Reply to Response to Motion, State of West Virginia et al. v. U.S. Department of the Treasury, No. 7:21-cv-00465 (N.D. Ala.), Doc. 77 (August 19, 2021)
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Reply in support of the Plaintiff States' motion for permanent injunction and declaratory relief, combined with a brief in opposition to the motion to dismiss, in State of West Virginia, et al. v. U.S. Department of the Treasury, Case No. 7:21-cv-00465-LSC, in the U.S. District Court for the Northern District of Alabama, Western Division, filed August 19, 2021 (Doc. 77). Its table of contents lists arguments that the Tax Mandate is ambiguous, coercive, unrelated to ARPA's purpose, and a violation of the Tenth Amendment. The brief states that the Tax Mandate has been harming Plaintiffs since March 3, 2021, and argues that the Plaintiff States have standing, citing a declaration from an Alabama lawmaker (Doc. 75-2). The certificate of service is signed /s by Edmund G. LaCour Jr., Counsel for the State of Alabama.
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“Reply to Response to Motion, State of West Virginia et al. v. U.S. Department of the Treasury, No. 7:21-cv-00465 (N.D. Ala.), Doc. 77 (August 19, 2021).”
Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/reply-to-response-to-motion-state-of-west-virginia-et-al-v-u-s-departm-bef7c8a737/
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Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 1 of 26 FILED
2021 Aug-19 PM 05:10
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
WESTERN DIVISION
STATE OF WEST VIRGINIA, et al., Case No. 7:21-cv-00465-LSC
Plaintiffs,
v.
U.S. DEPARTMENT OF THE
TREASURY, et al.,
Defendants.
REPLY IN SUPPORT OF MOTION FOR PERMANENT INJUNCTION
AND DECLARATORY RELIEF AND BRIEF IN OPPOSITION TO
MOTION TO DISMISS
Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 2 of 26
TABLE OF CONTENTS
TABLE OF CONTENTS ........................................................................................... i
TABLE OF AUTHORITIES .................................................................................... ii
I. Plaintiff States Have Standing. ......................................................................... 5
II. Plaintiff States Prevail On The Merits ..............................................................9
A. The Tax Mandate Is Ambiguous. ............................................................9
B. The Tax Mandate Is Coercive ................................................................13
C. The Tax Mandate Is Unrelated to ARPA’s Purpose..............................15
D. The Tax Mandate Violates the Tenth Amendment................................16
III. Plaintiff States Are Entitled To Relief ..............................................................17
CONCLUSION ........................................................................................................18
CERTIFICATE OF SERVICE ................................................................................22
i
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TABLE OF AUTHORITIES
Cases
Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy,
548 U.S. 291 (2006) .........................................................................................2, 10
Barnes v. Gorman,
536 U.S. 181 (2002) .............................................................................................10
Benning v. Georgia,
391 F.3d 1299 (11th Cir. 2004) ................................................................. 2, 10, 12
King v. Burwell,
576 U.S. 473 (2015) .............................................................................................13
McCulloch v. Maryland,
17 U.S. 316 (1819) .................................................................................................6
Nat'l Fed'n of Indep. Bus. v. Sebelius,
567 U.S. 519 (2012) ............................................................................ 3, 13, 14, 15
New York v. United States,
505 U.S. 144 (1992) ...................................................................................... 15, 17
Ohio v. Yellen,
No. 1:21-cv-181, --- F. Supp. 3d ---, 2021 WL 1903908 (S.D. Ohio May 12,
2021) .....................................................................................................................12
Ohio v. Yellen,
No. 1:21-cv-181, --- F. Supp. 3d ---, 2021 WL 2712220 (S.D. Ohio July 1,
2021) ...................................................................................................... 7, 9, 12, 13
Pennhurst State Sch. & Hosp. v. Halderman,
451 U.S. 1 (1981) .......................................................................................... 10, 13
South Dakota v. Dole,
483 U.S. 203 (1987) ...............................................................................................9
Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 4 of 26
Spokeo, Inc. v. Robins,
136 S. Ct. 1540 (2016)............................................................................................5
Susan B. Anthony List v. Driehaus,
573 U.S. 149 (2014) ...............................................................................................8
Statutes
42 U.S.C. § 802 ................................................................................................ passim
42 U.S.C. § 803 ........................................................................................................16
Ala. Code § 40-2B-1 ..................................................................................................7
Ala. Code § 40-2B-2(a)..............................................................................................7
Rules
Fed. R. Civ. P. 25(d) .................................................................................................1
Other
American Rescue Plan Act, Pub. L. No. 117-2, § 9621 ..........................................16
American Rescue Plan Act, Pub. L. No. 117-2, § 9673 ..........................................16
i
Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 5 of 26
The American Rescue Plan Act represents an unprecedented intrusion by the
federal government into the States’ sovereign taxing authority. While States and
their people struggled to recover from the COVID-19 crisis, the federal government
leveraged its exclusive ability to allocate trillions of dollars and “offered” this
borrowed money to the States in exchange for their taxing authority. This “offer”
and the nebulous strings attached to it are unconstitutional. The Plaintiff States1 have
been harmed by the offer and by the federal government’s ensuing and ongoing
intrusion into the States’ sovereign power. This Court should grant the States
injunctive and declaratory relief from this unique assault on our federal system.
