<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:57131.wais]
SHOULD AGENCIES BE ALLOWED TO KEEP AMERICANS IN THE DARK ABOUT
REGULATORY COSTS AND BENEFITS?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES, AND REGULATORY AFFAIRS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
MARCH 24, 1999
__________
Serial No. 106-11
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.house.gov/reform
__________
U.S. GOVERNMENT PRINTING OFFICE
57-131 WASHINGTON : 2000
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 ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
JOHN T. DOOLITTLE, California (Independent)
HELEN CHENOWETH, Idaho
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on National Economic Growth, Natural Resources, and
Regulatory Affairs
DAVID M. McINTOSH, Indiana, Chairman
PAUL RYAN, Wisconsin DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia TOM LANTOS, California
LEE TERRY, Nebraska PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon BERNARD SANDERS, Vermont
HELEN CHENOWETH, Idaho HAROLD E. FORD, Jr., Tennessee
JOHN T. DOOLITTLE, California
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Marlo Lewis, Staff Director
Barbara Kahlow, Professional Staff Member
Karen Barnes, Professional Staff Member
Andrew Wilder, Clerk
Elizabeth Mundinger, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on March 24, 1999................................... 1
Statement of:
Bliley, Hon. Thomas J., Jr., a Representative in Congress
from the State of Virginia................................. 17
Costa, Jim, senator, California State Legislature, and vice
president, National Conference of State Legislatures....... 56
DeSeve, G. Edward, Deputy Director for Management, Office of
Management and Budget...................................... 69
Hopkins, Thomas D., interim dean, College of Business,
Rochester Institute of Technology; Angela Antonelli,
director, Thomas A. Roe Institute for Economic Studies, the
Heritage Foundation; Clyde Wayne Crews, Jr., director of
competition and regulatory policy, Competitive Enterprise
Institute; and Lisa Heinzerling, professor of law,
Georgetown University Law Center........................... 92
Letters, statements, etc., submitted for the record by:
Antonelli, Angela, director, Thomas A. Roe Institute for
Economic Studies, the Heritage Foundation, prepared
statement of............................................... 102
Bliley, Hon. Thomas J., Jr., a Representative in Congress
from the State of Virginia:
Information concerning support........................... 24
Prepared statement of.................................... 19
Condit, Hon. Gary A., a Representative in Congress from the
State of California, prepared statement of................. 155
Costa, Jim, senator, California State Legislature, and vice
president, National Conference of State Legislatures,
prepared statement of...................................... 59
Crews, Clyde Wayne, Jr., director of competition and
regulatory policy, Competitive Enterprise Institute,
prepared statement of...................................... 112
DeSeve, G. Edward, Deputy Director for Management, Office of
Management and Budget, prepared statement of............... 72
Heinzerling, Lisa, professor of law, Georgetown University
Law Center, prepared statement of.......................... 146
Hopkins, Thomas D., interim dean, College of Business,
Rochester Institute of Technology, prepared statement of... 94
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio:
Information concerning RIAs.............................. 9
Prepared statement of.................................... 10
McIntosh, Hon. David M., a Representative in Congress from
the State of Indiana, prepared statement of................ 5
Terry, Hon. Lee, a Representative in Congress from the State
of Nebraska, prepared statement of......................... 16
SHOULD AGENCIES BE ALLOWED TO KEEP AMERICANS IN THE DARK ABOUT
REGULATORY COSTS AND BENEFITS?
----------
WEDNESDAY, MARCH 24, 1999
House of Representatives,
Subcommittee on National Economic Growth, Natural
Resources, and Regulatory Affairs,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2247, Rayburn House Office Building, Hon. David M.
McIntosh (chairman of the subcommittee) presiding.
Present: Representatives McIntosh, Ryan, Terry, Chenoweth,
and Kucinich.
Staff present: Marlo Lewis, staff director; Barbara Kahlow
and Karen Barnes, professional staff members; Luke Messer,
counsel; Andrew Wilder, clerk; Elizabeth Mundinger, minority
counsel; and Jean Gosa, minority staff assistant.
Mr. McIntosh. The subcommittee will be called to order.
Today our hearing is on H.R. 1074, the Regulatory Right-to-Know
Act of 1999. This bipartisan, good government bill was first
introduced on March 11, 1999, with 17 Democratic and 14
Republican cosponsors.
This bill, which requires an annual report on the costs and
benefits of Federal regulatory programs, is the product of the
Commerce Committee Chairman Tom Bliley, who has worked very
hard in this area, and his leadership over the past several
years has really brought the bill to its current status and
fruition.
Today's hearing will provide us with an opportunity to hear
the administration's views on the legislation, the views of
State and local governments which are impacted by the Federal
regulatory programs, and the views of experts in analysis of
the costs and benefits of Federal regulatory programs.
I want to especially welcome Chairman Bliley and California
State Senator Jim Costa, vice president of the National
Conference of State Legislatures, who will be representing the
State and local government perspective today. The Clinton
administration is represented by Mr. Ed DeSeve, who is Deputy
Director for Management of the Office of Management and Budget.
OMB's Office of Information and Regulatory Affairs reports to
him.
I want to also welcome three expert witnesses: Angela
Antonelli, who is director of the Thomas Roe Institute for
Economic Studies at the Heritage Foundation, and also a former
employee of the Office of Information and Regulatory Affairs;
Mr. Wayne Crews, who is the director of competition and
regulatory policy at the Competitive Enterprise Institute; and
Dr. Thomas Hopkins, interim dean of the College of Business at
Rochester Institute of Technology. Dr. Hopkins also was
formerly with the Office of Information and Regulatory Affairs.
Last, I want to welcome Ms. Lisa Heinzerling, who is a
professor of law at Georgetown University Law Center.
The Regulatory Right-to-Know Act and its companion bill on
the Senate side, S. 59, build on the provisions of the 1997,
1998, and 1999 Treasury and General Government Appropriations
Acts. They were authored by Senators Stevens and Thompson. The
stated purposes of both the House and the Senate bills are
identical. They are, one, to promote the public right to know
about the costs and benefits of Federal regulatory programs;
two, increase government accountability; and, three, improve
the quality of Federal regulatory programs and rules issued
thereunder.
H.R. 1074 requires OMB to prepare an annual accounting
statement and associated report. The accounting statement would
provide estimates of the costs and benefits of Federal
regulatory programs, both in the aggregate and by agency, by
agency programs, and by major rule. The associated report would
analyze the direct and indirect impacts of Federal rules and
paperwork on State and local governments, the private sector,
small business, wages, consumer prices and economic growth.
Currently, there is no report that analyzes the cumulative
impacts of Federal regulations on these important sectors of
our economy and on these factors that directly affect the lives
of American citizens. I believe Americans have a right to know
the cumulative costs and benefits of Federal regulation on
these sectors and factors, and how they will impact their
lives.
Current estimates of the off-budget compliance costs
imposed on Americans by Federal regulatory programs are close
to $700 billion annually, a 25 percent increase from 10 years
ago. Broken down, that is approximately $6,900 for a typical
family of four in America.
The bill also requires OMB to quantify the net benefits or
net costs for each alternative considered in any regulatory
impact analysis accompanying a major rule. This information
will help the public understand how and why major decisions
affecting them were made by the executive branch. It will also
disclose if the Federal agencies chose the most effective and
least costly regulatory approach.
The bill also requires OMB to identify and analyze
overlaps, duplications and potential inconsistencies among
Federal regulatory programs, and to offer recommendations to
reform inefficient or ineffective regulatory programs. To
ensure that the estimates are fair and balanced and present the
total picture on the costs and benefits, the bill requires peer
review of OMB's draft annual report by two or more expert
organizations and an opportunity for the public and those
sectors that are impacted to comment. The bill requires OMB to
respond to these comments in its final report.
OMB itself has recognized the value of presenting
information to the public on costs and benefits of Federal
regulations. In its 1998 report to Congress on the costs and
benefits of Federal regulations that was issued in February
1999, and required by the Treasury and General Government
Appropriations Act, OMB stated, ``The 1997 report was our
effort to begin an incremental process which we believe will
lead to improved information on the effects of regulations.''
Unfortunately, OMB's two cost-benefit reports issued to
date have been frankly insufficient in several respects. First,
the OMB's recommendations for improving regulatory programs
were not as comprehensive as those of us in Congress who have
been reviewing those programs would like to see. We hear
complaints from many about the burden and reasonableness of
certain regulatory programs, and had hoped that OMB would be
able to address those concerns in that report.
Second, there were problems with OMB's aggregate estimates
and other methodological issues. And, third, the report fell
short by estimating monetized costs and benefits for only 4 of
the 41 major rules issued last year by the independent
agencies, presenting incomplete compliance costs and benefits
in the 33 regulatory impact analyses prepared last year, and
understating the direct and indirect impacts of these Federal
regulatory programs. It is not possible to get your hands
around the total costs of the Federal regulatory process when
only a small percentage of them are analyzed in this
methodological manner.
Commenters expressed the view that OMB should independently
make its own estimates of costs and benefits of individual
rules and regulatory programs, and offered several ideas for
improvements in the process, such as for OMB to establish a
standardized format for the agencies to present the economic
information on their rules. I have always been a strong
proponent for OMB exercising independent judgment on this so
that they could act as a neutral player among the different
competing agencies and their policy preferences.
H.R. 1074 establishes a permanent requirement for OMB to
annually prepare this important information. The bill will not
impose an undue burden, I don't think, on OMB since much of the
needed information is already available in their review process
under the Executive order. Since President Reagan's Executive
order, the agencies have been required to perform a cost-
benefit analysis on major rules, and they have continued
through the Bush administration as well as into the Clinton
administration. They are required to do that on most of the
rules, especially the major rules that constitute the bulk of
Federal regulatory costs and benefits.
Also, OMB can use many other sources of information, and
that is one of the benefits of having them be a central
processing agency for this, because they can reach out and
include private regulatory accounting studies as well as other
government studies for different agencies.
Mr. Bliley's bill has been endorsed by many organizations,
including the seven major State and local interest groups, the
National Governors' Association, the National Conference of
State Legislatures, the Council of State Governments, the U.S.
Conference of Mayors, the National League of Cities, the
National Association of Counties, and the International City/
County Management Association. In the groups' endorsement
letter, the officials wrote, ``We applaud your efforts to
encourage greater accountability with regard to the burden of
costly Federal regulations on State and local governments. The
changes proposed would, we believe, benefit all of our
taxpayers and constituents.''
Other organizations have also endorsed the bill, including
Alliance USA, a coalition of 1,000 business organizations and
individual companies, American Farm Bureau Federation,
Americans for Tax Reform, the Business Roundtable, the Chamber
of Commerce, Citizens for a Sound Economy, the National
Association of Manufacturers, the National Federation of
Independent Businesses, and the Small Business Survival
Committee.
I believe the public does have a right to open and
accountable government. OMB's accounting statements and
associated reports will provide those new tools to help
Americans participate more fully in government decisionmaking.
[The prepared statement of Hon. David M. McIntosh follows:]
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Mr. McIntosh. With that, let me now turn to the ranking
member of the committee, Mr. Kucinich, and ask, did you have
any opening statement you would like to make?
Mr. Kucinich. I do, Mr. Chairman. I thank you.
Mr. Chairman, thank you very much for holding this hearing
on H.R. 1074, the Regulatory Right-to-Know Act of 1999. And I
certainly want to welcome our colleague, Congressman Bliley,
and I look forward to his testimony, and also to welcome the
representatives of OMB who are here.
This bill provides for an annual report on the aggregate
cost and benefit of Federal regulations, an annual cost-benefit
analysis for each agency program, program component, and major
rule, and provides for a myriad of additional estimates and
reports.
Typically, more information helps us make better decisions.
The information required by H.R. 1074 could arguably promote
the public's right to know about the costs and benefits of
regulatory programs, and provide for greater accountability by
the Federal Government, and improve the quality of regulatory
programs. However, Mr. Chairman, information which is
inaccurate or which would provide a false sense of confidence
is not so helpful, and of course we would not want that to
happen.
That is why this hearing is so important. We need to be
sure that there are adequate safeguards in this bill to ensure
that the resulting analyses are useful. One issue that must be
addressed is whether it is feasible for OMB to conduct the
analyses required by H.R. 1074. In both of its annual reports
on the costs and benefits of regulation, OMB has reiterated
that there are severe limits to the usefulness of its analysis.
I am going to be interested to hear what they have to say about
that today. OMB reports that there are, ``enormous data gaps,''
accurate data are ``sparse,'' and agreed upon methods for
estimates are, ``lacking.''
OMB warns against using its analyses when making policy
decisions--that is kind of interesting in itself--and states
that ``aggregate estimates of the costs and benefits of
regulation offer little guidance on how to improve the
efficiency, effectiveness or soundness of the existing body of
regulation.''
Now, in order to account for the severe data and
methodological limitations, OMB has provided a wide range of
estimated costs and benefits. OMB estimates that annual costs
for social regulation range from $170 to $230 billion, and
annual benefits are between $260 billion and $3.5 trillion.
Fortunately, the range of uncertainty, although it is
enormous, does not affect the conclusion that regulatory
benefits outweigh regulatory costs. No matter which number you
choose within the broad range of estimates, regulations are
worth more than they cost. However, H.R. 1074 requires a large
number of new analyses, and the final conclusions of these
analyses may not always be so clear.
In addition, we need to investigate whether H.R. 1074 is
feasible, given budget constraints. Cost-benefit analyses are
expensive. In March 1997 the Congressional Budget Office found
that conducting comprehensive cost-benefit analyses or
regulatory impact analyses for major rules averaged $573,000
per rule and took an average of 3 years to complete. Thus the
administration would need about $35 million to analyze the 60
new major rules that are promulgated each year. H.R. 1074 would
require a great deal more because it also requires benefit-cost
analysis of each agency, program, and program component.
