The good news is that this year’s budget deficit will be half a trillion less than last year’s. The bad news is that it still will top $1 trillion.
The worse news is that politicians, those clever creatures, are constantly looking for ways to keep enacting expensive new regulations and dispensing goodies without adding to the budget or the deficit. It’s a way to curry favor with voters, who tend to like freebies but dislike paying the costs. One such trick is the unfunded mandate, and it needs to be reined in.
Here’s how an unfunded mandate works: In the face of today’s still-high unemployment, suppose Congress wants to enact, say, a new job-training program. It could pay for the program itself by increasing federal spending, or it could require businesses or states to foot the bill, escaping any cost scrutiny.
The first approach shows up in the federal budget and increases the deficit. The second does not; hence the unfunded mandate’s political appeal.
Unfunded mandates are ways to grow government without making the government’s balance sheet look worse than it already is.
Unfunded mandates have been abused for a long time. Back in 1995, governors were furious at Washington, and Congress even passed an Unfunded Mandate Reform Act (UMRA). It handily passed the House with a 394-28 vote and sailed through the Senate, 91-9. One reason for such overwhelming margins, though, was that the legislation doesn’t have much in the way of teeth. Members of Congress were able to hold back-patting press conferences, but they didn’t have to change their behavior very much.
One loophole is that an unfunded mandate has to be very expensive before it triggers any UMRA actions. It would have to cost more than $73 million to state and local governments or more than $146 million to the private sector.
If an unfunded mandate reaches those thresholds, the Congressional Budget Office is supposed to take a closer look and disclose its findings to Congress. Congress then has the option of striking the spending, though it almost never does. Congress explicitly is not allowed to strike down disaster aid, national security-related spending and a few other kinds of mandates. The UMRA is a good transparency measure, but it isn’t much more than that.
Its biggest loophole is that it doesn’t apply to most regulatory agencies. The UMRA exempts independent agencies from its requirements. Independent agencies lack a Cabinet-level chief and generally act more autonomously than regular agencies. Because there are 42 of them — compared to 17 headed by a Cabinet member, according to the roster in the latest Unified Agenda of Federal Regulations — the UMRA in retrospect looks even more like a feel-good measure than a genuine reform.
Fortunately, real reforms might be on the way. During the last week of July and just before August recess, the House is likely to vote on H.R. 4078, a package of reforms called the Regulatory Freeze for Jobs Act of 2012.
Title IV of the package is H.R. 373, the Unfunded Mandates Information and Transparency Act of 2011, a bipartisan bill long championed by Rep. Virginia Foxx, North Carolina Republican. It would close some of UMRA’s loopholes. The biggest fix is that it would force independent agencies to comply with UMRA.
Another reform is that the Office of Management and Budget would no longer review the rules. That task would move to OMB’s Office of Information and Regulatory Affairs, which specializes, albeit imperfectly, in cost estimates. That office likely is better suited to the job, given a long history of being tasked with regulatory review responsibility, but it doesn’t have much veto power.
Usually, an agency’s first step in passing a new regulation is to publish a Notice of Proposed Rulemaking in the Federal Register. Currently, the UMRA only applies to rules that begin with such a notice. This is where the UMRA harms transparency: It gives agencies an incentive not to bother with a notice if a rule contains a large unfunded mandate. H.R. 373 would fix that problem.
Unfunded mandates matter. They burden state governments and private businesses alike. Given today’s enormous deficits, Congress has a stronger incentive than ever to use them to mask its spending problem. The need for reform is urgent; the old Unfunded Mandate Reform Act turns out not to have been fully suited to the task, though this may have been by design. Ms. Foxx’s transparency reforms are not a cure-all, but they would shed needed light on unfunded mandates and improve accountability. As Justice Louis Brandeis observed, sunshine is a fine disinfectant.
Ryan Young is a fellow in regulatory studies and Wayne Crews is vice president for policy at the Competitive Enterprise Institute.