State AGs Object to COVID Stimulus Plan Restrictions UPDATE

Steven D. Schwinn, University of Illinois Chicago Law School

Twenty-one Republican state attorneys general wrote a letter to Treasury Secretary Janet Yellen yesterday objecting to provisions in the recently enacted federal stimulus bill that place certain restrictions on the $350 billion that is directed to cities, counties, and states.

In particular, the AGs objected to a provision that prohibits recipients of the funding from

us[ing] the 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.

The AGs argue that the provision could prohibit states from reducing taxes in areas that have nothing to do with COVID relief or the stimulus bill, and that this would violate federalism principles. They say that the restriction, as written, is ambiguous, does not relate to COVID stimulus or relief, and "would effectively commandeer half of the States' fiscal ledgers, compelling States to adopt the one-way revenue ratchet of the current Congress for the next three years"--in violation of the conditioned spending test in South Dakota v. Dole.

According to the AGs, "such federal usurpation of state tax policy would represent the greatest attempted invasion of state sovereignty by Congress in the history of our Republic."

The AGs ask Secretary Yellen to confirm that the restriction "does not prohibit States from generally providing tax relief through the kinds of measures listed and discussed above and other, similar measures, but at most precludes express use of the funds provided under the Act for direct tax cuts rather than for the purposes specified by the Act." Without such assurance, they say that'll "take appropriate additional action . . . . "

UPDATE: Turns out Ohio, whose AG did not sign the letter, didn't want to wait for an answer from Yellen: it filed suit against Yellen, alleging more-or-less the same claims.