BACKGROUND PAPER

Federal Constraintson State and LocalGovernment Actions:

April 1979

Congress of the United States

Congressional Budget Office

FEDERAL CONSTRAINTSON STATE AND LOCAL GOVERNMENT ACTIONS

The Congress of the United States

Congressional Budget Office

For sale by the Superintendent of Documents, U.S. Government Printing OfficeWashington, D.C. 20402

PREFACE

In recent years, state and local government officials haveexpressed concern over the extent to which federal laws andregulations constrain their actions and impose costs on theirjurisdictions. To assist the House Budget Committee Task Forceon State and Local Governments in evaluating these concerns,Representatives Elizabeth Holtzman and Norman Y. Mineta re-quested the Congressional Budget Office to prepare this study.The paper discusses different types of constraints and assesseswhat might be involved in measuring their costs and benefits.It also outlines some policy options that the Congress mightconsider if there is a consensus that intergovernmental con-straints do pose a problem. In keeping with CBO's mandate toprovide objective analysis, this paper makes no recommendations.

Federal Constraints on State and Local Governments waswritten by Peggy L. Cuciti of CBO's Human Resources and Com-munity Development Division under the supervision of Robert D.Reischauer and David S. Mundel. Several other people, both atCBO and elsewhere, contributed to this report. In particular,the author wishes to thank Catherine Lovell and her associatesat the University of California-Riverside who are doing researchon the effects of federal and state mandates on local govern-ments. They generously shared their work in progress and helpedclarify many issues. Other people who provided valuablecriticism include Stan Collender, Alfred Fitt, Richard Gabler,Sophie Korczyk, Martin Levine, Robert Levine, Dave O'Neill, andCharles Seagrave. The paper was typed by Jill Bury and editedby Johanna Zacharias.

Alice M. RivlinDirector

March 1979

CONTENTS

Page

PREFACE iii

SUMMARY vii

CHAPTER I. INTRODUCTION 1

The Federal Perspective 1Federal Constraints as an Issue 2

CHAPTER II. TYPES OF CONSTRAINTS 5

Mandates 6Contractual Obligations 9Conditions of Aid 10Other Contractual Obligations 17Conclusions 18

CHAPTER III. ASSESSING COSTS AND BENEFITS 19

Types of Costs and Benefits 20Example of a Cost/Benefit Analysis 26

CHAPTER IV. POLICY OPTIONS 31

State and Local Impact Analyses 32Increased Congressional Oversight 35Improving Grants Management 37Grants Consolidation 38Fiscal Reimbursement 40Conclusion 47

SUMMARY

FEDERAL CONSTRAINTS AS AN ISSUE

The constraints that federal laws and regulations impose onstate and local government actions are a subject of concern toboth state and local officials and to Members of Congress. Asfederal financial support of state and local functions hasincreased, and as federal regulatory policy has expanded, so toohas the number of federal constraints. Critics contend thatcertain constraints impose excessive costs and require actionsthat are counterproductive to the achievement of federal pro-grams' goals. They also argue that the extensive use of con-straints compromises the principles of local self-governance andpolitical accountability.

The counter argument is that constraints are necessary tofurther important national social and economic goals. Whilecontending that most regulations are appropriate given the ex-pansion in federal responsibilities, some constraints mightnevertheless be criticized for being ineffective in furtheringfederal goals.

TYPES OF CONSTRAINTS

There are two general types of federal constraints on stateand local action—mandates and contractual obligations:

o Mandates, the more coercive of the two types, are directfederal orders that state and local governments mustfollow. Most mandates are the result of court decisionsinterpreting the Constitution; for example, directivesto provide legal counsel to the indigent, or orders todesegregate schools. Some, but not many, mandatesderive directly from federal law. Examples include thevarious laws prohibiting discrimination in employment,and the Safe Drinking Water Act of 1974, requiring thatdrinking water be tested for impurities and thatcorrective steps be taken whenever necessary.

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o Contractual obligations include constraints imposed as aresult of agreements between the federal government andstate and local governments. Such agreements aregenerally prompted by the availability of federal grantsin aid. Conditions are specified as prerequisites forprogram participation. Some conditions are "programspecific"; that is, they specify when and how money fora certain program is to be spent to insure consistencywith stated objectives. Other conditions are generallyapplicable to grant programs; their purpose is to insurethat all federally funded activities are consistent withbroad national goals, such as nondiscrimination and en-vironmental protection. Not all contractual obligationsstem from grant-in-aid programs. Some, for example,arise as a result of federal regulatory programs. Forexample, under the Occupational Safety and Health pro-gram, states have the option of assuming administrativeresponsibility, provided they agree to abide by certainfederal standards and guidelines.

ANALYSIS OF COSTS AND BENEFITS

Federal constraints involve costs, some of which fall onstate and local governments. At present, little is known aboutthe magnitude or distribution of these costs, although interestin developing an aggregate cost figure is great. Such an esti-mate would be very difficult to produce, since it would involvecompiling a full inventory of constraints, as well as developingacceptable methodologies for estimating costs. Furthermore, theusefulness of such an aggregate figure would be limited, sincedecisions are made with respect to specific laws and regula-tions. Moreover, a judgment about whether or not these costsare excessive could not be made without a corresponding analysisof benefits and a review of possible alternatives.

Estimating the state and local costs and benefits resultingfrom specific laws or regulations is difficult. Many differenttypes of effects—some of which are not readily measured—haveto be considered. For example, analyses ought to take intoaccount private as well as public, indirect as well as direct,intangible as well as tangible, and continuing as well as one-time costs and benefits.

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Furthermore, incremental costs should be distinguished fi mtotal costs. Only those costs and benefits associated withactions that would not have occurred were there no federalintervention should be attributed to a mandate or to a conditionof aid. Since there is overlap in the constituencies of policy-makers at the federal, state, and local levels, it is not sur-prising that many constraints require actions that at least somestate and local governments would have taken anyway.

Total and incremental costs may also differ, because of aredundancy in federal requirements. For example, as a conditionfor receiving federal aid, a state or locality may be requiredto prove compliance with an already existing federal law. Onlythose costs and benefits associated with a change in compliancecan be attributed to the newer program.

The distribution of effects among jurisdictions is anotherconsideration in the analysis of costs and benefits stemmingfrom intergovernmental constraints. Analyses based on dataaggregated at the national level may prove insufficient to thefederal policymaker who wants to know not only whether a givencourse of action makes sense overall, but also whether itimposes unacceptably heavy burdens on specific jurisdictions.

POLICY OPTIONS

Critics who contend that intergovernmental constraints posea problem want the Congress and the Executive Branch to considerchanges in decisionmaking procedures and policies that wouldlower the number of constraints, increase their efficacy, andlighten the financial burdens they impose. There are severalapproaches the Congress might consider in response to thisissue.

The first alternative is to take no explicit action, rely-ing instead on the political process to prevent or change lawsor regulations that impose excessive burdens on state and localgovernments.

A second course that the Congress might consider is toalter decisionmaking processes so that concerns about con-straints on state and local governments are more likely to beaddressed. Possible changes include:

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o Requiring that analyses of state and local impact beundertaken before the Executive or Legislative Branchmakes major decisions. Such a stipulation would comple-ment recent executive orders requiring agencies to pre-pare urban and community impact analyses for major pro-gram changes and analysis of economic consequences—including effects on state and local governments—forall proposed regulations. State and local impact analy-ses would also supplement the information on the federalcosts of most bills that the Congressional Budget Officenow regularly gives to the Congress.

o Increasing Congressional oversight over agency rulemaking. Since many constraints are imposed as part ofregulation, careful scrutiny of agency rule making couldresult in fewer problematic constraints.

A third approach would be for the Congress to attempt tolower the number of constraints by changing the structure andsubstance of federal policy. Specifically, it might considerthe following:

o Reforming the administration of grant programs. Al-though steps have been taken to improve the managementof grant programs, the number and complexity of require-ments could still be reduced by -better coordination andby more standardization of procedures among differentprograms and agencies.

o Consolidating existing grant programs or relying more onblock grants as opposed to categorical grants. At pre-sent, there are more than 440 categorical grant pro-grams, many of which are very narrow in scope. Admini-stration would be smoother if grants with similar pur-poses were consolidated. If this were done, however,the federal government's ability to set priorities wouldbe weakened.

o Establishing a policy of fiscal reimbursement for someor all of the costs that federal constraints impose onstate and local governments. Proponents of this ap-proach argue that if Congress were required to appro-priate funds, it might limit the number of requirementsto those of most importance and proven effectiveness.

CHAPTER I. INTRODUCTION

In recent years, state and local officials have beentroubled by the degree to which their actions are dictated orconstrained by decisions made at the federal level. They seethe system of regulation that has developed as costly, ineffi-cient, and inflationary. Their concerns parallel many of thoseof private businessmen.

In addition, there is the fear that two important princi-ples—local self-governance and political accountability—areboth being undermined by federal actions. Local resources andenergy are finite. When resources are allocated to followdictates from higher authorities, they are diverted from locallyidentified needs and priorities. The principle of politicalaccountability may be compromised inasmuch as state and localofficials are identified with—and held responsible at the pollsfor—actions over which they have little control. Federalofficials, meanwhile, may escape the political onus of theunpopular actions they order.

THE FEDERAL PERSPECTIVE

Most federal officials would agree that some regulationsare ineffective or too costly. At the same time, however, theywould argue that most regulations are necessary for implementingfederal programs and for achieving national policy objectives.

