The President signed S.1, the “Unfunded Mandates Reform Act
of 1995, on March 22, 1995. Title II of this statute
(P.L. 104-4) directs agencies to take a number of specific steps
to assess the effects of Federal regulatory actions on State,
local, and tribal governments, and the private sector. This
memorandum summarizes the statutory requirements of Title II, and
our role in overseeing agency compliance with it. This
memorandum does not discuss Title I of the Act, which concerns
mandates in legislation.
Title II applies to all Federal agencies, with the
of the independent regulatory agencies (Sec. 3(l); Sec. 101(a),
adding Sec. 421 (1)).
Title II takes legal effect on the date of enactment,
March 22, 1995 (Sec. 209).
2. Judicial - Review.
Agency activities under Title II are subject to judicial
review, as described in Section 401. The judicial review
provisions “shall take effect on October 1, 1995, and shall apply
only to any agency rule for which a general notice of proposed
rulemaking is promulgated on or after such date”
(Sec. 401 (a) (6)).
An agency action can be challenged for failure to
statement required under Section 202 and a written plan required
under Section 203(a), although the court will not have the
authority to adjudge the adequacy of the analysis (Sec.
401(a)(2)). The court can compel an agency to prepare a required
statement, but the absence or inadequacy of a statement cannot be
used under any other Federal law as the basis for invalidating
the rule (Sec. 401(a)(3).
These statements will be considered part of the record
judicial review conducted under other provisions of Federal law
(Sec. 401 (a)(4)) . The time for filing a petition for judicial
review is the time set under other Federal law or 180 days after
the final rule is promulgated, whichever is sooner (Sec.
3. Section 201, "Regulatory Process.”
Title II directs each agency, “unless otherwise prohibited
by law, (to] assess the effects of Federal regulatory actions on
State, local, and tribal governments, and the private sector
(other than to the extent that such regulations incorporate
requirements specifically set forth in law).”
4. Section 202, “Statements to Accompany Significant Regulatory
A. Required Written Statement. This section
agencies to prepare a written statement before promulgating
certain rules. This requirement builds an the assessment
required by Section 6(a)(3)(C) of E.O. 12866.
Agencies are to include in the preamble to the published
rulemaking “a summary of the information, contained in the
statement” (Sec. 202(b)).
In addition, OMB is to “collect from agencies the
prepared under section 202,” and “periodically forward copies” of
these to the Congressional Budget Office “on a reasonably timely
basis after promulgation" of the proposed or final rule
(Sec. 206). We ask that you provide two copies of these
statements to us as part of your submission under E.O. 12866 --
one, for our review and files; one, for transmission to CBO.
(1) Types of Rulemaking Covered. Section 202
"any general notice of proposed rulemaking" or “any final rule
for which a general notice of proposed rulemaking was
published,1 " that includes any Federal mandate that may result
1 As the Conference Report states,
“[i]t is the intent of
the conferees that the rulemaking process shall follow the
requirements of section 553 of title 5, United States Code, and
shall be subject to the exceptions stated therein. When a
general notice of proposed rulemaking is promulgated, such notice
shall be accompanied by the written statement required by section
202. When an agency promulgates a final rule following the
earlier promulgation of a proposed rule, the rule shall be
accompanied by an updated written statement. In all cases, the
exceptions stated in section 553 shall apply, including for good cause."
in the expenditure by State, local, and tribal governments, in
the aggregate, or by the private sector, of $100,000,000 or more
(adjusted annually for inflation) in any 1 year ... “
(2) Exemptions. As a general limitation, Section
requires preparation of an estimate or analysis, “[u]nless
otherwise prohibited by law”. The Conference Report states that
Section 202 “does not require the preparation of any estimate or
analysis if the agency is prohibited by law from considering the
estimate or analysis in adopting the rule.”
Section 202 also does not apply to interim final
non-notice rules issued under the “good cause" exemption in
5 U.S.C. 553(b)(B). Nor does it apply to situations. in which the
agency has, under 5 U.S.C. 553(a), claimed an exemption. At the
same time, if an agency waived the exemption and follows the
informal rulemaking procedures in 5 U.S.C. S53, Section 202 would
appear to apply.
