RECOMMENDED FOR PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 22a0245p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

COMMONWEALTH OF KENTUCKY; STATE OF TENNESSEE,

Plaintiffs-Appellees,

v.

JANET YELLEN, in her official capacity as Secretary of the 

U.S. Department of the Treasury; RICHARD K. DELMAR, in 

his official capacity as Acting Inspector General of the U.S. 

Department of the Treasury; UNITED STATES DEPARTMENT 

OF THE TREASURY, 

Defendants-Appellants.

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No. 21-6108

Appeal from the United States District Court for the Eastern District of Kentucky at Frankfort.

No. 3:21-cv-00017—Gregory F. Van Tatenhove, District Judge.

Argued: July 21, 2022

Decided and Filed: November 18, 2022

Before: DONALD, BUSH, and NALBANDIAN, Circuit Judges.

_________________

COUNSEL

ARGUED: Daniel Winik, UNITED STATES DEPARTMENT OF JUSTICE, Washington, 

D.C., for Appellants. Brett R. Nolan, OFFICE OF THE ATTORNEY GENERAL OF 

KENTUCKY, Frankfort, Kentucky, for Appellees. ON BRIEF: Daniel Winik, Alisa B. Klein, 

UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellants. Brett R. 

Nolan, Barry L. Dunn, Matthew F. Kuhn, OFFICE OF THE ATTORNEY GENERAL OF 

KENTUCKY, Frankfort, Kentucky, Andrée S. Blumstein, Brandon J. Smith, OFFICE OF THE 

ATTORNEY GENERAL AND REPORTER OF TENNESSEE, Nashville, Tennessee, for 

Appellees. Paul D. Clement, KIRKLAND & ELLIS LLP, Washington, D.C., Joseph D. 

Henchman, NATIONAL TAXPAYERS UNION FOUNDATION, Washington, D.C., Sheng Li, 

NEW CIVIL LIBERTIES ALLIANCE, Washington, D.C., Drew C. Ensign, OFFICE OF THE 

ATTORNEY GENERAL OF ARIZONA, Phoenix, Arizona, for Amici Curiae.

>
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 2

BUSH, J., delivered the opinion of the court in which DONALD, J., joined in full, and 

NALBANDIAN, J., joined in part. NALBANDIAN, J. (pp. 43–51), delivered a separate opinion 

concurring in part and dissenting in part.

_________________

OPINION

_________________

JOHN K. BUSH, Circuit Judge. In response to the grave economic challenges posed by 

COVID-19, Congress enacted the American Rescue Plan Act of 2021 (“ARPA” or “the Act”). 

Pursuant to Congress’s spending power, ARPA set aside $195.3 billion in stimulus funds, to be 

distributed by the Treasury Department to states and the District of Columbia. This appeal 

concerns a challenge brought by Kentucky and Tennessee (“the States”) to what they allege is an 

ambiguous, coercive, and commandeering condition attached to those funds. Specifically, to get 

the money, the States had to certify that they would comply with the Act’s “Offset Provision.”

Its terms bar 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. 42 U.S.C. 

§ 802(c)(2)(A). And a related portion of the Act explains that should a State violate the Offset 

Provision, Treasury may initiate a recoupment action to recover the misused funds. 42 U.S.C. 

§ 802(e)(1)–(2). 

What the Offset Provision actually means, however, is the subject of grave dispute. 

Because money is fungible, enacting any tax cut and then spending ARPA funds could be 

construed, the States say, as having impermissibly used those funds to “indirectly offset” a 

revenue reduction from the tax cut. Appellees’ Br. at 12–13. As a result, should the States wish 

to expend their ARPA funds, they are effectively barred from enacting any tax cuts1—despite 

their desire to do so—for fear that Treasury could construe the cuts as implicating an “indirect 

offset” and correspondingly pursue recoupment. Id. at 22–23; 38. Compounding the Act’s 

indeterminacy, the Offset Provision itself never explains which fiscal year (“FY”) serves as the 

baseline for calculating a “reduction” in net tax revenue. Id. at 13, 40. That omission allegedly 

1This alleged restriction applies at least during ARPA’s “covered period,” 42 U.S.C. § 802(g)(1), which 

extends until “the last day of the fiscal year of such State . . . in which all funds received by the State . . . have been 

expended or returned to, or recovered by, the Secretary,” § 802(g)(1)(B).
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 3

leaves the States in the dark about when Treasury may deem them to have violated the Act. Id.

And even though a Treasury regulation has since offered a narrowing construction of the Offset 

Provision, the States assert that this construction in no way follows clearly from the text of the 

Offset Provision itself. Id. at 41. Thus, the States object that the Offset Provision failed to 

provide them with clear notice of whatever conditions it entails. And because of those 

indeterminacies, they contend that the Offset Provision is unenforceable under the clearstatement rule the Supreme Court has long instructed governs spending legislation. 

Worse yet, the States argue, they were coerced into relinquishing this control over their 

sovereign taxing authority. Amended Complaint ¶74, R. 23. By offering such a massive aid 

package—promising to confer on the States a sum equal to one-fifth of their annual budgets—in 

a time of fiscal crisis no less, the federal government made the States an offer they couldn’t 

refuse. Appellees’ Br. at 4, 12. Given these alleged intrusions upon their sovereignty, the States 

filed suit against the Treasury Department. They sought an injunction of the Offset Provision’s 

enforcement and a declaratory judgment that the provision is unenforceable. 

Relying on the coercion rationale alone, the district court granted the States a permanent 

injunction in September 2021. Treasury’s appeal of that order is now before us. It asserts that 

the States’ challenges are nonjusticiable and that, in any event, their objections to the Offset 

Provision fail on the merits.

We agree that Kentucky’s challenge is nonjusticiable. At the outset of their suit, both 

Kentucky and Tennessee had standing to bring their pre-enforcement challenges, since the Offset 

Provision itself at least arguably proscribed the post-acceptance enactment of any revenuereducing tax cut. Thus, the Offset Provision at least arguably threatened a significant intrusion 

upon state taxing authority—an intrusion that arguably offended the Spending Clause because it 

was not clearly authorized by the Offset Provision itself. But Treasury later promulgated an 

implementing regulation (“the Rule”) that disavowed this interpretation of the Offset Provision 

and established certain safe harbors permitting the States to cut taxes. See Coronavirus State and 

Local Fiscal Recovery Funds, 86 Fed. Reg. 26,786 (proposed May 17, 2021) (interim final rule); 

see also Coronavirus State and Local Fiscal Recovery Funds, 86 Fed. Reg. 4,338 (Jan. 27, 2022) 

(final rule); 31 C.F.R. § 35 et seq. In response, Kentucky and Tennessee offered no additional 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 4

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. We thus reverse the district court’s conclusion that 

Kentucky’s claim is justiciable and vacate the injunction to the extent that it bars enforcement of 

the Offset Provision against Kentucky. 

Tennessee, by contrast, did adduce additional evidence of a distinct theory of injury: that 

Treasury’s Rule (and the underlying Offset Provision it implements) burden the State with 

compliance costs. See Eley Dec., R. 25-3. These costs represent additional labor and other 

expenses that Tennessee must incur to ensure that its recent and proposed tax cuts do not violate 

the Offset Provision; expenses that it would not incur were enforcement of the Offset Provision 

enjoined. Far from mooting the compliance-costs theory of injury, the Rule in fact exacerbated 

the harm with its more detailed explanation of the measures required to comply with the Offset 

Provision. Thus, we hold that Tennessee’s challenge is justiciable. 

On the merits of Tennessee’s claim, we affirm the district court’s injunction on the basis 

that the Offset Provision is 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. Cummings v. Premier Rehab 

Keller, P.L.L.C., 142 S. Ct. 1562, 1574 (2022) (quoting Arlington Cent. Sch. Dist. Bd. of Educ. v. 

Murphy, 548 U.S. 291, 296 (2006)). As a result, Treasury cannot use its Rule to impose 

compliance requirements upon Tennessee that are not clearly authorized by the Offset Provision 

itself. And because this defect suffices to affirm, we need not consider Tennessee’s additional 

objections to the Offset Provision. 

I.

Congress enacted ARPA in March 2021 to make available almost $2 trillion in COVIDrelated relief funding. Approximately $195.3 billion of that sum was set aside for distribution to 

the states and the District of Columbia. “Kentucky’s allotment under the Act is about $2.1 

billion,” while Tennessee’s is about $3.7 billion. Amended Complaint ¶¶26–27, R. 23. These 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 5

sums amount to nearly one-fifth of the States’ respective annual general revenues. Id. In the 

States’ view, “[t]he financial aid the Act offer[ed] . . . is simply unparalleled in size.” Id. ¶28.

That offer also came with several conditions. For instance, the States may spend their 

ARPA funds in only four particular areas that Congress deemed relevant to economic recovery 

from the pandemic. Those four areas are as follows: 

(A)to respond to the public health emergency with respect to the Coronavirus 

Disease 2019 (COVID-19) or its negative economic impacts, including 

assistance to households, small businesses, and nonprofits, or aid to impacted 

industries such as tourism, travel, and hospitality;

(B) to respond to workers performing essential work during the COVID-19 public 

health emergency by providing premium pay to eligible workers of the State, 

territory, or Tribal government that are performing such essential work, or by 

providing grants to eligible employers that have eligible workers who perform 

essential work;

(C) for the provision of government services to the extent of the reduction in 

revenue of such State, territory, or Tribal government due to the COVID-19 

public health emergency relative to revenues collected in the most recent full 

fiscal year of the State, territory, or Tribal government prior to the emergency; 

or

(D)to make necessary investments in water, sewer, or broadband infrastructure.

42 U.S.C. § 802(c)(1)(A)–(D). 

Conversely, the States are specifically forbidden from using ARPA funds for two 

particular applications. First, “[n]o State or territory may use funds made available under this 

section for deposit into any pension fund.” § 802(c)(2)(B). And second—the crux of this 

lawsuit—the States may not use ARPA 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. 

§ 802(c)(2)(A). This is the so-called “Offset Provision”—the States have dubbed it the “Tax 

Mandate”—that has provoked legal challenges across the country. See, e.g., Missouri v. Yellen, 

39 F.4th 1063 (8th Cir. 2022); Arizona v. Yellen, 34 F.4th 841 (9th Cir. 2022); West Virginia v. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 6

U.S. Dep’t of Treas., No. 7:21-cv-00465-LSC, 2021 WL 2952863, *1 (N.D. Ala. July 14, 2021); 

Texas v. Yellen, No. 2:21-CV-079-Z, 2022 WL 1063066, *1 (N.D. Tex. Apr. 8, 2022). 

Accompanying the Offset Provision are a couple of related enforcement mechanisms. 

First is the statute’s reporting requirement, which instructs the states: 

To provide to the Secretary periodic reports providing a detailed accounting of—

(A)the uses of funds by such State, territory, or Tribal government, 

including, in the case of a State or a territory, all modifications to the 

State’s or territory’s tax revenue sources during the covered period; 

and

(B)such other information as the Secretary may require for the 

administration of this section. 

§ 802(d)(2)(A)–(B). And second is the statute’s recoupment procedure. Should a state violate 

the Act’s requirements, Treasury may initiate a recoupment action to seek reimbursement from a 

state “equal to the amount of funds used in [the] violation.” § 802(e).

Kentucky and Tennessee were not alone, it turns out, in their apprehensions about this 

statutory scheme. Several of their sister-states were similarly puzzled by the Offset Provision’s 

requirements. So they wrote jointly to Secretary Yellen to seek clarification about the precise 

obligations it imposed. Secretary Yellen—who elsewhere had acknowledged that the 

“fungibility of money” presented “thorny questions” about the meaning of the Offset 

Provision—wrote back to explain that the States could expect “further guidance” from Treasury 

in the near future. Treasury Secretary & Federal Reserve Chair Testimony on COVID-19 

Economic Recovery, C-SPAN (Mar. 24, 2021), at 58:00–59:11, available at https://www.cspan.org/video/?510059-1/treasury-secretary-federalreserve-chair-testimony-covid-19-economicrecovery; see Yellen Letter, R. 1-2.2 But she also explained that Treasury did intend to enforce 

whatever prohibitions the Offset Provision was revealed to entail. See id. Perhaps 

2

In particular, Senator Mike Crapo asked Secretary Yellen, “How do you intend to approach the question 

of what is ‘directly or indirectly offsetting’ a tax cut?” The Secretary responded, “Well, when I said that we have 

‘thorny questions’ to work through, you’ve just indicated why we do. We will have to define what it means to use 

money from this Act as an ‘offset’ for tax cuts. And, given the fungibility of money, it’s a hard question to answer.” 

Treasury Secretary & Federal Reserve Chair Testimony on COVID-19 Economic Recovery at 58:30–59:05 

(emphasis added), available at https://www.c-span.org/video/?510059-1/treasury-secretary-federalreserve-chairtestimony-covid-19-economic-recovery.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 7

unsurprisingly, given these lingering uncertainties, several states filed suit to restrain the Offset 

Provision’s enforcement. 

Kentucky and Tennessee brought their own challenge in April 2021. They each alleged 

that because of the funds’ irresistible nature in the midst of an economic crisis, they intended to 

accept their respective funding allotments.3 But they also alleged that the Offset Provision tied 

to those funds injured the States with a coercive and ambiguous restriction that 

“unconstitutionally intrud[es] on the [States’] sovereign authority, by interfering with their 

ordinary management of their fiscal affairs, and by requiring them to forgo their constitutional 

taxing powers or face an action to return much-needed federal funds after they have already been 

spent.” Complaint ¶12, R. 1.

In response to this and other suits, Treasury attempted to clarify the Offset Provision by 

promulgating an Interim Final Rule in May 2021. See 86 Fed. Reg. at 26,786. In relevant part, 

the Interim Final Rule explained that Treasury did not read the Offset Provision to proscribe all 

tax cuts during ARPA’s “covered period.” Id. at 26,807. Rather, it views the Provision as 

proscribing only a tax cut that (1) results in a revenue reduction as compared to revenues for the 

“fiscal year ending in 2019,” and (2) for which a state fails to identify a permissible, non-ARPA 

source of additional funds to offset the revenue reduction. Id.; see also id. at 26,810. 

In particular, Treasury said, it would not initiate a recoupment action even after a state enacted a 

revenue-reducing tax cut and expended ARPA funds so long as the state could show that the 

revenue reduction was offset with (1) a state tax increase on some other activity, (2) additional 

inlays from macroeconomic growth, or (3) a state spending cut in an area the state is not 

expending ARPA funds. Id.; see also Appellants’ Br. at 5; 31 C.F.R. §§ 35.1–35.12 (codifying 

the Rule). 

The States reacted with an amended complaint in June 2021. The Interim Final Rule 

notwithstanding, the States reprised their contention that the Offset Provision functionally 

3Kentucky ultimately accepted the funds after the complaint was filed and certified that it would comply 

with the Offset Provision, while Tennessee accepted the funds only after the district court entered its permanent 

injunction. See Recording of Oral Arg. at 27:38–27:55. Additionally, Tennessee accepted the funds with a 

reservation that it considered the Offset Provision invalid. Id. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 8

proscribes all future tax cuts to the extent a state wishes to expend its ARPA funds. Amended 

Complaint ¶32, R. 23 (alleging that Congress, as a condition of ARPA, required the States to 

“promise that [they] will not lower taxes on their residents for four years”). But they augmented 

their complaint with an allegation about compliance costs. See id. ¶12. In addition to their 

“imminent recoupment” and “sovereign authority” theories of injury, the States complained that 

“the Tax Mandate w[ould] impose administrative burdens on [them] by obligating them to spend 

resources on calculation and reporting requirements.” Id. And the States alleged that all of those 

injuries “are traceable to the Tax Mandate and Defendants’ efforts to enforce it.” Id. Thus, they 

continued to seek a declaratory judgment that the Offset Provision is unconstitutional and an 

injunction to restrain Treasury from initiating an enforcement action.

