Commonwealth of Ky. v. Janet Yellen

RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 22a0245p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
┐
COMMONWEALTH OF KENTUCKY; STATE OF TENNESSEE,
│
Plaintiffs-Appellees, │
> No. 21-6108
v. │
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JANET YELLEN, in her official capacity as Secretary of the │
U.S. Department of the Treasury; RICHARD K. DELMAR, in │
his official capacity as Acting Inspector General of the U.S. │
Department of the Treasury; UNITED STATES DEPARTMENT │
OF THE TREASURY, │
Defendants-Appellants. │
┘
Appeal from the United States District Court for the Eastern District of Kentucky at Frankfort.
No. 3:21-cv-00017—Gregory F. Van Tatenhove, District Judge.
Argued: July 21, 2022
Decided and Filed: November 18, 2022
Before: DONALD, BUSH, and NALBANDIAN, Circuit Judges.
_________________
COUNSEL
ARGUED: Daniel Winik, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellants. Brett R. Nolan, OFFICE OF THE ATTORNEY GENERAL OF
KENTUCKY, Frankfort, Kentucky, for Appellees. ON BRIEF: Daniel Winik, Alisa B. Klein,
UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants. Brett R.
Nolan, Barry L. Dunn, Matthew F. Kuhn, OFFICE OF THE ATTORNEY GENERAL OF
KENTUCKY, Frankfort, Kentucky, Andrée S. Blumstein, Brandon J. Smith, OFFICE OF THE
ATTORNEY GENERAL AND REPORTER OF TENNESSEE, Nashville, Tennessee, for
Appellees. Paul D. Clement, KIRKLAND & ELLIS LLP, Washington, D.C., Joseph D.
Henchman, NATIONAL TAXPAYERS UNION FOUNDATION, Washington, D.C., Sheng Li,
NEW CIVIL LIBERTIES ALLIANCE, Washington, D.C., Drew C. Ensign, OFFICE OF THE
ATTORNEY GENERAL OF ARIZONA, Phoenix, Arizona, for Amici Curiae.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 2
BUSH, J., delivered the opinion of the court in which DONALD, J., joined in full, and
NALBANDIAN, J., joined in part. NALBANDIAN, J. (pp. 43–51), delivered a separate opinion
concurring in part and dissenting in part.
_________________
OPINION
_________________
JOHN K. BUSH, Circuit Judge. In response to the grave economic challenges posed by
COVID-19, Congress enacted the American Rescue Plan Act of 2021 (“ARPA” or “the Act”).
Pursuant to Congress’s spending power, ARPA set aside $195.3 billion in stimulus funds, to be
distributed by the Treasury Department to states and the District of Columbia. This appeal
concerns a challenge brought by Kentucky and Tennessee (“the States”) to what they allege is an
ambiguous, coercive, and commandeering condition attached to those funds. Specifically, to get
the money, the States had to certify that they would comply with the Act’s “Offset Provision.”
Its terms bar the States from enacting tax cuts and then using ARPA funds to “directly or
indirectly offset a reduction in [their] net tax revenue” resulting from such tax cuts. 42 U.S.C.
§ 802(c)(2)(A). And a related portion of the Act explains that should a State violate the Offset
Provision, Treasury may initiate a recoupment action to recover the misused funds. 42 U.S.C.
§ 802(e)(1)–(2).
What the Offset Provision actually means, however, is the subject of grave dispute.
Because money is fungible, enacting any tax cut and then spending ARPA funds could be
construed, the States say, as having impermissibly used those funds to “indirectly offset” a
revenue reduction from the tax cut. Appellees’ Br. at 12–13. As a result, should the States wish
to expend their ARPA funds, they are effectively barred from enacting any tax cuts1—despite
their desire to do so—for fear that Treasury could construe the cuts as implicating an “indirect
offset” and correspondingly pursue recoupment. Id. at 22–23; 38. Compounding the Act’s
indeterminacy, the Offset Provision itself never explains which fiscal year (“FY”) serves as the
baseline for calculating a “reduction” in net tax revenue. Id. at 13, 40. That omission allegedly
1
This alleged restriction applies at least during ARPA’s “covered period,” 42 U.S.C. § 802(g)(1), which
extends until “the last day of the fiscal year of such State . . . in which all funds received by the State . . . have been
expended or returned to, or recovered by, the Secretary,” § 802(g)(1)(B).
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 3
leaves the States in the dark about when Treasury may deem them to have violated the Act. Id.
And even though a Treasury regulation has since offered a narrowing construction of the Offset
Provision, the States assert that this construction in no way follows clearly from the text of the
Offset Provision itself. Id. at 41. Thus, the States object that the Offset Provision failed to
provide them with clear notice of whatever conditions it entails. And because of those
indeterminacies, they contend that the Offset Provision is unenforceable under the clear-
statement rule the Supreme Court has long instructed governs spending legislation.
Worse yet, the States argue, they were coerced into relinquishing this control over their
sovereign taxing authority. Amended Complaint ¶74, R. 23. By offering such a massive aid
package—promising to confer on the States a sum equal to one-fifth of their annual budgets—in
a time of fiscal crisis no less, the federal government made the States an offer they couldn’t
refuse. Appellees’ Br. at 4, 12. Given these alleged intrusions upon their sovereignty, the States
filed suit against the Treasury Department. They sought an injunction of the Offset Provision’s
enforcement and a declaratory judgment that the provision is unenforceable.
Relying on the coercion rationale alone, the district court granted the States a permanent
injunction in September 2021. Treasury’s appeal of that order is now before us. It asserts that
the States’ challenges are nonjusticiable and that, in any event, their objections to the Offset
Provision fail on the merits.
We agree that Kentucky’s challenge is nonjusticiable. At the outset of their suit, both
Kentucky and Tennessee had standing to bring their pre-enforcement challenges, since the Offset
Provision itself at least arguably proscribed the post-acceptance enactment of any revenue-
reducing tax cut. Thus, the Offset Provision at least arguably threatened a significant intrusion
upon state taxing authority—an intrusion that arguably offended the Spending Clause because it
was not clearly authorized by the Offset Provision itself. But Treasury later promulgated an
implementing regulation (“the Rule”) that disavowed this interpretation of the Offset Provision
and established certain safe harbors permitting the States to cut taxes. See Coronavirus State and
Local Fiscal Recovery Funds, 86 Fed. Reg. 26,786 (proposed May 17, 2021) (interim final rule);
see also Coronavirus State and Local Fiscal Recovery Funds, 86 Fed. Reg. 4,338 (Jan. 27, 2022)
(final rule); 31 C.F.R. § 35 et seq. In response, Kentucky and Tennessee offered no additional
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 4
evidence of a concrete plan to violate the Rule, so they failed to establish that Treasury will
imminently seek recoupment because of any demonstrated policy they wish to pursue.
And because Kentucky offered no evidence for any other theory of injury, the Rule mooted its
challenge to the Offset Provision. We thus reverse the district court’s conclusion that
Kentucky’s claim is justiciable and vacate the injunction to the extent that it bars enforcement of
the Offset Provision against Kentucky.
Tennessee, by contrast, did adduce additional evidence of a distinct theory of injury: that
Treasury’s Rule (and the underlying Offset Provision it implements) burden the State with
compliance costs. See Eley Dec., R. 25-3. These costs represent additional labor and other
expenses that Tennessee must incur to ensure that its recent and proposed tax cuts do not violate
the Offset Provision; expenses that it would not incur were enforcement of the Offset Provision
enjoined. Far from mooting the compliance-costs theory of injury, the Rule in fact exacerbated
the harm with its more detailed explanation of the measures required to comply with the Offset
Provision. Thus, we hold that Tennessee’s challenge is justiciable.
On the merits of Tennessee’s claim, we affirm the district court’s injunction on the basis
that the Offset Provision is impermissibly vague under the Spending Clause. Because the Offset
Provision is subject to a range of plausible meanings, Tennessee was deprived of the requisite
“clear notice” of ARPA’s conditions when it accepted the funds. Cummings v. Premier Rehab
Keller, P.L.L.C., 142 S. Ct. 1562, 1574 (2022) (quoting Arlington Cent. Sch. Dist. Bd. of Educ. v.
Murphy, 548 U.S. 291, 296 (2006)). As a result, Treasury cannot use its Rule to impose
compliance requirements upon Tennessee that are not clearly authorized by the Offset Provision
itself. And because this defect suffices to affirm, we need not consider Tennessee’s additional
objections to the Offset Provision.
I.
Congress enacted ARPA in March 2021 to make available almost $2 trillion in COVID-
related relief funding. Approximately $195.3 billion of that sum was set aside for distribution to
the states and the District of Columbia. “Kentucky’s allotment under the Act is about $2.1
billion,” while Tennessee’s is about $3.7 billion. Amended Complaint ¶¶26–27, R. 23. These
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 5
sums amount to nearly one-fifth of the States’ respective annual general revenues. Id. In the
States’ view, “[t]he financial aid the Act offer[ed] . . . is simply unparalleled in size.” Id. ¶28.
That offer also came with several conditions. For instance, the States may spend their
ARPA funds in only four particular areas that Congress deemed relevant to economic recovery
from the pandemic. Those four areas are as follows:
(A) to respond to the public health emergency with respect to the Coronavirus
Disease 2019 (COVID-19) or its negative economic impacts, including
assistance to households, small businesses, and nonprofits, or aid to impacted
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 work, or by
providing grants to eligible employers that have eligible workers 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 emergency;
or
(D) to make necessary investments in water, sewer, or broadband infrastructure.
42 U.S.C. § 802(c)(1)(A)–(D).
Conversely, the States are specifically forbidden from using ARPA funds for two
particular applications. First, “[n]o State or territory may use funds made available under this
section for deposit into any pension fund.” § 802(c)(2)(B). And second—the crux of this
lawsuit—the States may not use ARPA funds:
to either directly or indirectly offset a reduction in the net tax revenue of such
State or territory resulting from a change in law, regulation, or administrative
interpretation during the covered period that reduces any tax (by providing for a
reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the
imposition of any tax or tax increase.
§ 802(c)(2)(A). This is the so-called “Offset Provision”—the States have dubbed it the “Tax
Mandate”—that has provoked legal challenges across the country. See, e.g., Missouri v. Yellen,
39 F.4th 1063 (8th Cir. 2022); Arizona v. Yellen, 34 F.4th 841 (9th Cir. 2022); West Virginia v.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 6
U.S. Dep’t of Treas., No. 7:21-cv-00465-LSC, 2021 WL 2952863, *1 (N.D. Ala. July 14, 2021);
Texas v. Yellen, No. 2:21-CV-079-Z, 2022 WL 1063066, *1 (N.D. Tex. Apr. 8, 2022).
Accompanying the Offset Provision are a couple of related enforcement mechanisms.
First is the statute’s reporting requirement, which instructs the states:
To provide to the Secretary periodic reports providing a detailed accounting of—
(A) the uses of funds by such State, territory, or Tribal government,
including, in the case of a State or a territory, all modifications to the
State’s or territory’s tax revenue sources during the covered period;
and
(B) such other information as the Secretary may require for the
administration of this section.
§ 802(d)(2)(A)–(B). And second is the statute’s recoupment procedure. Should a state violate
the Act’s requirements, Treasury may initiate a recoupment action to seek reimbursement from a
state “equal to the amount of funds used in [the] violation.” § 802(e).
Kentucky and Tennessee were not alone, it turns out, in their apprehensions about this
statutory scheme. Several of their sister-states were similarly puzzled by the Offset Provision’s
requirements. So they wrote jointly to Secretary Yellen to seek clarification about the precise
obligations it imposed. Secretary Yellen—who elsewhere had acknowledged that the
“fungibility of money” presented “thorny questions” about the meaning of the Offset
Provision—wrote back to explain that the States could expect “further guidance” from Treasury
in the near future. Treasury Secretary & Federal Reserve Chair Testimony on COVID-19
Economic Recovery, C-SPAN (Mar. 24, 2021), at 58:00–59:11, available at https://www.c-
span.org/video/?510059-1/treasury-secretary-federalreserve-chair-testimony-covid-19-economic-
recovery; see Yellen Letter, R. 1-2.2 But she also explained that Treasury did intend to enforce
whatever prohibitions the Offset Provision was revealed to entail. See id. Perhaps
2
In particular, Senator Mike Crapo asked Secretary Yellen, “How do you intend to approach the question
of what is ‘directly or indirectly offsetting’ a tax cut?” The Secretary responded, “Well, when I said that we have
‘thorny questions’ to work through, you’ve just indicated why we do. We will have to define what it means to use
money from this Act as an ‘offset’ for tax cuts. And, given the fungibility of money, it’s a hard question to answer.”
Treasury Secretary & Federal Reserve Chair Testimony on COVID-19 Economic Recovery at 58:30–59:05
(emphasis added), available at https://www.c-span.org/video/?510059-1/treasury-secretary-federalreserve-chair-
testimony-covid-19-economic-recovery.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 7
unsurprisingly, given these lingering uncertainties, several states filed suit to restrain the Offset
Provision’s enforcement.
Kentucky and Tennessee brought their own challenge in April 2021. They each alleged
that because of the funds’ irresistible nature in the midst of an economic crisis, they intended to
accept their respective funding allotments.3 But they also alleged that the Offset Provision tied
to those funds injured the States with a coercive and ambiguous restriction that
“unconstitutionally intrud[es] on the [States’] sovereign authority, by interfering with their
ordinary management of their fiscal affairs, and by requiring them to forgo their constitutional
taxing powers or face an action to return much-needed federal funds after they have already been
spent.” Complaint ¶12, R. 1.
In response to this and other suits, Treasury attempted to clarify the Offset Provision by
promulgating an Interim Final Rule in May 2021. See 86 Fed. Reg. at 26,786. In relevant part,
the Interim Final Rule explained that Treasury did not read the Offset Provision to proscribe all
tax cuts during ARPA’s “covered period.” Id. at 26,807. Rather, it views the Provision as
proscribing only a tax cut that (1) results in a revenue reduction as compared to revenues for the
“fiscal year ending in 2019,” and (2) for which a state fails to identify a permissible, non-ARPA
source of additional funds to offset the revenue reduction. Id.; see also id. at 26,810.
In particular, Treasury said, it would not initiate a recoupment action even after a state enacted a
revenue-reducing tax cut and expended ARPA funds so long as the state could show that the
revenue reduction was offset with (1) a state tax increase on some other activity, (2) additional
inlays from macroeconomic growth, or (3) a state spending cut in an area the state is not
expending ARPA funds. Id.; see also Appellants’ Br. at 5; 31 C.F.R. §§ 35.1–35.12 (codifying
the Rule).
The States reacted with an amended complaint in June 2021. The Interim Final Rule
notwithstanding, the States reprised their contention that the Offset Provision functionally
3
Kentucky ultimately accepted the funds after the complaint was filed and certified that it would comply
with the Offset Provision, while Tennessee accepted the funds only after the district court entered its permanent
injunction. See Recording of Oral Arg. at 27:38–27:55. Additionally, Tennessee accepted the funds with a
reservation that it considered the Offset Provision invalid. Id.No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 8
proscribes all future tax cuts to the extent a state wishes to expend its ARPA funds. Amended
Complaint ¶32, R. 23 (alleging that Congress, as a condition of ARPA, required the States to
“promise that [they] will not lower taxes on their residents for four years”). But they augmented
their complaint with an allegation about compliance costs. See id. ¶12. In addition to their
“imminent recoupment” and “sovereign authority” theories of injury, the States complained that
“the Tax Mandate w[ould] impose administrative burdens on [them] by obligating them to spend
resources on calculation and reporting requirements.” Id. And the States alleged that all of those
injuries “are traceable to the Tax Mandate and Defendants’ efforts to enforce it.” Id. Thus, they
continued to seek a declaratory judgment that the Offset Provision is unconstitutional and an
injunction to restrain Treasury from initiating an enforcement action.
