<DOC> [108th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:94493.wais] HOW TO IMPROVE REGULATORY ACCOUNTING: COSTS, BENEFITS, AND IMPACTS OF FEDERAL REGULATIONS--PART II ======================================================================= HEARING before the SUBCOMMITTEE ON ENERGY POLICY, NATURAL RESOURCES AND REGULATORY AFFAIRS of the COMMITTEE ON GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTH CONGRESS SECOND SESSION __________ FEBRUARY 25, 2004 __________ Serial No. 108-159 __________ Printed for the use of the Committee on Government Reform Available via the World Wide Web: http://www.gpo.gov/congress/house http://www.house.gov/reform ______ U.S. GOVERNMENT PRINTING OFFICE 94-493 WASHINGTON : DC ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON GOVERNMENT REFORM TOM DAVIS, Virginia, Chairman DAN BURTON, Indiana HENRY A. WAXMAN, California CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania MARK E. SOUDER, Indiana CAROLYN B. MALONEY, New York STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland DOUG OSE, California DENNIS J. KUCINICH, Ohio RON LEWIS, Kentucky DANNY K. DAVIS, Illinois JO ANN DAVIS, Virginia JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri CHRIS CANNON, Utah DIANE E. WATSON, California ADAM H. PUTNAM, Florida STEPHEN F. LYNCH, Massachusetts EDWARD L. SCHROCK, Virginia CHRIS VAN HOLLEN, Maryland JOHN J. DUNCAN, Jr., Tennessee LINDA T. SANCHEZ, California NATHAN DEAL, Georgia C.A. ``DUTCH'' RUPPERSBERGER, CANDICE S. MILLER, Michigan Maryland TIM MURPHY, Pennsylvania ELEANOR HOLMES NORTON, District of MICHAEL R. TURNER, Ohio Columbia JOHN R. CARTER, Texas JIM COOPER, Tennessee MARSHA BLACKBURN, Tennessee ------ ------ ------ ------ ------ ------ ------ BERNARD SANDERS, Vermont (Independent) Melissa Wojciak, Staff Director David Marin, Deputy Staff Director/Communications Director Rob Borden, Parliamentarian Teresa Austin, Chief Clerk Phil Barnett, Minority Chief of Staff/Chief Counsel Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs DOUG OSE, California, Chairman CHRISTOPHER SHAYS, Connecticut JOHN F. TIERNEY, Massachusetts JOHN M. McHUGH, New York TOM LANTOS, California CHRIS CANNON, Utah PAUL E. KANJORSKI, Pennsylvania NATHAN DEAL, Georgia DENNIS J. KUCINICH, Ohio CANDICE S. MILLER, Michigan CHRIS VAN HOLLEN, Maryland ------ ------ JIM COOPER, Tennessee ------ ------ Ex Officio TOM DAVIS, Virginia HENRY A. WAXMAN, California Barbara F. Kahlow, Staff Director Anthony Grossi, Clerk Krista Boyd, Minority Counsel C O N T E N T S ---------- Page Hearing held on February 25, 2004................................ 1 Statement of: Kovacs, William, vice president, Environment, Technology and Regulatory Affairs, U.S. Chamber of Commerce; Susan Dudley, director, regulatory studies program, Mercatus Center, George Mason University; Richard B. Belzer, president, Regulatory Checkbook; Joan Claybrook, president, Public Citizen; and Robert R.M. Verchick, Ruby M. Hulen professor of law, University of Missouri at Kansas City School of Law, Center for Progressive Regulation..................... 47 Sullivan, Thomas M., Chief Counsel for Advocacy, Small Business Administration; and John D. Graham, Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget...................................... 12 Letters, statements, etc., submitted for the record by: Belzer, Richard B., president, Regulatory Checkbook, prepared statement of............................................... 73 Claybrook, Joan, president, Public Citizen, prepared statement of............................................... 89 Dudley, Susan, director, regulatory studies program, Mercatus Center, George Mason University, prepared statement of..... 65 Graham, John D., Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget, prepared statement of...................................... 28 Kovacs, William, vice president, Environment, Technology and Regulatory Affairs, U.S. Chamber of Commerce, prepared statement of............................................... 50 Ose, Hon. Doug, a Representative in Congress from the State of California, prepared statement of....................... 4 Sullivan, Thomas M., Chief Counsel for Advocacy, Small Business Administration, prepared statement of............. 14 Tierney, Hon. John F., a Representative in Congress from the State of Massachusetts, prepared statement of.............. 35 Verchick, Robert R.M., Ruby M. Hulen professor of law, University of Missouri at Kansas City School of Law, Center for Progressive Regulation, prepared statement of.......... 111 HOW TO IMPROVE REGULATORY ACCOUNTING: COSTS, BENEFITS, AND IMPACTS OF FEDERAL REGULATIONS--PART II ---------- WEDNESDAY, FEBRUARY 25, 2004 House of Representatives, Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs, Committee on Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m., in room 2247, Rayburn House Office Building, Hon. Doug Ose (chairman of the subcommittee) presiding. Present: Representatives Ose, Schrock, and Tierney. Staff present: Barbara F. Kahlow, staff director; Anthony Grossi, clerk; Megan Taormino, press secretary; Krista Boyd, counsel; and Jean Gosa, minority assistant clerk. Mr. Ose. I call to order today's hearing on the Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs. The subject of today's hearing is, ``How to Improve Regulatory Accounting: Costs, Benefits, and Impacts of Federal Regulations--Part II.'' In the fall of 2001, the Small Business Administration estimated that, in the year 2000, Americans spent $843 billion to comply with Federal regulations. SBA's report concluded, ``Had every household received a bill for an equal share, each would have owed $8,164.'' The report also found that, in the business sector, those hit hardest by Federal regulations are small businesses. The report stated, ``Firms employing fewer than 20 employees face an annual regulatory burden of $6,975 per employee, a burden nearly 60 percent above that facing a firm employing over 500 employees.'' It is clear that regulations add to business costs and decrease capital available for investment and job creation. Because of congressional concern about the increasing costs and incompletely estimated benefits of Federal rules and paperwork, in 1996, Congress required the Office of Management and Budget [OMB], to submit its first regulatory accounting report. In 1998, Congress changed the report's due date to coincide with the President's budget so that Congress and the public could simultaneously review both the on-budget and off- budget costs associated with each Federal agency imposing burdens on the public. In the year 2000, Congress made this a permanent annual reporting requirement. The law requires OMB to estimate the total annual costs and benefits for all Federal rules and paperwork in the aggregate, by agency, by agency program, and by major rule, and to include an associated report on the impacts of Federal rules and paperwork on certain groups, such as small business. Today, we will examine OMB's draft seventh annual regulatory accounting report, which was released on February 13, 2004, which is 11 days after the statutory deadline of release with the President's budget. Unfortunately, this late submission prevented the congressional subcommittees from submitting fully informed recommendations for this year's budget resolution. We will again discuss how to improve compliance with the substantive statutory requirements. Data by agency and by agency program are important for the public to know the aggregate costs and benefits associated with each agency and each major regulatory program. For example, what are the aggregate costs and benefits of the requirements imposed by the U.S. Department of Agriculture and the Labor Department's Occupational Health and Safety Administration? Is there an alternative approach for USDA or OSHA to more effectively, with less burden on and cost to the public, accomplish their intended objectives? To date, OMB has issued six final and one draft regulatory accounting reports. All seven did not meet some or all of the statutorily required content requirements. However, OMB has progressively made improvements, such as adding agency level detail for eight agencies in March 2002, and adding agency program level detail for seven major regulatory programs in February 2003. Its just-issued draft report includes a thoughtful discussion of how Federal regulations affect the manufacturing sector. In addition, on September 17, 2003, OMB issued a new OMB Circular A-4 to standardize future agency cost-benefit analyses. For the President's fiscal budget and OMB's Information Collection Budget, OMB tasks agencies annually with submitting budgetary and paperwork estimates, respectively, for each agency bureau and program. In contrast, for Federal regulations, OMB does not similarly task agencies annually with submitting cost-benefit estimates for each agency bureau and regulatory program. On June 11, 2003, I introduced the Paperwork and Regulatory Improvements Act, H.R. 2432. Section 6 of this bipartisan bill includes requirements to improve regulatory accounting, such as: requiring agencies to submit information, where available, for OMB's annual regulatory accounting statements; requiring the annual regulatory accounting statement and associated report to be submitted ``as part of'' the President's budget, compared to ``with'' the President's budget; and requiring OMB to conduct a multi-agency study of regulatory budgeting. Presently, the huge off-budget expenditures, which truly are hidden taxes to comply with Federal regulations, receive much less scrutiny than proposed on-budget expenditures and the Federal deficit. Regulatory accounting is a useful way to improve the cost-effectiveness of government. Both Presidents Reagan and Clinton issued Executive orders requiring cost- benefit analyses so that policymakers could see the strengths and weaknesses of alternative approaches and could make choices to ensure that benefits to the public are maximized. I support these requirements and want to make sure that the Government is doing everything it can to minimize the burden of regulations on the American public. I look forward to the testimony of our witnesses. [The prepared statement of Hon. Doug Ose follows:] [GRAPHIC] [TIFF OMITTED] T4493.001 [GRAPHIC] [TIFF OMITTED] T4493.002 [GRAPHIC] [TIFF OMITTED] T4493.005 [GRAPHIC] [TIFF OMITTED] T4493.006 [GRAPHIC] [TIFF OMITTED] T4493.007 [GRAPHIC] [TIFF OMITTED] T4493.008 [GRAPHIC] [TIFF OMITTED] T4493.009 [GRAPHIC] [TIFF OMITTED] T4493.004 Mr. Ose. I am pleased to recognize my good friend from Virginia, Mr. Schrock, for the purpose of an opening statement. Mr. Schrock. Thank you, Mr. Chairman. I have no opening statement. I am just looking forward to the testimony of Mr. Sullivan, among others, and to asking several questions I hope will clear up some issues. Thank you. Mr. Ose. All right, apparently there is a long line to get into Rayburn this morning, and we are concerned that Dr. Graham may be caught in that line. We are going to proceed at pace with Mr. Sullivan's testimony and subsequent witnesses, as time permits. Our typical practice here is to swear in all of our witnesses. We are not picking on anybody, that is just what we do here. So, Mr. Sullivan, if you would please rise. [Witness sworn.] Mr. Ose. Please let the record show the witness answered in the affirmative. Joining us today, our first witness today, Mr. Tom Sullivan, who is the Chief Counsel for Advocacy at the Small Business Administration. Mr. Sullivan, you are recognized for 5 minutes for the purpose of an opening statement. STATEMENTS OF THOMAS M. SULLIVAN, CHIEF COUNSEL FOR ADVOCACY, SMALL BUSINESS ADMINISTRATION; AND JOHN D. GRAHAM, ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET Mr. Sullivan. Thank you, Chairman Ose, Congressman Schrock. Good morning and thank you for giving me the opportunity to appear before you this morning. My name is Tom Sullivan, joined by Dr. John Graham, Administrator of OIRA. I am the Chief Counsel for Advocacy at the U.S. Small Business Administration. The Office of Advocacy is an independent office within SBA, and, therefore, the comments expressed in this statement do not necessarily reflect the position of the administration or the SBA. With the Chair's permission, I would like to submit my entire written statement for the record, but briefly summarize it under 5 minutes. Mr. Ose. Without objection. Mr. Sullivan. In general, Advocacy believes that improving regulatory analysis to delineate small business impacts, together with greater overall adherence to regulatory accounting requirements, will allow OMB to develop more comprehensive reports to Congress. While the draft OMB report recognizes the importance of the regulatory burden on small business, it does not attempt to quantify the impact of that burden beyond citing my office's sponsored Crain-Hopkins study in 2001. That study found that small businesses pay a disproportionately large share of the total Federal regulatory burden, which was estimated to total $843 billion in 2000. For firms employing fewer than 20 employees, the annual regulatory burden in 2000 was estimated to be just under $7,000 per employee, nearly 60 percent higher than the burden for firms with more than 500 employees. The draft OMB report would benefit from impact analyses that, at a minimum, should accompany all major rules reviewed by OIRA. From the Office of Advocacy's perspective, the draft OMB report would also benefit from small business impact analyses that should be prepared for rules reviewed by OIRA. My office believes that the recently issued Circular A-4, entitled ``Regulatory Analysis,'' will go a long way to improve regulatory accounting. The OMB circular includes a section calling on Federal agencies to identify the effects of rules on small businesses, and the regulatory accounting worksheet that accompanies the circular has a section for agencies to list the impacts of their rules on small business. The circular became effective just this past January, so, at this hearing next year, we will have an opportunity for us to see if the circular works. While Advocacy would have preferred to see a quantitative analysis of the regulatory impacts on small business in the draft OMB report, I would be remiss if I did not commend Dr. Graham and our colleagues in OIRA for their daily efforts to ensure agencies' compliance with the Regulatory Flexibility Act through aggressive interagency review of proposed regulations. My office recommends that OMB issue return letters on a rule-by-rule basis to enforce agency compliance with Executive Order 12866, the Regulatory Flexibility Act, Executive Order 13272, and the recently issued OMB Circular A-4. Last year, my office endorsed H.R. 2432, the Paperwork and Regulatory Improvement Act of 2003. Small business groups continue to tell me that the legislation would improve agencies' attention and sensitivity to how regulatory mandates impact the small business community. For that reason, the Office of Advocacy continues to support the legislation. Advocacy believes that improving the regulatory analysis of small business impacts, together with greater adherence to regulatory accounting requirements in general, will greatly improve the quality and transparency of economic analyses provided to OMB and will, in turn, allow Dr. Graham's office to develop more comprehensive reports to Congress. Thank you for allowing me to present these views, and I am happy to answer any questions. [The prepared statement of Mr. Sullivan follows:] [GRAPHIC] [TIFF OMITTED] T4493.010 [GRAPHIC] [TIFF OMITTED] T4493.011 [GRAPHIC] [TIFF OMITTED] T4493.012 [GRAPHIC] [TIFF OMITTED] T4493.013 [GRAPHIC] [TIFF OMITTED] T4493.014 [GRAPHIC] [TIFF OMITTED] T4493.015 [GRAPHIC] [TIFF OMITTED] T4493.016 [GRAPHIC] [TIFF OMITTED] T4493.017 [GRAPHIC] [TIFF OMITTED] T4493.018 [GRAPHIC] [TIFF OMITTED] T4493.019 [GRAPHIC] [TIFF OMITTED] T4493.020 [GRAPHIC] [TIFF OMITTED] T4493.021 Mr. Ose. I appreciate the gentleman offering his comments, and I want to remind him that some of us might not be here next January, but we will be watching from the small business side of the table. Now, Dr. Graham, thank you for making it. I understand you had to hoof it up here. We went ahead and swore in Mr. Sullivan, so let us repeat that. [Witness sworn.] Mr. Ose. Let the record show that Dr. Graham answered in the affirmative. We are pleased to have join us on this first panel Dr. John Graham, who is the Administrator of the Office of Information and Regulatory Affairs at the Office of Management and Budget. Dr. Graham, we have received your written testimony. We invite you to utilize 5 minutes for the purpose of making this statement. Mr. Graham. Thank you, Mr. Chairman. Good morning, and I look forward to offering a few comments of overview on the draft report, which, as you know, is now out for public comment, agency comment, and expert peer review. The first point I would like to highlight in the report is good news about progress in this administration on slowing the rate of growth of regulatory burdens. Some of the key data in the 2004 draft report on this subject are quite interesting. If you look at the overall magnitude of unfunded mandates on the private sector and State and local governments, this report tracks them all the way back to 1987 for the first time. If you look at an annual average of the new regulatory burdens each year from 1987 until the year 2000, they were accumulating at a rate of $6 billion in additional unfunded mandates per year. You can think of that on a decade basis. It means each decade we are adding $60 billion of additional unfunded mandates on the private sector and State and local governments. We are pleased to report to you, Mr. Chairman, that in the first 3 years of the Bush administration, we have cut that growth of about $6 billion a year to $1.6 billion per year, roughly a 70 to 80 percent decline in the rate of growth. Having said that, I have two cautionary remarks. One is that the 4th year of most administrations tends to be the worst year with regard to growth of regulatory burdens. In the eighth year of the Clinton administration, that number was $13 billion. We are all familiar with a lot of the midnight regulations that occurred in that last year. The second point is that we have to ask ourselves why do we only talk about the rate of growth of regulation? Why can't we ever actually cause a reduction in regulatory burden? I have to acknowledge to you that the progress we are making is only on reducing the rate of growth. I particularly want to thank Tom Sullivan and his colleagues because they have joined us in a variety of rulemakings to make sure that this rate of growth is as small as possible. Now, a person might ask why do we have to have any growth in regulatory burden? Why, Dr. Graham, don't you just put a moratorium on all new regulations? The answers are found in the report that is available for the committee to review. The answer is some regulations are beneficial. Indeed, they are so beneficial that we have made a judgment that their benefits justify their burdens. For example, the Food and Drug Administration has mandated that food labels contain information on the trans-fat content of the food, not just the saturated fat content, because growing scientific evidence indicates that trans-fat content is linked to coronary heart disease. The benefits of this rule are estimated on a ratio of 10 to 1 to costs. Another example is the U.S. Department of Agriculture in the control of Listeria in red meat and poultry products, with a benefit-cost ratio on the order of 8 to 1. We need to have a smart regulation approach, recognizing that there are cases when we need regulation, we should provide it, but always at the lowest cost necessary to achieve congressional objectives. The second major point of this report is we have begun the review of the sea of existing regulations. Since 1980, 4,000 per year have been adopted. Over 20 years, that is 80,000 new regulations have been adopted. I must acknowledge to you most of them have been never looked at to determine whether they were beneficial or whether they were cost-effective. We have, this year, taken a very modest step by simply picking a single sector of the American economy, the manufacturing sector, and asked for public nominations of specific rules, guidance documents, or paperwork requirements that could result in more cost-effective regulation of manufacturing companies. Why did we choose the manufacturing sector for particular focus? No. 1, the SBA report that Mr. Sullivan mentioned--The Crain and Hopkins 2001 Report--has quantified the fact that the manufacturing sector is subject to higher overall burdens than other sectors in the American economy. And, second of all, we are all aware that the manufacturing sector has been one of the slowest to come back in the economic recovery, struggling to join other sectors in growth, jobs, earnings, and so forth. We feel there is ample rationale for this focus on streamlining regulation in the manufacturing sector. The final point I would like to make in the area of good news is the studies from the World Bank and the OECD that we reviewed in this report. They looked at over 130 countries throughout the world, in terms of the extent of their regulatory burden, and they have found that those countries that are the least regulated, Australia, Canada, the Netherlands, New Zealand, Singapore, and the United States, are characterized by more prosperity, more life expectancy, better health, and overall improved economic performance. In the underlying reasoning process, these studies point to a simple fact: least regulated countries find it is easier for people to start a new business, to hire workers, to enforce contracts, and to get credit. The United States of America is a small business-friendly country. That is why we are prosperous, that is why the economy is on the mend, and that is why we are here to streamline the regulatory process. Thank you very much. [The prepared statement of Mr. Graham follows:] [GRAPHIC] [TIFF OMITTED] T4493.022 [GRAPHIC] [TIFF OMITTED] T4493.023 [GRAPHIC] [TIFF OMITTED] T4493.024 [GRAPHIC] [TIFF OMITTED] T4493.025 [GRAPHIC] [TIFF OMITTED] T4493.026 Mr. Ose. Thank you, Dr. Graham. I am pleased to be joined here by my good friend from Massachusetts, Congressman Tierney. I would be happy to recognize him for the purpose of an opening statement. Mr. Tierney. Thank you, Mr. Chairman. Mr. Graham, Mr. Sullivan. Mr. Graham, you are getting to be quite a regular around here. Let me just make a few brief remarks, if I may. I apologize for being somewhat late, and I am going to have to keep going in and out for a hearing that is going on in Education also. Each year we hold a hearing like this one to review OMB's report estimating the costs and benefits of major agency rules. I continue to be troubled by OMB's increasing emphasis on basing public policy decisions on estimates of the costs and benefits of Federal protections. OMB uses cost-benefit analysis as if it is a neutral and conclusive formula for deciding the worth of agency rules. However, agencies should not enact and enforce regulations independent of their costs. Dollars and cents do matter. But, another kind of sense matters as well, and that is common sense. It is important to look at the reasons behind regulations. An analysis of a proposed action should take into consideration not just dollars, but costs and benefits that are not easily defined in terms of money, such as human life, a protected ecosystem, future impacts, and even how one regulation impacts other regulations. OMB issued guidance last September, instructing Federal agencies on specific methods for evaluating regulatory decisions. In its guidance, OMB encouraged agencies to find out the net benefit of decisions by calculating the estimated benefit minus the estimated costs of compliance with the decision. It is frequently not possible to accurately calculate such a number. Some benefits are impossible to put into dollar form and plug into a calculator, and the costs are frequently overstated. The end result is incomplete and inaccurate. When cost-benefit calculations are done for Federal rules, they ought to be as completely, accurately, and transparently as possible. I think OMB fails in many of these areas. One specific example of OMB providing analysis that is difficult to understand and incomplete is in its 2004 draft report. In its draft report, OMB provides cost and benefit estimates for an EPA rule requiring factory farms to obtain clean water permits. In its explanation of the estimates for this rule, OMB provides a list of benefits, such as contamination of coastal waters, that have not been translated into dollar amounts so, therefore, are not included in the estimated benefits. The second section of OMB's draft report asks for public comment on regulatory reforms that will help the manufacturing industry. I am concerned that this is a solicitation for a hit list of environmental and health protections, much like that which OMB created in 2002. In evaluating the process of regulation, I am interested in learning more about the role OIRA is playing in approving and rejecting agency rules. As GAO reported last year, it seems that OIRA has increasingly become less of a counselor to agencies and more of a gatekeeper for agency decisions. I want to thank the witnesses for being here today. I look forward to your presentation. And I thank the chairman for the opportunity to speak. [The prepared statement of Hon. John F. Tierney follows:] [GRAPHIC] [TIFF OMITTED] T4493.027 [GRAPHIC] [TIFF OMITTED] T4493.028 Mr. Ose. I thank the gentleman. We will just go to questions here. Gentleman, one of the first questions, Dr. Graham and I have struggled with this, trying to figure out how to get it put together, and we are making progress. I want to go back to the statutory deadline issue for the regulatory accounting report. One of the difficulties that we have up here, when we are asked for comments on the President's budget, is that when we don't have the documents we think are integral to us providing feedback, it makes it obviously difficult to provide feedback, and the regulatory accounting report is one of those. H.R. 2432 tries to or would align the delivery of the regulatory accounting report with the delivery of the President's budget so that they must be contemporaneous. So it would be part of the President's budget, as opposed to with the President's budget. Now, would you support a requirement to integrate that regulatory information in the President's documents? Mr. Graham. Mr. Chairman, I am familiar with the fact that there are informal staff discussions that have been taking place on a range of provisions in the kind of legislation that your question addresses, including the specific question that you have asked about. As I think you are aware, OMB does have concerns with the kind of language that you are talking about for two reasons that I can cite to you, and I am sure the OMB general counsel has offered a few additional ones. But, the concern at the most principal level is the notion that the President would be required to submit certain kinds of information with his budget. The notion that would be a legal requirement is something I think people in the administration are not entirely comfortable with. The second much more practical consideration is, what we have provided to you admittedly 10 or 11 days late, is a draft report that has not yet gone out for public comment or for peer review, as required by Congress. I am a little uncomfortable including in the President's budget documents something like this draft report, which has not had the vetting process that we have become accustomed to for this report. And, as a consequence, I don't think it would be wise to have this report remove public comment and peer review at this stage so that we can get it out in the context of the budget documents. And, I can assure you there aren't going to be draft parts of the President's budget, that is just not going to happen. Mr. Ose. Does the law not already indicate or specify what the President's budget shall include? Mr. Graham. I think that there may be some parameters on that, and I would suggest to you that the administration is very reluctant to see any more precedence in the direction of requiring the President to provide certain kinds of information with his budget. Mr. Ose. Mr. Sullivan, from the Small Business Advocacy standpoint, do you have any comment on the submittal of the regulatory accounting report as part of the President's budget submittal? Mr. Sullivan. The Office of Advocacy does not have comment on that specific provision, Mr. Chairman. Mr. Ose. The second question I have is, Dr. Graham, OMB uses the information collection budget to manage the paperwork burdens on the public, and in one of the sections of our bill we have a requirement to conduct a multi-agency study of regulatory budgets, Section 6, if I recall. My question is whether or not you support such a study. I mean, I look at it as a tool that would help OMB and the agencies rank risk and then prioritize use of resources, and then make judgments to maximize the use of those resources. I am curious whether or not you have come to any conclusion on that, whether you support that particular requirement. Mr. Graham. I think that, again, this particular topic, as I understand it, is part of the informal dialog that is going between our staffs, and my understanding is we are making constructive progress in those discussions. You know that I am very optimistic and enthusiastic about the concept of a regulatory budget. That I am enthusiastic about the idea of trying to move forward for a pilot project, to try to actually demonstrate and study the potential promise of this type of activity. In terms of the specific language, I am not sure we are there yet, but my understanding is that we have made progress, if we are not thus hopefully that is something that we can work out if we don't yet have a detailed plan. Mr. Ose. Thank you, Dr. Graham. Mr. Tierney. Mr. Tierney. Thank you. Doctor, I am, as you noticed from my comments, a little concerned about the inclusion in your draft report of a call for public comments on reforms that can be made to regulations that affect the manufacturing sector. My concern obviously is that it is really an effort to target critical health, safety, and environmental protections that manufacturing industries feel are too expensive. Is that your aim? Mr. Graham. Our aim is to look at the cost effectiveness and degree of flexibility that are provided in existing regulations that govern the manufacturing sector. The motivation is, one, that studies demonstrate that compared to all other sectors of the economy, the manufacturing sector, particularly small and medium-sized manufacturers, bear a larger cost overall, and per firm, than firms in other sectors of the economy; and, second, as you know, in the last couple of years, while much of the economy is on the mend, the manufacturing sector is particularly struggling and, hence, we feel that is a good rationale for a priority and focus on the manufacturing sector. Mr. Tierney. I wouldn't think that the administration is trying to say that the problem with manufacturing job loss in this country is due to regulation. You are not going to tell me that, are you? Mr. Graham. Well, I think that, as both the Commerce Department study indicated and as our study indicates, regulation is part of a range of factors, including liability lawsuits and other factors unique to the U.S. system, that cause our manufacturers to be placed at a disadvantage. Mr. Tierney. And, so you are going to do a comparative study, I assume, of regulations before these jobs started to go out the window and since the date 