Amicus Curiae Brief — Ohio, Petitioner v. Janet L. Yellen, Secretary of the Treasury, et al.

No. 22-880

In the Supreme Court of the United States

OHIO,

Petitioner,

v.

JANET L. YELLEN, SECRETARY OF THE

TREASURY, ET AL.

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

BRIEF FOR THE STATE OF TEXAS, THE

COMMONWEALTH OF VIRGINIA AND SEVEN

ADDITIONAL STATES AS AMICI CURIAE IN

SUPPORT OF PETITIONER

KEN PAXTON

Attorney General of Texas

BRENT WEBSTER

First Assistant Attorney

General

JUDD E. STONE II

Solicitor General

Counsel of Record

BENJAMIN D. WILSON

Deputy Solicitor General

OFFICE OF THE TEXAS

ATTORNEY GENERAL

P.O. Box 12548 (MC 059)

Austin, Texas 78711

(512) 936-1700

Judd.Stone@oag.texas.gov

JASON S. MIYARES

Attorney General of Virginia

ANDREW N. FERGUSON

Solicitor General

KEVIN M. GALLAGHER

Deputy Solicitor General

M. JORDAN MINOT

Assistant Solicitor General

OFFICE OF THE VIRGINIA

ATTORNEY GENERAL

202 North Ninth Street

Richmond, Virginia 23219

(804) 786-2071

aferguson@oag.state.va.us

(Additional counsel listed on

Signature Page)

TABL E OF C O NTENTS

Page

Table of Contents ............................................................... I

Table of Authorities ......................................................... II

Interest of Amici Curiae .................................................... 1

Introduction and Summary of Argument ........................ 1

Argument ............................................................................ 4

I. The States are Harmed by Unconstitutionally

Ambiguous Spending Clause Conditions. ............ 7

II. The Coercive Nature of ARPA Funds

Demonstrates the Need to Invigorate the Limits

of Congress’s Power Under the Spending

Clause. ................................................................... 12

Conclusion ......................................................................... 17

(I)

II

TABLE OF AUTHORITIE S

Page(s)

Cases:

Alden v. Maine,

527 U.S. 706 (1999) .......................................................... 1

Arizona v. Yellen,

34 F.4th 841 (9th Cir. 2022) ............................................ 9

Bond v. United States,

564 U.S. 211 (2011) ...................................................... 1, 2

Chafin v. Chafin,

568 U.S. 165 (2013) ........................................................ 10

Davis v. Monroe Cnty. Bd. of Ed.,

526 U.S. 629 (1999) .......................................................... 5

Dean v. United States,

556 U.S. 568 (2009) ........................................................ 11

Dep’t of Revenue v. ACF Indus., Inc.,

510 U.S. 332 (1994) .......................................................... 2

Friends of the Earth, Inc. v. Laidlaw Env’t

Servs. (TOC), Inc.,

528 U.S. 167 (2000) ........................................................ 10

Gibbons v. Ogden,

22 U.S. (9 Wheat.) 1 (1824) ............................................. 2

Holder v. Humanitarian Law Project,

561 U.S. 1 (2010) .............................................................. 7

Kentucky v. Yellen,

54 F.4th 325 (2022) .............................................. 9, 11, 12

Knox v. Service Emps. Int’l Union, Loc.

1000,

567 U.S. 298 (2012) ........................................................ 10

Nat’l Fed’n of Indep. Bus. v. Sebelius,

567 U.S. 519 (2012) ............................ 1, 2, 3, 4, 5, 6, 7, 13

III

New York v. United States,

505 U.S. 144 (1992) ...................................................... 1, 2

Pennhurst State Sch. & Hosp. v.