[The information referred to follows:]
Using a CBO analysis of the cost to the agencies (i.e., not
a cost to OMB) of 85 major rule RIAs, Mr. Kucinich used a
$573,000 average cost and applied that average to an estimate
of 60 Regulatory Impact Analyses (RIAs) per year, which totals
nearly $35 million. Since agencies have been required to
perform RIAs since 1981, there is no additional cost for the
RIAs under H.R. 1074.
Mr. Kucinich. I also hope this hearing will shed light on
whether H.R. 1074 has adequate safeguards against bias. OMB and
others warn that prospective cost-benefit analyses often
overstate costs because they do not account for technological
advances and industry's ability to adapt. For example, EPA
estimated, and we all remember, that it would cost about $600
per ton to comply with the proposed acid rain controls;
however, the actual cost today is less than $100 per ton.
Furthermore, many benefits are described in qualitative
terms such as lives saved or reduction in illness, not monetary
terms. Thus aggregate and necessary benefit analyses may fail
to account for the most important benefits of regulation. I
would like to explore whether peer review provisions would
adequately address that problem, Mr. Chairman. It makes no
sense to require expensive analyses unless we can be secure in
the objectivity and feasibility of the analysis.
Mr. Chairman, I thank you again for holding this hearing,
and all of these hearings that relate to trying to determine
the effectiveness of what government is doing. I look forward
to the testimony of the witnesses, and I would like to submit
for the record documents that address the cost of performing
the cost-benefit analyses and other related material.
Thank you very much, Mr. Chairman.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
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Mr. McIntosh. I appreciate that, Mr. Kucinich. And seeing
no objection, we will definitely include those in the record,
because I think you point out an important point that this
study and the work is not cost-free always, and it needs to be
done.
One thing I would note just doing a little bit of math, the
$35 million is what it would cost the government to study the
possible impact of $7 billion on the private sector. So we may
end up saving money in the society if we can do those same
regulations more efficiently as a result of it.
Mr. Kucinich. Of course the offsetting cost to look at is
if we don't do the regulations, the impact on society at large,
it might be even greater than the cost to the business
community.
Mr. McIntosh. I agree. Thank you.
Let me turn now to the vice chairman of the committee, who
is a new member of the committee and a new Member of Congress,
the gentleman from Wisconsin, Mr. Paul Ryan.
Mr. Ryan. Thank you, Mr. Chairman. Thank you for holding
this hearing. I thank Chairman Bliley for his leadership on
this legislation.
And just before I begin my statement, I would like to add
to your comment regarding our colleague from Cleveland. I think
the cost to the agency, to OMB and to OIRA and to our agencies
to do the analysis, should be compared to the costs that are
being borne by the taxpayers, by our private sector and the
economy. That is the lens through which we ought to look at
these things and view legislation such as this.
But I would like to just quickly address this issue in the
bill. The free flow of information is crucial to the
effectiveness of our democratic institutions, and if we want
the American people to trust their government and participate
fully in the democratic process, we must provide them with as
much information as we can about the reasoning behind our laws
and regulations. And in particular, citizens have the right to
know how the actions of the Federal Government will affect
their lives.
A good example is the impact of Federal environmental and
safety regulations on businesses, jobs, and personal behavior.
Studies show that the rules cost American taxpayers and
consumers hundreds of billions of dollars each year, and we are
going to hear from Dr. Hopkins today, who has done tremendous
work on this subject for years. Our constituents have a right
to know how much of their hard-earned money is going for
Federal regulation.
It is clear that I am not alone in my support for the
public's right to know. Some of President Clinton's top
officials are very outspoken advocates of these issues. One is
Carol Browner, the Administrator of the EPA, and I would like
to quote Mrs. Browner, who said that the Clinton administration
believes putting information into the hands of the American
people is one of the best ways to protect the public health and
environment.
I agree. Because I agree, I enthusiastically support H.R.
1074, the Regulatory Right-to-Know Act. This bipartisan
legislation is all about putting information in the hands of
the American people, as well as the representatives here in
Congress and in the executive branch, who can only gain from
information about the benefits and costs of Federal regulations
and information about the impact those regulations have on
businesses, State and local governments, jobs, wages, prices
and economic growth.
Agencies can use this information to begin to focus on
costs and benefits when making regulatory choice. Information
like this will be a valuable tool that policymakers, lawmakers,
and regulators can use to evaluate the benefits and the burden
of existing rules and the obligations that proposed rules would
impose. In short, this legislation will ensure more openness,
more accountability in government. That is what we are here to
do. That can only be good for building public trust as we pass
laws and the regulations that implement the laws.
Thank you, Mr. Chairman.
Mr. McIntosh. Thank you Mr. Ryan, I appreciate your joining
us today for the hearing and thank you for that statement.
I also want to welcome another member of the committee and
new Member of Congress, Mr. Lee Terry, and do you have a
statement or anything you would like to put into the record?
Mr. Terry. Well, I did, but since it is redundant of yours
and Paul's, I will just attach my statement to yours and say I
am anxious to hear the testimony of Chairman Bliley and the
others on the distinguished panel.
[The prepared statement of Hon. Lee Terry follows:]
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Mr. McIntosh. We will definitely include it in the record.
I guarantee you it is welcome to have those additional
thoughts.
Let me call forward our first witness, then, who is a
distinguished leader in this Congress, someone who has worked
hard in many of these areas where the regulations are as a
result of Federal legislation, someone who I have always looked
up to, including before I was a Member of Congress and serving
on the Competitiveness Council, Chairman Bliley. Chairman
Bliley, thank you for joining us, and feel free to make any
remarks and submit anything you would like to for the record.
STATEMENT OF HON. THOMAS J. BLILEY, JR., A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF VIRGINIA
Mr. Bliley. Thank you, Mr. Chairman. Thank you for those
kind words. With your permission, I have a somewhat longer
written statement that I would like to submit for the record,
as well as a set of letters of endorsement.
Mr. McIntosh. Seeing no objection, they will be included in
the record.
Mr. Bliley. First of all, the Regulatory Right-to-Know Act
is a basic step toward a smarter partnership in regulatory
programs. Specifically, it is an important tool to understand
the magnitude and impact of the Federal regulatory programs.
The act will empower all Americans, including State and local
officials, with new information and opportunities to help them
participate more fully and improve their government.
More useful information and public input will help
regulators make better, more accountable decisions and promote
greater confidence in the quality of Federal policy and
regulatory decisions. Better decisions and updated regulatory
programs will enhance innovation, improve the quality of our
environment, secure our economic future, and foster a better
quality of life for American families.
I believe accountability in our regulatory programs is
important. When programs are smart, such programs help State
and local government, businesses and families. When they are
ill-formed, out of date, or wasteful, such programs hurt
people. Poor regulatory programs stifle the freedom and
innovation of our domestic work force. Poor regulatory programs
create barriers to redevelopment of abandoned urban sites,
leaving a continuing blight in our neighborhoods. As a former
mayor, I know that it is true in my own home city of Richmond,
and I am sure former mayor Kucinich had many areas of Cleveland
that suffer from this.
Mr. Kucinich. It is true.
Mr. Bliley. Poor programs hurt small businesses, schools,
health care facilities and farms, and these are but a few
examples.
You have got a long list of witnesses, so I am going to cut
this short. What this bill does not do, it does not interfere
with any regulatory agencies proposing a rule or indeed
adopting a rule. All it says to the regulators is, ``Mr.
Regulator, Ms. Regulator, tell us how much it is going to
cost.'' And then the Congress, which has to appropriate the
money, and the people who are going to have to comply with the
rules, get an idea of, you know, how much it is going to cost,
and is it worth the cost? That is the important thing.
I mean, you know, obviously the rule is probably a good
idea or has been proposed to accomplish some good. But is it
worth the cost? I mean, we make as individuals every day
decisions of what we buy, what we do, and we weigh the benefit
versus the time it is going to cost us or the money it is going
to cost us or both. And I think that is all we want to do here;
get to the bottom of it and find out what the cost of
compliance is. Most of them probably will be well worth it, but
I will give you a classic example.
I am having a battle with the Coast Guard right now because
in my city of Richmond we are restoring a canal and are going
to have hopefully a canal walk and boats like they have in San
Antonio. This canal was laid out by George Washington and it
served the very useful function of moving freight and people
between the western part of Virginia and the eastern part of
Virginia until about 1850, when the railroads replaced it.
In the 1940's it was filled in and it has been filled in
ever since. But now the city is restoring it. It will be about
2 feet deep or 3 feet deep and about 25 feet wide, and the
Coast Guard comes along and says it is a navigable waterway. I
said it has been filled in for 50 years. You know, well, once
it is a navigable waterway, it is always a navigable waterway.
Now that is a regulation I think that defies common sense,
and that is the kind of thing that this accountability will
uncover. And then maybe the Resources Committee will say,
``Well, Bliley you are all wet, we think it is a good idea,''
and keep it. That is the way the system is designed to work.
But at least somebody will look at it and have to make that
judgment. And that is all I have to say, and I rest my case. If
anybody has a question, I will try to answer it.
[The prepared statement of Hon. Thomas J. Bliley follows:]
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Mr. McIntosh. You make a very powerful case. I know the
Chairman has another appointment and that he was gracious
enough to come here today. I have no questions for you.
Mr. Kucinich. I just have two brief questions. And of
course the Chairman makes a powerful argument, when someone
would surmise that he is all wet but there is no canal.
Mr. Bliley. When I built a downtown expressway they tried
to do the same thing. And the Federal judge said, ``Well, the
only thing you lacked for a navigable waterway is water.''
Mr. Kucinich. Mr. Chairman, just for a moment, would this
bill require agencies or OMB to conduct new studies or analyses
or to develop new data?
Mr. Bliley. It should not. All it requires them to do is to
tell us how much it is going to cost. And I am sure that like
any piece of legislation, it is not perfect, and I look forward
to working with the committee and the other body to get it into
proper shape.
And I appreciate the fact that you have brought in, Mr.
Chairman, expert witnesses who are far more knowledgeable on
the technical details of how this would apply than I am. And as
a result of that testimony, hopefully we will refine the
legislation to make sure that we do no harm in passing the bill
and sending it to the President for his signature.
Mr. McIntosh. Thank you, Mr. Chairman.
Mr. Kucinich. I just wanted to establish that the
chairman's intent was not to get them to conduct new analyses.
Mr. Bliley. No.
Mr. McIntosh. And I think the goal here is to marshal the
data and the agencies. The Executive orders require almost all
of this to be done as it is. The problem has been making sure
that it is there and available and published, and the chairman
has done a great job of leading this effort. And I know he has
had many battles, not only in Richmond but in the national
field as well, looking at these regulatory programs.
So thank you, and we look forward to working with you as we
carry this bill through the process. Hopefully we can get it
down to the President and have it become part of the law of the
land.
Thank you very much, Mr. Chairman.
Mr. Bliley. I hope so. Thank you.
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Mr. McIntosh. Our second panel today is also a government
official. He is a State Senator from California, Mr. Jim Costa,
Senator Jim Costa, who is also vice president of the National
Conference of State Legislatures. Welcome, Senator Costa. I
appreciate you coming.
Normally we are asked to swear in witnesses. We have a
policy of that, but for elected officials, we respect the
integrity that you bring to your office and so we will skip by
that. But I didn't want anyone else to be offended on that one.
Mr. Costa. Thank you very much Mr. Chairman.
Mr. McIntosh. Mr. Costa, you can submit full testimony and
summarize it or present whatever you want to us today on this
issue. And I appreciate you traveling all the way from
California to come and talk to us about this, and your
perspective is very important about this.
STATEMENT OF JIM COSTA, SENATOR, CALIFORNIA STATE LEGISLATURE,
AND VICE PRESIDENT, NATIONAL CONFERENCE OF STATE LEGISLATURES
Mr. Costa. Thank you very much, Mr. Chairman. With your
permission, I would like to do both, submit the written
testimony and to summarize some of the key points that I think
are important.
First of all, Mr. Chairman and members of the subcommittee,
I am Senator Jim Costa. I am a member of the California Senate,
where I chair the Senate Committee on Agriculture and Water. I
am currently serving as the vice president of the National
Conference of State Legislatures. I appear before you today on
behalf of not only the National Conference of State
Legislatures but also the six other organizations of State and
local officials that comprise the ``big seven'' that are
supporting H.R. 1074: The National Governors' Association, the
Conference of State Legislatures, the Council of State
Governments, the U.S. Conference of Mayors, the National
Association of Counties, the National League of Cities, along
with the International City and County Management Association.
So it is my honor to be here on behalf of all of those
organizations, wearing many hats this morning.
As you know, I think that my testimony adds a local
perspective. It adds the local perspective in terms of where we
think this legislation is on point, and I would also like to
describe some steps which we have taken in California to
accomplish similar goals in H.R. 1074.
For several years NCSL has raised concerns about the
developments in relations between Federal and State
governments. That is our job. A decade ago State legislators
were alarmed about Federal unfunded mandates. We worked hard
with members of this subcommittee and others in Congress to
pass the Unfunded Mandates Reform Act. On a more recent
concern, we have focused on the preemption of State and local
authority by the Federal Government and on the Federal
regulatory process. We believe the combination of the unfunded
mandates along with preemption, and I would describe an archaic
regulatory process, in fact curtails innovation and
responsiveness of State and local government and, therefore,
State and local officials.
The National Conference of State Legislatures views the
Regulatory Right-to-Know Act as a part of the package of
reforms that, when passed, combined with the others, will
largely alleviate problems that we have identified with
preemption and the regulatory process. This subcommittee has
already approved two other parts of this package, H.R. 409,
which streamlines the grant application process, and section 5
of H.R. 350, which makes critical technical corrections to the
Mandates Reform Act. We look forward to working with the
subcommittee on the fourth part of the package, a bill that
would constrain the propensity of Congress to preempt State and
local prerogatives.
The Regulatory Right-to-Know Act which is before you, we
think contains four important elements, and let me list what
they are: They include the annual accounting statement, the
cost-benefit analysis, the analysis of duplication, and the
notice and comment provision.