Throughout their brief, Defendants insist that the Tax Mandate “does not
regulate States’ ability to cut at least some taxes.” Resp. 29; see also id. at 9. But
they still cannot explain how, by the provision’s text, that could be so. See id. at 9
(reciting but not explaining the text of Tax Mandate, while omitting the phrase
“directly or indirectly”). They do not engage with the premise that money is fungible,
even though that principle means that any ARPA funds the States receive could be
viewed as indirectly offsetting any reduction in State tax revenue. See Doc. 75 at 9–
10. After all, every federal dollar a State spends on an expenditure represents one
dollar of State funds that the State may no longer need to use for that expenditure.
1
Pursuant to Rule 25(d) of the Federal Rules of Civil Procedure, John M. O’Connor was
“automatically substituted as a party” in his capacity as Attorney General of Oklahoma when he
took office on July 23, 2021.
1
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The Tax Mandate is a powerful restriction on those State dollars. It singles out State
tax relief as forbidden where no other State activity using State funds is so restricted.2
Thus, States that accept desperately needed federal funds are forced to limit how
they use State funds to go about State business to avoid creating a reduction in tax
revenue. The Constitution bars the federal government from using such coercive
“offers” to control the State House.
Nothing Defendants say in their Response changes this outcome. First, the
Tax Mandate is unconstitutionally ambiguous. Defendants double down on their
position that a statute need not state what a condition means, so long as the statute
says that a condition exists. That isn’t right. The question is “whether … a state
official would clearly understand … the obligations.” Arlington Cent. Sch. Dist. Bd.
of Educ. v. Murphy, 548 U.S. 291, 296 (2006). In other words, the federal statute
must “link unambiguously its conditions to the receipt of federal funds and define
those conditions clearly enough for the states to make an informed choice.” Benning
v. Georgia, 391 F.3d 1299, 1306 (11th Cir. 2004) (emphasis added). And the States
here could not make an “informed choice” simply because they knew that some
condition existed, just as a homebuyer could not make an “informed choice” to
purchase a house if he knows only that he must pay some price at closing.
2
For example, it appears States are restricted only from directly depositing ARPA money into
pension funds. See 42 U.S.C. § 802(c)(2)(B).
2
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Second, the Tax Mandate is unconstitutionally coercive. Defendants
misapprehend how NFIB applies. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 567
U.S. 519 (2012). There, the Supreme Court approved Congress’s ability to
“condition the receipt of funds” for Medicaid expansion “on the States’ complying
with restrictions on the use of those funds[.]” Id. at 580 (emphasis added). The
problem was that Congress conditioned the receipt of traditional Medicaid funds on
adopting an unrelated program—Medicaid expansion. What mattered was not that
the federal funds Congress threatened were preexisting, but that Congress leveraged
sizeable funds to coerce policy changes that went beyond mere conditions on the use
of those funds. NFIB, 567 U.S. at 580. The same dynamic is at play here. ARPA is
unobjectionable to the extent it conditions receipt of federal funds on those funds
being spent on ARPA purposes. The problem is that the Tax Mandate goes further,
restricting the use of other funds—State funds—and directing how States can set
their own tax policy as a condition of receiving indisputably massive sums of money.
Just as Congress could not use threats to traditional Medicaid funds to coerce States
into adopting an expanded Medicaid program, Congress cannot use ARPA funds to
coerce States into forgoing tax relief.
Third, the Tax Mandate is not germane to ARPA’s purpose. It does not
“merely specif[y] how States may use the newly appropriated federal funds to ensure
that they are used for the public-health and economic-recovery purposes of the Act.”