Two days later, the States submitted their corresponding motion for summary judgment 

and a permanent injunction. They reiterated their view that they have standing to challenge the 

Offset Provision for the three aforementioned reasons: that it intrudes on state taxing authority, 

could result in a recoupment action if the States were to pursue their desired tax cuts, and 

imposes administrative burdens and compliance costs. As to the merits, they argued that the 

Offset Provision is impermissibly ambiguous under the Spending Clause, not reasonably related 

to ARPA’s nominal goal of fiscal recovery, and unconstitutionally coercive and commandeering.

Given Treasury’s strenuous objections to justiciability, the corresponding evidence the 

States submitted in support of their motion for summary judgment deserves particular scrutiny. 

Kentucky offered merely a confirmation email indicating its acceptance of the ARPA funds. See 

Submission Confirmation, R. 25-1. By contrast, Tennessee submitted declarations from two 

state officials. First was a declaration from N. Antonio Niknejad, Policy Director to Governor 

Bill Lee. See Niknejad Dec., R. 25-2. Niknejad explained that Tennessee has “a long history of 

cutting taxes and spending in order to spur economic growth,” that Tennessee had recently 

enacted several tax cuts on gym memberships, professional licensing, agricultural products, and 

broadband fiber optic cables, and that Tennessee is contemplating several future tax cuts. Id.

¶¶6, 8, 9–11. Yet he explained that uncertainty about how the Offset Provision could be 

construed has caused policymakers in Tennessee to “defer, slow, or reconsider some of [their] 

taxing decisions.” Id. ¶14.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 9

The second was a declaration from Commissioner Howard H. Eley of Tennessee’s 

Department of Finance and Administration. See Eley Dec., R. 25-3. Unlike Niknejad, who 

focused on anticipated tax cuts, Eley described the administrative burdens and compliance costs 

the Offset Provision (and Rule) would inflict on Tennessee. We quote three particularly relevant 

paragraphs from his declaration below: 

8. Tennessee is required by its state constitution to enact a balanced budget. 

General fund expenditures, which include certain reductions in tax revenue due to 

a statutory or regulatory change, are described by category, agency, program, and 

the recurring or non-recurring nature of the expenditure. State revenues, which 

include federal funds and reimbursements, are described by source. The enacted 

budget appropriates a specific amount from the general fund and other funds to 

fund the State’s programs and operations. But in determining whether the budget 

is balanced, the Department of Finance and Administration generally compares 

total expenditures to total revenues and does not typically connect expenditures to 

specific revenue sources or “indirect” causes for those revenues. If the State 

receives federal funds to offset certain state expenditures, the state funds that 

would have been used to pay for those expenditures are not used and can be 

returned to the general fund for future appropriation. To comply with the Tax 

Mandate, the Department will be required to create new accounting processes 

that specifically track whether federal funds received under the Rescue Plan are 

being used to “directly or indirectly offset” any state expenditures resulting from 

a reduction in tax revenue that otherwise would have been funded from state 

appropriated tax revenues. That will include tracking whether any cost savings 

resulting from the receipt of federal funds to offset certain state expenditures are 

ultimately and indirectly used to offset a tax reduction. Establishing these 

additional processes and preparing the required reports will require at least one 

budget analyst and one revenue analyst to divert at least some of their work to 

that task and other state employees to support and review that work. 

9. To comply with the Secretary’s Regulations attempting to implement and 

enforce the Tax Mandate, the State of Tennessee will be forced to expend 

additional resources adjusting Tennessee’s “baseline” level of tax revenue for 

inflation each year during the covered period “using the Bureau of Economic 

Analysis’s Implicit Price Deflator for the gross domestic product of the United 

States” and then using that adjusted figure to determine whether the State’s tax 

policies may violate the Secretary’s interpretation of the Tax Mandate. 31 C.F.R. 

§§ 35.3, 35.8(b). 

10. The State of Tennessee would not incur these additional costs to determine 

whether any revenue reductions could be said to have been “directly or indirectly 

offset” by funds received under the Rescue Plan or to report its revenue 

modifications to the Secretary but for the Tax Mandate.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 10

Eley Dec. ¶¶8–10, R. 25-3 (emphases added). Given both these compliance costs and the 

asserted threat of a recoupment action should the States pursue their desired tax cuts, the States 

asked the district court to grant them summary judgment and permanently enjoin the Offset 

Provision’s enforcement.

Treasury cross-moved for summary judgment, or, alternatively, to dismiss the complaint. 

It introduced no evidence of its own, and thus it did not attempt to controvert Niknejad or Eley’s 

declarations. Rather, it argued that even taking the declarations as true, the States lacked 

standing and that their merits challenges failed as a matter of law. See Mot. to Dismiss & Mot. 

for Summ. J. at 8, 17, R. 32. Concerning a recoupment action, Treasury argued that none was 

imminent. Id. at 10. For even if the States had established that they wish to cut taxes, they failed 

to show that not only would such cuts result in revenue reductions, but also that they intended to 

use ARPA funds to offset those reductions. Id. at 11. As to compliance costs, it argued that 

(1) any administrative burdens were traceable solely to the reporting requirement, not the Offset 

Provision, and (2) no injury occurs because the States are permitted to use ARPA funds “to cover 

administrative costs.” Id. at 14–15. As to the merits, Treasury conceded that its Rule cannot 

cure potential ambiguities in the Offset Provision for purposes of the Spending Clause. Id. at 30. 

But it claimed that the text of the Offset Provision itself is unambiguous. Id. It likewise argued 

that no precedents support the States’ view that the Offset Provision is unduly coercive or 

commandeers state taxing authority. Id. at 18–26.

The district court rendered its opinion on these motions in September 2021. As to 

justiciability, it concluded that both Kentucky and Tennessee had satisfied the pre-enforcementchallenge standing test described in Susan B. Anthony List. See id. at 3–5 (citing Susan B. 

Anthony List v. Driehaus, 573 U.S. 149 (2014)). First, both the States intended to accept ARPA 

funds and yet asserted that doing so entailed compliance with the arguably unconstitutional “Tax 

Mandate.” Op. & Order at 4–5. Second, the “Tax Mandate” at least arguably proscribed the 

States’ desired efforts to cut taxes. Id. at 5. And third, Secretary Yellen had expressed intent to 

enforce the Offset Provision in her earlier letter to the States, demonstrating a credible threat of 

enforcement. Id. The district court thus held that both Kentucky and Tennessee had standing to 

challenge the Offset Provision. Id. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 11

As for the merits, the district court concluded that ARPA violated the Spending Clause 

because it had coerced the States into relinquishing control over their taxing authority to the 

federal government. Id. at 11. In essence, it said, the economic crisis made the federal 

government’s aid offer irresistible, and so it represented an “undue influence” on the States’ 

authority to tax. Id. at 6 (quoting Nat’l Fed. of Indep. Bus. v. Sebelius, 567 U.S. 519, 576 (2012) 

(opinion of Roberts, C.J.)); see also id. at 11. The district court thus granted summary judgment 

to the States and imposed a permanent injunction4restraining enforcement of the Offset 

Provision. Id. at 16–17. 

II.

The district court’s order granting the States summary judgment and imposing a 

permanent injunction was a final decision. See, e.g., Reform Am. v. City of Detroit, 37 F.4th 

1138, 1147 (6th Cir. 2022) (citation omitted). Thus, 28 U.S.C. § 1291 gives us statutory 

jurisdiction to handle Treasury’s appeal. We examine Article III jurisdiction over the States’ 

respective claims below. 

As for our standards of review, we consider summary-judgment orders de novo. See 

Jordan v. Howard, 987 F.3d 537, 542 (6th Cir. 2021) (citation omitted). Thus, drawing all 

reasonable inferences in favor of the non-movant, we ask whether the party seeking summary 

judgment demonstrated “that there is no genuine dispute as to any material fact” and that it is 

“entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). On cross-motions for summary 

judgment, we apply these same standards to each of the individual motions. See Taft Broad. Co. 

v. United States, 929 F.2d 240, 248 (6th Cir. 1991) (citation omitted); accord Reform Am., 

37 F.4th at 1147; B.F. Goodrich Co. v. U.S. Filter Corp., 245 F.3d 587, 592 (6th Cir. 2001).

Concerning the district court’s decision to grant a permanent injunction, several standards 

of review are relevant. “[F]actual findings are reviewed under the clearly erroneous standard, 

legal conclusions are reviewed de novo, and the scope of injunctive relief is reviewed for an 

abuse of discretion.” Sec’y of Lab. v. 3Re.com, Inc., 317 F.3d 534, 537 (6th Cir. 2003) (quoting 

4By contrast, the district court denied the States’ requested declaratory judgment, reasoning that such relief 

was subsumed into its order awarding a permanent injunction. Op. & Order at 14, R. 42.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 12

S. Cent. Power Co. v. Int’l Brotherhood. of Elec. Workers, Loc. Union 2359, 186 F.3d 733, 737 

(6th Cir. 1999)). 

III.

As is our obligation, we consider first whether Kentucky and Tennessee established that 

their respective challenges to the Offset Provision are justiciable. See, e.g., Arbaugh v. Y&H 

Corp., 546 U.S. 500, 514 (2006). We hold that Tennessee alone satisfied that showing. We then 

explain our view that the text of the Offset Provision is insufficiently clear under the relevant 

Spending Clause jurisprudence for Treasury, through promulgation of its Rule, to impose the 

specific obligations that Tennessee complains have inflicted compliance costs upon it. 

A. Justiciability

1. Kentucky and Tennessee’s Initial Standing to Sue

From the States’ original complaint onward, their central theory of standing has been as 

follows. First, they said, they both intended to accept ARPA funds. Complaint ¶¶26–27, R. 1. 

But second, the Offset Provision at least arguably proscribes enacting any post-acceptance tax 

cut should the States wish to expend their funds. Id. ¶32. Indeed, because money is fungible, 

spending ARPA funds and then cutting taxes (or vice versa) could arguably be construed as 

having used those funds to “indirectly offset” a resultant revenue reduction. Id. ¶35. And 

second, the States alleged, both Kentucky and Tennessee desire to enact (or have enacted) tax 

cuts. Kentucky, for instance, recently enacted a tax-deferral bill to revitalize an area of 

Louisville. Id. ¶41. Likewise, Tennessee is considering eliminating its professional-privilege 

tax, and it has recently enacted cuts to several other taxes. Id. ¶42. But the States complained 

that such tax cuts “could be construed to come within the Tax Mandate if they result in a revenue 

decrease.” Id. They thus contended that the Offset Provision constrained their sovereign 

authority to tax and exposed them to an imminent recoupment action should they wish to pursue 

their preferred policies.

These original theories sufficed for standing. Whether a party has standing to redress an 

injury is measured as of the time the injury is first asserted; here, in the original complaint. See 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 13

Lynch v. Leis, 382 F.3d 642, 647 (6th Cir. 2004). As of that moment, therefore, we apply two 

relevant frameworks to assess whether these “imminent-recoupment” and “sovereign-authority” 

theories sufficed for standing. The first framework derives from the Supreme Court’s decision in 

Lujan, which explained that plaintiffs must establish an injury that is (1) actual or imminent and 

concrete and particularized, (2) traceable to the defendant, and (3) likely to be redressed by a 

favorable decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Here at least, 

elements (2) and (3) are not subject to serious dispute. A recoupment action initiated by 

Treasury is no doubt traceable to Treasury, and an injunction restraining such a proceeding 

would provide the States corresponding relief. But what about an injury in fact? No recoupment 

action is now pending. So the question is whether a future such proceeding is sufficiently 

imminent to say the States have suffered a de facto injury for purposes of Article III. 

That brings us to the second, more specialized framework, which instructs us how to

determine whether an enforcement action is sufficiently imminent to support Article III 

jurisdiction over a pre-enforcement challenge. See Susan B. Anthony List, 573 U.S. at 158–59. 

Under that test, we ask whether the States, when they first asserted these injuries, had established 

(1) an intention to engage in a course of conduct arguably affected with a constitutional interest, 

(2) that this course of conduct was arguably proscribed by the Offset Provision, and (3) that if the 

States should pursue such a course of conduct, there was a credible threat that Treasury would 

pursue a recoupment action. See id. at 161–64. Before the eventual advent of the Rule, we 

believe, the States had satisfied this tripartite showing. 

First, Kentucky and Tennessee alleged that despite their intention to accept and expend 

ARPA funds, they had either enacted or planned to enact tax cuts that could potentially result in 

revenue reductions. Complaint ¶¶41–42, R. 1. And their decision to do so was at least arguably 

affected with a constitutional interest, given that states have a powerful sovereign prerogative 

under federalism principles to control their own internal taxation policies. See id. ¶40; see also 

Lane County v. Oregon, 74 U.S. 71, 76 (1868) (describing states’ control over “the power of 

taxation” as “indispensable” and “an essential function of government”); Dep’t of Revenue of 

Oregon v. ACF Indus., Inc., 510 U.S. 332, 345 (1994) (“Subsection (b)(4), like the whole of 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 14

§ 11503, sets limits upon the taxation authority of state government, an authority we have 

recognized as central to state sovereignty.”).

Second, this course of conduct was at least arguably proscribed by the Offset Provision. 

As we noted before, “money is fungible.” Complaint ¶35, R. 1; see also United States v. Sperry 

Corp., 493 U.S. 52, 62 n.9 (1989) (“Unlike real or personal property, money is fungible.”); 

Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 79 (2011) (same); Ark Encounter, LLC v. 

Parkinson, 152 F. Supp. 3d 880, 904 (E.D. Ky. 2016) (“Because money is fungible, such 

benefits will to some extent have the incidental effect of allowing the institution’s other funds to 

be used to advance their [other] purposes if they wish. Indeed any reimbursement, aid, or tax 

exemption necessarily frees up other funds for other purposes.”). As a result, merely enacting a 

revenue-reducing tax cut and expending ARPA funds could at least arguably be construed as 

having used the funds to “indirectly offset” the revenue reduction, given that the ARPA funds 

could support continued state spending rendered otherwise impossible by the tax cuts.5

Indeed, Treasury acknowledged in the commentary to its own Final Rule that this is at 

least a plausible interpretation of the statute. For instance, it explained, “because money is 

fungible, even if [ARPA] funds are not explicitly or directly used to cover the costs of changes 

that reduce net tax revenue, those funds may be used in a manner inconsistent with the statute by 

indirectly being used to substitute for the state’s or territory’s funds that would otherwise have 

been needed to cover the costs of the reduction.” 87 Fed. Reg. at 4,424 (emphasis added). For 

that matter, the plausibility of the States’ money-is-fungible interpretation is the very reason 

Treasury had to promulgate its Rule—to disavow that interpretation and attempt to clarify the 

Offset Provision. See, e.g., id. at 4,423–24. Thus, the States’ desire to cut taxes while spending 

ARPA funds was at least arguably proscribed by the Offset Provision. 

Last, the States had illustrated a credible threat of enforcement. For instance, the States 

produced Secretary Yellen’s letter indicating that Treasury intended to enforce the Offset 

5The question may arise why a revenue reduction would necessarily make additional spending impossible, 

since it would seem the States could continue to spend at the same levels by taking on debt. The answer is that this 

sort of debt-financed spending is restricted under Kentucky and Tennessee’s respective constitutions, which have 

balanced-budget amendments. See Ky. Const. §§ 49–50, 171; Tenn. Const. Art. II, § 24.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 15

Provision. See Yellen Letter, R. 1-2. The letter reiterated that “[ARPA] funding may not be 

used to offset a reduction in net tax revenue resulting from certain changes in state law.” Id. at 1.

