November 22, 1999

MEMORANDUM

TO:              Heads of Operating Divisions and Staff Divisions

SUBJECT:   Executive Order on Federalism

On August 4, 1999, the President, emphasizing how important it is for the American people that the Federal government and State and local governments work together as partners, issued Executive Order 13132, " Federalism." The Order ensures an enhanced sensitivity at the Federal level to concerns of State and local government by establishing principles and policymaking criteria that Federal agencies must follow in developing and carrying out policy actions that affect State and local governments.

The Order requires consultations with State and local officials--defined to mean "elected officials of State and local governments or their representative national organizations"--in the development of regulatory polices with federalism implications. The OS Office of Intergovernmental Affairs is available to provide assistance to agencies in meeting this obligation, especially in situations where communications with State or local government agencies have historically occurred primarily at staff levels.

The Order also requires that Heads of agencies designate an official with principal responsibility for the Order's implementation. I am so naming LaVarne Burton, Executive Secretary to the Department (ES), because of the good fit with her existing responsibility as Regulatory Policy Officer to certify compliance with the various requirements that apply generically to all regulations. ES is also the Department's liaison with OMB's Office of Information and Regulatory Affairs (OIRA), which has government-wide oversight of the Order's implementation. Attached is OIRA's guidance (which includes a copy of the Order), and also HHS procedural guidance provided by ES.

Please ensure that program managers throughout your agency recognize their responsibilities for observing both the spirit and the letter of the Order as they develop and carry out policies with federalism implications.

                                                                                      /S/

                                                                           Donna E. Shalala

Attachments

MEMORANDUM

TO:             Heads of Operating Divisions
                   Heads of Staff Divisions

FROM:       Executive Secretary to the Department    /S/

SUBJECT:  Implementation of Executive Order on Federalism (E.O. 13132)

The President's Executive Order on Federalism provides a new framework for effective working partnerships in our federal system of government. The following HHS procedural guidance supplements OMB's October 28, 1999 guidance materials for implementation of the Order. This guidance is provided to assist HHS agencies in implementing the Order, and to furnish uniform answers to frequently asked questions about the Order's requirements. To the extent possible, this guidance follows our existing decision-making processes, with a view to minimizing new administrative burden.

What is the Scope of the Executive Order?

The Executive Order applies only to policies that have federalism implications. This is defined as regulations, legislative comments, proposed legislation, and other policy statements or actions that have substantial direct effects on the States, on the relationship between the Federal government and the States, or on the distribution of power and responsibilities among the various levels of government. There are several elements of this definition that merit further discussion.

· For a policy to have a federalism implication, it must have an effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, where the Federal government proposes to limit the ability of States to make policy decisions with respect to State functions. However, the Order would not be triggered merely because a policy may deal with States. For example, a regulation that instructs States about how to apply for Federal grant funds and establishes accountability safeguards for the administration of those funds would not trigger the federalism requirements. On the other hand, if the regulation limits the ability of a State to choose which of the State's agencies would administer the funds, the regulation would trigger the requirements of the Order.

· To have a federalism implication, the effect of the policy must be direct. In this respect, a policy would not have a federalism implication if it has indirect, remote or speculative effects. For example, a rule that establishes conditions of participation for nursing homes in Medicare-a federal program-may indirectly affect less stringent State regulatory requirements. In this case, the effect is a consequence of the Federal government regulating its own program and not a direct action to compel States to change State law or regulatory requirements for nursing homes.

· To have a federalism implication, the effect must be substantial. The impact of requiring States to conform to national standards in areas normally reserved to State discretion would not be substantial if the States already required the use of the standards. HHS components should determine, as a basic guide for determining substantial economic effect, whether a proposed policy would result in the expenditure by State governments in the aggregate of $ 100,000,000 or more in any one year. Note that this is the standard established in 1995 by the Unfunded Mandates Reform Act.

· Although a particular action may be implementing a policy that is mandated by law or where the Department otherwise has no discretion (e.g., a court order), the requirements of the Executive Order still apply to the action. In these cases, the action should state that the policy is the result of law or court order and that the Department is not exercising discretion.

What Must Agencies Submit With Final Regulations?

Under specified circumstances, final and interim final rules submitted to the Department for clearance must be accompanied by the documentation listed below. The OMB guidance provides details on the specific circumstances.

· A Federalism Statement in the Regulation

Although the federalism statement is required only for final regulations, agencies are encouraged to include preliminary federalism statements in the preamble of proposed rulemaking documents. The OMB guidance also indicates that the federalism statement in the regulation should include a summary of the compliance certification (see below).

· A Federalism Section in the Regulation Clearance Memorandum

In the clearance memorandum to the Secretary, agencies should include a federalism statement indicating that the regulation or proposed regulation has federalism implications and that the requirements of the Executive Order have been met. The statement should also indicate whether or not consultations with state and local officials were held and, if not, why no consultation took place.

· Copies of Written Communications with State and local officials

These should be submitted as a separate tab to the clearance memorandum.

· A Certification of Compliance Form

This should also be included as a separate tab to the clearance memorandum. A recommended format is attached to the OMB guidance.

What are the Requirements for Legislation?

When sending OMB proposed legislation and legislative comments that have federalism implications, the Department must include a certification of compliance with the Executive Order signed by the designated official. This requirement applies to legislative documents that the Department intends to send to Congress subsequent to OMB clearance, but not to those items sent to OMB intended only for internal Administration review purposes. Therefore, the certification requirement applies to draft "bills" and "bill reports" that go to OMB for clearance and subsequent transmittal to Congress. It does not apply to the A-19s that are sent to OMB for review and discussion as part of the legislative development process. However, the requirements would apply to OMB-approved "A-19s" in cases where the Department chooses to use the A-19 vehicle to transmit proposed legislation to Congress as opposed to drafting a formal "bill."

When are certifications required?

The Order requires certifications for policy statements or actions that have federalism implications. In such instances, documentation of relevant consultation and analysis of impact must be included in decision documents forwarded to authorized officials. Free-standing certifications are required in the case of final rules or proposed legislation, using the formats attached to the OMB guidance.

When is Consultation Required?

Although the Executive Order and OMB guidance describe when consultation with States and local officials is required, it is worth summarizing.

· Consultation is required to the extent it is practicable and permitted by law. Circumstances where it may be impractical include time-sensitive actions with deadlines that are legislatively mandated, or instances where the public welfare would be at risk if immediate action were not taken.

· Consultation is required only for final and proposed regulations, not proposed legislation.

· Consultation is required if a final or a proposed regulation has federalism implications, imposes substantial direct costs on State and local governments, is not required by statute and funds to pay the direct costs are not provided by the Federal government. If funds are provided, consultation is not required. Nonetheless, agencies are encouraged to consult in all circumstances where a regulation has federalism implications.

· Consultation is required if a final or proposed regulation has federalism implications and would preempt State law, even if the regulation would not impose substantial direct costs on State or local governments.

The OS Office of Intergovernmental Affairs is available to provide assistance to agencies in effecting necessary consultations with elected officials of State and local government or their representative national organizations, especially in situations where communications have historically occurred at the agency or staff level in State or local governments.

AGENCY ACTION REQUIRED:

The Order requires the Department to submit to OMB a description of our processes for ensuring meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. Accordingly, OPDIVs need to:

· prepare narrative material describing how your programs work with State and local governments prior to completing the development of regulatory policies that have federalism implication; and

· forward those materials to the Executive Secretariat by December 17th, so that we may be able to meet the January 31 deadline established by the Order.

Your staffs may discuss this matter with John Gallivan of our staff.