By Larry Jones
June 7, 2004

In a report released May 21, the Government Accounting Office (GAO) stated that only a few federal statutes and rules were approved in 2001 and 2002 that impose costly mandates on state and local governments, and the private sector. However, the report questions whether the Unfunded Mandates Reform Act of 1995 (UMRA), which establishes definitions, procedures and exceptions for determining mandates, adequately captures all federal requirements. The report cited a number of statutes and rules that are not covered under UMRA that impose a significant financial burden on state and local governments.

The report concluded there is some evidence UMRA "has a discouraging effect on the enactment of intergovernmental mandates and the magnitude of cost" to state and local governments, and the private sector. The GAO examined 377 statutes and 122 major federal rules approved during 2001 and 2002 and found that only 5 statutes and 9 rules contained costly mandates that met or exceeded the threshold set in UMRA. In comparison, the report points out that between 1996 and 2000 that 18 mandates (2 on state and local governments and 16 on the private sector) were enacted that met or exceeded the threshold. Under the law cost estimates are required for proposed statutes that have the potential of costing state and local governments $50 million or more annually, and proposed rules that have the potential of costing $100 million or more.

Of the 377 statutes that the GAO examined, only 5 were approved that meet or exceeded the threshold. None of the five were imposed on state and local governments. And since 1996, only 3 statutes imposing costly mandates on state and local governments have been enacted (an increase in the minimum wage in 1996, a reduction in federal funding for Food Stamps in 1997 and a preemption of state laws on premiums for prescription drug coverage in 2003). The report also suggests that UMRA has been effective in both reducing the number of costly statutes as well as the cost of those finally enacted.

Between 1996, and 2000, the report states that the Congressional Budget Office (CBO) identified 59 proposed statutes that contained costly federal mandates above the threshold. Following CBO's identification, 9 were amended before enactment to reduce their cost below the threshold, while 18 were enacted with costs above the threshold, and 32 were never enacted.

Although the report suggests UMRA has been somewhat effective, there are a number of loopholes that allow federal statutes to be adopted that impose significant financial burdens on state and local governments. The reports points out that UMRA does not require automatic CBO review of mandates contained in appropriation bills or mandates added to a statute after CBO's review. In 2001 and 2002, seven bills containing mandates were enacted without a CBO review because they were either included in appropriations bills or were authorizing bills not reported by authorizing committees. Another three statutes were enacted in 2002 that contained mandates not reviewed by CBO prior to enactment because they were added after CBO's review.

Also, statutes that provides grant assistance to state and local governments are not covered by UMRA although in many instances they may include significant financial impacts on state and local governments. The No Child Left Behind Act, the Homeland Security Act and the Help America Vote Act were all cited as examples of statutes that provide grant assistance but impose various costly requirements on state and local governments.

The report states that federal agencies identified 9 of the 122 major federal rules published in 2001 and 2002 as having federal mandates as defined by UMRA. Only one (the Environmental Protection Agency's enforceable standard for the level of arsenic in drinking water systems) of the nine rules contained an mandate on state and local governments. However, even more troublesome than the loopholes in statutes, UMRA allows more loopholes through the regulatory process that permit federal agencies to avoid identifying costly mandates in rules and regulations.

The report points out that GAO determined that 65 of the remaining rules imposed new requirements on state and local governments and the private sector. Under UMRA, federal agencies are provided 14 definitional exceptions, exclusions, or other restrictions that can be used to avoid a cost estimate. According to the report, at least 29 of the 65 rules appeared to have significant financial impact on state and local governments and the private sector.

The Conference and other state and local groups are working with Senator George Voinovich (OH), who chairs the Senate Subcommittee on Oversight of Government Management, to encourage the GAO to further examine how UMRA fails to capture the true financial burdens placed on state and local governments by federal requirements. With this information, state and local groups can began crafting recommendations for improving UMRA to better capture the true cost of federal requirements.