Unfunded Mandates: Analysis of Reform Act's Coverage and Views on Possible Next Steps
Published: 2005-04-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Unfunded Mandates Reform Act of 1995 (UMRA) was enacted to address concerns about federal statutes and regulations that require nonfederal parties to expend resources to achieve legislative goals without being provided funding to cover the costs. UMRA generates information about the nature and size of potential federal mandates but does not preclude the implementation of such mandates. At various times in UMRA's 10-year history, Congress has considered legislation to amend aspects of the act to address ongoing questions about its effectiveness. This testimony is based on GAO's reports, Unfunded Mandates: Analysis of Reform Act Coverage ( GAO-04-637 , May 12, 2004) and Unfunded Mandates: Views Vary About Reform Act's Strengths, Weaknesses, and Options for Improvement ( GAO-05-454 , March 31, 2005). Specifically, this testimony addresses (1) UMRA's procedures for the identification of federal mandates and GAO's analysis of the implementation of those procedures for statutes enacted and major rules issued in 2001 and 2002, and (2) the views of a diverse group of parties familiar with UMRA on the significant strengths and weaknesses of the act as the framework for addressing mandate issues and potential options for reinforcing the strengths or addressing the weaknesses.
section_title: What GAO Found
paragraphs: 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, exceptions, and exclusions before being identified as containing mandates at or above UMRA's cost thresholds. Also, some legislation and rules may be enacted or issued via procedures that do not trigger UMRA reviews. 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. Despite the determinations under UMRA, at least 43 other statutes and 65 rules resulted in new costs or negative financial consequences that affected nonfederal parties might perceive as unfunded or underfunded federal mandates. GAO obtained information from 52 knowledgeable parties, who provided a significant number of comments about UMRA, specifically, and federal mandates, generally. Their views often varied across and within the five sectors we identified (academic/think tank, public interest advocacy groups, business, federal agencies, and state and local governments). Overall, the numerous strengths, weaknesses, and options for improvement identified during the review fell into several broad themes, including, among others, UMRA-specific issues such as the act's coverage and enforcement, and more general issues about the design, funding, and evaluation of federal mandates. UMRA's coverage was, by far, the most frequently cited issue by parties from the various sectors. Parties across most sectors said that UMRA's numerous definitions, exclusions, and exceptions leave out many federal actions that might significantly impact nonfederal entities and suggested that they should be revisited. However, a few parties, primarily from the public interest advocacy sector, viewed UMRA's narrow coverage as a strength that should be maintained. Another issue on which the parties had particularly strong views was the perceived need for better evaluation and research of federal mandates and more complete estimates of both the direct and indirect costs of mandates on nonfederal entities. The most frequently suggested option to address these evaluation issues was more post-implementation evaluation of existing mandates or "look backs" at their effectiveness. Going forward, the issue of unfunded mandates raises broader questions about assigning fiscal responsibilities within our federal system. The long-term fiscal challenges facing the federal and state and local governments and the continued relevance of existing programs and priorities warrant a national debate to review what the government does, how it does business, and how it finances its priorities. Such a reexamination includes considering how responsibilities for financing public services are allocated and shared across the many nonfederal entities in the U.S. system.

section_title: Letter
paragraphs: I am pleased to have the opportunity to provide testimony today 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.  Many federal programs and  initiatives, in areas ranging from homeland security to health care and  environmental protection, involve shared responsibilities—and benefits— for the federal government, state, local, and tribal governments, and the  private sector.  Determining the appropriate balance of fiscal responsibility  between the federal government, state, local, and tribal governments, and  the private sector in carrying out these federal mandates is a constant  challenge.  As the budgets of federal, state, and local governments become  more constrained, balancing the costs of legislative actions with  increasingly limited fiscal resources has brought this debate to the  forefront.
