. In doing so, Plaintiffs fun-
damentally misunderstand the Rescue Plan. “The [Rescue Plan] does not prohibit States
from proposing, enacting, or implementing legislation that cuts taxes for its citizens and
businesses.” Missouri v. Yellen, 2021 WL 1889867, at *4 (E.D. Mo. May 11, 2021), appeal
filed, No. 21-2118 (8th Cir. May 18, 2021). To ensure that the new federal funds are used
for the purposes Congress permitted and not others that it chose not to support, the Act
requires a State to agree that it will not use the federal funds to offset a reduction in net
tax revenue resulting from changes in state law. The Rescue Plan does not prohibit a State
from cutting taxes; it merely restricts a State’s ability to use federal funds distributed under
the Rescue Plan to offset a reduction in net tax revenue. No State has a sovereign interest
in using federal funds for that purpose, so the States’ “sovereign power to set its own tax
policy is not implicated by the [Rescue Plan].” Id. Quite the opposite: The Supreme Court
has repeatedly made clear that Congress has a sovereign interest in conditioning the re-
ceipt of federal funds “on the States’ complying with restrictions on the use of those
funds, because that is the means by which Congress ensures that the funds are spent ac-
cording to its view of the ‘general Welfare.’” NFIB, 567 U.S. at 580; see South Dakota v. Dole,
483 U.S. 203, 207 (1987) (“In considering whether a particular expenditure is intended to
serve general public purposes, courts should defer substantially to the judgement of Con-
gress”). Put simply, “[r]equiring States to honor the obligations voluntarily assumed as a
condition of federal funding before recognizing their ownership of funds simply does not
intrude on their sovereignty.” Bell v. New Jersey, 461 U.S. 773, 790 (1983).
Plaintiffs’ reliance on their sovereign taxation authority also cannot be reconciled
with the Supreme Court’s decision in Massachusetts v. Mellon, which made clear that Ar-
ticle III jurisdiction is not satisfied by raising “abstract questions . . . of sovereignty.” 262
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U.S. 447, 485 (1923). There, Congress had enacted through the Spending Clause a mater-
nity program that permitted States to accept funding to protect the health of mothers and
infants and provided that violating the program’s conditions could result in the with-
holding of funds. Id. at 478–79, 484-85. Massachusetts brought suit, alleging that the stat-
ute “imposed upon the [S]tates an illegal and unconstitutional option either to yield to
the federal government a part of their reserved rights or lose their share of the moneys
appropriated.” Id. at 482. The Supreme Court held that the State’s “naked contention that
Congress has usurped the reserved powers of the several [S]tates by the mere enactment
of the statute” was insufficient to establish an Article III case or controversy. Id. at 483.
Instead, the Court held that Massachusetts was required to allege that a sovereign interest
was “actually invaded or threatened” by “the actual or threatened operation of the stat-
ute,” id. at 485—precisely what Plaintiffs have failed to demonstrate here. Plaintiffs have
not alleged any plan to use Rescue Plan funds to offset a reduction in net tax revenue
resulting from a change in state law, and even then, only federal money—not state
power—would be at stake.
For similar reasons, even if the Plaintiff States had Article III standing, their chal-
lenge to the offset provision would not be ripe. “Ripeness is a justiciability doctrine de-
signed ‘to prevent the courts, through avoidance of premature adjudication, from entan-
gling themselves in abstract disagreements over administrative policies,” and “also to
protect the agencies from judicial interference until an administrative decision has been
formalized and its effects felt in a concrete way by the challenging parties.’” Nat’l Park
Hosp. Ass’n v. Dep’t of Interior, 538 U.S. 803, 807–08 (2003) (quoting Abbott Labs. v. Gardner,
387 U.S. 136, 148–149 (1967)). Plaintiffs’ claimed harm here rests on the potential recoup-
ment of some Rescue Plan funds from the States. See Compl. ¶¶ 5, 27. “[T]he mere poten-
tial for future injury, however, is insufficient to render an issue ripe for review.” Caprock
Plains Fed. Bank Ass’n v. Farm Credit Admin., 843 F.2d 840, 845 (5th Cir. 1988) (quoting
Alascom Inc. v. FCC, 727 F.2d 1212, 1217 (D.C. Cir. 1984)); see also Trump v. New York, 141
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S. Ct. 530, 535 (2020) (per curiam); Caprock Plains Fed. Bank, 843 F.2d at 845 (“[A] party’s
allegation of hardship will be found wanting if there are too many ‘ifs’ in the asserted
causal chain . . . .” (citation omitted)). Recoupment would be possible only if, at some
point, the Plaintiff States enact tax-law changes, and only if their net tax revenues fall as
a result, and only if the States then decide to use Rescue Plan funds to offset that reduc-
tion. With potential recoupment nowhere in sight, the States’ challenge is premature. See
Missouri, 2021 WL 1889867, at *3–5.