2001, when they started to go? Mr. Graham. Well, I don't know how many studies we are going to do. Mr. Tierney. Well, I want to really see. If we are going to go down this path, let us take a look at how manufacturing was doing before 2001 with the regulations or what has changed in the regulatory atmosphere from then until now, because the jobs started going down about 2001. So, let us take a look at that, if you are going to do it. Let us not just go out there and try to find a boogyman for why the administration has lost almost 2.3 million jobs, let us find out if something has changed in that there has been a real market change in the regulatory atmosphere around here. Mr. Graham. Right. And, I think the comment process will allow companies or any member of the public to offer opinions and make constructive suggestions in that area. Mr. Tierney. Well, but it seems the comment period is not asking them to do that; the comment period seems to be saying give us a list of things you would like to see go out the window here. Mr. Graham. Well, that may be your interpretation, but, in fact, the exact words are there should be a consideration of the benefit and cost case for those regulations. We have no intention of altering regulations that have a strong benefit- cost case. Mr. Tierney. Well, and I guess that depends on how we want to measure benefit and cost here. The guidance that OIRA issued last September asked the agencies to consider when they were evaluating regulations, estimates of the value of statistical life years in addition to estimates on the value of the statistical life. Now, it is my understanding that estimating the value of statistical life years would involve measuring the number of life years that would be saved by a particular regulation. Is that pretty much the case? Mr. Graham. Yes, sir. Mr. Tierney. Well, couldn't such an evaluation result in protections for the elderly being valued as less beneficial because they have fewer years left? Mr. Graham. Yes. One of the purposes of offering both measures is to provide children and infants who may lose 30 or 70 years of life some indication of the measurement of their benefits, but then also adding the number of lives saved as a benefit measure, which provides for senior citizens, an accounting of each of the adverse impacts for seniors, without any adjustment for the number of years of remaining life. So, both pieces of information are provided to the regulator. Mr. Tierney. But, it is not your intention, at least you don't think that this is designed to value the elderly lives as less beneficial because they have fewer years left? Mr. Graham. No. In fact, the language you are referring to is the same language that has been in our guidance throughout the 1990's, unchanged from the language that was in there from the previous administration. Mr. Tierney. Doctor, you also, in your testimony that you submitted to the committee last July, discussed some of the limitations of the Crain and Hopkins estimate of the aggregate cost of Federal regulations. You stated that the estimate is based on previous estimates by Hopkins done in 1995, which itself was based on summary estimates done in 1991 and earlier, some dating all the way back to the 1970's. You noted only some of the underlying studies were peer reviewed, and many were based on data collected anywhere from 10 to 30 years ago. But, in the OMB draft report of 2004, you cite the Crain and Hopkins study as a way to back up the solicitation of public comment on manufacturing regulations that should be reformed. Do you stand by the comments that you gave to the committee last year in assessing those problems with the Crain and Hopkins estimate, and, if so, why do we find them being relied upon in this report? Mr. Graham. Good question. We do think that there is softness in the technical underpinnings of that particular report, even though it is the best available overall study of the economic impact of regulation in this country. However, our concerns are with the absolute magnitude of the estimates of costs, not the relative magnitude by sector of the economy. The only way we are using that particular report to justify the manufacturing initiative is the evidence comparing different sectors of the economy. We have no reason to believe that their conclusion is any way invalid that the manufacturing sector is hardest hit, compared to other sectors, by regulation. Mr. Tierney. Thank you, Mr. Chairman. Mr. Ose. Mr. Schrock. Mr. Schrock. Thank you, Mr. Chairman. Thank you, Dr. Graham and Mr. Sullivan for being here. Let me make a couple comments on the opening comments you made, Dr. Graham. You talked about a moratorium. Probably not a good idea because some regulations are beneficial. There are some bad actors out there, no question about it, but your comment smart regulation is what really struck me, and that is the key. If it boggles my mind, it should boggle the mind of every person in this room. That 80,000 new regulations have never been looked at is just obscene, and why we allow that to happen is a mystery to me. you talked about the least regulated countries having a better overall environment, and I know that to be the case. During my Navy career, I visited one country in Europe in particular, and as a Congressman have visited there, and have visited a manufacturing plant just recently, was overwhelmed at how clean things are and how well things are done to protect their environment, which is one of the best in the world, without all the regulators hanging over their backs all the time doing things. So, I think we have lost jobs because of that. I think regulations in this country have caused people to move out of there, and businessmen will come and tell you that. It might not have impacted the small business community as much as large business, but it is going to come, and we have to be very careful that we don't allow that to happen. Mr. Sullivan, the law requires OMB to submit not only a regulatory accounting statement, but also an associated report on the impacts of Federal rules and paperwork on selected groups, such, of course, as small business, and last year OMB did not submit this required element in both its February draft and the final report in September. On October 24th last year, as the subcommittee chair in the Small Business Committee, I wrote OMB that by law every regulation that is certified to have a significant impact on a substantial number of small entities is required to develop a regulatory flexibility analysis, but that each of the initial and final versions of this agency analysis is a statement of the potential impact of the rule on small business. I notice in Mr. Sullivan's written testimony he says, ``The draft OMB report would also benefit from small business impact analyses that should be prepared for rules reviewed by OIRA.'' Of course, OMB's just-issued draft report includes a less than three-page discussion of impacts on small businesses. That being said, did the administration review each of the agency's regulatory flexibility analyses for its rolling 10- year period? If they did fine; if not, why not? Mr. Graham. Let me start by just getting a couple facts for the record straight. If you look at the draft report, we do have a section, as you indicate, several pages long on small business impact. But, we have a much more expanded section this year on the role of regulation on economic growth, and that is the section that reviews the World Bank studies, the OECD studies, and how the United States is relatively less regulated, compared to other countries around the world. One of the key conclusions of that body of research is less regulation leads to more economic growth, because it is easier in those countries to start a small business, to gain the capital you need to launch a small business, and to get whatever permits you need to operate whatever kind of facility you need to operate. So, the economic growth section, which I would encourage people to look at, has a very strong small business focus and is featured in the report. You also asked about the regulatory flexibility analyses. We do review those regularly when we review regulatory packages. But, to be quite candid with you, we don't consider ourselves at OMB the experts on small business. The gentleman to my left and his staff is where we go when we want a critical evaluation of an agency's package with respect to impact on small business. Mr. Schrock. OK. Do you want to make a comment, Mr. Sullivan? Mr. Sullivan. Certainly, Mr. Schrock. The way my office has approached this draft report is really in a two-step process. The first step that we look at is whether or not there is cost- benefit analysis of rules effects on the employer community overall. And what we found was that type of analysis, that type of transparency that would allow any interested party to comment on rules, is lacking in the draft report. Our second step is to look even further. If there is in fact a detailed economic analysis on a major rule, then underneath that it would be nice to have the small business impact analysis flushed out. Now, what we had hoped was with the Regulatory Flexibility Act, greater partnership with Dr. Graham's office, with an Executive order by the President enforcing the Reg Flex Act, what we had hoped was that the better analysis on small business would then be immediately transferred into the agencies' submittals to Dr. Graham's office in preparation for this draft report. Now, unfortunately, it doesn't look as though that has happened, so we have to work even more closely together to make sure that when the agencies fill out the A-4 Circular, that information does translate next year in the draft report to a better analysis of the small business impacts. Mr. Schrock. Do you want to comment on that? Mr. Graham. Yes. One thing I think we should also give good marks for is the fact that SBA Advocacy themselves produces an annual report on the impacts on small business of regulation. Mr. Schrock. Do they comply with the A-4? Mr. Graham. I think that we should be careful that we don't lose sight of the fact that we do have a substantial amount of this information being generated already. Mr. Schrock. Has OMB, though, asked the agencies about the impact it has had on them? Mr. Graham. Yes. In fact, the structure we have for this draft report is OMB has prepared it in its first form, but now it is available not only for agency comment, but for public comment, so SBA Advocacy, as well as all the agencies, have an opportunity to provide their information. So, we are in the process now of receiving that type of input. And, I can assure you that SBA Advocacy is not bashful about informing Dr. Graham about how they would like to see small business issues handled either in this report or in specific rulemaking contexts. Mr. Schrock. Hurray for SBA. My time is up, Mr. Chairman. Mr. Ose. I thank the gentleman. I want to go back to something that Mr. Tierney asked about, this Crain-Hopkins report. As I understand it, you entered into a contract to update that report? Mr. Sullivan. That is accurate. Yes. Mr. Ose. What is the schedule for completion of that? Mr. Sullivan. We are hoping that it be completed as we approach this fall. I also want to add to some of the statements of discussion about the Crain-Hopkins report. Similar to the progression of the seven reports coming out of Dr. Graham's office, the Office of Advocacy has also engaged in a progression of each Crain-Hopkins report, examination of how regulatory burden affects small business is getting better. So, what we expect is a more detailed analysis of a better sector- specific analysis on how regulations impact small business. Then we leave it up to other interested parties, certainly those involved in the second panel this morning, to compare how regulatory impact and the costs associated to different economic cycles and time periods that Congressman Tierney associated with. Mr. Ose. Thank you. Dr. Graham, the A-4 Circular on regulatory analysis, as I understand it, attempted to lay a framework down for calculating cost and benefit of an agency action. First of all, I think that standardization of the analyses is a great step forward, and I compliment you on that. What I am trying to make sure is that the requirement to use the standards within the circular actually are enforced. Have you received any submittals from the agencies under the revised standard? Have they complied with the standard or have they not complied with the standard? Mr. Graham. Mr. Chairman, the OMB Circular A-4 took effect for proposed rules on January 1st of this year, and it takes effect for final rules on January 1st of next year. And, my understanding is that we are now receiving the first packages from agencies that have sufficient economic impact to trigger the requirements of Circular A-4. So, my staff are literally in the process of reviewing the first packages that are subject to Circular A-4, and we intend to use all the available authorities we have to make sure that agencies comply with Circular A-4. Mr. Ose. Well, I know that in the past you have used these prompt letters, which I thought was, frankly, a creative use of the ability to drive something forward properly, so you don't have to go back and do it over and over and over again. One of the things I am concerned about is that having the A-4 come out, having set the standard, I want to make sure that we get apples versus apples versus apples, rather than apples versus oranges versus tomatoes. So I know that the circumstances may come up, but to the extent that you must or have to, or whatever vernacular you care to use, return submittals for further review, so to speak, I think you will find that your effort to standardize the submittal of information will garner great support up here. So my point in saying that is don't be bashful in saying, look, you are not complying with the requirements of the A-4. I am trying to give you some support here. Mr. Graham. I appreciate it. Mr. Ose. I give you enough criticism; I want to give you some support. Mr. Graham. Right. Well, we wouldn't mind a hearing at some point where we actually went through a couple of these agency analyses and whether they complied with A-4. I don't think that would be an unconstructive activity. Mr. Ose. All right. We may very well followup on that. My only point is that if they don't comply, I am encouraging you to, in fact, exercise your return authority. Mr. Graham. Return authority, right. Mr. Ose. Tom, Mr. Sullivan, do you have any input on that? Mr. Sullivan. Doug, Mr. Chairman. Mr. Ose. You come here one more time, I think we can legally claim you as a dependent. Mr. Sullivan. I would actually like to add to Dr. Graham's comments, and that is how the returns and prompts are used. I think that there has been some mischaracterization of the draft report, the return letters, the prompt letters as targeting rules, compromising valuable protections, and nothing could be further from the truth. It is all about transparency. And I would like to actually share with the committee one example of how this review of regulations and actual activity by Dr. Graham's office can actually lead to supporting a new regulation. Two years ago, when Dr. Graham's office put out the draft report, a number of small businesses commented on an OSHA standard, an OSHA standard having to do with the slings used in constructionsites. Their comment was not do away with the rule; their comment was that the small business industry is so far ahead of where Government is. Government has to catch up and proactively put out a modern sling standard. So, it is opposite from what some of the mischaracterizations have been about eliminating rules; it simply called for the Government to keep up with the entrepreneurial speed of small business. And, thanks to the activism of Dr. Graham's office, OSHA is in fact following up on a number of