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33–105PS 2007

AMENDING EXECUTIVE ORDER 12866:

GOOD GOVERNANCE OR REGULATORY

USURPATION? PART I AND PART II

HEARINGS

BEFORE THE

SUBCOMMITTEE ON INVESTIGATIONS AND

OVERSIGHT

COMMITTEE ON SCIENCE AND

TECHNOLOGY

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

FEBRUARY 13, 2007

and

APRIL 26, 2007

Serial No. 110–4

and

Serial No. 110–21

Printed for the use of the Committee on Science and Technology

(

Available via the World Wide Web: http://www.house.gov/science

(II)

COMMITTEE ON SCIENCE AND TECHNOLOGY

HON. BART GORDON, Tennessee, Chairman

JERRY F. COSTELLO, Illinois

EDDIE BERNICE JOHNSON, Texas

LYNN C. WOOLSEY, California

MARK UDALL, Colorado

DAVID WU, Oregon

BRIAN BAIRD, Washington

BRAD MILLER, North Carolina

DANIEL LIPINSKI, Illinois

NICK LAMPSON, Texas

GABRIELLE GIFFORDS, Arizona

JERRY MCNERNEY, California

PAUL KANJORSKI, Pennsylvania

DARLENE HOOLEY, Oregon

STEVEN R. ROTHMAN, New Jersey

MICHAEL M. HONDA, California

JIM MATHESON, Utah

MIKE ROSS, Arkansas

BEN CHANDLER, Kentucky

RUSS CARNAHAN, Missouri

CHARLIE MELANCON, Louisiana

BARON P. HILL, Indiana

HARRY E. MITCHELL, Arizona

CHARLES A. WILSON, Ohio

RALPH M. HALL, Texas

F. JAMES SENSENBRENNER JR.,

Wisconsin

LAMAR S. SMITH, Texas

DANA ROHRABACHER, California

KEN CALVERT, California

ROSCOE G. BARTLETT, Maryland

VERNON J. EHLERS, Michigan

FRANK D. LUCAS, Oklahoma

JUDY BIGGERT, Illinois

W. TODD AKIN, Missouri

JO BONNER, Alabama

TOM FEENEY, Florida

RANDY NEUGEBAUER, Texas

BOB INGLIS, South Carolina

DAVID G. REICHERT, Washington

MICHAEL T. MCCAUL, Texas

MARIO DIAZ-BALART, Florida

PHIL GINGREY, Georgia

BRIAN P. BILBRAY, California

ADRIAN SMITH, Nebraska

SUBCOMMITTEE ON INVESTIGATION AND OVERSIGHT

HON. BRAD MILLER, North Carolina, Chairman

JERRY F. COSTELLO, Illinois

EDDIE BERNICE JOHNSON, Texas

DARLENE HOOLEY, Oregon

STEVEN R. ROTHMAN, New Jersey

BRIAN BAIRD, Washington

BART GORDON, Tennessee

F. JAMES SENSENBRENNER JR.,

Wisconsin

DANA ROHRABACHER, California

TOM FEENEY, Florida

MICHAEL T. MCCAUL, Texas

RALPH M. HALL, Texas

DAN PEARSON Subcommittee Staff Director

JAMES PAUL Democratic Professional Staff Member

DOUG PASTERNAK Democratic Professional Staff Member

TOM HAMMOND Republican Professional Staff Member

STACEY STEEP Research Assistant

(III)

C O N T E N T S

February 13, 2007

Page

Witness List ............................................................................................................. 2

Hearing Charter ...................................................................................................... 3

Opening Statements

Statement by Representative Brad Miller, Chairman, Subcommittee on Investigations and Oversight, Committee on Science and Technology, U.S. House

of Representatives ................................................................................................ 10

Written Statement ............................................................................................ 11

Statement by Representative F. James Sensenbrenner, Jr., Ranking Minority

Member, Subcommittee on Investigations and Oversight, Committee on

Science and Technology, U.S. House of Representatives .................................. 12

Written Statement ............................................................................................ 13

Prepared Statement by Representative Jerry F. Costello, Member, Subcommittee on Investigations and Oversight, Committee on Science and

Technology, U.S. House of Representatives ....................................................... 14

Prepared Statement by Representative Eddie Bernice Johnson, Member, Subcommittee on Investigations and Oversight, Committee on Science and

Technology, U.S. House of Representatives ....................................................... 15

Witnesses:

Ms. Sally Katzen, Adjunct Professor and Public Interest/Public Service Fellow, University of Michigan Law School

Oral Statement ................................................................................................. 16

Written Statement ............................................................................................ 17

Biography .......................................................................................................... 22

Mr. David C. Vladeck, Director, Institute for Public Representation; Associate

Professor of Law, Georgetown University Law Center

Oral Statement ................................................................................................. 23

Written Statement ............................................................................................ 25

Biography .......................................................................................................... 33

Mr. William L. Kovacs, Vice President, Environment, Technology, and Regulatory Affairs, U.S. Chamber of Commerce

Oral Statement ................................................................................................. 33

Written Statement ............................................................................................ 35

Biography .......................................................................................................... 39

Financial Disclosure ......................................................................................... 40

Mr. Rick Melberth, Director of Regulatory Policy, OMB Watch

Oral Statement ................................................................................................. 41

Written Statement ............................................................................................ 42

Biography .......................................................................................................... 56

Discussion

Role of OIRA ......................................................................................................... 56

Transparency Provisions ..................................................................................... 57

Outside Comment on E.O. 12866 ........................................................................ 58

Cost-Benefit Analyses .......................................................................................... 59

Market Failure Provisions ................................................................................... 60

More on Transparency Provisions ...................................................................... 62

More on Market Failure Provisions .................................................................... 63

Regulation and the Public Interest ..................................................................... 64

Page

IV

More on Transparency Provisions ...................................................................... 67

Transparency Costs .............................................................................................. 69

Appendix 1: Answers to Post-Hearing Questions

Ms. Sally Katzen, Adjunct Professor and Public Interest/Public Service Fellow, University of Michigan Law School ............................................................ 74

Mr. David C. Vladeck, Director, Institute for Public Representation; Associate

Professor of Law, Georgetown University Law Center ..................................... 76

Mr. William L. Kovacs, Vice President, Environment, Technology, and Regulatory Affairs, U.S. Chamber of Commerce ........................................................ 80

Mr. Rick Melberth, Director of Regulatory Policy, OMB Watch .......................... 85

Appendix 2: Additional Material for the Record

Memorandum for Heads of Executive Departments and Agencies, and Independent Regulatory Agencies, from Rob Portman, Director, Office of Management and Budget, April 25, 2007 .................................................................. 90

Analysis of E.O. 12866 with edits made by E.O. 13422 ....................................... 108

While on the Home Front, Unpublished OP–ED by Dr. Peter Strauss, Betts

Professor of Law, Columbia Law School ............................................................ 122

Bush Order Limits Agencies’ ‘Guidance,’ by Cindy Skrzycki, Bloomberg News,

January 30, 2007 .................................................................................................. 123

Bush order on government regulation stirs debate, by Tabassum Zakaria,

Reuters, January 30, 2007 .................................................................................. 125

Comments submitted by the Union of Concerned Scientists, February 12,

2007 ....................................................................................................................... 126

Public Citizen position on the January 2007 Executive Order and Bulletin

on Guidance, January 2007 ................................................................................. 129

C O N T E N T S

April 26, 2007

Page

Witness List ............................................................................................................. 134

Hearing Charter ...................................................................................................... 135

Opening Statements

Statement by Representative Brad Miller, Chairman, Subcommittee on Investigations and Oversight, Committee on Science and Technology, U.S. House

of Representatives ................................................................................................ 142

Written Statement ............................................................................................ 1143

Statement by Representative Dana Rohrabacher, Acting Ranking Minority

Member, Subcommittee on Investigations and Oversight, Committee on

Science and Technology, U.S. House of Representatives .................................. 144

Written Statement ............................................................................................ 145

Prepared Statement by Representative Jerry F. Costello, Member, Subcommittee on Investigations and Oversight, Committee on Science and

Technology, U.S. House of Representatives ....................................................... 146

Panel 1:

Mr. Steven D. Aitken, General Counsel for the Office of Information and

Regulatory Affairs, Office of Management and Budget

Oral Statement ................................................................................................. 147

Written Statement ............................................................................................ 148

Biography .......................................................................................................... 158

Discussion

Executive Order Consultation Process ............................................................... 159

Page

V

Market Failure Provisions ................................................................................... 166

Transparency Provisions ..................................................................................... 169

Confidentiality Concerns ..................................................................................... 171

Regulatory Policy Officers ................................................................................... 172

Division of Power in the Federal Government .................................................. 173

Panel 2:

Mr. Peter L. Strauss, Betts Professor of Law, Columbia Law School

Oral Statement ................................................................................................. 178

Written Statement ............................................................................................ 180

Biography .......................................................................................................... 185

Dr. Robert W. Hahn, Executive Director, AEI–Brookings Joint Center for

Regulatory Studies

Oral Statement ................................................................................................. 185

Written Statement ............................................................................................ 186

Biography .......................................................................................................... 190

Dr. Gary D. Bass, Executive Director, OMB Watch

Oral Statement ................................................................................................. 191

Written Statement ............................................................................................ 193

Biography .......................................................................................................... 202

Mr. Richard W. Parker, Professor, University of Connecticut Law School

Oral Statement ................................................................................................. 203

Written Statement ............................................................................................ 205

Biography .......................................................................................................... 210

Discussion

More on Regulatory Policy Officers .................................................................... 210

More on Separation of Powers and Market Failure Provisions ....................... 211

More on Transparency Provisions ...................................................................... 214

Appendix: Additional Material for the Record

Changes to the OMB Regulatory Review Process by Executive Order 13422,

CRS Report for Congress, Updated February 21, 2007 .................................... 218

(1)

AMENDING EXECUTIVE ORDER 12866: GOOD

GOVERNANCE OR REGULATORY USURPATION? PART I

TUESDAY, FEBRUARY 13, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT, COMMITTEE ON SCIENCE AND TECHNOLOGY, Washington, DC.

The Subcommittee met, pursuant to call, at 11:35 a.m., in Room

2141 of the Rayburn House Office Building, Hon. Brad Miller

[Chairman of the Subcommittee] presiding.

2

3

HEARING CHARTER

SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT

COMMITTEE ON SCIENCE AND TECHNOLOGY

U.S. HOUSE OF REPRESENTATIVES

Amending Executive Order 12866:

Good Governance or

Regulatory Usurpation? Part I

TUESDAY, FEBRUARY 13, 2007

12:00 P.M.–1:30 P.M.

2141 RAYBURN HOUSE OFFICE BUILDING

Purpose

On Tuesday, February 13, 2007 the Subcommittee on Investigations and Oversight of the Committee on Science and Technology will hold a hearing to receive testimony regarding the President’s recent amendment to Executive Order 12866. That

order provides guidance to agencies for submitting proposed regulations to the Office of Management and Budget (OMB) for pre-approval.

The amendment (Executive Order 13422) expands this process by requiring agencies to submit proposed significant guidance documents for pre-approval. The Order

also requires for the first time that agencies identify in writing the specific market

failure or problem that warrants the proposed regulation or guidance; that a Presidential appointee in each agency be designated as regulatory policy officer and that

officer must approve each regulatory undertaking by the agency.

The hearing will explore the consequences of Executive Order 12866, as it has

been used by the Bush Administration, as well as the impact of this amendment

to the order. Among the issues the Subcommittee will seek information on are:

1. What has been the record of OMB’s use of Executive Order 12866 to date,

with particular attention to its use under the Bush Administration?

2. How will the expansion of OMB’s role impact the ability of agencies to follow

the laws passed by Congress to protect public safety and health?

3. What are the practical implications of having a Presidential appointee at

each agency act as a minder on what rule-making work can be started at

an agency and what can leave the agency to go to OMB?

Witnesses

Sally Katzen: Adjunct Professor and Public Service Fellow at University of Michigan Law School: Former Director of OIRA during the Clinton Administration.

David Vladick: Professor of Law, Georgetown University Law Center.

Rick Melberth, Ph.D.: Director, Federal Regulatory Policy, OMB Watch

Bill Kovacs: Vice President for Environment, Technology, and Regulatory Affairs,

U.S. Chamber of Commerce (minority witness).

Key Issues

Regulatory authority is the main tool Congress has used to charge Executive

agencies with responsibilities to protect the environment, public health, the safety

of the workplace, the use of public lands and a myriad of other good purposes. Congress obviously cannot pass a law, or amend statute, every time a new threat to

air or health arises. Instead, Congress puts into place general purposes, general authority and a set of values that the agency should use in carrying out the law.

When the Office of Information and Regulatory Analysis (OIRA) injects itself into

the regulatory process there can be a fine line between guaranteeing that a proposed regulation is convincingly demonstrated and efficient in its likely outcome and

substituting the President’s values and preferences for the goals and purposes Congress enacted in statute. This line can be crossed either in the guidance to agencies

from OIRA or by the way OIRA conducts itself.

4

1 42 Stat. 22, Ch. 18, Sec. 207. OMB currently resides at U.S.C. Title 31, Chapter 5 (31 U.S.C.

Sec. 501).

OIRA has quietly grown into the most powerful regulatory agency in Washington.

The Reagan Administration used OIRA push further and further into the process

of vetting regulations. A string of Executive Orders in the 1980s, many issued during David Stockman’s tenure at OMB, forced agencies to let OIRA be a full part- ner—some thought dominant partner—in moving regulations forward. Several

House Chairs fought a very bitter struggle to push OIRA back out of the business

of interfering with the conduct of agencies as they carried out the law. That fight

met only mixed success.

As discussed below, E.O. 12866 was a Clinton-era effort to retain Reagan-initiated

White House oversight of agency regulatory processes that had been the product of

Reagan initiatives, balanced against the recognition that agencies should have primacy in the regulatory process. The thrust of E.O. 12866 was to pare back the array

of regulatory actions that would be swept up into OIRA’s review (the estimate was

that the annual number of regulations for review declined from 2000 to a mere 500

or so). Clinton’s OIRA, while still assertive, was cognizant that it was ultimately the

agencies that were charged by Congress with carrying out public purposes and

OIRA’s assertions of authority had to be tempered by that legal reality.

The Bush Administration has moved very aggressively to supplant the agencies’ authority with a centralized command-and-control system whereby OIRA acts as a

very stingy gatekeeper on what proposed regulations can see the light of day. In

tone, OIRA has returned to the Reagan-era where OIRA uses its privileged position

as ‘‘the President’s voice’’ in regulatory matters, to push agencies into rethinking everything they are doing on regulation.

Critics of OIRA’s role since 2001 describe a process whereby the values and judgments of OIRA’s small staff (dominated by economists) trump the judgments of technical experts in the agencies and supplant the values in statute designed to guide

agency regulatory activities. The cumulative effect of OIRA’s behavior since 2001

has been to intimidate agencies into running away from pursuing their statutory

responsibilities rather than get caught up in the political struggles associated with

moving regulation forward. Supporters of this approach are happy to see some office

moving to slow agency actions and argue that the net result of OIRA’s actions is

a more defensible regulation at the end of the day.

How does all this matter for science and the agencies under the Science Committee’s jurisdiction?

Every year the Federal Government funds billions of dollars of research at the

Environmental Protection Administration, the Department of Labor, the Department of Transportation, the Department of Agriculture, the Department of the Interior, the Department of Energy and the National Oceanic and Atmospheric Administration that contribute directly or indirectly to regulatory considerations. Even the

National Institutes of Health and the National Science Foundation fund science that

finds its way into regulatory proposals. Experts at agencies—often federal scientists—charged with regulatory responsibilities survey the relevant scientific literature to determine where there may be dangers to the public or the public interest. In determining the need for a regulation, the agency uses science funded with

public dollars, as well as that from private sources, to make reasoned assessments

of risks and propose responses. This is all to be done consistent with statutory responsibilities as established by Congress.

OIRA has been using its circulars to force agencies to analyze and reanalyze the

information underlying and supporting proposed regulations. Now, with the amended Executive Order, OIRA is putting in place very clear economic criteria for regulation and guidance that may have nothing to do with the values established in statute. This effort is coming with no consultation or input from Congress. Further, by

making the regulatory policy officer a more empowered gatekeeper, with political allegiance to the President, it raises the chances that the agencies themselves will

find it hard during the Bush years to get regulatory proposals started or completed

simply to submit them to OIRA for review. Congress did not empower agencies to

protect public health and safety simply to then sit on its hands to see all Congress

appropriates for regulatory-relevant science and the legal authority seated in agencies be trumped through a sweeping Executive Order.

Background

Brief History of OMB: What is now known as the Office of Management and

Budget (‘‘OMB’’) was originally created in the Budget and Accounting Act of 1921.1

The Act created the Bureau of Budget (‘‘BOB’’) in the Treasury Department. Congress created the BOB to unify the budget process and have the executive branch

5

2 53 Stat. 1423, Sec. 1.

3 84 Stat. 2085, Sec. 102(a), restated 88 Stat. 11, Sec. 1.

4 44 U.S.C. Chapter 35, P.L. 96–511, restated P.L. 104–13, 109 Stat. 163. 5 44 U.S.C. Sec. 3503.

6 44 U.S.C. Chapter 35, P.L. 96–511, restated P.L. 104–13, 109 Stat. 163. 7 44 U.S.C. Chapter 35, P.L. 104–13, 109 Stat. 163. 8P.L. 105–277, 112 Stat 2681. 9P.L. 106–554, Sec. 515, 114 Stat. 2763.

send a single budget to Congress. Previously, the executive branch transmitted

budgets to Congressional committees independently of one another, and the budget

process was consequently highly fragmented. Created at the same time was the

Congress’s General Accounting Office (now the Government Accountability Office) to

give Congress an ability to independently check the budgetary information from the

Executive as well as to examine the way programs were being funded and managed.

In 1939, Congress moved the BOB from the Treasury Department to the Executive Office of the President.2 FDR, largely through executive order, expanded BOB’s functions to include broad management oversight of federal operations.

In 1970, BOB went through another major reorganization which saw it transformed into OMB.3 At this time, the federal management oversight functions of

OMB were expanded, and have continued to be expanded until the present day.

The next major change to OMB occurred with the 1980 Paperwork Reduction Act.4

This act created the Office of Information and Regulatory Affairs (‘‘OIRA’’) within

OMB.5 OIRA’s original charge was primarily to reduce the Government paperwork

burden on the public and to develop policies and standards with regard to information management. One focus of this was to eliminate duplicitous or unnecessary paperwork and information collections.

Other major laws affecting OMB are the Congressional Budget Act of 1974, and

the Budget Enforcement Act of 1990. The Budget Enforcement Act expired in 2002.

OIRA and Executive Order 12866: The Office of Information and Regulatory Affairs (‘‘OIRA’’) was created with the 1980 Paperwork Reduction Act.6 Under the enabling act, OIRA was charged with reducing the Government paperwork burden on

the public and developing policies and standards with regard to information management. Throughout the years, OIRA’s functions have been expanded through legislation and executive action. The major surviving changes include the Paperwork

Reduction Act of 19957 and Executive Order #12866 (1993). In addition, during

the current Bush Administration, OIRA has come to oversee implementation of the Data Access Law8 and the Data Quality Law,9 including the peer

review practices of agencies. The effect of these, and other changes to OIRA, has

guaranteed that OIRA is the central player in the promulgation of virtually all federal regulations.

Executive Order 12866 requires the following from all agencies:

1. Assess the economic costs and benefits of all regulatory proposals;

2. Complete a Regulatory Impact Analysis (RIA) for all major rules (any rule that will have an impact of $100 million or more, or that OMB designates

as major). The RIA must describe the costs and benefits of the proposed rule

and alternative approaches, and then justify the chosen approach;

3. Submit all major proposed and final rules to OMB for review;

4. Wait until OMB reviews and approves the rule before publishing proposed

and final rules;

5. Submit an annual plan to OMB to establish regulatory priorities and improve coordination of the Administration’s regulatory program (this requirement also applies to independent agencies);

6. Periodically review existing rules.

Most of these requirements actually originated in earlier administrations (particularly the Reagan Administration). The initiatives of the Reagan years had turned

OIRA into a kind of ‘‘gatekeeper’’ that stood between the agencies and putting regulations out for comment (or finalizing them). However, the Clinton Administration

intended to set a different tone and, drawing on what they felt to be the best of

the ideas of the Reagan years, drafted a new Executive Order to organize and guide

the work of OIRA.

Sally Katzen, an attorney by training with experience in the Carter Administration’s management system, took the lead in drafting E.O. 12866. That process involved comment and review from all the agencies, as well as participation by OMB

General Counsel, White House Counsel and Domestic Policy Staff and even the

President himself. What Katzen attempted to do has been described as the ‘‘hot tub

6

theory’’ of managing regulation. Rather than being a gatekeeper, OIRA would work

with agencies to put out the best regulations possible. The economics of a proposal

were important, but not to the exclusion of other values. Indeed, there was recognition that not everything valued by society could have a dollar value assigned to it.

In addition, some statutes require agencies to consider economic costs only

in choosing among alternatives for achieving the goal of the regulation, not

whether to issue the regulation or not.

Clinton’s approach changed regulatory oversight. First, it set up a 90-day period

for OMB review of proposed rules, and created a mechanism for the timely resolution of disputes between OMB and agency heads. There would be no ‘‘paralysis by

analysis’’ if these commitments were kept. Second, it created new public disclosure

requirements which mandated that all documents exchanged between OMB and the

agency during regulatory review be made available to the public at the conclusion

of the rule-making. Lastly, the Order created a process for meetings between OMB

officials and people outside the executive branch regarding pending reviews which

attempted to shine a more public light on these types of meetings.

These aspects of E.O. 12866 made the OMB regulatory review process much more

transparent and limited OMB’s ability to ‘‘kill’’ agency rule-making by endless OMB

review. The E.O. also focused OMB review to only include major rule-making instead of all rule-making, reducing the number of regulations reviewed each year

from 2,200 under Reagan, to about 500 under Clinton.

Bush Amendments to E.O. 12866: The Bush Administration has amended this

Executive Order two times. The first amendment in 2002 simply removed the Vice

President from the process, replacing that office with that of the White House chief

of staff. This second occasion for amendment has come with limited warning, little

discussion and with much broader implications. The attached CRS report goes into

detailed discussion of the major changes, and some of their implications. Below is

a summary of the key observations.

1. Elevating ‘‘Market Failure’’:

First, the amendment establishes a new standard that must be met by any proposed guidance or regulation. Originally, the first principle guiding submissions to

OIRA seeking approval of a proposed regulation was that ‘‘[e]ach agency shall identify the problem that it intends to address (including, where applicable, the failures

of private markets or public institutions that warrant new agency action) as well

as assess the significance of that problem.’’

Under the amended language, ‘‘Each agency shall identify in writing the specific

market failure (such as externalities, market power, lack of information) or other

specific problem that it intends to address (including, where applicable, the failures

of public institutions) that warrant new agency action, as well as assess the significance of the problem, to enable assessment of whether any new regulation is warranted.’’

Critics of OIRA allege that this new standard of ‘‘market failure’’ supplants the

values that exist in statute for regulatory action. They also worry that OIRA will

use this standard to summarily dispense with proposals that they deem to be unconvincing in their articulation of a market failure. However, there is permissive language allowing for other kinds of analysis. The core question will rest on how OIRA

applies this language in practice.

2. Presidential Appointees as Regulatory Policy Officers

The amendment directs that each agency shall name a regulatory policy officer

who shall be a Presidential appointee. While regulatory policy officers had been required in the Executive Order as originally propounded in 1993, the notion that the

officer must be a Presidential appointee takes the expert staff of agencies out of the

picture. The language of the amendment charges this officer with being ‘‘involved

at each stage of the regulatory process to foster the development of effective, innovative, and least burdensome regulations and to further the principles set forth in this

Executive order.’’

This political appointee appears to serve as a kind of gatekeeper’s gatekeeper. The

officer will compose an annual plan and ‘‘no rule-making shall commence nor be included on the Plan without the approval of the agency’s Regulatory Policy Office.’’

Previously such officers were to be involved in the rule-making process and now

they have total discretion over the initiation of work that could lead to a regulation.

(CRS states that these Regulatory officers are largely drawn from political appointees already so this may not be a notable change; however, the source on that

is OIRA and they do not keep a master list of these officers so it is hard to know

how to evaluate this assertion.)

7

3. Aggregate Regulatory Costs and Benefits

The original of 12866 required a ‘‘summary of planned significant regulatory action including, to the extent possible, alternatives to be considered and preliminary

estimates of anticipated costs and benefits.’’ The amendment expands this requirement to direct that each agency provide the ‘‘best estimate of the combined aggregate costs and benefits of all its regulations planned for that calendar year to assist

with the identification of priorities.’’

Critics allege that this will elevate cost-benefit analysis in the regulatory process.

Cost-benefit analysis is a very controversial analytical tool in guiding regulatory behavior. While the call to make sure that the benefits of a regulation exceed its costs

has a simple appeal, the reality is that many of the benefits regulations are designed to capture (the survival of a species, to protect the lives and health of citizens, the quality of the air or water) are impossible to accurately value. However,

the costs of steps to implement a regulation are usually easy to specify with precision. The result is a process that tends to be very complete in its enumeration of

costs and incomplete in its ability to set values on the benefits. Retrospective studies have found that costs used in estimating the costs of a regulation turn out to

be overstated. And of course because you are using ‘‘dollars’’ to estimate costs, it

provides the illusion of a precision that does not—perhaps cannot—exist.

Critics also view this as a potential first step towards a regulatory ‘‘budget’’ that

could be used to stop future regulations based on some ‘‘capping’’ of that budget.

4. Review of Significant Guidance Documents

Under the amendment each agency is to provide OIRA with advance notice of all

proposed significant guidance documents. OIRA may then decide which guidance it

deems to be ‘‘significant’’ from its perspective and ask for the proposed guidance and

a brief explanation of need. ‘‘The OIRA administrator shall notify the agency when

additional consultation will be required before issuance of the significant guidance

document.’’

There is no time limit on how long OIRA may take in moving on these guidance

proposals.

The impact on agency conduct may be very, very significant and could potentially

sweep up thousands of such proposals each year. Guidance is issued to communicate

to an effected public how an agency intends to interpret or enforce statutory directions. The business community relies on guidance to ensure that conduct will comply with agency intentions for application of law.

Conclusion

While the language of the Amendment to Executive Order 12866 is alarming to

many, the fundamental issue is how does OIRA intend to implement it? The reemergence of the ‘‘gatekeeper’’ approach to OIRA under President Bush—an event

that has not so far received the kind of institutional push-back from Congress which

that role drew in the 1980s—suggests that the rule as amended will be used very

aggressively to stall agency action. But how OIRA intends to apply this language

in practice is a subject worth some study.

Two other issues loom large from the Committee on Science and Technology’s perspective. First, what will these changes imply for the science-based regulatory agencies? Will we increasingly find that the ‘‘science’’ that matters is no longer that of

climate, biological or medical researchers, but narrow applications of cost-benefit

analysis and market failure theory drawn from economics? Should the science committee, uniquely positioned to examine and evaluate research, undertake a more rigorous review of the validity and utility of these economic approaches to regulation?

Second, what does this new amendment imply for the institutional prerogatives

of the legislative branch? Agencies exist in statute and are given mandates under

the law. Should Congress passively accept an Executive Order that, just as an example, places Presidential appointees in a position where they can arbitrarily block

career agency officials from carrying out the purposes of the law Congress charged

them with?

The growth of power at the Office of Information and Regulatory Affairs has gone

largely unexamined in recent years. This amendment invites Congress as a body,

and many, many Committees that are affected, to undertake a vigorous and thorough review of the changes in that office since 2001.

8

10P.L. 105–277, 112 Stat. 2681. 11 445 U.S. 169 (1980). 12P.L. 106–554, 114 Stat. 2763(A). 13 67 FR 8452 (2002). 14Data Quality Law is Nemesis of Regulation, Washington Post, August 16, 2004. 15Salt Institute v. Michael O. Leavitt, 440 F.3d 156 (2006). 16 70 FR 2664 (2005).

Appendix:

Other Regulatory Tools that OMB has used to expand its Powers:

Data Quality: There were two recent acts of legislation that affected OMB’s oversight of data. They are the Data Access Law and the Data Quality Law. Both of

these laws were inserted into omnibus appropriations bills, and neither was fully

debated in Congress.

The entire Data Access Law consists of the following short passage:

‘‘Office of Management and Budget Salaries and Expenses

. . .Provided further, That the Director of OMB amends Section———.36

of OMB Circular A–110 to require federal awarding agencies to ensure that

all data produced under an award will be made available to the public

through the procedures established under the Freedom of Information Act:

Provided further, That if the agency obtaining the data does so solely at

the request of a private party, the agency may authorize a reasonable use

fee equaling the incremental cost of obtaining the data. . .’’ 10

The purpose of the law was to increase public access to data conducted with funding from federal grants. Another purpose of the law was to overturn Forsham v.

Harris,11 which stood for the principle that data generated by a privately controlled

organization which received grant funds from a federal agency were not ’agency

records’ accessible under the Freedom of Information Act.

The Data Quality Act (‘‘DQA’’), was inserted into the FY 2001 Consolidated Appropriations Act.12 The Data Quality Act instructed OMB to establish guidelines to federal agencies for ‘‘ensuring and maximizing the quality, objectivity, utility, and integrity of information (including statistical information) disseminated by federal

agencies.’’ Through its guidelines,13 OMB directed agencies to establish ‘‘administrative mechanisms allowing affected persons to seek and obtain correction of information maintained and disseminated by the agency.’’ To date, there appears to have

been over 100 DQA petitions filed with numerous federal agencies. OMB does not

compile a list of DQA petitions, so ascertaining the exact number of petitions filed

is cumbersome. OMB Watch (www.ombwatch.org) keeps track of the individual petitions filed at each agency, and maintains a comprehensive list of DQA petitions.

Two major questions concerning the DQA remain unresolved. The first is whether

the DQA applies to agency rule-making. It is clear that the DQA applies to agency

action outside the rule-making process (for instance, agency dissemination of information through websites). However, there is no guidance in the actual legislation

as to the applicability of the DQA to rule-making. There appears to be a consensus

position across the federal agencies that the DQA doesn’t apply to rule-making, as

the rule-making process already allows for public comment. Furthermore, the DQA

contains no reference to the Administrative Procedure Act. Nevertheless, industry

petitioners have successfully used the DQA petition process to influence agency rulemaking. One instance involves the chemical atrizine. As a result of a DQA petition,

the EPA included a sentence in a scientific assessment of the risks of atrazine that

stated hormone disruption cannot be considered a ‘‘legitimate regulatory endpoint

at this time.’’ 14 Atrazine is banned in Europe precisely because of the evidence that

it is an endocrine disruptor. By attacking the science underlying potential rule-making, the petitioners were able to avoid agency rule-making altogether.

Another major question concerning the DQA is whether DQA petitions are judicially reviewable. Thus far, the major case on the issue held that DQA petitions are

not judicially reviewable.15 However, further challenges in different circuits are

planned, and the issue may not be fully settled. Judicial review of DQA petitions

would cause massive delays to the petition process.

DQA Based Regulations: OIRA developed two important new regulations based on

the Data Quality Act: OMB Peer Review Guidelines16 and OMB Risk Assessment

Bulletin (Proposed). OMB’s Peer Review Guidelines dictate that ‘‘important scientific information shall be peer reviewed by qualified specialists before it is disseminated by the Federal Government.’’ The guidelines apply to all ‘‘scientific inforVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
9

17 Notice of proposal at: 71 FR 2600. Text of the proposed bulletin is not published in the Federal Register.

mation disseminations that contain findings or conclusions that represent the official position of one or more agencies of the Federal Government.’’ OMB’s guidelines

establish minimum peer review standards for federal agencies. Varying requirements for peer review are established based on the potential influence of the scientific information, with ‘‘highly influential scientific assessments’’ receiving the

strictest peer review requirements. OMB asserts its legal authority to impose the

Peer Review Guidelines flows from the Data Quality Act’s direction to OMB to provide guidance for federal agencies for ‘‘ensuring and maximizing the quality, objectivity, utility and integrity of information’’ which is disseminated.

OIRA recently proposed a Risk Assessment Bulletin.17 This has not yet been published in its final form. The Risk Assessment Bulletin establishes ‘‘quality standards

for risk assessment disseminated by federal agencies.’’ Much like the Peer Review

Bulletin, the Risk Assessment guidelines have varying levels of quality standards.

