Congressional Research Service: Unfunded Mandates Reform Act – History, Impact & Issues

WASHINGTON, July 20 -- The Congressional Research Service issued the following report (No. R40957) entitled "Unfunded Mandates Reform Act: History, Impact, and Issues". Here are excerpts of the report issued on July 17 and written by Robert Jay Dilger, senior specialist in American National Government:

Summary:

The Unfunded Mandates Reform Act of 1995 (UMRA) culminated years of effort by state and local government officials and business interests to control, if not eliminate, the imposition of unfunded intergovernmental and private-sector federal mandates. Advocates argued the statute was needed to forestall federal legislation and regulations that imposed obligations on state and local governments or businesses that resulted in higher costs and inefficiencies. Opponents argued that federal mandates may be necessary to achieve national objectives in areas where voluntary action by state and local governments and business failed to achieve desired results.

UMRA provides a framework for the Congressional Budget Office (CBO) to estimate the direct costs of mandates in legislative proposals to state and local governments and to the private sector, and for issuing agencies to estimate the direct costs of mandates in proposed regulations to regulated entities. Aside from these informational requirements, UMRA controls the imposition of mandates only through a procedural mechanism allowing Congress to decline to consider unfunded intergovernmental mandates in proposed legislation if they are estimated to cost more than specified threshold amounts. UMRA applies to any provision in legislation, statute, or regulation that would impose an enforceable duty upon state and local governments or the private sector. It does not apply to duties stemming from participation in voluntary federal programs; rules issued by independent regulatory agencies; rules issued without a general notice of proposed rulemaking; and rules and legislative provisions that cover individual constitutional rights, discrimination, emergency assistance, grant accounting and auditing procedures, national security, treaty obligations, and certain elements of Social Security. In most instances, UMRA also does not apply to conditions of federal assistance.

State and local government officials argue that UMRA's coverage should be broadened, with special consideration given to including conditions of federal financial assistance. During the 116th Congress, H.R. 300, the Unfunded Mandates Information and Transparency Act of 2019, would broaden UMRA's coverage to include both direct and indirect costs, such as foregone profits and costs passed onto consumers, and, when requested by the chair or ranking member of a committee, the prospective costs of legislation that would change conditions of federal financial assistance. The bill also would make private-sector mandates subject to a substantive point of order and remove UMRA's exemption for rules issued by most independent agencies. The House approved similar legislation during the 112th, , 113th, 114th, and 115th Congresses.

This report examines debates over what constitutes an unfunded federal mandate and UMRA's implementation. It focuses on UMRA's requirement that CBO issue written cost estimate statements for federal mandates in legislation, its procedures for raising points of order in the House and Senate concerning unfunded federal mandates in legislation, and its requirement that federal agencies prepare written cost estimate statements for federal mandates in rules. It also assesses UMRA's impact on federal mandates and arguments concerning UMRA's future, focusing on UMRA's definitions, exclusions, and exceptions that currently exempt many federal actions with potentially significant financial impacts on nonfederal entities. An examination of the rise of unfunded federal mandates as a national issue and a summary of UMRA's legislative history are provided in Appendix A. Citations to UMRA points of order raised in the House and Senate are provided in Appendix B.

An Overview of UMRA, Its Origins, and Provisions

Overview

The Unfunded Mandates Reform Act of 1995 (UMRA) established requirements for enacting certain legislation and issuing certain regulations that would impose enforceable duties on state, local, or tribal governments or on the private sector./1

UMRA refers to obligations imposed by such legislation and regulations as "mandates" (either "intergovernmental" or "private sector," depending on the entities affected). The direct cost to affected entities of meeting these obligations are referred to as "mandate costs," and when the federal government does not provide funding to cover these costs, the mandate is termed "unfunded."

UMRA incorporates numerous definitions, exclusions, and exceptions that specify what forms and types of mandates are subject to its requirements, termed "covered mandates." Covered mandates do not include many federal actions with potentially significant financial impacts on nonfederal entities. This report's primary purpose is to describe the kinds of legislative and regulatory provisions that are subject to UMRA's requirements, and, on this basis, to assess UMRA's impact on federal mandates. The report also examines debates that occurred, both before and since UMRA's enactment, concerning what kinds of provisions UMRA ought to cover, and considers the implications of experience under UMRA for possible future revisions of its scope of coverage.

