<DOC> [107th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:84600.wais] REGULATORY ACCOUNTING: COSTS AND BENEFITS OF FEDERAL REGULATIONS ======================================================================= HEARING before the SUBCOMMITTEE ON ENERGY POLICY, NATURAL RESOURCES AND REGULATORY AFFAIRS of the COMMITTEE ON GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS SECOND SESSION __________ MARCH 12, 2002 __________ Serial No. 107-155 __________ 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 84-600 U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 2003 ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON GOVERNMENT REFORM DAN BURTON, Indiana, Chairman BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California CONSTANCE A. MORELLA, Maryland TOM LANTOS, California CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania STEPHEN HORN, California PATSY T. MINK, Hawaii JOHN L. MICA, Florida CAROLYN B. MALONEY, New York THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington, MARK E. SOUDER, Indiana DC STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland BOB BARR, Georgia DENNIS J. KUCINICH, Ohio DAN MILLER, Florida ROD R. BLAGOJEVICH, Illinois DOUG OSE, California DANNY K. DAVIS, Illinois RON LEWIS, Kentucky JOHN F. TIERNEY, Massachusetts JO ANN DAVIS, Virginia JIM TURNER, Texas TODD RUSSELL PLATTS, Pennsylvania THOMAS H. ALLEN, Maine DAVE WELDON, Florida JANICE D. SCHAKOWSKY, Illinois CHRIS CANNON, Utah WM. LACY CLAY, Missouri ADAM H. PUTNAM, Florida DIANE E. WATSON, California C.L. ``BUTCH'' OTTER, Idaho STEPHEN F. LYNCH, Massachusetts EDWARD L. SCHROCK, Virginia ------ JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont ------ ------ (Independent) Kevin Binger, Staff Director Daniel R. Moll, Deputy Staff Director James C. Wilson, Chief Counsel Robert A. Briggs, Chief Clerk Phil Schiliro, Minority Staff Director Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs DOUG OSE, California, Chairman C.L. ``BUTCH'' OTTER, Idaho JOHN F. TIERNEY, Massachusetts CHRISTOPHER SHAYS, Connecticut TOM LANTOS, California JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York STEVEN C. LaTOURETTE, Ohio PATSY T. MINK, Hawaii CHRIS CANNON, Utah DENNIS J. KUCINICH, Ohio JOHN J. DUNCAN, Jr., Tennessee ROD R. BLAGOJEVICH, Illinois ------ ------ Ex Officio DAN BURTON, Indiana HENRY A. WAXMAN, California Dan Skopec, Staff Director Barbara Kahlow, Deputy Staff Director Allison Freeman, Clerk Elizabeth Mundinger, Minority Counsel C O N T E N T S ---------- Page Hearing held on March 12, 2002................................... 1 Statement of: Graham, John D., Ph.D., Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget; and Thomas M. Sullivan, Chief Counsel for Advocacy, U.S. Small Business Administration.............................. 8 Miller, James C., III, former Director, Office of Management and Budget, counselor to Citizens for a Sound Economy; Thomas D. Hopkins, former Deputy Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget, dean, College of Business, Rochester Institute of Technology; Susan Dudley, deputy director, regulatory studies program, Mercatus Center, George Mason University; Joan Claybrook, president, Public Citizen; and Lisa Heinzerling, professor of law, Georgetown University Law Center..................................................... 47 Letters, statements, etc., submitted for the record by: Claybrook, Joan, president, Public Citizen, prepared statement of............................................... 94 Dudley, Susan, deputy director, regulatory studies program, Mercatus Center, George Mason University, prepared statement of............................................... 67 Graham, John D., Ph.D., Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget, prepared statement of...................................... 11 Heinzerling, Lisa, professor of law, Georgetown University Law Center, prepared statement of.......................... 125 Hopkins, Thomas D., former Deputy Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget, dean, College of Business, Rochester Institute of Technology, prepared statement of....................... 56 Miller, James C., III, former Director, Office of Management and Budget, counselor to Citizens for a Sound Economy, prepared statement of...................................... 49 Ose, Hon. Doug, a Representative in Congress from the State of California, prepared statements of..................... 4, 159 Sullivan, Thomas M., Chief Counsel for Advocacy, U.S. Small Business Administration: Congressional Record statement............................... 29 Prepared statement of........................................ 17 Tierney, Hon. John F., a Representative in Congress from the State of Massachusetts, prepared statement of.............. 164 REGULATORY ACCOUNTING: COSTS AND BENEFITS OF FEDERAL REGULATIONS ---------- TUESDAY, MARCH 12, 2002 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 2 p.m., in room 2154, Rayburn House Office Building, Hon. Doug Ose (chairman of the subcommittee) presiding. Present: Representatives Ose, Otter, Duncan, Tierney, and Kucinich. Staff present: Dan Skopec, staff director; Barbara F. Kahlow, deputy staff director; Alison Freeman, clerk; Yier Shi, press secretary; Melica Johnson, press fellow; Elizabeth Mundinger and Alexandra Teitz, minority counsels; and Jean Gosa and Earley Green, minority assistant clerks. Mr. Ose. Good afternoon. Welcome to today's hearing. Last fall, Mark Crain and Thomas Hopkins estimated that in 2000 Americans spent $843 billion to comply with Federal regulations. Their report, commissioned by the Small Business Administration, states, ``Had every household received a bill for an equal share, each would have owed $8,164.'' Their report also found that, ``in the business sector, those hit hardest by Federal regulations are small businesses. 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.'' Regulations add to business costs and decrease capital available for investment. Today, we will examine the Office of Management and Budget's--we will refer to them as OMB--annual regulatory accounting reports. They were intended to disclose the off- budget costs and benefits associated with Federal regulations and paperwork. Because of congressional concern about the increasing costs and incompletely estimated benefits of Federal rules and paperwork, in 1996, Congress required OMB to submit its first regulatory accounting report. In 1998, Congress changed the annual report's due date to coincide with the President's budget. Congress established this simultaneous deadline so that Congress and the public could be given an opportunity to simultaneously review both the on-budget and off-budget costs associated with each Federal agency imposing regulatory or paperwork burdens on the public. In 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. Agency-by-agency data and data 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 Environmental Protection Agency and the Labor Department's Occupational Health and Safety Administration? Is there a more cost-effective way for OSHA or EPA to accomplish the intended objective? Would another approach achieve the same objective at less cost? Also, policymakers could make better decisions about tradeoffs between alternatives. To date, OMB has issued four regulatory accounting reports--in September 1997, January 1999, June 2000, and December 2001. All four have failed to meet some or all of the statutorily required content requirements, and the last was submitted 8 months late. This untimely submission was too late to be useful in the congressional appropriations process. Additionally, OMB's December 2001 report was not presented as an accounting statement, did not include any estimates by agency or by agency program, and did not include updated estimates from its prior annual report. Last, OMB failed to submit its next report due February 4, 2002. Today, we will hear testimony that OMB expects to issue its draft report this month. In 1996, OMB issued Best Practices Guidances to help standardize agency cost-benefit measures. Since then, OMB has not enforced agency compliance. As a consequence, agency practices continue to substantially deviate from OMB's guidance, with some agencies not even estimating costs or benefits. Last October, I wrote to the OMB Director, asking if OMB will be ready to provide agency-by-agency information and what steps OMB has taken to ensure that costs and benefits data will be provided in a traditional accounting statement format, including by agency and agency program. For OMB's Information Collection Budget and for the President's budget each year, OMB tasks agencies with preparing paperwork and budgetary estimates respectively for each agency bureau and program. OMB uses the Information Collection Budget to manage the burden of Federal paperwork imposed on the public. In contrast, for Federal regulations, OMB does not similarly task agencies annually with preparing estimates of the costs and benefits associated with the Federal regulations imposed by each agency bureau and program. As a consequence, OMB's annual regulatory accounting report is harder for OMB to prepare by agency and by agency program. Regulatory accounting is a useful way to improve the cost effectiveness and accountability of government. One of my goals when I came to Congress was to make the government more efficient. The only way that policymakers can innovate is to understand the strengths and weaknesses of new proposals. Cost- benefit analyses give Congress tools to modernize our government and make it more responsive to the public. I look forward to the testimony of our witnesses about OMB's track record and the utility of its annual regulatory accounting reports due with the President's budget. I'd like to recognize the gentleman from Tennessee for the purpose of an opening statement. [The prepared statement of Hon. Doug Ose follows:] [GRAPHIC] [TIFF OMITTED] T4600.001 [GRAPHIC] [TIFF OMITTED] T4600.002 [GRAPHIC] [TIFF OMITTED] T4600.003 Mr. Duncan. Well, thank you very much, Mr. Chairman. I don't have a formal opening statement, but I do want to say that I thank you for calling this hearing on what I think is a very important topic. I was a lawyer and then a circuit court judge for 7\1/2\ years before I came to Congress. I can tell you there are so many millions of laws and rules and regulations on the books in this country today that they haven't even designed a computer that can keep up with all of them, much less a human being. People, especially people in business, are out there every day violating rules and regulations that they didn't even know were in existence. I know that today it's estimated that almost 40 percent of the average person's income goes to pay taxes of all types-- Federal, State, local, property, gas, excise, etc.--and most people estimate at least another 10 percent go for regulatory costs that are passed on to the consumer in the form of higher prices. So Senator Fred Thompson from our State had an ad the last time he ran for office. He said, one spouse works to support the family while the other spouse works to support the government. I'm not as serious about what the tremendous costs are because who they impact most the lower income and the poor and the working people of this country. That is who is hurt the most by a society that's overregulated. But, also, I'm concerned about the effect on small businesses. When you come in with excessive regulation, you first run the small businesses out. Then you run the medium size out. So some of these people who believe in regulating everything in the world are the best friends that extremely big business has. It happens in every industry. Every industry that's overregulated ends up in the hands of a few big giants. We had 157 small coal companies in east Tennessee in 1978. Then they opened up a Federal mining regulatory office there, and now there are no small coal companies, and there are two or three big giants. That's happened in every industry in this country. So thank you very much for calling this hearing. I look forward to hearing the testimony of the witnesses. Mr. Ose. I thank the gentleman. The gentleman from Idaho. Mr. Otter. Thank you, Mr. Chairman. I, too, would agree with my colleague from Tennessee on the importance of this hearing. I appreciate your leadership on this important effort, as I also believe it is important for Congress to be provided with current, accurate, and timely information on the cost of financial burdens and the benefit and effectiveness of Federal regulations. To me, this is a simple matter of common sense. In my last life I was a french fry salesman, and I don't ever remember making a decision about building a plant or increasing a distribution port, whether it was in the United States or one of the 82 countries that we operated in, on partial facts and incomplete conclusions. If I had, I wouldn't have been in business that long. Without accurate and timely information, my colleagues and I are being left to conduct the business of this Nation without all the facts. As a businessman, as a lieutenant Governor and a member of the Idaho State legislature, I also became well aware of the impact that Federal regulations have on rural economies. The amount of money spent each year to meet regulatory demands of the Federal Government agencies is astounding. In fact, in a report by an agency represented by Mr. Sullivan here today, the Small Business Administration, it is estimated that $843 billion--and this was a report that was put out in October of last year--$843 billion to comply with Federal regulations. Now that's the actual cost. It does not also include the opportunity cost of $843 billion. So as the financiers of the Federal regulatory agencies I think it's imperative that Congress has access to all the necessary means to conduct a thorough review of the financial and functional effectiveness of Federal regulations. Again, I appreciate the chairman's attention to this issue and am proud to serve as the vice chairman of this subcommittee to look through these important issues. I look forward to hearing the testimony of our witnesses. Thank you, Mr. Chairman. I yield back the balance of my time. Mr. Ose. Thank you, Mr. Vice Chairman. We have two panels today. It's the custom of this committee and the subcommittees to swear their witnesses in. So, gentlemen, if you would rise, please. [Witnesses sworn.] Mr. Ose. Let the record show the witnesses on the first panel answered in the affirmative. We are joined today by two witnesses, by John Graham, who is the Administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budget. He'll be first. Then we also are joined by the Chief Counsel for Advocacy in the Small Business Administration, Thomas M. Sullivan. Dr. Graham, we have your testimony. We have entered it into the record. If you could summarize within 5 minutes, that would be great. STATEMENTS OF JOHN D. GRAHAM, PH.D., ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET; AND THOMAS M. SULLIVAN, CHIEF COUNSEL FOR ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION Dr. Graham. Very well, Mr. Chairman. Good afternoon. I appreciate the opportunity to be here. Since this is my first oversight hearing with this particular subcommittee, I thought I should step back and say a few words about the approach I'm taking to running the Office of Information and Regulatory Affairs for the President. This is the office that oversees all of the regulatory policy within the executive agencies. As you know, the President supports regulations that are sensible and based upon sound science and economics; and, at the same time, we're determined to streamline the regulatory process to make sure there are no other regulations that are outside that basic criteria. In terms of overall approach to the office, I'm trying to introduce a greater degree of transparency and openness to the office. Since I was confirmed in July, I have had a virtually open door policy for public visitors from various types of groups, have hosted about 100 different groups interested in different facets of Federal regulation. We have also, through our Web site, been publishing the letters that our office submits to agencies on regulatory issues. We've published our meetings with outside groups, and we provide daily updates of new regulations that are either under review at our office or are being cleared, withdrawn, or returned. We believe that this more open and public approach to the way we do our work will enhance public scrutiny of the regulatory process and, in the long run, increase appreciation of the value of our office. Let me proceed now to the major topic of the hearing, which is the regulatory accounting law and our implementation of it. From your opening statement, Mr. Chairman, I realize we have a lot of work to do to bring our office into compliance with the requirements as you have described them in your opening statement. Let me say a couple things about what we're doing modestly to move in that direction. The first point I would like to make is that we view better quality data and better analysis by agencies as the key to generating the information to make this regulatory accounting report a more effective and useful document. The key way we intend to do that for new regulations is through intense scrutiny by my analytical staff of these regulations when they are coming to our office. Since July we have returned 20 rules, in most cases because of inadequate analysis; and that number is more than the total number of rules returned in the entire Clinton administration. We have also cleared six of these returned rules after the agencies improved their analysis and came back with stronger proposals. So a return does not necessarily mean the regulation is denied. It means it needs to be improved. The second thing we need to do to improve the underlying information for the regulatory accounting law is look at the very difficult problem of the sea of