Mr. Chairman, my testimony today focuses on the findings from two  reports we issued over the past year at your request.  We believe that both  are important to this committee in the context of considering possible  revisions to UMRA.  The first report, issued in May 2004, focused on  UMRA’s procedures for identifying federal mandates and our analysis of the  implementation of those procedures for statutes enacted and major rules  issued in 2001 and 2002.  Building upon the work of the first report, the  second report, which is being released publicly today, focuses on the views  of a diverse group of parties from the academic/think tank, business,  federal agency, public interest advocacy groups, and state and local  governments sectors on the strengths and weaknesses of UMRA and their  suggested options for reinforcing the strengths or addressing the  weaknesses.  While the information gathered for this second report reflects  only the perspectives of those individuals who participated in our review,  this information comes from organizations and individuals recognized as  being knowledgeable about the implementation of UMRA and/or federal  mandate programs.
In summary, our May 2004 report concluded that while information  provided under UMRA about potential mandates may have helped to  discourage or limit federal mandates, 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.  In  2001 and 2002, the period of our review, we found that 5 of 377 statutes and  9 of 122 major or economically significant rules were identified as  containing federal mandates at or above UMRA’s thresholds.  Despite the  determinations made under UMRA, we found that 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 were identified as 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 that affected  parties might perceive as unfunded or under funded mandates even though  they did not meet UMRA’s definition of a mandate.
In our most recent report, we found a wide variety of views and  perspectives on UMRA specifically and federal mandates more generally.   Not surprisingly, the comments provided fell into several broad categories  or themes, specifically, (a) UMRA coverage, (b) UMRA enforcement, (c) other UMRA issues including the use and usefulness of the information  generated under the Act and consultations with state and other  governments, and (d) broader issues involving federal mandates included  the design and funding of federal mandates and evaluating those mandates.   Those issues discussed most frequently were UMRA’s coverage,  enforcement, and the evaluation of federal mandates.  While there was  some broad-based support by parties across most sectors that these are  issues that warrant review and reconsideration, there was less agreement  about suggested options for dealing with them.
subsections: section_title: Identification of Mandates Under UMRA Is Complex
paragraphs: The procedures under UMRA for the identification and analysis of  intergovernmental and private sector mandates are very complex.   Moreover, some potential mandates are enacted through procedures that  never require them to be reviewed under UMRA.  For example, UMRA does  not require the automatic review of potential mandates contained in  appropriation bills, nor does the act cover rules that were issued as final  without having been preceded by a notice of proposed rulemaking.  Even if  proposed legislation or regulations are reviewed under UMRA, those  provisions are subject to various definitions, exclusions, and exceptions  before being identified as containing mandates at or above UMRA’s cost  thresholds.  For example, UMRA does not apply to legislative provisions  that cover constitutional rights, discrimination, emergency aid, accounting  and auditing procedures for grants, national security, treaty ratification,  and certain parts of Social Security.  As figure 1 illustrates, a provision in  legislation must pass through a multiple step process before the  Congressional Budget Office prepares required statements identifying and  estimating the costs of mandates in legislation that meet certain criteria  and determines whether or not those estimated costs meet or exceed  UMRA’s thresholds.
Based on UMRA’s requirements, we found that few provisions in statutes or  rules are considered mandates as defined by UMRA.  As mentioned  previously, in 2001 and 2002, the period of our review, only 5 of the 377  statutes enacted and 9 of the 122 major rules issued contained federal  mandates at or above UMRA’s thresholds.  All 5 statutes and 9 rules  contained private sector mandates and only one final rule—an  Environmental Protection Agency standard on arsenic in drinking water— contained an intergovernmental mandate.