Halderman,

451 U.S. 1 (1981) ...................................................... 5, 7, 9

Providence Bank v. Billings,

29 U.S. (4 Pet.) 514 (1830) .............................................. 2

Russello v. United States,

464 U.S. 16 (1983) .......................................................... 11

South Dakota v. Dole,

483 U.S. 203 (1987) ...................................... 5, 6, 7, 11, 13

Steward Mach. Co. v. Davis,

301 U.S. 548 (1937) ........................................................ 14

Tex. Educ. Agency v. U.S. Dep’t of Educ.,

992 F.3d 350 (5th Cir. 2021) ......................................... 11

United States v. Butler,

297 U.S. 1 (1936) .............................................................. 5

United States v. Concentrated Phosphate

Export Ass’n,

393 U.S. 199 (1968) ........................................................ 10

Va. Dep’t of Educ. v. Riley,

106 F.3d 559 (4th Cir. 1997) (en banc)

(per curiam) .................................................................... 11

West Virginia v. U.S. Dep’t of Treasury,

59 F.4th 1124 (11th Cir. 2023) ........................ 8, 9, 10, 11

Constitutional Provisions, Statutes:

U.S. Const., art. I, § 8, cl. 1................................................... 4

Supreme Court Rule 37.2(a) ................................................ 1

42 U.S.C.:

§ 802(c)(2)(A) ............................................................ 2, 7, 8

§ 802(c)(1)(C) .................................................................. 11

IV

§ 802(d)(2)(A) ................................................................. 12

31 C.F.R.:

§ 35.3 ................................................................................ 11

§ 35.8(b)(3) ...................................................................... 11

§ 35.8(c)(1) ...................................................................... 11

§ 35.4(a) ..................................................................... 12, 15

§ 35.8(b)(2) ...................................................................... 12

86 Fed. Reg.:

26786 (May 17, 2021) ..................................................... 14

87 Fed. Reg.

4,338 (Jan. 27, 2022) ...................................................... 15

Pub. L. No. 117-2, § 9901, 135 Stat. 4, 223

(2021) ................................................................................. 2

Other Authorities:

Budget and Policy Priorities, Tracking the

COVID-19 Economy’s Effects on Food,

Housing, and Employment Hardships

(last visited Apr. 11, 2023),

https://tinyurl.com/3rh5rnzk ........................................ 14

Disease Control, COVID Data Tracker

Weekly Review (last updated Apr. 11,

2023), https://tinyurl.com/5n8hc35a ............................ 13

Quarterly CARES Act Report to Congress:

Committee Hearing, 1:10:00–1:13:36

(Mar. 24, 2021),

https://tinyurl.com/45mf9ayh ..................................... 8, 9

Treasury, “Allocation for States:

Coronavirus State and Local Fiscal

Recovery Funds,” (last visited Apr. 11,

2023), https://tinyurl.com/3jp2e38b............................. 13

V

U.S. Treasury threatens to claw back

Arizona funds over anti-masking

school grants, Reuters (Jan. 14, 2022) ........................ 15

INTEREST OF AMIC I CURIAE

Amici curiae are the State of Texas, the Commonwealth of Virginia, and the States of Idaho, Mississippi,

Montana, Nebraska, New Hampshire, South Dakota,

and Utah (collectively, the Amici States). All of the

Amici States have a compelling interest in protecting

their sovereign authority to set tax policy within our federal system of dual sovereigns. Moreover, the States

have a strong interest in setting their own tax policies

without federal interference. As explained below, this

Court should grant the petition to ensure the States are

not subject to coercion from Congress and to preserve

our system of dual sovereigns.1

I N T RO D U C T IO N A ND S UMMARY OF ARGUMENT

Our “federal system rests on what might at first seem

a counterintuitive insight, that ‘freedom is enhanced by

the creation of two governments, not one.’” Bond v.

United States, 564 U.S. 211, 220–21 (2011) (quoting

Alden v. Maine, 527 U.S. 706, 758 (1999)). That system

gives to Congress only the powers enumerated in the

Constitution; States retain plenary legislative authority

over other subjects—including the power to determine

their own tax policies. “For this reason, ‘the Constitution

has never been understood to confer upon Congress the

ability to require the States to govern according to Congress’ instructions.’” Nat’l Fed’n of Indep. Bus. v. Sebelius (NFIB), 567 U.S. 519, 577 (2012) (op. of Roberts,

C.J.) (quoting New York v. United States, 505 U.S. 144,

162 (1992)). “Otherwise the two-government system established by the Framers would give way to a system

Under Supreme Court Rule 37.2(a), amici curiae notified

counsel of record of their intent to file this brief at least 10 days

prior to the due date for the brief.

