Unfunded Mandates and Fiscal Structure : Empirical Evidence from a Synthetic Control Model

An unfunded expenditure mandate occurs when a local government must provide a good or service by dictate of a higher level of government that does not supply an accompanying revenue source to fully finance the expenditure. This paper is the first to provide empirical evidence on the influence of local unfunded mandates on government fiscal structure. The study examines Florida's 1990 constitutional Amendment 3, which sought to limit this power of the state. A synthetic control model is employed to derive the causal effects of the mandate limit on total state expenditures and state transfers to local governments. The results indicate that the amendment's barriers to imposing unfunded local mandates resulted in substantive changes to the fiscal structure of the state. First, state expenditures increased by an annual average of 9.5%. Second, while total state transfers to local governments were not altered, the mandate restrictions did impact which governments received transfers. Namely, the general purpose local governments protected by Amendment 3 saw 10% decreases in intergovernmental revenue from the state. This evidence suggests that the mandate limit led the state to take on new programs and spending that would otherwise have been shifted to the general purpose governments, and that remaining mandates were more likely to be directed towards special districts