Federal Mandates: Identification Process Is Complex and Federal
Agency Roles Vary (08-MAR-05, GAO-05-401T).
The Unfunded Mandate Reform Act of 1995 (UMRA) was enacted to
address concerns expressed by state and local governments about
federal statutes and regulations that require nonfederal parties
to expend resources to achieve legislative goals without being
provided funding to cover the costs. Over the past 10 years,
Congress has at various times considered legislation that would
amend various aspects of UMRA. This testimony is based on GAO's
report, Unfunded Mandates: Analysis of Reform Act Coverage
(GAO-04-637, May 12, 2004). Specifically, this testimony
addresses (1) the process used to identify federal mandates and
what are federal agencies' roles, (2) statutes and rules that
contained federal mandates under UMRA, and (3) statutes and rules
that were not considered mandates under UMRA but may be perceived
to be "unfunded mandates" by certain affected parties.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-401T
ACCNO: A18899
TITLE: Federal Mandates: Identification Process Is Complex and
Federal Agency Roles Vary
DATE: 03/08/2005
SUBJECT: Cost analysis
Federal legislation
Federal regulations
Private sector
Regulatory agencies
Federal law
Statutory law
Intergovernmental relations
******************************************************************
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GAO-05-401T
United States Government Accountability Office
GAO Testimony
Before the Committee on Government Reform, House of Representatives
For Release on Delivery Expected at 2:00 p.m. EST Tuesday, March 8, 2005
FEDERAL MANDATES
Identification Process Is Complex and Federal Agency Roles Vary
Statement for the Record by Orice M. Williams, Director Strategic Issues
a
GAO-05-401T
[IMG]
March 8, 2005
FEDERAL MANDATES
Identification Process Is Complex and Agency Roles Vary
What GAO Found
GAO found that the identification and analysis of intergovernmental and
private sector mandates is a complex process under UMRA. Proposed
legislation and regulations are subject to various definitions, exclusions
and exceptions before being identified as containing mandates at or above
UMRA's cost thresholds. The Congressional Budget Office (CBO) is required
to prepare statements identifying and estimating, if feasible, the costs
of mandates in legislation. While a point of order can be raised on the
floor of the House or Senate against consideration of any UMRA-covered
intergovernmental mandate that lacks a CBO estimate or exceeds the cost
thresholds, it contains no similar enforcement for private sector
mandates. Conversely, federal agencies are required to prepare mandate
statements for regulations containing intergovernmental or private sector
mandates that would result in expenditures at or above the UMRA threshold.
The Office of Information and Regulatory Affairs, within the Office of
Management and Budget, is responsible reviewing compliance with UMRA as
part of the rule making process.
In 2001 and 2002, 5 of 377 statutes enacted and 9 of 122 major or
economically significant rules issued were identified as containing
federal mandates at or above UMRA's thresholds. All 5 statutes and 9 rules
contained private sector mandates as defined by UMRA. One final rule also
contained an intergovernmental mandate.
Despite the determinations under UMRA, at least 43 statutes and 65 rules
issued in 2001 and 2002 resulted in new costs or negative financial
consequences on nonfederal parties. These parties may perceive such
statutes and rules as unfunded or underfunded mandates even though they
did not meet UMRA's definition of a federal mandate at or above UMRA's
thresholds. For 24 of the statutes and 26 of the rules, CBO or the
agencies estimated that the direct costs or expenditures, as defined by
UMRA, would not meet or exceed the applicable thresholds. The others were
excluded for a variety of reasons stemming from exclusions or exceptions
specified by UMRA.
United States Government Accountability Office
Mr. Chairman and Members of the Committee:
We are pleased to have the opportunity to comment on federal mandates and
the Unfunded Mandates Reform Act of 1995 (UMRA). As you know, UMRA was
enacted to address concerns expressed by state and local governments about
federal statutes and regulations that require nonfederal parties to expend
resources to achieve legislative goals without providing funding to cover
the costs.1 Many federal statutes and the regulations that implement them,
impose requirements on state, local, and tribal governments
(intergovernmental mandates) and the private sector (private sector
mandates) in order to achieve certain legislative goals. Such statutes and
their regulations can provide substantial benefits, as well as impose
costs.
