The Checks and Balances Letter delivers news and information from Ballotpedia’s Administrative State Project, including pivotal actions at the federal and state levels related to the separation of powers, due process, and the rule of law.
This edition:
In this month’s edition of Checks and Balances, we review a decision from the U.S. Court of Appeals for the Sixth Circuit that prevents certain enforcement of a tax-related provision of the American Rescue Plan and Recovery Act of 2021 (ARPA); a Congressional Review Act resolution aimed at rescinding the Department of Labor’s new rule on the use of environmental, social, and corporate governance (ESG) principles in investment-related decisions; new guidance from the Federal Trade Commission that aims to broaden the scope of the agency’s enforcement authority; and the U.S. Senate’s unanimous support of proposed updates to plain language requirements in federal agency communications.
At the state level, we take a look at a lawsuit alleging that Massachusetts’ public health agency unconstitutionally installed a COVID-19 tracking app on mobile devices in the state.
We also highlight new scholarship that questions whether federal agency coordination with state attorneys general should constitute a fourth dimension of agency action. As always, we wrap up with our Regulatory Tally, which features information about the 164 proposed rules and 263 final rules added to the Federal Register in November and OIRA’s regulatory review activity.
In Washington
Sixth Circuit finds constitutional flaw in ARPA Tax Cut Ban
What’s the story?
A three-judge panel of the United States Court of Appeals for the Sixth Circuit on November 18, 2022, affirmed a lower court decision that prevents the Secretary of the Treasury from enforcing a provision of the American Rescue Plan and Recovery Act of 2021 (ARPA) known as the Tax Cut Ban against the state of Tennessee. The court found the provision to be “impermissibly vague under the Spending Clause.”
The Tax Cut Ban prevents states from applying ARPA funds to “either directly or indirectly offset a reduction in the net tax revenue,” thus preventing states from redirecting ARPA funds to reduce state taxes. In Commonwealth of Kentucky and State of Tennessee v. Janet Yellen et al., the plaintiff states argue that the Tax Cut Ban infringes on state sovereignty by enabling Congress to unconstitutionally seize state taxing authority. Based on the argument that the Tax Cut Ban coerces the states into relinquishing their sovereign taxing authority, the district court granted the states a permanent injunction against enforcement of the provision in September 2021.
In response to legal challenges from several states, the Treasury Department issued an interim final rule in May 2021 aiming to clarify that states could cut certain taxes under the Tax Cut Ban and to put forth compliance procedures. While this rule made Kentucky’s challenge moot, according to the Sixth Circuit, it failed to remedy Tennessee’s argument that the Tax Cut Ban, coupled with what the state considers to be a convoluted reporting scheme mandated in the final rule, burdens the states with compliance costs. Judges Bernice Donald, John K. Bush, and John Nalbandian found in favor of Tennessee, arguing that the Tax Cut Ban’s “impermissibly vague” language violated the Spending Clause.
The Treasury Department had not responded to the decision as of December 17, 2022. Similar legal challenges brought by Arizona, Texas, Louisiana, Mississippi, Missouri, Ohio, and West Virginia are pending in the federal courts.
Want to go deeper?
- States accuse feds of unconstitutional taxing power grab
- United States Court of Appeals for the Sixth Circuit
DOL issues final ESG rule; lawmakers respond with CRA resolution
What’s the story?
The U.S. Department of Labor (DOL) on November 22, 2022, released a final rule allowing retirement plan fiduciaries to consider environmental, social, and corporate governance (ESG) principles when making investments for Employee Retirement Income Security Act (ERISA)-governed retirement plans and when exercising proxy voting.
The final rule aims to implement a May 2021 executive order issued by President Joe Biden (D) that directed federal agencies to consider ESG principles in retirement decision-making. The rule reverses 2020 regulations issued by the Trump administration that aimed to limit ESG investments in 401(K) retirement plans. While the new rule allows retirement plan fiduciaries to consider ESG factors in investment decisions, they must still put the financial interests of employees first, according to DOL Assistant Secretary for Employee Benefits Security Lisa M. Gomez.
