a

GAO

United States Government Accountability Office

Testimony

Before the Committee on Government Reform, 

House of Representatives

For Release on Delivery

Expected at 2:00 p.m. EST

Tuesday, March 8, 2005

FEDERAL MANDATES

Identification Process Is 

Complex and Federal 

Agency Roles Vary

Statement for the Record by Orice M. Williams, Director

Strategic Issues

GAO-05-401T
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-401T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Orice M. 

Williams, 202 512-5837; williamso@gao.gov. 

Highlights of GAO-05-401T, a statement 

for the record to the Committee on 

Government Reform, House of 

Representatives 

March 8, 2005

FEDERAL MANDATES

Identification Process Is Complex and 

Agency Roles Vary 

GAO found that the identification and analysis of intergovernmental and 

private sector mandates is a complex process under UMRA. Proposed 

legislation and regulations are subject to various definitions, exclusions and 

exceptions before being identified as containing mandates at or above 

UMRA’s cost thresholds. The Congressional Budget Office (CBO) is required

to prepare statements identifying and estimating, if feasible, the costs of 

mandates in legislation. While a point of order can be raised on the floor of 

the House or Senate against consideration of any UMRA-covered 

intergovernmental mandate that lacks a CBO estimate or exceeds the cost 

thresholds, it contains no similar enforcement for private sector mandates. 

Conversely, federal agencies are required to prepare mandate statements for 

regulations containing intergovernmental or private sector mandates that 

would result in expenditures at or above the UMRA threshold. The Office of 

Information and Regulatory Affairs, within the Office of Management and 

Budget, is responsible reviewing compliance with UMRA as part of the rule 

making process. 

In 2001 and 2002, 5 of 377 statutes enacted and 9 of 122 major or 

economically significant rules issued were identified as containing federal 

mandates at or above UMRA’s thresholds. All 5 statutes and 9 rules 

contained private sector mandates as defined by UMRA. One final rule also 

contained an intergovernmental mandate. 

Despite the determinations under UMRA, at least 43 statutes and 65 rules 

issued in 2001 and 2002 resulted in new costs or negative financial 

consequences on nonfederal parties. These parties may perceive such 

statutes and rules as unfunded or underfunded mandates even though they 

did not meet UMRA’s definition of a federal mandate at or above UMRA’s 

thresholds. For 24 of the statutes and 26 of the rules, CBO or the agencies 

estimated that the direct costs or expenditures, as defined by UMRA, would 

not meet or exceed the applicable thresholds. The others were excluded for 

a variety of reasons stemming from exclusions or exceptions specified by 

UMRA. 

 

The Unfunded Mandate Reform Act 

of 1995 (UMRA) was enacted to 

address concerns expressed by 

state and local governments about 

federal statutes and regulations 

that require nonfederal parties to 

expend resources to achieve 

legislative goals without being 

provided funding to cover the 

costs. 

Over the past 10 years, Congress 

has at various times considered 

legislation that would amend 

various aspects of UMRA. 

This testimony is based on GAO’s 

report, Unfunded Mandates: 

Analysis of Reform Act Coverage

(GAO-04-637, May 12, 2004). 

Specifically, this testimony 

addresses (1) the process used to 

identify federal mandates and what 

are federal agencies’ roles, 

(2) statutes and rules that 

contained federal mandates under 

UMRA, and (3) statutes and rules 

that were not considered mandates 

under UMRA but may be perceived 

to be “unfunded mandates” by 

certain affected parties. 
Page 1 GAO-05-401T 

Mr. Chairman and Members of the Committee:

We are pleased to have the opportunity to comment on federal mandates 

and the Unfunded Mandates Reform Act of 1995 (UMRA). As you know, 

UMRA was enacted to address concerns expressed by state and local 

governments about federal statutes and regulations that require nonfederal 

parties to expend resources to achieve legislative goals without providing 

funding to cover the costs.1

 Many federal statutes and the regulations that 

implement them, impose requirements on state, local, and tribal 

governments (intergovernmental mandates) and the private sector (private 

sector mandates) in order to achieve certain legislative goals. Such 

statutes and their regulations can provide substantial benefits, as well as 

impose costs. 