There is one set of standards for general risk assessments and another set of stricter standards for influential risk assessments. Influential risk assessment is defined

as ‘‘a risk assessment the agency reasonably can determine will have or does have

a clear and substantial impact on important public policies or private sector decisions.’’ OMB again asserts legal authority to issue the bulletin arises from the Data

Quality Act. This Risk Assessment proposal was soundly rejected by the National

Academy of Sciences in their January review. That step seems to have killed the

proposal.

Analysis

The effect of the Data Quality Act, Peer Review Bulletin and Risk Assessment

Bulletin is to impose an additional layer of regulatory administration on agencies

that, for the most part, already have strong internal guidelines (at least for peer

review and risk assessment). The result of this will likely be greater delay in agency

dissemination of information, and a chilling effect that might discourage agencies

from attempting to disseminate information in the first place. The bulletins also

represent another step in OMB’s continuing effort to insert itself into agency affairs.

In addition, the possibility remains that OMB will attempt to use its authority

under the Data Quality Act to insert itself into the agency rule-making process. This

could potentially reek havoc on the rule-making process, and create years of new

legal challenges related to the rule-making process. Needless to say, that would

cause significant slowdown of an already slow rule-making process.

10

Chairman MILLER. The Committee hearing will come to order.

And good afternoon to all of you. I want to welcome all of you to

this first hearing of the Investigations and Oversight Subcommittee

of the Committee of Science and Technology for purposes of this

hearing on the growing role of the Office of Information and Regulatory Affairs, OIRA.

Mr. Costello, who is not here, will serve as the Vice Chairman.

There has not been an Investigations and Oversight Subcommittee

of the Committee on Science and Technology for a dozen years, and

I look forward to working with all of you, the Members who are not

here, plus anyone out there as well, and working with all of you

on a very active, very engaged subcommittee.

We will work to expose abuse of power, corruption, and waste.

A great American political scientist, Woodrow Wilson, called that

the informing power of Congress, and said that it was probably

more important than Congress’ legislative powers. The light we

shine will often be unwelcome by those whose conduct we illuminate, but unflattering scrutiny from Congress should be a

healthy deterrent to the abuse of power.

Today’s hearing is part of our oversight duties, to consider broader public policy questions that need the attention of Congress. I

have heard the phrase ‘‘it takes an act of Congress’’ my entire life,

but it has taken on new meaning for me in these last four years

that I have served in Congress. When Congress enacts legislation

to protect public health, the environment, safety, civil rights, privacy, and on and on, Congress cannot possibly anticipate every circumstance that will arise, and Congress cannot possibly address

every new circumstance by new legislation. So Congress has long

delegated to federal agencies the power to enforce the laws that

Congress passes, and to adopt regulations that address circumstances within the intended protection of the legislation, but

not specifically addressed.

Federal agencies frequently rely on scientific research, whether

applied or basic, to inform their decisions. Scientific research within the jurisdiction of the Committee on Science and Technology, research by NOAA, EPA, NIH, the Departments of Labor and Agriculture, is all properly part of rule-making decisions, as are the

standards and guidelines work at NIST and the Department of

Transportation. We spend billions on that research. We should certainly examine how it is used in rule-making.

Rule-making decisions should properly be based on expertise, but

that does not mean that they are beyond challenge. The authority

of federal agencies should not amount to government by Platonic

guardians, experts better informed and wiser than we are, and

untroubled by tawdry concerns of politics. Congress and the President should pay close attention when agencies act, and should pay

close attention when agencies fail to act. And we should pay close

attention to the reasons for agency action or inaction, to what extent is agency action or inaction based on considerations of scientific expertise such as environmental or public health consequences, and to what extent is agency action or inaction based

on economic or political considerations.

When agencies act, they must explain their decisions and allow

public participation in that decision, but are decisions not to act

11

being made in back rooms, based upon considerations that never

would withstand public scrutiny? Does Executive Order 13422 create an almost insuperable bias in favor of agency inaction, even in

the face of clear need for action and a clear statutory directive to

act? Does the order shield decisions at agencies from the scrutiny

that they should receive? Does the order shift to the President powers that the Framers of our Constitution intended be exercised by

Congress?

I welcome the testimony of our distinguished panelists on those

issues. I also look forward to working with our distinguished Ranking Member, James Sensenbrenner. Mr. Sensenbrenner is by far

my senior in Congress. He has served for four years as Chairman

of the Judiciary Committee—excuse me, of this committee, the

Committee on Science, six years as Chairman of the Judiciary

Committee, and I hope he does not feel that after having been star

player in the big leagues, he has now been sent back to the minors.

[The prepared statement of Chairman Miller follows:]

PREPARED STATEMENT OF CHAIRMAN BRAD MILLER

I want to welcome all of you to this first hearing of the Investigations and Oversight Subcommittee of the Committee on Science and Technology. For purposes of

this hearing on the growing role of the Office of Information and Regulatory Affairs

(OIRA), Mr. Costello will serve as the Vice Chairman.

There has not been an Investigations and Oversight Subcommittee of the Science

and Technology Committee for a dozen years, and I look forward to working with

all of you on a very active, very engaged subcommittee.

We will work to expose abuse of power, corruption and waste. A great American

political scientist, Woodrow Wilson, called that the ‘‘informing power’’ of Congress,

and said that it was probably more important than Congress’ legislative powers. The

light we shine will often be unwelcome by those whose conduct we illuminate, but

unflattering scrutiny from Congress should be a healthy deterrent to the abuse of

power.

Today’s hearing is part of our oversight duties, to consider broader public policy

questions that need the attention of Congress.

I’ve heard the phrase ‘‘it takes an act of Congress’’ all of my life, but it has taken

on new meaning for me in first four years of my service in Congress. When Congress

enacts legislation—to protect public health, the environment, safety, civil rights, privacy, and on and on—Congress cannot possibly anticipate every circumstance that

will arise, and Congress cannot possibly address every new circumstance by new

legislation.

So Congress has long delegated to federal agencies the power to enforce the laws

that Congress passes, and to adopt regulations that address circumstances within

the intended protection of the legislation, but not specifically addressed.

Federal agencies frequently rely on scientific research, whether applied or basic,

to inform their decisions. Scientific research within the jurisdiction of the Committee on Science and Technology, research by NOAA, EPA, NIH, the Departments

of Labor and Agriculture, is properly part of rule-making decisions, as are the

standards and guidelines work at NIST and the Department of Transportation. We

spend billions on that research; we should certainly examine how it’s used in rulemaking.

Rule-making decisions should properly be based on expertise, but that does not

mean those decisions are beyond challenge. The authority of federal agencies should

not amount to government by Platonic guardians, experts better informed and wiser

than we are and untroubled by tawdry political concerns. Congress and the President should pay close attention to when agencies act, and to when agencies fail to

act, and we should pay close attention to the reasons for agency action or inaction.

To what extent is agency action or inaction based on considerations of scientific

expertise, such as environmental or public health consequences, and to what extent

is agency action or inaction based on economic or political considerations? When

agencies act, they must explain their decisions and allow public participation in the

decision. But are decisions not to act being made in back rooms, based upon considerations that would never withstand public scrutiny?

12

Does Executive Order 13422 create an almost insuperable bias in favor of agency

inaction, even in the face of a clear need for action and a clear statutory directive

to act? Does the Order shield decisions at agencies from the scrutiny they should

receive? And does the Order shift to the President powers that the framers of our

Constitution intended be exercised by Congress?

I welcome the testimony of our distinguished panelists on these issues.

I also look forward to working with our very distinguished Ranking Member,

James Sensenbrenner. Mr. Sensenbrenner served for four years as Chairman of the

Committee on Science, and for six years on the Judiciary Committee. I hope he does

not feel that after being a star player in the big leagues, he has now been sent back

to the minors.

We very much welcome his experience and his expertise.

And I now recognize Mr. Sensenbrenner for his opening remarks.

Mr. SENSENBRENNER. I thank the gentleman from North Carolina for his comments. I am not in the minor leagues. I have a little

bit different role, and not only is this role to keep the agencies on

their toes, but also, to keep the Chairman and the Majority on

their toes as well.

So, I would like to welcome him to the Chair of the Subcommittee, and say that I am looking forward to working with him

and looking forward to making him a better Chair during the next

two years.

Chairman MILLER. Something for me to look forward to.

And I also want to announce the one baseball analogy is out of

deference and respect to our immediate past Chairman, Mr. Sherry

Boehlert, but it will be the policy of this committee going forward

that the preferred sports analogy are analogies to college basketball.

Elections have consequences.

Mr. SENSENBRENNER. That is fine, because Wisconsin is ranked

third in the country, sir.

May I have an opening statement now?

Chairman MILLER. Actually, that is in my remarks, and I now

recognize Mr. Sensenbrenner for his opening remarks.

Mr. SENSENBRENNER. Although this is the first Investigations

and Oversight Subcommittee hearing since 1995, the record of

oversight under my chairmanship speaks for itself, from monitoring

the status of the Spallation Neutron Source of the Department of

Energy to evaluating the proposal to bring Russia into the International Space Station Program, the Science and Technology Committee’s vigilant oversight produced better programs and policies,

and I look forward to returning to this committee and continuing

the same rigorous oversight.

Having been the Chair of two committees, I am uniquely aware

of the topic before us, and I am glad to see that my colleagues on

the Judiciary Committee have taken an interest as well, and their

expertise is appreciated.

As for the Executive Order and the OMB Bulletin, I am inclined

to think that the issues that will be brought up today have less to

do with their implications and more to do with who issued them.

While I do get concerned when any Administration, be it Republican or Democratic, asserts too much control over the regulatory

process, it is important to note that organizing that process is not

and should not be a partisan endeavor, and it certainly didn’t start

with the current President.

13

President Clinton, just like several Presidents before him, used

the regulatory process to advance his own agenda in the waning

years of his Presidency. Ultimately, these policies last only as long

as the current Administration allows them to, and the best way to

ensure that longevity is to include the legislative branch. To quote

a recent article on the topic in CQ Weekly: ‘‘While executive power

is mighty, it is also ephemeral.’’ Most of the issues that the Executive Order and the OMB Bulletin address are simple clarifications

of organizational changes that President Clinton’s Executive Order

12866, and will ultimately help OMB better coordinate the regulatory process. None of the amendments call for additional hurdles

to be overcome. They simply require the reporting of work that has

already been done.

Additionally, none of the issues or changes are anything new. All

of them have either been released for public comment, like the

OMB Bulletin on guidance documents, or are clarifications to President Clinton’s original Executive Order. For example, the OMB

Bulletin was issued in draft form over a year ago. While 31 comments were received, only three or four were negative. It is also interesting to note that none of our witnesses here today chose to

issue comments on that Bulletin, save Mr. Kovacs. But OMB will

have an opportunity to defend their document at the next hearing

before the Judiciary Committee, and I am told we will be inviting

them back before us at a later time as well.

Right now, I am more concerned with the impact that these guidance documents and regulations have on the American economy,

particularly small businesses that can’t afford high priced counsels

and lobbyists to monitor the thousands of guidance documents and

rules agencies issue each year. The increased use of guidance documents by agencies to circumvent the regulatory process has been

diligently documented. They often conflict with each other, and are

not subject to public notice and comment, and rarely receive agency

approval, not to mention OMB review.

While I am concerned about the impact that Presidential appointees may have on the regulatory process, just as in the issue

of market failure, these issues have all been addressed previously

by other Administrations as well. In reality, the EO and the OMB

Bulletin simply formalize many of the principles derived under the

previous Administrations.

That being said, as a part of this committee’s day-to-day oversight, I will certainly follow how these changes are implemented to

ensure that public health and safety is preserved, and that there

is transparency and accountability in our regulatory process.

Thank you.

[The prepared statement of Mr. Sensenbrenner follows:]

PREPARED STATEMENT OF REPRESENTATIVE F. JAMES SENSENBRENNER, JR.

Although this is the first Investigation & Oversight hearing since 1995, the record

of oversight under my Chairmanship speaks for itself. From monitoring the status

of the Spallation Neutron Source at the Department of Energy to evaluating the

proposal to bring Russia into the International Space Station Program, the Science

and Technology Committee’s vigilant oversight produced better programs and policies, and I look forward to returning to this committee and continuing the same rigorous oversight.

Having been Chairman of both the Science and Technology Committee and the

Judiciary Committee, I am uniquely aware of the topic before us. I am glad to see

14

my colleagues on the Judiciary Committee have taken an interest as well, as their

expertise is certainly appreciated.

As for the Executive Order and the OMB Bulletin, I am inclined to think that

the issues that will be brought up today have less to do with their policy implications, and more to do with who issued them. While I do get concerned when any

Administration (be it Republican or Democratic) asserts too much control over the

Regulatory Process, it is important to note that organizing that process is not a partisan endeavor, and it certainly didn’t start with the current President.

President Clinton, just like several Presidents before him, used the regulatory

process to advance his own agenda in the waning years of his Presidency. Ultimately, these policies last only as long as the current Administration allows them

to, and the best way to ensure their longevity is to include the Legislative Branch.

To quote a recent article on the topic in CQ Weekly, ‘‘while Executive power is

mighty, it is also ephemeral.’’

Most of the issues that the E.O. and the OMB Bulletin address are simple clarifications and organizational changes to President Clinton’s E.O. (12866) and will ultimately help OMB better coordinate the regulatory process. None of the amendments call for additional hurdles to be overcome; they simply require the reporting

of work that has already been done. Additionally, none of these issues or changes

are anything new—all of them have either been released for public comment (like

the OMB Bulletin on Guidance Documents) or are clarifications to President Clinton’s Executive Order.

For example, the OMB Bulletin was issued in draft form over a year ago. While

31 comments were received, only three or four were negative. But OMB will have

an opportunity to defend their document at the next hearing before the Judiciary

Committee, and I am told we will be inviting them back before us at a later time

as well.

Right now I am more concerned with the impact that these guidance documents

and regulations have on the American economy, particularly small businesses that

can’t afford high-priced counsels to monitor the thousands of guidance documents

and rules agencies issue a year.

The increased use of guidance documents by agencies to circumvent the regulatory process has been diligently documented. They often conflict with each other,

are not subject to public notice and comment, and rarely receive agency approval

(not to mention OMB review).

While I am concerned about the impact that Presidential Appointees may have

on the regulatory process, just as in the issue of Market Failure, these issues have

all been addressed previously under other Administrations as well. In reality, the

E.O. and the OMB Bulletin simply formalize many of the principles derived under

those previous Administrations. That being said, as part of the Committee’s day-today oversight, I will certainly follow how these changes are implemented to ensure

that public health and safety is preserved, and that there is transparency and accountability in our regulatory process.

I look forward to our witnesses’ testimony today.

Chairman MILLER. Thank you, Mr. Sensenbrenner.

[The prepared statement of Mr. Costello follows:]

PREPARED STATEMENT OF REPRESENTATIVE JERRY F. COSTELLO

Good afternoon. Thank you, Mr. Chairman, for calling this hearing to examine the

consequences of President Bush’s recent amendment to Executive Order 12866,

which requires Federal Government agencies to submit any proposed regulations to

the Office of Management and Budget (OMB) for pre-approval.

The Science and Technology Committee has the authority to examine and evaluate the validity and utility of economic approaches to regulation. Further, agencies

exist in statute and are given mandates under the law issued by Congress. The

amendment put in place by the Bush Administration goes one step further than the

current process by requiring agencies to identify in writing the specific market failure or problem that warrants the proposed regulation or guidance. Therefore, I look

forward to hearing the perspective of the witnesses as to how they perceive the

Bush Administration will implement its new amendment to Executive Order 12866

and their assessment on how this will impact science-based regulatory agencies and

public safety.

I welcome today’s witnesses and look forward to their testimony.

[The prepared statement of Ms. Johnson follows:]

15

PREPARED STATEMENT OF REPRESENTATIVE EDDIE BERNICE JOHNSON

Thank you, Mr. Chairman. The President amended a key executive order to tighten the president’s grip on federal agencies that enforce health, safety and environmental protections.

This order gives the White House’s Office of Information and Regulatory Affairs

(OIRA) enhanced tools to oversee and interfere with federal regulations on everything from warning labels on medicines to safety standards for construction work

sites.

Executive Order 12866 built on a Clinton-era executive order which authorized

OIRA to use cost-benefit analysis and other market-based calculations to evaluate

rules and regulations proposed by federal agencies.

The Executive Order now enables the Bush Administration to oversee not only

regulations, but also guidance documents that agencies issue to inform the public

about how rules will be enforced. OIRA can now examine all significant guidance.

The amended executive order also now lists the economic concept of market failure as a standard for reviewing a proposed rule.

The notion of the free market having the ability to eventually resolve public needs

could become an expansive pretext for OIRA to dismiss crucial regulatory protections.

I welcome the witnesses who are here today, especially Sally Katzen, the creator

and Former Director of OIRA under the Clinton Administration.

Thank you, Mr. Chairman. I yield back.

Chairman MILLER. I would now like to welcome our witnesses.

Today, we are honored to have a very distinguished and knowledgeable panel of witnesses.

Ms. Sally Katzen, the former head of the Office of Information

and Regulatory Affairs, again OIRA, in the Clinton Administration,

and currently a professor at the University of Michigan Law

School. She is a recognized expert in federal regulatory matters,

and we are very pleased to have her here today.

Mr. David Vladeck is a Director of the Institute for Public Representation, and a professor at Georgetown University Law Center.

He is also an expert in administrative and regulatory law, topics

on which he writes and testifies frequently before Congress.

Dr. Rick Melberth is the Director of Federal Regulatory Policy for

OMB Watch, which works to protect and improve the government’s

ability to develop and enforce safeguards for public health, safety,

the environment, and civil rights.

And finally, Mr. Bill Kovacs is the Vice President for Environment, Technology, and Regulatory Affairs, the Regulatory Affairs

Division for the United States Chamber of Commerce. That division is responsible for such significant issues, including the systematic application of sound science to the federal regulatory process.

Now, it is the custom of the Investigations and Oversight Subcommittee, well, going back a dozen years, when we last had one,

it is the custom of the Investigations and Oversight Subcommittee,

and it will be our custom going forward, we are establishing it now,

to swear in our witnesses.

Do any of you have any objection to being sworn in? Okay. If not,

then if you would please stand and raise your right hand.

[Witnesses sworn.]

Chairman MILLER. We will now hear the statements of the entire

panel, beginning with Ms. Katzen. To the panel, please limit your

remarks to five minutes. We do have written testimony from all of

you.

After all the statements have been received, the oral statements,

all Members will have five minutes to ask questions.

Ms. Katzen, I think we begin with you.

16

STATEMENT OF MS. SALLY KATZEN, ADJUNCT PROFESSOR

AND PUBLIC INTEREST/PUBLIC SERVICE FELLOW, UNIVERSITY OF MICHIGAN LAW SCHOOL

Ms. KATZEN. Thank you very much, and thank you for inviting

me to testify today.

During the last six years, there has been a slow but steady

change in the process by which federal regulatory agencies develop

and issue regulations, specifically in the balance of authority between those agencies and the Office of Management and Budget.

With its most recent actions, the Bush Administration has taken

yet another step restricting agency discretion and making it more

difficult for the agencies to do the job that Congress has delegated

to them.

As you mentioned in your introduction, I served as the Administrator of OIRA for over five years during the Clinton Administration, and was involved in the drafting and implementation of Executive Order 12866. I am a strong proponent of centralized review

of agency rule-making, and have often spoken and written in support or defense of OIRA. I am also a strong proponent of regulations, believing that if carefully crafted, they can improve the quality of our lives, the performance of our economy, and our nation’s

well-being.

Why, then, am I so critical of the new Executive Order? I have

prepared written testimony that provides extensive background

and explanatory information. I would like to use my five minutes

to emphasize several important points. First, the Bush Administration has taken many discrete steps to tighten, incrementally to be

sure, but tighten nonetheless OMB control over the agencies. The

information or data quality guidelines, the peer review guidelines,

Circular A–4 for regulatory analyses, the Risk Assessment Bulletin, and now, the Bulletin on Good Guidance Practices, all of

which are described in my written testimony.

Now, each step, standing on its own, can be justified or defended,

and none, standing on its own, warrants the outrage that was directed at them by the critics of the Administration. At the same

time, the cumulative effect has been overwhelming on the agencies,

and there is a dramatically different dynamic between the agencies

and the White House than there was at the end of the Clinton Administration.

In Executive Order 12866, President Clinton continued the practice of centralized review of rule-makings by OIRA, but at the same

time, he reaffirmed the primacy of the agencies, which are the repositories of significant expertise and experience, and the entities

to which Congress has delegated the authority to issue rules that

have the force and effect of law. Today, those same agencies have

at least one arm tied behind their backs, two ten pound bricks tied

to their ankles, and they are set on an obstacle course to navigate

before they can issue any regulations. Forgive me for mangling my

metaphors, but the combination of all the multiple mandates that

OMB has imposed on the agencies makes it so much more difficult

for them to do their job. Oversight is one thing—I am talking of

Presidential oversight—but burdening the agencies to slow them

down, or destroy their morale, is something else.

17

Now, I have heard that there is nothing new in the Executive

Order. It is all business as usual. It is simply what the Clinton Administration had done. That is not the case. This is a dramatically

different environment, and a dramatically different thrust. And I

can go into detail, if you would like, during questions.

It is also—the one explanation that was given when the Executive Order was issued, had to do with increasing transparency and

producing better decisions. That simply is not credible. Look at the

way it was done. There was no consultation or explanation. Look

at the effect it has on the agencies, coming on the heels of the

many mandates that OMB has imposed on them, and look at the

message it sends. Regulations to protect the environment or to promote the health and safety of American people are disfavored. Let

the market, not the government, do it.

Executive Order 12866, as originally drafted, was neutral as to

process, even though President Clinton was highly supportive of

regulations as part of the solution to serious problems plaguing our

society. The Executive Order was not skewed to achieve a pro-regulatory result. It was not a codification of a pro-regulatory philosophy or ideology. It was, on its face and by intent, a charter for

good government, without any predetermination of outcomes. Simply stated, the agencies’ regulations would be debated on the merits, not preordained by the process through which they were developed and issued.

In light of the actions taken over the last six years by the Bush

Administration, that is no longer the case. With Executive Order

12866, as amended, each step in the process of extending Presidential control over the agencies has placed a thumb on the scale.

By now, we have a whole fist influencing the outcome.

Thank you so much for holding this hearing. It is important for

Congress to let the executive know that it takes these matters seriously and is deeply concerned about the implications of their recent

actions on the integrity of the administrative process.

[The prepared statement of Ms. Katzen follows:]

PREPARED STATEMENT OF SALLY KATZEN

Chairman Miller and Members of the Subcommittee. Thank you for inviting me

to testify today on a subject that is vitally important to the American people. During

the last six years, there has been a slow but steady change in the process by which

regulations are developed and issued—specifically, in the balance of authority between the federal regulatory agencies and the Office of Management and Budget.

With its most recent actions, the Bush Administration has again restricted agency

discretion and made it more difficult for them to do the job that Congress has delegated to the federal agencies. It is therefore important that this subcommittee consider the reasons for these changes and the implications of these changes for administrative law and regulatory practice.

I served as the Administrator of the Office of Information and Regulatory Affairs

(OIRA) at the Office of Management and Budget (OMB) for the first five years of

the Clinton Administration, then as the Deputy Assistant to the President for Economic Policy and Deputy Director of the National Economic Council, and then as

the Deputy Director for Management of OMB. I am a proponent of centralized review of agency rule-making, and I was personally involved in the drafting and implementation of Executive Order 12866. I have remained active in the area of administrative law generally and rule-making in particular. Since leaving government

service in January 2001, I have taught Administrative Law and related subjects at

the University of Michigan Law School, George Mason University Law School, and

the University of Pennsylvania Law School, and I have also taught American Government seminars to undergraduates at Smith College, Johns Hopkins University,

18

and the University of Michigan in Washington Program. I frequently speak and

have written articles for scholarly publications on these issues.

On January 18, 2007, the Bush Administration released two documents. One was

expected; the other was not. I can understand why OMB issued a ‘‘Final Bulletin

for Good Guidance Practices.’’ While I disagree with several of the choices made, I

recognize that a case can be made that there is a need for such a Bulletin. On the

other hand, there is no apparent need for Executive Order 13422, further amending

Executive Order 12866. Regrettably, none of the plausible explanations for its

issuance is at all convincing. As I will discuss below, there are at least three aspects

of the new Executive Order that warrant attention: 1) the way it was done—without

any consultation or explanation; 2) the context in which it was done—coming on the

heels of OMB’s imposing multiple mandates/requirements on the agencies when

they are developing regulations; and 3) the effect it will have and the message it

sends to the agencies—it will be even more difficult for agencies to do their jobs because regulations are disfavored in this Administration.

To put the most recent Executive Order in perspective, a little history may be

helpful. The first steps towards centralized review of rule-making were taken in the

1970’s by Presidents Nixon, Ford and Carter, each of whom had an ad hoc process

for selectively reviewing agency rule-makings: President Nixon’s was called the

Quality of Life Review; President Ford’s was focused on the agency’s Inflationary

Impact Analysis that accompanied the proposed regulation; and President Carter’s was through the Regulatory Analysis Review Group. Those rule-makings that were

considered significant were reviewed by an inter-agency group, which then contributed their critiques (often strongly influenced by economists) to the rule-making

record.

In 1981, President Reagan took a significant additional step in issuing Executive

Order 12291. That Order formalized a process that called for the review of all Executive Branch agency rule-makings—at the initial and the final stages—under specified standards for approval. The Office that President Reagan chose to conduct the

review was the Office of Information and Regulatory Affairs (OIRA), established by

the Congress for other purposes under the Paperwork Reduction Act of 1980. Unless

OIRA approved the draft notice of proposed rule-making and the draft final rule,

the agency could not issue its regulation.

Executive Order 12291 was highly controversial, provoking three principal complaints. One was that the Executive Order was unabashedly intended to bring about

regulatory relief—not reform—relief for the business community from the burdens

of regulation. Second, the Order placed enormous reliance on (and reflected unequivocal faith in) cost/benefit analysis, with an emphasis on the cost side of the

equation. Third, the process was, by design, not transparent; indeed, the mantra

was ‘‘leave no fingerprints,’’ with the result that disfavored regulations were sent

to OMB and disappeared into a big black hole. The critics of Executive Order 12291,

including Members of Congress, expressed serious and deep concerns about the Executive Order, raising separation of powers arguments, the perceived bias against

regulations, and the lack of openness and accountability of the process.

When President Clinton took office and I was confirmed by the Senate as the Administrator of OIRA, my first assignment was to evaluate Executive Order 12291

in light of the 12 years of experience under Presidents Reagan and Bush, and help

draft a new Executive Order that would preserve the strengths of the previous Executive Order but correct the flaws that had made the process so controversial. President Clinton would retain centralized review of Executive Branch agency rule-makings, but the development and the tone of the Executive Order he would sign (Executive order 12866) was to be very different.

I was told that Executive Order 12291 was drafted in the White House (Boyden

Gray and Jim Miller take credit for the document) and presented, after President

Reagan had signed it, as a fait accomplis to the agencies. The protests from the

agencies were declared moot. We took a different route, consulting and sharing

drafts with the agencies, public interest groups, industry groups, Congressional

staffers, and State and local government representatives. When all their comments

were considered and changes made to the working draft, we again consulted and

shared our new drafts with all the groups, and again took comments. More changes

were made, and where comments were not accepted, we explained the basis for our

decisions.

The tenor of Executive Order 12866 was also quite different from Executive Order

12291. As noted above, Executive Order 12866 retained centralized review of rulemakings, but also reaffirmed the primacy of the agencies to which Congress had delegated the authority to regulate. (Preamble) Among other things, Executive Order

12866 limited OIRA review to ‘‘significant regulations’’—those with a likely substantial effect on the economy, on the environment, on public health or safety, etc., or

19

those raising novel policy issues (Section 6(b)(1) )—leaving to the agencies the responsibility for carrying out the principles of the Executive Order on the vast majority (roughly 85 percent) of their regulations.

Executive Order 12866 continued to require agencies to assess the consequences

of their proposals and to quantify and monetize both the costs and the benefits to

the extent feasible. (Section 1(a) ) But it explicitly recognized that some costs and

some benefits cannot be quantified or monetized but are ‘‘nevertheless essential to

consider.’’ (Section 1(a) ) I believe it was Einstein who had a sign in his office at

Princeton to the effect that ‘‘not everything that can be counted counts, and not everything that counts can be counted.’’ While Executive Order 12291 required agencies to set their regulatory priorities ‘‘taking into account the conditions of the particular industries affected by the regulations [and] the condition of the national economy’’ (Section 2 (e) ), Executive Order

12866 instructed agencies to consider ‘‘the degree and nature of the risks posed by

various substances and activities within its jurisdiction’’ (Section 1(b)(4) ), and it

added to the list of relevant considerations for determining if a proposed regulation

qualified as ‘‘significant’’ not only an adverse effect on the economy or a sector of

the economy, but also ‘‘productivity, competition, jobs, the environment, public

health or safety or State, local, or tribal governments or communities.’’ (Section 3(f) )

There were other significant differences between Executive Order 12291 and Executive Order 12866, including those relating to the timeliness of review and the

transparency of the process, but for present purposes, the key to the difference was

that President Clinton was focused on a process for better decision-making and

hence better decisions and not a codification of a regulatory philosophy or ideology.

Centralized review was seen as a valid exercise of presidential authority, facilitating

political accountability (the President takes the credit and gets the blame for what

his agencies decide) and to enhance regulatory efficacy (that is, decisions that take

into account the multitude of disciplines and the multitude of perspectives that can

and should be brought to bear in solving problems in our complex and interdependent society). But whatever one’s view of centralized review of agency rulemakings, Executive Order 12866 was—on its face and by intent—a charter for good

government, without any predetermination of outcomes.

The neutrality of the process was essential. President Clinton viewed regulations

as perhaps the ‘‘single most critical. . .vehicle to achieve his domestic policy goals’’ (Kagan, 114 Harv. L. Rev. 2245, 2281–82 ((2001) ), and he spoke often of the salutary effects of regulations on the Nation’s quality of life and how regulations were

part of the solution to perceived problems. But the Executive Order was not skewed

to achieve a pro-regulatory result. The regulations would be debated on their merits,

not preordained by the process through which they were developed and issued.

When George W. Bush became President in January 2001, his philosophy was decidedly anti-regulatory. I know that his advisors considered whether to change Executive Order 12866 and they concluded that it was not necessary to accomplish their

agenda. Indeed, President Bush’s OMB Director instructed the agencies to scrupulously adhere to the principles and procedures of Executive Order 12866 and its

implementing guidelines. (OMB M–01–23, June 19, 2001) The only changes to the

Executive Order came two years into President Bush’s first term, and the changes

were limited to transferring the roles assigned to the Vice President to the Chief

of Staff or the OMB Director. (Executive Order 13258)

Almost five years later, President Bush signed Executive Order 13422, further

amending Executive Order 12866. So far as I am aware, there was no consultation

and no explanation of the problems under the existing Executive Order that prompted these amendments, or whether the amendments would have a salutary effect on

whatever problems existed, or whether the amendments would have unintended

consequences that should be considered. Press statements issued after the fact do

not make for good government.

Second, the new Executive Order comes in the course of a steady and unwavering

effort to consolidate authority in OMB and further restrict agency autonomy and

discretion. On February 22, 2002, OMB issued its Information Quality Act (IQA)

Guidelines. (67 Fed. Reg. 8452). The IQA itself was three paragraphs attached to

a more than 700-page Treasury and General Government Appropriations Act for

Fiscal Year 2001, with no hearings, no Floor debate and no committee reports. Its

objective was ‘‘to ensure the quality, objectivity, utility and integrity of information

disseminated to the public.’’ OMB took up the assignment with a vigor and determination that was remarkable. OMB’s government-wide guidelines created a new

construct: now, there would be ‘‘information’’ and ‘‘influential information’’ and different (more stringent standards) would apply to the higher tiers. OMB also required the agencies to issues their own guidelines (subject to OMB approval); establish administrative mechanisms allowing people or entities to seek the correction of

20

information they believe does not comply with these guidelines; and report periodically to OMB on the number and nature of these complaints. The U.S. Chamber of

Commerce thought this ‘‘would have a revolutionary impact on the regulatory proc- ess’’—keeping the agencies from relying on data that industry thought was questionable.

Then came OMB’s Proposed Draft Peer Review Standards for Regulatory Science

(August. 29, 2003), in which OMB attempted to establish uniform government-wide

standards for peer review of scientific information used in the regulatory process.

