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Vanderbilt Law Review

First Page

1355

Abstract

Few contemporary issues concern state and local policymakers as intensely as unfunded mandates.' Mayors, county executives, city councilmen, and the professional associations representing them routinely argue that the federal and state governments have, in recent years, imposed at an accelerating rate expensive requirements on municipalities without granting corresponding funds for compliance, thereby irresponsibly straining the fiscal capacity of municipalities, hampering their ability to provide essential services, and improperly infringing upon the scope of local control. The complaints of municipal policymakers have provoked a variety of proposals for restraining unfunded mandates: obligatory disclosure of the projected costs of proposed mandates, requirements of legislative supermajorities for unfunded mandates, and statutory and constitutional reimbursement arrangements for state-imposed obligations on local governments.

In debate about unfunded mandates, governors and state legislators typically advance a more awkward position, denying that they improperly impose unfunded obligations on localities while decrying the tendency of the federal government to inflict unfinanced responsibilities on the states. President Bush, in his 1992 State of the Union address, also granted .important recognition to the anti-mandate cause when he identified strongly with its concerns.

Despite their importance to state and local policymakers, unfunded mandates have received little sustained attention from public finance and municipal government scholars. This Article is an effort at redress, an exploration of the tendency of federal and state officials to impose unfinanced obligations on lower levels of government despite the near universal condemnation of this practice. The Article concludes that the unfunded mandate phenomenon is structural in its origins, understand- able in public choice terms as a form of hidden taxation imposed by poorly monitored, opportunistic legislators. Accordingly, the Article concludes that unfinanced mandates require a constitutional response Few contemporary issues concern state and local policymakers as intensely as unfunded mandates.' Mayors, county executives, city councilmen, and the professional associations representing them routinely argue that the federal and state governments have, in recent years, imposed at an accelerating rate expensive requirements on municipalities without granting corresponding funds for compliance, thereby irresponsibly straining the fiscal capacity of municipalities, hampering their ability to provide essential services, and improperly infringing upon the scope of local control. The complaints of municipal policymakers have provoked a variety of proposals for restraining unfunded mandates: obligatory disclosure of the projected costs of proposed mandates, requirements of legislative supermajorities for unfunded mandates, and statutory and constitutional reimbursement arrangements for state- imposed obligations on local governments.

In debate about unfunded mandates, governors and state legislators typically advance a more awkward position, denying that they improperly impose unfunded obligations on localities while decrying the tendency of the federal government to inflict unfinanced responsibilities on the states. President Bush, in his 1992 State of the Union address, also granted .important recognition to the anti-mandate cause when he identified strongly with its concerns.

Despite their importance to state and local policymakers, unfunded mandates have received little sustained attention from public finance and municipal government scholars. This Article is an effort at redress, an exploration of the tendency of federal and state officials to impose unfinanced obligations on lower levels of government despite the near universal condemnation of this practice. The Article concludes that the unfunded mandate phenomenon is structural in its origins, understand- able in public choice terms as a form of hidden taxation imposed by poorly monitored, opportunistic legislators. Accordingly, the Article concludes that unfinanced mandates require a constitutional response rather than the palliative remedies generally advanced by the anti- mandate school.

Part II of this Article provides an introduction to unfunded mandates. This Part describes the unfunded mandate phenomenon in its current form, discusses the prevailing critique of unfunded mandates and the definitional questions in this area, and outlines the remedies developed in response to the perceived problem of unfunded mandates. These remedies generally treat unfunded mandates as glitches in the legislative process that are correctable through relatively minor, mechanical reforms.

Part III uses notions of public choice and agency to develop the Article's principal model. This model depicts unfunded mandates as the products of self-seeking, poorly monitored state legislators who act within a zone of discretion and opportunistically accommodate interest groups incapable of mustering majority support for their demands. Starting initially with a simple voting paradigm at the local level, the Article successively elaborates it until it generates unfunded mandates which, under the model's public choice and agency assumptions, enable state legislators, inadequately observed by the anti-service public, to provide discretionary governmental largesse to minority constituencies without alerting the majority to the deal it is financing through its municipal taxes. These pro-service interest groups, unable to obtain the majority's backing for more attractive political outcomes, such as state provision of the services they desire or fully financed mandates, accept unfunded mandates and the hidden taxation such mandates entail as the best results these groups can achieve given their relatively weak political positions.

Part IV develops a contrasting model that places a benign gloss on states' imposition of unfinanced obligations on localities. This contrasting model suggests that public-regarding state policymakers, when con- fronting externality-generating governmental activities, multiple jurisdictions, and collective action problems, maximize the welfare of local taxpayers through a network of reciprocal mandates. In this world, the anti-mandate complaints of municipal officials reflect either short- sightedness or the desire to freeload on the public services of surrounding jurisdictions.

Part V of this Article revisits the remedies conventionally proposed to constrain unfunded mandates and concludes that those remedies are generally inadequate for the perceived problem, at best abating the adoption of unfunded mandates at the margin. Under public choice premises, the standard anti-mandate recommendations are largely deficient because they do not constrain decisionmakers' discretion and opportunistic conduct, the underlying causes of the mandate problem. In a public choice world, better disclosure does not inhibit legislators from inflicting unfinanced burdens on lower levels of government. The problem is not that mandate-imposing legislators are poorly informed but that they are poorly monitored. Similarly, the factors which permit political interests to obtain unfunded mandates for themselves-also enable them, individually or in concert with one another, to surmount supermajority requirements and statutory reimbursement rules designed to discourage such mandates. In a public choice world, unfunded mandates can be checked only through a constitutional right of reimbursement which, in its strongest variant, would take the form of prospective nullification, that is, bestowing on lower levels of government (for example, municipalities) the constitutional right to ignore prospectively obligations imposed by higher tiers-of government (for ex- ample, states) unless the lower levels are fully compensated ab initio for all costs. Paradoxically, the program of the anti-mandate school is generally more consistent with the benign, public interest model of unfunded mandates.

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