Unfunded State Mandates
Problem
As the government closest to the people, municipalities are called upon to provide core, essential services that are necessary to promote and ensure a high quality of life within their communities. Often, municipal officials find that their ability to promote a healthy, viable and sustainable community is substantially inhibited by the cost inherent in federal and state mandates that were neither sought nor desired. Moreover, as these costs are typically imposed in perpetuity, the competition for limited local resources inevitably leads to a choice between reducing, postponing, or eliminating those things which members of the community deserve and desire and increasing the local tax burden - in either case, the local communities suffer.
Article II, Section 24 of the State Constitution provides that, "No law of general application shall impose increased expenditure requirements on cities or counties unless the General Assembly shall provide that the state share in the cost.
Under T.C.A. 9-4-5301, the constitutional requirement that the state share in the costs incurred by local government as a result of legislated mandates is deemed to be satisfied by the provision of state-shared revenues.
In 1963, the General Assembly instituted the requirement that each bill considered include an estimate of its fiscal impact. However, prior to 1997, there was no formal or permanent record of the fiscal effects of any legislation adopted by the General Assembly.
Records show that over the last 13 fiscal years, 1,760 laws have been enacted that were determined by the General Assembly's own Fiscal Review Committee to have had a fiscal impact on local governments. While some of these laws were projected to have positively affected local governments, the majority of these statures were estimated to have had an adverse fiscal affect on local governments.
When adjusting for inflation and considering the recurring nature of many of the requirements imposed in the statutes enacted, the cumulative net fiscal impact of these statutes on local government is estimated to be approximately $900 million.
A comparison of the cumulative net costs incurred by local government and the amount of revenues the State has shared with local government over this same 13-year period, found that, on average, a little more than 7% of the costs mandated have not been funded by the State. Last fiscal year, alone, this 7% delta equated to roughly $63 million in cumulative costs mandated by the State that was not offset by state-shared revenues.
Moreover, the approximately $900 million in net cumulative impact does not account for an additional 650 laws enacted, whose impact on local government was deemed by Fiscal Review to be "not significant," and; therefore, were not assigned a specific monetary value.
Additionally, the nearly $900 million in net cumulative fiscal impact does not take into consideration the mandated fees and compliance costs inherent in the hundreds of rules and regulations imposed by State departments and agencies each year.
Clearly, if one were able to quantify the impact of these additional 650 bills and the countless rules and regulations promulgated over the last 13 years, the unfunded costs to local government and the recurring annual delta between mandates and funding would be far greater than what has been identified.
So while the cumulative net fiscal impact of the laws enacted over the last 13 years on local government is statutorily deemed to have been offset by the provision of state-shared revenues and the constitutional requirements have been legally satisfied, the State has not fully funded the costs associated with the mandates it has legislatively imposed upon local government.
Proposed Remedy:
Provide that any legislation enacted that has an estimated cost to local government in excess of $100,000 or that causes the combined estimated costs of the laws enacted affecting local government to exceed $1,000,000 shall not be mandatory, unless it is fully funded by either:
(1) a dedicated state appropriation; (2) a dedicated funding source provided for within the legislation; or (3) a dedication of the increase in state shared revenues from the previous year adjusted for inflation until such funds have been expended.
Also provide that no agency, department or other entity of state government may deny funds to, fine or otherwise penalize a local government solely on the basis that the local government opted not to comply with a law that was not fully funded.