Many of the regulations" imposed on state and local govern-ments are part of federal grant programs that have been enactedover the years in response to proven problems or needs. Becausefederal lawmakers are accountable to their own constituents,they must take steps to insure that federal funds are spent forthe purposes intended. When state and local governments chooseto participate in a grant program, they do so with the knowledgethat their actions will be subject to federal review and regula-tion. Continued participation by state and local governmentssuggests that, regardless of regulation, they perceive that theprograms' benefits outweigh their costs.

"T"

Some intergovernmental constraints stem from federal regu-latory policies designed to end practices determined to havehigh social costs. Most such regulations are directed towardthe private sector: private businesses are prevented by federallaw from engaging in unfair labor practices; they must meetsafety standards for work places, adopt pollution control tech-nology, and so forth. Occasionally, regulatory policies alsodictate or constrain state and local government actions. Somepeople argue that, to the extent that state and local govern-ments engage in practices similar to those of businesses, theirexclusion from federal regulation raises questions of equity andprevents the full achievement of national policy objectives.

Other constraints have been imposed because state and localgovernments have failed to fulfill their responsibilities underthe Constitution. Both the federal courts and the Congress haveacted to ensure that individuals' Constitutional protections arehonored when state and local governments serve as employers, lawprotectors, and providers of services.

FEDERAL CONSTRAINTS AS AN ISSUE

The major reasons why intergovernmental constraints haveemerged as an issue is that, over time, federal regulations haveincreased in number and complexity. As the federal governmenthas expanded its role as social and economic problem solver, ithas established numerous new programs and a concomitant numberof regulations. Since many of the problems new programs addressare inherently technical and complex (for example, environmentalpollution), so too must be the accompanying regulations. Fur-thermore, as programs mature and administrators face diverse andunforseen circumstances, regulations tend to multiply.

Contributing to the concern over federal constraints is theincreasing number of governments affected. Many of the newergrant programs involve local governments that had never beforeparticipated in the federal grant system. The burden of com-pliance with regulations may be greater in these smaller juris-dictions, which have less specialized staffs and less experiencein dealing with federal officials.

Judicial actions have also contributed to the emergence ofthe issue. Besides handing down some controversial rulingsbased on the Constitution, the courts have assumed an important

role as enforcers of statutory and administrative law. This hasoccurred because citizen and other interest groups have in-creasingly resorted to litigation as a way to change governmentbehavior. For example, the discretion of welfare program admin-istrators has been reduced and the welfare rolls expanded as aresult of successful litigation by welfare rights organi-zations. Public works projects have been halted or delayed bycourt orders following the discovery that procedures for en-vironmental review had not been carried out.

As concern over inflation has mounted, attention has beendrawn to all possible causes, including federal regulation. Al-though the regulation of private sector activity is more oftencited, federal constraints on state and local governments alsocan be inflationary. If the federal government requires actionsthat are inefficient methods of achieving goals, inflation is acertain outcome. Regulations resulting in different or betterstate and local services could also cause the cost of servicesto increase, but these changes would not necessarily beinflationary.

The salience of the issue of intergovernmental constraintsgoes beyond these developments, however. To state and localofficials, certain constraints seem more onerous in times ofbudgetary stringency than they do in periods of budgetary expan-sion. Inflation, recession, taxpayer revolts, and tax andexpenditure limitation laws have all combined to force state andlocal officials to reexamine their budgets. As a result ofthese reexaminations, they realize the degree to which theiroptions are constrained and their costs increased by require-ments imposed by higher levels of government.

While intergovernmental constraints are often discussed bypublic officials and have been the subject of resolutions bytheir organizations, there is little common understanding of therange of federal actions being disputed or of the cost burden.This paper is a preliminary step in sorting out the issues. Itis purely conceptual, and it provides neither an inventory ofintergovernmental constraints nor an estimate of associatedcosts. The study has four objectives: to categorize the typesof constraints (Chapter II); to discuss types of costs and bene-fits that should be considered in deciding whether constraintsshould be adopted or continued (Chapter III); and to examinevarious approaches the Congress might take in dealing with theissue of intergovernmental constraints (Chapter IV).

CHAPTER II. TYPES OF CONSTRAINTS

The different types of federal requirements that directlyaffect state and local governments and that involve some degreeof coercion are examined in this chapter. These requirementsfall into two categories—mandates and contractual obligations:

o Mandates are formal orders issued by the federal govern-ment, which is legally the higher government and is thusentitled to give orders under certain circumstances.State and local governments have little option but tocomply with federal orders.

o Contractual obligations are conditional; they come aboutwhen state and local governments enter into bindingagreements with the federal government. Most con-tractual obligations are associated with federal grantprograms.

According to the Constitution, there are limitations on the• right of the federal government to mandate the actions of stateand local governments. Thus most federal requirements stem fromcontractual agreements. Compared to the federal government,states are much less restricted in their behavior toward localgovernments. As a result, state laws include many nore directorders.l It should be noted, however, that numerous statemandates have their origin in federal constraints imposed on thestates by way of the grant-in-aid system.

For a full discussion of state mandates, see the AdvisoryCommission on Intergovernmental Relations, State Mandatingof Local Expenditures, (A-67, July 1978). See also, StateLimitations on Local Taxes and Expenditures, (Rept. A-64,February 1977).

MANDATES

Direct orders, in the form of mandates, may come from anyof the three branches of the federal government. They may bebased either on federal statutes or directly on the Constitu-tion. Most mandates affect only the private sector, so they areoutside the purview of this discussion. Some, however, aredirected exclusively toward state and local governments, andothers apply to the public and private sectors simultaneously.

Mandates Based on Court Orders

Most federal mandates that apply only to state and localgovernments stem from judicial interpretation of the Constitu-tion, in particular, the Bill of Rights and the 14th Amendment.A wide range of state and local activities have been affected bysuch rulings. For example, the Supreme Court has ordered thatelectoral districts be redrawn, schools be desegregated, freecounsel be provided for indigents, juvenile court procedures bereformed, and prisons and mental institutions be upgraded.

While direct court orders are issued to certain specificjurisdictions named in adjudicated cases, the principles ar-ticulated in court opinions often have general applicability.Jurisdictions not named in the cases are in effect mandated tochange their behavior, too, since not to do so would expose themto court challenge. For example, as a result of Brown v. Boardof Education, the court ordered Topeka, Kansas, to desegregateits schools. The impact of the Brown decision, however, wasvery far reaching: school systems across tMe country weresignaled that the time had come to end de jure segregation ofschools.

Mandates Based on Federal Statute

The Congress often attempts to achieve social and economicobjectives by using its regulatory powers. Laws are passed andadministrative regulations are promulgated proscribing certainactions and prescribing others. Mostly, these mandates havebeen directed toward the private sector. The scope of somesocial and economic regulatory policy, however, includes stateand local government actions.

Most mandates affecting state and local governments arefound in laws concerning either the environment or civil rights.A number of examples follow:

o The Clean Air Amendments of 1970 (Public Law 91-604) re-quire states to develop plans acceptable to the Environ-mental Protection Administration (EPA) to attain federalair-quality standards. The EPA can require states toplan changes in state transportation policies (forexample, by giving additional support to mass transit)as well as to regulate the pollution-creating activitiesof private persons (by establishing, for example,emission-control requirements and inspection programsfor private cars).

o The Federal Water Pollution Control Act of 1972 (PublicLaw 92-500) requires state and local governments toadopt better methods of treating sewage in order to curbthe discharge of pollutants.

o The Safe Drinking Water Act of 1974 (Public Law 93-523)requires all suppliers of drinking water (including, butnot limited to, publicly owned systems) to test theirwater regularly for impurities. If "maximum contaminantlevels" are exceeded, acceptable treatment processesmust be introduced or another source of potable waterused.

o The Equal Employment Opportunity Act of 1972 (Public Law92-261) prohibits state and local governments from dis-criminating in their employment practices on the basisof race, color, religion, sex, or national origin.

o The Age Discrimination in Employment Act of 1967 (PublicLaw 90-202) prohibits discrimination in employment prac-tices on the basis of age.

The constitutionality of efforts to regulate state andlocal actions has recently been called into question. Authorityto regulate both the private and public sectors stems from theCommerce Clause, the Necessary and Proper Clause, and the 14th

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Amendment of the Constitution.^ Since the 1930s, the SupremeCourt has consistently upheld Congressional regulation of pri-vate business, including, for example, laws prohibiting discri-mination in employment, housing, and public facilities;statutes establishing minimum wages and other fair labor prac-tices, and so forth. While for political reasons, the Congresshas rarely passed laws mandating state and local governmentactivities, until recently, it was widely assumed to have thelegal authority to do so. In 1976, however, the Supreme Courtruled in National League of Cities v. Usery that the 10th Amend-ment guarantee of state sovereignty implies certain restrictionson Commerce Clause powers as applied to state and local govern-ments. Specifically, the Court invalidated the 1974 amendmentsto the Fair Labor Standards Act (Public Law 93-259) that exten-ded minimum wage and overtime pay protection—rights that hadlong been enjoyed by employees in the private sector—to non-supervisory state and local government employees. The Courtruled that the extension of these provisions impermissablyinterfered with the integral functions of state and localgovernments and threatened their "separate and independentexistence."3

2. The "Commerce Clause" and "Necessary and Proper Clause" areboth part of Article I, Section 8 of the Constitution. Itreads, "The Congress shall have the power . . . [3] toregulate commerce with foreign nations, and among theseveral states and with the Indian tribes . . . [18] tomake all laws which shall be necessary and proper forcarrying into execution the foregoing powers and all powersvested by this Constitution. ..." Additional authorityis granted in the 14th Amendment. Section 1 reads: "...No state shall make or enforce any law which shall abridgethe privileges or immunities of citizens of the UnitedStates; nor shall any state deprive any person of life,liberty or property without due process of law; nor deny toany person within its jurisdiction the equal protection ofthe laws." Section 5 reads: "... the Congress shallhave power to enforce, by appropriate legislation, theprovisions of this article."

