On May 16, 1996, the Senate Committee on Governmental Affairs marked up S. 88, the Local Empowerment and Flexibility Act, which is sponsored by Sen. Mark Hatfield (R-OR). The Local Flexibility bill was widely opposed by public interest organizations because it would establish a cumbersome process that could result in undermining various public protections -- and all without much public input. Under the Local Flexibility bill, laws and regulations can be waived, money transferred from one program area to another, state plans consolidated, eligibility to programs changed, and much more.

Recognizing strong opposition to the bill, Hatfield has prepared a July 16 revision to S. 88. The revision makes substantial changes to the marked up version, but retains many of the same principles and objectives. Overall, the revisions are a step in the right direction, but remain inadequate. This paper describes the Local Flexibility bill based on the July 16 Hatfield revision.

Overview

A state or local entity can propose a flexibility plan that would:

• Consolidate funding under two or more programs. There are no constraints on the ability to shift the use of funds. For example, an eligible applicant could propose shifting funds for a locally unpopular education program to the repair of roads. Or the eligible applicant, such as a state, could commingle funds to create new block grants, merging several federal and state programs.
• Consolidate state or local plans for program services. For example, a state plan on developmental disabilities might be merged with another plan addressing another issue, such as mental health needs. While the intent may be to coordinate service delivery, those constituencies with less political clout may no longer receive the attention and services they need. There will be little opportunity to challenge the state or local action, except through a public hearing.
• Change eligibility requirements under a program. For example, age eligibility under Head Start could be changed without virtually any public input beyond one hearing.
• Waive law and regulation at any level of government. The bill allows the applicant to propose waivers if they are "necessary" to implement the flexibility plan. Unlike earlier versions of the bill, this one narrows the types of federal waivers that can be granted by agencies, but still has several key problems that result in little protection of public protections (see below). Under this bill, a city could waive low-income targeting provisions under the Community Development Block Grant or change the planning process used under the Comprehensive Housing Assistance Strategy.

The bill greatly undermines constitutional separation of powers by granting enormous powers to the executive branch to waive federal laws and change appropriations priorities without approval from Congress. Furthermore, the bill establishes a new superpower within the executive branch, called the Community Empowerment Board, that has no congressional oversight and little public accountability, yet has powers to approve and monitor flexibility plans, identify regulations of most federal financial assistance programs for "revision, repeal, and coordination," and develop uniform grant application forms and release forms to share information across eligible financial assistance programs. Despite the CEB's powers to override congressional prerogatives and shape administrative decision-making, there are no sunshine requirements imposed upon it, except for publishing lists of proposed and approved plans.

How the Hatfield Bill Would Work

The Hatfield bill permits a state or locality to submit "flexibility plans" that affect any domestic assistance programs, including any grant, contract, or other form of assistance except a loan, that is made directly or indirectly to state, local, or tribal governments, or to charities covered under 501(c)(3) of the tax code that receive federally appropriated funds, or to a combination of such groups. It does not cover assistance programs to individuals (e.g., education loans), benefits provided by the federal government directly to individuals, entitlement programs, Food Stamps or other food voucher programs (e.g., some WIC programs). However, administrative costs for entitlements can be covered.

A federal interagency council, called a Community Empowerment Board (CEB) -- comprised of federal departments, Federal Emergency Management Agency, Environmental Protection Agency, Small Business Administration, General Services Administration, Office on National Drug Control Policy, Office of Management and Budget, and other offices as directed by the President -- would be established to approve or disapprove flexibility plans submitted by eligible applicants. There are no requirements that the CEB operate in the sunshine; in fact, actions taken by the CEB are not judicially reviewable.

The CEB is required to announce in the Federal Register the receipt of flexibility plans and make them available upon written request. The CEB is also granted the power to convene public hearings on flexibility plans. There is no requirement that the CEB actively obtain public comments. The model is similar to the Vice President's Council on Competitiveness during the Bush Administration that reviewed regulatory proposals from agencies.

There are only two opportunities to submit flexibility plans to the CEB. The first comes during the first three months of 1998 (January through March) and the second is the first three months of 1999. The CEB must act on those plans they intend to review by July 31 of each year, sending a list of approved flexibility plans to Congress.The CEB is required to review the first 50 flexibility plans it receives starting January 1 for 1998 and 1999. After the first 50 plans, priority will be given to those that help the CEB develop criteria for approving or disapproving plans.

The CEB is also given the authority to provide technical assistance to eligible applicants in order to encourage the submission of a plan, and "special assistance" to interested small governments, which include expedited processing.Any state, local or tribal government eligible for federal financial assistance or any charity that qualifies as a 501(c)(3) organization under the tax code that receives federally "appropriated" funds can submit a flexibility plan to the CEB. In addition, a qualified consortium can submit a plan to the CEB. A qualified consortium would consist of at least two or more of the above entities that receive federally appropriated funds.

