<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
______
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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:]
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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:]
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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:]
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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:]
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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:]
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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:]
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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:]
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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:]
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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:]
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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.
[Whereupon, at 12:12 p.m., the subcommittee was adjourned,
to reconvene at the call of the Chair.]
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