Peer review is generally considered the gold standard for scientists. Yet leading scientific organizations were highly critical of what OMB was trying to do and how

it was doing it, and they were joined by citizen advocacy groups and former government officials. They argued that the proposed standards were unduly prescriptive,

unbalanced (in favor of industry), and introduced a new layer of OMB review of scientific or technical studies used in developing regulations. The reaction was so

strong and so adverse that OMB substantially revised its draft Bulletin to make it

appreciably less prescriptive and restrictive, and in fact OMB resubmitted it in draft

form for further comments before finalizing the revised Bulletin.

On March 2, 2004, OMB replaced a 1996 ‘‘best practices’’ memorandum with Circular A–4, setting forth instructions for the federal agencies to follow in developing

the regulatory analyses that accompany significant draft notices of proposed rulemaking and draft final rules. The Circular, almost 50-pages single spaced, includes

a detailed discussion of the dos and don’ts of virtually every aspect of the documentation that is needed to justify a regulatory proposal. While the term ‘‘guidance’’ is used, agencies that depart from the terms of the Circular do so at their peril (or

more precisely, at the peril of their regulatory proposal).

Then came the OMB Proposed Risk Assessment Bulletin (January 9, 2006), providing technical guidance for risk assessments produced by the Federal Government. There were six standards specified for all risk assessments and a seventh

standard, consisting of five parts, for risk assessments related to regulatory analysis. In addition, using the terminology from the IQA Guidance, OMB laid out special standards for ‘‘Influential Risk Assessments’’ relating to reproducibility, comparisons with other results, presentation of numerical estimates, characterizing uncertainty, characterizing results, characterizing variability, characterizing human

health effects, discussing scientific literature and addressing significant comments.

Agency comments raised a number of very specific problems and such general concerns as that OMB was inappropriately intervening into the scientific underpinnings

of regulatory proposals. OMB asked the National Academies of Scientists (NAS) to

comment on the draft Bulletin. The NAS panel (on which I served) found the Bulletin ‘‘fundamentally flawed’’ and recommended that it be withdrawn.

Then, on January 18, 2007, OMB issued its final Bulletin on ‘‘Agency Good Guidance Practices.’’ Agencies are increasingly using guidance documents to inform the

public and to provide direction to their staff regarding agency policy on the interpretation or enforcement of their regulations. While guidance documents—by definition—do not have the force and effect of law, this trend has sparked concern by commentators, including scholars and the courts. In response, the Bulletin sets forth the

policies and procedures agencies must follow for the ‘‘development, issuance, and

use’’ of such documents. It calls for internal agency review and increased public participation—all to the good. In addition, however, the Bulletin also imposes specified

‘‘standard elements’’ for significant guidance documents; provides instructions as to

the organization of agency websites containing significant guidance documents; requires agencies to develop procedures (and designate an agency official/office) so

that the public can complain about significant guidance documents and seek their

modification or rescission; and extends OIRA review to include significant guidance

documents. I do not believe it is an overstatement to say that the effect of the Bulletin is to convert significant guidance documents into legislative rules, subject to

all the requirements of Section 553 of the Administrative Procedure Act, even

though the terms of that Section explicitly exempt guidance documents from its

scope. To the extent that the Bulletin makes the issuance of guidance documents

much more burdensome and time consuming for the agencies, it will undoubtedly

result in a decrease of their use. That may well have unintended unfortunate consequences, because regulated entities often ask for and appreciate receiving clarification of their responsibilities under the law, as well as protection from haphazard

enforcement of the law, by agency staff.

This is quite a record. While each step can be justified as helping to produce better regulatory decisions, the cumulative effect is overwhelming. Requirements are

piled on requirements, which are piled on requirements that the agencies must satisfy before they can issue regulations (and now, significant guidance documents)

that Congress authorized (indeed, often instructed) them to issue. And OMB has not

21

requested, nor has the Congress in recent years appropriated, additional resources

for the agencies to carry out OMB’s ever increasing demands. As agencies must do

more with less, the result is that fewer regulations can be issued—which is exactly

what the business community has been calling on this Administration to do.

It is in this context that Executive Order 13422, further amending Executive

Order 12866, is released. Until the Bulletin on guidance documents, OIRA extended

its influence throughout the Executive Branch without any amendments to Executive Order 12866. As discussed above, OMB issued Circulars and Bulletins covering

a wide variety of subjects, virtually all of which were quite prescriptive (and often

quite burdensome) in nature. OMB Circulars and Bulletins do not have the same

status as an Executive Order, but they are treated as if they did by the federal

agencies. Why then did OMB draft and the President sign Executive Order 13422?

One indication of a possible answer is that while Executive Order 13422 in effect

codifies the Bulletin on guidance documents, it does not pick up and codify the earlier pronouncements on data quality, peer review, regulatory impact analyses, or

even risk assessment principles. It may be that it was thought necessary to amend

Executive Order 12866 for guidance documents because Executive Order 12866 was

written to apply only where the agencies undertook regulatory actions that had the

force and effect of law. But it is unlikely that the agencies would balk at submitting

significant guidance documents to OIRA if there were an OMB Bulletin instructing

them to do so, and since neither Executive Orders nor Circulars or Bulletins are

judicially reviewable, it is also unlikely that anyone could successfully challenge in

court an agency’s decision to submit a significant guidance document to OIRA.

Perhaps more revealing of the reason(s) for Executive Order 13422 is that it is

not limited to guidance documents. Consider the other amendments included in the

new Executive Order. First, Executive Order 12866 had established as the first

principle of regulation that:

Each agency shall identify the problem that it intends to address (including,

where applicable, the failure of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem’’

Executive Order 13422 amends Executive Order 12866 to state instead:

Each agency shall identify in writing the specific market failure (such as

externalities, market power, lack of information) or other specific problem that

it intends to address (including, where applicable, the failures of public institutions) that warrant new agency action, as well as assess the significance of that

problem, to enable assessment of whether any new regulation is warranted.

By giving special emphasis to market failures as the source of a problem warranting a new regulation, the Administration is saying that not all problems are

equally deserving of attention; those caused by market failures are in a favored

class and possibly the only class warranting new regulations. This could be read as

a throw back to the ‘‘market-can-cure-almost-anything’’ approach, which is the litany of opponents of regulation; in fact, history has proven them wrong—there are

many areas of our society where there are serious social or economic problems—e.g.,

civil rights—that are not caused by market failures and that can be ameliorated by

regulation.

Second, the new Executive Order amends Section 4 of Executive Order 12866,

which relates to the regulatory planning process and specifically references the Unified Regulatory Agenda prepared annually to inform the public about the various

proposals under consideration at the agencies. The original Executive Order instructed each agency to also prepare a Regulatory Plan that identifies the most important regulatory actions that the agency reasonably expects to issue in proposed

or final form in that fiscal year. Section 4, unlike the rest of the Executive Order,

applies not only to Executive Branch agencies, but also to independent regulatory

commissions, such as the Securities and Exchange Commission, the Federal Communications Commission, the Federal Trade Commission, and the Federal Reserve

Board. It is not without significance that the new Executive Order uses Section 4

to impose an additional restraint on the agencies:

Unless specifically authorized by the head of the agency, no rule-making shall

commence nor be included on the Plan without the approval of the agency’s

Regulatory Policy Office. . .

This language should be read in conjunction with an amendment to Section 6(a)(2)

that specifies that the agency’s Regulatory Policy Officer must be ‘‘one of the agency’s Presidential Appointees.’’ Executive Order 12866 had provided that the agency

head was to designate the agency’s Regulatory Policy Officer, with the only condition that the designee was to report to the agency head. The original Executive

22

Order further provided that the Regulatory Policy Officer was to ‘‘be involved at

every stage of the regulatory process. . .’’—in other words, a hands-on job. Now,

there is an explicit politicalization of the process; a ‘‘sign-off,’’ not a hands-on, assignment; and, most significantly, no accountability. The newly appointed officer is

not required to be subject to Senate confirmation, nor is the person required to report to a Senate-confirmed appointee.

The other changes to Section 4 are also troubling. As amended, the agencies must

now include with the Regulatory Plan the:

agency’s best estimate of the combined aggregate costs and benefits of all its

regulations planned for that calendar year. . .

Very few would dispute that the Regulatory Plan has been notoriously unreliable

as an indicator of what an agency is likely to accomplish in any given timeframe;

it is not unusual for regulations that are not included in the Plan to be issued

should circumstances warrant, nor is it unusual for regulations included in the Plan

with specific dates for various milestones to languish year after year without getting

any closer to final form.

In any event, the requirement to aggregate the costs and benefits of all the regulations included in the Plan for that year is very curious. We know that costs and

benefits can be estimated (at least within a range) at the notice stage because the

agency will have settled on one or more options for its proposal. But to try to estimate either costs or benefits at the notice of inquiry stage or before the agency has

made even tentative decisions is like trying to price a new house before there is

even an option on the land and before there are any architect’s plans. The numbers

may be interesting, but hardly realistic, and to aggregate such numbers would likely

do little to inform the public but could do much to inflame the opponents of regulation. This would not be the first time that large numbers that have virtually no relation to reality have driven the debate on regulation—e.g., the $1.1 trillion estimate

of the annual costs of regulations that is frequently cited by opponents of regulation,

even though every objective critique of the study that produced that number concludes that it not only overstates, but in fact grossly distorts, the truth about the

costs of regulation. The only other plausible explanation for this amendment to the

Executive Order it that it is the first step toward implementing a regulatory budget.

In my view, the concept of a regulatory budget is deeply flawed, but it should be

debated on the merits and not come in through the back door of an Executive Order

designed for other purposes.

There is also a gratuitous poke at the agencies in the amendment to Section 4(C).

The original Executive Order instructed the agencies to provide a ‘‘summary of the

legal basis’’ for each action in the Regulatory Plan, ‘‘including whether any aspect

of the action is required by statute or court order.’’ The new amendment adds to

the previous language the clause, ‘‘and specific citation to such statute, order or

other legal authority.’’ It may appear to be trivial to add this requirement, but by

the same token, why is it necessary to impose such a requirement?

As noted above, I am not aware of any consultation about either the merits of any

of the amendments or the perception that may attach to the cumulative effect of

those amendments. Therefore, I do not know whether the agencies have, for example, been proposing regulations based on problems caused by something other than

market failure which OMB does not consider an appropriate basis for a regulation;

whether senior civil servants at the agencies have been sending proposed regulations to OMB that run contrary to the wishes of the political appointees at those

agencies; or whether agencies have been misrepresenting what applicable statutes

or court orders require.

If not, then there is little, if any, need for these amendments, other than to send

a signal that the bar is being raised; that OMB is deciding the rules of the road;

and that those rules are cast so as to increase the I’s that must be dotted and the

T’s that must be crossed. In other words, the message is that agencies should not

be doing the job that Congress has delegated to them. This is not a neutral process.

If the Bush Administration does not like some or all agency proposed regulations,

they can debate them on the merits. But the Executive Order should not become

a codification of an anti-regulatory manifesto. This is not good government.

BIOGRAPHY FOR SALLY KATZEN

Since leaving government service in January 2001, she has been teaching both

graduate students (University of Pennsylvania Law School in Spring ’03; Johns

Hopkins University in Fall ’03, 04, University of Michigan Law School in Spring ’04,

Fall ’05, Spring ’06); George Mason University Law School, Spring and Fall ’06) and

undergraduates (at Smith College in Fall ’01–’04; Johns Hopkins University in

23

Spring ’02, ’06; University of Michigan in Washington Program ’05–’07). She served

almost eight years in the Clinton Administration, first as Administrator of the Office of Information and Regulatory Affairs in the Office of Management and Budget

(OMB), then Deputy Assistant to the President for Economic Policy and Deputy Director of the National Economic Council in the White House, and then as the Deputy Director for Management at OMB. Before joining the Clinton Administration,

Ms. Katzen was a partner in the Washington, DC law firm of Wilmer, Cutler &

Pickering, specializing in regulatory and legislative matters. While in private practice, Ms. Katzen was an adjunct Professor at the Georgetown Law Center and

served in various leadership roles in the American Bar Association (including Chair

of the Section on Administrative Law and Regulatory Practice and two terms as DC

Delegate to the House of Delegates of the ABA), as well as President of the Federal

Communications Bar Association and President of the Women’s Legal Defense

Fund. She graduated magna cum laude from Smith College and magna cum laude

from the University of Michigan Law School, where she was the first woman Editor

in Chief of the Law Review. Following graduation from law school, she clerked for

Judge J. Skelly Wright of the United States Court of Appeals for the District of Columbia Circuit. She also served in the Carter Administration for two years as the

General Counsel of the Council on Wage and Price Stability in the Executive Office

of the President.

Chairman MILLER. Thank you, Ms. Katzen. Mr. Vladeck.

STATEMENT OF MR. DAVID C. VLADECK, DIRECTOR, INSTITUTE FOR PUBLIC REPRESENTATION; ASSOCIATE PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW CENTER

Mr. VLADECK. Mr. Chairman, Mr. Sensenbrenner, thank you

very much for inviting me here to testify before you today. I have

submitted a detailed testimony outlining my major concerns with

the new Executive Order, so I would like to use my five minutes

to outline some of my most pressing concerns.

Let me begin with the bad news. The bad news is this: our regulatory process, and particularly, our health and science agencies,

have been stretched to the breaking point. Agency budgets have

been slashed, agency staffing levels have been cut to the bone,

agency scientists have been demoralized by the blatant

politicization of science, and not surprisingly, our agencies are fraying at the seams. It now takes OSHA a decade, a decade to issue

standards to protect workers from occupational safety and health

threats. The FDA, long the gold standard of our health and safety

agencies, has experienced substantial regulatory failure. Defective

medical devices, unsafe drugs, slip by the FDA and onto our markets.

We are now reaping what we have sown: under-resourced, underfunded, over-politicized agencies that can’t do their job of protecting

us, but these are the very agencies on which we depend to ensure

that the food we eat is pure, the drugs we take are safe and effective, that the air we breathe is clean, and that our workplaces are

not unreasonably dangerous.

Now, this is an Executive Order, and that means something. It

is not simply a trivial statement of business as usual. Presidents

use Executive Orders to mark important and dramatic steps, in

terms of the way they organize the executive branch, and Executive

Order 13422 is no different. It takes a number of steps that are

problematic, and which Congress ought to take a very careful look

at.

The first problem with the Executive Order that I see is that it

usurps Congressional authority by directing agencies to justify regulatory action on the basis of market failure. And make no misVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
24

take, an agency, particularly if it is developing a regulation or

guidance that OIRA deems significant, is going to have to do business with market failure. To be sure, there is an escape valve left

in the Executive Order, but that escape valve is operative at

OIRA’s insistence, not the agency’s, and so agencies, if they want

to get their rules approved, if they want to go ahead with guidance,

they are going to have to at least do business with OIRA on market

failure bases.

The problem with this, of course is that, as Sally has just said,

agencies have been given just an enormous number of analytic requirements that they have to navigate through in order to take

regulatory action. Now, not simply binding regulatory action, but

non-binding regulatory action. The executive branch seems to think

that there is no limit to the number of analytical requirements that

they can impose on the process. This process is already broken, and

putting another straw on the camel’s back is going to further undermine the ability of agencies to deliver the protection that Congress has decreed they deliver to us.

But the second problem—the expansion of OIRA’s authority to

guidance documents—makes no sense. Guidance documents, by

their nature, are non-binding. The courts have been very clear in

holding that a guidance document does not impose a binding requirement on a regulated industry. There is—there are arguments

to be made about whether centralized review is a good idea or not.

I disagree with my colleague Sally. I have always thought centralized review was bad, whether practiced by Republicans or Democrats, Mr. Sensenbrenner, but this is a completely unwarranted

step, and oddly, a step that is going to hurt regulated business.

Mr. Sensenbrenner, you talked about small business. Small businesses need guidance from agencies about how to comply with federal mandates. Now, if they pick up a phone and call a regulatory

officer at the FDA, for example, they are going to have to say, wait,

I’ve got to do a market failure analysis before I can give you guidance? That kind of interaction is covered by this Executive Order.

You are handcuffing the ability of our agencies to interact with the

people they regulate, and interposing OIRA between them is not

sound government policy.

The last point I want to make is this. I am very troubled by, and

I would urge Congress to take a hard look at this, the Executive

Order requiring a Presidential appointee to run the regulatory offices at the agencies. If you look and here—I hate to do this, because I have such respect for Mr. Copeland, but if you—and I disagree with him on this point—if you look at the way the agencies

structure their regulatory compliance. In many agencies, particularly at the sub-cabinet level, the regulatory officers are political,

but not Presidential appointees, but they are experts in regulation.

They know the details, the arcane aspects of our regulatory process

that now is all-enveloping.

To force the agency to find another employee, a Presidentiallyappointed person, who may or may not be subject to Senate confirmation, is bad policy, and it is a threat to Congress, because

when you give an agency authority to exercise regulatory power,

you delegate that authority not to the agency, the statute doesn’t

read: ‘‘We ask the Department of Transportation to do something.’’

25

You tell the Secretary of Transportation to do it. Why? Because

that person is accountable to you as well as the President.

I am fearful that this Executive Order seeks to end-run that kind

of accountability that Congress has always demanded.

I see my time is up. Thank you very much.

[The prepared statement of Mr. Vladeck follows:]

PREPARED STATEMENT OF DAVID C. VLADECK

Mr. Chairman and Members of the Science and Technology Committee, thank you

for inviting me to be here today to share with you my views about the January 18,

2007 revisions to Executive Order 12866, which are set forth in Executive Order

13422, 72 Fed. Reg. 2763 (January 23, 2007). I am the Director of the Institute for

Public Representation and an Associate Professor of Law at Georgetown University

Law Center. Prior to joining Georgetown’s law faculty, I spent nearly thirty years

at Public Citizen Litigation Group, serving as its director from 1992 through 2002.

I have practiced extensively in the area of administrative law, served as a Public

Member of the Administrative Conference of the United States, the Chair of the

D.C. Bar Association’s Section on Administrative Law, on the Council of the American Bar Association’s Section on Administrative Law and Agency Practice, testified

on many occasions before congressional committees on administrative law issues—

including issues concerning the constitutionality and wisdom of centralized regulatory review—and I write in the field of administrative law. I also serve as a Scholar with the Center for Progressive Reform.

My testimony today will explain why Executive Order 13422 represents an important chapter in the Executive Branch’s longstanding effort to wrest control over administrative agencies from Congress, and certainly the most important measure

taken by President Bush. To put the new Order in context, I will begin by briefly

describing the problems brought about by Executive Order 12866 and its predecessor, Executive Order 12291, and explain why centralized regulatory review has

seriously impaired the ability of federal agencies to provide needed safeguards to the

American people.

I will then turn to Executive Order 13422 and address why it marks a further

and substantial erosion of Congress’ role in the administrative process and deals a

body blow to the ability of our agencies to do their jobs. Here I make a number of

points about Executive Order 13422:

• The Executive Order Usurps Congressional Authority By Directing Agencies to Justify Regulatory Actions on the Basis of Market Failure. Under

our system of separated powers, it is Congress, not the Executive, that sets the

substantive standards that guide agencies in the performance of their delegated

tasks. Executive Order 13422 disrespects this structural limit in the Constitution.

It requires agencies, as a precondition to taking any regulatory action at all, to

justify their proposed action on the basis of ‘‘market failure.’’ And ‘‘significant’’

agency guidance may not be issued until the agency obtains clearance from the

Office or Regulatory Affairs (OIRA) of the Office of Management and Budget

(OMB). The ‘‘market failure’’ super-mandate appears nowhere in statute. It is not

in keeping with the decisional criteria that Congress has established, and it cannot be reconciled with the dominant thrust of the health and safety statutes,

which are designed to prevent deaths and injuries by avoiding market failure,

rather than waiting until it is too late and market failure is evident.

• The Executive Order Unwisely Expands OIRA’s Authority to Guidance

Documents. Whatever the wisdom of centralized OIRA review of binding agency

rules, the same arguments do not extend to centralized review of non-binding

agency guidance. Hundreds of guidance documents are issued each year, often in

response to emergencies or other time-sensitive developments. Requiring agencies

to stop dead in their tracks to justify the provision of guidance on ‘‘market failure’’

grounds cannot be defended on policy grounds; nor can giving OIRA the authority

to meddle in the substance of significant agency guidance.

• The Executive Order Resurrects the Discredited Concept of a Regulatory

Budget. Amended section 4(c)(1)(B) forbids any agency—even the so-called ‘‘independent’’ agencies—from commencing any rule-making unless the agency’s regulatory plan sets forth, among other things, ‘‘the agency’s best estimate of the combined aggregated costs and benefits of all its regulations planned for that calendar

year.’’ These estimates give OIRA the ability to effectively cap the amount of compliance costs an agency may impose in a calendar year, a power OIRA has long

26

1See generally Curtis W. Copeland, CRS Report for Congress: Changes to the OMB Regulatory

Review Process by Executive Order 13422, at 2–3 (Feb. 5, 2007) (hereinafter ‘‘CRS Report’’). 2 Exec. Order 12291, §§ 1(b), 7(g)(2); 3 C.F.R. 127 (1981), reprinted in 5 U.S.C. § 601, at 431

(1982). 3See generally Morton Rosenberg, Beyond the Limits of Executive Power: Presidential Control

of Agency Rule-making Under Executive Order 12291, 80 Mich. L. Rev. 193 (1981); David C.

Vladeck, Unreasonable Delay, Unreasonable Intervention: The Battle to Force Regulation of

Ethylene Oxide, in Peter L. Strauss, Ed., Administrative Law Stories (Foundation Press 2006). 4See, e.g., OMB Control of OSHA Rule-making, Hearings before the Subcomm. on Manpower

of the House Comm. on Gov’t. Operations, 97th Cong., 2d Sess. (1982); Infant Formula: The

Present Danger, Hearings before the Subcomm. on Oversight and Investigations of the House

Comm. on Energy and Commerce, 97th Cong., 2d Sess. (1982); EPA: Investigations of Superfund

and Agency Abuses (Part 3), Hearings before the Subcomm. on Oversight and Investigations of

the House Comm. on Energy and Commerce, 97th Cong., 1st Sess. (1981).

coveted. Nothing in the statutes Congress has enacted give OIRA the right to ration the protection to be provided to the American people through regulation.

• The Executive Order Further Politicizes the Regulatory Process. Executive Order 13422 requires each agency ‘‘to designate one of the agency’s Presidential Appointees’’ to serve as the agency’s regulatory policy officer. At the same

time, the Order greatly expands the duties of the policy officer, providing that,

‘‘[u]nless specifically authorized by the head of the agency, no rule-making shall

commence nor be included on the [agency’s annual regulatory] Plan without the

approval’’ of the policy officer. Nothing in the Order suggests that the political appointee must also be subject to Senate confirmation. This is a troubling, and no

doubt deliberate, omission. The statutes Congress enacts to delegate power to

agencies designate the agency head—and not a subordinate—as the decisionmaker. Congress does this to ensure that decisions are made by an official accountable to Congress as well as the President. The amended Executive Order undermines Congress’ designation of the agency head as the decision-maker by requiring that a political employee—accountable to the President but not necessarily to Congress—be given control over an agency’s regulatory output. That,

to me, is quite a disturbing development and one that should not be accomplished

by Executive fiat, but, if at all, by legislation.

BACKGROUND

To understand the significance of Executive Order 13422, it is useful to quickly

sketch the development of the Executive Order on regulatory review and what it requires.1 Although all Presidents since President Ford have employed some form of

centralized review of agency regulations, systematic, wholesale review of regulations

did not begin until the Reagan Administration. Just a month after his inauguration,

President Reagan issued Executive Order 12291, which required agencies to prepare

detailed Regulatory Impact Analyses specifying the costs and benefits of all proposed ‘‘major’’ rules. The Order provided that, unless otherwise forbidden by law,

an agency could not undertake rule-making unless ‘‘the potential benefits to society. . .outweigh the costs,’’ and the agency selected the regulatory option ‘‘involving

the least net cost to society.’’ 2 The Order further required agencies to submit drafts

of all proposed and final rules to OIRA before publication in the Federal Register,

and publication could not proceed without OIRA’s approval.

From the outset, Congress was troubled by the dominant and often obstructionist

role OIRA played in rule-makings. OIRA delayed and weakened rules, met in secret

with industry representatives, overrode agency determinations on complex matters

of science, and otherwise thwarted the ability of the regulatory agencies to do their

jobs.3 During 1982–83, the House held no fewer than seven hearings to examine

health and safety rules seriously delayed or weakened by OIRA.4 And when the first

challenge to the constitutionality of OIRA’s meddling in agency rule-making came

before an appellate court, the Chairmen of the five House Committees having jurisdiction over regulatory agencies filed a brief setting forth a blistering critique of

OIRA review. Here is just a brief sampling of what the five Chairmen said:

The amici Congressmen object to the systematic usurpation of legislative power

by OMB pursuant to Executive Order 12291 *

* * Executive Order 12291 is the cornerstone of a steadily growing Presidential

apparatus, the effect of which is to contravene explicit Congressional delegations of authority, to subvert meaningful public participation in and judicial review of federal regulations, and to impose substantive standards on decisionmakers foreign to the statutes they administer. Unless it is checked, the program embodied in Executive Order 12291 will fundamentally damage the administrative process by which our laws are implemented, the legislative system

27

5 Brief of John Dingell, Chair, House Energy and Commerce Committee, Peter Rodino, Chair,

House Judiciary Committee, Jack Brooks, House Government Operations Committee, Augustus

Hawkins, Chair, House Education and Labor Committee, and William D. Ford, Chair, House

Post Office and Civil Service Committee, in Public Citizen Health Research Group v. Tyson, 796

F.2d 1479 (D.C. Cir. 1986). 6See Executive Order 12866, §§ 6(b) & (c); 58 Fed. Reg. 51,735 (1993). 7 Harvard Law School Dean Elena Kagan has traced the development of the Clinton Executive

Order in Presidential Administration, 114 Harv. L. Rev. 2245 (2001). 8See generally Frank Ackerman & Lisa Heinzerling, PRICELESS: ON KNOWING THE PRICE OF

EVERYTHING AND THE VALUE OF NOTHING (New Press 2004); Lisa Heinzerling, Regulatory Costs

of Mythic Proportion, 107 Yale L. J. 1981 (1998). 9See, e.g., Public Citizen Health Research Group v. Auchter, 702 F.2d 1150 (D.C. Cir. 1983);

796 F.2d 1479 (D.C. Cir. 1986); 823 F.2d 626 (D.C. Cir. 1987) (decisions requiring OSHA to regulate ethylene oxide, a potent carcinogen and teratogen); International Chemical Workers Union

v. Pendergrass, 958 F.2d 1144 (D.C. Cir. 1992); 830 F.2d 369 (D.C. Cir. 1987) (decisions compelling OSHA to regulate cadmium, a potent lung carcinogen); Public Citizen Health Research

Group v. Chao, 314 F.3d 143 (3d Cir. 2002); 145 F.3d 120 (3d Cir. 1998) (decisions forcing OSHA

to regulate hexavalent chromium, a potent lung and liver carcinogen); UAW v. Pendergrass, 878

F.2d 389 (D.C. Cir. 1989) (decision requiring OSHA to regulate formaldehyde).

by which our laws are enacted and monitored, and the separation of powers

upon which our system of government rests.5

In 1993, shortly after taking office, President Clinton issued Executive Order

12866 to make a number of significant modifications to the Reagan Executive Order.

In my view, the most important was to inject transparency into the OIRA review

process.6 The Clinton Order cut back on the number of ‘‘significant’’ agency rules

reviewed by OIRA. It also required OIRA, as a general rule, to complete its review

of proposed and final rules within ninety calendar days. And it required all agencies, including the so-called independents, to prepare an annual regulatory plan outlining all important regulatory actions the agency intended to take during that fiscal year. The plans had to be personally approved by agency heads.7

Even with the adjustments made by President Clinton, centralized review of the

regulatory output of administrative agencies has never accomplished its objective of

making our regulatory agencies better serve the public. Indeed, the ultimate irony

is that if OIRA’s review process was subjected to cost-benefit analysis, OIRA review

would flunk. The amount of time, energy, money and, at times, political capital that

goes into satisfying OIRA that a rule is worthy of publication dwarfs any conceivable benefits that flow from the process. We have now had a twenty-five year experiment with centralized review. Judged by any legitimate measure, it is time to declare the experiment a failure and move on. There are several reasons for my conclusion.

To begin with, centralized review is a one-way ratchet. OIRA presses agencies to

do less to protect the public health, not more. Agencies do not complain that OIRA

is forcing them to do more; they complain that OIRA is forcing them to weaken required protections.

OIRA’s insistence that agencies do less, not more, stems from its singular focus on ‘‘least net cost options’’—or, in other words, minimizing regulatory compliance

costs. The Executive Order requires agencies to perform cost-benefit analysis, which

many experts claim is inherently anti-regulatory.8 My own litigation experience

bears this out. I have represented workers and labor unions in litigation to force

OSHA to protect workers from exposure to many highly toxic and carcinogenic

chemicals, including ethylene oxide, cadmium, hexavalent chromium, formaldehyde

and benzene.9 In each case, OIRA was an obstacle to the agency’s action. Part of

OIRA’s objection was its unwillingness to place any value on important health benefits of regulation—including avoided cancers, miscarriages, genetic damage that

might cause infertility or birth defects, and kidney failure that might require dialysis or transplant—because they were too difficult to quantify. While the anticipated

costs of regulation are generally easier to estimate (and overestimate), the benefits

of regulation are notoriously difficult to quantify and are often downplayed or ignored by OIRA. And when OIRA does place a value on a benefit or regulation, it

discounts those values heavily. Indeed, lives that are going to be lost twenty or thirty years down the road are devalued to the point of insignificance.

There is also the problem of competence. The next car you buy is almost certain

to have a gauge on the dashboard to warn you when the car’s tires are under-inflated. Congress required this safety feature after a spate of deadly roll-over crashes

caused, in part, by under-inflated tires. The National Highway Traffic Safety Administration (NHTSA) proposed to require automobile manufacturers to install devices that would detect under-inflated tires in virtually all cases. OIRA insisted that

NHTSA permit the installation not only of the device NHTSA’s engineers determined was best, but also a far less effective (and less expensive) device favored by

28

10OIRA’s meddling in the tire pressure rule is recounted in Public Citizen v. Mineta, 340 F.3d

39 (2d Cir. 2003). For a more recent, but equally troubling, example of OIRA’s improper meddling, see Public Citizen v. FMCSA, 374 F.3d 1209 (D.C. Cir. 2004) (setting aside on safety

grounds a rule extending the hours truck drivers may drive after OIRA intervened on behalf

of trucking companies to reverse the agency’s proposed rule reducing the hours). 11See Public Citizen Health Research Group v. Chao, 314 F.3d 143 (3d Cir. 2002); 145 F.3d

120 (3d Cir. 1998) (describing pace of hexavalent chromium rule-making). 12 I recognize that the Executive Order does not completely foreclose the possibility that OIRA

will permit an agency to proceed with rule-making even if the agency cannot show that its proposed action is warranted by market failure. Executive Order 13422, § 1(b), does allow an agency

to make the case to OIRA that a showing of market failure is not ‘‘applicable’’ to the proposed

regulatory action. But there are reasons to doubt that an agency intent on skirting the market

failure analysis will succeed with OIRA. For one thing, the change in the language of § 1(b) from

Executive Order 12866 to Executive Order 13422 is profound; the former Order required the

agency to ‘‘identify the problem that it intends to address. . .as well as the significance of that

problem.’’ The new Order deletes that language and says that ‘‘[e]ach agency shall identify in

writing the specific market failure. . .or other specific problem that it intends to address. . ..’’ That substitution plainly signals that, from now on, OIRA will expect to see an economic analysis of market failure as a precondition to regulation absent a convincing economic argument

from the agency that market failure is not at the root of the ‘‘other specific problem’’ the agency

intends to address. Moreover, the use of the word ‘‘shall’’ underscores that agencies have no

choice but to engage in this analysis, even if the agency ultimately decides not to rest its case

on market failure grounds.

the auto industry. Not surprisingly, NHTSA did what it was told. Empowering

OIRA economists to second-guess highly technical judgments made by expert agencies is not good government. Ultimately, Public Citizen succeeded in getting a court

to overturn the OIRA-dictated decision and direct NHTSA to require the installation

of the more effective devices. But the introduction of this important, life-saving device was delayed because of OIRA’s interference. This is hardly an isolated case.10

There is also enormous delay built into OIRA review which has resulted in the

ossification of the regulatory process. The regulatory process is so overlain with procedural and regulatory requirements that agencies cannot get their work done in

a reasonable time. It now takes OSHA a decade to promulgate a standard to protect

workers from exposure to toxic substances.11 While the rule-making process grinds

glacially ahead, workers are exposed to unreasonable risks to their health and wellbeing. Other agencies face comparable delays. And much of the delay can be traced

back to all of the requirements imposed by the Executive Order.