Moreover, Section 202 is limited to what is defined
Act as a "Federal mandate.” As a general matter, a Federal
mandate includes Federal regulations that impose enforceable
duties on State, local, and tribal governments, or on the private
sector, but excludes those related to certain kinds of Federal
assistance and financial entitlements. 2
2 "Federal mandate”, is a precisely
defined term (Sec. 3(;1)
Sec. 101(a), adding Sec. 421(6)) that includes a “Federal
intergovernmental mandate" (Sec. 421(5)) and a "Federal private
sector mandate” (Sec. 421(7)).
"Federal intergovernmental mandate” includes a regulation
that "would impose an enforceable duty upon State, local, or
tribal governmental with two exceptions. It excludes "a
condition of Federal assistance.” It also excludes "a duty
arising from participation in a voluntary Federal program,"
unless the regulation “relates to a then-existing Federal program
under which $500,000,000 or more is provided annually to State,
local, and tribal governments under entitlement authority,” if
the provision would "increase the stringency of conditions of
assistance" or replace caps upon, or otherwise decrease the
Federal Government's responsibility to provide funding” in a
situation in which the State, local, or tribal governments "lack
authority" to adjust accordingly.
"Federal private sector mandate” includes a regulation
"would impose an enforceable duty upon the private sector, except
(i) a condition of Federal assistance; or (ii) a duty arising
from participation in a voluntary Federal program.”
B. Content of Required Statement. For regulations
by Section 202, each agency is to prepare a written statement and
include it in the rulemaking record. This statement may be
prepared "in conjunction with or as part of any other statement
or analysis” carried out by the agency, as long as it “satisfies
the provisions" of Section 202(a) (Sec. 202(c)).
(1) Authorizing Legislation. The agency is
to identify the
“provision of Federal law under which the rule is being
promulgated" (Sec 202(a)(1)). As a general matter, if the rule
is being issued pursuant to a statutory or judicial deadline, the
agency should so state.
(2) Cost-Benefit Analysis. The
agency is to provide a
“qualitative and quantitative assessment of the anticipated costs
and benefits of the Federal mandate, including the costs and
benefits to State, local and tribal governments or the private
sector" (Sec. 202 (a)(2)). This assessment is to include “the
effect of the Federal mandate on health, safety, and the natural
environment". This builds on the assessment required under
Section 6 (a)(3)(C) of E.0. 12866.
To the extent an agency determines that “accurate
are reasonably feasible," the assessment is also to include
estimates of “future compliance costs of the Federal mandate”
(Sec 202 (a)(3)(A)) . For intergovernmental mandates, the
assessment is to include an analysis of the extent to which the
costs “may be paid with Federal financial assistance (or
otherwise paid for by the Federal Government)” and “the extent to
which there are available Federal resources to carry out the
intergovernmental mandate” (Sec. 202(a)(2)(A) &(B)).
(3) Macro-economic Effects. The agency is
also to estimate
“the effect" of the regulation “on the national economy, such as
the effect on productivity, economic growth, full employment,
creation of productive jobs, and international competitiveness of
United States goods and services, if and to the extent that the
agency in its sole discretion determines that accurate estimates
are reasonably feasible and that such effect is relevant and
material" (Sec. 202(a) (4)).
We would note that such macro-economic effects tend
measurable, in nation-wide econometric models, only if the
economic impact of the regulation reaches 0.25 percent to 0.5
percent of Gross Domestic Product (in the range of $ 1.5 billion
to $3 billion). A regulation with a smaller aggregate effect is
highly unlikely to have any measurable impact in macro-economic
terms unless it is highly focused on a particular geographic
region or economic sector.
(4) Summary of State, Local, and Tribal Government
The agency is to describe the "extent of the agency's prior
consultation with elected representatives" under Section 204,
summarize their comments and concerns, and summarize its
evaluation of these comments and concerns (Sec. 202(a)(5)).
Section 204, which in essence codifies Section 1 of E.O. 12875,
is discussed below.
(5) "Least Burdensome Option or Explanation Required.”
those regulations for which an agency prepares a statement under
Section 202, “the agency shall [l] identify and consider a
reasonable number of regulatory alternatives and  from those
alternatives select the least costly, most cost-effective or
least burdensome alternative that achieves the objectives of the
rule" (Sec. 205(a)). This builds on the assessment of feasible
alternatives required in Section 6(a)(3)(C)(iii) of E.O. 12866.