1

(1)

2

that vests power in one central government, and individual liberty would suffer.” Id.

The taxing power is particularly integral to State sovereignty. Dep’t of Revenue v. ACF Indus., Inc., 510 U.S.

332, 345 (1994). The power to tax “is indispensable to [the

States’] existence,” and the “power of self[-]government

. . . cannot exist distinct from the power of taxation.” Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 199 (1824); Providence Bank v. Billings, 29 U.S. (4 Pet.) 514, 548 (1830).

Federal intrusion on States’ taxing power thus threatens

our system of federalism and, in turn, individual liberties

that “derive from the diffusion of sovereign power.”

Bond, 564 U.S. at 221 (quoting New York, 505 U.S. at

181).

Congress violated these bedrock principles and impinged on States’ sovereign authority to tax in the American Rescue Plan Act (ARPA). Pub. L. No. 117-2, § 9901,

135 Stat. 4, 223 (2021). ARPA leveraged a once-in-a-century pandemic to take control of state tax policy. It offered desperately-needed funding for critical state programs that had suffered during the pandemic, including

healthcare and infrastructure. But Congress failed to

clearly explain the conditions that attached to ARPA

funds. Rather than imposing straightforward conditions

like identifying the specific objects on which the funds

could be used, see 42 U.S.C. § 802(c)(2)(A), Congress implemented the Tax Mandate. The Mandate purports to

prohibit the “use [of] funds provided . . . to either directly

or indirectly offset a reduction in the net tax revenue of

such State or territory resulting from a change in law,

regulation, or administrative interpretation,” including

by “delay[ing] the imposition of any tax or tax increase,”

as a condition of receiving the funds. Id.

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That requirement is unconstitutionally ambiguous.

States suffer when forced to exercise their sovereign

powers to set tax policy under a sword of Damocles created by Congress. States are left without the ability to

predict accurately whether the Secretary will deem their

tax policy decisions to be impermissible under the ARPA

or Treasury’s rules, either now or at some point in the

future. The institution of these sorts of ambiguous conditions is not a permissible exercise of the Spending

Power. And it will predictably chill States’ exercise of

their sovereign authority to tax because the States cannot predict in advance when the Treasury Department

will conclude the Tax Mandate has been violated—potentially exposing States that exercise their taxing power to

recoupment actions worth billions of dollars.

The Tax Mandate is also unconstitutionally coercive.

Congress offered $5.4 billion to Ohio, $15.8 billion to

Texas, and $4.3 billion to Virginia in a time of dire fiscal

need—when State budgets were stretched both by decreases in revenue and increases in expenditures

brought on by the COVID-19 pandemic. The States “as a

practical matter” were “unable to refuse to participate”

in ARPA by rejecting those funds. NFIB, 567 U.S. at 680

(Scalia, Kennedy, Thomas, & Alito, JJ., dissenting).

Seeking to control the States taxing authority through

such an offer is “economic dragooning that leaves the

States with no real option but to acquiesce.” Id. at 582

(plurality op.).

The Court should grant the petition both to relieve

the States from the unconstitutional infringement on

their sovereignty that the Tax Mandate represents and

to clarify its Spending Clause jurisprudence. The power

to set taxes and spend money has always been core to the

sovereign authority of the States. See The Federalist No.

4

45 (James Madison). Yet Congress has used a once-in-acentury pandemic to usurp this authority. This case presents an opportunity for this Court to clarify which uses

of the Spending Clause power represent “relatively mild

encouragement” and which represent “a gun to the

head” of States. NFIB, 567 U.S. at 581 (plurality op.).

The ARPA’s Tax Mandate is surely the latter.

A R GUM EN T

The Spending Clause grants Congress the power “to

pay the Debts and provide for the . . . general Welfare of

the United States.” U.S. Const., art. I, § 8, cl. 1. This

Court has “long recognized that Congress may use [the

spending] power to grant federal funds to the States, and

may condition such a grant upon the States’ taking certain actions that Congress could not require them to

take.” NFIB, 567 U.S. at 576 (plurality op.) (quotation

marks omitted). But this Court has also “recognized limits on Congress’s power under the Spending Clause to

secure state compliance with federal objectives”—limits

that are “critical to ensuring that Spending Clause legislation does not undermine the status of the States as independent sovereigns in our federal system.” Id. at 576–

77 (plurality op.). This case calls for robust enforcement

of the limits the Spending Clause places on Congress’s

power to control States’ taxing power, which is essential

to their sovereignty.