These problems are all well-known, and in fairness to the Clinton Administration,

and my friend and co-panelist Sally Katzen, some efforts were undertaken to address them. But Executive Order 13422 makes a bad situation worse. Let me now

address how Executive Order 13422 is a significant step backwards, and an affront

to the power of Congress.

PRINCIPAL DEFECTS IN EXECUTIVE ORDER 13422

As noted above, although packaged as an innocuous and minor amendment to Executive Order 12866, the new Executive Order takes a number of dramatic and important steps in the wrong direction. The principal ones are these:

1. The Amendments Impose a ‘‘Super-Mandate’’ That Supersedes Legislation and Needlessly Burdens Already Overburdened Agencies.

The amendments to the Executive Order give OIRA a powerful new tool to block

agency action. Before moving forward with any regulatory action, an agency must

determine in writing that the action the agency wants to take or guidance the agency wants to provide is warranted by ‘‘market failure.’’ There are several problems

with the imposition of this mandate.

First, it serves to undermine the criteria that Congress has established for agency

action. Under our system of separated powers, it is Congress, not the Executive,

that sets the substantive standards that guide agencies in the performance of their

delegated tasks. Executive Order 13422 is at odds with this rule. No statute requires an agency to consider ‘‘market failure’’ as a precondition to taking action. Nor

is the consideration of market failure in keeping with the decisional criteria that

Congress has established—which generally focus on health, safety, and the protection of our environment and natural resources. Indeed, the elevation of ‘‘market fail- ure’’ as a key determinant for agency action cannot be reconciled with the fundamental goal of the health and safety statutes, which is to prevent deaths and injuries by avoiding market failure, rather than waiting until it is too late and market

failure is evident.12

Second, the mandate adds a burden that will sap the resources of already overburdened agencies. To take any regulatory action at all, agencies will have to consider ‘‘market failure’’ and write a justification of the action it seeks to take on that

29

13Ms. Dudley’s writings are explored in depth in a report by Public Citizen and OMB Watch

entitled The Cost Is Too High: How Susan Dudley Threatens Public Health Protections (Sept.

2006) (available at http://www.citizen.org/publications/release.cfm?ID=7448&secID=

2565&catID=126). 14Susan E. Dudley, Regulatory Studies Program Comments: Advanced Air Bags 7 (Dec. 17,

1998) (available at http://mercatus.org.repository/docLib/MC¥RSP¥PIC1998-04¥NHTSA-AirBags¥981130.pdf). 15 70 Fed. Reg. 824–913 (Jan. 5, 2005); see also FDA Center for Drug Evaluation and Research

List of Guidance Documents (Feb. 1, 2007) (33-page document setting forth currently in force

guidance documents) (available at http://www.fda.gov/cder/guidance/CompList02¥2007.pdf).

The CRS Report cited above, supra n.1, notes that the Occupational Safety and Health Administration reported in 2000 that it had issued 3,374 guidance documents since March 1996, thus

averaging around 1,000 guidance documents a year. CRS Report at 10, n.22.

basis. And for ‘‘significant’’ agency action—including ‘‘significant’’ non-binding agency guidance documents—agencies will have to demonstrate to OIRA’s satisfaction

that the failure of market forces warrants the action the agency seeks to undertake.

Giving OIRA another tool to block agency initiatives is unwise; permitting OIRA to

meddle in the substance of agency guidance is doubly unwise.

There is a related problem as well. Where agencies propose to take regulatory action, the Executive Order already requires agencies to conduct a rigorous cost/benefit analysis as part of the Regulatory Impact Analysis it must provide to OIRA.

Now the amended Executive Order requires a market failure analysis as well. The

Executive Branch apparently takes the view that it can continue to pile on analytical requirements on overtaxed regulatory agencies without limit and without Congress’ approval. Make no mistake; each of these analytical requirements consumes

scarce resources that agencies could use to carry out the instructions given to them

by Congress. At some point—if indeed that point has not already been reached—

the requirements imposed by Executive Order will crowd out those imposed by statute.

Third, and perhaps most problematic, while there is a modest effort in the Executive Order to define ‘‘market failure’’ (e.g., ‘‘externalities, market power, lack of information’’), market failure is in the eye of the beholder. There is no commonly-accepted definition of the term, and, as a result, much will then depend on the definition OIRA’s staff gives to the term market failure.

This concern takes on special force when one considers the views of Susan E. Dudley, President Bush’s nominee to head OIRA. Ms. Dudley’s writings suggest that she

believes markets almost never fail, and that government intervention is therefore

rarely if ever appropriate.13 For instance, Ms. Dudley was virtually alone in opposing NHTSA’s recent advanced air-bag rule. She did so on the ground that, in her

view, there was no evidence of market failure, and therefore NHTSA’s ‘‘attempt[]

to make all vehicles equally safe for occupants’’ was unwarranted.14 Ms. Dudley sees

little room for government intervention in the market, even for protective health

and safety regulation. Ms. Dudley’s restrictive understanding of market failure

raises serious questions. If Ms. Dudley saw no evidence of market failure with air

bags—where the evidence of continual market failure is overwhelming—would she

have insisted on clearer evidence of market failure before she let the EPA order the

phase-out of lead in gasoline, the Consumer Product Safety Commission ban the use

of flammable material for children’s sleep-wear, or the FDA require that iron pills—

the single largest cause of poisoning children in the United States—be sold in childproof containers? We ought not wait for ‘‘market failure’’ to exact a toll on human

health and safety before we permit our agencies to act. In the health and safety context, the only way market failure becomes apparent is when the body count gets too

high. The point of regulation is to prevent market failure, not to try to remedy it

once the damage is done. The Executive Order subverts that fundamental principle.

2. The Amendments Inappropriately Expand OMB’s Authority and Entrench Gridlock.

Whatever the wisdom of centralized OIRA review of binding agency rules, the

same arguments do not extend to centralized review of non-binding guidance. Agencies provide guidance constantly, in literally hundreds of guidance documents or interpretative missives each year. Consider just one agency. The most recent listing

of the titles of guidance documents used by the Food and Drug Administration was

published in January 2005. It runs nearly ninety pages in the Federal Register.15

Agencies often use guidance documents to help industry meet regulatory obligations in time-sensitive or emergency situations. For example, OSHA’s most recent

guidance document provides employers with advice about how to address an influVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
30

16OSHA, Guidance Document for Preparing Workplaces for an Influenza Pandemic (2007)

(available at http://www.osha.gov/Publications/influenza¥pandemic.html). 17FDA, Center for Biologics Evaluation and Research, Certain Human Cells, Tissues, and Cellular and Tissue-Based Products (HCT/Ps) Recovered From Donors Who Were Tested For Communicable Diseases Using Pooled Specimens or Diagnostic Tests (Jan. 23, 2007) (available at

http://www.fda.gov/cber/gdlns/hctppool.htm). 18 EPA, Regulating Antimicrobial Pesticides (Jan. 25, 2007) (available at http://www.epa.gov/

oppad001). 19 Executive Order 13422, §§ 1(b)(1), 1(b)(7), 1(b)(10), 1(b)(11) & 1(b)(12). 20There is a definitional ambiguity embedded in the Executive Order that gives OIRA broad

authority to designate virtually any guidance document ‘‘significant,’’ triggering mandatory

OIRA review. In section 3(h)(1)(A), the Order defines the term ‘‘[s]ignificant guidance document’’

as one that ‘‘may reasonably be anticipated to. . .[l]ead to an annual effect of $100 million or

more or adversely affect in a material way the economy, a sector of the economy, productivity,

competition, jobs, the environment, public health or safety, or State, local or tribal governments

or communities.’’ Because guidance documents are by definition non-binding, it is difficult to see

how one could ‘‘lead to an annual effect of $100 million or more,’’ although the phrase ‘‘lead to’’

permits OIRA to claim that even the most indirect action by the agency could have a substantial

effect on the economy. OIRA has already suggested that it will take this view. See OMB, Final

Bulletin for Agency Good Guidance Practices, 72 Fed. Reg. 3432 (Jan. 25, 2007). But aside from

the indirect effects point, the definition is written in the disjunctive and it is easy to see how

one could argue that virtually any guidance document that addresses broad public health questions, such as OSHA’s guidance on pandemic influenza or the EPA’s guidance on antimicrobial

agents, might be said to ‘‘adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety.’’ Thus, it is difficult to tell what guidance documents might be deemed ‘‘significant.’’ It could be that hundreds

or thousands of guidance documents each year would qualify under this potentially sweeping

definition—a concern heightened because OIRA, not the agency, will have the final say on what

constitutes a ‘‘significant’’ guidance document. 21 Compare Executive Order 13422, § 9 (requiring agency consultation with OIRA on significant guidance documents but not setting any time limit for such consultation) with id. §§ 6 &

8 (setting strict time limits for OIRA/agency consultation on regulations). 22The CRS Report, supra n.1, raises another question of omission: Executive Order 13422

does not clearly extend the transparency requirements applicable to rule-makings to OIRA review of guidance documents. CRS Report at 11–12. As I read the new Order, CRS’s concerns

are well-founded. There is nothing in the Order that makes explicit that the transparency and

accountability provisions relating to OIRA clearance of rule-makings apply to OIRA review of

guidance documents, and one may reasonably conclude that omissions of this sort are not inadenza pandemic,16 one of the FDA’s most recent guidance documents advises clinical

laboratories on how to address public health problems that resulted from the failure

of certain laboratories to properly conduct tests on human donors,17 and one of the

EPA’s most recent guidance documents provides advice to manufacturers of antimicrobial agents on how to properly test and register their products with the EPA.18

Congress has long understood that, when it comes to the provision on guidance

and advice, it is unwise to erect barriers between agencies and regulated entities

and the public. Government must be accessible to those it regulates and to those

who benefit from regulation. For that reason, when Congress enacted the Administrative Procedure Act, it exempted guidance documents and interpretative pronouncements from all of the informal and formal rule-making requirements of the

Act.

Executive Order 13422 upsets Congress’ judgment on that balance. Before issuing

any guidance document, an agency must address in writing the question of ‘‘market

failure’’—an analytic requirement that will delay the issuance of sorely needed guidance. The Executive Order is also highly prescriptive about the contents of guidance

documents. Rather than permit agencies to retain flexibility and tailor guidance documents to their audiences, the Executive Order instructs agencies that every guidance document must (a) be based ‘‘on the best reasonably obtainable scientific, technical, economic, and other information;’’ (b) be compatible and not duplicative of

guidance given by other agency; (c) be ‘‘simple and easy to understand;’’ and (e) be

tailored ‘‘to impose the least burden on society, including individuals, businesses of

different sizes, and other entities. . .taking into account, among other things, the

costs of cumulative regulations.’’ 19

Not only do ‘‘significant’’ guidance documents have to survive that gauntlet,20 but

also subjecting them to full-bore OIRA review invites additional, substantial delays.

There is a conspicuous and undoubtedly deliberate omission in the new Executive

Order. Although the amended Order retains the long-standing time constraints on

OIRA to act on agency regulatory proposals, there is no similar time limit on OIRA’s

review of guidance documents.21 If OIRA takes months or longer to review a guidance document OIRA deems significant, the agency has no recourse under the Executive Order. If the past is prologue, OIRA review process will certainly delay, often

substantially, the issuance of needed significant guidance.22

31

vertent. Congress, of course, has at times been critical of OIRA’s penchant for behind-close-door

dealings in the past, and the apparent decision to shield agency-OIRA interactions over guidance documents from public view appears to be an unwarranted return to the past. 23 Executive Order 13422, § 4(c)(1)(B). 24On this issue in particular, I want to endorse the views of Columbia University Law Professor Peter L. Strauss, who is testifying on Executive Order 13422 today before the House Judiciary Committee’s Subcommittee on Commercial and Administrative Law. Professor Strauss

suggests that Congress, not an agency head or the White House, ought to select the regulatory

officer, a suggestion I endorse. The CRS Report, supra n.1, also suggests that this portion of

the Executive Order might run afoul of the Appointments Clause on the ground that with the

enhanced powers provided by the Executive Order, the policy officer must be seen as a principal

officer of the United States, requiring Senate confirmation under Buckley v. Valeo, 424 U.S. 1,

126 (1976). Although the courts have been wary about Appointments Clause claims, the CRS

Report raises serious constitutional questions that should be explored fully by Congress. 25 Executive Order 13422, § 4(c)(1) (emphasis added). 26 Robert Pear, Bush Directive Increases Sway on Regulation, N.Y. Times, A1 (Jan. 30, 2007). 27The CRS Report, supra n.1 at 7 & n.16, suggests that the problems I see in this provision

of the Order may be more theoretical than real, because many of the presidential appointees

in the major agencies are subject to Senate confirmation. I am skeptical of this assertion. For

years, the White House has used non-career SES slots to place presidential appointees in highlevel, non-confirmation positions at many agencies, such as the non-career deputy commisContinued

3. Rationing of Health and Safety Protection.

Executive Order 13422 also sets the stage for the resurrection of the discredited

concept of a ‘‘regulatory budget.’’ Under the new Order, ‘‘no rule-making may be

commenced’’ unless it appears on the agency’s Regulatory Plan and the agency sets

forth ‘‘the agency’s best estimate of the combined aggregated costs and benefits of

all its regulations planned for that calendar year.’’ 23 These estimates give OIRA the

ability effectively to cap the amount of compliance costs an agency may impose in

a calendar year—or set a ‘‘regulatory budget’’—a power OIRA has long coveted.

The goal of this amendment is quite clearly to limit industries’ exposure to regulatory costs. OIRA could wield this tool regardless of whether the compliance costs

will be absorbed by different industries, regardless of the benefits that flow from

regulation, and regardless of the mandates Congress has set for the agencies. If

Congress believes it is appropriate to experiment with regulatory budgeting, that is

one thing. It is quite another for the Executive Branch to arrogate that power to

itself.

4. Further Politicization of the Regulatory Process.

Executive Order 13422 breaks from past practice in another important respect: It

requires each agency to designate a political appointee to head its regulatory policy

office. In many agencies, the regulatory policy office has traditionally been headed

by a career civil servant who is an expert in the arcane details of regulation.24 But

in all agencies, regulatory action is reviewed and approved by the agency head, or

his designee, to ensure that there is political accountability for agency actions.

The amendments to the Executive Order, however, undermine the authority Congress has conferred on the agency head. This is a troubling development that Congress ought to care deeply about. The statutes Congress enacts to delegate

decisional power to agencies explicitly designate the agency head—and not a subordinate—as the decision-maker. Congress is careful to designate the agency head to

ensure that decisions are made by an official accountable to Congress as well as the

President. To be sure, the President retains the power of appointment and removal,

but Cabinet Secretaries and agency heads are presumed to have the power to decide

questions independently, even at the risk of removal. Disputes between the White

House and Cabinet officers and agency heads have emerged and, at times, the

White House has relented.

The amended Executive Order strips Congress’ designation of much of its force

by giving a different political appointee—accountable to the President but not necessarily to Congress—substantial control over the agency’s regulatory output. This

is not hyperbole. The Order expands the duties of the policy officer, providing that,

‘‘[u]nless specifically authorized by the head of the agency, no rule-making shall

commence nor be included on the [agency’s annual regulatory] Plan without the approval’’ of the policy officer.25 Under the new Order, the policy officer—who has ties

with and owes his allegiance to the White House—will be the gatekeeper of the

agency’s regulatory output. As The New York Times put it, ‘‘[t]he White House will

thus have a gatekeeper in each agency to analyze the costs and benefits of new rules

and to make sure the agency carries out the president’s priorities,’’ 26 which are not

necessarily Congress’ priorities.27

32

sioners at the Food and Drug Administration. The CRS Report recognizes the possibility that

these appointees will qualify under the Executive Order and concedes that if these appointees

qualify ‘‘then the agency heads would have a wider range of ’presidential appointee’ positions

from which to designate regulatory policy officers.’’ Id. Because the White House alone will decide which appointees qualify as ‘‘presidential appointees’’ under the Executive Order, I do not

believe that the narrow view of what constitutes a ‘‘presidential appointee’’ expressed in the

CRS Report will be the one chosen by the White House, which has strong incentives to ensure

that its operatives are appointed agency regulatory officers. 28See generally United States v. Florida East Coast R.R. Co., 410 U.S. 224 (1973); Chemical

Waste Management, Inc. v. EPA, 873 F.2d 1477 (D.C. Cir. 1989) (rejecting claim for formal hearing in part on efficiency grounds). 29See generally ACUS Recommendations 72–5, Procedures for the Adoption of Rules of General Applicability, 38 Fed. Reg. 19782 (1972) (arguing that proceedings under section 556 and

557 should be sharply circumscribed).

5. The Push to Formal Rule-making.

Executive Order 13422 amends section 6 of Executive Order 12866 by adding the

following: ‘‘In consultation with OIRA, each agency should also consider whether to

utilize formal rule-making procedures under 5 U.S.C. 556 and 557 for the resolution

of complex determinations.’’ To administrative law scholars, the suggestion that the

White House is pushing agencies to undertake formal rule-making under sections

556 and 557 of the Administrative Procedure Act is both stunning and stunningly

ill-advised. To begin with, it betrays a misunderstanding of administrative law to

call sections 556 and 557 ‘‘rule-making’’ provisions; they are not, they are ‘‘hearing’’

provisions. Rule-making under the APA is generally governed by section 553, which

calls for notice and comment rule-making, not rule-making based on a formal hearing. Sections 556 and 557 establish procedures for formal agency adjudicatory hearings (a) where adjudications are required under section 554 of the APA or (b) in

those rare instances in which Congress has specified that an agency must hold a

hearing as part of its rule-making process. But agencies do not voluntarily hold

hearings in rule-making proceedings. Formal hearings are notoriously cumbersome,

labor-intensive, and time-consuming and agencies have long sought to avoid them

by any means possible—a stratagem largely endorsed by the Courts.28 Moreover, in

the rare instances in which agencies engage in formal hearings under sections 556

and 557, the hearing is used to resolve matters of dispute between two parties, or

among a small number of discrete parties—such as a proceeding to confer a license

on one of two or more competing parties. Unless mandated by Congress, formal

hearings have not been used to establish regulatory policy or rules of general applicability for decades, and no one has advocated otherwise, until the issuance of Executive Order 13422.29

The inclusion of this provision in the Executive Order heightens concern about the

purpose of the Order. As I have explained, one inevitable consequence of Executive

Order 13422 is that it will lead to the further ossification of an already overburdened administrative process. As an instrument of delay, formal rule-making has

no peer; it is the American version of Dickens’ nightmarish Jardynce v. Jardynce.

Empowering OIRA to push agencies to employ formal rule-making to make complex

determinations sends a disturbing signal, namely that delay and not resolution is

the real goal.

CONCLUSION

Executive Order 13422 constitutes an unprecedented consolidation of power over

our regulatory agencies in the White House. It also constitutes an unprecedented

assault on the ability of Congress to set the substantive standards that guide agencies in the performance of their delegated tasks. The consequences of this shift are

far-reaching and tragic. Effective regulation is essential to our nation’s well-being.

For that reason, administrative agencies were created to bring expertise, independence, and transparency to the regulatory process. This Executive Order undermines

those values. It gives a small group of generalists at OIRA the power to secondguess and undermine the expert and impartial judgments of the scientists, physicians, epidemiologists, engineers, and toxicologists who staff our health and safety

agencies. It holds health and safety regulation hostage to economic considerations

of market failure and cost/benefit analysis. It puts partisan politics at the center of

our regulatory process by giving the White House substantial control over the dayto-day work of our agencies. And it undermines transparency by establishing an offthe-record process for OIRA review of significant guidance documents.

33

30 I would like to acknowledge the assistance of Sandra C. George, a third-year student at

Georgetown University Law Center, in the preparation of this testimony.

Congress has acquiesced in this accretion of power to the President. I would urge

that the time has come for Congress to consider reclaiming its authority. Thank

you.30

BIOGRAPHY FOR DAVID C. VLADECK

David C. Vladeck is the Director of the Institute for Public Representation and

Associate Professor of Law at Georgetown University Law Center. He teaches

courses in federal courts, civil procedure, and first amendment litigation, and co-directs the Institute for Public Representation, a clinical law program at the Law Center where he handles a broad array of civil rights, civil liberties, first amendment,

open government, and regulatory litigation.

Prior to joining the Georgetown faculty in 2002, Professor Vladeck spent nearly

30 years with Public Citizen Litigation Group, serving as its Director from 1992 to

2002. He has handled a wide range of complex litigation, including first amendment,

health and safety, civil rights, class actions, preemption and open government cases.

He has argued a number of First Amendment and civil rights cases before the

United States Supreme Court, and more than 60 cases before the federal courts of

appeal and state courts of last resort.

Professor Vladeck also testifies before Congress, advises Members of Congress on

legal matters, and writes on administrative law, first amendment, legal ethics, and

access to justice issues. He serves as a Scholar with the Center for Progressive Reform and on the boards of various non-profit organizations. He has also served on

the Council of the Administrative Law and Regulatory Practice Section of the American Bar Association, as a Public Member of the Administrative Conference of the

United States, and as the Chair of the Administrative Law Section of the District

of Columbia Bar. Professor Vladeck received his undergraduate degree from New

York University, his law degree from Columbia University School of Law, and an

LL.M. degree from Georgetown University Law Center.

Chairman MILLER. Thank you, Mr. Vladeck. Mr. Kovacs. I wasn’t

paying attention.

STATEMENT OF MR. WILLIAM L. KOVACS, VICE PRESIDENT,

ENVIRONMENT, TECHNOLOGY, AND REGULATORY AFFAIRS,

U.S. CHAMBER OF COMMERCE

Mr. KOVACS. Thank you, Mr. Chairman, and Ranking Member

Sensenbrenner.

It is really a privilege to be here today, and to discuss oversight

issues with federal agencies. The Chamber cares about this issue

probably more than any other issue. The regulatory mill, contrary

to what has been stated, has not stopped. There are about 110,000

regulations out there right now. There are 4,000 new regulations

a year. The cost to the American economy is about $1.1 trillion,

and to put it in perspective, there are only $857 billion in individual income taxes, and another $226 billion in corporate taxes,

so it is one significant mandate. It costs small business about 45

percent more than it costs a large business to comply with it.

So, the regulatory mill, and the regulation mill, hasn’t stopped.

Executive Order 13422, you know, there is a lot of hyperbole and

a lot of rancor about this, but this Executive Order contains nothing that hasn’t been contained in an Executive Order since the

Presidency of Richard Nixon, and through Nixon, with his quality

of life, and Jimmy Carter, with his regulatory reform, right

through Reagan and Bush and Clinton, have all issued something

like this. And it is an attempt by the Administrations to get some

management structure in the agencies, because what does it ask

them to do? It asks them to—asks to state a purpose for the rule.

34

It asks that they have a cumulative cost benefit, which some people

would say is new, but it actually came in Carter’s time, and to have

a regulatory appointment. That also came in Carter’s time.

And during this same 30 year time period, it hasn’t been as if

the agencies were just off, or the executive was off trying to manage the agencies. Congress has gone through the Regulatory Flexibility Act, where you have asked the agencies every seven years to

come back and talk about the regulations that should be eliminated, or Small Business Regulatory Fairness Act (SBREFA) with

Congressional review, or negative—or reg negs. You can go through

a whole list. This has been a bipartisan effort for 30 years, and it

is an attempt to manage.

The Good Guidance Practices, yeah, we did comment on it, and

most of the comments were very positive. But what does it ask the

public to do? It asks the public and the agencies that if you have

a significant guidance document, and some of these guidance documents are very significant, because on top of the 110,000 regulations, you have several—tens of thousands of guidance documents.

What does it ask them to do? It says if it has got significant guidance, of general applicability to the entire regulated community,

what should you do? You should put it on your website? That is

corrupting government? You should put it on your website, and

allow the public to comment? You should give them a list of documents, and put it on your website, so that the public knows what

the guidance is? Everyone feels sorry—oh, the poor small business

can’t speak to a regulatory officer. That is foolish. They—it has got

to be of general applicability, and it requires notice and comment

on the website.

The second part of it is if it is an economically significant rule, which imposes costs of $100 million or more, then they have to put

a notice in the Federal Register, and they have to accept comments

from the public. I don’t know that these are huge burdens, but

what it does do is it opens up the transparency. Think about it.

You are a small business in North Carolina, and you have got a

set of regulations that are four feet long and six feet high, going

up to the ceiling, and you have to deal with health issues, pensions,

environmental issues, OSHA issues, and everything else, and you

have got to deal with it every day, and you have ten employees.

And so, what this is doing is it is making the process more transparent, and it is putting, yes, a political figure, someone who works

for the President of the United States, who is the executive officer

of the United States, and is trying to manage a government that

he really has a very difficult time controlling. There are all these

buildings that you look at, with all these regulations coming out of

these buildings, and what is he asking the political officer to do?

He is saying: ‘‘Look, I have got a policy here, I want regulations

that have some compliance with my Executive Orders. Would you

tell me if the agency is not going to comply with my Executive

Order?’’ I don’t think that that is an unreasonable request.

And then, finally, over the years, the courts have been very clear

on Executive Orders and guidance documents. I mean, on the guidance documents, Appalachia Power, the D.C. Court of Appeals

made it very clear, if it has got the force and effect of law, it is a

regulation, whether you call it guidance or regulation. All this ExVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00040 Fmt 6633 Sfmt 6601 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
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1Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State, by

Clyde Wayne Crews, Vice President for Policy and Director of Technology Studies at the Competitive Enterprise Institute (June 28, 2006). 2 John D. Graham, Administrator of the Office of Information and Regulatory Affairs, Testimony before the Subcommittee on Energy Policy, Natural Resources, and Regulatory Affairs,

U.S. House of Representatives (Nov. 17, 2004). 3Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State, supra, pg. 6. The amount of individual income taxes collected in 2005 was $894 billion, and the amount

of corporate income taxes collected was $226 billion. 4The Impact of Regulatory Costs on Small Firms, Report RFP No. SBHQ–03–M–0522, by W.

Mark Crain, Lafayette College, for The Office of Advocacy, U.S. Small Business Administration

(Sept. 2005). 5 Budget of the United States Government, Fiscal Year 2005, Office of Management and Budget. Accessible at: http://www.whitehouse.gov/omb/budget/fy2005/. 6 Ibid, footnote 2, page 5. 7Paperwork Reduction Act: New Approaches Can Strengthen Information Collection and Reduce Burden, U.S. Government Accountability Office Report, GAO–06–477T, pg. 7, Washington,

DC (Mar. 8, 2006).

ecutive Order is trying to do is say it doesn’t matter whether it is

guidance or regulation, let us have the public have the right to

comment.

And then, finally, even on the scope of the Executive Order, the

courts have dealt with these for years, since Harry Truman and the

Steel Seizure case, if the President is legislating, then it is unconstitutional. If the President is managing government, then it is

within his prerogative, and I think that this is—I really thank you

for having this hearing, because I think that having a discussion

over the role of agencies and government is really crucial, and I

think you are doing a great service to everyone.

Thank you.

[The prepared statement of Mr. Kovacs follows:]

PREPARED STATEMENT OF WILLIAM L. KOVACS

Chairman Miller, Ranking Member Sensenbrenner, and Members of the Subcommittee, thank you for inviting me here today to testify concerning the Administration’s amendment to Executive Order 12866 (which is in the form of E.O. 13422)

and the Office of Management and Budget’s (OMB) Final Bulletin for Agency Good

Guidance Practices. I am William Kovacs, Vice President of Environment, Technology, and Regulatory Affairs at the U.S. Chamber of Commerce. The U.S. Chamber is the world’s largest business federation, representing more than three million

businesses and organizations of every size, sector, and region. More than 96 percent

of the U.S. Chamber’s members qualify as small businesses.

WHY WE CARE

As a business federation, the U.S. Chamber is all too familiar with the overwhelming regulatory burdens our members face at the hands of government regulators. Each year approximately 4,000 new regulations are issued by federal agencies, and the Federal Register exceeds 73,000 pages annually.1 Currently, there are

more than 110,000 regulations in existence,2 not including the thousands of guidance documents that implement them! Since 1995, more than 44,000 new final

rules have been issued. The annual cost to implement the Nation’s regulatory system exceeds the amounts collected from individual income taxes.3

Moreover, the cost of federal regulations to the public is estimated to be as high as $1.13 trillion4—a cost which equals almost half the amount of last year’s entire

federal budget! 5 And the impact of federal regulations is especially severe on small

businesses. For example, the annual cost of all federal regulations is, on a per employee basis, $7,647 for firms with fewer than 20 employees—nearly 45 percent

higher than the $5,282 for companies with 500 or more employees.6

In addition, the number of paperwork burden hours—hours spent by businesses

in preparing paperwork imposed by federal regulations—has skyrocketed. Last year

alone, the number of paperwork burden hours imposed on the public exceeded an

extraordinary 10.5 billion hours—the highest in history—and 2.5 billion hours

more than just two years ago.7

With the regulatory process so increasingly complex and expensive, it is easy to

understand why Presidents and Congress—both Democrat and Republican—have

36

8For example, Executive Order 12044, Improving Government Regulations, signed by President Carter in 1978, established requirements for centralized review of regulations and the

preparation of regulatory analyses, and mandated that agencies ‘‘periodically’’ review existing

regulations. Executive Order 12866, Regulatory Planning and Review, was signed by President

Clinton in 1993 and required agencies to review existing regulations to identify which could be

modified or eliminated. Section 610 of the Regulatory Flexibility Act requires federal agencies

to review regulations every 10 years to determine whether they are meeting their objectives and

if they should be rescinded. 9See Appendix A.

tried, albeit unsuccessfully, to exercise some management responsibility over the

system. And, similarly, it is hard to understand the current fervor over Executive

Order 13422 and OMB’s Final Bulletin for Agency Good Guidance Practices (GGP).

The E.O. and GGP are merely the latest efforts in a long-term, bipartisan attempt

to exercise oversight of the regulatory process. Congress certainly would not want

guidance documents masquerading as regulations, adding cost and complexity to the

regulatory process and without appropriate public review and comment as required

by the Administrative Procedure Act (APA).

In my testimony today, I want to make three key points:

1. Regulatory reform is not new—rather it has been an ongoing bipartisan effort for more than 30 years;

2. E.O. 13422 and GGP are essential tools for the executive branch to exercise

oversight over the regulatory process; and

3. E.O. 13422 and GGP are part of a larger government effort to ensure and

maximize the quality, utility, integrity, and objectivity of information disseminated by the Federal Government.

BACKGROUND

One of the fundamental cornerstones of good government is ensuring that the

public has the opportunity to participate in the policy-making process. This participation allows the public to have a voice in the making of the laws that regulate

them. Public participation protects citizens from arbitrary decisions by federal agencies by enabling citizens to effectively engage in the rule-making process.

Citizens cannot participate effectively, however, without knowing all the facts.

Why do we need this rule? How much will it cost to implement? How does it fit

in with other regulations? Without such basic information, citizens are precluded

from intelligently voicing their concerns. Rules do not operate in a vacuum. As

such, their cost and impact must be considered in conjunction with other rules.

Likewise, federal agencies exclude the public by issuing documents that are not

legally binding, yet effectively regulate people’s behavior. By calling such documents

‘‘guidance,’’ they circumvent the public participation requirements guaranteed by

the APA. By law, agency advisory opinions and guidance documents have no legally

binding effect. They are merely an agency’s interpretation of how the public can

comply with a particular rule or regulation. Unfortunately, however, the use of guidance documents to regulate the public has become a common practice. That is, even

though guidance documents do not have legally binding effect, they have practical

binding effect when the agencies use them to establish criteria that affect the rights

and obligations of private persons.

It is far easier to issue a guidance document than to undergo the rigors of rulemaking. Consider that rule-makings require internal agency review, public participation (including notice and comment under the APA), compliance with the analytical requirements of Executive Order 12866, the Regulatory Flexibility Act, and the

Unfunded Mandates Reform Act, OMB review, Congressional review, and potentially

judicial review. Because of these stringent requirements, agencies have a strong incentive to issue rules as less procedurally onerous guidance documents that—intentionally or not—cut the public and the regulated community out of the process.

The problem with regulations and guidance documents is symptomatic of a larger

problem concerning the entire regulatory system. But, over the years, efforts have

been made to address it.

