Commonwealth of Ky. v. Janet Yellen, 21-6108

Background

Congress enacted ARPA (2021) and allocated ~$195.3 billion to states; funds conditioned by an "Offset Provision" banning use of ARPA funds to "directly or indirectly offset" reductions in net tax revenue from tax cuts during the covered period.
The statute included reporting requirements and a recoupment mechanism authorizing Treasury to recover funds used in violation.
Treasury issued an Interim Final Rule and then a Final Rule defining the baseline (fiscal year 2019, inflation‑adjusted) and creating safe harbors (macroeconomic growth, other tax increases, or non‑ARPA spending cuts) and explaining enforcement approach.
Kentucky and Tennessee sued pre‑enforcement, alleging the Offset Provision was vague, coercive/commandeering, and caused (for Tennessee) present compliance costs; the district court enjoined enforcement based on coercion.
Sixth Circuit: Treasury’s Rule mooted Kentucky’s challenge (no evidence Kentucky would violate the Rule), so injunction vacated as to Kentucky; Tennessee had standing based on uncontroverted compliance‑cost declarations and the Court affirmed the injunction on the ground that the Offset Provision is impermissibly vague under Spending Clause clear‑statement principles.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Justiciability/standing (Kentucky)	Kentucky accepted funds and plans tax cuts; Offset Provision arguably bars post‑acceptance tax cuts so enforcement threat is imminent.	Treasury’s Rule disavows the broad money‑is‑fungible reading; Kentucky submitted no evidence it will violate the Rule.	Moot/nonjusticiable as to Kentucky; injunction vacated.
Justiciability/standing (Tennessee)	Tennessee showed present compliance costs (staffing, new accounting, baseline adjustments) traceable to Offset/Rule.	Treasury argued costs are traceable only to reporting req’t or are defeasible because ARPA funds may reimburse administrative costs.	Tennessee has Article III standing on compliance‑cost theory; claim remains justiciable.
Spending Clause clear‑statement / vagueness of Offset Provision	Statute fails to give clear notice: "indirectly offset," causation, timing, baseline and measuring reductions are indeterminate; states coerced.	The statutory text gives sufficient notice that a condition exists; Rule explains details and Trackable safe harbors; agency interpretation supplies clarity.	Offset Provision fails clear‑statement requirement (vague); Treasury cannot enforce obligations not clearly authorized by Congress; injunction affirmed as to Tennessee on vagueness ground.
Role/effect of Treasury Rule and deference	Plaintiffs: Rule cannot cure constitutional vagueness because Congress must speak clearly under Spending Clause.	Treasury: Rule clarifies statute and its interpretation follows from the text; agency construction disavows fungibility reading and moots Kentucky.	Rule mooted Kentucky’s recoupment/sovereign‑authority claims (lack of evidence), but Rule cannot supply the clear notice required by Spending Clause; agency cannot cure statutory indeterminacy for Tennessee’s claim.

Key Cases Cited

Cummings v. Premier Rehab Keller, P.L.L.C., 142 S. Ct. 1562 (2022) (articulates Spending Clause clear‑statement notice requirement)
Susan B. Anthony List v. Driehaus, 573 U.S. 149 (2014) (pre‑enforcement standing/credible threat framework)
Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (constitutional standing elements)
Pennhurst State School & Hospital v. Halderman, 451 U.S. 1 (1981) (federal spending conditions must be unambiguous)
Arlington Central School Dist. Bd. of Educ. v. Murphy, 548 U.S. 291 (2006) (reciter of clear‑notice principle for conditional grants)
Federal Election Comm’n v. Ted Cruz for Senate, 142 S. Ct. 1638 (2022) (injury from a regulation implementing a statute can be traceable to the statute)
Massachusetts v. EPA, 549 U.S. 497 (2007) (state sovereign/quasi‑sovereign injury doctrine; "special solicitude")
United States v. Sperry Corp., 493 U.S. 52 (1989) (recognition that money is fungible)
Ransom v. FIA Card Services, N.A., 562 U.S. 61 (2011) (same, re: fungibility of money)