Although UMRA was intended to “curb the practice of imposing unfunded 

Federal mandates,”2

 the act does not prevent Congress or federal agencies 

from doing so. Rather, UMRA generates information about the nature and 

size of potential federal mandates on other levels of government and the 

private sector to assist Congress and agency decision makers in their 

consideration of proposed legislation and regulations. Title I of UMRA 

requires congressional committees and the Congressional Budget Office 

(CBO) to identify and provide information on potential federal mandates in 

certain legislation. Similarly, Title II of UMRA requires federal agencies to 

prepare a written statement identifying the costs and benefits of federal 

mandates contained in certain regulations and consult with affected 

parties. It also requires action of the Office of Management and Budget 

(OMB), including establishing a program to identify and test new ways to 

reduce reporting and compliance burdens for small governments and 

annual reporting to Congress on agencies’ compliance with UMRA.3

 

My statement focuses on titles I and II of the act and provides an overview 

of the activities of the federal entities charged with carrying out this act. 

For each title, I will (1) discuss the process used to identify federal 

1

Pub. L. No. 104-4, 2 U.S.C. §§658-658g, 1501-71.

2

Pub. L. No. 104-4 pmbl. As in the act, we generally refer to the identification of federal 

mandates, rather than unfunded mandates, in this report.

3

UMRA also includes two other titles. Title III of UMRA requires the Advisory Commission 

on Intergovernmental Relations to conduct a study reviewing federal mandates, and title IV 

establishes limited judicial review under the act. 
Page 2 GAO-05-401T 

mandates in statutes and rules, including the role of the federal entities; 

(2) provide examples of statutes and rules that contained federal mandates 

under UMRA; and (3) provide examples of statutes and rules that were not 

considered federal mandates under UMRA, but that affected parties may 

perceive to be “unfunded mandates.” As agreed with the Committee, our 

statement is based primarily on our May 2004 report, which analyzes 

UMRA’s coverage.4

In summary, we reported that the identification and analysis of 

intergovernmental and private sector mandates is a complex process under 

UMRA. Proposed legislation and regulations must pass through multiple 

steps and meet multiple conditions before being identified as containing 

mandates at or above UMRA’s thresholds. Under title I of the act, CBO is 

required to prepare statements identifying and estimating the costs of 

mandates in legislation that meets certain criteria to identify whether or 

not those estimated costs meet or exceed UMRA’s cost thresholds. A point 

of order can be raised on the floor of the House or Senate against 

consideration of any unfunded intergovernmental mandate exceeding 

UMRA’s cost threshold. However, it contains no similar enforcement 

mechanism for private sector mandates. Under title II, federal agencies are 

required to prepare mandate statements for regulations containing 

intergovernmental or private sector mandates that would meet or exceed 

the UMRA threshold. 

For both legislation and regulations, there are two general ways that 

provisions would not be identified as federal mandates at or above UMRA’s 

thresholds. First, some legislation and regulations may be enacted or 

issued via procedures that do not trigger UMRA reviews by CBO or 

agencies. Second, even if the statute or rule is reviewed, UMRA limits the 

identification of federal mandates through multiple definitions and 

exclusions. As we reported, in 2001 and 2002, 5 of 377 statutes enacted and 

9 of 122 major or economically significant final rules issued were identified 

as containing federal mandates at or above UMRA’s thresholds. All 5 

statutes and 9 rules contained private sector mandates as defined by 

UMRA. One final rule—an Environmental Protection Agency (EPA) 

standard on arsenic in drinking water—also contained an 

intergovernmental mandate. 

4

GAO, Unfunded Mandates: Analysis of Reform Act Coverage, GAO-04-637 (Washington, 

D.C.: May 12, 2004). We plan to issue a follow-up report in March 2005.
Page 3 GAO-05-401T 

Despite the determinations made under UMRA, some of the statutes and 

rules that had not triggered UMRA’s requirements appeared to have 

potential financial impacts on affected nonfederal parties similar to those 

of actions that had been flagged as containing federal mandates at or above 

UMRA’s thresholds. For example, at least 43 statutes and 65 rules issued in 

2001 and 2002 resulted in new costs or other negative financial impacts on 

nonfederal parties that the affected parties might perceive as “unfunded 

mandates” even though they did not meet UMRA’s definition of a mandate. 

For 24 of the statutes and 26 of the rules, CBO or federal agencies had 

determined that the estimated direct costs or expenditures, as defined by 

UMRA, would not meet or exceed the applicable thresholds. For the 

remaining statutes, UMRA did not require a CBO review prior to final 

passage most often because the mandates were in appropriations bills, 

which are not subject to an automatic review by CBO. The remaining rules 

most often did not trigger UMRA because they were issued by independent 

regulatory agencies, which are not covered by the act.