I. REGULATORY REFORM HAS BEEN A BIPARTISAN EFFORT

For years, the Executive and Legislative branches of government—regardless of

party or politics—have tried hard to exercise oversight over a cumbersome, complex,

and often times inequitable regulatory system.8 Through a vast array of executive

orders and statutes, efforts to inject sanity into the regulatory process have made

slow, but noticeable, progress.9 As guidance document abuse became more and more

37

10Perhaps the most notorious example of an agency guidance document regulating behavior

is EPA’s ‘‘Interim Guidance for Investigating Title IV Administrative Complaints Challenging

Permits’’ (the so-called ‘‘Environmental Justice’’ guidance), which a GAO investigation subsequently concluded was a rule disguised as guidance. 11 H. Rep. 106–1009 (106th Cong., 2d Sess. 2000). 12 Appalachian Power Co. v. EPA, 208 F.3d 1015 (D.C. Cir. 2000) (striking down emissions

monitoring guidance as legislative rule requiring notice and comment). See also, Chamber of

Commerce v. Dept. of Labor, 174 F.3d 206 (D.C. Cir. 1999) (striking down OSHA Directive as

legislative rule requiring notice and comment); General Electric Co. v. EPA, 290 F.3d 377 (D.C.

Cir. 2002) (striking down PCB risk assessment guidance as legislative rule requiring notice and

comment). Even the American Bar Association, recognizing the problem with guidance documents, stated in its Annual Report Including Proceedings of the Fifty-Eighth Annual Meeting,

August 10–11, 1993, Vol. 118, No. 2, at 57: ‘‘Before an agency adopts a non-legislative rule that

is likely to have a significant impact on the public, the agency must provide an opportunity for

members of the public to comment on the proposed rule and to recommend alternative policies

or interpretations, provided that it is practical to do so; when non-legislative rules are adopted

without prior public participation, immediately following adoption, the agency must afford the

public an opportunity for post-adoption comment and give notice of this opportunity.’’

prevalent,10 however, Congress again intervened to try to correct the inequity. In

2000, the House Committee on Government Reform adopted a report titled ‘‘NonBinding Legal Effect of Agency Guidance Documents,’’ which highlighted agency

abuse of guidance documents and severely criticized the use of such so-called ‘‘backdoor regulation.’’ 11 Still, agencies continued to issue guidance to effectively regulate

the public. The judicial branch eventually weighed in, with courts alerting congress

to the problem, and encouraging legislation to correct it:

The phenomenon we see in this case is familiar. Congress passes a broadly

worded statute. The agency follows with regulations containing broad language,

open-ended phrases, ambiguous standards and the like. Then as years pass, the

agency issues circulars or guidance or memoranda, explaining, interpreting, defining and often expanding the commands in regulations. One guidance document may yield another and then another and so on. Several words in a regulation may spawn hundreds of pages of text as the agency offers more and more

detail regarding what its regulations demand of regulated entities. Law is

made, without notice and comment, without public participation, and without

publication in the Federal Register or the Code of Federal Regulations.12

While presidential and Congressional efforts at regulatory reform have improved

the system, much work remains to be done.

II. THE E.O. AND GGP ARE ESSENTIAL TO EXERCISING OVERSIGHT

OVER THE REGULATORY PROCESS

a. E.O. 13422

When President Bush signed Executive Order 13422, he was expanding the scope

of E.O. 12866, issued under President Clinton, to include not just rules, but also,

for the first time, guidance documents. This would serve to correct the abuse of

guidance documents by federal agencies seeking to avoid public participation in the

policy-making process. Far from being radical, E.O. 13422 merely instructs federal

agencies to:

1. State the reason for the regulation;

2. State the cost of the regulation, and an estimate of the combined costs and

benefits of all of its regulations planned for that calendar year (to assist with

the identification of agency priorities); and

3. Have a Regulatory Policy Officer ensure that these requirements have been

followed by the agency.

Perhaps the most talked about requirement in E.O. 13422 has been the appointment of a Regulatory Policy Officer (RPO) by the President. Critics have declared

that this provision is an illegal expansion of executive authority because it allows

the President to control the regulatory agenda. Yet what is it the RPO is tasked

to do? First, the RPO ensures that any guidance document is not actually a rule— one that will regulate public behavior. Second, the RPO ensures that the agency has

explained the need for a rule, and has looked at the costs and benefits of the proposed rule, and the aggregate costs and benefits of all the rules being issued by that

agency for the year. If it hasn’t, then the RPO can notify OMB. Is it really so insidious to require accountability in our rule-making process?

Nevertheless, critics continue to decry E.O. 13422 as an unwarranted (and possibly unconstitutional) expansion of executive power. Yet, without delving into a

constitutional law treatise on the subject—which is beyond the scope of this testiVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
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13 Article II, U.S. Constitution. 14 ACUS, Rec. 92–2, 1 C.F.R. 305.92–2 (1992). 15 Notice, ‘‘The Food and Drug Administration’s Development, Issuance, and Use of Guidance

Documents,’’ 62 FR 8961 (Feb. 27, 1997). 16Public Law No. 105–115. 17See Appendix A.

mony—it is certainly well settled that the President has the power to make political

appointments of officers within his own executive agencies.13 Hysterical claims of

unconstitutional ‘‘power grabs’’ only serve to distract us from the important and sizable problems with the regulatory process that E.O. 13422 is intended to address.

b. GGP

The final version of OMB’s GGP bulletin, released simultaneously with the President’s E.O. 13422, establishes policies and procedures for the development, issuance

and use of significant guidance documents in order to increase the quality and

transparency of internal agency practices. The purpose of GGP is to ensure that

guidance documents of Executive Branch departments and agencies are developed

with appropriate review and public participation, accessible and transparent to the

public, and not improperly treated as legally binding. The GGP also provides a distinction between what does and does not constitute a guidance document to provide

greater clarity to the public.

Such criteria are not new. In fact, there is a strong foundation for establishing

standards for the initiation, development, and issuance of guidance documents to

improve their quality and transparency. The former Administrative Conference of

the United States (ACUS), for example, developed recommendations for the development and use of agency guidance documents.14 In 1997, the Food and Drug Administration (FDA) created a guidance document distilling its good guidance practices.15

Congress then codified aspects of the FDA document into the Food and Drug Administration Modernization Act of 1997.16 Much of GGP is modeled on the FDA’s early efforts.

III. E.O. 13422 AND GGP ARE PART OF A LARGER GOVERNMENT EFFORT TO INCREASE TRANSPARENCY AND MAXIMIZE THE QUALITY, UTILITY, INTEGRITY, AND OBJECTIVITY OF INFORMATION

DISSEMINATED BY THE FEDERAL GOVERNMENT

E.O. 13422 and the GGP are part of a long effort by Congress and several Administrations to improve the transparency and quality of government data and provide

effective parameters to guide the regulatory activities of federal agencies.17 These

efforts finally coalesced in the passage of the Information Quality Act (IQA) in 2001,

which serves as the basis for the issuance of the GGP. Were it not for a unified commitment to quality data by this and former Administrations and Congresses—as exemplified in the passage of the IQA—the GGP would not exist today.

In order to understand the connection between GGP and IQA, it is helpful to understand what the IQA really is.

More than any law before it, the IQA served to promote integrity in the agency

decision making process, and to enhance the accuracy of the data underlying government regulatory decisions. It does this by creating a mechanism by which the

public can challenge poor data. In this way, the IQA is a tool for everyone—from

industrialists to environmentalists—providing equal opportunity to correct faulty

government data.

Data quality is a matter of great importance to all of us. For me to have confidence that my decisions are sound, I must have good information. This is just

plain common sense. Similarly, Members of Congress must be able to rely on their

staff to provide good information. Why shouldn’t we be able to expect United States

government agencies to do the same, that is, rely on good information when developing regulations and guidelines?

The IQA seeks to assure that this expectation can in fact be realized. It requires

federal agencies to ensure and maximize the quality, objectivity, utility, and integrity of disseminated information and establishes a system whereby interested parties can seek correction of erroneous, disseminated information. Ideally, the Act improves information quality, and in so doing, provides a firmer basis for regulatory

authorities to make sound policy decisions. This is why the Chamber has been one

of the strongest proponents of the IQA.

At the time of its passage, just like now with the issuance of E.O. 13422 and the

GGP, many critics insisted that the IQA would ‘‘shut down’’ the regulatory process,

result in thousands of regulatory challenges, and ultimately rollback environmental,

health and safety protections in this country. Of course, nothing of the sort occurred.

39

18 2006 Report to Congress on the Cost and Benefits of Federal Regulations and Unfunded

Mandates on State, Local, and Tribal Entities, OMB’s Office of Information and Regulatory Affairs. January 2007.

In fact, in FY 2005 only 27 IQA petitions were filed with federal agencies. And only

12 IQA appeals were handled by federal agencies that year—two new appeals, and

10 from FY 2003 and FY 2004.18

Nevertheless, even faced with these facts regarding the IQA, there are still people

that claim the law is an underhanded attempt by industry to stymie the regulatory

system. It is difficult to understand why people wouldn’t want regulations based on

the most accurate and objective available data. It is likely they are the same people

that are currently decrying E.O. 13422 and GGP, and, consequently, time will again

prove them wrong. But more importantly, it is essential that federal agencies clearly

explain to the American public why they are issuing rules, and the cost of these

rules. For after all, it is the American public that must live under these rules, and

as a society of laws, not of men, it is not unreasonable to ask that our government

clearly explain to us what they are asking us to obey, particularly when disobedience results in severe civil and criminal penalties.

CONCLUSION

The long-standing debate over regulatory reform will not end today. The U.S.

Chamber strongly believes that the regulatory reform process is critical to ensuring

that regulations and guidance documents are sound, balanced, cost-effective, and

open to the public. Congress must not abandon its oversight role in this area, and

the U.S. Chamber applauds this committee for this hearing today.

The U.S. Chamber is grateful for the opportunity to present its views about this

important topic.

BIOGRAPHY FOR WILLIAM L. KOVACS

Bill Kovacs provides the overall direction, strategy, and management of the Environment, Technology & Regulatory Affairs division of the U.S. Chamber of Commerce, the world’s largest business federation representing more than three million

businesses of every size, sector, and region.

Since assuming the position of Vice President in March 1998, Mr. Kovacs has

transformed a small division that has focused on a handful of issues and committee

meetings into one of the most significant in the institution. Presently, the Environment, Technology & Regulatory Affairs division initiates and leads complex, multidimensional, national issue campaigns for such significant issues as comprehensive

energy legislation, the permanent storage of spent nuclear fuel, telecommunications

reform, and the systematic application of sound science to the federal regulatory

process.

Throughout his tenure at the U.S. Chamber, Kovacs has focused on finding new

leadership opportunities for the institution. He pioneered the use of cybercasting for

Chamber events in 1998, recruited and assembled the first science team to work in

tandem with policy staff to ensure that federal regulations are based on sound

science, formed and chaired the Chamber’s Technology Coordinating Group, and

helped to develop numerous national coalitions in the areas of environment, energy,

regulatory affairs, and technology.

Prior to joining the U.S. Chamber, Kovacs was Director of worldwide legal affairs

for Sunshine Makers, Inc., manufacturer of the Simple Green line of non-toxic cleaning products. Additionally, Mr. Kovacs held the position of partner in several Washington, D.C. law firms where his practice focused on environmental law.

As for government service, Kovacs served as Vice Chairman and Chairman of the

Commonwealth of Virginia’s Hazardous Waste Facilities Siting Board, as Chief

Counsel and Staff Director for the U.S. House of Representatives Subcommittee on

Transportation and Commerce, and as Legislative Director and Counsel for a member of Congress.

During his tenure as Chief Counsel, Mr. Kovacs was the primary counsel on two

landmark laws that were enacted in a single session of Congress: the Resource Conservation and Recovery Act, the primary federal law that regulates solid and hazardous waste; and the Rail Revitalization and Regulatory Reform Act that re-organized the bankrupt Penn Central Railroad into Conrail, the largest corporate reorganization in the United States at the time.

Mr. Kovacs is a frequent commentator on national environmental, energy, and

regulatory issues that impact the business community. He is regularly quoted in the

Nation’s leading newspapers and appears on talk radio and television as a spokesVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00045 Fmt 6633 Sfmt 6621 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
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person for American business. He is listed in Who’s Who in the World, Who’s Who

in America, Who’s Who in American Law, and Who’s Who in Emerging Leaders.

Mr. Kovacs holds his law degree from the Ohio State University College of Law

and his Bachelor of Science degree from the University of Scranton, magna cum

laude.

41

Chairman MILLER. Thank you, Mr. Kovacs. The Chair, on behalf

of the Subcommittee, welcomes that endorsement.

Dr. Melberth.

STATEMENT OF MR. RICK MELBERTH, DIRECTOR OF

REGULATORY POLICY, OMB WATCH

Mr. MELBERTH. Thank you, Mr. Chairman.

You have heard testimony about the Executive Order amendment, so I would like to focus my comments on the tools of the regulatory process that Mr. Vladeck referred to.

A great deal of attention has been given to things like cost-benefit analysis, risk assessment, peer review and federal advisory

committees have been the focus of more recent attention. The Administration has consistently used regulatory tools like risk assessment, peer reviews, and federal advisory committees to manipulate

science for its own ends, attempted to impose a one size fits all

framework on the agencies’ use of these tools, and has shifted the

criteria for defining when regulations are necessary away from a

health and safety problem and toward a market-based criteria.

Cost-benefit analysis is often touted by the Administration and

conservative think tanks as a neutral tool in policy-making, but recent studies by legal scholars show that the CBA is inherently political. There are several shortcomings in the way CBA is used, and

these deficiencies have been exacerbated by actions during the

Bush Administration.

A second regulatory tool that OIRA tried to manipulate was the

use of risk assessments. In January 2006, John Graham issued

OMB’s proposed Risk Assessment Bulletin, which contained a set

of one size fits all guidelines to govern all risk assessments, and

included technical standards for all federal agencies to use when

conducting risk assessments, as well as other scientific documents.

The National Research Council’s review of the Bulletin called for

its withdrawal. The rebuke by the NRC is one of the strongest commentaries issued on a trend over the last six years to centralize

power over the regulatory process. The strongly worded NRC evaluation should provide a Congress interested in executive oversight

with a strong example of the dangers of this regulatory trend.

OMB again attempts a one size fits all approach that doesn’t consider different agency functions and expertise required to implement legislation in its use of peer review. OMB is a political office

working directly for the Administration, not an unbiased scientific

office, yet the agency places itself in the role of supervisor for implementing scientific peer review.

The science community has often argued that by appointing people from the regulated industries as members of federal advisory

committees, as the Bush Administration has consistently done, the

advice the committees offer to an agency might create real dangers

to public health and safety. This is one example of the growing influence of regulated industries in the rule-making process.

Like the tools discussed above, federal advisory committees specifically, and the processes in which they are used, are being manipulated to achieve results desired by political considerations, not

science, health, safety, or environmental protection.

42

OMB Watch has several concerns about the trends in the regulatory process that have occurred over the last few decades, such

as the reduced governmental role, devolving responsibility to the

states, and privatization. The Bush Administration has further reduced the role of the Federal Government’s general welfare protections by putting special interest concerns above the general public’s

concerns.

There has been a sustained attack upon scientific integrity, on

the quality of scientific information, on the scientific expertise of

agency professionals, and on the integrity of the scientific process.

The tools have been manipulated, and the Executive Order amendments just issued, coupled with the Good Guidance Practices Bulletin, have further established control over the regulatory process

in the executive branch, and OIRA especially, at the expense of

both Congressional power and agency discretion.

The real loser, however, is the public. In the end, less regulation

means less protection. Every year, more than 40,000 people die on

our nation’s highways; food-borne illnesses kill an estimated 5,000,

and sicken 76 million; nearly 6,000 workers die as a result of injury

on the job, with an additional 50,000 to 60,000 killed by occupational disease; and asthma, linked to air pollution, is rising dramatically, afflicting 17 million, including 6 million children.

I want to leave you with just one example of the danger of this

regulatory process. The Transportation Recall Enhancement Accountability and Documentation Act, TREAD, passed by Congress

in November 2000, required that ‘‘The Secretary of Transportation

shall complete a rule-making for a regulation to require a warning

system in new motor vehicles to indicate to the operator when a

tire is significantly under-inflated.’’ Yet, the tire pressure alert system regulations that were significantly—that were required by law

to be in place by the end of 2000 have not been adequately developed, although the National Highway Transportation Safety Administration determined in its rule-making that a direct tire pressure monitoring system should be installed in new vehicles.

But OMB sent a letter to NHTSA, after meeting with the auto

industry, directing—deciding that the direct system was inappropriate, claiming its cost-benefit calculations provided a basis for delaying the requirement of the direct systems. The final rule, issued

May 2002, would have allowed lawmakers, I am sorry, would have

allowed automakers to install ineffective tire pressure monitoring

systems, and would have left many drivers unaware of the dangerously under-inflated tires. NHTSA was sued because its final

rule would have allowed manufacturers to choose to install either

an effective direct system or an inferior indirect system.

In August 2003, the U.S. Court of Appeals for the Second Circuit

ordered NHTSA to rewrite the rule, because NHTSA acted in an

arbitrary and capricious manner by writing a standard that would

allow installation of a clearly faulty indirect system.

Thank you, Mr. Chairman. I see my time is up.

[The prepared statement of Mr. Melberth follows:]

PREPARED STATEMENT OF RICK MELBERTH

Mr. Chairman and Members of the Subcommittee:

43

Thank you for the opportunity to testify before you today. I am Rick Melberth,

Director of Regulatory Policy for OMB Watch. OMB Watch is a nonprofit, nonpartisan research and advocacy center promoting an open, accountable government

responsive to the public’s needs. Founded in1983 to remove the veil of secrecy from

the White House Office of Management and Budget, OMB Watch has since then expanded its focus beyond monitoring OMB itself. We currently address four issue

areas: right to know and access to government information; advocacy rights of nonprofits; effective budget and tax policies; and the use of regulatory policy to protect

the public.

My testimony focuses on 1) the amendments to E.O. 12866 and the impacts of the

amendments, 2) the manipulation of the analytical tools used in the regulatory process as part of a broader assault by this administration, and 3) a brief description

of actions Congress might take to minimize the impact of the changes just enacted.

I. Amendments to E.O. 12866: Executive Order 13422

On January 18, President Bush issued amendments to Executive Order (E.O.)

12866, which further centralize regulatory power in the Office of Information and

Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) and shift

it away from the federal agencies given this power by legislative enactments. It is

another brick in the foundation this administration has been building for a unitary

theory of the presidency, one in which the executive is superior to the other

branches in our constitutional system and one in which the White House exhibits

significant control.

We are particularly concerned with three aspects of the amendments: the identification of ‘‘market failure’’ as the first principle in promulgating regulations, the

designation of a presidential appointee as the Regulatory Policy Officer in each

agency covered by the E.O., and the requirement that significant guidance documents undergo nearly the same OIRA review process required of significant regulations. Attached to this testimony is a copy of our analysis of the amendments. I

want to focus on these three aspects here.

A. The Market Failure Criterion

Through amending the regulatory process, the President is institutionalizing an

anti-regulatory approach by using a market failure criterion in place of actually

identifying threats to public health and safety. It diminishes standards Congress

may require agencies to use, such as the best control technology, by elevating a new

market failure standard that Congress has never required.

The market failure criterion is yet another layer added to the agency analysis.

The agency must comply with statutory criteria (such as best available technology)

as well as perform an analysis demonstrating market failures. If the agency meets

OMB’s standards for assessing ‘‘whether any new regulation is warranted,’’ then the

agency must also comply with other standards in the E.O., including cost-benefit

analysis. We believe this new standard decidedly favors the regulated community

and places another hurdle for agencies to promulgate health, safety, and environmental regulations, and creates more delay.

In addition, the language of the amendments makes clear that this economic test

is front and center in the review process. Compare the language:

Not only is the market failure test a primary consideration, but the agency’s description of the problem will be used to ‘‘enable assessment of whether new regulaVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00049 Fmt 6633 Sfmt 6621 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
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1Susan E. Dudley, Regulatory Studies Program Comments: Advanced Air Bags 7 (Dec. 17,

1998), available at http://mercatus.org/repository/docLib/MC¥RSP¥PIC1998-

04¥NHTSAAirBags¥981130.pdf.

tion is warranted.’’ This clearly forces the agency to think again about whether the

best course is to do nothing and provides OIRA with another justification, or assessment, for halting or delaying regulations. The regulatory process set out in the executive order applies after Congress has passed legislation having determined that a

problem existed and needed to be addressed. Under the amendments, agencies are

directed to ask that same question again: is the problem worth addressing? Moreover, OIRA’s assessment of whether any new regulation is warranted raises the

question of whether OMB intends to supersede legislative intent when the market

failure test does not met OIRA’s satisfaction. Although Congress may have already

legislated, without the implementing regulation, the legislation may not be able to

be executed. Thus the executive branch has assumed a legislative function.

Adding the market failure criterion challenges the role of Congress. Theoretically,

employees could contract with employers for a certain level of risk in their jobs.

Nevertheless, Congress has passed workplace safety regulations (as well as consumer protections, environmental protections, and economic protections to help markets function better for businesses) where markets might have resolved problems if

given time. As Georgetown University law professor Lisa Heinzerling wrote: ‘‘Judging regulations implementing these laws based on whether the regulations respond

to ’market failure’ misunderstands the premises of many of the laws Congress enacts.’’ In short, there are multiple contexts in which Congress might justify taking

legislative action, market failure being only one.

The supporters of using the market failure criterion believe the free market will

supply the protections the American people want without government intervention.

Susan Dudley, one of these free market advocates and the nominee to head OIRA,

would have preferred to leave safety to the unsteady hand of the market,

hypothesizing that ‘‘[i]f air bags protect lives, and consumers demand them, it is

reasonable to assume that automobile manufacturers would have installed air bags

in the absence of federal requirements to do so.’’ 1 According to Dudley, federal action requiring air bags in cars was unnecessary because the market would have provided air bags to the public absent regulation.

OMB Watch believes that the market failure criterion is a furtherance of the economic criteria which OIRA has increasingly required as justification for taking regulatory action. OIRA has substituted economics for all other values the American

public has consistently said to be important to them.

B. The Regulatory Policy Officer (RPO)

The amendments require each agency to have a Regulatory Policy Office run by

a political appointee and that ‘‘no rule-making shall commence nor be included’’ for

consideration in the agency’s regulatory plan without the political appointee’s approval. This will further politicize the rule-making process and provide more White

House control over the agency rule-making process.

Section 4(c) The Regulatory Plan, is amended to place this regulatory planning

authority directly in the RPO’s hands. The language is changed from

The Plan shall be approved personally by the agency head and shall contain at

a minimum:

to

Unless specifically authorized by the head of the agency, no rule-making shall

commence nor be included on the Plan without the approval of the agency’s

Regulatory Policy Office, and shall contain at a minimum:. . .

(B) A summary of each planned significant regulatory action including, to

the extent possible, alternatives to be considered and preliminary estimates

of the anticipated costs and benefits of each rule as well as the agency’s

best estimate of the combined aggregate costs and benefits of all its

regulations planned for that calendar year to assist with the identification of priorities; [emphasis added].

The amendments add the highlighted language which requires not only significantly more analysis by the agencies because of the ‘‘best estimates’’ requirement,

but also provides a basis to allow the RPO to establish priorities.

A similar approach was attempted by President Reagan through his E.O. 12498,

the Regulatory Planning Process, which was issued January 4, 1985. Under E.O.

12498, agencies were to get approval from OMB prior to starting a rule-making—

45

a pre-rule-making review. Many in the business community thought this would be

a wonderful approach for choking off agency ideas before they ever really got going.

That approach, however, proved too cumbersome and difficult to administer. In

short order it failed.

The new Bush E.O. amendments have the same objective, but put the choke-hold

in the agencies, instead of at OMB. To ensure that the process works, the amendments grant authority to these new political appointees to be the eyes and ears for

OMB. And it again mounts a challenge to congressional authority. In writing legislation, Congress often directs agencies to initiate a rule-making. The presence in the

agencies of these appointees by whom rule-making must now be initiated creates

a process that is as if Congress had not directed the agencies to act, or as if that

direction is irrelevant if the White House appointees disagree with it.

A civil servant reacting to the new amendments provided an agency perspective

(http://fromthearchives.blogspot.com/2007/01/long-and-esoteric-twice-in-one-dayjust.html).

From the perspective of a low level bureaucrat looking up the line, there are

two big problems with this, independent of ideology.

The first is simple. I just don’t want to add a single step that adds time to management review. Honestly, you’d be shocked how long it takes for us to get anything through management review. Anything we release to the public, including

our non-controversial, small scale documents, must go through six (6) levels of

review. We schedule three to four weeks for management review. Yeah. Three

days on each desk, if we give them advance notice that our stuff will be coming.

If we were doing controversial stuff, it would be longer. If we had to route

through one additional back-logged office? If they were far away, and my boss

man couldn’t chat with them to prep them for the document, and we were just

another insignificant office on the west coast? I can’t even guess.

But the more important reason is that a distant political appointee, even assuming that she is not a partisan hack and that she is interested in the topic

and not using the office as a stepping stone, would know exactly the wrong

amount. Anyone at a distance from the process can only know enough to be

dangerous. When we go to write anything that tells people what they have to

do, there is an intricate multi-year negotiation between everyone involved.

There are drafts, and comments, and drafts, and workshops, and drafts, and internal meetings, and drafts, and formal written comment, and more drafts. Usually, in the end, you will come down to very awkwardly written compromises

that no one will sue you for.

Every word in there was hard fought. People snorted and sat back at the table

with their arms crossed. We changed it until no one threatened to call their congress person any more. We explained to them why we have to implement the

law that way, and caved when we couldn’t get more, or when we were wrong.

We brought in someone’s good idea. I know how people laugh at ridiculous regulations, but I swear they didn’t get to be ridiculous because no one was thinking. They’re ridiculous because the topics are complicated, and we have to accommodate widely divergent views, and because there were so many iterations.

Anyway, a political appointee who wasn’t there for the painful years of writing

regulations can only disrupt a very precarious balance. . .. Unless she was

there, she can only make things worse. I don’t want her in the loop.

Even worse, if the political appointee is a ‘‘partisan hack,’’ then the integrity of

the science may be compromised. The regulatory process is a complex one that involves agency experts of all types. Imagine if a political appointee were to shape the

regulatory options from the start: invariably the outcomes would be skewed.

There are two concerns with the Regulatory Policy Officer approach. First, OIRA

may be creating political outposts in each agency thereby magnifying its impact.

The amendments to the E.O. allow OIRA to play an active role during the pre-rulemaking stage when agencies are formulating annual plans for regulatory activities.

OIRA will be able to quash any contemplated regulatory or guidance issues before

agencies propose them for the Regulatory Plan. Under the amended E.O., OIRA can

now engage the agency, along with other government personnel (as provided for in

one amendment), in reaching a ‘‘common understanding’’ on regulatory efforts.

Second, the content to be collected raises questions about priorities. Collecting cumulative costs and benefits leads to little more than comparing apples and oranges.

And what value does this information provide to policy-makers? We believe this is

leading to the creation of regulatory budgets which would be used to determine the

regulatory agenda without congressional approval. Using these budgets, regulation

46

proceeds on a cost effectiveness basis only, with agencies’ budgets ranked by total

costs and benefits. It completely divorces policy-making from the need for health,

safety and environmental protections.

C. Guidance Document Review

The amendments issued to E.O. 12866 require review by OIRA of agencies’ guidance documents for the first time. These documents are issued to clarify how regulated parties are expected to implement legally binding regulations. By subsuming

guidance documents into a review process almost identical to the review process

OIRA uses to review and approve regulations, the extent of OIRA’s reach into agencies’ responsibilities will be at an all-time high.

By requiring agency guidance documents to come under OIRA review, and to treat

‘‘significant’’ guidance in the same way as ‘‘significant’’ regulations, the E.O. amendments will lead to further delay in providing information to the public about compliance with regulations, as well as with general guidance on agency policies.

If it is true that more and more agencies are using guidance as a means of avoiding the regulatory process, then that should be a signal to Congress and the public

that the rule-making process is seriously flawed. If agencies are looking for faster

ways of doing their job and have turned to guidance, the solution is certainly not

to require guidance to go through the same regulatory process that agencies were

trying to avoid in the first place.

The Final Bulletin for Agency Good Guidance Practices, issued the same day as

the E.O., defines guidance documents to include ‘‘interpretive memoranda, policy

statements, guidances (sic), manuals, circulars, memoranda, bulletins, advisories,

and the like.’’ Federal agencies issue thousands and thousands of guidance documents each year relating to hundreds of different types of activities. All of these documents deemed significant will now come under review by OIRA’s staff of 55 people.

The fourth part of the ‘‘significant guidance document’’ definition, whether the

issue raises ‘‘novel legal or policy issues arising out of legal mandates, the President’s priorities, or principles set forth in this Executive order,’’ is nearly broad

enough to permit OIRA to sweep into its review any guidance it wishes to review.

Section I.5 of the Bulletin adds a further category of guidance document, the ‘‘economically significant guidance document’’ which is:

‘‘a significant guidance document that may reasonably be anticipated to lead to

an annual effect on the economy of $100 million or more or adversely affect in

a material way the economy or a sector of the economy, except that economically significant guidance documents do not include guidance documents on federal expenditures and receipts.’’

The definitions of both significant and economically significant guidance documents include documents that ‘‘may reasonably be anticipated to lead to’’ certain

conditions. The Bulletin ‘‘makes clear that the impacts of guidance often will be

more indirect and attenuated than binding legislative rules.’’ In other words, it will

be even easier to reasonably anticipate that a guidance document will have a significant effect on the economy than will a regulation. The reasonable people doing the

anticipating no doubt work for OIRA.

Furthermore, according to the Bulletin, the ‘‘relevant economic impacts include

those that may be [emphasis added] imposed by federal agencies, State, or local governments, or foreign governments that affect the U.S. economy, as well as impacts

that could arise from private sector conduct.’’ This creates a largely speculative

analysis to be conducted by the agencies even assuming reasonably anticipated effects by a third parties. The Bulletin does not, however, require a formal regulatory

impact analysis, so it is unclear just how this determination is to be conducted.

The example cited in the Bulletin of an economically significant guidance document is an agency pronouncement that a particular product or substance is unsafe.

In this instance, ‘‘Unless the guidance document is exempted due to an emergency

or other appropriate consideration, the agency should observe the notice-and-comment procedures.’’ The determination that a substance or product is unsafe involves

some scientific assessment. This provides an example of OIRA reviewing a scientific

conclusion and having the opportunity to substitute an economic analysis for a scientific one. This substitution, or even second-guessing the scientific judgment, could

lead to substantial delays in protecting the public.

In the end, the review of guidance documents by OIRA will simply result in more

delay and more White House control over the substantive work of the agencies. It

will inevitably lead to a usurpation of agencies’ powers.

II. Manipulation of Regulatory Tools

47

2See, for example, Lisa Heinzerling, Frank Ackerman and Rachel Massey’s ‘‘Applying Cost

Benefit Analysis to Past Decisions: Was Environmental Protection Ever a Good Idea?,’’ David

Driesen’s ‘‘Is Cost-Benefit Analysis Neutral?,’’ and Richard Parker’s ‘‘Is Government Regulation

Irrational? A Reply to Morall and Hahn.’’ 3See for example, Heinzerling and Ackerman’s Priceless: On Knowing the Price of Everything

and the Value of Nothing. NY: The New Press, 2004. Chapter 2.

A great deal of attention has been given to the tools of the regulatory process,

especially cost-benefit analysis (CBA). More recently, risk assessment (RA), peer review, and federal advisory committees (FAC) have also been the focus of attention

from a regulatory standpoint. I want to address each of these briefly and to convey

to the members that these tools have been manipulated by OIRA and Administration appointees to achieve results-oriented processes and biased decisions that have

delayed, dismantled or diminished public protections.

A. Cost-benefit Analysis

CBA is a policy-making tool by which the costs of imposing a regulation are

weighed against the potential benefits of reducing the harm. For example, in the

case of pollution regulation, cost is generally construed as the cost of implementing

technology to comply with regulation. These costs are more easily quantifiable than

other factors, although some evidence exists that costs are often inflated.

The benefits of a regulation require two separate analyses: an assessment of the

risk posed by the harm in question as well as a monetization of the potential benefits. Both factors prove to be difficult to calculate; many benefits resist monetization,

and risk assessments can be hindered either through incomplete data sets or a large

degree of indeterminable factors. In order to estimate the health effects of a regulation, for example, agencies generally must rely on laboratory data on other species

or on human experience with much higher levels of exposure. To extrapolate from

this data the potential benefits of a regulation requires a large degree of guesswork,

and agencies often come up with wide ranging numbers on the potential health benefits.