Two days later, the States submitted their corresponding motion for summary judgment
and a permanent injunction. They reiterated their view that they have standing to challenge the
Offset Provision for the three aforementioned reasons: that it intrudes on state taxing authority,
could result in a recoupment action if the States were to pursue their desired tax cuts, and
imposes administrative burdens and compliance costs. As to the merits, they argued that the
Offset Provision is impermissibly ambiguous under the Spending Clause, not reasonably related
to ARPA’s nominal goal of fiscal recovery, and unconstitutionally coercive and commandeering.
Given Treasury’s strenuous objections to justiciability, the corresponding evidence the
States submitted in support of their motion for summary judgment deserves particular scrutiny.
Kentucky offered merely a confirmation email indicating its acceptance of the ARPA funds. See
Submission Confirmation, R. 25-1. By contrast, Tennessee submitted declarations from two
state officials. First was a declaration from N. Antonio Niknejad, Policy Director to Governor
Bill Lee. See Niknejad Dec., R. 25-2. Niknejad explained that Tennessee has “a long history of
cutting taxes and spending in order to spur economic growth,” that Tennessee had recently
enacted several tax cuts on gym memberships, professional licensing, agricultural products, and
broadband fiber optic cables, and that Tennessee is contemplating several future tax cuts. Id.
¶¶6, 8, 9–11. Yet he explained that uncertainty about how the Offset Provision could be
construed has caused policymakers in Tennessee to “defer, slow, or reconsider some of [their]
taxing decisions.” Id. ¶14.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 9
The second was a declaration from Commissioner Howard H. Eley of Tennessee’s
Department of Finance and Administration. See Eley Dec., R. 25-3. Unlike Niknejad, who
focused on anticipated tax cuts, Eley described the administrative burdens and compliance costs
the Offset Provision (and Rule) would inflict on Tennessee. We quote three particularly relevant
paragraphs from his declaration below:
8. Tennessee is required by its state constitution to enact a balanced budget.
General fund expenditures, which include certain reductions in tax revenue due to
a statutory or regulatory change, are described by category, agency, program, and
the recurring or non-recurring nature of the expenditure. State revenues, which
include federal funds and reimbursements, are described by source. The enacted
budget appropriates a specific amount from the general fund and other funds to
fund the State’s programs and operations. But in determining whether the budget
is balanced, the Department of Finance and Administration generally compares
total expenditures to total revenues and does not typically connect expenditures to
specific revenue sources or “indirect” causes for those revenues. If the State
receives federal funds to offset certain state expenditures, the state funds that
would have been used to pay for those expenditures are not used and can be
returned to the general fund for future appropriation. To comply with the Tax
Mandate, the Department will be required to create new accounting processes
that specifically track whether federal funds received under the Rescue Plan are
being used to “directly or indirectly offset” any state expenditures resulting from
a reduction in tax revenue that otherwise would have been funded from state
appropriated tax revenues. That will include tracking whether any cost savings
resulting from the receipt of federal funds to offset certain state expenditures are
ultimately and indirectly used to offset a tax reduction. Establishing these
additional processes and preparing the required reports will require at least one
budget analyst and one revenue analyst to divert at least some of their work to
that task and other state employees to support and review that work.
9. To comply with the Secretary’s Regulations attempting to implement and
enforce the Tax Mandate, the State of Tennessee will be forced to expend
additional resources adjusting Tennessee’s “baseline” level of tax revenue for
inflation each year during the covered period “using the Bureau of Economic
Analysis’s Implicit Price Deflator for the gross domestic product of the United
States” and then using that adjusted figure to determine whether the State’s tax
policies may violate the Secretary’s interpretation of the Tax Mandate. 31 C.F.R.
§§ 35.3, 35.8(b).
10. The State of Tennessee would not incur these additional costs to determine
whether any revenue reductions could be said to have been “directly or indirectly
offset” by funds received under the Rescue Plan or to report its revenue
modifications to the Secretary but for the Tax Mandate.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 10
Eley Dec. ¶¶8–10, R. 25-3 (emphases added). Given both these compliance costs and the
asserted threat of a recoupment action should the States pursue their desired tax cuts, the States
asked the district court to grant them summary judgment and permanently enjoin the Offset
Provision’s enforcement.
Treasury cross-moved for summary judgment, or, alternatively, to dismiss the complaint.
It introduced no evidence of its own, and thus it did not attempt to controvert Niknejad or Eley’s
declarations. Rather, it argued that even taking the declarations as true, the States lacked
standing and that their merits challenges failed as a matter of law. See Mot. to Dismiss & Mot.
for Summ. J. at 8, 17, R. 32. Concerning a recoupment action, Treasury argued that none was
imminent. Id. at 10. For even if the States had established that they wish to cut taxes, they failed
to show that not only would such cuts result in revenue reductions, but also that they intended to
use ARPA funds to offset those reductions. Id. at 11. As to compliance costs, it argued that
(1) any administrative burdens were traceable solely to the reporting requirement, not the Offset
Provision, and (2) no injury occurs because the States are permitted to use ARPA funds “to cover
administrative costs.” Id. at 14–15. As to the merits, Treasury conceded that its Rule cannot
cure potential ambiguities in the Offset Provision for purposes of the Spending Clause. Id. at 30.
But it claimed that the text of the Offset Provision itself is unambiguous. Id. It likewise argued
that no precedents support the States’ view that the Offset Provision is unduly coercive or
commandeers state taxing authority. Id. at 18–26.
The district court rendered its opinion on these motions in September 2021. As to
justiciability, it concluded that both Kentucky and Tennessee had satisfied the pre-enforcement-
challenge standing test described in Susan B. Anthony List. See id. at 3–5 (citing Susan B.
Anthony List v. Driehaus, 573 U.S. 149 (2014)). First, both the States intended to accept ARPA
funds and yet asserted that doing so entailed compliance with the arguably unconstitutional “Tax
Mandate.” Op. & Order at 4–5. Second, the “Tax Mandate” at least arguably proscribed the
States’ desired efforts to cut taxes. Id. at 5. And third, Secretary Yellen had expressed intent to
enforce the Offset Provision in her earlier letter to the States, demonstrating a credible threat of
enforcement. Id. The district court thus held that both Kentucky and Tennessee had standing to
challenge the Offset Provision. Id.No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 11
As for the merits, the district court concluded that ARPA violated the Spending Clause
because it had coerced the States into relinquishing control over their taxing authority to the
federal government. Id. at 11. In essence, it said, the economic crisis made the federal
government’s aid offer irresistible, and so it represented an “undue influence” on the States’
authority to tax. Id. at 6 (quoting Nat’l Fed. of Indep. Bus. v. Sebelius, 567 U.S. 519, 576 (2012)
(opinion of Roberts, C.J.)); see also id. at 11. The district court thus granted summary judgment
to the States and imposed a permanent injunction4 restraining enforcement of the Offset
Provision. Id. at 16–17.
II.
The district court’s order granting the States summary judgment and imposing a
permanent injunction was a final decision. See, e.g., Reform Am. v. City of Detroit, 37 F.4th
1138, 1147 (6th Cir. 2022) (citation omitted). Thus, 28 U.S.C. § 1291 gives us statutory
jurisdiction to handle Treasury’s appeal. We examine Article III jurisdiction over the States’
respective claims below.
As for our standards of review, we consider summary-judgment orders de novo. See
Jordan v. Howard, 987 F.3d 537, 542 (6th Cir. 2021) (citation omitted). Thus, drawing all
reasonable inferences in favor of the non-movant, we ask whether the party seeking summary
judgment demonstrated “that there is no genuine dispute as to any material fact” and that it is
“entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). On cross-motions for summary
judgment, we apply these same standards to each of the individual motions. See Taft Broad. Co.
v. United States, 929 F.2d 240, 248 (6th Cir. 1991) (citation omitted); accord Reform Am.,
37 F.4th at 1147; B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 592 (6th Cir. 2001).
Concerning the district court’s decision to grant a permanent injunction, several standards
of review are relevant. “[F]actual findings are reviewed under the clearly erroneous standard,
legal conclusions are reviewed de novo, and the scope of injunctive relief is reviewed for an
abuse of discretion.” Sec’y of Lab. v. 3Re.com, Inc., 317 F.3d 534, 537 (6th Cir. 2003) (quoting
4
By contrast, the district court denied the States’ requested declaratory judgment, reasoning that such relief
was subsumed into its order awarding a permanent injunction. Op. & Order at 14, R. 42.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 12
S. Cent. Power Co. v. Int’l Brotherhood. of Elec. Workers, Loc. Union 2359, 186 F.3d 733, 737
(6th Cir. 1999)).
III.
As is our obligation, we consider first whether Kentucky and Tennessee established that
their respective challenges to the Offset Provision are justiciable. See, e.g., Arbaugh v. Y&H
Corp., 546 U.S. 500, 514 (2006). We hold that Tennessee alone satisfied that showing. We then
explain our view that the text of the Offset Provision is insufficiently clear under the relevant
Spending Clause jurisprudence for Treasury, through promulgation of its Rule, to impose the
specific obligations that Tennessee complains have inflicted compliance costs upon it.
A. Justiciability
1. Kentucky and Tennessee’s Initial Standing to Sue
From the States’ original complaint onward, their central theory of standing has been as
follows. First, they said, they both intended to accept ARPA funds. Complaint ¶¶26–27, R. 1.
But second, the Offset Provision at least arguably proscribes enacting any post-acceptance tax
cut should the States wish to expend their funds. Id. ¶32. Indeed, because money is fungible,
spending ARPA funds and then cutting taxes (or vice versa) could arguably be construed as
having used those funds to “indirectly offset” a resultant revenue reduction. Id. ¶35. And
second, the States alleged, both Kentucky and Tennessee desire to enact (or have enacted) tax
cuts. Kentucky, for instance, recently enacted a tax-deferral bill to revitalize an area of
Louisville. Id. ¶41. Likewise, Tennessee is considering eliminating its professional-privilege
tax, and it has recently enacted cuts to several other taxes. Id. ¶42. But the States complained
that such tax cuts “could be construed to come within the Tax Mandate if they result in a revenue
decrease.” Id. They thus contended that the Offset Provision constrained their sovereign
authority to tax and exposed them to an imminent recoupment action should they wish to pursue
their preferred policies.
These original theories sufficed for standing. Whether a party has standing to redress an
injury is measured as of the time the injury is first asserted; here, in the original complaint. See
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 13
Lynch v. Leis, 382 F.3d 642, 647 (6th Cir. 2004). As of that moment, therefore, we apply two
relevant frameworks to assess whether these “imminent-recoupment” and “sovereign-authority”
theories sufficed for standing. The first framework derives from the Supreme Court’s decision in
Lujan, which explained that plaintiffs must establish an injury that is (1) actual or imminent and
concrete and particularized, (2) traceable to the defendant, and (3) likely to be redressed by a
favorable decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Here at least,
elements (2) and (3) are not subject to serious dispute. A recoupment action initiated by
Treasury is no doubt traceable to Treasury, and an injunction restraining such a proceeding
would provide the States corresponding relief. But what about an injury in fact? No recoupment
action is now pending. So the question is whether a future such proceeding is sufficiently
imminent to say the States have suffered a de facto injury for purposes of Article III.
That brings us to the second, more specialized framework, which instructs us how to
determine whether an enforcement action is sufficiently imminent to support Article III
jurisdiction over a pre-enforcement challenge. See Susan B. Anthony List, 573 U.S. at 158–59.
Under that test, we ask whether the States, when they first asserted these injuries, had established
(1) an intention to engage in a course of conduct arguably affected with a constitutional interest,
(2) that this course of conduct was arguably proscribed by the Offset Provision, and (3) that if the
States should pursue such a course of conduct, there was a credible threat that Treasury would
pursue a recoupment action. See id. at 161–64. Before the eventual advent of the Rule, we
believe, the States had satisfied this tripartite showing.
First, Kentucky and Tennessee alleged that despite their intention to accept and expend
ARPA funds, they had either enacted or planned to enact tax cuts that could potentially result in
revenue reductions. Complaint ¶¶41–42, R. 1. And their decision to do so was at least arguably
affected with a constitutional interest, given that states have a powerful sovereign prerogative
under federalism principles to control their own internal taxation policies. See id. ¶40; see also
Lane County v. Oregon, 74 U.S. 71, 76 (1868) (describing states’ control over “the power of
taxation” as “indispensable” and “an essential function of government”); Dep’t of Revenue of
Oregon v. ACF Indus., Inc., 510 U.S. 332, 345 (1994) (“Subsection (b)(4), like the whole of
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 14
§ 11503, sets limits upon the taxation authority of state government, an authority we have
recognized as central to state sovereignty.”).
Second, this course of conduct was at least arguably proscribed by the Offset Provision.
As we noted before, “money is fungible.” Complaint ¶35, R. 1; see also United States v. Sperry
Corp., 493 U.S. 52, 62 n.9 (1989) (“Unlike real or personal property, money is fungible.”);
Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 79 (2011) (same); Ark Encounter, LLC v.
Parkinson, 152 F. Supp. 3d 880, 904 (E.D. Ky. 2016) (“Because money is fungible, such
benefits will to some extent have the incidental effect of allowing the institution’s other funds to
be used to advance their [other] purposes if they wish. Indeed any reimbursement, aid, or tax
exemption necessarily frees up other funds for other purposes.”). As a result, merely enacting a
revenue-reducing tax cut and expending ARPA funds could at least arguably be construed as
having used the funds to “indirectly offset” the revenue reduction, given that the ARPA funds
could support continued state spending rendered otherwise impossible by the tax cuts.5
Indeed, Treasury acknowledged in the commentary to its own Final Rule that this is at
least a plausible interpretation of the statute. For instance, it explained, “because money is
fungible, even if [ARPA] funds are not explicitly or directly used to cover the costs of changes
that reduce net tax revenue, those funds may be used in a manner inconsistent with the statute by
indirectly being used to substitute for the state’s or territory’s funds that would otherwise have
been needed to cover the costs of the reduction.” 87 Fed. Reg. at 4,424 (emphasis added). For
that matter, the plausibility of the States’ money-is-fungible interpretation is the very reason
Treasury had to promulgate its Rule—to disavow that interpretation and attempt to clarify the
Offset Provision. See, e.g., id. at 4,423–24. Thus, the States’ desire to cut taxes while spending
ARPA funds was at least arguably proscribed by the Offset Provision.
