Unfunded Mandates, Examples, and the Need for UMRA
How the Feds Force Your State to Pay for Something You Don't Want
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 does this under three circumstances:
- It cuts funds earmarked for the program.
- It changes the requirements for receiving funds.
- It 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. They reduce the ability of state and local jurisdictions to develop, fund, and manage programs according to their particular needs.
Unfunded mandates only became an issue in the 1970s and 1980s.
Prior to that, Congress made sure there was funding for the states to fulfill federal requirements. But when the funding started drying up, states began to resent the additional burden. The states argued that unfunded mandates violated the traditional American federalism based on cooperation. Instead, they were forced to carry out federal directives.
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 pockets. The 1996 minimum wage increase cost $4 million per state on average. Business lobbying against this unfunded mandate has kept the minimum wage unchanged since 2009.
Here are three other examples of unfunded mandates:
- Eliminating federal matching funds for states to administer child support enforcement.
- Requiring public transit agencies to upgrade security measures, training programs, and background checks.
- Requiring commuter railroads to install train control technology.
Congress created an unfunded mandate with the Internet Tax Nondiscrimination Act of 2004. It prohibited states from collecting sales taxes on internet purchases. That cost states between $80 million and $120 million in annual revenue.
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 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.
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. The 2016 threshold was $77 million for intergovernmental mandates and $154 million for private-sector mandates.
Each March, the CBO releases its annual UMRA report. In 2018, CBO reviewed 313 bills. There were 63 laws that contained 194 mandates. Of those, only six exceeded the UMRA limit. That's a rate of 1.9%.
UMRA appears to be working because the amount of unfunded mandates is on the decline.
Between 2007 and 2018, Congress passed 2,482 laws. Of those, 141 had unfunded mandates that exceeded the UMRA limit. That's a rate of 6%. The 2018 rate was just one-third of that.
The Bottom Line
Congress enacts unfunded mandates when it passes laws requiring compliance but without providing the necessary funds to do so. State or local governments and large private organizations are expected to pay “out of pocket” to fulfill the law. Because unfunded mandates have been a bone contention among the affected, the CBO had been tasked to review and establish a threshold on the costs these unfunded bills would entail. These should not exceed $77 million for government mandates and $154 million for private-sector mandates.