Justiciability; American Rescue Plan Act (ARPA or the Act); Whether the Act’s Offset Provision is impermissibly vague under the Spending Clause; Whether a plaintiff-state was provided “clear notice” of ARPA’s conditions when it accepted funds under the Act

The court held that plaintiff-Kentucky’s claim against defendants (collectively the Treasury) challenging the ARPA was not justiciable and vacated the district court’s injunction to the extent it barred enforcement of the Act’s Offset Provision against Kentucky. But it affirmed the injunction as to plaintiff-Tennessee because it found that Tennessee’s claims were justiciable and that Tennessee was deprived of the requisite “clear notice” of ARPA’s conditions when it accepted funds under the Act. The Offset Provision forbids “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.” Under another provision, if a State violates “the Offset Provision, Treasury may initiate a recoupment action to recover the misused funds.” The court noted that Treasury had “promulgated an implementing regulation (‘the Rule’) that disavowed” plaintiffs’ interpretation of the “Provision and established certain safe harbors permitting the States to cut taxes.” Plaintiffs did not present any “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.” But Tennessee did claim another distinct injury—the burden of compliance costs. Thus, the court found its claim was justiciable. As to the merits, it held that the Offset Provision was “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.” The court made it clear it was not holding that the Provision is “‘unconstitutional’ under the Spending Clause.” Instead, it ruled that, as a matter of statutory interpretation, the “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” respond with enforcement proceedings.