Unfunded Mandates and Fiscal Structure: Empirical Evidence from a Synthetic Control Model

• Date: 01 January 2018
• Author: Justin M. Ross
• Published date: 01 January 2018
• DOI: http://doi.org/10.1111/puar.12867

92 Public Administration Review • January | February 2018

Public Administration Review,

Vol. 78, Iss. 1, pp. 92–103. © 2017 by

The American Society for Public Administration.

DOI: 10.1111/puar.12867.

Justin M. Ross is associate professor of

public finance and economics in the School

of Public and Environmental Affairs, Indiana

University Bloomington. His research

interests emphasize the role of institutions

in creating fiscal incentives that influence

the behavior of governmental actors. He

completed his doctorate in economics in

2008 at West Virginia University.

E-mail: justross@indiana.edu

Abstract : An unfunded expenditure mandate occurs when governments are required to provide a good or service

by a higher level of government without an accompanying revenue source. There are no empirical studies providing

causal evidence on the fiscal influence of intergovernmental mandates. This article examines Florida ’ s 1990

constitutional Amendment 3, which sought to limit unfunded state mandates on municipal and county governments.

The synthetic control method, an empirical technique for drawing causal inferences from case studies, estimates

the effect of Amendment 3 on state expenditures and total transfers to local governments. The results indicate that

state expenditures increased by an annual average of 9.5 percent, while state transfers to all local governments were

unaffected. However, the municipalities protected by Amendment 3 saw intergovernmental revenue from the state

decrease by 10 percent annually, which suggests that remaining mandates likely targeted special districts, encouraging

the fragmentation of local public service delivery.

Evidence for Practice

• This article provides evidence that constitutional limits on the ability of higher levels of government to issue

unfunded (or partially funded) mandates on lower levels of government can have fiscal effects.

• The evidence from Florida ’ s Amendment 3 mandate limit is consistent with states assuming programmatic

responsibilities for new or expanded programs that they otherwise would have delegated by mandate.

• The evidence is also consistent with states redirecting programs away from local governments toward special

districts that were not protected by Amendment 3.

• Just as the ability to mandate does not ensure local compliance, rules aimed at restricting state mandate

power do not necessarily encourage intergovernmental collaboration. More than rules, perhaps reviving

organizational capacity through entities such as the Advisory Commission on Intergovernmental Relations

would provide mechanisms toward collaboration.

Justin M. Ross

Indiana University Bloomington

Unfunded Mandates and Fiscal Structure:

Empirical Evidence from a Synthetic Control Model

A prevalent feature of federalist systems is the

ability of higher levels of government to

mandate functions that impose costs on lower

levels of government without fully offsetting those

costs through intergovernmental transfers. This ability

to issue “unfunded mandates” is often defended as a

form of government-to-government regulation that

ensures the adequacy and quality of critical public

services.

1 A common critique, however, is that these

mandates undermine the autonomy of lower-level

governments by requiring own-source revenues to be

raised or redirected away from their locally preferred

purposes. Little empirical evidence has been collected

to indicate how unfunded mandates affect the flow

of resources and responsibilities from higher to lower

levels of government. The intention of this article

is to gain insight into the influence of mandates on

the fiscal structure of states by exploring the case of a

constitutional limitation on unfunded mandates.

In the United States, unfunded mandates exist

at every node of the federal-state-local nexus

of government. While there are no systematic

estimates of the magnitude of unfunded mandates,

considerable attention has been given to their

contributions to budgetary pressures. The National

Conference of State Legislatures ’ 2016 resolution

on unfunded mandates states that the “growth of

federal mandates and other costs that the federal

government imposes on states and localities is one

of the most serious fiscal issues confronting state

and local government officials.”

2 This observation

was made despite the implementation of the

Unfunded Mandates Reform Act, which was passed

in 1995 as an effort to avoid federal shifting of

costs to state and local governments in the event

of a successful Balanced Budget Act (Gullo and

Kelly 1998 ; Joyce 2014 ). 3 An update to this act was

passed in 2015 by the House of Representatives