Unfunded Mandates Explained | The West Wing Debate

The Unfunded Mandates Reform Act (UMRA) of 1995 was designed to increase transparency and accountability regarding federal mandates imposed on state and local governments, but witnesses testified that the law contains significant limitations, including exemptions for independent regulatory agencies and failures to account for indirect costs, which undermines its effectiveness in preventing unfunded mandates that burden small businesses and state budgets; proposed reforms include expanding UMRA's scope to cover independent agencies, requiring federal reimbursement for mandate costs, and implementing sunset provisions for existing regulations.

Since the founding of the Nation, the Federal Government has balanced its authority with States, counties, and cities, each operating within budgetary and statutory limitations. However, dedicated government staff increasingly move from serving people to mandating preferences onto agencies. In the modern regulatory environment, the probability that the Federal Government will overstep constitutional boundaries to impose preferences on State and local leaders has become increasingly likely, with little check and balance, allowing Federal regulators to dramatically affect budgets and staff structures of State and local governments. The Unfunded Mandates Reform Act of 1995 was enacted to minimize these burdens by defining mandates and creating congressional points of order, but multiple agencies and actions were excluded from UMRA, and its definition has come under criticism for being too narrow. Susan Dudley, former OIRA Administrator, testified that during her tenure, Executive Branch agencies issued 108 economically significant final regulations, only 17 classified as unfunded mandates, and none imposing mandates on State, local, or tribal governments. EPA's national ambient air quality standards were not classified as unfunded mandates because costs didn't meet the UMRA definition and the Clean Air Act prohibits EPA from considering cost when setting primary standards. Similarly, an HHS rule eliminating Medicaid reimbursement wasn't covered because it didn't require states to replace federal funding. The Government Accountability Office evaluated UMRA on its tenth anniversary and found that the Act does not adequately capture regulatory actions that might impose financial burdens on others. In 2004, GAO reviewed all final major and economically significant rules from 2001-2002 and found only nine triggered UMRA requirements, with the most frequent reasons being: the $100 million financial threshold wasn't met; the rule didn't go through the proposed rule stage; participation was considered voluntary; or the rule was issued by an independent regulatory agency.

