Updated: Jun 1, 2020
The issue of Unfunded Mandates is controversial. What precisely constitutes an “unfunded mandate” is itself a topic of contention between the federal government and the states. Generally, Unfunded Mandates are federal laws, regulations, or rules that impose demands on the states without including the funding required to comply. While many federal programs created by Congress include funding to the states, this is not always the case. Hidden costs of implementation may become a burden for state (and local) governments in their efforts to administer federal programs (for example, Medicaid). Or in other cases, federal funding may become insufficient as federal funding shifts or is reduced.
Unfunded Mandates and Federalism
Since Unfunded Mandates therefore force the states to do something and spend their own money to do it, the controversy goes to the heart of federalism in the United States. This issue represents the ability of state governments to resist laws or regulations with which they disagree, do not have the funds to implement, or even those which may be unconstitutional. Unfunded Mandates are thus part of a larger story. To understand them fully, one must also consider them in relation to other powers of the federal government, including spending, taxation, and regulation. Each of these powers, being a means to other ends, necessarily raises the question of how much involvement, and of what kind, we expect from our government.
The specific controversy surrounding Unfunded Mandates began early in the 20th century, with the general expansion of the federal government. Social programs, economic stimulus, and regulations, all responding to problems resulting from the Great Depression, eventually raised jurisdictional concerns over a scope of the federal government not previously seen. Taken together with a broad application and interpretation (by the Courts) of the Commerce Clause, the scope and power of the federal government, and its ability to mandate policies affecting the states and private industry, grew from the New Deal into the 1980s.
With the 1990s, pressure to reform Unfunded Mandates resulted in legislation.
The 1995 Unfunded Mandates Reform act was an attempt to limit the number of unfunded federal mandates imposed on states, local governments, and tribal governments, by the federal government. From 1995 through 2010, scholars debated a number of issues: whether this legislation was successful, what defined an “unfunded mandate,” and what more could be done to contain an expansive federal government and preserve power to the states.
Today, legislation treating Unfunded Mandates continues to be scrutinized. The debate over Unfunded Mandates and the federal government’s power and role in issues important to the states is of on-going relevance for the operation of federalism in the United States.
President Roosevelt’s New Deal is a turning point in federalism, one which expands the federal government with numerous Acts have lasting impact on the States. While initially there was some resistance (including in the Courts), departments and programs created during the New Deal expanded through the 1930s and began to form the basis of the federal government’s growing power throughout the 20th century.
One Act emblematic of this federal expansion was the Fair Labor Standards Act (FSLA) of 1938. In an effort to regulate labor and protect workers, FLSA imposed limits on hours worked and mandated overtime hours allowed and rate of pay. Additionally, it is this Act which first established a federal minimum wage.
Prior to FSLA, the U.S. Supreme Court had supported a restrictive view of the Commerce Clause and even the right of states to legislate on issues of commerce that might appear to be protected by the Commerce Clause. The clause states that the federal government has the (enumerated) power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes” (Article I, Section 8, Clause 3). The clause is written, effectively, in such a way as to leave open what is understood by “commerce” and the extent and limit, if any, which may be applied to Congress’ regulations of it.
A number of Supreme Court Cases have attempted to define the scope and/or limits of the Commerce Clause. U.S. v. Butler (1932), for example, presages later controversy; essentially, the decision in Butler denies an expansive understanding and application of the Commerce Clause to carry out an Act of Congress. In this case, the issue is agriculture, a practice traditionally left to the states. Farmers would lose benefits if they did not comply with federal law (and thus the law, the Agricultural Adjustment Act of 1933, was not voluntary in nature as Congress attempted to argue).