Let me quickly state on those four points that on the
annual accounting statement, we think it will offer an
important power of information to State, local and Federal
officials concerned about the impact of agency decisions on
State and local governments. We think it will also give
Congress an indispensable oversight tool to determine whether
or not agencies have exceeded their statutory authority when
promulgating rules.
The second area, the cost-benefit analysis required under
H.R. 1074, will make agency officials, we think more,
accountable for the programs they are implementing. They give
the public much more of a sense of how much funding it takes to
provide a particular benefit, and we had that discussion just a
moment ago.
The third element of H.R. 1074 calls for the analysis of
duplications, inconsistencies, and overlaps in regulations. How
often have we heard that from our constituents? This, we
believe, will streamline the regulatory process, ease the cause
of the considerable tension and frustration for State and local
officials.
Finally, we are supportive of the bill's notice and comment
provision. We think notice and comment is very critical. This
element makes the accounting report a dynamic document, giving
State and local officials a chance to highlight their most
pressing concerns about recent Federal actions.
I am here today to let you know that State legislators try
to practice what we preach. For the past 15 years or more--and
this is my 21st year in the State legislature--State
legislators have throughout the country wrestled with the same
problems addressed in the Regulatory Right-to-Know Act. We have
tried to make the regulatory process more open, accessible and
accountable.
In California I can tell you that I have been involved in
the passage of several bills that take similar approaches to
H.R. 1074. We have a regulatory review unit in the Department
of Trade and Commerce that reviews all rules in California. We
require agencies to report unnecessary and conflicting rules,
we require that all rules be accompanied by an economic impact
statement, and we subject all major rules to regulatory
calendar and sunset provisions.
I am pleased with the way that these provisions are working
in California, and obviously there is always room for
improvement. I am also pleased that this subcommittee is
attempting to take similar action on the Federal level. I
believe that the State and Federal Governments have an
obligation to our constituencies, to make the regulatory
process more accountable and more responsive to those who are
regulated, whether they are in the private sector or the public
sector. Each step we take on the federalism front, whether it
is the Unfunded Mandates Act, curtailing preemption, or making
the regulatory process more accountable, is a step toward
improving the responsiveness and the credibility of government
which we all seek to attain.
It is not an abstract exercise, members of this
subcommittee. Rather, it is a critical element in ensuring the
public's confidence in our Federal system, confidence that is
necessary. I look forward to working with you in passing H.R.
1074 on a bipartisan effort, and the other components of our
federalism agenda. Thank you.
[The prepared statement of Mr. Costa follows:]
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Mr. McIntosh. Senator Costa, I appreciate that. And Andrew,
go ahead and work the light for me, because I have several
questions but I don't want to delay our colleagues in having
them have a chance to question Mr. Costa, too. So I will come
back at the end if I do not get through in 5 minutes.
First of all, let me say thank you for your work, really
the NCSL's work with one of our subsequent witnesses, Mr.
DeSeve, on the federalism Executive order which I think we were
able to, after some hearings here and work by OMB, to resolve
the problems there and get that back on track. But the work of
the NCSL was very instrumental in that, and I thank you for
that.
I have got several questions about this particular bill,
and what I may do is come back to those in my second round if
they haven't been covered already, but I wanted to ask you two
other things while I have got you here.
You mentioned you have a regulatory calendar and sunset on
rules. Does that work--we have tried to do that here, and one
of the concerns was that rules might lapse and that therefore
the regulatory safeguard for health or safety or the
environment might be endangered. Have you successfully been
able to avoid that using the calendaring and sunset provisions
in California?
Mr. Costa. Well, we believe so, with the oversight process
that the legislative body brings to the fore as we produce our
budget each year. We have an annual budget in California. Those
rules that are in place never pass unnoticed, and the public
input is there and it is frequent.
So I think it has worked well in terms of calendaring it.
It works both with our legislative calendar as well as with our
budget calendar.
Mr. McIntosh. Well, a different subject for a different
time. But I look forward to talking with you more about that,
because that is something that we have been trying to move
forward here in Washington, and your experience out in
California may be informative to us.
Mr. Costa. And I would be happy to give you other State
experiences as well.
Mr. McIntosh. That would be great. Thank you.
Specifically about the bill before us today, you mentioned
in your testimony you thought it was important that there be a
review of OMB's draft accounting statements for public comment,
and I was wondering, wanted to extrapolate on that. How will
that be helpful for the State and local officials in terms of
the input and the knowledge about the regulatory programs?
Mr. Costa. Well, let's use most recently the Welfare Reform
Act that was passed a little over 2 years ago, I guess, now. We
on the State level, in implementing that, a host of States have
acted I think very responsibly.
But when you are making changes in significant Federal-
State programs, I think it is not only helpful but it is
illuminating to have the State perspective in terms of how
States are carrying out these Federal mandates and whether or
not they are being properly funded or not, and whether or not
the regulations are duplicative of what we have occurring on
the State level. And so if we have this comment period, I think
we can hopefully clear the lay of the land, so to speak, so
that we don't have, you know, more difficulty in terms of
implementing new law.
Mr. McIntosh. I take it that it would also be important for
there to be an appendix in the report reflecting those public
comments and OMB's analysis of them?
Mr. Costa. Yes, and let me emphasize that NCSL, along with
the other big seven, strongly supports the appendix that
provides us at least once a year to take an assessment, and we
think that the annual appendix is really very important part of
this legislation.
Mr. McIntosh. Great. Let me also ask you, on the impact of
Federal rules and paperwork, what is the State and local
elected officials' view of the requirement for an analysis of
the cumulative not only direct but indirect effects of the
Federal rules and paperwork on State and local governments?
Mr. Costa. Simple is better, in a word. But the fact is
that the less paperwork that we can create, I think the better
off we all are, both on the Federal as well as on the State and
the local level.
I am sure, Congressman, you and your colleagues are like
myself. When we go to our districts, usually the second or
third thing on the list of folks that we are meeting with,
whether they be a county or city government, is, you know, we
appreciate your help, we appreciate the changes, but can't you
do this in a way that doesn't require us to rewrite the State
Constitution?
And so all of this effort is really to I think try to
reduce the amount of paperwork, and I think that has to be kept
in mind.
Mr. McIntosh. I appreciate that. I am going to now turn to
my colleagues, as my 5 minutes has lapsed, and we may cover the
different questions I have. I also want to acknowledge another
new member of our subcommittee is here, one of my classmates,
the gentlewoman from Idaho, right?
Mrs. Helen Chenoweth, who we are welcoming as a new member
of the subcommittee, and we welcome her perspective.
Mr. Kucinich, do you have any questions for Senator Costa?
Mr. Kucinich. I did have a chance to read his testimony. I
welcome the Senator, having served in the State Senate of Ohio,
and I appreciate the work that you do. And California being a
State that has such an impact on this country, I appreciate you
taking the time to come and testify. Thank you.
Mr. Costa. Thank you.
Mr. McIntosh. I am now going to recognize the vice
chairman, Mr. Ryan, both for questions and also if you would
take over the Chair. I have got an obligation and I will be
back in about 10 minutes.
Mr. Ryan [presiding]. Thank you, Senator Costa. I wanted to
ask you about some of the overlapping and duplication issues.
What is the State and local officials' view on the requirement
for an identification and analysis of overlaps, duplications,
and potential inconsistencies among Federal regulatory
processes, including processes across agencies which impact
State and local governments?
Mr. Costa. We think it is essential. If this legislation is
to be comprehensive, you have to take careful assessment and
examination of where these rules are overlapping, where they
are duplicative, and where in making that assessment it becomes
very clear, both at the State and local level, that the rule is
redundant and therefore unnecessary.
Mr. Ryan. And going on to the State and local's views,
recommendations for reform, I wanted to get your assessment on
the part of the bill which is section 4(a) in the bill, which
requires OMB to present recommendations to reform inefficient
and ineffective regulatory programs or program components,
including the regs affecting State and local government. Have
you taken a look at that part of the bill, and what is your
reaction to that?
Mr. Costa. We are supportive of it.
Mr. Ryan. Thank you.
Ms. Chenoweth.
Mrs. Chenoweth. No questions.
Mr. Ryan. Well, thank you very much. I appreciate it.
Mr. Costa. Thank you, and we look forward to working with
you as the legislation progresses, and thank you for allowing
us to testify this morning.
Mr. Ryan. We will now invite our third panel, Mr. Ed
DeSeve, who is the Deputy Director of the Office of Management
and Budget.
[Witness sworn.]
Mr. Ryan. I just want to say it is nice to see you again,
Ed. It has been quite a while. We talked when I used to work
over in the Senate about the District of Columbia provisions of
the budget reconciliation bill 2 years ago. It is nice to see
you again.
Mr. DeSeve. Thank you, I am delighted to be here. I think
that is a bipartisan success. Mr. Davis--and Mr. Kucinich was a
part of that, and on your left you have one of the key
community activists in the District of Columbia who has been
tremendously supportive of community affairs over the years, so
I think it is a great success.
Mr. Ryan. Please proceed.
STATEMENT OF G. EDWARD DeSEVE, DEPUTY DIRECTOR FOR MANAGEMENT,
OFFICE OF MANAGEMENT AND BUDGET
Mr. DeSeve. Good morning. You invited me to discuss H.R.
1074, the Regulatory Right-to-Know Act of 1999. This bill would
require the Office of Management and Budget to prepare a report
on the costs and benefits of Federal regulations, submitted
annually to Congress, accompanying the Federal budget. H.R.
1074 would significantly expand and make permanent what
Congress has passed as appropriation riders over the past 3
years with administration support.
First, I would like to discuss the prior legislation and
how the Office of Information and Regulatory Affairs
implemented it. Second, I would like to discuss how H.R. 1074
differs from this prior legislation, and our serious objections
to many of the changes.
As drafted, the administration opposes H.R. 1074. Before
you mark up this bill, we would appreciate the opportunity to
discuss our serious concerns with you and to suggest possible
amendments.
The first two riders which we supported were passed on a
bipartisan basis. They called upon OIRA to issue an annual
report containing two categories of cost-benefit information:
First, aggregate estimates of total annual costs and benefits
of Federal regulatory programs; and, second, estimates of the
costs and benefits of major regulations issued during the year.
Major regulations are defined as those with economic impact of
over $100 million.
OIRA followed the guidance provided by the legislative
history in developing these two reports and compiled the
information concerning aggregate costs and benefits from
economic studies prepared by outside experts or agencies. Much
of the information concerning major rules was based on the
economic analysis prepared by agencies in the course of each
rulemaking. Similarly, relying on studies by outside experts
and agencies, OIRA assessed the impacts on the private sector,
State and local government, and the Federal Government in
general terms. At the end of these reports, OIRA published the
recommendations.
OIRA views its development of these reports as an
incremental, iterative process designed to improve the quality
of economic data. The content of the 1998 report reflected this
incremental, iterative approach. The report discussed the
progress that had been made and pointed out the need for
further improvements in economic analysis. This 1998 report
refined cost-benefit estimates prepared in the first report and
those for previously issued regulations in order to build a
historic data base. The 1998 report also responded to criticism
of the first report by taking steps to standardize agency
assumptions, monetize estimates where agencies had only
quantified them.
Last year Congress passed a third appropriation rider which
was broader in scope and more detailed than the first two. I
have discussed OIRA's plans to implement the 1999 report in my
statement.
H.R. 1074 adds considerable detail to what has been enacted
before. We object to a number of its provisions which I would
like to summarize. In addition, Mr. Chairman, I would be happy
to give you a section-by-section analysis in writing for the
record.
Mr. Ryan. Without objection.
Mr. DeSeve. First, provisions in H.R. 1074 appear to
misunderstand what is possible and potentially useful. H.R.
1074 could be interpreted to require the compilation of data
that are not now available. It does so by eliminating the
qualifying phrase ``to the extent feasible'' from Section
4(a)(1) and by calling for a quantification of cost-benefit
analysis where data are not likely to be available.
H.R. 1074 could further be interpreted, in a way
inconsistent with previous legislative history, as requiring
the creation of a large number of new economic analyses that do
not now exist. We strongly object to having the bill require
new economic analyses when its purpose, as Senator--I'm going
to give him a promotion here--as Chairman Bliley indicated,
that its purpose was to codify the reporting requirements of
OMB in statute.
Second, H.R. 1074 calls for macroeconomic analysis and
legislative recommendations that are not appropriate for this
report. H.R. 1074 would establish a ponderous institutional
structure. That is hard for somebody from OMB to say: ponderous
institutional structure.
Mr. Ryan. Don't say it very often.
Mr. DeSeve. We are opposed to that, and we are opposed to
paperwork as well. H.R. 1074 would establish a ponderous
institutional structure, given the detailed requirements and
many procedures and the serious limitations inherent in cost-
benefit analysis. We strongly object to the detail in these
procedures and believe their cumulative effect will undermine,
not enhance, the timely development of regulations and of an
annual report. We see no need to require OIRA to consult with,
in statute, CEA and CBO. We regularly work on a staff basis
with them.
In conclusion, the bill could be interpreted to limit
OIRA's discretion and flexibility to compile a useful report
based on academic studies and undertake other initiatives. We
support public comment on the report, but we do not support the
notion of peer review. It would be very difficult to determine
who the peer review selectees should be.
In summary, we urge you to carefully reconsider the
complexity of detail, and look forward to working with you as
you move forward with this legislation. Thank you very much.
[The prepared statement of Mr. DeSeve follows:]
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Mr. Ryan. Thank you. Well, I would like to take your
attention to the part of your testimony--you state OMB's
objection to a requirement for an analysis of the direct and
indirect impacts of Federal rules and paperwork on various
sectors of the economy and various factors, the requirement in
section 4(a)(2) of the bill, as not appropriate for this
report.
What is OMB's view of the value of an impacts analysis for
State and local governments, the private sector, small
businesses? Would OMB support a phase-in of the requirement for
these sectoral impact analyses?
Mr. DeSeve. We would be happy to work with you to try to
determine what is possible and what is useful.
