Protecting Federalism: Still the Battle Cry of Cities

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The year 1995 was a time of “reinventing government,” with both the Clinton Administration and the new Republican majority Congress pledging to streamline government, balance the federal budget, and shift policy responsibilities to states, local governments and the private sector.

Fundamental questions about the roles and responsibilities of government took center stage in Washington. One that NLC was particularly concerned about was whether federal programs could be reduced or eliminated without shifting the costs to local governments in the form of unfunded mandates.

Then NLC Executive Director Don Borut said cities are essential partners in federalism discussions. “This national discussion on governance provides an important opportunity to restructure the relationship between local government and the federal system.”

pull1The renewed focus on federalism was at time when cities were seeing a rise in regulatory or “coercive federalism” through regulations, mandates and preemptions and a decline in fiscal federalism, as Borut noted years later. From 1945-1995, the number of federal mandates on state and local governments increased from less than 10 to more than 100 (and probably more so today). Since the late 1970s the federal government’s share of city budgets has declined from about 15 percent to 5 percent (and probably less so today).

Thus, NLC developed a framework of principles through which to engage, initiate, and respond to specific structural and programmatic changes in government. One of the principles focused on “effective federalism,” meaning “not leaving national problems on the doorstep of local governments.”

Cities saw a major victory on the unfunded mandates front in 1995. The culmination of nearly two years work by NLC was celebrated at the 1995 Congressional City Conference with the news that the House and Senate Conference Committee had reached agreement on the final version of the Unfunded Mandates Reform Act (UMRA). In fact, President Clinton’s speech to NLC members was his first public endorsement of the bill and he guaranteed his signature.

NLC Second Vice President Greg Lashutka, Mayor, Columbus, OH said, “What was once the battle cry of overburdened cities and towns – no more unfunded mandates – is now on its way to becoming law of the land.”

A few days after the conference, President Clinton signed the landmark legislation before a jubilant crowd of state and local leaders from across the nation, including then NLC board member Clarence Anthony.

“As the long-awaited moment approached, sunshine broke from behind a wall of clouds, the Rose Garden was flooded with light, and clear skies graced the ceremony – an appropriate atmosphere for the signing of legislation that for the first time holds Congress accountable for the mandates it imposes on state and local governments and aims to prevent future unfunded mandates,” described an NLC news article.

With such optimism in 1995, the question then becomes, has the law lived up to its expectations? Hold that thought.

Over the course of the next several years, NLC joined with the other “Big Seven” state and local organizations in working with the Administration on additional guidance for implementing laws and developing rules that affect cities.

To that end, in August 1999, President Clinton issued Executive Order 13132: Federalism to “further the policies of the Unfunded Mandates Reform Act” and to “ensure that the principles of federalism established by the Framers guide the executive departments and agencies in the formulation and implementation of policies.”

In addition to enumerating the basic principles of federalism, the Executive Order directed federal agencies to set up a consultation process “to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.”

Under UMRA, an annual regulatory cost of over $100 million, in aggregate, to state and local government triggers an intergovernmental consultation process between the agency and elected officials.  Under the Executive Order, federal agencies adopted guidance consistent with UMRA—a $100 million threshold for triggering the consultation process.

UMRA and the Executive Order in Review – EPA Does it Right

So, how effective has UMRA and the Executive Order together been in curtailing unfunded mandates and promoting the intergovernmental partnership?

Since 1997, the Congressional Budget Office (CBO) has assessed whether legislation considered by Congress contains unfunded mandates and whether any unfunded mandate costs exceeds the UMRA threshold.

According to CBO, in the 17 years since UMRA became effective, there have been 13 laws with intergovernmental mandates that had costs estimated to exceed the statutory threshold, the last of which was enacted in 2010. Examples include increases in the minimum wage; minimum standards for issuing drivers licenses, identification cards and vital statistics documents; and requirements on rail and transit owners and operators.

As an elected or city official, you might say to yourself, “I know there have been more unfunded mandates placed on local governments than that!”

Well, there are limitations to how UMRA defines an unfunded mandate, and some federal requirements that are not considered mandates under UMRA have still imposed burdens or costs on local governments. Congress has been pretty careful in the way it structures laws to avoid creating mandates in a technical sense. For example, the No Child Left Behind Act has obligations that must be met as a condition for receiving federal grants, but it is not considered an unfunded mandate under UMRA.

While the U.S. Environmental Protection Agency (EPA), perhaps more than any other agency, has been criticized for imposing a significant number of costly unfunded mandates on state and local governments, it is a model for effective federalism in that the process it uses today for developing rules serves to strengthen the intergovernmental partnership.

pull2Since the Executive Order was issued in 1999 through 2008, only two EPA regulations were found to have aggregate costs to state and local governments above the $100 million threshold for triggering the intergovernmental consultation process. Yet, state and local governments know that the costs of complying with federal environmental rules and regulations are high and the number of unfunded regulatory mandates is growing.

In 2008 the agency undertook a review of its Federalism guidance, including soliciting comments on whether to lower the threshold for intergovernmental consultation. NLC, along with the other “Big Seven” state and local government groups supported lowering the threshold in order to have more regular consultation with elected officials, earlier in the regulatory process.

In November 2008, EPA announced that it was lowering the intergovernmental consultation threshold to $25 million in the “spirit” of federalism to improve the way the agency defines, conducts and makes regulatory decisions.

“By lowering the threshold, local governments could be consulted on a more regular basis on issues of mutual importance to the quality of life in the communities we both aim to serve and the fiscal impact of those decisions,” said NLC President Kathleen Novak.

“State and local officials often serve as the ‘front line’ managers of federally mandated environmental regulations,” said EPA Deputy Administrator Marcus Peacock. “If we want good rules, early consultation with these partners is crucial.”

Since the new, lower EPA Federalism guidance went into effect, NLC and the other state and local government groups were consulted with on 16 different rulemaking procedures before a proposed rule was even written, an opportunity that rarely existed before.

Building on Success

EPA’s action came at a time when state and local officials were calling for a stronger working relationship with federal partners in solving major environmental challenges.

The consultation is important. The early input is the rulemaking process gives cities a seat at the table and a say in shaping a rule from the beginning, which NLC has long advocated for and which strengthens the intergovernmental partnership.

Federal preemption of local authority and unfunded mandates from Congress and all the federal agencies are still serious concerns for local governments. UMRA was a victory for cities, but it has not stopped unfunded mandates in a broad sense. The lower EPA threshold for intergovernmental consultation was a victory for cities, which all agencies should follow.

With the midterm elections a few months away and as the nation gears up for the next presidential election, perhaps it is time for a new, new national discussion on federalism for the 21st Century.

Carolyn Berndt

About the author: Carolyn Berndt is the Program Director for Infrastructure and Sustainability on the NLC Federal Advocacy team. She leads NLC’s advocacy, regulatory, and policy efforts on energy and environmental issues, including water infrastructure and financing, air and water quality, climate change, and energy efficiency. Follow Carolyn on Twitter at @BerndtCarolyn.