Biden-era unfunded and funded mandates alike are co-opting state and local priorities

Policymakers are increasingly aware of the federal red tape burden on small businesses, but they should also recognize its emergent implications for state and local governments.

The influx of hundreds of billions from the CARES Act, Infrastructure and Inflation laws, and the CHIPS and Science Act has created an unsustainable funded as opposed to unfunded mandate addiction for lower-level governments. Unless mitigating steps are taken, this dependency will lead to severe pain when the funding faucet eventually stops but the mandates remain, as I discuss at Forbes.

Historically, businesses and government have collaborated on protectionist regulations under the guise of public benefit. Today, however, there’s an unprecedented push enticing businesses and local governments to eagerly adopt progressive regulatory agendas fueled by substantial taxpayer funds and deficit spending for housing, education, infrastructure and the like.

Over a generation ago in the mid-1990s to early 2000s, state and local officials’ concerns about unfunded federal mandates overriding their priorities merged with small business protests against red tape. This coalition drove significant bipartisan regulatory reforms into prominence and enactment, including the Unfunded Mandates Reform Act (1995), Paperwork Reduction Act Amendments (1995), Small Business Regulatory Enforcement Fairness Act (1996), Congressional Review Act (1996, and a part of SBREFA), Regulatory Right-to-Know Act (1998), and the Truth in Regulating Act (2000). It’s noteworthy that Bill Clinton signed all these laws.

These reforms had loopholes and workarounds, highly evident today, yet they represented a unique era wherein small businesses and local governments, often unheard, bolstered each other effectively. Now, though, the federal government is smarter at inducing fealty and servitude with cash, thereby dampening effective mobilization against mandates. The Federal Register is on target to top 100,000 pages in 2024, but the Biden administration is unconcerned.

Under Biden, what might have been a healthy coalition against mounting red tape and in favor of free enterprise and federalism has transformed into a pursuit of federal dollars not despite but because of the strings attached. Fewer small businesses remain unsubsidized, and if any local governments remain independent of Washington, we’d love to hear from them.

While post-COVID regulations affecting states and localities should be spawning alarm and new alignments for streamlining, regulators are safe thanks to the ability to seduce with open-ended spending.

But that could change. The most recent Fall 2023 Unified Agenda snapshot of proposed, final, and recently completed rules (the Spring edition is overdue) depicts a trend of increasing numbers of rules affecting state and local governments. As seen in the chart just below, of the 3,599 rules flowing through the pipeline at the end of last year, 507 affect state governments, while 349 affect local governments. These counts are substantially higher than five and ten years ago, and well above Trump-era counts that included many “deregulatory” rules.

Today’s high levels of pandemic and post-pandemic spending cannot go on forever, and mandates that are welcome when funded become detested when unfunded—and perhaps even while funded as interventions escalate. Unrestrained regulation affecting small businesses, states, and localities must at some point manifest as intolerable federal encroachment and lead to fresh alignments to induce a reluctant Congress to step in again. Just as we saw reforms a generation ago, there is an equally abundant set of reforms already teed up, some bipartisan. As we’ve repeatedly argued in recent years, addressing this fusion of spending and regulation is crucial to preserving limited government.

For more: “Unfunded Mandates Will Become A Bigger Issue For State And Local Government,” Forbes, June 24, 2024.