Mr. Ryan. Going to peer review, you just mentioned in your
testimony and in your verbal testimony your objection to peer
review. Given the fact that we have peer review in certain
areas today, since agencies have an incentive to low-ball
estimates of regulatory costs and exaggerate estimates of
regulatory benefits, and since OMB has not provided in its
first two reports to Congress an independent assessment and
reestimate of agency estimates, wouldn't peer review by expert
independent organizations be helpful for you? Wouldn't that be
helpful in correcting agency estimates?
Mr. DeSeve. Our problem is, in many cases, choosing who the
peer entities are and then following guidance of a third party
who is a nongovernmental entity. We prefer to get public
comment, including those organizations, and from that public
comment use it to guide the regulatory review process. The
agencies themselves have taken into account consulting studies
and scientific data as they have gone forward, and typically
that information is available to outside bodies.
We get a very large number of comments. We are now doing a
review on actually an implementation of a piece of legislation
for OMB circular A-110. We have gotten over 2,000 comments so
far, most of which has been individual entity comments. So we
don't think that peer review is really a good idea because it
is hard to choose who the peers are. We would have to deselect
certain groups and select other groups. We think that the
public comment process gives them a chance to do that. We think
agencies typically use qualified individuals in developing the
data over time.
Mr. Ryan. Well, let me press on that point with you for a
second longer. Since no comments are on OMB's draft report to
Congress--provided comments on each part of the draft report,
and since OMB admits there are methodological problems,
wouldn't peer review strengthen OMB's final report?
Mr. DeSeve. We don't think so. We think that the peers
themselves would be focusing not necessarily on the overall
nature of economic analysis over the overall nature of the
process, but rather specific flaws in the legislation that were
germane to their own points of view. If I were to select the
peers, you might disagree with me not just on their conclusions
but also on my process of selection.
The use of peer review in many situations in scientific
analysis, I think, is broad and has been used by agencies
effectively. The National Science Foundation has peer review of
grants. That is appropriate as necessary in a broad context at
the agency level.
But when you set it up at the review level, after the
agencies have used their judgment to bring in outside experts,
if I brought in A and B who were known to be of a particular
point of view, you could easily criticize the objectivity of
that review.
Mr. Ryan. Noting your concern about that, about tainting
the review, you could get peer review from wide ranges of
views, people from different view points; and it sounds like
since you are already cognizant of that problem possibly
occurring couldn't you implement peer review by getting wide-
ranging views?
Mr. DeSeve. It is certainly possible to do so. The cost of
that, as well as the time it takes to do so--and you always
exclude somebody. When you choose a peer, you are always going
to say, ``Well, I have taken 10 individuals or 10
organizations; and I have left out 2 or 3 who will have very
strongly held views on the subject.'' So I am concerned--we
would love to have public comments. We would like to have any
of these organizations provide comments. And I assume we are
also going to have to pay the peers. They are not going to do
it for free. Now, I have got a situation where I choose a
contractor. I can essentially sole-source that contractor; I
suppose I could bid it as well. I am building both time and
cost into the process which is already a long process of
regulatory review and economic analysis along the way.
So we are very encouraging of public comment, but we think
the approach of public comment and peer review is one that is
just going to add complexity to the process.
Mr. Ryan. I hope you rethink that and look at it a little
further. Winston Churchill said that democracy is the worst
form of government, except all the other forms of government.
So it is a sloppy process. But I think that peer review will
help you do your job, will help you get all of the input that
you need. And you can go out and get diverse points of view. So
I hope you rethink that one and take a look at it, and I would
ask you to make that consideration.
Mr. DeSeve. We will be happy to talk to the committee about
it further.
Mr. Ryan. My time has expired. I turn it over to the
chairman.
Mr. McIntosh. Thank you, Mr. Ryan; and thank you for
chairing in my absence and continuing to do so. Mr. DeSeve,
first, welcome. I understand that you are moving on from OMB
and want to wish you the best in the next phase of your career
and take this moment to thank you for your work on the
federalism Executive order. You were here before us when it was
in limbo and that matter was resolved, and I appreciate the
work that you did on that.
Mr. DeSeve. Mr. Chairman, I guess I ought to be clear. I
think there are still ongoing discussions between the big seven
and the administration to perfect a substitute. I think that is
still happening--ah-hah, a note from the trenches. That is
exactly what I thought. The order was withdrawn, which I think
was your recommendation; and there is continuing conversation
between the big seven and the administration as to what a
substitute might look like.
Mr. McIntosh. So we may still be doing some work on that.
Mr. DeSeve. That's correct. But I think it is consistent
with the concerns that you had about not having the Executive
order in place. It was withdrawn, and at the same time we are
continuing to negotiate.
Mr. McIntosh. Good. Good. And we will continue to watch
that and have our say as well.
Let me ask you on some of your comments here, it is my
understanding that in the reports that OMB has prepared there
has been public comments to that. Was that process for those
reports beneficial?
Mr. DeSeve. We believe it was very beneficial, and we would
like to continue the public comment process in all aspects of
the report.
Mr. McIntosh. OK. Good. And picking up a little bit on the
peer review, although I think you stated your position well, I
have to say I am skeptical of that, because my experience from
government--and it is human nature. Nobody wants to have
somebody looking over their shoulder questioning their work,
but it is also healthy. And so I would hope that we could, as
Mr. Ryan asked you, to continue to think about that and find
ways where maybe you all could find constructive ways of making
that process work, and we could get the constructive benefit of
that outside input.
The overlaps and duplications and inconsistency and your
comments there you were concerned that what the report would
end up focusing on in many cases would be statutory problems
that the agencies have to deal with, where Congress has
legislated over the years and created requirements that create
those overlaps and duplications and inconsistencies. And I am
confident that you are correct that a lot of that problem comes
from the nature of the process with legislation and different
committees, but also different times in which bills were
passed.
But do you see a role where, perhaps, bringing those to
focus in one area, even if it ends up pointing out that we
cannot change it by the regulatory process because we are
mandated by law to do these inconsistent things or overlapping
things, that it might then help us be able to sort them out
here and go to the appropriate committees?
One of the things that Chairman Bliley mentioned was his
view was very much that this would help the committees in their
work as a report on the underlying legislation. And so that
perhaps we could keep that in there; but allow you all,
essentially, to focus where it is legislative versus regulatory
in nature.
Mr. DeSeve. Our concern here is that we are breaking new
ground. The economic costs and benefits have been dealt with
over the last 2 years in riders. Now the 3rd year. As we think
about having to codify for a historical base of regulations
duplication and then having to go back and examine where those
duplications and overlaps exist, it is terra incognito for us.
It is new territory for us. We are concerned that it is a very
deep requirement that we haven't thought through before.
Also in identifying what is an overlap and what is
redundancy, we are going to have to exercise some judgment. One
man's overlap may be another man's support in some
circumstances. So rendering that kind of judgment is something
that we are concerned about.
We do, under the Executive order, examine the body of
regulatory statutes or other regulations surrounding a
particular new regulation as it comes forward. So if regulation
A shows up, we do look and examine the other regulations. We
could certainly, in examining those regulations, indicate the
other regulations in that family that we examined as we do
that. That is something that we could do in that regulatory
process. If you mix that into the cost-benefit report, you get
an apple and an orange, or at least an apple and a kumquat of
some sort. You get a blending that, again, adds in a layer of
complexity.
So we would like to talk about achieving the purpose of
making sure that there is an understanding of the other
regulations that surround this one, without forcing us to use
either independent judgment of what is an overlap and what is a
duplication or what is reinforcing. So, again, transparency is
certainly something that we could do, but then to have an
analytic judgment requires a much greater level of work on our
part than simply displaying those overlaps or those
reinforcements.
Mr. McIntosh. Well, let me say I think it would be helpful
to us in Congress for the executive to go ahead and exercise
some of that judgment; and we may disagree--and certainly the
committees who have written the different legislation may have
different opinions--but I think it would be, in general,
helpful in the process.
Let me also take a moment to say--and I talked to Chairman
Bliley after his testimony. He wanted me to mention that his
goal was not to create a lot of new burdens for you. You have
identified one that was. And he said he did realize that there
may be some additional things in the legislation; but he was
wanting to indicate a willingness to work with everybody in
making sure that that was not a large additional burden and
that his view of the legislation was that on the whole, it
should not be a tremendously new area of burdens for OMB. There
may technically be some new information that you are being
requested to provide in this report. So he wanted me to clarify
the record on that, based on your question to him.
Mr. Kucinich. Will the gentleman yield? I believe that what
Mr. Bliley said is that there would be no new analysis.
Mr. McIntosh. Right. And that is what he is asking me to
clarify, that there may be a couple of areas the way the
legislation is drafted that might, in fact, be new. I think Mr.
DeSeve has pointed out one here.
Mr. Kucinich. Does Mr. Bliley intend to correct his
testimony?
Mr. McIntosh. That is what he asked me to do, correct the
record. That the intent was that there not be a large new
burden coming from those and that he wanted to work with you
and me; that as the legislation went forward, if that was an
area of concern, that we could work together on it.
Mr. Kucinich. Well, it is an area of concern. I wish that
Chairman Bliley could have had a little bit more time so that
he wasn't feeling rushed and, therefore, gave a one-word answer
to a question which has enormous import. Because certainly what
underpins this whole debate is that question about is there
going to be new analysis. And so I certainly take the Chair at
his word in relating Mr. Bliley's account, but I do think that
somehow complicates our deliberations here.
Mr. McIntosh. What I might do, if it is all right with Mr.
Kucinich, is ask him if he has further things that he wanted to
put in the record addressing that in particular.
Mr. Kucinich. First of all, I would have no objection of
doing that, provided that we could also put in some additional
questions so we can carry the debate.
Mr. McIntosh. Let me know what your questions are and, we
will make sure that we get the answers for them in the record.
Mr. Kucinich. I would like to see his statement, and then I
would add my questions, not my questions first and then his
statement. That would be too much like Lewis Carroll, and my
name is Kucinich.
Mr. McIntosh. We will work with you to make sure any
concerns you have got based on what is in the record get
answered so that we can have a complete record on the bill. We
will work with you on that.
Mr. Kucinich. I am sure we will work together.
Mr. McIntosh. My time has expired. I will turn it back to
Mr. Ryan, who is going to continue chairing the hearing.
Mr. Ryan. Mr. Kucinich.
Mr. Kucinich. Thanks very much. I appreciate it.
Welcome. H.R. 1074 requires a number of new analyses,
including cost-benefit analyses for each agency program and
program component, Mr. DeSeve. Another new requirement provides
that reports cover costs and benefits for 2 previous years for
the following 4 years. In addition, the bill adds that, to the
extent feasible, OMB must quantify net benefits and costs for
each program, major rule, and option discussed in any
regulatory impact analysis for any major rule.
So the question comes, does OMB have the resources to
adequately conduct such analyses?
Mr. DeSeve. No, sir, not at this time.
Mr. Kucinich. Why not?
Mr. DeSeve. The budget process didn't give them to us. This
is a new set of requirements that were not anticipated
previously, and we just don't have the money for them. It is
just not in our budget.
Mr. Kucinich. OK. And also if you were to have that imposed
on you, what would be the effect?
Mr. DeSeve. You have to make a calculation, which I have
not reviewed, on the cost of $35 million. To give you an order
of magnitude, that would be an increase in the OMB budget in
the order of magnitude of 70 percent to the overall OMB budget.
Our budget is about--roughly $50 million a year. We have
roughly 512 employees, FTE.
Mr. Kucinich. Let me turn it around now. It is my
understanding that most of the analyses is done by agencies and
not by OMB.
Mr. DeSeve. And we also rely on third parties who are
published experts in the area and will tend to bracket their
opinions. If you have a published expert over here and
everybody agrees published expert over there, we will show what
their estimates would do in a particular area, as well as
relying on the work the agency has done in terms of the
regulation.
We try to avoid a centralized bureaucracy that in the first
instance, de novo, prepares analysis that already has been done
by the agency. We try to avoid that level of overlap and
duplication. We do do quality control. We do the review. We do
coordination of those, but we don't do the initial de novo
analysis ourselves.
Mr. Kucinich. Are you familiar with the testimony of Dr.
Seeker of the EPA Science Advisory Board? He testified before
the Committee on Science a few days ago.
Mr. DeSeve. I am not familiar.
Mr. Kucinich. He stated that the new requirement for cost-
benefit analyses on regulatory programs, ``Will a new program
in research to address the knowledge gaps which inhibit
comprehensive cost analyses.'' So the question I have: Do
agencies currently have the resources needed to provide
adequate H.R. 1074 analyses?
Mr. DeSeve. The problem really is--in his case goes beyond
resources. There doesn't exist a body of work or a body of
knowledge in each program area, in each program component, that
would allow an individual to determine the cost and benefit
with the kind of precision that seems to be called for here. So
I think what he was suggesting is you would have to have a new
body of knowledge created, a new data base, a new set of
experiments over a fairly long period of time. If you are
talking about a regulation----
Mr. Kucinich. Otherwise, we wouldn't know what we wouldn't
know?
Mr. DeSeve. That is correct. If you are talking about a
regulation that might affect the health of children when they
were in middle age, for example, you would have to have a
longitudinal study over a time period to be able to assess what
the benefit of that regulation was. We just simply don't know
that now.
Mr. Kucinich. You mentioned before when we were talking
about estimates you really didn't have one. Could you get--I
know this might do violence to the whole concept of this bill.
Could you give me an estimate of what this would cost?
Mr. DeSeve. Would you like to have it peer reviewed? That
was a joke, I am sorry. I apologize. We will be happy----
Mr. Kucinich. We take jokes here as long as you don't turn
them into law.
Mr. DeSeve. We will be happy to try to prepare such a
recommendation and get it back to you. I think we can do that
without increasing our staff.
Mr. Kucinich. OK. Thanks a lot. Thank you.
Mr. Ryan. Mrs. Chenoweth.
Mrs. Chenoweth. Thank you, Mr. Chairman. In your testimony,
you state that OMB's view that some of the analytical
requirements of the bill are not doable and that OMB's
preference really is a guideline from the Congress that says
``to the extent feasible.'' Isn't such a qualifier an
invitation for OMB and the agencies to do less than their very
best in this analysis?