In our federal system, the several States are sovereigns distinct from the United States. The power to influence their authority by awarding or withholding

money extracted by federal taxation from the States’

taxpayers, if left unchecked, would swallow federalism

whole. NFIB, 567 U.S. at 577 (plurality op.). If Congress’

Spending Clause power were “limited only by Congress’

notion of the general welfare, the reality, given the vast

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financial resources of the Federal Government, is that

the Spending Clause gives ‘power to the Congress to tear

down the barriers, to invade the states’ jurisdiction, and

to become a parliament of the whole people, subject to no

restrictions save such as are self-imposed.’” South Dakota v. Dole, 483 U.S. 203, 217 (1987) (O’Connor, J., dissenting) (quoting United States v. Butler, 297 U.S. 1, 78

(1936)). The Spending Clause power, “if wielded without

concern for the federal balance, has the potential to obliterate distinctions between national and local spheres of

interest and power by permitting the Federal Government to set policy in the most sensitive areas of traditional state concern, areas which otherwise would lie outside its reach.” Davis v. Monroe Cnty. Bd. of Ed., 526

U.S. 629, 654–55 (1999) (Kennedy, J., dissenting).

To protect the federal balance, this Court has conceived of the use of the Spending Clause power to accomplish indirectly what Congress could not accomplish directly as “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, 17 (1981). The “legitimacy of

Congress’ power to legislate under the spending power

thus rests on whether the State voluntarily and knowingly accepts the terms of the ‘contract.’” Id. There can

“be no knowing acceptance if a State is unaware of the

conditions or is unable to ascertain what is expected of

it.” Id. The ability of States to “voluntarily and knowingly” accept spending conditions “is critical to ensuring

that Spending Clause legislation” respects the constitutionally-enshrined separate sovereignty of the States.

NFIB, 567 U.S. at 577 (plurality op.); id. at 578 (Congress may neither “command[] a State to regulate or

6

indirectly coerce[] a State to adopt a federal regulatory

system as its own.”).

To enforce the requirement that a State must “voluntarily and knowingly accept” the conditions attached to

Spending Clause legislation, this Court has imposed two

important conditions on such legislation. See, e.g., Dole,

483 U.S. at 207 (spending power is “subject to several

general restrictions articulated in [this Court’s] cases”).

First, “if Congress desires to condition the States’ receipt of federal funds, it must do so unambiguously, enabling the States to exercise their choice knowingly, cognizant of the consequences of their participation.” Id.

(cleaned up). Second, the offer cannot be coercive: Congress may not attach conditions to funding offers that

States have no “legitimate choice” but to “accept.”

NFIB, 567 U.S. at 578 (plurality op.); see also Dole, 483

U.S. at 211 (“[I]n some circumstances the financial inducement offered by Congress might be so coercive as to

pass the point at which pressure turns into compulsion.”

(quotation marks omitted)).

The conditions the federal government placed on

ARPA funds through the Tax Mandate violate both limits—and in so doing substantially harm the States by circumscribing their ability to set their own taxing policy.

This Court should grant the writ to enforce those limits.

States sustain serious harm when forced to make tax law

under an unconstitutionally ambiguous Spending Clause

condition. And if the severe condition placed on funds

crucial to the States’ recovery from an unprecedented

global pandemic was not coercive, it is difficult to imagine what is.

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I. The States are Harmed by Unconstitutionally

Ambiguous Spending Clause Conditions.

As this Court has explained, the States’ ability to

“voluntarily and knowingly” accept spending conditions

“is critical to ensuring that Spending Clause legislation”

respects the separate sovereignty of the States. NFIB,

567 U.S. at 577 (plurality op.). “[L]egislation enacted

pursuant to the spending power is much in the nature of

a contract,” meaning “[t]he legitimacy of Congress’s

power to legislate under the spending power . . . rests on

whether the State voluntarily and knowingly accepts the

terms of the ‘contract.’” Pennhurst, 451 U.S. at 17.