3
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Resp. 30. By affirmatively requiring funds to be spent on ARPA’s four purposes,
Section 802(c)(1) already does that. 42 U.S.C. § 802(c)(1). Instead, the Tax Mandate
penalizes States for tax cuts—and tax cuts alone. Surplus State funds can be spent
by States on anything a legislature could dream of, no matter how unrelated to
COVID relief. But even though ARPA repeatedly uses federal tax relief to promote
COVID recovery, the States are penalized for using similar tools. This irrationality
shows that the Tax Mandate’s aim is not an increase in COVID relief, but an increase
in the size of government. Because that isn’t related to ARPA’s stated purposes, the
Tax Mandate is unconstitutionally unrelated to Congress’s aims.
Defendants argue not just that they win on the merits, but that the Court should
not consider the merits of Plaintiffs’ claims in the first place. This is so, they argue,
because the States have not suffered any injury. But the Tax Mandate has been
harming Plaintiffs since March 3, 2021, the date it became effective (regardless of
whether or when States accepted its conditions). Any reduction in revenue
considered or enacted since then has been under a cloud of uncertainty; indeed, some
laws did not pass, at least in part, because of the uncertainty surrounding the Tax
Mandate. See, e.g., Albritton Decl. ¶ 8 (Doc. 75-2). As the Court has already held
and as borne out by undisputed facts, the States have standing to maintain this action.
Defendants’ Motion to Dismiss should be denied and the Court should declare the
Tax Mandate unconstitutional and enjoin its enforcement.
4
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I. Plaintiff States Have Standing.
Plaintiffs have standing if they suffer an injury in fact, fairly traceable to the
defendant’s conduct, that is likely to be redressed by a favorable ruling. Spokeo, Inc.
v. Robins, 136 S. Ct. 1540, 1547 (2016). Defendants contest only whether Plaintiffs
have shown an injury. This Court previously held that Plaintiffs had properly
pleaded facts to establish such an injury for several different reasons. Doc. 71 at 14–
20.3 Nothing has changed that would affect the Court’s analysis or conclusion.
Defendants do not dispute the relevant facts: Congress passed ARPA, which
includes the Tax Mandate, reporting requirements, and a recoupment proceeding;
States considered whether to accept its conditions, and many States have done so
and are now subject to ARPA requirements that include the Tax Mandate, reporting
requirements, and the threat of recoupment proceedings (Doc. 74); and States have
passed laws that will likely lower tax revenues (Doc. 75-1). Given this Court’s legal
conclusions and the undisputed, judicially noticeable facts, it follows that Plaintiffs
have established standing to satisfy Article III.
Defendants resist this conclusion primarily by emphasizing their arguments
about the merits of the case. See Resp. 9 (arguing that Plaintiffs haven’t suffered an
injury because the Tax Mandate “does not prohibit the proposal or adoption of any
3
Plaintiffs previously responded to many of Defendants’ same arguments, including those about
standing, as part of briefing Plaintiffs’ Motion for a Preliminary Injunction. Plaintiffs incorporate
that prior briefing (Doc. 59) in full.
5
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tax change”); id. at 12–13 (arguing that Plaintiffs “cannot manufacture standing
based on their incorrect legal conclusions about coercion or commandeering”)
(citation and quotation marks omitted); id. at 13 (arguing that Plaintiffs have not
suffered an injury based on ambiguity because Congress must only make clear that
some condition on funds exists, not that the condition means anything in particular).
But, as set out in prior briefing and further explained here, whether Defendants’
arguments are viewed as going to the merits or standing, they fail.
Defendants have little to say about the actual injury that Plaintiffs have already
suffered—the intrusion into their sovereign authority to set tax policy. See Doc. 59
at 10; McCulloch v. Maryland, 17 U.S. 316, 428 (1819) (“[T]he power of taxing the
people and their property[] is essential to the very existence of government.”). As
explained in a declaration by an Alabama lawmaker—evidence unmentioned by
Defendants in their brief—State legislatures must understand the financial effects of
the laws they pass to effectively craft State budgets. Doc. 75-2. The uncertainty
surrounding ARPA caused, in part, at least one bill in the Alabama Legislature to
fail despite widespread approval by legislators. Id. ¶ 8. The court in Ohio v. Yellen
explained how the same uncertainty caused a cognizable injury to the State of Ohio:
[I]f the Tax Mandate is ambiguous as to a broad range of
potential tax changes, then that ambiguity will have consequences of its
own. The uncertainty itself, uncertainty that exists now that Ohio has
tendered its certification, will continue to exert pressure on state
legislators not to consider any tax change, or set of tax changes, as to
which the Tax Mandate implications cannot be assessed. As further
6
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described below, that essentially means that Ohio’s legislature may be
disinclined to consider any rate reduction, as to any state tax, because
the Secretary could interpret that reduction as triggering a right to
recoupment. Or, at the very least, Ohio legislators will have incentives
to minimize the size of any such reductions in hopes of reducing the
magnitude of any associated recoupment.
