This means that  appropriations bills are not automatically subject to CBO review under  UMRA. Once the provision is identified as a mandate under UMRA, CBO  determines whether the cost estimate, if feasible, exceeds the applicable  threshold ($50 million for intergovernmental and $100 million for private  sector mandates, in any of the first 5 fiscal years during which the mandate  would be effective). However, UMRA does not provide for a point of order for private sector  mandates. Of 377 laws enacted in 2001 and 2002, CBO identified at  least 44 containing a federal mandate under UMRA. Of these 44, CBO  identified 5 containing mandates at or above the cost thresholds, and all  were private sector mandates. Nonfederal Parties Perceived Some Enacted Provisions to Be Unfunded Mandates

Although CBO’s annual reports for 2001 and 2002 showed that most  proposed legislation did not contain federal mandates as defined by  UMRA, we asked CBO to compile a list of examples from among those  laws enacted in 2001 and 2002 that had potential impacts on nonfederal  parties but were not identified as containing federal mandates meeting or  exceeding UMRA’s cost thresholds. We then analyzed these 43 examples to  illustrate the application of UMRA’s procedures, definitions, and exclusions  on legislation that was not identified as containing mandates at or above  UMRA’s threshold, but might be perceived to be unfunded mandates. Out of the remaining 31 laws that did undergo a cost estimate,  24 were found to contain mandates with costs below applicable thresholds,  3 contained provisions that were excluded from UMRA coverage, 2  contained provisions with direct costs that were not feasible to estimate, 1  contained a provision that did not meet UMRA’s definition of a mandate,  and 1 was reviewed by the Joint Committee on Taxation and found not to  contain any federal mandates. Preparation of an UMRA statement, and related estimate or analysis of  the costs and benefits of the rule, is not required if the agency is  “otherwise prohibited by law” from considering such an estimate or  analysis in adopting the rule. Within the OMB, the Office of Information and Regulatory Affairs (OIRA) is  responsible for reviewing compliance with UMRA as part of its centralized  review of significant regulatory actions published by federal agencies,  other than certain independent regulatory agencies. Of the 113 major and/or economically significant rules in 2001 and 2002 not  identified as including federal mandates under UMRA, we reported that 48  contained no new requirements that would impose costs or have a negative  financial effect on state, local, and tribal governments or the private sector. There were 26 rules for which the agencies stated that the rule would not  compel expenditures at or above the UMRA threshold and 10 rules for  which the agencies stated that rules imposed no enforceable duty. However, UMRA’s many definitions,  exclusions, and exceptions result in many statutes and rules never  triggering UMRA’s thresholds, which means they are not identified as  federal mandates. As we reported last year, in 2001 and 2002 many statutes and final rules  with potentially significant financial effects on nonfederal parties were  enacted or published without being identified as federal mandates at or  above UMRA’s thresholds. Mr. Chairman, this completes my prepared statement.
Why GAO Did This Study

The Unfunded Mandate Reform Act of 1995 (UMRA) was enacted to address concerns expressed by state and local governments about federal statutes and regulations that require nonfederal parties to expend resources to achieve legislative goals without being provided funding to cover the costs. Over the past 10 years, Congress has at various times considered legislation that would amend various aspects of UMRA. This testimony is based on GAO's report, Unfunded Mandates: Analysis of Reform Act Coverage ( GAO-04-637 , May 12, 2004). Specifically, this testimony addresses (1) the process used to identify federal mandates and what are federal agencies' roles, (2) statutes and rules that contained federal mandates under UMRA, and (3) statutes and rules that were not considered mandates under UMRA but may be perceived to be "unfunded mandates" by certain affected parties.

What GAO Found

GAO found that the identification and analysis of intergovernmental and private sector mandates is a complex process under UMRA. Proposed legislation and regulations are subject to various definitions, exclusions and exceptions before being identified as containing mandates at or above UMRA's cost thresholds. The Congressional Budget Office (CBO) is required to prepare statements identifying and estimating, if feasible, the costs of mandates in legislation. While a point of order can be raised on the floor of the House or Senate against consideration of any UMRA-covered intergovernmental mandate that lacks a CBO estimate or exceeds the cost thresholds, it contains no similar enforcement for private sector mandates. Conversely, federal agencies are required to prepare mandate statements for regulations containing intergovernmental or private sector mandates that would result in expenditures at or above the UMRA threshold. The Office of Information and Regulatory Affairs, within the Office of Management and Budget, is responsible reviewing compliance with UMRA as part of the rule making process. In 2001 and 2002, 5 of 377 statutes enacted and 9 of 122 major or economically significant rules issued were identified as containing federal mandates at or above UMRA's thresholds. All 5 statutes and 9 rules contained private sector mandates as defined by UMRA. One final rule also contained an intergovernmental mandate. Despite the determinations under UMRA, at least 43 statutes and 65 rules issued in 2001 and 2002 resulted in new costs or negative financial consequences on nonfederal parties. These parties may perceive such statutes and rules as unfunded or underfunded mandates even though they did not meet UMRA's definition of a federal mandate at or above UMRA's thresholds. For 24 of the statutes and 26 of the rules, CBO or the agencies estimated that the direct costs or expenditures, as defined by UMRA, would not meet or exceed the applicable thresholds. The others were excluded for a variety of reasons stemming from exclusions or exceptions specified by UMRA.