A new approach to an old problem: state mandates.

• Author: Kelly, Janet M.

A few states are spearheading a state-local partnership approach to estimating the costs of mandates on local governments. Here is how these cost estimation networks operate.

The battle between local governments and their state legislature and agencies is fought over autonomy, especially fiscal autonomy. State legislatures may impose any service, program or standard upon localities that they deem appropriate and, in most states, are under no obligation to share in the cost. Local elected leaders balance rising service demands, citizen resistance to taxes, and a plethora of laws and rules that constitute the single most contentious issue in state-local relations. State mandates may come in many forms and from many sources, but they compel local compliance under threat of penalty.

Not all mandates are the same, and localities do not always resist them. Most local leaders find education, health and social welfare mandates reasonable and justified. The disagreement between the state and its localities arises over the degree to which the state accepts fiscal responsibility for the mandates. When states devolve program or service tasks to localities, these shifts can keep the state budget viable at the expense of the local budget. From a purely political standpoint, state mandates can ensure that credit for service provision goes to the state legislature, while blame for higher taxes goes to local leaders.

Despite the dominance of the mandates issue in state-local relations, there is no reliable measure of the cost of unfunded mandates to localities. The lack of reliable cost data undermines efforts at mandate relief. For example, local governments in 16 states have, at least on paper, a guarantee that the state will pay for the mandates it enacts. Imposed by statute or constitutional amendment, the typical mandate reimbursement requirement compels payment to follow enactment subject to some common exceptions, such as mandates enacted by a legislative super-majority, changes in the criminal code and mandates requested by localities. As a group, however, state legislatures bound by reimbursement requirements enact as many unfunded mandates per legislative session as states with no mandate legislation at all.(1) While the critical factor in reimbursement effectiveness is legislative willingness to be bound by it, mandate cost estimation also is essential for reimbursement. In Massachusetts, the state with the most effective reimbursement program, reimbursement follows a rigorous cost estimation process.

This article will explain why, despite statutory requirements to estimate mandate costs, state and local governments struggle to understand the extent of the burden of unfunded mandates. It will describe how fiscal notes, or requirements to present legislators with a cost estimate of a proposed mandate prior to their vote on it, have not lived up to their potential. Finally, understanding the failure of fiscal noting will give rise to a new and potentially more effective approach to mandate cost estimation, one that involves local governments in the policymaking process rather than relegating them to a reactive role.

Fiscal Notes

Proponents of fiscal noting assume that legislators will weigh the costs and benefits of the mandate and reach the appropriate decision. They rarely consider that the estimate provided to legislators often is useless due to lack of time, resources and expertise to prepare good estimates. In Colorado, fiscal notes have been filed less than an hour before commencement of floor debate. The Texas statute permits waiving of the note requirement if there is insufficient time to prepare it. Arizona passed a fiscal note bill in 1979 but abandoned it just a few years later because it was too burdensome. In many states the volume of legislation precludes a careful...