That type of thumb on the legislative scale is a current and
ongoing injury to Ohio in its sovereign capacity.
Ohio v. Yellen, No. 1:21-cv-181, --- F. Supp. 3d ---, 2021 WL 2712220, at *8–9
(S.D. Ohio July 1, 2021). The same analysis applies here: legislators and other State
officials4 are forced to act in the shadow of the Tax Mandate, even where acceptance
of ARPA funds is only prospective, not yet accomplished, and even where no
recoupment action is yet underway. See Doc. 71 at 16 (“[T]he Plaintiff States
suffered an injury in fact when Congress passed the ARPA because they were
presented with an unconstitutionally ambiguous deal.”). In fact, Plaintiffs are subject
to continuous and ongoing harm even if no recoupment action ever happens because
of the harm that the Tax Mandate inflicts on the legislative process.
Finally, through the lens of pre-enforcement caselaw, this Court recognized
that “the Plaintiff States have alleged ‘an intention to engage in a course of conduct’
(accepting ARPA funds and reducing state taxes) that is ‘arguably affected with a
4
It’s not just members of State Legislatures who are subject to the Tax Mandate. For example, the
Tax Mandate also prohibits “administrative interpretation[s]” that decrease tax revenue. In
Alabama, the Alabama Tax Tribunal is a state agency that “resolve[s] disputes between the
Department of Revenue and taxpayers.” Ala. Code §§ 40-2B-1, 40-2B-2(a). By ARPA’s plain
language, Alabama would be penalized if its Tax Tribunal interpreted Alabama law in a way that
results in a tax decrease for an Alabama taxpayer.
7
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constitutional interest’ (the Plaintiff States’ Tenth Amendment rights and inherent
limits on Congress’s Spending Clause power) that is ‘proscribed by a statute’ (based
on a plain reading of the Federal Tax Mandate) and that comes with a ‘credible threat
of [enforcement] thereunder’ (recoupment of ARPA funds by the Treasury).” Doc.
71 at 18 (quoting Susan B. Anthony List v. Driehaus, 573 U.S. 149, 159 (2014)).
Certainly as to those Plaintiffs that have already accepted ARPA funds, each of those
allegations is now supported by undisputed facts. Most States have accepted
ARPA’s terms. See Doc. 74. And though Defendants assert that “Plaintiffs have said
nothing concrete about any reduction in net tax revenue, how they intend to offset
it, or whether any such offsets would contravene the Rule,” Resp. 12, Defendants
ignore the numerous tax cuts and tax credits the Plaintiff States have passed since
ARPA’s covered period opened. See Doc. 75-1. Unless Defendants are prepared to
bless these dozens of laws as beyond Treasury’s recoupment power, States face a
substantial risk of future recoupment proceedings. See 42 U.S.C. § 802(e). After all,
the Secretary has committed to enforcement—a commitment any reasonable
onlooker can glean from the Interim Rule’s aggressive system of accounting and
monitoring, as well as Defendants’ vigorous defense of the Tax Mandate in courts
around the country.
In sum, Defendants ask this Court to ignore a startling intrusion into State
sovereignty because, they say, the States have not suffered any cognizable injury.
8
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But as Defendants’ briefing shows, their arguments about standing rest almost
entirely on the substantive validity of the Tax Mandate. Consistent with this Court’s
prior determinations on standing, the Court should deny Defendants’ Motion to
Dismiss and proceed to the merits of this case.
II. Plaintiff States Prevail On The Merits.
A. The Tax Mandate Is Ambiguous.
Ambiguous Spending Clause conditions are unconstitutional. South Dakota v.
Dole, 483 U.S. 203, 207 (1987). Nevertheless, Defendants primarily5 argue that
“[p]recedent on Spending Clause unambiguity establishes that Congress must only
make clear that acceptance of federal money obligates the States to comply with a
condition.” Resp. 16 (emphasis added). Defendants insist that Congress need not tell
States what the condition means, so long as Congress states clearly that some
condition on the funds exists. But decisions from both the Supreme Court and the
Eleventh Circuit demonstrate that incomprehensible or unknown conditions do not
pass Spending Clause muster.
“When Congress uses its power under the Spending Clause, the conditions
imposed by Congress must be unambiguous.” Benning v. Georgia, 391 F.3d 1299,
5
Defendants dedicate about two paragraphs, Resp. 19, to arguing that the Tax Mandate as passed
by Congress is an unambiguous condition on the use of federal funds. As explained in prior
briefing, their argument is unpersuasive. Doc. 59 at 6–9; see also Ohio, 2021 WL 2712220, at
*13–15 (S.D. Ohio July 1, 2021).
