FEDERALISM

Previous Initiatives Have

Little Effect on Agency

Rulemaking

Statement of L. Nye Stevens

Director, Federal Management and Workforce Issues

General Government Division

United States General Accounting Office

GAO Testimony

Before the Subcommittee on National Economic Growth,

Natural Resources, and Regulatory Affairs, Committee on

Government Reform, House of Representatives

For Release on Delivery

Expected at

10:00 a.m., EST

on Wednesday

June 30, 1999

GAO/T-GGD-99-131

Statement 

Federalism: Previous Initiatives Have Little

Effect on Agency Rulemaking

Page 1 GAO/T-GGD-99-131

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss H.R. 2245, the “Federalism Act of

1999.” The bill addresses a number of issues affecting intergovernmental

relations, including the use of federal grant funds, legislative requirements,

agency rulemaking requirements, and performance measurement for stateadministered federal grant programs. My comments are directed to the

agency rulemaking and performance measurement requirements.

I will focus most of my comments on two previous executive and

legislative branch initiatives that, like section 7 of the bill, were designed

to highlight the impact of federal rules on state and local governments. Our

past work showed the limited effect of those previous initiatives during the

period of our review, which suggests a need for this section of the

proposed legislation. I will also point out a few similarities and differences

between the bill and these regulatory reform initiatives. Finally, I will

briefly comment on the experience of one agency in cooperatively setting

the type of goals and performance measures with states in a federal grant

program that are contemplated in section 6 of the bill.

During the past 20 years, state, local, and tribal governments as well as

businesses have expressed concerns about congressional and regulatory

preemption of traditionally nonfederal functions and the costs of

complying with federal regulations. The executive and the legislative

branch have each attempted to respond to these concerns by issuing

executive orders and enacting statutes requiring rulemaking agencies to

take certain actions when they issue regulations with federalism or

intergovernmental relations effects. Two prime examples of these

responses are Executive Order 12612 (“Federalism”) and the Unfunded

Mandates Reform Act of 1995 (UMRA).

Executive Order 12612, issued by President Reagan in 1987, established a

set of fundamental principles and criteria for executive departments and

agencies to use when formulating and implementing policies that have

federalism implications. The executive order says that federal agencies

should refrain from establishing uniform, national standards for programs

with federalism implications, and when national standards are required,

they should consult with appropriate officials and organizations

representing the states in developing those standards. The order says that

regulations and other policies have federalism implications if they “have

substantial direct effects on the States, on the relationship between the

national government and the States, or on the distribution of power and

responsibilities among the various levels of government.”

Executive Order and

UMRA Had Little

Effect on Agencies’

Rulemaking Actions

Few Federalism

Assessments Prepared

Under Executive Order

12612 Between April 1996

and December 1998
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 2 GAO/T-GGD-99-131

Executive Order 12612 also contains specific requirements for agencies.

For example, the order requires the head of each agency to designate an

official to be responsible for ensuring the implementation of the order.

That official is required to determine which proposed policies have

sufficient federalism implications to warrant preparation of a “federalism

assessment.” The assessment must contain certain elements (e.g., identify

the extent to which the policy imposes additional costs or burdens on the

states) and must accompany any proposed or final rule submitted to the

Office of Management and Budget (OMB) for review under Executive

Order 12866. 1 OMB, in turn, is required to ensure that agencies’ rulemaking

actions are consistent with the policies, criteria, and requirements in the

federalism executive order.

In May 1998, President Clinton issued Executive Order 13083

(“Federalism”), which was intended to replace both Executive Order 12612

and Executive Order 12875 (“Enhancing the Intergovernmental

Partnership”).2 However, in August 1998, President Clinton suspended

Executive Order 13083 in response to concerns raised by state and local

government representatives and others about both the content of the order

and the nonconsultative manner in which it was developed. Therefore,

Executive Order 12612 remains in effect.

To determine how Executive Order 12612 had been implemented in recent

years, we reviewed (1) how often the preambles to covered agencies’ final

rules issued between April 1, 1996, and December 31, 1998, mentioned the

executive order and how often they indicated the agencies had conducted

federalism assessments under the order;3

 (2) what selected agencies have

done to implement the requirements of the order; and (3) what OMB has

done to oversee federal agencies’ implementation of the order in the

 1

Executive Order 12612 actually refers to rulemaking procedures under Executive Order 12291, which

was revoked and replaced by Executive Order 12866 in 1993. Because only “significant” rules are

submitted to OMB for review under Executive Order 12866, federalism assessments for nonsignificant

rules are not required to be submitted to OMB. For a description of the review process under this

order, see Regulatory Reform: Implementation of the Regulatory Review Executive Order (GAO/T-96-

185, Sept. 25, 1996).

