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Cound d State Governments
May 16, 1997
The Honorable New Gingrich
Dear Mr. Sperker: The elected leadership of the state and local government associations deeply appreciate your offer to continue a leadership role in our efforts to stop unwarranted federal mandates, cost shifts, preemptions, and regulations on state and local governmeals. State and local officials are dedicated to achieving the goals of affordable and available health care for all
; a clean environment and safe water; and consuma protections and due process. However, state and local officials are strongly concerned about the current process for attaining these goals. In some cases, the current process is wasteful and discriminatory against more pressing local priorities, and in others to may be deceptive because unfunded mandates may cause state and local officials w raise taxes at the local level. The enclosed report oudines a current list of unwarranted mandates, cost shifts, preemptions, and regulations on which there is a consensus among our organizations. It reflects the continued philosophy that state and local officials are elected to allocate the resources of their constituents, noe sobe regional brokers of unfunded federal mandates, revenue preemptions, and misplaced special interest lawsuits. Given the fiscal constraints on new revenues at every level of government, state and local officials have a growing determination to rebalance the federal system to a true partnership for a "public budget" that is fair to both taxpayers and the public. We are writing to seek your action on these mandates and are eager to support you in these efforts. Sincerely,
they V. Vairich
Bob Miller, Governor of Nevada
George Y Volnovich, Governor of Ohio
Mandates, Cast Shifts, Preemptions, and Regulations
The Lemos State and local officials are dedicated to achieving the goal of affordable and available health care for all; a clean cavironment and safe water, and consumer protections and due proces. However, state and local officials are strongly concerned about the arrent process for wining these goals. La como
cases, the current process is wasteful and discriatostory against mora pressing local priorities, and in others it may be deceptive because unfunded mandates may cause stato ad local officials w naise ka & the local level.
Foderal mandates-laws, cost shifts, preemptions, or regulations imposed by the federal government on state and local governments-have cvolved into the modern-day version of taxation without representation, or tricklo down taxes. Congress and the federal government, lobbied bard by special interest groups, often determine what priorities state and local governments should adopt, and the kinds of services they should be providing, without specifying bow the services will be funded. The resul is that, to a large extent, the federal government ends up dicenting the spending priorities for state and local governments regardless of local needs and conditions. As a result, maadates may eat sway at basic state and local spending for education, welfare, public safety, and transportation, requiring unpopulær solutions such as raising taxes or cutting vital services to pay for the programs that the federal government requires. This report oudines a current list of unwarranted mandates, cost shifts, preemptions, and regulations. It reflects the continued philosophy that state and local officials are dected to allocate the resources of their constituents, not to be regional brokers of unfunded foderal mandates, revenue preemptions, and misplaced special interest lawsuits. Given the fiscal constraints on new revenues at every level of government, state and local officials have a growing determination to rebalance the federal system to a true partnership for a "public budger"
that is fair to both taxpayers and the public.
UMRA Implementation the Congressional Budget Office A major problem has developed concerning the implementation of the Unfunded Mandates Reform Aa (UMRA) by the Congressional Budga Office (CBO). CBO has made an interpretation of UMRA that is the opposite of the iment of the law as passed by Congress and envisioned by the sponsoring organizations of state and local elected officials. On June 10, 1996, CBO ruled that a point-of-order would not exist for a cap on federal Medicaid contributions and probably
for any other mandatory safety net program, acept food stamps. CBO says states already have sufficient flexibility to adjust to my cut or cap in these safety net programs. CBO says the law should bave specified that "new" flexibility was required. This means that UMRA is suddenly inoperative for two-thirds of all foderal aid to all governments for all purposes, and especially for the safety net programs for the poor. These programs include: child mutrition; child support enforcement; foster care, adoption assistance, and independent living; family support and preservation; Medicaid; and vocational rehabilitation state grants. The provision giving a point-of-order for safety net programs is clear in that a separate threshold of $500 million was set. Without a point-of-order this section becomes meaningless as a part of the law.
