Federal laws and regulations sometimes require nonfederal entities to expend their resources to carry out national policies. The Unfunded Mandates Reform Act of 1995 (UMRA), enacted as Public Law 104-4, defines many of those requirements as federal mandates. The law aims to ensure that Members of Congress receive information about the potential effects of mandates as they consider proposed legislation and that federal agencies take information about mandates into account as they weigh proposed regulations.
To that end, UMRA requires CBO, at certain points in the legislative process, to assess the cost of mandates that would apply to state, local, and tribal governments or to the private sector; it also requires most federal agencies to estimate those costs and other effects in the course of promulgating regulations to implement such mandates. This report describes CBO’s role in assessing the impact of private-sector mandates during the legislative process and provides information about the private-sector mandates that have become law during the past decade.
UMRA defines mandates as enforceable duties, which CBO has interpreted to include requirements for or prohibitions against certain activities. Private-sector mandates are also defined to include any reductions in the authorization of appropriations for federal aid to help entities in the private sector comply with existing mandates. However, conditions for receiving federal assistance or requirements for participating in a voluntary federal program are not considered mandates under UMRA.
As specified in UMRA, CBO reviews most legislation reported by authorizing committees to identify any mandates on the private sector, including new mandates and expansions or extensions of existing ones. For each piece of legislation, CBO prepares a statement indicating whether it contains private-sector mandates and, if so, whether the total annual cost of those mandates would exceed a threshold specified by UMRA in any of the first five fiscal years after the mandates would take effect. The cost threshold for private-sector mandates was initially set at $100 million, with annual adjustments for inflation; in 2013, it equals $150 million.
UMRA directs CBO to estimate how much the private sector would have to spend to comply with a mandate. CBO estimates those costs to be the expenses that would be directly incurred by an entity that would be subject to the mandate, regardless of whether the entity would ultimately bear those costs itself or pass them on to its customers, workers, or shareholders. In addition, CBO estimates any losses of income that would result from complying with a mandate that would limit an entity’s ability to generate revenue. As UMRA requires, CBO offsets its estimates of costs with any savings that would accrue to a mandated entity from complying with the mandate and identifies any funding authorized by legislation to help private-sector entities carry out the mandate.
CBO reviews hundreds of pieces of legislation for private-sector mandates each year. Most of that legislation does not contain mandates as defined in UMRA. Of the nearly 9,000 legislative proposals for which CBO has prepared mandate statements since UMRA was enacted, 16 percent contained private-sector mandates (see figure below). Among the proposals with mandates, 25 percent were estimated to result in total annual costs for private-sector mandates that would exceed the UMRA threshold, and 59 percent were estimated to impose mandate costs below the threshold. The other 16 percent included mandates whose total costs could not be determined, generally because the scope of a particular mandate would not be known until specific regulations were issued.
In addition to examining bills during the legislative process, since 2001 CBO has conducted an annual review after each session of Congress to determine which laws enacted during that session imposed mandates on the private sector. Between 2001 and 2011, lawmakers enacted roughly 2,300 public laws; 12 percent of them contain at least one mandate on the private sector. Of the laws with mandates, 26 percent include at least one mandate whose annual costs were estimated to exceed the UMRA threshold sometime in the first five years, 57 percent impose mandates whose total annual costs were below the threshold, and 17 percent contain mandates whose costs could not be estimated. Put another way, about 3 percent of all public laws enacted during the 2001–2011 period contain at least one private-sector mandate whose annual costs were estimated to exceed the UMRA threshold sometime in the first five years, 7 percent include mandates with costs below the threshold, and 2 percent impose mandates whose costs could not be determined.
The laws whose mandate costs exceeded the threshold impose various types of private-sector mandates: regulations, fees, taxes, and limits on civil actions (noncriminal legal proceedings). Many of those laws extended existing mandates that were set to expire. Some of the laws impose mandates that affect several sectors of the economy; others impose mandates that focus on a specific sector, such as trade, finance and insurance, or manufacturing.
This report was prepared by Amy Petz of CBO’s Microeconomic Studies Division.