Anything left to legislate about.

State lawmakers are concerned that their authority is steadily shrinking, preempted by Congress in many policy areas. Now, bills are pending to address the problem.

Call it the great power shift. The authority of America's state legislatures is shrinking. Congress and the administration are continually and steadily preempting state law, taking away the policy jurisdiction of state legislatures.

Under the Supremacy Clause of the Constitution, if a properly adopted federal law or regulation conflicts with state law, then federal trumps state. The problem is that the frequency and pace of federal preemption of state law has picked up dramatically, particularly since the mid-1990s. If the trend continues, state legislatures will find it increasingly difficult to play their traditional role.

"As a result of accumulating preemptive acts by the national government, our federal system is not working as the Framers intended," says North Carolina Representative Daniel T. Blue Jr., NCSL's immediate past president.

"Federalism respects the geographic, economic, social and political diversity of America. Local diversity is ignored when state laws are preempted and replaced with 'onesize-fits-all' national policies," Blue says.

PREEMPTION BINGE

In the 1990s, Congress has been on a preemption binge, enacting or seriously considering preemptive legislation in many important policy areas.

Civil Justice: For over 15 years, Congress has considered various proposals to set national standards for product liability lawsuits in state court, thus broadly preempting an area of traditional state authority, the tort law.

Congress has passed in recent years several more-limited preemptions of state tort law, including a law last year that provides liability protection for suppliers of raw materials for medical devices. A similar preemptive measure adopted by the 105th Congress channels class action suits related to securities fraud into federal court.

In 1999, Congress again intruded into the state civil justice system. Legislation that has passed both houses and that the president has agreed to sign will limit lawsuits in state court resulting from the so-called "Y2K" or year 2000 computer glitch.

Land Use Planning: The Citizen's Access to Justice Act passed by the House in 1997 would have preempted state laws and made it much easier for property owners to pursue in federal court Fifth Amendment "takings" claims against state and local governments. In 1998, a companion bill fell just a few votes short of the 60 needed in the Senate to cut off a filibuster. Similar bills are pending this year.

If passed, these so-called property rights bills would turn the federal court system into a centralized zoning board of appeals. Federal judges would be asked to make large numbers of decisions about land use planning, a policy area that is about as essentially local as one can imagine.

Taxation of Electronic Commerce: In 1998, Congress enacted the Internet Tax Freedom Act, imposing a three-year moratorium on state and local taxation of electronic commerce. The result is at least a temporary preemption of state revenue measures. The law leaves in place a loophole created by the Supreme Court's 1967 decision in National Bellas Hess vs. Illinois, which effectively exempts most out-of-state mail order and electronic retailers from responsibility for sales tax collection. The result is an annual revenue loss to states and localities estimated to exceed $6 billion.

Under the new law, an advisory commission is studying means of facilitating electronic commerce while accommodating state revenue needs. The fear is that the Internet Tax Freedom Act simply sets the stage for a permanent preemption of state tax authority over electronic commerce.

Such a permanent preemption could have a devastating effect on states. If Internet sales reach $300 billion by 2002, and states and localities continue to be preempted, they will lose revenues of $20 billion per year. Such federal preemption also puts main street retailers, who must collect state and local sales taxes, at a significant competitive disadvantage. Such unfairness in the treatment of similarly situated retailers is a threat to the whole sales tax system, on which states depend for about one third of their revenues.

Electric Utility Deregulation: During the last session of Congress, proposals were made by leading members and the Clinton administration to impose national rules on competition in retail electricity markets.

Such preemptive legislation, which is still under consideration, would impose on retail competition a "one-size-fits-all" federal policy that ignores local conditions, values and cost structures. It could also force dramatic changes in state and local utility tax structures and franchise fee systems that again are not adapted to local needs and could result in major revenue losses. State and local control of public rights-of-way also could be jeopardized.

Telecommunications: With the passage of the Telecommunications Act of 1996, Congress determined that federal preemption was required to knock down barriers to interstate and intrastate telecommunications services. For example, telephone companies were authorized to enter the cable television market. And cable operators were allowed to provide other telecommunications services, such as local telephone service, without first obtaining a local franchise. Local taxation of direct satellite-to-home services was preempted. Local zoning authority over the location of wireless telecommunications towers was limited.

The Supreme Court's Jan. 25 decision in ATT vs. Iowa Utilities Board makes it unmistakably clear that under the 1996 act the Federal Communications Commission has broad authority to establish rules intended to ensure competition in local markets and to review agreements on local competition approved by state regulators.

Financial Services: Congress is actively considering bank deregulation, including repeal of the Glass-Steagall Act. The idea is to lower the firewalls separating banking from commerce and separating businesses engaged in banking, insurance and securities brokerage.

Such legislation, NCSL fears, could ultimately open the door to federal preemption of the state role in regulating the insurance industry. State insurance regulators want to retain authority over bank insurance activities. (The state role in regulating banks has already been substantially preempted by interstate banking legislation and by federal regulatory and court decisions related to bank powers, i.e. allowing banks to offer a variety of investment products.) State regulators also want to retain authority to regulate bank securities activities.

