Jurisdiction; Challenge to the American Rescue Plan Act (ARPA or the Act); The ARPA’s “Offset Provision” (42 USC § 802(c)(2)(A)); “Justiciable controversy”; Mootness; The “pall” theory

The court reversed the district court and vacated the order that permanently enjoined the ARPA’s Offset Provision’s enforcement, holding that defendants’ (collectively the Treasury) credible disavowal of plaintiff-Ohio’s broad view of the Offset Provision mooted the case. The Offset Provision “forbids a state from using the funds ‘to either directly or indirectly offset a reduction in the net tax revenue’ that ‘result[s] from’ a tax cut.” Ohio alleged that this constituted “a prohibition on tax cuts during ARPA’s ‘covered period,’ . . . and that such a condition would violate the Constitution in multiple respects[.]” The district court agreed. On appeal, the court concluded that “irrespective of whether Ohio established its initial standing to sue, its challenge is now moot.” It noted that the Treasury had later promulgated a rule that disavowed Ohio’s interpretation of the Offset Provision and explained that it would not enforce the Provision as per se prohibiting tax cuts. Moreover, the injury that Ohio asserted in its complaint—its uncertainty about the Provision’s “meaning—'is now gone.’” Also, Ohio had already accepted the funds. The court considered the theory for continued jurisdiction offered by the district court, which the court called the pall theory – that the “the Offset Provision ‘casts a pall over [Ohio’s] abilities to contemplate’ desired tax changes because it must labor under ‘an unlawfully-imposed quandary in determining how to exercise its sovereign taxing power.’” However, the court held that “[i]t is not enough that a statute may impose some ‘subjective chill’ in the abstract upon a plaintiff’s desired course of conduct. . . . Rather, to mount a pre-enforcement challenge and obtain an injunction, the plaintiff must show why there is some realistic, likely risk of an enforcement proceeding if it were to engage in its desired behavior.” Finding that Ohio “came up short” in this regard, the court vacated the permanent injunction because it had “no reason to believe that Treasury will not abide by its disavowal of Ohio’s interpretation of the Offset Provision as it administers the statute.”