Where “a State is unaware of the conditions” attached to

Spending Clause legislation “or is unable to ascertain

what is expected of it” then, “[t]here can, of course, be no

knowing acceptance” of those conditions. Id; see also

Dole, 483 U.S. at 207. This case illustrates the importance of these principles.

A. The Tax Mandate is ambiguous and unascertainable in multiple respects, as Ohio’s Petition ably shows.

Pet. 30–33. The Tax Mandate prohibits States from “directly or indirectly offset[ing] a reduction’” in “net tax

revenue . . . resulting from a change in law, regulation, or

administrative interpretation” during the covered period, which extends for years. 42 U.S.C. 802(c)(2)(A). But

it does not explain what constitutes an indirect offset. Id.

Nor does it provide any baseline whatsoever for determining what constitutes a reduction in “net tax revenue.”

Id.

Because “[m]oney is fungible,” Holder v. Humanitarian Law Project, 561 U.S. 1, 37 (2010), and many

States must balance their budgets, the Tax Mandate’s

requirement that States may not indirectly reduce tax

revenue is most naturally read as prohibiting any tax cut.

8

But the absence of any clarity in the Tax Mandate renders the phrase ambiguous and prevents States from being able to ascertain which tax cuts may run afoul of the

Tax Mandate and expose them to recoupment actions. At

a minimum, “the phrase directly or indirectly offset

seems extraordinarily expansive.” West Virginia v. U.S.

Dep’t of Treasury, 59 F.4th 1124, 1145 (11th Cir. 2023)

(quotation marks omitted).

So too the term “reduction in net tax revenue.” 42

U.S.C. 802(c)(2)(A). The Tax Mandate provides no standard against which to measure such a reduction, though it

necessarily presupposes some baseline. The Tax Mandate does not explain whether it means a reduction in net

tax revenue against state law as it existed before the

changed provision, against the last year’s tax revenue, or

some other baseline. And it fails to explain whether expected tax receipts or actual tax receipts are relevant to

that calculation. This failure is particularly important because the economic dislocation associated with the

COVID-19 pandemic created significant uncertainty in

projections that many States rely on during their budgeting process.

This Court need not rely on the States’ representations or on determinations reached by the lower courts

to determine the Tax Mandate is ambiguous. Instead,

Secretary Yellen herself testified to Congress that the

Tax Mandate is ambiguous. She explained that the Tax

Mandate raises a “host of thorny questions.” U.S. Senate

Comm. on Banking, Housing, & Urban Affairs, The

Quarterly CARES Act Report to Congress: Committee

Hearing, 1:10:00–1:13:36 (Mar. 24, 2021), https://tinyurl.com/45mf9ayh. When asked “what is directly or indirectly offsetting a tax cut,” the Secretary could not answer. Id. “Given the fungibility of money, it’s a hard

9

question to answer,” she said. Id. Reading the Tax Mandate is no less challenging for States, which are entitled

to know “the consequences of their participation” before

they “exercise their choice” to accept federal money.

Pennhurst, 451 U.S. at 17.

The States’ inability to ascertain the scope of the Tax

Mandate’s ambiguous provisions harm them. As the

Eleventh Circuit concluded, ARPA’s ambiguous offer

caused sovereign injury to the States’ ability to set their

own taxing policy, a harm that “has already occurred and

is continuing.” West Virginia, 59 F.4th at 1136. The

“States have now accepted the deal with its allegedly unconstitutional condition, and that condition is a present

and continuous infringement on state sovereignty.” Id.

“The problem is not just that the States cannot know

what” the Tax Mandate “means as to a particular tax

cut; it is that the States cannot know what it means as to

any tax cut.” Id. at 1144. “[B]ecause money is fungible,

the Secretary could always assert a plausible argument

that a state, after a tax cut, committed an unlawful indirect offset of the attendant revenue shortfall.” Id. at

1145.