Mr. DeSeve. That is a good question, Mrs. Chenoweth; and we
appreciate the fact that Congress has seen fit to give us that
guidance in the riders that we have had. They have put that
``to the extent feasible'' in the riders. This bill in this
particular section removes that.
The difficulty with feasibility issue here is that you can
only do what you can do. And this creates an expectation that
you have the capability or that there exists the body of
knowledge to do something that is not possible. Albert Einstein
tried for years to find the unified theory of matter, and at
the end of his life he realized that it was impossible for
anyone to find a unified theory of matter. But he spent years
and years trying to do that.
We are suggesting that many of the analyses that this bill,
as it goes into greater detail, would have us do, are simply
not possible to be done. And we could spend a lot of money
demonstrating the fact that you can't do what the bill
requires. If you let us exercise our judgment with public
comment in how we exercised our judgment with congressional
oversight in hearings such as today and continuing to try to
improve the way we do our work over time, if you give us the
option of trying to use that judgment to determine what is
currently feasible, and then trust but verify. Verify what we
have done is an honest effort. Senator Stevens has looked very
carefully at our reports, as have others. If it is not an
honest effort, then excoriate us for it; and we would hope the
public would do the same.
Mrs. Chenoweth. See, our concern is that which is being
reflected by our constituents. And our concern, for example, is
that various budget projections by OMB sometimes are off
hundreds of millions of dollars and sometimes billions. And so
we are not asking you to have your staff project into
Einstein's theories, which are esoteric in large part to some
of us who are on-the-ground analyzers. But what our
constituents are asking us is to push to make sure that we
tighten up the accountability.
If we don't have language that is very clear and we give
the agency time to develop and do their best job, which I
know--I mean, I know the sincerity in which you offer the
comments, but time has not lent itself to the fact that
agencies will get better. By nature, they tend to get a little
more lax; and that is one of the reasons why the language in
the bill is as it is. And I hope you can join us and appreciate
the reason why.
Mr. DeSeve. We do have experience of agency laxity. All of
our agencies are superior. It is like Lake Wobegon. They are
all above average. But we do have to, from time to time, remind
them of the rigor with which they have to do their work; and we
do try to set those standards and set those patterns for
agencies where we can.
Mrs. Chenoweth. Also you stated that OMB's objections to
various provisions in the bill is we strongly object to having
H.R. 1074 require new economic analyses when simply intending
to codify OMB's annual reporting requirement. The intent of the
bill is not simply to codify an annual reporting requirement,
but since the additional analysis required are each
individually important and needed for public understanding of
the impact. And that is what we need together to get. That is
our goal. The Federal regulatory programs, what vehicle would
OMB prefer for imposition of these requirements?
Mr. DeSeve. Again, I think I would like to stand with
Chairman Bliley, and he is going to extend his comments; but
our point is that an enormous amount of analysis is currently
done by the agencies in the regulatory process. We then take
that body of data, and we review it at OMB. From time to time,
we ask for augmentation of that.
What we don't do is start de novo ourselves, making a new
analysis based on the facts of the regulation. We don't go out
and look at the impact of particulate matter in ozone, to take
one that has been very controversial. We rely on the scientific
analysis done by EPA. We then look at that, and we get public
comment on that. We talk to the EPA folks about it. We use our
judgment in probing that analysis.
That is the process we think is appropriate. If you create
a centralized bureaucracy that itself will be doing the
economic analysis, it will so stymie the work of agencies,
because it is analysis that will have to be done twice. We
think the right place to do the analysis, and the people to
hold accountable, are the people in EPA, the people in the
energy department, and others who are doing the analysis in the
first place, rather than having us be required to do it.
Mrs. Chenoweth. I see my time is up, but I would like to
work with the Chair in submitting more questions.
Mr. Ryan. Without objection. Mr. DeSeve, I would like to
continue on the train of thought you were just on. One of the
things that I think is very beneficial about OMB is the fact
that you are the budgeter for the Federal Government; that you,
Ed DeSeve and the OMB, take the numbers from the Federal
agencies on spending programs; you analyze the data, you
analyze what appropriate spending levels, and you actually cut
spending, and you increase spending, and do your own
independent analysis about what kind of spending levels we have
in discretionary spending. You do your own independent review
of the Federal budget, so to speak, and add your own auditors;
and your own staff do independent auditing fresh from the
start. That is a wonderful process that I think helps us inject
fiscal discipline into our Federal budgeting process. Why not
do the same thing for our Federal regulatory process?
One of the greatest things that the OMB has brought to
enable our Federal budget is some type of fiscal discipline,
independent analysis by trained economists and budget
specialists to get that kind of discipline. Why not do the same
thing for the Federal regulatory process?
Mr. DeSeve. That is a good question. Let me try to use the
analogy, and I hope I will do it properly.
What we try to do at OMB is first get the aggregates right.
We look at the potential productivity, along with Treasury, of
the tax system; and we make projections out into the future
with Treasury about what that might yield. We then, once we
have done that, look at what the agencies' expenditure requests
are; and within the context of our agreement with Congress as
to the balanced budget caps, we ask the agencies to submit
their budgets. We don't prepare the budgets for them, just as
we don't prepare economic analysis for rules. We don't look at
the level of the WIC program or the level of the highway
program. That is done by the agencies. We then analyze that and
review it and see, together with Treasury, together with the
Council of Economic Advisers, under the statutes how that fits.
We then make independent judgments of our own and pass
those back to the agencies. The agencies typically erupt and
reject those judgments, and back and forth we negotiate with
the agencies based on their budget. The aggregate amount of
money that will move in any year will not be enormous. I hate
to characterize it--but it will be a small amount compared to
the work the agencies have done in preparing their base
budgets.
I think the analogy carried forward is that is the way we
try to do rules. We try to set a general framework, a general
template. We try to look at all of the general information; and
then as rules come forward, we work with the agencies who
prepared the specific analysis to fit those in that framework,
giving them our best judgment and we fight with them. We sit
down--it is not hand-to-hand combat, but there is a significant
amount of tension both with an individual agency and among a
group of agencies who may have disparate views about a
regulation.
Mr. Ryan. I think you just made a perfect point, in that
the agencies are going to ask for the best funding possible.
You know, the most funding for WIC or any discretionary
program, and it is within their interest to push for higher
funding. You serve as a control over that mechanism, over that
process. The same, I would think, would work with the
regulatory process.
You talk about the regulations being promulgated by the
agencies which have the same kind of incentive built in, which
is probably something that goes beyond cost-benefit analysis,
beyond sound science research. Where we are going to promulgate
regulations that may be promulgated through a narrower
viewpoint, OMB can serve as a control to that. And you have
this give and take. Wouldn't this bill, in my opinion, and peer
review and accounting, wouldn't that supplement your ability to
be that independent control over the process?
And one of the things I did want to ask you about that--and
that was more of a statement, I know--do you keep a running
list of problem regulatory provisions reported to OMB by the
public? I know you mentioned earlier in your testimony that you
think that the public comment is a wonderful vehicle and
something that you encourage. Do you keep a running list of
these things?
Mr. DeSeve. I would have to ask Mr. Arbuckle because I
don't keep that list. Do we keep a running list?
Mr. Arbuckle. Yes.
Mr. DeSeve. I thought we did. In fact, I think we make them
available without a FOIA even in many cases.
Mr. Ryan. It sounds like that would be very, very important
for you to put in the forefront of your mind so that you know
the answer to these things.
Mr. DeSeve. I thought I was right, but I wanted to check
with the expert back here.
Mr. Ryan. Well, using this running list, in your 1999
report to Congress on the cost and benefits of Federal
regulation, you included few recommendations for reform. Given
the fact that you are keeping the running list, you are serving
as the control for regulations, what process did OMB use to
assemble recommendations for its first and second reports to
Congress?
Mr. DeSeve. I guess I would like to go back to my testimony
and say that in addition to having dialog with people on the
Hill who had put those riders in place, we ourselves talked
with the agencies, we consulted experts who had provided other
background and testimony, and we looked at the public comments
as we assembled our recommendations. And at end of the day they
were recommendations of the OIRA staff. I don't believe I have
left anything out in that process, but let me check. Yeah.
Mr. Ryan. Do you believe you are going to have more
recommendations in the forthcoming report?
Mr. DeSeve. I think I'm trying to make improvements in each
report. We would be happy to talk to the committee about the
nature of those recommendations as well.
Mr. Ryan. And you have a process in place that sort of vets
the public complaints and the independent analysis?
Mr. DeSeve. Yes, we do.
Mr. Ryan. OK. Mr. Chairman?
Mr. McIntosh. A couple more. I just wanted to followup, Mr.
DeSeve, on your testimony regarding the impacts of the Federal
rules on different sectors. And I think the prepared statement
said that they were not appropriate for this type of report.
But let's take each of them separately and try to look at
that more closely. For the State and local governments--and I
think the statement says generally, nor will OIRA be able,
except in very general terms, be able to discuss the impacts on
State and local governments. Since this requirement we heard
earlier today from the Senator from California is important for
the State and local government community and they look forward
to having the appendix with the different comments on those
particular areas that affect their level of government,
wouldn't it be better if OMB could prepare the impact analysis
and perhaps reach out to the State and local representative
government agencies and work with them to develop a way in
which that impact analysis could be done that would be
meaningful to them and let--I think, as I understood it, not
only to get a heads-up of what will be coming but also what is
happening and what analysis the government has on why they want
to impose the different regulatory burdens on the State and
local governments so that they can then do their jobs in trying
to comply with those different requirements.
Mr. DeSeve. I think that what we are concerned about and I
think you are referring to the same section I am, 4(a)(2),
which requires an analysis--and this is the expansion that we
are concerned about--an analysis of ``direct and indirect
impacts'' without defining indirect impact. I don't know what
an indirect impact is ``of Federal rules and paperwork on
Federal, State, local, tribal, private sector, small
businesses, wage, consumer prices productivity, economic growth
and distributional effects.''
If you think of that in terms of matrix, if you were trying
to do a matrix of that, and if then you put on top of that
matrix not just by agency, by department, but if you went back
to 402(a)(1)(B), where it is agency, program, and program
component, and you delete the reference ``to the extent
feasible,'' you begin to develop an aggregate process where the
matrix has agency, program, program component; and then it has
the categories that we have discussed here, direct and
indirect, Federal, State, local, and so on. We are concerned
that the complexity that you bring--essentially there is no
discretion on our part to try to aggregate some data as we have
tried in the past--imposes a work burden on us that is undoable
and doesn't add, particularly, in the value.
First of all, the agencies have typically gone through a
process of posting the regulation for comment and have received
comments from State and local governments, which they take into
account and we take into account, as the regulation comes
forward. And we also try to explain the process we use each
year in analyzing the burden.
Our problem here is with the complexity of this tool to
provide a distinction as to the costs and benefits. That is our
concern.
Mr. McIntosh. But given that there is a problem--and I
think we have heard over and over again that the State and
local governments, in particular, as well as the private
sector, I think that there is a problem of the cumulative
impact on much of these regulations--wouldn't it make sense to
have that type of matrix and disaggregate the analysis to
figure out, OK, the overall burden is too great; and we are
hearing that over and over and over again from different
sectors. Let's figure out where we get the most benefit for the
cost and where we get the least benefit for the cost.
And, presumably, some people would argue in some cases you
get more cost than benefit. And target the effort for reform
there. But to get to that, I think you need to have that matrix
that you described so that you can have the disaggregated data
and the analysis; and then as a policy matter, both in the
executive branch and in the legislative branch, be able to
focus the attention on those areas where we could do better
essentially.
Mr. DeSeve. Our grave concern is twofold. It is one that we
literally don't have the resources for that. Mr. Kucinich has
given us an estimate. We will develop an estimate for what that
would cost.
And second, for many of the regulations, the uncertainty of
the information with which we deal, especially if you try to
begin disaggregating it down to the lower levels on the
indirect costs to a tribal government of an air quality
regulation, if we have no ``to the extent feasible'' language,
we literally would have to do--again, I realize I am taking
this to a place that you don't intend; but you see my concern
about clarity--we would be required, if there was a tribal
government that was potentially in the air path of a particular
plant, to analyze the cost and benefit on that tribal
government of the regulation. They would have a right to expect
under this legislation that we did that. We just think that
that is a level of detail that would create grave difficulty
for us.
Mr. McIntosh. Given that--and I appreciate your willingness
to provide that analysis of the cost--would OMB be more
amenable or willing to consider, perhaps, phasing in those
requirements?
Mr. DeSeve. We have indicated a willingness to talk to the
committee about how the bill might be modified in those
regards, yes.
Mr. McIntosh. OK. And then the other thing, would it
perhaps be helpful if you could be given explicit authority in
this bill to essentially require the agencies to undertake some
of that disaggregate analysis so that you are not having to
create--perhaps they are doing it already. Perhaps they need to
be directed to use some of their discretionary resources in
that way--so that we don't have to buildup as large a body at
OMB?
Mr. DeSeve. We certainly expect them to do it. In fact, I
think in the Executive order of the President, we require them
to do it.
Mr. McIntosh. And I understand how these things go. They
have different priorities, and you are telling them we need to
do these. Perhaps by putting it in the law, we can give OMB a
little extra muscle in getting those priorities done. Because I
do think it is helpful, is what it comes down to in the end.
And the more detailed information, I have found, the better
able to reach a consensus. Because if we start looking at the
large picture, then you get battle lines drawn between, well,
they are trying to attack the environment and we say, you are
trying to impose too much cost. And if we can get down to some
detailed areas, then I have found in the past, yes, consensus
can be developed OK. We can do a better job, to use your
example, without knowing what would be the tribal impact on air
regulations; and people may be willing to say we can find a way
to solve that unusual cost.
So my view is it would be beneficial, and let's work
together with you on a way to figure out what the cost would be
to OMB and if there are ways to reduce that by empowering you
to have the agencies do the work for you.
