Accountability and Federal Mandates: Unfunded Mandates Reform Act

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Presentation for
• The Government and Nonprofit Sector of the
  American Accounting Association and
• The Kennedy School of Government
• April 1, 2005
• Joseph Santiago
• Senior Analyst, Strategic Issues,
• U.S. Government Accountability Office

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Background
• 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 without federal
  funding to cover the costs
• UMRA generates information about the nature and
  size of potential federal mandates in proposed
  legislation and regulations It does not
  prohibit unfunded mandates
• Federal mandates can be intergovernmental (on
  state, local, and tribal governments) or private
  sector (on other parties, including individuals)
• Title I of UMRA focuses on the legislative
  process, and title II focuses on the regulatory
  process

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Objectives of the May 2004 GAO report for Senator
  Voinovich
• Describe the general procedures for identifying
  federal mandates under UMRA
• Identify statutes and rules that were identified
  as containing federal mandates under UMRA
• Provide examples of statutes and rules that were
  not identified as containing federal mandates,
  but affected parties might perceive as such

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Figure 1 Steps Proposed Legislation Must Pass
  Through

Provision is contained in authorizing legislation
reported by an authorizing committee and not
added after initial CBO UMRA review.
Automatic CBO Review
Provision is not one of seven UMRA exclusions.
Provision is an enforceable duty on state, local
or tribal governments or the private sector, and
it is not an UMRA exception.
Direct cost estimate is feasible.
Direct cost estimate for all provisions in
legislation meets or exceeds threshold.
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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Procedures for Identifying Mandates
• There are two main ways provisions would not be
  identified and/or trigger UMRAs requirements
• Some statutes and rules may be enacted or issued
  via procedures that do not trigger UMRA reviews
• Legislative examples include provisions in
  appropriations bills or bills going directly to
  the floor and also amendments added after the
  initial CBO UMRA review
• Regulatory examples include provisions in rules
  issued by independent regulatory agencies or in
  final rules issued without a prior proposed rule
• Even if reviewed, UMRA exclusions, definitional
  exceptions, or cost estimation limitations and
  thresholds may apply

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Exclusions and Exemptions in Coverage
• Examples include provisions that
• Enforce constitutional rights of individuals
• Establish or enforce statutory rights that
  prohibit discrimination
• Are necessary for national security
• Impose enforceable duties that are conditions of
  federal financial assistance
• Impose enforceable duties that arise from
  participation in other voluntary federal programs
• Additional restrictions in coverage of rules
  e.g. rules issued by independent agencies,
  exclusion of actions reducing revenues

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Triggers
• Direct costs in legislation must meet or exceed
  UMRAs thresholds (in 1996 dollars, adjusted
  annually for inflation)
• Intergovernmental 50 million in any of the
  first 5 fiscal years the mandate is in effect
• Direct costs include any amounts that governments
  are prohibited from raising in revenues
• Private sector 100 million in first 5 fiscal
  years
• For regulations to trigger UMRA, the potential
  mandate must require 100 million or more in
  expenditures in any 1 year

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Mandates covered by the Act in 2001-2002
• Few statutes and rules were identified as
  containing federal mandates at or above UMRAs
  cost thresholds
• CBO identified 5 of the 377 statutes enacted
  during 2001 and 2002
• Federal agencies identified 9 of the 122 major
  final rules published during 2001 and 2002
• Each of the 5 statutes and 9 rules contained
  private sector mandates, and 1 rule (arsenic in
  drinking water) also contained an
  intergovernmental mandate
• There was some evidence that UMRA had an indirect
  effect helping to hinder mandates in legislation

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Other Statutes and Rules With Nonfederal Impacts
• At least 43 other statutes and 65 other rules
  from the 2-year period resulted in new costs or
  other negative financial impacts on affected
  nonfederal parties
• For 24 of those statutes and 26 of the rules, the
  estimated direct costs/expenditures did not meet
  or exceed UMRAs thresholds
• The remaining statutes most often did not trigger
  UMRA because UMRA did not require a CBO review
  prior to their enactment
• The remaining rules most often did not trigger
  UMRA because they were issued by independent
  agencies
• Figures 2 and 3 illustrate the breakdown of our
  findings

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Figure 2 How Certain Statutes Were Treated Under
  UMRA

Source CBO
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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Figure 3 How Final Rules Were Treated Under UMRA

10 were or should have been identified as
containing federal mandates at or above UMRAs
threshold
28 did not contain federal mandates at or above
UMRAs threshold but imposed significant impacts
on nonfederal parties
84 did not contain federal mandates at or above
UMRAs threshold and did not impose significant
impacts on nonfederal parties
Source GAO
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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Analysis of Statutes and Final Rules
• Some statutes and rules that did not trigger UMRA
  appeared to have potential financial impacts on
  nonfederal parties similar to those that
  triggered UMRA
• Among 10 such examples of statutes in the report
• 3 imposed new requirements and standards on state
  and local governments (e.g., Help America Vote
  Act of 2002)
• 2 preempted state and local laws and/or
  restricted their authority in some fashion (e.g.,
  USA PATRIOT Act of 2001)
• 1 potentially impacted tax revenues (Economic
  Growth and Tax Relief Reconciliation Act of 2001)

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Analysis of Statutes and Final Rules (continued)
• Among 29 such examples of rules in the report
• 5 reduced the level of federal payments to
  nonfederal parties by more than 100 million in
  any year (e.g., HHS final rule on revision to
  Medicaid upper payment limit requirements)
• 2 included voluntary options that might increase
  Medicaid costs to states by over 125 million in
  some years (e.g., HHS final rule on new
  provisions regarding Medicaid program and managed
  care)
• 1 rule had estimated indirect costs of 103
  billion over 50 years for actions that might be
  taken based on its standards (EPA rule on
  dangerous levels of lead in housing and
  child-occupied facilities)

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Conclusions
• In certain circumstances, UMRA may have served to
  highlight mandate costs and may have helped to
  discourage or limit federal mandates
• However, many actions with significant costs were
  not covered.
• Raises the question of whether UMRAs procedures,
  definitions, and exclusions adequately capture
  and subject to scrutiny federal statutory and
  regulatory actions that might impose significant
  financial burdens on affected nonfederal parties.

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Senator Voinovich requested additional work by
  GAO on federal mandates issues
• Consult with a diverse group of knowledgeable
  parties familiar with the act and report on the
  most significant strengths and weaknesses of UMRA
  as the framework for addressing federal mandates
  issues.
• For the strengths and/or weaknesses most
  frequently identified report, to the extent
  possible, on
• The level of agreement on the significance of the
  issue
• Potential options for addressing the weaknesses
  and reinforcing the strengths, and
• The level of priority for action.

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• To address the objectives
• GAO sought input on UMRA and federal mandates
  issues from organizations and individuals
  representing a variety of viewpoints within the
  academic, business, federal agency, public
  interest advocacy group, and state and local
  government.
• GAO hosted a symposium on UMRA and federal
  mandates issues on January 26, 2005.
• The report is currently being drafted.
• The final product will be delivered to Senator
  Voinovich shortly.

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Accountability and Federal MandatesUnfunded
Mandates Reform Act

• Contact information
• The full May 2004 report (report number
  GAO-04-637) can be found at www.gao.gov
• For more information contact Orice Williams,
  Acting Director, Strategic Issues, at (202)
  512-5837 or williamso_at_gao.gov or Tim Bober,
  Assistant Director, Strategic Issues, at (202)
  512-4432 or bobert_at_gao.gov