Twenty-one attorneys general have weighed in against the American Rescue Plan’s (ARP) stricture not to use the $350 billion federal money to state and local governments to pay for tax cuts. (Read more here, here and here.). Texas, Louisiana and Mississippi have filed suit against the U.S. Treasury.
The federal government, throughout its many grant programs often either requires matching funds from states or more relevant here, “maintenance of effort” restrictions so that federal monies do not simply replace state taxing and spending decisions. In the last administration, the $150 billion CARES Act was specifically designed to only support extra expenses (i.e. not previously budgeted, pre-pandemic) due to the COVID-19 pandemic, following similar federal grant philosophy. (See useful explainer here.). The many strings attached to documenting COVID spending under the CARES Act were eventually loosened through repeatedly updated guidance to make it less cumbersome to use the funds easily and without fear of claw back.
Aside from the political aspect of the lawsuit, the ARP aid is one-time, whereas tax cuts tend to be, well, sticky. What will state budgets look like after that “pay for” is used?