Despite the determinations made under UMRA, nonfederal parties affected  by federal actions viewed many more federal actions in statute and  regulation as containing unfunded or under funded mandates.  When we  explored this issue, we found that some of the statutes and rules that had  not triggered UMRA’s requirements appeared to have potential financial  impacts on affected parties similar to those of actions that had been flagged  as containing mandates at or above UMRA’ s thresholds.  Specifically, we  identified at least 43 statutes and 65 rules issued in 2001 and 2002 that  resulted in new costs or other negative financial impacts on nonfederal  parties that the affected parties might perceive as unfunded or under  funded mandates even though they did not meet UMRA’s definition of a  mandate or did not meet or exceed UMRA’s thresholds. For these statutes  and rules, CBO or federal agencies most often had determined that the  estimated direct costs or expenditures, as defined by UMRA, would not  meet or exceed the applicable thresholds or that one or more of the other  definitions, exclusions, or exclusions applied.  These findings raised the  question of whether UMRA, given its procedures, definitions, and  exclusions, adequately captures and subjects to scrutiny federal statutory  and regulatory actions that might impose significant financial or other  burdens on affected nonfederal parties. To begin to address this question,  you asked us to obtain the views of a diverse group of parties  knowledgeable about UMRA and federal mandates.
section_title: Views of Parties Regarding UMRA and Unfunded Mandates
paragraphs: Parties from the various sectors provided a variety of comments but they  generally fell into several broad themes.  UMRA’s coverage was the most  frequently cited theme, with comments provided by all the sectors  (academic/think tank, business, federal agencies, public interest advocacy  groups, and state and local governments).  Issues involving enforcement  were the second most frequently cited but with far fewer parties providing  comments.  Other themes that emerged from the comments included the  use and usefulness of the information generated under UMRA, UMRA’s  analytic framework, and consultation under UMRA. Finally, issues  involving the design and funding and evaluation of federal mandates also  emerged as themes.
subsections: section_title: UMRA Coverage Generally Viewed as a Weakness but a Few Parties Disagree
paragraphs: Given the findings from our May 2004 report, it’s not surprising that UMRA’s  coverage, including its numerous definitions, exclusions, and exceptions,  was the most frequently cited issue by parties from all five sectors.  Most  parties from the state and local governments, federal agency, business, and  academic/think tank sectors viewed UMRA’s narrow coverage as a major  weakness that leaves out many federal actions with potentially significant  financial impacts on nonfederal parties.  However, a few parties, from  public interest advocacy groups and academic/think tank sectors,  considered some of the existing exclusions important or identified UMRA’s  narrow scope as one of the Act’s strengths.
The comments about weaknesses in UMRA’s coverage ranged from general  to specific.  For example, some parties commented, in general, about the  number of exclusions and exemptions.  Others provided more specific  comments,  including points regarding issues with the exclusion of indirect  costs and UMRA’s cost thresholds for legislative and regulatory mandates,  which result in excluding many federal actions that may significantly  impact nonfederal entities.  Others raised more fundamental concerns  about the exclusions for appropriations and other legislation not covered  by the Act and for rules issued by independent regulatory agencies, which  are also not covered by UMRA but can result in provisions that contain  mandates.  CBO estimates that in 2004, 5 of the 8 laws containing federal  mandates (as defined by UMRA) that it did not review before enactment,  were appropriations acts.  Finally, parties from the state and local  government sector also identified concerns about gaps in UMRA’s coverage  of federal preemption of state and local authority. Although some  preemptions are covered by UMRA such as those that preempt state or  local revenue raising authority, they are covered only for legislative actions  and not for federal regulations. According to CBO’s 2005 report on  unfunded mandates, “Over half of the intergovernmental mandates for which CBO provided estimates  were preemptions of state and  local authority.”
Despite the widespread view in several sectors that UMRA’s narrow  coverage leaves out federal actions with potentially significant impacts on  nonfederal entities, there was less agreement by parties about how to  address this issue. The options ranged from general to specific but those  most frequently suggested were:  Generally revisit, amend, or modify the definitions, exceptions, and  exclusions under UMRA and expand UMRA’s coverage.
Clarify UMRA’s definitions and ensure their consistent implementation  across agencies to ensure that all covered provisions are being included.