2

Executive Order 12875, among other things, requires federal agencies to “develop an effective process

to permit elected officials of state, local, and tribal governments to provide meaningful and timely

input in the development of regulatory proposals containing significant unfunded mandates.”

3

It is unclear whether Executive Order 12612 covers regulations and other policies issued by

independent regulatory agencies, such as the Federal Communications Commission and the Securities

and Exchange Commission. Therefore, we focused our review on executive departments and agencies

that are not independent regulatory agencies.
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 3 GAO/T-GGD-99-131

rulemaking process.4 We focused on the April 1996 through December 1998

time frame because we were able to use our database to identify which

rules were “major” under the Small Business Regulatory Enforcement

Fairness Act (SBREFA) (e.g., those that have a $100-million impact on the

economy). As a result, we cannot comment on rules issued outside of that

time frame. Although Executive Order 12612 does not require agencies to

mention the order in the preamble to their final rules or to note in those

preambles whether a federalism assessment was prepared, doing so is a

clear indication that the agency was aware of and considered the order’s

requirements. Also, if an agency prepared a federalism assessment for a

final rule, it would be logical for the agency to describe the assessment in

the preamble to the rule.

Our work showed that Executive Order 12612 had relatively little visible

effect on federal agencies’ rulemaking actions during this time frame. To

summarize the nearly 3 years of data depicted in figure 1, agencies covered

by the order mentioned it in the preambles to about 26 percent of the

11,414 final rules they issued between April 1996 and December 1998.

 

4

Federalism: Implementation of Executive Order 12612 in the Rulemaking Process (GAO/T-GGD-99-93,

May 5, 1999).

Agencies Prepared Few

Federalism Assessments During

Review Timeframe
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 4 GAO/T-GGD-99-131

Note: The data for 1996 covers only those rules issued from April 1 to December 31.

Source: Federal Register and GAO analysis.

Five agencies issued the bulk of the final rules published during this

period—the Departments of Agriculture (USDA), Commerce (DOC),

Health and Human Services (HHS), and Transportation (DOT); and the

Environmental Protection Agency (EPA). As figure 2 shows, these

agencies varied substantially in the degree to which they mentioned the

executive order. For example, DOT mentioned the order in nearly 60

percent of its nearly 4,000 final rules, whereas EPA did not mention the

order in any of the more than 1,900 rules it issued.

Figure 1: Agencies Indicated Only Five

Final Rules Issued Between April 1996

and December 1998 Had Federalism

Assessments
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 5 GAO/T-GGD-99-131

Source: Federal Register and GAO analysis.

However, mentioning the order in the preamble to a rule does not mean

the agency took any substantive action. The agencies usually just stated

that no federalism assessment was conducted because the rules did not

have federalism implications. Nearly all of these statements were standard,

“boilerplate” certifications with little or no discussion of why the rule did

not trigger the executive order’s requirements.

In fact, the preambles to only 5 of the 11,414 final rules that the agencies

issued between April 1996 and December 1998 indicated that a federalism

assessment had been done—2 in 1996 and 3 in 1997. Those five rules are

listed in table 1.

Figure 2: Agencies Differed In Degree

to Which They Mentioned Executive

Order 12612 in Final Rules Issued

Between April 1996 and December 1998
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 6 GAO/T-GGD-99-131

Department or agency

Date final rule

was published Title

Department of Health and

Human Services

Aug. 28, 1996 Regulations Restricting the Sale and

Distribution of Cigarettes and Smokeless

Tobacco to Protect Children and

Adolescents

Department of

Transportation

Dec. 16, 1996

Roadway Worker Protection

Department of Commerce Jan. 30, 1997 Florida Keys National Marine Sanctuary

Mar. 28, 1997 Hawaiian Islands Humpback Whale

National Marine Sanctuary

Department of Labor Mar. 31, 1997 (Hazard) Abatement Verification

Source: Federal Register and GAO analysis.

Many of the final rules that federal agencies issue are administrative or

routine in nature, and therefore unlikely to have significant federalism

implications. As a result, it is not particularly surprising that agencies

would not prepare federalism assessments for many of those rules.

However, rules that are “major” under SBREFA and that involve or affect

state and local governments would seem more likely to have federalism

implications that would warrant preparation of an assessment.