existing regulations that are out there. The administration does not support an across- the-board review of every existing regulation in every agency. We don't believe that's practical. We don't believe the agencies could handle it, and we don't think OMB could handle it. However, we do believe that a public participation process rooted in the regulatory accounting law is an effective way to identify those particular regulations that are especially in need of reform and better analysis; and in the report that you've received that we submitted in December we took our first effort in this direction of seeking public comment on the existing regulatory state. The third step we're taking to improve this information is to update the analytic guidance that OMB asks agencies to adhere to when they produce regulatory analyses that are submitted to our office. Jointly with the Council of Economic Advisors, my office is going to be refining this guidance after a process of public comment and peer review. It's through this guidance that the analysts and the agencies are expected to follow that we hope to spawn better data and better analysis from the agencies. The final point I want to make is with regard to the timing of the regulatory accounting report. As you have mentioned, our statutory requirement is to release the report in February. I want to remind you at the end of the previous fiscal year, on October 1st, that left 4 months to generate a quality regulatory accounting report that has our office's analysis, peer review, interagency review, and the final analysis. Our position is we're going to do our best to get the draft regulatory accounting report to you in February of next year, and in future years we'll be working hard to do better than that. So I hope I have given you a general sense of where we're headed with compliance. Let me conclude by saying that the annual accounting report to Congress we're using in this administration is a crucial vehicle to stimulate both specific regulatory reforms and to spawn in the long run better data and analysis from the agencies. I look forward to working with the subcommittee to pursue that agenda. Mr. Ose. Thank you, Dr. Graham. [The prepared statement of Dr. Graham follows:] [GRAPHIC] [TIFF OMITTED] T4600.004 [GRAPHIC] [TIFF OMITTED] T4600.005 [GRAPHIC] [TIFF OMITTED] T4600.006 [GRAPHIC] [TIFF OMITTED] T4600.007 Mr. Ose. Our next witness is Thomas Sullivan. Mr. Sullivan, if you could summarize--we do have a copy of your testimony--for 5 minutes. Thank you. Mr. Sullivan. Chairman Ose, other members of the subcommittee, good afternoon and thank you for the opportunity to appear before you today, as the recently confirmed Chief Counsel for Advocacy, to discuss regulatory accounting. I'm pleased that my written statement has been accepted into the record, and I will briefly summarize the key points. First, let me tell you what an honor and privilege it is for me to have been appointed Chief Counsel for Advocacy by President Bush. This is my first statement before this subcommittee since my confirmation, and I am grateful for the tremendous support that I have already had from other committees in the House and the Senate, Members of Congress, from SBA administrator Hector Barreto, from government leaders like Dr. John Graham, and from regulatory experts who we work with and are well represented at this hearing. Today's topic, regulatory accounting, is one the Office of Advocacy understands very well, but from a slightly different perspective than what was just mentioned by Dr. Graham. We share the same concern as other panelists, concerns that will be voiced in the next panel, that there is an overwhelming regulatory burden on small businesses; and implementation by Dr. Graham's office of the regulatory accounting law forces government agencies to analyze the economic impact of their actions. This early examination of costs and benefits should help agencies comply with the analytical requirements of the Regulatory Flexibility Act, which my office oversees. The Office of Advocacy focuses on an early exchange of information with OMB and Federal agencies in order to assist them in reducing unnecessary burdens, while at the same time allowing the agencies to accomplish their public policy objectives. This is the primary tenet of the Regulatory Flexibility Act. Frankly, from my perspective, many of the 71 regulations identified in OMB's regulatory accounting report would not have appeared there as ``high priority,'' if agencies had consulted with our office early in the regulatory process, complied with the Regulatory Flexibility Act, and crafted less burdensome regulatory alternatives. Early analysis works. In OMB's 2001 report, Dr. Graham extolled the value of timely and meaningful consultation for the Federal regulatory apparatus. We at Advocacy could not agree more. Early consultation has led to the development of improved regulations that avoid undue burdens but still accomplish the agency's objectives. Early attention to economic consequences helps reduce the overall cost of regulatory development, and once the analysis is complete, there is less risk that a rule will be successfully challenged in court. Early dissemination to the public of regulatory analyses encourages well-informed policy decisions. Those decisions are enhanced by additional economic perspectives, like the quality work produced by the regulatory studies program in the Mercatus Center at George Mason University. The more analysis and flushing out of a rule's consequences, the better off the final product. We estimate that, during fiscal years 1998 through 2001, modifications to regulatory proposals in response to agencies' consultation with the Office of Advocacy resulted in cost savings totaling more than $16.4 billion, or more than $4.1 billion per year on average. Let me put the $4.1 billion in small business terms. That money saved means that over 1.3 million employees who work in small businesses might be able to afford employer-sponsored health care. Small businesses are and have historically been our Nation's primary source of innovation, job creation, and productivity. They have led us out of recessions and economic downturns. They have provided tremendous economic empowerment opportunities for women and minority entrepreneurs, and small employers spend more than $1.5 trillion on their payroll. That is why it is so important for OIRA or OMB to do what it does well, track, analyze, and report to Congress on the impact of significant regulations in their annual regulatory accounting report. If agencies aren't doing their homework and are promulgating rules without thoroughly considering their economic impact, small business is going to get hit disproportionately harder than their larger counterparts. I see that my time is up, so I'll sum up, with the permission of the Chair. Mr. Ose. Fifteen seconds. Mr. Sullivan. In summary, regulatory accounting and early receipt of agency information continue to be important priorities for the Office of Advocacy. Government expects small business to follow Federal rules and regulations. I think it is only fair that agencies follow the rule requiring timely and deliberate economic analysis. Thank you again for inviting me here this afternoon. I'm happy to answer any questions the subcommittee may have. [The prepared statement of Mr. Sullivan follows:] [GRAPHIC] [TIFF OMITTED] T4600.008 [GRAPHIC] [TIFF OMITTED] T4600.009 [GRAPHIC] [TIFF OMITTED] T4600.010 [GRAPHIC] [TIFF OMITTED] T4600.011 [GRAPHIC] [TIFF OMITTED] T4600.012 [GRAPHIC] [TIFF OMITTED] T4600.013 [GRAPHIC] [TIFF OMITTED] T4600.014 [GRAPHIC] [TIFF OMITTED] T4600.015 [GRAPHIC] [TIFF OMITTED] T4600.016 [GRAPHIC] [TIFF OMITTED] T4600.017 Mr. Ose. I thank the panelists. I think I'm going to go ahead and start here. My primary question has to do with--I have any number of issues in my district that are health and safety issues, they're transportation issues, they're water issues, they're education issues; and until I can get adequate feedback in terms of the relative costs and benefits of this or that regulatory action, I'm sort of flying in the dark in making decisions on an allocation of resource basis to address each of those issues. How do we move toward getting this particular report presented to Congress in time for me--and my colleagues, for that matter--to factor this analysis into the decisions that we have to make here? Because, frankly, if I've got $10 and I've got demand for $100 worth of resources, I have to prioritize. Without that analysis, which, frankly, my office is not capable of doing, I'm in a little bit of a disadvantage. Dr. Graham, how do we deal with this? Dr. Graham. Mr. Chairman, it's a very good question. The first point I would make is, while your office does not have the staffing and resources, as have you just said, to do all this analysis, the truth of the matter is that the Office of Information and Regulatory Affairs at OMB, with several dozen analysts, has some capability to do analysis, but, frankly, it's modest compared to the resources that are available in the many agencies. So I think the key to making the regulatory accounting reports successful is to change the culture within the agencies so they appreciate the importance of analysis and invest the resources and the data and quality and analytic tools to make that analysis better. One of the very first steps that we have tried in this administration is to make it clear to agencies that we are going to be returning rules to agencies that are not based upon quality analysis. But if those analyses are improved, then there's a basis for clearing those regulations. Mr. Ose. So the statute is clear that OIRA or OMB has the authority to require these, to acquire these analyses from the agencies? Dr. Graham. You're talking about the regulatory accounting statute? Mr. Ose. Yes. Dr. Graham. It places, actually, burdens on my office at the Office of Information and Regulatory Affairs. But, as a practical matter, the only real way that compliance can actually occur is if the agencies share with us the information and analysis. Otherwise, at a practical level, it's not really going to be feasible to do the job the law calls for. Mr. Ose. Are you getting resistance from the agencies in providing this information? Dr. Graham. Well, in a candid answer to that question, Mr. Chairman, I would say that the responses we get from agencies in terms of our calls for better analysis are highly variable; and the agencies and programs within agencies have varying levels of commitment to high-quality analysis. So I don't think I can be here, frankly, and tell you that we see across-the- board high-quality analysis coming from the regulatory agencies. Mr. Ose. We're going to come around. Mr. Sullivan, I will come back to you in a minute. This really begs the question, this becomes so clear here. We've had this concept of best practices in terms of the manner in which the information is supposed to be reported by the agencies; and yet, if I understand correctly, we have a variety of formats not necessarily consistent with the Best Practices Guidance that has been put out that is delivered to you. Am I accurately informed on that? Dr. Graham. The Best Practices guidelines from my office that I'm aware of are from 1996. They were actually superseded by a much more general and limited document on guidelines that came out in the year 2000. One of the reasons the Council of Economic Advisors and OMB are jointly engaged to look at those two documents and improve them and refine them is that we're not convinced that the existing guidance for agencies, frankly, has enough teeth behind it. Mr. Ose. My time is about to expire. I will yield to Mr. Otter for 5 minutes. Mr. Otter. Thank you, Mr. Chairman. Before I begin, Mr. Sullivan, you quoted some figures in your testimony; and I have not been able to find them. It was a pretty important figure as far as I was concerned, that there was enough money saved in reviewing the regulatory burdens on small business that you could have provided insurance for 1.4 million employees in small businesses. What page does that appear on in here? Mr. Sullivan. Mr. Otter, that does not actually appear in my written testimony. I do have a statement that I formalized into the Congressional Record during my confirmation hearing in the Senate. I have it with me; and, with the chairman's permission, I can enter it into the record. [The information referred to follows:] [GRAPHIC] [TIFF OMITTED] T4600.280 [GRAPHIC] [TIFF OMITTED] T4600.281 [GRAPHIC] [TIFF OMITTED] T4600.282 [GRAPHIC] [TIFF OMITTED] T4600.283 [GRAPHIC] [TIFF OMITTED] T4600.284 Mr. Ose. Without objection. Mr. Sullivan. Basically, what this does is average out per individual or per family the cost of health care. It's always helpful for me and our colleagues to put cost savings like $4.1 billion into real terms; and I think, given the problem of access to health care, it does paint a very stark picture of what the money that is being saved thorough analysis of regulations really is about. Mr. Otter. OK. Thank you very much. Dr. Graham, what did you do in your life before this life? Dr. Graham. Well, I was in the academic world, actually, all the way since graduate school. I was at the Harvard School of Public Health as a faculty member, taught the analytic tools of risk analysis and cost-benefit analysis and launched the Harvard Center for Risk Analysis, which I ran for about a decade. Mr. Otter. Would you give me your understanding of regulations? Why do we regulate? Dr. Graham. Well, I think the reasons for regulation vary enormously, depending upon the underlying law that Congress has passed and given authority to various agencies. They range from laws that are engaged to protect the environment, to protect consumers, to protect workers, to protect some businesses. It's a broad range of regulatory statutes. But, in the final analysis, we cannot at all times rely exclusively on the marketplace to achieve the outcomes in society that we seek; and, hence, we need in some cases regulatory approaches to improve the outcomes that markets cannot generate. Mr. Otter. I certainly understand that, and I certainly agree. No question that we could go through an entire litany of horrors in the past that, without regulation, certain things happened with the environment, certain things happened in human conditions, etc. But what I'm after is, each of these regulations that we have, don't they carry some sort of an encouragement, generally in the form of a penalty, either financial or otherwise, for somebody that doesn't obey the regulation? Dr. Graham. Yes, sir. That would be typical. Mr. Otter. What happens when a Federal agency doesn't obey a regulation? Let me give you an example--and we have several. The Army Corps of Engineers, for instance, is dumping 200,000 tons of slop into an area of an endangered species, the snubnose sturgeon, in the Potomac River every year since 1994 and without even a license to do so. Yet, you know, if some corporation or some private property owner or some individual or even a municipality had done that, there would have been some regulatory relief, there would have been some financial relief and maybe, in some cases, some criminal relief to the government to see to it that was done. What happens when a Federal agent or agency doesn't obey the very same laws, as in the instance of the Army Corps of Engineers? Dr. Graham. I think you're asking a great question. To be candid with you, I don't think I really know the enforcement processes and penalty process that applies to governmental agents. Mr. Otter. These are good laws. And, if these regulations that are promulgated by agencies in order to carry out a very important public policy mission--shouldn't the agencies, the other agencies of government, including the regulatory agency that's required to do the enforcement, shouldn't they withstand the same criminal and the same financial penalties as the private sector? Lord knows, you know, we're going to send a private property owner or a corporate president or perhaps a mayor or maybe even a Governor to jail if they don't enforce the laws or if they don't obey the laws. Doesn't it seem reasonable that if it's good for the general population than it would be good also for the agencies and the people who are enforcing those same laws? Dr. Graham. Well, in candor, Congressman, if we're going to encourage people to be in public service, I hope we'll accompany that with some sort of compensation for the liabilities that they'll impose. But I think you're raising an excellent point. I don't feel authoritative to speak on it in terms of what would be the appropriate type of penalty structure for people operating in regulatory agencies. Mr. Otter. My time is up, and the chairman has picked up the gavel. So I'll come back to you. Mr. Ose. The gentleman from Tennessee for 5 minutes. Mr. Duncan. We have a staff briefing that estimates that the cost of regulations at approximately $843 billion are 8 percent of the gross domestic product. You've heard in my opening statement and I've heard of other estimates of roughly 10 percent. Can you tell me, do you think those figures are roughly accurate and will you tell me who pays those costs? Dr. Graham. Well, the first point I would make is the $800 billion figure, which you're going to hear about later today in the testimony by one of the analysts who generated that, Dr. Hopkins, I think that is the best available estimate that exists at the time. It does have a lot of uncertainties and limitations, but it's the best that we have at the present time. My own personal view on that in terms of framing $800 billion is less helpful than dividing that by the number of households in the country, roughly 100 million, roughly $8,000 per household, because it can give you a sense for a family making $30,000 or so, an $8,000 bill for Federal Government regulation is a pretty substantial part of their overall disposable