9
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1305 (11th Cir. 2004) (emphasis added). Congress’s use of its spending power “is
much in the nature of a contract; in return for federal funds, the States agree to
comply with federally imposed conditions.” Pennhurst State Sch. & Hosp. v.
Halderman, 451 U.S. 1, 2 (1981). Though the Supreme Court has been “careful not
to imply that all contract-law rules apply to Spending Clause legislation,” it has also
“regularly applied the contract-law analogy in cases” involving receipt of federal
funds. Barnes v. Gorman, 536 U.S. 181, 186 (2002). Against that backdrop, it is
clear that Congress cannot strike a deal with the States that informs them only that
some unidentified strings are attached to federal funds. Rather, the relevant inquiry
must be “whether … a state official would clearly understand … the obligations”
that follow. Arlington Cent. Sch. Dist. Bd. of Educ. v. Murphy, 548 U.S. 291, 296
(2006).
Defendants lean on the Eleventh Circuit’s Benning decision to assert that
“Congress must only ‘make the existence of the condition itself … explicitly
obvious,’” Resp. 17 (quoting Benning, 391 F.3d at 1307), but Benning undercuts
their point. After all, if Congress must make clear “the existence of the condition,”
then it is not enough to simply warn the States that a condition will attach to their
deal with Congress. And in Benning, the specific condition the State faced was clear,
even if the condition would manifest differently in different settings. The case
involved a provision of the Religious Land Use and Institutionalized Persons Act
10
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(RLUIPA) that “applie[d] strict scrutiny to government actions that substantially
burden[ed] the religious exercise of institutionalized persons” where the burden was
imposed in a program that received federal funds. 391 F.3d at 1304. Georgia argued
that the “strict scrutiny” standard—requiring a State to show that the burden was in
furtherance of a compelling governmental interest and that the burden was the least
restrictive means of furthering that interest—was unconstitutionally ambiguous
because Georgia could not definitively know whether its actions satisfied strict
scrutiny. Id. at 1305–06. The Eleventh Circuit rejected the argument, pointing out
that the strict scrutiny standard was “not new to Georgia or any state.” Id. at 1306.
Though Congress “need not specifically identify and proscribe in advance every
conceivable state action that would be improper,” id. (citation omitted), it
nevertheless must “define those conditions clearly enough for the states to make an
informed choice” and must make the “spending condition … clear and actionable.”
Id. RLUIPA made unambiguously clear to States that if they accepted the relevant
funds, they were agreeing to the familiar strict scrutiny standard.
The Tax Mandate is nothing like this RLUIPA provision. Every lawyer is
familiar with the strict scrutiny standard. In contrast, one “cannot fathom what it
would mean to ‘indirectly offset a reduction in the net tax revenue’ of a State, by a
‘change in law ... that reduces any tax (by providing for a reduction in a rate, a rebate,
a deduction, a credit, or otherwise).’” Ohio v. Yellen, No. 1:21-cv-181 --- F. Supp.
11
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3d. ---, 2021 WL 1903908, at *12 (S.D. Ohio May 12, 2021) (quoting
§ 802(c)(1)(A)). The statute that Congress crafted provides no guidance on critical
interpretive questions. See Doc. 75 at 8–10; see also Ohio, 2021 WL 2712220, at
*13–15 (S.D. Ohio July 1, 2021). For example, the Tax Mandate does not tell States
how to determine whether revenues have been or will be reduced, and it does not
explain whether the Tax Mandate applies to expected or actual tax revenues. There
is thus no way for States to comply with ARPA by looking to the text of the provision
itself. Therefore, States had no way to “make an informed choice” about the costs of
receiving ARPA funds. Benning, 391 F.3d at 1306.
Finally, Defendants appear to concede that the Interim Final Rule could not
cure the Tax Mandate if the statute were unconstitutionally ambiguous under the
Spending Clause. Resp. 23 (“Both sides agree that agencies cannot impose funding
conditions that Congress itself has not attached.”).6 Instead of arguing that the
Department of Treasury has such a power, Defendants retreat to their position that
Congress only needed to make known the existence of a condition. Id. (again arguing
that the existence of some sort of condition is “explicitly obvious”) (citation
omitted); id. at 26 (same).7 As set forth above and in prior briefing, that’s not correct.
6
In one sentence, Defendants state that the Interim Final Rule “supplies the requisite notice.” Resp.
22. It is not clear what “notice” refers to, but Defendants do not appear to argue that an agency has
the authority to create a condition on the use of federal funds where that condition was not passed
by Congress. See also id. at 23 (“Defendants are not asking the Court to defer to the Rule[.]”).