draft reports and recommendations, and revising that OSHA standard. That is within Dr. Graham's authority, but it didn't cause a prompt letter, it didn't cause a return letter, but it is a positive example of actually calling for a rule through the review of regulations, not simply calling to eliminate all rules. Mr. Ose. Thank you. Mr. Schrock. Mr. Schrock. Mr. Chairman, I just have one other question I want to ask Mr. Sullivan, and it involves the review of OMB's small business impacts report. In 2002, on March 19th, you signed a 3-year memorandum of understanding with Dr. Graham to institutionalize your office's working relationship. That stated purpose was, ``to achieve a reduction in unnecessary regulatory burden for small entities.'' Did OMB ask you to review its less than three-page small business impact discussion in its just-released draft report? And, if so, when? And, if so, did OMB reject any recommendations by you for a more thorough analysis? Mr. Sullivan. Congressman Schrock, Dr. Graham's office did not ask for us to review the section on small business impact in the OMB draft report. Mr. Graham. And, let me be clear. If we were to offer SBA Advocacy the opportunity to review our draft, we would have the Department of Health and Human Services, the Environmental Protection Agency, and the Labor Department. They would all like to be entitled to review a draft of OMB's report before we release it. The agency comment process is underway now that the draft report is available, so SBA Advocacy, like all other Federal agencies, has an opportunity to provide comments so that our final report has the benefit of SBA Advocacy's input. Mr. Schrock. I would almost think SBA should be separate and apart from the big agencies you just mentioned. Mr. Graham. Because it is small? Well, it is potent, though. Mr. Schrock. Well, it is potent, but I can see why you don't want all the big agencies doing that. Mr. Graham. Well, the reports that they have released, including the SBA commissioned Crain-Hopkins report, play a prominent role in the material that we have submitted in our draft report. That was commissioned by SBA Advocacy, so we are certainly open to input at any time from SBA Advocacy. In terms of formal interagency review and comment, however, that is a process that we like to treat all agencies the same. And, as important as SBA Advocacy is, it is one of the other Federal agencies. Mr. Schrock. Thank you. I yield back, Mr. Chairman. Thank you. Mr. Ose. I have one final question. Dr. Graham, I am a little bit confused on this 10-year window that you are looking at for analysis. I can't cite you chapter and verse, but it is my impression that we have major rules that predate that 10-year window that are still in effect. Mr. Graham. That is certainly true. Mr. Ose. And, what I am trying to understand is why is it, as I interpret the report, why is it we are only looking at that 10-year window in the calculation of costs and benefits? Mr. Graham. The question is for an estimate of the costs and benefits that was prepared before a rule was adopted, how long after that estimate was prepared should it still be considered to be sufficiently valid for inclusion in OMB's report? We have made a professional judgment that once the estimate is more than 10 years old, given the dynamics in our economy, and the way firms react to regulation, that it is no longer realistic to consider those estimates as valid. So, the challenge we have in front of us is how do we get updated estimates of the current costs and benefits of regulations that were adopted more than 10 years ago. I think that is a very substantial analytic and research challenge not just for the Federal Government, but for the academic community and for the think tank community, as well. We are not comfortable publishing estimates prepared more than 10 years ago as resembling anything about what really is happening today. Mr. Ose. The thought being that things have evolved to the point that this or that iteration, that report might not be accurate? Mr. Graham. The agencies' estimates that were made prior to issuing the regulation would be at least 10 years old, and usually probably 11 or 12 years old, given how the actual studies are done. So, we are very sensitive to the technical quality of the information that we are putting out in this report, and we think when the estimates are more than 10 years old, maybe we really ought to just draw a line. Mr. Ose. Well, I know we have had this conversation before. I am trying to figure out the basis on which the line was drawn at 10 versus, you know, 30 or whatever. Mr. Graham. Five? Mr. Ose. Five, two, whatever. Pick a number. I am trying to figure out. I think your phrase was professional judgment. Is it statutory? Mr. Graham. It is not a legal issue, it is the professional judgment of our staff analysts that we need to, at some point, say that an estimate that was made by an agency so many years ago is just simply no longer considered to be an appropriate estimate for what is going on today. If a subsequent study has been done that has validated those earlier estimates, then, of course, we would have no problem including those estimates. Mr. Ose. This is the dynamic that I am trying to get at it. As I understand the law, there is no provision saying you can exclude prior to 10 years for any reason; it says OMB or your office will calculate the cost-benefit analysis in the aggregate on older rules, younger rules, new rules, whatever. Mr. Graham. Now, if you are going to move on the legal requirement question, you are talking to a very amateur attorney. Mr. Ose. But, my point gets back to the statutory requirement. I am trying to figure out what is the basis on which we draw that line at 10 years? Mr. Graham. Right. Well, one thing to keep in mind is the Office of Management and Budget is covered by the Paperwork Reduction Act and by the new data quality law passed by the Congress, and signed by the President. We are accountable for the information we disseminate in this report. Our analysts are not comfortable suggesting to people that an estimate that an agency produced 10 years ago on a major regulation is a valid estimate of either the costs or the benefits of that regulation today. Mr. Ose. So we are caught in a little bit of a box here between the comfort level of the analysts looking at this 10- year-old data and perhaps a statutory requirement to include it, or the lack of definition as to whether it should be included? Mr. Graham. Well, if you give us a written question, I am sure we can have our lawyers pour over these statutes. We may be able to find a legal position that the statute doesn't in fact when you consider all issues, absolutely state that we have to do it that way. Mr. Ose. I am trying to noodle this through. Mr. Graham. I think that would be unfortunate, though, because I think that we are trying to put cost-benefit analysis on as strong a technical and scientific footing as possible. For us to be including in an official report like this, coming out of the Executive Office of the President, information that is over a decade old, given the way our economy changes, I just think is not a wise territory for us to be exploring. Mr. Ose. From a scientific standpoint, I can understand your point, and I accept it. My problem is do those costs and benefits then get excluded in their entirety from any analysis? Or, conversely, when you have a much older rule that still have significant impact, does it just get ignored? Mr. Graham. I think we ended up in between those two. This was the first year that we had the rollover effect, where we had a year's worth of regulations that we did not include in those calculations, roughly 1992-1993. We did report them in an appendix, but we did not put them in the main report. The information is still there for people who want to access it, but we did not put it in the main report. Mr. Ose. Well, I tell you what, I think I am going to give some additional thought to this, and I will probably put a question to you in writing, because I do think this is important to flush out. Mr. Graham. It is very important. Mr. Ose. Because there are rules that predate where that 10-year line might be drawn, or the 5-year line, or whatever it is. Mr. Graham. Right. Obviously, we could have picked a different number. It is a professional judgment call in how far you go back. Mr. Ose. I understand. All right, the balance of my questions I am happy to submit in writing. Mr. Schrock, do you have anything further? Mr. Schrock. Nothing further, thank you. Mr. Ose. I want to thank you both for coming up today. I hope you don't have to walk back. Dr. Graham got to walk up here this morning. I do appreciate your taking the time to provide your testimony and your feedback. We will leave the record open for 10 days for the written questions to you. Obviously, as in the past, we have appreciated your timely responses, and we would again thank you both. We will take a 5-minute recess. Mr. Graham. Thank you. [Recess.] Mr. Ose. OK, we are going to go back into session. Our second panel is joining us today. As you saw in the first panel, our standard procedure is we swear everybody in. I will first introduce everybody, and then we will have the swearing in ceremony. We are joined on the second panel by Mr. William Kovacs, the vice president for Environment, Technology, and Regulatory Affairs at the U.S. Chamber of Commerce; our second witness is Ms. Susan Dudley, who is the director of the regulatory studies program of Mercatus Center at George Mason University; also joined by Dr. Richard Belzer, who is the president at Regulatory Checkbook Organization; we are again joined by the president of Public Citizen, Ms. Joan Claybrook; and I believe a new witness to our committee this morning is Robert Verchick, who is the Ruby Hulen professor of law, the University of Missouri at Kansas City School of Law, Center for Progressive Regulation. Welcome to all of you. Now, if you would all rise. I am not picking on you; we do this for everybody. [Witnesses sworn.] Mr. Ose. Let the record show the witnesses all answered in the affirmative. Now, as you saw in the first panel, what we do is we just go from my left to my right on testimony; everybody gets 5 minutes. I have a heavy gavel on the time requirement; that is why we started on time. We do have, I think, Dr. Belzer, you have a 12:30 plane you have to get? Mr. Belzer. Two. Mr. Ose. Two o'clock. OK. Well, let me just tell you we are not able to violate this timeline. I am advised that the gentleman has a daughter being married. Tell her this committee congratulates her. OK, our first witness is Mr. William Kovacs from the Chamber of Commerce. Mr. Kovacs, you are recognized for 5 minutes. STATEMENTS OF WILLIAM KOVACS, VICE PRESIDENT, ENVIRONMENT, TECHNOLOGY AND REGULATORY AFFAIRS, U.S. CHAMBER OF COMMERCE; SUSAN DUDLEY, DIRECTOR, REGULATORY STUDIES PROGRAM, MERCATUS CENTER, GEORGE MASON UNIVERSITY; RICHARD B. BELZER, PRESIDENT, REGULATORY CHECKBOOK; JOAN CLAYBROOK, PRESIDENT, PUBLIC CITIZEN; AND ROBERT R.M. VERCHICK, RUBY M. HULEN PROFESSOR OF LAW, UNIVERSITY OF MISSOURI AT KANSAS CITY SCHOOL OF LAW, CENTER FOR PROGRESSIVE REGULATION Mr. Kovacs. Thank you, Mr. Chairman and members of the committee. The first thing I want to do is commend you and Dr. Graham for taking on this very important subject. Some people in the Washington community would consider it tedious or complex or arcane. But, unlike Congress, the regulatory agencies never take a break, they don't have a recess, so every year you see 4,000 regulations; it just never stops. And, the reason the Chamber cares, and why we are so concerned, whether it be regulatory accounting or a budget or cost-benefit, is you need to put it in perspective. If you looked at all the discretionary spending in 2003 for the Congress, it was $825 billion. The Hopkins-Crain report has the cost of the regulatory programs at about $843 billion annually and the cost of environmental programs around $250 billion annually. And, to put this in one last perspective, all of the corporate income taxes paid in the year 2002 only total $211 billion. So, when you have this kind of a burden and you realize that, for a small business, they have a 60 percent premium, we care, because well over 90 percent of our businesses are small businesses. The cost-benefit analysis is really a tool. It is a tool that helps us determine what particular regulations are worth expending public or private funds, which are always limited. But, cost/benefit is one of many tools. We have other tools: we have data quality, we have data access, peer review, sound science, and transparency in the regulatory process. And, the purpose of using these tools is really so that we use our money and our resources to protect and to get maximum protection both for health and safety and the environment. Now, we have been very honest and have said that the current cost-benefit approach has a number of problems. It is extremely confusing and it is extremely complex, and, even though I have read Circular A-4, we have to be honest with ourselves. It is a complex issue, and when you have the numbers coming out with such great disparities between where OMB is coming, at a relatively minor number for the cost of regulation, and then you have the Crain-Hopkins report at $843 billion, what happens to the public is they really dismiss it. If you are working in the field and you are a small businessman, you know that regulators have real costs. But when you see these discrepancies, it is easier for someone to say, well, we are just going to put them aside because it is just politics. And, in addition to that, the OMB looks at a limited number of rules; its static versus dynamic system. Agencies game the system. I will just give you an example on the TMDL rules. EPA, no matter what it was told, said the cost of the rules are $25 million annually. The States did their own study and they found that it was $670 million to $1.2 billion annually. Also, this committee has done a lot of work on agency guidance documents. So we are not just dealing with rules. Every year agencies puts out hundreds of guidance documents which, in effect, operate as rules. And, in this instance EPA, over a 4-year period, put out about 2,300 and OSHA put out about 2,500. So it is a very complex system. And, one of the things, as I run out of time, is that what we need, and A-4 is starting this, is some kind of consistency within a model, where we need to understand the uncertainties of the issue and we need to clearly state these are uncertainties. And, the best example that we can give is what EPA is doing right now with a particulate matter rule. Everyone says, well, there are all these health benefits. Well, there are studies on both sides. Some of the studies indicate that there is absolutely no link between the mortality rates and particulate matter. Now, whether that is true or not, I don't know, but in John Graham's studies EPA accounts for about 60 percent of all the costs and benefits in the environmental section. So, what we are talking about is not the 4,000 rules and not all the rules going back 10 years. What we are talking about is for a cost/benefit analysis to be conducted for those major rules that have major impact. For those rules we need to do an honest study, find the right economists, the right scientists, and integrate science and data into the rule so we can do it right. And, we have just, at the Chamber, gone through this on the technology side because the industry lost $2 trillion in market capital, a lot of which was due to regulation. So, when we did this, we scoured the United States, and it is very hard to find a group of people who can do one of these studies. So, what our recommendation would be to the committee is that you proceed with the cost/benefit analysis. This is very valuable; we have to do it. But, we take one or two