This report also describes the requirements UMRA imposes on congressional and agency actions to establish covered mandates. For most legislation and regulations covered by UMRA, these requirements are only informational. For reported legislation that would impose covered mandates on the intergovernmental or private sectors, UMRA requires the Congressional Budget Office (CBO) to provide an estimate of mandate costs. Similarly, for regulations that would impose covered mandates on the intergovernmental or private sectors, UMRA requires that the issuing agency provide an estimate of mandate costs (although the specifics of the estimates required for legislation and for regulations differ somewhat). Also, solely for legislation that would impose covered intergovernmental mandates, UMRA establishes a point of order in each house of Congress through which the chamber can decline to consider the legislation. This report examines UMRA's implementation, focusing on the respective requirements for mandate cost estimates on legislation and regulations, and on the point of order procedure for legislation proposing unfunded intergovernmental mandates.

Origin

The concept of unfunded mandates rose to national prominence during the 1970s and 1980s primarily through the response of state and local government officials to changes in the nature of federal intergovernmental grant-in-aid programs and to regulations affecting state and local governments. Before then, the federal government had traditionally relied on the provision of voluntary grant-in-aid funding to encourage state and local governments to perform particular activities or provide particular services that were deemed to be in the national interest. These arrangements were viewed as reflecting, at least in part, the constitutional protections afforded state and local governments as separate, sovereign entities. During the 1970s and 1980s, however, state and local government advocates argued that a "dramatic shift" occurred in the way the federal government dealt with states and localities. Instead of relying on the technique of subsidization to achieve its goals, the federal government was increasingly relying on "new, more intrusive, and more compulsory" programs and regulations that required compliance under the threat of civil or criminal penalties, imposed federal fiscal sanctions for failure to comply with the programs' requirements, or preempted state and local government authority to act in the area./2

These new, more intrusive and compulsory programs and regulations came to be referred to as "unfunded mandates" on states and localities.

State and local government advocates viewed these unfunded federal intergovernmental mandates as inconsistent with the traditional view of American federalism, which was based on cooperation, not compulsion. They argued that a federal statute was needed to forestall federal legislation and regulations that imposed obligations on state and local governments that resulted in higher costs and inefficiencies. UMRA's enactment in 1995 culminated years of effort by state and local government officials to control, if not eliminate, the imposition of unfunded federal mandates.

Advocates of regulatory reform adapted the concept of unfunded mandates to their view that federal regulations often impose financial burdens on private enterprise. Critics of government regulation of business argued that these regulations impose unfunded mandates on the private sector, just as federal programs and regulations impose fiscal obligations on state and local governments. As a result, various business organizations subject to increased federal regulation came to support state and local government efforts to enact federal legislation to control unfunded federal intergovernmental mandates. Private-sector advocates argued that they, too, should be provided relief from what they viewed as burdensome federal regulations that hinder economic growth./3

Subsequently, proposals to control unfunded mandates that were developed in the early 1990s contained provisions addressing not only federal intergovernmental mandates, but federal private-sector mandates as well.

During floor debate on legislation that became UMRA, sponsors of the measure emphasized its role in bringing "our system of federalism back into balance, by serving as a check against the easy imposition of unfunded mandates."/4

Opponents argued that federal mandates may be necessary to achieve national objectives in areas where voluntary action by state and local governments or business failed to achieve desired results. See Appendix A for a more detailed examination of the rise of unfunded federal mandates as a national issue and of UMRA's legislative history./5

Summary of UMRA's Provisions

The congressional commitment to reshaping intergovernmental relations through UMRA is reflected in its eight statutory purposes:

(1) to strengthen the partnership between the Federal Government and State, local, and tribal governments;

(2) to end the imposition, in the absence of full consideration by Congress, of Federal mandates on State, local, and tribal governments without adequate Federal funding, in a manner that may displace other essential State, local, and tribal governmental priorities;

(3) to assist Congress in its consideration of proposed legislation establishing or revising Federal programs containing Federal mandates affecting State, local, and tribal governments, and the private sector by--(A) providing for the development of information about the nature and size of mandates in proposed legislation; and (B) establishing a mechanism to bring such information to the attention of the Senate and the House of Representatives before the Senate and the House of Representatives vote on proposed legislation;

(4) to promote informed and deliberate decisions by Congress on the appropriateness of Federal mandates in any particular instance;

(5) to require that Congress consider whether to provide funding to assist State, local, and tribal governments in complying with Federal mandates, to require analyses of the impact of private sector mandates, and through the dissemination of that information provide informed and deliberate decisions by Congress and Federal agencies and retain competitive balance between the public and private sectors;

