The mandate monster: unfunded federal mandates are back, and they are costing states billions.

In the late 1980s, state legislators were "mad as hell" and they weren't going to take it anymore. They were angry about unfunded federal mandates. Democrats and Republicans alike railed against specific mandates, such as elements of the Safe Drinking Water Act and crumb rubber requirements in the highway law. And, more fundamentally, they viewed unfunded mandates as a sign of a troubling one-size-fits-all, top-down imbalance in the federal system.

For several reasons, including passage of the federal Unfunded Mandate Reform Act (UMRA) in 1995, the firestorm of complaints about unfunded mandates largely abated during the latter half of the 1990s. Less than a decade later, however, unfunded mandates are back with a vengeance.

A new study released by the National Conference of State Legislatures in March indicates that state governments in the current fiscal year are confronting at least $29 billion in cost shifts from the federal government--almost 6 percent of state general fund budgets. The figure is projected to rise close to $34 billion in FY 2005. The study confirmed what many legislators know from personal experience. The federal government is imposing numerous requirements, standards and conditions on the states, but is not providing adequate funds to cover the costs.

"Even in good economic times," says Pennsylvania Representative David Steil, "costs like these are insidious. They cause state and local officials to cut services and to steal funds from worthy state programs to pay for federal ones. In bad economic times, these mandates are intolerable."

The NCSL study found that the bulk of the $29 billion in cost shifts are in eight areas. Education programs are the two with by far the largest price tags. For years, state legislators have complained about the federal government's failure to live up to its promise to fund 40 percent of the costs of special education. The NCSL research notes that there is a $10 billion shortfall between the promise--the amount authorized in the Individuals with Disabilities Education Act--and the money appropriated for FY 2004.

Similarly, current fiscal year appropriations for the new No Child Left Behind Act are $9.6 billion under the amounts authorized in the law for mandated state activities.

State officials hoped that the new Medicare prescription drug law would relieve states of the financial responsibility for "dual eligibles"--individuals who receive both Medicaid and Medicare benefits. Congressional negotiators failed to ease this burden for FY 2004. States continue to absorb the $6 billion in annual costs needed to provide prescription drug coverage for these people.

STILL WAITING

As of April 1, states have not received $2.4 billion that Congress appropriated to implement provisions of the Help America Vote Act, the federal election reform law passed in 2002. In this unique case, the money has been appropriated, but has not been delivered to the states. This is primarily because Congress and the president were slow to agree on membership of the four-person federal Election Assistance Commission, which is charged by law with distributing the funds.

Environmental programs account for $1 billion in the FY 2004 shortfall. "Over the past seven years, seven rules have imposed costs of more than $100 million per year on state, local and tribal governments," says a recent report by the U.S. Office of Management and Budget.

Appropriations for the State Criminal Alien Assistance program, which reimburses states for the costs of incarcerating illegal aliens, are $350 million below the amount originally authorized. A cap on federal contributions to states for administering the Food Stamp program costs states $227 million. And Colorado, Delaware, Minnesota and West Virginia face $19 million in sanctions in FY 04 for not adopting the federal .08 blood alcohol content as the standard for drank driving.

BUDGET BUSTERS 

One way to understand the effect of these cost shifts, according to Gary Olson, director of the Senate Fiscal Agency in Michigan, is to compare them to state budget gaps for FY 04.

In November 2003, the Michigan fiscal staff projected a $505 million gap in the state's FY 04 budget. NCSL's mandates study estimates that Michigan has absorbed at least $812 million in unfunded mandates and other cost shifts this fiscal year.

Olson is quick to point out that there are many explanations for Michigan's severe budget woes. "Yet," he says, "these federal cost shifts have clearly compounded our broader fiscal problems. Not having this $812 million unfunded liability clearly would have given the Legislature some desperately needed breathing room."

The situation is similar in other states. NCSL's last fiscal survey in February 2003 showed Indiana facing a $1 billion FY 04 budget gap. More than $480 million could be attributed to federal mandates. Connecticut had a $65 million shortfall, which could have been a $243 million surplus without the federal cost shifts. Kentucky confronted a $302 million gap with $395 million in federal mandates.

"These mandates have a corrosive effect on our federal system," says Utah Speaker Martin Stephens, NCSL president. "Federal policy priorities supplant state priorities. Legislatures' spending options are handcuffed by federal decisions." Frequently, he says, a legislature's only choice is to cut funding for local governments. And they may be facing even tougher decisions about services and taxes.

"In other words, officials furthest removed from the voters are making budget decisions for state legislators and city councilmen," Stephens says. "But that's not easy to explain when all the voter wants to know is wily the library had to cut its hours."

WHAT WENT WRONG?

