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Yet despite these welcome victories, the war over Federalism is not won. There is an excellent article to this effect called "The Dual Personality of Federalism," written by Carl Tubbesing, which appeared in the April 1998 issue of State Legisla tures magazine, and I certainly recommend that my colleagues read this article if they have not already done so.

The article notes that for all the progress made in devolution, flexibility, and more responsibility for the States, there are growing dangers in increased Federal preemption and the centralization of policymaking in Washington. Frankly, I see it every week as I vote on legislation in the Senate, whether it be the Juvenile Justice Bill or this week's debate on the Patients' Bill of Rights.

When the Federal Government preempts State and local laws, it can erode the ability of State and local governments to protect consumers, promote economic development, and develop the revenue streams that fund education, public safety, infrastructure, and other vital services. The current Federal moratorium on all State and local taxes on Internet commerce-taking away a possible revenue source from a governor if he or she so chooses-is just one striking example that could have a devastating effect on the ability of States and localities to serve their citizens.

The danger of this growing trend toward Federal preemption is the reason the Federalism Accountability Act is so important. The legislation makes Congress and Federal agencies clear and accountable when enacting laws and rules that preempt State and local authority. It also directs the courts to err on the side of State sovereignty when interpreting vague Federal rules and statutes where the intent to preempt State authority is unclear.

I am particularly gratified that this legislation addresses a misinterpretation of the Unfunded Mandates Reform Act as it applies to large entitlement programs. The Federalism Accountability Act clarifies that major new requirements imposed on States under entitlement authority are to be scored by the Congressional Budget Office as unfunded mandates. It also requires that where Congress has capped the Federal share of an entitlement program, the accompanying committee and CBO reports must analyze whether the legislation includes new flexibility or whether there is existing flexibility to offset additional costs incurred by the States. This important "fix" to the Unfunded Mandates law is long overdue and I am pleased it is included in our federalism bill.

Finally, I would like to join the Chairman in welcoming our witnesses here this afternoon, particularly my good friend Governor Tom Carper, who is chair of the National Governors' Association. It is truly amazing how much can get done when legislation is introduced on a bipartisan basis. Having, myself, served in his current capacity, I appreciate the importance that this legislation means to the NGA for him to appear here to present his views. I appreciate the great relationship we continue to have with the National Governors' Association and other State and local government associations. We would not be where we are today without their help. Thank you, Mr. Chairman.

TESTIMONY OF HON. JOHN T. SPOTILA,1 ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET

Mr. SPOTILA. Good afternoon, Mr. Chairman. Thank you for inviting me to appear before you today. The last time I was here, I was seeking your support for my confirmation. I appreciate your help and all the courtesies you extended.

Chairman THOMPSON. Should have had this hearing first. [Laughter.]

Mr. SPOTILA. I do recall some questions on this even then. But I do appreciate all your help and courtesies you extended to me in the confirmation process, and I do look forward to working closely with you and your staff in the months to come.

At the outset, on behalf of the President, I want to emphasize our commitment to the principles of federalism and our respect for the Tenth Amendment to the Constitution. And, Mr. Chairman, as you rightly have pointed out, the National Government has limited

powers and, generally, government closest to the people works best. President Clinton, a former Governor, has actively encouraged intergovernmental consultation in his issuance of Executive Orders 12866 and 12875 and his support for and signing of the Unfunded Mandates Reform Act.

You have asked me to discuss S. 1214, the Federalism Accountability Act of 1999. This bill seeks to promote the integrity and effectiveness of our Federal system of government. It clearly represents a serious effort to guide relations between the Federal Government and State and local government. We respect and support that effort. We do have concerns, however, that S. 1214 could have unintended consequences. These may include burdening agency efforts to protect safety, health, and the environment by imposing new administrative requirements and by encouraging additional litigation. The administration believes that these aspects depart from the approach adopted in the Unfunded Mandates Reform Act, which it supported and is implementing. We believe that S. 1214 needs some revision if it is to accomplish its goal effectively. We would welcome the opportunity to work with you and your staff in this regard.