(6) to establish a point-of-order vote on the consideration in the Senate and House of Representatives of legislation containing significant Federal intergovernmental mandates without providing adequate funding to comply with such mandates;

(7) to assist Federal agencies in their consideration of proposed regulations affecting State, local, and tribal governments, by--(A) requiring that Federal agencies develop a process to enable the elected and other officials of State, local, and tribal governments to provide input when Federal agencies are developing regulations; and (B) requiring that Federal agencies prepare and consider estimates of the budgetary impact of regulations containing Federal mandates upon State, local, and tribal governments and the private sector before adopting such regulations, and ensuring that small governments are given special consideration in that process; and

(8) to begin consideration of the effect of previously imposed Federal mandates, including the impact on State, local, and tribal governments of Federal court interpretations of Federal statutes and regulations that impose Federal intergovernmental mandates./6

To achieve its purposes, UMRA's Title I established a procedural framework to shape congressional deliberations concerning covered unfunded intergovernmental and private-sector mandates. This framework requires CBO to estimate the direct mandate costs of intergovernmental mandates exceeding $50 million and of private-sector mandates exceeding $100 million (in any fiscal year) proposed in any measure reported from committee. It also establishes a point of order against consideration of legislation that contained intergovernmental mandates with mandate costs estimated to exceed the threshold amount. In addition, Title II requires federal administrative agencies, unless otherwise prohibited by law, to assess the effects on state and local governments and the private sector of proposed and final federal rules and to prepare a written statement of estimated costs and benefits for any mandate requiring an expenditure exceeding $100 million in any given year. All threshold amounts under these provisions are adjusted annually for inflation./7

In 2019, the threshold amounts are $82 million for intergovernmental mandates and $164 million for private-sector mandates.

In general, the requirements of Titles I and II apply to any provision in legislation, statute, or regulation that would impose an enforceable duty upon state and local governments or the private sector. However, UMRA does not apply to duties stemming from participation in voluntary federal programs, rules issued by independent regulatory agencies, or rules issued without a general notice of proposed rulemaking. Exceptions also exist for rules and legislative provisions that cover individual constitutional rights, discrimination, emergency assistance, grant accounting and auditing procedures, national security, treaty obligations, and certain elements of Social Security legislation. In most instances, UMRA also does not apply to conditions of federal assistance./8

UMRA's Title III also called for a review of federal intergovernmental mandates to be completed by the now-defunct U.S. Advisory Commission on Intergovernmental Relations (ACIR) within 18 months of enactment./9

ACIR completed a preliminary report on federal intergovernmental mandates in January 1996, but the final report was not released./10

Finally, UMRA's Title IV authorizes judicial review of federal agency compliance with Title II provisions./11

Concluding Observations

In 1995, UMRA's enactment was considered an historic, milestone event in the history of American intergovernmental relations. For example, when signing UMRA, President Bill Clinton said, Today, we are making history. We are working to find the right balance for the 21st century.

We are recognizing that the pendulum had swung too far, and that we have to rely on the initiative, the creativity, the determination, and the decisionmaking of people at the State and local level to carry much of the load for America as we move into the 21st century./150

Since UMRA's enactment, parties participating in its implementation and researchers in the academic community, policy research institutes, and nonpartisan government agencies have reached different conclusions concerning the extent of UMRA's impact on intergovernmental relations and whether UMRA should be amended. State and local government officials and federalism scholars generally view UMRA as having a limited, though positive, impact on intergovernmental relations. In their view, the federal government has continued to expand its authority through the "carrots" of increased federal assistance and the "sticks" of grant conditions, preemptions, mandates, and administrative rulemaking. Facing what they view as a seemingly ever growing federal influence in American governance, they generally advocate a broadening of UMRA's coverage to enhance its impact, emphasizing the need to include conditions of grant assistance and a broader range of federal agency rulemaking, including rules issued by independent regulatory agencies.