Prior to sending a flexibility plan to the CEB, the eligible applicant must submit the plan for comment to the governor, a state legislative official, or the chief executive officer of a local or tribal government if the entity is affected by the plan. If any of the governmental entities disapproves of the plan or does not plan on seeking the appropriate state waiver of law or regulation, the eligible applicant must acknowledge this in the plan submitted to the CEB. (If the governmental entity does not respond within 60 days, the applicant can proceed to submit the plan to the CEB, but indicate that it has not received comments from the affected governmental entity.) The eligible applicant must inform the affected community of the contents of the plan and give the public an opportunity to comment on the plan. The applicant must conduct at least one public hearing and submit a summary or the comments, as well as the applicant's response to "significant" comments, to the CEB.

What's In A Flexibility Plan

An eligible applicant must submit at least eighteen items to the CEB in other to have a flexibility plan considered. These items range from certification of reviews from state and local governments to descriptions of waivers to identification of geographic area served.

Because the CEB has the authority to provide technical assistance to eligible applicants, these plans may get revised even after being submitted to the CEB.Most often, the bill requires the applicant to describe certain aspects rather than set a standard. For example, the flexibility plan requires the applicant to identify the groups currently being served versus the groups who would be served under the plan. The bill does not require that the plan ensures that at least the same groups must be served, or that more people need to be served. It takes no position. In this regard, the bill provides very few standards or criteria that should guide the CEB is approving or disapproving the flexibility plan.

In certain cases, the bill seems to move in the direction of requiring greater accountability. For example, the bill requires the applicant to develop specific goals and measurable performance criteria that demonstrate how the plan will improve service delivery. Unfortunately, even in this case, there is no standard by which to measure improvement.Although the bill requires the applicant to compare performance under the plan with that under existing programs, the lack of criteria to measure performance makes the overall requirement somewhat useless. For example, an applicant might find that a job training program has a success rate of 50% under existing programs but would have a 75% success rate under the plan, primarily because they would limit eligibility to those more likely to get jobs.

One requirement of the flexibility plan is to describe how the "goals, purposes, and intent" of each financial assistance program will be "more effectively" met at the state, local, or tribal level. However, because the wording is "goals, purposes, and intent," this requirement will not apply to specific standards (e.g., age eligibility under a program). Thus, the bill leaves open the possibility of massive change in the federal statutory and regulatory requirements. Unless the bill uses federal statutory and regulatory requirements as the benchmark for measurement, the public will have no assurance of what the plan will truly accomplish.

If a flexibility plan changes the flow of federal funds (either more or less money) to a charity, there must be a written certification from the affected charity that it consents to the plan. If the written certification is not part of the plan, the CEB cannot approve any part of the plan. (The same protection is not afforded other entities such as local governments or organizations that are not tax-exempt under 501(c)(3) of the tax code.)

The bill does requires the applicant to identify methods for collecting data to measure performance and evaluate the impact of the plan on the community. However, two problems arise. First, there is no assurance that the local or state data collection methods will be consistent with national standards for data collection or that the data will be comparable with data collected in other communities that seek waivers. Thus, it is possible that as a result of the waiver and consolidation process, it will impair our ability to draw comparable national data sets for evaluations and conclusions.

Second, while the approved applicant must submit annual reports describing activities and comparing achievements to the goals and performance criteria specified in the plan, there are no resources allocated for the CEB or agencies to review the data that is supposed to be collected and maintained by the state or local entity. (The bill allows personnel to be "detailed" to the CEB and for interagency funding to occur, but no new money is earmarked for the CEB or agency work.) As a result, if a plan is approved it will be difficult for the federal government to truly monitor its effectiveness, thereby limiting enforceability of critical national standards and protections.

Waivers of Law and Regulation

The CEB does not have the authority to approve waivers that would have the effect of preempting state or local laws. However, it has the authority to waive many federal laws and regulations.Although the CEB approves the flexibility plan, which includes any proposed waivers, the primary "affected" federal agency must establish a memorandum of understanding with the applicant. Thus, in effect, the federal agency must also approve of the waiver and monitor the implementation of the flexibility plan.

The bill is very murky about the roles and powers of the CEB and the affected federal agency -- at times it refers to the "affected Federal agency" when discussing waivers and, at other times, the CEB.There is a section of the bill that creates restrictions of waiver authority. This section is critical to the public interest community because it would limit the eligible applicant in what they could waive.