Change the cost thresholds and/or definitions that trigger UMRA by, for  example, lowering the threshold for legislative or executive reviews and  expanding cost definitions to include indirect costs.
Eliminate or amend the definitional exceptions for conditions of federal  financial assistance or that arise from participation in voluntary federal  programs.
Expand UMRA coverage to all preemptions of state and local laws and  regulations, including those nonfiscal preemptions of state and local  authority.
As I mentioned previously, while most parties thought UMRA’s narrow  coverage was a weakness, a few parties from academic/think tank and  public interest advocacy groups sectors view UMRA coverage differently.   They viewed UMRA’s narrow scope as one of its primary strengths.  In fact,  rather than expanding UMRA’s coverage, these parties said that it should be  kept narrow and that the exceptions and exclusions are needed.  Between  1996 and 2004, CBO reports that of 5,269 intergovernmental statements,  617 had mandates and of 5,151 private sector statements, 732 had mandates. Of the mandates identified by CBO, about 9 percent of the  intergovernmental mandates and almost 24 percent of private sector  mandates had costs that would exceed the thresholds.  As discussed at our  January 26, 2005, symposium on UMRA and federal mandates, some parties  also identified a number of suggestions that they could not support, namely  any attempt to expand UMRA to cover constitutional or civil rights or  excluding private sector mandates.
section_title: UMRA Enforcement
paragraphs: Issues involving UMRA enforcement were the second most frequently cited  issue but with far fewer parties from each sector commenting.  Parties  across and within sectors had differing views on both the enforcement  mechanisms provided in the law itself and the level of effort exercised by  those responsible for implementing UMRA’s provisions.  Many of the  comments focused on the point of order—one of the primary tools used to  enforce UMRA requirements in title I of UMRA.  Although the point of  order provides members of Congress the opportunity to raise challenges to  hinder the passage of legislative provisions containing an unfunded  intergovernmental mandate, views were mixed about its effectiveness.   Those representing state and local government and federal agency sectors  said that the point of order should be retained because it has been  successful in reducing the number of unfunded mandates by acting as a  deterrent to their enactment, without greatly impeding the process.   Conversely, some parties primarily from academic/think tank, business,  and federal agency sectors did not believe the point of order has been  effective in preventing or deterring the enactment of mandates and  suggested otions to strengthen it.  Moreover, others commented about its  infrequent use.
Some parties said the point of order needs to be strengthened by making it  more difficult to defeat.  One suggested revision was to require a three- fifths vote in Congress, rather than a simple majority, to overturn a point of  order.  This change was believed to strengthen the “institutional salience of  UMRA” and to ensure that no mandate under UMRA could be enacted if it  was supported only by a simple majority.  As you know, on March 17, 2005,  the Senate approved the fiscal year 2006 budget, which included a  provision that would increase to 60 the number of votes needed to overturn  an UMRA point of order in the Senate.
A few parties from the federal agency and academic/think tank sectors  commented on another enforcement mechanism for regulatory  mandates—UMRA’s judicial review provision, which subjects any agency  compliance or noncompliance with certain provisions in the Act to judicial  review.  Most felt that this mechanism does not provide meaningful relief or  remedies if federal agencies have not complied with the requirements of  UMRA because of its limited focus. Specifically, judicial review is limited to  requirements that pertain to preparing UMRA statements and developing  federal plans for mandates that may significantly impact small government  agencies.  Furthermore, if a court finds that an agency has not prepared a  written statement or developed a plan for one of its rules, the court can  order the agency to do the analysis and include it in the regulatory docket  for that rule; but the court may not block or invalidate the rule.  The few  parties commenting about judicial review suggested expanding it to  provide more opportunities for judicial challenges and more effective  remedies when noncompliance of the Act’s requirements occur.  A few  parties primarily from the academic/think tank and public interest  advocacy groups sectors said that efforts to limit or stop implementation of  mandates through legal action might be unwarranted, because UMRA was  not intended to preclude the enactment of federal mandates. They were  primarily concerned about litigation being used to slow down the  regulatory process.