7
To the extent Defendants contend that § 802(f) establishes their authority to create unambiguous
regulations out of ambiguous statutory text, the “general provision that ‘[t]he Secretary shall have
12
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For Congress to validly exercise its spending power, the State receiving funds must
be able to “voluntarily and knowingly accept[] the terms of the ‘contract’” between
the State and federal government. Pennhurst, 451 U.S. at 17. That cannot happen
when the conditions themselves are ambiguous.
B. The Tax Mandate Is Coercive.
ARPA’s Tax Mandate requires Plaintiff States to sacrifice either core
elements of their sovereignty or billions of dollars of relief the States cannot
realistically turn down in the aftermath of the economic devastation caused by the
pandemic. By making such an offer, Congress impermissibly used “financial
inducements to exert a ‘power akin to undue influence.’” NFIB, 567 U.S. at 577.
Defendants’ response rests on the false premise that the Tax Mandate dictates
only what States do with federal funds. Plaintiffs have never contested whether the
federal government can require States to spend federal funds on the four purposes
in § 802(c)(1). The problem is that the Tax Mandate does far more—it regulates how
States may use State funds. The coercion test applies to Spending Clause laws that
“pressur[e] the States to accept policy changes.” NFIB, 567 U.S. at 580. The Tax
the authority to issue such regulations as may be necessary or appropriate to carry out this section,’
42 U.S.C. § 802(f) does not suffice,” for “the statute at issue in Burwell had a similar provision.”
Ohio, 2021 WL 2712220, at *19. The decisions Defendants made in implementing the Tax
Mandate through the Interim Final Rule shift the balance of power between States and the federal
government by dictating how deeply the federal government will intrude into State affairs. “[H]ad
Congress wished to assign th[ese] question[s] to an agency, it surely would have done so
expressly.” King v. Burwell, 576 U.S. 473, 486 (2015).
13
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Mandate’s restriction on direct or indirect state tax cuts pressures States into
adopting a particular—and federally preferred—tax policy. While Defendants try to
frame the Tax Mandate as a garden-variety restriction on the use of federal funds,
Congress cannot evade the limits on its authority by artful drafting. Id. at 582.
Defendants attempt to distinguish NFIB by arguing that the conditions at issue
there threatened not just prospective funds, but funds that States had received in past
years. Resp. 28–29. NFIB, however, relied not on the fact that the threatened funds
were pre-existing, but that they were distinct from the challenged condition. NFIB,
567 U.S. at 580 (noting importance of “threats to terminate other significant
independent grants”). Because pre-existing federal grants are not affected here,
Defendants say, “there are no monetary consequences if a State chooses to decline
the Rescue Plan funds.” Resp. 28. But how can that be? Not receiving billions of
dollars in federal aid (financed by States’ own citizens’ tax dollars) is undeniably a
“monetary consequence.” By refusing exorbitant funds offered to every State, any
one State would put itself at an immense competitive disadvantage if it refused the
funds and insisted on maintaining its sovereign taxing authority. As it relates to the
coercion analysis, the question for the Court is “whether the financial inducement
offered by Congress was so coercive as to pass the point at which pressure turns into
compulsion.” NFIB, 567 U.S. at 580 (citations omitted). Here, based on the size of
the funds offered and the circumstances States experienced during the economic
14
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devastation caused by the COVID-19 pandemic, the “pressure turn[ed] into
compulsion” to sacrifice State sovereignty for COVID relief.
Finally, the Tax Mandate is not more “modest” than the statute at issue in
NFIB simply because the Secretary may recoup only a portion of the funds a State
receives. See Resp. 28–29. The Tax Mandate’s problem is not only the amount of
money States stand to lose if they violate the condition (which is an “all or nothing
proposition” for an as-yet undisclosed amount), but the sovereignty they must
sacrifice to obtain the money. The sovereign right to control state taxing and
spending policies is more important than money. But in any event “the size of the
new financial burden imposed on a State is irrelevant in analyzing whether the State
has been coerced into accepting that burden. ‘Your money or your life’ is a coercive
proposition, whether you have a single dollar in your pocket or $500.” NFIB, 567
U.S. at 582 n.12.
C. The Tax Mandate Is Unrelated to ARPA’s Purpose.
Because restricting States’ ability to use their funds for tax cuts is wholly
unrelated to ARPA’s purpose of providing COVID relief, the Tax Mandate violates
the requirement that spending conditions be germane to the purposes of the grant.