Or, as the Ninth Circuit explained, States have been

harmed when “an allegedly unconstitutional offer is

made to them,” Arizona v. Yellen, 34 F.4th 841, 852 (9th

Cir. 2022), because they “will face serious consequences

in losing control over [their] taxing policies and being

held to a funding offer that [they] do not understand,” id.

at 853. Nor is this sovereign injury intangible. “ARPA’s

vague conditions chill the States from enacting . . . tax

cuts” because “they fear imminent recoupment action for

exercising their sovereign-taxing authority.” Kentucky

v. Yellen, 54 F.4th 325, 361 (2022) (Nalbandian, J., concurring in part and dissenting in part). Simply put,

10

because of the Tax Mandate, the States cannot confidently exercise their sovereign taxing authorities without fear of a recoupment action. “The only way for the

States to achieve unequivocal compliance with the Act is

to refrain from cutting taxes during the covered period.”

West Virginia, 59 F.4th at 1138.

B. The Sixth Circuit erred when it concluded that

Treasury rulemaking rendered this case moot. Rather,

Treasury’s regulations highlight the ambiguity of the

statute, and this Court should grant certiorari to vindicate the States fundamental sovereign interests in their

taxing authority. Pet. App. 11–15a.

“‘A case might become moot” only “‘if subsequent

events made it absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.’”

Friends of the Earth, Inc. v. Laidlaw Env’t Servs. (TOC),

Inc., 528 U.S. 167, 189 (2000) (quoting United States v.

Concentrated Phosphate Export Ass’n, 393 U.S. 199, 203

(1968)). That “heavy burden,” id., rests on the Treasury

Department. A case becomes moot when the party asserting mootness demonstrates that “it is impossible for

a court to grant any effectual relief whatever to the prevailing party.” Chafin v. Chafin, 568 U.S. 165, 172, (2013)

(quoting Knox v. Service Emps. Int’l Union, Loc. 1000,

567 U.S. 298, 307 (2012)). But “[a]s ‘long as the parties

have a concrete interest, however small, in the outcome

of the litigation, the case is not moot.’” Id. (quoting Knox,

567 U.S. at 307).

The court of appeals primarily relied on Treasury’s

construction of the Tax Mandate in regulations and

briefing to conclude that this case was moot. In doing so

the court of appeals held that there was no “reasonable

possibility” Treasury would “adopt Ohio’s broad view of”

the Tax Mandate. Pet. App. 18a. Treasury’s construction

11

of the Tax Mandate in regulations does not moot this

case for at least three reasons.

First, as several courts of appeals have concluded, a

regulation cannot provide the clarity the Spending

Clause requires after Congress passes legislation. See

West Virginia, 59 F.4th at 1139. After all, “the ability to

place conditions on federal grants ultimately comes from

the Spending Clause, which empowers Congress, not the

Executive, to spend for the general welfare.” Tex. Educ.

Agency v. U.S. Dep’t of Educ., 992 F.3d 350, 362 (5th Cir.

2021); see also Kentucky, 54 F.4th at 353-54; Va. Dep’t of

Educ. v. Riley, 106 F.3d 559, 560-61, 567 (4th Cir. 1997)

(en banc) (per curiam). These holdings are consonant

with this Court’s instruction that “if Congress desires to

condition the States’ receipt of federal funds” those conditions must be unambiguous. Dole, 483 U.S. at 207 (emphasis added).

Second, the Treasury Department’s atextual rulemaking does not obviate the States’ harms. The Treasury

regulations treat inflation-adjusted 2019 figures as a

baseline for calculating a reduction in net tax revenue. 31

C.F.R. §§ 35.3, 35.8(b)(3), (c)(1). That interpretation is

implausible since Congress used different language to

expressly incorporate a 2019 baseline into a neighboring

subsection. See 42 U.S.C. § 802(c)(1)(C) (“reduction in

revenue . . . relative to revenues collected in the most recent full fiscal year of the State . . . prior to the emergency”). “[W]here Congress includes particular language in one section of a statute but omits it in another

section of the same Act, it is generally presumed that

Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Dean v. United States, 556

U.S. 568, 573 (2009) (alteration in original) (quoting Russello v. United States, 464 U.S. 16, 23 (1983)). The

12

Treasury rule likewise includes a safe-harbor provision

that purports to exempt changes to state law that result

in less than a one percent decrease in State revenue. 31

C.F.R. §§ 35.8(b)(2). But that safe harbor appears nowhere in the statute and is likewise an implausible interpretation. The statute itself requires States to report all

changes that may reduce revenue. 42 U.S.C.