Mr. DeSeve. We are always pleased to work with the
committee, especially in those areas.
Mr. McIntosh. Great. Thank you. I have no other questions.
Mr. Ryan. Thank you very much, Mr. DeSeve.
Mr. DeSeve. Thank you, Mr. Ryan.
Mr. Ryan. We will now call our fourth panel. Thomas
Hopkins, interim dean of College of Business at the Rochester
Institution of Technology; Angela Antonelli, director of the
Thomas A. Roe Institute for Economic Studies from the Heritage
Foundation; Wayne Crews, director of competition and regulatory
policy from the Competitive Enterprise Institute will be
joining us, as well as Lisa Heinzerling, professor of law at
Georgetown University Law Center. We will now turn this over to
the chairman, the real chairman.
Mr. McIntosh [presiding]. Thank you, Mr. Ryan. It is also a
delight to know that the committee is in capable hands when I
have to step out of the room.
Welcome to this panel. I appreciate all of you coming. We
do ask our witnesses to be sworn in, so if you would please
rise.
[Witnesses sworn.]
Mr. McIntosh. Thank you. Let the record reflect that each
of the witnesses answered in the affirmative.
Today, we will hear first from Dr. Hopkins, who is the
interim dean at the College of Business at Rochester Institute
of Technology. And, Dr. Hopkins, I am familiar with some of
your early research in the 1980's on the cost of regulation.
That was one of the first that I saw where someone in the
academic community tried to tackle the question for us, and so
I appreciate that and your background and welcome you here
today before our subcommittee.
And all the witnesses are welcomed to submit their full
testimony for the record and I would ask each of you to perhaps
summarize it for 5 minutes or so, or whatever time you end up
taking; but we will kind of speed it along that way. Dr.
Hopkins.
STATEMENTS OF THOMAS D. HOPKINS, INTERIM DEAN, COLLEGE OF
BUSINESS, ROCHESTER INSTITUTE OF TECHNOLOGY; ANGELA ANTONELLI,
DIRECTOR, THOMAS A. ROE INSTITUTE FOR ECONOMIC STUDIES, THE
HERITAGE FOUNDATION; CLYDE WAYNE CREWS, JR., DIRECTOR OF
COMPETITION AND REGULATORY POLICY, COMPETITIVE ENTERPRISE
INSTITUTE; AND LISA HEINZERLING, PROFESSOR OF LAW, GEORGETOWN
UNIVERSITY LAW CENTER
Mr. Hopkins. Thank you, Mr. Chairman and members of the
committee. I am pleased to have this opportunity to present my
views; and with the chairman's permission, I would like to
submit my written statement for the record and to simply
discuss some of its highlights here.
Mr. McIntosh. Great.
Mr. Hopkins. I am here to speak in support of the proposed
Regulatory Right-to-Know Act, which I think would be a major
step toward meeting the need for accountability and
transparency in regulatory policy. I commend the Members for
considering this bill.
This proposed legislation builds upon Public Law 105-61,
which directed the Office of Management and Budget to prepare a
regulatory accounting report with many elements now
incorporated in H.R. 1074. OMB's resulting report, its second
such undertaking, was published February 5, 1999. H.R. 1074
would establish the important principle that a report of this
nature, with improvements, should be a regular part of the
annual cycle of government reporting, rather than an ad hoc and
intermittent exercise.
The existence of OMB's initial two reports indicates that
such a task can be accomplished, although considerable
improvement is needed. The 1998 OMB report overstates benefits
and sidesteps costs in a way that H.R. 1074 would preclude,
thanks in part to the peer-review provisions in section 7 of
the bill.
Certainly in any consideration of ways to improve
government operation and effectiveness, spending programs and
regulatory programs should receive more parallel and balanced
attention; and H.R. 1074 would foster such possibilities.
Several years ago, OMB began moving in this direction by
linking regulatory spending with fiscal spending in the unified
budget documents. Such practice should be reestablished.
Indeed, OMB then articulated a strong case for a regulatory
budget, somewhat comparable to our fiscal budget. H.R. 1074
would set the stage for just such a budget, and OMB's archives
provide compelling justification.
In my view, the single most valuable contribution of H.R.
1074 appears in section 6(a), which calls for standardization
of the cost and benefit data which agencies would be required
to provide. The value of this requirement is further enhanced
by its applicability to all Federal regulatory agencies and to
paperwork. Fortunately, section 3's definition, as I read it,
does not exempt the so-called independent agencies; and section
4 specifically includes paperwork, much of which, particularly
tax paperwork, OMB would prefer to exclude. The peer review of
section 7 would provide much-needed quality assurance.
Every President since Richard Nixon has issued Executive
orders directing regulatory agencies to estimate likely benefit
and cost before adding major new regulations. Regrettably,
agencies, especially the independent agencies, routinely either
have ignored such requirements or have provided estimates that
lack comparability in important respects, such as discounting
practices. OMB guidance to agencies, while generally sound, has
not called for common data formats and methods, unlike such
guidance documents issued by other countries. Agencies are not
given discretion to utilize varying accounting practices in
reporting their fiscal outlays, and neither should they in
reporting regulatory effects.
In my view, the paramount need is for sound and timely
estimates of incremental effects of every major new regulation
and of the most prominent components of each relative to
alternatives. Armed with such information, it would be far
easier to avoid inefficient regulatory action. This would be no
small accomplishment, given the finding of the American
Enterprise Institute's Robert Hahn that half of all
environmental, health and safety regulations adopted since 1990
are producing annual costs that exceed their benefits. This is,
of course, not inconsistent with OMB's conclusion that net
benefits of all such regulations as a group are positive. Some
particular regulations are remarkably efficient, but many are
quite unproductive. The Federal Government routinely by
regulation mandates inefficient uses of resources. If we truly
want to continue shooting ourselves in our feet, collectively,
I think it only fair that we have a count of the bullet holes.
This H.R. 1074 would accomplish. The bill's definitions of
benefit and cost in section 3 are sound and exactly what the
accounting statement of section 4(a)(1) should be based upon.
I do not mean to imply that the other provisions of H.R.
1074 lack merit. Indeed, each would foster progress toward
better regulatory outcomes. Aggregate measures, in particular,
would help citizens gauge the overall intrusiveness 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
budget 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. A water treatment
plant can be built either with Federal funds or with federally
mandated use of local funds, for example, we have no analogous
constraints or even consistent measures on overall regulatory
spending.
I thank you for the opportunity to participate in this
hearing. H.R. 1074 is a most promising initiative, and I hope
the committee finds my suggestions constructive and supportive.
[The prepared statement of Mr. Hopkins follows:]
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Mr. McIntosh. Thank you, and I look forward to the
question-answer period to explore some of those suggestions
with you. Our next witness will be Ms. Antonelli from the
Heritage Foundation. Thank you and welcome as a fellow former
alumni of OIRA to both you and Dr. Hopkins in that regard.
Ms. Antonelli. Thank you, Mr. Chairman. And thank you for
allowing me to testify on the Regulatory Right-to-Know Act of
1999. As a member of the public, as an interested citizen, and
as a former employee of the office that has produced these
kinds of reports in the past, I have submitted comments to OMB
on both the first and second annual draft reports before they
were submitted to Congress; and I believe these reports provide
important information and must be preserved and enhanced. I
will present some brief remarks, but ask that my full statement
be placed in the hearing record.
Mr. McIntosh. Seeing no objection.
Ms. Antonelli. I want to applaud you, Mr. Chairman, for
your continued commitment to making the Federal regulatory
system, its more than 55 agencies, 125,000 rule writers, and
$17 billion in annual spending, accountable to the American
people for the more than 4,000 final rules they produce each
and every year.
Since 1995 Congress has taken a number of important steps
to demand accountability and common sense in how the Federal
Government regulates and empowers the public to play a more
informed role in shaping Washington's regulatory priorities.
Indeed, the Heritage Foundation reported in a report released
last summer in examining the implementation of the
Congressional Review Act, we were able to show that more than
8,625 final rules were issued by Federal agencies in a 24-month
period; 125 of those rules during that 2-year period alone were
major rules. That means that at a minimum they cost the economy
$12.5 billion.
But as we know, one rule alone, the PM and ozone rule,
costs significantly more than that, somewhere on the order of
$60 billion. So if we look at new regulatory taxes imposed on
the public in just a 2-year period, thanks to the Congressional
Review Act, we now know that somewhere on the order of $60
billion to $100 billion in new regulatory taxes were imposed on
the economy during that time. That is valuable information we
didn't have before.
Similarly, in studies that the Heritage has done since 1996
on the Unfunded Mandates Reform Act, which were subsequently
confirmed by the Congressional Budget Office, has shown the
benefits of providing information on the economic impact of
proposed new mandates. The result of this information,
confirmed by CBO, has indicated that Congress has saved several
hundreds of millions of dollars in the costs of mandates that
it might otherwise have imposed on the public. So this
information is valuable to the public.
The Regulatory Right-to-Know Act continues providing the
public this type of information. It proposes to make permanent
a report by the White House Office of Management and Budget
that Congress has asked for in each of the last 3 fiscal years.
Congress has asked for these reports because the public has a
right to know about the costs and benefits of Federal
regulatory programs. It is also entirely reasonable to demand
that agencies work harder and smarter, not necessarily having
to spend more money, so that taxpayers don't have to.
The health of our Nation's economy and even more
importantly a desire to achieve the highest levels of
investment in public health, safety, and environmental
protection demands that Congress empower itself and the public
with the information analysis about the benefits and
consequences of Federal regulations and Federal regulatory
programs.
As one recent study noted, regulations can become an
obstacle to achieving the very economic and social well-being
for which they are intended. Until the Congress and the public
demand more information and accountability from regulators in
order to engage them in a debate about regulatory priorities
and spending the same way we do about the annual Federal
budget, not much change can or should be expected. A proposal
like the Regulatory Right-to-Know Act represents an effort to
bring the costs and benefits of regulation out into the
sunshine so that the public and its representatives can be
better informed about the less-than-obvious impacts of
regulation and do a better job establishing priorities in
spending.
Indeed, it brings out into the sunshine the types of value
judgments that unelected regulators make on behalf of the
public every day and bring them out into the sunshine so that
everybody may see the value judgments that these unelected
regulators make; and these judgments will be held up to the
critical eye of economic and scientific expertise and best
practices to ensure that they are not simply judgments based on
political expediency.
Environmental consumer groups and others will, like Chicken
Little, cry that the sky will fall because of this proposal.
Ironically, they will conveniently argue that the public's
right to know in this instance, to have more information rather
than less, actually threatens the public health and well-being.
Indeed, many of these groups are interested in preserving and
defending the current system. But what are they really
defending? Bureaucracies that are accountable to no one, that
demand and spend resources as if they are unlimited and that
fail to set priorities.
And what are the real costs? As a 1994 Harvard University
study that examined 500 life-saving interventions concluded, we
could save 60,000 more lives a year if we were able to more
effectively set priorities to protect the public from the most
serious risks they face. So the real costs are lives that could
have been saved but are not because we are denied information
that helps us to see what must be done versus what it feels
good to do.
As Representative Ryan and others have noted, information
is good and it empowers people; and I strongly believe that a
more informed democratic process ultimately will give us a
Nation that can devote more, not less, resources to the types
of policies that will save lives, improve the quality of our
lives and environment, and allow us to be more prosperous.
The Regulatory Right-to-Know Act of 1999 is a good
proposal; and it builds on a number of important and valuable
lessons, as Dr. Hopkins has pointed out, that Congress has
learned more recently through these two reports but also
through the work of OMB in the past. Some of the elements that
the Regulatory Right-to-Know Act builds on, as I noted
previously, it recognizes the importance of aligning regulatory
spending and priorities with the Federal budget; it recognizes
that assessments in costs and benefits of individual rules is
as important, if not more important than, aggregate costs and
benefits; it recognizes that agencies lack consistency in their
benefit-cost methods; it recognizes that regulators are
inherently self-interested, so more independent review is
essential; it recognizes that OMB and the regulators have the
responsibility for developing recommendations for regulatory
reform; and it recognizes that OMB and the regulators are not
necessarily interested in presenting information to Congress
and the public in a way that will be useful or helpful, as
Representative Chenoweth underscored.
Mr. Chairman, let me just conclude by, again,
congratulating you and your colleagues on both sides of the
aisle for understanding the importance of the public's right to
know more about the benefits and costs of regulation. The
Regulatory Right-to-Know Act is a good step in the right
direction because, one, it builds on previous accounting
statements; two, it makes such accounting statements permanent
so that Federal regulators start taking it seriously and they
know they will be held accountable each year by Congress and
the public; and most importantly, three, it empowers the public
to more effectively debate regulatory priorities and spending
in the same way they debate Federal budget priorities and
spending each year, by linking these two together. I hope
Congress will continue to build and effectively oversee the
implementation of this framework in the years to come.
Thank you, Mr. Chairman, and I would be happy to answer any
questions.
[The prepared statement of Ms. Antonelli follows:]
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Mr. McIntosh. Thank you, Ms. Antonelli. Our third witness
on this panel is Mr. Wayne Crews who is the director of
competition and regulatory policy at the Competitive Enterprise
Institute. And I am familiar, Mr. Crews, with your work for
many, many years now in terms of analyzing what those costs and
benefits are in the Federal regulations. Feel free to summarize
your testimony and share with us a summary of that, and we will
include the full testimony into the record.
Mr. Crews. Good morning, Mr. Chairman. Thank you very much
for the invitation to speak. And these comments are limited to
5 minutes, so I would ask permission to insert my full comments
and charts into the record.
Mr. McIntosh. Seeing no objection.
Mr. Crews. I appreciate the opportunity to appear today.
CEI is a nonpartisan, nonprofit public interest group that
educates journalists, policymakers, and other opinion leaders
on the free market alternatives to political programs and
regulations. Among CEI's goals are regulatory process reforms,
of which the Regulatory Right-to-Know Act is a perfect example,
as well as reforms in such areas as antitrust and electricity
reform.