income. We at OMB view regulatory review as a form of consumer protection because it protects consumers from the invisible taxes that regulation often involves. Mr. Duncan. Well, certainly, as I mentioned, when you think about the regulatory costs being in addition to the tax burden of almost 40 percent on most people and $8,000 per family, it becomes very, very significant. Mr. Sullivan, you have in your testimony that small businesses are and have historically been our Nation's primary source of innovation, job creation, and productivity. They provide tremendous economic empowerment opportunities for women and minority entrepreneurs, so forth and so on. You say that in order for small businesses to continue to be such a valuable asset to our Nation's economy they must have a level playing field. The regulatory playing field is a vital one for small business. You know from my opening statement that was one of my main concerns, and I heard you say right at the tail end of your testimony that these regulations hit harder on small businesses than on very large ones. Is that correct? Mr. Sullivan. That is correct, Congressman. Mr. Duncan. Do you think that we have a level playing field now? Mr. Sullivan. No, I don't. I don't believe that we have a level playing field right now. Later on this afternoon you will hear from Dr. Hopkins, who is a coauthor of the Crain/Hopkins Report. That's where the Office of Advocacy obtained a lot of this statistical information that I cite in my testimony and in other statements that I make. We have an opportunity within the confines of this hearing and the regulatory accounting report. In order to get to a level playing field for small business, agencies have to do the analysis up front. When agencies start realizing the incredible burden that they place on the backs of small businesses, then they'll begin to realize that maybe there are less burdensome alternatives that still meet the objective of protecting the environment, still meet the objective of protecting the workplace safety or encouraging workplace safety, but don't impose such an overwhelming burden as to devastate entire sectors of small businesses. Mr. Duncan. You know, I chaired the Aviation Subcommittee for 6 years; and we had hearings in that subcommittee about the fact that a lot of the environmental rules and regulations and red tape caused major airport projects to cost at least three times what they should have cost. The main runway in Atlanta was 14 years from conception to completion, but it took only 33 days of actual construction. Now, those were 24-hour days, so maybe you could say 99 days of actual construction. But, when you drive those costs up, it means that the cost of airline tickets go up a lot more than they should be. As I said in my opening statement, who this impacts and hits the hardest are the poor, are the lower income people, the working people of this country. I now chair a subcommittee called Water, Resources and the Environment. We had a hearing a few months ago in which they estimated some published EPA regulations were going to cause 40,000 small farms to go out of existence. We had people crying at that hearing about the potential impact. And, all these people who believe in big government always say they're for the little guy. But it's the little guy who ends up getting hurt, and it's the consumer who ends up paying the cost. We run the small farmers and the small businesses out, and then these people who believe in all this regulation and stuff, as I said in my opening statement, they end up becoming the best friends extremely big business has. I'll yield. I don't have any time left. Mr. Sullivan. Could the chairman at least let the record reflect that throughout the Congressman's statement I was nodding in agreement? Mr. Ose. We will note your verbal statement for the record, as well as your physical. Thank you, Mr. Duncan. Let me--Dr. Graham, here's one of the things that I struggle with. The Federal Government collects taxes, and we can account for how much people pay in taxes on an annual basis. We distribute student loans, and we can account for how much was loaned and whether or not the borrower paid it back. We can account for Agriculture Department programs, whether they be on the foreign food service deliveries, or commodity support programs, or environmental quality improvement programs or what have you. Yet, when you look at the estimated costs of regulation, which in your testimony, if I understand correctly, are close to the discretionary expenditures of the Federal Government, we can't seem to account for the regulatory costs in a manner that allows us to factor that into our decisionmaking. I'm coming back to my question: Where's my report? The issue for me becomes not letting the perfect be the enemy of the good. Because at some point or another I've got to have this information, as do my colleagues. How do we move this thing forward? Do we pass--instead of have it be a regulatorily based requirement, do we pass a statute that says the agencies will provide to OMB or OIRA this information by such and such a date? How do we get this thing moving forward in a positive-- how can I help you do your job so you can help me do mine? Dr. Graham. Mr. Chairman, that's a good question. My initial instinct, after 6 or 7 months of working in this role and working with the agencies, is that we will be able to make some progress without any statutory change. We will be able to move this process to the point where we can give you with the budget the draft regulatory accounting report before peer review and before public comment. I don't really see, frankly, in the way it's designed, how we're going to get from here to getting you the final report in February of each year, given that all the information that we are looking at doesn't come to a conclusion until October 1st of the previous year. And Congress has required by statute that we have a public comment period, we have peer review, and I think we should have those processes with this report. So I do think there's a little reality check, frankly, in the designing of this regulatory accounting law that we need to talk about and see whether or not there's some way--that I don't see--that we can get this to the point where you ideally want it, which is that final report with the budget in February. Mr. Ose. Even if you were able to provide us with a draft copy of the report, even after 3 short years, I understand that draft copy will somehow or another become available to the interested parties and the peer review itself would take place just naturally. You would get feedback. I'd get feedback. Mr. Otter and Mr. Duncan, they would get feedback. My good friend from California, Mr. Waxman, Mr. Tierney, they'd get feedback. It would at least allow us to factor in the relative costs and relative benefits of any regulatory action as we approach the final date of the legislative session. I mean, the thing that's so crazy here is that when you look at the tax revenue we get, we account for that very carefully; you look at the discretionary expenditures that we make, we account for that very carefully; and yet we have to have, frankly, an equally quantified cost of the regulatory burden on an annual basis. And, it complicates my life, not to mention the lives of the other Members up here. So I really want to encourage you and your colleagues at OIRA and OMB to make the best of what you have at any available time. If it improves with peer review, great. I mean, I'm fine with it. But I've got to have something. I've got to have something to start with, and I'm trying to figure out how it is we make that possible. Even if it's, you know, 3 days later or 6 days later or a week late, I don't care on that kind of a timeframe. But I have to have that information just to make my job more effective. So how do I make that happen? Dr. Graham. You're making yourself very clear, Mr. Chairman. We will work very hard to get the report to you with the budget. And if it can't be the final report, then we will definitely try to make sure that you have the draft report with the budget next year. Our estimate is we're going to miss by about 6 weeks this year, but our trend line is in the right direction. We've gone from 10 months late to 6 weeks late, so we're moving in the right direction. Mr. Ose. I appreciate that. My time is up. Mr. Otter. Mr. Otter. Thank you, Mr. Chairman. Dr. Graham, I received a questionnaire from the U.S. Department of Agriculture recently, wanting to know about how my farm and my ranch were doing and what I produced. I noticed on the document that I was required to fill out that, under penalty of law and under a certain financial penalty as well as perhaps criminal penalty. If I didn't fill it out and send it back that they could enforce those penalties. Do you have any such requirement--inducement when you ask these agencies for information relative to their regulatory practices? Dr. Graham. I was afraid you were going to ask me whether there are any penalties you can hold against me for not submitting the regulatory accounting report on schedule. Mr. Otter. That's my next question. Dr. Graham. No, I don't know the specifics of the example, Congressman, no. Mr. Otter. If you had that sort of enforcement encouragement that if an agency, wherever it was, whatever agency it was, refused to respond in full and complete according to your request, do you think then that you would probably get responses that were actually more factual and more evidentiary of what was actually going on with that regulatory agency? Dr. Graham. I think that's certainly worth consideration. Mr. Otter. Would the administration support that kind of legislation, if I wrote it and advanced it? Dr. Graham. I think it's definitely worth some discussion. Mr. Otter. The problem that we have with that is that we asked 283 million Americans that sometimes collect together in communities and sometimes collect together in companies and sometimes start their own companies, we put all these rules and regulations that cost them $843 billion a year. I think we pretty well accepted that figure and said that if you don't obey these rules and regulations, it's important for us to know this stuff. It's important for you to comply with these rules and regulations, and it's important enough that we're going to have to take some sort of action against you for this necessary enforcement. If it's important for these 283 million Americans, why isn't it important for the very Government that serves them to do the same thing? Dr. Graham. Fair point. Mr. Otter. Thank you, Mr. Chairman. That's all I have. I yield back the balance of my time. Mr. Ose. Thank the gentleman. Mr. Tierney. What I would like to do is ask unanimous consent to place relevant materials in the record and to ask questions of the witnesses for the record in writing. Mr. Ose. Oh, without objection. We extend that courtesy to all Members of Congress. Mr. Tierney. Just putting it on the record. Mr. Ose. Mr. Sullivan, Ms. Dudley recommends that OMB should identify in a common but comprehensive manner variables in the methodologies to estimate the benefits and costs of regulations. It's in her testimony and talks about a report card for each agency. Congressman Horn has done that very effectively over in the Management Subcommittee of this full committee. What is your view of Ms. Dudley's recommendations about using a report card for agency analyses? Mr. Sullivan. Mr. Chairman, this actually is a perfect opportunity to talk about a response to a number of questions that have come up and been properly directed to Dr. Graham; and that is the requirement for agencies to follow the law on which Congressman Otter just elaborated. The expectation is that those who we regulate should follow the law. Why aren't government agencies also following laws? There is a law entitled the Regulatory Flexibility Act, that I mentioned in more detail in my written statement, that does require agencies to consider economic impact before they promulgate rules. To the extent that a ``report card'' would be helpful to this committee, to Dr. Graham and others, that report card will be finished by the end of this month; and it's entitled the Annual Report of the Chief Counsel for Advocacy on Implementation of the Regulatory Flexibility Act. That report talks about whether or not agencies are doing the analysis that they're required to do and consider their impact on small business prior to finalizing regulations. Mr. Ose. The end of March of this year? Mr. Sullivan. Yes, Mr. Chairman. Mr. Ose. And, where will we be able to obtain copies of that report? Mr. Sullivan. It will be hand-delivered to your counsel, Mr. Chairman, and the entire committee. Advocacy does have a fantastic Web site containing all of our publicity available documents, but the actual copies and executive summaries will be hand-delivered to this committee. Mr. Ose. So this is a report by your office on compliance with SBREFA, if I understand correctly? Mr. Sullivan. You understand it correctly, Mr. Chairman. Mr. Ose. All right. If I may go on, Mr. Sullivan. What is your view of the value of the agency-by-agency data on the impact of each agency's rules on small businesses? Clearly you think there is value. Mr. Sullivan. I think there is tremendous value. And that value is reflected in how an agency itself considers that analysis, how this committee considers it, how Dr. Graham's office and how other stakeholders in the regulatory process consider the analysis. But, the first step in that process is making sure that the agencies adequately prepare their analyses. I know that Dr. Graham is vigilant in his insistence that agencies do that analysis. Our office is vigilant in our efforts. To the extent that we have the help of this committee, that certainly helps things. Mr. Ose. But your office is narrowly--your focus is narrowly crafted on small business or issues in the small business regulatory world. Mr. Sullivan. That is correct. Mr. Ose. Dr. Graham has got a much larger responsibility. Mr. Sullivan. We are a smaller piece of the larger regulatory pie that Dr. Graham has responsibility for, yes. Dr. Graham. But, Mr. Chairman, an important piece they have. Because two of the most important regulatory agencies, EPA and the Occupational Safety and Health Administration, it is in those particular settings where the two offices at this table can work together on panels with agencies before regulations are being developed. By the way, am I right about that? Is it EPA and OSHA together? Mr. Sullivan. That is correct. Dr. Graham. That model, our staff feels, has been very helpful in getting agencies to think through the small business issues early in the process before they get too committed to a particular line of regulatory thinking. So I think that is an area where we ought to look to in terms of collaboration that can continue between our offices and a model for early involvement that we might want to consider in other contexts. Mr. Ose. Thank you. The gentleman from Massachusetts for 5 minutes. Mr. Tierney. Thank you for your indulgence. Thank you, Dr. Graham, Mr. Sullivan, for your testimony here, for being here today. Dr. Graham, let me start with just a question about the New Source Review under the Clean Air Act. You have emphasized that the administration strongly supports using what you say are sound analysis and economic tools to make policy decisions. One of the tools that you have argued for is cost-benefit analysis. There are serious concerns with this approach because, among other things, it is difficult to express many of the values in monetary terms. So my question to you is, you advocate this approach. Has your office reviewed the benefits and costs to changes to the New Source Review regulations that are under consideration by the administration? Dr. Graham. No, we haven't received any proposals from the agency as of yet, though we expect that very well may happen down the road. Mr. Tierney. But, that is on your list, is it not? Dr. Graham. It is on the list for what we believe the agencies should do. In this case, EPA. Mr. Tierney. Have you looked at any of the potential health effects of those changes at all? Dr. Graham. We haven't done any analysis yet on the NSR reform proposal. Mr. Tierney. Well, what gives OIRA the ability or the authority to make a target list of 23? Dr. Graham. What gives us our legal authority? Mr. Tierney. Yeah. Dr. Graham. Actually, the proposals that we have asked for public suggestions on were actually done pursuant to the regulatory accounting law that is the subject of this hearing. Mr. Tierney. That requires that you make a target list? Dr. Graham. No, it actually doesn't require us to do it. But we interpret it as authorizing us to do so. We think it is consistent with the authorization in the statute. Mr. Tierney. So you took the liberty to do it? Dr. Graham. Correct. Mr. Tierney. Now you have 23 targeted regulations that you target for high priority. Fourteen of them are nominated apparently by the Mercatus Center. Tell me a little bit about that, that center, and how it was that they got to play such a prominent role in your proceedings. Dr. Graham. Well, let me first start by noting that the public comment process that led to these nominations was a standard Federal Register announcement. Anyone was allowed to suggest nominations. And, frankly, we were very pleased that the Mercatus Center did the diligence to actually make the large number of nominations that they did. When we evaluated their nominations, quite frankly, we did not evaluate a majority of them as high priority. It is only a minority of them that we felt were in that class of 23 that you described. Mr. Tierney. Fourteen. Dr. Graham. Out of 40, I believe. Mr. Tierney. But 14 out of the 23 that you chose. Dr. Graham. They accounted for 14 out of the 23 that we chose, yes. Mr. Tierney. Were you at all concerned about the funding sources for Mercatus Center, that they might