See New York v. United States, 505 U.S. 144, 167 (1992). Defendants claim that the
Tax Mandate “merely specifies how States may use the newly appropriated federal
funds to ensure that they are used for the public-health and economic-recovery
15
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purposes of the Act.” Resp. 30. But § 802(c)(1) already requires States to spend the
federal funds on ARPA’s four identified purposes. Instead, as spelled out above (and
throughout briefing before this Court), the Tax Mandate dictates what States do with
State funds. And Defendants fail to explain how restricting States from
implementing tax cuts with State funds furthers ARPA’s purpose. Nor could they;
after all, ARPA itself provides tax relief. See ARPA, Pub. L. No. 117-2, § 9621
(expanding earned income tax credit); id. § 9673 (exempting small business
revitalization funds). And ARPA allows localities to provide tax relief by providing
funds to them free from any Tax Mandate. See 42 U.S.C. § 803. Uniquely disabling
the States from doing the same has no plausible connection to COVID relief.
D. The Tax Mandate Violates the Tenth Amendment.
Defendants characterize Plaintiffs’ argument about their sovereign rights
under the Tenth Amendment as an alternative argument Plaintiffs make only because
of perceived “fatal flaws” in their Spending Clause claims. Resp.29. That is wrong.
Though Defendants largely ignore the Tenth Amendment, it is an important and vital
guarantee of State power. Defendants offer no clear defense of the Tax Mandate’s
intrusion on State sovereignty in an area the Constitution reserves for the States: tax
policy. See Doc. 21 at 31–33; Doc. 75 at 20–22. Further, the Tax Mandate prevents
voters from holding their lawmakers accountable, see Doc. 21 at 33–34; Doc. 75 at
21–22, for it restricts States’ ability to cut at least some taxes. When a State imposes
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Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 21 of 26
(or keeps in place) taxes only because of Congressional command, responsibility is
blurred and political accountability avoided. See New York, 505 U.S. at 168–69. The
Tenth Amendment forbids this outcome.
III. Plaintiff States Are Entitled To Relief.
Plaintiff States ask this Court to declare unconstitutional and enjoin
enforcement of the Tax Mandate, which under ARPA includes (1) prefunding
certification of compliance with the Tax Mandate; (2) immediate and repeated
reporting on state tax cuts, state revenues and other information to show ongoing
compliance with the Tax Mandate; and (3) Treasury recoupment actions related to
the Tax Mandate. Defendants argue against any relief, restating their arguments on
the merits to explain their belief that Plaintiffs aren’t entitled to the relief they seek.
Defendants’ argument here seems to be that Plaintiff States should wait for a
future recoupment action instead of being awarded any form of relief in this case.
Resp. 31–34. They cite no authority for such an outcome. Defendants still ignore the
real and significant injury that Plaintiff States have already suffered and continue to
suffer: their loss of sovereignty. That ongoing injury cannot be remedied after the
fact in some future administrative decision. An order of this Court is needed both to
right the wrongs inflicted by the Tax Mandate and to prevent future
(unconstitutional) enforcement actions. There should be no question that, if the
Court finds the Tax Mandate unconstitutional, Plaintiffs are entitled to relief.
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Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 22 of 26
CONCLUSION
The Court should enjoin enforcement of the Tax Mandate and declare it
unconstitutional.
DATED: August 19, 2021 Respectfully submitted,
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Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 23 of 26
/s/ Edmund G. LaCour Jr. /s/ Bryan M. Taylor
STEVE MARSHALL Bryan M. Taylor
Alabama Attorney General Bachus Brom & Taylor LLC
Edmund G. LaCour Jr. 3536 Independence Dr.