Although UMRA was intended to "curb the practice of imposing unfunded
Federal mandates,"2 the act does not prevent Congress or federal agencies
from doing so. Rather, UMRA generates information about the nature and
size of potential federal mandates on other levels of government and the
private sector to assist Congress and agency decision makers in their
consideration of proposed legislation and regulations. Title I of UMRA
requires congressional committees and the Congressional Budget Office
(CBO) to identify and provide information on potential federal mandates in
certain legislation. Similarly, Title II of UMRA requires federal agencies
to prepare a written statement identifying the costs and benefits of
federal mandates contained in certain regulations and consult with
affected parties. It also requires action of the Office of Management and
Budget (OMB), including establishing a program to identify and test new
ways to reduce reporting and compliance burdens for small governments and
annual reporting to Congress on agencies' compliance with UMRA.3
My statement focuses on titles I and II of the act and provides an
overview of the activities of the federal entities charged with carrying
out this act. For each title, I will (1) discuss the process used to
identify federal
1Pub. L. No. 104-4, 2 U.S.C. S:S:658-658g, 1501-71.
2Pub. L. No. 104-4 pmbl. As in the act, we generally refer to the
identification of federal mandates, rather than unfunded mandates, in this
report.
3UMRA also includes two other titles. Title III of UMRA requires the
Advisory Commission on Intergovernmental Relations to conduct a study
reviewing federal mandates, and title IV establishes limited judicial
review under the act.
mandates in statutes and rules, including the role of the federal
entities; (2) provide examples of statutes and rules that contained
federal mandates under UMRA; and (3) provide examples of statutes and
rules that were not considered federal mandates under UMRA, but that
affected parties may perceive to be "unfunded mandates." As agreed with
the Committee, our statement is based primarily on our May 2004 report,
which analyzes UMRA's coverage.4
In summary, we reported that the identification and analysis of
intergovernmental and private sector mandates is a complex process under
UMRA. Proposed legislation and regulations must pass through multiple
steps and meet multiple conditions before being identified as containing
mandates at or above UMRA's thresholds. Under title I of the act, CBO is
required to prepare statements identifying and estimating the costs of
mandates in legislation that meets certain criteria to identify whether or
not those estimated costs meet or exceed UMRA's cost thresholds. A point
of order can be raised on the floor of the House or Senate against
consideration of any unfunded intergovernmental mandate exceeding UMRA's
cost threshold. However, it contains no similar enforcement mechanism for
private sector mandates. Under title II, federal agencies are required to
prepare mandate statements for regulations containing intergovernmental or
private sector mandates that would meet or exceed the UMRA threshold.
For both legislation and regulations, there are two general ways that
provisions would not be identified as federal mandates at or above UMRA's
thresholds. First, some legislation and regulations may be enacted or
issued via procedures that do not trigger UMRA reviews by CBO or agencies.
Second, even if the statute or rule is reviewed, UMRA limits the
identification of federal mandates through multiple definitions and
exclusions. As we reported, in 2001 and 2002, 5 of 377 statutes enacted
and 9 of 122 major or economically significant final rules issued were
identified as containing federal mandates at or above UMRA's thresholds.
All 5 statutes and 9 rules contained private sector mandates as defined by
UMRA. One final rule-an Environmental Protection Agency (EPA) standard on
arsenic in drinking water-also contained an intergovernmental mandate.
4GAO, Unfunded Mandates: Analysis of Reform Act Coverage, GAO-04-637
(Washington, D.C.: May 12, 2004). We plan to issue a follow-up report in
March 2005.
Despite the determinations made under UMRA, some of the statutes and rules
that had not triggered UMRA's requirements appeared to have potential
financial impacts on affected nonfederal parties similar to those of
actions that had been flagged as containing federal mandates at or above
UMRA's thresholds. For example, at least 43 statutes and 65 rules issued
in 2001 and 2002 resulted in new costs or other negative financial impacts
on nonfederal parties that the affected parties might perceive as
"unfunded mandates" even though they did not meet UMRA's definition of a
mandate. For 24 of the statutes and 26 of the rules, CBO or federal
agencies had determined that the estimated direct costs or expenditures,
as defined by UMRA, would not meet or exceed the applicable thresholds.