The House Oversight and Government Reform Committee exists to secure two fundamental principles: that Americans have the right to know Washington's money is well spent, and that Americans deserve efficient, effective government. The committee's duty is to hold government accountable to taxpayers. The Unfunded Mandates Reform Act of 1995 (UMRA) was designed to set federal mandates on state, local, and tribal governments and the private sector by shedding light on expected economic impacts. However, in the past 10 years, only four rules have been classified as unfunded mandates on state, local, and tribal governments, and only 13 of 66 major rules issued in 2010 were classified as unfunded mandates. Charts showed a rising trend of major regulations from the federal government, indicating UMRA is failing to live up to its promise of reducing unfunded mandates. The cost estimates under UMRA only capture direct costs or expenditures, not the total effects on the economy as required under Executive Order 12866. Thresholds are based on inflation adjustments, but this adjustment is not applied to Executive Order 12866. The cost estimates also do not account for the need to prepare for unfunded mandates by local governments or private businesses. A report by George Washington University Regulatory Study Centers found that the number of staff employed on regulatory matters within the federal government is on schedule to grow to about 10,000 new regulatory employees per year in 2011 and 2012, with full-time regulatory employees expected to reach an all-time high of 291,676 in 2012. In 2011, OIRA estimated that the annual benefits of major federal regulations issued between 2000 and 2010 are between $136 billion and $651 billion, while estimated annual costs are between $44 billion and $62 billion. Economic benefits of regulations are up to 10 times the costs. This conclusion is not limited to the Obama administration; in 2008, the Bush administration estimated that annual benefits of regulations issued between 1997 and 2007 ranged from $122 billion to $656 billion, while estimated annual costs ranged from $65.46 billion to $54 billion. According to both administrations, the benefits of these regulations greatly outweigh the costs. State and local governments are often direct beneficiaries of federal regulation, which protects the American public from health, welfare, and safety threats while saving local governments from significant expenses they would otherwise bear. OIRA has intervened to block proposed regulations of greenhouse gas pollution under the Clean Air Act Amendment. The consequences of failing to prevent global warming could be severe. According to Munich Re, the only plausible explanation for the rise of weather-related catastrophes is climate change. Recent extreme weather events, including unprecedented tornadoes that killed hundreds of Americans in Missouri, Alabama, and Virginia, demonstrate the devastation of climate change can reach biblical proportions. The vehicle efficiency standards enacted in the Clean Air Act will save consumers $3,000 per vehicle by improving the average vehicle's efficiency by 30 percent. In aggregate, OIRA estimates this regulation will produce $12.4 billion in benefits for consumers for only $3.7 billion in costs, representing a four-to-one ratio of benefits to costs. A central goal of UMRA is to minimize burdens on state, local, and tribal governments and the private sector, ensuring burdens are imposed only after informed and careful consideration. Title II of UMRA imposes reporting and consultation requirements for rules resulting in annual expenditure of $100 million or more on state, local, and tribal governments or the private sector. These requirements involve careful assessment of costs and benefits as well as accounting of various potential effects on the economy. UMRA from 1995 has a clear relationship to President Reagan's Executive Order 12291 from the early 1980s, which required agencies to analyze the effects of rules in advance and try to reduce burdens and costs. More recently, President Obama issued Executive Order 13563, which reaffirms the requirements of Executive Order 12866 and contains provisions bearing directly on UMRA goals. Executive Order 13563 specifically directs regulations to be based on the open exchange of information and perspectives among state, local, and tribal officials and the public as a whole. The executive order requires that before issuing a notice of proposed rulemaking, agencies must seek the views of those likely to be affected. It also requires agencies to select the least burdensome approaches to minimize cumulative costs, simplify and harmonize overlapping regulations, and identify flexible approaches that maintain freedom of choice for the American public. Executive Order 13563 requires a regulatory look back through the creation of plans by which agencies and departments will eliminate excessive costs and burdens, revise rules that are too complicated and confusing, and streamline rules that have too much red tape. This applies directly to state, local, and tribal governments as well as the private sector. The most important lesson learned from applying UMRA, Executive Order 12866, and Executive Order 13563 is the crucial importance of public participation to good regulatory outcomes. A common assumption among administrative law professors is that by the time a rule goes out for public comment, it's already 'baked' and public comments are not important. However, this cliche is false; to get rules right, it's very important to engage with the public. The best way to select who gives public comment is to let people who have interests and concerns voice those interests and concerns rather than having bureaucrats select people. OIRA is open to those who think a proposed rule or final rule is a problem at any stage of the process. When a rule comes in with a low-cost estimate and people in the private sector or state and local government say the estimate is inaccurate, OIRA has an internal process involving the Council of Economic Advisers, the National Economic Council, and economists within the government who try to make an assessment. There is also external peer review in the sense that the regulatory impact analysis goes out for public review. The ultimate decision is made by the agency working with OIRA, which has the authority not to approve a regulatory impact analysis. State and local governments are particularly strapped economically, so if there's a rule that burdens them economically, the choice of the least burdensome alternative may not be to impose the burden at all. OIRA looks at the benefits as well as the costs of regulations. Under the president's executive order, benefits are highlighted as prominently as costs. For example, in agreeing to new fuel efficiency standards, EPA projects that over the lifetime of a 2016 model, the average consumer will save $3,000 and the United States will save 1.8 billion barrels of imported oil. OIRA also looks at the risks of cost shifting, where costs are shifted from one sector to

The Congressional Budget Act of 1974 prohibits Congress from passing legislation containing unfunded intergovernmental mandates that exceed statutory limits without providing corresponding funding, and the 1995 Unfunded Mandates Reform Act was bipartisan legislation designed to prevent the federal government from imposing costs on states and cities without providing financial resources to cover those costs.

The Unfunded Mandates Reform Act (UMRA) of 1995 was designed to require federal agencies to estimate and report the costs of their mandates on state and local governments, but it has significant weaknesses including exemptions for independent agencies like the FCC and SEC, exclusion of grant aid changes from mandate definitions, and lack of enforcement mechanisms; Congresswoman Virginia Foxx advocates for the Unfunded Mandates Information and Transparency Act (UMITA) to address these limitations and improve regulatory transparency.