A federal judge permanently blocked the U.S. Treasury Department from trying to recover any pandemic relief funds from Texas, Louisiana or Mississippi if those states use the aid to offset state tax revenue shortfalls.
The states challenged a provision in the Biden administration’s American Rescue Plan Act they claimed bars using the funds to fill budget gaps — if the Treasury Department believes state lawmakers intentionally lowered certain state taxes during the pandemic.
U.S. District Judge Matthew Kacsmaryk, a Donald Trump appointee in Amarillo, Texas, said these strings created a “gun to the head” choice for states that couldn’t afford to refuse billions in aid at a time of skyrocketing expenses and sinking tax revenues.
“The federal government exceeds its authority when it unduly influences a state’s power to set its own tax policy,” Kacsmaryk said in an 18-page ruling handed down Friday. He said the repayment conditions in ARPA violate the U.S. Constitution’s spending clause by forcing states to follow Congress’ preferred tax policy.
Of the $220 billion in pandemic aid allotted to all 50 states, Texas received $16 billion (about 13% of its 2021 budget), Mississippi got almost $2 billion (equal to 31% of its 2021 budget) and Louisiana received more than $3 billion (or about 7% of its 2021 budget).
While acknowledging the Treasury hasn’t asked the states to return any pandemic funds, the judge based his decision on “alleged coercion” that represents an “economic dragooning that left the states with no real option but to acquiesce.”
Kacsmaryk’s ruling applies only to the three states that sued to challenge the policy.
The case is Texas v. Yellen, 21-cv-00079, U.S. District Court, Northern District of Texas (Amarillo).