For the remaining statutes, UMRA did not require a CBO review prior to
final passage most often because the mandates were in appropriations
bills, which are not subject to an automatic review by CBO. The remaining
rules most often did not trigger UMRA because they were issued by
independent regulatory agencies, which are not covered by the act.
Identifying Federal Mandates in Statutes Is Complex
Legislation must go through several steps to be identified as containing a
federal mandate. Once mandates are identified based on UMRA's definitions,
exclusions, and exceptions, CBO determines whether the mandate meets or
exceeds UMRA's cost thresholds. As we reported last year, in 2001 and
2002, CBO identified few statutes containing federal mandates at or above
UMRA's cost thresholds. In addition, CBO reports and testimonial evidence
indicate that UMRA may indirectly impact the costs of and number of
federal mandates enacted at or above UMRA's cost thresholds. However, when
asked, some nonfederal parties said they continue to be subject to costs
associated with laws containing mandates that do not meet the statutory
definition of a mandate at or above UMRA's cost thresholds.
Legislation Must Undergo a UMRA does not require CBO to automatically
review every legislative Multistep Process to Be provision; further, the
process takes several steps to determine whether a Identified as
Containing statutory provision would be identified as a federal mandate at
or above
UMRA's cost thresholds (see fig. 1). Specifically, CBO does notFederal
Mandates at or automatically review provisions that are (1) not contained
in authorizingabove Applicable Cost
Thresholds
bills or (2) not reported by an authorizing committee.5 This means that
appropriations bills are not automatically subject to CBO review under
UMRA. However, CBO told us that it will informally review provisions in
appropriations bills and communicate their findings to appropriations
committee clerks when CBO finds potential mandates in these bills.
Although provisions contained in an authorizing bill are subject to
automatic review by CBO, the bill also must be "reported" by that
committee.6
5The Joint Committee on Taxation (JCT), rather than CBO, has jurisdiction
over proposed tax legislation and produces revenue estimates for all such
legislation considered by either the House or the Senate.
6Reported-as opposed to going directly to the full House or Senate or
"discharged" by the committee without a vote to send it to the full House
or Senate.
Figure 1: The Multistep Process Necessary for CBO to Identify Federal Mandates
in Proposed Legislation
Exclusions Yes No
CBO analyzes provision CBO issues UMRA statement stating
Is provision not based on UMRA's reason for exclusion and does not
excluded? definition make any statement regarding
mandates
Definition Yes No
Is provision an enforceable CBO issues UMRA
duty on state, local, or CBO specifies type of statement stating
tribal governments or the mandate contained in legislation does not
private sector, and is it the legislation contain a mandate under
not subject to exceptions? UMRA
Cost threshold Yes No
Does direct cost CBO issues UMRA statement CBO issues UMRA statement
estimate for all specifying type of federal specifying type of
provisions in mandate contained in the federal mandate contained
legislation meet or legislation and that it in the legislation and
exceed thresholds? meets or exceeds the that it is below the
applicable cost threshold applicable cost threshold
Source: GAO.
UMRA also does not require an automatic CBO review of provisions added
after CBO's initial review. UMRA states, however, that "the committee of
conference shall insure to the greatest extent practicable" that CBO
prepare statements on amendments offered subsequent to its initial review
that contain federal mandates.7 For example, CBO reported that for 2002,8
three laws were enacted that contained federal mandates not reviewed by
72 U.S.C. S:658c(d).
8U.S. Congressional Budget Office, A Review of CBO's Activities in 2002
Under the Unfunded Mandates Reform Act (Washington, D.C.: May 2003).