Identifying Federal 

Mandates in Statutes Is 

Complex

Legislation must go through several steps to be identified as containing a 

federal mandate. Once mandates are identified based on UMRA’s 

definitions, exclusions, and exceptions, CBO determines whether the 

mandate meets or exceeds UMRA’s cost thresholds. As we reported last 

year, in 2001 and 2002, CBO identified few statutes containing federal 

mandates at or above UMRA’s cost thresholds. In addition, CBO reports 

and testimonial evidence indicate that UMRA may indirectly impact the 

costs of and number of federal mandates enacted at or above UMRA’s cost 

thresholds. However, when asked, some nonfederal parties said they 

continue to be subject to costs associated with laws containing mandates 

that do not meet the statutory definition of a mandate at or above UMRA’s 

cost thresholds. 

Legislation Must Undergo a 

Multistep Process to Be 

Identified as Containing 

Federal Mandates at or 

above Applicable Cost 

Thresholds

UMRA does not require CBO to automatically review every legislative 

provision; further, the process takes several steps to determine whether a 

statutory provision would be identified as a federal mandate at or above 

UMRA’s cost thresholds (see fig. 1). Specifically, CBO does not 

automatically review provisions that are (1) not contained in authorizing 
Page 4 GAO-05-401T 

bills or (2) not reported by an authorizing committee.5 This means that 

appropriations bills are not automatically subject to CBO review under 

UMRA. However, CBO told us that it will informally review provisions in 

appropriations bills and communicate their findings to appropriations 

committee clerks when CBO finds potential mandates in these bills. 

Although provisions contained in an authorizing bill are subject to 

automatic review by CBO, the bill also must be “reported” by that 

committee.6

5

The Joint Committee on Taxation (JCT), rather than CBO, has jurisdiction over proposed 

tax legislation and produces revenue estimates for all such legislation considered by either 

the House or the Senate.

6

Reported—as opposed to going directly to the full House or Senate or “discharged” by the 

committee without a vote to send it to the full House or Senate.
Page 5 GAO-05-401T 

Figure 1: The Multistep Process Necessary for CBO to Identify Federal Mandates in Proposed Legislation 

UMRA also does not require an automatic CBO review of provisions added 

after CBO’s initial review. UMRA states, however, that “the committee of 

conference shall insure to the greatest extent practicable” that CBO 

prepare statements on amendments offered subsequent to its initial review 

that contain federal mandates.7

 For example, CBO reported that for 2002,8

three laws were enacted that contained federal mandates not reviewed by 

Source: GAO.

CBO issues UMRA statement stating

legislation does not contain a mandate 

under UMRA 

CBO specifies type of mandate contained in the 

legislation

Is provision an enforceable duty on state, 

local, or tribal governments or the private 

sector, and is it not subject to exceptions?

Definition Yes No

Is cost estimate feasible? CBO conducts direct cost estimate

Cost estimate Yes No

Does direct cost estimate for all 

provisions in legislation meet or exceed 

thresholds?

Cost threshold Yes No

Not subject to automatic CBO 

review

Is provision contained in authorizing Subject to automatic CBO review

legislation reported by an authorizing 

committee and not added after initial 

CBO UMRA review?

Procedures Yes No

Automatic CBO Review

CBO issues UMRA statement stating

reason for exclusion and does not 

make any statement regarding mandates

Is provision not excluded? CBO analyzes provision based on UMRA’s definition

Exclusions Yes No

CBO issues UMRA statement specifying

type of federal mandate contained in the 

bill and that costs cannot be estimated 

or are uncertain

CBO issues UMRA statement specifying

type of federal mandate contained in the 

legislation and that it is below the 

applicable cost threshold

CBO issues UMRA statement 

specifying type of federal mandate 

contained in the legislation and 

that it meets or exceeds the 

applicable cost threshold

7

2 U.S.C. §658c(d).

8

U.S. Congressional Budget Office, A Review of CBO’s Activities in 2002 Under the 

Unfunded Mandates Reform Act (Washington, D.C.: May 2003).
Page 6 GAO-05-401T 

CBO prior to enactment because they were added after CBO reviewed the 

legislation. For example, the Terrorism Risk Insurance Act of 2002 

includes a provision requiring insurers of commercial property to offer 

terrorism insurance, which was added to after CBO’s UMRA review and 

thus not identified as a private sector mandate under UMRA prior to 

enactment.9

 

Once a decision is made about CBO’s review, CBO analyzes the provision to 

determine whether the provision is excluded under UMRA. An exclusion 

applies to any provision in legislation that 

1. enforces Constitutional rights of individuals;

2. establishes or enforces any statutory rights that prohibit discrimination 

on the basis of race, color, religion, sex, national origin, age, handicap, 

or disability;

3. requires compliance with accounting and auditing procedures with 

respect to grants or other money or property provided by the federal 

government;

4. provides for emergency assistance or relief at the request of any state, 

local, or tribal government or any official of a state, local, or tribal 

government;

5. is necessary for the national security or the ratification or 

implementation of international treaty obligations;

6. the President designates as emergency legislation and that Congress so 

designates in statute; or

7. relates to the old age, survivors, and disability insurance program under 

title II of the Social Security Act (including taxes imposed by sections 

3101(a) and 3111(a) of the Internal Revenue Code of 1986 relating to 

old-age, survivors, and disability insurance). 