One key CEI product is the annual report called ``10,000
Commandments: An Annual Survey of Regulatory Trends.'' The 1999
edition will be released this week. This report is an effort to
consolidate the mounds of regulatory data, facts, and figures
from government and other sources in a simple, straightforward
fashion. Many of these elements are the very stones and mortar
whose reporting the Right-to-Know Act would make mandatory and
official.
To put the case for the Right-to-Know Act in some
perspective in my handouts and in my written testimony, figures
1 and 2 present the information on the costs of regulations and
the numbers of regulations across the various agencies, the
numbers of regulations affecting small businesses and State and
local governments. So I would refer you to that for some
excerpts.
In our view, though, too much legislative power is
delegated to agencies in the first place. That allows Congress
to simultaneously take credit for popular legislation while
scapegoating agencies for compliance costs. So rather than
solely denounce OMB or agencies or scold OMB for failing to
properly audit regulators, regulatory reform ultimately must
institute greater congressional accountability, too.
But even if Congress were required to approve every agency
regulation, the Right-to-Know Act's disclosure provisions would
still be essential. The Right-to-Know Act reemphasizes the role
of central regulatory review and makes permanent--takes
permanent regulatory disclosure to its next logical level,
given recent reforms addressing paperwork, unfunded mandates,
congressional review of regulations, and small business
regulatory relief.
A modification of the Right-to-Know Act that would be of
immense value would be to summarize and assemble the data that
are already available, but scattered across agencies and in
reports like the ``Unified Agenda of Federal Regulations,''
which is published twice annually and the former regulatory
program that contained an annual report on Executive Order
12291 that summarizes considerable data on agency activities.
Figure 5 in my testimony suggests report card information
that could be summarized in the annual Federal budget
including--and this is very simple to gather--numbers of major
and minor rules by agency; rules featuring and lacking cost
tallies; major rules reported on by the GAO in its regulatory
data base; rules with statutory and judicial deadlines; and
rules impacting small businesses and State and local
governments.
A report card would help emphasize that Congress put in
place many of the statutory deadlines that hinder analysis in
the first place; and knowing the percentages of rules without
benefit calculations would alone help reveal whether or not we
can truly say regulations overall do more harm than good.
Focusing on regulatory costs alone rather than benefits
does not mean benefits can be ignored, rather they should
simply be addressed differently. Congress presumably knows the
benefits it is seeking when it passes legislation, and it must
set regulatory priorities on that basis. As a practical matter,
OMB will probably never come close to reviewing all the agency
benefit estimates anyway. Cost estimates are a different
matter.
The Right-to-Know bill assumes benefit estimates are there
for review in the first place, but they really won't be until
legislation mandating cost-benefit analysis and risk assessment
is enacted. In the 1998 report to Congress, the OMB reviewed
less than 1 percent of agency final rule documents. Moreover,
since the OMB monetizes benefit estimates primarily where an
agency has already quantified them, agencies may learn quickly
to avoid scrutiny by not quantifying benefits at all.
Furthermore, the Right-to-Know Act's own calls for inclusion of
nonquantifiable benefits may invite more yawning canyons like
OMB's $30 million to $3 trillion net benefit estimate, which
makes impossible the kind of point estimate for regulatory
benefits that some commenters on OMB's reports have advocated.
Relieving agencies of benefit calculation responsibilities
avoids these problems and leaves agencies free to fully address
the direct and indirect costs of their regulatory programs. In
keeping with regulatory cost disclosure, today's $100 million
major rule threshold which allows $99 million rules to escape
scrutiny to be lowered to, for example, $25 million, and major
rules could be broken up into separate categories representing
increasing costs, as figure six in my written testimony shows.
That is one example.
But as long as the Right-to-Know Act does require benefit
calculations, the OMB must be more willing to criticize agency
benefit claims. OMB has the experience and the know-how to
create a benefit yardstick of its own, so to speak. OMB could
present questionable rules by comparing them to the alternative
benefits that could be gained if compliance costs went,
instead, toward hiring policemen or firemen or buying smoke
detectors or simply buying buckets of white paint to paint
lines down the center of rural roads.
Simplifying steps such as producing uncomplicated report
cards, emphasizing costs, and creating multiple classes of
major rules could help maximize OMB disclosure and solidify the
Regulatory
Right-to-Know Act's success. And figure seven in my testimony
recaps some of those steps and provides thoughts for future
reforms. And I think the Right-to-Know Act is a great step
forward, and I appreciate the opportunity to testify. Thank you
very much.
[The prepared statement of Mr. Crews follows:]
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Mr. McIntosh. Thank you Mr. Crews, I appreciate you coming
today. Our final witness on this panel is Professor Lisa
Heinzerling, who is from Georgetown University Law School; and
I appreciate your coming, Professor. You, too, please feel free
to summarize your testimony; and we will include the entire
document into the record.
Ms. Heinzerling. Thank you very much. That is what I would
like to do.
H.R. 1074 is called the Regulatory Right-to-Know Act. The
problem with this name and with this bill is that the public
will likely know less rather than more about Federal regulation
if this bill is passed.
The reason is that the bottom-line estimates of costs and
benefits required by this bill will necessarily reflect moral
judgments which many members of the public will not know are
reflected in the numbers, judgments with which many Americans
may disagree.
This problem famously plagues cost-benefits analysis in
general. It is compounded, I believe, by the mammoth cost-
benefit analysis required by this bill, which will incorporate
hundreds, if not thousands, of judgments that will be invisible
to the person who simply reviews the numbers that the bill
produces.
I will give just one example here in my oral remarks this
morning of such a judgment. It concerns the calculations of the
benefits of Federal rules that are designed to save human
lives. Specifically, this judgment involves the relative value
of present and future lives.
Now, many of you--you may know that Federal rules save
lives over different time periods. For example, a rule that
requires air bags in cars may immediately save the life of a
person who otherwise would have died in a car accident. On the
other hand, a rule reducing exposures to arsenic may prevent a
person from being diagnosed with cancer some years after the
exposures would have occurred.
A person analyzing the benefits of lifesaving rules must,
therefore, decide how to treat lives saved in the future as
compared to lives saved today. In previous reports on the cost
benefits of Federal regulation, including reports by OMB and by
private analysts, the estimates of costs and benefits have
incorporated a technique called discounting, which effectively
assumes that lives in the future are worth less than those
saved today. The study cited this morning by Ms. Antonelli, for
example, the Harvard study cited by her, incorporated the
technique of discounting in reaching its conclusions.
Discounting subtracts from future benefits a fixed
percentage for every year that passes before benefits accrue.
In my example, it would mean that we should spend less to save
a person from cancer than from death in an auto accident merely
due to the passage of time between the harmful event and death.
In effect, discounting devalues lives saved in the future,
even, for example, the lives of our own children, compared to
lives that will be saved today. My own research has found that
widely circulated estimates of costs per life saved are heavily
influenced by discounting. Reported regulatory costs have been
up to 1,000 times higher if one discounts than they are if one
does not.
It would surprise me to learn that most members of the
public are aware of the influencing of discounting on existing
estimates of benefits. And, therefore, this is just one
illustration of the way in which estimates of benefits and
costs that are highly aggregated may mislead the public.
Highly aggregated estimates like those required by H.R.
1074 embody hundreds of assumptions like the ones I have
described. These are assumptions about which ordinary people,
not experts, likely have opinions and legitimate opinions.
These assumptions are buried in a cascade of seemingly
objective numbers in reports like those required by this bill.
In my own work on cost-benefit analysis, I have found that
it is necessary to trace factual claims back through four or
more references before I finally find the original source. And
unless one does such excavation, the numbers that are reported
cannot be evaluated; and the numbers themselves threaten to
become the central concern, rather than the values and the
assumptions that underlie them.
In conclusion, therefore, when it comes to numbers, less
can be more. Thank you very much.
[The prepared statement Ms. Heinzerling follows:]
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Mr. McIntosh. Thank you professor. I appreciate your coming
today. Let me now turn to the question and answer section that
we want to do on this area. And, first, direct these questions
to each of the witnesses and perhaps you can give brief yes-or-
no answers if that is possible so we can cover most of the
territory.
But the first one is what is your view, positive or
negative, on peer review by two or more expert organizations
for the report, and do you think such peer review would improve
OMB's analysis and their report? If you don't mind, I am just
going to go down the line starting with Dr. Hopkins and have
you comment briefly on that.
Mr. Hopkins. Thank you, Congressman McIntosh. Peer review
is an established part of the science of regulation, and in my
own view neither the physical nor the biological sciences are
vastly less uncertain than economic analysis. I think peer
review which has proven to be useful in the scientific aspects
of regulation would also prove to be quite useful in the
economic aspects of regulation.
Mr. McIntosh. Thank you. Ms. Antonelli.
Ms. Antonelli. I echo Dr. Hopkins's statements. I would add
again that peer review is critical. I think the number of
organizations that are involved is less important to me than it
is to ensure that the organizations are truly independent and
the reviewers have established credentials in regulatory
analysis, cost-benefit methods, and so on. It is also extremely
important that there be no conflicts of interest with those who
are participating as peer reviewers and that any peer-reviewing
organization ideally does not receive any government money from
any of the Federal regulatory agencies.
Mr. McIntosh. Mr. Crews.
Mr. Crews. I think peer review of the agency analysis is
important as well. I think the biggest debate you had here
today is over who is going to pick who does the review, how
many reviews like that will be done, and whether the review is
needed on top of the public comment process that already takes
place.
I think doing the peer review, once the public comment
process has taken place and you have a final report, makes a
lot of sense, even if that peer review doesn't get incorporated
into that report. What it will really address is the way the
next year's report is going to look. And that, I think, is very
important.
So the peer review does matter a lot. It should be done.
Getting over the question of who decides who does the peer
review may be something that you address the way you sometimes
appoint congressional commissions, you have the minority and
minority side each appoint, or pick, who you want to do a
review and have it done that way.
Mr. McIntosh. Professor Heinzerling.
Ms. Heinzerling. My view of peer review is negative in this
context. Peers cannot produce numbers that are not available.
And a large part of the problem with this bill is that it
requires the production of numbers that are not available. Or
if those numbers are produced, then that will mean the
systematic undercounting of certain benefits. In the
environmental context, for example, in many cases the benefits
of rules cannot be quantified. Peers will not aid in the
development of those data.
In addition, my opinion is that many of the most
fundamental questions that underlie these analyses are not
scientific questions. They are not questions that experts are
entitled to address.
Finally, I would say that peer review is most useful when
it can serve as a credible tie breaker. In the case of OMB's
most recent report, for example, the estimates for the--net
benefits of environmental regulation ranged from, I believe, a
negative $70 billion to a positive $300 trillion, something
like that. The estimates were incredibly wide ranging, in other
words. And yet the EPA report on which the high estimate was
based was peer reviewed. And so that you might end up with a
situation in which you ask a credible sampling of experts what
their opinions are and you end up with the same wide range as
before.
Mr. McIntosh. My understanding of peer review in the
scientific context is not that it breaks ties, but it just
makes sure that the methodology is standard in producing the
analysis of the data. And I think we should be careful and not
expect too much from this bill or this report.
And you are correct, Professor. There are some policy
judgments that are infused with it. But the idea would be to
provide data that would then let the policymakers who, perhaps,
have differing views in Congress and in the executive work on a
common set of data in making their policy judgments on that.
Let me ask also the requirement for OMB to include an
appendix in its report addressing comments from the public and
the peer reviewers. If we have that, is that something that you
all would view as valuable? Dr. Hopkins.
Mr. Hopkins. Yes, I think it would be quite valuable for
OMB to need to confront and address all serious comments from
outsiders.
Mr. McIntosh. Ms. Antonelli.
Ms. Antonelli. Yes, I think it is absolutely critical that
this information be provided in an appendix. I think maximizing
full disclosure is absolutely critical.
Mr. McIntosh. In your experience, by the way, you indicated
that you did submit comments. How thoroughly did OMB respond
and adopt changes in response to those comments?
Ms. Antonelli. I would say that between the first and
second annual report, the second report was an improvement over
the first report. There is still a long way to go. And I think,
depending on what your expectations are--how much more there is
for them to do.
In terms of the comments that I submitted--and I am aware
of the comments that a lot of other folks have submitted to OMB
when it issued its draft report--there are a lot of concerns.
One of the most significant concerns is the degree to which OMB
exercises any of its own judgments on the numbers that are
provided by the agencies.
Other issues get to the types of costs that are included
and the inclusion of indirect costs, for example. Another
example is the inclusion of rules by independent agencies, and
that is an example where a lot of independent agencies don't
analyze the costs and benefits of their own rules. And that
would be a nice instance where OMB could probably, given its
expertise, offer some insight into things like that.
And then another big issue, controversial issue, with the
report has been EPA section 812 report, and lots of comments
with regards to how those benefit estimates were derived.
Because if you put them in some type of context like the size
of our economy and our output every year, as OMB even pointed
out in that report, it is somewhere on the order of--I can't
remember the exact number--$1.2 trillion in output attributable
to the Clean Air Act annually. And that is the equivalent of
saying that every year people decide that 25 percent of their
personal income is going to be devoted to simply focusing on
the benefits of clean air. And I think when you put the size of
that annual benefit estimate into the overall input and then
break it down into individual households and how much of their
own income they are devoting to this, it raises a critical eye
because it really doesn't seem to make a lot of sense. And so
there are problems with those kinds of benefit estimates that
got a lot of attention but not a lot of response.
Another criticism of the report is the extent to which,
while they say they look at academic and peer-reviewed cost and
benefit estimates that are out there, in the case of EPA 812,
the George Mason University, the Reason Foundation, other
organizations have weighed in heavily along with a lot of other
people on those very controversial PM and ozone rules. That was
not acknowledged in the report. So there couldn't be selective
omission on controversial rulemakings of analysis that is done
by an independent third-party organization.
Mr. McIntosh. So what Mr. Crews pointed out, the benefit of
the public comments is sometimes improvement in the next year's
report.
Ms. Antonelli. Absolutely.
