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). national government and the States, or on the distribution of power and responsibilities among the various levels of government." 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. 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"). 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. done to oversee federal agencies' implementation of the order in the rulemaking process. 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. 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. 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. 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 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 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 ederal intergovernmental mandates." 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. agencies to state whether or not their rules have a "significant economic impact on a substantial number of small entities." S. 1214 is also different from the executive order in some respects. For example, unlike the order, the bill requires agencies to notify and consult with officials in governments potentially affected by the rule before issuing a notice of proposed rulemaking. The bill also requires pre-publication consultation when agencies do not issue notices of proposed rulemaking. This is important because, as we reported last year, about half of all final rules are published without a proposed rule. Another requirement not found in the order is that agencies publish a summary of any federalism assessment when the rule is published in the Federal Register. Doing so would clearly delineate when the designated officer believes a rule has federalism implications. Under the executive order, agencies do not have to publish the results of their federalism assessments. S. 1214 also differs from Executive Order 12612 in that it more clearly defines the type of rulemaking actions that should trigger the preparation of a federalism assessment. Under the executive order, the designated official has broad discretion to determine whether a rule has "sufficient" federalism implications to warrant the preparation of an assessment. Some designated officials have used that discretion to conclude that preemption of state and local authority does not, in itself, constitute sufficient federalism implications. rules was an HHS regulation on organ procurement and transplantation.In the preamble to the rule, HHS noted that at least one state had passed a law that limited organ-sharing policies, and that such limitations were in conflict with a national organ-sharing system based on medical need. Therefore, the agency added a section to the regulatory text stating that "o state or local governing entity shall establish or continue in effect any law, rule, regulation, or other requirement that would restrict" compliance with the regulations. However, on the same page in the Federal Register preamble as its preemption discussion, HHS said "e have determined that this rule will not have consequential effects on States, local governments, or tribal governments." S. 1214 appears to require agencies to prepare a federalism assessment if they determine that their rules will have a preemptive effect on state and local governments. Subsection 7(b) of the bill requires the previously- mentioned consultation process with state and local officials "for the purpose of identifying any preemption of State or local government authority or other significant federalism impacts that may result from the rule." Subsection 7(c) says that the federalism officer "shall identify each proposed, interim final, and final rule having a federalism impact, including each rule with a federalism impact identified under subsection (b), that warrants the preparation of a federalism assessment." (Emphasis added.) However, it is less clear what other "federalism impacts" might trigger a federalism assessment. For example, if an agency proposes a rule that has a sizable financial impact on state or local governments, the agency's federalism officer may determine that those financial impacts alone do not require an assessment. Therefore, the drafters of S. 1214 may want to consider clarifying in the bill what is meant by a "federalism impact." Finally, I would like to briefly comment on section 8 of S. 1214, 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). 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. 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 long- term 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. 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. We believe that these kinds of intergovernmental cooperation can serve as models for the kinds of efforts that section 8 of the Federalism Accountability Act of 1999 seeks to encourage. Contacts and Acknowledgment For future contacts regarding this testimony, please contact L. Nye Stevens or Curtis Copeland at (202) 512-8676. Individuals making key contributions to this testimony included Elizabeth Powell, Joseph Santiago, Alan Belkin, and V. Bruce Goddard. The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. 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Summary:
Pursuant to a congressional request, GAO discussed S. 1214, the Federalism Act of 1999, focusing on: (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; (2) what selected agencies have done to implement the requirements of the order; and (3) what Office of Management and Budget has done to oversee Federal agencies' implementation of the order in the rulemaking process. GAO noted that: (1) 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; (2) 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; (3) two prime examples of these responses are Executive Order 12612 and the Unfunded Mandates Reform Act of 1995 (UMRA); (4) GAO's work showed that Executive Order 12612 had relatively little visible effect on federal agencies' rulemaking actions during this timeframe; (5) 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; (6) however, mentioning the order in the preamble to a rule does not mean the agency took any substantive action; (7) the agencies usually just stated that no federalism assessment was conducted because the rules did not have federalism implications; (8) 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; (9) many of the final rules that federal agencies issue are administrative or routine in nature and therefore unlikely to have significant federalism implications; (10) the criteria the agencies used to determine whether federalism assessments were needed varied among the agencies; (11) Office of Management and Budget officials told GAO 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; (12) GAO reported that 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; and (13) GAO believes 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.