Next CBO applies UMRA’s definition of a federal mandate—a provision that 

would impose an enforceable duty upon state, local, or tribal governments 

or upon the private sector. To be identified as a mandate, a provision must 

9

Pub. L. No. 107-297.
Page 7 GAO-05-401T 

meet this definition of a mandate and not be classified as an “exception.” 

Generally, exceptions are defined as enforceable duties that are conditions 

of federal financial assistance or arise from participation in a voluntary 

federal program.

Once the provision is identified as a mandate under UMRA, CBO 

determines whether the cost estimate, if feasible, exceeds the applicable 

threshold ($50 million for intergovernmental and $100 million for private 

sector mandates, in any of the first 5 fiscal years during which the mandate 

would be effective).10 If CBO determines that a cost estimate is not 

feasible, CBO specifies the kind of mandate contained in the provision, but 

reports that the agency cannot estimate the costs. For example, CBO 

reported that it could not estimate the costs of mandates in nine bills that 

ultimately were enacted during 2001 and 2002. Common reasons why a 

cost estimate may not be feasible include (1) the costs depend on future 

regulations, (2) essential information to determine the scope and impact of 

the mandate is lacking, (3) it is unclear whom the bill’s provisions would 

affect, and (4) language in UMRA is ambiguous about how to treat 

extensions of existing mandates. 

For intergovernmental mandates that exceed the cost threshold or cost 

estimates that are not feasible, a point of order is available under UMRA. 

However, UMRA does not provide for a point of order for private sector 

mandates. For intergovernmental or private sector mandates below the 

applicable cost threshold, CBO states in its report that a mandate exists 

with costs estimated to be below the applicable cost threshold. Although 

this highlights the provision as a mandate, it does not provide for a point of 

order under UMRA. 

UMRA also contains a mechanism designed to help curtail mandates with 

insufficient appropriations, but it has never been utilized. UMRA provides 

language that could be included in legislation that would allow agencies 

tasked with administering funded mandates to report back to Congress on 

the sufficiency of those funds.11 Congress would then have a certain time 

period to decide whether to continue to enforce the mandate, adopt an 

alternate plan, or let it expire—meaning the provision comprising the 

10The dollar thresholds in UMRA are in 1996 dollars and are adjusted annually for inflation.

112 U.S.C. § 658d(a)(2)(B).
Page 8 GAO-05-401T 

mandate would no longer be enforceable. Our January 2004 database 

search has resulted in no legislation containing this language.12 

CBO Identified Few Laws in 

2001 and 2002 as Containing 

Federal Mandates at or 

above UMRA’s Cost 

Threshold, but UMRA May 

Have an Indirect Effect

Few laws containing federal mandates at or above the cost thresholds were 

enacted in 2001 and 2002. Further, there is some evidence that the 

existence of UMRA may have indirectly discouraged the enactment of 

some federal mandates in proosed legislation and reduced the potential 

costs of others. Of 377 laws enacted in 2001 and 2002, CBO identified at 

least 44 containing a federal mandate under UMRA. Of these 44, CBO 

identified 5 containing mandates at or above the cost thresholds, and all 

were private sector mandates.13 

As we previously reported, from 1996 through 2002, only three bills with 

intergovernmental mandates and 21 private sector mandates with costs 

over the applicable threshold became law.14 UMRA may have indirectly 

discouraged the passage of legislation identified as containing mandates at 

or above the cost thresholds. Similarly, UMRA may have also aided in 

lessening the costs of some mandates that were enacted. From 1996 

through 2000, CBO identified 59 proposed federal mandates with costs 

above applicable thresholds. Following CBO’s identification, 9 were 

amended before enactment to reduce their costs below the applicable 

thresholds and 32 were never enacted. The remaining 18 mandates were 

enacted with costs above the threshold. 

Although CBO has not done an analysis to determine the role of UMRA in 

reducing the costs of mandates ultimately enacted, it reported that “it was 

12Search conducted on Lexis on January 22, 2004, for bills and committee reports containing 

this provision. 

13At our request, CBO identified examples of statutes enacted in 2001 and 2002 that it 

believed, based on professional judgment, had potential intergovernmental or private sector 

impacts but had not been identified as containing mandates at or above UMRA’s thresholds. 

