Calculating the Costs

Perhaps the biggest problem associated with curbing the use of expensive federal mandates is the difficulty in preparing cost estimates for decision makers in Washington. The 1981 Local Government Cost Estimate Act attempted to alleviate this problem by requiring the Congressional Budget Office (CBO) to forecast estimated costs for all legislation containing mandates exceeding $200 million. The purpose of this act was to heighten the awareness of legislators as to the cost of each new bill. Unfortunately, the difficulty of tracking legislation that contains mandates makes accurate fiscal impact estimations a challenging assignment.

Authors of several papers have attempted to describe all the variables that must be taken into account when deciphering the impact of federal mandates. A handful of the most important examples are listed below.

  • Fiscal impact studies are not performed by the CBO until after the bill leaves full committee.

  • The CBO employees are often required to calculate cost estimates in a time period of 3-5 days, thus making it difficult to gather pertinent data for accurate cost estimations.

  • Many bills preclude the use of standard estimating techniques.

  • A lack of accurate data sources exist that CBO analysts could readily draw information from for use in their estimates.

  • Regulations for the implementation of bills are often not written for up to two years after the law is passed.

  • The language used in drafting legislation is often ambiguous. The CBO therefore has no way to calculate exactly what the impact of final regulations will be.

  • Currently, cost estimates are not made on amendments to legislation or tax and appropriation bills containing mandates. Therefore, the aggregate cost of unfunded mandates to the states is underestimated.

  • The number of lower level governments affected increases the difficulty in estimating costs. This is best illustrated by the effects of the Fair Standards Act which was, according to Theresa Gullo as quoted in Coping with Mandates, applicable to "7 million public employees in 50 states and approximately 3,000 counties, 19,000 municipalities, 17,0P0 townships, 15,000 school districts, and 29,000 local special districts."[8] This is from just one piece of legislation! When estimating units like the CBO are required to calculate such costs, in a limited period of time, with a real shortage of accurate data, it is likely that the true cost of mandated legislation will be grossly underestimated.

  • Federal policy debates usually concern only the federal costs of legislation, not the impact of legislation on state and local government.

  • Compounding the problem is that there is no established, systematic way of tracking the fiscal impact of mandates once they have been placed into law. When such a serious lack of data exists, it is difficult for state and local officials, special interest groups, and the general public to react effectively to the increased burdens imposed by the federal government.

Nonetheless, the issue of mandates has prompted people in many of the 50 states to investigate the costs and the burden those costs are imposing on state budgets. One of the authors of this report (LaFaive) worked with officials within three departments of Michigan state government in an effort to do just that with a specific focus on unfunded mandates in the Medicaid program. Medicaid is the principal public sector health care program for the poor and is jointly funded by state and federal governments. As the following section indicates, the magnitude of mandate costs to Michigan in this single area is staggering.