CBA is often touted by the Administration and conservative think tanks as a neutral tool in policy-making, but recent studies by legal scholars show that CBA is inherently political and may even advise against what we consider our most immutable public protections.2

I would argue that there are several shortcomings in the way that CBA is used,

and these deficiencies have been exacerbated by actions during the Bush Administration:

• The overriding criterion of CBA is efficiency, but efficiency doesn’t mean fairness. The net benefit calculation that results from using CBA is without regard for who wins and who loses, and without regard for any public participation. This focus on efficiency is critical to business but doesn’t work for government because there is no single, public sector measurement comparable to

profit maximization in the private sector.

• CBA tends to overestimate costs for a variety of reasons. Agencies generally

rely on the regulated industries to provide them with costs of compliance over

a certain number of years. Studies show compliance costs drop after regulation due to the decline in the costs of technology (like pollution controls),

management efficiencies, and business innovations. These cost savings, however, are not calculated into the analysis generally; and CBA takes a snapshot of one point in time resulting in a static analysis.

• The major objection I have to relying on CBA as the determinative factor in

rule-making is that it does such poor job of calculating benefits. How do you

monetize benefits like clean drinking water, good health, being alive? There

are certain values we hold dear that cannot be adequately monetized. A decision making process that doesn’t provide for the expression of these non-quantifiable benefits is critically flawed.3

CBA has been part of the rule-making process since the Reagan Administration.

Prof. Sally Katzen spoke at a September 2006 panel on presidential rule-making

and stated that, although E.O. 12866 kept the CBA requirements of the earlier

Reagan era executive orders, during her tenure as OIRA Administrator,

we explicitly recognized that non-quantifiable costs and benefits are essential

to consider. That not everything can be counted and it is very important to take

48

4Panel 4: A PRESIDENTIAL REVIEW OF RULE-MAKING: REAGAN TO BUSH II. Part of

a symposium on ‘‘Presidential, Congressional, and Judicial Control of Rule-making,’’ conducted

at the Congressional Research Service on September 11, 2006 as part of the Administrative Law

project of the Subcommittee on Commercial and Administrative Law of the House Judiciary

Committee. 5 National Research Council. 1983. Risk Assessment in the Federal Government: Managing the

Process. Washington, DC: National Academies Press. This publication established the parameters for using RA.

into account those things which can’t be counted. We also made it clear that

this economic analysis was not dispositive, but simply informative.4

In the hands of the Bush Administration, and particularly in those of John

Graham, OIRA Administrator from 2001–2006, CBA has risen to a position of primacy in the rule-making process. In September 2003, OIRA issued final guidance

that instructed federal agencies on specific analytical methods for regulatory decisions. This guidance committed agencies to increased emphasis on cost-effectiveness

analysis as well as benefit-cost analysis and raised the bar on new health, safety

and environmental protections. Specifically, the guidance

• pushes for health and safety benefits to be expressed in terms of dollars and

cents, so agencies can calculate and demonstrate ‘‘net benefits’’ (benefits

minus costs);

• uses cost-effectiveness analysis which does not monetize benefits. Rather, it

looks at the ratio of costs to units of benefits (i.e., number of lives saved). The

Clinton guidance allowed agencies to use cost-effectiveness analysis in place

of a ‘‘net benefits’’ analysis if they have difficulty monetizing. The new guidance requires both types of analyses for all major health and safety rules.

• requires discounting of lives saved in the future. ‘‘Discounting’’—already common practice in monetizing benefits—rests on the premise that a life saved

today is worth more than a life saved tomorrow. The further in the future

a life is saved as a result of regulatory action today, the more it will be discounted from its ‘‘present value,’’ and the less likely the action will pass a

cost-benefit test.

• promotes use of ‘‘life years’’ in evaluating fatality benefits. Agencies commonly

base benefit estimates on the ‘‘value of a statistical life’’ (VSL), drawn from

the number of lives expected to be saved by regulatory action. On top of VSL

estimates, OIRA’s guidance asks agencies to consider using ‘‘value of statistical life years’’ (VSLY), which looks at the number of life years saved as opposed to the number of lives. This would skew against protections for the elderly, who have fewer life years remaining.

These CBA and cost-effectiveness requirements are offensive for the devaluation

of lives, health and safety. Elderly and minority communities frequently suffer the

consequences of a lifetime’s exposure to industrial contaminants, including heart or

lung failure from smog and soot, and cancer from toxic chemicals. Tens of thousands

die prematurely every year as a result. They are offensive also for their elevation

of economic and statistical manipulation that results in extremely high barriers to

implementing public protections under the guise of regulatory relief for special interests.

B. Risk Assessment (RA)

A second regulatory tool that OIRA tried to manipulate was the use of risk assessments. In January 2006, Graham issued OMB’s Proposed Risk Assessment Bulletin

(RAB) which contained a set of guidelines to govern all risk assessments and included technical standards for all federal agencies to use when conducting risk assessments, as well as other scientific documents. The OMB guidelines would apply

to risk assessments conducted as part of issuing or revising health, safety and environmental rules, as well as important scientific studies. OMB asked the National

Research Council (NRC) to review the document after its release. NRC suggested

the Bulletin be withdrawn completely.

The NRC defined RA as ‘‘the qualitative or quantitative characterization of the

potential health effects of particular substances on individuals or populations.’’

There are components to conducting a public health RA: hazard identification, doseresponse assessment, exposure assessment, and risk characterization.5 Even without knowing the scientific definitions of these terms, it’s clear from the definition

and its elements that a risk assessment is an evaluative process.

In its review of the RAB, the Council found that OMB’s new definition of risk assessment was ‘‘too broad and in conflict with long-established concepts and pracVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00054 Fmt 6633 Sfmt 6621 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
49

tices.’’ The Bulletin defined a risk assessment as a document instead of a process

and the goals outlined, when considered together, indicated ‘‘that a risk assessment

should be tailored to the specific need for which it is undertaken.’’ The emphasis,

according to the NRC evaluation, was on efficiency over quality and stated that the

goals outlined did not ‘‘support the primary purpose of the bulletin—to enhance the

technical quality and objectivity of risk assessments.’’ The report also recommended that OMB leave technical risk assessment guidelines and standards to each federal agency because one size does not fit all when

it comes to risk assessments. The Council stressed concerns over ‘‘the likely drain

on agency resources, the extended time necessary to complete risk assessments that

are undertaken, and the highly likely disruptive effect on many agencies.’’ As OMB has done with other regulatory tools, the risk assessment approach

called for in this release would have created unnecessary delays in the rule-making

process by adding to the already cumbersome process that OMB oversees. The ability of government agencies to protect the public would be compromised by attempts

to manipulate science and the risk assessment process. For example, the proposed

standards called for the use of central estimates or tendencies instead of statistical

ranges. Using this approach puts the most vulnerable populations, who fall outside

these ‘‘central estimates,’’ at risk in some analyses.

The rebuke by the NRC is one of the strongest commentaries issued on the trend

over the last six years to centralize power over the regulatory process within OMB

and move it away from agencies responsible for protecting health, safety and the

environment. The Administration has consistently used regulatory tools like RA to

manipulate science for its own ends, attempted to impose a one-size-fits-all framework on the agencies’ use of these tools, and has shifted the criteria for defining

when regulations are necessary away from a health or safety problem and toward

market-based criteria. The strongly-worded NRC evaluation should provide a Congress interested in executive oversight with a strong example of the dangers of this

regulatory trend.

C. Peer Review

As happened with the two tools described above, OMB developed a bulletin establishing government-wide requirements for scientific peer review. The Final Information Quality Bulletin for Peer Review was issued December 2004 after OMB took

comments from the public regarding a proposed bulletin that was issued in April

2004. OMB again attempts a one-size-fits-all approach that doesn’t consider different agency functions and expertise required to implement legislation. In the final

bulletin, OMB asserts that its authority for the peer review policies is implied in

the Information Quality Act and OMB’s general authorities. None of the laws or executive orders referenced provide any specific instructions on peer review. No new

authority is referenced by the agency and OMB did not seek any clarifying or supporting language from Congress.

In OMB Watch’s comments on the proposed bulletin, we argued that OMB had

not identified a peer review problem that justified this government-wide approach.

OMB implied that a problem had been identified and defined by citing several studies and reports. However, none of these documents actually claim that an overarching problem or failure of peer review policies has occurred at federal agencies.

Nor do the studies recommend the establishment of uniform requirements for scientific peer review. Instead, the referenced materials address the importance of peer

review, the need for changes at certain agencies, or types of reviews. Yet, without

a clear understanding of any problem in peer review standards, OMB finalized these

policies assuming they will do more good than harm.

OMB granted itself an oversight role in the peer review process. OMB has never

overseen peer review and holds very little scientific or peer review expertise—only

a handful of recently-hired scientists. This grant of authority involves OIRA personnel in the technical and scientific discussions that often lead to a pre-rule-making process. This part of the regulatory process is already dominated by OIRA’s

gatekeeper function by which it develops acceptable agency rule-making submissions even before the public process.

OMB is a political office working directly for the Administration, not an unbiased

scientific office. Yet, the agency places itself in the role of supervisor for implementing scientific peer review. OMB Watch recommended oversight authority to an

objective scientific body, such as the National Academy of Sciences or an interagency review panel.

In the final peer review bulletin, OMB solidified its new oversight role for scientific peer review. OMB has the authority to grant exemptions, approve alternative

peer review processes, and designate information for stricter review requirements.

The final proposal also adds a stipulation that all federal agencies submit an annual

50

6David Michaels, Eula Bingham, et al. ‘‘Advice Without Dissent,’’ Science, Vol. 298, 25 October 2002. p.703. (www.sciencemag.org, or http://www.defendingscience.org/public¥health¥regulations/upload/Advice-Without-Dissent.pdf).

report to OMB detailing the use of peer review for the fiscal year. OMB Watch continues to believe that the bulletin grants far too much influence over the scientific

peer review process to the politically motivated offices of OMB and the Office of

Science and Technology Policy. Such power would enable an administration to easily

influence peer reviews and in turn, the rule-makings that follow.

For the most important peer reviews, OMB created a double standard in which

agency employees, who may peer review more basic information, are essentially

barred from serving as reviewers. However, experts associated with affected industries are allowed to serve as peer reviewers with only a requirement that their affiliations be disclosed. Highly influential scientific information has much stricter peer

review requirements, and OMB explicitly states that government employees should

rarely be used as reviewers. The final proposal bans any experts from the sponsoring agency from reviewing information, but makes an exception for the ‘‘rare situation in which a scientist from a different agency of a Cabinet-level department

other than the agency that is disseminating the scientific assessment has expertise,

experience and skills that are essential but cannot be obtained elsewhere.’’ The unequal standards for private sector scientists remains, but the final bulletin instructs

agencies to ‘‘consider barring participation by scientists with a conflict of interest.’’

The peer review process outlined in the final bulletin creates delay by excessive

bureaucratic information requirements and certifications, and rounds of public comments. While we generally support providing public access, the very definition of a

peer review is to collect assessments from experts. Adding repeated public comment

periods is inappropriate for peer reviews and can only result in delaying important

research.

D. Federal Advisory Committees (FAC)

There are many instances during the Bush Administration in which candidates

for advisory panels have been passed over, or members replaced, or resigned. While

it is common for new administrations to replace members of these committees, there

is a trend towards making sure that those people who might disagree with the Administration’s opinions are not appointed. The scientific community has often argued that by appointing people from the regulated industries as members of these

committees, as the Bush Administration has done consistently, the advice the committees offer to an agency might create real dangers to public health and safety.

In the fall of 2002, a series of reports and articles began to be published charging

the Administration with manipulation of these committees to assist hazardous substances manufacturers especially.6 According to DefendingScience.org, a website of

The Project on Scientific Knowledge and Public Policy,

Groups accused the Bush Administration of manipulating activities in two federal committees advising the Centers for Disease Control and Prevention’s National Center for Environmental Health (NCEH).

• Several well-respected scientists were dropped from the Pediatric Lead

Poisoning Prevention Panel. Nominees suggested by staff scientists at

CDC were rejected and replaced by individuals who later reported that

the lead industry had contacted them initially to ask if they would be

willing to serve on the committee.

• Scientists employed by the chemical industry or industry advocacy

groups, including the Heritage Foundation and the Annapolis Institute

(established in 1993 by the National Association of Manufacturers to

challenge EPA proposed regulations) replaced 15 of 18 renowned university-based scientists on the advisory committee to the Director of NCEH.

We’ve begun to see more resignations by respected scientists as these FACs have

become more politicized. For example, last October, three of the fifteen members of

the EPA’s National Pollution Prevention and Toxics Advisory Committee (NPPTAC)

resigned because they felt major problems with the Toxic Substances Control Act

were not being addressed due to industry influence.

The impacts of this political approach to using FACs are real dangers to public

health, safety and the environment. One example was provided in the February 6,

2007 testimony before the Senate Committee on Environment and Public Works of

51

7Dr. John Balmes testimony before the U.S. Senate Environment and Public Works Committee, February 6, 2007. Available at http://epw.senate.gov/public/

index.cfm?FuseAction=Hearings.Hearing&Hearing¥ID=78a52250-802a-23ad-4274-59a54b06a447 8OMB Watch. The Reality of Data Quality Act’s First Year: A Correction of OMB’s Report to

Congress. July 2004. Available at http://www.ombwatch.org/info/dataqualityreport.pdf.

Dr. John Balmes, testifying on behalf of the American Lung Association.7 The focus

was on the changes EPA has made to the scientific review process for the National

Ambient Air Quality Standards (NAAQS). EPA’s Clean Air Scientific Advisory Committee (CASAC) participates in the review process of these standards. The review

was a multi-step process the end of which was a Staff Paper reviewed by CASAC

and open to public comment. According to Dr. Balmes testimony, ‘‘ [m]any regard

the preparation and finalization of the Staff Paper, which is done by EPA’s scientific

staff, as the most crucial step’’ because it is the final analysis of the scientific information on which standards are based. It is not a political process.

According to Dr. Balmes testimony:

It is the elimination of the Staff Paper that we fear will lead to the diminishment of science in the standard setting process. The staff paper is to be replaced

with a ‘‘Policy Assessment’’ which according to a memorandum by EPA’s Deputy

Administrator Peacock, ‘‘reflect the Agency’s views, consistent with EPA’s practice in other rule-makings.’’ However, the EPA does not set standards exclusively based on the protection of health using the latest scientific research in

any other rule-making. In sum, a unique standard demands a unique process,

not EPA’s ‘‘usual’’ practice. We believe the elimination of the Staff Paper is

being done precisely because the science underlying protection of public health

from air pollution is in conflict with what policy-makers in EPA want to do in

the implementation of the Clean Air Act. The elimination of the Staff Paper will

make it easier for policy staff to fuzz the lines in public health protection and

present the basis for alternative standards and the alternatives themselves in

a way that favors the outcomes they are seeking rather than what the science

says is needed. Substituting an Advanced Notice of Proposed Rule-making for

the Staff Paper will put policy make[r]s (sic) at EPA and the White House in

the driver’[s] (sic) seat by enabling them to review and edit before it is reviewed

by CASAC and the public.

The process has been specifically influenced by the American Petroleum Institute

which suggested the Staff Paper be replaced with an Advanced Notice of Proposed

Rule-making, which the EPA has adopted. And the lead industry recommended that

the Staff Paper be replaced by a new Policy Assessment which argues that lead

should be eliminated as a criteria pollutant.

This is one example of the growing influence of regulated industries in the rulemaking process. Like the tools discussed above, FACs specifically, and the processes

in which they are used, are being manipulated to achieve results desired by political

considerations, not science, health, safety, or environmental protection.

E. Information Quality Act

The final issue I would like to address briefly is the Information Quality Act

(IQA), or as it is often called, the Data Quality Act (DQA). This is an issue in the

discussion of manipulation of regulatory tools because the guidelines issued by OMB

regarding the use of the DQA has led to delays in the promulgation of public protections through challenges to the science agencies rely on to fulfill their mandates.

The DQA allows challenges to the information disseminated by agencies that can

dilute, dismantle and remove essential pieces of the scientific information that go

into creating a body of scientific knowledge. OMB published a report in 2004 evaluating the first year of implementation of DQA, a report that OMB Watch criticized

as ‘‘inaccurate,’’ ‘‘misleading,’’ and ‘‘flawed.’’ OMB understated the number of challenges, the source of those challenges (mostly industry), and drew conclusions about

the impact of the DQA without the data to support its conclusions. OMB Watch’s

analysis shows that the Act has had a significant impact on agency actions, yet the

law was added as a last minute rider without Congressional hearings.8

A report issued by the Congressional Research Service (CRS) calls for oversight

and investigation of the impacts of DQA, a call OMB Watch argued for in our report

as well. CRS recommends

either Congress or OMB could better define the scope of the act or the issues

to be included in any future report. Clarification could also be provided regarding whether correction requests that the agencies determine to involve issues

outside the scope of the IQA (e.g., a challenge to the minutes of a federal adviVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00057 Fmt 6633 Sfmt 6621 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
52

9 Congressional Research Service The Information Quality Act: OMB’s Guidance and Initial

Implementation. September 17, 2004. p. CRS–18. Available at http://www.defendingscience.org/

public¥health¥regulations/upload/Congressional-Research-Service-Information-Quality-Act-Report-2004.pdf 10Public Law 106–414, The Transportation Recall Enhancement, Accountability and Documentation Act, Nov. 2000. Section 13.

sory committee meeting) should be included in a report that is supposed to list

correction requests under the act.9

III. Congressional Action

OMB Watch has several concerns about the trends in the regulatory process that

have occurred over the last few decades. Societal problems have become more complex and their solutions are often less obvious and straight forward than, for example, a command and control approach. The role of the federal government has become more limited in its perspective of what is appropriate for government action.

Responsibility has increasingly devolved to the states, or been the target of privatization. We believe that the time has come to change this limited government perspective to one in which the government plays a more positive role in protecting

health, safety, environmental and civil rights safeguards. A major part of this movement to positive government must be a focus on the regulatory process.

The Bush Administration has further reduced the Federal Government’s general

welfare protections by putting special interests’ concerns above the general public’s concerns. The problems outlined in this testimony have eroded the government’s role in public protections. They have delayed, diminished or destroyed regulations

that agencies are mandated to promulgate. There has been a sustained attack on

scientific integrity—on the quality of scientific information, on the scientific expertise of agency professionals, and on the integrity of the scientific process. The tools

have been manipulated and the executive order amendments just issued, coupled

with the good guidance practices bulletin, have further established control of the

regulatory process in the executive branch, and OIRA especially, at the expense of

both congressional power and agency discretion.

The real loser, however, is the public. The regulatory process is highly partisan

and politicized. In the end, less regulation means less protection. Instead of a regulatory ‘‘cop on the beat,’’ we have none. Instead of addressing regulatory gaps, we

operate based on whether these gaps have political consequences. Unfortunately,

now government doesn’t act until there is national news about people being hurt

or, in the case mine workers, dying. If you are parents, you don’t want to gamble

that the weekend barbecue results in your child becoming ill or dying from E. coli.

The point is, there are real consequences from these actions and inactions. Our government should be doing more, not less, to protect the public. The amended E.O.

moves in the wrong direction.

Every year, more than 40,000 people die on our nation’s highways. Food borne illnesses kill an estimated 5,000 and sicken 76 million. Nearly 6,000 workers die as

a result of injury on the job, with an additional 50,000 to 60,000 killed by occupational disease. And asthma—linked to air pollution—is rising dramatically, afflicting

17 million, including six million children.

There is real danger to our constitutional system from this arrogation of power.

Equally significant, in our opinion, is the real danger presented to the American

public from the delay or refusal to regulate dangerous activities. I want to leave you

with just one example of the danger.

The Transportation Recall Enhancement, Accountability and Documentation

(TREAD) Act, passed by Congress in November 2000, required that ‘‘Not later than

one year after the date of the enactment of this Act, the Secretary of Transportation

shall complete a rule-making for a regulation to require a warning system in new

motor vehicles to indicate to the operator when a tire is significantly under inflated.

Such requirement shall become effective not later than two years after the date of

the completion of such rule-making.’’ 10

The National Highway Transportation Safety Administration (NHTSA) determined that a direct tire pressure monitoring system should be installed in all new

vehicles. OMB sent a return letter to NHTSA, after meetings with the auto industry, deciding this action was an inappropriate one, claiming its cost-benefit calculations provided a basis for delaying a requirement for direct systems. The final rule,

issued May 2002, would have allowed automakers to install ineffective Tire Pressure

Monitoring Systems (TMPS) and would have left too many drivers unaware of dangerously under-inflated tires. NHTSA was sued because its final rule would have

allowed manufacturers to choose to install either an effective (direct) system or an

inferior (indirect) system. In August 2003, the U.S. Court of Appeals for the Second

53

11For another example of the danger to the public from regulatory manipulation, see the testimony of John B. Stephenson, Director of Natural Resources and Environment, GAO, before the

Senate Committee on Environment and Public Works, February 6, 2007. Available at

www.gao.gov/cgi-bin/getrpt?GAO-07-464T. The summary findings read:

Although we have not yet completed our evaluation, our preliminary observations indicate that EPA did not adhere to its own rule-making guidelines when developing the

proposal to change TRI reporting requirements. We have identified several significant

differences between the guidelines and the process EPA followed. First, late in the process, senior EPA management directed the inclusion of a burden reduction option that

raised the Form R reporting threshold, an option that the TRI workgroup charged with

analyzing potential options, had dropped from consideration early in the process. Second, EPA reviewed this option on an expedited schedule that appears to have provided

a limited amount of time for conducting various impact analyses. Last, the decision to

expedite final agency review, when EPA’s internal and regional offices determine

whether they concur with the final proposal, appears to have limited the amount of

input they could provide to senior EPA management.

Circuit ordered NHTSA to rewrite the rule because NHTSA acted in an arbitrary

and capricious manner by writing a standard that would allow installation of a

clearly faulty (indirect) system.

In July 2004, the groups that had sued NHTSA returned to court because the

agency had not issued a revised rule. In April 2005, NHTSA finally issued a rule

requiring automakers to install tire pressure systems in all new passenger cars and

trucks by the 2008 model year, beginning a phase-in with 2006 model year vehicles.

The new rule, however, still does not meet the requirements set by Congress. Although better systems exist, the TPMS could allow tires to be 30 percent below

proper inflation before the alert is provided, costing approximately 150 lives and

countless injuries each year. In June 2005, Public Citizen, the Goodyear Tire & Rubber Company, Bridgestone Firestone North American Tire, Cooper Tire & Rubber

Co., Pirelli and the Tire Industry Association, filed suit in the U.S. Court of Appeals

for the District of Columbia, arguing that the new rule is inadequate and should

be overturned. Tire pressure alert systems regulations that were required by law

to be in place by the end of 2003 have, as the tire manufacturers legal action implies, not been adequately developed.11

So what can Congress do address this process? First, if Congress concurs that the

amendments to the Executive Order are as bad as we believe they are, it should

act. Here are three areas to explore.

• Congress should explore the legality of the Executive Order amendments and

their implementation.

• OIRA will need to provide guidance to agencies on implementing the market

failure criteria. Congress could provide much needed oversight on this guidance to ensure OIRA does not create new standards or irresponsible requirements on agencies.

• Congress has the ability to alter the implementation of these amendments

through a variety of vehicles, including the appropriations process. Congress

should take a hard look at limiting agencies’ and OIRA’s spending on the specific elements of the amendments.

Second, we believe it is time for the debate over regulatory policy and process to

turn toward the real need to increase public protections not protect special interest

access and influence. Because this regulatory process has real consequences for our

health and safety, Congress should explore legislative actions that put the regulatory presumption on safety first. Why should products and substances be approved

for use before they have been determined to be safe? Why should the economics of

regulation be the overriding, to the point of being nearly determinative, consideration to the exclusion of protecting the vulnerable populations like the elderly, the

frail, children, and minorities exposed to flawed siting processes? Government and

businesses have a responsibility to the public to uphold their parts of the social contract. Congress can lead the way by providing its critical oversight responsibilities

and considering legislative proposals that renew the Federal Government’s protection of the general welfare.

Thank you, Mr. Chairman, for providing me this opportunity to appear before you.

I’m happy to respond to Members’ questions.

54

Appendix:

Undermining Public Protections

PRELIMINARY ANALYSIS OF THE AMENDMENTS TO

EXECUTIVE ORDER 12866 ON REGULATORY PLANNING AND REVIEW

On January 18, President Bush issued amendments to Executive Order (E.O.)

12866, which further centralize regulatory power in the Office of Management and

Budget (OMB) and shift it away from the federal agencies given this power by legislative enactments. Among the changes to the E.O.:

• It shifts the criterion for promulgating regulations from the identification of

a problem like public health or environmental protection to the identification

of ‘‘. . .the specific market failure (such as externalities, market power, lack

of information). . .that warrant new agency action.’’

• It requires guidance documents to go through the same OMB review process

as proposed regulations before agencies can issue them.

• It also requires ‘‘significant’’ guidance documents (those that are estimated to

have at least a $100 million effect on the economy, among other criteria) to

go through the same OMB review process as ‘‘significant’’ regulations.

• It makes the agencies’ Regulatory Policy Officer a presidential appointment

and gives that person the approval authority for any commencement or inclusion of any rule-making in the Regulatory Plan unless specifically authorized

by the agency head.

• It requires each agency to estimate the ‘‘combined aggregate costs and benefits of all its regulations planned for that calendar year to assist with the

identification of priorities,’’ which will be overseen by the Regulatory Policy

Officer.

By-Passing Congress With New Policies

Through amending the regulatory process, the President is institutionalizing an

anti-regulatory approach by using a market failure criterion in place of actually

identifying threats to public health and safety. It diminishes standards Congress

may have required agencies to use, such as the best control technology, by elevating

a new market failure standard that Congress never required. This standard has

been advocated by Susan Dudley, Bush’s current nominee as administrator of the

Office of Information and Regulatory Affairs (OIRA). Dudley’s extreme views on the

use of free market standards were well-documented during her failed confirmation

last year. Despite the failure to confirm her, the Administration has used the Executive Order as a backdoor means to implement the Dudley philosophy.

The market failure criterion is yet another layer added to the agency analysis.

The agency must comply with the statutory criteria (such as best available technology) as well as an analysis demonstrating market failures. If the agency meets

OMB’s standards for assessing ‘‘whether any new regulation is warranted,’’ then the

agency must also comply with other standards in the E.O., including cost-benefit

analysis.

This new standard decidedly favors the regulated community and places yet another hurdle for agencies to issue regulations in pursuit of protecting the public.

More White House Control; More Delay

By requiring agency guidance documents to come under OIRA review, and to treat

‘‘significant’’ guidance in the same way as ‘‘significant’’ regulations, the E.O. amendments will lead to further delay in providing information to the public about compliance with regulations, as well as with general guidance on agency policies.

It may be true that more and more agencies are using guidance as a means of

avoiding the regulatory process. But that should be a signal to Congress and the

public that the rule-making process is seriously flawed. Agencies are looking for

faster ways of doing their job and have turned to guidance. The solution is certainly

not to require guidance to go through the same regulatory process that agencies

were trying to avoid in the first place.

In the end, this will simply result in more delay and more White House control

over the substantive work of the agencies. It will inevitably lead to a usurpation

of agencies’ powers.

55

The Foxes Controlling the Hen Houses

The Bush Administration has regularly appointed industry representatives or allies to oversee agency regulatory activities. Often this has been dubbed ‘‘foxes in the

hen house.’’ The E.O. amendments add a new dimension by having the foxes control

the hen houses.

The amendments require each agency to have a Regulatory Policy Office run by

a political appointee and that ‘‘no rule-making shall commence nor be included’’ for

consideration without the political appointee’s approval. This will further politicize

the rule-making process and provide more White House control over the agency

rule-making process.

A similar approach was attempted by President Reagan through his E.O. 12498,

the Regulatory Planning Process, which was issued January 4, 1985. Under E.O.

12498, agencies were to get approval from OMB prior to starting a rule-making—

a pre-rule-making review. Many in the business community thought this would be

a wonderful approach for choking off agency ideas before they ever really got going.

That approach, however, proved too cumbersome and difficult to administer; in

short order, it failed.

The new Bush E.O. amendments have the same objective, but put the choke-hold

in the agencies, instead of at OMB. To ensure that the process works, OMB grants

authority to these new political appointees to be the eyes and ears for OMB.

Laying the Groundwork for a Regulatory Budget

The E.O. amendments also require regulatory proposals that are to be submitted

to the Regulatory Policy Officer to include ‘‘aggregate costs and benefits’’ during the

calendar year. Most experts agree that aggregating all costs and benefits is like

comparing apples and oranges—and in the end has little value except to create large

numbers intended to scare the public.

Another possible reason to require such information is to begin laying the groundwork for establishing a regulatory budget. This concept, proposed by conservatives

since the Reagan Administration, has been criticized by Congress and never approved. Yet the amended E.O. begins to move in this direction.

Pre-Rule-making Review

The amendments to the E.O. allow OIRA to play an active role during the prerule-making stage when agencies are formulating annual plans for regulatory activities. By having OIRA involved in agencies’ planning process, OIRA can quash any

contemplated regulatory or guidance issues before they get proposed for the Regulatory Plan. Under the amended E.O., OMB can now engage the agency, along with

other government personnel (as provided for in one amendment), in reaching a

‘‘common understanding’’ on regulatory efforts.

Conclusion

The revised Executive Order that results from these amendments is a further

threat to public protections from an administration committed to elevating special

interests over public interests. It codifies regulatory delay, further removes agency

discretion over legislative implementation, and centralizes control over the regulatory process into a small executive office. It substitutes free market criteria for

the public values of health, safety, and environmental protections, and substitutes

executive authority for legislative authority.

We can only speculate as to why the President has issued these amendments at

this time in his presidency. With Congress now in control of Democrats, it is unlikely that further anti-regulatory efforts will be supported or ignored by a compliant Congress. It is a surprising action to take in light of the Dudley nomination now

pending before the Senate. It may be an admission by the Administration that the

nomination is not likely to succeed, and that the President has decided to advance

the Dudley philosophy through the back door.

Prepared on January 18, 2007

56

BIOGRAPHY FOR RICK MELBERTH

Rick joined OMB Watch in November 2006 as the Director of Federal Regulatory

Policy, the program which works to protect and improve the government’s ability

to develop and enforce safeguards for public health, safety, environment, and civil

rights. He directs all activities related to policy advocacy, analysis, research, monitoring, and public education. Rick comes to OMB Watch from Vermont Law School

where he was Director of Internal Planning and formerly the Associate Director of

the Environmental Law Center. He helped design the curriculum and taught

courses in the Master’s program.

Rick has written several pieces about decision-making in government and environmental issues during his academic career and while working as an independent consultant and policy analyst. He started his own used and rare book business which

he ran for more than a dozen years. He also worked in the solid waste management

field as the manager of a solid waste division and a program to implement a wasteto-energy facility in county government in Ohio. This led to the opportunity to coauthor a book for local governmental officials, Decision-making in Local Government: the Resource Recovery Alternative.

Rick completed his doctorate in public administration and public policy at the

University of Cincinnati in 1982. His Master of Environmental Science (M.En) and

AB in political science are from Miami University.

DISCUSSION

Chairman MILLER. I thank all of you.

There are only two Members here, so the rules do allow waiving

the five-minute limits to some extent. Mr. Sensenbrenner has graciously offered to help teach me how to be a Chairman.

Mr. SENSENBRENNER. That is called push the button when somebody starts speaking.

Chairman MILLER. I am sorry. Okay.

Mr. SENSENBRENNER. I do have questions. It won’t last five minutes.

Chairman MILLER. Actually, so did I.

Mr. SENSENBRENNER. Okay. You are the Chairman. You go first.

ROLE OF OIRA

Chairman MILLER. All right.

Mr. Kovacs, in Mr. Vladeck’s testimony, his written testimony,

he said that the role of OIRA was a one-way ratchet. It always resulted in weaker regulations. Dr. Melberth cited one example, the

gauge on tire pressure, where OIRA had—their role had resulted

in a weaker regulation that was overturned by the courts.

Can you give examples of when agencies have sent proposed

rules to OIRA in the last six years, during the Bush Administration, where the Bush Administration has sent back the rule, and

said this is not tough enough? We really need to do more to protect

public health, to protect safety, to protect the environment, to protect privacy rights, or civil rights, or whatever. Can you cite examples of when OIRA has sent regulations back to the agency from

which they came, and said make it stronger?

Mr. KOVACS. I don’t have any list of the rules that they have sent

back to the agencies, and I don’t even know that one is public. I

do know that the first year and a half, when John Graham was

head of OIRA, he did send a number of rules back, and I believe

one of them was the particulate matter rule. So the first couple of

years, about 18 months, he did it, and then, for some reason, it all

57

of a sudden stopped. They weren’t sending as many back, but it

was a standardized process during that time period.

