JEFFERSON CITY, Mo. (AP) — Responding to concerns from state officials, the U.S. Treasury Department said Wednesday that states can cut taxes without penalty under a new federal pandemic relief law — so long as they use their own funds to offset those cuts.

Republican governors, lawmakers and attorneys general have expressed apprehension about a provision in the wide-ranging relief act signed by President Joe Biden that prohibits states from using $195 billion of federal aid "to either directly or indirectly offset a reduction" in net tax revenue. The restriction could apply through 2024.

Repu...