Alabama Solicitor General Birmingham, AL 35209
James W. Davis Tel: (334) 595-9650
A. Reid Harris btaylor@bachusbrom.com
Assistant Attorneys General
Office of the Alabama /s/ Nicholas Bronni
Attorney General LESLIE RUTLEDGE
501 Washington Ave. Arkansas Attorney General
P.O. Box 300152 Nicholas J. Bronni (pro hac vice)
Montgomery, AL 36130 Arkansas Solicitor General
Tel: (334) 353-2196 Vincent M. Wagner (pro hac vice)
edmund.lacour@alabamaAg.gov Deputy Solicitor General
jim.davis@AlabamaAG.gov Dylan L. Jacobs (pro hac vice)
reid.harris@AlabamaAG.gov Assistant Solicitor General
Counsel for State of Alabama Office of the Arkansas
Attorney General
/s/ Lindsay S. See 323 Center Street, Suite 200
PATRICK MORRISEY Little Rock, Arkansas 72201
West Virginia Attorney General Tel: (501) 682-6302
Lindsay S. See (pro hac vice) nicholas.bronni@arkansasag.gov
West Virginia Solicitor General Counsel for State of Arkansas
David C. Tryon (pro hac vice)
Special Assistant to the /s/ John M. Ptacin
Attorney General TREG R. TAYLOR
(Admitted in Ohio; practicing Attorney General of Alaska
under supervision of West Virginia John M. Ptacin (pro hac vice)
attorneys) Chief Assistant Attorney General
Jessica A. Lee (pro hac vice) Alaska Department of Law
Assistant Solicitor General 1031 West Fourth Avenue, Suite 200
Office of the West Virginia Anchorage, Alaska 99501
Attorney General Tel: (907) 269-5100
1900 Kanawha Blvd. East Facsimile: (907) 276-3697
Building 1, Room E-26 John.ptacin@alaska.gov
Charleston, WV 25305 Counsel for State of Alaska
Tel: (304) 558-2021
Lindsay.S.See@wvago.gov
Counsel for State of West Virginia
19
Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 24 of 26
/s/ Jason Hilborn /s/ David M.S. Dewhirst
ASHLEY MOODY AUSTIN KNUDSEN
Florida Attorney General Attorney General of Montana
Jason H. Hilborn (pro hac vice) David M.S. Dewhirst (pro hac vice)
Assistant Solicitor General Solicitor General
Office of the Florida Office of the Attorney General
Attorney General 215 North Sanders
Office of the Attorney General P.O. Box 201401
State of Florida Helena, MT 59620-1401
PL-01 The Capitol Tel: (406) 444-4145
Tallahassee, FL 32399 David.Dewhirst@mt.gov
Tel: (850) 414-3300 Counsel for the State of Montana
Jason.Hilborn@myfloridalegal.com
Counsel for State of Florida /s/ Anthony J. Galdieri
Anthony J. Galdieri (pro hac vice)
/s/ Jeffrey S. Thompson Senior Assistant Attorney General, Civil
THOMAS J. MILLER Bureau
Attorney General of Iowa New Hampshire Department of Justice
Jeffrey S. Thompson (pro hac vice) 33 Capitol Street
Solicitor General Concord, NH 03301
1305 East Walnut Street Tel: (603) 271-1214
Des Moines, IA 50319 Anthony.J.Galdieri@doj.nh.gov
Tel: 515-281-5164 Counsel for the State of
jeffrey.thompson@ag.iowa.gov New Hampshire
Counsel for State of Iowa
/s/ Mithun Mansinghani
/s/ Dwight R. Carswell JOHN M. O’CONNOR
DEREK SCHMIDT Oklahoma Attorney General
Kansas Attorney General Mithun Mansinghani (pro hac vice)
Dwight R. Carswell (pro hac vice) Solicitor General
Assistant Solicitor General Oklahoma Office Of The
Office of the Kansas Attorney General
Attorney General 313 NE Twenty-First St.
120 SW 10th Ave., 3rd Floor Oklahoma City, OK 73105
Topeka, Kansas 66612 Tel: (405) 521-3921
Tel: (785) 368-8410 mithun.mansinghani@oag.ok.gov
dwight.carswell@ag.ks.gov Counsel for the State of Oklahoma
Counsel for State of Kansas
20
Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 25 of 26
/s/ J. Emory Smith, Jr. /s/ Melissa A. Holyoak
ALAN WILSON SEAN REYES
South Carolina Attorney General Utah Attorney General
J. Emory Smith, Jr. (pro hac vice) Melissa A. Holyoak (pro hac vice)
Deputy Solicitor General Utah Solicitor General
Office of the South Carolina Office of the Utah Attorney General
Attorney General 160 E. 300 S., 5th Floor
Post Office Box 11549 Salt Lake City, UT 84114
Columbia, SC 29211 Tel: (801) 366-0260
Tel: (803) 734-3680 Counsel for State of Utah
esmith@scag.gov
Counsel for State of South Carolina
/s/ Jeffery J. Tronvold
JASON RAVNSBORG
South Dakota Attorney General
Jeffery J. Tronvold (pro hac vice)
Deputy Attorney General
1302 East Highway 14, Suite 1
Pierre, South Dakota 57501-8501
Tel: (605) 773-3215
Jeffery.tronvold@state.sd.us
Counsel for State of South Dakota
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Case 7:21-cv-00465-LSC Document 77 Filed 08/19/21 Page 26 of 26
CERTIFICATE OF SERVICE
I hereby certify that on August 19, 2021, I filed with the Court and served on
all counsel through the CM/ECF system the foregoing document.
/s Edmund G. LaCour Jr.
Counsel for the State of Alabama
22
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