rules and we do it right so that we can begin developing the model. Thank you very much. [The prepared statement of Mr. Kovacs follows:] [GRAPHIC] [TIFF OMITTED] T4493.029 [GRAPHIC] [TIFF OMITTED] T4493.030 [GRAPHIC] [TIFF OMITTED] T4493.031 [GRAPHIC] [TIFF OMITTED] T4493.032 [GRAPHIC] [TIFF OMITTED] T4493.033 [GRAPHIC] [TIFF OMITTED] T4493.034 [GRAPHIC] [TIFF OMITTED] T4493.035 [GRAPHIC] [TIFF OMITTED] T4493.036 [GRAPHIC] [TIFF OMITTED] T4493.037 [GRAPHIC] [TIFF OMITTED] T4493.038 [GRAPHIC] [TIFF OMITTED] T4493.039 [GRAPHIC] [TIFF OMITTED] T4493.040 [GRAPHIC] [TIFF OMITTED] T4493.041 Mr. Ose. Thank you, Mr. Kovacs. Our next witness has been with us before, Ms. Susan Dudley, who is the director of regulatory studies at the Mercatus Center from George Mason University. Welcome. You are recognized for 5 minutes. Ms. Dudley. Thank you. Thank you, Mr. Chairman and Mr. Schrock for having me here to talk about the important issue of regulatory accounting. I am also an adjunct professor at George Mason University School of Law, but my comments today reflect my own views, not an official position of either the University or the Center. You have my written testimony, but today I would like to focus on the similarities and differences between regulatory accounting and the fiscal budget. American citizens generally know how much they pay in taxes each year, but taxes and subsequent spending are just one way that the Federal Government diverts resources to achieve broader public goals. The other is through regulation. While taxes and associated spending are tracked annually through the fiscal budget, there is no corresponding mechanism for keeping track of the off-budget spending accomplished through regulation. These annual regulatory accounting reports that you have required represent an important step toward tracking these off- budget taxes and expenditures. These reports can be valuable not only for informing Americans generally about the costs and benefits of regulation, but also for helping policymakers allocate limited resources to those activities that provide the greatest net benefit to American citizens. A better understanding of regulatory performance and results will help appropriators allocate budgets toward those agencies and activities that produce the greatest net social benefit. I think you will find that what OMB has done with the Government Performance and Results Act, by integrating that into the budget, has proved valuable. These reports and other executive and legislative branch activities, along with extensive academic research, have improved our understanding over the years of the impact regulations have on consumers, workers, and companies. However, the reports are still far from perfect, and we still lack a reliable mechanism analogous to the fiscal budget process for tracking regulatory expenditures and ensuring they produce desired outcomes. So, I have three recommendations. First, OMB can improve the quality of information in future reports by holding agencies accountable for complying with new guidelines. Second, a legislative branch review body could provide a more independent assessment of regulatory costs and benefits. And, third, Congress could explore further ways to treat regulatory expenditures in a manner similar to on-budget expenditures. And, I would mention that H.R. 2432 does this. Let me go back and talk a little bit about each of those three recommendations. The increased transparency that is reflected in OMB's review procedures and in this report are welcomed improvements to the regulatory process, but the benefit and cost estimates in the draft report do not offer the American people an accurate picture of the impact of regulation. To be comparable in value to the fiscal budget figures, OMB's estimates must reflect an independent assessment of regulatory costs and benefits, and not simply provide a summation of agency estimates. Such an approach would be unthinkable in the fiscal budget process. Over the coming year, OMB will be in a better position to hold agencies accountable for conducting analysis to ensure that the resulting benefits and costs are reliable and robust. Last September, OMB issued guidelines for regulatory analysis that reflect generally accepted principles, and it also is developing guidelines for peer review and data quality. Over the coming year, in the course of Executive Order 12866 review, OMB should be able to hold agencies accountable for these new guidelines. And, if draft regulations do not comport, OMB should return regulations to agencies. If it does return regulations whose analysis don't comport with the new guidelines, I think it will be able to rely on agency estimates with more confidence. While I think OMB should continue its review procedures under Executive Order 12866, and hold agencies accountable for ensuring that proposed regulations do more good than harm, Americans may also benefit from a legislative branch agency. Indeed, Congress has authorized a congressional office of regulatory analysis to be housed in the General Accounting Office, but it hasn't been funded. Such a body could provide Congress and U.S. citizens with an independent assessment of the total costs and benefits of regulation, and also help ensure that statutes are being implemented so that the benefits to Americans outweigh the costs. An annual regulatory accounting report issued with the Federal budget is an important first step toward providing the same scrutiny to regulatory impacts as on-budget impacts. Mr. Chairman, H.R. 2432 would explore ways to treat regulatory expenditures in a manner similar to on-budget expenditures, recognizing that regulations, like on-budget fiscal programs funded by taxes, divert private resources to broader national goals. I applaud you for this. A more explicit recognition of the expected costs, as well as expected benefits, of achieving regulatory goals will help policymakers allocate scarce resources to activities that will produce the greatest net social benefits. Thank you. [The prepared statement of Ms. Dudley follows:] [GRAPHIC] [TIFF OMITTED] T4493.042 [GRAPHIC] [TIFF OMITTED] T4493.043 [GRAPHIC] [TIFF OMITTED] T4493.044 [GRAPHIC] [TIFF OMITTED] T4493.045 [GRAPHIC] [TIFF OMITTED] T4493.046 [GRAPHIC] [TIFF OMITTED] T4493.047 Mr. Ose. Thank you, Ms. Dudley. Our third witness is Dr. Belzer. He joins us as president of the Regulatory Checkbook Organization. Sir, welcome to our committee. You are recognized for 5 minutes. Mr. Belzer. I thank you, Mr. Chairman. And, Mr. Schrock, it is true, my daughter will be getting married, and I appreciate your indulgence. I told her she is just going to have to postpone it; this is more important. Mr. Ose. This is Congress. You can say things like that on the floor. Mr. Belzer. I will pay. Yes, thank you, sir. I am Dr. Richard Belzer, president of Regulatory Checkbook. Regulatory Checkbook is a nonpartisan and nonprofit organization whose mission is to advance the use of high-quality and policy-neutral science and economics to inform regulatory decisionmaking. Since earning my doctorate, I have over 15 years of experience performing and reviewing regulatory analyses, including a 10-year stint as a career economist in OMB's Office of Information and Regulatory Affairs. I will briefly summarize for you the three points that I have made in greater depth in my written testimony. First, the estimates of costs and benefits that are contained in OMB's draft report are unreliable and probably misleading. The estimates reported for individual regulations are unreliable because the agencies that prepared them had incentives to underestimate costs and overestimate benefits. The draft report consists of agency estimates and not those of OMB. Estimates of the total benefits and total costs of Federal regulation have little or no informational value to me. Aggregation only magnifies the biases that are embedded in agency estimates for individual regulations, so the more regulations OMB includes in its reports, the more unreliable and misleading the totals become, particularly the net benefit estimate. Congress should create incentives for higher quality estimates to be produced and reported, and I think substantial progress must first be made to improve the reliability of estimates for individual rules. Only then will it be possible to derive the useful estimates of the total estimates and costs of individual regulatory programs. Second, I see no evidence of a trend indicating that the quality of regulatory analysis is improving. Although the methods of benefit-cost analysis continue to improve, its fundamental principles do not change. The most troubling problem I see with agency analyses isn't that they don't follow what are called best practices; rather, it is agencies too often do not abide by fundamental benefit-cost principles. OMB's 2003 regulatory impact analysis guidelines differs little from previous editions issued in 1990, 1996, and in 2000. Agencies did not adhere to these principles as a general rule in these earlier guidance documents, and it is safe to predict, I think, that they will also fail to adhere to the principles set forth in the 2003 edition. I am troubled by some language in OMB's draft report that it seems to excuse a low standard of agency performance. OMB should not make excuses for substandard agency performance by mischaracterizing fundamental principles of analysis as best practices. Third, if Congress wants regulatory analysis to be performed well and wants the information to be usable, I think it needs to help create an environment in which that can happen. Each agency has a monopoly over the production of regulatory analysis and controls the benefit and cost estimates reported to Congress. As in every other market, the key to improving quality is competition; quality will not improve without it. The public comment process alone is not sufficient to improve quality. Congress can help make this market for high quality analysis by breaking up these monopolies and injecting competition. Most of the country's competent regulatory analysts work outside the Government; they rarely contribute much because there is barely a market for their services. Create a market for high quality analysis and supply will respond to meet this demand. Give OMB the authority, and not just the responsibility, for providing Congress with reliable estimates of benefits and costs. The Regulatory Right-to-Know Act doesn't give OMB any statutory authority to determine which estimates are most reliable. With a competitive supply of analyses and this authority, OMB would have all the tools it needs to make future reports for Congress and the public, reliable indicators of the impacts, both costs and benefits, of Federal regulation. Thank you very much for your time. I will answer any questions that you might have. [The prepared statement of Mr. Belzer follows:] [GRAPHIC] [TIFF OMITTED] T4493.048 [GRAPHIC] [TIFF OMITTED] T4493.049 [GRAPHIC] [TIFF OMITTED] T4493.050 [GRAPHIC] [TIFF OMITTED] T4493.051 [GRAPHIC] [TIFF OMITTED] T4493.052 [GRAPHIC] [TIFF OMITTED] T4493.053 [GRAPHIC] [TIFF OMITTED] T4493.054 [GRAPHIC] [TIFF OMITTED] T4493.055 [GRAPHIC] [TIFF OMITTED] T4493.056 [GRAPHIC] [TIFF OMITTED] T4493.057 [GRAPHIC] [TIFF OMITTED] T4493.058 [GRAPHIC] [TIFF OMITTED] T4493.059 [GRAPHIC] [TIFF OMITTED] T4493.060 [GRAPHIC] [TIFF OMITTED] T4493.061 Mr. Ose. Thank you, Dr. Belzer. Our next witness is the president of the Public Citizen Organization, Ms. Joan Claybrook. Ma'am, welcome again. Ms. Claybrook. Thank you very much, Mr. Chairman. I appreciate the opportunity to be here, and the invitation. My name is Joan Claybrook, and I am president of Public Citizen, which is a national public interest organization representing consumer interests, and I am here to talk about the regulatory accounting legislation and the draft report for 2004 to the Congress on the costs and benefits of Federal regulation. We strongly object to the use of regulatory accounting because we believe that, when you look at the facts, it is not able to support itself scientifically or intellectually. The notion of a regulatory budget in which Federal agencies have to compete with each other in order to pose a cost on industry in the private sector is highly improper, we believe, and inappropriate. The goal to control regulation that some agency rules might have been eliminated and new ones not issued, no matter how pressing the need, it seems to me, is morally repugnant. The pilot projects called for in the Paperwork and Regulatory Improvements Act that you have would be the first step toward establishing a regulatory budget, and a requirement that is not supportable, we believe, that all agencies conduct cost-benefit analysis. I would refer you in my full testimony, which I would hope would be submitted for the record, that the court of appeals, when we challenged the tire monitoring rule that OMB adjusted a change and degraded, they said that NHTSA was to be reminded that ``cheapest is best'' is contrary to Supreme Court precedent, and the agency is supposed to place ``a thumb on the safety side of the scale.'' So the courts, at least, very recently in this case, do not agree that cost-benefit analysis is just a numerical calculation. I would like to comment for just 1 second on the whole idea of the 10-year issue which you raised in this report. The major problem with it is not is it 5 years or 10 years or 15 years, in our view; it is that once a rule has been issued and the regulatory analysis done, then what happens is industry, which has complained bitterly about the costs, and often exaggerated the costs in its submissions to the agencies, then goes about implementing the rule if it is issued; and, when they do that, you see a dramatic reduction in the cost. And, so the estimates that are made, that are used by OMB, where they just assemble all the information that was evaluated when the rule was being considered, is now completely inaccurate. And, I would like to submit for the record a report that has just come out this month by Ruth Ruttenberg, who is an economist, called ``Not Too Costly, After All: An Examination of the Inflated Cost-Estimates of Health, Safety and Environmental Protections.'' Mr. Ose. Without objection. Ms. Claybrook. Thank you. There is a growing body of evidence that establishes that regulatory accounting suffers from fatal flaws; it requires a pretense that accurate and reliable data are presented on both sides, which we all know is not accurate. It is very hard to get benefit data; it is far easier to get cost data. And, as I just mentioned, cost data changes dramatically when a rule takes effect. The committee is familiar with the groundbreaking work, I believe, of Professor Lisa Heinzerling, who demonstrated that studies claiming regulations caused statistical murder were based on fictional regulations, they were never in fact ever issued, which I would like to submit a summary for the record. Another new book called ``Grading the Government,'' by Professor Richard Parker, examines three influential studies often cited to support regulatory accounting by John Morrall, John Graham, and Tammy Tengs and Robert Hahn; and all of these are rife with errors, avoidable errors such as undisclosed data, non-replicable calculations, guesses presented as facts, and gross underestimates of the numbers of lives saved. One of the major issues that I think that the committee needs to consider, in addition to the fact that the small business agency represents only, in its study, the costs, the Crain study only talks about costs, but never about benefits. Why wouldn't the committee ask for the benefits as well? It seems to me that is a major issue. No manufacturer would go and spend money to build a factory and not consider the benefits of building the factory, only the costs. It is just irrational. And, so I hope that the committee will ask that the Crain study consider benefits