Chairman MILLER. Ms. Katzen, are you aware of circumstances

in the last six years that OIRA has sent regulations back and

asked the agency to toughen them up?

Ms. KATZEN. No, I am not. The return letters are public, because

they are posted on the website, and I think OIRA has, under the

Bush Administration, increased the transparency by greater use of

the website for that purpose. I have read all of the return letters,

and I have not seen any requiring, requesting, entreating greater

protection or more stringent, achieving better benefits.

Chairman MILLER. Mr. Vladeck, you obviously want to answer.

Mr. VLADECK. The statistics are public, and in fact, Curtis

Copeland of the CRS has published an article in the 33 Fordham

Urban Law Journal which discusses all of the statistics which are

public since 1994, including those from 2000 to 2005. You will see

there are an awful lot of return letters. There are a lot of changes

made. One of the categories is ‘‘consistent with change,’’ those are

changes pushed by OIRA, and the numbers are quite large, and I

look at the return letters, as does Ms. Katzen, I have never seen

one returned to beef up the rule, in a way that would protect the

public health.

TRANSPARENCY PROVISIONS

Chairman MILLER. Okay. Ms. Katzen, you obviously played an

important role in the Clinton Administration in drafting the original Executive Order 12866, and you spoke a moment ago of transparency in the role of OIRA, and I understand that transparency

was part of that Executive Order. It required communication between the agencies and OIRA to be public, subject to a FOIA request. It required, as I understand it, any changes, the return letters, to be public as well, and communications between OIRA and

outside agencies, who are urging a change in the rules, whether it

is entirely proper urging of an industry to say this is unworkable,

but it made those communications public, so that the public could

decide whether any changes that OIRA made were appropriate, or

an appropriate response to legitimate concerns raised by those

most familiar with what the agencies would do, what the regulations would do, or whether it was caving to pressure.

Is that, essentially, are those the—— Ms. KATZEN. There were a number—— Chairman MILLER.—transparency provisions?

Ms. KATZEN. Yes. I mean, Mr. Kovacs talked about going back

to Richard Nixon, and I do discuss this in my written testimony,

President Reagan took a dramatic step forward, and that was highly controversial, because it was opaque, at best. It was just not

transparent.

When we drafted 12866, we were highly sensitive to that, and

wanted to make sure that we met that one head-on. In fact, it was

in part because Members of Congress had spoken out so forcefully,

calling for openness and accountability, that we responded by including the provisions that you mentioned in the Executive Order.

That is the role that I think Congress should have, which is to

make sure that the executive is aware that there is—are two

58

branches of government involved, since it is the Congress that delegates to the agencies in the first instance the authority to regulate.

The other comment, if I may, sir, the thought that we, that this

is simply a logical progression from what the Clinton Administration did cannot be substantiated. I was there for six years. I never

saw a guidance document. I never asked to see a guidance document. The concept that this is just business is usual, and you

know, President Clinton did it, he might as well do it, too, just

couldn’t be further from the truth.

Chairman MILLER. Thank you. I have more questions, but I will

save them for a later round. Mr. Sensenbrenner.

OUTSIDE COMMENT ON E.O. 12866

Mr. SENSENBRENNER. Thank you very much, Mr. Chairman.

First, let me put on the record that the Executive Order that

President Bush issued amending Executive Order 12866 was

signed on January 18, 2007, just 28 days ago. So, the process that

we are talking about and the issuance of the regulations are all

done pursuant to Clinton’s Executive Order, because I don’t think

there have been any major regulations that have been issued as a

result of the amendment.

The amendment of the President’s most recent Executive Order

talks about process. It doesn’t talk about the bottom line of the regulation, and I guess I would kind of like to find out why three of

the four witnesses did not send any—in any comments relative to

the amendment when it was under consideration.

Ms. KATZEN. If I may, Executive Orders are not typically put out

for notice and comment. The comments that were filed were filed

on the Good Guidance document, rather than on the amendment

to the Executive Order.

Mr. SENSENBRENNER. I stand corrected on that, but where the

comments were solicited and received, Mr. Kovacs had some input

on it, but none of the other three of you did, and why is that?

Ms. KATZEN. He represents an entity that is an interested participant. I am an academician, and I write scholarly articles, unless

I am asked to testify in Congress, I——

Mr. SENSENBRENNER. Well, I think you are really interested in

that, given what I have heard you say.

Ms. KATZEN. I am very interested, yes, sir.

Mr. SENSENBRENNER. Okay. But you didn’t comment. Now, Mr.

Vladeck.

Mr. VLADECK. The two organizations with which I am affiliated

did comment, Public Citizen and OMB Watch. I am on the Board

of Directors of OMB Watch, and I still have a relationship with

Public Citizen. They both did comment.

I did not personally comment on the guidance——

Mr. SENSENBRENNER. Dr. Melberth.

Mr. MELBERTH. Mr. Sensenbrenner, we did submit comments on

the proposed GGPB bulletin, under Citizens for Sensible Safeguards. It is signed by members of the coalition that we lead, and

my predecessor as Director of Regulatory Policy was one of those

signees.

59

COST-BENEFIT ANALYSES

Mr. SENSENBRENNER. Yeah. Now, you know, with respect to market failure, using market forces the Regulatory Reform Act that

was signed by President Clinton, and was a part of the Contract

With America, and passed by Congress in 1995, did require costbenefit analyses to be applied during the regulatory process.

Do you think that was a good idea? I will start with you, Dr.

Melberth.

Mr. MELBERTH. Yes, sir. I think cost-benefit analysis is an appropriate tool to be used, not——

Mr. SENSENBRENNER. Mr. Vladeck.

Mr. MELBERTH.—as a——

Mr. VLADECK. I don’t believe centralized review is a good idea to

begin with, and requiring all agencies to do cost-benefit analysis,

even for significant rules, in my view is a bad idea.

Mr. SENSENBRENNER. Okay. Ms. Katzen.

Ms. KATZEN. I am a proponent of cost-benefit analysis as an

input to decision-making, not as dispositive of the outcome.

Mr. SENSENBRENNER. Now, do you think that the cost-benefit

analyses should be just as transparent as some of the other things

that you have testified on, so that the public and perhaps the Congress can see if there is a proposed regulation that it has about this

much benefit at that much cost?

Ms. KATZEN. Yes, and in fact, during the Clinton Administration,

there were many occasions when the cost-benefit analysis was larger, more paper, more analysis, than actually the rule-making, to

provide the kind of information that people should have.

It is also very important to emphasize that agencies are not free

agents. They are able to regulate only because Congress has delegated them the power to do so.

Mr. SENSENBRENNER. But the agencies are——

Ms. KATZEN. And we have——

Mr. SENSENBRENNER.—headed by someone who is appointed by

the President of the United States.

Ms. KATZEN. Absolutely. All I am saying is that we had several

instances, while I was the Administrator of OIRA, where, on the

basis of a cost-benefit analysis, we saw that the costs were larger

than the benefits, but that the Congress had given us no discretion,

and that we had to proceed. In at least one instance, we made that

finding loud and clear, and sent a letter to the Congress saying

please amend the law, so we don’t have to do that. And Congress

did.

Mr. SENSENBRENNER. It does work.

Ms. KATZEN. Yes, how it should work.

Mr. SENSENBRENNER. Yes. I yield back the balance of my time.

Chairman MILLER. Thank you, Mr. Sensenbrenner. Mr. Baird.

Mr. BAIRD. I thank the Chairman.

First of all, Dr. Melberth, you were going to continue your

thought. I would like to ask you if you would like to do that. Earlier, you were asked a question by Mr. Sensenbrenner, and gave a

partial answer, and were in the middle of continuing. You care to

elaborate?

Mr. MELBERTH. Thank you, Mr. Baird.

60

I do think cost-benefit analysis is a good thing to have as part

of the decision-making process. I have several problems with costbenefit analysis, but however it is used, it should only be one aspect of that decision-making process. It should not be dispositive.

It should not be the driving mechanism, in my opinion, in that decision-making process, which does not, if you use cost-benefit analysis as dispositive, include any of the non-quantifiable aspects that

are so often underestimated in cost-benefit analysis.

Thank you, sir.

MARKET FAILURE PROVISIONS

Mr. BAIRD. I appreciate your expansion on that point.

I am a little puzzled by one of the core issues here, and it has

to do, this market—as a market process. Apparently, the issue is

that we don’t need regulations if the market would already regulate itself, and I am just puzzled, I am completely puzzled about

how one operationalizes that. I don’t know that the marketplace in

general, as currently structured, incentivizes many industries to

engage in responsible behavior, except fiduciary responsibility to

their stockholders. I am not saying that is a bad thing, but I don’t

think the market intrinsically is designed to protect workers, public

health, environmental issues, so if any of you care to enlighten me

about what the heck this means, and if it is the metric by which

OMB or other executive branch offices are going to evaluate regulations, I would sure like to operationalize that metric.

Ms. KATZEN. You want me to try this one?

The concept is that regulations will be necessary where there is

a failure of the marketplace, and the terms that are often thrown

around are ‘‘externalities,’’ ‘‘lack of information,’’ ‘‘market power.’’ If

you are an agency, and you can demonstrate that there are one of

these externalities, market power, lack of information, then you are

kind of home free. The point I think some of us were making is

that there are often good reasons for regulations that do not involve market failures, where the market can be functioning absolutely the way a market should, and I am thinking of areas such

as civil rights or privacy, where market failure is irrelevant to the

underlying issue, and there is a need for something to be done.

The way the original Executive Order was drafted, it was an instruction to the agency to identify the problem that you were trying

to address, parenthetically, was it attributable to a market failure

or something else, close parentheses, and how you plan to fix it.

Now, it does tell us about the market failure, and maybe it is a

failure of a public institution, and then, go on and worry about the

rest of it.

It is a different emphasis on a different syllable. It comes out different, and that is what I am reacting to, I think.

Mr. VLADECK. Well, let me jump in.

The best way to understand the pitfalls of this is just look at the

regulation of airbags. Detroit waged what the Supreme Court

called the regulatory equivalent of war to forestall regulatory and

Congressional action requiring the installation of airbags. So, if you

talk about market failure, where exactly is the market failure? People were still buying cars. And even once GM, which was the first

company to introduce airbags, started to introduce them, they have

61

sold them as an add-on, not as part of the car. They were very expensive. And even today, when you have certain kinds of airbags,

some of the side curtain airbags, that are, you know, that are not

required by federal law, the marketing of them is done in, you

know, for the American companies, they are add-ons, they are very

expensive add-ons. Now, is the market working?

The introduction of airbags in the United States was delayed for

about 15 years because of the battle that the industry fought to

keep airbags off the market, and provided that no one was offering

them, they weren’t suffering any economic consequence. Now, if

you look at the new Executive Order, it substitutes the question

that was from the Reagan Executive Order, carried forward to the

Clinton Executive Order, which is tell us, tell OIRA, why it is you

want to regulate. That is all you have got to do.

Now, let me just read you what the new Executive Order substitutes in its place. It says: ‘‘Each agency shall identify, in writing,

the specific market failure that warrants the new rule.’’ The word ‘‘shall’’ is a word of command. It is not if you feel like it. And so,

what this change to the Executive Order does, is it places the lens

of the agency and OIRA on market failure. Yes, there is an escape

clause. You will hear a lot about that. But it is a substitute for

market failure analysis, and OIRA, not the agency, ultimately calls

the shots.

Mr. KOVACS. Let me see if I could take a crack at it, because we

have talked about market failure quite a few times, and one of the

advantages of not being a law professor is the only thing I know

is what I read, and what the statement says is: ‘‘Each agency shall

identify, in writing,’’ as the Professor suggests, ‘‘the specific market

failure,’’ but then, it says ‘‘such as externalities, market power, lack

of information, or another specific problem that it intends to address,’’ again, brackets, ‘‘including, where applicable, the failure of

public institutions, that warrant new agency action, as well as the

ability to assess the significance of the problem.’’ So, it is not just market failure. It is a variety of failures that

might occur. I think it goes back to the simple concept that was

raised 35 years ago, which is tell us what the problem is, and tell

us how you are trying to address it. I don’t think we can impute

that this is only just market failure, when they give all of that

other explanatory language.

Mr. BAIRD. My question is that that sounds nice, but if someone

actually wishes to use the language as a smokescreen to push a different agenda, that is where the rub is. And if we’re all well-intentioned, sincere, honest, earnest people, with a similar shared valueset and agenda-set, I don’t know that there would be a problem.

My concern is does the rewrite, and I think some of the other

witnesses seem to be hinting at it, saying pretty directly, the problem is that this new language puts the onus and the decision-making in a different area than it used to be, and that that opens the

door for potential shenanigans and actions contrary to the public

interest. That is my read of it.

Mr. KOVACS. I guess, you know, there are theoretical ways to

look at the regulatory process, and we went over, you know, what

it looks like from a small business point of view, but you know, if

it were up to the Chamber, you know, we don’t just want peer reVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00067 Fmt 6633 Sfmt 6601 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
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view, we want open peer review, so that we can have all the brilliant minds comment. We want complete transparency, because we

think that that is the easiest way to deal with the agencies. Unfortunately, we are in a political situation that the agencies have always opposed that much transparency.

So, I think what you have here is a very practical situation. You

have one President of the United States who is responsible for the

executive branch of government, and he has to have some management authority. This President has decided, through the Executive

Order, and through these guidance documents, that this is the kind

of transparency he has.

We participate in that process. Are we happy with it all the

time? No. But I don’t think you can, as some of the panelists suggest, that there is some manipulation here, or something sinister.

The regulatory process is extremely complicated. There are a lot of

laws, and a lot of people trying to work this process. All we have

ever asked when we go through on these kind of situations is that

we have some mechanism, if the problem isn’t addressed and assessed, that we can get back into the process. And I think——

MORE ON TRANSPARENCY PROVISIONS

Mr. BAIRD. Mr. Kovacs, I appreciate very much the insight.

If I could ask just one last question. When Vice President Cheney

was drafting the energy policy, he invited a number of folks, I

think, from oil and gas, to the White House. Many of us were curious as to who those folks were. From what you have just said, the

Chamber of Commerce is very interested in transparency. Was it

the Chamber’s official position back then, and is it now, that the

Vice President of the United States should share information about

who consulted with him on energy policy?

Mr. KOVACS. Our—well, I don’t know about any particular issue,

but our policy has always been transparency, and I think there are

logs out there, as to who signs it—certainly, when I go over to any

meeting over at the White House, I sign in, give my Social Security

number, date of birth, and everything else, so that information

should be there.

If it were up to me personally, this isn’t the Chamber, I mean,

I would have all schedules of all public officials open to—— Mr. BAIRD. Well, for the record, then, I would just request that

you would report back to this committee on—last year, I had a conversation with your leadership of the organization, and if that is

the case, if there is a consistency of value here, that we want open

public information, please send us a letter, which we will convey

to the Vice President, asking him, on behalf of the Chamber of

Commerce, to share the names of the people who helped draft his

energy policy.

Mr. KOVACS. I wasn’t addressing it to any particular policy. What

I said, just from my words, is we think that government in general

should be open.

Mr. BAIRD. And I agree with that entirely. I agree with that entirely. What I am saying is it may be a fairly selective belief. If

that is your belief, I don’t know how many things are more important in this country than our energy policy, and if that is your belief, share that belief with us, and apply it equitably across, not

63

just to this particular proposed regulation, but equitably across the

activities of the executive branch, and we will convey that the

Chamber of Commerce formally believes the Vice President of the

United States, consistent with this policy of openness advocated by

the Chamber of Commerce, shares with the American public the

names of the people who developed this energy policy.

Mr. KOVACS. Just so we are on the same page—I am very willing

to go back and make that request, just so we are sure it is going

to be a general statement. How you use it is completely up to you.

Mr. BAIRD. I will look forward to the statement.

Mr. KOVACS. Well, we would hope that you would extend that to

all of the other agencies, and how all of the other rules, like PM

and ozone and—— Mr. BAIRD. Right.

Mr. KOVACS.—everything else are made.

MORE ON MARKET FAILURE PROVISIONS

Chairman MILLER. Mr. Kovacs, Mr. Baird, I am struggling to

continue to chair this subcommittee meeting without the tutelage

of Mr. Sensenbrenner, but we will have time for a second round of

questions, although I understand the Judiciary Committee has

claimed this room beginning at 2:00.

I did have a couple of questions, before turning to Mr. Rohrabacher, kind of on the doctrine of hot pursuit, about the market

failure issue.

Mr. Sensenbrenner said that in 1995, Congress passed and the

President signed regulatory reform legislation that did place into

law cost-benefit analysis. Mr. Vladeck, you are shaking your head

no to that, but does market failure appear in statute? Is that a criterion for the approval of regulations, or for a regulatory agency to

act or not to act, that Congress has ever placed into federal law?

Ms. Katzen?

Ms. KATZEN. Not that I am aware of. I think what Mr. Sensenbrenner was referring to was the Unfunded Mandates Act, which

refers to an analysis of the costs and the benefits, and there is no

mention, no mention of market failure in that, or in SBREFA, the

Small Business Regulatory Flexibility Act, which was also passed

at that time, nor in the Congressional Review Act, which was another product of that Congress.

So, it is not legislative language, sir.

Chairman MILLER. Okay.

Mr. VLADECK. That is consistent with my understanding, as well.

And the Unfunded Mandates Act is a limited statute. It doesn’t require cost-benefit analysis across the board.

Chairman MILLER. Mr. Kovacs, do you——

Mr. KOVACS. Again, I am not reading it as just market—as that

being the only criteria. I mean, I just don’t think the language gets

you there.

Chairman MILLER. Okay. Mr. Vladeck, in his written testimony,

said that the woman appointed or nominated to be chair or to head

the OIRA, Susan Dudley, who I have never met, and I have not

read her writings, but—strongly believes that the market seldom

fails, that there is almost always a market mechanism that corrects any societal ill.

64

If we now place into the regulatory framework a criterion, not established by Congress, that is going to be administered by someone

who believes, apparently, or according to Mr. Vladeck, almost as

dogma that the market seldom, if ever fails, Mr. Kovacs, is that the

distribution of authority between the branches of government you

think the Framers of the Constitution intended?

Mr. KOVACS. Well, first of all, being—or having worked on the

Hill for years, I am a very fervent believer, personally, in the prerogatives of the Congress as a separate branch of government, and

the agencies have a Constitutional obligation to implement the

laws as you pass them.

And granted, within that, there is some discretion, based on a lot

of different factors, whether it be budget or personnel, or how it is,

but I am not, you know, I am not here saying market failure is the

only criteria. There are other criteria here which I would hope that

the agency would recognize.

I am taking a position as I read it that the agency has to identify, because of all of these different conditions, what the specific

reason is that they are going to move forward with a regulation,

not that it can only be market failure, because obviously, there are

reasons you would implement a regulation other than market failure, civil rights, for example.

Chairman MILLER. Okay. Mr. Vladeck, do you wish to address

that?

Mr. VLADECK. Yes. Let me just use as an example the upgraded

airbag rule, which Ms. Dudley was virtually alone in opposing. As

you know, when Congress required the introduction of airbags, it

did not set performance standards, and as a consequence, the first

generation of airbags were very inexpensive, and not as effective as

they should have been.

Congress told NHTSA to go out, and to improve the quality of

airbags that are available to the American people. Ms. Dudley’s

comments opposing the revisions to the airbag standard took the

position, quite strongly, that market failure had not been shown by

NHTSA, the agency, and therefore, the agency shouldn’t proceed.

The reason why I think this is germane is that phrases like

‘‘market failure’’ can mean different things to different people, and

if the Administrator of OIRA can block a significant rule, or return

a significant rule, because she believes that the agency has not

made a case for market failure, it gives OIRA a tool to block important developments to protect the public safety and health.

Chairman MILLER. I do want to preserve time for another round

of questions, and that was not one of my rounds, by the way.

Mr. Rohrabacher.

REGULATION AND THE PUBLIC INTEREST

Mr. ROHRABACHER. Thank you very much, Mr. Chairman.

Let us get—this obviously goes to the way we look at things fundamentally, and not—there is a fundamental philosophical issue,

and whether—how that philosophy relates to reality, and how it

impacts on people’s lives, and let me note that people who believe

in the market are not just philosophizers, we believe in the end,

it means that people’s lives will be better off.

65

Some fundamental questions, then, apply here. We must note

fundamentally, that at times, it is difficult to determine exactly

what the public interest is. This is not where there is an omnipotent group of people who are commanded by God, who understand

exactly what the public interest is, whether or not resources should

go, for examples, into airbags, or whether or not resources should

go someplace else. And I think it is somewhat of a—to the degree

that we are talking about public assets, the air, the water, the soil,

then we need to sit down and determine for the public how those

publicly held assets will be, you know, will be used, and regulation

and certainly government intervention in those areas, is justified.

But in terms of how much the public is willing to pay for their safety or something else that they might want, they might want a

higher proportion of this, as compared to what the regulators think

is best for them. And that is one issue that I would like to throw

on the table.

Another thing, let me note that my observation over the years

has been that every time that we have people who move forward

in a regulatory process, in the name of protecting the general public, quite often, they are influenced by special interest groups, and

the more, the further away from the consumer, and the further—

where they have choice in the matter, or by elected officials, who

are by their very nature, dependent on the voters or the consumers, to approve of the job they have done, once you go to a regulatory approach, it becomes less responsive to the public need, and

more responsive to people who can work their way into the regulatory process, meaning people who can hire the lobbyists down

here who know the system, and especially, the system that happens in a regulatory process.

So, I just thought I would throw those ideas out. Let me just ask

you, maybe if we could have it from both sides of the spectrum

here, on your analysis of what I just said, or your reaction.

Mr. MELBERTH. First of all, the use of willingness to pay as a

measure of public interest, to determine the relative costs.

Mr. ROHRABACHER. Yeah. A car, you know, may—people may

well be willing to spend more money for an airbag in a car, but

they may not. It may deter people from buying new cars. It may

leave the poor people on the outs, because they don’t have any airbags in their cars, and et cetera. So—would—by the way, let us get

into that. Would you mandate that all cars be retrofitted with airbags? Isn’t that—wouldn’t that be something, if you have the public

interest—and why don’t you do that? You don’t do it because there

is a cost factor. If there is a cost factor with older cars, why is that

cost factor not important with newer cars? So, just a thought. Go

right ahead. Be—I am sorry I interrupted you.

Mr. MELBERTH. Well, what I understand by the willingness to

pay is the use of that in some kind of cost, economic assessment.

And the problem with using that kind of willingness to pay is it

puts people in a hypothetical situation of trying to judge the risks

that they face.

Mr. ROHRABACHER. Right.

Mr. MELBERTH. That seems to be highly unrealistic, and if you

put people in a situation in which they are actually faced with a

66

danger, a drowning child, are they going to jump and save the

child? Of course they are.

Mr. ROHRABACHER. Right.

Mr. MELBERTH. There are those kinds of situations, and yet, you

know, the willingness to pay doesn’t go anywhere—— Mr. ROHRABACHER. Well, let us go—let us argue a hypothetical— specifically. I have triplets. My wife had triplets. Everybody knows

that. And I am a very proud father, and I want those kids safe,

and I tell you, I am willing to pay the extra money for the gas to

have a big, heavy car, because when my wife goes to the market,

I want to make sure if that car is hit, that they are safe. I am willing to pay that extra. But mandating that cars get much more

miles to the gallon, and are much lighter, because they have to

make it lighter, shouldn’t I, as a consumer, be able to do that, rather than have a regulator make that decision for me?

Ms. KATZEN. If I could come at this from a slightly different way.

Mr. ROHRABACHER. Sure.

Ms. KATZEN. I don’t have difficulty with the concepts that you

are putting on the table. What I think is important is that when

Congress legislates, and then when the agency regulates, it take

into account all of the different views. That is why the process of

rule-making, under the Administrative Procedure Act, Section 553,

and in reality, is a very open process. It is a process that features

public participation, be it by special interests or by individuals,

who can contribute their views, their philosophies, their approaches, their data, their analyses, to the issue.

That is what rule-making is all about, which is why it takes

months, sometimes years, to issue rules. The point I was trying to

make earlier is that what I find troubling, deeply troubling, is if

the process is skewed to come out one way or the other. If the process is neutral, let us hear your thoughts, let us hear your information, we will take into account all of these factors, and we will

reach a judgment and be accountable for that judgment, then, I

think it is appropriate. But if you have got, as I used the analogy

earlier, a thumb or a fist on the scale, and you say we are going

to come out one way or the other——

Mr. ROHRABACHER. Yeah.

Ms. KATZEN.—then you have squashed or squelched, or

whatever—— Mr. ROHRABACHER. Well—totally legitimate. Obviously, you have

made a legitimate point there, obviously.

Mr. VLADECK. Let me try to respond as well, because I think I

do disagree with your fundamental premise.

I think it would be, at this point in time, irresponsible for government to permit the sale of motor vehicles, cars, to transport

somebody else’s triplets without airbags. I think that would be irresponsible, and frankly, you started by saying——

Mr. ROHRABACHER. Would you retrofit it?

Mr. VLADECK. I would—— Mr. ROHRABACHER. Would you demand that all cars be retrofitted?

Mr. VLADECK. I wouldn’t, and nor did Congress when it decreed

that cars have airbags, make that choice. Because ultimately, your

question was, you know, who decides what is the public interest?

67

You guys do. That is why we pay you the big bucks. And Congress

decided that there should be airbags.

Now, the more difficult questions are what kinds of airbags, and

how much safety to impose, and those are delicate questions of balancing. There are tradeoffs there. If you want a safer car, all cars

are not created equal. If you want to buy the safest car on the market for your triplets, there are better cars and there are less safe

cars. And NHTSA has not gotten a mandate from Congress to require the maximum degree of safety no matter what. Those are the

difficult tradeoffs that you enlist expert agencies to help you, and

what I am concerned about is that the executive branch is

handcuffing those agencies in their ability to do the public business.

And let us talk about transparency. One of the odd things about

the new Executive Order is the transparency and time limits are

not required for guidance documents. OIRA can sit on a guidance

document for five years, consistent with this Executive Order. It

can engage in all sorts of non-recorded contacts with respect to

guidance documents under this Executive Order. This Executive

Order goes back to the early days, where OIRA was allowed to conduct a big part of its business in secret, and for someone who cares

about openness, transparency, the way the markets ought to work,

that is inimical to the way government ought to function.

MORE ON TRANSPARENCY PROVISIONS

Chairman MILLER. Thank you. Thank you, Mr. Rohrabacher. If

you would hang around for a minute, you may get another round

of questions.

But I want to pursue the discussion that we were just having

about transparency, and that I had begun in my earlier round of

questions.

Mr. Kovacs, you spoke a great deal about transparency, openness

of government, and seemed to take the pro position with respect to

that, the position in favor of that. All the—all that Ms. Katzen described about the earlier Executive Order by President Clinton, the

transparency, the public availability of documents by—OIRA documents or communications with the agency, their communications

with outside parties who are advocating for some change in the

regulations, any changes in the regulations, you support all of

those, all those transparency requirements?

Mr. KOVACS. Oh, certainly. We have—well, I will go, you know,

one step further. We, actually, were probably the primary advocate

for the Information Quality Act, which is going to, you know, turn

everyone sort of bright red here.

But you know, what that says is, is that, what the Congress ordered is that the agencies have to use the most accurate, up-to-date

information, and that if the information, if someone in the public

believes that the information is incorrect, that they can file a petition to correct the information. Again, you heard the same arguments. This is trying to slow the agencies down, this is trying to

put everything in secret.

We have been very clear. We don’t believe just in peer review.

We believe in open peer review. Just open it up. Why should four

or five scientists have a say over what the issue is? So, when you

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come to the openness, the only way we are going to get the kind

of information in, from the public into the agency is if we know

what the agency is doing, and we are able to put it in, and that

is what the guidance documents do.

Chairman MILLER. Okay. Thank you, Mr. Kovacs.

Ms. Katzen, under the new Executive Order, under the old Executive Order, OIRA was a gatekeeper, and now, the gatekeeper has

a gatekeeper, the public regulatory officers within each agency. All

of the openness requirements with respect to OIRA’s deliberations,

do those apply, under the new Executive Order, to the conduct of

the public regulatory officer? What are the requirements for transparency at the agency level for the gatekeeper’s gatekeeper, the

public regulatory officers?

Ms. KATZEN. Those are not addressed in the Executive Order.

Those would be wholly dependent upon the agency’s own internal

rules for ex parte procedures, for disclosure, for rule-making, as the

case may be.

Chairman MILLER. Mr. Vladeck, rather than write a note to Ms.

Katzen, do you just want to answer yourself?

Mr. VLADECK. Well, I mean, it is worse than that. I mean, not

only does the Executive Order not apply, but the D.C. Circuit, in

a case that I helped lose many years ago, it is called Wolfe v. HHS,

held that communications between officials at OMB and the agencies, like the regulatory officer, are presumptively not available

under FOIA.

So, there is no—as far as I can see, there is no mechanism by

which we would be able to see what is going on at that stage of

the development process, which is a trouble.

Chairman MILLER. I think every Democratic Member of Congress

not in their first term has in their files letters from agencies explaining that FOIA does not reach pre-decisional discussions, internal agency documents, which presumably, the involvement by the

NPOs, or——

Ms. KATZEN. RPOs would be.

Chairman MILLER. RPOs, would fall within that exception to

FOIA. Mr. Kovacs, do you think the conduct of the regulatory public officers, the RPOs, should be as transparent as the conduct, the

involvement of decision-making by OIRA?

Mr. KOVACS. If you are asking me would we support an exempt—

would we support removing that exemption from FOIA, it is likely.

But we would again, remove it for the entire process. Let me just

give you really one example. For years, one of the biggest growth

industries that is coming to the United States is nanotechnology.

They expect in ten years, for that to be a $1 trillion plus revenue

stream for the United States, a huge growth industry.

Well, floating around EPA are some pre-decisional opinions on

how EPA is going to regulate nanotech. Well, the business community is putting in an enormous amount of money into

nanotechnology, and we sent a FOIA letter, I don’t know, six

months, eight months ago, and we can’t even get a little postcard

from them. So, it is a frustration that we all share. But if you are

going to do it, rather than, you know, picking on the Vice President, or picking on one—open the process——

69

Chairman MILLER. Well, looking specifically at the regulatory

public officers, who are now going to play an important role. I

mean, a great many regulations are never going to make it to

OIRA. They will be smothered in the crib, at the agency, by the

RPO, and all of the requirements for transparency for OIRA appear

not to apply to the RPOs.

Mr. KOVACS. Well—— Chairman MILLER. So, if the agency is making the wrong decision for the wrong reasons, we are not going to know about it. If

OIRA makes the wrong decisions for the wrong reasons, we are

going to know about it. And now, a great many agents—of the regulations that the professional staff, the permanent professional

staff, the experts, the scientists, the researchers at regulatory

agencies, are never going to make it past the gatekeeper’s gatekeeper, and none of that will be public. Isn’t that right?

Mr. KOVACS. I think it would be consistent, to directly answer

your question. I think it would be consistent with the policies of the

Chamber that the entire—that that part of the entire agency process, as to how a rule is made, should be made public. And it

wouldn’t start just with the rule, it would start with the information that comes in, the studies that they rely on, the risk assessments that they rely on. That entire process should be open.

And the political officer, the regulatory officer, is only—I am

sorry—is only the last person in line. And what I would suggest to

you, that if you are going to do that, is that you start with what

you know, the EPA at Research Triangle Park does, which is let

us look at the risk assessments. What is the basic information, and

what we would say is rather than just taking one spot of the

record, take the entire record, because then, and that is what the

Information Quality Act tried to do, it tried to say rather than

starting at the end of the rule-making process, which we are all

fighting about today, start at the beginning. So—because if the

agency uses the wrong information in the beginning, five years before the rule starts, Sally says ten, you know, these processes can

take ten years. If you use the wrong information in the beginning,

you are going to use the wrong information in the end. So open up

the whole process.

TRANSPARENCY COSTS

Chairman MILLER. We really are just about out of time, and I

apologize to Mr. Rohrabacher, probably not be able to get to him

for a second round of questions.

Ms. Katzen, Mr. Vladeck, Dr. Melberth, do you think the same

transparency requirements that apply to OIRA should apply to the

internal agency deliberations, of the role of the RPO, whether

through changes to the Executive Order, or through statutory

change?

Ms. KATZEN. I am not going to answer your question directly,

because——

Chairman MILLER. Okay.