Because the jurisdictional prerequisites are lacking, this Court should follow the
lead of the Missouri court and dismiss the Complaint. See Missouri, 2021 WL 1889867, at
*5. The Missouri court explained, in a case similar to this one, that the State lacked pre-
enforcement standing because “State tax cuts are not proscribed by the ARPA” and “Mis-
souri’s sovereign power to set its own tax policy is not implicated by the ARPA.” Id. at
*4. Rather, Congress simply “both appropriated recovery funds and placed a condition
on a State’s receipt of the funds.” Id. Therefore, the State “does not face a credible threat
of prosecution if it decides to pass tax cutting measures” because “the ARPA does not
prohibit a State from implementing its own tax policy.” Id. In other words, “recoupment
is not triggered by a reduction in State tax revenue, it is triggered by a State’s use of fed-
eral recovery funds to offset a reduction in its net tax revenue.” Id.
The Missouri court also found that the case was not ripe because “Missouri ask[ed]
the Court to determine the scope of the [offset provision] well in advance of any adverse
effect and in a wholly, non-actionable hypothetical context,” and because further factual
development would aid the court’s determination. Id. at *5. The court further explained
that the offset provision “does not require Missouri to engage in, or refrain from, any con-
duct, including legislative conduct regarding tax policy,” and “Missouri’s purported inju-
ries to legislative proceedings and the prospect of recoupment of federal recovery funds
are too abstract and remote to constitute significant hardship.” Id. This Court should con-
clude the same.
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There must be some “concrete action applying [Treasury’s] regulation to [a State’s]
situation in a fashion that harms or threatens to harm [it]” before adjudicating its chal-
lenge. Nat’l Park Hosp. Ass’n, 538 U.S. at 808; see Fac. Senate of Fla. Int’l Univ. v. Winn, 616
F.3d 1206, 1209 n.8 (11th Cir. 2010) (“[A] final conclusion on that issue can await a post-
enforcement, as-applied challenge on a less speculative record than exists here.”); United
Transp. Union v. Foster, 205 F.3d 851, 858–59 (5th Cir. 2000). Given the nature of the Plain-
tiffs’ pre-enforcement facial challenged to a federal statute, it is especially critical to en-
sure that the jurisdictional prerequisites for this suit are satisfied. See Pub. Serv. Comm’n
of Utah v. Wycoff Co., 344 U.S. 237 (1952).
II. PLAINTIFFS FAIL TO STATE A CLAIM ON THE MERITS.
On the merits, Plaintiffs have not come close to demonstrating that Congress ex-
ceeded the bounds of its Spending Clause authority. The Constitution empowers Con-
gress to raise and spend revenue to “provide for the common Defence and general Wel-
fare of the United States.” U.S. Const. art. I, § 8, cl. 1. Congress “may, in the exercise of its
spending power, condition its grant of funds to the States upon their taking certain ac-
tions that Congress could not require them to take, and that acceptance of the funds en-
tails an agreement to the actions.” Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense
Bd., 527 U.S. 666, 686–87 (1999); NFIB, 567 U.S. at 576; Dole, 483 U.S. at 207.
Congress’s Spending Clause authority is subject to certain limitations. Congress
must use this power in pursuit of “the general welfare” and ensure that its “conditions
on the receipt of federal funds” are related to the federal interest. Dole, 483 U.S. at 207.
Spending Clause conditions also must not violate “other constitutional provisions” or be
“coercive.” Id. at 208, 211. Finally, Congress’s “desire[] to condition the States’ receipt of
federal funds” must be unambiguous. Id. at 207.
In this case, Plaintiffs contend that the offset provision exceeds these limitations
and therefore is not a valid exercise of Congress’s Spending Clause authority and violates
the Tenth Amendment. Compl. ¶¶ 53–72. As noted above, Plaintiffs do not claim that any
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particular state enactment will lead to recoupment; Plaintiffs instead challenge the con-
dition as a facial matter. The States therefore bear a significant burden to demonstrate
that the offset provision is “unconstitutional in all its applications”: they “must show that
there is no set of circumstances under which the law would be valid.” Bucklew v. Precythe,
139 S. Ct. 1112, 1127 (2019); McKinley v. Abbott, 643 F.3d 403, 408–09 (5th Cir. 2011) (cita-
tion omitted); see also Wash. State Grange v. Wash. State Republican Party, 552 U.S. 442, 450
(2008). And in evaluating the Act’s facial constitutionality, “[d]ue respect for the decisions
of a coordinate branch of Government demands that [courts] invalidate a congressional
enactment only upon a plain showing that Congress has exceeded its constitutional
bounds.” United States v. Morrison, 529 U.S. 598, 607 (2000). Here, Congress has validly
exercised its Spending Clause authority, and Plaintiffs’ contentions have no merit.
