The silent price tag of federal bureaucracy

• Utah requires its administrative agencies to consider costs of proposed regulations, but there is no similar mechanism for considering costs of federal directions to state officials.
• This guidance, though technically nonbinding, can shape state actions and impose significant costs.
• The federal government and the states should each require cost-benefit analyses of federal guidance.

​When a Utah administrative agency issues a new regulation, state law requires that agency to “conduct a thorough analysis . . . of the fiscal impact a rule may have on businesses.” In fact, if a public comment on the proposed regulation suggests the new rule would “cost small business more than one day’s annual average gross receipts,” the agency must perform a detailed review of the likely cost of the regulation.

When these analyses show a proposed regulation is likely to have “a measurable negative fiscal impact on small businesses,” agencies are required to consider “methods of reducing the impact of the rule on small businesses” such as lenient compliance and reporting requirements, schedules and deadlines, and possible exemptions.

These commonsense requirements limit or eliminate potential economic damage from administrative lawmaking.

What if, however, a federal administrative agency issues guidance that impacts states? In that case, there is no similar requirement of a cost-benefit analysis.

The reliance on “guidance” is a unique feature of the work of federal bureaucratic agencies. Like state agencies, these agencies have delegated authority from Congress to make formal rules (after following specific procedures) to enforce laws enacted by Congress. In addition, however, agencies often issue guidance – directions in the form of letters or compliance manuals or something similar to state officials or businesses – that is not technically binding but, in practice, the officials or businesses have a strong incentive to cooperate with, even when it is at odds with the laws actually passed by Congress.

To avoid trouble with agencies that enforce federal laws, states feel compelled to comply with guidance, but federal agencies do not have any formal requirement to consider how that guidance might impact states. This compliance, though, certainly has costs. Suppose a federal agency tells state officials they must adopt new practices to comply with guidance. In that case, the cost of compliance will be passed to state taxpayers, either directly or indirectly when the state foregoes other policies it would pursue absent the mandate derived from guidance.

There are many examples.

A simple and common example is the numerous reports that states are required to submit to comply with federal guidance, such as in the use of COVID funding.

Agency guidance about how to respond to wildfires can create costs to the states as they adjust their efforts to comply with federal guidance.

Recent guidance from the National Institutes of Health on how states pay for indirect costs created by activities funded by federal grants could raise the costs to public universities, shifting more of these costs to state higher education funding.

In the past few years, Utah has received federal guidance that would impose costs to the state in providing health care to inmates, in building or adjusting locker room facilities, and in providing more extensive services to individuals with disabilities.

Some of the costs might be appropriate uses of state resources, if they are consistent with policy adopted by the state’s elected representatives and can be balanced with other demands for federal spending. Mandates arising from federal guidance, though, do not require, and may even displace these priorities and impose counterproductive or unnecessary costs.

In the last Utah legislative session, the state adopted a requirement that any federal guidance to Utah officials must be made public so policymakers and citizens can determine whether it is consistent with state priorities and needs.

An obvious follow-up is to begin accounting for the costs of this federal guidance to the state. Utah currently requires its state agencies to account for hidden costs that will come with accepting federal grants, such as the need for new employees, conditions tied to acceptance, or matching spending requirements.

This would be an appropriate federal requirement, but in the meantime, states can help legislators and citizens respond to federal guidance by making available their own assessments of guidance compliance costs.