It also explained that Treasury would later promulgate “further guidance” about what sort of 

changes in state law could provoke a recoupment action.6Id. at 1–2. Thus, the letter itself 

acknowledged that (1) the Offset Provision would be enforced, but (2) it was not yet clear, based 

on the statute alone, how the States could comply with the Provision (and stave off recoupment). 

So as of the original complaint, the States had satisfied the Supreme Court’s pre-enforcementchallenge test. In addition to traceability and redressability, in other words, they had also 

established a sufficiently imminent injury for jurisdiction. 

2. The Interim Final Rule Complicates the Initial Imminent-Recoupment 

and Sovereign-Authority Theories of Injury

A little over a month after the States had filed their original complaint, Treasury 

promulgated its Interim Final Rule (“IFR”) offering its construction of the Offset Provision. 

Several features of that Rule are relevant to this dispute. First, the IFR supplied the missing 

baseline for calculating whether a tax cut results in a revenue reduction. It clarified that the 

revenue baseline would be the state’s “fiscal year 2019 tax revenue adjusted for inflation.” 

86 Fed. Reg. at 26,808.7 Second, the IFR attempted to provide guidance about when a state 

would be understood to have “directly or indirectly offset a reduction in . . . net tax revenue.” 

42 U.S.C. § 802(c)(2)(A). Treasury’s commentary explained as follows: 

A recipient government would only be considered to have used Fiscal Recovery 

Funds to offset a reduction in net tax revenue resulting from changes in law, 

regulation, or interpretation if, and to the extent that, the recipient government 

could not identify sufficient funds from sources other than the Fiscal Recovery 

6Technically, even this letter explained Secretary Yellen’s position that the Offset Provision does not 

render tax cuts impermissible per se. See Yellen Letter at 1, R. 1-2. But the letter also acknowledged that the Offset 

Provision created significant uncertainty about when tax cuts were permissible versus when they were not, which 

was why Treasury intended to promulgate “further guidance” about when it would pursue recoupment actions. Id.

at 2. Thus, in the absence of those clarifying regulations, it was at least arguable that the tax cuts Kentucky and 

Tennessee had enacted or planned to enact could provoke a recoupment action. Indeed, as this Circuit’s precedent 

recognizes, a threatened enforcement action should only be understood as too remote to support jurisdiction when 

the defendants have provided “clear assurances” they will not undertake the enforcement action. See, e.g., Universal 

Life Church Monastery Storehouse v. Nabors, 35 F.4th 1021, 1035 (6th Cir. 2022).

7The Final Rule likewise confirms that the fiscal year ending in 2019 is the relevant baseline. See 

31 C.F.R. § 35.3; 87 Fed. Reg. at 4,423. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 16

Funds to offset the reduction in net tax revenue. If sufficient funds from other 

sources cannot be identified to cover the full cost of the reduction in net tax 

revenue resulting from changes in law, regulation, or interpretation, the remaining 

amount not covered by these sources will be considered to have been offset by 

Fiscal Recovery Funds, in contravention of the offset provision. The interim final 

rule recognizes three sources of funds that may offset a reduction in net tax 

revenue other than Fiscal Recovery Funds—organic growth, increases in revenue 

(e.g., an increase in a tax rate), and certain cuts in spending. 

86 Fed. Reg. at 26,807. The IFR thus provided the “further guidance” Secretary Yellen had 

promised in her initial letter to the States. As we explained before, Treasury construed the Offset 

Provision not to bar a revenue-reducing tax cut so long as a state identifies replacement funds 

from (1) macroeconomic growth, (2) increased state taxation on some other activity, or (3) state 

spending cuts in an area where the state is not expending ARPA funds. Id.; see also Appellants’ 

Br. at 5.

Yet this narrowing construction created apparent justiciability issues for the States’ 

challenge to the Offset Provision. In their initial complaint, the States had alleged only that they 

have enacted or plan to enact tax cuts that may result in reduced state revenues. Complaint 

¶¶41–42, R. 1. They never additionally alleged that they would then fail to identify a permissible 

source of revenue—such as from macroeconomic growth or a reduction in certain state 

spending—to offset the resultant reductions in inlays. And only if that contingency were to 

occur, according to Treasury’s new Rule, would Treasury pursue a recoupment action against the 

States. See 86 Fed. Reg. at 26,807; see also Appellants’ Br. at 5. The IFR thus rendered it 

unclear why there was a reasonable prospect of a recoupment action. 

And the States’ sovereign-authority theory now suffered from a similar issue. The States’ 

apparent view was that they had either been injured (1) in the past from the receipt of an 

ambiguous or coercive offer, or (2) are being continuously injured because the Offset Provision 

“prohibit[s] . . . tax relief.” Appellees’ Br. at 46. But an injunction cannot be used to redress a 

purely past injury. See City of Los Angeles v. Lyons, 461 U.S. 95, 105 (1983). Rather, the States 

had to show why they were likely to suffer some present or future harm. Id. So that leaves the 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 17

claim that the Offset Provision “prohibits . . . tax relief.” Appellees’ Br. at 46.8 But the IFR 

subsequently disavowed the States’ interpretation of the Offset Provision, clarifying that they 

remain free to expend ARPA funds and enact tax cuts resulting in revenue reductions so long as 

they identify a permissible source of offsetting funds. See, e.g., 86 Fed. Reg. at 26,807. And the 

Final Rule crystallized precisely the same understanding. See, e.g., 87 Fed. Reg. at 4,426.9 Yet 

the States never established that they would fail to meet that obligation. Thus, we do not see 

how the sovereign-authority theory could support injunctive relief when the States identified no 

specific course of conduct they wish to pursue but against which Treasury will initiate an 

enforcement proceeding. See Whole Woman’s Health v. Jackson, 141 S. Ct. 2494, 2495 (2021) 

(“[F]ederal courts enjoy the power to enjoin individuals tasked with enforcing laws, not the laws 

themselves.” (citing California v. Texas, 141 S. Ct. 2104, 2115–16 (2021)).

3. The States File Their Amended Complaint and Motion for Summary 

Judgment But Provide No Evidence that They Intend to Violate the 

Rule

About a month after the IFR’s promulgation, the States filed their amended complaint 

and corresponding motion for summary judgment and a permanent injunction. Despite the 

advent of the IFR, the States made no allegations and adduced no specific evidence about how 

8

In response to our request for supplemental briefing on mootness, the States emphasized their contention 

that their “sovereign authority” theory remains live even despite the Rule because the Offset Provision still “limits 

the range of policy options available to the[m].” Appellees’ Supp. Br. at 4 (quoting Appellees’ Br. at 20–21). Of 

course, any law could be said to “limit the range,” in an abstract sense, of a plaintiff’s legitimate behavior. But 

merely because enjoining the law’s enforcement could be said to expand the range of potential behaviors a plaintiff 

might permissibly engage in does not alone establish the plaintiff’s standing to seek an injunction. Rather, the 

plaintiff must show that he is “able and ready” to violate the law and that an enforcement action would realistically 

and likely ensue in response to the violation. Carney v. Adams, 141 S. Ct. 493, 501–02 (2020); Babbitt v. United 

Farm Workers Nat. Union, 442 U.S. 289, 298 (1979). Thus, as concerns the “sovereign authority” theory, the States 

still had the burden to establish, with evidence, why they plan to imminently pursue some policy objective outside 

the range of conduct permitted by the Rule and against which Treasury would correspondingly take action. Lujan, 

504 U.S. at 561; cf. Whole Woman’s Health v. Jackson, 141 S. Ct 2104, 2495 (2021) (“[F]ederal courts enjoy the 

power to enjoin individuals tasked with enforcing laws, not the laws themselves.” (citing California v. Texas, 141 S. 

Ct. 2104, 2115–16 (2021))).

9We do not hold today that the interim final rule itself necessarily mooted the imminent-recoupment and 

sovereign-authority theories. Interim final rules are subject to revision after the notice-and-comment process, so a 

rule’s content could still change from its interim form to its final form in some way relevant to justiciability. But 

that concern is absent from this particular case, given that the final rule varied from the interim final rule in no way 

material to this dispute. Both disavow enforcement in exactly the same way and present exactly the same safe 

harbors for states and enforcement constraints on the Treasury Department. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 18

they have pursued or intend to pursue a course of conduct that would arguably violate the Rule. 

In other words, they provided no declarations or other evidence about how they intend to enact 

tax cuts that (1) would result in net revenue reductions compared to 2019 inlays, and (2) would 

then fail to identify a permissible funding source (such as from growth or spending cuts) to offset 

the revenue reduction. Indeed, the only evidence Kentucky adduced in the States’ motion for 

summary judgment was its notification that it intended to accept the ARPA funds. See 

Submission Confirmation, R. 25-1.

Those omissions are problematic for justiciability, since the States produced no evidence 

about why there is a realistic risk of an enforcement proceeding. And justiciability must be 

established with the degree of evidence required at each respective stage of the suit. See Lujan, 

504 U.S. at 561. So the States were obliged to submit evidence—such as a sworn declaration—

detailing how they are “able and ready” to pursue a course of action that would run afoul of the 

Rule. Carney v. Adams, 141 S. Ct. 493, 501–02 (2020). For only then would there be a 

demonstrated risk of a recoupment action, which a federal court could redress by enjoining such 

action. See Jackson, 141 S. Ct. at 2495 (citing California, 141 S. Ct. at 2115–16). In the 

absence of that evidence, we conclude that Treasury’s disavowal of the money-is-fungible 

interpretation dispelled the States’ claim that they run the risk of an imminent enforcement 

action—as when, for instance, a prosecutor credibly disavows that he will enforce a challenged 

statute. See, e.g., Mink v. Suthers, 482 F.3d 1244, 1256–57 (10th Cir. 2007); cf. Commodity 

Trend Serv., Inc. v. Commodity Futures Trading Comm’n, 149 F.3d 679, 687 (7th Cir. 1998) 

(explaining that courts will find a credible threat of enforcement when “the Government fails to 

indicate affirmatively that it will not enforce the statute” (emphasis omitted)). 

The only remaining question is what kind of justiciability defect Treasury’s disavowal 

created. The parties initially framed the issue as one of the States’ “standing.” But we disagree 

with that characterization. Whether an “intervening circumstance” arising after a suit has been 

filed causes a plaintiff’s asserted injury to dissipate is really a question of mootness. See Genesis 

Healthcare Corp. v. Symczyk, 569 U.S. 66, 72 (2013). And whether the Rule mooted the 

imminent-recoupment and sovereign-authority theories comes down to whether we should credit 

Treasury’s voluntary disavowal of a broad view of the Offset Provision; in essence, whether 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 19

Treasury established10 that there is no “reasonable possibility” it will act as if the Offset 

Provision forbids tax cuts per se. Resurrection Sch. v. Hertel, 35 F.4th 524, 529 (6th Cir. 2022) 

(en banc). 

We hold that Treasury satisfied this showing. Its Final Rule resulted from the notice-andcomment process, and thus it may be rescinded only pursuant to that process as well. See 

5 U.S.C. § 551(5); Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 101 (2015). And we have no 

evidence that Treasury plans to pursue such rescission. Indeed, and more importantly, Treasury 

has repeatedly taken the position in this litigation that its Rule necessarily follows from the plain 

text of the Offset Provision itself. See, e.g., Reply Br. at 1; Appellants’ Supp. Br. at 2 n.2. So 

even without the Rule, according to Treasury, it would pursue recoupment against Kentucky and 

Tennessee—even if they were to enact a revenue-reducing tax cut and expend ARPA funds—

only if the States additionally failed to identify one of the permissible sources of offsetting funds, 

such as a tax increase or macroeconomic growth.11 Id. On those bases, then, we conclude that 

Treasury has affirmatively and credibly disavowed the money-is-fungible interpretation of the 

Offset Provision. Thus, because the States failed to provide evidence that they intend to 

10Aside from how standing and mootness concern the parties’ interests at different stages of a lawsuit, they 

can also present different burdens of proof. See Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 98 (1993). 

The burden to establish jurisdiction rests on the party invoking jurisdiction—here, the States—while the burden to 

defeat jurisdiction with a mootness objection rests on the party asserting mootness—here, Treasury. Id. Because of 

this burden-shifting issue, we ordered supplemental briefing to solicit Treasury’s affirmative case as to why the 

States’ challenge is moot. See Order, ECF No. 45. After agreeing that mootness (rather than standing) is the 

appropriate framework to assess the impact of the Rule’s advent, Treasury’s supplemental brief once again 

disavowed the money-is-fungible interpretation of the Offset Provision and disclaimed that Treasury has any intent 

to pursue recoupment in response to tax cuts per se. See Appellants’ Supp. Br. at 1. We thus understand Treasury, 

through its supplemental briefing, to have discharged its duty to make an affirmative showing about why at least the 

imminent-recoupment and sovereign-authority theories are moot. 

11In their supplemental briefing, the States contended that the Rule did not moot the imminent-recoupment 

and sovereign-authority theories because it contains a reservation of authority. See Appellees’ Supp. Br. at 5 (citing 

31 C.F.R. § 35.4(a)). And, true, the Rule provides that “[n]othing in this part shall limit the authority of the 

Secretary to take action to enforce conditions or violations of law, including actions necessary to prevent evasions of 

this subpart.” 31 C.F.R. § 35.4(a). But we have no evidence (or even argument) about how the States plan to 

engage in conduct that Treasury would construe as an “evasion,” much less why Treasury would construe behavior 

clearly permitted by other parts of the Rule to constitute such an “evasion.” Moreover, Treasury insists that the 

Rule’s narrowing construction “flows naturally from the text of the Offset Provision itself.” Appellants’ Supp. Br. 

at 2 n.2. So even if the Rule arguably did not bar Treasury from pursuing recoupment under, for instance, the 

money-is-fungible interpretation, Treasury has solemnly represented before us that the Offset Provision itself would 

preclude such an enforcement action. Again, Treasury’s position is that the Offset Provision itself unambiguously 

dispels that interpretation of the statute. Reply Br. at 1; Appellants’ Supp. Br. at 2. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 20

specifically violate the Rule (and provoke recoupment), and because Treasury established that 

there is no realistic prospect it will enforce the States’ expansive interpretation of the Offset 

Provision, we deem the imminent-recoupment and sovereign-authority theories moot. 

Moreover, that holding ends the case for Kentucky. Kentucky submitted nothing other 

than an email indicating its intent to accept the ARPA funds. Submission Confirmation, R. 25-1. 