§ 802(d)(2)(A).

Third, the Treasury Department’s regulations do not

resolve the Tax Mandate’s ambiguities in any event.

Whatever the effect of the rulemaking, it provides that

“[n]othing in this part shall limit the authority of the Secretary to take action to enforce conditions or violations

of law, including actions necessary to prevent evasions of

this subpart.” 31 C.F.R. § 35.4(a). Even if they abide by

the terms of the Treasury Department’s rule, the States

still cannot be confident that the Secretary will not retroactively determine that they have evaded the Tax

Mandate and seek recoupment of funds. As Judge Nalbandian recognized, “the Rules do not limit ARPA’s enforcement; they instead provide the Secretary broad enforcement discretion.” Kentucky, 54 F.4th at 363 (Nalbandian, J., concurring in part and dissenting in part).

“[T]he Rules still narrow the range of permissible tax

policies the States may enact, which in turn takes a toll

on the States’ citizens and economies.” Id.

II. The Coercive Nature of ARPA Funds

Demonstrates the Need to Invigorate the Limits

of Congress’s Power Under the Spending Clause.

Congress enacted ARPA to “mitigate the devastating

economic effects of COVID-19.” Pet. App. 2a. Ohio, like

all other States, suffered significantly: in 2020, its tax

revenues came in $1.1 billion below estimates, and its

need for state services to combat the global pandemic

13

“ballooned.” Pet. App. 118a, 82a. Accordingly, when Congress offered $5.4 billion to Ohio, $15.8 billion to Texas,

and $4.3 billion to Virginia for COVID-19 relief,2 the significant size of the offer—in the context of the acute fiscal crisis caused by the pandemic—left States with no

meaningful choice but to accept the funds. In that context, the surrender of a core aspect of state sovereignty

cannot be justified because the offer was coercive. It is

“much more than ‘relatively mild encouragement’—it is

a gun to the head.” NFIB, 567 U.S. at 581 (plurality op.)

(quoting Dole, 483 U.S. at 211). The Tax Mandate therefore exceeds Congress’s power under the Spending

Clause and threatens the role of the States in our federal

system.

A. The States were coerced into taking ARPA funds

because of the unprecedented economic pressures created by the COVID-19 pandemic, which made the funds

especially important to State budgets and left the States

particularly vulnerable to federal coercion. The sheer

size of the offer of funds and the context in which the offer was made left States no meaningful choice but to accept the funds and the conditions that came with them.

The COVID-19 pandemic was “far from the typical

case,” NFIB, 567 U.S. at 579 (plurality op.), as it caused

tremendous economic and financial harm to American

citizens. The Centers for Disease Control estimates that

the virus infected more than 100 million people and killed

more than 1.1 million.3 The unemployment rate at the

2 U.S. Dep’t of Treasury, “Allocation for States: Coronavirus

State and Local Fiscal Recovery Funds,” (last visited Apr. 11,

2023), https://tinyurl.com/3jp2e38b.

3 Centers for Disease Control, COVID Data Tracker Weekly

Review

(last

updated

Apr.

11,

2023),

https://tinyurl.com/5n8hc35a.

14

beginning of the pandemic reached levels not seen since

the 1930s, and the majority of those who lost their jobs

were in low-income families.4 And over 400,000 small

business closed during the first year of the pandemic

alone. Coronavirus State and Local Fiscal Recovery

Funds, 86 Fed. Reg. 26786, 26786 & n.6 (May 17, 2021).

The pandemic—especially before federal aid—also

caused tremendous economic and financial harm to

States. “In responding to the public health emergency

and its negative economic impacts,” the States saw a substantial spike in the demand for and cost of government

services, “often amid substantial declines in revenue due

to the economic downturn and changing economic patterns during the pandemic.” 86 Fed. Reg. at 26786.