“The rule announced today will make workers’ retirement savings and pensions more resilient by removing needless barriers, and ending the chilling effect created by the prior administration on considering environmental, social and governance factors in investments,” said Gomez in a statement.
U.S. Representative Andy Barr (R-Ky.) and U.S. Senator Mike Braun (R-Ind.) responded to the change on December 15, 2022, by introducing a Congressional Review Act (CRA) resolution aimed at nullifying the rule and preventing similar rulemaking in the future.
“By finalizing rule-making allowing plan fiduciaries to consider ESG factors, Biden’s Department of Labor is steering capital away from the American energy sector, discriminating against oil and gas producers, driving up prices at the pump, and preventing investors from reaping returns from high-performing energy stocks,” Barr told Axios.
The rule is scheduled to take effect on January 30, 2023.
Want to go deeper?
- Environmental, social, and corporate governance (ESG)
- Arguments for and against environmental, social, and corporate governance (ESG)
- Congressional Review Act
New FTC guidance broadens interpretation of agency’s enforcement authority
What’s the story?
The Federal Trade Commission (FTC) on November 10, 2022, published a policy statement that aims to broaden the agency’s interpretation of its authority under Section 5 of the FTC Act, which authorizes the FTC to investigate and challenge what it deems “unfair methods of competition in or affecting commerce.”
The policy statement—a type of agency guidance—replaces the agency’s 2015 enforcement standards (withdrawn in July 2021) that relied on the consumer welfare standard to determine what constitutes antitrust activity. According to the consumer welfare standard, only companies that artificially raise prices qualify as monopolies for the purposes of FTC enforcement. Under the 2015 policy, the FTC did not pursue companies via this standard if enforcement through the Sherman Act or the Clayton Act could address the competitive harm.
Under the FTC’s broadened interpretation of its authority, the commission can issue civil penalties to challenge what it deems to be anti-competitive behavior regardless of whether the behavior violates federal antitrust statutes. The text of the new policy aims to clarify “that Section 5 reaches beyond the Sherman and Clayton Acts to encompass various types of unfair conduct that tend to negatively affect competitive conditions.”
FTC Commissioners Alvaro M. Bedoya, Rebecca Kelly Slaughter, and Chair Lina M. Khan issued a joint statement in support of the new policy, arguing that the “policy statement is a long overdue step toward enforcing Section 5 of the FTC Act in line with what Congress intended when it prohibited unfair methods of competition in 1914.”
In a dissenting statement, FTC Commissioner Christine Wilson argued that “instead of providing meaningful guidance to businesses, the Policy Statement announces that the Commission has the authority summarily to condemn essentially any business conduct it finds distasteful.”
Want to go deeper?
U.S. Senate unanimously supports updates to plain language requirements for federal agency communications
What’s the story?
The U.S. Senate on December 7, 2022, unanimously passed legislation that would update requirements for government agencies to use plain language in certain communications with the public.
The Clear and Concise Act, sponsored by U.S. Senators Gary Peters (D-Mich.) and James Lankford (R-Okla.), would build on the Plain Writing Act of 2010, which requires agencies to use plain language when disseminating paper or digital information necessary for obtaining government benefits and services; information necessary for filing taxes; information about such programs generally; and information about complying with such programs. In addition to new reporting standards, the CCA would broaden these requirements to also mandate that agencies use “clear, concise, well-organized” language when providing information about agency operations, guidance, public interactions, how to navigate agency websites and offices, and instructions about participation in the rulemaking process.
Agencies under the CCA would be required to make such communications accessible to “an audience who may be disabled, may not be proficient in English or may otherwise be disadvantaged or traditionally underserved.”