It furnished no proof about how it intends to violate the Rule, or about why it suffers a 

continuing sovereign injury when it identified no desired tax cut that, if enacted, would likely 

provoke recoupment. It also offered no additional theory of injury, such as compliance costs, 

that might sustain its challenge even in the absence of an imminent recoupment action. See 

Recording of Oral Arg. at 30:38–30:45 (conceding that there is no evidence in the record about 

Kentucky’s budgeting processes). Thus, the district court should have dismissed its challenge to 

the Offset Provision as moot.12

4. Tennessee’s Challenge Remains Justiciable, However, Under a 

Compliance-Costs Theory of Injury

The same cannot be said for Tennessee. Recall how, in their amended complaint, the 

States made allegations about an additional injury the Offset Provision would inflict upon them: 

12Kentucky insists that its challenge to the Offset Provision is justiciable if we determine that Tennessee’s 

challenge to the Offset Provision is justiciable. See, e.g., Recording of Oral Arg. at 30:15–30:20; Appellees’ Br. at 

16 n.4. We disagree. “Standing is not dispensed in gross.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 353 

(2006) (quoting Lewis v. Casey, 518 U.S. 343, 358 n.6 (1996)). Rather, to win summary judgment and obtain 

injunctive relief, Kentucky and Tennessee each had to demonstrate, with evidence, why it was suffering 

particularized continuing or imminent injuries in fact, and why that remained the case even after promulgation of 

the Rule. Lujan, 504 U.S. at 561; see also id. at 560 n.1 (“By particularized, we mean that the injury must affect the 

plaintiff in a personal and individual way.”); Trump v. New York, 141 S. Ct. 530, 534 (2020) (“A foundational 

principle of Article III is that an actual controversy must exist not only at the time the complaint is filed, but through 

all stages of the litigation.” (cleaned up)). Thus, the district court had no authority to issue an injunction protecting a 

party that failed to demonstrate that its challenge was even justiciable. Instead, a “remedy must . . . be limited to the 

inadequacy that produced the injury in fact that the plaintiff has established.” DaimerChrysler Corp., 547 U.S. at 

353. The case that Kentucky cites to the contrary—Rumsfeld v. Forum for Academic & Institutional Rights, Inc.—is 

inapposite. See Appellees’ Br. at 16 n.4 (citing 547 U.S. 47, 52 n.2 (2006)). There, determining the standing of 

each individual plaintiff (and thus the legitimate scope of injunctive relief) was irrelevant; since plaintiffs had all 

advanced the same non-meritorious claim, the Court needed to find standing only as to a single plaintiff to deem 

their shared legal theory erroneous. Id. at 70. But while such cases “give courts license to avoid complex questions 

of standing in cases where the standing of others makes a case justiciable, it does not follow that these cases permit a 

court that knows that a party is without standing to nonetheless allow that party to participate in the case.” Nat’l 

Rifle Ass’n of Am., Inc. v. McCraw, 719 F.3d 338, 344 n.3 (5th Cir. 2013). The proper course is, instead, to limit 

relief only to those parties who established the district court’s jurisdiction to award it. DaimlerChrysler Corp., 

547 U.S. at 353. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 21

compliance costs. Amended Complaint ¶12, R. 23. Unlike Kentucky, Tennessee then submitted 

uncontroverted evidence of those costs. Eley Dec. ¶¶8–10, R. 25-3. As Eley’s declaration 

explains, the Offset Provision requires Tennessee to expend time and money that it would not 

expend but for the Offset Provision to ensure that none of the tax cuts it has enacted or will enact 

could be construed as having been “indirectly offset” by ARPA spending. Id. ¶8. Likewise, it 

must also expend resources it would not otherwise have to expend “adjusting [its] ‘baseline’ 

level of tax revenue for inflation each year during the covered period” to determine whether its 

tax policies may provoke a recoupment action. Id. ¶9. These injuries were not mooted by the 

advent of the Rule, since Tennessee must still expend resources to maintain compliance with the 

Offset Provision (and, for that matter, the Rule as well). See id.

And, unlike with the imminent-recoupment and sovereign-authority theories, we have no 

similar imminence concern about the compliance-costs argument.13 Tennessee already accepted 

the funds, so it must undertake compliance efforts at present. Given those facts, we conclude 

that Tennessee satisfied its obligation to show an actual injury traceable to the defendants and 

likely redressable by a favorable decision. Indeed, compliance costs are a recognized harm for 

purposes of Article III. See, e.g., Federal Election Comm’n v. Ted Cruz for Senate, 142 S. Ct. 

1638, 1646 (2022); Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973, 983 (2017) (“For standing 

purposes, a loss of even a small amount of money is ordinarily an ‘injury.’”); see also State Nat. 

Bank of Big Spring v. Lew, 795 F.3d 48, 53 (D.C. Cir. 2015) (Kavanaugh, J.) (“The Rule also 

offers a safe harbor, but banks such as State National Bank must incur costs to ensure that they 

are properly complying with the terms of that safe harbor. . . . Under Lujan, the Bank therefore 

has standing to challenge the constitutionality of the Bureau.”); Grand River Enters. Six Nations, 

Ltd. v. Boughton, 988 F.3d 114, 121 (2d Cir. 2021) (collecting cases). Tennessee’s expenditure 

of those resources, as we explain below, is traceable to the Offset Provision. Its proscriptions are 

why Tennessee must incur such costs—to maintain compliance with the Offset Provision and 

stave off a recoupment action.14 And permanently enjoining the Offset Provision’s enforcement 

13We thus assess Tennessee’s standing argument under the ordinary Lujan framework. See supra at 12–13.

14Supreme Court doctrine, we note, provides that a federal court has jurisdiction over a regulated entity’s 

pre-enforcement challenge even when no enforcement action is imminent if the enforcement action’s remoteness 

stems from the regulated entity’s own involuntary efforts to comply with the contested proscription. MedImmune, 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 22

would redress that injury. For if enforcement of the Offset Provision were enjoined, Tennessee 

would have no reason to continue expending resources to maintain compliance with an 

unenforceable provision. 

Still, however, Treasury disputes several aspects of this analysis. Its objections focus on 

whether these compliance costs are a legitimate injury in fact, and, even assuming they are, 

whether such an injury is truly traceable to the Offset Provision. After more fully describing 

those objections below, we explain why none persuades us that we lack jurisdiction. 

a. Treasury’s Objection that Tennessee’s Compliance Costs are 

not an Injury in Fact

Treasury at points seems to dispute that the compliance costs the Offset Provision (and 

Rule) inflict on Tennessee even constitute an injury in fact. See, e.g., Reply Br. at 4 n.1. Its 

argument rests on a portion of the Final Rule—which, we note, acknowledges that ARPA 

imposes an “administrative burden” on the States—but that permits states to use ARPA funds to 

defray the costs of complying with ARPA’s reporting requirement. Id.; 87 Fed. Reg. at 4,444. 

The theory seems to be that Tennessee cannot be injured by ARPA-related compliance costs 

when ARPA funds may themselves be used to offset administrative expenses. 

We perceive two central problems with this argument. The first is that even if the Rule 

permits states to use ARPA funds to defray the costs of complying with the reporting 

requirement, 87 Fed. Reg. at 4,444, that is simply beside the point as concerns Tennessee’s 

compliance-costs argument. Tennessee complained of compliance costs distinct from those 

imposed by the reporting requirement. See Eley Dec. ¶¶8–9, R. 25-3. Indeed, Eley’s declaration 

draws an explicit distinction between the costs of reporting Tennessee’s uses of ARPA funds, on 

the one hand, and the costs of tracking whether any such use could be construed as an “indirect 

offset,” on the other. Id. ¶10. And that distinction makes perfect sense based on the statute’s 

text. The reporting requirement explains that states must provide a “detailed accounting 

Inc. v. Genentech, Inc., 549 U.S. 118, 128–30 (2007). MedImmune concerned a declaratory judgment, of course, but 

the Declaratory Judgment Act did not expand federal courts’ jurisdiction beyond that which they already could have

exercised to award traditional remedies like money damages or an injunction. Skelly Oil Co. v. Phillips Petroleum 

Co., 339 U.S. 667, 671–72 (1950). So since the court in MedImmune had jurisdiction to adjudicate a declaratoryjudgment action concerning alleviation of a prospective harm, it necessarily would have had jurisdiction to entertain 

an injunctive suit (such as the one at issue here) as well. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 23

of . . . the uses of [ARPA] funds” and “all modifications to the State’s . . . revenue sources during 

the covered period,” along with “other information as the Secretary may require[.]” 42 U.S.C. 

§ 802(d)(2)(A)–(B). The Offset Provision, by contrast, presents a different obligation: that such 

“uses” may not be for “indirect” offsets of revenue-reducing tax cuts. § 802(c)(2)(A). So a state 

could violate the Offset Provision—indirectly offsetting tax cuts with ARPA funds—while 

complying with the reporting requirement—by simply telling Treasury that it was using the 

funds in an impermissible manner. Thus, even if we assumed that the States were not injured by 

the reporting requirement, given that they may defray associated administrative expenses with 

ARPA funds, that would in no way dispel Tennessee’s distinct injury from additional costs 

incurred to comply with the Offset Provision. 

Second, and more fundamentally, even if we assumed that the Rule permitted Tennessee 

to use ARPA funds to defray its Offset Provision-related compliance costs, that would still 

represent an injury in fact. Tennessee has an independent interest in expending its ARPA funds 

on other legitimate uses; for instance, spending in one of the four areas that Congress deemed 

necessary to recovery from the pandemic. 42 U.S.C. § 802(c)(1)(A)–(D). ARPA funds 

expended on compliance with an invalid Offset Provision are necessarily ARPA funds not 

productively expended on economic recovery. So a “diversion of resources” from useful areas to 

compliance with an invalid condition would nonetheless constitute an injury in fact. Dep’t of 

Com. v. New York, 139 S. Ct. 2551, 2565 (2019). Put simply, Tennessee has a live interest in not 

wasting its ARPA funds on compliance with an invalid condition. 

b. Additional Concerns about Traceability

Next, Treasury reframes the same argument as an objection to traceability—that all of 

Tennessee’s compliance costs are traceable solely to the unchallenged reporting requirement, 

rather than to the Offset Provision. Reply Br. at 4. But we reject this argument for the same 

reason we rejected it above; again, that it is undercut by both law and fact. The reporting 

requirement contains no prohibition on how funds may be used. It establishes only an obligation 

that states inform Treasury of which uses a state pursues. The Offset Provision, by contrast, 

contains a substantive prohibition on use—that the funds cannot be used to “indirectly offset” 

revenue reductions resulting from tax cuts. 42 U.S.C. § 802(c)(2)(A). And Eley’s 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 24

uncontroverted declaration establishes that these distinct obligations incur distinct sets of 

compliance costs upon Tennessee. 

That discussion appears to exhaust Treasury’s arguments about why the compliance-costs 

injury is nonjusticiable. But given our independent obligation to ensure that we have 

jurisdiction, we find a few additional comments about traceability in order. See, e.g., Arbaugh, 

546 U.S. at 514. One important issue, we note, is whether Tennessee’s compliance costs are 

truly traceable to the Offset Provision itself, or whether they are traceable merely to the Rule. In 

our view, Tennessee’s costs are most proximately traceable to the Rule, rather than to the Offset 

Provision’s text. If the Rule had never existed, after all, the statute alone arguably might have 

entailed obligations wholly distinct from those described by the Rule, and thus a distinct set of 

compliance costs as well. Absent the Rule’s safe harbors about growth, tax increases, and 

spending cuts, for instance, the Offset Provision itself, under the money-is-fungible 

interpretation, arguably proscribed all revenue-reducing tax cuts during ARPA’s “covered 

period.” So compliance costs under that regime would have been much simpler: just don’t cut 

taxes if you want to expend ARPA funds. But the Rule clarified that Tennessee may cut taxes 

insofar as it establishes a new tracking procedure to ensure that funds offsetting a tax cut stem 

from a permissible replacement revenue source (e.g., growth) rather than from ARPA funds. 

Eley Dec. ¶8, R. 25-3. Likewise, Eley’s declaration explained that Tennessee must expend 

additional resources to inflation-adjust its revenues for each year of the “covered period” and 

then compare them with a 2019 baseline to determine whether any year during the “covered 

period” witnessed a “reduction” in net tax revenue. That specific requirement only became clear 

from the Rule. Id. ¶9 (citing 31 C.F.R. § 35.3, 35.8(b)). 

Yet while these refined obligations’ origin in the Rule may highlight the indeterminacies 

of the underlying Offset Provision, they do not establish that Tennessee’s injuries cannot be 

traced to the Offset Provision itself. The Supreme Court recently confronted an analogous issue 

in Federal Election Commission v. Ted Cruz for Senate. 142 S. Ct. at 1638. There, the Cruz 

campaign challenged a campaign-finance restriction found in an agency regulation implementing 

a statute but absent from the underlying statute’s text. Id. at 1648. Thus, the government argued, 

“[a] challenge to the regulation . . . is separate from a challenge to the statute that authorized it.” 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 25

Id. But the Court declined to endorse this distinction. To the contrary, it held that an injury from 

a regulation implementing a statute was still traceable to the statute itself. Id. at 1649. “An 

agency, after all, ‘literally has no power to act’—including under its regulations—unless and 

until Congress authorizes it to do so by statute.” Id. (citations omitted). And “[a]n agency’s 

regulation cannot ‘operate independently of’ the statute that authorized it.” Id. (citation omitted). 

So even if Tennessee’s injuries are most proximately traceable to the Rule, we nonetheless 

conclude that these injuries also suffice for standing to challenge the Offset Provision itself. For 

if enforcement of the Offset Provision itself were enjoined, it would necessarily preclude 

enforcement of the Rule, at least to the extent it implements the Offset Provision. 

Last, we address the notion that Tennessee’s compliance costs are a “self-inflicted injury” 

and are thus traceable solely to its own conduct in accepting the ARPA funds, rather than to 

some wrongful conduct of the federal government.15 It is in some sense true that Tennessee 

exposed itself to the risk of compliance costs when it accepted the ARPA funds. Of course, 

Tennessee did so with a reservation about the Offset Provision, and it also insists that it took the 

funds under duress. See Recording of Oral Arg. at 27:38–27:55; Appellees’ Br. at 29. But even 

if we assumed that Tennessee took the money purely of its own volition, that would not make its 

compliance costs “self-inflicted” in a way that would defeat jurisdiction. The Supreme Court 

recently rejected a similar argument in, incidentally, Ted Cruz for Senate. 142 S. Ct. at 1647–48. 

There, the Cruz campaign stipulated that its “sole and exclusive motivation” for violating the 

campaign-finance restriction was to create a factual basis for challenging the restriction. Id. at 

1647. The government accordingly argued that any resultant injury was traceable not to the 

restriction, but to the Cruz campaign’s willful violation of it. Id. Again, however, the Court 

unequivocally rejected this theory. As it explained, “[w]e have never recognized a rule of this 

kind under Article III. To the contrary, we have made clear that an injury resulting from the 

application or threatened application of an unlawful enactment remains fairly traceable to such 

application, even if the injury could be described in some sense as willingly incurred.” Id.; see 

15The district court raised this concern at the permanent-injunction hearing, apparently sua sponte. See 

9/8/2021 Tr. of Hearing at 4:15-23, R. 41. As the States point out, Treasury has declined to press it either below or 

before us. See Appellees’ Br. at 18 n.5. We nonetheless address it because, again, we have independent obligation 

to assure ourselves of jurisdiction. See, e.g., Arbaugh, 546 U.S. at 514.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 26

also id. at 1648 (“That appellees chose to subject themselves to those provisions does not change 

the fact that they are subject to them, and will face genuine legal penalties if they do not 

comply.”). So even if Tennessee had voluntarily chosen to subject itself to the Offset Provision, 

it would not defeat (and, indeed, would establish) Tennessee’s standing to challenge it. 

Moreover, Tennessee points out, such a jurisdictional bar would be irreconcilable with 

the Supreme Court’s broader Spending Clause jurisprudence. See Appellees’ Br. at 18 n.5. In 

any Spending Clause challenge, it could be argued, states that accepted federal funds assumed 

the risk that an ambiguous condition could be construed against their interests. Id. For instance, 

states might have recognized that the term “costs” in the Individuals with Disabilities Education 

Act (“IDEA”) could be construed to include expert-witness fees. Arlington Cent. Sch. Dist. Bd. 

of Educ., 548 U.S. at 293–94. That it did was, in fact, the position of three dissenting Justices. 