Faced with the prospect of millions of their citizens losing their jobs, seeking care in overwhelmed hospitals, or

dying, States had little choice but to accept whatever

conditions Congress placed on rescue funding. That is

textbook coercion. Steward Mach. Co. v. Davis, 301 U.S.

548, 587 (1937) (Congress lacks any power to “drive the

state Legislatures under the whip of economic pressure

into” doing “the bidding of the central government”).

B. This Court should invigorate the limits of Congress’s Spending Clause power in response to the

ARPA’s egregious intrusion on state sovereignty. Congress not only forced every State to surrender its sovereign taxing authority; it went a step further by delegating the authority seized from the States to the Secretary

of the Treasury. Although the Secretary has promised

not to stringently police the power Congress delegated

Center on Budget and Policy Priorities, Tracking the

COVID-19 Economy’s Effects on Food, Housing, and Employment Hardships (last visited Apr. 11, 2023), https://tinyurl.com/3rh5rnzk.

4

15

to Treasury, Pet. App. 17a–18a, the Secretary’s discretionary decision not to exercise her delegated authority

to superintend state tax policy does not cure the unconstitutional coercion and delegation. That is especially

true given that the current federal administration has

punished States with alacrity for their policy choices by

withdrawing COVID-19 relief funding.5

The Treasury Department’s regulation announcing

that it would not enforce the Tax Mandate as if it barred

tax cuts per se provides no protection for States either.

Coronavirus State and Local Fiscal Recovery Funds, 87

Fed. Reg. 4,338 (Jan. 27, 2022). That regulation gives the

Secretary broad authority to act on any “evasions” of the

Tax Mandate that she concludes, with the benefit of hindsight, may have taken place. 31 C.F.R. § 35.4(a). States

therefore remain exposed to retrospective enforcement

by the Secretary.

At bottom, the Tax Mandate coerces States not to cut

taxes, irrespective of economic, social, and fiscal changes

subsequent to the ARPA. States had no choice but to accept the offer of funds in light of the serious economic

and fiscal pressures created by the pandemic. Congress

decided to use that opportunity to premise the receipt of

funds—funds Congress had collected from the taxpayers

living in the States to which the offer was being made—

on the surrender of States’ control over their own tax policy. That exceeds the scope of Congress’s power under

the Spending Clause. Little would remain of the Framers’ limits on Congress’s legislative power if the Spending Clause permitted Congress to oust States of their

5 See David Lawder, U.S. Treasury threatens to claw back

Arizona funds over anti-masking school grants, Reuters (Jan.

14, 2022), https://tinyurl.com/2tftt3zx.

16

core sovereign authority. This Court should grant the petition and rebuff Congress’s overreach.

17

C O NCL USI O N

The petition for a writ of certiorari should be granted.

Respectfully submitted.

KEN PAXTON

Attorney General of Texas

JASON S. MIYARES

Attorney General of Virginia

BRENT WEBSTER

First Assistant Attorney

General

ANDREW N. FERGUSON

Solicitor General

JUDD E. STONE II

Solicitor General

Counsel of Record

BENJAMIN D. WILSON

Deputy Solicitor General

OFFICE OF THE TEXAS

ATTORNEY GENERAL

P.O. Box 12548 (MC 059)

Austin, Texas 78711-2548

Judd.Stone@oag.texas.gov

(512) 936-1700

KEVIN M. GALLAGHER

Deputy Solicitor General

M. JORDAN MINOT

Assistant Solicitor General

OFFICE OF THE VIRGINIA

ATTORNEY GENERAL

202 North Ninth Street

Richmond, Virginia 23219

(804) 786-2071

aferguson@oag.state.va.us

APRIL 2023

Counsel for Additional Amici States:

RAUL R. LABRADOR

Attorney General

of Idaho

LYNN FITCH

Attorney General

of Mississippi

18

AUSTIN KNUDSEN

Attorney General

of Montana

MICHAEL T. HILGERS

Attorney General

of Nebraska

JOHN M. FORMELLA

Attorney General

of New Hampshire

MARTY J. JACKLEY

Attorney General

of South Dakota

SEAN D. REYES

Attorney General

of Utah