Summary

The last 20 years have seen enormous growth in the number and scope of federal regulations. According to the Office of Management and Budget (OMB), although these regulations have improved public health and safety and environmental quality, their costs have been high. In 1996, OMB estimated the cost of federal regulations at $200 billion annually and the benefits at $300 billion. To control the costs of regulation, Congress and the administration have required federal agencies to prepare and use economic analyses--also known as regulatory impact analyses--to assess the benefits and costs of proposed actions before promulgating regulations. These analyses are intended to inform and improve the regulatory process by identifying the likely costs and benefits of feasible alternatives. An interagency group convened by OMB has developed guidance that sets forth best practices for preparing economic analyses. This report describes (1) the extent to which federal agencies' economic analyses incorporate the best practices set forth in OMB's guidance and (2) the agencies' use of these analyses in regulatory decision-making.

GAO noted that: (1) some of the 20 economic analyses that it reviewed did not incorporate the best practices set forth in OMB's guidance; (2) for example, 5 of the 20 analyses did not discuss alternatives to the proposed regulatory action, 6 did not assign dollar values to benefits, and 1 did not assign dollar values to costs--all of which are practices recommended by the guidance; (2) OMB's guidance gives agencies the flexibility to decide how thorough their economic analyses should be; (3) at the same time, the guidance stresses the importance of fully disclosing the reasons for omissions, gaps, or other limitations; (4) although GAO found many instances in which best practices were not followed in the analyses, the reason for not following was disclosed in only one instance; (5) in addition, eight of the economic analyses did not include an executive summary that could help Congress, decisionmakers, the public, and other users quickly identify key information addressed in the analyses; (6) finally, only 1 of the 20 analyses received an independent peer review; (7) because Executive Order 12866 and UMRA establish nearly identical requirements for economic analyses and because agencies typically use the same analyses to comply with both when UMRA is applicable, GAO's findings reflect the extent to which the nine analyses called for under UMRA satisfy the act's as well as the executive order's requirements for economic analyses; (8) according to agency officials, economic analyses play a valuable role in regulatory decisionmaking; (9) twelve of the 20 analyses were used to help identify the most cost-effective of several similar alternatives or to cost-effectively implement health-based regulations; (10) seven other analyses were used to define a regulation's scope and implementation date, document and defend regulatory decisions, or reduce a health risk at a feasible cost; and (11) one analysis played almost no role in decisionmaking because, according to agency officials, the authorizing statute was so prescriptive that the agency was left with virtually no discretion in developing the implementing regulation.