This selection of the “least costly, most cost-effective
least burdensome alternative” is to be done “for State, local,
and tribal governments, in the case of a rule-containing a
Federal intergovernmental mandate” and for "the private sector,
in the case of a rule containing a Federal Private sector
mandate” (Sec. 205 (a)(1) - (2)).
If the agency does not select the least burdensome
the agency head needs to publish “with the final rule an
explanation of why the least costly, most cost-effective or least
burdensome method of achieving the objectives of the rule was not
adopted" (Sec. 205(b)(1)).
The agency need not comply with Section 205(a) if
provisions “are inconsistent with [the] law” under which the
agency is issuing the rule (Sec 205 (b)(2). We would also note
that, while an agency's identification and selection of the least
burdensome option in compliance with Section 205, may -- for
purposes of presentation and clarity -- be included as part of
the statement required under Section 202, this identification and
selection is not subject to judicial review (Sec. 401).
5. Section 203, "Small Government Agency Plan.”
Section 203 builds upon the policy objectives of
Regulatory Flexibility Act. It provides that “[b]efore
establishing any regulatory requirements that might significantly
or uniquely affect small governments, agencies shall have
developed a plan under which the agency shall—
"(1) provide notice of the requirement to potentiallyWe have two suggestions. First, the “notice" to affected
affected small governments, if any;
“(2) enable officials of affected small governments to
provide meaningful and timely input [therein); and
“(3) inform, educate, and advise small governments on
compliance with [such regulatory] requirements.
Second, an outreach effort to enhance “meaningful
and to “advise small governments on compliance” can further
agency efforts to carry out Section 204. You may wish to consult
with the Chief Counsel for Advocacy, in the Small Business
Administration. In cooperation with a number of agencies, he has
been working to improve outreach efforts, and will be able to
share the pluses and minuses of various approaches.
6. Section 204. "State, Local, and Tribal Government Input."
Agencies are, “to the extent permitted in law, [to]
an effective process to permit elected officers of State, local,
and tribal governments ... to provide meaningful and timely input
in the development of regulatory proposals containing significant
Federal intergovernmental mandates” (Sec.204 (a)). Under this
process, meetings are exempt from the Federal Advisory Committee
Act (Sec. 204 (b).
The President is to issue guidelines for appropriate
implementation of this section no later than six months from the
date of enactment (Sec. 204 (c)). Until that time, I suggest that
you review the procedures you have developed to comply with
E.O. 12875 and the Guidance for Implementing E.O. 12875,
Section 1, that we sent you on January 11, 1994.
That Guidance suggests that intergovernmental consultations
should take place as early as possible, and be integrated into
the ongoing rulemaking process. It suggests that agencies should
consult with the heads of governments, program and financial,
officials, and Washington representatives and elected officials.
To facilitate these consultations, the Guidance suggests that
agencies should estimate the direct costs to be incurred by the
affected governments, and make reasonable efforts to disaggregate
these cost estimates.
7. Section 207. "Pilot Program on Small Government Flexibility.
OMB, "in consultation with Federal agencies,” is
establish pilot programs in at least two agencies “to test
innovative, and more flexible regulatory approaches that (1)
reduce reporting and compliance burdens on small governments; and
(2) meet overall statutory goals and objectives” (Sec. 207 (a)).
Those of you who would like to undertake such a pilot
program should contact us to discuss your projects. You may
already be considering such an effort in the context of replying
to the President's March 4 Memorandum, entitled "Regulatory
Reinvention Initiative," or as part of your efforts to improve
regulations as part of the Reinventing Government process.
8. OMB Reports.
OMB is to submit certain reports to Congress. Within
year, OMB is to “certify to Congress, with a written explanation,
agency compliance with [Section 205] and include in that
certification agencies and rulemakings that fail to adequately
comply with [Section 205]" (Sec. 205(c)). More generally, every
year, OMB is to provide to Congress a written report “detailing
compliance by each agency during the preceding reporting period
with the requirements of this title” (Sec.208).
We will be reviewing your Section 202 statements
reviews conducted under E.O. 12866. We will supplement this
information with requests to you to learn about compliance with
other provisions in Title II.
* * * * *
If you have any questions, please let us know. We will, of
course, provide additional guidance as experience and need