Unfunded Mandates: Definition, Examples, Need for UMRA

How the Feds Force Your State to Pay for Something You Don't Want

Unfunded mandate
Congress doesn't always consider whether there are funds for a new law. Photo: Getty Images

Definition: An unfunded mandate is when a new piece of federal legislation requires another entity to perform functions for which it has no funds. Congress often does this to state, local or tribal governments. Unfunded mandates can also affect private sector individuals and organizations. The federal government also creates an unfunded mandate when it reduces an organization's ability to pay for an existing mandate.

It either cuts funds earmarked for the program, changes the requirements for receiving funds or interferes with a government's ability to raise funds through taxes.

Those affected by unfunded mandates claim they are unfair. Congress shouldn't create laws for other bodies without providing the funding. Some local leaders argue that most of a state or city's budget is made up of activities designed to fulfill federal laws. They become an arm to implement federal policy. It reduces the ability of state and local jurisdictions to develop, fund and manage programs according to their particular needs. 

Examples

Congress created an unfunded mandate with the Internet Tax Nondiscrimination Act of 2004. It prohibited states from collecting sales taxes on internet purchases. Prohibiting states from taxing internet services and transactions. That cost states between $80 million and $120 million in annual revenue.

When Congress increases the U.S. minimum wage it creates an unfunded mandate on businesses. They must comply with the law by paying higher salaries out of their own pocket. The 1996 minimum wage increase cost $4 million per state on average. 

Another unfunded mandate is reducing federal funds to administer Food Stamps or other welfare programs.

The 1998 reduction in food stamp administration costs added $5 million to state budgets. (Source: "What Unfunded Mandates? CBO Study Reveals Washington Not at Fault for State Budget Crises," Heritage Organization, May 28, 2003.)

Here are three other examples of unfunded mandates:

  1. Eliminating federal matching funds for states to administer child support enforcement.
  2. Requiring public transit agencies to upgrade security measures, training programs and background checks.
  3. Requiring commuter railroads to install train control technology.

Other popularly cited examples aren't so clear cut. States, counties and cities must administer national elections. On the other hand, most of them have their own elections at the same time. The additional cost is minimal.

Another contested example is the No Child Left Behind Act. States and school districts argue they have many costs that aren't paid for by federal funding. But federal judges ruled that the states could opt out of the program. That makes it voluntary, not a mandate. (Source: "NCLB and Funding Controversy," New America.)

Unfunded Mandate Reform Act

Congress listened to the complaints. On March 15, 1995, it passed the Unfunded Mandates Reform Act.

The Act requires the Congressional Budget Office to identify and estimate costs of any unfunded mandates. That includes bills proposed by Congress and regulations promulgated by federal agencies.

The CBO must analyze all bills that would cost state, tribunal or local governments more than $50 million. The threshold for bills affecting the private sector was $100 million. The thresholds are adjusted annually for inflation. That means that the 2016 threshold was $77 million for intergovernmental mandates and $154 million for private-sector mandates.

Any House and Senate committees that propose such bills must show where the funding will come from. If they don't, then the bill will be removed unless a majority vote keeps it alive.

Each March, the CBO releases its annual UMRA report. In 2016, CBO reviewed 214 bills.

There were 17 laws that contained 35 intergovernmental mandates. Of those, only three exceeded the UMRA  limit. There were 24 acts that contained 51 mandates affecting the private sector mandates. One of them exceeded the UMRA mandate.

UMRA appears to be working, because the amount of unfunded mandates is on the decline. During the 10 years from 2006 - 2015, Congress passed 1,858 laws. Of those, 128 had unfunded mandates that exceeded the UMRA limit. That's a rate of 7 percent. In 2016, there were 214 acts. Four had unfunded mandates that exceeded the limit. The rate was just 2 percent.  (Source, "A Review of CBO's Activities Under the Unfunded Mandate Reform Act," Congressional Budget Office, March 27, 2017.)