3. National League of Cities v. Usery, 426 U.S. 833 (1976).

How broadly the legal reasoning articulated in the NationalLeague of Cities decision will be applied is as yet unclear.Clarification is required on two major issues. First, what isthe range of activities that are crucial to the states' "inde-pendent existence" and that must be protected from Congressionalaction? And second, is the protection offered absolute or onlypartial—subject to a balancing of the federal interest in theobjective to be achieved by the regulation and the state'sinterest in freedom of action?

Although the National League of Cities decision suggestslimits on the Congress1 authority to issue direct orders tostate and local governments, the decision does not preclude theuse of other, less coercive means to achieve similar ends. Asdiscussed in the next section, the Congress can offer induce-ments of various sorts to get state and local governments tochange their behavior.

CONTRACTUAL OBLIGATIONS

Numerous intergovernmental constraints have their bases incontractual relationships. When the Congress determines that anational policy objective can be furthered by some change instate or local behavior, it may seek voluntary cooperation. Ineffect, the federal government proposes to enter into a con-tractual arrangement: it offers some benefit (generally, but

4. Major questions regarding the scope and implications ofthis decision remain for several reasons. First, whilefive Justices were in agreement on the outcome in theNational League of Cities case, there did not appear to bea consensus regarding the legal standard; only four Jus-tices signed the Court opinion with a fifth filing aseparate concurring opinion. Second, the decision is aclear departure from past reasoning by the Court (forexample, Maryland v. Wirtz 392US183 [1968]), so there arefew precedents to draw on for clarification. And finally,the court has not had occasion since the National League ofCities decision to decide whether the principles enunciatedin that case affect statutory mandates other than those forminimum wage and overtime pay. The lower courts have ten-ded to decide related cases on narrower grounds and havenot extended the reach of the case to other areas.

not exclusively, in the form of financial assistance), in returnfor state and local government agreement to act in a given waysubject to federal regulation. For numerous historical andpolitical reasons, intergovernmental constraints stemming fromvoluntary agreements are more common than are federal mandates.

Federal grant programs are the source of most contractualobligations. Occasionally, however, other circumstances willprompt such agreements imposing requirements on both parties.These are discussed briefly following the section on conditionsof aid.

CONDITIONS OF AID

Federal grants are made available to state or localgovernments contingent on the potential grantees' willingness toimplement certain programs and/or to meet conditions specifiedin federal law or in administrative regulations.

Voluntary or Mandatory?

Although constraints that are imposed as conditions of aidtechnically are incurred voluntarily, they may, for a variety ofreasons, seem mandatory from the perspective of state or localofficials. This is the case for the following three reasons:

o The choice to participate in the federal program may bemade by state officials, but the burden of administeringthe program in accordance with federal regulations fallson local governments. For example, Aid to Families withDependent Children (AFDC) is a grant program availableto states. Yet in 18 states, local government agenciesare responsible for administering the program. Theregulations guiding local administrators come from theirstate governments, but many have their source in federalregulations.

o Conditions of aid may have changed since the decision toparticipate was originally made. While participationremains voluntary, state and local officials may believethat, despite the change in regulations, they have nooption but to continue participation, since constitu-ents rely on the service provided. Since it is not

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feasible for states to assume the federal share of pro-gram costs, regulations imposed after a program isunderway are perceived as tantamount to mandates. The1976 amendments to the Unemployment Insurance (UI) lawoffer an example. In order for states to continue toqualify for grants for administration and for employerswithin the state to continue to receive a federal taxcredit for UI taxes paid to the state, coverage must beextended to all public employees. The costs of noncom-pliance are perceived as beting so high as to make thechange in regulation seem coercive.

Current constraints may stem from decisions made severalyears earlier. For example, in order to receive federalaid for the construction of a highway, a state mustagree to keep the road up to federal highway safetystandards. Decisions made as long ago as 20 years thusconstrain the budgetary choices available to present daystate and local officials.

Program-Specific Versus Generally Applicable Grant Requirements

Certain grant program regulations are described as"program-specific," meaning that they apply to a single programand are intended to guide program administration in ways thatfederal officials deem best for achieving that program's goals.Other regulations are general in that they apply to many grantprograms and are designed to further national policy goals moreor less independent of specific program goals. The two types ofrequirements described—program-specific or general—representpolar opposites, and many program requirements fall somewherealong the continuum between the two. For the sake of dis-cussion, however, various program requirements are classifiedhere as either program-specific or general.

Most aid requirements are program-specific, and these areof two sorts: programmatic and procedural. Programmatic re-quirements specify the scope, quality, or quantity of the ser-vice to be provided with the program money. For example, medi-caid regulations specify and describe a certain eligible popula-tion (all AFDC and Supplemental Security Income recipients) andkinds of services to be provided, (for example, inpatient hos-pital care, physician services, laboratory and X-ray charges,and so forth). Procedural requirements dictate some aspects of

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how the programs are to be administered. The most common pro-cedural requirements relate to planning, reporting, and fiscalmanagement. For example, Gteneral Revenue Sharing (GRS) recip-ients are required to report annually to the Department of theTreasury on how they use their GRS funds. They must also havean outside audit done according to generally acceptable auditingstandards once every three years.

Program-specific regulations are often objected to ongrounds that they are cumbersome, costly, and inefficent. Stateand local officials argue that conditions are so diversethat no single set of regulations can be appropriate everywhere.On the other hand, if an effort is made to write regulationsapplicable to every set of circumstances, the system becomes socomplex as to be unworkable. State and local officials alsoargue that the problem is exacerbated by lack of coordinationamong federal agencies and by a tendency to write regulationsthat are more concerned with how a program is to be run ratherthan with what is accomplished.5

Sometimes federal regulations draw complaints on groundsthat they amount to inappropriate extensions of federal autho-rity. Most people would agree that the federal government has alegitimate interest in how federal funds are spent and thatregulations directed toward that end are acceptable. But whenregulations are written to further federal goals by directingstate or local actions that may be related in function but thatare otherwise independent of the grant-aided activity, state andlocal officials object. The following are some examples:

o The Land and Water Conservation Act includes a provisionthat no land purchased by the state with federal fundscan be used for anything other than recreation withoutthe consent of the Secretary of the Interior. This pro-vision has been interpreted as meaning that if federalfunds are used to purchase a 10-acre parcel of land tobe added to a several-hundred-acre state forest, then

5. See National Governors Conference, Federal Roadblocks toEfficient State Government, Vol. 1, February 1977, pp. 1-8and pp. 13-19.

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the whole state forest comes under the rules of theBureau of Outdoor Recreation.^

o The 1976 amendments to the Unemployment InsuranceCompensation Act make the federal tax credit for privateemployees' contributions to state unemployment insurancefunds and the state governments' participation in grantsfor administration contingent upon the extension of un-employment insurance to state and local employees.

o The National Health Planning and Resources DevelopmentAct of 1974 makes receipt of federal health grants con-tingent on the establishment of health planning agenciesthat administer "certificate of need" programs, regulat-ing decisions by hospitals and nursing homes to expandfacilities or to purchase major new equipment.

Some conditions of aid have little to do with the specificpurposes or objectives of the programs to which they are attach-ed. On the contrary, in an effort to further broad nationalpolicy objectives, such as environmental protection or nondis-crimination, generally applicable grant requirements are put inplace. The objectives are deemed sufficiently important to dis-allow federal support of any project that would interfere withtheir achievement. Generally applicable requirements are animportant means of insuring consistency with federal policy.For example, the general environmental review requirement pre-vents the federal government from doing more harm to the en-vironment with a local public works grant than it does to helpit through a conservation program.

Generally applicable grant requirements are put into effectin two ways. Separate laws may be passed making a re-quirement applicable to all grant programs across the board.Title VI of the Civil Rights Act of 1964 (Public Law 88-352),which prohibits discrimination in any program or activityreceiving federal financial assistance, is an example. Alter-natively, the requirement may be appended to each statute autho-rizing a grant program. For example, most statutes authorizinggrant programs for construction contain a clause invoking the

6. See National Governors Conference, Federal Roadblocks toEfficient State Government, Vol. 1, February 1977, p. 11.

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Davis-Bacon Act, which requires that all laborers employed on afederally funded project be paid at rates not lower than thosebeing paid on private construction in the same locality.

In a major study of the federal grant system, the AdvisoryCommission on Intergovernmental Relations (ACIR) identifiedseveral groups of general policy requirements.' Several ofthese categories are described in the following paragraphs:

o Nond iscr imination. Mandated prohibitions against dis-crimination in employment are supported by grant-in-aidregulations prohibiting the use of federal funds fordiscriminatory practices. Title VI of the Civil RightsAct of 1964 offers the most general protection againstracial bias. It states that "no person in the U.S.shall on the ground of race, color or national origin,be excluded from participation in, be denied the bene-fits of, or be subjected to discrimination under anyprogram or activity receiving federal financial assist-ance." Similar protection has been accorded to thehandicapped and to the aged.** The provisions regard-ing handicapped persons are particularly controversial,since compliance can involve considerable outlays ofmoney to modify existing structures in order to accommo-date handicapped persons. Although sex discriminationhas not been prohibited in federal aid programs on anacross-the-board basis, provisions have been appended toa number of the statutes authorizing specific programs.

7. See Chapter 7, in ACIR "Generally Applicable NationalPolicy Requirements," Categorical Grants; Their Role andDesign, (Report A-52, 1978).

