Skip Navigation

Mr. Chairman and Members of the Committee, thank you for this opportunity to provide the views of the Congressional Budget Office (CBO) on how well the Unfunded Mandates Reform Act (UMRA) has worked since it took effect in January 1996 and to comment on some proposals for expanding the act.

UMRA was enacted with several goals: to focus more attention on the costs of federal mandates; to ensure that the Congress carefully weighs those costs before imposing them on state, local, and tribal governments or on the private sector; and to encourage the federal government to provide financial assistance for the costs of intergovernmental mandates. To accomplish those goals, the act established various procedures to direct Congressional attention to the costs of federal mandates and to curb the practice of imposing mandates on other governments without paying for them. The act also required the Congressional Budget Office to provide mandate cost statements for all bills reported by committees. In effect, UMRA was designed to increase both the Congressional demand for cost information about mandates and the supply of such information.
 

HOW WELL HAS UMRA WORKED?

From CBO's vantage point, UMRA has been quite effective. Both the demand for and the supply of information on the costs of federal mandates have increased since the act took effect. Over the past two years, CBO has provided mandate cost statements for virtually all bills reported by authorizing committees. We have also provided mandate statements for many proposed floor amendments and some conference committee reports. Moreover, before proposed legislation is marked up, committee staffs and individual Members are increasingly requesting our opinion about whether the legislation would create any new federal mandates and, if so, whether their costs would exceed the thresholds set by UMRA. (Those thresholds are $50 million per year for intergovernmental mandates and $100 million per year for private-sector mandates, indexed annually for inflation.) In many instances, CBO is able to inform the sponsor about the existence of a mandate and provide informal guidance on how the proposal might be restructured to either eliminate the mandate or reduce its cost. For example, in the case of the Internet Tax Freedom Act (S. 442 and H.R. 1054), CBO worked with both supporters and opponents of the bills to identify mandates and their costs before the bills were marked up by full committee.

In all, CBO has prepared more than 1,200 mandate cost statements over the past two years (see Table 1). About 11 percent of the bills and amendments we analyzed contained intergovernmental mandates, and nearly 2 percent had mandate costs exceeding the $50 million threshold. Those percentages are close to our experience in estimating the costs of federal legislation for state and local governments, which we have been doing since 1983.
 

A larger share of the bills and amendments that we examined, about 13 percent, contained private-sector mandates; nearly 5 percent had costs exceeding the $100 million threshold. Those numbers suggest that the Congress is more likely to consider imposing costs above the legislated threshold on the private sector than on other levels of government.

Another way to evaluate UMRA's impact is to review the number of mandates that have actually been enacted since January 1996. During that time, Congressional committees reported few bills containing intergovernmental or private-sector mandates whose costs exceeded the relevant threshold (see Table 2). Because different bills can contain similar mandates (for example, when companion bills are reported separately in the House and Senate), the 19 statements for intergovernmental mandates with costs above the threshold identified eight mandates in all. Of those eight intergovernmental mandates, only one--the increase in the minimum wage--was enacted in a form that will impose costs on state and local governments of more than $50 million in a year. In four other cases, the Congress either lowered the costs below the threshold before passing the legislation or chose not to pass it at all. Three other bills reported in 1997 with costs over the threshold have yet to be considered by both Houses.
 

The track record for private-sector mandates is a bit different. In 1996, the Congress passed nine of the 11 reported bills with private-sector mandates that CBO identified as costing more than $100 million. Only one, the dairy provisions of the farm bill, was amended to reduce mandate costs below the threshold. Two bills with significant private-sector mandates, involving sports franchises and nuclear waste, were not enacted into law. In 1997, four such mandates--contained in the budget reconciliation bills and the reinstatement of the airline ticket tax--were enacted.

Although not conclusive, last year's experience suggests that UMRA was effective in helping to curb the practice of imposing unfunded mandates on state and local governments. Besides floor actions to reduce the costs of intergovernmental mandates, a number of changes were made in committee or before markups to eliminate or minimize mandate costs after consultation with CBO.

Many of the costs that legislation imposes on state and local governments result from conditions of federal aid or participation in voluntary federal programs, which are not considered federal mandates under UMRA. The act also excludes certain federal requirements, such as measures to enforce people's constitutional rights or to prohibit various types of discrimination. CBO identified more than 75 bills in 1996 and more than 85 in 1997 that would have imposed costs on state and local governments by some mechanism other than a mandate as UMRA defines it.