This decision is representative of a narrow interpretation of Commerce Clause pre-1937. Other cases are similarly narrow, including:
Hammer v. Dagenhart (1918)
Adkins v. Children's Hospital (1923)
Baldwin v. G.A.F. Seelig, Inc. (1935)
A. L. A. Schechter Poultry Corp. v. United States (1935)
Carter v. Carter Coal Co. (1936)
The New Deal, however, the stage for the expansion of the Commerce Clause and thus an extension of the federal government’s power throughout the 20th century. Justice Owen Roberts’ “switch in time to save nine” (as it has been referred to) was a shift from a Supreme Court hostile to President Roosevelt’s New Deal to one that allowed these commercial (and regulatory) policies to flourish. Thus cases post-1937, including those that were direct challenges to New Deal policies, now sided with an expansive view of Congress’ power to regulate interstate commerce (even commerce deemed to be of national concern such as labor unions). Examples of cases that solidified an expansive interpretation include:
West Coast Hotel Co. v. Parrish (1937)
National Labor Relations Board v. Jones & Laughlin Steel Corp. (1937)
United States v. Carolene Products Co. (1938)
Mulford v. Smith (1939)
United States v. Darby (1941)
Wickard v. Filburn (1942)
Southern Pacific Co. v. Arizona (1945)
The Commerce Clause and the role of the Courts allowed for federal government in the 1960s to control numerous areas traditionally left to the states. The National Traffic and Motor Vehicle Safety Act of 1966, to take one example, utilized its authority over “interstate commerce” to establish national standards for roads and motor vehicles:
...no State or political subdivision of a State shall have any authority either to establish, or to continue in effect, with respect to any motor vehicle or item of motor vehicle equipment any safety standard applicable to the same aspect of performance of such vehicle or item of equipment which is not identical to the Federal standard.
In moving away from the intrastate versus interstate distinction the Courts appealed to pre-1937, Congress now began to regulate those areas “affecting commerce” more broadly. The decisions in Heart of Atlanta Motel v. U.S. (1964) and Daniel v. Paul (1969) both permitted, and demonstrated, this broadened use.
Despite the growing power of the federal government post-New Deal and with the expanded definition of the Commerce Clause, federal funding was still based on a grant-to-aid model that predominated in the 1960s. Scholars have described this arrangement in general terms as the era of cooperative federalism.
Two historical examples help make this shift more clear. Under the Emergency Relief Construction Act (1932) and the Federal Emergency Relief Administration (1933), states were only aided when necessary, and the use of such federal funds was in the forms of grants, with decision-making in the hands of the individual state.
Increasingly during the 70s and into the 80s, federal funding was now tied to compliance, in various forms. During the 1970s and into the 80s, the federal government also began flexing its muscles, in new ways. With the National Minimum Drinking Age Act (1984), for example, federal law now tied funding for highway repairs to a minimum drinking age requirement determined by the federal government. Despite the Twenty-First Amendment granting liquor laws to states, and partly due to states' growing reliance on federal funding, all states eventually passed laws over the next ten years raising the age to the federally mandated minimum of twenty-one.
As one study, in reflecting on the growth of unfunded mandates in the 1970s, notes:
During the 1960s and 1970s, intergovernmental relations grew increasingly strained, as Congress enacted more than 500 new federal regulatory programs affecting state and local governments. Many of these programs promoted noble social goals, ranging from clean drinking water to freedom from racial discrimination, but they came with detailed rules, bureaucracies, and formulas for matching and distributing funds. Even more importantly, they came without direct federal funding; state and local administrative authorities had to pay the bulk of the costs out of their own budgets (Cole & Comer 1997; emphasis added).
Imposition of federal programs that strained state and local budgets led to calls for change. The U.S. Advisory Commission on Intergovernmental Relations’ 1984 report demonstrated, for example, a pronounced shift from subsidies (or grants) to what it called “regulatory federalism.” States and localities began to realize they had been employed by the federal government to carry out various programs. According to ACIR, "...federal policymakers also turned increasingly to new, more intrusive, and more compulsory regulatory programs to work their will."