have a bias? Dr. Graham. No. We actually look at the quality of the arguments and analysis of each of the commenters regardless of where they happen to get their funding sources from. Mr. Tierney. Did you ever serve on the Mercatus Centers Board of Advisors? Dr. Graham. I think I may have actually served for a year or two toward the end of my tenure at the Harvard Center for Risk Analysis. Mr. Tierney. Now my understanding is that the American Chemical Council nominated the Mixture and Drive-From Rule, and the American Petroleum Institute nominated the Notice of Substantial Risk Rule. They are both on your high priority list. You testified that you were the director of the Harvard Center for Risk Analysis. Did the American Chemical Council and the American Petroleum Institute donate funds to the Harvard Center in undisclosed amounts? Dr. Graham. Yes. American Chemistry Council and American Petroleum Institute, yes. Mr. Tierney. And those amounts that they contributed were not disclosed? Dr. Graham. I don't believe that the Harvard Center for Risk Analysis discloses the actual amounts, but they do disclose who the contributors are. Mr. Tierney. Is there a limit on the amount that they could contribute to that center? Dr. Graham. Not that I am aware of. Mr. Tierney. How do you decide the number of staff that are going to be devoted to each of your agencies' regulations that you are reviewing? For instance, in October I think you only had one OIRA desk officer assigned to the IRS, but the IRS, I am told, generates 82 percent of the paperwork burden imposed by the Federal Government. At the same time the EPA, which generates only 1.7 percent of the total paperwork burden imposed by government, has 18 percent of your desk officers assigned to it. So how do you make those determinations? Dr. Graham. Through intense scientific analysis, sir. No, it is a fair question. The first point I would like to make is a distinction between the regulatory review side of our operation and the paperwork reduction side. As I understand your question, you are focusing on how we allocate our staff resources with regard to paperwork review. Mr. Tierney. Right. Dr. Graham. I think there, one of the key things that we look at is not simply what the aggregate amount of paperwork burden is by various agencies, but what the actual paperwork reduction opportunity is in these various agencies. And I did, in the process of my confirmation, look at prior hearings of this committee. And while I thought it was pretty clearly argued that there were substantial paperwork burdens from the IRS, a lot of those burdens are rooted in statute, and in interpretative rules that are outside of the authority of our office. So it may look at first blush like IRS is a great opportunity. But I think it is a lot more complicated than that when you look more closely at it. Mr. Ose. The gentleman's time has expired. The gentleman from Idaho for 5 minutes. Mr. Otter. I would like to pursue that just in general with the agencies. Regulatory agencies that have their mission, that have their laws pretty well rooted in statute, like the IRS, as opposed to a more subjective enforcement opportunity, say like the Environmental Protection Agency or OSHA, where a person on the spot doesn't necessarily have a statute to look at and says, ``this is the depreciation schedule and you will follow the depreciation schedule for a 30-year life on a building,'' whereas opposed to making a more personal judgment within the knowledge that one would have of a constructionsite, and/or of a potential hazardous material. Doesn't it seem possible to you that in the one case there is an awful lot more room for human error in the judgment case as opposed to the statutory laws that are available in statute, for instance for the IRS, and shouldn't we be more concerned about human error in trying to serve the public than otherwise? Dr. Graham. I think you are right that there is more discretion in certain agencies for how they frame regulations, how they design them, what their ultimate costs are likely to be. The example that you gave, however, the Environmental Protection Agency, my experience so far in the first several months, is that a lot of the rulemakings that they do are under specific statutory requirement, in some cases not only a statutory deadline, but in some cases a court order. We don't necessarily let those things cause us to not look carefully at regulations, but they do cause us to have a need for a much more expedited look at these regulatory proposals in light of the statutory and judicial context they are framed in. Mr. Otter. Were you--are you familiar with the Canadian Lynx study that was falsified by four Federal agencies in the Wenatchee National Forest? Dr. Graham. No, sir. Mr. Otter. Thank you. Thank you, Mr. Chairman. I yield back. Mr. Ose. I thank the gentleman. The gentleman from Massachusetts for 5 minutes. Mr. Tierney. That was a quick round. Dr. Graham, continuing on a little bit on that. In your report you say that you support, or strongly support, using sound analysis and economic tools to make your policy decisions. One of the tools that you have argued for is the cost-benefit analysis, and you say there are concerns with the approach because it is difficult to express many of your values in monetary terms. Tell me, if you would, how you would evaluate the potential health effects in monetary terms, something like the Clean Air, or something like the--you know, any one of those environmental regulations. Dr. Graham. Right. That is an interesting question. It is an area in which, as a faculty member of the Harvard School of Public Health, I did a lot of teaching and writing. When I actually came to Washington and looked at the guidance documents in this area, what I found is that our office does not in fact require agencies to put dollar values on life- saving effects or other types of health effects. Agencies are certainly authorized to do so if they feel there is a useful analytic approach for doing that. But one of the interesting things I think about this is as you look across the Federal agencies, some of them are doing that exercise, and some of them, such as the National Highway Traffic Safety Administration and the Occupational Safety and Health Administration, are not doing that. So one of the things we are going to be looking at with the Council on Economic Advisors is whether there really is an adequate analytic foundation to be insisting upon some general approach to that very difficult question. Mr. Tierney. Well, if you don't factor in the health benefit on that, your study is not worth anything, is it? If you are leaving out one very major component? Dr. Graham. No, I think there would still be tremendous value in quantifying how many citizens each year suffer from aggravation of asthma, or how many citizens who have cardiopulmonary disease have hospital admissions as a result. But I thought your question was should we put a dollar value on that. Mr. Tierney. Well, you are going to do a cost-benefit analysis. So what is the benefit in terms of--what does that mean? Dr. Graham. Interestingly enough, I believe the Environmental Protection Agency does currently try to put dollar values on each of those effects, but other Federal agencies don't. So I don't think we are in a particularly orderly situation at the present time. Mr. Tierney. And, we get to my next question, which is assumptions. Everybody is using assumptions. I think you state in the report that it is only as strong as their assumptions made are. If the assumptions aren't strong or aren't correct, then we don't have much to go on. But then you just sort of seem to be dictating the assumptions that are used by the agencies. Do you think that your office has more expertise in this area than some of the agencies? I mean, you go into a particular agency that has all of that expertise, they come up with a recommendation and tell you what their assumptions are, and your group just kicks it back and says we don't agree with your underlying assumptions. They might ask, who the heck are you? Dr. Graham. Well, I am still early in my learning on where the sources of authority are in our office and this sort of thing. But, I believe the regulatory accounting law itself requires us, as an office, to develop the guidance that agencies use. So I don't think this is our office just sort of volunteering to be the analytic force within the Federal Government. I think actually there is statutory requirement for our role in analytic---- Mr. Tierney. That is sort of setting parameters up here. But you are going right into their report and saying, ``Hey, I don't like the assumptions that you made.'' Who gives you the authority to do that? Where does it come in and say that you have more expertise than the Department of Transportation, the Environmental Protection Agency, or anybody? Dr. Graham. Well, on the authority side, clearly the executive order provides us that authority. Mr. Tierney. Then you might as well write the things yourself and not even include them in the process. Dr. Graham. We certainly look very hard--as I can tell by the line of your questioning, we do in fact look very hard at the analytic assumptions and the bases that agencies try. And, if we see that we don't feel an adequate rationale, we will return it to the agency and ask them to work on it some more. Mr. Tierney. So, I guess what you are telling me is you think that your staff has better expertise than the departments that are sending you these analyses? Dr. Graham. I wouldn't generalize on that. But in certain cases, I think we can make a contribution to inducing agencies to do better analysis. Mr. Tierney. You are doing it at a world record pace, aren't you, with all of your letters back, and rejections? Dr. Graham. Well, I will let others judge the rate of that pace. Mr. Tierney. There we go to the numbers, right. You have sent back more than the entire two terms of the past administration and you have been here a couple of months. I have to tell you that it raises a lot of concern, that this is just another way to go about some things that certain people may not like, and instead of just dealing with them in a legislative end of it, trying to go through the back door on the regulatory process and kick them out. The track record I have seen so far is very, very troubling. Dr. Graham. Well, I think, Mr. Chairman, if you look actually at the overall record---- Mr. Tierney. Wait until November, maybe. Mr. Ose. This is the ranking member. Dr. Graham. I am sorry. Not until November, right? We discussed that earlier. But I hope you look at the overall record of the office. Because there are a number of other areas in which our office has been suggesting and encouraging agencies to adopt regulations in the health, safety and environmental arena. At FDA for the labeling of trans-fatty acids for foods, at OSHA in terms of making available automatic defibrillators that save lives from sudden cardiac arrest. Mr. Tierney. Well, the trans-fatty acids made your list at first and then somehow got kicked off, right? Dr. Graham. Pardon? Mr. Tierney. The regulation concerning trans-fatty acids made your list of concerns at first and then you decided to go with the regulation; am I right? Dr. Graham. I am sorry. I didn't hear the last part. Mr. Tierney. At one point wasn't the trans-fatty acids regulation on your list, your identified list of regulations that you wanted to look at? Dr. Graham. You are saying one of the public commenters raised it as one to look at? Mr. Tierney. Well, it made your list of 23. So, not only did the public comment on it, you put it up on your hit list here, about six down, food labeling, trans-fatty acids and nutrition labeling, nutrient content and health claims. You have since pulled back from that, right? Dr. Graham. Congressman---- Mr. Tierney. My understanding is that you have since pulled back. Dr. Graham. We consider that a review list rather than a hit list. Mr. Tierney. It depends on your perspective, I guess. Dr. Graham. Some of these reviews may surprise you in terms of what type of results are actually generated. I hope you will look explicitly at what our office has suggested in the trans- fatty acid area, because I am not sure we are in total sync on what actually our office has done in that area. Mr. Tierney. I hope with respect to all of the others you surprise the heck out of me. Mr. Ose. Yes. The gentleman's time has expired. The gentleman from Massachusetts for a final question. Mr. Tierney. I was going to ask you about each of your 23, go down the list. We can do that in writing, I suppose. I would really like to know what your specific reason for putting each of these 23 on your high priority list is, and why they made a high priority list as opposed to a medium priority, as opposed to low priority, or no priority. What distinguished them? One of the things that really draws it to my attention is the arsenic in drinking water regulation that made the list put out by the Environmental Protection Agency, the authority is the Safe Drinking Water Act. Description of your problem was that Mercatus states that, based on EPA's own analysis, benefits do not justify cost in standards of either 5 or 10 ppb. Based on the more robust analysis, these levels are even less attractive. Then your proposed solution says, Mercatus believes that the EPA should set a standard. Then your estimate of economic impact says that Mercatus asserts. So, I think maybe you can see my concern that it wasn't your agency so much that was looking at these things and making the analysis, as that Mercatus was sort of writing out a formula here and dropping it on OIRA's desk and I think the end of this is, of course, that eventually the administration accepted the arsenic in drinking water standards as they were. Dr. Graham. The Mercatus Center was not the only player in that discussion. There was the National Academy of Sciences. There was the EPA Science Advisory Board. And, ultimately we looked at all of that information and came--and supported Administrator Whitman's decision on arsenic in drinking water. Mr. Tierney. But you based your proposed solution and your estimate of economic impact on Mercatus. You don't cite the other people. You cite Mercatus. Dr. Graham. Because, at that time, the review of the arsenic review was not ultimately completed when we made the rating that you are referring to in your statement. Mr. Tierney. We will put the others in writing. Thank you. Dr. Graham. I would be happy to answer your questions in writing, sir. Mr. Ose. I thank the gentleman for yielding back. I want to thank Dr. Graham and Mr. Sullivan for joining us today. Mr. Sullivan, I am sorry you didn't get much attention in the latter part of the hearing, but maybe next time. We do have additional questions which the Members may well submit in writing. We will be leaving this open. We appreciate your cooperation in coming today. I apologize for keeping you a little bit long. Thank you both. If we can have the second panel step forward. That would be Dr. Miller, Dr. Hopkins, Ms. Dudley, Ms. Claybrook, and Ms. Heinzerling. OK. I want to thank you for coming. In this committee and this subcommittee we routinely swear in our witnesses. So, if you all would stand and raise your right hand. [Witnesses sworn.] Mr. Ose. Let the record show all of the witnesses answered in the affirmative. As you have seen in our prior panel, we are going to give each of you 5 minutes to summarize your written testimony which we have received. We appreciate you coming. Dr. Miller, you are first. Joining us, our first witness is Dr. James C. Miller, III, the former Director of the Office of Management and Budget and the counselor to Citizens for a Sound Economy. Dr. Miller, 5 minutes. STATEMENTS OF JAMES C. MILLER III, FORMER DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, COUNSELOR TO CITIZENS FOR A SOUND ECONOMY; THOMAS D. HOPKINS, FORMER DEPUTY ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET, DEAN, COLLEGE OF BUSINESS, ROCHESTER INSTITUTE OF TECHNOLOGY; SUSAN DUDLEY, DEPUTY DIRECTOR, REGULATORY STUDIES PROGRAM, MERCATUS CENTER, GEORGE MASON UNIVERSITY; JOAN CLAYBROOK, PRESIDENT, PUBLIC CITIZEN; AND LISA HEINZERLING, PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW CENTER Dr. Miller. Mr. Chairman, thank you. Thank you, Mr. Ranking Member. I appreciate an opportunity to be here with you today. My statement can be summarized in nine points. I will try to be brief. One. Regulation is just one of the two major ways the Federal Government uses to acquire command over resources, or to make those resources go to uses other than they would have gone otherwise. The other, of course, is by spending, taxing, borrowing-- also printing money, we don't do much of that--spending and buying the resources on the private market. Two. You have an elaborate budget process or spending process. An elaborate process for making decisions about spending. You don't have an analogous process for making decisions about the way government goes about regulating. Three. The regulatory resource burden or the amount of resources in value terms obtained by the Federal Government through regulation is significant. It is about half the total spending of the Federal Government. In fact, it exceeds all appropriations. Let me say that again. The regulatory resources directed by the Federal Government exceed, in value terms, all appropriations for the Department of Transportation, the EPA, all of these departments, all of those appropriated accounts. Four. Although I have spent a lot of time in my career studying the efficiency of collective decisionmaking, and I wouldn't say that all collective decisionmaking by this Congress is perfect, I think you would be a lot better off in your decisionmaking, you would make a lot more efficient decisions, if you had adequate information and if these issues were transparent to you. Five. I think you ought to develop a regulatory