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. 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. 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. 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.