While subsides under the grant-to-aid model maintained local and state control, and hence sovereignty over policy decisions, the shift in the late 1960s left states and localities forced into compliance. Partly as a response to this change in the structure of American federalism, President Reagan began to campaign on a promise to reign in “big government.” Newly elected President Reagan set up a task force proceeding Congressional reform on Unfunded Mandates in particular. In a White House briefing, Reagan pointed specifically to the cost of regulation to large and small American businesses:
Government regulations impose an enormous burden on large and small businesses in America, discourage productivity, and contribute substantially to our current economic woes. To cut away the thicket of irrational and senseless regulations requires careful study, close coordination between the agencies and bureaus in the Federal structure. Therefore, I am announcing today my intention to establish a Presidential Task Force on Regulatory Relief, a task force that will review pending regulations, study past regulations with an eye toward revising them, and recommend appropriate legislative remedies.
The issue of government regulation in general, and Unfunded Mandates in particular, came fully to the fore in the 1990s. Protests against the expansion of the federal government and calls for proposals of relief compelled Congress to attempt to alleviate pressure on the states from a new form of federalism that left many state actors feeling like they had been burdened with regulations, rules, and deadlines which they could not afford to comply.
As a result, Congress passed the Unfunded Mandate Reform Act (UMRA) in 1995. UMRA stated its own purpose as follows:
To curb the practice of imposing unfunded Federal mandates on States and local governments; to strengthen the partnership between the Federal Government and State, local and tribal governments; to end the imposition, in the absence of full consideration by Congress, of Federal mandates on State, local, and tribal governments without adequate funding, in a manner that may displace other essential governmental priorities; and to ensure that the Federal Government pays the costs incurred by those governments in complying with certain requirements under Federal statutes and regulations, and for other purposes.
The Act included four titles.
Title 1 focused on legislative accountability and reform. Any bill passed by committee would have to be submitted to the director of the CBO, for the purpose of identifying federal mandates. Bills imposing a direct cost of more than fifty million dollars on a state, local, or tribal government, would have to be sent to the full chamber for appropriation. Bills costing more than one hundred million dollars to the private sector would also be sent for appropriation.
Title 2 focused on regulatory accountability and reform. Federal agencies would now have to assess the cost of all new regulations to the states, local, and tribal governments - before issuing them. In the case that costs exceeded one hundred million dollars, the issuing agency would now have to consult with the affected governments "to make sure that no less burdensome alternative exists."
Title 3 focused on federal mandates review. The U.S. ACIR was directed to review the role of mandates with the American federal system. Their job, in particular, would not be to recommend to Congress or to the president opportunities to eliminate or streamline federal mandates.
Title 4 focused on judicial review. Federal courts would now be authorized to compel agencies to comply with new responsibilities outlined in the Unfunded Mandates Reform Act.
Questions about UMRA
While UMRA provided a mechanism for oversight, Unfunded Mandates continued to grow, although at a slower pace. Critics noted that loopholes in UMRA also allowed federal government agencies to impose regulations - only to shift costs around after the fact. The Agricultural Research, Extension, and Education Reform Act (1998), for example, reduced federal funds to administer the Food Stamps Program. As the Congressional Research Service notes: a reduction in federal funding for administering the food stamp program, now the Supplemental Nutrition Assistance Program...was estimated to cost states between $200 million and $300 million annually” (Dilger 2018).
This reduction in funding, according to some critics, evaded UMRA regulations. As the Government Accountability Office (GAO) notes in a 2011 report, the definition of what counts as a mandate (versus a rule) is still unclear. Rules can be "hidden" in various ways. Rules are not considered mandates, for example, if they provide for emergency assistance or if they are a condition of receiving federal financial assistance. Federal agencies may therefore mandate states, localities, and businesses into compliance without resulting in UMRA mandate identification.
As the GAO also reported:
UMRA’s many definitions, exclusions, and exceptions result in many rules that never trigger the act’s thresholds and thus not identified as federal mandates.
UMRA, while a first attempt to reign in Unfunded Mandates, left numerous loopholes available and often its stipulations did not “trigger” the mechanisms in place to guard against Unfunded Mandates. In fact, the very definition of an “Unfunded Mandate” itself became controversial in spite of UMRA, and the States were left looking for additional relief from unfunded federal regulations and rules.