See id. at 308 (Breyer, J., dissenting, joined by Stevens, J., and Souter, J.). Or, states might have 

recognized, the term “appropriate relief” could be construed to include money damages—a 

position that two dissenting Justices called “self-evident.” Sossamon v. Texas, 563 U.S. 277, 293 

(2011) (Sotomayor, J., dissenting, joined by Breyer, J.). But in neither of those cases were the 

states held subject to such obligations, since the question is not whether states could have 

conceived of those liabilities when accepting the funds; it is instead whether they assumed an 

obligation about which the relevant statute conferred notice clearly and unambiguously. 

Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 298; Sossamon, 563 U.S. at 289–91. 

Conversely, therefore, jurisdiction is not defeated by (and the merits of the challenge are 

established by) a spending law’s omission of clear warnings about the obligations it entails.

B. The Merits

Having concluded that Tennessee’s challenge is justiciable, we now explain why we 

agree with Tennessee that the Offset Provision did not establish, with the requisite clarity, the 

putative obligations it was revealed to entail by the Rule. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 27

1. Under the Relevant Spending Clause Jurisprudence, the Offset 

Provision Fails to Provide States Clear Notice of the Conditions It 

Entails

At the outset, we note that the States have labeled their challenge as against an 

“unconstitutionally ambiguous” piece of spending legislation. See, e.g., Amended Complaint 

¶57, R. 23. Neither of those terms is entirely accurate. First, as a technical matter, the Offset 

Provision is more than merely “ambiguous.” Ambiguity refers to situations in which language 

has at least two definite meanings and a court must select between or among them. See Caleb 

Nelson, Statutory Interpretation 77–80 (2011). (For instance, the word “bank” without further 

context might refer to either a riverside or a financial institution.) Vagueness, by contrast, arises 

when a term is open-ended and lacks inherent or definite content. Id. The Offset Provision is 

better described as suffering from the latter defect. The States could not have known from the 

statute itself the reticulated way that Treasury’s Rule would construe the Offset Provision, since 

that construction was hardly obvious ex ante. Nor could they have reliably predicted which of 

the several potential baselines Treasury would select to measure a “reduction,” nor when 

Treasury might deem such a reduction to have “resulted” from a tax cut. To the contrary, the 

statute’s open-endedness gave Treasury expansive discretion to construe its terms in the 

particular way Treasury saw fit. 

And second, the Offset Provision is not “unconstitutional” under the Spending Clause, 

strictly speaking, just because of those indeterminacies. Rather, the Supreme Court has 

explained that because Congress can cajole the states to enact policies indirectly (through a 

spending inducement) that it could never directly order them to perform with its other 

enumerated powers, we must employ a federalism-based clear-statement rule when construing 

spending legislation as a matter of statutory interpretation. See, e.g., South Dakota v. Dole, 

483 U.S. 203, 207 (1987); Cummings, 142 S. Ct. at 1570, 1574; Sch. Dist. of City of Pontiac v. 

Sec’y of U.S. Dep’t of Educ., 584 F.3d 253, 283–84 (6th Cir. 2009) (en banc) (Sutton, J., 

concurring) (describing the clear-statement rule as a “statutory limitation on Congress’s spending 

power”); see also Haight v. Thompson, 763 F.3d 554, 568 (6th Cir. 2014) (“One of the 

distinguishing features of the spending power is that it allows Congress to exceed its otherwise 

limited and enumerated powers by regulating in areas that the vertical structural protections of 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 28

the Constitution would not otherwise permit.”). In other words, Congress does not necessarily 

lack the constitutional power to enact vague spending laws in the same way that, for instance, it 

lacks the power to enact a law “respecting an establishment of religion.” U.S. Const. amend. I. 

But those laws may be unenforceable in certain circumstances when they fail to provide states 

with clear notice of a purported funding condition. 

So, as we explain below, we do not hold the Offset Provision “unconstitutional” under 

the Spending Clause. Rather, our holding is this. As a matter of statutory interpretation, we 

conclude that the Offset 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 initiate enforcement proceedings in response.

2. Applying the Spending Clause Clear-Statement Rule

It is undisputed that ARPA was enacted pursuant to the Spending Clause. Unlike ordinary 

coercive legislation, “legislation enacted pursuant to the spending power is much in the nature of 

a contract: in return for federal funds, the States agree to comply with federally imposed 

conditions. The legitimacy of Congress’[s] power to legislate under the spending power thus 

rests on whether the State voluntarily and knowingly accepts the terms of the ‘contract.’” 

Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981). And “[s]tates cannot 

knowingly accept conditions of which they are ‘unaware’ or which they are ‘unable to 

ascertain.’” Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 296 (quoting Pennhurst, 

451 U.S. at 17)). As a result, Congress must provide “clear notice” of the obligations a spending 

law entails. Pennhurst, 451 U.S. at 25. “After all, when considering whether to accept federal 

funds, a prospective recipient would surely wonder not only what rules it must follow, but also 

what sort of penalties might be on the table.” Cummings, 142 S. Ct. at 1570. And this clearstatement rule applies with particular force where “a State’s potential obligations under the Act 

are largely indeterminate.” Pennhurst, 451 U.S. at 24. “Accordingly, if Congress intends to 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 29

impose a condition on the grant of federal moneys, it must do so unambiguously” and with a 

“clear voice.” Id. at 17. Applying these principles reveals that neither the “indirectly offset” 

language nor the “reduction in the net tax revenue . . . resulting from” language provided the 

states the requisite “clear notice” of whatever obligations such language entails. Id. To the 

contrary, these are “largely indeterminate” provisions susceptible to a range of plausible 

meanings. Id. at 24; cf. Boechler, P.C. v. Comm’r, 142 S. Ct. 1493, 1498 (2022) (“Where 

multiple plausible interpretations exist—only one of which is jurisdictional—it is difficult to 

make the case that the jurisdictional reading is clear.” (citation omitted)).

a. “Indirectly Offset”

In assessing justiciability, we spoke at length about the Offset Provision’s 

indeterminacies; particularly, the prohibition on “indirect” offsets. So we briefly reiterate those 

points here. The first core issue with the Offset Provision, again, is that its text does not clearly 

explain what it means to “indirectly offset” revenue-reducing tax cuts with ARPA funds. 

“Indirectly” means “not directly; obliquely; not straightforwardly, or the like; in an indirect, 

roundabout, or subtle manner.” Indirectly, Webster’s New International Dictionary 1267 (2d ed. 

1960); see also Indirectly, New Practical Standard Dictionary 677 (1956) (“Not in direct relation; 

not tending to a result by the shortest or plainest course; inferential.”); Indirectly, Compact 

Edition of the Oxford English Dictionary 1418 (1971) (“By indirect action, means, connexion, 

agency, or instrumentality; through some intervening person or thing; mediately.”). And 

“offset,” in the relevant sense, simply means “to counterbalance” or “compensate” for 

something. Offset, Webster’s New International Dictionary at 1691; see also Offset, New 

Standard Practical Dictionary at 917 (“Anything regarded or advanced as a counterbalance or 

equivalent; set-off.”); Offset, Compact Edition of the Oxford English Dictionary at 1981 (“To set 

off as an equivalent against something else.”). So, as Treasury contends, this statutory language 

apparently stands for the general proposition that states may not circumvent the use restriction 

“with formalities.” Appellants’ Supp. Br. at 3. Beyond that general notion, however, what this 

language actually obliges the States to do is difficult to say. 

For instance, the States contend that an “indirect offset” could plausibly occur whenever 

a state enacts a revenue-reducing tax cut and expends ARPA funds—no matter whether the state 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 30

pours the ARPA funds into the precise area it cut taxes. See Appellees’ Br. at 38–39. This is the 

money-is-fungible interpretation of the Offset Provision that we described above. See id.; see 

also Amended Complaint ¶35, R. 23. Nothing about ARPA’s text or context suggests that this 

interpretation is particularly far-fetched. The macroeconomic assumption underlying the Act 

seems to be that recovery from a recession is best achieved by high levels of spending, rather 

than static levels of spending accompanied by cuts in taxation. See, e.g., 86 Fed. Reg. at 26,786–

87 (explaining that the “demand for government services is high,” but that “State, local, and 

Tribal government austerity measures can hamper overall economic growth, as occurred in the 

recovery from the Great Recession.”). So, chilling tax cuts to facilitate high levels of spending 

would seem consistent with ARPA’s purpose. Id. And even Treasury’s own Rule acknowledges 

that the money-is-fungible interpretation is at least a plausible concern with the Offset 

Provision.16 Once again, it explained, “because money is fungible, even if [ARPA] funds are not 

explicitly or directly used to cover the cost of changes that reduce net tax revenue, those funds 

may be used in a manner inconsistent with the statute by indirectly being used to substitute for 

the state’s or territory’s funds that would otherwise have been needed to cover the costs of the 

reduction.” 87 Fed. Reg. at 4,424 (emphasis added).17 The plausibility of this interpretation was 

the very reason that Treasury had to shed so much ink attempting to disavow it with the Rule. 

16In its reply brief, Treasury invoked the canon of constitutional avoidance to suggest that the money-isfungible interpretation of the Offset Provision is implausible (though, we note, it raised this point in its objections to 

justiciability rather than the merits). See Reply Br. at 3 (citing Jennings v. Rodriguez, 138 S. Ct. 830, 842 (2018)). 

We find this canon of minimal importance to either justiciability or the merits for two key reasons. First, “[f]or 

standing purposes, we accept as valid the merits of appellees’ legal claims.” Ted Cruz for Senate, 142 S. Ct. at 

1647; see also Warth v. Seldin, 422 U.S. 490, 500 (1975) (“[S]tanding in no way depends on the merits of the 

plaintiff’s contention that particular conduct is illegal.”). So it would be inappropriate for us, at the justiciability 

stage, to render a merits interpretation of the Offset Provision and to then declare based on that merits interpretation 

that the controversy is not even justiciable. See, e.g., Trump v. Hawaii, 138 S. Ct. 2392, 2416 (2018). After all, if 

the laws of the United States when “given one construction” would establish jurisdiction and would defeat it when 

“given another,” then the plaintiff has established jurisdiction. Bell v. Hood, 327 U.S. 678, 685 (1946). Second, 

concerning the merits, the constitutional-avoidance canon would at most dispel the States’ money-is-fungible 

interpretation of the Offset Provision. But establishing whatever obligations the Offset Provision does not impose 

cannot suffice to defeat a Spending Clause challenge, for the critical question would still remain about whatever 

obligations the Offset Provision does impose—such as those it is claimed to impose in the Rule—and whether it 

does so clearly and unambiguously. 

17Or, once again, consider Secretary Yellen’s acknowledgement that “[w]e will have to define what it 

means to use money from this Act as an ‘offset’ for tax cuts. And, given the fungibility of money, it’s a hard 

question to answer.” Treasury Secretary & Federal Reserve Chair Testimony on COVID-19 Economic Recovery at 

58:30–59:05, available at https://www.c-span.org/video/?510059-1/treasury-secretary-federalreserve-chairtestimony-covid-19-economic-recovery.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 31

See, e.g., Yellen Letter, R. 1-1 (explaining that Treasury would promulgate “further guidance” so 

that states could understand their obligations under the Offset Provision).

True, the Rule—as distinct from the Offset Provision itself—went on to clarify that 

such an “indirect offset” would not be deemed to have occurred in three particular situations: 

where the spending cut is offset with macroeconomic growth, another state tax increase, or a 

state spending reduction. 87 Fed. Reg. at 4,423; see also Appellants’ Br. at 5. But why is the 

presence of any safe harbor dictated by the underlying statute, much less clearly so? And why 

do those particular safe harbors reside in the statutory text, much less clearly so? In reality, the 

statute is silent on those questions. Precisely because the Offset Provision is so indeterminate 

about what behavior might constitute an “indirect offset,” Treasury was necessarily left with a 

huge range of discretion about which state behavior it would deem permissible versus 

impermissible. As a result, the statute itself failed to provide “clear notice” to Tennessee about 

whichever particular conduct Treasury would permit or proscribe. Arlington Cent. Sch. Dist. Bd. 

of Educ., 548 U.S. at 296. And no doubt because of the Offset Provision’s lack of inherent 

content, Treasury found it necessary to promulgate a Final Rule with a hundred pages of 

commentary in its attempt to establish some concrete “guidance.” See Yellen Letter, R. 1-2.

b. “A Reduction in the Net Tax Revenue . . . Resulting From” a 

Tax Cut

The Offset Provision’s language concerning “a reduction in the net tax 

revenue . . . resulting from” a tax cut is similarly indeterminate. 42 U.S.C. § 802(c)(2)(A). 

Several major issues prevent it from having provided the States “clear notice” of their 

“obligations” under the statute. Cummings, 142 S. Ct. at 1574.

The first, as we mentioned before, is that this portion of the statute never actually 

specifies which fiscal year’s revenue inlays serve as the baseline against which to determine 

whether a state experienced a “reduction” in its revenues. See Appellees’ Br. at 40. And even 

Treasury’s own Rule acknowledges how critical this omission was: “Measuring a ‘reduction’ in 

net tax revenue requires identification of a baseline. In other words, a ‘reduction’ can be 

assessed only by comparing two amounts.” 87 Fed. Reg. at 4,426. In response to that omission, 

the Rule happened to set the baseline for the Offset Provision as “the fiscal year ending in 2019.” 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 32

31 C.F.R. § 35.3; 87 Fed. Reg. at 4,423. Yet nothing in the Offset Provision’s text clearly 

dictates why a 2019 baseline applies. For instance, Treasury might have selected a cascading 

baseline, in which the Offset Provision was construed to “prohibit[] the States from cutting taxes 

in any given year relative to the year prior.” Appellees’ Br. at 40. Or it might have set the 

baseline as the fiscal year of ARPA’s enactment. And that might have been an especially 

obvious baseline, given that we typically assess statutory meaning as of “the time Congress 

enacted the statute.” Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2070 (2018) (quoting 

Perrin v. United States, 444 U.S. 37, 42 (1979)). 

The point is that the statute itself is “indeterminate” with respect to whatever baseline the 

offer entailed. Pennhurst, 451 U.S. at 24. And that wasn’t because there was some inherent 

obstacle to Congress’s specification of a baseline. For instance, compare the Offset Provision 

with the provision just above it—§ 802(c)(1)(C)—which establishes one of the permissible uses 

of ARPA funds. Congress there explained that states may spend the funds “for the provision of 

government services to the extent of the reduction in revenue of such State . . . relative to 

revenues collected in the most recent full fiscal year of the State . . . prior to the emergency.” 

42 U.S.C. § 802(c)(1)(C) (emphasis added). So Congress specified a baseline there. Why not 

specify a baseline for the Offset Provision itself?18

Second, setting aside the baseline issue, the Offset Provision contains further 

indeterminacies about how states must assess whether a reduction in tax revenue “result[ed] 

from a change” in state tax policy. § 802(c)(2)(A) (emphasis added). Put simply, the actual 

effect of a tax cut may be hard to predict ex ante. See 87 Fed. Reg. at 4,406, 4,423, 4,426; see 

18The simultaneous enumeration of a baseline in § 802(c)(1)(C) and the omission of one in

§ 802(c)(2)(A)—the Offset Provision—creates further clear-notice issues. Treasury interprets the “most recent full 

fiscal year . . . prior to the emergency” in § 802(c)(1)(C) as imposing a baseline consistent with revenues collected in 

the fiscal year ending in 2019. 87 Fed. Reg. at 4,426. It also interprets the Offset Provision to impose the same 

baseline, despite the Offset Provision having omitted the relevant language from § 802(c)(1)(C). Perhaps states 

were supposed to extrapolate that the § 802(c)(1)(C) baseline also applied to the Offset Provision. See, e.g., 31 

C.F.R. § 35.4. But the typical presumption is that when Congress omits specific language in one provision that it 

includes in another, the omission implies a difference in meaning between the two provisions. See, e.g., Dean v. 