Last, the States had illustrated a credible threat of enforcement. For instance, the States
produced Secretary Yellen’s letter indicating that Treasury intended to enforce the Offset
5
The question may arise why a revenue reduction would necessarily make additional spending impossible,
since it would seem the States could continue to spend at the same levels by taking on debt. The answer is that this
sort of debt-financed spending is restricted under Kentucky and Tennessee’s respective constitutions, which have
balanced-budget amendments. See Ky. Const. §§ 49–50, 171; Tenn. Const. Art. II, § 24.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 15
Provision. See Yellen Letter, R. 1-2. The letter reiterated that “[ARPA] funding may not be
used to offset a reduction in net tax revenue resulting from certain changes in state law.” Id. at 1.
It also explained that Treasury would later promulgate “further guidance” about what sort of
changes in state law could provoke a recoupment action.6 Id. at 1–2. Thus, the letter itself
acknowledged that (1) the Offset Provision would be enforced, but (2) it was not yet clear, based
on the statute alone, how the States could comply with the Provision (and stave off recoupment).
So as of the original complaint, the States had satisfied the Supreme Court’s pre-enforcement-
challenge test. In addition to traceability and redressability, in other words, they had also
established a sufficiently imminent injury for jurisdiction.
2. The Interim Final Rule Complicates the Initial Imminent-Recoupment
and Sovereign-Authority Theories of Injury
A little over a month after the States had filed their original complaint, Treasury
promulgated its Interim Final Rule (“IFR”) offering its construction of the Offset Provision.
Several features of that Rule are relevant to this dispute. First, the IFR supplied the missing
baseline for calculating whether a tax cut results in a revenue reduction. It clarified that the
revenue baseline would be the state’s “fiscal year 2019 tax revenue adjusted for inflation.”
86 Fed. Reg. at 26,808.7 Second, the IFR attempted to provide guidance about when a state
would be understood to have “directly or indirectly offset a reduction in . . . net tax revenue.”
42 U.S.C. § 802(c)(2)(A). Treasury’s commentary explained as follows:
A recipient government would only be considered to have used Fiscal Recovery
Funds to offset a reduction in net tax revenue resulting from changes in law,
regulation, or interpretation if, and to the extent that, the recipient government
could not identify sufficient funds from sources other than the Fiscal Recovery
6
Technically, even this letter explained Secretary Yellen’s position that the Offset Provision does not
render tax cuts impermissible per se. See Yellen Letter at 1, R. 1-2. But the letter also acknowledged that the Offset
Provision created significant uncertainty about when tax cuts were permissible versus when they were not, which
was why Treasury intended to promulgate “further guidance” about when it would pursue recoupment actions. Id.
at 2. Thus, in the absence of those clarifying regulations, it was at least arguable that the tax cuts Kentucky and
Tennessee had enacted or planned to enact could provoke a recoupment action. Indeed, as this Circuit’s precedent
recognizes, a threatened enforcement action should only be understood as too remote to support jurisdiction when
the defendants have provided “clear assurances” they will not undertake the enforcement action. See, e.g., Universal
Life Church Monastery Storehouse v. Nabors, 35 F.4th 1021, 1035 (6th Cir. 2022).
7
The Final Rule likewise confirms that the fiscal year ending in 2019 is the relevant baseline. See
31 C.F.R. § 35.3; 87 Fed. Reg. at 4,423.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 16
Funds to offset the reduction in net tax revenue. If sufficient funds from other
sources cannot be identified to cover the full cost of the reduction in net tax
revenue resulting from changes in law, regulation, or interpretation, the remaining
amount not covered by these sources will be considered to have been offset by
Fiscal Recovery Funds, in contravention of the offset provision. The interim final
rule recognizes three sources of funds that may offset a reduction in net tax
revenue other than Fiscal Recovery Funds—organic growth, increases in revenue
(e.g., an increase in a tax rate), and certain cuts in spending.
86 Fed. Reg. at 26,807. The IFR thus provided the “further guidance” Secretary Yellen had
promised in her initial letter to the States. As we explained before, Treasury construed the Offset
Provision not to bar a revenue-reducing tax cut so long as a state identifies replacement funds
from (1) macroeconomic growth, (2) increased state taxation on some other activity, or (3) state
spending cuts in an area where the state is not expending ARPA funds. Id.; see also Appellants’
Br. at 5.
Yet this narrowing construction created apparent justiciability issues for the States’
challenge to the Offset Provision. In their initial complaint, the States had alleged only that they
have enacted or plan to enact tax cuts that may result in reduced state revenues. Complaint
¶¶41–42, R. 1. They never additionally alleged that they would then fail to identify a permissible
source of revenue—such as from macroeconomic growth or a reduction in certain state
spending—to offset the resultant reductions in inlays. And only if that contingency were to
occur, according to Treasury’s new Rule, would Treasury pursue a recoupment action against the
States. See 86 Fed. Reg. at 26,807; see also Appellants’ Br. at 5. The IFR thus rendered it
unclear why there was a reasonable prospect of a recoupment action.
And the States’ sovereign-authority theory now suffered from a similar issue. The States’
apparent view was that they had either been injured (1) in the past from the receipt of an
ambiguous or coercive offer, or (2) are being continuously injured because the Offset Provision
“prohibit[s] . . . tax relief.” Appellees’ Br. at 46. But an injunction cannot be used to redress a
purely past injury. See City of Los Angeles v. Lyons, 461 U.S. 95, 105 (1983). Rather, the States
had to show why they were likely to suffer some present or future harm. Id. So that leaves the
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 17
claim that the Offset Provision “prohibits . . . tax relief.” Appellees’ Br. at 46.8 But the IFR
subsequently disavowed the States’ interpretation of the Offset Provision, clarifying that they
remain free to expend ARPA funds and enact tax cuts resulting in revenue reductions so long as
they identify a permissible source of offsetting funds. See, e.g., 86 Fed. Reg. at 26,807. And the
Final Rule crystallized precisely the same understanding. See, e.g., 87 Fed. Reg. at 4,426.9 Yet
the States never established that they would fail to meet that obligation. Thus, we do not see
how the sovereign-authority theory could support injunctive relief when the States identified no
specific course of conduct they wish to pursue but against which Treasury will initiate an
enforcement proceeding. See Whole Woman’s Health v. Jackson, 141 S. Ct. 2494, 2495 (2021)
(“[F]ederal courts enjoy the power to enjoin individuals tasked with enforcing laws, not the laws
themselves.” (citing California v. Texas, 141 S. Ct. 2104, 2115–16 (2021)).
3. The States File Their Amended Complaint and Motion for Summary
Judgment But Provide No Evidence that They Intend to Violate the
Rule
About a month after the IFR’s promulgation, the States filed their amended complaint
and corresponding motion for summary judgment and a permanent injunction. Despite the
advent of the IFR, the States made no allegations and adduced no specific evidence about how
8
In response to our request for supplemental briefing on mootness, the States emphasized their contention
that their “sovereign authority” theory remains live even despite the Rule because the Offset Provision still “limits
the range of policy options available to the[m].” Appellees’ Supp. Br. at 4 (quoting Appellees’ Br. at 20–21). Of
course, any law could be said to “limit the range,” in an abstract sense, of a plaintiff’s legitimate behavior. But
merely because enjoining the law’s enforcement could be said to expand the range of potential behaviors a plaintiff
might permissibly engage in does not alone establish the plaintiff’s standing to seek an injunction. Rather, the
plaintiff must show that he is “able and ready” to violate the law and that an enforcement action would realistically
and likely ensue in response to the violation. Carney v. Adams, 141 S. Ct. 493, 501–02 (2020); Babbitt v. United
Farm Workers Nat. Union, 442 U.S. 289, 298 (1979). Thus, as concerns the “sovereign authority” theory, the States
still had the burden to establish, with evidence, why they plan to imminently pursue some policy objective outside
the range of conduct permitted by the Rule and against which Treasury would correspondingly take action. Lujan,
504 U.S. at 561; cf. Whole Woman’s Health v. Jackson, 141 S. Ct 2104, 2495 (2021) (“[F]ederal courts enjoy the
power to enjoin individuals tasked with enforcing laws, not the laws themselves.” (citing California v. Texas, 141 S.
Ct. 2104, 2115–16 (2021))).
9
We do not hold today that the interim final rule itself necessarily mooted the imminent-recoupment and
sovereign-authority theories. Interim final rules are subject to revision after the notice-and-comment process, so a
rule’s content could still change from its interim form to its final form in some way relevant to justiciability. But
that concern is absent from this particular case, given that the final rule varied from the interim final rule in no way
material to this dispute. Both disavow enforcement in exactly the same way and present exactly the same safe
harbors for states and enforcement constraints on the Treasury Department.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 18
they have pursued or intend to pursue a course of conduct that would arguably violate the Rule.
In other words, they provided no declarations or other evidence about how they intend to enact
tax cuts that (1) would result in net revenue reductions compared to 2019 inlays, and (2) would
then fail to identify a permissible funding source (such as from growth or spending cuts) to offset
the revenue reduction. Indeed, the only evidence Kentucky adduced in the States’ motion for
summary judgment was its notification that it intended to accept the ARPA funds. See
Submission Confirmation, R. 25-1.
Those omissions are problematic for justiciability, since the States produced no evidence
about why there is a realistic risk of an enforcement proceeding. And justiciability must be
established with the degree of evidence required at each respective stage of the suit. See Lujan,
504 U.S. at 561. So the States were obliged to submit evidence—such as a sworn declaration—
detailing how they are “able and ready” to pursue a course of action that would run afoul of the
Rule. Carney v. Adams, 141 S. Ct. 493, 501–02 (2020). For only then would there be a
demonstrated risk of a recoupment action, which a federal court could redress by enjoining such
action. See Jackson, 141 S. Ct. at 2495 (citing California, 141 S. Ct. at 2115–16). In the
absence of that evidence, we conclude that Treasury’s disavowal of the money-is-fungible
interpretation dispelled the States’ claim that they run the risk of an imminent enforcement
action—as when, for instance, a prosecutor credibly disavows that he will enforce a challenged
statute. See, e.g., Mink v. Suthers, 482 F.3d 1244, 1256–57 (10th Cir. 2007); cf. Commodity
Trend Serv., Inc. v. Commodity Futures Trading Comm’n, 149 F.3d 679, 687 (7th Cir. 1998)
(explaining that courts will find a credible threat of enforcement when “the Government fails to
indicate affirmatively that it will not enforce the statute” (emphasis omitted)).
The only remaining question is what kind of justiciability defect Treasury’s disavowal
created. The parties initially framed the issue as one of the States’ “standing.” But we disagree
with that characterization. Whether an “intervening circumstance” arising after a suit has been
filed causes a plaintiff’s asserted injury to dissipate is really a question of mootness. See Genesis
Healthcare Corp. v. Symczyk, 569 U.S. 66, 72 (2013). And whether the Rule mooted the
imminent-recoupment and sovereign-authority theories comes down to whether we should credit
Treasury’s voluntary disavowal of a broad view of the Offset Provision; in essence, whether
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 19
Treasury established10 that there is no “reasonable possibility” it will act as if the Offset
Provision forbids tax cuts per se. Resurrection Sch. v. Hertel, 35 F.4th 524, 529 (6th Cir. 2022)
(en banc).
We hold that Treasury satisfied this showing. Its Final Rule resulted from the notice-and-
comment process, and thus it may be rescinded only pursuant to that process as well. See
5 U.S.C. § 551(5); Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 101 (2015). And we have no
evidence that Treasury plans to pursue such rescission. Indeed, and more importantly, Treasury
has repeatedly taken the position in this litigation that its Rule necessarily follows from the plain
text of the Offset Provision itself. See, e.g., Reply Br. at 1; Appellants’ Supp. Br. at 2 n.2. So
even without the Rule, according to Treasury, it would pursue recoupment against Kentucky and
Tennessee—even if they were to enact a revenue-reducing tax cut and expend ARPA funds—
only if the States additionally failed to identify one of the permissible sources of offsetting funds,
such as a tax increase or macroeconomic growth.11 Id. On those bases, then, we conclude that
Treasury has affirmatively and credibly disavowed the money-is-fungible interpretation of the
Offset Provision. Thus, because the States failed to provide evidence that they intend to
10
Aside from how standing and mootness concern the parties’ interests at different stages of a lawsuit, they
can also present different burdens of proof. See Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 98 (1993).
The burden to establish jurisdiction rests on the party invoking jurisdiction—here, the States—while the burden to
defeat jurisdiction with a mootness objection rests on the party asserting mootness—here, Treasury. Id. Because of
this burden-shifting issue, we ordered supplemental briefing to solicit Treasury’s affirmative case as to why the
States’ challenge is moot. See Order, ECF No. 45. After agreeing that mootness (rather than standing) is the
appropriate framework to assess the impact of the Rule’s advent, Treasury’s supplemental brief once again
disavowed the money-is-fungible interpretation of the Offset Provision and disclaimed that Treasury has any intent
to pursue recoupment in response to tax cuts per se. See Appellants’ Supp. Br. at 1. We thus understand Treasury,
through its supplemental briefing, to have discharged its duty to make an affirmative showing about why at least the
imminent-recoupment and sovereign-authority theories are moot.
11
In their supplemental briefing, the States contended that the Rule did not moot the imminent-recoupment
and sovereign-authority theories because it contains a reservation of authority. See Appellees’ Supp. Br. at 5 (citing
31 C.F.R. § 35.4(a)). And, true, the Rule 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). But we have no evidence (or even argument) about how the States plan to
engage in conduct that Treasury would construe as an “evasion,” much less why Treasury would construe behavior
clearly permitted by other parts of the Rule to constitute such an “evasion.” Moreover, Treasury insists that the
Rule’s narrowing construction “flows naturally from the text of the Offset Provision itself.” Appellants’ Supp. Br.
at 2 n.2. So even if the Rule arguably did not bar Treasury from pursuing recoupment under, for instance, the
money-is-fungible interpretation, Treasury has solemnly represented before us that the Offset Provision itself would
preclude such an enforcement action. Again, Treasury’s position is that the Offset Provision itself unambiguously
dispels that interpretation of the statute. Reply Br. at 1; Appellants’ Supp. Br. at 2.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 20
specifically violate the Rule (and provoke recoupment), and because Treasury established that
there is no realistic prospect it will enforce the States’ expansive interpretation of the Offset
Provision, we deem the imminent-recoupment and sovereign-authority theories moot.
Moreover, that holding ends the case for Kentucky. Kentucky submitted nothing other
than an email indicating its intent to accept the ARPA funds. Submission Confirmation, R. 25-1.