Congress validly exercised its Spending Clause authority to restrict the
use of Rescue Plan funds.
The Rescue Plan is a lawful exercise of Congress’s Spending Clause authority. De-
signed to assist in the Nation’s economic recovery during and following a pandemic, the
Rescue Plan appropriates nearly $200 billion in new federal funding for States and the
District of Columbia. 42 U.S.C. § 802(b)(2)(A), (c)(1). With that funding, States have con-
siderable flexibility to “mitigate the fiscal effects” of the COVID-19 pandemic as they see
fit within the broad parameters specified by Congress. Id. § 802(a)(1), (c)(1). Unsurpris-
ingly, Congress sought to ensure that its monetary outlay would be used as intended. To
that end, it included a guardrail that prohibits States that choose to accept the federal
money from using those funds to “directly or indirectly offset a reduction” in “net tax
revenue” resulting from changes in state law. Id. § 802(c)(2)(A).
The offset provision is a modest restriction on an otherwise generous outlay of
federal funds. By its plain terms, the offset provision applies only when a State uses Res-
cue Plan funds to “offset” a reduction in “net” tax revenue resulting from changes in state
law. Id. That restriction is not implicated if reductions in some taxes are balanced with
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increases in others because no “net” tax revenue reduction would then occur. A State also
does not transgress the limitation if it does not “use” Rescue Plan funds to “offset” a
reduction in net tax revenue. Id. The term “use” connotes “volitional” “active employ-
ment” of federal funds. Voisine v. United States, 136 S. Ct. 2272, 2278–79 (2016). And the
term “offset” means “[t]o balance” or “compensate for.” Offset, Black’s Law Dictionary
(11th ed. 2019). The Act’s reference to States’ “directly or indirectly” offsetting a reduction
in net tax revenue does not alter the statutory meaning. Both “directly” and “indirectly”
are adverbs that cannot “alter the meaning of the word” that they modify (here, “offset”).
Rimini St., Inc. v. Oracle USA, Inc., 139 S. Ct. 873, 878 (2019). It remains the case that the
statute restricts only the use of Rescue Plan funds to offset reductions in net tax revenue
resulting from changes in state law, not every tax reduction. If Congress had sought to
prohibit every reduction in taxes, Compl. ¶ 6, it could have said so explicitly.
Taken together, the offset provision’s language simply ensures that States are not
employing federal funds to finance state tax cuts that decrease net tax revenue. See Citi-
zens Bank of Md. v. Strumpf, 516 U.S. 16, 19 (1995) (describing “offset” as balancing out a
specific loss with another specific gain). For example, assuming no other changes, a State
could not receive $2 billion in Rescue Plan funds, cut its income tax by an amount equal
to $2 billion, and use the Rescue Plan funds to offset the revenue loss. That would be
using Rescue Plan Funds to “directly” offset a reduction in net tax revenue. 42 U.S.C.
§ 802(c)(2)(A). Similarly, again assuming no other changes, a State could not use Rescue
Plan funds to replace $2 billion in planned state expenditures on COVID-19 testing and
then use the $2 billion it had originally budgeted for that purpose to offset a $2 billion
reduction in state income tax. That would be using Rescue Plan Funds to “indirectly”
offset a reduction in net tax revenue. Id. But States routinely offset reductions in net tax
revenue by other means. And even if a State impermissibly uses Rescue Plan funds to
offset a reduction in net tax revenue, the consequence is proportional to the misuse: the
State would be required to repay only the portion of the federal money it used to offset
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the reduction in net tax revenue (not to exceed the amount of the federal grant). Id.
§ 802(e).
The Rule confirms this straightforward interpretation. The Rule requires that
States demonstrate how they covered the costs of any tax cuts from sources other than
Rescue Plan funds, such as by raising other sources of revenue, cutting spending in cer-
tain areas, or using revenue derived from increased economic growth. 86 Fed. Reg. at
26,807. Only if a State cannot demonstrate how it paid for its tax cuts without using Res-
cue Plan funds will Treasury consider that amount to have been directly or indirectly
offset with the federal funds, and thus potentially subject to recoupment. Id.; see also id. at
26,810 (explaining, for example, that “prevent[ing] recipient governments from using Fis-
cal Recovery Funds to supplant State or territory funding in the eligible use areas, and
then us[ing] those State or territory funds to offset tax cuts,” “ensure[s] that Fiscal Recov-
ery Funds are not used to ‘indirectly’ offset revenue reductions due to covered changes”).