While this new version of S. 88 provides improvement in narrowing the scope of waivers there are two types of problems.First, the language is very unclear. It says that "[a]n affected Federal agency may not grant a waiver for a statutory or regulatory requirement of an eligible Federal financial assistance program..." The word "may" does not preclude the agency from granting a waiver; rather, it should read "shall" instead. Furthermore, this only applies to requirements of eligible Federal financial assistance programs. Thus, an eligible applicant could propose waivers to other types of programs (e.g., entitlements; laws that are not financial assistance programs, such as civil rights laws or environmental laws).

Second, the bill provides a helpful list of areas in which waivers "may" not be granted. These include: (1) where waiver authority under another provision of law already exists (e.g., some education programs; empowerment zones); (2) enforces statutory or constitutional rights of individuals including the right to equal access and opportunity in education and housing; (3) enforces statutory rights that prohibit discrimination; (4) protects public health and safety, the environment, labor standards, or worker safety; (5) provides for a maintenance of effort, matching share or prohibition on supplanting; (6) grants an individual a cause of action; and (7) where an applicant would like to shift program funding directly to individual beneficiaries. The intent of the last point is to prohibit school vouchers.

Unfortunately, the list does not include a number of critical areas. For example, flexibility plans could still propose waivers of parental participation and involvement, targeting of resources to low-income families, or how funds are to be used (e.g., shift funds for education of disadvantaged children to religious worship or for building facilities). For that matter, the list of waiver restrictions does not mention compliance with laws and regulations dealing with fiscal controls, grants management, and audits.

Secondly, the list has several problems with its wording. The first provision protects the waiver authority established in other laws, but does not protect waiver prohibitions in other laws. The second provision protects constitutional rights of individuals but adds a clause that is used by right wing groups in litigation to promote school vouchers and religious worship in public schools. The clause is unnecessary. The fourth provision protects various public safeguards, but does not define what is meant by the words (e.g., labor standards). The final provision is intended by the author to prohibit school vouchers, but would not achieve it. Vouchers could be given directly to an institution or organization rather than an individual beneficiary, thereby circumventing the provision.Until the language is improved, these two types of problems -- the overall language and the list of waiver restrictions -- permit flexibility plans to greatly undermine public protections.

Other CEB Functions

Beyond reviewing flexibility plans and monitoring the implementation of the plans, the CEB is given other responsibilities. The CEB is given the power, along with the Director of the Office of Management and Budget, to coordinate and assist federal agencies in identifying regulations of eligible federal financial assistance program for revision, repeal, or coordination. Special authority is granted to evaluate performance standards and recommend to agencies changes they should make in establishing standards and criteria for measuring program success.The power to identify regulations for elimination or revision is quite unique. Since the CEB has no resources allocated to it (other than detailing agency staff and resources), it is likely that an agency, such as the Office of Management and Budget, will provide the staff work.

During the Bush Administration, the Council on Competitiveness operated in a nearly identical manner, using OMB to staff its work. Like the Council on Competitiveness, the CEB has no requirements to make its activities accountable to the public.Finally, the CEB is given various responsibilities dealing with grants and contracts management. For example, the CEB is given the authority to work with the Director of the Office of Management and Budget to assist federal agencies to create a uniform application form for federal financial assistance, as well as a release form about program beneficiaries that can be shared with multiple organizations addressing the needs of the beneficiary (as long as it is consistent with confidentiality requirements).

New Reports Required

The bill creates a new role for the Advisory Commission on Intergovernmental Relations (ACIR). No later than January 1, 2005, ACIR is to prepare a report that describes the extent to which the law improved the ability of state and local governments to "make more effective use of" two or more federal financial assistance programs included in a flexibility plan. Additionally, ACIR is to make recommendations "with respect to flexibility" for state and local governments.

This is a highly controversial provision since the ACIR issued a preliminary report to carry out its responsibilities under the Unfunded Mandates Reform Act. That report created a firestorm of protest with recommendations that were perceived to be highly biased and based on little scientific evidence. In fact, ACIR's final report on federal mandates was rejected by the Commission Members on July 23, 1996. Thus, providing a broad based requirement will allow ACIR to continue proposing ideas that could greatly undermine public protections.

Furthermore, ACIR is supposed to be terminated as of September 30, 1996. By proposing additional studies, it may prolong the termination of the agency.

In addition to the ACIR report:

• The CEB is to submit to Congress and the President after the second year, and annually thereafter, a report on the most frequently waived statutory and regulatory requirements. The President is to identify those that should be amended or repealed.
• The Director of OMB is to submit a report after the second year on implementing uniform grant application forms and release forms.
• The General Accounting Office is to evaluate the effectiveness of programs covered by flexibility plans and create a database for each federal financial assistance program included in a flexibility plan.
• The applicant of an approved flexibility plan is to submit a report one year after approval of the plan and a final report no later than 120 days after conclusion of the plan.

Prepared July 23, 1996.