process very much like your spending process. You ought to appropriate regulatory resources just like you appropriate spending resources. Six. It is not anti-government to say that you ought to estimate the cost of regulation any more than it is anti- government to produce a budget, a spending budget, for the U.S. Government. When you make decisions about some program and fund the program, you have to make some evaluation of the benefits of that program. In fact, the very fact that you approve it is revealing that in your mind the benefits exceed the costs. There is nothing any more biased about looking at regulatory costs than there is a bias in looking at the costs of programs. Some argue you ought to just do what is right instead of looking at cost--you shouldn't look at costs at all. The analogy there would be, you ought to just tell agencies go do this, that, or the other without any notion of what it will cost, any budget, any spending limit at all. Eight. A start would be to have better regulatory accounting. Now I know there has been some problems about getting this regulatory accounting budget to you. And, that brings me to my ninth and final point. It is easy to blame OMB. Maybe I am expressing a parochial view since I was the first Administrator of OIRA, I was the first OIRAnian, Mr. Chairman. Along with Dr. Hopkins here, I was present at the creation. Let me also mention that accompanying me today is Dr. Wayne Brough, who was also a member of the OIRA staff. It is easy to blame OMB. But the agencies don't necessarily respond to OMB, to OIRA. When OIRA asks for information, they don't always get it. The raison d'etre of agencies is to promulgate regulations or spend money or whatever. When OMB says we are not going to give you any money unless you respond, they tend to respond. To the degree that OIRA can say, well, we are not going to approve your regulations unless you respond, that raises all sorts of problems, creates controversy, etc. But to the degree to which you can support OIRA and impress your colleagues on the authorizing committees for the agencies that it is important that they cooperate with OIRA in producing these estimates of costs and benefits, this will improve your chances of getting this information. I am not against estimating benefits. I think it is very important, I think we would be better off if we had them. But you have got to give OIRA a bigger stick. Part of the problem is that you have the diffusion of power and authority in OMB with the management deputy and all of these recent reforms. But I think if you give OIRA a bigger stick and you give this new Administrator of OIRA, Dr. Graham, some support and encouragement, I think you will get your reports in a more timely fashion. Thank you, Mr. Chairman. [The prepared statement of Dr. Miller follows:] [GRAPHIC] [TIFF OMITTED] T4600.018 [GRAPHIC] [TIFF OMITTED] T4600.019 [GRAPHIC] [TIFF OMITTED] T4600.020 [GRAPHIC] [TIFF OMITTED] T4600.021 [GRAPHIC] [TIFF OMITTED] T4600.285 Mr. Ose. Thank you, Dr. Miller. Our second witness, who has been briefly introduced by Dr. Miller, is Dr. Thomas Hopkins, who is the former deputy administrator, the Office of Information and Regulatory Affairs at OMB. He is also the Dean of the College of Business at the Rochester Institute of Technology. Dr. Hopkins, welcome. We have your written statement. If you could summarize in 5 minutes, that would be great. Dr. Hopkins. Mr. Chairman and members of the committee, I am pleased to have this opportunity to present my views on the regulatory accounting issues now before you. Government regulation, however well intentioned and effectively designed, necessarily impose burdens on those who are regulated. When a burden is imposed without an accounting of its consequences, government operates without accountability and without transparency. Most of the costs associated with regulatory compliance are hidden from public view. A recent report that Dr. Mark Crain and I prepared for the U.S. Small Business Administration found this hidden additional spending on regulatory compliance exceeding $800 billion annually, more than half of the size of the Federal Government's entire tax take each year. Indeed, if the Internal Revenue Service mailed ``informational invoices'' showing each family's share of spending on regulatory compliance, the average family would ``owe'' some $8,000 annually over and above their taxes. Regulations' coerced shift of resources results in a less productive economy to the extent that regulations fail a benefit-cost test. And, unfortunately, much regulation does not pass such a test. Robert Hahn and Cass Sunstein conclude that adding some regulations while removing or improving others could save tens of thousands of lives and millions of dollars annually, thus giving simultaneous boosts to health, safety, and economic growth. Restrictions on free trade, such as the recently announced quotas on steel imports, also fail a benefit-cost test. They are particularly burdensome on the many small businesses that now will be facing higher prices for the steel they purchase. Our government routinely mandates inefficient uses of resources. This would be of limited significance if regulatory compliance costs in the aggregate were small. But they are not. Moreover, small firms face 60 percent higher regulatory compliance costs per employee than do large firms. Spending on tax compliance and environmental protection is especially burdensome for small firms. The work that Dr. Crain and I have completed shows regulatory costs can be measured, and they are sizable in both absolute terms and relative to government spending. Thus, any initiative aimed at improving government should ensure that spending programs and regulatory programs receive parallel and balanced attention. In the early 1990's, the Office of Management and Budget began moving in this direction, linking regulatory spending with fiscal spending in its Unified Budget documents. This early effort did not continued past 1993, however. Timely annual regulatory accounting reports are needed, and they would benefit from more complete standardization of the data that agencies should be required to provide OMB. Regrettably, agencies routinely have ignored such requirements. Another all too common problem is agency estimates that lack comparability in fundamentally important respects. OMB guidance to agencies, while generally sound, has not insisted upon common data formats and methods. Since agencies are not given discretion to utilize varying accounting practices in reporting their fiscal outlays, neither should they in reporting regulatory effects. Our paramount need is for sound estimates of incremental effects of every major new regulation, and of each's most prominent components relative to alternatives. Armed with such information, it would be far easier to avoid inefficient regulatory action. But, there also is merit in deriving aggregate measures which help citizens gauge the overall extent of government mandates relative to taxation. It makes little sense, for example, to advocate tax reduction if, as sometimes happens, we then get what amounts to an offsetting increase in regulatory requirements. If budget constraints cause the government to step back from spending tax revenues on some new initiative, it now is all too easy for the same initiative to be accomplished through government regulation that forces business or State-local government to pick up the tab. There are no aggregate constraints on, or even consistent measures of, overall regulatory spending. This committee's endeavor to improve regulatory accounting is most promising. It will require perseverance and common sense. I hope that my comments are helpful and constructive, and I thank you for the opportunity to participate in this hearing. [The prepared statement of Dr. Hopkins follows:] [GRAPHIC] [TIFF OMITTED] T4600.022 [GRAPHIC] [TIFF OMITTED] T4600.023 [GRAPHIC] [TIFF OMITTED] T4600.024 [GRAPHIC] [TIFF OMITTED] T4600.025 [GRAPHIC] [TIFF OMITTED] T4600.026 [GRAPHIC] [TIFF OMITTED] T4600.027 [GRAPHIC] [TIFF OMITTED] T4600.028 [GRAPHIC] [TIFF OMITTED] T4600.029 [GRAPHIC] [TIFF OMITTED] T4600.030 Mr. Ose. Thank you, Dr. Hopkins. Our third witness on the second panel is Ms. Susan Dudley, who is the deputy director of the regulatory studies program at the Mercatus Center, George Mason University. Ms. Dudley, thank you for coming. We do have a copy of your testimony. As with the others, we would appreciate your summary within 5 minutes. Ms. Dudley. Thank you. Mr. Chairman, and members of the subcommittee, thank you for inviting me to speak today on regulatory accounting. My name is Susan Dudley. As you said, I am a senior research fellow and deputy director of the Regulatory Studies Program at the Mercatus Center at George Mason University. Please note that the testimony today reflects my own views and not an official position of either Mercatus or George Mason. Our program is dedicated to advancing knowledge of regulations and their social consequences. Through our public interest comment project, we have submitted comments to OMB on its 1998, 2000, and 2001 reports to Congress on the costs and benefits of regulation. We also have several regulatory accounting projects of our own underway. Dr. Miller had nine points to make. I would like to make two. The first is on the importance of the analysis and information requested by Congress in these annual regulatory account reports. The second is on the timing of the submission of the reports. In my written testimony I also offer specific ways to improve the quality and value of the reports. As Dr. Miller said, the Federal Government has two principal mechanisms by which it diverts resources from private sector use to meeting government-mandated goals. Those are taxation and regulation. While tax revenues and the associated spending are measured precisely, tracked through the Federal budget, and subject to congressional oversight and public scrutiny, there is no corresponding mechanism for keeping track of the total cost of regulation. To get a sense of the size of this hidden tax, we have had to resort to such proxies as the number of pages in the Federal Register or the size of the budgets of regulatory agencies. These statistics confirm that the number and scope of regulations has grown dramatically over the last three decades, but they cannot inform policymakers and the public about the costs or the benefits attributable to these regulations. The Small Business Administration reports, as Mr. Sullivan and Professor Hopkins have discussed, offer the most reliable estimates of regulatory costs available. But those periodic snapshots do not fulfill the need identified by Congress for an annual accounting of both the regulatory costs and benefits by agencies. Thus, I strongly support the regulatory accounting reports. These annual reports can begin to shed some light, not only on the magnitude and impact of this hidden tax, but also the benefits Americans are expected to derive from it as well. Submitting reports concurrently to Congress with the Federal budget will improve their effectiveness. Because regulations require off-budget expenditures to achieve government goals, integrating these reports with the Federal budget will provide valuable information about the full impact of government activities on American citizens. Rigorous analysis of regulatory costs and benefits can significantly improve the allocation of the Nation's limited resources and can improve the effectiveness of our regulatory efforts. Like triage practices that are common in the public health field, directing resources to where they can do the most good depends on reliable information. Having a better understanding of regulatory performance and results at the agency and program levels during the budget process will help appropriators allocate budgets toward regulatory programs that produce the greatest net benefits. Thus, I strongly recommend that the annual regulatory accounting report be submitted to Congress simultaneously with the Federal budget. Though I recognize it will take considerable effort, at least initially, to get the reports on track for annual submission each February, the information would be valuable to Congress and other policymakers as they allocate available resources to various government programs. Let me wrap up by pointing out that, for over 30 years, the White House has maintained in one form or another a centralized mechanism for executive branch oversight of regulations issued by Federal agencies. President Clinton's Executive Order 12866 continued this tradition, reinforcing the philosophy that regulations should be based on an analysis of the cost and benefits of all available alternatives and that agencies should select the regulatory approach that maximizes net benefits to society consistent with the law. Over the last year, OMB has applied and enforced the principles of Executive Order 12866, and made its own analysis and decisions regarding agency regulations more transparent to the public. It should continue to hold agencies accountable for ensuring proposed regulations do more good than harm. The annual regulatory accounting report to Congress can aid in this effort by providing rigorous and defensible estimates of the costs and benefits of regulations issued over time by agency. It can increase transparency, accountability and regulatory effectiveness. Thank you. 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Our fourth witness joining us today is Joan Claybrook, who is the president of Public Citizen. We have your testimony also, which we appreciate you submitting. If you could summarize within 5 minutes, that would be great. Ms. Claybrook. Thank you so much, Mr. Chairman. I appreciate this opportunity to testify. We have heard a lot about costs today. I would like to talk about three points. One is the issue of the regulatory accounting system and the report, and the use of cost-benefit analysis. Second is, why this report is so fundamentally flawed, because it is based on very inadequate information. And third, the use of return letters by OMB most recently. First of all, we have heard a lot about cost this morning, and it is interesting we haven't heard a lot about benefits. But, if you look at the--despite all of the deficiencies in the numbers, if you look at the reports put out by OMB in the last several years, you find that the range of net benefits in 1999 was $25 billion to $1.6 trillion for regulation, and in 1998, it was $30 billion to $3.3 trillion. I would say that is one of the best deals going in the United States of America. I doubt that any business could boast those returns. We have serious objections to the regulatory accounting system, as does, we believe, just about every other public interest, consumer, environmental, public health, labor organization. Doubts regarding the overall cost-benefits were noted by OIRA itself in its report. I shall expand on that. First, however, the problem with regulatory accounting is that it implies that the overall numbers are reliable, which they are not, and I will explain that in more detail. Second, the number for prior years, if you include prior years and not just the most recent current year, those numbers are grossly out-of-date because the regulatory agencies do their analysis when they issue a rule. They don't go back every year and recalculate those numbers. So, if you include, let's say, 1981 to the year 2001, everything but the last year or two could be completely and grossly out-of-date. So I don't know that those numbers would provide you any value at all. Surely you wouldn't have them go back and recalculate all of those numbers. I am sure a business wouldn't want to have to answer the myriad of questions the agencies would ask in order to get those updated. Third, it is biased toward cutting regulations opposed by industry because the government agencies do not have the funds to adequately gather the benefits data. The agency I used to head, the National Highway Traffic Safety Administration, has a data collection operation, but it has got one-third of the funding it did when I left there in 1981 because it hasn't been increased, and inflation has taken it away. Fourth. The conclusions are highly manipulable because they are based on a raft of assumptions, a change in any one of which could affect the outcome. Fifth. By relying on discounting, regulatory accounting subverts the importance of longer-term goals and protections. Sixth. It ignores the critical side benefits of regulation that help industry, for example, by limiting the risk of developing new products, such as environmental or consumer products. Or forcing industries to update and upgrade their manufacturing processes as in the case of textiles, which essentially saved that industry so that it could compete with imports, and made them more competitive with imports as well, and improved products to help ride out market disruptions. For example, fuel economy in cars. Our industry did not want to improve the fuel economy. Standards helped to save this industry. Seventh. It does not reflect the public values and advances of the quality of life, the standards of living that are fostered by regulation. We see that difference when we go to foreign countries and yet we accept it as the normal way of living here. That is why the public so deeply appreciates regulation. Eighth. It is impossible to present meaningful conclusions in an accounting format, because so many of the values are nonquantifiable. Ninth. The underlying purpose to set a regulatory budget would impose false limits on safeguards across the Federal regulatory system, undermining public health and safety. Ten. It is a waste of public resources, I believe, in the long run, because of all of those facts. Now, as to the cost-benefit issues. Abstract cost-benefit studies suffer fatal flaws. They are not neutral. They are highly discretionary. They are subject to manipulation. They are biased in terms of trying to improve our quality of life. When you put garbage in, you get garbage out. A number of these numbers are inherently unreliable. The agency estimates of costs are badly inflated due to poor and inadequate information from the regulated industry, which hypes numbers them when they submit them, and there are some studies that I could submit for the record on that, because industry has strong financial incentives to skew the data. And, the agencies themselves have very little resources to develop the benefits data. Agencies base their estimates on conservative or inappropriate assumptions often because they are forced to do so. And, agencies only apply a static market analysis, failing to consider new and innovative ways that the industry can and, when the rule is issued often do, innovate to save cost. The benefits can't be calculated because some of them are incalculable. Often the numbers are hard to get, and there are not the resources to do it. There are also many subtle quality- of-life issues, such as asthma sufferers being able to breathe because of clean air standards, that aren't taken into account. Third. Discounting distorts priorities and devalues human suffering. The entire regulatory regime at OMB requires a 7- percent discount rate. It should be 3 percent at most, if at all. That makes a huge difference in dollar terms. Fourth. Rigid cost-benefit calculations undermine democracy and the legitimacy of regulation because only so-called experts can play the game. The public is completely left out of this obscure, complex, and often secret process. Companies often submit data and refuse to provide the basis for it. And my last point, Mr. Chairman, if I can just have 1 or 2 more minutes. Is that possible? Mr. Ose. We are going to have to cover it in questions. Ms. Claybrook. Well, I would like to, in the question and answer period, talk about the tire monitoring return letter, because I do believe that it is a great example of this process. Thank you very much for letting me testify. 