Congress has broad leeway in establishing permissible uses of federal funds. And
Congress has an overriding interest in ensuring that the new Rescue Plan funds will be
used for the broad categories of state expenditures it identified and not others Congress
chose not to support. See Sabri v. United States, 541 U.S. 600, 608 (2004) (“The power to
keep a watchful eye on expenditures . . . is bound up with congressional authority to
spend in the first place.”); Oklahoma v. U.S. Civ. Serv. Comm’n, 330 U.S. 127, 143 (1947)
(explaining that Congress has the “power to fix the terms upon which its money allot-
ments to [S]tates shall be disbursed”). The offset provision itself, which is titled “[f]urther
restriction on use of funds” and only applies to a State’s “use [of] the funds provided under
this section,” 42 U.S.C. § 802(c)(2) (emphasis added), makes clear that it is an exercise of
that broad congressional authority.
Plaintiffs contend that the Rescue Plan’s conditions on the use of funds are not
related to the funding program. Compl. ¶ 63. But it is difficult to imagine how they could
be more related to the funding program because they specify the uses to which a State
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may and may not devote the federal funds. That sort of statutory condition is by defini-
tion “germane[]” because it ensures that federal funds are used for the public-health and
economic-recovery “federal purposes” of the spending program. Dole, 483 U.S. at 207.
Congress acted well within its Spending Clause authority by both describing broad cate-
gories of permissible uses and proscribing certain narrow uses. This more than satisfies
the “minimum rationality” required of Spending Clause legislation. United States v. Lip-
scomb, 299 F.3d 303, 322 (5th Cir. 2002) (quoting Kansas v. United States, 214 F.3d 1196, 1199
(10th Cir. 2000)); see New York v. United States, 505 U.S. 144, 172 (1992) (finding funding
conditions sufficiently related where “both the conditions and the payments embody
Congress’ efforts to address the pressing problem of radioactive waste disposal”); Dole,
483 U.S. at 208–09 (finding that the federal interest in a uniform drinking age was suffi-
ciently germane to States’ receipt of highway funds); see also Benning v. Georgia, 391 F.3d
1299, 1308 (11th Cir. 2004). The offset provision simply ensures that Rescue Plan funds
“are spent according to [Congress’s] view of the ‘general Welfare.’” NFIB, 567 U.S. at 580.
Other Spending Clause case law illustrates that the Rescue Plan and its offset provision
advance a valid federal purpose: provisions that require States to maintain their existing
fiscal efforts as a condition of receiving federal funds are an uncontroversial and familiar
exercise of Congress’s spending power. In Bennett v. Kentucky Department of Education, 470
U.S. 656 (1985), for example, the Supreme Court explained that, “[i]n order to assure that
federal funds would be used to support additional services that would not otherwise be
available,” the regulations implementing Title I of the Elementary and Secondary Educa-
tion Act of 1965 “from the outset prohibited the use of federal grants merely to replace
state and local expenditures.” Id. at 659. After receiving complaints that Title I funds were
nonetheless being used to replace state and local funds that otherwise would have been
spent for participating children, Congress amended Title I in 1970 to require that Title I
funds be used “to supplement and, to the extent practical, increase the level of funds that
would, in the absence of such federal funds, be made available from non-Federal sources
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for the education of pupils participating in programs and projects assisted under this
subchapter,” and “in no case, as to supplant such funds from non-Federal sources.” Id. at
660 (quoting 20 U.S.C. § 241e(a)(3)(B) (1970)). Federal auditors later found that certain
Kentucky programs had violated that provision, and the Secretary of Education required
Kentucky to repay the federal funds that had been misused. Id. at 661. The Supreme Court
upheld that determination, explaining that the State “gave certain assurances as a condi-
tion for receiving the federal funds, and if those assurances were not complied with, the
Federal Government is entitled to recover amounts spent contrary to the terms of the
grant agreement.” Id. at 663, 673–74.
In accord with the Supreme Court’s decision, courts of appeals have applied and
upheld similar provisions in an array of Spending Clause statutes. For example, in May-
hew v. Burwell, 772 F.3d 80, 82 (1st Cir. 2014), the First Circuit upheld the Affordable Care
Act’s requirement that States accepting Medicaid funds maintain their state-level Medi-
caid eligibility standards for children for a specified period. The Mayhew court held that
this requirement “is constitutional, fitting easily within congressional spending power to
condition federal Medicaid grants.” Id.; see also, e.g., S.C. Dep’t of Educ. v. Duncan, 714 F.3d
249, 252 (4th Cir. 2013) (describing provision in the Individuals with Disabilities Educa-
tion Act, which generally requires the Secretary to reduce a State’s grant by the amount
the State has failed to maintain spending for special education for children with disabili-
ties); Kansas v. United States, 214 F.3d 1196, 1197 (10th Cir. 2000) (noting similar require-
ment in the Temporary Assistance to Needy Families program).