Today the Department of Justice will be discussing the administration's concerns with Section 6 of the act, "Rules of Construction Relating to Preemption." My testimony will focus on views on Section 7, "Agency Federalism Assessments." We do have some other drafting comments that we would like to share with you and your staff at a later point, but they are not part of my testimony today. Our primary concerns with Section 7 revolve around the interaction between its creation of new rulemaking requirements and the potential for harmful litigation arising from them. Section 7(a) would require each rulemaking agency to designate a special federalism officer to serve as a liaison to State and local officials and their designated representatives. Section 7(b) would require each agency, early in the process of developing a rule, to "consult with, and provide an opportunity for meaningful participation" by public officials of potentially affected governments. Section 7(c) would require agencies, when publishing any proposed, interim final, or final rule which the federalism official identified as having a federalism impact, to include in the Federal Register a formal federalism assessment. Each of these federalism assessments would involve four mandatory components: Identifying "the extent to which the rule preempts State or local government law," analyzing the extent to which the rule regulates "in an area of traditional State authority" and the degree "to which State or local authority will be maintained," describing the measures the agency took "to minimize the impact on State and local governments," and describing the extent of the agency's prior consultations with public officials, the nature of their concerns, and "the extent to which those concerns have been met."

These requirements may not be unreasonable in themselves. As now written, however, S. 1214 raises the risk that agencies could face litigation on each subcomponent of these requirements. The resultant need to document formally each and every aspect of an agency's compliance with each subcomponent could involve a significant new administrative burden. This is particularly true for

agencies who are trying to implement laws and protect public health, safety, and the environment with limited resources. Even if an agency has acted in good faith, litigation can cause delays and drain scarce resources. To avoid such excessive litigation, the administration feels that S. 1214 should include a statutory bar to judicial review of agency compliance with its provisions.

There are practical implications in this regard. Currently, agencies reach out to State, local, and tribal governments and their representatives on a regular basis to hear their concerns and discuss important rulemakings. These discussions typically proceed in a spirit of intergovernmental partnership, often informally, after reasonable efforts to reach those most likely to be interested. Thus, as a general matter, we believe agencies already carry out consultations as envisioned in Section 7 and do so in a meaningful way.

Our concern here revolves around increasing the potential for litigation. If we make these collegial, informal discussions subject to the possibility of judicial review, it would change the whole dynamic. Rather than discussing matters openly in a spirit of partnership, some agencies could resort to checklists-building up a record that proves that each step has been carried out. Instead of working to improve their rules, agencies might shift their focus to improving their litigation position.

This will divert scarce resources. Agencies would feel compelled to prove that each step has been carried out fully. They would create a prerulemaking record as formal and objectively documented as their counsel deems necessary to withstand a court challenge. It is not at all clear that this will lead to better rules, despite the good intentions embodied in Section 7.

How might this play out? Here is an example: Section 7 directs each agency to "provide an opportunity for meaningful participation by public officials of governments that may potentially be affected." We agree that agencies should do that. But allowing judicial review of agency compliance with this provision would permit potential litigants to ask a Federal judge to decide a wide variety of new issues. How much notice is legally adequate to "provide an opportunity"? How much outreach efforts does an agency have to make to seek "meaningful participation"? If an agency conducts extensive consultations with some of the Big 7, can others of the Big 7 litigate their failure to be included? What about individual State or local governments that do not agree with positions taken by the Big 7? Do they each need to be invited to participate?

The agencies would have to consider, plan for, and determine how to resolve questions like these. This would take time. It also might keep them from other important tasks, like paperwork reduction initiatives, the review and revision of outdated and burdensome existing rules, and the conversion of rules into plain language.

For that matter, each agency would have to do more than just ensure that all of those who were supposed to be notified and consulted were satisfied with the agency's compliance with Section 7. Others with an interest in the rulemaking-including various special interests could potentially challenge the rulemaking because they were not satisfied with that compliance. They might even do

forts. Agencies would have an even broader group to consider when designing a consultation effort.

We all know what road is paved with good intentions. While we respect the careful thought and sincere concern underlying S. 1214, we believe that it requires some changes to avoid unintended, adverse consequences. We would be pleased to work with you and your staff on these issues.

Thank you for the opportunity to appear before you today, and I would be happy to answer any questions you may have. Chairman THOMPSON. Thank you very much. Mr. Moss.