NGA and the other state ad local organizations of elected officials are shocked at this CBO
The Senate (House) wishes to clarify the intent of the Unfunded Mandatos Reform
UMRA Implementation by Federal Agencies The Environmental Protection Agency (EPA), in announcing its proposed changes in clean air regulations, said that UMRA requirements do not apply when they we inconsistent with applicable law. EPA also dismisses the requirements of the Small Business Regulatory Flexibilky AC (SBREPA) and the President's Executive Order 12866 on the same grounds. EPA actnowledges that implementation of the new clean air regulations by the states might result in unfunded mandates but sees no direct legal connection with promulgation of standards under the Clean Air Act, UMRA, SBREFA, executive orders, and implementation of the new regulations. The Treasury Department has refused to answer specific requests about its proposed $1 billion retroactive sanction on state and local governments due to “yield burning issues. The specific purpose of UMRA is being violated, not to mention the spirit of enhanced intergovernmental consultation of new regulations based on relative risk assessments (even health risks) and benefu-cost analysis. Congress should clarify federal agency responsibüities with regard to UMRA.
UMRA and New Preemprions UMRA clearly identifies federal preemptions as mandates. However, federal agencies increasingly make unilateral decisions to preempt state and local authorities. While UMRA says now preemptions are mandates and must be made explicit, consideration should be given to making new agency preemptions subject to judicial review as well as clarifying the role of UMRA with regard to new interpretations of existing law.
i Recent preemptive proposals over state and local authority include telecommunications, internet taxation, and spectrum sales.
Medioald Erdacy Returns The curreat Medicaid programa bus mmdates that increase costs to all parties without correspoading benefits. The contraved pursuit of administrative simplification, immovation, and good management that produced the extraordinary low Medicaid growth rates of recent years will continue to restrain umacessary program speading. The following reforms as needed to sustain these efforts. Repeal of the waiver requirement for mandatory managed cars will facilitate further development of the Medicaid managed care market. As the Medicaid markets mature, competition between managed care cotitios will enable stres to negotiate more favorable ruter. The dually eligible population, which is curready 6 million people, would be rolled in managed care, creating a more streamlined, cost effective system of health care delivery for those aldedy and disabled individuals who receive a complete, but uncoordinated, package of beacfius from bota Medicaid and Medicare. Managed care will produce savings for both programs, while creating a more user-friendly health care experience for recipients.
Retroactive Internal Revenue Service Tax Mandates on States and Local Governments la July of 1996, the Internal Revenue Service (IRS) proposed retroactive mandates that could force cities and towns to ranit up to $1 billion to the IRS for where the RS believes are overcharges by underwriters in more than 5,000 bond refinancings by state and local governments that occured between the years 1991 and 1994. The proposed revenue procedure is retroactive, in effect creating a new set of rules for actions already taken by state and municipal bond issuers who in good faide relied on cisting federal laws and regulations. The proposed procedure would impose significant new costs, but uncertain benefits. In addition, this regulation does not take into account President Clinton's Executive Order 12875, issued on October 26, 1994, the day before “National Unfunded Mandates Day." This order, entitled "Enhancing the Intergovernmental Partnership." focuses on unfunded mandates. la order to reduce unfunded mandates, agencies we directed not to promulgate wy regulation not required by statuto unless funds necessary to pay the direct costs are provided w cities by the federal government or a justification for not providing funds is made to the Office of Management and Budget (OMB). Guidance issued by OMB says that at a minimum the consultation must include any estimate of the direct costs to be incurred by other governments, and as much detail as possible with respect to the expected methods of compliance. This executive order bas not been followed by IRS to date. State and local leaders oppose this retroactive action on state and local governments.
Treasury Arbitrage and Rebare Rules
The 1986 Tax Reform Act imposed sharp new restrictions on investment earnings, or arbitrage, on how much state and local governments could earn from the way they invested the proceeds of traditional public purpose tax-exempe bonds before they were drawn down to finance projects a facilities. In addition, the new law and regulations mandated state and local governments to pay rebates on excess earnings. These mandates imposed major changes on traditional state and local capital finance, siphoning off significant resources from ongoing capital and operating budgets to meet new and complex federal requirements. Between 1991 and 1995, state and local governments paid more than $1 billion in rebates to the federal government. Those payments, however, do not fully represent the cost to state and local taxpayers. Because the arbitrage and rebate rules are so complex, and the penalty for non-compliance