As these cases reflect, statutory provisions that prevent federal funds from being
used to displace state efforts are both common and undoubtedly within Congress’s au-
thority. In the cases discussed above, States were required to maintain a certain level of
spending; the federal funds could not be used to displace existing State funding. Here,
the Rescue Plan’s offset provision is even less proscriptive: it does not mandate any par-
ticular spending or taxation level but instead merely prevents States from using federal
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funds to offset a reduction in net tax revenue. Although federal funding conditions are
often specific to the particular state program at issue, Rescue Plan funding is not confined
to any particular state program or activity—it broadly covers “government services” and
“negative economic impacts,” among other potential uses. 42 U.S.C. § 802(c)(1). Congress
gave States the additional flexibility to determine which of the broadly defined permissi-
ble uses of the new funds are most appropriate to their circumstances. And consistent
with that generous, four-year outlay of flexible funding, Congress simply sought the as-
surance that States would not displace their own tax-revenue sources with the federal
funds that Congress had appropriated for other purposes.
The Rescue Plan is not coercive or commandeering.
Plaintiffs do not dispute that Congress generally can prohibit States from using
federal grants to fund state tax cuts, and they do not argue that they have a constitutional
right to use federal funds to make up for a shortfall caused by a State’s decision to de-
crease net revenues through tax cuts. But they nevertheless urge that the offset provision
is coercive and an intrusion on their sovereign taxing authority. Compl. ¶¶ 7–9.
As an initial matter, Plaintiffs’ coercion argument rests on a mischaracterization of
the offset provision. As explained above, this provision simply limits a State’s ability to
“use” Rescue Plan funds to “offset” a reduction in “net tax revenue” resulting from
changes in state law. See Section II.A., supra. Plaintiffs are thus wrong to insist that the
offset provision “prohibits the Plaintiff States from eliminating taxes, reducing tax
rates, . . . increasing tax credits[,] . . . [or] adopt[ing] enforcement policies regarding taxes
which would lead to reduced tax revenues.” Compl. ¶ 7.
Plaintiffs’ coercion argument is also based on a fundamental misunderstanding of
governing law. The Supreme Court has made clear that “Congress may attach appropri-
ate conditions to federal taxing and spending programs to preserve its control over the
use of federal funds.” NFIB, 567 U.S. at 579; Steward Mach. Co. v. Davis, 301 U.S. 548, 590–
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91 (1937); see also New York, 505 U.S. at 171 (not undertaking a “coercion” inquiry where
“Congress has placed conditions—the achievement of the milestones—on the receipt of
federal funds”). So the coercion inquiry is not implicated where, as here, Congress merely
restricts how States use newly appropriated federal money because that “is the means by
which Congress ensures that the funds are spent according to its view of the ‘general
Welfare.’” NFIB, 567 U.S. at 580; see, e.g., Miss. Comm’n on Env’t Quality v. EPA, 790 F.3d
138, 179 (D.C. Cir. 2015); Religious Sisters of Mercy v. Azar, 2021 WL 191009, at *25 (D.N.D.
Jan. 19, 2021), appeal pending on other grounds, No. 21-1890 (8th Cir.). Binding Fifth Circuit
law says as much. Gruver v. La. Bd. of Supervisors for La. State Univ. Agric. & Mech. Coll.,
959 F.3d 178, 183–84 (5th Cir. 2020) (holding that there are “two types of spending condi-
tions that are subject to different scrutiny” and that “determining that a condition does
not ‘govern the use of the funds’” is what “triggers the coercion question” (citing NFIB,
567 U.S. at 580)). And that is exactly what Congress has done here: the offset provision is
titled “[f]urther restriction on use of funds” and only applies to a State’s “use [of] the funds
provided under this section” to offset a reduction in net tax revenue. 42 U.S.C. § 802(c)(2)
(emphases added). The States are free to do anything they want with their own money or
tax schemes, including cutting taxes, providing rebates, increasing spending, or cutting
expenditures. They must simply refrain from using the federal money to “directly or indi-
rectly offset a reduction in net tax revenue” resulting from state tax-law changes. 42
U.S.C. § 802(c)(2).
Even if coercion analysis did apply, Plaintiffs would lose under NFIB. See
Compl. ¶ 9. Unlike the statute challenged here, the Affordable Care Act provision at is-
sue in NFIB threatened States with the loss of their preexisting Medicaid funding if they
declined to take part in the ACA’s expansion of Medicaid coverage. NFIB, 567 U.S. at 576.
In the controlling opinion, the Chief Justice explained that the statute’s primary constitu-
tional flaw was the threat to cut off all existing Medicaid funding if a State did not agree
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to the Medicaid expansion.2 Id. at 579–80. As the opinion summarized, “Congress is not
free” to “penalize States that choose not to participate in that new program by taking away
their existing Medicaid funding.” Id. at 585 (emphases added).