CBO prior to enactment because they were added after CBO reviewed the
legislation. For example, the Terrorism Risk Insurance Act of 2002
includes a provision requiring insurers of commercial property to offer
terrorism insurance, which was added to after CBO's UMRA review and thus
not identified as a private sector mandate under UMRA prior to enactment.9
Once a decision is made about CBO's review, CBO analyzes the provision to
determine whether the provision is excluded under UMRA. An exclusion
applies to any provision in legislation that
1. enforces Constitutional rights of individuals;
2.establishes or enforces any statutory rights that prohibit
discrimination on the basis of race, color, religion, sex, national
origin, age, handicap, or disability;
3.requires compliance with accounting and auditing procedures with respect
to grants or other money or property provided by the federal government;
4.provides for emergency assistance or relief at the request of any state,
local, or tribal government or any official of a state, local, or tribal
government;
5.is necessary for the national security or the ratification or
implementation of international treaty obligations;
6.the President designates as emergency legislation and that Congress so
designates in statute; or
7.relates to the old age, survivors, and disability insurance program
under title II of the Social Security Act (including taxes imposed by
sections 3101(a) and 3111(a) of the Internal Revenue Code of 1986 relating
to old-age, survivors, and disability insurance).
Next CBO applies UMRA's definition of a federal mandate-a provision that
would impose an enforceable duty upon state, local, or tribal governments
or upon the private sector. To be identified as a mandate, a provision
must
9Pub. L. No. 107-297.
meet this definition of a mandate and not be classified as an "exception."
Generally, exceptions are defined as enforceable duties that are
conditions of federal financial assistance or arise from participation in
a voluntary federal program.
Once the provision is identified as a mandate under UMRA, CBO determines
whether the cost estimate, if feasible, exceeds the applicable threshold
($50 million for intergovernmental and $100 million for private sector
mandates, in any of the first 5 fiscal years during which the mandate
would be effective).10 If CBO determines that a cost estimate is not
feasible, CBO specifies the kind of mandate contained in the provision,
but reports that the agency cannot estimate the costs. For example, CBO
reported that it could not estimate the costs of mandates in nine bills
that ultimately were enacted during 2001 and 2002. Common reasons why a
cost estimate may not be feasible include (1) the costs depend on future
regulations, (2) essential information to determine the scope and impact
of the mandate is lacking, (3) it is unclear whom the bill's provisions
would affect, and (4) language in UMRA is ambiguous about how to treat
extensions of existing mandates.
For intergovernmental mandates that exceed the cost threshold or cost
estimates that are not feasible, a point of order is available under UMRA.
However, UMRA does not provide for a point of order for private sector
mandates. For intergovernmental or private sector mandates below the
applicable cost threshold, CBO states in its report that a mandate exists
with costs estimated to be below the applicable cost threshold. Although
this highlights the provision as a mandate, it does not provide for a
point of order under UMRA.
UMRA also contains a mechanism designed to help curtail mandates with
insufficient appropriations, but it has never been utilized. UMRA provides
language that could be included in legislation that would allow agencies
tasked with administering funded mandates to report back to Congress on
the sufficiency of those funds.11 Congress would then have a certain time
period to decide whether to continue to enforce the mandate, adopt an
alternate plan, or let it expire-meaning the provision comprising the
10The dollar thresholds in UMRA are in 1996 dollars and are adjusted
annually for inflation.
112 U.S.C. S: 658d(a)(2)(B).
mandate would no longer be enforceable. Our January 2004 database search
has resulted in no legislation containing this language.12
CBO Identified Few Laws in 2001 and 2002 as Containing Federal Mandates at
or above UMRA's Cost Threshold, but UMRA May Have an Indirect Effect
Few laws containing federal mandates at or above the cost thresholds were
enacted in 2001 and 2002. Further, there is some evidence that the
existence of UMRA may have indirectly discouraged the enactment of some
federal mandates in proosed legislation and reduced the potential costs of
others. Of 377 laws enacted in 2001 and 2002, CBO identified at least 44
containing a federal mandate under UMRA. Of these 44, CBO identified 5
containing mandates at or above the cost thresholds, and all were private
sector mandates.13
As we previously reported, from 1996 through 2002, only three bills with
intergovernmental mandates and 21 private sector mandates with costs over
the applicable threshold became law.14 UMRA may have indirectly
discouraged the passage of legislation identified as containing mandates
at or above the cost thresholds. Similarly, UMRA may have also aided in
lessening the costs of some mandates that were enacted. From 1996 through
2000, CBO identified 59 proposed federal mandates with costs above
applicable thresholds. Following CBO's identification, 9 were amended
before enactment to reduce their costs below the applicable thresholds and
32 were never enacted. The remaining 18 mandates were enacted with costs
above the threshold.