United States, 556 U.S. 568, 573 (2009) (“[W]here Congress includes particular language in one section of a statute 

but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and 

purposely in the disparate inclusion or exclusion.” (quoting Russello v. United States, 464 U.S. 16, 23 (1983)). So 

the differing text in §§ 802(c)(2)(A) and 802(c)(1)(C) would complicate the notion that states had clear notice that 

differently worded provisions imposed the same baseline. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 33

Appellees’ Br. at 41–44. So states considering tax cuts must necessarily generate and rely upon 

estimates of the real-world effects a tax cut will produce when assessing the cut’s potential 

impact on their budgets. For instance, a state in one fiscal year might collect $10 million per 

annum from a particular tax. But the state’s budget analysts might forecast that the state could 

collect the same amount of tax—$10 million per annum—even if the state reduced the relevant 

tax rate, as doing so might stimulate the occurrence of additional transactions subject to the tax. 

So imagine that the state, acting upon that assumption, enacted a tax cut in the relevant area. But 

during the next fiscal year, that same tax generated only $9 million in inlays. Did that fall in 

inlays result from the tax cut?

The Offset Provision itself does not supply an answer, because it never specifies whether 

it prohibits a reduction in expected tax revenues, which a state would be able to control ex ante, 

or whether it prohibits a reduction in actual tax revenues, which a state could potentially 

determine only ex post. Yet the difference matters. In the above hypothetical, for instance, the 

state’s tax cut did not reduce its expected tax revenues, since the best information then available 

to it suggested that the effect of the tax cut would be revenue-neutral. But the tax cut arguably 

reduced its actual tax revenues, assuming that the only variable that changed from one year to 

the next was the tax cut.19

Recognizing that the Offset Provision itself is silent on this issue, the Rule, perhaps 

surprisingly, suggests that whether a revenue reduction “resulted” from a tax cut hinges on 

whichever accounting method a state uses to determine the effect of the tax cut. 87 Fed. Reg. at 

4,406–07. As it explains, “[i]n assessing whether a tax change has had the effect of reducing tax 

revenue, recipients may either calculate the actual effect on revenue or rely on estimates 

prepared at the time the tax change was adopted,” so long as those estimates were “based on 

19In real-world applications, of course, determining causation can be much more complicated. For 

instance, as Treasury acknowledges, many variables “exogenous” to a tax cut itself affect whether the tax cut, even 

if preceding a reduction in actual revenues, caused the reduction in actual revenues. 87 Fed. Reg. at 4,406. So 

isolating whether a tax cut ultimately caused a reduction in actual revenues can be extremely difficult. Id. Treasury 

attempted to resolve this problem by establishing a causation presumption that, whether sound policy or not, has 

little apparent relationship to ARPA’s plain text: the IFR “included a presumption that all revenue loss is due to the 

pandemic,” rather than to a tax cut. Id. The Final Rule then explained that this presumption applied to revenue 

reductions experienced before January 6, 2022, but did not apply to revenue reductions experienced after January 6, 

2022. Id. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 34

reasonable assumptions.” Id. (emphases added). So assuming that a state uses an “actual effect” 

accounting method in the above example, the revenue reduction arguably resulted from the tax 

cut. But if a state uses a “reasonable expectations” accounting method, the revenue reduction 

seemingly did not result from the tax cut, as the state did not reasonably expect an actual revenue 

reduction ex ante. Yet how were the States supposed to know about these critical points based 

on the Offset Provision alone? 

Or consider this issue: the Offset Provision itself never specifies the timespan during 

which we assess whether a revenue reduction occurred. For instance, imagine a state recorded 

$100 million in tax revenues in FY 2019, enacted a tax cut in FY 2020 that stimulated the 

economy and produced $120 million in tax revenues, but then experienced a downturn in FY 

2021 resulting in tax revenues of only $95 million (which arguably might have been higher 

absent the FY 2020 tax cut). Does that scenario count as a “reduction . . . in net tax revenue” 

resulting from the FY 2020 tax cut, given that the tax cut arguably resulted in reduced inlays in 

FY 2021? Or did the state actually experience an increase in net tax revenues, since, combining 

the inlays from FY 2020 and 2021, the state recorded a net gain of $15 million in inlays versus 

FY 2019? Whatever the answer, it is at least unclear from the Offset Provision itself whether 

such a “net reduction” is measured across the entire “covered period” or on a year-to-year basis 

within the “covered period.” 42 U.S.C. § 802(c)(2)(A).

For those reasons, therefore, neither operative portion of the Offset Provision—

“indirectly offset” and “reduction in . . . net tax revenue . . . resulting from” a tax cut—provided 

Tennessee “clear notice” about the measures required to maintain compliance. Cummings, 

142 S. Ct. at 1570.20 Nor—as we explain below—can Treasury’s subsequent promulgation of its 

Rule cure this vagueness defect. 

20Treasury emphasized in its reply brief that no court decision has ever “declared any . . . funding condition 

to be ‘unconstitutionally ambiguous’ in the abstract, as a facial matter. Rather, the Supreme Court and other courts, 

including this one, have relied on the clear-statement principle as a tool of statutory interpretation, to be used when 

adjudicating concrete disputes over the application of particular funding conditions.” Reply Br. at 5. With today’s 

opinion, the trend continues. Nowhere have we deemed the Offset Provision “unconstitutional” under the Spending 

Clause because of its indeterminacies. We instead have conducted our analysis as a matter of statutory 

interpretation. Likewise, that analysis has not unfolded “in the abstract,” but has focused on two concrete 

obligations imposed by Treasury’s rule: (1) that Tennessee, should it wish to enact revenue-reducing tax cuts, must 

trace any dollars arguably used to offset those reductions to three particular, ad hoc safe harbors, and (2) that in 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 35

c. Why Treasury’s Rule Cannot Cure Spending-Law Vagueness

The question whether agency regulations construing spending legislation are entitled to 

deference has generated some occasional academic interest. See, e.g., Peter J. Smith, Pennhurst, 

Chevron, and the Spending Power, 110 Yale L.J. 1187, 1189–90 (2001). But we note at the 

outset that this issue is not in the present case: Treasury categorically waived reliance on the 

Rule to cure a vagueness defect under the Spending Clause. As it told the district court, “agency 

regulations should have no bearing on the Spending Clause analysis.” Defs.’ Mot. to Dismiss & 

Mot. for Summ. J. at 30, R. 32 (emphasis added). It argued instead that the Offset Provision 

itself satisfied the Spending Clause, since at the very least it put the States on notice that the offer 

came with “a condition”—no matter whether the contours of that condition presented significant 

indeterminacies as a matter of the statutory text. Id. at 39.

Treasury has reprised these arguments before us. It does not argue that the Rule—even 

though it was promulgated before the States accepted the ARPA funds—can provide clear notice 

to the States of their obligations. Rather, it argues that it was the Offset Provision’s text alone 

that “clearly place[d] States ‘on notice’ that their acceptance of Fiscal Recovery Funds ‘is 

conditioned upon compliance with’ the requirement not to use those funds to pay for tax cuts.” 

Reply Br. at 7; see also Appellants’ Supp. Br. at 2 n.2. So again, Treasury acknowledges that 

whether Tennessee’s Spending Clause challenge succeeds hinges on whether the Offset 

Provision itself is impermissibly vague about whichever obligations it imposes on the states. 

But we note that even if we were bound to independently assess whether Treasury’s Rule 

could provide clear notice of conditions left otherwise indeterminate by the statute, we still 

would hold that it could not do so in these particular circumstances.21 Our primary concern here 

assessing whether such a revenue reduction occurred, Tennessee must establish and use an accounting procedure to 

compare its current inlays to its inflation-adjusted revenue in “its fiscal year ending in 2019.” 31 C.F.R. § 35.3. 

Those are the relevant obligations, we conclude, of which Tennessee did not have clear notice from the Offset 

Provision itself. 

21We confront the Rule’s effect even despite Treasury’s waiver because we recognize that there are serious 

and unresolved disputes about, for instance, whether the government may validly waive Chevron deference. 

Compare Guedes v. BATFE, 920 F.3d 1, 23 (D.C. Cir. 2019) (concluding that Chevron deference cannot be waived 

if the “underlying agency action” would otherwise merit Chevron deference), with Guedes v. BATFE, 140 S. Ct. 

789, 790 (2020) (Gorsuch, J., concurring in denial of certiorari) (arguing that the D.C. Circuit’s conclusion was 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 36

is the legitimate domain of Chevron deference—whether we (or a state) must accept as binding 

an agency regulation establishing an otherwise-uncertain spending-law condition. For instance, 

Treasury suggested before us that deference might be appropriate at least if we understood the 

relevant content of the Rule—the meaning of an “indirect” offset, the baseline for a revenue 

reduction, and how to tell whether such a reduction “resulted from” a tax cut—to constitute mere 

“implementation details.” Reply Br. at 7–8. And, to that end, it invoked a couple of circuit 

decisions where we indeed deferred to agencies’ reasonable views about marginal ambiguities in 

spending laws: one concerning whether the term “medical devices” includes “incontinence 

products” and the other concerning whether “records maintained by a law enforcement unit of 

[an] education agency or institution that were created by that law enforcement unit for the 

purpose of law enforcement” includes student disciplinary records involving “serious criminal 

conduct.” See id. (citing Harris v. Olszewski, 442 F.3d 456, 467–68 (6th Cir. 2006), and then 

citing United States v. Miami Univ., 294 F.3d 797, 814–15 (6th Cir. 2002)). 

Yet we find that whether deference was warranted on such arcane topics as those has 

little relevance to the Offset Provision. It is difficult to see how the Rule represents mere 

“implementation details” when it supplied content without which the Offset Provision literally 

could not function. And, in any event, Treasury is wrong to suggest that we should act “as if we 

were interpreting a statute which has no implications for the balance of power between the 

Federal Government and the States.” Va. Dep’t of Educ. v. Riley, 106 F.3d 559, 567 (4th Cir. 

1997) (en banc).22 Unlike the distribution of incontinence products or the release of disciplinary 

records, control over taxation is a core aspect of state sovereignty. See Dep’t of Revenue of Or., 

510 U.S. at 345; Lane County, 74 U.S. at 76. For Congress to impose conditions in that area, it 

must do so in clear and unmistakable terms. See, e.g., SWANCC v. U.S. Army Corps of Eng’rs, 

531 U.S. 159, 172–73 (2001) (explaining that the Court “would not extend Chevron deference” 

to an agency interpretation involving “federal encroachment upon a traditional state power.”); 

see also Ala. Ass’n of Realtors v. Dep’t of Health & Hum. Servs., 141 S. Ct. 2485, 2489 (2021). 

erroneous because the “[Supreme] Court has often declined to apply Chevron deference when the government fails 

to invoke it”). 

22We quote from Judge Luttig’s dissenting panel opinion, the relevant portion of which a majority of the 

full Fourth Circuit adopted upon en banc rehearing. See Va. Dep’t of Educ., 106 F.3d at 561. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 37

When such a clear-statement rule is in play, it is insufficient merely that an agency reasonably 

liquidated ambiguities in the relevant statute. Id.; see also Va. Dep’t of Educ., 106 F.3d at 567 

(declining to apply Chevron deference to an ambiguous spending statute because “[i]t is 

axiomatic that statutory ambiguity defeats altogether a claim by the Federal Government that 

Congress has unambiguously conditioned the States’ receipt of federal monies in the manner 

asserted”); Carter v. Welles-Bowen Realty, Inc., 736 F.3d 722, 731 (6th Cir. 2013) (Sutton, J., 

concurring) (“All manner of presumptions, substantive canons and clear-statement rules take 

precedence over conflicting agency views.”). Rather, in such circumstances, Congress itself 

must have spoken with a “clear voice.” Pennhurst, 451 U.S. at 17.23

3. Treasury’s Counterarguments

Before we close, we address a couple of Treasury’s counterarguments to our conclusions 

above. We first discuss the import of our decision in Cutter v. Wilkinson, which affirmed the 

Religious Land Use and Institutionalized Persons Act (“RLUIPA”) against a Spending Clause 

challenge. 423 F.3d 579, 585–86 (6th Cir. 2005). We then address Treasury’s claim that 

Tennessee should have enjoyed clear notice of the Offset Provision’s meaning because the 

phrase “directly or indirectly” “appears more than a thousand times in the U.S. Code.” 

Appellants’ Supp. Br. at 3. 

a. Cutter v. Wilkinson and the RLUIPA Comparison

Resisting our merits analysis, Treasury asserts that our decision today conflicts with 

circuit precedent sustaining RLUIPA against a Spending Clause challenge. Cutter, 423 F.3d at 

585–86. We agree that RLUIPA is a helpful comparison—just not in the way Treasury thinks. 

We begin with some background about RLUIPA itself. From 1963 to 1990, the Supreme 

Court interpreted the Free Exercise Clause to require state officials to justify even incidental 

23Conversely, though, we note that this analysis has no effect on our earlier mootness determination 

concerning Kentucky. Even if the Rule cannot fill in missing Spending Clause conditions, it can at least still bind 

Treasury in how it will administer the statute. And neither Tennessee nor Kentucky sought vacatur of the Rule 

under 5 U.S.C. § 706. Vacatur at least possibly could have revived the specter of Treasury enforcing the Offset 

Provision consistent with the money-is-fungible interpretation. But even after vacatur, that possibility would still 

seem rather remote, given Treasury’s insistence that the text of the Offset Provision alone precludes the money-isfungible reading. See, e.g., Appellants’ Supp. Br. at 2 n.2.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 38

burdens on religious free exercise under strict scrutiny. See, e.g., Sherbert v. Verner, 374 U.S. 

398, 403 (1963). A plaintiff could make out a prima facie case of a constitutional violation if she 

could establish that she had a sincere religious belief upon which the government had imposed a 

substantial burden, even if the burden were merely incidental. Id. And if that showing were 

made, the state then had to prove that its interest in imposing the burden was “compelling,” id., 

and that it had employed the means least restrictive on religious exercise in achieving its 

compelling interest. Thomas v. Rev. Bd. of Ind. Emp. Sec. Div., 450 U.S. 707, 718 (1981). 

During the quarter-century in which this framework prevailed, the Supreme Court produced a 

sizeable corpus of decisions describing its particular contours. See, e.g., Sherbert, 374 U.S. at 

398; Gillette v. United States, 401 U.S. 437 (1971); Wisconsin v. Yoder, 406 U.S. 205 (1972); 

Thomas, 450 U.S. at 707; United States v. Lee, 455 U.S. 252 (1982); Goldman v. Weinberger, 

475 U.S. 503 (1986); Bowen v. Roy, 476 U.S. 693 (1986); Hobbie v. Unemployment Appeals 

Comm’n of Fla., 480 U.S. 136 (1987); Lyng v. Nw. Indian Cemetery Protective Ass’n, 485 U.S. 

439 (1988); Frazee v. Ill. Dep’t of Emp. Sec., 489 U.S. 829 (1989). And the lower courts applied 

it to hundreds of concrete disputes. See generally James E. Ryan, Smith and the Religious 

Freedom Restoration Act: An Iconoclastic Assessment, 78 Va. L. Rev. 1407 (1992) (cataloging 

lower-court applications). 

In 1990, however, the Supreme Court functionally overruled this body of precedent, 

holding that incidental burdens on religious practice merited only rational-basis review. Emp. 