By contrast, the only funds regulated by the offset provision are the funds that
Congress appropriated as part of the Rescue Plan itself. See 42 U.S.C. § 802(a)–(c). Unlike
in NFIB, States do not suffer the “penalty” of losing preexisting funds if they decline Res-
cue Plan funds. See NFIB, 567 U.S. at 585. Indeed, all Justices in NFIB agreed that “Con-
gress could have made just the new funding provided under the ACA contingent on ac-
ceptance of the terms of the Medicaid Expansion.” NFIB, 567 U.S. at 687–88 (joint dissent);
id. at 576, 585 (plurality) (same); id. at 625 (Ginsburg, J., concurring in part and dissenting
in part) (same). That is exactly what Congress has done here. In fact, the Rescue Plan is
notably more modest than the prospective funding condition that NFIB indicated was
permissible because it is not an all-or-nothing proposition: even if a State were to use
Rescue Plan funds to offset a reduction in net tax revenue, it could lose no more than
those funds used for the offset. Compare 42 U.S.C. § 802(e)(1), with NFIB, 567 U.S. at 576,
585 (explaining that Congress could make the entirety of the new federal funds pro-
vided—totaling $100 billion per year—contingent on a State’s adoption of that new pro-
gram), and id. at 687–88 (joint dissent). So the requirement in the Rescue Plan that States
use federal funds for specified purposes and not for others—including to offset a reduc-
tion in net tax revenue—is no more “coercive” than any type of restriction on the receipt
of federal funds that the Supreme Court has held to be a valid exercise of Congress’s
Spending Clause authority. See, e.g., New York, 505 U.S. at 171; Dole, 483 U.S. at 211; Ben-
nett, 470 U.S. at 663; Steward Mach., 301 U.S. at 590–91.
2 Because Chief Justice Roberts, writing for a plurality, “struck down Medicaid
expansion on narrower grounds than the joint dissent, the plurality opinion is binding.”
Gruver, 959 F.3d at 183 n.5; Miss. Comm’n on Env’t Quality, 790 F.3d at 176 & n.22.
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Finally, Plaintiffs’ effort to characterize the offset provision as impermissible com-
mandeering under the Tenth Amendment should also be rejected. Compl. ¶¶ 8, 67–72.
The Supreme Court has repeatedly affirmed that “Congress can use [its Spending Clause]
power to implement federal policy it could not impose directly under its enumerated
powers.” NFIB, 567 U.S. at 578; Coll. Sav. Bank, 527 U.S. at 686 (same); Dole, 483 U.S. at 207
(same). The inquiry under both the Spending Clause and the Tenth Amendment is
whether the challenged “provision is inconsistent with the federal structure of our Gov-
ernment established by the Constitution.” New York, 505 U.S. at 177; NFIB, 567 U.S. at
578–79. And because nothing in the Act “force[s] the States to implement a federal pro-
gram,” NFIB, 567 U.S. at 578–79, Plaintiffs’ commandeering argument fails.
In cases like this one—where “a State has a legitimate choice whether to accept the
federal conditions in exchange for federal funds”—the “state officials can fairly be held
politically accountable for choosing to accept or refuse the federal offer.” Id. at 578; New
York, 505 U.S. at 168 (“Where Congress encourages state regulation rather than compel-
ling it . . . state officials remain accountable to the people.”). If the Plaintiff States dislike
the funding condition, or any other provision of the Act, they are free to decline the gen-
erous federal aid in whole or in part. Their voters know where to turn if they like, or
dislike, the States’ choice.
The Rescue Plan provides clear notice of the funding condition.
Plaintiffs fare no better in urging that the offset provision is unconstitutionally
ambiguous. Compl. ¶¶ 61, 65. In Pennhurst State School & Hospital v. Halderman, the Su-
preme Court declared that “if Congress intends to impose a condition on the grant of
federal moneys, it must do so unambiguously.” 451 U.S. 1, 17, 24 (1981). But that is not
an onerous requirement: a State’s obligations under a funding condition may be “largely
indeterminate,” so long as Congress gives “clear notice to the States that they, by accept-
ing funds under the Act, would indeed be obligated to comply with” certain conditions.
Id. at 25. The idea is simply to keep Congress from “surprising participating States with
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post-acceptance or retroactive conditions.” NFIB, 567 U.S. at 584 (quoting Pennhurst, 451
U.S. at 25); see City of Los Angeles v. Barr, 929 F.3d 1163, 1174–75 (9th Cir. 2019).