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Thank you. Our final witness on the second panel is Professor Lisa Heinzerling. She is a professor of law at Georgetown University Law Center. Thank you for coming. We do have your prepared testimony, which we appreciate receiving. If you can summarize in 5 minutes, that would be great. Ms. Heinzerling. Thank you. OIRA has been reviewing major Federal regulations for over 20 years. Nevertheless, with this administration, OIRA has set a new direction and tone in undertaking this review. Simply put, the direction is away from regulation, particularly health and environmental regulation, and the tone is one of skepticism and second guessing. These are unfortunate and perhaps even unlawful developments. I will describe three ways in which OIRA has changed course with the new administration. All of the subjects I am about to describe are discussed in the 2001 OMB report which is the subject of this hearing. First, for the first time this year, OIRA used this report as a vehicle for allowing regulated entities and groups funded by regulated entities to try to rid themselves of regulations they do not like. OIRA invited interested groups to tell OIRA about rules that should be reformed or undone. Regulated entities and groups funded by regulated entities happily obliged. They presented OIRA with a wish list of 71 regulations they would like to see reformed or even erased. OIRA chose 23 of these rules as high priority, and it signaled its intent to revisit these rules and perhaps even to direct the relevant agencies to reconsider these rules. In this way, regulated industries' wishlist became a kind of hit list in OIRA's hands. No principled basis for determining priorities emerges from OIRA's decisions on priorities. Indeed, for all of OIRA's emphasis on peer review and quality analysis by administrative agencies, I have been unable to discover one word in OIRA's lengthy report that explains how it arrived at the priorities it chose. For example, OIRA labeled EPA's rule on arsenic in drinking water, which we have just heard about, high priority, even though the rule had been issued 2 months before, after months of in-depth inquiry, by three different expert panels. The unmistakable impression, encouraged by reports of contemporaneous meetings with industry groups whose least favorite rules magically appeared on OIRA's hit list, is that in this setting bad politics dominated good science. A second way in which OIRA's direction and tone have changed in this administration is that OIRA has announced that it tends to make aggressive use of the so-called return letter, under which rules may be returned to agencies when the agencies have not analyzed the relevant problem in the way OIRA thinks it should be analyzed. Indeed, OIRA, as we have heard this afternoon, has already issued 20 return letters. OIRA's assertion of authority essentially to veto rules it does not like threatens to undermine a basic premise of the law governing administrative agencies, which is that their expertise in the subjects over which they have authority entitles their decisions to a good deal of deference. At this time, OIRA appears not to have the kind of humility that its lack of expertise would make appropriate. In fact, OIRA appears to have no humility at all in this regard and appears more than willing to second-guess expert agency judgments. Thus, we are witnessing a spectacle in which OIRA's staff, made up predominantly of economists, are presuming, for example, to tell EPA scientists how to conduct research into the health effects of air pollution. OIRA's plan to intervene in expert agency decisionmaking is perhaps made most obvious by its recent announcement that it intends to hire physical scientists for the first time. Now I suppose that, if OIRA intends to second-guess the scientific basis for agency decisions, one might say that at least the office should have scientists on its staff. But, suppose the office decides to hire only scientists who take a skeptical view of, say, the hazardousness of toxic chemicals. In that event, an OIRA decision second-guessing an agency rule regulating such chemicals will be based not on good science, as OIRA would have it, but on the idiosyncratic scientific and perhaps political viewpoints of the scientists OIRA chooses to hire. This is a recipe for political second- guessing disguised as good science. Finally, the tone of OIRA's 2001 report must be regarded as hostile, even if subtly so, to health and environmental regulation. I offer one example, in the interest of time. OIRA unreasonably gives credence to the possibility that, as of the year 2000, environmental regulation had on the whole done more harm than good in this country, that is, that its costs outweighed its benefits. OIRA bases this calculation on studies that are not only over 20 years old, but that contain assumptions that tend to disfavor environmental regulation. Crediting these studies and, therefore, suggesting that environmental laws may have done more harm than good in the last 30 years is a signal that OIRA takes the benefits of environmental protection less seriously than it should. To me, it is hard to read the 2001 report without coming away nervous about what OIRA's discussion presages for environmental protection in this country. Perhaps I am too much influenced by the fact that OIRA's current head, Dr. Graham, was quite overtly hostile to environmental protection in his many years as an academic. But, nothing in this report, or in OIRA's recent activities, convinces me that my fears are unwarranted. Thank you. [The prepared statement of Lisa Heinzerling follows:] [GRAPHIC] [TIFF OMITTED] T4600.084 [GRAPHIC] [TIFF OMITTED] T4600.085 [GRAPHIC] [TIFF OMITTED] T4600.086 [GRAPHIC] [TIFF OMITTED] T4600.087 [GRAPHIC] [TIFF OMITTED] T4600.088 [GRAPHIC] [TIFF OMITTED] T4600.089 [GRAPHIC] [TIFF OMITTED] T4600.090 [GRAPHIC] [TIFF OMITTED] T4600.091 [GRAPHIC] [TIFF OMITTED] T4600.092 [GRAPHIC] [TIFF OMITTED] T4600.093 [GRAPHIC] [TIFF OMITTED] T4600.094 [GRAPHIC] [TIFF OMITTED] T4600.095 [GRAPHIC] [TIFF OMITTED] T4600.096 [GRAPHIC] [TIFF OMITTED] T4600.097 [GRAPHIC] [TIFF OMITTED] T4600.098 [GRAPHIC] [TIFF OMITTED] T4600.099 [GRAPHIC] [TIFF OMITTED] T4600.100 [GRAPHIC] [TIFF OMITTED] T4600.101 [GRAPHIC] [TIFF OMITTED] T4600.102 Mr. Ose. Thank you for joining us today. We will now go to questions for our second panel, and we will just alternate back and forth for 5 minutes. Dr. Miller, one of the things in your written statement as well as your verbal, is that the regulatory agencies have a disincentive or strong incentive to avoid OIRA's demands for information. As you heard me asking Dr. Graham and Mr. Sullivan, I am trying to figure out how to basically give them the tools so that we can get this information up where we have to make decisions. How would you recommend going about facilitating that transfer of information from the agencies to OIRA so that they can forward it to us? Dr. Miller. Well, Mr. Chairman, I think you ought to put a lot of pressure on the agencies and support OMB in soliciting the information and processing it in the right way. If they don't give the right guidance, you should chastise OMB for that. But I think you should encourage the agencies and encourage your colleagues on the authorizing committees and the appropriation committees to hold the feet to the fire of the heads of these agencies to make sure that they respond with this information. In the end, I think you ought to be making the decisions. I mean, I think on this you ought to have a regulatory appropriation process that parallels the spending appropriation process. I have heard the comments at the other end of the table that somehow that there are biases here, as if the agencies don't have their own biases. They do. Anyone who has reviewed the regulatory process knows the agencies have their own biases. I mean, they want to do their own thing. They don't want to be bothered by any outside influence. That is one reason they don't give up the right information very readily. But, I think, if you made the decisions, and you required them to give you the information in a consolidated way, I think that would solve the problem. Is it easy to get some of this information? No. But I don't think there is any more bias against regulation because you come up with cost data than there is bias against spending programs because you don't have benefit data. I can say this fairly authoritatively because I put together budgets. Where in the budget, the spending program, are all of these analyses of benefits? They aren't there. Agencies come in and talk about what they do. Members of Congress talk about them; experts come in and talk about them. But there is no quantifications of benefits in the same way that some people say, well, you have got to have the quantification of benefit in regulation before you can even talk about the issues. Mr. Ose. Well, let me explore that for a minute, because this is one of the areas that I have some difficulty with, and Ms. Heinzerling mentioned it. That is, how do you establish a template where you know that the assumptions you use in one agency are the same assumptions you use in the next and the third? How do you go about doing that? Dr. Miller. Well, Mr. Chairman, it is a messy process. You would never get it perfect. You just try and you work on it. I remember when I was a colleague of Dr. Hopkins how he used to sit down and write the instructions to the agencies about how they would put the data together, and what kind of assumptions they would use, etc. It is never a perfect process any more than the budget process is a perfect process or the spending part of the budget is a perfect process. But, again, right now what you do as Members of Congress--and I don't want to oversimplify it, but you know the truth of what I am about to say--you essentially tell the agencies to go do their thing. You give them a financial budget that they can spend, but in terms of the regulation, you give at the most just general guidance, you leave it up to them to carry out these broad mandates. You don't have that kind of special oversight of the agencies and what they are doing and the costs that they are imposing, that you have in the spending side of the budget when you decide on appropriations. And, if you, Congress, had to appropriate regulatory resources--that is, the costs imposed by the agencies in the same way it does the spending resources--I think you would get a lot better, a lot more efficient, effective decisionmaking on the regulatory side. Mr. Ose. I want to examine this, because this is an idea that has been rolled around by the staff in front of me. When you talk about appropriating regulatory resources, you are saying to any given agency, you may impose on the American people X, cost of X in total for the year for any regulatory action or all regulatory actions, period? Dr. Miller. Yes. Mr. Ose. And they have to set a priority in terms of what they want to use that for? Dr. Miller. Well, Mr. Chairman, there is a tradeoff. I don't think you would any more than say tell the Department of Defense, go spend $100 billion on the war, or defending this or that or whatever. You would be very specific. Do you want to have this plan, or this weapons system? You are going to have this kind of mobility, and you tell them. You don't go down to the detail of telling the individual decisionmaker down in the field exactly what to do. The same way on the regulatory side. You wouldn't just say to EPA, you have $110 billion in costs you may impose, you would talk about the different programs they have, and have them justify spending this much in this area and that much in another area. By the way, there is a technical---- Mr. Ose. We are going to have to come back. My time has expired here. So Mr. Tierney for 5 minutes. Mr. Tierney. Interesting that you called the Department of Defense in for an example, because they haven't balanced their books for years. They are about $1.3 trillion of unaccounted- for resources out there, so, unfortunately, Congress does often give them the money and tell them to go spend it. I am concerned, from some of my earlier comments, you might be able to tell, about the process here and who has been involved in it. Let me ask you, Ms. Dudley, some questions about your organization. Isn't the director of the Mercatus Center's Regulatory Studies Program Wendy Gramm? Ms. Dudley. Yes, she is. Mr. Tierney. This is the same Wendy Gramm that, when she was at the Commodity Futures Trading Commission back in January 1993, championed what some would call an Enron-friendly process of exempting some energy derivatives from regulation, right? Ms. Dudley. I actually worked at the CFTC, but not at that time. As I understand, she was involved when it was proposed. But the person who came after her was the one who actually issued that. Mr. Tierney. Well, that was only a matter of timing. She was the one that generated it and got it going and had it all but out the door, right? Ms. Dudley. It was not done at her time at the CFTC. It was begun. Mr. Tierney. So it has nothing to do with the person that came behind, except it just happened to be done technically when that person came along. Ms. Dudley. No, I don't think so. I think the final rule was issued, not by Wendy but by her successor. Mr. Ose. Will the gentleman yield for a moment? We will stop the clock here. I need to ask the relevance of a regulatory decision to the issue of regulatory accounting? I am willing to proceed, but---- Mr. Tierney. Well, we are going to proceed. And obviously I am going to ask the questions I want to ask. But my line of questioning here is I want to show what I think is very clear bias by some of the people that contributed greatly to the report that was done by OIRA, and it is a legitimate line of reasoning. Mr. Ose. In terms of the 23 items? Mr. Tierney. In terms of the 23 items, 14 of which are from this group, Mercatus Center, who I will put information on the record, I think, have a very clear and to me disturbing bias. Mr. Ose. All right. I am willing to proceed. Mr. Tierney. I would expect so. Did the Mercatus Center receive $50,000 in donations from Enron over the past 6 years? Ms. Dudley. I read the city paper article, and that is what it said. But let me--may I say something? Mr. Tierney. Did you also get $10,0000 from Chief Executive Kenneth Lay and his wife? Ms. Dudley. I am not the right person to ask about funding, because we have---- Mr. Tierney. If you don't know, you only need to say you don't know. Ms. Dudley. Well, I read the city paper. Mr. Ose. Ms. Dudley, if I may. You are under oath. If you don't know, you just need to say, ``I don't know.'' Ms. Dudley. Thank you. I don't know. Mr. Tierney. You don't know. All right. The Koch Foundation, which is backed by money from the oil conglomerate Koch Industries, has provided $16 million in grants to Mercatus, hasn't it? Ms. Dudley. I don't know. Mr. Tierney. And, would $16 million in grants make up over a third of your, Mercatus, budget? Ms. Dudley. I am sorry, sir. I don't know. Mr. Tierney. You don't know what the budget is for Mercatus? Ms. Dudley. No. If I can just explain why I don't know, it might help with this line of questioning. We have a separate group that does the fundraising, and the research team, which I head, is kept separate from that so that we can be objective. Mr. Tierney. So you don't know what the budget is? Ms. Dudley. No, I don't. Mr. Tierney. And--well, let me do you the favor. Why don't we ask you if you can submit those questions to somebody within Mercatus and have them respond to them for us on that basis, if you would. Ms. Dudley. Certainly. Dr. Miller. Mr. Tierney, can I just make a comment? I am a member of the Board of Visitors of George Mason University, of which Mercatus is a part. We are very proud of that institution. It is an excellent institution. It does cutting- edge research