Other organizations, representing various environmental and social groups, argue that UMRA's coverage does not need to be broadened. In their view, UMRA has accomplished its goals of fostering improved intergovernmental relations and ensuring that when Congress votes on major federal mandates it is aware of the costs imposed by the legislation. They assert that UMRA's current limits on coverage should be maintained or reinforced by adding exclusions for mandates regarding public health, safety, workers' rights, environmental protection, and the disabled./151

During the 111th Congress, UMRA received increased attention as Congress considered various proposals to reform health care. Governors, for example, expressed opposition to proposals that would have required states to contribute toward the cost of expanding Medicaid eligibility, asserting that the expansion could inflate state deficits and impose on states what Tennessee Governor Philip Bredesen reportedly described as the "mother of all unfunded mandates."/152

As mentioned previously, at that time, CBO had determined that UMRA provisions did not apply to Medicaid's conditions of federal assistance because, in its view, states had "significant flexibility to make programmatic adjustments in their Medicaid programs to accommodate" new federal requirements./153

Following the Supreme Court's ruling in National Federation of Independent Business (NFIB) v. Sebelius (June 28, 2012), CBO indicated that UMRA's provisions may apply to changes in "the stringency of conditions" or reductions in funding for "certain large mandatory programs ... if the affected governments lack the flexibility to alter the programs."/154

As discussed previously, H.R. 300, the Unfunded Mandates Information and Transparency Act of 2019, would

* require CBO to assess the prospective costs of changes in conditions of federal financial assistance when requested by the chair or ranking member of a committee;

* broaden UMRA's coverage to include assessments of indirect as well as direct costs by amending the definition of direct costs to include forgone profits, costs passed onto consumers or other entities, and, to the extent practicable, behavioral changes;

* expand the scope of reporting requirements to include regulations imposed by most independent regulatory agencies;

* make private-sector mandates subject to a substantive point of order;

* establish principles for federal agencies to follow when assessing the effects of regulations on state and local governments and the private sector, including requiring the agency to identify the problem it seeks to address, determining whether existing laws or regulations could be modified to address the problem, identifying alternatives, and designing regulations in the most cost-effective manner available;

* expand the scope of cost statements accompanying significant regulatory actions to include, among other requirements, a reasonably detailed description of the need for the proposed rulemaking or final rule and an explanation of how the proposed rulemaking or final rule will meet that need; an assessment of the potential costs and benefits of the proposed rulemaking or final rule; estimates of the mandate's future compliance costs and any disproportionate budgetary effects upon any particular regions of the nation or state, local, or tribal governments; a detailed description of the agency's consultation with the private sector or elected representatives of the affected state, local, or tribal governments; and a detailed summary of how the agency complied with each of the regulatory principles included in the bill;

* no longer allow a federal agency to forgo UMRA analysis because the agency published a rule without first issuing a notice of proposed rulemaking;

* require federal agencies to meet enhanced levels of consultation with state, local, and tribal governments and the private sector before issuing a notice of proposed rulemaking or a final rule; and

* require federal agencies to conduct a retrospective analysis of the costs and benefits of an existing regulation when requested by the chair or ranking member of a committee.

Advocates argue that these reforms will "improve the quality of congressional deliberations and ... enhance the ability of Congress, federal agencies, and the public to identify federal mandates that may impose undue harm on state, local, and tribal governments and the private sector."/155

Opponents argue that these reforms are "an assault on the nation's health, safety, and environmental protections, would erect new barriers to unnecessarily slow down the regulatory process, and would give regulated industries an unfair advantage to water down consumer protections."/156

Underlying disagreements over UMRA's future are fundamentally different values concerning American federalism. One view emphasizes the importance of freeing state and local government officials from the constraints brought about by the directives and costs associated with federal mandates so they can experiment with innovative ways to achieve results with greater efficiency and cost effectiveness. This view focuses on the positive effect active state and local governments can have in promoting a sense of state and community responsibility and self-reliance, encouraging participation and civic responsibility by allowing more people to become involved in public questions, adapting public programs to state and local needs and conditions, and reducing the political turmoil that sometimes results from single policies that govern the entire nation./157

Another view emphasizes the federal government's responsibility to ensure that all citizens are afforded minimum levels of essential government services. This view focuses on the propensity of states to restrict governmental services because they compete with one another for businesses and taxpaying residents; the variation in state fiscal capacities that makes it difficult for some states to provide certain governmental services even though they might have the political will to do so; and the propensity of states to have different views concerning what services are essential and what constitutes a sufficient level of essential government services./158

Given these disagreements over fundamental values, it is perhaps not surprising that there are differences of opinion concerning UMRA's future. Using President Clinton's words, debates over UMRA's future are more than just arguments over who will pay for what; they are also about finding "the right balance" for American federalism in the 21st century.

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Footnotes:

1 P.L. 104-4; 109 Stat. 48 et seq.; and 2 U.S.C. Sec.Sec.602, 632, 653, 658-658(g), 1501-1504, 1511-1516, 1531-1538, 15511556, and 1571.