8. Section 504 of the Rehabilitation Services Act of 1973(Public Law 93-112) states that "No otherwise qualifiedhandicapped individual in the U.S. shall, soley by reasonof his handicap, be excluded from participation in, bedenied the benefits of, or be subjected to discriminationunder any program or activity receiving Federal financialassistance." The Age Discrimination Act of 1975 (PublicLaw 94-135), using similar language, prohibits discri-mination based on age.

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o Environmental Protection. The National EnvironmentalPolicy Act of 1969 (Public Law 91-190) requires that allfinancial assistance programs, including both loans andgrants, be reviewed to determine whether they will havea "significant impact" on the environment. A statementof the anticipated environmental impact must be preparedbefore the proposal can be funded. Specific things tobe considered in the review process are stated inseveral laws and executive orders. These include theeffects on air and water quality, on fish, wildlife, andendangered species, on "wild and scenic" rivers, onhistoric and archeological sites, and so forth.

o Relocation and Property Acquisition. The Uniform Relo-cation Assistance and Real Property Acquisition PoliciesAct of 1970 requires that anyone displaced as a resultof a federally funded activity be compensated fairly.The law and its regulations set standards governing theacquisition of property and the benefits and services tobe provided to displaced residents.

o Labor and Property Procurement Standards. Two laws withgeneral applicability regarding the use of grant fundsare the Davis-Bacon Act of 1931 and the Work Hours Actof 1962. As written, the Davis-Bacon law required thatworkers on federal construction projects be paid atlocally prevailing wage rates. Its provisions have nowbeen extended to state and local government constructionprojects that are funded by the federal government underany of 60 different grant programs. The Work Hours Actspecifies that employees carrying out federally fundedactivities must be paid overtime rates for hours workedin excess of eight-hour days and 40-hour work weeks.The Federal Procurement Policy Act of 1974 allowsfederal regulation of the procurement of services andgoods other than real property using federal grantfunds, but to date no generally applicable regulationshave been issued. "Buy America" provisions, however,which currently constrain federal government purchasesto domestically produced raw and manufactured materials,have been extended to four large federal grant programsduring the past two years.

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o Citizen Participation. Requirements for citizen parti-cipation in the implementation of grant-aided programsare increasingly common, though the exact stipulationsvary from program to program.

Conditions of aid designed to further broad national policygoals have been objected to on several grounds. The major com-plaint is that they divert resources away from—and thereby hin-der the achievement of—the primary goals of grant programs.General policy requirements are often imposed without any in-creases in program funding. To the extent that these require-ments are costly to implement, resources are either divertedfrom program operations or an additional commitment of state/local revenues is required. For example, the requirementfor environmental review is likely to increase the costs of anyproject to which it is applied. It costs something to performenvironmental impact analyses. Furthermore, if a project isdelayed or modified to meet environmental objections, its costsare likely to increase. So long as appropriations are fixed,added costs may mean fewer projects can be undertaken and thatspecific program goals (for example, improved transportation)would be sacrificed in favor of environmental considerations.

Another criticism lodged against generally applicable regu-lations is that they may not be cost-effective. State and localofficials dispute whether the means set forth by the federalgovernment for the achievement of national policy objectives arethe most efficient ones available. For example, some criticshave argued that public transportation is better made availableto the handicapped by means; of taxi vouchers or some other formof personalized service than by adapting existing buses and sub-ways, as is now proposed by the Department of Transportaton.

Some generally applicable regulations are disputed ongrounds that they further goals that the grant recipients carelittle about achieving. For example, the Davis-Bacon Actrequirement that prevailing wage rates be paid to workers ongrant-funded projects is perceived by many state and local

9. Department of Transportation, "Nondiscrimination on theBasis of Handicap, Federally Assisted Programs and Acti-vities; Notice of Proposed Rulemaking," Federal Register,June 8, 1978, Part V.

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officials as doing little more than increasing the power ofunions in the construction trades. Some officials object toincurring costs that further this goal.

OTHER CONTRACTUAL OBLIGATIONS

State and local governments sometimes enter into agreementswith the federal government for reasons other than the availa-bility of financial aid. These agreements vary in terms of thebenefits derived and the requirements imposed. Some examplesare discussed below:

o Social Security coverage. Participation in the SocialSecurity system is mandatory for private employers, butit is optional for public employers. At present, nearly9.5 million, or 75 percent, of state and local employeeshave Social Security coverage under 50 state agreements.Wherever there are agreements, state and local govern-ments and their employees are subject to requirementsgoverning taxation and benefits.

o Occupational Safety and Health. In 1970, to help cur-tail work-related injuries and illnesses, the Congressauthorized the establishment of safety standards in pri-vate places of business. In general, enforcement ofthese standards is a federal responsibility. The lawprovides for intergovernmental agreements, however,whereby states would assume responsibility for theadministration of health and safety standards. A condi-tion of any such agreement is the willingness of statesto extend equivalent protection to public employeeswithin the state. At present, 21 states have chosen thestate-enforcement option.10

10. When states assume responsibility for administering Occupa-tional Safety and Health Administration (OSHA) standards,they receive small grants covering part of the costs. Onestate in addition to the 21 cited above administers an OSHAprogram for public employees but leaves administration ofthe private sector program to the federal government.

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CONCLUSIONS

Of the two types of federal constraints discussed in thischapter—mandates and contractual obligations—the former arethe more coercive. They are less of an issue, however, sincenot so many of them exist, and of those that do, many are beyondthe control of the Congress. Of greater concern are constraintsoriginating in contractual obligations, particularly those thatare conditions of receiving federal financial aid.

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CHAPTER III. ASSESSING COSTS AND BENEFITS

The total costs associated with federal constraints—par-ticularly that portion of costs not borne by the federal govern-ment—are matters of widespread interest. At present, no esti-mate of total costs exists, and it is not clear that one couldbe produced. The difficulties of compiling an inventory of con-straints and of estimating the costs of compliance for all stateand local governments are formidable.1

Even if an estimate of total costs were available, its use-fulness to federal policymakers is uncertain. This is the casefor several reasons:

o Costs considered without regard to benefits offer littlebasis for evaluation. If federal constraints are aproblem, it is not because they are costly per sebut rather because they are costly relative to thebenefits they yield or relative to the benefits thatother uses of the same money could yield.

o Aggregate costs give little guidance to policymakers whomust make decisions on specific laws or regulations.Even if the total costs imposed by federal constraintswere found to be too high, more information would beneeded to know what policy changes would correct theproblem. In other words, an estimate of total costswould only be useful if it were backed up by an estimateof costs for each federal mandate or condition of aid.

A major research effort funded by the National ScienceFoundation is currently underway in the School of Admini-stration, University of California-Riverside. The study'saims are to inventory federal and state constraints affect-ing local governments and to develop a methodology forestimating the costs associated with these constraints. Thecompleted study will also contain preliminary costestimates.

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o Aggregate costs provide little information regarding theburden inposed on specific types or levels of govern-ment. Costs are not distributed evenly among state andlocal governments. A situation that seems satisfactoryor beneficial for state and local governments in generalmay nevertheless be problematic for certain specificgovernments. Focusing on aggregate costs would revealnothing about particular jurisdictions' problems.

Although the utility of an estimate of total costs is un-certain, knowing the effects of specific laws or regulations onstate and local governments would be useful to federal policy-makers. Judgments regarding equity and efficiency would befacilitated if decisionmakers knew the magnitude of the costsand benefits inposed, how the costs and benefits are distributedamong states and different types of local governments (for exam-ple, cities and counties), and whether they compare favorablywith what could be achieved by alternative actions.

This chapter discusses the various types of costs and bene-fits that ought to be considered when any government action isevaluated. In addition, it examines the particular conceptualand measurement difficulties that arise when intergovernmentalconstraints are at issue.

TYPES OF COSTS AND BENEFITS

Public and Private Costs and Benefits. Intergovernmentalconstraints, by definition, have as their primary goal a changein state and local government behavior. Government actionsinvolve costs (personnel, equipment, and so forth), which aregenerally referred to as public, even though they are ultimatelyborne by tax-laying private citizens. But government actionsmay result in direct private costs as well, that is, costs apartfrom taxes. Such costs occur when a mandate or condition of aidcauses changes in private as well as public actions.

2. See Julius Allen, Estimating the Costs of Federal Regula-tion; Review of Problems and Accomplishments to Date,Congressional Research Service, Report No. 78-205E, for arelated discussion focusing on federal regulation of theprivate sector.

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As an example of these costs, consider a mandated stateplan to improve air quality standards. Such a plan is likely toinvolve auto emission control standards and inspection. Thestate would incur costs in the development and administration ofthe state plan. Owners of older cars would bear the costs ofthe additional equipment and maintenance needed to keep carsoperating up to standard. These costs would be in addition tothose borne at the time of car purchase as a result of thedirect federal regulation of car manufacturers regarding theinstallation of air pollution control equipment.

Benefits arising from state or local governments' responseto a federal directive may accrue to particular client groups,to the public at large, or to the government itself. For exam-ple, a reduction in air pollution achieved by state implementa-tion of federal air quality standards should result in severalbenefits. If the air is cleaner, health problems should bedecreased; the populace as a whole may profit from this improve-ment, but the benefit would be greatest for the elderly and any-body with respiratory problems. The benefit should also be feltby state and local governments to the extent that they financeor directly provide health-care services. Clean air should alsoresult in lower maintenance costs (less cleaning, less frequentpainting, and so forth) and a longer useful life for physicalobjects such as cars, buildings, and bridges.

Direct Versus Indirect Costs and Benefits. Some costs andbenefits follow directly from the action specified by a federalconstraint. Direct costs include those incurred by state orlocal governments, or by private parties, as they comply withthe mandate or condition of aid. Direct benefits are generallythose that were intended and that justified the imposition ofthe constraint in the first place; however, other direct bene-fits may also be realized. Indirect costs or benefits are thosethat follow, generally with some lag, as economic and socialadjustments to the change in government policy are made.