We did not ask CBO to compile a comprehensive list of all statutes enacted that may have 

included federal mandates.

14The three intergovernmental mandates involved the 1996 minimum wage, a reduction in 

federal funding for food stamps in 1997, and a preemption of state laws on prescription drug 

premiums in 2003. Of the 21 private sector mandates, 8 involved taxes, 4 concerned health 

insurance, 4 dealt with regulation of industries, 2 affected workers’ take home pay, 1 

imposed new requirements on sponsors of immigrants, 1 changed procedures for the 

collection and use of campaign contributions, and 1 imposed fees on airline travel to fund 

aviation security.
Page 9 GAO-05-401T 

clear that information provided by CBO played a role in the Congress’s 

decision to lower costs.”15 CBO also testified in July 2003 that “both the 

amount of information about the cost of federal mandates and 

Congressional interest in that information have increased considerably. In 

that respect, title I of UMRA has proved to be effective.” Similarly, the 

Chairman of the House Rules Committee was quoted in 1998 as saying that 

UMRA “has changed the way that prospective legislation is drafted... 

Anytime there is a markup [formal committee consideration], this always 

comes up.” Finally, although points of order are rarely used, they may be 

perceived as an unattractive consequence of including a mandate above 

UMRA cost thresholds in proposed legislation.

Nonfederal Parties 

Perceived Some Enacted 

Provisions to Be Unfunded 

Mandates

Although CBO’s annual reports for 2001 and 2002 showed that most 

proposed legislation did not contain federal mandates as defined by 

UMRA,16 we asked CBO to compile a list of examples from among those 

laws enacted in 2001 and 2002 that had potential impacts on nonfederal 

parties but were not identified as containing federal mandates meeting or 

exceeding UMRA’s cost thresholds. We then analyzed these 43 examples to 

illustrate the application of UMRA’s procedures, definitions, and exclusions 

on legislation that was not identified as containing mandates at or above 

UMRA’s threshold, but might be perceived to be unfunded mandates. We 

then shared CBO’s list of 43 examples with national organizations 

representing nonfederal levels of government, and they generally agreed 

that those laws contained provisions their members perceived to be 

mandates.17

As figure 2 shows, for 12 of the 43 examples, an automatic UMRA review 

was not required for one of the reasons I discussed earlier, such as that 

they were in an appropriations bill or were not reported by the authorizing 

committee. Out of the remaining 31 laws that did undergo a cost estimate, 

24 were found to contain mandates with costs below applicable thresholds, 

15U.S. Congressional Budget Office, A Review of CBO’s Activities in 2002 Under the 

Unfunded Mandates Reform Act.

16For more detailed information on all legislation from 2001 and 2002 identified by CBO as 

including federal mandates, see CBO’s annual reports on its activities under UMRA 

(www.cbo.gov).

17We also shared this list with organizations representing the private sector, but received no 

response.
Page 10 GAO-05-401T 

3 contained provisions that were excluded from UMRA coverage, 2 

contained provisions with direct costs that were not feasible to estimate, 1 

contained a provision that did not meet UMRA’s definition of a mandate, 

and 1 was reviewed by the Joint Committee on Taxation and found not to 

contain any federal mandates. 

Figure 2: How Certain Examples of Laws with Impacts on Nonfederal Parties Were Treated under UMRA 

Note: The number of laws in any of the categories listed does not necessarily correlate with the 

magnitude of perceived or actual impact on affected nonfederal parties.

Of the 12 examples of laws with provisions that CBO was not required to 

review prior to enactment, CBO later determined that 5 contained 

mandates with direct costs below UMRA’s thresholds, 4 contained 

mandates with direct costs that could not be estimated, 1 was excluded 

under UMRA because it involved national security, 1 did not meet the 

definition of a mandate, and 1 had some provisions with costs below the 

threshold and some provisions excluded because it involved national 

Source: CBO.