However, that does not appear to have been the case. As figure 3 shows, of

the 117 major final rules issued by covered agencies between April 1996

and December 1998, the preambles indicated that only 1 had a federalism

assessment. The agencies had previously indicated that 37 of these rules

would affect state and local governments, and the preambles to 21 of the

rules indicated that they would preempt state and local laws in the event of

a conflict. At least one of the four state and local government organizations

that we consulted during the review said that federal agencies should have

done assessments for most of these 117 major rules. In response, the

agencies said that their rules did not have sufficient federalism

implications to trigger the executive order’s requirements.

Table 1: Preambles Indicated Four

Agencies Issued Five Final Rules With

Federalism Assessments Between April

1996 and December 1998
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 7 GAO/T-GGD-99-131

Sources: Federal Register and GAO’s major rule database.

All three of the agencies we visited during our review (USDA, HHS, and

EPA) had some kind of written guidance on the executive order and had

designated an official or office responsible for ensuring its

implementation.5

 However, the criteria the agencies used to determine

whether federalism assessments were needed varied among the agencies.

USDA’s guidance did not establish any specific criteria, with agency

attorneys making their own determinations regarding federalism

implications in the context of each rulemaking. HHS’ guidance listed four

threshold criteria that could be used to determine whether a federalism

assessment was required, but said an assessment must be prepared if an

 

5

The agencies we visited were those with the most major rules that state and local government

representatives believed should have had a federalism assessment.

Figure 3: Only One Major Rule Issued

Between April 1996 and December 1998

Had A Federalism Assessment

EPA Established High Threshold

for Federalism Assessments
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 8 GAO/T-GGD-99-131

action would directly create significant effects on states even if the action

was mandated by law or the department otherwise had no discretion.

The criteria in EPA’s guidance established a high threshold for what

constitutes “sufficient” federalism implications—perhaps explaining why

none of the agency’s more than 1,900 final rules issued during the April

1996 to December 1998 time frame had a federalism assessment. For

example, in order for an EPA rule to require an assessment, the agency’s

guidance said the rule must meet all four of the following criteria:

• have an “institutional” effect on the states, not just a financial effect

(regardless of magnitude);

• change significantly the relative roles of federal and state governments in a

particular program context, lead to federal control over traditional state

responsibilities, or decrease the ability of states to make policy decisions

with respect to their own functions;

• affect all or most of the states; and

• have a direct, causal effect on the states (i.e., not a side effect).

At least one of these criteria appeared to go beyond the executive order on

which it is based. Although EPA said a rule must affect all or most of the

states in order to have sufficient federalism implications to warrant

preparation of an assessment, Executive Order 12612 defines “state” to

“refer to the States of the United States of America, individually or

collectively.” (Emphasis added.) EPA’s guidance also said that, even if all

four of these criteria are met, a rule would not require a federalism

assessment if a statute mandates the action or the means to carry it out are

implied by statute. However, EPA’s actions appear to be allowable because

the executive order does not define what is meant by “sufficient”

federalism implications, leaving that determination up to the agencies.

OMB officials told us that they had taken little specific action to ensure

implementation of the executive order, but said the order is considered

along with other requirements as part of the regulatory review process

under Executive Order 12866. They said that agencies had rarely submitted

separate federalism assessments to OMB but have addressed federalism

considerations, when appropriate, as a part of the cost-benefit analysis and

other analytical requirements.

Commenting on the results of our review, the Acting Administrator of

OMB’s Office of Information and Regulatory Affairs said it was not

surprising that agencies were not focused on implementing Executive

Order 12612 during the covered time period because they knew that the

OMB Has Taken Little Recent

Action to Ensure

Implementation of Executive

Order 12612
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 9 GAO/T-GGD-99-131

order was soon to be revised by Executive Order 13083. However, he also

said that Executive Order 12612 had not been implemented to any

significant extent by the Reagan Administration “or its successors,”

suggesting that the lack of implementation was unrelated to any pending

revision of the order. In addition, the Acting Administrator said that the

primary vehicles for improving federal-state consultation in the past 6

years have been Executive Order 12875 and UMRA. We have not examined

the implementation of Executive Order 12875. However, we have

examined the implementation of UMRA, and concluded that it has had

little effect on agencies’ rulemaking activities.