A special definition applies to large entitlement programs such as Medicaid. For those programs, the act defines an increase in grant conditions or a decrease in federal funding as a mandate only if the state or local governments that administer the program lack the flexibility to make changes to offset the new costs or lower funding. In the case of Medicaid, CBO determined that imposing a cap on per capita spending did not constitute a mandate as defined in UMRA because states have the flexibility under current law to offset any loss of federal funds by reducing their own financial or programmatic responsibilities for Medicaid. Some people have argued that the Congress intended for that flexibility provision to apply only to new flexibility provided by the same legislation that imposes the added costs or lower funding. That is not our interpretation of UMRA as we read the law.

With respect to private-sector mandates, the record reflects the inclusion of taxes and involuntary fees on businesses and individuals, which UMRA considers mandates. Many of the most significant private-sector mandates that CBO has identified have been of that type, including the reinstatement of the airline ticket tax and various provisions in the budget reconciliation bills.

A third way to evaluate UMRA's effect would be to record the amount of time spent in committee and floor debates on the cost of federal mandates and whether they should be imposed. We have not undertaken such an analysis, but our casual impression from following floor debates on television and in the Congressional Record is that deliberation on those matters has increased.
 

EXPANDING UMRA

The act's perceived success in raising Congressional consciousness about unfunded intergovernmental mandates has prompted some Members to propose expanding its provisions for private-sector mandates. For example, the bill sponsored by Senator Abraham and others--S. 389, the Mandates Information Act of 1997--would set new procedural constraints for private-sector mandates and direct CBO to provide additional types of cost information about them.

Specifically, S. 389 would establish a point of order against considering bills that contain private-sector mandates with costs over the $100 million threshold, regardless of whether federal funding is provided. Like the existing point of order against considering unfunded intergovernmental mandates, only a simple majority vote of Senators would be needed to defeat a point of order, if raised. Thus, the new point of order would not stop the Congress from passing bills it wants to pass. But it would raise the stakes in deliberating private-sector mandates and increase the demand for additional cost information.

S. 389 would also direct CBO to provide expanded cost information for private-sector mandates above the threshold. CBO would be required to analyze the impact of the proposed mandates on consumers, workers, and small businesses, including any disproportionate impact on particular regions and industries. The analysis would include the effects on consumer prices, workers' wages and benefits, employment opportunities, and the profitability of small businesses. Economists call those indirect effects of mandates, such as when the mandated costs are passed along to other parties in the form of higher prices for finished goods or lower prices for intermediate inputs, including lower wages for workers. Such effects go beyond the direct costs of complying with federal mandates, which CBO is now required to estimate.

CBO already includes information about significant indirect effects in many of its cost statements for private-sector mandates over the threshold (see Table 3). When sufficient time and data are available, we also provide 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 levels of low-wage workers. In addition, our analyses of the farm bill and the telecommunications reform bill noted that the costs of the mandates would be passed on to consumers.
 

The more time that we have to analyze proposed mandates, and the more scholarly work that has been done on the topic being analyzed, the more information we can give the Congress about various indirect costs of new legislative proposals. CBO's record at estimating the direct costs of mandates is reasonably good, but even for those costs we sometimes find it difficult to make estimates with a high degree of confidence. For example, our estimate of the cost of mandates in H.R. 695--the Security and Freedom Through Encryption (SAFE) Act, as reported by the House Permanent Select Committee on Intelligence--ranged from $200 million to $2 billion because we could not determine ahead of time what technical and functional criteria would be established in regulations after the bill's passage. Such informational problems would be compounded in analyzing the indirect effects of mandates.

In closing, Mr. Chairman, I can assure you that we will continue to do our best to provide the Congress with reliable cost information. But I also want to alert you that in certain cases, some information may be slow in coming or may be less specific than desired. The changes to UMRA proposed in S. 389 would require analysts to spend more time determining the exact impact of a private-sector mandate and writing about its indirect costs. Nevertheless, we do not anticipate now that those increased duties would necessarily require additional resources or a further diversion of resources from our budget work.