The Constitution’s Spending Clause may permit the states to make Faustian bargains with the federal government—if their souls can be bartered away, so can their sovereignty. But in the art of dealmaking, the devil at least has one advantage: he is clear on his conditions.
Congress failed to meet this basic requirement when it enacted the American Rescue Plan Act of 2021, and this failure led a federal court to conclude in West Virginia v. U.S. Department of the Treasury that the federal government could not enforce one of the law’s key conditions: a restriction on state tax cuts. The decision is one in a litany of legal setbacks for the federal government’s response to the COVID pandemic—an effort characterized by fervent do-something-ism, in which too much authority was taken from the sovereign states and too much given to the federal administrative state.
When Congress enacted the American Rescue Plan Act in March 2021, it offered states $195.3 billion in COVID recovery funds subject to an “unprecedented condition” that states not use that money to cut taxes whether directly or indirectly. Through this “offset provision,” Congress effectively offered to buy some of the states’ sovereign authority over taxes until the Rescue Plan funds were spent.
But Congress made two mistakes in drafting the offset provision: first, it failed to set a baseline for calculating state tax revenues; second, it failed to define the scope of the word “indirectly.” Read literally, the offset provision precluded not only an explicit tax cut, but any measure that reduced the states’ tax revenues. This restriction applied to “each state’s entire budget and every single one of its taxes”—meaning it restrained the states’ freedom of action in every policy area.
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Thirteen states that took Rescue Plan funds filed suit, arguing that the offset provision was too vague to be constitutional under the Spending Clause. This Clause, which gives Congress the power to “provide … for the general welfare,” has been interpreted to allow Congress to incentivize the states to adopt certain federal policies. After the district court ruled for the states and halted enforcement of the offset provision, the federal government appealed to the Eleventh Circuit Court of Appeals.
The Treasury Department, which was charged with implementing and defending the Rescue Plan Act, countered the states’ arguments by maintaining that vagueness did not render offset provision unenforceable. Congress, Treasury argued, was not required to spell out every circumstance in which the provision might be enforced. A three-judge panel of the Eleventh Circuit was unimpressed with this reasoning. Sure, Congress is not required to anticipate the details of every situation to which the offset provision might apply, but it should clearly inform the states of the boundaries separating prohibited tax cuts from permissible reductions in tax revenue.
After all, in laws like the Rescue Plan Act, Congress is bargaining with the states, not commanding them. Imagine a business deal in which one party wrote the contract, left key terms ambiguous, and then asserted the exclusive right to interpret and apply those terms to its own advantage. No sane person would enter such an agreement, and as the Eleventh Circuit observed, such a contract could not even be enforced.
Treasury tried to fix Congress’s shoddy drafting by writing a rule that established the missing baseline for calculating tax revenue and process for assessing state compliance. Treasury’s rule used fiscal year 2019 as its starting point and required states to “value the changes in law, regulation, or interpretation that would result in a reduction in net tax revenue” as measured from that year. If revenues fell, the state was required to identify a source other than Recovery Act funds that would make up for the reduction or else face a recoupment action.
At first glance, this looked unremarkable—agencies like Treasury routinely do this sort of post-enactment clean-up work, adopting standards of application and otherwise resolving ambiguities in the law to ensure that it can carry out Congress’s purpose. And in a practical sense, Treasury succeeded in that task here: the Eleventh Circuit acknowledged that the rule “resolve[d] many of the ambiguities about which the States complain.”
The problem, according to the Eleventh Circuit, was that Treasury had no authority to write the rule. From a practical perspective, writing a rule to ensure that the offset provision can be implemented may qualify as good policy. But practical considerations alone don’t tell us whether Congress gave Treasury the authority to answer the question raised by the offset provision’s ambiguity.
Determining the offset provision’s scope meant determining what authority the states had to surrender to receive federal funds. And in the Court’s view, that decision was too significant to be left to the unguided discretion of bureaucrats because it implicated a structural feature of our federal republic—the division of authority between state and federal governments.
By holding that Treasury lacked authority to write a rule supplying the law’s missing ingredients, the Eleventh Circuit cut back against the notion that agencies can act as co-legislators with Congress. While other ill-fated pandemic responses, such as the vaccine mandate and eviction moratorium, were purely products of the executive branch, this decision reminds Congress that even legislative solutions to a crisis go awry when Congress too readily indulges its habit of passing off drafting responsibilities and hard policy choices to unelected officials.
Finally, the decision reaffirms that while our attentions are so often fixed on the ponderous movements of national and even (heaven help us) transnational governments, there remains something special about state sovereignty. Any litigant can raise the issue of vagueness in an agreement, but concern is heightened when sovereignty, the power state governments hold in trust for their citizens, is part of the exchange.
When the people ratified the Constitution, they reallocated their grant of authority between the federal government and the states, limiting the power of the former and reserving the residuum to the latter. Too often this allocation has been quietly rebalanced in favor of the federal government outside of the political process. Expansive interpretations of the Spending Clause and Congress’s regulatory power over interstate commerce, abetted by the expansion of the federal administrative state since the New Deal era, have allowed Congress and the executive branch to federalize what were once local matters left to state control.
The federal courts, the quintessential “least democratic branch,” have played a significant role in this rebalancing. Some of the Supreme Court’s decisions have been downright disastrous for traditional notions of state sovereignty. Cases like Arizona v. U.S., which set aside border states’ legislative efforts to curb illegal immigration, allowed hazy considerations of the executive’s foreign policy prerogatives to displace even the core features of state sovereignty like control over state territory. But the Eleventh Circuit’s decision in West Virginia v. Treasury indicates that some federal courts are mindful that diminishing state sovereignty is serious business.
Just as federal courts are duty-bound to ensure that neither Congress nor the President takes for themselves what the Constitution has not granted, so it must ensure that the states retain what is theirs. And if the states choose to sell their sovereignty to the federal government, then at least let them know the price.
This piece originally appeared in Law & LIberty