Although CBO has not done an analysis to determine the role of UMRA in
reducing the costs of mandates ultimately enacted, it reported that "it
was
12Search conducted on Lexis on January 22, 2004, for bills and committee
reports containing this provision.
13At our request, CBO identified examples of statutes enacted in 2001 and
2002 that it believed, based on professional judgment, had potential
intergovernmental or private sector impacts but had not been identified as
containing mandates at or above UMRA's thresholds. We did not ask CBO to
compile a comprehensive list of all statutes enacted that may have
included federal mandates.
14The three intergovernmental mandates involved the 1996 minimum wage, a
reduction in federal funding for food stamps in 1997, and a preemption of
state laws on prescription drug premiums in 2003. Of the 21 private sector
mandates, 8 involved taxes, 4 concerned health insurance, 4 dealt with
regulation of industries, 2 affected workers' take home pay, 1 imposed new
requirements on sponsors of immigrants, 1 changed procedures for the
collection and use of campaign contributions, and 1 imposed fees on
airline travel to fund aviation security.
clear that information provided by CBO played a role in the Congress's
decision to lower costs."15 CBO also testified in July 2003 that "both the
amount of information about the cost of federal mandates and Congressional
interest in that information have increased considerably. In that respect,
title I of UMRA has proved to be effective." Similarly, the Chairman of
the House Rules Committee was quoted in 1998 as saying that UMRA "has
changed the way that prospective legislation is drafted... Anytime there
is a markup [formal committee consideration], this always comes up."
Finally, although points of order are rarely used, they may be perceived
as an unattractive consequence of including a mandate above UMRA cost
thresholds in proposed legislation.
Nonfederal Parties Perceived Some Enacted Provisions to Be Unfunded Mandates
Although CBO's annual reports for 2001 and 2002 showed that most proposed
legislation did not contain federal mandates as defined by UMRA,16 we
asked CBO to compile a list of examples from among those laws enacted in
2001 and 2002 that had potential impacts on nonfederal parties but were
not identified as containing federal mandates meeting or exceeding UMRA's
cost thresholds. We then analyzed these 43 examples to illustrate the
application of UMRA's procedures, definitions, and exclusions on
legislation that was not identified as containing mandates at or above
UMRA's threshold, but might be perceived to be unfunded mandates. We then
shared CBO's list of 43 examples with national organizations representing
nonfederal levels of government, and they generally agreed that those laws
contained provisions their members perceived to be mandates.17
As figure 2 shows, for 12 of the 43 examples, an automatic UMRA review was
not required for one of the reasons I discussed earlier, such as that they
were in an appropriations bill or were not reported by the authorizing
committee. Out of the remaining 31 laws that did undergo a cost estimate,
24 were found to contain mandates with costs below applicable thresholds,
15U.S. Congressional Budget Office, A Review of CBO's Activities in 2002
Under the Unfunded Mandates Reform Act.
16For more detailed information on all legislation from 2001 and 2002
identified by CBO as including federal mandates, see CBO's annual reports
on its activities under UMRA (www.cbo.gov).
17We also shared this list with organizations representing the private
sector, but received no response.
3 contained provisions that were excluded from UMRA coverage, 2 contained
provisions with direct costs that were not feasible to estimate, 1
contained a provision that did not meet UMRA's definition of a mandate,
and 1 was reviewed by the Joint Committee on Taxation and found not to
contain any federal mandates.
Figure 2: How Certain Examples of Laws with Impacts on Nonfederal Parties Were
Treated under UMRA
Source: CBO.
Note: The number of laws in any of the categories listed does not
necessarily correlate with the magnitude of perceived or actual impact on
affected nonfederal parties.