Here, “a state official who is engaged in the process of deciding whether the State
should accept [Rescue Plan] funds and the obligations that go with those funds” would
“clearly understand that one of the obligations of the Act is the obligation” not to use
Rescue Plan funds to offset a net-tax-revenue reduction. Arlington Cent. Sch. Dist. Bd. of
Educ. v. Murphy, 548 U.S. 291, 296 (2006). The Act establishes conditions on the use of
funds (§ 802(c)), requires States to certify that they will use the funds for the intended
purposes and to report those uses (§ 802(d)), and informs States that the potential conse-
quence of non-compliance is the recoupment of no more than the portion of the funds
used to offset a net tax revenue reduction (§ 802(e)). The Act further permits the Secretary
to implement its provisions by regulation. Id. § 802(f).
These provisions give a state official deciding whether to accept Rescue Plan funds
clear notice that those funds are conditioned on the State’s agreement not to use the funds
to offset a reduction in net tax revenue resulting from changes in state law. “Nothing
more is required under Pennhurst, which held that Congress need provide no more than
‘clear notice’ to the [S]tates that funding is conditioned upon compliance with certain
standards.” Cutter v. Wilkinson, 423 F.3d 579, 586 (6th Cir. 2005) (citing Pennhurst, 451 U.S.
at 25); Jackson v. Birmingham Bd. of Educ., 544 U.S. 167, 183 (2005) (noting that the Supreme
Court has held “there was sufficient notice under Pennhurst where a statute made clear
that some conditions were placed on the receipt of federal funds”); Davis ex rel. Lashonda
D. v. Monroe Cnty. Bd. of Educ., 526 U.S. 629, 650 (1999) (same).
The district court in Ohio v. Yellen misread governing case law to require that Con-
gress itself must specify such minute details as how to “score” tax-law changes. 2021 WL
2712220, at *14 (S.D. Ohio July 1, 2021). But “it is simply impossible” for Congress to “de-
lineate every instance in which a State may or may not comply with” a funding condition.
Charles v. Verhagen, 348 F.3d 601, 607 (7th Cir. 2003); see Mayweathers v. Newland, 314 F.3d
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1062, 1067 (9th Cir. 2002); Van Wyhe v. Reisch, 581 F.3d 639, 650 (8th Cir. 2009) (“[S]etting
forth every conceivable variation in the statute is neither feasible nor required.”); see Ben-
nett, 470 U.S. at 666 (explaining that “every improper expenditure” need not be “specifi-
cally identified and proscribed” in the statute); Jackson, 544 U.S. 167 at 183 (same); Davis,
526 U.S. at 650 (same). “There are far too many circumstances affecting the States in dif-
ferent ways for Congress to have envisioned all aspects of compliance and noncompli-
ance.” Charles, 348 F.3d at 608; W. Va. Dep’t of Health & Hum. Res. v. Sebelius, 649 F.3d 217,
223 (4th Cir. 2011) (“Congress need not spell out every condition with flawless precision
for a provision to be enforceable.”). Instead, Congress must simply “make the existence
of the condition itself—in exchange for the receipt of federal funds—explicitly obvious.”
Mayweathers, 314 F.3d at 1067; Charles, 348 F.3d at 607 (“[T]he exact nature of the condi-
tions may be ‘largely indeterminate,’ provided that the existence of the conditions is clear,
such that States have notice that compliance with the conditions is required.” (emphasis
added)); Benning v. Georgia, 391 F.3d 1299, 1307 (11th Cir. 2004) (“The federal law in
Pennhurst was unclear as to whether the [S]tates incurred any obligations at all by accept-
ing federal funds, but [the statute at issue] is clear that states incur an obligation when
they accept federal funds, even if the method for compliance is left to the [S]tates.” (em-
phasis added)).
When properly applied, Pennhurst and its progeny instruct that Congress must
simply make clear that acceptance of federal funds obligates the State to comply with a
condition; any particularized questions can be addressed by agency regulations and by
other formal or informal guidance. See Bennett, 470 U.S. at 669 (explaining that “grant
recipients ha[ve] an opportunity to seek clarification of the program requirements” from
the agency if they are “uncertain” about their obligations). Contra Ohio, 2021 WL 2712220,
at *16. Courts thus have routinely accorded Chevron deference to regulations that imple-
ment federal spending programs (such as Medicaid and education statutes), an impossi-
bility if any ambiguity in a funding condition rendered the statute unconstitutional. See,
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e.g., Irving Indep. Sch. Dist. v. Tatro, 468 U.S. 883, 891–92 (1984); Blum v. Bacon, 457 U.S. 132,
141 (1982); Baptist Mem’l Hosp. – Golden Triangle, Inc. v. Azar, 956 F.3d 689, 692–93 (5th Cir.
2020);3 Children’s Hosp. Ass’n of Tex. v. Azar, 933 F.3d 764, 770 (D.C. Cir. 2019); see also City
of Los Angeles, 929 F.3d at 1174–81 (affirming constitutionality under the Spending Clause
while also applying Chevron deference). And that is exactly what Congress envisioned
here by expressly authorizing Treasury “to issue such regulations as may be necessary or
appropriate to carry out” the provision of funds and the associated conditions. 42 U.S.C.