as well. But, the other issue is that when you look at the regulations that you are looking at before this committee, mostly health, safety, and environmental regulations, you have 40,000 deaths a year on the highway, 42,000 to be exact; you have close to 50,000 from occupational safety and health problems; you have close to 100,000 adverse reactions under the Food and Drug Administration rules and laws; you have environmental deaths that are almost incalculable, or injuries or sufferings, such as from bad air, that is clear. And, so my question is when you are looking at all these deaths and then you consider homeland security or you consider the Defense Department costs for protecting this Nation, there is no relationship; the deaths for just the military are far exceeded on the highway, just on the highway, than they are in foreign lands. So, I think that it is totally skewed in terms of the imposition of these requirements when you don't have a balancing here of where the harm is occurring in this Nation; it is like having doctors treat a minor disease instead of treating a major disease. And that, it seems to me, is what is happening with this focus on regulatory accounting, which costs the Government a lot; it takes a lot of agency work and time to do these analyses and to produce a regulatory accounting that I think I have made pretty clear is inaccurate. I would like a chance to answer some questions, perhaps, Mr. Chairman. I see I am out of time, and there is much more to say. Thank you so much. [The prepared statement of Ms. Claybrook follows:] [GRAPHIC] [TIFF OMITTED] T4493.062 [GRAPHIC] [TIFF OMITTED] T4493.063 [GRAPHIC] [TIFF OMITTED] T4493.064 [GRAPHIC] [TIFF OMITTED] T4493.065 [GRAPHIC] [TIFF OMITTED] T4493.066 [GRAPHIC] [TIFF OMITTED] T4493.067 [GRAPHIC] [TIFF OMITTED] T4493.068 [GRAPHIC] [TIFF OMITTED] T4493.069 [GRAPHIC] [TIFF OMITTED] T4493.070 [GRAPHIC] [TIFF OMITTED] T4493.071 [GRAPHIC] [TIFF OMITTED] T4493.072 [GRAPHIC] [TIFF OMITTED] T4493.073 [GRAPHIC] [TIFF OMITTED] T4493.074 [GRAPHIC] [TIFF OMITTED] T4493.075 [GRAPHIC] [TIFF OMITTED] T4493.076 [GRAPHIC] [TIFF OMITTED] T4493.077 [GRAPHIC] [TIFF OMITTED] T4493.078 [GRAPHIC] [TIFF OMITTED] T4493.079 [GRAPHIC] [TIFF OMITTED] T4493.080 [GRAPHIC] [TIFF OMITTED] T4493.081 Mr. Ose. We thank you for your participation today. Our final witness in the second panel joins us from the University of Missouri Kansas City School of Law, and that would be Robert Verchick. He is the Ruby Hulen professor of law and comes to us from the Center for Progressive Regulation. Welcome, sir. Nice to see you. You are recognized for 5 minutes. Mr. Verchick. Good morning. Mr. Chairman, members of the subcommittee, my name is Rob Verchick. I am the Ruby Hulen professor of law at the University of Missouri Kansas City. I have also been a visiting professor of law at Aarhus University in Denmark and a guest professor at Beijing University in China. I would like to offer my written comments for the record, but today I am a scholar at the Center of Progressive Regulation, and I have only three points I want to make that are fairly important. The first, and I am going to collapse a lot of this but I would be happy to answer questions on it later, is that OMB's estimates of costs and benefits of Federal regulation are often arbitrary in this report and its previous ones, and are skewed against regulations to protect health, safety, and the environment. A few examples: OMB's tables, for instances, suggest comparisons among agencies where the figures don't support such comparisons because of inconsistent methodologies it admits to; OMB minimizes regulatory benefits by leaving some benefits, even monetizable benefits, out of its calculations. This is a point that Representative Tierney made about the factory farms that is very well taken. OMB also excludes deregulatory actions from cost-benefit analysis. It has done that in the past. Again, this study, to cite one example, excludes the final rules from the so-called ``Healthy Forest Initiative'' from any cost-benefit analysis; and, also OMB excludes transfer rules from cost-benefit analysis, such as billions of dollars in farm subsidies, which have the practical effect of regulation. My second point that I want to spend a little more time on has to do with all these international studies, because this is something that has been discussed a bit today and is new for OMB. OMB attempts to make an international case for deregulation; it asserts that, globally speaking, economic growth is associated with less regulation. But, its use of these studies, I am sorry to say, after looking very carefully at them, is, at best, very careless. I am going to focus on the World Bank study, because that is the study that OMB focuses mostly on. But, let us just take a few things just to see some problems here with the study. First, the World Bank study ignores other means of market intervention which wealthy countries use in place of direct regulation. Denmark, a country praised in OMB's report, and a country that I have lived in, imposes heavy taxes on industrial practices that pollute and waste energy as a replacement for direct regulation. I don't read the OMB report to be advocating that sort of a replacement. Norway and Sweden, incidentally, do the same thing. Also, if you take a look, the World Bank study, if you look at the methodology, does not even concern itself with many of the regulations that the OMB is studying in this report. For instance, in comparing regulations affecting market entry, the World Bank assumes that a business is, among other things, not using heavily polluting production processes, is not subject to industry-specific regulations, such as environmental regulations, and that the business is operating in the country's most populous city, like Tokyo or New York, where service sectors often dominate. The bottom line is you can tell very little about what countries like Denmark, Sweden, Singapore do environmentally, or for public health, by looking at a study like this. The other thing, and OMB has done this before, and I have written about this, as Lisa Heinzerling has also written about this, is that OMB also makes the mistake of understanding wealth to be well-being, when in fact those things are very different. For instance, the OMB report chides the five OECD countries that it claims have the most regulation: Greece, Italy, Portugal, Ireland, and France. All of those countries have lower infant mortality rates than the United States does. All of those countries but Portugal have higher left expectancies at birth than the United States does. If you want to look at countries with similar infant mortality rate or life expectancy to the United States, one of the closest examples you will find is Cuba, one of the most repressed and regulated nations on Earth. My point is not to suggest that Sweden and Singapore or the United States is Cuba, but my point here is that, if you focus on any single characteristic about a country and then cross over 130 countries, you can prove virtually anything that you want to prove. These studies, for the use that OMB is using them, are flawed because they suggest that regulation has something to do with all of these things as a primary factor, when in fact they don't. I am running out of time, but I do want to say that I think that there is very little evidence to suggest that we need to look at manufacturing regulatory reform. There are other things, like greenhouse gases and asthma and pollution and sewage problems, which cost billions of dollars a year. We know we already have these problems. These are the problems that need some regulatory reform. Thank you very much, and I am willing to answer questions. [The prepared statement of Mr. Verchick follows:] [GRAPHIC] [TIFF OMITTED] T4493.082 [GRAPHIC] [TIFF OMITTED] T4493.083 [GRAPHIC] [TIFF OMITTED] T4493.084 [GRAPHIC] [TIFF OMITTED] T4493.085 [GRAPHIC] [TIFF OMITTED] T4493.086 [GRAPHIC] [TIFF OMITTED] T4493.087 [GRAPHIC] [TIFF OMITTED] T4493.088 [GRAPHIC] [TIFF OMITTED] T4493.089 [GRAPHIC] [TIFF OMITTED] T4493.090 [GRAPHIC] [TIFF OMITTED] T4493.091 [GRAPHIC] [TIFF OMITTED] T4493.092 [GRAPHIC] [TIFF OMITTED] T4493.093 [GRAPHIC] [TIFF OMITTED] T4493.094 [GRAPHIC] [TIFF OMITTED] T4493.095 [GRAPHIC] [TIFF OMITTED] T4493.096 [GRAPHIC] [TIFF OMITTED] T4493.097 Mr. Ose. Thank you, Mr. Verchick. All right, as we did in the previous panel, the manner in which we will proceed is that I will ask questions, then Mr. Tierney will have his round of questions, then Mr. Schrock will have his round, and, if we have multiple questions, we will have multiple rounds. I have broken my questions out in two ways. I want to focus on the bill itself first. Mr. Kovacs, you heard the discussion in part, I believe, about including ``as part of'' the President's budget the regulatory accounting statement and its associated report, as opposed to including that report ``with'' the President's budget. In other words, is it in the document or is it accompanying the document. Now, one of the difficulties we had this spring was that the regulatory accounting statement was not with the President's budget; it was 11 days late. And one of the difficulties we have up here is that we are required to provide feedback to other committees about the President's budget on a certain timeline, and, if we don't have the accompanying documents, it is awful hard to provide whatever insights we may have. My legislation would require that the regulatory accounting statement be integrated into the President's budget documents. Do you support that requirement? Mr. Kovacs. Let me see if I can give it to you in three parts as simply as I can. One is the Chamber supports regulatory accounting; two, in the perfect world, we would like to see it concurrent with the President's budget; but, three, in the practical world, we are here to get the regulatory accounting and the regulatory cost-benefit analysis straight. We think there are deficiencies in the process now. Until we really sit down and take it seriously, and whatever you get in terms of a regulatory budget is going to end up being a range. It has to be a range because regulatory accounting is a dynamic process, it is not a static process. Also, as part of the process you need to consider the kind of data that is going in. The Data Quality Act is only about a year old, and you need to make sure that the agencies incorporate sound science, that the process is transparent, that it is peer reviewed; and then I think you get to the point where you actually understand what the regulations are going to do and the range of impacts. So, we think it is a three-step process. Mr. Ose. OK, using your phrase, ``in a perfect world,'' should the regulatory accounting statement be part of the President's submittal or should it be in an accompanying document? Mr. Kovacs. We would like to see it as part of a submittal, because what the agencies are going to do as part of their budget is certainly going to have an impact on regulation. Mr. Ose. All right. Ms. Dudley, any comments on that? Ms. Dudley. No, I would agree, and I think the analogy to the Government Performance and Results Act is helpful there. We have seen that in recent years, GPRA measures have been part of the budget; not alongside the budget, but part of the budget, and I think it is helping improve accountability and performance. Mr. Ose. Dr. Belzer, you have been 10 years at OMB in one form or another. What is your feedback on this? Mr. Belzer. Well, I applaud the idea. I think that is useful to be careful about what we think we want to get out of it. Ideally, what I would like to be able to see, and maybe you would like to see, is within the budget to be able to quickly discern, when you are looking at some obscure regulatory outpost in the Government that issues regulations, what were the costs and benefits of the regulations that it issued; and to be able to have that information handy within the document. To make that work for you, though, those estimates have to have gone through a pretty careful validation exercise so that they are not simply reported estimates or suggested estimates or draft estimates, or something of that form. And, from my 10 years of experience at OMB, my concern would be that the numbers that right now would go into such a document would not be OMB's numbers, and I think that is part of the reason for some concern about incorporating them. Mr. Ose. Well, you questioned the validity of some of the numbers on the basis that they hadn't been checked, is the way I interpreted your remarks, and that there existed, probably on the private side, the better part of wisdom in the regulatory analysis industry. Given the difficulties here, you have been on both sides, who will compress this so we have the information in a timely fashion? Mr. Belzer. Well, I believe that it speaks to the question of the quality of the information that we are dealing with, as well as the reporting timing. If you were to incorporate within the budget document a final accounting statement, I think that is perfectly helpful. A draft accounting statement would be problematic. ,But the underlying problem I have still is that the numbers that OMB is reporting are not OMB's numbers. I do find it a little amusing to find OMB criticized for the numbers when they really don't belong to OMB; they have simply repackaged the agencies' estimates and in some cases made the simple conversions to make them a little bit more comparable. But, the problem is that the agency estimates are coming in to this process without any real thorough review, except by OMB, but without any competitive estimates from other parties, from whichever interest group might want to provide a credible policy-neutral, compliant estimate, compliant with Circular A- 4. Mr. Ose. Mr. Tierney. Mr. Tierney. My initial approach to this whole thing is that the agencies ought to be worried about the cost it takes them to do all of this work and making all these comparisons, when it seems the benefit of their work isn't that obvious to many of us, since it seems so difficult to measure the benefit side of it; and I am not sure there is a value to what they actually end up with in the end. Mr. Verchick, maybe you can tell us a little bit. How can we ever be comfortable that somebody is giving a fair assessment of the value of a benefit like a health factor or environmental factor or safety factor? How comfortable can we be that any calculation that tries to measure those aspects is in any way accurate and gives us a clear picture of what it is? Mr. Verchick. I think that they can't give you a clear picture if what you want to do is look at losses of money, which can be measured, and then also try to incorporate losses of life or injury, harm, this sort of thing. Those are value judgments, and those value judgments, in my view, should be made by the people in an open process, rather than economists deciding whether to discount a life by 3 percent or 7 percent into the future. Those are value judgments too, but those are judgments that are made by unelected people applying economic practical to moral ideas that they weren't intended to affect. Mr. Tierney. I guess we are just reiterating a point that I made in my opening remarks. This is a lot of common sense. If you have a dollars matter, we ought not to start putting in relations without any consideration for their costs, but, in the end, there are some things that are just common sense. And, you can't measure the things that you and I were just discussing, but you have to factor them in then make a decision, and that may make it sometimes more difficult to sit in these chairs, but that is what you do on that. Ms. Claybrook, I was concerned about OIRA's increasing interference in agency rulemaking decisions. I think there is a real trend in that. GAO stated in a report last September that there is a clear indication of OIRA's new gatekeeper