Commenting parties from business, federal agency, and state and local  governments sectors questioned some federal agencies’ compliance with  UMRA requirements and the effectiveness of enforcement mechanisms to  address this perceived noncompliance.  They mentioned the failure of  some agencies to consult with state, local and tribal governments when  developing regulations that may have a significant impact on nonfederal  entities.  Likewise, at least one party of each of the three sectors expressed  concerns about the lack of accurate and complete information provided by  federal agencies, which are responsible for determining whether a rule  includes a mandate and whether it exceeds UMRA’s thresholds.  The  perceived lack of compliance with certain UMRA requirements generated  several suggested changes to UMRA.  However, the only suggestion that  had support across parties from multiple sectors was to replicate CBO’s  role for legislative mandates  by creating a new office within OMB that  would be responsible for calculating the cost estimates for federal  mandates in regulations.
section_title: Parties Across All Sectors Raise Other Issues Regarding UMRA, but Little or No Consensus Emerges
paragraphs: Parties from all sectors also raised a number of other issues about the use  and usefulness of UMRA information (in decreasing the number of  unfunded mandates), UMRA’s analytic framework, and federal agency  consultations with state, local, and tribal governments, but there was no  consensus in their views about how these issues should be addressed.  The  parties provided mixed but generally positive views about the use and  usefulness of UMRA information.  Some parties commented that the Act  does increase awareness of unfunded mandates but thought more could be  done to increase its usefulness.  However, the only option that attracted  multiple supporters was a suggestion for a more centralized approach for  generating information within the executive branch similar to the  suggestions mentioned about improving enforcement.  Parties also  provided a number of comments about the provisions of UMRA that  establish the analytic framework for cost estimates, which generated a few  suggested options aimed at improving the quality of information generated  such as including indirect costs for threshold purposes and clarifying  certain definitions (e.g. “federal mandates” and “enforceable duty”).   UMRA’s consultation also emerged as a recurring theme within and across  certain sectors.  The comments generally were about a perceived lack of  consistency across agencies when consulting with state and local  governments.
section_title: Sectors Also Raise Concerns About Federal Mandates in General
paragraphs: Parties from all sectors also raised a number of broader issues about  federal mandates—namely, the design and funding and evaluation of  federal mandates—and suggested a variety of options.  While most of the  comments were about the evaluation of federal mandates, some parties  also raised concerns about the design and funding of mandates, which  varied across sectors.  Issues raised include: (1) costs for mandates may  vary across different affected nonfederal entities, (2) mismatches between  the funding needs of parties compared to federal formulas, and  (3) effects of the timing of federal actions and program changes on  nonfederal parties.  Most often, the comments focused on a perceived  mismatch between the costs of federal mandates and the amount of federal  funding provided to help carry them out.  Others raised issues about the  need to address the incentives for the federal government to “over  leverage” federal funds by attaching (and often revising) additional  conditions for receiving the funding.
Parties, primarily from the academic/think tank sector, suggested a wide  variety of options to address their concerns, but there was no broad  support for any option. For example, while some parties across four  sectors suggested providing waivers or offsets to reduce the costs of the  mandates on affected parties or “off ramps” to release them of some  responsibilities to fulfill the mandates in a given year if the federal  government does not provide sufficient funding. Others said that  compliance with federal mandates should not be made contingent on full  federal funding and off ramps and waivers can introduce other issues.  The  option of building into the design of federal mandates “look back” or sunset  provisions that would require retrospective analyses of the mandates’  effectiveness and results was also suggested.