These distinctions are best illustrated by an example.Consider the requirement that states adopt a 55 miles-per-hourspeed limit, which in 1974 was made a pre-condition for thereceipt of federal highway aid. Direct, one-time costs wereimposed on governments because speed limit signs had to be

3. Federal Aid Highway Amendments of 1974 (Public Law 93-643).

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altered or replaced. Continuing costs could include additionalpolice patrol and court costs because more people would be in-clined to violate the limit. Another continuing cost would bereduced revenues from gasoline taxes if compliance led to betterfuel efficiency and fewer gas purchases. Of course, privatebusinesses and individuals also bear costs. At lower speeds, ittakes longer to get from one place to another. Ultimately, re-flecting the higher costs of transportation from productionthrough marketing, the consumers must pay higher prices. Directbenefits include energy conservation and accident reductionsattributable to slower driving speeds.

Indirect costs are borne as production and consumption pat-terns change in response to price changes. Some companies mayfind their markets contracted, and others may go out of businesswhen added transportation costs make their product noncompeti-tive. Interstate trucking firms may lose business to railroads;firms and places with access to rail transportation may benefit,while those that rely exclusively on trucking may lose.

From the perspective of any given individual, business, orplace, these second-order effects can be very real and veryimportant. From a national perspective, indirect gains andlosses may balance out, and as a result, they are often omittedfrom analyses seeking to determine the efficiency of a givenaction. The pattern of gain and loss may be an important con-sideration, however, in evaluating whether an action is fair andequitable.

Tangible Versus Intangible Costs and Benefits. Whiledollar values can be assigned to many costs and benefits expec-ted from a government action, certain effects are less tangibleand more difficult to quantify. Indeed, a number of services—pollution control or police services, for example—are providedpublicly rather than privately precisely because of the diffi-culties in pricing the benefits.

Costs, too, can be intangible. Consider the requirementthat there be "maximum feasible" participation by affectedcitizens in planning and operating a Community Action Programin the 1960s. That requirement gave rise to relatively few

4. Title II of the Economic Opportunity Act of 1964 (PublicLaw 88-452).

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tangible costs. In some instances, however, intangible costs inthe form of city-wide tension and conflict were very high.Likewise many of the benefits from the citizen participationrequirement were also intangible—for example, the developmentof leadership skills in impoverished communities.

More common is the case in which costs are quantifiable butbenefits are not, leading to an imbalance in analysis and possi-bly to misleading conclusions. Requirements of the National En-vironmental Protection Act of 1969 (NEPA) provide a good illus-tration. Cost considerations include: staff time to researchand prepare environmental impact statements; price increasesattributable to the combination of inflation and the lengthenedtime between project conception and actual construction; andproject changes necessary to minimize adverse environmental ef-fects (for example, rerouting a highway in a way that adds toits length). Calculating the benefits is more difficult. Howdo you quantify the value of preserving marshes or coastal wet-lands so that birds can maintain their migration patterns orthat an endangered species can survive? Yet it is preciselybecause such things are valued that there was at least an ini-tial willingness to require environmental review despite thecosts it was known to entail.

One-Time Versus Continuing Costs and Benefits. Some costsand benefits occur only once, while others continue. Regula-tions under Section 504 of the Rehabilitation Services Act, re-quiring program accessibility to the handicapped, impose bothkinds of costs. The prohibition of architectural barriers innew buildings results in one-time costs. Proposed Urban MassTransit Authority regulations, however, could impose bothone-time and continuing costs, since buses accessible to thehandicapped—so-called "kneeling buses"—are more costly both topurchase and to operate than are ordinary buses. Operatingcosts are expected to increase because mechanical equipment thatallows accessibility requires additional maintenance. Also,since buses usable by the handicapped carry fewer passengers, acity transit system may need more of them to maintain an ade-quate level of service.

Total Versus Incremental Costs and Benefits. Analyses ofgovernment regulations must take account of the distinctionbetween total and incremental costs. Total costs and benefitsare usually calculated assuming that all actions consistent witha federal regulation are in fact attributable to that

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regulation. This approach results in an overstatement, becausethe federal government rarely requires something to be done thatsome state or local governments would not do of their ownvolition. In other words, some actions would have taken placeanyway. Only the costs and benefits of actions that would nothave occurred were there no federal intervention should beattributed to a federal mandate or condition of aid.

Consider, for example, the costs and benefits associatedwith the mandate that all sewage be treated using the "bestpracticable" technology before the sewage is discharged into anywaterway.5 Presumably, by 1983 all municipalities will be incompliance, and the nation's waterways will be substantiallycleaner than in 1972 when the mandate was imposed. But whatproportion of the total costs and benefits will be directlyattributable to the federal mandate?

One alternative is to consider the mandate responsible forall costs incurred in the treatment of sewage and for all theassociated benefits. This seems unreasonable since many muni-cipalities had sewage treatment programs before 1972. No man-date should be credited with costs or benefits accrued prior toits adoption.

A second alternative is to count the full cost and all ofthe associated benefits of adopting or upgrading technology tomeet standards specified by the mandate. The resulting estimateassumes implicitly that no municipality would have changed itssewage treatment procedures after 1972 had the federal law notbeen passed. This assumption seems unrealistic, however, sinceat least some state and local decisionmakers would probably havebeen influenced by the same environmental movement that broughtabout federal action.

A third alternative for assessing the costs and benefits ofthe federal mandate, then, is to compare the level of activityin sewage treatment specified by the mandate with a projectionof what the level would have been if there were no mandate.This approach seems reasonable, but it is extremely difficult tocarry out because it requires a causal model of state and localbehavior.

5. Federal Water Pollution Control Act of 1972.

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Redundancy of regulation may also result in incrementalcosts and benefits being less than total costs and benefits.Sometimes state or local governments will be subject to someprior law or regulation mandating the same action. The require-ment may be repeated to reiterate federal commitment to thepolicy and to increase the speed or level of compliance on thepart of state and local governments. When a regulation isredundant, it is not clear how costs and benefits should becounted. For example, nondiscrimination in employment is acondition for receiving most federal grants; at the same time,state and local governments are prohibited by federal law fromengaging in discriminatory employment practices. Does nondis-crimination as a condition of federal aid result in additionalcosts or benefits? The answer would depend to a large extent onthe degree to which there was or would have been compliance withthe previously enacted federal law.

Compliance. In general, a maximum level of costs and bene-fits would be calculated by assuming full compliance with fed-eral requirements by state and local governments. In reality,compliance will be less than 100 percent; a lower estimate ofcosts and benefits taking this into account might provide a morerealistic basis for making decisions.

Variations Among Jurisdictions. An intergovernmental con-straint will have different effects in different jurisdictions.This is due both to place-to-place variations in policy and todifferences in objective circumstances. Consider again the caseof the sewage treatment mandate. The cost of the federal man-date can, of course, be relatively large for communities with noprior treatment capability. Little if any additional costs willresult for municipalities that were already using the bestavailable treatment technologies when the new mandate went intoeffect. For some jurisdictions, however, substantial benefitsmay accrue if the mandate forces municipalities upstream toreduce the discharge of pollutants.

Because costs and benefits are likely to vary so much fromjurisdiction to jurisdiction, analyses conducted using dataaggregated at the national level may provide insufficient infor-mation to the decisionmaker. While the ratio of costs to bene-fits may be satisfactory for the nation as a whole, unacceptablylarge burdens may nevertheless be imposed in some jurisdic-tions. Clearly, it would not be feasible to consider the effect

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of proposed mandates and requirements on each and every juris-diction. But because of the variation among jurisdictions, itwould be desirable to consider the consequences of decisions fora sample of jurisdictions representing diverse situations.

EXAMPLE OF A COST/BENEFIT ANALYSIS

To illustrate the problems discussed above, and to demon-strate the complexity of the analytic task, the costs and bene-fits of a specific set of regulations are discussed here. Theregulations proposed by the U.S. Department of Health, Educa-tion, and Welfare (HEW) in 1976 to implement Section 504 of theRehabilitation Services Act will serve as the illustration.This example was chosen because the economic impact analysisaccompanying those regulations is one of the most comprehensiveones ever undertaken.°

The Requirements. HEW's regulations prohibited recipientsof federal aid (including educational institutions, health-careproviders, and social service agencies) from discriminatingagainst handicapped persons. The discusion here is restrictedto those regulations that deal with the exclusion of handicappedpersons because of physical barriers in buildings and otherstructures.^

Two standards were established, one governing new construc-tion, and the other, existing facilities. New facilities mustmeet standards set by the American National Standards Institute

6. See Dave O'Neill, Discrimination Against Handicapped Per-sons; The Costs, Benefits, and Economic Impact of Imple-menting Section 504 of the Rehabilitation Act of 1973Covering Recipients of HEW Financial Assistance (revisedversion of an impact statement published in the FederalRegister, May 17, 1976, Office of Civil Rights, HEW, May 4,1977). This analysis is cited as an example of the type ofanalytic effort expected for a regulatory analysis underExecutive Order 12044 by the Council on Wage and PriceStability.

7. See Subpart C of the regulations. The Section 84.22 setsstandards for existing facilities; Section 84.23 deals withnew construction.

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by having no barriers. For programs operated in existing faci-lities, a standard of "program accessibilility" was established.The proposed regulations stated that the recipient must ". . .through the elimination of physical obstacles or through othermethods, operate each program or activity ... so that . . .when viewed in its entirety is readily accessible to handicappedpersons." The HEW economic impact analysis interpreted this asmeaning that if modifications to facilities were too difficultto achieve, then other types of program adjustments would beacceptable. For example, in a university library that is inac-cessible to students in wheelchairs because of narrow stackaisles and no elevators, establishing a stack search service forhandicapped students might be sufficient accommodation.