Of the 12 examples of laws with provisions that CBO was not required to
review prior to enactment, CBO later determined that 5 contained mandates
with direct costs below UMRA's thresholds, 4 contained mandates with
direct costs that could not be estimated, 1 was excluded under UMRA
because it involved national security, 1 did not meet the definition of a
mandate, and 1 had some provisions with costs below the threshold and some
provisions excluded because it involved national
security.18 For example, the Sarbanes-Oxley Act of 2002 contained both
intergovernmental and private sector mandates but CBO determined that a
cost estimate was not feasible for all mandates. Specifically, CBO
estimated the costs of providing notification of blackout periods-
specified periods of time when trading securities is prohibited-fell below
the UMRA thresholds but provided no quantified estimate, and CBO estimated
the cost of running the Public Company Accounting Oversight Board and an
associated standard-setting body to be approximately $80 million per year,
which would be funded from fees assessed on public companies. However, CBO
stated it was uncertain if the rest of the mandates contained in
Sarbanes-Oxley exceeded UMRA's cost threshold of $115 million (inflation
adjusted).
Identification of Federal Mandates in Rules Is Less Complex Than for Statutes
The process for identifying federal mandates in regulations is less
complex than for legislation, but additional restrictions apply to
identifying federal mandates. In 2001 and 2002, agencies identified few of
the major and economically significant final rules as containing federal
mandates as defined by UMRA. Most often, rules with financial effects on
nonfederal parties did not trigger UMRA's requirements because they did
not require expenditures at or above UMRA's threshold. We also determined
that at least 29 rules that did not contain federal mandates defined under
UMRA appeared to have significant financial impacts.
UMRA Procedures for Rules Are Less Complex Than for Legislation, but More
Restrictions Apply
The process for rules is less complex than for legislation. However, in
addition to the definitions and seven general exclusions for legislation,
there are four additional restrictions that apply to federal mandates in
rules:
18Among the four laws containing mandates for which direct costs could not
be estimated, some provisions had costs estimated to be below the
applicable cost threshold and others had costs that were uncertain.
o UMRA's requirements do not apply to provisions in rules issued by
independent regulatory agencies.19
o Preparation of an UMRA statement, and related estimate or analysis of
the costs and benefits of the rule, is not required if the agency is
"otherwise prohibited by law" from considering such an estimate or
analysis in adopting the rule.
o The requirement to prepare an UMRA statement generally does not apply to
any rule for which the agency does not publish a general notice of
proposed rule making in the Federal Register.20
o UMRA's threshold for federal mandates in rules is limited to
expenditures, in contrast to title I which refers more broadly to direct
costs. Thus, a rule's estimated annual effect might be equal to or greater
than $100 million in any year-for example, by reducing revenues or incomes
in a particular industry-but not trigger UMRA if the rule does not compel
nonfederal parties to spend that amount.
UMRA generally directs agencies to assess the effects of their regulatory
actions on other levels of government and the private sector. The agencies
only need to identify and prepare written statements on those rules that
the agencies have determined include a federal mandate that may result in
expenditures by nonfederal parties of $100 million or more (adjusted for
inflation) in any year.
Within the OMB, the Office of Information and Regulatory Affairs (OIRA) is
responsible for reviewing compliance with UMRA as part of its centralized
review of significant regulatory actions published by federal agencies,
other than certain independent regulatory agencies. Under Executive Order
12866, which was issued in September 1993, agencies are generally
19According to the Paperwork Reduction Act, these include agencies such as
the Commodity Futures Trading Commission, the Consumer Product Safety
Commission, the Federal Communications Commission, the Federal Trade
Commission, the Nuclear Regulatory Commission, the Securities and Exchange
Commission, and "any other similar agency designated by statute as a
Federal independent regulatory agency or commission," 44 U.S.C. 3502(5).