43 examples of laws with 

impacts on nonfederal parties

31 laws contained provisions that were reviewed, but were not identified 

as federal mandates exceeding the applicable UMRA cost thresholds 

12 laws contained at least one 

provision not required to be 

automatically reviewed by CBO prior 

to enactment

1 law did not meet the 

definition of a 

mandate under UMRA

1 law was reviewed by JCT 30 laws were reviewed by 

CBO prior to enactment

26 laws contained at 

least one federal 

mandate under UMRA

3 laws contained at least 

one provision that was 

excluded from UMRA

4 laws contained 

mandates added after 

CBO’s UMRA review

8 laws were 

appropriations bills or 

were not reported by 

an authorizing 

committee 

2 laws contained provisions 

with direct costs that were 

not feasible to estimate

12 laws contained provisions not required by UMRA to be 

automatically reviewed prior to enactment

24 laws contained 

provisions below 

UMRA’s cost 

thresholds
Page 11 GAO-05-401T 

security.18 For example, the Sarbanes-Oxley Act of 2002 contained both 

intergovernmental and private sector mandates but CBO determined that a 

cost estimate was not feasible for all mandates. Specifically, CBO 

estimated the costs of providing notification of blackout periods—

specified periods of time when trading securities is prohibited—fell below 

the UMRA thresholds but provided no quantified estimate, and CBO 

estimated the cost of running the Public Company Accounting Oversight 

Board and an associated standard-setting body to be approximately 

$80 million per year, which would be funded from fees assessed on public 

companies. However, CBO stated it was uncertain if the rest of the 

mandates contained in Sarbanes-Oxley exceeded UMRA’s cost threshold of 

$115 million (inflation adjusted).

Identification of 

Federal Mandates in 

Rules Is Less Complex 

Than for Statutes

The process for identifying federal mandates in regulations is less complex 

than for legislation, but additional restrictions apply to identifying federal 

mandates. In 2001 and 2002, agencies identified few of the major and 

economically significant final rules as containing federal mandates as 

defined by UMRA. Most often, rules with financial effects on nonfederal 

parties did not trigger UMRA’s requirements because they did not require 

expenditures at or above UMRA’s threshold. We also determined that at 

least 29 rules that did not contain federal mandates defined under UMRA 

appeared to have significant financial impacts.

UMRA Procedures for Rules 

Are Less Complex Than for 

Legislation, but More 

Restrictions Apply 

The process for rules is less complex than for legislation. However, in 

addition to the definitions and seven general exclusions for legislation, 

there are four additional restrictions that apply to federal mandates in 

rules:

18Among the four laws containing mandates for which direct costs could not be estimated, 

some provisions had costs estimated to be below the applicable cost threshold and others 

had costs that were uncertain.
Page 12 GAO-05-401T 

• UMRA’s requirements do not apply to provisions in rules issued by 

independent regulatory agencies.19

• Preparation of an UMRA statement, and related estimate or analysis of 

the costs and benefits of the rule, is not required if the agency is 

“otherwise prohibited by law” from considering such an estimate or 

analysis in adopting the rule.

• The requirement to prepare an UMRA statement generally does not 

apply to any rule for which the agency does not publish a general notice 

of proposed rule making in the Federal Register.

20

• UMRA’s threshold for federal mandates in rules is limited to 

expenditures, in contrast to title I which refers more broadly to direct 

costs. Thus, a rule’s estimated annual effect might be equal to or greater 

than $100 million in any year—for example, by reducing revenues or 

incomes in a particular industry—but not trigger UMRA if the rule does 

not compel nonfederal parties to spend that amount. 

UMRA generally directs agencies to assess the effects of their regulatory 

actions on other levels of government and the private sector. The agencies 

only need to identify and prepare written statements on those rules that the 

agencies have determined include a federal mandate that may result in 

expenditures by nonfederal parties of $100 million or more (adjusted for 

inflation) in any year. 

Within the OMB, the Office of Information and Regulatory Affairs (OIRA) is 

responsible for reviewing compliance with UMRA as part of its centralized 

review of significant regulatory actions published by federal agencies, 

other than certain independent regulatory agencies. Under Executive 

Order 12866, which was issued in September 1993, agencies are generally 

19According to the Paperwork Reduction Act, these include agencies such as the Commodity 

Futures Trading Commission, the Consumer Product Safety Commission, the Federal 

Communications Commission, the Federal Trade Commission, the Nuclear Regulatory 

Commission, the Securities and Exchange Commission, and “any other similar agency 

designated by statute as a Federal independent regulatory agency or commission,” 44 U.S.C. 

3502(5).

20This means that UMRA does not cover interim final rules and any rules for which the 

agency claimed a “good cause” or other exemption available under the Administrative 

Procedure Act of 1946 to issue a final rule without first having to issue a notice of proposed 

rule making.
Page 13 GAO-05-401T 

required to submit their significant draft rules to OIRA for review before 

publishing them. In the submission packages for their draft rules, federal 

agencies are to designate whether they believe the rule may constitute an 

unfunded mandate under UMRA. According to OIRA representatives, for 

such rules, consideration of UMRA is then incorporated as part of these 

regulatory reviews, and draft rules are expected to contain appropriate 

UMRA statements.21 The same analysis conducted for Executive Order 

12866 may permit agencies to comply with UMRA requirements.22 UMRA 

requires agency consultations with state and local governments on certain 

rules, and this is something that OIRA will look for evidence of when it 

does its regulatory reviews. UMRA provides OIRA a statutory basis for 

requiring agencies to do an analysis similar to that required by this. (Unlike 

laws, however, executive orders can be rescinded or amended at the 

discretion of the President).