About half the parties, representing most sectors commented on the  evaluation of federal mandates and offered suggestions to improve  mandates, whether covered by the Act or not.  Not surprisingly parties in  the academic/think tank sector, who felt that the evaluation of federal  mandates was especially important because there is a lack of information  about the effects of federal mandates on affected parties, provided most of  the comments.  The issues raised included concerns about the lack of focus  on evaluating the effectiveness (results) of the mandates; the questionable  accuracy and completeness of cost estimates, particularly ones prepared  by federal agencies, and the lack of evaluation of the impact of mandates.
All of these issues are related and the concerns expressed touched upon  the need to adequately evaluate mandates in the context of costs, benefits,  impacts, and effectiveness of the mandated actions to achieve desired  goals.  Parties across the sectors suggested that various forms of  retrospective analysis are needed for evaluating federal mandates after  they are implemented.  Some suggestions for retrospective analysis  focused on costs and effectiveness of mandates, including comparing them  to the estimates and expected outcomes.  Others from the state and local  governments sector also suggested focusing on the cumulative costs and  effects of mandates—the impact of various related federal actions, which  when viewed collectively, may have a substantial impact although any one  may not exceed UMRA’s thresholds.  Finally, parties primarily from the  academic/think tank sector suggested examining local and regional  impacts of mandates and analyzing the benefits of federal mandates, when  appropriate, not just costs.
section_title: Observations Regarding Next Steps
paragraphs: As Congress reevaluates UMRA on its 10-year anniversary, the information  we provided over the past year provides some useful insights.  First,  although parties from various sectors generally focused on the areas of  UMRA and federal mandates that they would like to see fixed, they also  recognized positive aspects and benefits of UMRA.  In particular, they  commented about the attention UMRA brings to potential consequences of  federal mandates and how it serves to keep the debate in the spotlight. I  also found it notable that no one suggested repealing UMRA.
Second, when considering changes to UMRA itself, UMRA’s narrow  coverage stands out as the primary issue for most sectors because it  excludes so many actions from coverage under UMRA and contributes to  complaints about unfunded or under funded mandates as discussed in both  of our reports.  Even with an issue such as coverage on which there was  some general agreement across most sectors, the variety of suggested  options indicates that finding workable solutions will require including all  affected parties in the debate.
Third, one of the challenges for Congress and other federal policy makers  is to determine which issues and concerns about federal mandates are best  addressed in the context of UMRA and which are best considered as part of  more expansive policy debates on federal mandates and federalism.  On  broader policy issues concerning federal mandates, various parties  recognized that UMRA is only part of the solution and the issue raises  broader public policy questions about structuring and funding mandates in  general.  These parties made it clear that retrospective analysis is needed to  ensure that mandates are achieving their desired goals, which could help  provide additional accountability for federal mandates and provide  information that could lead to better decisions regarding the design and  funding of mandate programs.
Finally, as we move forward in an environment of constrained fiscal  resources, the issue of unfunded mandates raises broader questions about  the assignment of fiscal responsibilities within our federal system.   Reconsideration of such responsibilities begins with the observation that  most major domestic programs, costs, and administrative responsibilities  are shared and widely distributed throughout our system.   Part of this  public policy debate includes a reexamination of the federal government’s  role in our system and a need to sort out how responsibilities for these kinds of programs should be financed in the future.  If left unchecked,  unfunded mandates can weaken accountability and remove constraints on  decisions by separating the enactment of benefit programs from the  responsibility for paying for these programs.  Likewise, 100 percent federal  financing of intergovernmental programs can pervert fiscal incentives  necessary to ensure proper stewardship at the state and local level for  shared programs.
Mr. Chairman, once again I appreciate the opportunity to testify on these  important issues and I would be pleased to address any questions you or  other members of the committee might have.
section_title: Contacts and Acknowledgements
paragraphs: If additional information is needed regarding this testimony, UMRA or  federal mandates, please contact Orice M. Williams at (202) 512-5837 or  williamso@gao.gov or Tim Bober at (202) 512-4432 or bobert@gao.gov.   Other key contributors to the work which was associated with this  testimony were Tom Beall, Kate Gonzalez, and Boris Kachura.