Ohio says it desperately needs COVID relief funds but is suing to use them on tax cuts

Ohio is suing the federal government to block a provision in the American Rescue Plan that prevents it from diverting money intended for COVID-19 relief to pay for a state tax cut.

But the state’s Republican attorney general’s argument against the restriction undermines a major GOP talking point against the $1.9 trillion package: that states don’t really need the money.

Ohio Attorney General Dave Yost filed the suit with the U.S. District Court for the Southern District of Ohio on Wednesday against Treasury Secretary Janet Yellen, challenging a provision in the law aimed at ensuring that the billions of dollars in state relief grants are actually used for relief.

President Joe Biden’s package includes $350 billion for state, local, tribal, and territorial governments that is intended to “ensure that they are in a position to keep front line public workers on the job and paid, while also effectively distributing the vaccine, scaling testing, reopening schools, and maintaining other vital services.”

After some GOP-controlled state legislatures suggested they would instead use that money to offset tax cuts for corporations and wealthy individuals, Senate Majority Leader Chuck Schumer inserted a provision allowing the treasury secretary to take back the grants should states use them in that way.

Citing the Supreme Court’s ruling in the 1987 case South Dakota v. Dole on conditions placed on federal grants to states, Yost’s suit alleges that this restriction is unconstitutionally coercive because Ohio and the other states are so in need of funds due to the pandemic that there is no way they could turn them down.

The suit notes that the $5.5 billion Ohio would get fills a “large and urgent need in Ohio’s budget” and that “Ohio has no real choice except to take the funds, especially while attempting to respond to the economic instability wrought by the COVID-19 pandemic.”

Referring to the 2012 Supreme Court ruling in NFIB v. Sebelius that the Affordable Care Act could not be used to force states to expand Medicaid, Yost claims that every single state desperately needs the relief funds: “No State, in the current economic situation, can turn down this ‘financial inducement.’ So here, as in NFIB, the States have ‘no real option’ but to take the funds on offer.”

It is unclear from the filing why Ohio would cut taxes if its declining revenue and growing expenses put it in such a dire position that it would have to accept the federal aid.

Should the state’s revenue situation improve enough that it no longer needs the funds, it could return them to the federal government later rather than use them for a tax cut.

Yost’s filing undercuts one of the main arguments made by Republicans in Congress against the $1.9 trillion package in general and the $350 billion in relief grants in particular: that the states — especially red states — didn’t really need the money.

Senate Minority Leader Mitch McConnell complained in a March 2 floor speech that Democrats were “sending $350 billion to bail out long-mismanaged state and local governments, multiple times the expert estimates of COVID needs.”

In a March 3 op-ed published to his official website, Texas Sen. John Cornyn complained the bill provided “billions states don’t need” and claimed that the nation was already moving in the right direction and tax revenues were rebounding without the American Rescue Plan.

“According to the budget office, the U.S. economy ‘is projected to return to its prepandemic level in mid-2021′ even without additional federal aid,” he argued. “It’s tough to reconcile that forecast with Democrats’ push to hand an additional $350 billion to state and local governments.”

“The notion that our states and municipalities are in some kind of fiscal crisis, couldn’t be more wrong,” said Pennsylvania Sen. Pat Toomey at a press conference that day.

Florida Sen. Rick Scott, who attacked the $350 billion in January as just a “blue-state bailout,” even wrote an unsolicited letter to the nations’ governors and senators urging them to refuse the money.

“I am writing you today with a simple and common sense request: each state and local government should commit to reject and return any federal funding in excess of your reimbursable COVID-19-related expenses,” Scott wrote on March 10. “This commitment will serve the best interests of hard working American taxpayers and will send a clear message to Washington: politicians in Congress should quit recklessly spending other people’s money.”

Several Republican governors have already dismissed Scott’s suggestion. His own governor, Ron DeSantis, told Politico on Tuesday: “It doesn’t make any sense.”

Polling shows that the legislation and the $350 billion in relief aid are popular with the public. According to a CNN poll released last week, 61% of Americans backed the plan and 59% favored the grants to state, local, tribal, and territorial governments.

Published with permission of The American Independent Foundation.