in the areas of regulation and ancillary programs. It has first rate people attached to it. And let me just go back to this---- Mr. Tierney. You are taking my time. I am not going to let you take up my time. I will submit for the record an article and ask that be put in the record. It tells us a little bit more about Mercatus Institute and that--and you can put all of the things in writing. Dr. Miller. I would like to contribute to the record my response to that very article. Mr. Tierney. You may. Mr. Ose. We will accept the article for the record. And the time is Mr. Tierney's. Ms. Heinzerling, you didn't get a chance to really flush out a lot of your written testimony, but in that you outlined a number of issues that you were going to discuss. One example-- give me some examples of how the OIRA report reveals OIRA's intention to intrude upon the decisionmaking prerogatives of the administration's agencies in such a way as to promote the unwarranted delay of meddling with the agencies' work, as you wrote in your report. Ms. Heinzerling. Yes. The OIRA's revitalization, I should say, or vitalization of the return letter suggests that OIRA intends to send back to the agencies any rules that it finds objectionable on a number of very broad grounds, including inconsistency with the President's policies and priorities, inconsistency with the cost-benefit analysis that OIRA thinks is appropriate, inconsistency with the statutes and executive orders under which the agencies operate. With all of those very broad authorities that OIRA has asserted, it is almost inconceivable that a rule that OIRA doesn't like couldn't be fit into one of those authorities. And, as we have suggested this afternoon, 20 rules have already been sent back, which is more than in the entire 8 years of the previous administration. Not only that, but in addition to the return letters, OIRA has been issuing prompt letters which aren't always rules that prompt regulation, but that are letters that nudge the agency in one direction or another. So, for example, one of the letters I mentioned suggested to EPA that it should view--consider the health effects of air pollution and then look at the study showing the effects from air pollution in such a way as to facilitate economic analysis of national air quality standards. That suggests to me just a role for OIRA that is well beyond its expertise and authority. Mr. Ose. I am curious, but before I ask my question, Dr. Miller, you will be provided an opportunity to respond. Dr. Miller. Thank you. Mr. Ose. We may well do it in writing, but you will be given an opportunity. Ms. Heinzerling, I am a little bit confused. The standard you set for Dr. Graham's efforts on the previous 8 years, under the previous administration in which no rules were returned, there were no prompt letters and the like, I am kind of curious, what is your vision of OIRA's role? Ms. Heinzerling. I think OIRA can play an important role. As I understand it, this was the role that was envisioned originally for OIRA, an important role in coordination. It may be that you have two or three agencies that are attacking a similar problem. And it is helpful for them to know what each other is doing and helpful to have a centralized authority that is able to say, you know what, the FDA is regulating this, and the EPA is trying to regulate this, and let's have them talk to each other. That to me seems sensible. What I don't think is sensible is a small cadre of civil servants located in the White House, comprised mostly of economists, who are empowered to send rules back to agencies on the grounds that those economists don't agree with the analysis done by the agency, when an agency like EPA is not predominately charged with economic analysis. So coordination, yes; second guessing, no. Mr. Ose. One of the things that I find interesting is, you know, someone sitting over at OIRA--I almost said an OIRA- anian, as Dr. Miller said--might find in your example FDA and EPA's analyses to be mutually exclusive and send one back. The standard that you're using to evaluate the return would suggest that action is somehow invalidated. Now, Dr. Miller, you wrote the Executive order that set up OIRA. What was the purpose for doing so? Dr. Miller. Well, Mr. Chairman, Boyden Gray and I share some co-authorship in that Executive order. But the basic thrust out of the box was to get the attention of the agencies who were running roughshod over the review process set up in the previous administration and to say: you must do the analysis, you must provide a factual analytical basis for making your decisions within the discretion afforded by law. If the law does not give you any discretion, we don't touch it. But if you have discretion, or within the discretion you have, you must do this analysis and make decisions based on the analysis. Ms. Heinzerling surprises me that she does not know, for example, that during the very first year of OIRA, during the first program, then-Vice President George Bush invited comments from outsiders about regulations that should be reviewed and addressed by OIRA. And, we had a number of press conferences to talk about them. And it might surprise some to find out that the list had commonality. The lists from academics, the lists from business, the lists from others, had very much---- Mr. Ose. What do you mean, commonality? Dr. Miller. You had the same regulations on the lists. So that's one reason I'm surprised that someone takes a list and says, well, this organization listed 10 of the 23 or whatever, and therefore those 10 must have been on there just because this organization suggested them. We found that everyone knew what the problem regulations were and they listed those regulations. So the Vice President of the United States made a determination of which ones that we would address because he was head of the Task Force on Regulatory Relief under President Reagan. But they were regulations that many, many different organizations indicated needed to be reviewed. I suspect that the same thing is true of the list that OIRA has now. Mr. Ose. When the Executive order went out, did you publish a comment period so you got input? I'm trying to figure out the due process. Dr. Miller. No. No. The President issued the Executive order. There were some followup guidance to the agencies that were the subject of some comment. We had an enormous flood of information and comment on all the things that we were doing. We kept the big docket room in the new Executive Office Building. There was just a flood of information that could be accessed by anyone and everyone. Ms. Claybrook. Mr. Chairman, could I comment on that? Mr. Ose. I would be encroaching on his time. We'll come back to it. Mr. Tierney for 5 minutes. Mr. Tierney. You may comment on that. Ms. Claybrook. First of all, in April 1981, the first review of regulations, a report was put out called ``Actions to Help Detroit.'' That was the name of it. It was a list of environmental and safety regulations that the Reagan administration wanted to revoke to help Detroit because it was in financial trouble. Yet, neither the safety statute nor the clean air or other fuel economy statutes in any way suggested that was a criteria for revocation of regulations. Second, the people who did submit requests to the White House at that time were primarily the auto industry for that report. The consumer groups were never asked to even meet or come or have anything to do with it. So I think that what Dr. Miller said is not accurate. Third, there were hearings all during the 1980's, which I could reference and submit for the record if you wish, about how secretive OMB-OIRA was and how it was acting outside of its statutory authority. The only statutory authority it had until the 1990's was the Paperwork Act, and yet it used it to--its muscle, if you would, with the budget authority--to quash opposition to the Reagan administration's revocation of health and safety environmental standards. Mr. Ose. Mr. Tierney for 5 minutes. Mr. Tierney. I would like you to submit that information for the record if you would. Mr. Ose. Without objection. Mr. Tierney. Can you tell me, Ms. Claybrook, how it was that somebody would go about calculating the consequences or the benefit of improved safety or improved health or saved lives, so that when you're doing that analysis you have some numbers that are reliable to work with? Ms. Claybrook. At the National Highway Traffic Administration, there are two major data sources. One is the fatal accident reporting system, which is all fatal crashes in the United States; and the other is the national accident sampling system, which is a sampling of fatal and other types of crashes, nonfatal crashes. That system is grossly underfunded, as I mention in my testimony. It's one-third the size it was when I was there. That's it. That's the money that the agency has. It's not a small amount of money in citizen terms, but in agency terms it's a footnote. And, these data are not sufficient to get the kind of information that you need, plus the fact you need discretionary money so that, if an issue arises such as children being killed by air bags, the agency has the capacity to go out and do special studies to evaluate--or rollover with the Ford/ Firestone case. So you do need to have more resources to do that. The cost data come from industry. In the 1970's, when we were regulating fuel economy, the agency had $10 million and we knew about every transmission plant, every engine plant. We were able to rebut or analyze or question the cost data that came in. Today, the agency doesn't have any money to do that, so the cost data just come in and they're accepted and they're presumed to be accurate, which they absolutely are not. I would like to submit for the record some information about some studies that have been done that shows the gross overestimation by industry when a regulatory process is going on that later shows that it's inaccurate. That's one of the problems with the regulatory accounting system, because it just uses whatever information is in the record from, let's say, 1988 or 1992 that the industry submitted. There's no re-analysis of it now. So the numbers are completely wrong and completely out-of-date. Because one of the things I will say as well about the industries that are regulated is that they find very innovative and creative ways to meet a regulation when they have to, and they can cut costs like mad. Mr. Tierney. I recall some early hearings we had last year, or actually the year before, with the Administrator of the EPA indicating that the Clean Air Act--the industry had six times more of an estimate of what it was going to cost to implement some regulations. In the final analysis, it was one-sixth of what their figures were on that. You indicated, Ms. Claybrook, during your testimony that you would really want to talk a little bit about a tire monitoring return letter. Ms. Claybrook. Yes, I would, if you don't mind, Mr. Chairman, I would appreciate very much the opportunity to do so. The law that came out of the Firestone/Ford Explorer problem, the TREAD Act, required NHTSA to issue a tire monitoring system, which is an indicator of the dashboard of your tire inflation, because it's important for safety and fuel economy and there are big benefits to such a system. The agency did an enormous amount of work. This is an issue that's been around since the 1970's, when, actually, the agency first proposed it, and then it was eliminated by the Reagan administration and the ``Actions to Help Detroit'' report. And so, it's now required by Congress in the year 2000. The agency set about doing it. They did a lot of tests. They did a lot of research. They had 20 different meetings with all different industries concerned about it. The tire industry supported it; the auto industry didn't. They came out with a recommendation, after a rulemaking proceeding and the proposal, the final rule, to have a direct monitoring system so all four tires could be measured. The OMB- OIRA just recently sent it back to the agency and is going to insist that, instead, the agency publish a rule that only monitors one tire. Now, most cars have four tires. The consumer, I am concerned, is going to say, ``This is stupid government regulation all over again, blame the National Highway Traffic Administration, the Department of Transportation,'' when in fact it comes out of the brain child of some economists at OIRA. Their basis for this is support for an indirect system, which, by the way, doesn't monitor if you're on a long road, and/or flat surface, which I suppose some of the members of this committee who live in Western States would be concerned about; it doesn't monitor when the car is not moving, so when you're at the gas station you can't figure out how much air to put into your tires. And, it only registers one tire. And, in fact, John Graham calls it the one-tire standard. And, it costs less, but on a net basis--the direct system is $15 more on a net basis; that is, after saving fuel efficiency and so on. What Graham wants is for the agency to issue a rule that allows the indirect system, which only works with anti-lock brakes, but less than two-thirds of the cars in the United States have anti-lock brakes. So when you add the anti-lock brakes in to use with the indirect system, then it is much more costly, and plus the fact all the studies show that anti-lock brakes on cars aren't that valuable. They don't really produce much. Graham misleadingly says that they do. It's not good statistical information. He misuses it. So this is an example to me of complete second-guessing by Graham. If you look at the entire record, you'll see that OMB is completely wrong. Public Citizen will sue the minute that rule comes out. I believe we will win. I believe that it will be a great example of the courts putting a limitation on OIRA in the future. That's what we will seek. I would much rather have the four-tire rule than a one-tire rule. Mr. Tierney. Thank you. Mr. Ose. I am curious. If I understand correctly, this is the document referenced with the 71 items that was reduced to 23 testimony items? I see the witnesses shaking their heads so I assume--I want to make sure I'm correct on my source. Now, as I look through this, there is a page per regulation, and then in the back there's a summary of the people who offered comments to this particular document. There are a total of 33, including yours truly, and Mr. Waxman who offered comments. I don't quite understand. Were you aware of this document? Dr. Miller. I haven't seen the document, no, sir. Mr. Ose. Dr. Hopkins, were you aware of this document entitled ``Making Sense of Regulations: 2001 Report to Congress on the Cost and Benefits of Regulations and Unfunded Mandates on State, Local, and Tribal Entities''? Dr. Hopkins. Yes, I have seen that document. Mr. Ose. Ms. Dudley. Ms. Dudley. Yes, I have. Mr. Ose. Ms. Claybrook. Ms. Claybrook. Yes, we were. But I would like to have the opportunity to explain, if I could, why we didn't make any suggestions. Mr. Ose. Were you aware of this document? Ms. Heinzerling. Yes. Mr. Ose. This was put out for public comment last spring, if I'm correct. Dr. Miller, did you offer--you didn't know about it. Dr. Miller. I didn't know about it. Mr. Ose. Dr. Hopkins. Dr. Hopkins. I did not offer comments, though I knew I had the opportunity. Mr. Ose. Ms. Dudley. Ms. Dudley. Yes, Mercatus did. Mr. Ose. You did send it in, obviously. Good point. Ms. Claybrook. Ms. Claybrook. We submitted comments in May on the basis for the analysis. We did not submit suggestions for regulations to be revoked. That's what that list of 21 or 23 or 71 is. Mr. Ose. Ms. Heinzerling, did you offer any comments on this? Ms. Heinzerling. I was a peer reviewer for that document. Mr. Ose. So you were aware of it. Ms. Heinzerling. Yes. Mr. Ose. I just can't--I'm trying to figure out why--it would seem to me if you're affected by these rules, you would offer a comment. Obviously as a peer reviewer, you can't. So you kind of have to excuse yourself, it would seem to me, as a peer reviewer of the document itself. Is that accurate? Ms. Heinzerling. May I comment on your question? Mr. Ose. Certainly. Ms. Heinzerling. I am not sure about whether there were business interests that were encouraged more heartily than other interests to comment on that report. I don't know. There were news accounts to that effect. I can't--I can't comment on whether those are reliable, but there were news accounts to that effect. The second point, OIRA has a very long history of being, especially in Republican administrations, with due respect, it has a history of being anti-regulatory. One can imagine when OIRA asks are there any regulations out there that you'd like reformed--for one thing, the public interest community often is in favor of regulations, so they don't want them to be erased. The second point is I can imagine the public interest community being skeptical about the effects of its comments on an agency that historically has not treated the public interest community with a great deal of solicitude. Mr. Ose. If I might just interject one thing, in September 1997, again in 1999, and again in 2000, there were requests put out for recommendations to reform or eliminate certain regulations. Now, I am new to this job but I don't remember those being--I mean, your words, Republican administrations. So I'm a little bit confused. It would seem to me that OIRA under the Executive order, that was written by Dr. Miller and Boyden Gray, if I recall. Dr. Miller. Right. I did the economics, he did the law. It was a division of labor. Mr. Ose. It would seem to me that the regulatory accounting process requires a periodic review of things for recommendations of reform or elimination. Is my logic wrong? Ms. Claybrook. Could I answer that question? First of all, Vice President Gore had, before this law was passed, an ongoing program, agency by agency, asking whether there are any rules that are