May 11, 2021

Bloomberg Law Quotes Chris Moran on Limits on States’ Use of Federal Coronavirus Relief Funds

2 min

On May 11, 2021, Chris Moran was quoted in Bloomberg Law on limit on states’ use of federal coronavirus relief funds, including a ban on using the money to cut taxes. According to the article, 16 Republican states have sued against the ban, arguing the limit is an attack on their sovereign powers.

On May 10, the Treasury Department released interim final rules permitting states to issue tax relief under their own tax authorities as long as the relief amounts to no more than 1% of a state’s 2019 reporting year’s total revenue. It also allows them to adjust for inflation. But for larger tax changes states must show how they plan to offset any potential net revenue changes without using the $350 billion sent to them in the latest relief law.

The guidance offers a few safe harbors. States with depleted unemployment trust funds will be able to backfill their reserves to pre-pandemic levels, allowing some to stave off automatic tax hikes on employers. It also allows for legislation in states like California and Maryland that conforms state law to new credits and deductions created by a previous federal relief law.

However, the Biden administration’s initial bid at addressing states’ concerns did little to assuage Republican attorneys general from Ohio and Arizona in their lawsuits, who argued that Treasury’s lawyers "can't fix an unconstitutional law."

"The states that did not want to file lawsuits will be happy to have safe harbors that should help with minor cuts," said Moran. But he said “this should not change things for the states that put the time in to sue or complain about the law.”