Unfunded Mandates Information and Transparency Act (UMITA)
Given the shortcomings of UMRA, Congress aimed to pass legislation updating UMRA, with various improvements introduced in 2011, 2013, and 2015. This series of legislation sought in particular to reduce and monitor unfunded mandates more closely. Most recently, a version of UMITA was introduced in 2017. It passed in the House in July of 2018. This bill, H.R. 50 (115th), seeks to close loopholes in UMRA, defining more broadly what is understood by an “unfunded mandate.”
The Unfunded Mandates Information and Transparency Act aims at the following key reforms. First, it broadens the requirement for including direct costs (the federal government would also have to estimate "indirect" costs as well). Second, it would reduce - in principle at least - exemptions from federal agencies that did not go through technical "Notice of Proposed Rulemaking." Third, it would increase the authority of the Office of Information and Regulatory Affairs (OIRA) to determine whether unfunded mandates meet new requirements. Finally, it would increase the scope of review, by allowing retrospective review of rules or regulations from previous administrations.
UMITA was introduced by Rep. Virginia Foxx (R-NC5). According to Foxx, the bill aims at exposing "hidden rules" that "stretch state and city budgets...[or that] make it harder for businesses to hire." As Foxx argues:
This legislation will help restore transparency and hold Washington bureaucrats accountable for the true cost — in dollars and in jobs — that federal dictates pose to the economy...Americans are better served when regulators are required to measure and consider the costs of the rules they create.
Opponents of the bill worry about consequences for the protection of consumers or from vulnerable populations that require efficient government action. Rep. Elijah Cummings (D-MD7) for example, countered that the bill would "be an assault on the nation's health, safety, and environmental protections," adding that it would add "new barriers to unnecessarily slow down the regulatory process...[giving] regulated industries an unfair advantage to water down consumer protections."
Present to Future
Whether UMITA in its current or future versions will be successful in reigning in Unfunded Mandates remains to be seen. But the issue is broader than Unfunded Mandates alone. States, cities, and private business have objected to federal government intervention, with its attending regulations, rules, and policies, because it increases costs to government and industry. Even more importantly perhaps is the resistance to federal intervention as it removes decision-making at the state and local levels and imposes policies at odds with regional interests and concerns. Despite UMRA and UMITA, federal government regulation and spending broadly is still increasing, which ties state and local governments to federal support.
This reliance raises additional problems. Economists and policy makers are expressing concerns over the federal government’s own future economic obligations. Entitlement programs continue to grow, especially Medicare and Social Security, and they become more expensive to maintain with aging and ill populations. If health and retirement are soon to run the federal government into insolvency (as some predict), state and local governments will struggle even more to share responsibility for these costs.
Another problem for reliance on the federal government has to do with national debt and deficits. One response to the growing debt is for the federal government to cut its own costs. This will inevitably leave more funding to the states - resulting in potentially significant "cost shifts" for federally mandated programs such as Medicare or Food Stamps. In 2008, the National Conference of State Legislatures created a Mandate Monitor to track mandates as well as these cost shifts. The authors highlight an important distinction moving forward. While fewer than a dozen mandates exceeding the threshold established in UMRA had been passed (by 2008), Congress had shifted "at least $131 billion in costs to states [from 2003 to 2008]."
It is not clear whether these trends toward cost-shifting and reductions in appropriations for existing federal-state partnerships will continue. But, given that there are approximately 1,100 federal aid programs providing funding to states, efforts from reformers seeking to reign in “big government” face a challenge of a vast array of ways in which the states relay on federal support; how that support might change over time; and thus the degree to which states are compelled by federal policies and programs.
A thorough assessment of Unfunded Mandates points directly to related issues: regulation and government spending. And these issues in turn direct us to federalism. As Dilger (2018) argues, “Underlying disagreements over UMRA’s future are fundamentally different values concerning American federalism.”
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