20This means that UMRA does not cover interim final rules and any rules
for which the agency claimed a "good cause" or other exemption available
under the Administrative Procedure Act of 1946 to issue a final rule
without first having to issue a notice of proposed rule making.
required to submit their significant draft rules to OIRA for review before
publishing them. In the submission packages for their draft rules, federal
agencies are to designate whether they believe the rule may constitute an
unfunded mandate under UMRA. According to OIRA representatives, for such
rules, consideration of UMRA is then incorporated as part of these
regulatory reviews, and draft rules are expected to contain appropriate
UMRA statements.21 The same analysis conducted for Executive Order 12866
may permit agencies to comply with UMRA requirements.22 UMRA requires
agency consultations with state and local governments on certain rules,
and this is something that OIRA will look for evidence of when it does its
regulatory reviews. UMRA provides OIRA a statutory basis for requiring
agencies to do an analysis similar to that required by this. (Unlike laws,
however, executive orders can be rescinded or amended at the discretion of
the President).
Agencies Identified Few Federal agencies identified 9 of the 122 major
and/or economically Final Rules Published in significant final rules that
federal agencies published in 2001 or 2002 as 2001 and 2002 as Containing
containing federal mandates under UMRA (see fig. 3).23 As we previously
reported, the limited number of rules identified as federal mandates
duringFederal Mandates Because 2001 and 2002 is consistent with the
previous findings in our 1998 report onMost Rules Did Not Trigger UMRA and
in OMB's annual reports on agencies' compliance with title II.24 UMRA's
Requirements
21OIRA also checks for related statements and certifications from agencies
on the Regulatory Flexibility Act (5 U.S.C. 601-612), which requires
agencies to assess the impact of forthcoming regulations on "small
entities," and Executive Order 13132, which requires agencies to assess
the federalism implications of their regulations, and other requirements
that might be triggered by the nature of the draft rule.
22As pointed out in our previous report on UMRA (GAO, Unfunded Mandates:
Reform Act Has Had Little Effect on Agencies' Rulemaking Actions,
GAO/GGD-98-30 (Washington, D.C.: Feb. 4, 1998)), the committee reports for
the Senate bill that ultimately resulted in UMRA indicate that Congress
was aware that, in many respects, the bill duplicated existing
requirements, including those already required under Executive Order
12866.
23Although we refer broadly to "final rules," these also included other
regulatory actions with legal effect (such as interim rules, temporary
rules, and some notices), in contrast to proposed rules that do not have
legal effect.
24See GAO/GGD-98-30. In addition, OMB produces an annual report regarding
progress in regulatory reform in which OMB also examines the costs and
benefits of federal regulations and unfunded mandates.
Figure 3: Final Rules Published in 2001 and 2002 That Contained Federal Mandates
under UMRA
Source: GAO.
Of the nine rules that agencies identified as containing federal mandates
under UMRA, only one included an intergovernmental mandate-EPA's
enforceable standard for the level of arsenic in drinking water. The
remaining rules imposed private sector mandates ranging from Department of
Energy rules that amended energy conservation standards for several
categories of consumer products, including clothes washers and heat pumps,
to a Department of Transportation rule that established a new federal
motor vehicle safety standard requiring tire pressure monitoring systems,
controls, and displays.
Of the 113 major and/or economically significant rules in 2001 and 2002
not identified as including federal mandates under UMRA, we reported that
48 contained no new requirements that would impose costs or have a
negative financial effect on state, local, and tribal governments or the
private sector.
Often, these were economically significant or major rules because they
involved substantial transfer payments from the federal government to
nonfederal parties. For example, the Department of Health and Human
Services published a notice updating the Medicare payment system for home
health agencies that was estimated to increase federal expenditures to
those agencies by $350 million in fiscal year 2002.
In the remaining 65 of 113 rules, we determined that the new requirements
would impose costs or result in other negative effects on nonfederal
parties. In 41 of the 65 published rules, the agencies cited a variety of
reasons that these rules did not trigger UMRA's requirements (see fig. 4).
There were 26 rules for which the agencies stated that the rule would not
compel expenditures at or above the UMRA threshold and 10 rules for which
the agencies stated that rules imposed no enforceable duty. For the
remaining 24 rules, the agency did not provide a reason. However,
independent regulatory agencies, which are not covered by UMRA, published
12 of these rules, and there is no UMRA requirement for covered agencies
to identify the reasons that their rules do not contain federal mandates.