role, and that is the office's increased use of return letters. GAO reported that, between 2001 and 2002, 23 letters were returned, far more than the number returned the previous years. Do you share that concern? And, would you talk a little bit about that? Ms. Claybrook. I do have concern about it. It seems to me that the major role of the Office of Management and Budget in the regulatory sphere is to look at the overall impact, but not to try and get into the nitty-gritty. In the tire rule, the rule that required an indicator on the dashboard about whether your tires were inflated or under-inflated, they got into proposing an alternative method for measuring the system to be used by industry, and the original proposal by the Department of Transportation was that it be a direct measurement of each tire and that it be a dashboard light. What OMB said is, well, there are some vehicles that have these analog brakes, and, when you have analog brakes, you can measure it on the analog brake itself. But, of course, the problem with that was that you only measure one tire. Now, most people want to know about all four tires in their car. You can only measure it when the tire is moving. But, when I am at the gas station at the pump, I want to know, while I am there, whether or not I have an under-inflated tire and which one it is. So, they proposed an almost ridiculous alternative proposal, and it was a little bit cheaper, but in terms of cost-benefit analysis it really wasn't cheaper, even if you did it that way. And, we sued the Department of Transportation after OMB forced the agency to change the rule, and we won, and I quoted to you from what the court said. So it seems to me that should not be the role of citizen groups, to have to sue OMB when it interferes with a particular rule in that level of detail. The other issue, of course, is that the way that OMB looks at the overall costs and benefits is really inappropriate because you cannot measure the decisionmaking process of someone who is charged by Federal statute to save lives, reduce injuries, or protect the environment. You cannot look at it in purely monetary terms. And, I don't think anybody in this panel would want that to happen. You may want to understand it. I was a Federal regulator; I wanted to know the numbers, I wanted to understand it. But that should not be the guideline that determines how you set that rule or what it is. There is no industry in America that I know of that has been put out of business because of some Federal regulation. I don't see that there is a case that has been made for a regulatory accounting or an absolutist cost-benefit analysis because of the harm that has been done to any company. In addition, there are all sorts of ways of mitigating the cost to industry, which agencies take into account all the time. For example, how long the industry has to implement a rule. If, for example, in the auto safety area, if you issue a regulation and say to the company you have 2 years to do this, it is going to cost the companies a lot more than if you give them 5 or 6 years to implement it. And, agencies give them more time all the time. Companies ask for that, they do that. So, the cost to the company is vastly reduced. But, that doesn't mean that you shouldn't issue the safety standard. Mr. Tierney. Thank you. Mr. Ose. Mr. Schrock. Mr. Schrock. Thank you, Mr. Chairman. I was interested, Ms. Claybrook, you said you objected to regulatory accounting, but how do you respond to the 80,000 new regs that Dr. Graham talked about that have never been looked at? Doesn't that deserve some oversight? Ms. Claybrook. Well, if you are going to go back and look at past rules that have been issued, I think you have to take half the Federal budget to do that. Mr. Schrock. What? Ms. Claybrook. Take maybe half the Federal budget to do that, because the data that exists is out of date now for the past rules, it is totally out of date. So, you would have to do brand new evaluations. I think that if you look at the report that we submitted for the record today by Ruth Ruttenberg, you will see that, once a rule is actually implemented, the costs are far less than what companies said when the proposal was on the table, before it had been issued. And, so, you would have to go and do an evaluation of that. The other issue that I think is really important on the cost side is that there is no accounting by a Federal agency. When a company says it is going to cost us $25 million to implement this rule, the agencies don't have the resources to go look at the factories and the cost estimates made by the industry; they just accept the complaints by the companies. And, so, if you are going to really evaluate this, there is a huge, huge amount of work to look at even a few, not even the 80,000. I don't think that it is possible to do that. Mr. Schrock. Did I understand you to say that some of the regulations are really not applicable anymore? But, businesses think they are applicable and they are trying to adhere to what it says. You know, for instance, this telephone is applicable today; 2 months from now it won't be. In 2 months the new one won't be and in 2 months the new, new one won't be. So some of these regulations these poor folks are trying to adhere to have no applicability to anything, as I hear you saying. And, this lady who wrote this ``Not Too Costly After All,'' I would like to have a copy of that, by the way. Ms. Claybrook. Yes, of course. Mr. Schrock. I think there are some businesses who would differ with you. In the district I represent in Norfolk and Virginia Beach, VA, I think they would differ with that, because I think some of them have gone out of business because they said it is just not worth it, the regulations are too costly. And, I know some of the regulators in this town have dropped in on certain business people and made their life a living hell for a couple hours, and they say it is just not worth it anymore. Ms. Claybrook. Well, I didn't say that they weren't applicable anymore, but I am sure there are some that are. Mr. Schrock. Oh, I am sure. Ms. Claybrook. I am sure that there are. And you have a table here of three organizations, particularly the Chamber of Congress, which is supposed to represent small business, that I am sure is petitioning agencies all the time on behalf of their small business members, and you have a Government agency on small business that just testified that certainly has the capacity to go to Government agencies and say these standards are no longer applicable. I would point out that most health, safety, environmental regulations are performance regulations. They don't tell them how to design the product, they don't tell them that they have to do it this way or that way; they actually measure the performance of the activity and say you can't die in a frontal crash at 25 miles an hour with an air bag, the air bag has to protect you so you don't die. That is an example. So that means that the regulations are able to go with the new generation of a product, because it is a performance standard. But, in terms of the impact on small business, I don't want to argue, and I will not argue, that for smaller companies it isn't more complicated to comply with regulations than with larger companies. But let us take lead smelting. I mean, that can really harm people, both in the workplace and in the community. You have issues of environmental justice, for example, which is that a lot of companies are located in low- income areas, and so children in low-income areas are more subject to harmful environmental impacts. I don't think anyone in this room would want to live in the maquiladora area, which is just south of our border into Mexico, where children are born with all kinds of harm, brain damage and limb damage and other things, because of the environmental impacts that they face. Some of those are small companies down there. Mr. Schrock. And, Ms. Claybrook, I understand that, but the bad actors like that ought to be taken to the woodshed. But, I don't think we make everybody pay because there are a couple of bad actors. But, I know there has to be a balance there somewhere. Mr. Kovacs, I know you want to comment on that. Mr. Kovacs. Sure. First of all, the position of the Chamber is, as you said, Congressman, if there is a bad actor, they should just go to jail. I mean, we are not even here talking about that. That is really the first thing. The second thing is most regulations are not necessarily performance standards, they are mandates and they are controls, and they are the most difficult ones. And we can go down the list, whether it be ergonomics or mercury standards or whatever. We can give you thousands of those. And there are processes, like Section 610 of the Regulatory Flexibility Act, which requires the agencies on a 10-year basis to actually go over and look at the rules to see which ones no longer apply, and there are far more in the breach than in compliance. So there are mechanisms. But, what we are trying to say, and why we really appreciate so much what this committee is doing, is this is the beginning of let us get a handle on what is there. You have a mechanism in 610. Why aren't the agencies doing this on a 10- year basis? Second, we have a way to check the system. Let us just take the regulations that are out there where we do a cost-benefit analysis, and let us just, after 4 or 5 years, have the agency go back and check to see how closely they came. You know, we from the industrial sector and the business sector pay for most of these regulations. Frankly, the consumers end up paying, and they sometimes pay not just in cost of product, but in lost jobs which is contrary to what Ms. Claybrook was saying, that there has been no effect on, let us say, the manufacturing industry. My recollection is correct, over the last 30 years, the manufacturing sector of this country has been cut in half in terms of jobs. So, it is real. It is real, and no one is going to disagree that, where you have property rights and certainty of regulation, you have more investment in technology; and in a lot of areas across this country, the technology sector, the biotech sector, the biogenics, all of those, our regulations are forcing companies and the most advanced technologies in the world to go to Korea or Ireland. We are now 13th in the world in Internet. So these are real consequences to regulations. So let us not kid ourselves. And, the opportunity that we lose by not being able to advance our regulation into the modern era is huge. So, we do have options. We can look at regulations retroactively, using Section 610. We are not saying that every regulation is bad or we should look at it, because there are 4,000 a year, that is impossible. We might look, at 20 or 30 in the course of a year. And, then, finally, a lot of the regulations are just good business practices and we do need them. So you have to understand what kind of regulations you want. But, if you want to look at regulations that cost a lot of money, just look at the Federal income tax laws. You have a lot of places for change that are very common sense, and that is what we are saying. Let us not sit here as a panel and say regulations are all good or bad; let us get a handle on the process and what it really costs, and get science into the program. Mr. Schrock. I think everybody agrees with that. I know my time is up, Mr. Chairman. I am sorry. You have been banging for a while. Mr. Ose. I want to followup on Mr. Kovacs' comment. On page 3 of your testimony you make this exact point, about how do you know which ones to emphasize if you don't know their relative costs and benefits. Mr. Kovacs. Well, you do. You really do. Because let us just take TMDLs, which is total maximum daily loads, which is a water standard. The agency walks in and says, look, this regulation is going to cost $25 million a year; let us go back to Mr. Tierney, common sense. You are asking the entire country to analyze 40,000 water bodies and to come up with a statement and then come into effect with a plan to treat it. And, so, even if you took it at $1 million a water body for the analysis for treatment and everything else, you are at $40 billion. And, that is what one study had. GAO had it a little over $1 billion annually; the States had it $670 million annually to about $1.2 billion annually; EPA said it is $25 million. Mr. Ose. I didn't state my question very well. I understand your point about the common sense issue in that respect. What I am more interested in is that Mr. Schrock, Mr. Tierney and I and our colleagues, we only have X amount of resources. I am trying to figure out the way in which we take those resources and we maximize the benefit to the country as a whole, from a cost-benefit perspective. Your testimony here is that, absent some sort of measurement, we are not going to be able to do that. Mr. Kovacs. That is correct. Mr. Ose. So, you would support something such as in Section 6 that allows improvements to regulatory accounting, the objective of which is to get us to a point where we can say this impact has a cost-benefit ratio of X; this one has a cost- benefit ratio of Y; this one has a cost-benefit ratio of Z, and allow the policymakers up here to decide which one should have priority? Is that your point? Mr. Kovacs. No. I think Congress makes the law and it decides whatever the priorities are, but when the agency is implementing the law, they have tools at their disposal. They should always be using the best science. They should always be using the best data. And, from that they are going to begin to understand, and I will make a quick point. Ten years ago, when Bill Riley was the head of the EPA, he did an internal study, and he asked the scientists and the public what are the most serious risks; the public put Superfund at No. 1. He then asked the scientists what are the most serious risk to public health, and they would select certain aspects of air quality. If you looked at the list, they were almost absolutely the opposite of each other. What the public perceived and the scientists perceived as a serious risk were completely different. What we need to begin doing is realigning that. And, you have the tools. You have already given the agencies the tools with data quality and data access and sound science. It is now up to them to really begin in a rigorous process, and that is why I suggested a pilot study, because this is a rigorous process, this isn't an easy thing. We have to take these options, look at a dynamic system, look at the true health, honestly evaluate what it is, because at the end of the day, if the agency spends its money on the most serious public health problems, we are all going to be better off. But they have the tools now. Mr. Ose. Ms. Dudley, do you agree with that? Ms. Dudley. Yes. Let me just add one more thing to the study that he mentioned. I thought the most interesting thing about that was that our resources were being devoted to the public's ranking of risks, rather than what experts think is the more real ranking of risk. And, that is your point, isn't it, that we aren't sending our resources to the most effectively to activities that will produce the greatest good. I know Alexandra Teitz and I have had a conversation, and she was shocked that I didn't think that cost-benefit analysis was the answer to everything; and I think it is not, but I think it does provide information that allows you to make more informed decisions. Mr. Ose. Dr. Belzer, do you have any input on this? Mr. Belzer. Well, I have been practicing benefit-cost analysis for so long, I can't remember when it wasn't the way that I made decisions. I chose whether to have a heart surgery based on cost-benefit analysis. Mr. Ose. What was the result of your study? Mr. Belzer. I lived. Cost-benefit analysis is nothing different than what people do in their daily lives when they make mundane decisions; they do it intuitively. It