It furnished no proof about how it intends to violate the Rule, or about why it suffers a
continuing sovereign injury when it identified no desired tax cut that, if enacted, would likely
provoke recoupment. It also offered no additional theory of injury, such as compliance costs,
that might sustain its challenge even in the absence of an imminent recoupment action. See
Recording of Oral Arg. at 30:38–30:45 (conceding that there is no evidence in the record about
Kentucky’s budgeting processes). Thus, the district court should have dismissed its challenge to
the Offset Provision as moot.12
4. Tennessee’s Challenge Remains Justiciable, However, Under a
Compliance-Costs Theory of Injury
The same cannot be said for Tennessee. Recall how, in their amended complaint, the
States made allegations about an additional injury the Offset Provision would inflict upon them:
12
Kentucky insists that its challenge to the Offset Provision is justiciable if we determine that Tennessee’s
challenge to the Offset Provision is justiciable. See, e.g., Recording of Oral Arg. at 30:15–30:20; Appellees’ Br. at
16 n.4. We disagree. “Standing is not dispensed in gross.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 353
(2006) (quoting Lewis v. Casey, 518 U.S. 343, 358 n.6 (1996)). Rather, to win summary judgment and obtain
injunctive relief, Kentucky and Tennessee each had to demonstrate, with evidence, why it was suffering
particularized continuing or imminent injuries in fact, and why that remained the case even after promulgation of
the Rule. Lujan, 504 U.S. at 561; see also id. at 560 n.1 (“By particularized, we mean that the injury must affect the
plaintiff in a personal and individual way.”); Trump v. New York, 141 S. Ct. 530, 534 (2020) (“A foundational
principle of Article III is that an actual controversy must exist not only at the time the complaint is filed, but through
all stages of the litigation.” (cleaned up)). Thus, the district court had no authority to issue an injunction protecting a
party that failed to demonstrate that its challenge was even justiciable. Instead, a “remedy must . . . be limited to the
inadequacy that produced the injury in fact that the plaintiff has established.” DaimerChrysler Corp., 547 U.S. at
353. The case that Kentucky cites to the contrary—Rumsfeld v. Forum for Academic & Institutional Rights, Inc.—is
inapposite. See Appellees’ Br. at 16 n.4 (citing 547 U.S. 47, 52 n.2 (2006)). There, determining the standing of
each individual plaintiff (and thus the legitimate scope of injunctive relief) was irrelevant; since plaintiffs had all
advanced the same non-meritorious claim, the Court needed to find standing only as to a single plaintiff to deem
their shared legal theory erroneous. Id. at 70. But while such cases “give courts license to avoid complex questions
of standing in cases where the standing of others makes a case justiciable, it does not follow that these cases permit a
court that knows that a party is without standing to nonetheless allow that party to participate in the case.” Nat’l
Rifle Ass’n of Am., Inc. v. McCraw, 719 F.3d 338, 344 n.3 (5th Cir. 2013). The proper course is, instead, to limit
relief only to those parties who established the district court’s jurisdiction to award it. DaimlerChrysler Corp.,
547 U.S. at 353.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 21
compliance costs. Amended Complaint ¶12, R. 23. Unlike Kentucky, Tennessee then submitted
uncontroverted evidence of those costs. Eley Dec. ¶¶8–10, R. 25-3. As Eley’s declaration
explains, the Offset Provision requires Tennessee to expend time and money that it would not
expend but for the Offset Provision to ensure that none of the tax cuts it has enacted or will enact
could be construed as having been “indirectly offset” by ARPA spending. Id. ¶8. Likewise, it
must also expend resources it would not otherwise have to expend “adjusting [its] ‘baseline’
level of tax revenue for inflation each year during the covered period” to determine whether its
tax policies may provoke a recoupment action. Id. ¶9. These injuries were not mooted by the
advent of the Rule, since Tennessee must still expend resources to maintain compliance with the
Offset Provision (and, for that matter, the Rule as well). See id.
And, unlike with the imminent-recoupment and sovereign-authority theories, we have no
similar imminence concern about the compliance-costs argument.13 Tennessee already accepted
the funds, so it must undertake compliance efforts at present. Given those facts, we conclude
that Tennessee satisfied its obligation to show an actual injury traceable to the defendants and
likely redressable by a favorable decision. Indeed, compliance costs are a recognized harm for
purposes of Article III. See, e.g., Federal Election Comm’n v. Ted Cruz for Senate, 142 S. Ct.
1638, 1646 (2022); Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 983 (2017) (“For standing
purposes, a loss of even a small amount of money is ordinarily an ‘injury.’”); see also State Nat.
Bank of Big Spring v. Lew, 795 F.3d 48, 53 (D.C. Cir. 2015) (Kavanaugh, J.) (“The Rule also
offers a safe harbor, but banks such as State National Bank must incur costs to ensure that they
are properly complying with the terms of that safe harbor. . . . Under Lujan, the Bank therefore
has standing to challenge the constitutionality of the Bureau.”); Grand River Enters. Six Nations,
Ltd. v. Boughton, 988 F.3d 114, 121 (2d Cir. 2021) (collecting cases). Tennessee’s expenditure
of those resources, as we explain below, is traceable to the Offset Provision. Its proscriptions are
why Tennessee must incur such costs—to maintain compliance with the Offset Provision and
stave off a recoupment action.14 And permanently enjoining the Offset Provision’s enforcement
13
We thus assess Tennessee’s standing argument under the ordinary Lujan framework. See supra at 12–13.
14
Supreme Court doctrine, we note, provides that a federal court has jurisdiction over a regulated entity’s
pre-enforcement challenge even when no enforcement action is imminent if the enforcement action’s remoteness
stems from the regulated entity’s own involuntary efforts to comply with the contested proscription. MedImmune,
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 22
would redress that injury. For if enforcement of the Offset Provision were enjoined, Tennessee
would have no reason to continue expending resources to maintain compliance with an
unenforceable provision.
Still, however, Treasury disputes several aspects of this analysis. Its objections focus on
whether these compliance costs are a legitimate injury in fact, and, even assuming they are,
whether such an injury is truly traceable to the Offset Provision. After more fully describing
those objections below, we explain why none persuades us that we lack jurisdiction.
a. Treasury’s Objection that Tennessee’s Compliance Costs are
not an Injury in Fact
Treasury at points seems to dispute that the compliance costs the Offset Provision (and
Rule) inflict on Tennessee even constitute an injury in fact. See, e.g., Reply Br. at 4 n.1. Its
argument rests on a portion of the Final Rule—which, we note, acknowledges that ARPA
imposes an “administrative burden” on the States—but that permits states to use ARPA funds to
defray the costs of complying with ARPA’s reporting requirement. Id.; 87 Fed. Reg. at 4,444.
The theory seems to be that Tennessee cannot be injured by ARPA-related compliance costs
when ARPA funds may themselves be used to offset administrative expenses.
We perceive two central problems with this argument. The first is that even if the Rule
permits states to use ARPA funds to defray the costs of complying with the reporting
requirement, 87 Fed. Reg. at 4,444, that is simply beside the point as concerns Tennessee’s
compliance-costs argument. Tennessee complained of compliance costs distinct from those
imposed by the reporting requirement. See Eley Dec. ¶¶8–9, R. 25-3. Indeed, Eley’s declaration
draws an explicit distinction between the costs of reporting Tennessee’s uses of ARPA funds, on
the one hand, and the costs of tracking whether any such use could be construed as an “indirect
offset,” on the other. Id. ¶10. And that distinction makes perfect sense based on the statute’s
text. The reporting requirement explains that states must provide a “detailed accounting
Inc. v. Genentech, Inc., 549 U.S. 118, 128–30 (2007). MedImmune concerned a declaratory judgment, of course, but
the Declaratory Judgment Act did not expand federal courts’ jurisdiction beyond that which they already could have
exercised to award traditional remedies like money damages or an injunction. Skelly Oil Co. v. Phillips Petroleum
Co., 339 U.S. 667, 671–72 (1950). So since the court in MedImmune had jurisdiction to adjudicate a declaratory-
judgment action concerning alleviation of a prospective harm, it necessarily would have had jurisdiction to entertain
an injunctive suit (such as the one at issue here) as well.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 23
of . . . the uses of [ARPA] funds” and “all modifications to the State’s . . . revenue sources during
the covered period,” along with “other information as the Secretary may require[.]” 42 U.S.C.
§ 802(d)(2)(A)–(B). The Offset Provision, by contrast, presents a different obligation: that such
“uses” may not be for “indirect” offsets of revenue-reducing tax cuts. § 802(c)(2)(A). So a state
could violate the Offset Provision—indirectly offsetting tax cuts with ARPA funds—while
complying with the reporting requirement—by simply telling Treasury that it was using the
funds in an impermissible manner. Thus, even if we assumed that the States were not injured by
the reporting requirement, given that they may defray associated administrative expenses with
ARPA funds, that would in no way dispel Tennessee’s distinct injury from additional costs
incurred to comply with the Offset Provision.
Second, and more fundamentally, even if we assumed that the Rule permitted Tennessee
to use ARPA funds to defray its Offset Provision-related compliance costs, that would still
represent an injury in fact. Tennessee has an independent interest in expending its ARPA funds
on other legitimate uses; for instance, spending in one of the four areas that Congress deemed
necessary to recovery from the pandemic. 42 U.S.C. § 802(c)(1)(A)–(D). ARPA funds
expended on compliance with an invalid Offset Provision are necessarily ARPA funds not
productively expended on economic recovery. So a “diversion of resources” from useful areas to
compliance with an invalid condition would nonetheless constitute an injury in fact. Dep’t of
Com. v. New York, 139 S. Ct. 2551, 2565 (2019). Put simply, Tennessee has a live interest in not
wasting its ARPA funds on compliance with an invalid condition.
b. Additional Concerns about Traceability
Next, Treasury reframes the same argument as an objection to traceability—that all of
Tennessee’s compliance costs are traceable solely to the unchallenged reporting requirement,
rather than to the Offset Provision. Reply Br. at 4. But we reject this argument for the same
reason we rejected it above; again, that it is undercut by both law and fact. The reporting
requirement contains no prohibition on how funds may be used. It establishes only an obligation
that states inform Treasury of which uses a state pursues. The Offset Provision, by contrast,
contains a substantive prohibition on use—that the funds cannot be used to “indirectly offset”
revenue reductions resulting from tax cuts. 42 U.S.C. § 802(c)(2)(A). And Eley’s
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 24
uncontroverted declaration establishes that these distinct obligations incur distinct sets of
compliance costs upon Tennessee.
That discussion appears to exhaust Treasury’s arguments about why the compliance-costs
injury is nonjusticiable. But given our independent obligation to ensure that we have
jurisdiction, we find a few additional comments about traceability in order. See, e.g., Arbaugh,
546 U.S. at 514. One important issue, we note, is whether Tennessee’s compliance costs are
truly traceable to the Offset Provision itself, or whether they are traceable merely to the Rule. In
our view, Tennessee’s costs are most proximately traceable to the Rule, rather than to the Offset
Provision’s text. If the Rule had never existed, after all, the statute alone arguably might have
entailed obligations wholly distinct from those described by the Rule, and thus a distinct set of
compliance costs as well. Absent the Rule’s safe harbors about growth, tax increases, and
spending cuts, for instance, the Offset Provision itself, under the money-is-fungible
interpretation, arguably proscribed all revenue-reducing tax cuts during ARPA’s “covered
period.” So compliance costs under that regime would have been much simpler: just don’t cut
taxes if you want to expend ARPA funds. But the Rule clarified that Tennessee may cut taxes
insofar as it establishes a new tracking procedure to ensure that funds offsetting a tax cut stem
from a permissible replacement revenue source (e.g., growth) rather than from ARPA funds.
Eley Dec. ¶8, R. 25-3. Likewise, Eley’s declaration explained that Tennessee must expend
additional resources to inflation-adjust its revenues for each year of the “covered period” and
then compare them with a 2019 baseline to determine whether any year during the “covered
period” witnessed a “reduction” in net tax revenue. That specific requirement only became clear
from the Rule. Id. ¶9 (citing 31 C.F.R. § 35.3, 35.8(b)).
Yet while these refined obligations’ origin in the Rule may highlight the indeterminacies
of the underlying Offset Provision, they do not establish that Tennessee’s injuries cannot be
traced to the Offset Provision itself. The Supreme Court recently confronted an analogous issue
in Federal Election Commission v. Ted Cruz for Senate. 142 S. Ct. at 1638. There, the Cruz
campaign challenged a campaign-finance restriction found in an agency regulation implementing
a statute but absent from the underlying statute’s text. Id. at 1648. Thus, the government argued,
“[a] challenge to the regulation . . . is separate from a challenge to the statute that authorized it.”
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 25
Id. But the Court declined to endorse this distinction. To the contrary, it held that an injury from
a regulation implementing a statute was still traceable to the statute itself. Id. at 1649. “An
agency, after all, ‘literally has no power to act’—including under its regulations—unless and
until Congress authorizes it to do so by statute.” Id. (citations omitted). And “[a]n agency’s
regulation cannot ‘operate independently of’ the statute that authorized it.” Id. (citation omitted).
So even if Tennessee’s injuries are most proximately traceable to the Rule, we nonetheless
conclude that these injuries also suffice for standing to challenge the Offset Provision itself. For
if enforcement of the Offset Provision itself were enjoined, it would necessarily preclude
enforcement of the Rule, at least to the extent it implements the Offset Provision.
Last, we address the notion that Tennessee’s compliance costs are a “self-inflicted injury”
and are thus traceable solely to its own conduct in accepting the ARPA funds, rather than to
some wrongful conduct of the federal government.15 It is in some sense true that Tennessee
exposed itself to the risk of compliance costs when it accepted the ARPA funds. Of course,
Tennessee did so with a reservation about the Offset Provision, and it also insists that it took the
funds under duress. See Recording of Oral Arg. at 27:38–27:55; Appellees’ Br. at 29. But even
if we assumed that Tennessee took the money purely of its own volition, that would not make its
compliance costs “self-inflicted” in a way that would defeat jurisdiction. The Supreme Court
recently rejected a similar argument in, incidentally, Ted Cruz for Senate. 142 S. Ct. at 1647–48.
There, the Cruz campaign stipulated that its “sole and exclusive motivation” for violating the
campaign-finance restriction was to create a factual basis for challenging the restriction. Id. at
1647. The government accordingly argued that any resultant injury was traceable not to the
restriction, but to the Cruz campaign’s willful violation of it. Id. Again, however, the Court
unequivocally rejected this theory. As it explained, “[w]e have never recognized a rule of this
kind under Article III. To the contrary, we have made clear that an injury resulting from the
application or threatened application of an unlawful enactment remains fairly traceable to such
application, even if the injury could be described in some sense as willingly incurred.” Id.; see
15
The district court raised this concern at the permanent-injunction hearing, apparently sua sponte. See
9/8/2021 Tr. of Hearing at 4:15-23, R. 41. As the States point out, Treasury has declined to press it either below or
before us. See Appellees’ Br. at 18 n.5. We nonetheless address it because, again, we have independent obligation
to assure ourselves of jurisdiction. See, e.g., Arbaugh, 546 U.S. at 514.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 26
also id. at 1648 (“That appellees chose to subject themselves to those provisions does not change
the fact that they are subject to them, and will face genuine legal penalties if they do not
comply.”). So even if Tennessee had voluntarily chosen to subject itself to the Offset Provision,
it would not defeat (and, indeed, would establish) Tennessee’s standing to challenge it.
Moreover, Tennessee points out, such a jurisdictional bar would be irreconcilable with
the Supreme Court’s broader Spending Clause jurisprudence. See Appellees’ Br. at 18 n.5. In
any Spending Clause challenge, it could be argued, states that accepted federal funds assumed
the risk that an ambiguous condition could be construed against their interests. Id. For instance,
states might have recognized that the term “costs” in the Individuals with Disabilities Education
Act (“IDEA”) could be construed to include expert-witness fees. Arlington Cent. Sch. Dist. Bd.
of Educ., 548 U.S. at 293–94. That it did was, in fact, the position of three dissenting Justices.
