Threshold Rules for Funding Environmental Mandates: Accountability and the Unfunded Mandate Reform Act.(Statistical Data Included)

I. INTRODUCTION

Within the last few years, a debate has emerged regarding whether the federal government should be allowed to impose mandates on state (or local) governments without providing the funds necessary to implement those mandates.(1) State and local governments claim that such "unfunded mandates" place a heavy burden on them, a burden that has been growing, both in terms of the number of such mandates that Congress has passed and the ability of local budgets to absorb the cost.(2)

While many federal mandates are unrelated to environmental protection,(3) the debate over unfunded mandates has centered to a large extent around environmental mandates (e.g., Fort 1995; Infanger 1996; Dana 1995; Congressional Research Service 1994). For example, a study by the U.S. Advisory Commission on Intergovernmental Relations (U.S. ACIR) finds that "Many of the most expensive federal requirements involve minimum environmental standards that must be met by states and their political subdivisions" (U.S. ACIR 1994, 14). A well-publicized study by the City of Columbus, Ohio, found that in 1991 the costs to comply with federal environmental mandates comprised 10.4% of the total city budget, a figure that was projected to increase to 15% by 1995 (U.S. ACIR 1994). Of these costs, 95% came from three programs, the Clean Water Act, the Safe Drinking Water Act, and solid waste regulations.(4) These statutes impose federal environmental standards and testing and monitoring requirements that state and local governments must meet. For example, local governments must meet federal standards for sewage treatment plants under the Clean Water Act, standards for public water supply systems under the Safe Drinking Water Act, and federal requirements for underground storage tanks under the Hazardous and Solid Waste Amendments of 1974 (U.S. ACIR 1994).

The Columbus experience is not unique. The U.S. Conference of Mayors conducted a survey of the impact on cities of 10 unfunded mandates, 8 of which were environmental mandates.(5) The estimated total costs of these mandates in 1993 to all cities with populations over 30,000 was $6.5 billion, with the largest costs again coming from the Clean Water Act, Hazardous and Solid Waste Amendments, and the Safe Drinking Water Act (U.S. ACIR 1994, 13). These figures do not include costs to states. The Environmental Protection Agency estimates that annualized costs to state and local governments from complying with federal mandates will reach about $37 billion (in 1986 dollars) by the year 2000 (U.S. ACIR 1994).

The rationale for the use of federal environmental mandates usually comes from the existence of interjurisdictional externalities.(6) The existence of such an externality implies that state or local governments will not make efficient decisions regarding environmental protection. Even when such mandates are justified, proponents of funding have argued that the federal government should be required to provide the necessary funding. They argue that, in the absence of funding, the federal government will not adequately take account of the costs of its decisions and will hence have a tendency to over-regulate.(7,8) For example, Whitman and Bezdek (1989, 52) state that "When a higher level government has the power to require of a lower level government actions that generate benefits (for which the higher government can claim credit) without providing the revenues to meet the costs, legislators, administrators and judges may have an incentive to mandate excessively." One critic (Fabricius 1992, 17) claims that unfunded mandates allow Congress to "satisfy its expensive taste in programs at bargain basement prices." The desirability of requiring funding for this reason is known as the "accountability principle" (e.g., Whitman and Bezdek 1989; Dana 1995).

Opposing this is the argument that, if all mandates are funded, state and local governments will not have an incentive to seek the least-cost way of implementing them (the cost overrun problem). Funding of mandates can reduce the state's incentive for cost-reducing innovations (Hirsch 1991) and can create strategic incentives for states to "game" the system (St. George 1995). Thus, while unfunded mandates can create an incentive problem for the federal government, funded mandates can create an incentive problem for the states. (We refer to this as the "bilateral incentive problem" below.)

In response to outcries from state and local officials over the growing number of unfunded mandates, Congress recently passed the Unfunded Mandate Reform Act of 1995 (UMRA).(9) The Act limits the extent to which the federal government can impose unfunded mandates.(10) Under the Act, any unfunded mandate imposing new (i.e., incremental) costs in excess of a fixed level ($50 million)(11) would be subject to a "point of order" that would disallow further consideration of the proposal unless overridden by a majority vote. This provision is intended to create a significant procedural hurdle that is aimed at forcing Congress to provide sufficient funding to cover the additional costs it imposes.