Analyzing the Costs. The major costs for most recipientswere expected to be the direct cost of achieving compliance bymodifying existing or proposed structures. The analysis led tothe following conclusions:

o The standard for new construction was estimated to en-tail relatively low costs. Based on previous studiesdone by HEW and the General Accounting Office (GAO), theregulatory analysis indicated that meeting the barrier-free standard could increase the costs of buildings byone-half of one percent or less. Much new constructionalready meets the standard. This might be the case be-cause owners and architects have been made aware ofhandicapped persons' needs or because buildings arealready subject to state laws or the federal Archi-tectural Barriers Act of 1968, which mandate similarstandards. Since many buildings are already being builtto be barrier free, the incremental cost (as opposed tothe total cost) imposed by the proposed regulations wasestimated to be very small.

o In contrast, the requirement that programs run in exist-ing structures be made accessible to the handicapped wasestimated to entail substantially greater costs—between$299 and $544 million. To reach these totals, theanalysis considered the cost implications for each majorcategory of recipient. Educational institutions wereexpected to bear the greatest burden.

In the absence of information on the characteristics ofthe physical structures in which HEW grant recipients operate

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programs, the methodology for estimating the costs of making thestructures accessible to the handicapped is inevitably somewhatrough. For example, the HEW analysis built up its estimates ofcosts for higher education based on existing surveys of whatcompliance would cost several universities in diverse situa-tions. Assuming costs were proportional to the value and age ofstructures, and using data on the value of university buildingsand changes in enrollments over time (a proxy for age of struc-tures) , the HEW analysis extrapolates from cost informationavailable for a few specific universities to all universities.Whether or not there were slightly better ways to arrive at theestimate is not at issue; what is clear is that severe datalimitations result in very uncertain estimates.

The costs resulting from HEW's proposed regulations willfall on grant recipients in both the public and the privatesectors. HEW's economic impact analysis did not distinguish howmuch of the total costs would fall on state and local govern-ments, although it seems that the methodology used would haveallowed at least a crude estimate of the split. Given that edu-cational institutions were expected to bear the greatest costburden, and that state and local governments finance a largepart of education at all levels, the cost impact on state andlocal governments would be relatively large.

The possibility of indirect costs is an additional con-sideration in the analysis of the proposed regulations. Ifdirect costs of compliance are relatively large and if they dif-fer among recipients that are in direct competition with eachother, then indirect costs could result. For example, to coverthe cost of making their programs accessible to the handicapped,universities may have to raise tuition. Since compliance costsare bound to differ, some schools will raise tuition more thanothers. If, as a result, enrollment declines, then the regula-tion has imposed an additional indirect cost. The HEW analysisdid not include any estimate of indirect costs.

Most of the costs imposed are of a one-time nature. Forrecipients that must shift the way a service is delivered, how-ever, as opposed to modifying a facility, the costs could be ofa continuing nature. The HEW analysis asserts that such costswould be relatively small,. To facilitate comparison with bene-fits, which are expected to be recurring over time, one-timecosts are expressed on an annual basis.

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Analyzing the Benefits. The benefits of the proposed regu-lations are expected to accrue to handicapped individuals whoseopportunities for education, jobs, and other social services arenow restricted by the inaccessibility of physical facilities.Many of the benefits will be immeasurable because it is diffi-cult to quantify the improvement in morale that can follow froma handicapped person's ability to lead a more "normal" life.

Some benefits, however, will be tangible. Access to jobscould increase the number of handicapped employees. Increasededucation might make a severely handicapped person more self-reliant, reducing the need for constant supervision. It couldalso increase the potential earnings of the handicapped.

The premise underlying the analysis of benefits is thatbetter access will result in increased attendance in schools andthat, with more education, disabled persons will hold more jobsand have higher earnings. This assumption seems reasonablesince handicapped persons are apt to undertake work requiringmore mental than physical skills, and many such jobs demandhigher levels of education.

The benefit from making higher education accessible to thehandicapped will mount over time as each year more handicappedstudents graduate and enter the work force. The HEW analysisattempts to measure benefits over the long run. The measurementapproach taken was to compare the existing levels of educationand earnings for handicapped persons with what they might havebeen if the regulations had been in effect for a long enoughperiod to have achieved the final steady level of benefits.Specifically, based on the 1970 census, it was found that 3.3percent of all severely disabled people aged 18 to 44 had com-pleted college. It was assumed that had all institutions beenaccessable, this proportion might have been twice as high. Itwas further assumed that a college degree would enable aseverely disabled person to earn at the same rate as a partiallydisabled person. The result of these calculations is an estima-ted benefit of $100 million earned annually by handicappedpersons.

An alternative approach would have been to estimate thenumber of additional college-educated handicapped persons enter-ing the labor force in each year, and to estimate the increasein their lifetime earnings. The present value of the futureflow of benefits could then have been compared with the presentvalue of the total costs of achieving compliance.

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Impact on State and Local Governments

From the perspective of state and local officials, the costcalculation is more important than the benefit calculation.After all, costs will be realized in the short run, and to alarge extent they will be financed by state and local taxes.For any particular jurisdiction, costs will depend on the degreeto which its activities are funded by HEW (in particular,whether it finances higher education) and the characteristics ofthat area's public buildings.

If handicapped persons benefit as they are estimated to inthe HEW analysis, state and local governments will also benefit,albeit indirectly. Greater self-reliance for handicapped prsonscould lessen the need for special services. Also, higher earn-ings would bring more revenue in the form of taxes.

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CHAPTER IV. POLICY OPTIONS

State and local officials have raised the issue of inter-governmental constraints in hopes of reducing the number of con-straints and lightening the financial burden imposed on statesand localities by the federal government. Many of these offi-cials argue that the constraints are excessive and that, in manyinstances, the political and financial costs exceed the bene-fits. Whether or not the Congressional policy changes urged bystate and local officials should be adopted is essentially apolitical question. Quite possibly, the constraints imposed—though burdensome for state and local officials—are necessaryto achieve important national goals.

The Congress might consider several responses to the cri-tics of intergovernmental constraints. One is to take no expli-cit action. This approach is based on the premise that thepolitical process can be relied on to prevent or correct exces-ses of federal authority and to modify regulations that are notcost effective.

A second approach would involve the Congress" changing itsdecisionmaking procedures to increase attention to—andprovide greater information on—the costs and benefits that pro-posed federal actions might impose on state and local govern-ments. The Congress might consider two specific changes:

o Requiring that analyses of state and local effects bemade part of legislative and administrative decision-making, and

o Increasing Congressional oversight over rule making inthe agencies.

A third approach would be to attempt to decrease the numberof intergovernmental constraints by changing the structure andsubstance of federal policy. Three specific sorts of changeshave been proposed:

o Reforming the administration of grant programs;

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o Consolidating existing grant programs and relying moreon block, as opposed to categorical, grants; and

o Establishing a policy of fiscal reimbursement for costsimposed on state and local governments by federal con-straints.

These procedural and policy changes are discussed in the remain-ing sections of this chapter.

STATE AND LOCAL IMPACT ANALYSES

State and local impact analyses have been proposed as a wayto provide more information to federal decisionmakers. Thedesired effect would be to lessen the number of new constraintswhich, relative to their alleged benefits, are either verycostly or inefficient. Such analyses could be required for anybill considered by the Congress and for proposed administrativeregulations. The scope of the requirement might also beextended to include periodic review of existing laws andregulations.

While primary emphasis has been placed on the need forreliable estimates of the costs that federal actions wouldimpose on state and local governments, a full state/local impactanalysis ideally would consider what benefits are to be achievedand whether alternative actions might be more effective.

Current Practice

The Legislative Branch. State and local impact analysesare not currently part of the legislative process, although theimplications for state and local governments of proposed federalactions are often explored in committee hearings and reports.

The Congressional Budget and Impoundment Control Act of1974 requires the Congressional Budget Office to prepare esti-mates of costs for public bills reported by all Committeesexcept Appropriations.-'- To date, most of CBO's analyses have

1. See Section 403 of the Congressional Budget and ImpoundmentControl Act (Public Law 93-344).

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been limited to federal costs, although state and local impactshave occasionally been considered. F'or example, cost analysesof the various welfare reform proposals considered by the Con-gress last year included estimates of the fiscal relief to beaccorded to the states. The House Committee on the Budget hasrecommended that CBO's cost estimating responsibilities beexpanded to include—whenever possible—consideration of stateand local government costs.

Some precedent for federal action requiring state/localimpact analyses is established by the 26 state legislatures,which require "fiscal notes" detailing for all proposed legisla-tion the resulting local government costs. Usually such analy-ses are limited to estimates of direct costs; no considerationis given to benefits or to alternative actions that could pro-duce similar results more efficiently. Estimates are generallyproduced by Executive Branch agencies and reviewed by legisla-tive staff.

The Executive Branch. Two recently issued Presidentialorders require agencies to analyze proposed regulations andlegislation. These analyses may fulfill the need identified bystate and local officials. The two orders are described in thefollowing paragraphs:

o Executive Order 12074 requires that "urban and communityimpact analyses" be prepared to identify "aspects ofproposed federal policies that may adversely impactcities, counties, and other communities." The analysesare to consider possible economic, demographic, andfiscal changes and their associated costs and benefitsas they affect central cities, suburban areas, and non-metropolitan areas.

o Executive Order 12044 requires federal agencies toanalyze "the economic consequences for the generaleconomy, geographical regions or levels of government"of any proposed "significant" regulation and of possiblealternatives. (Any regulation that would result in anannual effect on the economy of $100 million or more, orthat would result in "major" increases in costs orprices for individual industries, levels of governmentor geographic regions is defined as "significant.")Agencies are also directed to establish procedures for a

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periodic review of existing regulations. In support ofthe process, two interagency groups have been estab-lished. The Regulatory Council is charged twice a yearwith compiling a comprehensive list of all regulationsbeing developed. The lists are to include preliminaryassessments of costs and statements of the legal con-straints within which agencies are operating. The Regu-latory Analysis Review group, chaired by the Council ofEconomic Advisors, will review and comment on selectedregulatory analyses produced by the agencies.

