The federal government, through laws and regulations, sometimes imposes requirements—known as federal mandates—on state, local, and tribal governments and entities in the private sector to achieve national goals. In 1995, lawmakers enacted the Unfunded Mandates Reform Act (UMRA) in part to ensure that, during the legislative process, the Congress receives information about the potential effects of mandates as it considers proposed legislation. To that end, UMRA requires the Congressional Budget Office, at certain stages in the legislative process, to assess the cost of mandates that would apply to state, local, and tribal governments or to the private sector.
How Is a Mandate Defined in UMRA?
UMRA defines a mandate as any provision in legislation that, when enacted, would do one of the following:
- Impose an enforceable duty on state, local, or tribal governments or on private-sector entities;
- Reduce or eliminate an authorization of appropriations to cover the costs of complying with existing mandates;
- Increase the stringency of conditions that apply to the provision of funds to state, local, or tribal governments through certain large mandatory programs or make cuts in federal funding for those mandatory programs if the affected governments lack the flexibility to alter the programs.
UMRA does not define “enforceable duty,” but CBO has interpreted the term to mean actions by public and private entities that would be either required or prohibited. Duties that arise from conditions of federal assistance or that are tied to participating in voluntary federal programs are not considered mandates as defined in UMRA unless they are one of the large mandatory programs as noted above.
What Does UMRA Require of CBO?
The law requires CBO to prepare mandate statements for bills and joint resolutions that are approved by authorizing committees. (The staff of the Joint Committee on Taxation examines tax provisions of legislation to identify federal mandates and estimates their costs. CBO’s mandate statements incorporate such information.) When requested, CBO also reviews legislation at other stages in the legislative process for intergovernmental and private-sector mandates. As a part of its review of legislation, CBO must determine whether the aggregate direct costs of the mandates would be greater than the statutory thresholds established in UMRA in any of the first five fiscal years in which the mandates are effective. CBO also must identify any funding that the bill would provide to cover those costs. The statutory thresholds established in UMRA were $50 million for intergovernmental mandates and $100 million for private-sector mandates in 1996. (In 2016, the thresholds, which are adjusted annually for inflation, are $77 million and $154 million, respectively, for intergovernmental and private-sector mandates.)
Estimating the Costs of Mandates
Direct costs of mandates are defined in UMRA as annual amounts that state, local, or tribal governments or the private sector would be required to spend to comply with the enforceable duty, including amounts that states, localities, or tribes would be prohibited from raising in revenues. Additionally, when the mandate takes the form of a restriction on the ability of a private-sector entity to generate revenue, CBO measures the cost of that mandate as the direct loss of income. Such losses are not explicitly included in UMRA’s definition of costs, but CBO interprets UMRA’s definition of a mandate to include not only requirements that would result in expenditures but also prohibitions that would result in lost income. Thus, in cases in which legislation would ban the production or sale of a good, CBO would measure the cost of the mandate as the net income forgone because of the ban. For example, CBO’s estimate for the Synthetic Drug Control Act of 2011 included forgone income from lost sales in the estimated cost of a ban on certain synthetic chemicals.
CBO estimates direct costs as the total cost incurred by the entities on which the mandate is imposed regardless of whether those costs may be passed on to other entities, such as consumers and workers. Direct costs exclude amounts that public or private entities would spend to comply with applicable laws, regulations, or professional standards in effect when the federal mandate is adopted. As directed by UMRA, CBO assumes that public and private entities would comply with mandates as efficiently as possible. Moreover, such costs are limited to spending that would result directly from the enforceable duty imposed by the legislation rather than from the legislation’s broad effects on the economy. Therefore, estimates of mandate costs do not include the effects of each bill on gross domestic product, employment, or inflation.
In addition, in CBO’s estimates, direct costs are offset by any direct savings that would result from complying with the mandate or by savings from other provisions of the legislation that govern the same activity as the one affected by the mandate. Direct savings do not include the effect of any authorization of appropriations in the same bill or any funding authorized under current law that might be used to help pay for a mandate.