Mr. McIntosh. You saw that, but the specific response in
the report was lacking in some of these areas?
Ms. Antonelli. Yes. I think in some instances they were not
fully responsive to comments. And while the report has been an
improvement and hopefully the next report will be an
improvement over this one, there are certainly some issues that
remain of concern.
Mr. McIntosh. Great. I will ask unanimous consent to let
the panel finish answers, and then I will turn to you, Dennis,
for questions. Mr. Crews.
Mr. Crews. I will quickly say that the appendix to the
report is one of the most valuable sections because there we
learned exactly how OMB responded to earlier comments, what it
contained in his report, what it intended to do, particularly
on net benefits or net estimates, for example, or indirect
costs.
OMB indicated that it has seen a study from one of the
commenters on indirect costs of regulations; but that study
wasn't conclusive, so it was searching further. It was looking
for more information. And so that means that we can expect in
the next year's report to see a little bit more information on
what OMB really thinks about including indirect effects of
regulations. And so that is one of the key uses of the
appendix. It lets us know what to expect.
Mr. McIntosh. Thank you. Professor.
Ms. Heinzerling. Yes. If numbers like these are going to be
produced, I think the more that we can know about the
assumptions and reasoning that underlies them the better.
Mr. McIntosh. The better. OK. Mr. Kucinich do you have a
question for this panel?
Mr. Kucinich. Something occurred to me, Mr. Chairman, and
that is that I think we are going to need to get further into
this issue of peer review by organizations. In some way it
almost seems oxymoronic to speak of organizations doing peer
review. And would we know who the individuals are making the
valuations so that we could actually have some accountability?
Because the only thing that makes peer review work is the
accountability for the people making the analyses. And if it is
basically an analyses by the name of an organization, no matter
now praiseworthy that work or that organization may be, the
organization is reduced to just being a simple front group.
And so I am very concerned that we don't diminish the value
of peer review and through this process come up with a mutation
of the peer-review process that would not be constructive
toward being able to analyze the result and to have some kind
of a dialog about the result.
I have a question for Professor Heinzerling. And, again, I
want to thank all the witnesses for testifying today and thank
you, Professor. Your comments that I have had a chance to read
help me better understand the serious limitation of using cost-
benefit analyses as required by H.R. 1074. Now, although H.R.
1074 requires a discussion of the nonquantifiable costs and
benefits of regulation, as we see here today, many summarize
the results by citing only the monetary estimates; yet many of
the most important benefits of regulation cannot be monetized,
such as saving lives, reducing illnesses, protecting civil
rights.
Therefore, I am concerned about the monetary estimates that
are cited so often that they would greatly underestimate
regulatory benefits. Do you agree with that?
Ms. Heinzerling. Yes, I do. In environmental law, which is
my area of expertise, this problem is particularly acute. In
many cases, Federal estimates of costs and benefits of Federal
rules quantify, for example, only the risk of cancer because
that is the only risk that can be quantified. But in many cases
the rules prevent many other illnesses--respiratory,
reproductive, neurological and blood disorders, and so forth--
that cannot be counted and yet, since cancer is the only
benefit that can be counted, that is the only benefit that is
counted in the analysis. Then when it comes to trying to place
a dollar value on those benefits, the problems are even more
severe.
So that in many cases you might find a cost-benefit
analysis that reaches a conclusion that most people would agree
is absurd on its face. Let me take the example of EPA's cost-
benefit analysis of its lead rule. In that case, if you look at
the chart showing the costs and benefits of that rule, you
would have to conclude that rule was primarily beneficial
because of its effect on cars rather than people. And that is
because its effects on people are hard to quantify. And so I
would agree with you that that is a severe limitation of this
kind of analysis.
Mr. Kucinich. Well, there are so many different possible
methodologies and monetary valuations of benefits. I don't know
how any of us could be surprised that there is different
estimates for the costs and benefits of regulations.
Dr. Hopkins has one way of looking at it, OMB has another.
For example, Dr. Hopkins, you know, I would just be interested
to know, do you have any idea about what number OMB should use
in quantifying the monetary value of saving a life?
Mr. Hopkins. Congressman Kucinich, the OMB itself has in
its own guidance documents provided a very careful, a very
thorough, a very intellectually honest discussion of how
agencies can go about trying to put a dollar value on such
risk-reduction efforts. And I applaud the work that OMB has
done in that area. I think that they have been exactly on
target.
There are ranges that they have been able to point to, both
in earlier publications and in current publications, that I
have no trouble with whatsoever. So I am in no sense putting
myself up as a proposer of some alternative valuation figure to
what OMB itself has in its own research.
If I may----
Mr. Kucinich. Would you pretty much then agree that that
should be the matrix for that determination?
Mr. Hopkins. The matrix?
Mr. Kucinich. That OMB's determination should be something
that would be a coordinating principle for someone who is
determining a value of a human life.
Mr. Hopkins. I think it makes good sense to have
coordinating principle, a body of solid, academic-based
research which OMB is relying upon, have that peer reviewed to
make sure that they are not overlooking any better data that
exists; and then I think all agencies should be encouraged to
go with that. Yes.
Mr. Kucinich. Thank you, Mr. Chairman.
Mr. McIntosh. Thank you, Mr. Kucinich. Let me try to
elucidate that point a little bit and then ask unanimous
consent that we keep the record open for 10 days. I may have a
few other questions that we would want to ask the witnesses and
certainly put in some documents that they have brought with
them.
Mr. Condit had a statement that he wanted to include in the
record, so I ask unanimous consent that it be included in the
record as well.
[The prepared statement of Hon. Gary A. Condit follows:]
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Mr. McIntosh. On this question of human life, it is my
understanding that the OMB position, which I think Dr. Hopkins
agrees with, is that we shouldn't try to do that. What we
should do is ask the question, given that there are various
programs that affect human life and risk to human life--and
Professor Heinzerling has pointed out that that spans different
timeframes as well, if not all in the immediate. How do we
analyze the use of a given dollar of cost, whether it is in the
private sector, whether it is government spending, to determine
have we gotten the most benefit for human life out of that so
that--all of us can agree you want to treat human life as being
priceless, but for each incremental dollar that we spend or
cause to be spent in the regulations, how can we try to judge
whether we are getting the most out of that dollar in terms of
benefiting human lives? And that, I think, is the difficulty
that we are grappling with.
One of the things that I wanted to ask the professor
about--and you pointed out concerns about the discounting on
the life. But you wouldn't disagree that if we reached--
everybody had the same agreement on the moral value that human
life is priceless, say--and I believe that--but that if we
could use a cost-effectiveness analysis to maximize the benefit
to human life, that that would be a helpful tool for
policymakers to have in making judgments about the
effectiveness of programs?
Ms. Heinzerling. Indeed, that is what led to a large amount
of my own research. I had been impressed by figures on cost per
life saved that reached into the hundreds of millions,
sometimes billions, of dollars; and it seemed to me that those
figures indicated that we could do better, and indeed if those
were correct, that we could be spending our resources
differently.
That research tended to indicate that we should be moving
our resources to safety regulation, things like Mr. Crews
mentioned, putting fire extinguishers in airplanes, putting
smoke alarms in houses and so forth, rather than engaging in
environmental regulation.
What I found in this research is that those numbers were,
in my view, inflated by discounting so that the discounting
reflects an assumption that future lives are worth less than
present lives and, therefore, that environmental regulation
that tends to produce benefits in the remote future will, by
necessity, be devalued compared to safety regulation which
produces benefits immediately.
What I am trying to get at is that I agree with you that
cost-effectiveness is important. What I am saying is that in
many cases the numbers on cost-effectiveness embody the same
conclusions that you are trying to reach when you look at cost-
effectiveness. That is an assumption about where our priorities
should be. Therefore, to rely on the numbers to get to those
conclusions is circular.
Mr. McIntosh. Is your concern that there is any discounting
or that the discounting doesn't accurately reflect--embodies a
moral judgment that may not be the same as yours or other
people's? In other words, should there be no discounting, or
have they got the wrong discount factor for those future lives?
Ms. Heinzerling. I think those are two very good questions
and I think they are separate questions, obviously. My main
concern is that discounting is not transparent; that many, many
scholars, I believe, have not known that discounting so heavily
influences estimates of cost-effectiveness. And so that my
first concern is that most people don't know about it, and they
may not agree with it if they did know about it.
The second concern is with any discounting. And I am
troubled by a practice that assumes that lives should be
discounted just like dollars.
Mr. McIntosh. But another way of looking at it would be if
we could spend $100 today to save a life today, versus spending
that same $100 to save a life 10 years from now, if you spent
it on the life today, that person would have at least 10
years--I mean, it is difficult because you are trying to
compare lives. But there is that time--I think we would all
accept that if you could help somebody today to live longer,
that that is an important thing; and if you had to choose--now
some people would argue spend both and maybe that is the more
appropriate debate we have. But if you have to focus on it--and
I could see where there would be ample disagreement about how
much you want to discount it--you may not want to discount it
that much, the 10 years, knowing that someone, if you did not
spend that $100, would die in 10 years. That is not all that
comforting in terms of a policy choice.
Ms. Heinzerling. Well, first of all, I think that that is
exactly the kind of discussion that we should be having. And in
my view, numbers like those required by this bill prevent us
from having it because they divert attention from this kind of
discussion to the numbers themselves. That is my view.
The second point would be that it may be that the nature of
the risks tends to differ depending on when the risk is going
to materialize in death, that is, in many cases immediate risks
are obvious. They are voluntary in some sense, whereas exposure
to a chemical that will cause cancer in 20 years is not. It is
not visible, and in many cases it is not voluntary. So to look
at time alone seems to be misleading.
Mr. McIntosh. And I agree, and it has been my experience
that people--and human nature causes you to have more concern
about an invisible risk, even though it may be less than a
visible risk because you are used to dealing with it in your
life as you make decisions. Do you go in an elevator knowing
that there is some risk that it might malfunction? Well, yes, I
am used to it. It is visible, versus being exposed to a
chemical substance that you are not really knowing that you are
being exposed to because it is in the food that you eat and you
do not focus on its being there. And that is human nature. The
risk preferences change based on the familiarity with it, I
think.
But let me ask Dr. Hopkins, does OMB's guidance address
this question on the discounting?
Mr. Hopkins. I think it is a quite sophisticated discussion
that has a lot of subtlety to it, recognizing some of these
important ethical and moral issues. My own view is that it is
far better to have quantitative analysis that explores various
alternative assumptions about the proper role of discounting
and the proper rate of discounting for various kinds of hazards
than to throw up one's hands and say because there are some
moral and ethical issues associated with discounting, we are
not going to do discounting; we are not going to look at
numbers; we are going to base decisions on guesses or feelings,
as opposed to any basic data that exist.
I would also add that I was asked a few years ago by the
Organization for Economic Cooperation and Development in Paris
to review the guidance that OECD member governments give their
regulators on a variety of fronts. And almost every Western
European and OECD member government believes that discounting
is a valuable analytical tool, that the kind of benefit cost
analysis embodied in this bill is very important; and so the
fact that there are some important moral and philosophical
questions about discounting is not, in my mind, grounds for
avoiding it. Certainly, other countries have not felt that it
is.
Mr. McIntosh. But if we could make it more transparent so
that people could clearly see what was going on?
Mr. Hopkins. Clearly see--that is right.
Mr. McIntosh. So you wouldn't disagree with the professor's
statement that we should make it more transparent?
Mr. Hopkins. We should make it more transparent, but we
should do it.
Mr. McIntosh. One thing we essentially came down to doing
when I was back at the Competitiveness Council, at least, was
having different things that were easier to compare head to
head. So where there was a human life involved, you would
compare the cost-effectiveness to other rules that involved
that. Where it was simply a cost to the economy and there
wasn't a safety factor or health factor involved, then you
could compare more on a quantitative dollars-to-dollars
analysis.
Perhaps what the professor's research, in terms of that, or
question about the judgment on discounting is we should also
maybe subdivide the human life category and be conscious of
looking at comparisons of different possible rules that affect
people immediately, the safety rules coming to mind, and
compare different rules that address longer-term risks. And
even within that, I suspect that the quantitative analysis
would let us say, Gosh, if we focus on this particular
carcinogen, the cost is a lot less; and we get a lot more
benefits in 20 years than if we focus on a different carcinogen
that also could affect people in 20 years.
And I want to check with the professor. Would that be an
improvement, in your mind, in terms of how we use this type of
data?
Ms. Heinzerling. If I take your question correctly, you are
assuming a limited pool of money and the question would be
whether we should regulate one chemical or another and we
should look at which one is the most harmful, I would agree
with that.
Mr. McIntosh. Or even if we have to make priorities in the
pool of money as to which things we do first to try to address
it in that way. I think that is a limited one, but even if you
argued, well, we should spend more, you would still want to
prioritize what you did first.
Ms. Heinzerling. Yes, I would look at the quantitative
risks as well as the nature of the risk.
Mr. McIntosh. OK. One last question, if I may, and that is
what are your views of the requirement for an analysis of the
direct and indirect benefits of Federal rulemaking on the
various sectors, small business, State and local government,
private sector, wages consumers, prices and economic growth?
And, actually, I am going to request that you guys submit
that in writing after the hearing, if you would. And in
particular, Professor Hopkins, in your testimony, you noted
that the requirements are useful but less attainable and that
oftentimes there is a problem with the system's ability to
comply. Would you support a phase-in for some of these new
analytical requirements? Maybe all of you could address that
too, just the mechanics of getting there, if there are
suggestions that you would have.
Mr. Hopkins. Yes, definitely it should be phased in.
Mr. McIntosh. Thank you. I appreciate your coming, and I
appreciate the diverse views that we get. And I would ask that
each of you, if you could, help us with spending some
additional time on that question; and we may have a couple more
that I ask all of you to look at for us.
I think--and was pleased to see that OMB indicated some
willingness to work with us on these questions and moving
forward; and so your input there will help us focus with them
on some of the key ways of trying to get this done.
Thank you. With that, the committee is adjourned. And I
appreciate everybody's input today.
[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
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