Div., Dep’t of Hum. Res. of Or. v. Smith, 494 U.S. 872, 878–79 (1990). But Congress, incensed 

by the Smith decision, twice attempted to overrule it. See 42 U.S.C. § 2000bb et seq. (Religious 

Freedom Restoration Act); 42 U.S.C. § 2000cc et seq. (RLUIPA). Its second attempt, RLUIPA, 

restored strict-scrutiny analysis in the land-use and prison-administration contexts. § 42 U.S.C. 

§§ 2000cc, 2000cc–1. Congress partially rooted its power to enact such a statute in the Spending 

Clause, 42 U.S.C. § 2000cc-1(b)(1)–(2), and so it conditioned the receipt of certain federal funds 

on compliance with the old strict-scrutiny framework. See, e.g., § 2000cc-1(a)(1)–(2). Ohio 

(and various other states) argued that strict scrutiny was too indeterminate to form an enforceable 

Spending Clause condition. See Gerhardt v. Lazaroff, 221 F. Supp. 2d 827, 841, 844 (S.D. Ohio 

2002). But the district court rejected the argument, holding that strict scrutiny was such a wellestablished framework before RLUIPA that even if it might present marginal indeterminacies in 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 39

certain applications, the states could easily discern what core obligations the statute entailed in 

the mine-run of cases. See, e.g., id. at 844 (“Courts have been enforcing that exact standard 

against state action for years.”). 

Whether we ever actually adjudicated the correctness of that holding, we note, is 

uncertain. It appears that Ohio’s officials pressed a different ambiguity argument on appeal to 

this circuit: that RLUIPA did not clearly specify that it applied to existing federally funded 

programs, rather than merely to programs established after its enactment. See Cutter, 423 F.3d at 

585–86; see also Gerhardt, 221 F. Supp. 2d at 841 (distinguishing between the retroactivity 

argument and the strict-scrutiny-is-too-indeterminate argument). But we held that RLUIPA 

imposed that obligation clearly, since its text “explains that the Act applies to ‘any program or 

activity that receives Federal financial assistance.” Cutter, 423 F.3d at 586 (citing 42 U.S.C. 

§ 2000cc-1(b)(1)). And, given that statutory language, it is difficult to see how a different result 

could have ensued. 

Before us, however, Treasury appears to have erroneously exaggerated Cutter’s 

precedential effect by claiming that our circuit also rejected the strict-scrutiny-is-tooindeterminate argument. In particular, its reply brief claims that Ohio argued “RLUIPA’s ‘least 

restrictive means standard’ constituted an ambiguous condition’ that was impermissible under 

Pennhurst. Cutter, 423 F.3d at 586 (quotation marks omitted). But this Court disagreed, 

explaining that ‘Congress need not ‘delineate every instance in which a State may or may not 

comply with the least restrictive means test.’” Reply Br. at 6–7.24 In reality, the portions of 

Cutter that Treasury quotes were describing a Seventh Circuit decision that had rejected “a 

similar Pennhurst-based challenge to RLUIPA”—the strict-scrutiny-is-too-indeterminate 

argument, not the anti-retroactivity argument before the panel in Cutter. Cutter, 423 F.3d at 586 

(citing Charles v. Verhagen, 348 F.3d 601, 608 (7th Cir. 2003)).

24Treasury doubled down on this representation at oral argument, stating, “[o]n the question of how much 

has to be spelled out in the statute itself, Cutter involved a challenge to RLUIPA. RLUIPA said if you restrict the 

religious exercise of people in covered institutions, you have to satisfy strict scrutiny. It’s of course highly unclear 

how strict scrutiny is going to apply to a particular kind of policy. But the court said, and every other court to 

consider the issue said, you don’t have to have spelled that out in the statute.” Recording of Oral Arg. at 16:46–

17:09. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 40

Set aside Treasury’s misreading of Cutter, however, and pretend that Cutter had actually 

adjudicated the strict-scrutiny-is-too-indeterminate argument, so that we were bound today by a 

holding that RLUIPA’s least-restrictive-means test satisfied the Spending Clause. What is that 

supposed to tell us about the Offset Provision? There is no comparable quarter-century of 

history in which the Supreme Court decided dozens of cases, and the lower courts decided 

hundreds of cases, construing what it means to “directly or indirectly offset a reduction in the net 

tax revenue . . . resulting from” a tax cut. 42 U.S.C. § 802(c)(2)(A). Indeed, Treasury conceded 

at oral argument that it is aware of no example in which the phrase “directly or indirectly offset” 

has ever even been used in a Spending Clause statute, much less been given an authoritative 

construction by the Supreme Court in the context of tax cuts. Recording of Oral Arg. at 43:00–

43:50. So Treasury’s invocation of RLUIPA, it turns out, underscores a reason the Offset 

Provision is impermissibly vague: given its terms’ apparent novelty, there is, unlike in the 

context of religious free exercise, no expansive and authoritative corpus of federal-court 

precedents which the states might have consulted in attempting to discern the nature of their 

obligations. 

b. “Directly or Indirectly” in the U.S. Code

Perhaps implicitly recognizing the dearth of relevant caselaw, Treasury last suggests that 

Tennessee should have been able to ascertain its obligations under the Offset Provision because 

various other federal statutes employ the phrase “directly or indirectly.” Appellants’ Supp. Br. 

at 3. It “is commonly used simply to underscore that a restriction cannot be circumvented 

through formalities,” Treasury says, and “appears more than a thousand times in the U.S. Code.” 

Id. That is perhaps true, but this factoid seems of no consequence to us for at least three reasons.

First, as we noted above, Treasury conceded that it has no example of such a phrase in a 

Spending Clause statute, much less one in the particular context of taxation, and, less still, one 

that survived ambiguity challenges in federal court. Recording of Oral Arg. at 43:00–43:50. 

Second, most of these other uses appear to have no conceivable relevance to the Offset 

Provision. And, for that matter, they may make the vagueness issues even worse. For instance, 

consider 22 U.S.C. § 9214(a)(3), which provides that Treasury may freeze the assets of anyone 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 41

who “knowingly, directly or indirectly, imports, exports, or reexports luxury goods into North 

Korea.” The phrase in that context seemingly bars the use of third-party intermediaries to 

circumvent a trade restriction. So Company A, wishing to execute proscribed shipments to 

North Korea, still violates the statute by shipping the goods to Company B in Shanghai for 

reexport into Pyongyang. Or take 29 U.S.C. § 432(a)(2), which requires officers of labor 

organizations to report on stock they hold “directly or indirectly” in the business they seek to 

unionize. Once again, the statute seems to bar circumvention through the use of a third-party 

intermediary, such as holding the stock indirectly in an index fund. Or last, consider 15 U.S.C. 

§ 7410(b), which prohibits the award of a “grant or fellowship . . . directly or indirectly, to any 

alien from a country that is a state sponsor of international terrorism.” Again, and for the third 

time, the phrase seems to bar the use of a third-party intermediary to circumvent the restriction: 

the grant cannot be distributed to an “institution of higher education” for redistribution to the 

alien. § 7410(c). So at best, these other uses have nothing to do with the Offset Provision, and, at 

worst, might have misleadingly suggested that it imposed some particularized bar on the use of 

third-party intermediaries to launder ARPA funds. 

Last, as the above examples suggest, the relevant phrase is not just “directly or 

indirectly,” but “directly or indirectly offset.” 42 U.S.C. § 802(c)(2)(A). The issue here is not 

establishing that the Offset Provision bars “circumvent[ion] through formalities” in some broad, 

general sense, but in determining whatever conduct the Offset Provision might treat as having 

“directly or indirectly offset” a tax cut. For only then could the states have “ascertain[ed]” their 

obligations under the Act. Arlington Cent. Sch. Dist. Bd. of Educ., 548 U.S. at 296 (quoting 

Pennhurst, 451 U.S. at 17)). But that phrase, as far as we can tell from our research, occurs 

exactly once in the entire U.S. Code—in the Offset Provision.

IV.

In closing, we reiterate the central conclusions we have reached today. Treasury’s 

credible disavowal of the money-is-fungible interpretation mooted Kentucky’s challenge to the 

Offset Provision, and so the district court erred when it enjoined Treasury from enforcing the 

Offset Provision against Kentucky. We thus REVERSE the district court’s justiciability holding 

as to Kentucky and VACATE the permanent injunction to the extent it bars enforcement of the 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 42

Offset Provision against Kentucky. By contrast, we AFFIRM the district court’s injunction as to 

Tennessee. We do so because “[c]larity is demanded whenever Congress legislates through the 

spending power[.]” Haight, 763 F.3d at 568. Yet clarity is just what the Offset Provision lacks.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 43

______________________________________________________

CONCURRING IN PART AND DISSENTING IN PART

______________________________________________________

NALBANDIAN, Circuit Judge, concurring in part and dissenting in part. I concur with 

nearly all of the majority’s well-reasoned opinion. Importantly, I agree with the majority that the 

vagueness of the American Rescue Plan Act of 2021 (“ARPA”) violates the Spending Clause. 

And I agree that Tennessee has standing for the reasons that the majority gives. My only 

disagreement is about whether Kentucky can press its claim. In short, I believe that both 

Tennessee and Kentucky (“States”) have standing for reasons related to the federal government’s 

intrusion on their sovereign-taxing authority. And I don’t believe that the Department of 

Treasury’s (“Treasury”) Rules on ARPA’s enforcement (“Rules”) affect justiciability.

1

 So I 

concur with respect to Tennessee’s participation in the case, but respectfully dissent over 

Kentucky’s. 

I.

Standing arises here in three possible ways: through what the majority calls the 

“imminent-recoupment,” “compliance-cost,” and “sovereign-authority” theories. My concern is 

1My analysis assumes that the majority is correct that the one-party rule doesn’t apply. (See Majority 

Opinion, at 20 n.12.) But I’m not sure that’s the case. The rule allows courts to review claims so long as one 

plaintiff has standing. Massachusetts v. EPA, 549 U.S. 497, 505 (2007). And courts have applied the rule to other 

Article III requirements like mootness. Nat’l Rifle Ass’n of Am. v. Magaw, 132 F.3d 272, 278 n.4 (6th Cir. 1997); 

see Nat’l Rifle Ass’n of Am., Inc. v. McCraw, 719 F.3d 338, 344 n.3 (5th Cir. 2013). But this doesn’t mean that a 

party can obtain relief to which it is not entitled. So we can eventually address standing when a plaintiff would 

obtain “attorney’s fees” or other “relief different from that sought by plaintiffs whose standing has not been 

questioned.” Gen. Bldg. Contractors Ass’n v. Pennsylvania, 458 U.S. 375, 402 n.22 (1982); see 13B Charles A. 

Wright & Arthur R. Miller, Federal Practice & Procedure, § 3531.15, at *4 (3d ed. 2022). 

But a different situation arises when each plaintiff would obtain the same relief regardless. For cases involving 

injunctive or declaratory remedies, the practical effects of granting relief may apply to each plaintiff even if we 

dismiss one for lack of standing. For example, in Bowsher v. Synar, the Supreme Court applied the one-party rule to 

avoid analyzing other plaintiffs’ standing. 478 U.S. 714, 721 (1986). Without returning to the standing questions, 

the Court affirmed relief that declared a statute unconstitutional. See id. at 736. Because the standing 

determinations wouldn’t affect how the Court distributed relief, the Court didn’t need to revisit its use of the rule. 

See id.; accord McCraw, 719 F.3d at 344 n.3 (recognizing that courts “do not need to verify the independent 

standing of the other co-plaintiffs” when one party with standing “rais[es] the same claims and issues” (quotation 

omitted)). Here, Tennessee meets Article III’s requirements, and the relief granted to Tennessee applies to 

Kentucky regardless: Treasury cannot enforce ARPA’s unconstitutional conditions. So we did not need to resolve 

Kentucky’s mootness. That aside, I analyze why both States meet Article III’s requirements. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 44

with the last theory, under which I believe both States have standing. To establish standing 

under any theory, of course, the States must assert an injury that is (1) actual or imminent and 

concrete and particularized, (2) traceable to Treasury, and (3) likely to be redressed by a 

favorable decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Looking at the 

sovereign-authority theory, I believe that the only question here is whether the States assert an 

imminent injury under the first inquiry. And I find that both Kentucky and Tennessee meet this 

requirement. 

With respect to “injury,” courts have recognized for over a century that states “are not 

normal litigants for the purposes of invoking federal jurisdiction.” Massachusetts v. EPA, 

549 U.S. 497, 518 (2007). This regard stems from each state’s “well-founded desire to preserve 

its sovereign territory.” Id. at 519. For that reason, we don’t treat states as “mere provinces or 

political corporations.” Alden v. Maine, 527 U.S. 706, 715 (1999). Instead, we recognize their 

“residuary and inviolable sovereignty.” The Federalist No. 39, at 245 (James Madison) (Clinton 

Rossiter ed., 1961). And we give “special” recognition to a case when a state sues the federal 

government. Saginaw County v. STAT Emergency Med. Servs., Inc., 946 F.3d 951, 957 (6th Cir. 

2020). 

Although states hold a unique status in federal court, they cannot avoid “the 

constitutional baseline” of Article III. Id. States must still prove a cognizable case or 

controversy. Arizona v. Biden, 40 F.4th 375, 385 (6th Cir. 2022) (“Article III’s foundational 

standing requirements remain for private and public litigants alike.”). 

Still, states have “special solicitude” when they incur “quasi-sovereign” injuries. Id. 

They cannot “bypass proof of injury in particular or Article III in general,” but they may incur 

injuries that private parties cannot. Id. at 385–86. Among other things, states can allege 

sovereign-related injuries like federal regulation over local-lawmaking authorities, threatened 

intrusions on state territory, or public nuisances, in which a state seeks “to safeguard its domain 

and its health, comfort and welfare.” Id at 386. (quoting Kentucky v. Biden, 23 F.4th 585, 596 

(6th Cir. 2022)); see Massachusetts, 549 U.S. at 517, 521–23 (recognizing the sovereign and 

quasi-sovereign interests in protecting coastal lands from rising sea levels). 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 45

And the list doesn’t end there. This Court has acknowledged other ways that sovereign 

or quasi-sovereign interests can support state standing. States can “plausibly allege[] that the 

federal government has intruded upon an area traditionally left to the states.” Kentucky, 23 F.4th 

at 599. They can allege that federal enforcement threatens current or future state policies. See 

id. And they can allege federal threats to their economies. See id. at 599–601 (“[States] . . . have 

a quasi-sovereign interest in defending their economies from the alleged negative ramifications 

of [federal law].”). Indeed, as federal regulation has increased over the states, the list of 

sovereign injuries has grown. 

Finally, a quick note about the “imminence” part of the injury-in-fact inquiry. The 

majority analyzes imminence using the “pre-enforcement” test from Susan B. Anthony List v. 

Driehaus, 573 U.S. 149 (2014).2 And that is the way that we typically assess imminence when a 

case concerns a pre-enforcement challenge. But because the States here allege sovereign and 

quasi-sovereign injuries, we can assess imminence under a slightly different analysis.

A state can establish an imminent injury by showing a “risk of harm” to their sovereign 

or quasi-sovereign interests. Massachusetts, 549 U.S. at 521 (quoting Lujan, 504 U.S. at 560). 

In Massachusetts v. EPA, EPA’s refusal to regulate greenhouse gas emissions presented an 

imminent injury to state interests related to climate change. Id. The “risk of harm” of sea levels 

rising and damaging state-coastal property created the imminent injury. Id. at 521–23; see 

Saginaw County, 946 F.3d at 957 (recognizing that the imminence in Massachusetts came from 

this “risk”). And the Supreme Court reasoned that a state that has a procedural right to protect its 

sovereign interests can satisfy Article III’s requirements “without meeting all the normal 

standards for redressability and immediacy.” Massachusetts, 549 U.S. at 517–18. 