Because the term “mandate” is defined narrowly in UMRA, the budgetary effects that legislation may have on other governments or the private sector are not solely the result of mandates. For example, costs associated with complying with conditions of receiving grants for most new or existing programs are not considered mandate costs under UMRA. Most of the nonmandate costs to governments or the private sector that CBO identifies when reviewing bills would result from conditions for receiving federal aid or participating in voluntary federal programs.
Occasionally, CBO cannot determine whether the cost of the mandates in a bill would exceed the annual cost thresholds. If CBO cannot estimate the cost of a mandate, it must explain why such an estimate is not feasible. In most such cases, the reason for that conclusion is uncertainty about the scope of a mandate—the number of people or entities affected, the extent of the requirements they would face, or both. Such uncertainty generally arises because of insufficient information about how a federal agency would implement the provisions of the bill. For example, legislation often gives a federal agency broad discretion in issuing regulations, and without information on the scope of the regulations to be issued, CBO cannot estimate with any confidence the cost of the bill’s requirements at such an early stage.
Enforcement Mechanisms
UMRA sets out rules for both the House and the Senate that prohibit either chamber from considering legislation unless certain conditions are met.
Specifically, UMRA prohibits the consideration of a reported bill unless the committee has published a statement from CBO about the costs of intergovernmental and private-sector mandates.
The rules also preclude consideration of reported legislation that contains intergovernmental mandates with direct costs above the statutory threshold unless the legislation provides direct spending authority or authorizes appropriations sufficient to cover those costs. An authorization of an appropriation will not be sufficient unless the authorized amounts are specified for each year (up to 10 years) after the effective date of the mandate and the legislation provides a way to terminate or scale back the mandate if the federal agency determines that the appropriated funds are not sufficient to cover those costs.
UMRA does not expressly require CBO to prepare mandate statements for appropriation bills. In general, UMRA’s points of order do not apply to the provisions of bills or resolutions reported by the appropriations committees (except legislative provisions). However, legislative provisions in such bills—or amendments to them—that would increase the direct costs of intergovernmental mandates are not in order for consideration on the House or Senate floor unless an appropriate CBO statement is provided.
The rules are not automatically enforced; a Member must raise a point of order to enforce them. (A point of order is an objection raised by a Member on the floor of the House or Senate that questions an action being taken as contrary to the rules of that body.) If a point of order is raised in the House or Senate as provided for in UMRA, each chamber resolves the issue according to its established rules and procedures. CBO plays no part in making point-of-order determinations.
Overview of Other UMRA Provisions
The requirements for CBO’s review of legislation for mandates are included in the first title of UMRA. Other titles of the act address how various parts of the federal government should handle proposed and existing mandates imposed on state, local, and tribal governments and on the private sector.
- Title I, Legislative Accountability and Reform, requires the Congressional Budget Office and authorizing committees that oversee federal programs and authorize appropriations to develop and report information about the existence and costs of mandates in proposed legislation. It also establishes mechanisms for bringing that information to the attention of the Congress before such legislation is considered on the floor of the House or Senate.
- Title II, Regulatory Accountability and Reform, applies to actions of federal agencies when issuing federal regulations. It requires most agencies in the executive branch (except some independent regulatory agencies) to assess the effects of their regulatory actions on state, local, and tribal governments and on the private sector. It also requires that statements about such effects accompany certain significant regulations, that agencies seek input from other levels of government in developing regulations, and that agencies consider alternatives that would ease the financial burden of regulations.
- Title III, Review of Federal Mandates, required the now defunct Advisory Commission on Intergovernmental Relations (ACIR) to prepare three reports: a baseline study of the costs and benefits of federal mandates imposed on state, local, and tribal governments; a review of the effect of unfunded federal mandates on those governments along with recommendations for easing, consolidating, or terminating mandates; and an annual report identifying federal court rulings that required state, local, or tribal governments to undertake additional responsibilities and activities.
- Title IV, Judicial Review, allows for limited judicial review of certain actions by agencies and of rules developed under title II of UMRA.