TESTIMONY OF RANDOLPH D. MOSS,1 ACTING ASSISTANT ATTORNEY GENERAL, OFFICE OF LEGAL COUNSEL, U.S. DEPARTMENT OF JUSTICE

Mr. Moss. Mr. Chairman, Members of the Committee, I am honored to be here today to testify regarding S. 1214, the Federalism Accountability Act of 1999. As Mr. Spotila has indicated, my remarks will focus on Section 6, which would establish rules of construction relating to statutory and regulatory preemption of State law and, more broadly, rules of construction relating to any Federal law touching upon the authority of the States.

Section 6(a) and 6(b) would significantly alter the rules under which courts determine the preemptive effect of Federal statutes and regulations. In our view, sweeping reform of this nature would be warranted only if Congress were convinced that existing preemption doctrine systematically operates to frustrate congressional intent and that the new rules of construction would produce better results.

Section 6(c) would operate even more broadly than Section 6(a) and 6(b). It would require that any ambiguity in any Federal law, whether pertaining to preemption or to any other subject, be construed in favor of preserving the authority of the States and the people. Section 6(c) threatens to frustrate congressional intent wherever Federal law implicates the allocation of power between Federal and State governments.

First, I would like to explain our view that Section 6(a) and 6(b) would fundamentally alter long-established preemption doctrine in ways that may create significant new problems. It should only be adopted if necessary to correct equally fundamental misinterpretations of congressional intent by courts and administrative agencies. Federal statutes may preempt State law in either express terms or implicitly. In either case, congressional intent is, of course, the touchstone of preemption analysis. Thus, implied preemption requires clear evidence of congressional intent to preempt, such as the establishment of Federal requirements that conflict with State law or that occupy an entire field.

Further, the courts require a heightened showing of intent to preempt in areas of traditional State primacy. The Supreme Court has stated that, "[w]hen Congress legislates in a field traditionally occupied by the States, 'we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Con

1The prepared statement of Mr. Moss appears in the Appendix on page 296.

gress." Thus, current Supreme Court doctrine already reflects considerable sensitivity to federalism concerns.

Section 6(a) would, nevertheless, alter existing law. No Federal statute enacted after this provision took effect would preempt State law unless the statute contained an express statement of Congress' intent to preempt or there was a "direct conflict" between the Federal statute and State law so that the two could not "be reconciled or consistently stand together." This change would appear to abolish the doctrine of field preemption and impose significant new limits on conflict preemption.

State law that prevented the achievement of purposes of the Federal statute could stand so long as there was no direct and irreconcilable conflict between the two.

The findings section of S. 1214 states that this change is motivated by Federal court rulings that have applied current preemption doctrine to produce results "contrary to or beyond the intent of Congress." It is not clear, however, which applications of existing preemption doctrine are viewed as having misinterpreted the intent of Congress. Before altering such broad-reaching and fundamental rules of law, rules dating back to the early days of the Republic, it is essential to consider whether some less drastic action might redress the problem.

Section 6(a) would be likely to increase congressional reliance on express preemption provisions. We are concerned that this would raise problems of its own. Detailed express preemption provisions may be prone to overinclusiveness, displacing State law where such displacement is not truly necessary, and underinclusiveness, undermining the effectiveness of Federal law by failing to displace antithetical State law.

Some of the harshest criticism of Federal preemption has focused on the operation of express statutory provisions contained in such legislation. In addition, implementation of Section 6(a), as well as the other rules of construction contained in Section 6, would generate disputes as to whether subsequent congressional action implicitly intended to exempt particular statutes from these rules of construction.

Section 6(b)'s proposed changes to current regulatory preemption doctrine raise similar and additional concerns. The Supreme Court has permitted the issuance of preemptive regulations under broad grants of rulemaking authority where preemptive regulations represent a reasonable accommodation of conflicting policies that Congress left to the rulemaking agencies to reconcile.

Section 6(b) would alter the Supreme Court's approach. A Federal rule issued after the effective date of the Federalism Accountability Act could preempt State laws in only two circumstances: First, if regulatory preemption was authorized by statute and the regulation was accompanied by a statement in the Federal Register explicitly stating that such preemption was intended; and, second, if the regulation directly conflicted with State law.

Unlike Section 6(a), which applies only to newly enacted statutes, Section 6(b) would arguably apply to the implementation of many existing statutes. If this interpretation were to prevail-if this were the interpretation that was intended, existing rule

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