The U.S. Supreme Court declined to take up the case of Missouri v. Yellen, in which Missouri challenged restrictions on the use of American Rescue Plan Act funding for state tax reductions.
States can use ARPA funds for a variety of purposes, such as responding to the COVID-19 public health emergency or its negative economic impacts on households, businesses or industries; giving premium pay to essential state, local or tribal government workers; providing government services to the extent of revenue losses due to the pandemic; or making necessary investments in water, sewer or broadband infrastructure.
But ARPA contains restrictions on the use of the recovery funds: They cannot be deposited into a pension fund, nor can they be used to “directly or indirectly offset a reduction in the net state tax revenue that results from a change in law or regulation” that reduces any tax or that delays a state tax increase. States must certify to the Treasury Department that they will comply with the law’s provisions before they can receive ARPA funding. If a state violates the provisions, it is required to repay the department the amount of the net tax revenue or the amount of ARPA funding received, whichever is less. In May, the department issued its final rule on ARPA, clarifying that a state will have impermissibly used recovery funds if it fails to offset a tax reduction “through means unrelated to ARPA funds.”
Missouri sought a preliminary injunction in its lawsuit challenging the offset provision, which it filed after ARPA was enacted but before the Treasury Department’s final rule. Missouri alleged two interpretations of the offset restriction. Missouri’s preferred interpretation is a narrow one: that the offset restriction should “merely prohibit the states from taking COVID-19 relief funds and deliberately using them to offset a specific tax reduction of a similar amount.” Missouri did not agree that the offset provision should be interpreted broadly to “prohibit a state from enacting any tax-reduction policy” and disagreed that Treasury’s broad interpretation was appropriate as it “generated uncertainty, confusion and doubt for state legislatures … considering and debating tax-reduction policies.”
The 8th U.S. Circuit Court of Appeals affirmed the district court’s opinion that Missouri lacked standing, ruling that the state wasn’t challenging the actual offset provision as written but rather the hypothetical broad interpretation of the provision and had not suffered an injury under either the broad or the narrow interpretation of the provision. The court further reasoned the Missouri Legislature’s consideration of tax reduction policies does mean it has violated ARPA, that Missouri has asked the court to declare in the abstract what ARPA doesn’t mean, and “to enjoin a hypothetical interpretation of the Offset Restriction that the Secretary has explicitly disclaimed, without alleging any concrete, imminent injury from the Secretary’s actual interpretation.”
11th Circuit Weighs In
Meanwhile, a few days after the Supreme Court declined to hear the case, the 11th Circuit Court of Appeals ruled that the offset provision was unconstitutional as written. The 11th Circuit said its case was distinguishable from the 8th Circuit case because in the 8th Circuit, the states did not challenge the offset provision as written but rather challenged a specific potential interpretation of the provision. The 11th Circuit looked at whether the 13 states challenging the provision had standing to bring the lawsuit and, if so, was the provision unconstitutional for vagueness. The court answered yes to both questions.
In their brief, the 13 states alleged that the offset provision as written was unconstitutionally ambiguous and coercive under the spending clause of the Constitution, that it violated the 10th Amendment by unlawfully commandeering the states, and that the harm it would cause entitled the states to an injunction prohibiting its enforcement. Like the 8th Circuit case, this lawsuit was filed before the Treasury Department clarified when a state has used ARPA funds to offset net tax revenue reduction. After the regulations were issued, 10 of the 13 states certified their compliance with the offset provision and received their ARPA funding. All 13 states did enact tax-related laws such as credits, exemptions, phaseouts or reductions during ARPA’s covered period, which began on March 3, 2021.
The Treasury Department argued that the states did not have standing because there has been no enforcement action initiated against any of them and thus their argument was hypothetical. It also argued that because enforcement (recoupment of funds) was made highly unlikely by the regulations, the 13 states’ claims were moot. The 11th Circuit rejected these arguments, holding that the elements required for standing—an injury in fact, a connection between the injury and the conduct complained of, and redressability—were met. It held that the “offset provision’s ambiguity … continues to injure the States’ sovereign interests.” The states, the court said, were challenging a so-called unconstitutional condition that was attached to federal funding and that “the injury to state sovereignty occurs when a state must accept or reject an unascertainable funding offer.” A state does not need to first violate a condition of an allegedly unconstitutional contract to have standing to challenge it, the court said. Redressability is met by not enforcing the offset provision. The court further rejected Treasury’s mootness claim, stating that “even if the Secretary gives it a narrow reading, the offset provision continues to limit how the States may use federal funds. To the extent the limitation is unascertainable, it remains an unconstitutional condition on those funds.”
In Groff v. DeJoy, the court will decide whether the U.S. Postal Service is required to grant a religious accommodation to a postal worker who does not wish to work on Sundays due to his religious beliefs. Title VII of the Civil Rights Act of 1964 prohibits an employer from discriminating against an individual because of that individual’s religion, which includes religious beliefs, unless the employer can show the accommodation would cause an undue hardship “on the conduct of the employer’s business.” In a 1977 case, Trans World Airlines v. Hardison, the undue hardship standard is met when the accommodation would require more than a de minimis, or negligible, cost to the employer.
Petitioner Gerald Groff is a rural carrier associate who provides backup for absent career employees. He is also a devout Christian who observes a Sunday Sabbath, believing that day is meant for worship and rest. In 2013, the Postal Service signed a contract with Amazon to deliver packages on Sundays and holidays in order to remain profitable. In 2016, rural carrier associates and other types of rural letter carriers were required to deliver mail and packages on Sundays and holidays during peak season between November and early January pursuant to a memorandum of understanding between the service and the Rural Letter Carriers Association, which is a union.
Prior to the memorandum’s enactment in 2016, Groff was exempted from Sunday work as long as he could swap his shifts with others during the week. Once the memorandum went into effect, Groff was told he would have to deliver mail on Sundays or find another job. Groff received disciplinary notices when he failed to show up for Sunday work and no one was available to take his shift. He resigned in 2019.
Groff argues that the Supreme Court should overturn the Hardison case because it conflicts with Title VII. He argues further that the appeals court erred in its determination that there is undue hardship merely by showing that the requested accommodation burdens the employee’s co-workers; instead, he says, undue burden should mean “significant difficulty or expense.”
The Postal Service argues that Groff’s numerous missed Sunday shifts caused disruption to business operations, contributed to morale problems and caused other employees to resent management and transfer to other post offices. The 3rd Circuit Court of Appeals agreed and held that, under the Hardison case, “[t]he impact on the workplace … far surpasses a de minimis burden.” The court explained that “[b]oth economic and noneconomic costs suffered by the employer can constitute an undue hardship” and that “[e]xamples of undue hardships include negative impacts on the employer’s operations, such as on productivity or quality, personnel and overtime costs, increased workload on other employees, and reduced employee morale.”
Seventeen states filed an amicus brief in support of Groff, arguing that the de minimis standard in Hardison is unjust and state courts nationwide have repeatedly relied on the decision in interpreting their own state anti-discrimination laws in an unfair manner. The amici argue that Hardison “cuts against the states’ longstanding interests in safeguarding the country’s tradition of religious liberty.” The Supreme Court will likely hear arguments in April and rule by the end of June.
Susan Parnas Frederick is NCSL’s senior federal affairs counsel.