Title II of UMRA is one of Congress’ primary efforts to address the effects

of federal agencies’ rules on state and local governments. Section 202 of

the act generally requires federal agencies (other than independent

regulatory agencies) to prepare “written statements” containing specific

information for any rule for which a notice of proposed rulemaking was

published that includes a federal mandate that may result in the

expenditure of $100 million or more in any 1 year by state, local, and tribal

governments, in the aggregate, or the private sector. UMRA defines a

“mandate” to be an “enforceable duty” that is not a condition of federal

assistance and does not arise from participation in a voluntary federal

program. For rules requiring a written statement, section 205 requires

agencies to consider a number of regulatory alternatives and select the one

that is the least costly, most cost-effective, or least burdensome and that

achieves the purpose of the rule. Other sections of the act focus even more

specifically on the interests of state and local representatives. For

example, section 203 states that agencies must develop plans to involve

small governments in the development of regulatory proposals that have a

significant or unique effect on those entities. Section 204 requires agencies

to develop processes to consult with representatives of state, local, and

tribal governments in the development of regulatory proposals containing

“significant [f]ederal intergovernmental mandates.”

Last year, we reported that these and other requirements in title II of

UMRA appeared to have had only limited direct impact on agencies’

rulemaking actions in the first 2 years of the act’s implementation.6

 Most of

the economically significant rules promulgated during UMRA’s first 2 years

were not subject to the written statement requirements of title II. Some did

not have an associated notice of proposed rulemaking that triggered the

act’s requirements. Many did not impose an enforceable duty other than as

 

6

Unfunded Mandates: Reform Act Has Had Little Effect on Agencies’ Rulemaking Actions (GAO/GGD98-30, Feb. 4, 1998).

UMRA Had Little Effect on

Agency Rulemaking
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 10 GAO/T-GGD-99-131

a condition of federal financial assistance or as a duty arising from

participation in a voluntary program. Other rules did not result in

“expenditures” of $100 million. Because no written statement was required

for these rules, the requirements in section 205 regarding the identification

and selection of regulatory alternatives were not applicable to these rules.

Also, title II of UMRA contains exemptions that allowed agencies not to

take certain actions if they determined the actions were duplicative or not

“reasonably feasible.”

Other provisions in title II also had little effect. During the first 2 years of

UMRA’s implementation, the requirement in section 204 that agencies

develop an intergovernmental consultation process appears to have

applied to no more than four EPA rules and no rules from other agencies.

EPA generally used a consultation process that was in place before UMRA

was enacted. Also, section 203 small government plans were not developed

for any of the 73 final rules promulgated during this 2-year period. Officials

in the four agencies that we contacted said none of their final rules had a

significant or unique effect on small governments.

Section 208 of UMRA requires the Director of OMB to submit an annual

report to Congress on agency compliance with UMRA. The fourth such

report is scheduled to be delivered within the next few weeks. In his third

UMRA report published in June 1998, the OMB Director noted that federal

agencies had identified only three rules in the more than 3 years since the

act was passed that affected the public sector enough to trigger the written

statement requirements. Nevertheless, he said federal agencies had

embraced the act’s “overall philosophy,” as evidenced by the range of

consultative activities the report described.

On its surface, H.R. 2245 contains several provisions that are similar to

requirements in both Executive Order 12612 and UMRA. For example,

section 7 of the bill would, if enacted, require agencies to publish

“federalism impact assessments” that are somewhat similar in content to

the federalism assessments in the executive order and the written

statements required by UMRA. All of those assessments and statements

require agencies to develop estimates of the costs attendant to the

implementation of the regulation at issue. Also, both the bill and the

executive order require identification of regulatory provisions that

preempt state government authority or functions.

As introduced, the bill would require federalism impact assessments for all

proposed and final rules. We understand that the bill may be modified to

require, for each such rule, that agencies either certify that the rule does

Federalism Act Similar

to But Different From

Previous Initiatives
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 11 GAO/T-GGD-99-131

not have federalism implications or prepare a federalism impact

assessment. Neither Executive Order 12612 nor UMRA requires agencies

to declare whether each of their proposed and final rules has federalism

implications. As I noted previously, UMRA does not apply to most

economically significant rules, and the executive order does not require

agencies to publish the designated officials’ federalism determinations.

If the bill is modified in this manner, this requirement will be similar to a

provision in the Regulatory Flexibility Act of 1980 (RFA), which requires

agencies to state whether their rules have a “significant economic impact

on a substantial number of small entities.” Therefore, the implementation

of the RFA may prove instructive as to how this portion of the bill will be

implemented. For example, according to the Small Business

Administration’s (SBA) Office of Advocacy, a perennial problem with the

implementation of the RFA has been agencies’ use of “boilerplate”

certifications indicating that their rules do not have a significant economic

impact on a substantial number of small entities. Contributing to this

problem is the fact that the RFA does not define the terms “significant

economic impact” and “substantial number of small entities,” and no

federal agency is responsible or authorized to define the terms. As a

consequence, different agencies have different interpretations of the

statute.7

 We have recommended that Congress consider giving SBA or

some other entity the responsibility or authority to define key terms in the

act.8

 Therefore, applying the lessons of the RFA to the proposed

legislation, Congress may want to carefully define what it believes

constitutes “federalism implications” or assign that responsibility to some

other entity.