Agencies Identified Few 

Final Rules Published in 

2001 and 2002 as Containing 

Federal Mandates Because 

Most Rules Did Not Trigger 

UMRA’s Requirements

Federal agencies identified 9 of the 122 major and/or economically 

significant final rules that federal agencies published in 2001 or 2002 as 

containing federal mandates under UMRA (see fig. 3).23 As we previously 

reported, the limited number of rules identified as federal mandates during 

2001 and 2002 is consistent with the previous findings in our 1998 report on 

UMRA and in OMB’s annual reports on agencies’ compliance with title II.24 

21OIRA also checks for related statements and certifications from agencies on the 

Regulatory Flexibility Act (5 U.S.C. 601-612), which requires agencies to assess the impact 

of forthcoming regulations on “small entities,” and Executive Order 13132, which requires 

agencies to assess the federalism implications of their regulations, and other requirements 

that might be triggered by the nature of the draft rule. 

22As pointed out in our previous report on UMRA (GAO, Unfunded Mandates: Reform Act 

Has Had Little Effect on Agencies’ Rulemaking Actions, GAO/GGD-98-30 (Washington, 

D.C.: Feb. 4, 1998)), the committee reports for the Senate bill that ultimately resulted in 

UMRA indicate that Congress was aware that, in many respects, the bill duplicated existing 

requirements, including those already required under Executive Order 12866.

23Although we refer broadly to “final rules,” these also included other regulatory actions 

with legal effect (such as interim rules, temporary rules, and some notices), in contrast to 

proposed rules that do not have legal effect.

24See GAO/GGD-98-30. In addition, OMB produces an annual report regarding progress in 

regulatory reform in which OMB also examines the costs and benefits of federal regulations 

and unfunded mandates.
Page 14 GAO-05-401T 

Figure 3: Final Rules Published in 2001 and 2002 That Contained Federal Mandates under UMRA

Of the nine rules that agencies identified as containing federal mandates 

under UMRA, only one included an intergovernmental mandate—EPA’s 

enforceable standard for the level of arsenic in drinking water. The 

remaining rules imposed private sector mandates ranging from Department 

of Energy rules that amended energy conservation standards for several 

categories of consumer products, including clothes washers and heat 

pumps, to a Department of Transportation rule that established a new 

federal motor vehicle safety standard requiring tire pressure monitoring 

systems, controls, and displays.

Of the 113 major and/or economically significant rules in 2001 and 2002 not

identified as including federal mandates under UMRA, we reported that 48 

contained no new requirements that would impose costs or have a negative 

financial effect on state, local, and tribal governments or the private sector. 

9 rules were identified as containing 

federal mandates at or above UMRA's 

threshold

Source: GAO.

122 rules

(major and/or economically significant)

1 rule probably contained a federal 

mandate

28 rules imposed significant costs or 

negative financial effects (direct or 

indirect) but UMRA exclusions or 

exceptions applied

36 rules did not impose significant costs 

or financial effects and UMRA 

exclusions or exceptions applied

48 rules did not contain any 

new requirements

28 did not contain federal mandates at or 

above UMRA's threshold but imposed 

significant impacts on nonfederal parties

84 did not contain federal mandates at or above 

UMRA's threshold and did not impose significant 

impacts on nonfederal parties

10 were or should have been identified as 

containing federal mandates at or above 

UMRA's threshold

65 rules contained some 

new requirement(s)

113 rules were not identified as 

containing federal mandates at 

or above UMRA's threshold
Page 15 GAO-05-401T 

Often, these were economically significant or major rules because they 

involved substantial transfer payments from the federal government to 

nonfederal parties. For example, the Department of Health and Human 

Services published a notice updating the Medicare payment system for 

home health agencies that was estimated to increase federal expenditures 

to those agencies by $350 million in fiscal year 2002. 

In the remaining 65 of 113 rules, we determined that the new requirements 

would impose costs or result in other negative effects on nonfederal 

parties. In 41 of the 65 published rules, the agencies cited a variety of 

reasons that these rules did not trigger UMRA’s requirements (see fig. 4). 

