States have successfully secured a $20
billion bailout from Washington to close their expanding budget
deficits. Never mind that state overspending created this crisis.
General fund revenues have climbed 46 percent since 1990, but
spending has climbed 50 percent--nearly twice the rate of federal
spending. Total state government spending topped $1 trillion per
year for the first time ever in 2000 and has continued to rise.
state officials have claimed to be entitled to a federal bailout as
reimbursement for a flurry of new unfunded mandates imposed on them
by Washington. These claims are supported by sympathetic media
reports detailing state difficulties in paying for expensive
education and homeland security mandates. Many of these analyses
seem to define an unfunded mandate as "any program that states wish
Washington would pay for." In reality, unfunded mandates must be,
as the name indicates, both unfunded and mandated. Nearly all
recent federal education and homeland security laws have been
either voluntary or fully funded by Washington.
fact, only two significant unfunded mandates have been imposed on
state and local governments since 1996, according to a new report
by the Congressional Budget Office (see Tables 1 and 2). These two
unfunded mandates cost the average state only $9 million per year,
or 0.09 percent of the typical state's $10 billion general fund
budget. The Congressional Budget Office (CBO) report shows that the
1995 Unfunded Mandates Reform Act (UMRA) has reduced the number of
new unfunded mandates placed on state and local governments. Consequently, states
cannot legitimately blame Washington for their spending crises.
is the number of unfunded mandates so much fewer than is commonly
reported? The answer lies in the definition of an unfunded mandate,
which UMRA generally classifies as a federal program that meets
both of the following criteria.
- Mandate. "Any provision in legislation,
statute, or regulation that would impose an enforceable duty on
state, local, or tribal governments...or that would reduce or
eliminate the amount of funding authorized to cover the costs of
existing mandates. Duties that arise as a condition of federal
assistance or from participating in a voluntary federal program are
- Unfunded. "Direct federal funding is
less than the amount state, local, and tribal governments would be
required to spend to comply with the mandate. Such costs are
limited to spending that results directly from the enforceable duty
imposed by the legislation rather than from the legislation's broad
effects on the economy. " An unfunded mandate does not violate
UMRA unless the combined annual cost to state, local, and tribal
governments exceeds $58 million (inflation-adjusted from $50
million in 1996), which is approximately $1.2 million per
distinction between voluntary and mandated programs is important.
Its central principle is that states should be free to spend their
own tax revenues as they see fit, rather than be forced to fund
unwanted programs imposed by Washington.
Voluntary programs, by definition, are not
imposed on states. They are proposals by the federal government of
how states could perform a certain function. If a state likes the
federal model, Washington offers to help pay the costs of
implementing it. If a state dislikes the model, it can opt out and
remain independent of federal meddling.
2001 No Child Left Behind Act is as an example of a voluntary
program. States have the authority to decide how to educate their
disadvantaged children. The federal government has created its own
model program, the No Child Behind Act, and offered to subsidize
the program's cost for any state volunteering to adopt it. The
states that have criticized the federal model or found the federal
funding insufficient are free to opt out and run their own programs
DE FACTO MANDATES?
call these programs "de facto mandates" because no rational state
would opt out of the federal programs--the federal money more than
justifies the federal strings attached. In other words, states
unanimously enrolled in these programs because the deals were too
good to pass up, not because Washington required it.
States have grown resentful of the federal
government--despite receiving $400 billion per year in federal
funding--because they now consider themselves entitled to this
money with no strings attached. States expect federal money to
subsidize their own education and homeland security visions. When
Washington instead requires that federal dollars be used only for
federally approved purposes, states feel cheated.
example, states have received federal funding for educating
disadvantaged children since 1965. Flexibility in the original
federal law allowed states significant control over how those
federal education dollars were spent. Over time, states came to
feel entitled to federal money subsidizing their own education
programs. When the 2001 No Child Left Behind Act placed different
restrictions on how states spend this federal money (which was
substantially increased), they could no longer allocate as much
federal money to their own preferred education programs. Somehow,
this reassertion of authority by Washington over how federal money
is spent became known as an "unfunded mandate," despite the program
being neither unfunded nor mandated. States still consider this
federal funding worth more than the new restrictions, as no state
has yet opted out of the program.
There are arguments for and against
open-ended, unregulated grants to states. States, however, are not
entitled to have their own programs funded by Washington. A
comparison can be made with welfare reform: Governments have the
right to require welfare recipients to work in return for receiving
public assistance. No one is entitled to taxpayer dollars, and
anyone who considers the conditions overly burdensome may opt out
of the system. The same principle applies to state governments
receiving federal money.
State officials are being hypocritical.
They demand total control over the spending of their own tax
revenues, without federal meddling. However, their claims of
"entitlement" to federal dollars with no strings attached
challenges Washington's right to control how federal tax revenues
are spent. In effect, states are attempting to impose an unfunded
mandate on Washington.
UNFUNDED MANDATES BEFORE 1996
does not affect the unfunded mandates enacted before 1996. For
example, Washington requires that states provide an adequate level
of special education funding, but furnishes only a portion of the
cost. The Environmental Protection Agency mandates that state and
local government enforce federal environmental regulations without
sufficiently funding their cost. Washington needs to reform these
unfair and burdensome unfunded mandates. States, however, cannot
legitimately blame decades-old unfunded mandates for budget crises
that began only three years ago.
Medicaid, the largest unfunded mandate,
requires deeper analysis. Federal law mandates that states run
Medicaid programs and sets minimum eligibility and benefit
standards, but states have the option to expand eligibility and
benefits beyond the federal minimum. The federal government then
reimburses states for approximately half of the program's $200
billion total annual cost. Washington deserves much of the blame
for designing an expensive and inefficient program and then
imposing it on states without providing full funding.
states have made the program even more expensive. Approximately 60
percent of the average state's Medicaid budget is for optional
services and populations beyond the federal minimum. These optional
services--such as covering weight-loss help and substance-abuse
treatment--have played a large role in the program's 165 percent
increase since 1990. If states are now feeling the pinch of rising
Medicaid costs, they have the authority to reduce the non-mandated
eligibility and benefits. They could also support President Bush's
proposal to grant states increased flexibility to modernize their
Medicaid programs. Current high Medicaid costs are not all
Clearly, the federal government is
obligated to reimburse states for costs it imposes on them.
However, Washington is not obligated to pay all the costs for
federal-state partnerships that states freely choose to enter.
Although state budget struggles are real, they were not imposed by
Washington. No state has been required to implement the No Child
Left Behind Act. States are spending more on homeland security
because they wisely made it a priority, not because of excessive
Washington mandates to do so.
There is a simple solution to the fractured
relationship between Washington and the states:
- States should
have complete control over how their tax dollars are
spent. The federal government should reimburse states for
costs imposed on them.
should have complete control over how tax dollars it receives are
spent. If states willingly accept federal dollars, they
should also accept the federal strings attached.
Brian M. Riedl is Grover M. Hermann
Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute
for Economic Policy Studies at The Heritage Foundation.