See id. at 308 (Breyer, J., dissenting, joined by Stevens, J., and Souter, J.). Or, states might have
recognized, the term “appropriate relief” could be construed to include money damages—a
position that two dissenting Justices called “self-evident.” Sossamon v. Texas, 563 U.S. 277, 293
(2011) (Sotomayor, J., dissenting, joined by Breyer, J.). But in neither of those cases were the
states held subject to such obligations, since the question is not whether states could have
conceived of those liabilities when accepting the funds; it is instead whether they assumed an
obligation about which the relevant statute conferred notice clearly and unambiguously.
Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 298; Sossamon, 563 U.S. at 289–91.
Conversely, therefore, jurisdiction is not defeated by (and the merits of the challenge are
established by) a spending law’s omission of clear warnings about the obligations it entails.
B. The Merits
Having concluded that Tennessee’s challenge is justiciable, we now explain why we
agree with Tennessee that the Offset Provision did not establish, with the requisite clarity, the
putative obligations it was revealed to entail by the Rule.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 27
1. Under the Relevant Spending Clause Jurisprudence, the Offset
Provision Fails to Provide States Clear Notice of the Conditions It
Entails
At the outset, we note that the States have labeled their challenge as against an
“unconstitutionally ambiguous” piece of spending legislation. See, e.g., Amended Complaint
¶57, R. 23. Neither of those terms is entirely accurate. First, as a technical matter, the Offset
Provision is more than merely “ambiguous.” Ambiguity refers to situations in which language
has at least two definite meanings and a court must select between or among them. See Caleb
Nelson, Statutory Interpretation 77–80 (2011). (For instance, the word “bank” without further
context might refer to either a riverside or a financial institution.) Vagueness, by contrast, arises
when a term is open-ended and lacks inherent or definite content. Id. The Offset Provision is
better described as suffering from the latter defect. The States could not have known from the
statute itself the reticulated way that Treasury’s Rule would construe the Offset Provision, since
that construction was hardly obvious ex ante. Nor could they have reliably predicted which of
the several potential baselines Treasury would select to measure a “reduction,” nor when
Treasury might deem such a reduction to have “resulted” from a tax cut. To the contrary, the
statute’s open-endedness gave Treasury expansive discretion to construe its terms in the
particular way Treasury saw fit.
And second, the Offset Provision is not “unconstitutional” under the Spending Clause,
strictly speaking, just because of those indeterminacies. Rather, the Supreme Court has
explained that because Congress can cajole the states to enact policies indirectly (through a
spending inducement) that it could never directly order them to perform with its other
enumerated powers, we must employ a federalism-based clear-statement rule when construing
spending legislation as a matter of statutory interpretation. See, e.g., South Dakota v. Dole,
483 U.S. 203, 207 (1987); Cummings, 142 S. Ct. at 1570, 1574; Sch. Dist. of City of Pontiac v.
Sec’y of U.S. Dep’t of Educ., 584 F.3d 253, 283–84 (6th Cir. 2009) (en banc) (Sutton, J.,
concurring) (describing the clear-statement rule as a “statutory limitation on Congress’s spending
power”); see also Haight v. Thompson, 763 F.3d 554, 568 (6th Cir. 2014) (“One of the
distinguishing features of the spending power is that it allows Congress to exceed its otherwise
limited and enumerated powers by regulating in areas that the vertical structural protections of
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 28
the Constitution would not otherwise permit.”). In other words, Congress does not necessarily
lack the constitutional power to enact vague spending laws in the same way that, for instance, it
lacks the power to enact a law “respecting an establishment of religion.” U.S. Const. amend. I.
But those laws may be unenforceable in certain circumstances when they fail to provide states
with clear notice of a purported funding condition.
So, as we explain below, we do not hold the Offset Provision “unconstitutional” under
the Spending Clause. Rather, our holding is this. As a matter of statutory interpretation, we
conclude that the Offset Provision does not clearly explain (1) how to calculate a “reduction” in
net tax revenue, (2) how to determine whether such a reduction resulted from a tax cut, or
(3) how to tell what particular conduct constitutes an “indirect” offset. And Treasury’s
attempted liquidation of the Offset Provision via the Rule in no way followed clearly from the
Offset Provision’s text. Thus, Tennessee may legitimately discontinue the compliance
procedures entailed by the Rule, and if, as a result, it should engage in conduct Treasury deems a
violation of the Offset Provision, Treasury may not initiate enforcement proceedings in response.
2. Applying the Spending Clause Clear-Statement Rule
It is undisputed that ARPA was enacted pursuant to the Spending Clause. Unlike ordinary
coercive legislation, “legislation enacted pursuant to the spending power is much in the nature of
a contract: in return for federal funds, the States agree to comply with federally imposed
conditions. The legitimacy of Congress’[s] power to legislate under the spending power thus
rests on whether the State voluntarily and knowingly accepts the terms of the ‘contract.’”
Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981). And “[s]tates cannot
knowingly accept conditions of which they are ‘unaware’ or which they are ‘unable to
ascertain.’” Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 296 (quoting Pennhurst,
451 U.S. at 17)). As a result, Congress must provide “clear notice” of the obligations a spending
law entails. Pennhurst, 451 U.S. at 25. “After all, when considering whether to accept federal
funds, a prospective recipient would surely wonder not only what rules it must follow, but also
what sort of penalties might be on the table.” Cummings, 142 S. Ct. at 1570. And this clear-
statement rule applies with particular force where “a State’s potential obligations under the Act
are largely indeterminate.” Pennhurst, 451 U.S. at 24. “Accordingly, if Congress intends to
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 29
impose a condition on the grant of federal moneys, it must do so unambiguously” and with a
“clear voice.” Id. at 17. Applying these principles reveals that neither the “indirectly offset”
language nor the “reduction in the net tax revenue . . . resulting from” language provided the
states the requisite “clear notice” of whatever obligations such language entails. Id. To the
contrary, these are “largely indeterminate” provisions susceptible to a range of plausible
meanings. Id. at 24; cf. Boechler, P.C. v. Comm’r, 142 S. Ct. 1493, 1498 (2022) (“Where
multiple plausible interpretations exist—only one of which is jurisdictional—it is difficult to
make the case that the jurisdictional reading is clear.” (citation omitted)).
a. “Indirectly Offset”
In assessing justiciability, we spoke at length about the Offset Provision’s
indeterminacies; particularly, the prohibition on “indirect” offsets. So we briefly reiterate those
points here. The first core issue with the Offset Provision, again, is that its text does not clearly
explain what it means to “indirectly offset” revenue-reducing tax cuts with ARPA funds.
“Indirectly” means “not directly; obliquely; not straightforwardly, or the like; in an indirect,
roundabout, or subtle manner.” Indirectly, Webster’s New International Dictionary 1267 (2d ed.
1960); see also Indirectly, New Practical Standard Dictionary 677 (1956) (“Not in direct relation;
not tending to a result by the shortest or plainest course; inferential.”); Indirectly, Compact
Edition of the Oxford English Dictionary 1418 (1971) (“By indirect action, means, connexion,
agency, or instrumentality; through some intervening person or thing; mediately.”). And
“offset,” in the relevant sense, simply means “to counterbalance” or “compensate” for
something. Offset, Webster’s New International Dictionary at 1691; see also Offset, New
Standard Practical Dictionary at 917 (“Anything regarded or advanced as a counterbalance or
equivalent; set-off.”); Offset, Compact Edition of the Oxford English Dictionary at 1981 (“To set
off as an equivalent against something else.”). So, as Treasury contends, this statutory language
apparently stands for the general proposition that states may not circumvent the use restriction
“with formalities.” Appellants’ Supp. Br. at 3. Beyond that general notion, however, what this
language actually obliges the States to do is difficult to say.
For instance, the States contend that an “indirect offset” could plausibly occur whenever
a state enacts a revenue-reducing tax cut and expends ARPA funds—no matter whether the state
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 30
pours the ARPA funds into the precise area it cut taxes. See Appellees’ Br. at 38–39. This is the
money-is-fungible interpretation of the Offset Provision that we described above. See id.; see
also Amended Complaint ¶35, R. 23. Nothing about ARPA’s text or context suggests that this
interpretation is particularly far-fetched. The macroeconomic assumption underlying the Act
seems to be that recovery from a recession is best achieved by high levels of spending, rather
than static levels of spending accompanied by cuts in taxation. See, e.g., 86 Fed. Reg. at 26,786–
87 (explaining that the “demand for government services is high,” but that “State, local, and
Tribal government austerity measures can hamper overall economic growth, as occurred in the
recovery from the Great Recession.”). So, chilling tax cuts to facilitate high levels of spending
would seem consistent with ARPA’s purpose. Id. And even Treasury’s own Rule acknowledges
that the money-is-fungible interpretation is at least a plausible concern with the Offset
Provision.16 Once again, it explained, “because money is fungible, even if [ARPA] funds are not
explicitly or directly used to cover the cost of changes that reduce net tax revenue, those funds
may be used in a manner inconsistent with the statute by indirectly being used to substitute for
the state’s or territory’s funds that would otherwise have been needed to cover the costs of the
reduction.” 87 Fed. Reg. at 4,424 (emphasis added).17 The plausibility of this interpretation was
the very reason that Treasury had to shed so much ink attempting to disavow it with the Rule.
16
In its reply brief, Treasury invoked the canon of constitutional avoidance to suggest that the money-is-
fungible interpretation of the Offset Provision is implausible (though, we note, it raised this point in its objections to
justiciability rather than the merits). See Reply Br. at 3 (citing Jennings v. Rodriguez, 138 S. Ct. 830, 842 (2018)).
We find this canon of minimal importance to either justiciability or the merits for two key reasons. First, “[f]or
standing purposes, we accept as valid the merits of appellees’ legal claims.” Ted Cruz for Senate, 142 S. Ct. at
1647; see also Warth v. Seldin, 422 U.S. 490, 500 (1975) (“[S]tanding in no way depends on the merits of the
plaintiff’s contention that particular conduct is illegal.”). So it would be inappropriate for us, at the justiciability
stage, to render a merits interpretation of the Offset Provision and to then declare based on that merits interpretation
that the controversy is not even justiciable. See, e.g., Trump v. Hawaii, 138 S. Ct. 2392, 2416 (2018). After all, if
the laws of the United States when “given one construction” would establish jurisdiction and would defeat it when
“given another,” then the plaintiff has established jurisdiction. Bell v. Hood, 327 U.S. 678, 685 (1946). Second,
concerning the merits, the constitutional-avoidance canon would at most dispel the States’ money-is-fungible
interpretation of the Offset Provision. But establishing whatever obligations the Offset Provision does not impose
cannot suffice to defeat a Spending Clause challenge, for the critical question would still remain about whatever
obligations the Offset Provision does impose—such as those it is claimed to impose in the Rule—and whether it
does so clearly and unambiguously.
17
Or, once again, consider Secretary Yellen’s acknowledgement that “[w]e will have to define what it
means to use money from this Act as an ‘offset’ for tax cuts. And, given the fungibility of money, it’s a hard
question to answer.” Treasury Secretary & Federal Reserve Chair Testimony on COVID-19 Economic Recovery at
58:30–59:05, available at https://www.c-span.org/video/?510059-1/treasury-secretary-federalreserve-chair-
testimony-covid-19-economic-recovery.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 31
See, e.g., Yellen Letter, R. 1-1 (explaining that Treasury would promulgate “further guidance” so
that states could understand their obligations under the Offset Provision).
True, the Rule—as distinct from the Offset Provision itself—went on to clarify that
such an “indirect offset” would not be deemed to have occurred in three particular situations:
where the spending cut is offset with macroeconomic growth, another state tax increase, or a
state spending reduction. 87 Fed. Reg. at 4,423; see also Appellants’ Br. at 5. But why is the
presence of any safe harbor dictated by the underlying statute, much less clearly so? And why
do those particular safe harbors reside in the statutory text, much less clearly so? In reality, the
statute is silent on those questions. Precisely because the Offset Provision is so indeterminate
about what behavior might constitute an “indirect offset,” Treasury was necessarily left with a
huge range of discretion about which state behavior it would deem permissible versus
impermissible. As a result, the statute itself failed to provide “clear notice” to Tennessee about
whichever particular conduct Treasury would permit or proscribe. Arlington Cent. Sch. Dist. Bd.
of Educ., 548 U.S. at 296. And no doubt because of the Offset Provision’s lack of inherent
content, Treasury found it necessary to promulgate a Final Rule with a hundred pages of
commentary in its attempt to establish some concrete “guidance.” See Yellen Letter, R. 1-2.
b. “A Reduction in the Net Tax Revenue . . . Resulting From” a
Tax Cut
The Offset Provision’s language concerning “a reduction in the net tax
revenue . . . resulting from” a tax cut is similarly indeterminate. 42 U.S.C. § 802(c)(2)(A).
Several major issues prevent it from having provided the States “clear notice” of their
“obligations” under the statute. Cummings, 142 S. Ct. at 1574.
The first, as we mentioned before, is that this portion of the statute never actually
specifies which fiscal year’s revenue inlays serve as the baseline against which to determine
whether a state experienced a “reduction” in its revenues. See Appellees’ Br. at 40. And even
Treasury’s own Rule acknowledges how critical this omission was: “Measuring a ‘reduction’ in
net tax revenue requires identification of a baseline. In other words, a ‘reduction’ can be
assessed only by comparing two amounts.” 87 Fed. Reg. at 4,426. In response to that omission,
the Rule happened to set the baseline for the Offset Provision as “the fiscal year ending in 2019.”
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 32
31 C.F.R. § 35.3; 87 Fed. Reg. at 4,423. Yet nothing in the Offset Provision’s text clearly
dictates why a 2019 baseline applies. For instance, Treasury might have selected a cascading
baseline, in which the Offset Provision was construed to “prohibit[ ] the States from cutting taxes
in any given year relative to the year prior.” Appellees’ Br. at 40. Or it might have set the
baseline as the fiscal year of ARPA’s enactment. And that might have been an especially
obvious baseline, given that we typically assess statutory meaning as of “the time Congress
enacted the statute.” Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2070 (2018) (quoting
Perrin v. United States, 444 U.S. 37, 42 (1979)).
The point is that the statute itself is “indeterminate” with respect to whatever baseline the
offer entailed. Pennhurst, 451 U.S. at 24. And that wasn’t because there was some inherent
obstacle to Congress’s specification of a baseline. For instance, compare the Offset Provision
with the provision just above it—§ 802(c)(1)(C)—which establishes one of the permissible uses
of ARPA funds. Congress there explained that states may spend the funds “for the provision of
government services to the extent of the reduction in revenue of such State . . . relative to
revenues collected in the most recent full fiscal year of the State . . . prior to the emergency.”
42 U.S.C. § 802(c)(1)(C) (emphasis added). So Congress specified a baseline there. Why not
specify a baseline for the Offset Provision itself?18
Second, setting aside the baseline issue, the Offset Provision contains further
indeterminacies about how states must assess whether a reduction in tax revenue “result[ed]
from a change” in state tax policy. § 802(c)(2)(A) (emphasis added). Put simply, the actual
effect of a tax cut may be hard to predict ex ante. See 87 Fed. Reg. at 4,406, 4,423, 4,426; see
18
The simultaneous enumeration of a baseline in § 802(c)(1)(C) and the omission of one in
§ 802(c)(2)(A)—the Offset Provision—creates further clear-notice issues. Treasury interprets the “most recent full
fiscal year . . . prior to the emergency” in § 802(c)(1)(C) as imposing a baseline consistent with revenues collected in
the fiscal year ending in 2019. 87 Fed. Reg. at 4,426. It also interprets the Offset Provision to impose the same
baseline, despite the Offset Provision having omitted the relevant language from § 802(c)(1)(C). Perhaps states
were supposed to extrapolate that the § 802(c)(1)(C) baseline also applied to the Offset Provision. See, e.g., 31
C.F.R. § 35.4. But the typical presumption is that when Congress omits specific language in one provision that it
includes in another, the omission implies a difference in meaning between the two provisions. See, e.g., Dean v.
