Gov. Ducey sues Biden administration over funding tied to COVID-19 mandates and Arizona schools

Arizona Gov. Doug Ducey on Friday filed a lawsuit against the Biden administration, ratcheting up the political battle over the state's use of American Rescue Plan funds as an incentive for schools that do not follow public health recommendations.

In a 24-page federal complaint, Ducey's legal team asked a judge to prevent U.S. Treasury from withholding or clawing back COVID-19 stimulus funds, as federal officials again threatened to do last week.

“The Biden administration is attempting to hold congressionally-appropriated funds hostage and is trying to bully Arizona into complying with this power-grabbing move,” Ducey said in a statement.

Ducey and the Biden administration have gone back and forth since October over two education programs the governor created that draw on $173 million in American Rescue Plan aid. The funding was tied to an Arizona law that prohibited COVID-19 mandates in schools, and only schools that didn't impose mandates were eligible for money.

The law was later thrown out by a state court, but that hasn't stopped Ducey from continuing the programs.

Last week, Treasury sent Ducey a second letter, more forcefully threatening to take back or withhold the same amount of federal funding if the governor does not make changes to the programs. The governor answered with a lawsuit, filed Friday in U.S. District Court, by his General Counsel Anni Foster and a team of lawyers at Snell & Wilmer LLP in Phoenix.

Meanwhile, COVID-19 cases continue to surge in the Grand Canyon State, threatening to exacerbate teacher and staff shortages and drop student attendance.

The complaint argues U.S. Treasury's final rule dictating how states can use funding went beyond the scope of the American Rescue Plan Act passed by Congress and signed by President Joe Biden in March.

The Act specified just two prohibitions on how money could be used — to cut taxes or make pension payments, the complaint states.

The American Rescue Plan did, however, direct Secretary of the Treasury Janet Yellen to "issue such regulations as may be necessary or appropriate to carry out" terms of the law.

Treasury announced on Jan. 6 the final rule for how states and local governments could spend their collective $350 billion share of the federal stimulus law. The 437-page rule takes effect in April and says money cannot be used to fund a program that "undermines efforts to stop the spread of COVID-19."

The Ducey administration argues that final rule cannot retroactively apply and also claims the Treasury overstepped its expertise when it weighed into public health policy.

A Treasury spokesperson defended the rule on Friday.

“Treasury believes the rule is correct and allowed by the statute and Constitution," spokesperson Dayanara Ramirez said in an email.

The lawsuit alleges violations of the federal Administrative Procedure Act and affirms that Ducey will not waver in his support of the programs.

"The Governor’s Office will not eliminate or change the (education) programs to conform to Treasury’s unlawful dictates," the lawsuit states.

School programs created by Ducey

In August, Ducey created two funding streams, the education plus-up grant program that gave districts funding if they did not impose mask mandates, and an educational recovery benefit, which gave families $7,000 per student if they moved their child from a district that had a mandate in place.

The plus-up grant was allocated to 98 school districts as of October, and the recovery benefit awarded to just 93 students as of late November, according to reviews by The Arizona Republic. The governor and his aides already have said they would use state dollars to pay for the programs, should Treasury defund them.

“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.”

Ducey unveiled a third program drawing on federal stimulus dollars this month, though it has not yet drawn scrutiny from Treasury as the prior two initiatives have. The open for learning program gives families up to $7,000 to move their children to schools that are open for in-person instruction, if their current classroom closes.

A number of Republican politicians jumped into the political fray over the funding this week, hoping to put pressure on Treasury to back off. Attorney General Mark Brnovich, who is seeking the GOP nomination for U.S. Senate, sent a letter to Yellen on Wednesday urging her to stop a "blatant federal encroachment" on the state's authority — while touting his separate lawsuit over the plan's tax cut provisions.

And the Grand Canyon's State slate of Republican representatives — U.S. Reps. David Schweikert, Debbie Lesko, Paul Gosar and Andy Biggs — chimed in a day later.

All four voted against the American Rescue Plan last year. But their Thursday letter urged Yellen to retract her threat to withhold funds.

"Threatening to take funding away from a state that is designing and implementing innovative solutions to meet the unique needs of its residents is an abuse of federal authority and fails to make up for the lost education caused by this virus," the letter reads.

Reach reporter Stacey Barchenger at stacey.barchenger@arizonarepublic.com or 480-416-5669. Follow her on Twitter @sbarchenger.

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This article originally appeared on Arizona Republic: Arizona sues Biden administration over COVID-19 school funding