Finally, I would like to briefly comment on section 6 of H.R. 2245, which

says that federal agencies may not include any agency activity that is a

state-administered federal grant program in its annual performance plans

developed pursuant to the Government Performance and Results Act of

1993 (Results Act) “unless the performance measures for the activity are

determined in cooperation with public officials.” The bill defines “public

officials” as elected officials of state and local governments, including

certain organizations that represent those officials (e.g., the National

Governors’ Association and the United States Conference of Mayors).

 

7

Regulatory Flexibility Act: Inherent Weaknesses May Limit Its Usefulness for Small Governments

(GAO/HRD-91-16, Jan. 11, 1991).

8

Regulatory Reform: Implementation of the Small Business Advocacy Review Panel Requirements

(GAO/GGD-98-36, Mar. 18, 1998).

Consultation Enhances

Intergovernmental

Partnership
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 12 GAO/T-GGD-99-131

The Results Act already requires agencies developing their strategic plans

to “solicit and consider the views and suggestions of those entities

potentially affected by or interested in the plan.” The Senate Governmental

Affairs Committee report on the Results Act noted that the strategic plan

“is intended to be the principal means for obtaining and reflecting, as

appropriate, the views of Congress and those governmental and

nongovernmental entities potentially affected by or interested in the

agencies’ activities.”

In that regard, we believe that working with state and local governments or

their representative organizations to develop goals and performance

measures in federal grant-in-aid programs can strengthen the

intergovernmental partnerships embodied in those programs. For example,

in 1996, we reported on a joint goal and performance measure-setting

effort between the federal Office of Child Support Enforcement (OCSE)

and state governments.9

 Initially, the federal-state relationship was not so

cooperative. In 1994, OCSE specified the performance levels that states

were expected to achieve in such areas as the establishment of paternity

and collections of child support. State program officials strongly objected

to this federal mandate because they did not have an opportunity to

participate in the planning process.

Following these initial planning efforts, OCSE sought to obtain wider

participation from program officials at the federal, state, and local

government levels. OCSE also established task forces consisting of federal,

state, and local officials to help focus management of the program on longterm goals. During the planning process, participants agreed that the

national goals and objectives would be based on the collective suggestions

of the states and that the plan’s final approval would be reached through a

consensus. For each goal, the participants identified interim objectives

that, if achieved, would represent progress toward the stated goal. At the

time of our review, OCSE and the states were also developing performance

measures to identify progress toward the goals, and planned to develop

performance standards to judge the quality of state performance. They

created a Performance Measures Work Group to develop statistical

measures for assessing state progress toward achieving national goals and

objectives. OCSE also encouraged its regional staff to develop

performance agreements with states, specifying both general working

relationships between OCSE regional offices and state program officials

and performance goals for each state.

 

9

Child Support Enforcement: Reorienting Management Toward Achieving Better Program Results

(GAO/HEHS/GGD-97-14, Oct. 25, 1996).
Federalism: Previous Initiatives Have Little Effect on Agency Rulemaking

Page 13 GAO/T-GGD-99-131

Overall, OCSE and most state officials that we contacted said the joint

planning process strengthened the federal/state partnership by enabling

them to help shape the national program’s long-term goals and objectives.

State and local government stakeholder involvement has also been

important in the development of practical and broadly accepted

performance measures in other federal programs, including some block

grants.10 We believe that these kinds of intergovernmental cooperation can

serve as models for the kinds of efforts that section 6 of the Federalism

Act of 1999 seeks to encourage.

Mr. Chairman, this completes my prepared statement. I would be pleased

to answer any questions.

Contacts and Acknowledgment

For future contacts regarding this testimony, please contact L. Nye Stevens

at (202) 512-8676 or Curtis Copeland at (202) 512-8101. Individuals making

key contributions to this testimony included Elizabeth Powell, Joseph

Santiago, and Alan Belkin.

 10Managing for Results: Measuring Program Results That Are Under Limited Federal Control

(GAO/GGD-99-16, Dec. 11, 1998); Grant Programs: Design Features Shape Flexibility, Accountability,

and Performance Information (GAO/GGD-98-137, June 22, 1998).
Page 14 GAO/T-GGD-99-131
Page 15 GAO/T-GGD-99-131
Page 16 GAO/T-GGD-99-131
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