United States, 556 U.S. 568, 573 (2009) (“[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.” (quoting Russello v. United States, 464 U.S. 16, 23 (1983)). So
the differing text in §§ 802(c)(2)(A) and 802(c)(1)(C) would complicate the notion that states had clear notice that
differently worded provisions imposed the same baseline.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 33
Appellees’ Br. at 41–44. So states considering tax cuts must necessarily generate and rely upon
estimates of the real-world effects a tax cut will produce when assessing the cut’s potential
impact on their budgets. For instance, a state in one fiscal year might collect $10 million per
annum from a particular tax. But the state’s budget analysts might forecast that the state could
collect the same amount of tax—$10 million per annum—even if the state reduced the relevant
tax rate, as doing so might stimulate the occurrence of additional transactions subject to the tax.
So imagine that the state, acting upon that assumption, enacted a tax cut in the relevant area. But
during the next fiscal year, that same tax generated only $9 million in inlays. Did that fall in
inlays result from the tax cut?
The Offset Provision itself does not supply an answer, because it never specifies whether
it prohibits a reduction in expected tax revenues, which a state would be able to control ex ante,
or whether it prohibits a reduction in actual tax revenues, which a state could potentially
determine only ex post. Yet the difference matters. In the above hypothetical, for instance, the
state’s tax cut did not reduce its expected tax revenues, since the best information then available
to it suggested that the effect of the tax cut would be revenue-neutral. But the tax cut arguably
reduced its actual tax revenues, assuming that the only variable that changed from one year to
the next was the tax cut.19
Recognizing that the Offset Provision itself is silent on this issue, the Rule, perhaps
surprisingly, suggests that whether a revenue reduction “resulted” from a tax cut hinges on
whichever accounting method a state uses to determine the effect of the tax cut. 87 Fed. Reg. at
4,406–07. As it explains, “[i]n assessing whether a tax change has had the effect of reducing tax
revenue, recipients may either calculate the actual effect on revenue or rely on estimates
prepared at the time the tax change was adopted,” so long as those estimates were “based on
19
In real-world applications, of course, determining causation can be much more complicated. For
instance, as Treasury acknowledges, many variables “exogenous” to a tax cut itself affect whether the tax cut, even
if preceding a reduction in actual revenues, caused the reduction in actual revenues. 87 Fed. Reg. at 4,406. So
isolating whether a tax cut ultimately caused a reduction in actual revenues can be extremely difficult. Id. Treasury
attempted to resolve this problem by establishing a causation presumption that, whether sound policy or not, has
little apparent relationship to ARPA’s plain text: the IFR “included a presumption that all revenue loss is due to the
pandemic,” rather than to a tax cut. Id. The Final Rule then explained that this presumption applied to revenue
reductions experienced before January 6, 2022, but did not apply to revenue reductions experienced after January 6,
2022. Id.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 34
reasonable assumptions.” Id. (emphases added). So assuming that a state uses an “actual effect”
accounting method in the above example, the revenue reduction arguably resulted from the tax
cut. But if a state uses a “reasonable expectations” accounting method, the revenue reduction
seemingly did not result from the tax cut, as the state did not reasonably expect an actual revenue
reduction ex ante. Yet how were the States supposed to know about these critical points based
on the Offset Provision alone?
Or consider this issue: the Offset Provision itself never specifies the timespan during
which we assess whether a revenue reduction occurred. For instance, imagine a state recorded
$100 million in tax revenues in FY 2019, enacted a tax cut in FY 2020 that stimulated the
economy and produced $120 million in tax revenues, but then experienced a downturn in FY
2021 resulting in tax revenues of only $95 million (which arguably might have been higher
absent the FY 2020 tax cut). Does that scenario count as a “reduction . . . in net tax revenue”
resulting from the FY 2020 tax cut, given that the tax cut arguably resulted in reduced inlays in
FY 2021? Or did the state actually experience an increase in net tax revenues, since, combining
the inlays from FY 2020 and 2021, the state recorded a net gain of $15 million in inlays versus
FY 2019? Whatever the answer, it is at least unclear from the Offset Provision itself whether
such a “net reduction” is measured across the entire “covered period” or on a year-to-year basis
within the “covered period.” 42 U.S.C. § 802(c)(2)(A).
For those reasons, therefore, neither operative portion of the Offset Provision—
“indirectly offset” and “reduction in . . . net tax revenue . . . resulting from” a tax cut—provided
Tennessee “clear notice” about the measures required to maintain compliance. Cummings,
142 S. Ct. at 1570.20 Nor—as we explain below—can Treasury’s subsequent promulgation of its
Rule cure this vagueness defect.
20
Treasury emphasized in its reply brief that no court decision has ever “declared any . . . funding condition
to be ‘unconstitutionally ambiguous’ in the abstract, as a facial matter. Rather, the Supreme Court and other courts,
including this one, have relied on the clear-statement principle as a tool of statutory interpretation, to be used when
adjudicating concrete disputes over the application of particular funding conditions.” Reply Br. at 5. With today’s
opinion, the trend continues. Nowhere have we deemed the Offset Provision “unconstitutional” under the Spending
Clause because of its indeterminacies. We instead have conducted our analysis as a matter of statutory
interpretation. Likewise, that analysis has not unfolded “in the abstract,” but has focused on two concrete
obligations imposed by Treasury’s rule: (1) that Tennessee, should it wish to enact revenue-reducing tax cuts, must
trace any dollars arguably used to offset those reductions to three particular, ad hoc safe harbors, and (2) that in
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 35
c. Why Treasury’s Rule Cannot Cure Spending-Law Vagueness
The question whether agency regulations construing spending legislation are entitled to
deference has generated some occasional academic interest. See, e.g., Peter J. Smith, Pennhurst,
Chevron, and the Spending Power, 110 Yale L.J. 1187, 1189–90 (2001). But we note at the
outset that this issue is not in the present case: Treasury categorically waived reliance on the
Rule to cure a vagueness defect under the Spending Clause. As it told the district court, “agency
regulations should have no bearing on the Spending Clause analysis.” Defs.’ Mot. to Dismiss &
Mot. for Summ. J. at 30, R. 32 (emphasis added). It argued instead that the Offset Provision
itself satisfied the Spending Clause, since at the very least it put the States on notice that the offer
came with “a condition”—no matter whether the contours of that condition presented significant
indeterminacies as a matter of the statutory text. Id. at 39.
Treasury has reprised these arguments before us. It does not argue that the Rule—even
though it was promulgated before the States accepted the ARPA funds—can provide clear notice
to the States of their obligations. Rather, it argues that it was the Offset Provision’s text alone
that “clearly place[d] States ‘on notice’ that their acceptance of Fiscal Recovery Funds ‘is
conditioned upon compliance with’ the requirement not to use those funds to pay for tax cuts.”
Reply Br. at 7; see also Appellants’ Supp. Br. at 2 n.2. So again, Treasury acknowledges that
whether Tennessee’s Spending Clause challenge succeeds hinges on whether the Offset
Provision itself is impermissibly vague about whichever obligations it imposes on the states.
But we note that even if we were bound to independently assess whether Treasury’s Rule
could provide clear notice of conditions left otherwise indeterminate by the statute, we still
would hold that it could not do so in these particular circumstances.21 Our primary concern here
assessing whether such a revenue reduction occurred, Tennessee must establish and use an accounting procedure to
compare its current inlays to its inflation-adjusted revenue in “its fiscal year ending in 2019.” 31 C.F.R. § 35.3.
Those are the relevant obligations, we conclude, of which Tennessee did not have clear notice from the Offset
Provision itself.
21
We confront the Rule’s effect even despite Treasury’s waiver because we recognize that there are serious
and unresolved disputes about, for instance, whether the government may validly waive Chevron deference.
Compare Guedes v. BATFE, 920 F.3d 1, 23 (D.C. Cir. 2019) (concluding that Chevron deference cannot be waived
if the “underlying agency action” would otherwise merit Chevron deference), with Guedes v. BATFE, 140 S. Ct.
789, 790 (2020) (Gorsuch, J., concurring in denial of certiorari) (arguing that the D.C. Circuit’s conclusion was
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 36
is the legitimate domain of Chevron deference—whether we (or a state) must accept as binding
an agency regulation establishing an otherwise-uncertain spending-law condition. For instance,
Treasury suggested before us that deference might be appropriate at least if we understood the
relevant content of the Rule—the meaning of an “indirect” offset, the baseline for a revenue
reduction, and how to tell whether such a reduction “resulted from” a tax cut—to constitute mere
“implementation details.” Reply Br. at 7–8. And, to that end, it invoked a couple of circuit
decisions where we indeed deferred to agencies’ reasonable views about marginal ambiguities in
spending laws: one concerning whether the term “medical devices” includes “incontinence
products” and the other concerning whether “records maintained by a law enforcement unit of
[an] education agency or institution that were created by that law enforcement unit for the
purpose of law enforcement” includes student disciplinary records involving “serious criminal
conduct.” See id. (citing Harris v. Olszewski, 442 F.3d 456, 467–68 (6th Cir. 2006), and then
citing United States v. Miami Univ., 294 F.3d 797, 814–15 (6th Cir. 2002)).
Yet we find that whether deference was warranted on such arcane topics as those has
little relevance to the Offset Provision. It is difficult to see how the Rule represents mere
“implementation details” when it supplied content without which the Offset Provision literally
could not function. And, in any event, Treasury is wrong to suggest that we should act “as if we
were interpreting a statute which has no implications for the balance of power between the
Federal Government and the States.” Va. Dep’t of Educ. v. Riley, 106 F.3d 559, 567 (4th Cir.
1997) (en banc).22 Unlike the distribution of incontinence products or the release of disciplinary
records, control over taxation is a core aspect of state sovereignty. See Dep’t of Revenue of Or.,
510 U.S. at 345; Lane County, 74 U.S. at 76. For Congress to impose conditions in that area, it
must do so in clear and unmistakable terms. See, e.g., SWANCC v. U.S. Army Corps of Eng’rs,
531 U.S. 159, 172–73 (2001) (explaining that the Court “would not extend Chevron deference”
to an agency interpretation involving “federal encroachment upon a traditional state power.”);
see also Ala. Ass’n of Realtors v. Dep’t of Health & Hum. Servs., 141 S. Ct. 2485, 2489 (2021).
erroneous because the “[Supreme] Court has often declined to apply Chevron deference when the government fails
to invoke it”).
22
We quote from Judge Luttig’s dissenting panel opinion, the relevant portion of which a majority of the
full Fourth Circuit adopted upon en banc rehearing. See Va. Dep’t of Educ., 106 F.3d at 561.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 37
When such a clear-statement rule is in play, it is insufficient merely that an agency reasonably
liquidated ambiguities in the relevant statute. Id.; see also Va. Dep’t of Educ., 106 F.3d at 567(declining to apply Chevron deference to an ambiguous spending statute because “[i]t is
axiomatic that statutory ambiguity defeats altogether a claim by the Federal Government that
Congress has unambiguously conditioned the States’ receipt of federal monies in the manner
asserted”); Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722, 731 (6th Cir. 2013) (Sutton, J.,
concurring) (“All manner of presumptions, substantive canons and clear-statement rules take
precedence over conflicting agency views.”). Rather, in such circumstances, Congress itself
must have spoken with a “clear voice.” Pennhurst, 451 U.S. at 17.23
3. Treasury’s Counterarguments
Before we close, we address a couple of Treasury’s counterarguments to our conclusions
above. We first discuss the import of our decision in Cutter v. Wilkinson, which affirmed the
Religious Land Use and Institutionalized Persons Act (“RLUIPA”) against a Spending Clause
challenge. 423 F.3d 579, 585–86 (6th Cir. 2005). We then address Treasury’s claim that
Tennessee should have enjoyed clear notice of the Offset Provision’s meaning because the
phrase “directly or indirectly” “appears more than a thousand times in the U.S. Code.”
Appellants’ Supp. Br. at 3.
a. Cutter v. Wilkinson and the RLUIPA Comparison
Resisting our merits analysis, Treasury asserts that our decision today conflicts with
circuit precedent sustaining RLUIPA against a Spending Clause challenge. Cutter, 423 F.3d at585–86. We agree that RLUIPA is a helpful comparison—just not in the way Treasury thinks.
We begin with some background about RLUIPA itself. From 1963 to 1990, the Supreme
Court interpreted the Free Exercise Clause to require state officials to justify even incidental
23
Conversely, though, we note that this analysis has no effect on our earlier mootness determination
concerning Kentucky. Even if the Rule cannot fill in missing Spending Clause conditions, it can at least still bind
Treasury in how it will administer the statute. And neither Tennessee nor Kentucky sought vacatur of the Rule
under 5 U.S.C. § 706. Vacatur at least possibly could have revived the specter of Treasury enforcing the Offset
Provision consistent with the money-is-fungible interpretation. But even after vacatur, that possibility would still
seem rather remote, given Treasury’s insistence that the text of the Offset Provision alone precludes the money-is-
fungible reading. See, e.g., Appellants’ Supp. Br. at 2 n.2.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 38
burdens on religious free exercise under strict scrutiny. See, e.g., Sherbert v. Verner, 374 U.S.
398, 403 (1963). A plaintiff could make out a prima facie case of a constitutional violation if she
could establish that she had a sincere religious belief upon which the government had imposed a
substantial burden, even if the burden were merely incidental. Id. And if that showing were
made, the state then had to prove that its interest in imposing the burden was “compelling,” id.,and that it had employed the means least restrictive on religious exercise in achieving its
compelling interest. Thomas v. Rev. Bd. of Ind. Emp. Sec. Div., 450 U.S. 707, 718 (1981).
During the quarter-century in which this framework prevailed, the Supreme Court produced a
sizeable corpus of decisions describing its particular contours. See, e.g., Sherbert, 374 U.S. at
398; Gillette v. United States, 401 U.S. 437 (1971); Wisconsin v. Yoder, 406 U.S. 205 (1972);
Thomas, 450 U.S. at 707; United States v. Lee, 455 U.S. 252 (1982); Goldman v. Weinberger,
475 U.S. 503 (1986); Bowen v. Roy, 476 U.S. 693 (1986); Hobbie v. Unemployment Appeals
Comm’n of Fla., 480 U.S. 136 (1987); Lyng v. Nw. Indian Cemetery Protective Ass’n, 485 U.S.
439 (1988); Frazee v. Ill. Dep’t of Emp. Sec., 489 U.S. 829 (1989). And the lower courts applied
it to hundreds of concrete disputes. See generally James E. Ryan, Smith and the Religious
Freedom Restoration Act: An Iconoclastic Assessment, 78 Va. L. Rev. 1407 (1992) (cataloging
lower-court applications).
