Agenda - Council Work Session - 03/08/2022

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4424 Federal Register/Vol. 87, No. 18/Thursday, January 27, 2022/Rules and Regulations argued that the generous amount of would otherwise have been needed to of the offset provision. Treasury took SURF funds provided to those cover the costs of the reduction.As several steps to minimize burden for governments gave recipient discussed below,the scope of changes recipient governments in the interim governments little choice as to whether in law,regulation,or interpretation is final rule. For example,the interim final to accept the SURF funds and,as a further limited to those that the rule incorporates the types of result,the offset provision is coercive. recipient government voluntarily information and modeling already used In describing these concerns and enacted during the covered period. by states and territories in their own arguments, several of these commenters Congress has the authority under the fiscal and budgeting processes.By referenced litigation regarding the offset Spending Clause in Article I,section 8 incorporating existing budgeting provision.349Many of these commenters of the Constitution to specify the processes and capabilities, states and also expressed concern regarding the permissible and impermissible uses of territories will be able to assess and interim final rule's implementation of federal grants.The Supreme Court has evaluate the relationship of tax and the offset provision. Some of these repeatedly"upheld Congress's authority budget decisions to uses of SURF funds commenters argued that Treasury lacked to condition the receipt of funds on the based on information they likely have or the authority to implement the States' complying with restrictions on can readily obtain. This approach provision, asserting that the significance the use of those funds,because that is ensures that recipient governments have of the provision required Congress to the means by which Congress ensures the information they need to understand make an explicit delegation of that the funds are spent according to its the implications of their decisions rulemaking authority and provide view of the`general Welfare.'11350"The regarding the use of SURF funds—and, clearer principles by which Treasury power to keep a watchful eye on in particular,whether they are using the should implement the provision. expenditures . . . is bound up with funds to directly or indirectly offset a Finally, one commenter argued that the congressional authority to spend in the reduction in net tax revenue resulting offset provision should only apply if the first place."351 Assertions that the from a change in law,regulation, or recipient expressly and intentionally amount of SURF funds are sufficiently interpretation,making the funds uses SURF funds to offset a reduction large to be coercive are inconsistent potentially subject to recoupment. To in revenue, arguing that the term with the Supreme Court's reasoning in further reduce burden,Treasury is "offset"implies a deliberate use SURF NFIB,which distinguished between considering whether the scope of funds to "pay for" a tax cut. conditions placed on new federal funds reporting requirements can be further As discussed in the interim final rule, and conditions placed on existing tailored. the offset provision does not prevent a federal funds and not based on the size As described in greater detail below, recipient government from enacting a of funds.352 Further,the conditions Treasury is finalizing its broad variety of tax changes.Rather,the placed on the use of SURF funds under implementation of the offset provision offset provision prevents a recipient the ARPA—both the eligible uses and largely without change. This approach government from using SURF funds to additional limitations on deposits into is consistent with the text of the ARPA. offset a revenue reduction resulting pension funds and the offset The remainder of this section discusses from a tax cut.A recipient government provision—were well known to and responds to comments on specific would only be considered to have used recipient governments prior to recipient aspects of the framework. SURF funds to offset a reduction in net governments requesting to receive 1.Definitions tax revenue resulting from changes in SURF funds.Finally,the ARPA Covered change.The offset provision law,regulation, or interpretation if,and provides Treasury with the express g p is triggered by a reduction in net tax to the extent that,the recipient authority"to issue such regulations as revenue resulting from"a change in government could not identify sufficient may be necessary or appropriate to carry law,regulation,or administrative funds from sources other than SURF out"section 602,which includes the interpretation."Consistent with this funds to offset the reduction in net tax offset provision. language,the interim final rule defines revenue. Only if sufficient funds from A number of commenters expressed a"covered change"to include any final other sources cannot be identified to concern regarding the burden associated legislative or regulatory action,a new or cover the full cost of the reduction in with complying with the offset changed administrative interpretation, net tax revenue resulting from changes provision and the interim final rule. and the phase-in or taking effect of any in law,regulation, or interpretation,will Similarly, other commenters argued that statute or rule where the phase-in or the remaining amount not covered by the framework provided in the interim taking effect was not prescribed prior to these sources be considered to have final rule complicated implementation the start of the covered period. Thus,the been offset by SURF funds,in offset provision applies only to actions contravention of the offset provision. 35O National Fed'n of Indep.Bus.v.Sebelius for which the change in policy occurs Consistent with the statutory text,the (NFIB),567 U.S.519,580(2012)(plurality opinion); roach taken in the interim final rule see,e.g.,South Dakota v.Dole,483 U.S.203,206— during the covered period;it excludes approach 208(1987);Gruver v.Louisiana Bd.of Supervisors regulations or other actions that recognizes that,because money is for Louisiana State Univ.Agric.tr Mech.Coll.,959 implement a change or law fungible, even if SURF funds are not F.3d 178,183(5th Cir.),cert.denied,141 S.Ct.901 explicitly or directly used to cover the (2020).For additional discussion of these issues, substantively enacted prior to March 3,costs of changes that reduce net tax see,e.g.,Brief Reply for Appellants,Ohio v.Yellen, 2021. For example, covered changes do No.21-3787(6th Cir.Oct.26,2021). not include a change in rate that is revenue,those funds may be used in a 351 Sabri v. United States,541 U.S.600,608 triggered automatically and based on manner inconsistent with the statute by (2004). statutory or regulatory criteria in effect indirectly being used to substitute for 352 The new federal funds offered by the priorto the iod.353 Chan ed the state's or territory's funds that Affordable Care Act totaled$too billion per year. e covered p er g Even the dissenting Justices agreed that"Congress could have made just the new funding provided 353 For example,a state law that sets its earned 349 See,e.g.,State of West Virginia v. U.S. under the ACA contingent on acceptance of the income tax credit(EITC)at a fixed percentage of the Department of the Treasury,No.7:21—cv-00465— terms of the Medicaid Expansion,"although they federal EITC will see its EITC payments LSC,2021 WL 2952863(N.D.Ala.Jul.14,2021); disagreed with the majority about whether that automatically increase—and thus its tax revenue State of Ohio v.Yellen,No.1:21—cv-181,2021 WL funding condition was severable.NFIB at 687-688 reduced—because of the federal government's 2712220(S.D.Ohio Jul.1,2021). (joint dissent). expansion of the EITC in the ARPA See,e.g.,Tax