Kentucky Politics

Kentucky Attorney General Daniel Cameron is suing the federal government for not allowing states to use coronavirus relief money to lower taxes.

Cameron jointly filed the lawsuit on Tuesday with Tennessee Attorney General Herbert Slatery, arguing that the law “unconstitutionally usurps the authority of each state’s legislature to enact beneficial tax policies.”

In a statement, Cameron wrote that President Joe Biden’s administration was holding federal relief funds hostage.

“Kentuckians expect state tax policies to be set by the men and women they elect to represent them in the General Assembly, and not as a result of an edict from the Federal Government,” Cameron wrote.

Kentucky’s Republican-led legislature approved more than $200 million worth of tax breaks during this year’s legislative session, with policies benefiting the film industry, cryptocurrency miners, remote workers, people who donate to private school scholarships and historic property owners.

The policies passed after lawmakers got word that the state government would receive $2.4 billion from the federal government as part of the American Rescue Plan Act — about 20% of the state’s annual budget.

It’s still unclear if the tax breaks are in violation of the federal act’s ban on states using the funds to offset cuts. The plan requires states to pay back the federal government if that happens.

In a letter to states last month, U.S. Treasury Secretary Janet Yellen said the federal government is allowed to set conditions on how states use federal money.

“It simply provides that funding received under the Act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law. If states lower taxes but do not use funds under the Act to offset those cuts — for example, by replacing the lost revenue through other means — the limitation in the Act is not implicated,” Yellen wrote.

Cameron’s lawsuit was filed on Tuesday in U.S. District Court of Eastern Kentucky, located in Frankfort.

A similar lawsuit was filed in Alabama last week by attorneys general from 13 other states.

Ryland Barton is the Capitol bureau chief for Kentucky Public Radio.