In 1990, however, the Supreme Court functionally overruled this body of precedent,
holding that incidental burdens on religious practice merited only rational-basis review. Emp.
Div., Dep’t of Hum. Res. of Or. v. Smith, 494 U.S. 872, 878–79 (1990). But Congress, incensed
by the Smith decision, twice attempted to overrule it. See 42 U.S.C. § 2000bb et seq. (Religious
Freedom Restoration Act); 42 U.S.C. § 2000cc et seq. (RLUIPA). Its second attempt, RLUIPA,
restored strict-scrutiny analysis in the land-use and prison-administration contexts. § 42 U.S.C.
§§ 2000cc, 2000cc–1. Congress partially rooted its power to enact such a statute in the Spending
Clause, 42 U.S.C. § 2000cc-1(b)(1)–(2), and so it conditioned the receipt of certain federal funds
on compliance with the old strict-scrutiny framework. See, e.g., § 2000cc-1(a)(1)–(2). Ohio
(and various other states) argued that strict scrutiny was too indeterminate to form an enforceable
Spending Clause condition. See Gerhardt v. Lazaroff, 221 F. Supp. 2d 827, 841, 844 (S.D. Ohio
2002). But the district court rejected the argument, holding that strict scrutiny was such a well-
established framework before RLUIPA that even if it might present marginal indeterminacies in
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 39
certain applications, the states could easily discern what core obligations the statute entailed in
the mine-run of cases. See, e.g., id. at 844 (“Courts have been enforcing that exact standard
against state action for years.”).
Whether we ever actually adjudicated the correctness of that holding, we note, is
uncertain. It appears that Ohio’s officials pressed a different ambiguity argument on appeal to
this circuit: that RLUIPA did not clearly specify that it applied to existing federally funded
programs, rather than merely to programs established after its enactment. See Cutter, 423 F.3d at585–86; see also Gerhardt, 221 F. Supp. 2d at 841 (distinguishing between the retroactivity
argument and the strict-scrutiny-is-too-indeterminate argument). But we held that RLUIPA
imposed that obligation clearly, since its text “explains that the Act applies to ‘any program or
activity that receives Federal financial assistance.” Cutter, 423 F.3d at 586 (citing 42 U.S.C.
§ 2000cc-1(b)(1)). And, given that statutory language, it is difficult to see how a different result
could have ensued.
Before us, however, Treasury appears to have erroneously exaggerated Cutter’s
precedential effect by claiming that our circuit also rejected the strict-scrutiny-is-too-
indeterminate argument. In particular, its reply brief claims that Ohio argued “RLUIPA’s ‘least
restrictive means standard’ constituted an ambiguous condition’ that was impermissible under
Pennhurst. Cutter, 423 F.3d at 586 (quotation marks omitted). But this Court disagreed,
explaining that ‘Congress need not ‘delineate every instance in which a State may or may not
comply with the least restrictive means test.’” Reply Br. at 6–7.24 In reality, the portions of
Cutter that Treasury quotes were describing a Seventh Circuit decision that had rejected “a
similar Pennhurst-based challenge to RLUIPA”—the strict-scrutiny-is-too-indeterminate
argument, not the anti-retroactivity argument before the panel in Cutter. Cutter, 423 F.3d at 586
(citing Charles v. Verhagen, 348 F.3d 601, 608 (7th Cir. 2003)).
24
Treasury doubled down on this representation at oral argument, stating, “[o]n the question of how much
has to be spelled out in the statute itself, Cutter involved a challenge to RLUIPA. RLUIPA said if you restrict the
religious exercise of people in covered institutions, you have to satisfy strict scrutiny. It’s of course highly unclear
how strict scrutiny is going to apply to a particular kind of policy. But the court said, and every other court to
consider the issue said, you don’t have to have spelled that out in the statute.” Recording of Oral Arg. at 16:46–
17:09.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 40
Set aside Treasury’s misreading of Cutter, however, and pretend that Cutter had actually
adjudicated the strict-scrutiny-is-too-indeterminate argument, so that we were bound today by a
holding that RLUIPA’s least-restrictive-means test satisfied the Spending Clause. What is that
supposed to tell us about the Offset Provision? There is no comparable quarter-century of
history in which the Supreme Court decided dozens of cases, and the lower courts decided
hundreds of cases, construing what it means to “directly or indirectly offset a reduction in the net
tax revenue . . . resulting from” a tax cut. 42 U.S.C. § 802(c)(2)(A). Indeed, Treasury conceded
at oral argument that it is aware of no example in which the phrase “directly or indirectly offset”
has ever even been used in a Spending Clause statute, much less been given an authoritative
construction by the Supreme Court in the context of tax cuts. Recording of Oral Arg. at 43:00–
43:50. So Treasury’s invocation of RLUIPA, it turns out, underscores a reason the Offset
Provision is impermissibly vague: given its terms’ apparent novelty, there is, unlike in the
context of religious free exercise, no expansive and authoritative corpus of federal-court
precedents which the states might have consulted in attempting to discern the nature of their
obligations.
b. “Directly or Indirectly” in the U.S. Code
Perhaps implicitly recognizing the dearth of relevant caselaw, Treasury last suggests that
Tennessee should have been able to ascertain its obligations under the Offset Provision because
various other federal statutes employ the phrase “directly or indirectly.” Appellants’ Supp. Br.
at 3. It “is commonly used simply to underscore that a restriction cannot be circumvented
through formalities,” Treasury says, and “appears more than a thousand times in the U.S. Code.”
Id. That is perhaps true, but this factoid seems of no consequence to us for at least three reasons.
First, as we noted above, Treasury conceded that it has no example of such a phrase in a
Spending Clause statute, much less one in the particular context of taxation, and, less still, one
that survived ambiguity challenges in federal court. Recording of Oral Arg. at 43:00–43:50.
Second, most of these other uses appear to have no conceivable relevance to the Offset
Provision. And, for that matter, they may make the vagueness issues even worse. For instance,
consider 22 U.S.C. § 9214(a)(3), which provides that Treasury may freeze the assets of anyone
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 41
who “knowingly, directly or indirectly, imports, exports, or reexports luxury goods into North
Korea.” The phrase in that context seemingly bars the use of third-party intermediaries to
circumvent a trade restriction. So Company A, wishing to execute proscribed shipments to
North Korea, still violates the statute by shipping the goods to Company B in Shanghai for
reexport into Pyongyang. Or take 29 U.S.C. § 432(a)(2), which requires officers of labor
organizations to report on stock they hold “directly or indirectly” in the business they seek to
unionize. Once again, the statute seems to bar circumvention through the use of a third-party
intermediary, such as holding the stock indirectly in an index fund. Or last, consider 15 U.S.C.
§ 7410(b), which prohibits the award of a “grant or fellowship . . . directly or indirectly, to any
alien from a country that is a state sponsor of international terrorism.” Again, and for the third
time, the phrase seems to bar the use of a third-party intermediary to circumvent the restriction:
the grant cannot be distributed to an “institution of higher education” for redistribution to the
alien. § 7410(c). So at best, these other uses have nothing to do with the Offset Provision, and, at
worst, might have misleadingly suggested that it imposed some particularized bar on the use of
third-party intermediaries to launder ARPA funds.
Last, as the above examples suggest, the relevant phrase is not just “directly or
indirectly,” but “directly or indirectly offset.” 42 U.S.C. § 802(c)(2)(A). The issue here is not
establishing that the Offset Provision bars “circumvent[ion] through formalities” in some broad,
general sense, but in determining whatever conduct the Offset Provision might treat as having
“directly or indirectly offset” a tax cut. For only then could the states have “ascertain[ed]” their
obligations under the Act. Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 296 (quoting
Pennhurst, 451 U.S. at 17)). But that phrase, as far as we can tell from our research, occurs
exactly once in the entire U.S. Code—in the Offset Provision.
IV.
In closing, we reiterate the central conclusions we have reached today. Treasury’s
credible disavowal of the money-is-fungible interpretation mooted Kentucky’s challenge to the
Offset Provision, and so the district court erred when it enjoined Treasury from enforcing the
Offset Provision against Kentucky. We thus REVERSE the district court’s justiciability holding
as to Kentucky and VACATE the permanent injunction to the extent it bars enforcement of the
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 42
Offset Provision against Kentucky. By contrast, we AFFIRM the district court’s injunction as to
Tennessee. We do so because “[c]larity is demanded whenever Congress legislates through the
spending power[.]” Haight, 763 F.3d at 568. Yet clarity is just what the Offset Provision lacks.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 43
______________________________________________________
CONCURRING IN PART AND DISSENTING IN PART
______________________________________________________
NALBANDIAN, Circuit Judge, concurring in part and dissenting in part. I concur with
nearly all of the majority’s well-reasoned opinion. Importantly, I agree with the majority that the
vagueness of the American Rescue Plan Act of 2021 (“ARPA”) violates the Spending Clause.
And I agree that Tennessee has standing for the reasons that the majority gives. My only
disagreement is about whether Kentucky can press its claim. In short, I believe that both
Tennessee and Kentucky (“States”) have standing for reasons related to the federal government’s
intrusion on their sovereign-taxing authority. And I don’t believe that the Department of
Treasury’s (“Treasury”) Rules on ARPA’s enforcement (“Rules”) affect justiciability.1 So I
concur with respect to Tennessee’s participation in the case, but respectfully dissent over
Kentucky’s.
I.
Standing arises here in three possible ways: through what the majority calls the
“imminent-recoupment,” “compliance-cost,” and “sovereign-authority” theories. My concern is
1
My analysis assumes that the majority is correct that the one-party rule doesn’t apply. (See Majority
Opinion, at 20 n.12.) But I’m not sure that’s the case. The rule allows courts to review claims so long as one
plaintiff has standing. Massachusetts v. EPA, 549 U.S. 497, 505 (2007). And courts have applied the rule to other
Article III requirements like mootness. Nat’l Rifle Ass’n of Am. v. Magaw, 132 F.3d 272, 278 n.4 (6th Cir. 1997);
see Nat’l Rifle Ass’n of Am., Inc. v. McCraw, 719 F.3d 338, 344 n.3 (5th Cir. 2013). But this doesn’t mean that a
party can obtain relief to which it is not entitled. So we can eventually address standing when a plaintiff would
obtain “attorney’s fees” or other “relief different from that sought by plaintiffs whose standing has not been
questioned.” Gen. Bldg. Contractors Ass’n v. Pennsylvania, 458 U.S. 375, 402 n.22 (1982); see 13B Charles A.
Wright & Arthur R. Miller, Federal Practice & Procedure, § 3531.15, at *4 (3d ed. 2022).
But a different situation arises when each plaintiff would obtain the same relief regardless. For cases involving
injunctive or declaratory remedies, the practical effects of granting relief may apply to each plaintiff even if we
dismiss one for lack of standing. For example, in Bowsher v. Synar, the Supreme Court applied the one-party rule to
avoid analyzing other plaintiffs’ standing. 478 U.S. 714, 721 (1986). Without returning to the standing questions,
the Court affirmed relief that declared a statute unconstitutional. See id. at 736. Because the standing
determinations wouldn’t affect how the Court distributed relief, the Court didn’t need to revisit its use of the rule.
See id.; accord McCraw, 719 F.3d at 344 n.3 (recognizing that courts “do not need to verify the independent
standing of the other co-plaintiffs” when one party with standing “rais[es] the same claims and issues” (quotation
omitted)). Here, Tennessee meets Article III’s requirements, and the relief granted to Tennessee applies to
Kentucky regardless: Treasury cannot enforce ARPA’s unconstitutional conditions. So we did not need to resolve
Kentucky’s mootness. That aside, I analyze why both States meet Article III’s requirements.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 44
with the last theory, under which I believe both States have standing. To establish standing
under any theory, of course, the States must assert an injury that is (1) actual or imminent and
concrete and particularized, (2) traceable to Treasury, and (3) likely to be redressed by a
favorable decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Looking at the
sovereign-authority theory, I believe that the only question here is whether the States assert an
imminent injury under the first inquiry. And I find that both Kentucky and Tennessee meet this
requirement.
With respect to “injury,” courts have recognized for over a century that states “are not
normal litigants for the purposes of invoking federal jurisdiction.” Massachusetts v. EPA,
549 U.S. 497, 518 (2007). This regard stems from each state’s “well-founded desire to preserve
its sovereign territory.” Id. at 519. For that reason, we don’t treat states as “mere provinces or
political corporations.” Alden v. Maine, 527 U.S. 706, 715 (1999). Instead, we recognize their
“residuary and inviolable sovereignty.” The Federalist No. 39, at 245 (James Madison) (Clinton
Rossiter ed., 1961). And we give “special” recognition to a case when a state sues the federal
government. Saginaw County v. STAT Emergency Med. Servs., Inc., 946 F.3d 951, 957 (6th Cir.
2020).
Although states hold a unique status in federal court, they cannot avoid “the
constitutional baseline” of Article III. Id. States must still prove a cognizable case or
controversy. Arizona v. Biden, 40 F.4th 375, 385 (6th Cir. 2022) (“Article III’s foundational
standing requirements remain for private and public litigants alike.”).
Still, states have “special solicitude” when they incur “quasi-sovereign” injuries. Id.They cannot “bypass proof of injury in particular or Article III in general,” but they may incur
injuries that private parties cannot. Id. at 385–86. Among other things, states can allege
sovereign-related injuries like federal regulation over local-lawmaking authorities, threatened
intrusions on state territory, or public nuisances, in which a state seeks “to safeguard its domain
and its health, comfort and welfare.” Id at 386. (quoting Kentucky v. Biden, 23 F.4th 585, 596
(6th Cir. 2022)); see Massachusetts, 549 U.S. at 517, 521–23 (recognizing the sovereign and
quasi-sovereign interests in protecting coastal lands from rising sea levels).
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 45
And the list doesn’t end there. This Court has acknowledged other ways that sovereign
or quasi-sovereign interests can support state standing. States can “plausibly allege[] that the
federal government has intruded upon an area traditionally left to the states.” Kentucky, 23 F.4th
at 599. They can allege that federal enforcement threatens current or future state policies. See
id. And they can allege federal threats to their economies. See id. at 599–601 (“[States] . . . have
a quasi-sovereign interest in defending their economies from the alleged negative ramifications
of [federal law].”). Indeed, as federal regulation has increased over the states, the list of
sovereign injuries has grown.
Finally, a quick note about the “imminence” part of the injury-in-fact inquiry. The
majority analyzes imminence using the “pre-enforcement” test from Susan B. Anthony List v.
Driehaus, 573 U.S. 149 (2014).2 And that is the way that we typically assess imminence when a
case concerns a pre-enforcement challenge. But because the States here allege sovereign and
quasi-sovereign injuries, we can assess imminence under a slightly different analysis.
A state can establish an imminent injury by showing a “risk of harm” to their sovereign
or quasi-sovereign interests. Massachusetts, 549 U.S. at 521 (quoting Lujan, 504 U.S. at 560).
In Massachusetts v. EPA, EPA’s refusal to regulate greenhouse gas emissions presented an
imminent injury to state interests related to climate change. Id. The “risk of harm” of sea levels
rising and damaging state-coastal property created the imminent injury. Id. at 521–23; see
Saginaw County, 946 F.3d at 957 (recognizing that the imminence in Massachusetts came from
this “risk”). And the Supreme Court reasoned that a state that has a procedural right to protect its
sovereign interests can satisfy Article III’s requirements “without meeting all the normal
standards for redressability and immediacy.” Massachusetts, 549 U.S. at 517–18.
