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CBO's Activities Under the Unfunded Mandates Reform Act, 1996-2000 May 2001

The Unfunded Mandates Reform Act (UMRA)--passed in 1995 in one of the first actions of the 104th Congress--is intended to focus more attention on the costs of mandates that the federal government imposes on other levels of government or the private sector. UMRA's supporters had many goals for the legislation, including ensuring that the Congress had information about the costs of mandates before it decided whether to impose them, and encouraging the federal government to provide funding to cover the costs of intergovernmental mandates. To accomplish those goals, title I of UMRA established requirements for reporting on federal mandates and new legislative procedures designed to increase both the supply of information about the costs of mandates and Congressional demand for such information.

In the five years since UMRA took effect, both the amount of information about mandate costs and interest in that information have increased dramatically. In addition, numerous pieces of legislation that originally contained significant unfunded mandates were amended to either eliminate the mandates or lower their costs. In many of those cases, information about mandate costs provided by the Congressional Budget Office (CBO) clearly played a role in the Congressional decisions. In those respects, title I of UMRA has proved to be effective.
 

Trends in Federal Mandates Since 1996

Title I of UMRA requires CBO to estimate the costs of federal mandates in bills that are considered by authorizing committees. CBO must provide a detailed cost estimate for each bill that contains mandates whose costs would total $50 million or more per year to the public sector (state, local, or tribal governments) or $100 million or more per year to the private sector. (Those thresholds are in 1996 dollars and are adjusted each year for inflation. In 2000, they were $55 million for intergovernmental mandates and $109 million for private-sector mandates.)

Since UMRA took effect in 1996, CBO has provided mandate cost statements for nearly all of the bills reported by authorizing committees. It has also given information to Members of Congress and Congressional staff about mandates at other stages in the legislative process--before bills are introduced, when amendments are considered on the floor of the House or Senate, and when conference committees develop their reports.

Over the past half decade, several patterns about federal mandates and their costs have become clear.⁽¹⁾

• Most of the legislation that the Congress considered in the past five years did not contain federal mandates as UMRA defines them. Of the more than 3,000 bills and other legislative proposals that CBO reviewed between 1996 and 2000, 12 percent contained intergovernmental mandates and 14 percent contained private-sector mandates.



• Most of those mandates would not have imposed costs greater than the thresholds set by UMRA. Only about 9 percent (32) of the bills with intergovernmental mandates--or 1 percent of the bills that CBO reviewed--had annual costs of $50 million or more, by CBO's estimate. (About half of the intergovernmental mandates that CBO identified were explicit preemptions of state or local authority. In most of those cases, the costs to comply with the preemptions were not significant.) Less than 24 percent (100) of the bills with private-sector mandates--or about 3 percent of the bills that CBO reviewed--had costs of more than $100 million a year (see Summary Table 1). Few of the bills with either kind of mandate, however, contained federal funding to offset the costs of the mandates.



• Although the percentage of bills containing a federal mandate stayed fairly constant over the past five years, the percentage of bills with mandates over the statutory thresholds declined steadily. Bills with intergovernmental mandates above the threshold decreased from 1.5 percent (11) in 1996 to less than 0.5 percent (3) in 2000, and bills with private-sector mandates above the threshold dropped from 5.6 percent (38) in 1996 to less than 1 percent (6) in 2000.



• Few mandates with costs over the UMRA thresholds were enacted in the past five years. Only two intergovernmental mandates with annual costs of at least $50 million became law--an increase in the minimum wage (in 1996) and a reduction in federal funding to administer the Food Stamp program (in 1997). Those enacted mandates represent less than 1 percent of the intergovernmental mandates that the Congress has considered since UMRA took effect.

  A slightly larger percentage of private-sector mandates before the Congress became law and imposed significant costs. Sixteen of the private-sector mandates identified by CBO as costing more than the $100 million threshold were enacted. Of those, eight involved taxes, three concerned health insurance (requiring portability of insurance coverage, minimum maternity stays, and changes in Medicare coverage), two dealt with regulation of industries (telecommunications reform and changes in milk pricing), two affected workers' take-home pay (increases in the minimum wage and in federal employees' contributions for retirement), and one imposed new requirements on sponsors of immigrants.




• In some cases, lawmakers have altered legislative proposals to reduce the costs of federal mandates before enacting them. Four intergovernmental and five private-sector mandates that CBO identified as having costs above the thresholds when they were approved by authorizing committees were amended before enactment to bring their costs below the thresholds. For many of those mandates--such as a requirement that driver's licenses show Social Security numbers, a moratorium on certain taxes on Internet services, preemptions of state securities fees, and provisions in the farm bill about the contents of milk--it was clear that information provided by CBO played a role in the Congress's decision to lower the costs.