Although it is too early to evaluate the effect of theseorders, they do seem to set up procedures for analyzing federalactions that impose costs on state and local governments.Whether the analyses will be used to influence rather thanjustify decisions remains to be seen. A possible problem isthat the threshold for determining "significance" as definedabove is set too high to subject many important regulations toanalysis. Some regulations, when taken singly, may have littleeffect but when considered as part of a larger course of actionmay impose sizable burdens. For example, the application ofDavis-Bacon wage standards specifically to the Urban DevelopmentAction grant program involves relatively few dollars. But whenall the grant programs to which the Davis-Bacon standards applyare considered altogether, the cost implications may besubstantial.

The Judicial Branch. No proposal for analysis of state andlocal impact prior to decision involves the judiciary. Althoughthe courts frequently make decisions affecting state and localgovernments, a decision process based on the adjudication ofparticular cases is not well structured for analysis of broaderimplications for categories of people, businesses, or govern-ments . 2

Assessment

Although in principle, requirements for comprehensiveanalysis offer great promise, in practice they are likely tofall short of expectation. The discussion in the preceding

For a discussion of the limited capabilities of the courtsas policymakers, see Donald Horowitz, The Courts and SocialPolicy, Brookings Institution, 1977.

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chapter indicated the complexity of performing state/localimpact analysis. Better data and causal models need to bedeveloped before reliable estimates can be produced of thevarious types of costs and benefits that might result fromintergovernmental constraints.

Tangible, direct, public costs would be the easiest toestimate. Whether incremental costs—that is, those directlyattributable to the requirement—could be distinguished fromtotal costs would depend on the substance of the mandate or thecontractual agreement. Less tangible, indirect, and privatecosts, as well as most benefits, would be harder to measure.Furthermore, breaking down costs and benefits to the level ofindividual jurisdictions would be difficult if not impossiblegiven the speed with which analyses would have to be performedto be useful in decisionmaking. Whether, despite a positiveassessment in the aggregate, a proposed constraint would putsignificant burdens on certain jurisdictions would be difficultto know. Despite these difficulties and the inevitable uncer-tainties that surround estimates, however, analysis of state andlocal impact would nevertheless produce information useful todecisionmakers.

Good analysis will more easily be done for proposed admin-istrative regulations than for new laws. This is so becausecosts and benefits depend to a large extent on administrativeinterpretation and practice. When a statute is considered,interpretation and practice are not known.

Perhaps the greatest benefit could be derived from aselective but intensive review of existing intergovernmentalconstraints. The possibility for good analysis is much greaterin evaluating past experience than in projecting futureimpacts. The Congress, in consultation with state and localofficials, could direct that studies be done to assess whetherchanges in certain mandates and program requirements arewarranted.

INCREASED CONGRESSIONAL OVERSIGHT

Federal policy is to a large extent shaped by administra-tive regulations. Statutes cannot include the level of detailneeded to guide all the decisions necessary to implement a pro-gram; indeed, this is the essence of the Executive Branch's

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function.3 That state and local officials' ire is mostlydirected toward federal agencies for excessive and unwise rulemaking is not surprising. State and local officials also arguethat agencies issue regulations that are contrary to, or that gobeyond, legislative intent.

The Congress is an important point of access for state andlocal officials having difficulty implementing federal agencyregulations. The Congress can direct agencies to change therules and guidelines governing program administration, and ithas done so. In its reauthorization of housing and communitydevelopment programs last year, the Congress directed theDepartment of Housing and Urban Development (HUD) to change itsinterpretation of law in several respects.4 For instance, indeveloping housing assistance plans, communities are required bystatute to allow for the needs of low-income individuals who arenot at the time residing in the community but who might beexpected to if appropriate housing were available. HUD's regu-lations were based on a "fair share" approach—estimates of"expected to reside" were to be based on the size of the low-income population in the metropolitan area. The Congressdirected that a much narrower interpretation was intended; thatthe estimate of the low-income population expected to reside ina community should be based on the number of existing and pro-jected job opportunities within that community.

The Congress has indicated its intention of scrutinizingHUD regulations closely. It has directed the agency to notifyit of proposed rulemaking and to provide it with draft languagein advance of public release. If the relevant Committee ineither House has difficulty with the regulation, the date therule goes into effect is to be delayed to allow the Congresstime to give further legislative guidance to the agency.Similar procedures could be adopted with respect to otherfederal agencies.

3. In the case of General Revenue Sharing and block grants,much of the Executive function is assigned to state andlocal officials.

4. Housing and Community Development Amendments of 1978 (Pub-lic Law 95-557).

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IMPROVING GRANTS MANAGEMENT

While many conditions of aid governing program administra-tion seem not to be particularly burdensome when consideredsingly, taken together they absorb considerable resources andgenerate frustration in state and local officials. Improvedmanagement of intergovernmental grant programs, they argue,could make a considerable difference—that the number and com-plexity of requirements could be reduced by better coordinationand greater standardization across programs and agencies.

Steps have been taken over the past 10 years to improve thegrants management system.5 Prompted by the IntergovernmentalCooperation Act of 1968 and several interagency studies, threemajor federal management circulars (FMCs) were put into effect:

o FMC 74-7 standardizes and simplifies 15 areas of grantadministrative requirements, for the most part affectingfinancial management.

o FMC 74-4 establishes principles for determining allow-able costs under grant programs.

o FMC 73-2 standardizes procedures for federal audits andcalls for the coordination of federal/state/local auditrequirements.

In addition, the Joint Funding Simplification Act of 1974 re-quires federal agencies to facilitate state and local govern-ments combining grants from several programs in support of asingle project.

Despite these steps, however, state and local officialsargue that more needs to be done to eliminate duplicative plan-ning and reporting requirements, to standardize rules and regu-lations (particularly with respect to the generally applicableconditions of aid such as the environmental and nondiscrimina-tion provisions discussed in Chapter II), and to increase con-sultation among federal, state, and local officials at early

5. For an extensive discussion of efforts to improve grantsmanagement, see ACIR, Improving Federal Grants Management,Report A-53, February 1977.

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stages of the federal rulemaking process. State and local offi-cials maintain that a stronger central management staff is cru-cial to further progress. They argue that central coordinationis necessary both to enforce agency compliance with existingmanagement policies and to initiate additional changes.

GRANTS CONSOLIDATION

The overall number of federal grant regulations can be cutif the Congress is willing to give state and local governmentofficials greater authority over the use of federal grant funds.It can do so by consolidating narrow categorical programs thatare similar in purpose and by reversing the tendency to recate-gorize and add additional strings to existing block grantprograms.

Federal grant programs are generally considered to be ofthree types:

o General purpose fiscal assistance, typified by GeneralRevenue Sharing, whereby funds are allocated by formulaand are given to state or local governments with few, ifany, restrictions regarding use.

o Block grants, such as the Community Development BlockGrant program, whereby the Congress specifies the objec-tive to be achieved and a broad range of permissibleuses. Funds are generally allocated by formula. Localofficials decide what activities are to be supported.

o Categorical grants, which are given by the Congress tofinance narrow, circumscribed kinds of activities.

Similar recommendations for improving the administration ofgrants programs have been made by several groups. See forexample, ACIR, Improving Federal Grants Management; Com-mission on Federal Paperwork, Federal/State/Local Coopera-tion (July 1977); National Governors Conference, Agenda forIntergovernmental Reform, Vol. 2 of Federal Roadblocks toEfficient State Government (February 1977). See also TheFederal Assistance Monitoring Project of the ACIR, Stream-lining Federal Assistance Administration; An InterimReport to the President (September 8, 1978).

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Exairples include Aid to Families with Dependent Child-ren, Environmental Protection Agency grants for waste-water treatment construction, and project grants for thepromotion of the arts. Funds may be distributed by for-mula or on a project basis. Either way, federal admin-istrators retain a fair amount of control and responsi-bility for overseeing programs, which are administeredby state and local governments,

For the most part, general purpose fiscal assistance and blockgrants are developments of the last decade. Whereas in 1968,categorical programs accounted for 98 percent of all federalgrant outlays, by 1977 their proportion had declined to 76percent.^

In the last couple of years, the trend toward decentrali-zation in the federal grant system has, to some extent, beenreversed. The tendency in the reauthorization process and inthe administration of block grants and General Revenue Sharinghas been to recategorize and to increase restrictions and regula-tions. For example, when General Revenue Sharing was re-authorized, provisions regarding nondiscrimination, financialmanagement, and citizen participation were strengthened. Asecond example is the reauthorization in 1978 of ComprehensiveEmployment and Training (CETA) programs. Although CETA iscommonly considered to be a block grant, it now containsnumerous requirements concerning individual eligibility and themix of employment services that may be provided.

