Federal Mandates for State Action Note

Federal mandates are traditionally described as actions by the federal government to force states to do something or pre-empt state authority. The national 55 mph speed limit is a classic example of an unfunded mandate, while a congressionally legislated moratorium or preventing states from taxing Internet commerce would be an example of preemption. Mandates and preemption can come from any branch of the federal government, and arise in the form of laws, regulations, and court rulings. Suggested State Legislation volumes have highlighted congressional mandates since 1992, beginning with legislation in the 101 st Congress. Defining congressional mandates was supposedly made easier by the “Unfunded Mandates Reform Act of 1995 (UMRA).” Under UMRA, federal legislation that imposes $50 million or more in unfunded annual costs to the states is officially considered a mandate. This threshold has since been raised to $56 million to adjust for inflation. UMRA also defines a private sector mandate and requires the Congressional Budget Office (CBO) to review virtually all bills reported by congressional committees for the presence of federal mandates and to estimate the costs of both types.

Federal Mandates – Recent History

According to the CBO’s “Activities Under the Unfunded Mandate Report 1996-2000,” although the percentage of legislative bills containing federal mandates has remained consistent over the last five years, the percentage of bills with mandates over the statutory threshold has declined from 1.5 percent in 1996 to 0.5 percent in 2000. Since 1996, Congress has enacted only two intergovernmental mandates that surpass the UMRA threshold, the law increasing the minimum wage in 1996 and the Food Stamp program in 1997. In addition, out of the 3,000 bills evaluated through mandate statements by CBO in that report, only twelve percent contained intergovernmental mandates and just fourteen percent contained private sector mandates. Finally, only nine percent (32 bills) of the intergovernmental bills reviewed by CBO reached UMRA’s $50 million threshold.

107 th Congress-First Session

The first session of the 107 th Congress began on January 3, 2000 and was expected to conclude before the Christmas holiday of 2001. At the time this note was written, 70 bills had been enacted into law. Because the CBO’s final report on mandates from this session was not available at the time this note was written, this note simply highlights a few key bills from the session that could affect the states and provides CBO cost estimates for some of those items.

“Aviation Security Act” (S. 1447)

S. 1447 authorizes increased federal responsibility for all aspects of aviation security, including the federal take-over of all passenger and baggage screening in the nation’s airports and the placement of federal marshals on commercial flights. It authorizes the Department of Justice and the Department of Transportation to hire 31,000 employees to provide day-to-day aviation security and requires the Department of Transportation to reimburse airports for some of the costs associated with complying with this new law. It requires local airport operators to use technology and equipment to detect biological and chemical weapons, requires airport operators to develop security awareness programs for airport employees and perform background checks for certain airport employees with access to “secure areas.” Initial CBO estimates predict that the cost the to public sector from S. 1447 will not meet the $56 UMRA threshold, but it predicts the costs to the private sector could exceed the $113 million UMRA threshold. On a different note, S. 1447 pre-empts state laws by exempting volunteers who provide emergency services on commercial flights from liability in an action brought in a state court. This bill became law in

2001.

Moratorium on Internet Taxes (H.R. 1552)

H.R. 1552 extends the moratorium on collecting taxes on Internet sales transactions for two more years, although it does allow states currently collecting taxes on Internet sales transactions to continue doing so. Based on information received from the Multistate Tax Commission and the Federation of Tax Administrators, the CBO also concluded that this bill will not affect state and local revenues currently being collected. But, a University of Tennessee report estimates that state and local revenue losses for e-commerce sales will be $13.3 billion for 2001 for states that are not currently taxing such transactions. This bill became law in November 2001.

“Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001” (USA Patriot Act of 2001) (H.R. 3162)

H.R. 3162 expands the powers of federal law enforcement and financial regulators, and increase penalties for acts of terrorism. The CBO estimates that H.R. 3162 will increase direct federal spending by $104 million in FY02. Spending for the prevention and prosecution of terrorists will total $50 million over the 2003- 2006 timeframe and $20 million each year thereafter. The bill became law in October 2001. While the CBO cost estimate for H.R. 3162 did not mention mandates on or pre-emption of state laws, at least one of two other bills (H.R. 2975 and S. 1510) that were folded into H.R. 3162 could contain both. For example, H.R. 2975 imposes intergovernmental and private sector mandates by increasing requirements for state courts and prohibiting certain people from handling specific biological agents.

“Economic Security and Assistance for American Workers Act” (H.R. 3090)

H.R. 3090 would reduce tax receipts by providing special temporary depreciation allowances, extend the period for carrying back net operating losses, extend the bonding authority and tax credit for New York City and other devastated areas, and provide tax relief for victims of the September 11 th attack. In addition, H.R. 3090 would increase federal spending by providing a tax rebate to low-income tax filers that did not receive a rebate this summer, create new health insurance programs, expand Medicaid coverage and federal matching payments, and enhance unemployment insurance benefits. The CBO estimates that while H.R. 3090 contains intergovernmental and private-sector mandates, many of the mandates impose no costs on state, local, or tribal governments. Hence, the cost to comply should not exceed the UMRA threshold for the public sector, but the cost to the private sector might exceed the UMRA threshold. Two examples in the latter case include the bill’s Mental Health Parity provisions and COBRA continuation coverage provisions.

“Terrorism Risk Protection Act” (H.R. 3210)

H.R. 3210 would require an administrator appointed by the President to provide up to $100 million in financial assistance to commercial property and casualty insurers for losses for terrorist acts committed after the enactment of the bill and prior to January 1, 2003. The CBO estimates that while H.R. 3210 contains several intergovernmental and private sector mandates, the costs of complying with these mandates would not exceed the UMRA threshold for the public or private sector.