The Narrow Scope of UMRA

The numbers presented in this report should be viewed in light of the fact that UMRA defines federal mandates narrowly. According to the law, the conditions attached to most forms of federal assistance (including most entitlement grant programs) are not mandates. In some cases, complying with such conditions of aid can be costly. Between 1996 and 2000, CBO identified more than 450 bills that would impose those types of nonmandate costs on state, local, or tribal governments. In most cases, however, CBO estimated that such costs would not be significant. During that period, CBO also identified numerous bills that would benefit state, local, or tribal governments.

In addition, UMRA focuses on the direct costs that entities affected by mandates would bear. But federal mandates also impose indirect costs, including the effects on prices and wages when the costs of a mandate imposed on one party are passed along to other parties, such as customers or employees. Those effects of federal legislation on other levels of government and the private sector are not subject to the requirements of UMRA. Nevertheless, CBO includes information about significant indirect effects in some of its cost statements for mandates over the threshold. When sufficient time and data are available, it also provides quantitative estimates of the size of those effects. For example, CBO analyzed the indirect effects of proposed mental health parity requirements, including possible reductions in workers' take-home pay, health insurance coverage, and fringe benefits. Similarly, CBO's analysis of proposed increases in the minimum wage included the possible impact on employment of low-wage workers.

The scope of UMRA is further narrowed by the fact that the law does not apply to legislative provisions that deal with constitutional rights, discrimination, emergency aid, accounting and auditing procedures for grants, national security, treaty ratification, and title II of Social Security (Old-Age, Survivors, and Disability Insurance benefits). Roughly 5 percent of the bills that CBO reviewed in the past five years contained provisions that fit within those exclusions. Many of them addressed constitutional rights or national security issues.
 

Challenges to CBO in Implementing UMRA

Determining what constitutes a mandate under UMRA can be complicated. For example, the law defines a mandate as "an enforceable duty except . . . a duty arising from participation in a voluntary federal program." Although an activity (such as sponsoring an immigrant's entry into the United States) may be voluntary, the federal program affecting that activity (immigration laws) is not. In that case, a bill imposing new requirements on the sponsors of immigrants would constitute a mandate under UMRA. In contrast, other federal programs that are truly voluntary in nature may impose requirements on their participants that, by UMRA's definition, are not mandates. Those distinctions between what is voluntary and what is mandatory are not always clear.

Even when CBO determines that a legislative proposal contains a federal mandate, the agency faces numerous challenges in estimating the costs of the mandate. In some cases, accurately determining how many state and local governments or entities in the private sector would be affected by a mandate is impossible. In other cases, the entities that would be subject to a mandate are diverse and would not be affected uniformly, making it difficult to total the incremental costs of compliance for all parties that would be affected. In other instances, it may be impossible to estimate the costs of a mandate at the legislative stage, before regulations to implement it have been developed. Even the mandated parties may not be able to estimate costs reliably without knowing what the regulations to carry out the mandate will entail.

Fortunately, UMRA requires CBO to determine whether the costs of complying with mandates would exceed specific thresholds and to provide cost estimates only for mandates that would do so. If UMRA required CBO to provide more-detailed estimates for each mandate, the agency's job would be considerably more difficult and time consuming.
 

Proposals to Expand UMRA

Since UMRA was enacted, lawmakers have proposed expanding title I in several ways. One proposal would build on UMRA's perceived success in focusing Congressional attention on unfunded intergovernmental mandates by expanding the law's procedural requirements for private-sector mandates (particularly the provision that allows Members of Congress to raise a point of order, or procedural objection, against a bill that contains an intergovernmental mandate with costs above the threshold). Other proposals would expand UMRA's definition of a mandate as it relates to large federal entitlement programs administered by state or local governments. Both of those proposals were included in the Mandates Information Act, which was considered by the Congress in 1998 and 1999 but never enacted.

To date, lawmakers have made only one, relatively minor, change to UMRA. The State Flexibility Clarification Act of 1999 (Public Law 106-141) requires authorizing committees and CBO to provide more information in committee reports and mandate statements for legislation that would "place caps upon, or otherwise decrease, the federal government's responsibility to provide funding to state, local, or tribal governments" under some large entitlement grant programs. In general, that requirement for additional information applies to few bills, and no legislation reported by authorizing committees since the requirement was enacted has been affected by it.

1. Because CBO's experiences each year with UMRA have been so similar, these observations closely mirror the conclusions presented in CBO's four previous annual reports on the subject: An Assessment of the Unfunded Mandates Reform Act in 1999 (March 2000), An Assessment of the Unfunded Mandates Reform Act in 1998 (February 1999), An Assessment of the Unfunded Mandates Reform Act in 1997 (February 1998), and The Experience of the Congressional Budget Office During the First Year of the Unfunded Mandates Reform Act (January 1997).

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