2 U.S. Advisory Commission on Intergovernmental Relations (ACIR), Regulatory Federalism: Policy, Process, Impact, and Reform, A-95 (Washington, DC: ACIR, 1984), pp. 1-18.

3 Mary McElvenn, "The Federal Impact on Business," Nation's Business, vol. 79, no. 1 (January 1991), pp. 23-26; David Warner, "Regulations' Staggering Costs," Nation's Business, vol. 80, no. 6 (June 1992), pp. 50-53; Michael Barrier, "Taxing the Man Behind the Tree," Nation's Business, vol. 81, no. 9 (September 1993), pp. 31, 32; and Michael Barrier, "Mandates Foes Smell a Victory," Nation's Business, vol. 82, no. 9 (September 1994), p. 50.

4 Senator Dirk Kempthorne, "Unfunded Mandate Reform Act," remarks in the Senate, Congressional Record, vol. 141, part 1 (January 12, 1995), p. 1166.

5 Senator Frank Lautenberg, "Unfunded Mandate Reform Act," remarks in the Senate, Congressional Record, vol. 141, part 1 (January 12, 1995), p. 1193.

6 2 U.S.C. Sec.1501.

7 2 U.S.C. Sec.658; and 2 U.S.C. Sec.1532.

8 2 U.S.C. Sec.658(5)(A), (7)(A) and (10), and 2 U.S.C. Sec.1503.

9 2 U.S.C. Sec.Sec.1551-1553.

10 ACIR funding was withdrawn following the release for public comment and a hearing on the draft report on federal mandates. ACIR was required by UMRA to conduct the study and to make recommendations for mitigating the effect mandates have on state and local governments. The draft report recommended the elimination of a number of federal mandates which had strong support in Congress. ACIR's commission members decided not to release the report in a party-line vote. Most observers concluded that the draft report was a contributing factor in ACIR's losing its funding. See, John Kincaid, "Review of 'The Politics of Unfunded Mandates: Whither Federalism?' by Paul L. Posner," Political Science Quarterly, vol. 114, no. 2 (Summer 1999), pp. 322-323.

11 2 U.S.C. Sec.1571.

150 President Bill Clinton, "Remarks on Signing the Unfunded Mandates Reform Act of 1995," Weekly Compilation of Presidential Documents, vol. 31, no. 12 (March 22, 1995), p. 455.

151 GAO, Unfunded Mandates: Views Vary About Reform Act's Strengths, Weaknesses, and Options for Improvement, GAO-05-454, March 31, 2005, pp. 5-7, 9-14, at http://www.gao.gov/new.items/d05454.pdf.

152 Robert Pear and David M. Herszenhorn, "Senators Hear Concerns Over Costs of Health Proposal," The New York Times, August 6, 2009, at http://www.nytimes.com/2009/08/07/health/policy/07health.html?hpw; Clifford Krauss, Governors Fear Added Costs in Health Care Overhaul, The New York Times, August 6, 2009, at http://www.nytimes.com/2009/08/07/business/07medicaid.html; and Chas Sisk, "Tennessee Gov. Bredesen takes lead role in fight over health costs," The Tennessean, August 18, 2009.

153 CBO, "Cost Estimate for the Patient Protection and Affordable Care Act," November 18, 2009, p. 18, at http://www.cbo.gov/ftpdocs/107xx/doc10731/Reid_letter_11_18_09.pdf.

154 CBO, "CBO's Activities Under the Unfunded Mandates Reform Act," at https://www.cbo.gov/publication/51335.

155 U.S. Congress, House Committee on Oversight and Government Reform, Unfunded Mandates Information and Transparency Act of 2015, report to accompany H.R. 50, 114th Cong., 1st sess., February 2, 2015, H.Rept. 114-11 (Washington: GPO, 2015), p. 2.

156 U.S. Congress, House Committee on Oversight and Government Reform, Unfunded Mandates Information and Transparency Act of 2015, p. 37.

157 Thomas R. Dye, Understanding Public Policy, 6th edition (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1987), p. 301.

158 Thomas R. Dye, Understanding Public Policy, p. 300; ACIR, Categorical Grants: Their Role and Design (Washington, DC: ACIR, 1978), pp. 50-58; and Claude E. Barfield, Rethinking Federalism: Block Grants and Federal, State, and Local Responsibilities (Washington, DC: American Enterprise Institute, 1981), pp. 4-8.

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View the text of the full report at https://crsreports.congress.gov/product/pdf/R/R40957