§ 802(f).
But agency regulations should have no bearing on the Spending Clause analysis.
If a statutory funding condition exists, the implementing agency can regulate the details
of the condition subject to the Administrative Procedure Act and the other typical con-
straints; if not, any agency regulation imposing funding conditions would be unauthor-
ized by the statute. The offset provision easily clears that bar, especially because “Con-
gress permissibly conditioned the receipt of federal money in such a way that each State
is made aware of the condition and is simultaneously given the freedom to tailor compli-
ance according to its particular . . . circumstances.” Charles, 348 F.3d at 607. But even if
the bar were higher, it would make no difference. The Rescue Plan provides in direct
terms that States cannot use the federal funds to offset a reduction in net tax revenue
resulting from changes in state law. See Section II.A., supra. A more onerous standard
would conflict with Pennhurst, numerous other Spending Clause precedents, and the
well-settled rule that Congress may confer decisionmaking authority on agencies if it
“lay[s] down by legislative act an intelligible principle.” Whitman v. Am. Trucking Ass’ns,
531 U.S. 457, 472 (2001).
3 In the context of a condition that a State waive its sovereign immunity in order
to receive federal funds, the Fifth Circuit recently held that the statute itself must clearly
require a waiver. Tex. Educ. Agency v. U.S. Dep’t of Educ., 992 F.3d 350, 361–62 (5th Cir.
2021). This case, however, does not involve a condition that a State waive sovereign im-
munity.
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The Rescue Plan does not violate the Equal Sovereignty principle.
Finally, Plaintiffs’ claim that the offset provision violates the Equal Sovereignty
principle is plainly wrong. Compl. ¶¶ 74–79. As the Complaint notes, the “historic tradi-
tion” of the United States is “that all States enjoy equal sovereignty,” and a statute that
“differentiates between the States” may only be upheld upon “a showing that [the] stat-
ute’s disparate geographic coverage is sufficiently related to the problems that it targets.”
Id. ¶ 74 (quoting Nw. Austin Mun. Util. Dist. v. Holder, 557 U.S. 193, 203 (2009)); see also
Shelby Cnty. v. Holder, 570 U.S. 529, 540 (2013); United States v. Louisiana, 363 U.S. 1, 16
(1960). But the offset provision does not on its face “differentiate[] between the States,”
see generally 42 U.S.C. § 802(c) (referring only to “a State”), and Plaintiffs do not contend
otherwise. That should be the end of this claim. See Mayhew v. Burwell, 772 F.3d 80, 94 (1st
Cir. 2014).
Plaintiffs nonetheless assert a violation of this principle because some States are
more likely than others to want to cut taxes. Compl. ¶¶ 75–77. But there is no support for
Plaintiffs’ novel contention that Congress cannot enact legislation that some States may
disfavor more than others. Indeed, if this theory were correct, federal statutes could al-
most never preempt state law because States will always have differing policy prefer-
ences. For example, under Plaintiffs’ theory, the federal government would be unable to
prohibit marijuana sales if some States wanted to legalize marijuana and others did not.
Contra Gonzalez v. Raich, 545 U.S. 1, 15, 33 (2005) (upholding federal marijuana law). The
offset provision does not “single[] out” any state; it applies to all states equally, so it does
not implicate Equal Sovereignty. Shelby Cnty., 570 U.S. at 540.
CONCLUSION
For the reasons explained above, the Court should dismiss the Complaint.
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DATED: July 12, 2021 Respectfully submitted,
BRIAN M. BOYNTON
Acting Assistant Attorney General
BRIAN D. NETTER
Deputy Assistant Attorney General
ALEXANDER K. HAAS
Director, Federal Programs Branch
BRIGHAM J. BOWEN
Assistant Director, Federal Programs Branch
/s/ Michael P. Clendenen
MICHAEL P. CLENDENEN
STEPHEN EHRLICH
CHARLES E.T. ROBERTS
Trial Attorneys
Civil Division, Federal Programs Branch
U.S. Department of Justice
1100 L Street, NW
Washington, DC 20005
Phone: (202) 305-9803
Email: stephen.ehrlich@usdoj.gov
Counsel for Defendants
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Case 2:21-cv-00079-Z Document 19 Filed 07/12/21 Page 35 of 35 PageID 139
Certificate of Service
On July 12, 2021, I electronically submitted the foregoing document with the clerk
of court for the U.S. District Court, Northern District of Texas, using the electronic case
filing system of the court. I hereby certify that I have served all parties electronically or
by another manner authorized by Federal Rule of Civil Procedure 5(b)(2).
/s/ Michael P. Clendenen
27
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