The U.S. Treasury has failed to file an appeal to the Supreme Court against Tennessee's win in the Sixth Circuit Court of Appeals after that court found that the American Rescue Plan Act provision barring states from using federal coronavirus funds to offset net reductions in tax revenue can't be enforced against Tennessee.
That's the most recent development in the multi-state battle against the American Rescue Plan's "Offset Provision," and could provide some indication as to how Treasury views this fight.
"Every time it's gotten to the merits, the federal government has lost and then when it comes time to appeal to the U.S. Supreme Court, they don't," said Joseph Bishop-Henchman, executive vice president at the National Taxpayers Union Foundation. "Either they have a strategy of only appealing if they can win and keeping this out of the Supreme Court," he added. "And I could see that being a strategy, because it's really hard to believe that the Supreme Court would give them a better chance than what they're getting in all the appeals courts."
"Or maybe they've changed their mind and they've decided that the statute is vague and problematic and we should just let these cases lie where they are. I think it's probably more of the first," Bishop-Henchman said.
In this case, where Tennessee is plaintiff alongside Kentucky, states were given one of their largest victories in their fight against the Offset Provision, where Tennessee presented a "distinct theory of injury," claiming that Treasury's rule and the underlying provision would burden the state with compliance costs.
Treasury was initially given an Aug. 1 deadline to file an appeal with the Supreme Court, which was then extended to Aug. 31. But they've yet to try and enforce the provision against any state, and increasingly, seem to be on the losing end.
"At this point, about half the states in the country are under judicial injunctions about this provision, so the provision cannot be applied against them," Bishop-Henchman said. "So far, Treasury has not initiated enforcement actions against any state on this provision and every additional loss for the federal government makes it more and more unlikely that that will ever happen."
But while their efforts to limit the uses of ARPA funds may not work on this front, they're also expanding ARPA's flexibility for other uses. On Aug. 10 Treasury released an interim final rule allowing state and local governments flexibility to invest the $65.1 billion allocated under ARPA's State and Local Fiscal Recovery Fund for transportation and infrastructure, disaster relief and Community Development Block Grant (CDBG) projects.
According to the National Association of Counties, the interim final rule states that counties may use ARPA funds for these newly eligible uses for costs incurred beginning Dec. 29, 2022, and may use funds for mitigation activities to lessen or avert the threat of a natural disaster and its potential physical or negative economic impacts, including to satisfy the non-federal match requirement for Federal Emergency Management Agency (FEMA) projects.
Recipients may also use funds for non-federal match for the non-federal share requirements of a federal financial assistance program in support of activities that would be eligible under the CDBG program, NACO said. ARPA funds may also be used to repay the federal government money owed under the Transportation Infrastructure Finance and Innovation Act loan program.
The interim final rule does not alter existing eligible uses detailed in the SLFRF's Final Rule and funds still must be obligated by the end of 2024 and expended by the end of 2026.