We have analyzed imminent harms to sovereign interests in pre-enforcement challenges 

too. In our recent decision in Kentucky v. Biden, which concerned a pre-enforcement challenge 

to COVID-19 mandates, we found standing under the sovereign-authority theory. See 23 F.4th 

2Under the Susan B. Anthony test, the States needed to show (1) injuries in the original complaint that 

establish an intention to engage in conduct arguably affected with a constitutional interest, (2) that ARPA arguably 

proscribes this conduct, and (3) that if the States should pursue such conduct, a credible threat of recoupment action 

exists. See 573 U.S. at 161–64.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 46

at 598–601. We held that the sovereign injuries alleged met Article III’s imminence 

requirements because the states there “show[ed the] negative effects” of federal policy on their 

sovereign interests. Id. at 602. And sister circuits applying the sovereign-authority theory have 

also analyzed imminence similarly.3 Here, the States allege the same risk of harm to their 

sovereign interests. 

II.

Applying the sovereign-authority framework, the States have standing in this case. See 

Massachusetts, 549 U.S. at 520. They allege that ARPA “unconstitutionally intrud[es] on their 

sovereign authority, by interfering with the orderly management of their fiscal affairs, and by 

requiring them to forgo their constitutional taxing powers or face an action to return muchneeded federal funds after they have already been spent.” (R. 1, Original Complaint, PageID 5 

¶ 12.) Each threat poses an imminent “risk of harm to” their sovereign interests. Massachusetts, 

549 U.S. at 521. As described below, they have alleged with particularity ARPA’s “negative 

effects” on their taxing powers, citizens, and economy. Kentucky, 23 F.4th at 602. 

This Court’s growing list of sovereign and quasi-sovereign injuries reinforces the States’ 

standing in three ways. First, they have “plausibly alleged that the federal government has 

intruded upon an area traditionally left to the states”—state taxes on state citizens. Kentucky, 

23 F.4th at 599; see (R. 1, Original Complaint, PageID 2–3, 5–6 ¶¶ 1–3, 12 (discussing the 

federalism implications of ARPA); R. 1, Original Complaint, PageID 15–16 ¶ 40 (“[T]he power 

to tax and spend is a sovereign function that lies at the core of State power.”)); see generally 

Dep’t of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 345 (1994) (describing the tax power 

as “central to state sovereignty”). 

3

See, e.g., Texas v. Biden, 20 F.4th 928, 970 (5th Cir. 2021) (reasoning that a state’s “special solicitude in 

the standing inquiry . . . means imminence and redressability are easier to establish [] than usual”), rev’d and 

remanded on other grounds, 142 S. Ct. 2528 (2022); Texas v. United States, 809 F.3d 134, 154–55 (5th Cir. 2015) 

(concluding that states had sovereign-authority standing in a pre-enforcement challenge to federal immigration law 

without using the pre-enforcement framework); Sturgeon v. Masica, 768 F.3d 1066, 1073–74 (9th Cir. 2014) 

(reasoning that a state failed to prove an “actual or imminent” injury by not identifying “any actual conflict” 

between federal and state law that showed how a federal requirement would “interfere[] with the state’s control over 

and management of” state affairs), vacated and remanded sub nom. on other grounds, Sturgeon v. Frost, 577 U.S. 

424 (2016); Se. Fed. Power Customers, Inc. v. Geren, 514 F.3d 1316, 1322–23 (D.C. Cir. 2008) (concluding that 

states had an injury-in-fact because they “credibly claim[ed] to fear” that proposed changes to water-storage uses 

would result in diminished water flows). 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 47

Second, after discussing their past tax cuts, they allege that ARPA’s vague restrictions 

“chill[] legislative action” to enact similar policies. (R. 1, Original Complaint, PageID 17 ¶ 43; 

see id. at PageID 16–17 ¶¶ 41–42.) Financial hardship in part led the States to cut taxes for 

homeowners and businesses alike. (Id.) Kentucky, for example, enacted a bill intended to 

“invest in and revitalize a predominantly minority community in Kentucky’s largest city.” (Id. at 

PageID 16 ¶ 41 (citing 2021 Ky. H.B. No. 321 (NS)).) The tax cuts there fall within a “core part 

of its sovereign duty” and will lead to a “decrease in net revenue.” (Id.) Likewise, Tennessee 

seeks to cut its “professional privilege tax” to “attract new businesses and residents, continuing 

Tennessee’s proven record in promoting economic growth that benefits the entire [s]tate.” (Id. at 

PageID 16 ¶ 42 (citing H.B. 0987, S.B. 0184, 112th General Assembly (2021)).) Tennessee also 

expects the bill to reduce state revenue. (Id.) 

All this to say, ARPA’s vague conditions chill the States from enacting similar tax cuts. 

The States allege they cannot confidently enact tax policy because they fear imminent 

recoupment action for exercising their sovereign-taxing authority. (See id. at PageID 17 ¶¶ 43–

44.) And because of the “fungible” quality of money, the States construe ARPA to “potentially 

affect[] all State legislative and executive actions that reduce net tax revenues,” even if they have 

nothing to do with ARPA’s COVID-19 relief. (Id. at PageID 16, 17 ¶¶ 41, 44 (quotation 

omitted).) ARPA then “likely implicates” the powers to “make and enforce policies and 

regulations” and the “traditional prerogative to superintend” local taxes on state citizens. 

Kentucky, 23 F.4th at 599. 

To top it all off, the States have standing because ARPA’s chilling effect “threatens to 

damage each of the [S]tates’ economies.” Id. at 599. The chilling effect to enact tax policies 

that “invest in and revitalize” communities, (R. 1, Original Complaint, PageID 16 ¶ 41), or 

“attract new businesses and residents” to promote “economic growth,” (id. at PageID 16 ¶ 42), 

stagnates the States’ fiscal health and interest in helping their citizens. Kentucky and Tennessee 

plausibly allege that resistance to ARPA will result in fewer tax cuts for homeowners and 

businesses, “all to the detriment of their state economies.” Kentucky, 23 F.4th at 601. Because 

the States have sovereign and quasi-sovereign interests in “defending their economies from the 

alleged negative ramifications” of ARPA, they also “have standing to contest it.” Id. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 48

The States’ “sovereign prerogatives are now lodged in the Federal Government, and 

Congress has ordered” Treasury to enforce the Offset Provision and initiate recoupment actions 

to recover any misused funds. Massachusetts, 549 U.S. at 519; see 42 U.S.C. § 802(e). That the 

States face threats from exercising their traditional-taxing authority only reinforces that they 

have a sufficient stake in the case so as “to warrant the exercise of federal judicial power.” 

Massachusetts, 549 U.S. at 519. So along with giving this case “special” recognition because the 

States are suing the federal government, Saginaw County, 946 F.3d at 957, we should afford the 

States “special solicitude in our standing analysis.” Massachusetts, 549 U.S. at 520. 

Thus, I agree with the majority that the States allege imminent injuries that grant them 

standing.4 Recognizing that the States suffer from sovereign injuries raises this question: Did 

Treasury’s Rules moot the States’ legal interests in obtaining relief?

III.

This is where I part ways with the majority; I believe the answer is no. Treasury’s Rules 

do not moot Kentucky or Tennessee’s controversy over their sovereign interests. Even with the 

guidance, the States still suffer from the same harm explained above. And both meet Article 

III’s requirements as a result. 

A case only becomes moot “when the issues presented are no longer live or parties lack a 

legally cognizable interest in the outcome.” Thomas v. City of Memphis, 996 F.3d 318, 323 (6th 

Cir. 2021). Said differently, parties do not have a mootness problem if “the relief sought would, 

if granted, make a difference to the legal interests of the parties.” Ford v. Wilder, 469 F.3d 500, 

504 (6th Cir. 2006) (internal quotation omitted). Even with the Rules, the States still need

injunctive and declaratory relief to avoid Treasury’s enforcement of ARPA’s unconstitutionally 

vague conditions. 

4One oddity about this case, it’s not crystal clear to me what the States’ cause of action is here—ARPA, for 

example, doesn’t appear to recognize their right to sue the federal government. And this Court has held that a cause 

of action must exist apart from standing, even in a sovereign-authority case. Kentucky, 23 F.4th at 602. It appears 

to me, however, that the Supreme Court has recognized an action in cases that allege Spending Clause violations 

under the Constitution itself. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 540, 575 (2012); New York v. 

United States, 505 U.S. 144, 154, 172 (1992); South Dakota v. Dole, 483 U.S. 203, 205, 210–12 (1987). And, 

tellingly, the government here does not contest the States’ ability to sue apart from their justiciability arguments.
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 49

The States’ claims withstand mootness because their issues are still “live.” Thomas, 

996 F.3d at 323. As they originally alleged, ARPA still fails to provide clear notice of a funding 

condition. (R. 1, Original Complaint, PageID 17–19 ¶¶ 46–54.) And even later, the States 

alleged that Treasury “cannot cure the inherent ambiguity in [ARPA] because Congress must 

provide the recipients of federal funds with clear notice of any conditions on the use of the 

funds.”5 (R. 23, Amended Complaint, PageID 148 ¶ 51.) (emphasis in original). With that in 

mind, they allege the Rules “cannot save” ARPA from its unconstitutional conditions. (Id. at 

PageID 150 ¶ 61.) This all rings true. 

Although the Rules tried to fill in the blanks of ARPA, Treasury cannot resolve ARPA’s 

open-endedness. The Rules tried to construct ARPA’s guidelines by providing what ARPA 

didn’t: a revenue baseline and guidance on when Treasury would enforce the Offset Provision. 

See 31 C.F.R. §§ 35.3; 35.8(b); see also Coronavirus State and Local Fiscal Recovery Funds, 

87 Fed. Reg. 4338, 4423, 4428 (Jan. 27, 2022) (to be codified at 31 C.F.R. § 35). But Treasury 

couldn’t provide the clear notice of the conditions ARPA entailed; Congress, through ARPA 

alone, had that responsibility. And nothing in ARPA alludes to the Rules’ selected baseline or 

construction of the Offset Provision. ARPA’s text does not clearly determine why a 2019 

baseline applies or why another baseline (like a different year) does not. Nor does ARPA 

address whether it prohibits a reduction in expected tax revenues or whether it prohibits a 

reduction in actual tax revenues. Only the Rules purport to provide the answer (that states can 

choose either), but that answer does not stem from ARPA’s text. 

And, perhaps most importantly, the regulation does not fix the Offset Provision in three 

other ways: Vagueness still exists from ARPA’s lack of explanation on how to (1) calculate a 

“reduction” in net tax revenue, (2) determine whether such a reduction resulted from a tax cut, 

and (3) tell what particular conduct constitutes an “indirect” offset. 

5

Indeed, one scholar contends that only federal statutes―not federal agency conditions―can “defeat state 

law.” Philip Hamburger, Purchasing Submission: Conditions, Power, and Freedom 130 (2021). As traditionally 

recognized, statutes “enjoy the obligation of law” because “a legislative body representative of the people” adopts 

them. Id. Hamburger notes that this logic does not legitimize a federal agency’s elaboration of a statute. Id. at 131. 

Agencies, of course, do not represent the people in the same way Congress does, so their rules may not render state 

law void. Id. 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 50

Indeed, Kentucky and Tennessee allege that the Rules made their concerns over their 

tax authorities even worse. (See R. 23, Amended Complaint, at PageID 147 ¶ 50.) If ARPA

is impermissibly vague, as the States allege and the majority concludes, then Kentucky and 

Tennessee still face “an unlawfully-imposed quandary in determining how to exercise its 

sovereign taxing power.” Ohio v. Yellen, 547 F. Supp. 3d 713, 725 (S.D. Ohio 2021). 

The States’ legislators considering tax changes may delay, second guess, or abandon parts of tax 

policies because ARPA does not explain the impact that such changes will have on their ability 

to retain ARPA funds. See id.

And even if the Rules could clarify ARPA’s open-endedness, the States still face a live 

threat to their sovereign authority. The Rules seek to allow states to enact tax cuts resulting in 

revenue reductions so long as they identify permissible sources of offsetting funds. See, e.g., 

87 Fed. Reg. at 4428. Although allowing for some tax cuts, the Rules still narrow the range of 

permissible tax policies the States may enact, which in turn takes a toll on the States’ citizens and 

economies.

What’s more, the Rules do not ease the States’ concern regarding Treasury’s enforcement 

against them. Secretary Yellen’s threat to enforce the Offset Provision in her earlier letter to the 

States still stands. (See R. 1-2, Yellen Letter, PageID 33–34.) Indeed, the Rules make matters 

worse. They expressly reserve the Secretary’s broad authority to enforce ARPA’s requirements 

and provide that “[n]othing” in the Rules “shall limit the authority of the Secretary to take action 

to enforce conditions or violations of law . . . .” 31 C.F.R. § 35.4(a) (2022). So the Rules do not 

limit ARPA’s enforcement; they instead provide the Secretary broad enforcement discretion. If a 

state accepts the funds and the Secretary believes that the state violates ARPA, that state must 

“repay to the Secretary an amount equal to the amount of funds used in violation [thereof].” 

42 U.S.C. § 802(e). All this considered, a credible threat of enforcement still stands. 

Next, while facing “live” issues, the States continue to have “a legally cognizable interest 

in the outcome” of this case. Thomas, 996 F.3d at 323. The Rules do not “mak[e] it ‘impossible 

for the [C]ourt to grant any effectual relief[.]’” Id. at 330 (quotations omitted). The Court can 

still grant injunctive and declaratory relief given the States’ continued stake in the case without 

creating an “advisory opinion that Article III prohibits.” Id. That such relief “would have [a] 
No. 21-6108 Commonwealth of Ky., et al. v. Yellen, et al. Page 51

practical effect” on the States reaffirms that mootness does not pose a problem here. Id.; see 

Ford, 469 F.3d at 504. Because ARPA’s vague conditions still restrict States from enacting tax 

cuts in their sovereign capacities and Treasury-recoupment actions remain a credible threat, the 

relief sought affects the parties’ current legal interests. See Ford, 469 F.3d at 504–05. If 

granted, the States’ relief would help them avoid enforcement of ARPA’s unconstitutionally 

vague conditions. 

For these reasons, I do not find the claims moot like the majority. I acknowledge that the 

States did not allege they would fail to offset their funds with a permissible revenue source. See 

87 Fed. Reg. at 4428. But I don’t believe that moots Treasury’s threat of recoupment action. 

Again, the Rules still limit the States from enacting tax policies if they do not offset a net 

reduction with permissible revenue sources. This restraint makes the States fear that they 

“cannot lower their citizens’ tax burdens without suffering a penalty.” (R. 23, Amended 

Complaint, PageID 131 ¶ 1.) And seeing that the Rules do not “limit the authority of the 

Secretary” to enforce ARPA, a credible threat of recoupment action still stands. 31 C.F.R. 

§ 35.4(a). Or if the States wish to comply with the Rules, they must do something—either raise 

other taxes or lower expenditures elsewhere in the budget to offset a revenue reduction. That 

something creates an ongoing injury. On that note, the Rules also leave the States’ claims of 

vagueness intact, which leads ARPA to intrude upon the States’ tax powers—“an area 

traditionally left to the states.” Kentucky, 23 F.4th at 599. And the chilling effects and the threats 

to the States’ economies remain. See id. at 599–601. Because the States still face the effects of 

ARPA’s vagueness, the Rules do not moot this case. 

IV.

I concur with almost all of the majority opinion. But I respectfully dissent in part only to 

explain why I believe the Rules do not moot the States’ controversy over their sovereign-tax 

interests. Thus, I would grant both Kentucky and Tennessee their sought-after relief.