A decade ago, state legislators, galvanized by their own budget and federalism frustrations, united with governors and local officials to win passage of the Unfunded Mandate Reform Act. Using information and procedural mechanisms, the law is widely acknowledged to have curtailed the use of unfunded mandates by Congress and executive agencies. In fact, the Congressional Budget Office, which is charged with developing fiscal notes for bills with potential unfunded mandates, has identified only three laws passed since 1995 that qualify under the reform law as unfunded mandates.

How is it then that the NCSL study finds so many more unfunded mandates with such high price tags? The answer lies in the strict definition of an "unfunded mandate." Many legislators look at the No Child Left Behind Act and say: There's not enough money here. It's an unfunded mandate. The mandate law, though, looks at No Child Left Behind and says: No Child Left Behind is a grant condition. States don't have to participate. Grant conditions aren't, according to UMRA, unfunded mandates. Therefore, No Child Left Behind isn't an unfunded mandate.

Legislators look at the discrepancy between the amount authorized for special education and the funds actually appropriated and say, that's an unfunded mandate. UMRA doesn't apply to appropriations bills, so, technically, the IDEA shortfall isn't an unfunded mandate, either.

Legislators look at a section in the new Medicare law that requires states to conduct eligibility studies for the new low-income subsidy of the prescription drug program. They discover the law doesn't provide funding for upgrading computer systems or training staff to make the eligibility determinations. They conclude that it is an unfunded mandate. The 1995 mandate law, though, excludes entitlement programs from its definition. The low-income subsidy program is an entitlement, so the additional administrative costs aren't considered unfunded mandates.

A RENEWED FIGHT

In retrospect, these exclusions and exemptions are major loopholes in the law. To leaders in the fight for UMRA's passage, such as former New York Senator James Lack, these exclusions were "concessions that we had to make to get the bill passed."

Speaker Stephens hopes that the time is ripe to secure additional safeguards against unfunded mandates. He used the release of the new NCSL mandate report to launch a renewed campaign against federal cost shifts.

"NCSL believes in the Unfunded Mandate Reform Act. We hope that Republicans and Democrats in Congress will join with us in exploring revisions to the law that will make it even more effective in stemming this new flood of unfunded mandates and other cost shifts."

The NCSL mandate study is found at www. ncsl.org/programs/press/mandatemonitor.pdf

THE 8 WORST OFFENDERS

                                    Minimum
                                  FY 2004 Gap
                                 (in millions)

Individuals with Disabilities       $10,087
  Education Act (IDEA)
No Child Left Behind (NCLB)           9,600
State Drug Costs for                  6,000
  Dual-Eligibles
Help America Vote Act (HAVA)          2,400
Environment                           1,000
State Criminal Alien                    350
  Assistance Program (SCAAP)
Food Stamps                             197
Transportation Sanctions                 19

Total                               $29,303

Source: www.ncsl.org/programs/press/2004/pr040310.htm

THE COST TO THE STATES
OF SELECTED * UNFUNDED
FEDERAL MANDATES

State                Total State Gap
                  (FY 2004 in millions)

Alabama                     $359
Alaska                        69
Arizona                      332
Arkansas                     219
California                 3,160
Colorado                     302
Connecticut                  309
Delaware                      72
D.C.                          62
Florida                    1,425
Georgia                      650
Hawaii                        82
Idaho                         91
Illinois                   1,040
Indiana                      480
Iowa                         212
Kansas                       211
Kentucky                     395
Louisiana                    421
Maine                        125
Maryland                     396
Massachusetts                666
Michigan                     812
Minnesota                    403
Mississippi                  282
Missouri                     522
Montana                       75
Nebraska                     141
Nevada                       123
New Hampshire                 98
New Jersey                   743
New Mexico                   167
New York                   2,191
North Carolina               687
North Dakota                  60
Ohio                         927
Oklahoma                     267
Oregon                       273
Pennsylvania                 992
Rhode Island                 107
South Carolina               344
South Dakota                  67
Tennessee                    433
Texas                      1,830
Utah                         152
Vermont                       72
Virginia                     526
Washington                   456
West Virginia                158
Wisconsin                    424
Wyoming                       57

Total                    $24,400

* Does not include mandates in environmental
programs, SCAAP and some programs authorized
in the NCLB Act.

Source: Federal Funds Information for States and
the National Conference of State Legislatures, Washington,
D.C., March 2004.

REPRESENTATIVE

DAVID STEIL

PENNSYLVANIA

SPEAKER

MARTIN STEPHENS

UTAH

Molly Stauffer handles budgets and revenue matters in the NCSL Washington, D.C., office and was the primary researcher on the mandate study. Carl Tubbesing is NCSL's deputy executive director.