Arizona sues White House in battle over use of COVID-19 funding

Republican Governor Doug Ducey of Arizona sued the Biden administration Friday after the feds demanded changes to the state’s programs that send relief money to school districts without mask mandates.

The dispute began this past October, when federal officials took issue with two new funding programs created by the governor. The programs, which drew on $173 million in American Rescue Plan aid money, created an education plus-up grant that doled out funding to school districts that did not have mask mandates, as well as a recovery benefit that gave families $7,000 per student if they moved their child away from a district that had a mandate.

According to a review by the Arizona Republic, 98 school districts in the state had received the plus-up grant as of October and just 93 students received the recovery benefit as of the following month.

While the programs have received pushback and the law tied to the funding that banned COVID-19 mask mandates in schools was later tossed in state court, the governor has made it clear he still stands behind the programs.

“In Arizona, our top priority is to get kids caught up, and we are using a wide range of resources to make that happen — including federal dollars allocated to our state," Ducey said Friday. "Make no mistake, we will always support families and kids, while protecting their right to choose an education that best fits their needs.”

The feds don't appear to be backing down either. Last week, the Treasury Department sent a letter to the state warning that it had 60 days to remove the anti-masking provisions or risk a clawback of the funds. The department also threatened to withhold the next wave of funding should the request fall on deaf ears.

Ducey responded with a 24-page complaint claiming the Treasury Department has placed illegal restrictions on how the state can use funds from the American Rescue Plan Act (ARPA) without the proper authority.

“Nothing in that underlying statute authorizes Treasury to condition the use of ARPA monies on following measures that, in the view of Treasury, stop the spread of COVID-19,” the lawsuit says. “If Congress had truly intended to give Treasury the power to dictate public health edicts to the states, and recoup or withhold (monies) ... it would have spoken clearly on the matter. It did not.”

Ducey claims the relief act contains just two prohibitions on how money could be used: cutting taxes and making pension payments. He says the feds are overreaching their authority in their demands to Arizona and claims violations of the Administrative Procedure Act.

In January, the Treasury announced new final rules on how states can use their COVID-19 funds are set to take effect in April, but Ducey argues that such rules cannot be applied retroactively.

The state wants a judge to declare Treasury’s rules unlawful and to block any attempts to enforce the department's demands.

“The goals of the suit are that Treasury understands that they do not have the authority to go as far as they do and that they back down,” said Anni L. Foster, an attorney for the governor’s office, in a phone interview. “But if they don’t, our hope is that the court will uphold our argument and say ‘No Treasury, you overstepped your bounds here.’”

Foster also noted rules the Treasury Department is relying don't take effect until April 1, while the programs at the heart of the dispute are still ongoing. “We have no intent on stopping these programs at this time.”

Representees for the Treasury Department did not respond to request for comment by press time on Friday.