There were 26 rules for which the agencies stated that the rule would not 

compel expenditures at or above the UMRA threshold and 10 rules for 

which the agencies stated that rules imposed no enforceable duty. For the 

remaining 24 rules, the agency did not provide a reason. However, 

independent regulatory agencies, which are not covered by UMRA, 

published 12 of these rules, and there is no UMRA requirement for covered 

agencies to identify the reasons that their rules do not contain federal 

mandates. 

Figure 4: Reasons That Agencies Determined Their Rules Did Not Trigger UMRA’s Requirements

Note: Agencies cited more than one reason for nine of the rules.

3

3

3

5

10

26

0 5 10 15 20 25 30

Number of rules

Rule does not require $100 million or 

more in expenditures

Rule contains no enforceable duty

Duties are part of a voluntary program

Duties are a condition of federal

financial assistance

Analysis otherwise prohibited by law

Rule promulgated without a notice of 

proposed rulemaking

Source: GAO.
Page 16 GAO-05-401T 

Some Rules That Did Not 

Trigger UMRA Had 

Potentially Significant 

Effects on Nonfederal 

Parties

At least 29 of the 65 rules with new requirements published in 2001 and 

2002 could have imposed significant costs or other financial effects on 

nonfederal parties. In these 29 rules, we reported that the agencies either 

explicitly stated that they expected the rule could impose significant costs 

or published information indicating that the rule could result, directly or 

indirectly, in financial effects on nonfederal parties at or above the UMRA 

threshold. For example, more than half of them imposed costs on 

individuals exceeding $100 million per year, reduced the level of federal 

payments to nonfederal parties by more than $100 million in a year, or had 

substantial indirect costs or economic effects on nonfederal parties.

For the remaining 36 of the 65 rules that imposed costs or had other 

financial effects on nonfederal parties in 2001 and 2002, either the agencies 

provided no information on the potential costs and economic impacts on 

nonfederal parties or the costs imposed on them were under the UMRA 

threshold. For example, a Federal Emergency Management Agency interim 

final rule on a grant program to assist firefighters included some costsharing and other requirements on the part of grantees participating in this 

voluntary program. In return for cost sharing of $50 million to $55 million 

per year, grantees could obtain, in aggregate, federal assistance of 

approximately $345 million. Similarly, the U.S. Department of Agriculture’s 

interim rule on the noninsured crop disaster assistance program imposed 

new reporting requirements and service fees on producers estimated to 

cost at least $15 million. But producers were expected to receive about 

$162 million in benefits.

Even when the requirements of UMRA did not apply, agencies generally 

provided some quantitative information on the potential costs and benefits 

of the rule to meet the requirements of Executive Order 12866. Rules 

published by independent regulatory agencies were the major exception 

because they are not covered by the executive order. In general, though, 

the type of information that UMRA was intended to produce was developed 

and published by the agencies even if they did not identify their rules as 

federal mandates under UMRA.25

In conclusion, UMRA was intended, in part, to provide more information to 

Congress and agencies when placing federal mandates on nonfederal 

25One exception might be that OMB’s guidance to agencies for regulatory analyses prepared 

under Executive Order 12866 does not include instructions regarding distributional effects 

of regulations that are as specific as those called for in UMRA. See 2 U.S.C. §1532(a)(3). 
Page 17 GAO-05-401T 

parties by providing more information to help them determine the 

appropriate balance between desired benefits and associated costs. Based 

on CBO’s experience, there is some evidence that UMRA is in some ways 

achieving this desired goal. However, UMRA’s many definitions, 

exclusions, and exceptions result in many statutes and rules never 

triggering UMRA’s thresholds, which means they are not identified as 

federal mandates. 

As we reported last year, in 2001 and 2002 many statutes and final rules 

with potentially significant financial effects on nonfederal parties were 

enacted or published without being identified as federal mandates at or 

above UMRA’s thresholds. Further, if judged solely by their financial 

consequences for nonfederal parties, there was little difference between 

some of these statutes and rules and the ones that had been identified as 

federal mandates with costs or expenditures exceeding UMRA’s thresholds. 

Although the examples cited in our report were limited to a 2-year period, 

our findings on the effect and applicability of UMRA are similar to the data 

reported in our previous reports and those of others on the implementation 

of UMRA. The findings raise the question of whether UMRA’s definitions, 

exclusions, and exceptions adequately capture and subject to scrutiny 

federal statutory and regulatory actions that might impose significant 

financial burdens on affected nonfederal parties.

Mr. Chairman, this completes my prepared statement. 

Contacts and 

Acknowledgments

For further information, please contact Orice Williams at (202) 512-5837 or 

williamso@gao.gov or Tim Bober at (202) 512-4432 or bobert@gao.gov. Key 

contributors to this testimony were Boris Kachura and Michael Rose.

(450392) 
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