An analysis of which grants are appropriate for consoli-dation is beyond the scope of this paper. The ACIR, however,has analyzed the topic in some depth and has proposed the mergerof 170 categorical grant programs into 24 programs. 8 some ofthe bigger consolidations suggested (involving nine or moreseparate programs) are in the areas of transportation safety,comprehensive regional transportation, comprehensive statetransportation, pollution prevention and control, omnibuseducation assistance and preventive and protective health. TheACIR has also recommended that the Congress enact legislation

7. ACIR, In Brief the Intergovernmental Grant System: AnAssessment of Proposed Policies (1978), p. 8.

8. ACIR, Categorical Grants: Their Role and Design (1977),A-52, pp. 298-305.

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giving the President authority over program consolidationsimilar to his involvement in government reorganization. Undersuch legislation, upon submission of a Presidential plan, theCongress would be required to approve or disapprove the plan byresolution within 90 days.

FISCAL REIMBURSEMENT

A policy of full fiscal reimbursement has been proposed tominimize the financial burden placed on state and local govern-ments by intergovernmental constraints. If such a policy wereadopted, the federal government would be obligated to pay thefull cost of any state or local actions taken in response tofederal requirements. As proposed by the National Governors As-sociation (NGA), the principle would not apply to court orderedmandates. It would apply, however, for all other mandates orcontractual obligations put into effect by statute or admini-strative regulation after the date of adoption.9

State Precedent

The primary model for a policy of fiscal reimbursement isthe one adopted by the State of California to govern its rela-tionships with local governments.10 In 1972, the Californiastate legislature passed the Property Tax Reform Act of 1972(SB90). This law established rate and revenue limitations forlocal governments and at the same time adopted the principle ofreimbursement for increases in local costs attributable to newstate mandates regarding service provision or local taxing.

Under the provisions; of SB90, the State of California is toreimburse local governments for revenue losses arising from newexemptions granted by the state affecting property, sales, oruse taxes, and for the costs of new services or increases inservice levels mandated by state law, administrative regulation,or executive order subsequent to 1972. A local government may

9. National Governors Association, Policy Positions 1978-1979,p. 26.

10. Other states such as Montana, Louisiana, and Pennsylvaniahave also adopted the principle of reimbursement for statemandates.

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apply for reimbursement of the full cost of a mandated serviceeven if that government had been providing the service beforethe state mandate. If it does so, however, it must reduce itsmaximum property tax rate or revenue limit by an equivalentamount. Excluded from coverage are: legislation specificallyrequested by local governments, programs mandated by the federalgovernment, court decisions, or voter initiatives, mandates thatprovide for self financing or result in no new duties; and lawsthat define crimes or establish new penalties.

The reimbursement process works as follows. The StateDepartment of Finance is responsible for estimating mandatedcosts associated with new legislation. The department alsoreviews agency-prepared estimates of costs associated withadministrative regulations. Appropriations are to be providedto cover both one-time and continuing costs associated withcovered mandates. Each year local governments submit claims forreimbursement to the State Controller. If local governmentsbelieve that reimbursement ought to be forthcoming and none isprovided, they may lodge a claim with an independentadministrative Board of Control. The Board reports to theLegislature on the number and amount of claims it awards. Uponreceipt of the report, an appropriations bill sufficient tocover all approved local government claims for reimbursementmust be introduced in the legislature. Decisions of the Admini-strative Board of Control may be appealed in the state courtsystem.

The reimbursement policy has resulted in only a small in-crease in state aid for local governments. Between 1972 and1976, the California State Government provided $85 million inreimbursement for newly imposed mandates. Over the same period,total state aid equalled $26,500 million.ll

Current Practice

Neither a clearly articulated policy nor consistent prac-tice exists regarding the placement of financial responsibilityfor costs incurred by state and local governments in meeting

11. Reimbursement amount reported in ACIR, State Mandating ofLocal Expenditures, p. 26. Total state aid reported inBureau of the Census, State Government Finances, volumesfor 1973 through 1976.

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federal requirements. In some instances, state and localgovernments must bear the costs; in others the federal govern-ment provides full or partial compensation.

Costs imposed by mandates are more likely to be borne bystate and local governments than are the costs associated withother constraints. This is so because many mandates derive fromthe courts and only rarely is federal assistance provided tocover the costs of compliance. Federal financial assistance ismore common when mandates stem from federal statute and associ-ated regulations. For example, when the Congress passed theWater Pollution Control Act of 1972 mandating sewage treatment,it also established a capital grant program for wastewatertreatment facilities to share the cost of constructing requiredmunicipal facilities. Not all mandates have corresponding grantprograms, however. For example, no grant funds are earmarkedfor assisting local governments to establish treatment capabili-ties required to meet safety standards for drinking water.

The federal government pays most of the costs associatedwith grant-in-aid requirements. This is true almost by defi-nition, since the primary purpose of grant requirements is togovern the use of federal funds.

In certain circumstances, however, state and local govern-ments bear direct costs generated by grant requirements. Whenactions or standards are required for participation in a grantprogram, but the cost of taking those actions or achieving thestandard is not covered by the grant, a financial burden isimposed on the recipient. For example, a state that must up-grade its hospitals in order to receive medicare or medicaidpayments may face significant costs. Similarly, the requirementthat public facilities be accessible to the handicapped beforefederal aid can be received could impose high costs on state andlocal governments.

A comparable situation arises when state and local govern-ments are required to share the costs of a grant funded acti-vity; in such instances, any requirements increasing the cost ofthat activity will create financial burdens. For example, _ifthe federal government pays 75 percent of the cost of construct-ing sewage treatment plants, and Davis-Bacon requirementsincrease total project costs by 5 percent, then state/localcosts will increase by the same proportion.

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In addition, grant requirements can result in indirectcosts the full burden of which fall on state and local govern-ments. For example, Davis-Bacon requirements might affect theprice of state and local construction that has no federalfunding.

Whenever federal regulations specify actions that are con-trary to program goals, prohibit grantees using the money asthey choose, or impose a financial burden, the benefits to stateand local governments of participating in a federal grant pro-gram are lessened. So long as states and localities continue toparticipate, however, one must assume that there are net bene-fits for the recipient governments and their citizens.12

Analysis of Reimbursement Option

A policy of fiscal reimbursement can be justified on threegrounds:

o To minimize the extent to which federal requirementsclaim local resources, thereby crowding out actions withgreater local priority;

o To make the distribution of costs more equitable; and

o To deter the federal government from imposing additionalrequirements.

Crowding Out. Advocates of a reimbursement policy arguethat the resources available to state and local governments arelimited. When such resources are used to pay for actionsordered by the federal government, they are unavailable foractivities judged to be important by the local citizenry. Inother words, residents' choices regarding local public servicesare crowded out by federal requirements,.

12. There are instances of state and local governments' refus-ing assistance for which they are eligible on the groundsthat the conditions associated with the program imposecosts that exceed benefits. For example, MontgomeryCounty, Maryland, has refused Urban Mass Transit Authorityassistance grants because of objections to Section 13(c),which requires labor sign-off on grant applications.

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ability to pay. In the case of some regulations, other con-siderations may affect equity judgments. For example, if thepurpose of a regulation is to curb abuse, having the offendingparties bear the costs of remedial action seems reasonable. Fewwould argue that the federal government should reimburse privatebusiness for the cost of complying with minimal health and safe-ty standards for places of work.

An across-the-board policy of fiscal reimbursement is un-likely to enhance equity regardless of how equity is defined,since the circumstances underlying federal regulations differ.Depending on the geographic pattern of costs relative to bene-fits, the fiscal ability of governments facing the greatestcosts, and the reasons for the imposition of the federal re-quirement, equity may or may not be enhanced by the federalassumption of costs. Equity is more likely to be advanced by aflexible policy of considering each federal requirement on itsown merits.

Deterrence. A third reason for supporting a policy of fis-cal reimbursement is that it might act as a deterrent to theimposition of new constraints. If federal officials have toraise taxes to cover all of the costs, some advocates reason,they will think twice before requiring that actions be taken bystate and local governments. A reimbursement policy might belimited in scope to areas judged to be better left to state andlocal discretion.

ACIR's recommendations regarding reimbursement by stategovernments seem in large part to be based on the "deterrenteffect." In policy areas where the state interest is large,and/or where the effects of local actions "spill over" to placesoutside their jurisdictions, partial reimbursement is consideredappropriate. But "to minimize state intrusion into matters ofessentially local concern," such as public employee working con-ditions, the commission recommends that full reimbursementbe required to accompany relevant mandates.

14. ACIR, State Mandating of Local Expenditures, Report A-67,July 1978, pp. 9-12.

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Possibility for Limited Reimbursement

While the NGA has recommended a policy of fiscal reimburse-ment applicable in a broad range of circumstances (includingsome not caused by intergovernmental constraints), the Congressmay prefer to embrace the concept but to a limited extent. Thescope of applicability of such a policy could be restricted byattention to the following factors:

° Types of constraints to which the policy would apply.Determining when reimbursement would apply is muchharder at the federal level, where constraints take avariety of forms involving different degrees of co-ercion, than at the state level, where mandates are thecommon practice.

o Types of costs eligible for reimbursement. Reimburse-ment could be limited to only certain of the costs des-cribed in Chapter III (for example, incremental directpublic costs). Measurement problems identified asposing difficulties for the analysis of costs andbenefits would make implementation of a reimbursementpolicy very difficult.

o Extent of reimbursement. State and local governmentscould be reimbursed in part or in full.

CONCLUSION

Relations between levels of government in the U.S. federalsystem have clearly been changing over time. Constraints haveincreased in number and, with them, the degree of federal con-trol over state and local government actions has grown. Whetheror not this change in intergovernmental relationships should beviewed as problematic is essentially a political question.

Regardless of one's judgment concerning the desirability ofthe expanding federal role, particular constraints may be in-effective or they may impose relatively high costs. If thereare to be changes, inquiry must be redirected from the generalto the particular. Individual programs and requirements must beanalyzed to determine their costs and benefits and to discoverwhether better courses of action exist.

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