In related areas, pending federal bankruptcy legislation and a proposal for a federal no-fault auto insurance law also would preempt state laws.

International Trade: Both NAFTA and the Uruguay round of the General Agreement on Tariffs and Trade provide procedures for foreign countries to challenge state laws for alleged discrimination against international commerce. The federal government can sue states and preempt their laws for nonconformity with our trade obligations.

The first challenge to state law in the new World Trade Organization arose from a complaint by the European Union against a Massachusetts statute that penalizes firms doing business with the dictatorial regime in Burma when they seek state contracts. Federal district and appeals courts this year declared the Massachusetts Burma sanctions law invalid in light of U.S. obligations under GATT. The range of state and local laws potentially subject to challenge under international trade and investment agreements is very broad.

Health Care: The current debate on legislation to protect the privacy of medical records revolves around preemption issues.

One bill, sponsored by Utah Senator Robert Bennett, would preempt existing state laws and set one national standard. A second bill, sponsored by Senators James Jeffords of Vermont and Christopher Dodd of Connecticut, would grandfather existing state laws and give states 18 months to enact laws stricter than the federal standard.

Among other recently enacted federal laws and proposals that would preempt states are national standards for building codes, a police officers' "bill of rights" to regulate labor-management relations for state and local law enforcement, current preemption of local tow truck regulation, preemption under the immigration laws of state drivers' license and birth certificate processes and preemption of municipal authority over the siting of group homes for the disabled. The list goes on and on.

"The Congress in recent years has demonstrated considerable inconsistency toward federalism, with some members touting federalism while at the same time attempting to nationalize whole new areas of law such as torts," says John Baker, a law professor at Louisiana State University. To correct this problem, Baker argues that Congress should enact preemption legislation as a means of enforcing "day-to-day" respect for principles of federalism.

Such federal legislation focusing on the problem of preemption has now been introduced with the support of all the major organizations representing state and local government. In the Senate, the Federalism Accountability Act of 1999, sponsored by Tennessee Senator Fred Thompson, is at the hearing stage. A similar House bill, the Federalism Act of 1999, sponsored by Indiana Representative David M. McIntosh, is also moving forward.

These bills, modeled generally on the successful Unfunded Mandates Reform Act (UMRA), seek to limit preemption by all three branches of the federal government. The bills would establish procedural rules for Congress, similar to those in UMRA, to shine a spotlight on preemptive bills.

They would require a Congressional Budget Office report on the scope of each preemptive measure. A rule of construction, to guide the courts, would seek to discourage the many findings of "implied preemption."

Farfetched theories of implied preemption are raised in litigation. Courts sometimes accept such theories, even though there is no direct conflict between federal and state law and even though Congress has not clearly stated in the text of federal legislation its intent to preempt.

Federal administrative agencies would be required to notify and consult with state and local elected officials before issuing preemptive regulations. Agencies also would be required to prepare federalism impact assessments for proposed rules.

The restrictions on the federal government in both the Thompson and Mcintosh bills are relatively modest. Nonetheless, similar modest procedural changes in UMRA have been helpful in limiting federal mandates or cost shifts to states and localities. The hope is that these bills, in the same way, will help limit federal preemption of state and local law.

Citing the number of broadly preemptive bills that recently have been seriously considered or enacted by Congress, particularly in the areas of civil justice and economic regulation, Representative Blue argues that greater congressional attention to the preemption problem is urgently needed. At the very least, he says, the Federalism Act "will put Congress to the test with respect to its sincerity and commitment to principles of federalism."

FEDERAL AGENCIES IGNORE FEDERAL IMPACT REQUIREMENTS

Since 1987, when President Ronald Reagan issued Executive Order 12612, federal administrative agencies in theory have been required to look at the federalism impact, including preemption of new federal rules. A U.S. General Accounting Office study, however, documents the fact that federal agencies for the most part have ignored the executive order.

The GAO studied "major" federal rulemaking actions from April 1996 and December 1998. Over this period, 11,414 final rules were issued by the agencies. Only five of the 11,41 4 rules contained the federalism assessment required whenever rules have sufficient federalism implications.

Bills now pending in Congress would require the agencies to do a better job of considering the federalism implications of regulations.

SUPREME COURT FAVORS STATES

On preemption issues and on federalism issues generally, recent actions by the U.S. Supreme Court favoring states' rights stand in contrast to the actions of Congress and federal administrative agencies.

The Court has favored the states in many recent preemption cases. It is much less inclined than lower courts to read federal statutes broadly to find that federal preemption is implied.

The Court's sympathy for the states is even clearer in 11th Amendment or sovereign immunity cases. In three landmark decisions by the Court in 1999, the capacity of Congress to authorize private lawsuits to enforce federal law was sharply limited. (See the article by David G. Savage on page 18.)

William T. Waren writes about federalism issues in NCSL's Washington, D.C. office.