STATE AND FEDERAL BUDGETING: FEDERAL MANDATE RELIEF. It is the policy of the National Conference of State Legislatures to advance and defend a

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1 COMMITTEES: COMMITTEE ON BUDGETS AND REVENUE TITLE: STATE AND FEDERAL BUDGETING: FEDERAL MANDATE RELIEF TYPE: POLICY STATEMENT - DRAFT It is the policy of the National Conference of State Legislatures to advance and defend a balanced, dynamic partnership between governments at the local, state and federal level. The growth of federal mandates and other costs that the federal government imposes on states and localities is one of the most serious fiscal issues confronting state and local government officials. The National Conference of State Legislatures (NCSL) has worked diligently over the past quarter century to restore a balance to the intergovernmental fiscal partnership and raise the awareness of the problem of unfunded and underfunded federal mandates. NCSL applauds the success of the Unfunded Mandates Reform Act of 1995 (UMRA; P.L ) in bringing attention to the fiscal effects of federal legislation on state and local governments, improving federal accountability and enhancing consultation. However, unfunded and underfunded federal mandates continue to pose an undue burden on state and local governments. NCSL calls upon the federal government to reassess the Unfunded Mandate Reform Act and to broaden its scope and increase its effectiveness. The manner in which the federal government imposes costly unfunded mandates on state and local governments is multi-faceted, including: direct federal orders without sufficient funding to pay for their implementation; burdensome conditions on grant assistance;

2 cross sanctions and redirection penalties that imperil grant funding in order to regulate and preempt the states actions in both related and unrelated programmatic areas; amendments to the tax code that impose direct compliance costs on states or restrict state revenues; overly prescriptive regulatory procedures that move beyond the scope of congressional intent; incomplete and vague definitions which cause ambiguity; and perceived or actual intrusion on state sovereignty. These actions have resulted in substantial costs to state and local governments and, collectively, have eroded state legislators' control over their own states' budgets. Continued pressure for mandatory federal spending and restrictions on the growth of discretionary spending promote a tendency to seek the accomplishment of national goals through federal mandates on state and local governments. NCSL is encouraged that many federal lawmakers have recognized the difficulties posed by unfunded and underfunded federal mandates and are pursuing means to require that the federal government meet its commitments to the states. NCSL continues to demand sufficient federal funding for state-federal partnership programs through the mechanism of mandatory spending. If the federal government is unwilling to provide such funding as an entitlement to the states, states should be absolved of their legal responsibility to provide services to entitled individuals and fulfill other federal mandates. One approach is the trigger mechanism that would delay

3 mandated activities in any year in which the federal government does not meet its state funding commitment. NCSL appreciates that the Congressional Budget Office State and Local Government Cost Estimates Unit endeavors, within its resources, provides information on the costs of mandates outside of the strict definitions in the UMRA. NCSL encourages the Joint Committee on Taxation, which is responsible for performing cost estimates of tax legislation, to provide similar additional information. This is needed as: Title II-requiring administrative agencies to consult with state governments and provide for regulatory accountability and reform-has been only marginally effective in reducing costly and administratively cumbersome rules and regulations on states and localities; consultation with state and local governments in the construction of these rules is haphazard; and gaps remain in the fiscal protections provided to state and local governments. The law must be refined to provide broader protections to states and localities against the imposition of costly and administratively cumbersome mandates. Specifically, NCSL encourages the federal government to enact reforms that should include: Expansion of the definition of an unfunded mandate to include: o all open-ended entitlements, such as Medicaid, child support and Title 4E (foster care and adoption assistance); o proposals that would put a cap on or enforce a ceiling on the cost of federal participation in any entitlement or mandatory spending program;

4 o proposals that would reduce state revenues, especially when changes to the federal tax code are retroactive or otherwise provide states with little or no opportunity to prospectively address the impact of a change in federal law on state revenues; o proposals that fail to exceed the statutory threshold only because they do not affect all states; and o new conditions of federal funding for existing federal grants and programs, including costs not previously identified, including mandated results. Ensuring that any proposal that places a cap or enforces a ceiling must be accompanied by statutory offsets that reduce state spending, administrative duties or both; Review of the existing exclusions under Section 4 of UMRA. Excluding legislation from the requirements of UMRA precludes an official accounting of the costs imposed under such legislation; Expansion of legislation subject to UMRA review; Revision of the definitions of mandates, direct costs or other provisions of the law to capture and more accurately reflect the true costs to state governments of particular federal actions; Requiring that mandate statements accompany appropriations bills; Enactment of legislation which would require federal reimbursement, as long as the mandate exists, to state and local governments for costs imposed on them by any new federal mandates;

5 Improvement of Title II, including enhanced requirements for federal agencies to consult with state and local governments and the creation of an office within the Office of Management and Budget that is analogous to the State and Local Government Cost Estimates Unit at the Congressional Budget Office; Restrictions regarding the preemption of state laws; and Repeal or modification of certain existing mandates as recommended by other NCSL resolutions. NCSL will continue to monitor the growth of new federal mandates and call for the continued review of existing mandates for possible repeal or modification. 103