We have analyzed imminent harms to sovereign interests in pre-enforcement challenges
too. In our recent decision in Kentucky v. Biden, which concerned a pre-enforcement challenge
to COVID-19 mandates, we found standing under the sovereign-authority theory. See 23 F.4th
2Under the Susan B. Anthony test, the States needed to show (1) injuries in the original complaint that
establish an intention to engage in conduct arguably affected with a constitutional interest, (2) that ARPA arguably
proscribes this conduct, and (3) that if the States should pursue such conduct, a credible threat of recoupment action
exists. See 573 U.S. at 161–64.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 46
at 598–601. We held that the sovereign injuries alleged met Article III’s imminence
requirements because the states there “show[ed the] negative effects” of federal policy on their
sovereign interests. Id. at 602. And sister circuits applying the sovereign-authority theory have
also analyzed imminence similarly.3 Here, the States allege the same risk of harm to their
sovereign interests.
II.
Applying the sovereign-authority framework, the States have standing in this case. See
Massachusetts, 549 U.S. at 520. They allege that ARPA “unconstitutionally intrud[es] on their
sovereign authority, by interfering with the orderly management of their fiscal affairs, and by
requiring them to forgo their constitutional taxing powers or face an action to return much-
needed federal funds after they have already been spent.” (R. 1, Original Complaint, PageID 5
¶ 12.) Each threat poses an imminent “risk of harm to” their sovereign interests. Massachusetts,
549 U.S. at 521. As described below, they have alleged with particularity ARPA’s “negative
effects” on their taxing powers, citizens, and economy. Kentucky, 23 F.4th at 602.
This Court’s growing list of sovereign and quasi-sovereign injuries reinforces the States’
standing in three ways. First, they have “plausibly alleged that the federal government has
intruded upon an area traditionally left to the states”—state taxes on state citizens. Kentucky,
23 F.4th at 599; see (R. 1, Original Complaint, PageID 2–3, 5–6 ¶¶ 1–3, 12 (discussing the
federalism implications of ARPA); R. 1, Original Complaint, PageID 15–16 ¶ 40 (“[T]he power
to tax and spend is a sovereign function that lies at the core of State power.”)); see generally
Dep’t of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 345 (1994) (describing the tax power
as “central to state sovereignty”).
3
See, e.g., Texas v. Biden, 20 F.4th 928, 970 (5th Cir. 2021) (reasoning that a state’s “special solicitude in
the standing inquiry . . . means imminence and redressability are easier to establish [] than usual”), rev’d and
remanded on other grounds, 142 S. Ct. 2528 (2022); Texas v. United States, 809 F.3d 134, 154–55 (5th Cir. 2015)
(concluding that states had sovereign-authority standing in a pre-enforcement challenge to federal immigration law
without using the pre-enforcement framework); Sturgeon v. Masica, 768 F.3d 1066, 1073–74 (9th Cir. 2014)
(reasoning that a state failed to prove an “actual or imminent” injury by not identifying “any actual conflict”
between federal and state law that showed how a federal requirement would “interfere[] with the state’s control over
and management of” state affairs), vacated and remanded sub nom. on other grounds, Sturgeon v. Frost, 577 U.S.
424 (2016); Se. Fed. Power Customers, Inc. v. Geren, 514 F.3d 1316, 1322–23 (D.C. Cir. 2008) (concluding that
states had an injury-in-fact because they “credibly claim[ed] to fear” that proposed changes to water-storage uses
would result in diminished water flows).
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 47
Second, after discussing their past tax cuts, they allege that ARPA’s vague restrictions
“chill[] legislative action” to enact similar policies. (R. 1, Original Complaint, PageID 17 ¶ 43;
see id. at PageID 16–17 ¶¶ 41–42.) Financial hardship in part led the States to cut taxes for
homeowners and businesses alike. (Id.) Kentucky, for example, enacted a bill intended to
“invest in and revitalize a predominantly minority community in Kentucky’s largest city.” (Id. at
PageID 16 ¶ 41 (citing 2021 Ky. H.B. No. 321 (NS)).) The tax cuts there fall within a “core part
of its sovereign duty” and will lead to a “decrease in net revenue.” (Id.) Likewise, Tennessee
seeks to cut its “professional privilege tax” to “attract new businesses and residents, continuing
Tennessee’s proven record in promoting economic growth that benefits the entire [s]tate.” (Id. at
PageID 16 ¶ 42 (citing H.B. 0987, S.B. 0184, 112th General Assembly (2021)).) Tennessee also
expects the bill to reduce state revenue. (Id.)
All this to say, ARPA’s vague conditions chill the States from enacting similar tax cuts.
The States allege they cannot confidently enact tax policy because they fear imminent
recoupment action for exercising their sovereign-taxing authority. (See id. at PageID 17 ¶¶ 43–
44.) And because of the “fungible” quality of money, the States construe ARPA to “potentially
affect[] all State legislative and executive actions that reduce net tax revenues,” even if they have
nothing to do with ARPA’s COVID-19 relief. (Id. at PageID 16, 17 ¶¶ 41, 44 (quotation
omitted).) ARPA then “likely implicates” the powers to “make and enforce policies and
regulations” and the “traditional prerogative to superintend” local taxes on state citizens.
Kentucky, 23 F.4th at 599.
To top it all off, the States have standing because ARPA’s chilling effect “threatens to
damage each of the [S]tates’ economies.” Id. at 599. The chilling effect to enact tax policies
that “invest in and revitalize” communities, (R. 1, Original Complaint, PageID 16 ¶ 41), or
“attract new businesses and residents” to promote “economic growth,” (id. at PageID 16 ¶ 42),
stagnates the States’ fiscal health and interest in helping their citizens. Kentucky and Tennessee
plausibly allege that resistance to ARPA will result in fewer tax cuts for homeowners and
businesses, “all to the detriment of their state economies.” Kentucky, 23 F.4th at 601. Because
the States have sovereign and quasi-sovereign interests in “defending their economies from the
alleged negative ramifications” of ARPA, they also “have standing to contest it.” Id.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 48
The States’ “sovereign prerogatives are now lodged in the Federal Government, and
Congress has ordered” Treasury to enforce the Offset Provision and initiate recoupment actions
to recover any misused funds. Massachusetts, 549 U.S. at 519; see 42 U.S.C. § 802(e). That the
States face threats from exercising their traditional-taxing authority only reinforces that they
have a sufficient stake in the case so as “to warrant the exercise of federal judicial power.”
Massachusetts, 549 U.S. at 519. So along with giving this case “special” recognition because the
States are suing the federal government, Saginaw County, 946 F.3d at 957, we should afford the
States “special solicitude in our standing analysis.” Massachusetts, 549 U.S. at 520.
Thus, I agree with the majority that the States allege imminent injuries that grant them
standing.4 Recognizing that the States suffer from sovereign injuries raises this question: Did
Treasury’s Rules moot the States’ legal interests in obtaining relief?
III.
This is where I part ways with the majority; I believe the answer is no. Treasury’s Rules
do not moot Kentucky or Tennessee’s controversy over their sovereign interests. Even with the
guidance, the States still suffer from the same harm explained above. And both meet Article
III’s requirements as a result.
A case only becomes moot “when the issues presented are no longer live or parties lack a
legally cognizable interest in the outcome.” Thomas v. City of Memphis, 996 F.3d 318, 323 (6th
Cir. 2021). Said differently, parties do not have a mootness problem if “the relief sought would,
if granted, make a difference to the legal interests of the parties.” Ford v. Wilder, 469 F.3d 500,
504 (6th Cir. 2006) (internal quotation omitted). Even with the Rules, the States still need
injunctive and declaratory relief to avoid Treasury’s enforcement of ARPA’s unconstitutionally
vague conditions.
4
One oddity about this case, it’s not crystal clear to me what the States’ cause of action is here—ARPA, for
example, doesn’t appear to recognize their right to sue the federal government. And this Court has held that a cause
of action must exist apart from standing, even in a sovereign-authority case. Kentucky, 23 F.4th at 602. It appears
to me, however, that the Supreme Court has recognized an action in cases that allege Spending Clause violations
under the Constitution itself. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 540, 575 (2012); New York v.
United States, 505 U.S. 144, 154, 172 (1992); South Dakota v. Dole, 483 U.S. 203, 205, 210–12 (1987). And,
tellingly, the government here does not contest the States’ ability to sue apart from their justiciability arguments.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 49
The States’ claims withstand mootness because their issues are still “live.” Thomas,
996 F.3d at 323. As they originally alleged, ARPA still fails to provide clear notice of a funding
condition. (R. 1, Original Complaint, PageID 17–19 ¶¶ 46–54.) And even later, the States
alleged that Treasury “cannot cure the inherent ambiguity in [ARPA] because Congress must
provide the recipients of federal funds with clear notice of any conditions on the use of the
funds.”5 (R. 23, Amended Complaint, PageID 148 ¶ 51.) (emphasis in original). With that in
mind, they allege the Rules “cannot save” ARPA from its unconstitutional conditions. (Id. at
PageID 150 ¶ 61.) This all rings true.
Although the Rules tried to fill in the blanks of ARPA, Treasury cannot resolve ARPA’s
open-endedness. The Rules tried to construct ARPA’s guidelines by providing what ARPA
didn’t: a revenue baseline and guidance on when Treasury would enforce the Offset Provision.
See 31 C.F.R. §§ 35.3; 35.8(b); see also Coronavirus State and Local Fiscal Recovery Funds,
87 Fed. Reg. 4338, 4423, 4428 (Jan. 27, 2022) (to be codified at 31 C.F.R. § 35). But Treasury
couldn’t provide the clear notice of the conditions ARPA entailed; Congress, through ARPA
alone, had that responsibility. And nothing in ARPA alludes to the Rules’ selected baseline or
construction of the Offset Provision. ARPA’s text does not clearly determine why a 2019
baseline applies or why another baseline (like a different year) does not. Nor does ARPA
address whether it prohibits a reduction in expected tax revenues or whether it prohibits a
reduction in actual tax revenues. Only the Rules purport to provide the answer (that states can
choose either), but that answer does not stem from ARPA’s text.
And, perhaps most importantly, the regulation does not fix the Offset Provision in three
other ways: Vagueness still exists from ARPA’s lack of explanation on how to (1) calculate a
“reduction” in net tax revenue, (2) determine whether such a reduction resulted from a tax cut,
and (3) tell what particular conduct constitutes an “indirect” offset.
5
Indeed, one scholar contends that only federal statutes―not federal agency conditions―can “defeat state
law.” Philip Hamburger, Purchasing Submission: Conditions, Power, and Freedom 130 (2021). As traditionally
recognized, statutes “enjoy the obligation of law” because “a legislative body representative of the people” adopts
them. Id. Hamburger notes that this logic does not legitimize a federal agency’s elaboration of a statute. Id. at 131.
Agencies, of course, do not represent the people in the same way Congress does, so their rules may not render state
law void. Id.No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 50
Indeed, Kentucky and Tennessee allege that the Rules made their concerns over their
tax authorities even worse. (See R. 23, Amended Complaint, at PageID 147 ¶ 50.) If ARPA
is impermissibly vague, as the States allege and the majority concludes, then Kentucky and
Tennessee still face “an unlawfully-imposed quandary in determining how to exercise its
sovereign taxing power.” Ohio v. Yellen, 547 F. Supp. 3d 713, 725 (S.D. Ohio 2021).
The States’ legislators considering tax changes may delay, second guess, or abandon parts of tax
policies because ARPA does not explain the impact that such changes will have on their ability
to retain ARPA funds. See id.And even if the Rules could clarify ARPA’s open-endedness, the States still face a live
threat to their sovereign authority. The Rules seek to allow states to enact tax cuts resulting in
revenue reductions so long as they identify permissible sources of offsetting funds. See, e.g.,
87 Fed. Reg. at 4428. Although allowing for some tax cuts, the 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.
What’s more, the Rules do not ease the States’ concern regarding Treasury’s enforcement
against them. Secretary Yellen’s threat to enforce the Offset Provision in her earlier letter to the
States still stands. (See R. 1-2, Yellen Letter, PageID 33–34.) Indeed, the Rules make matters
worse. They expressly reserve the Secretary’s broad authority to enforce ARPA’s requirements
and provide that “[n]othing” in the Rules “shall limit the authority of the Secretary to take action
to enforce conditions or violations of law . . . .” 31 C.F.R. § 35.4(a) (2022). So the Rules do not
limit ARPA’s enforcement; they instead provide the Secretary broad enforcement discretion. If a
state accepts the funds and the Secretary believes that the state violates ARPA, that state must
“repay to the Secretary an amount equal to the amount of funds used in violation [thereof].”
42 U.S.C. § 802(e). All this considered, a credible threat of enforcement still stands.
Next, while facing “live” issues, the States continue to have “a legally cognizable interest
in the outcome” of this case. Thomas, 996 F.3d at 323. The Rules do not “mak[e] it ‘impossible
for the [C]ourt to grant any effectual relief[.]’” Id. at 330 (quotations omitted). The Court can
still grant injunctive and declaratory relief given the States’ continued stake in the case without
creating an “advisory opinion that Article III prohibits.” Id. That such relief “would have [a]
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 51
practical effect” on the States reaffirms that mootness does not pose a problem here. Id.; see
Ford, 469 F.3d at 504. Because ARPA’s vague conditions still restrict States from enacting tax
cuts in their sovereign capacities and Treasury-recoupment actions remain a credible threat, the
relief sought affects the parties’ current legal interests. See Ford, 469 F.3d at 504–05. If
granted, the States’ relief would help them avoid enforcement of ARPA’s unconstitutionally
vague conditions.
For these reasons, I do not find the claims moot like the majority. I acknowledge that the
States did not allege they would fail to offset their funds with a permissible revenue source. See
87 Fed. Reg. at 4428. But I don’t believe that moots Treasury’s threat of recoupment action.
Again, the Rules still limit the States from enacting tax policies if they do not offset a net
reduction with permissible revenue sources. This restraint makes the States fear that they
“cannot lower their citizens’ tax burdens without suffering a penalty.” (R. 23, Amended
Complaint, PageID 131 ¶ 1.) And seeing that the Rules do not “limit the authority of the
Secretary” to enforce ARPA, a credible threat of recoupment action still stands. 31 C.F.R.
§ 35.4(a). Or if the States wish to comply with the Rules, they must do something—either raise
other taxes or lower expenditures elsewhere in the budget to offset a revenue reduction. That
something creates an ongoing injury. On that note, the Rules also leave the States’ claims of
vagueness intact, which leads ARPA to intrude upon the States’ tax powers—“an area
traditionally left to the states.” Kentucky, 23 F.4th at 599. And the chilling effects and the threats
to the States’ economies remain. See id. at 599–601. Because the States still face the effects of
ARPA’s vagueness, the Rules do not moot this case.
IV.
I concur with almost all of the majority opinion. But I respectfully dissent in part only to
explain why I believe the Rules do not moot the States’ controversy over their sovereign-tax
interests. Thus, I would grant both Kentucky and Tennessee their sought-after relief.