Senator Lankford described the motivation behind the bill in a statement, “Government is confusing enough. The least an agency can do is to speak plainly. … Our bill holds agencies accountable to speak ‘citizen speak,’ not government speak.”
Want to go deeper?
In the states
Lawsuit alleges Massachusetts agency unlawfully installed tracking app on mobile devices
What’s the story?
A new class action lawsuit before the U.S. District Court for the District of Massachusetts alleges that the Massachusetts Department of Public Health (DPH) unconstitutionally installed a COVID-19 contact tracing app on Android mobile devices in the state without the knowledge or consent of device owners.
Plaintiffs Robert Wright and Johnny Kula argue in Wright v. Massachusetts Department of Public Health et al. that DPH has worked with Google since June 2021 to secretly install a COVID-19 tracking app on more than one million Android mobile devices in the state without first obtaining a search warrant. DPH moved to automatically install the app after few Massachusetts citizens chose to voluntarily download the software. Once installed, the app is invisible on users’ home screens and can only be accessed through the device settings. The covert installation, according to the lawsuit, violates citizens’ constitutional privacy and property rights.
“The government may not secretly install surveillance devices on your personal property without a warrant—even for a laudable purpose. For the same reason, it may not install surveillance software on your smartphone without your awareness and permission,” argued Sheng Li, litigation counsel at the public interest law firm New Civil Liberties Alliance.
DPH told the Daily Caller News Foundation that the agency “has not received any documentation related to this lawsuit and does not comment on pending litigation.”
Want to go deeper?
- New Civil Liberties Alliance
- Documenting Massachusetts’ path to recovery from the coronavirus (COVID-19) pandemic, 2020-2021
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Examining the relationship between federal agencies and state attorneys general
A new report in The Journal of Federal Agency Action by attorneys Ryan J. Strasser, Timothy L. McHugh, Abigail D. Hylton, and William H. Smith III questions whether a fourth type of federal agency action exists when federal agencies coordinate with state attorneys general to implement federal agency initiatives. This type of action, the authors argue, functions beyond the scope of agencies’ traditional rulemaking, adjudicative, and investigative processes:
“In recent years, federal agencies have sought to expand their reach and broaden their capabilities by utilizing state attorneys’ general (‘state AGs’) enforcement powers to accomplish federal regulatory goals. For example, commentators note that federal agencies ‘have enjoyed a synergistic relationship … working on privacy and data security issues’ in recent years. For their part, state AGs have recognized that there is a particularly ‘critical role State Attorneys General play’ in the federal regulatory context and argued ‘for increased partnerships between federal enforcers and the states.’ And while federal agency reliance on state AGs is not entirely new, its recent growth in the face of real and perceived limitations of federal law presents evolving opportunities and challenges. How regulators resolve these issues will affect the regulatory landscape for countless industries, in innumerable ways, and shift the balance of power between federal and state governments for years to come.”
Want to go deeper?
- Click here to read the full text of “Should Conscription of State Attorneys General Be a Recognized Fourth Form of Federal Agency Action? How Federal Agencies Are Using the States to Expand Their Regulatory Reach and Advance Their Missions.”
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Regulatory tally
Federal Register
- The Federal Register in November reached 73,620 pages.
- The November Federal Register included 164 proposed rules and 263 final rules. These included changes to the Federal Communications Commission’s emergency alert system and a correction to a final rule on the National Indian Gaming Commission’s audit standards, among other regulations.
- Want to go deeper?
Office of Information and Regulatory Affairs (OIRA)
OIRA’s November regulatory review activity included the following actions:
- Review of 37 significant regulatory actions.
- Two rules approved without changes; recommended changes to 34 proposed rules; one rule subject to a statutory or judicial deadline.
- As of December 1, 2022, OIRA’s website listed 98 regulatory actions under review.
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Want to go deeper?
- Every month, Ballotpedia compiles information about regulatory reviews conducted by OIRA. To view this project, visit: Completed OIRA review of federal administrative agency rules