is exactly what common sense is all about. When you get into complicated issues with valuing very difficult commodities, it can get technical. This is what professionals do, they try to do the technical part and then simplify it for other people. I should point out the common myth is that costs are easier to estimate than benefits. All things held constant, I really don't think that is true, because costs, properly understood, the costs of a regulation are the benefits that one must forego in order to have the benefits of the regulation. So really you are giving something up, not just dollars, you are giving something up in order to get the benefits of a regulation. What exactly are you giving up? Well, if somebody tells you it costs $1 million or $2 million or $3 million, I don't really care about the dollars, what I care about is what those dollars would have been used for; how would the public have been served by those expenditures. Those are the things that end up being given up. So it is harder, in principle, to estimate costs if you try to do this correctly. It is a mystery to me why it has become such a controversy, especially since I cut my teeth in cost-benefit analysis 30 years ago with a rather famous book called ``Damming the West.'' It was a book on exposing all of the flaws in cost- benefit analysis performed, as it happens, by the Bureau of Reclamation. They were inflating the benefits and they were low-balling the costs and they were cheating on the different methods; they were double-counting benefits. They were doing everything wrong and it was a terrific book; it caused me to become an economist. Now, I find it ironic that the book was a product of the Ralph Nader study group at the time. So, to me, the methods are the same now as they were in 1973, and maybe the parties have changed as to who is putting their thumbs on the scale. But the methods are the methods, and they inform people; they help you make decisions, they don't tell you what you have to decide. Mr. Ose. Mr. Tierney. Mr. Tierney. I feel like I should offer somebody some rebuttal time, but I am not sure who. Ms. Claybrook, go ahead. Ms. Claybrook. Well, the chairman didn't ask me about cost- benefit analysis. Mr. Ose. Consider asked. Mr. Tierney. My time just expired. I get to Dr. Belzer and I sit here. Ms. Claybrook. Well, our concern about cost-benefit analysis is that, different than in your daily lives, which Dr. Belzer mentions, the value and enjoyment of clean air, for example is priceless, and that is what Dr. Heinzerling's book discusses. There are many priceless elements to the benefits of regulation that are simply non-calculable, and so when you reduce it to cost and benefit analysis in monetary terms, those are eliminated, those are ignored; they don't get counted. In addition, Dr. Belzer is right, the cost issue is very complicated, and the fact is that most of the time agencies, because they don't have the resources to collect the cost data, evaluate the cost data, they just rely on what the industry claims are; and often, as I have mentioned already, they are much less. On the benefits side, it is very expensive to collect the benefits. I give you one example of the agency I used to regulate, that regulates the auto industry, and that is on the national accident sampling system, which is the collection of data about harm in auto crashes, and the fatal accident reporting system, when I was in office, the budget was $20 million, and that was 24 years ago. The budget is now $17 million. The agency is collecting one-fifth of the data that it used to collect because the budget has not kept up with it, even with inflation, much less where it was 24 years ago. So the benefit data are tremendously degraded. How is the agency going to comply with your requirement, Mr. Chairman, that it do a cost-benefit analysis, even if you could change the value of a life into a dollar? It can't. For example, the finding of the problem with the Firestone tire was completely outside the agency's scope, because it just didn't have the data. The harm to children in auto crashes is completely uncalculated by this agency, and we all know that it is the largest killer of people between age 2 and 34 in the United States of America. But, they can't collect that data because it is too obscure, given the small amount of money they have to collect such data today. So, when you argue that there should be these calculations, even aside from the prices element, there is no way. And, talk about EPA. EPA has a larger budget than the National Highway Traffic Safety Administration, but it administers a wide variety of programs. There is no way that they can collect the benefit data. So, I just think that it is fraudulent. The reason I use that word, because the information isn't there. Even if Dr. Belzer and I agreed on the adequacy of the agency's efforts, there is no capacity to do this. And, I think that when you say that the agency should do this with current regulations, then you look at it 10 years hence, and you don't even go back and adjust the way this regulation has been implemented, what the costs really are to the industry at that time, what the benefits are that have come out, and you want a regulatory accounting without any update, I just think it is an impossibility. Mr. Tierney. I am always mindful, when we talk about trying to measure these things. The oil refinery industry used to come in here all the time and bellyache that they just couldn't build a single new refinery, they couldn't get a single new permit for a 10-year period of time because of regulations and regulations. And, when we finally brought them in and we asked the administrator of the EPA how many oil refinery permits had been sought in that period of time, it was zero. We found out they hadn't asked for one because they found out it was cheaper for them to expand the existing ones, so they can come in and concoct more information. And, there was a tremendous amount of information on that, too, of the overestimate of the costs on that. And, when the requirements were actually implemented, sometimes they ended up to be less than a single-digit percentage of what the estimates had originally been. Mr. Verchick, is there anything you would like to add before we close out here? Mr. Verchick. Yes. I would like to say just one more thing about the cost-benefit analysis, because I think intuitively what people want is they want more information. They think, well, if cost-benefit analysis gives me some numbers, I would rather have the numbers, even if they are flawed, than not have the numbers. I am against that way of thinking, and the reason is that it is not that these numbers that you see on these tables are somehow mistaken in a small way; they are worse than having no information, because they suggest things that clearly aren't true. Some of these numbers are based on a discount rate into the future of deaths at 7 percent, some are based on 3 percent. Well, what is the difference of discounting a saved life 30 years from now, 3 percent or 7 percent? Well, the difference is, if you work it out, a 3 to 1 ratio. So some of these rules you are looking at are either three times the benefit of human lives saved or a third of the benefit of human lives saved. And, of course, there is no indication of when what number is being used uniformly. And, that is just one example of having information that is really worse than not having information at all. And that is why I think that cost-benefit analysis is wonderful things that we have market prices for. But no other country that I am aware of is using cost-benefit analysis to such a degree in the environmental area, which leads me to think that it is something less than common sense. Mr. Ose. Mr. Schrock. Mr. Schrock. Thank you, Mr. Chairman. I am going to probably talk about one of Ms. Claybrook's favorite topics, and that is automobiles. By the way, in the spirit of full disclosure, my wife and I each have an SUV, and my son is about ready to buy one. I know, it is terrible. Ms. Claybrook. I hope it is a recent model. Mr. Schrock. Brand new. Ms. Claybrook. Brand new? Oh, that is a little bit better. Mr. Schrock. But, in full disclosure, I wanted to tell you that. You know, you talked about 40,000 highway deaths, and Dr. Belzer was talking about something about the west, what was it? Ms. Claybrook. Reclamation, Bureau of Reclamation. Mr. Schrock. No, no, no, some book title. Mr. Belzer. Oh, it is called ``Damming the West.'' Mr. Schrock. Oh, ``Damming the West.'' Speaking of damning the west and 40,000 highway deaths, I just came back from California, where I spent 10 days, most of it on the 405, and I can tell you where a lot of those 40,000 deaths are going to come from, just because of the way they drive. It is not the way the car is built, it is just the way people drive out there and other places. But in her written statement to this committee in a previous year, Ms. Dudley said, ``Studies reveal that a reallocation of current spending from lower risk to higher risk problems could greatly increase the lifesaving benefits of regulations designed to reduce health and safety risks and achieve other social goals.'' Question to Ms. Claybrook: ``If these studies are correct in whole or in part, isn't regulatory accounting essential to better protect public health and safety? If we don't know the costs or benefits of a regulation, how do we know if we are truly protecting the public and saving lives?'' And that was a roundabout way to get there, but that was a question. Ms. Claybrook. Well, first of all, I would just like to comment that no matter how people drive, they also do crash, or someone crashes into you. And, so, there was a wonderful analytical piece of work that was done in 1966 by the first administrator of the National Highway Traffic Safety Administration, and he divided that one-twenty-fifth of a second crash into three parts: what caused the crash, what causes the injury, and the after treatment. And all of those are relevant to whether you live. And, so, the problem with SUVs is that even if you don't roll over, but someone else crashes into you, there is a possibility that because the roof crushes in and the belts don't cinch up and then you roll over, that you are going to die anyway, even if you are the best driver in the world. I just wanted to make that statement for the record. Mr. Schrock. But it could be the same way with sedans as well? Ms. Claybrook. Yes, but they don't roll over as frequently. And, the problem with the SUV is it has this greenhouse roof, and so, it sticks up more than the roof, and so if you roll, when you roll in a car it rolls without smashing the roof as much; whereas, if you are in an SUV, the roof smashes in more, and you are tall, and your head is going to be smashed. So, I just would point that out. Mr. Schrock. OK, but I am probably as bad a driver as anybody, and I have had no problem with my SUV. Ms. Claybrook. OK. Well, that was just a little comment on auto safety injury prevention. Mr. Schrock. I understand. Ms. Claybrook. Would you repeat your question? Mr. Schrock. OK. We talked about Ms. Dudley's statement when she was here in a previous year, and if those studies are correct in whole or in part, isn't regulatory accounting essential to better protect public safety and health? And, if we don't know the cost or benefits of a regulation, how do we know if we are truly protecting the public and saving lives? Ms. Claybrook. Well, at the National Highway Traffic Safety Administration, the agency I am most familiar with in that regard, there are regulatory evaluations done all the time to look at whether or not the estimates that the agency made for lives saved are in fact being saved; and in some instances they say it is more, in some instances it is less, and in some instances it is about the same. So, there is an evaluation done of the actual lives saved based on the data that the agency has. As I have said, part of the problem is that most of these agencies aren't funded sufficiently to get the data, and so, if you want to really have that, I would urge this agency to go to the Appropriations Committee and ask them to please increase the capacity of these agencies to do this work. I don't say that data are not important. I think data are important. They are important. And, it is important for the public to be able to evaluate them and to look at them and to consider them. But when you talk about regulatory accounting, which takes costs-benefits and it monetized benefits that are non-monetizable, and then you take it to the next step, now, that is fine when you are making a decision as a regulator, to look at the numbers and then to make an evaluation and to make a decision. And, people can argue with you about it and, as you know, the standard for the courts is whether or not it is an abuse of discretion or whether it is substantial evidence on which you based your decision; and, that is, in our society, the way we evaluate what a regulator does in the courts. And, we delegate that authority to the agencies to do that, and we can argue with them, and we have public comment and all the rest. To take it to the next step and say it can only be in monetized numbers, and then we are going to do a regulatory accounting and evaluate what is most important or not important then, loses the value of the human judgment; and I don't think you would want to do that for yourself, and I certainly don't want to do that for myself or for the public, because the value that we are able to express in terms of do we try and prevent death or injury or environmental health is as important in many ways as the costs and benefits as it is monetized. So you don't want to take the human decisionmaker out. If we did that, we could just do it on a calculator and just have a calculator make all these decisions. Mr. Schrock. Mr. Chairman, I know my time is up, but since I quoted Ms. Dudley, I would like to ask her if she would like to comment. If not, that is fine. Ms. Dudley. Yes, just briefly. I agree that, when we do big cost-benefit analyses of rules that affect everyone in the Nation, we are losing some of the value of human judgment. But, what I am concerned about is that we are losing the value of the judgment of the people who are going to be affected by the rule. So, for example, with seatbelts, I am forced now to put my child in the back seat because there is an air bag in the front seat. I would rather buckle my child than have that air bag. So, while we agree on some of the problems with cost- benefit analysis, I think the real problem is that we are not allowing enough human judgment, enough choice by individuals in the country. And that doesn't question the value of regulatory accounting, but it expands this notion of cost-benefit analysis and human judgment. Ms. Claybrook. But when your husband is in the front seat, you would want the air bag for him, I take it. Ms. Dudley. No, because he buckles a seatbelt. We buckle our seatbelts. Ms. Claybrook. I know, but that is not enough, because you are going to have head injuries. Ms. Dudley. No, but, see, that is it; I should make that decision rather than you. That is my point, that is a decision I think that individuals can make. And, that is a lot of what regulation does, it restricts individuals. Mr. Tierney. So you do or you do not like your husband? Ms. Dudley. I love my husband. Mr. Ose. Keep in mind you are sworn. Ms. Dudley. And, he is not even here. Mr. Ose. Well, I want to thank our witnesses for joining us today. As with the first panel, we will leave the record open for 10 days to undoubtedly followup with some of you with written questions. And, to the extent that you could have timely response, that would certainly be appreciated. Dr. Belzer, good luck. Mr. Belzer. Thank you. Mr. Ose. You have big days ahead of you. We are adjourned. 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