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The Biden administration will not be appealing to the Supreme Court an Eleventh Circuit ruling in favor of states, who’ve challenged the American Rescue Plan Offset Provision that bars states from using federal aid dollars to fund tax cuts, in what may be an end to those state challenges.

That decision was communicated in a letter sent by the Department of Justice’s solicitor general Elizabeth Prelogar to House Speaker Mike Johnson, informing him of the administration’s intention not to appeal. It is the latest in the ongoing battle between states and the Treasury in dictating how states are able to allocate federal pandemic relief funds.

The Eleventh Circuit ruling in favor of the plaintiffs, a 13-state coalition made up of West Virginia, Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota and Utah, was passed down in January 2023 and following this, Judge Robin Rosenbaum declined a rehearing en banc on behalf of Treasury. 

Janet Yellen, secretary of the Treasury.

Bloomberg

Prelogar went into detail about why the Department of Justice feels filing a writ of certiorari to bring this up to the Supreme Court is unwarranted, despite not believing in the ruling.

“As a threshold matter, while the Eleventh Circuit’s holding was constitutional in nature, it rested on multiple antecedent errors of statutory construction, the proper resolution of which would have avoided any constitutional issue,” the letter said. “For instance, the court believed that the phrase ‘indirectly offset’ could plausibly be read to ‘proscribe all tax cuts during the covered period,’ even though the statutory text plainly forecloses that reading. And that misinterpretation led the court to characterize the interpretation of the offset provision as a ‘major question’ that Congress did not intend to delegate.”

There are also many practical considerations that make a Supreme Court review unwarranted, such as the fact that ARPA’s fiscal recovery fund program is temporary in nature, as states must use their funds for costs incurred by the end of 2024 and spend the money by the end of 2026, making a Supreme Court decision of this sort likely to muck up the problem as the decision would likely not be reached until 2025.

“Even a favorable decision therefore would have little prospective effect on the operation of the fiscal recovery fund program,” the letter said.

The letter goes on to say that many states included as plaintiffs have already submitted reports to Treasury and based on those, many have not spent their fiscal recovery funds on direct tax offsets and that the vast majority would likely satisfy the conditions in the Treasury Department rule.

“Even the plaintiff States that could potentially violate the rule may ultimately avoid such violations by changing their fiscal positions before the end of the program–for instance, through repeals of tax cuts, new spending cuts or organic revenue growth,” the letter said.

Prelogar also notes the peculiar fiscal conditions states have found themselves in in recent years due to inflation and other macroeconomic factors.

“Some states appear to have experienced non-linear economic recoveries, in which they have generated revenue surpluses during the first few years of the fiscal recovery fund program that could then be spent over several years,” the letter said. “Because the Treasury Department’s current rule relies on annual revenue assessments, it may not capture certain states’ particular fiscal situations. Accordingly, if one or more states were found not to have satisfied the Treasury Department’s rule following unanticipated economic developments, the Treasury Department would consider revising the rule forbearing its enforcement in that respect.”

But a petition for a writ of certiorari to appeal to the Supreme Court can still be filed by Feb. 9 if the Biden Administration changes its mind. The decision not to appeal remains perplexing to some.

“If they think they’re right, I don’t know why they’re not appealing other than to save face on an issue they have lost with every count that reached the merits,” said Joseph Bishop-Henchman, executive vice president of the National Taxpayers Union Foundation. “Over half the states have cut taxes in the last few years and there was real danger that the federal government would intrude in those decisions by using this provision. This litigation stopped that threat and I’m pleased to see the administration concede that they won’t try to invoke it.”

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