Figure 4: Reasons That Agencies Determined Their Rules Did Not Trigger UMRA's
Requirements
Rule does not require $100 million or more in expenditures
Rule contains no enforceable duty
Duties are part of a voluntary program
Duties are a condition of federal financial assistance
Analysis otherwise prohibited by law
Rule promulgated without a notice of proposed rulemaking
26
0 5 1015202530 Number of rules
Source: GAO.
Note: Agencies cited more than one reason for nine of the rules.
Some Rules That Did Not Trigger UMRA Had Potentially Significant Effects on
Nonfederal Parties
At least 29 of the 65 rules with new requirements published in 2001 and
2002 could have imposed significant costs or other financial effects on
nonfederal parties. In these 29 rules, we reported that the agencies
either explicitly stated that they expected the rule could impose
significant costs or published information indicating that the rule could
result, directly or indirectly, in financial effects on nonfederal parties
at or above the UMRA threshold. For example, more than half of them
imposed costs on individuals exceeding $100 million per year, reduced the
level of federal payments to nonfederal parties by more than $100 million
in a year, or had substantial indirect costs or economic effects on
nonfederal parties.
For the remaining 36 of the 65 rules that imposed costs or had other
financial effects on nonfederal parties in 2001 and 2002, either the
agencies provided no information on the potential costs and economic
impacts on nonfederal parties or the costs imposed on them were under the
UMRA threshold. For example, a Federal Emergency Management Agency interim
final rule on a grant program to assist firefighters included some
costsharing and other requirements on the part of grantees participating
in this voluntary program. In return for cost sharing of $50 million to
$55 million per year, grantees could obtain, in aggregate, federal
assistance of approximately $345 million. Similarly, the U.S. Department
of Agriculture's interim rule on the noninsured crop disaster assistance
program imposed new reporting requirements and service fees on producers
estimated to cost at least $15 million. But producers were expected to
receive about $162 million in benefits.
Even when the requirements of UMRA did not apply, agencies generally
provided some quantitative information on the potential costs and benefits
of the rule to meet the requirements of Executive Order 12866. Rules
published by independent regulatory agencies were the major exception
because they are not covered by the executive order. In general, though,
the type of information that UMRA was intended to produce was developed
and published by the agencies even if they did not identify their rules as
federal mandates under UMRA.25
In conclusion, UMRA was intended, in part, to provide more information to
Congress and agencies when placing federal mandates on nonfederal
25One exception might be that OMB's guidance to agencies for regulatory
analyses prepared under Executive Order 12866 does not include
instructions regarding distributional effects of regulations that are as
specific as those called for in UMRA. See 2 U.S.C. S:1532(a)(3).
parties by providing more information to help them determine the
appropriate balance between desired benefits and associated costs. Based
on CBO's experience, there is some evidence that UMRA is in some ways
achieving this desired goal. However, UMRA's many definitions, exclusions,
and exceptions result in many statutes and rules never triggering UMRA's
thresholds, which means they are not identified as federal mandates.
As we reported last year, in 2001 and 2002 many statutes and final rules
with potentially significant financial effects on nonfederal parties were
enacted or published without being identified as federal mandates at or
above UMRA's thresholds. Further, if judged solely by their financial
consequences for nonfederal parties, there was little difference between
some of these statutes and rules and the ones that had been identified as
federal mandates with costs or expendituresexceeding UMRA's thresholds.
Although the examples cited in our report were limited to a 2-year period,
our findings on the effect and applicability of UMRA are similar to the
data reported in our previous reports and those of others on the
implementation of UMRA. The findings raise the question of whether UMRA's
definitions, exclusions, and exceptions adequately capture and subject to
scrutiny federal statutory and regulatory actions that might impose
significant financial burdens on affected nonfederal parties.
Mr. Chairman, this completes my prepared statement.
Contacts andFor further information, please contact Orice Williams at
(202) 512-5837 or [email protected] or Tim Bober at (202) 512-4432 or
[email protected]. Key
Acknowledgments contributors to this testimony were Boris Kachura and
Michael Rose.
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