in need of being eliminated or updated or any other-- -- Mr. Ose. Did he find any? Ms. Claybrook. They did. There were pictures of him with all these rules that they named. Most of the time what happened, was that it was a bottom-up process; that is, it went agency by agency. So organizations generally tend to be focused on particular areas of expertise. I have expertise in auto safety; David Flack in our office has expertise in OSHA. So, for example, those are the agencies that we tend to connect with. So when the agency asks, are there any rules that you would suggest go one direction or another, that's when we respond. When OIRA comes out with something much more generic, it tends not to filter down. Mr. Ose. My time has expired. I'll come back. Mr. Tierney for 5 minutes. Is it your position that OIRA is not empowered to suggest reforms or regulations for reform or elimination? Ms. Claybrook. I think that a government agency has very broad authority including OIRA. The question is can it impose it. That's a very critical question here, Mr. Chairman. For example, can OIRA command that a regulatory agency change a rule because the economists at OIRA want them to? I don't think so. I think that the statutes that are written that I know of-- if I could just finish that, Mr. Chairman--the statutes are written delegating authority to the Secretary of Transportation, to the Secretary of HHS. They don't delegate it to OIRA. OIRA's authority is very specific. It's the Paperwork Act, it's overseeing SBRFA, it's your Accounting Act. They're very, very specific but they're not ones that give them, in my view, the authority to command an agency to eliminate or change a rule. Mr. Ose. Does the Executive order that you and Mr. Gray wrote provide OIRA with the authority needed, under Ms. Claybrook's scenario, to send those back? Dr. Miller. No. We can send them back and ask the agency to reevaluate them, but technically Ms. Claybrook is right in the sense that the agency head has the discretion to make the determination. But the agency head works for the President of the United States. Mr. Ose. So whether it's Vice President Gore's review or Vice President Cheney's review or Vice President whoever's review or the President's review--well, although in the President it might be a different case--the agency heads have the ability to put these things in the Federal Register? Dr. Miller. They can put them in the Federal Register and they can make the final determination subject to the ordinary kinds of questions that someone might raise, and the courts might say that you didn't have a sufficient evidentiary basis and all of that, but they do have the authority to do that. But they work for the President of the United States, and the President can remove them at will. Mr. Ose. We're going to recognize Mr. Tierney for 7\1/2\ minutes. Mr. Tierney. I don't think anybody has a problem with people asking, you know, for people to comment on regulations. I think that would be beyond the pale if we had a problem with that. The issue, I think, arises when we have secret meetings with select groups of industries that are regulated and have a serious interest in it, and nobody else is invited. They come in and all of a sudden, presto, we got a hit list out there. Then Dr. Graham is reported to be involved in it, and then all of a sudden the committee staff is still involved in it only. But the long and the short of it is the committee staff comes up with a list, Graham comes up with a list, and surprisingly enough, there's a lot of overlap despite a lot of denial. That's the problem. I think that together, with 14 out of 23 of them coming from an organization that is heavily funded by a lot of people who are regulated, it just happens to be they've got questions with the things that are regulating them. So I guess I look at this thing as OMB has the authority to send a letter--return letter. And, I suppose that you can tell me that the agency has the ability to just kick it back and say, no, we like it the way it was the first time. What's the likelihood of that happening when you have got OMB sitting at the right hand of the President, obviously you know, very close, and under the direction there, sending a return letter and having the agency head, who is a subordinate of the President, actually standing up to that and saying that oh, no, we're going to plow forward because we think we had it right the first time. Isn't it more likely, I would ask anybody that wants to answer, isn't it more likely that you will get the experts at the agency to kowtow to the inexpertise or the lack of expertise of the economists at OIRA? Ms. Claybrook. That's exactly what happened with the tire monitoring rule. In fact, they're going to issue the authority to allow an indirect system. So--the one-tire standard. So that's exactly what does happen. We just had, of course, an agency head, former Member of Congress, fired for disagreeing with the President's budget. I should think that if they disagree with the regulation that's the end of that. Mr. Tierney. My additional fear is they're going to now hire scientists, as I think somebody was mentioning, that they are going to hire scientists from the same kind of group that they went to get advice on these regulations, people with a stacked deck and a real preconceived idea of where they want to go. It just spells disaster as far as I can see. It looks like there's a real concern here that this is an agency that's being used for a purpose other than what was originally crafted. Ms. Claybrook. Mr. Tierney, could I make one more comment? And that is, the Congress considered for 20-odd years, since 1981, a regulatory reform bill which has never passed. It's a bill that Dr. Graham supported vigorously, and it's never been enacted into law. One of the things that it had in it that we objected vigorously to was peer review of agency regulations, which take a lot of additional time; in addition, there are no conflict-of-interest standards so that industry people who have a self-interest can sit on the peer review panel. Dr. Graham has announced that he is going to reinstitute peer review and that he is going to have it be that if an agency does peer review, then their rules are more likely to be accepted. If they don't get peer review, they're going to get heavier scrutiny. What you're having is, if there's any extension of authority beyond the scope of their statutory basis, to me it is in this office of OIRA and its head, Dr. Graham. So he is assuming the authority to do this kind of thing. It's in this report. It's one of the elements that he spells out in the back of the report, a number of areas that they're going to be issuing new guidelines. For example, they're not reissuing the Executive order. A big stink was made about the Executive order when Dr. Graham was up for confirmation. Senator Lieberman made a huge issue of it. So Dr. Graham is not going to rewrite that because it will attract a lot of attention. He's going to issue guidelines, which is one of the things he mentioned today. These guidelines are essentially going to be the equivalent of an Executive order, but they're going to be issued by Dr. Graham. Mr. Tierney. Sometimes people confuse cute for smart. But the problem with this whole thing is, you know, there just seems to be no real balance to the system. And, I have to ask Ms. Heinzerling, if you were one of the peer people that looked at that report, what would you do to set this issue straight? How would you get OIRA to function in a way what we could trust that it wasn't biased and that it didn't have preconceived notions, that it actually was doing its legislative job? Ms. Heinzerling. That's a really hard question. I guess I would say, first of all, that OIRA operates, as I say, with this history of interference with agency rulemaking and the history, at least through most of its experience, of an anti- regulatory bias. It's just hard to take out of an agency that exists. It's hard to take out of that office. Many of the staff people there have been there for years. I've heard EPA staffers tell me that they won't even propose some regulations because they can't get it by the desk officer in charge. Which goes to your question earlier about the influence of these interventions on agency decisionmaking. So I almost wonder whether a fresh start is necessary in order to sort of root out this kind of deregulatory bias or anti-regulatory bias. I think OIRA serves some important functions. I think paperwork reduction is important. As I say, I think the coordination among agencies is important. What has developed now, at least as I see it, is an office that has a strong bias toward economic analysis of regulations, even in cases where those regulations, as I've said, are not predominantly economic. So you get a misfit between the agencies saying, look, we're going to increase visibility in the Grand Canyon, we're going to save lives, we're going to, you know, reduce asthma in kids, and the office within the White House that's charged with reviewing those has by its history and by the disciplinary expertise of the personnel-- doesn't listen to those kinds of qualitative kinds of benefit statements. So I think it's hard to--I think it's hard to reform within OIRA if OIRA is to say--to imagine an OIRA that performed this kind of cost/benefit analysis or reviewed it, that didn't interfere with what agencies do. Mr. Tierney. Thank you. Mr. Ose. The gentleman yields back. Dr. Hopkins, what is your view of the utility of agency-by- agency data on regulatory accounting? Dr. Hopkins. I think it can serve a very useful purpose since it hones in on the units that have separate statutory authorizations given to them. So, if we have the analysis by agency, we'll be able to track it back to the laws that correspond to those agencies. But, if I may, Mr. Chairman, I could add a comment on the conversation that has just been taking place, with your permission? Mr. Ose. Please. Dr. Hopkins. I find it puzzling to hear the characterization of OIRA as involving a small cadre of economists who are ``intruding upon agency prerogatives'' in an anti-regulatory way, because I think one can go back to every President since President Nixon--of both parties--each of these Presidents has wanted to have a small cadre of economists in the Executive Office of the President who were ``intruding upon agency prerogatives'' when it comes to regulation. I joined the administration of President Ford in 1975, precisely for the purpose of being a part of a cadre of economists ``intruding upon agency prerogatives.'' That mission continued under every President, without exception, since that time. So this is not some new nefarious scheme of OIRA since 1981 or under Dr. Graham, it's a consistent effort that every President has felt needed as a counterbalance to the agency regulators. Mr. Ose. Well you're suggesting that, if the standard for judging OIRA is the empirical data of number of return letters or number of refusals to allow to proceed, if that's the standard by which OIRA is judged, are you suggesting for 8 years they were just absent? Dr. Hopkins. I'm not sure that's an adequate standard by which to judge their performance. It seems to me the more important contribution that entity can make is to be an advocate for balanced economic analysis of regulatory issues. It has taken different forms under different administrations. But, the same cadre of economists has persevered through each administration, sometimes working more visibly, sometimes less visibly, to try to bring that kind of analytical balance to regulatory decisionmaking. Mr. Ose. I don't like the word ``cadre.'' Ms. Dudley, do you share that opinion? Ms. Dudley. Yes, I'd like to make a similar point. In terms of the last administration and this one, I think perhaps what we're seeing now is a more transparent role for OIRA. I think that's a benefit, that with the return letters and with OIRA's actions, it's very visible what OIRA is doing. I think the same can be said for your requirement for an annual accounting of costs and benefits. It makes it transparent so that Ms. Claybrook and I can discuss what discount rate is appropriate. So a regulation-by-regulation, agency-by-agency data base with consistent assumptions allows people to adjust the assumptions and do different analyses with it. But, you can't do that if it's not a transparent data base of regulations, which I think is what you are asking OMB to do. Mr. Ose. Dr. Miller, any thoughts on that? Dr. Miller. I agree with that. Let me just say I thought those were two excellent statements. Let me add, though, that the notion that these green-eyeshade economists over there have no compassion or concerns about the benefits generated by regulations is not true, anymore than you could characterize the budget people at OMB as being completely unsympathetic to the notion that certain kinds of spending programs by the Federal Government do generate benefits. And, a methodological point I wanted to raise in response to a comment made earlier: I don't take issue with the allegation that the sum total of benefits of regulation exceeds the sum total of costs. Goodness, I hope so. Just as the sum total of benefits generated by all the spending programs of the Federal Government should exceed those costs. I sure hope so. The question is at the margin, what do you do? Should some expand, some contract? Some programs make sense, some don't; some new programs that are not funded maybe make sense. It's a process where I think you elected representatives would be in the best position to make those kind of determinations, and you should make those determinations only, as Ms. Dudley was pointing out, with more transparency, more information. I would urge to you consider establishing a regulatory appropriations or budgeting process that's analagous to the appropriations process on the spending side. Ms. Claybrook. Could I just comment on one thing? Mr. Ose. With the consent of the ranking member, my time can be extended. There you go. Ms. Claybrook. Thank you, Mr. Chairman. I've never seen an analysis of the spending part of our budget in terms of costs and benefits. And, in fact, you know, industry loves Uncle Sugar, they don't like Uncle Sam. So they lobby like mad to have limits on Uncle Sam. But, for Uncle Sugar, it's open season. There are just huge amounts of money that are expended in the budget that have no analysis whatsoever in terms of their costs and their benefits. So as you look at the regulatory agencies, you know, I urge you to, No. 1, consider that. Second, the agencies that--at least the ones that I have overseen and worked with and lobbied to get something done out of it, the amount of data that they produce before they issue a regulation are huge. Now, whether or not it's in the same format, agency by agency, to facilitate OMB putting it into one big package is another issue. But in terms of the issues that are raised, these are usually problems that have existed for 15, 20, 30 years. These are issues about which Congress has had hearings. These are often issues about which Congress has commanded the agency to take action. There are lengthy regulatory proceedings. I don't know any rule that's issued in less than 2 years, and usually it's 4 to 5. So this huge amount of data that is produced, in fact, by these regulatory agencies--and I think that for OMB to say that, or John Graham to say, that there's not enough data, I would ask him and I urge you to ask him which agencies aren't producing those data, because I'll tell you we don't see it. We sue these agencies from time to time. It's really hard. We don't sue them most of the time because they do produce a lot of support for their decisions. Mr. Ose. Let me answer your first question, just something I learned here recently, but in terms of measuring the impact in programs funded by the Federal Government, there is something called the Government Performance and Results Act of 1993 which does require agencies to measure and report on program results achieved for dollars expended. So there is some accountability, that I will admit readily that the agency progress in making those reports is at best mixed to date. So it's much the same question. Ms. Claybrook. Does it cover all government agencies? Mr. Ose. It's much the same question on the reverse of what we're asking in the regulatory world, and that is how do you evaluate how to spend scarce resources? The imposition of $830 billion odd in annual cost is a tax, as sure as you and I are sitting here. To the extent that Congress, in effect, ought to be accountable for that and make the agencies accountable for that, that's the thrust of our efforts. Whether it's the airport in Mr. Tierney's district, or the freeway in mine, or the schools in both of ours, to the extent that we have some expenditure occurring by virtue of Federal mandate, I want to know whether it's having an impact, whether it's positive or negative. I think everybody in Congress would appreciate that information. That's why we ask where is our report, as you heard me earlier. We could use it, and we will. And, we may well end up with different judgments accordingly, but where is our regulatory accounting report that's due by statute? That's what we're after. Ms. Claybrook. Mr. Chairman, if I could just ask you a question. If the report---- Mr. Ose. Unfortunately, Ms. Claybrook, I ask questions. Ms. Claybrook. If I could make a comment then. If this report---- Mr. Ose. Ms. Claybrook, we're going to bring this hearing to a halt. I do appreciate your attending. Ms. Heinzerling, thank you. Ms. Dudley, thank you. Dr. Hopkins, Dr. Miller, I do appreciate it. I appreciate your patience, Congressman Tierney. We will submit our closing statement for the record. With that, we are adjourned. [Whereupon, at 4:36 p.m., the subcommittee was adjourned.] [The prepared statements of Hon. Doug Ose, Hon. John F. 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