Ms. KATZEN.—I spent enough years at OMB to know that nothing is cost-free, and one of the points that Mr. Vladeck made, that

I want to underscore, is that the agencies have not only been required to do more analysis, more everything, but they have been

70

given less funds. And when you say shouldn’t things be transparent, even that is not cost-free. Putting up a website and maintaining it takes personnel, takes funds, even if you outsource it,

you have got to have a contractor, you have got to update it every

15 days, it takes people, it takes time, it takes talent, and we have

seen in the last—when I was at OMB, we had surpluses as far as

the eye could see. Now, we don’t, and it is coming out of the agencies’ budgets, and I think that is a real concern. So, I can’t truly

answer your question.

Chairman MILLER. Okay. Mr. Vladeck.

Mr. VLADECK. I would agree. I think that you have to make this

process transparent.

Chairman MILLER. Okay. Dr. Melberth. Melberth.

Mr. MELBERTH. I would also agree. That is something that OMB

Watch has called for in most of these instances. Make this information public. It should be available. It should be accessible.

Chairman MILLER. Mr. Rohrabacher, do you want to have one

valedictory question?

Mr. ROHRABACHER. Thank you. I am very happy that when—

what year was that, when you were saying we had the surpluses?

I——

Ms. KATZEN. 1999. The year.

Mr. ROHRABACHER. Yeah, I remember that. We Republicans were

in solid control at that time. You know, here in the House.

Ms. KATZEN. Here.

Mr. ROHRABACHER. Yes.

Ms. KATZEN. Not there.

Mr. ROHRABACHER. Right. There you go. Analyzing stuff. Let me

note that, years ago, it was a consensus on global cooling. Now, it

is a consensus on global warming. The regulators always—there

are things that—trends that could be true or not true, that influence these benevolent and not profit-seeking regulators, that we

want to trust our lives to. One, for example, Mr. Chairman, a decision that was made years ago by people, I am sure, with very good

hearts, wanting to protect us all, put severe restrictions on DDT,

and now, we have tens of millions of people in Africa who have lost

their lives because DDT has not eliminated the mosquito population, which is plaguing them instead of us. There are unintended

consequences at times, and trendiness, that affects regulators.

I—Mr. Chairman, it doesn’t seem to me that we have a real conflict. If you folks are advocating more scrutiny and openness, and

focusing on this end of the process, and you have the Chamber of

Commerce just saying that it should be transparent all the way

through, I don’t see a big conflict here, and I have learned—I am

sorry I was late. I will read your testimony, but I have already

learned quite a bit just from what you have said, and I certainly

agree with the idea of transparency and accountability. That

doesn’t seem to be a big debate here, but it seems a matter of

where you are putting your emphasis.

So, thank you very much.

Chairman MILLER. I want to thank everybody. An excellent panel

of witnesses, and I think some of you are now going to appear, this

has been a warm-up for your appearance before the Judiciary ComVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00076 Fmt 6633 Sfmt 6601 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
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mittee, and I look forward, for the Subcommittee on Administrative

Law, that is looking at the same issue.

And we had earlier tried to have a joint hearing, but were not

able to pull off the logistics of that, but again, I appreciate your appearance, and your very thoughtful responses to all of our questions, and with that, our hearing is adjourned.

[Whereupon, at 2:00 p.m., the Subcommittee was adjourned.]

(73)

Appendix 1:

ANSWERS TO POST-HEARING QUESTIONS

74

ANSWERS TO POST-HEARING QUESTIONS

Responses by Sally Katzen, Adjunct Professor and Public Interest/Public Service Fellow, University of Michigan Law School

Questions submitted by Chairman Brad Miller

Q1. The testimony Mr. Aitken, Acting Director of OIRA, offered in a House Judiciary

Committee hearing repeatedly asserts that the new executive order amending

E.O. 12866 simply memorializes current practice and, in particular, practices

that began during your time at OMB. Do you wish to comment on the assertion

that there is no meaningful change in policy represented by the provisions in

E.O. 13422 relating to how regulatory proposals shall be prepared.

A1. If there were no meaningful change in policy represented by the provisions of

Executive Order 13422, then why did the Administration invoke the prestige of the

President and the authority of an executive order to achieve nothing? This President

has not issued many executive orders and it seems to be inconsistent with his management style to use an executive order for a non-event. Finally, the changes in Executive Order 13422 do not reflect policies or practices of the Clinton Administration. Specifically, the Clinton Administration did not elevate market failures to a

priority status for justifying rule-making; it did not require aggregation of projected

costs and benefits at the pre-notice stage of rule-making; it did not require that regulatory policy officers be presidential appointees; it did not encourage the use of formal rule-making for resolution of issues; and it did not use OMB review for guidance documents which, by definition, do not have the force and effect of law.

Q2. Do you have any other points you wish to make for the record regarding E.O.

13422 and its likely application by the Bush Administration?

A2. Not at this time, thank you.

Questions submitted by Representative F. James Sensenbrenner, Jr.

Q1. Did President Clinton’s E.O. 12866 require agencies to conduct Cost-Benefit

Analyses for proposed regulations? If so, what harm would come from simply

requiring them to report the aggregate of the analyses they already conducted?

Is this such a big step?

A1. President Clinton’s Executive Order required agencies to conduct cost/benefit

analyses, to the maximum extent feasible, when they were proposing or issuing final

rules. Executive Order 13422 requires agencies to aggregate costs and benefits of

items listed in the Regulatory Agenda, which includes many items at the pre-notice

of proposed rule-making stage, when the agency has made no decisions as to the

course it is likely to pursue.

Q2. A major criticism of the Market Failure criterion is that some believe it elevates

economic concerns above those of public health and safety, and that this contradicts Congressional guidance. Is this true? If so, why don’t the following sections give agencies an ‘‘out’’ when they are presented with conflicting values?

Sec. 1, end of last sentence: ‘‘unless a statute requires another regulatory approach.’’

Sec. 1(b), end of last sentence: ‘‘to the extent permitted by law and where applicable.’’

A2. President Clinton’s Executive Order included several references to the superiority of applicable law to provisions of an executive order; those references were not

changed by the provisions of Executive Order 13422, nor could they be given that

wherever there is a conflict, duly enacted law would trump a provision in an executive order. The agencies therefore have ‘‘an ‘out’ ’’ where there is a direct conflict.

The problem that many foresee, however, is that the amendment elevating economic

concerns increases the burden on the agencies to either demonstrate that the law

reflects congressional intent with respect to the particular issue they are addressing

or to justify its proposal on economic as opposed to other, possibly more important

or pertinent grounds.

Q3. One of the reasons agencies have increasingly turned to guidance documents in

order to regulate industry is that they do not require public notice, public comment, or OMB notice. This has allowed for more flexible and reactive policies,

but has sacrificed transparency, organization, and accountability. Do you believe

75

the recent OMB bulletin proposes a reasonable method of balancing these competing principles?

A3. The recent OMB bulletin is a good faith attempt to balance these and other

competing principles. The problem, however, is that in some instances and for some

agencies, the requirements of the bulletin will have the effect of reducing (possibly

greatly reducing) the issuance of guidance, which tells both the agency staff and the

regulated entities what is expected of them under existing regulations. Such guidance has the salutary effect of providing clarity to regulated entities and protecting

them from haphazard enforcement of existing regulations by agency staff. In other

words, there are and will be costs associated with the new bulletin.

Q4. In reference to the Good Guidance Bulletin, you state in your testimony (page

9) that, ‘‘While each step can be justified as helping to produce better regulatory

decisions, the cumulative effect is overwhelming.’’ If you believe that the Bulletin

is ‘‘justified as helping to produce better regulatory decisions,’’ are your objections to the Bulletin related to policy or your view that OIRA has an insufficient

budget?

A4. The antecedent for ‘‘each step can be justified as helping to produce better regulatory decisions. . .’’ is the various bulletins, circulars, and guidance issued by the

Bush Administration over the last several years, discussed at pages 6–9 of my written testimony. Each step (as in, each bulletin, circular or guidance), standing alone,

can (as in, one can reasonably argue) be justified. ‘‘[T]he cumulative effect is overwhelming’’ refers to the agencies, not OIRA, and the fact that agency budgets have

not kept up with the increasing demands made on the agencies by OIRA.

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ANSWERS TO POST-HEARING QUESTIONS

Responses by David C. Vladeck, Director, Institute for Public Representation; Associate Professor of Law, Georgetown University Law Center

Questions submitted by Chairman Brad Miller

Q1. I am concerned about the implications for the public’s right to know embedded

in the changes to the Regulatory Policy Officers. As Presidential appointees with

the power to ‘‘pre-approve’’ even starting a regulatory or guidance initiative,

what might this mean for the ability of the public and public interest groups

to know what has happened on issues dispensed with by these officers? Might

this be an indirect way of by-passing some of the much-vaunted transparency

that has so far marked the OMB E.O. 12866 process?

A1. This question was raised briefly during the hearing, and my answer then, as

it is now, is that the structure of the new Executive Order invites the circumvention

of the transparency provisions of the Executive Order 12866. As the Committee understands, Executive Order 12866, § 6(b), requires OMB to place on the record its

exchanges with an agency during the course of a rule-making proceeding. It also requires OMB to put on the public record meetings between OMB and non-governmental parties relating to rule-makings. To be sure, the openness requirements of

the Executive Order apply only during the rule-making process, and do not cover

interactions between OMB and agencies, or OMB and outsiders, prior to the agency’s development of a notice of proposed rule-making. But once the rule-making

process begins, the Executive Order does require a fair degree of transparency.

Executive Order 13422 undermines the openness guarantee of Executive Order

12866 in two important ways. First, OMB review of guidance documents is not subject to any of the transparency requirements of section 6 of Executive Order 12866,

which applies only to ‘‘regulatory actions’’ for ‘‘new and existing regulations.’’ The

drafters of Executive Order 13422 understood this limitation, but made no effort to

expand the scope of section 6 to cover OMB review of guidance documents. This

omission was not inadvertent. Instead, the omission was intended to permit OMB

and agencies to develop guidance documents—and to integrate the input of regulated industry—behind closed doors, with no public record at all. Given OMB’s history of serving as a conduit for industry, which of course led to the Graham memorandum and the addition of section 6(b) to the Executive Order, Congress ought to

be wary of OMB’s deliberate effort to exercise control over the issue of guidance documents insulated from any transparency or openness requirement.

Second, Executive Order 13422 promotes secrecy because it ensures that the prerule-making interchanges between OMB and the Policy Review Officers at the agencies will be off-the-record. The law is clear that dealings between OMB and agency

officials that precede the commencement of rule-making are not subject to mandatory disclosure under the Freedom of Information Act (‘‘FOIA’’). Courts have ruled

that these exchanges are ‘‘predecisional’’ and ‘‘deliberative’’ in character and thus

may be shielded from disclosure under Exemption 5 to FOIA. See Wolfe v. HHS, 839

F.2d 768 (D.C. Cir. 1988) (en banc). As a result, even under Executive Order 12866

pre-rule-making consultations between OMB and agencies were not subject to disclosure. But Executive Order 13422 makes a bad situation worse. Under Executive

Order 12866, the Regulatory Policy Officers were agency officials selected by the

agency head, and these Officers owed their loyalty to the agency, not the White

House. Thus, if OMB sought to force an agency to act in a way that was out of step

with the desires of the agency head, the agency had tools to object, and to do so

on the public record.

Executive Order 13422 reverses that presumption and puts a White House agent

in charge of the agency’s regulatory apparatus, which now extends not just to the

agency’s regulatory output, but also to non-binding agency guidance. Thus, the ability of the agency to resist OMB and follow the course the agency thinks best is diminished, if not destroyed. After all, the White House will now have its own appointee serving as the gatekeeper of the agency’s machinery. And, to make matters

worse, all of these exchanges will take place off-the-record.

For these reasons, the answer to Chairman Miller’s question—can OMB kill off

a regulatory or guidance initiative an agency wants to take, and do so in a way that

will escape public oversight?—is plainly ‘‘yes’’ under Executive Order 13422. And

make no mistake, this is not an unintentional consequence of inattentive drafting.

This is precisely the power that OMB has long coveted.

Q2. The new E.O. elevates market failure as the preferred standard for an agency

to meet in explaining the rationale for a regulatory or guidance document. If you

77

1Ms. Dudley’s writings have been extensively critiqued in a report by Public Citizen and OMB

Watch entitled The Cost is Too High: How Susan Dudley Threatens Public Health Protections

(Sept. 2006) (http://citizen.org/publications/release.cfm?ID=7448&seeID=2565&catlD=126). 2Susan E. Dudley, Regulatory Studies Program Comments: Advanced Air Bars 7 (Dec. 17,

1998) (http://www.mercatus.org/publications/pubid.1180/pub¥detail.asp).

have insights into how the President’s proposed director of OIRA, Susan Dudley,

might apply this standard, please share that with the Subcommittee.

A2. There is no need to speculate about how Ms. Dudley would apply the new ‘‘mar- ket failure’’ standard in the Executive Order were she to serve as the director or

acting director of OIRA. Ms. Dudley has an extensive track record on this issue,

which I urge the Subcommittee to review.1 In summary, Ms. Dudley’s writings suggest that she believes that markets almost never fail, and that government intervention is rarely if ever appropriate. Just consider one example. Ms. Dudley was virtually alone in opposing the advanced air bag rule-making just conducted by the National Highway Traffic Safety Administration. She did so on the ground that government intervention was not needed, notwithstanding the deaths of and injuries to

children and women of short stature caused by first-generation air bags, because

there was no evidence of market failure. Ms. Dudley was willing to disregard the

deaths and injuries because she was confident—despite years of contrary evidence— that, if left alone, the market would provide a range of safety options to consumers

and we ought to trust the market to give consumers adequate protection.2

Ms. Dudley’s blind faith in the markets, and her hostility to government regulation, would make her an odd choice to head OIRA. If Ms. Dudley saw no market

failure with regard to one-size-fits-all air bags, would she have let the Environmental Protection Agency phase lead out of gasoline, the Food and Drug Administration require that iron pills, the leading cause of poisonings in the United States,

be sold in child-proof containers, or the Consumer Product Safety Commission outlaw the use of flammable material in children’s sleep-wear? The point of regulation

is to prevent market failure, not to pick up the pieces once the damage is done.

Q3. Do you have any other points you wish to make for the record regarding E.O.

13422?

A3. I think that my written statement to the Subcommittee covered the important

points I want to make about the new Executive Order.

Questions submitted by Representative F. James Sensenbrenner, Jr.

Q1. Did President Clinton’s E.O. 12866 require agencies to conduct cost-benefit analyses for proposed regulations? If so, what harm would come from simply requiring them to report the aggregate of the analyses they already conducted? Is this

really a such a big step?

A1. With all respect, I do think that this is a big step. Let me explain why. To begin

with, the requirement that agencies prepare cost-benefit analyses for proposed regulations was not an invention of President Clinton, but President Reagan, who institutionalized this requirement in Executive Order 12291. President Clinton’s Order

in fact modified that requirement in a way that is significant in answering your

question; namely, it permitted, almost encouraged, agencies to cite non-quantifiable

costs and benefits of regulation in their analyses. As I have previously discussed,

agencies generally can calculate the likely costs of proposed regulation in terms of

dollars and cents. But benefits are often far more difficult to quantify, and many

benefits simply cannot be quantified. For instance, how does one assign a dollar

value to each I.Q. point a child might lose as a result of lead exposure; to each day

a family will have to endure a loved one on kidney dialysis, caused by the person’s exposure to cadmium in the workplace; or damage to a wildlife preserve? Regulation

also avoids unwarranted distributional impacts, protects vulnerable sub-populations

(children, the elderly, the poor, for example), averts aesthetic harms, and seeks to

advance social justice. None of these benefits can be quantified, let alone monetized

in the manner the Executive Order contemplates.

To account for these difficulties, the Clinton Executive Order encourages agencies

to monetize those benefits that it can monetize, but it ‘‘recogniz[ed] that some costs

and benefits are difficult to quantify’’ and therefore told agencies that they should

provide a ‘‘reasoned determination that the benefits of the intended regulation justify its costs.’’ Executive Order 121866, § 1(b)(6).

The problem with the regulatory accounting provision of Executive Order 13422,

§ 4(c)(1)(B), is that it wholly ignores this important lesson. By requiring that the

agency report its ‘‘best estimate of the combined aggregate costs and benefits of all

78

of its regulations planned for that calendar year,’’ the new Executive Order puts

aside all of the non-quantifiable benefits that flow from regulation and reduces the

calculus to hard, cold dollars and nothing more. And make no mistake, this reporting requirement will be used by OMB and others to seek limits on agency regulation

on purely economic grounds, notwithstanding the fact that regulatory benefits are

often not reducible to dollars and cents.

Q2. A major criticism of the market failure criterion is that some believe that it elevates economic concerns above those of public health and safety, and that this

contradicts Congressional guidance. Is this true? If so, why don’t the following

sections give agencies an ‘‘out’’ when they are presented with conflicting values?

Sec. 1, end of last sentence: ‘‘unless a statute requires another regulatory approach.’’

Sec. 1(b), end of the last sentence: ‘‘to the extent permitted by law and where applicable.’’

A2. The short answer to this question is yes, the market failure criterion in Executive Order 13422 does indeed ‘‘elevate[] economic concerns above those of safety and

health’’ in a way that undermines Congress’ judgment, and no, the provisions of Section I of the Order, cited in the question, do not give agencies an ‘‘out.’’ Let me explain the basis for my answer.

To begin with, there can be no serious question that the new Executive Order

makes ‘‘market failure’’ the pivotal consideration in regulation. Indeed, it is difficult

to see how the drafters of the Order could have been clearer or more emphatic about

this point. As you know, the language in the new Executive Order marks a profound

departure from that in its predecessor: Section 1(b) of Executive Order 12866 required the agency to ‘‘identify the problem that it intends to address. . .as well as

the significance of that problem.’’ Executive Order 13422 deletes that language and

says that ‘‘[e]ach agency shall identify in writing the specific market failure. . .or

other specific problem that it intends to address. . ..’’ That substitution plainly signals that, from now on, OMB will expect to see an economic analysis of market failure as a precondition to regulation. And the use of the word ‘‘shall,’’ the language

of command, only underscores the mandatory nature of the requirement. The only

‘‘out’’ will be a convincing economic argument from the agency that market failure

is not at the root of the ‘‘other specific problem’’ the agency intends to address. The

problem here is that this is an ‘‘out’’ in name only, because OMB, and not the agency, makes the final decision as to whether the agency has made a sufficient case

for regulation.

Moreover, it is hard to see how health and safety agencies will be able to point

to ‘‘other specific problem[s]’’ unrelated to market failure when they seek to impose

regulation. Let’s not mince words: when we speak of health and safety regulation, ‘‘market failure’’ is a euphemistic way of saying that people have been killed or injured because of dangerous products, exposure to toxic chemicals, or some other hazard. The point of health and safety regulation is to prevent these deaths and injuries, not wait until they occur. Suppose an agency wants to impose regulation on

food producers to reduce the risk of an emerging food-borne illness. Tens of thousands of consumers are made ill by food-borne contamination each year, but it is

rare that a consumer can link his or her illness to the consumption of a single food

product. Market forces thus place only a weak constraint on market behavior of food

producers. But with regard to an emerging hazard, there is, by definition, no evidence of ‘‘market failure’’ because the needed evidence has not yet developed. How

is that agency going to do business with OMB? The agency cannot pretend that it

is seeking to address some ‘‘other specific problem.’’ Nor would OMB permit it to,

do so. The point here, of course, is that a regulatory system that properly functions

seeks to avoid market failure, yet the new Executive Order appears to require agencies to wait until they can prove market failure—by pointing to needless deaths and

injuries—before moving ahead with regulation.

Nor do the fragments of two provisions of Section 1 of Executive Order 13422

cited in the question give the agencies an ‘‘out,’’ as the question suggests. Both provisions go to the substance of agency regulations, which must be governed by statute

where there is an inconsistency between the statute and the Executive Order. Neither provision addresses the justification an agency must provide to OMB in order

to proceed with a rule-making, which is the point of the ‘‘market failure’’ super-mandate imposed by Executive Order 13422. A review of the two provisions cited in the

question drives this point home.

The question’s first reference is to the last sentence of Section 1(a), which is

quoted only in part. In full, the sentence reads: ‘‘Further, in choosing among alternative regulatory approaches, agencies should select those approaches that maxiVerDate 11-MAY-2000 09:44 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00084 Fmt 6601 Sfmt 6621 C:\WORKD\I&O07\021307\33105 SCIENCE1 PsN: SCIENCE1
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mize net benefits (including potential economic, environmental, public health and

safety, and other advantages; distributional impacts; and equity), unless a statute

requires another approach.’’

Contrary to the implication in the question, this provision has no bearing on the

justification the agency must provide to OMB to receive OMB clearance to publish

a proposed or final rule. The provision addresses an altogether different question:

If permitted to regulate, what regulatory approaches may the agency pursue? But

nothing in this language relieves an agency of its obligation under the Executive

Order to satisfy OMB that it may regulate in the first instance. One illustration

should suffice. The Supreme Court has ruled that in promulgating standards to protect workers from exposure to toxic substances, the Occupational Safety and Health

Administration (‘‘OSHA’’) must regulate to the limits of technological and economic

feasibility. American Textile Manufacturers Assn v. Donovan, 452 U.S. 490 (1981).

That standard is arguably at odds with the ‘‘net benefits’’ standard articulated in

Section I of the Executive Order. In such a case, OSHA would be free to follow its

statutory mandate, not that imposed by the Executive Order. But OSHA would

nonetheless be bound to justify to OMB its decision to proceed with regulation, and

under the new Executive Order, would not be able to avoid defending its decision

to act on the basis of market failure. There would be no other bases on which to

justify regulation, and thus this fragment of Section 1 does not provide agencies an

‘‘out,’’ as the question suggests.

Nor does the language at the end of Section 1(b) provide agencies an out. That

language reiterates the concern set forth in the final sentence of Section 1(b), by

providing that: ‘‘To ensure that the agencies’ regulatory programs are consistent

with the philosophy set forth above, agencies should adhere to the following principles, to the extent permitted by law and where applicable.’’ Once again, this language is a directive, mandated by settled law, that an Executive Order cannot

trump a statute. For that reason, the Executive Order does not purport to, and

could not, direct an agency to ignore statutory directives when issuing a regulation.

But nothing in this language, or any other language in the Executive Order, relieves

the agency’s obligation under the Executive Order to explain to OMB on the basis

of market failure why the agency is choosing to proceed with regulation.

Q3. One of the reasons agencies have increasingly turned to guidance documents in

order to regulate industry is that they do not require public notice, public comment, or OMB notice. This has allowed for more flexible and reactive policies,

but has sacrificed transparency, organization, and accountability. Do you believe

the recent OMB bulletin proposes a reasonable method of balancing these competing principles?

A3. Before addressing the OMB Bulletin on guidance documents, it is necessary to

emphasize that I do not agree with several of the explicit premises of the question.

First, I do not know whether it is true, as the question suggests, that ‘‘agencies have

increasingly turned to guidance documents.’’ Having practiced administrative law

for thirty years, I think that agencies have always used guidance documents, and

have done so precisely because they can be issued quickly and flexibly, as needs

arise. Second, I do not believe that agencies use guidance documents to avoid transparency and accountability. Unlike enforcement policies, which are often kept from

public view, the entire point of guidance documents is to inform the public of the

agency’s views, and agencies are held accountable for the guidance they give. Woe

to an agency that brings an enforcement action and seeks to distance itself from

guidance the agency gave; the agency does so only at its peril. Third, I disagree with

the question’s suggestion that agencies have ‘‘turned to guidance documents in order

to regulate industry.’’ Guidance documents do not have the force of law; they do not

‘‘regulate’’ in any meaningful sense of the word.

Having said all of this, I do believe that, at times, agencies issue guidance documents instead of embarking on notice and comment rule-making, not to avoid giving

OMB notice, but because OMB review has made the notice and comment rule-making process too time-consuming, too cumbersome, and too expensive to justify the

commitment of agency resources to the issuance of a rule. Nothing in the new Executive Order responds to these concerns.

As to OMB’s recent bulletin on guidance documents; I think that, because it is

designed to carry forward the mandates of the new Executive Order, it is deeply

flawed—for the reasons outlined in my testimony. Formalizing and making uniform

the process by which agencies give advice is a tremendous mistake and will hamstring the ability of agencies to provide advice to regulated parties and the public

at large. Because the Executive Order the bulletin seeks to implement is flawed, so

too is the bulletin.

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1OMB, ‘‘Economic Analysis of Federal Regulations Under Executive Order 12866’’ (Jan. 11,

1996). 2See OMB Circular A–4, at p. 4–6.

ANSWERS TO POST-HEARING QUESTIONS

Responses by William L. Kovacs, Vice President, Environment, Technology, and Regulatory Affairs, U.S. Chamber of Commerce

Questions submitted by Representative F. James Sensenbrenner, Jr.

Q1. Did President Clinton’s E.O. 12866 require agencies to conduct cost-benefit analyses for proposed regulations? If so, what harm would come from simply requiring them to report the aggregate of the analyses they already conducted? Is this

really such a big step?

A1. Yes, President Clinton’s E.O. 12866 already requires agencies to conduct costbenefit analyses for proposed regulations that will have a significant impact on the

economy. E.O. 12866 requires every federal agency to determine whether a regulatory action is ‘‘significant’’ and therefore subject to review by the Office of Management and Budget (OMB) and the analytical requirements of the executive order. A

‘‘significant’’ regulatory action is defined as one that is likely to result in an annual impact on the economy of $100 million or more.

Since federal agencies are already required to conduct a cost-benefit analysis for

each proposed significant new regulation, it is not a big step for them to simply add

up the aggregate cost impact of all new regulations for a given year. As I stated

in my original written testimony, rules do not operate in a vacuum. For an accurate assessment of a rule’s actual cost impact, it must be considered in conjunction

with other rules. In the interest of transparency and full disclosure, the public

should be made aware of the aggregate costs associated with an agency’s annual

rule-makings.

Q2. A major criticism of the market failure criterion is that some believe it elevates

economic concerns above those of public health and safety, and that this contradicts Congressional guidance. Is this true? If so, why don’t the following sections give agencies an ‘‘out’’ when they are presented with conflicting values?

a. Section 1, end of last sentence: ‘‘unless a statute requires another regulatory

approach,’’ or

b. Section 1(b), end of last sentence: ‘‘to the extent permitted by law and where

applicable.’’

A2. Ironically, the ‘‘market failure’’ criterion, which has been so derided by critics

of the new executive order, was first detailed in the Clinton Administration’s 1996

guidelines for economic analysis under Executive Order 12866.1 Those guidelines

specifically noted that market failures, externalities, natural monopolies, market

power, and asymmetric information are all essential components of any economic

analysis. As a result, it was the Clinton Administration that emphasized the importance of economic analysis in rule-making.

What President Bush’s executive order did was actually broaden the scope of the

Clinton guidelines to allow for an agency to state additional justifications for a rulemaking. In that way, the market failure criterion would not be elevated above public

health and safety concerns. In 2003, the Bush Administration clearly delineated the

additional justifications beyond market failure—which included the protection of

civil rights, privacy, personal freedom, and other concerns.2 More importantly—as Rep. Sensenbrenner notes in his question—the last phrase in Section 1 and 1(b) of

the executive order clearly provide agencies with choices when they are presented

with conflicting values.

It is only logical that federal agencies should be required to identify a problem

that justifies a regulation before proceeding with a rule-making—whether that problem is a market failure or something else. In this way, we can be assured that a

comprehensive and thorough analysis of all potential impacts of a rule-making has

been conducted.

Q3. One of the reasons agencies have increasing turned to guidance documents in

order to regulate industry is that they do not require public notice, public comment, or OMB notice. This has allowed for more flexible and reactive policies,

but has sacrificed transparency, organization, and accountability. Do you believe

the recent OMB bulletin proposes a reasonable method of balancing these competing principles?

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A3. Yes. The OMB Bulletin on Good Guidance Practices (GGP) does not prohibit

agencies from issuing guidance documents. Agencies can, and should, continue to

utilize guidance documents to provide the public with information on how to comply

with a particular rule or regulation. Rather, the GGP establishes uniform policies

and procedures for the development, issuance and use of significant guidance documents.

The purpose of the GGP is to ensure that guidance documents of Executive

Branch departments and agencies are developed with appropriate review and public

participation. It requires that guidance documents be accessible and transparent to

the public, and not improperly treated as legally binding. GGP does this by requiring that each guidance document contain certain standard elements, such as identifying the document as guidance, the name of the issuing office, the activity and persons to whom it applies, the date of issuance, and the title and docket number.

Surely such requirements, which will vastly improve transparency and accountability in an agency’s regulatory activities, are not overly oppressive.

Perhaps the most important new GGP requirement, however, is that agencies

avoid ‘‘mandatory’’ language in guidance documents. By law, guidance documents

are advisory only; that is, they do not have legally binding effect. Yet they have

practical binding effect when the agencies use them to establish criteria that affect

the rights and obligations of private persons. By eliminating mandatory language—

words such as ‘‘must’’ and ‘‘shall’’—the growing problem of ‘‘regulation by guidance

document’’ will finally be addressed.

The GGP also establishes public access and feedback procedure. Agencies are required to maintain a current list of significant guidance documents on their web

sites and to provide a means for the public to electronically submit comments. The

Chamber supports, and has always supported, efforts to improve the operation of

government by improving the opportunity for the public to participate in the policymaking process. Such participation allows the public to have a voice in the making

of the laws that regulate them, and protects them from arbitrary decisions by federal agencies.

Q4. Does E.O. 13422 (or the Good Guidance Bulletin for that matter require any new

analysis to be conducted, or does it simply require agencies to report the work

they have already done? Do you believe that reporting this work could lead to

‘‘paralysis by analysis?’’

A4. President Bush’s E.O. 13422 does not require any new analysis by an agency.

What it does require is for an agency to have a reason for creating a new regulation.

It simply asks an agency to state the reason for the rule, and estimate how much

it will cost, particularly in connection with other rules issued that year by the agency. Presumably, these are things the agency can readily supply, and therefore are

not new and onerous requirements.

Moreover, the argument that E.O. 13422 (and GGP) will lead to ‘‘paralysis by

analysis’’ is specious. Similar arguments were made regarding the Data Quality Act

(DQA)—namely, critics argued that it would ‘‘shut down’’ the regulatory process by

forcing agencies to respond to public claims of disseminating faulty information. In

reality, very few DQA petitions were filed with federal agencies. For example, in FY

2006, only 22 DQA petitions were filed with government agencies, and only six appeals.

Clearly, the critics were wrong about the DQA, and they are almost certainly

wrong about E.O. 13422. The President’s actions will serve to bring transparency

and accountability to an opaque and complex process. This effort should be lauded.

Q5. OMB has stated that they don’t know exactly who currently holds the position

of Regulatory Policy Officer at every agency. Do you think the decision to have

those duties executed by a Presidential Appointee is a responsible way to better

organize this process and bring about more transparency and accountability?

A5. The fact that OMB—which is responsible for overseeing the management of the

executive branch agencies—cannot identify an agency’s regulatory policy person

speaks volumes regarding the current state of the regulatory process.

By appointing a Regulatory Policy Officer, the President effectively creates a single point-of-contact for all regulatory issues within an agency. This appointment will

bring organization, transparency, and accountability to policy-making in general,

and it will further improve the President’s ability to manage the executive agencies

in his Administration. The Regulatory Policy Officer also brings accountability to

the agency by ensuring that the President’s executive order is implemented.

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Questions submitted by Representative Brian Baird

Q1. ‘‘From what you have just said, the Chamber of Commerce is very interested in

transparency. Was it the Chamber’s official position back then, and is it now,

that the Vice President of the United States should share information about who

consulted with him on energy policy? . . .For the record, then, I would just request that you would report back to this committee on. . .to please send us a

letter, which we will convey to the Vice President, asking him, on behalf of the

Chamber of Commerce, to share the names of the people who helped draft his

energy policy.’’—Hearing transcript, page 49–50.

A1. Because Rep. Baird’s question is about transparency in government, let me first

directly state the Chamber’s current and historical position on this issue, and then

I will apply the Chamber policy to Rep. Baird’s question.

(1) Chamber Policy

The Chamber’s long held position was proposed, voted on and approved by our

Board of Directors, and codified into official policy:

A free flow of information from and concerning all branches of government at

all levels is a right of the public and is essential to our democratic society. . ..

It is the responsibility of government to protect and preserve this constitutional

guarantee by a policy of full disclosure of information. Except for matters clearly

affecting national security or otherwise covered by statute, all business of government should be fully disclosed to the public. The burden of proof must rest with

government in every instance to justify withholding any information from the

public.

Policy Declarations, U.S. Chamber of Commerce

As our policy declaration makes clear, the Chamber is one of the strongest proponents of an open and accessible Federal Government. This is evidenced not just

in our policy statements, but also in our public activities. Consider, for example, our

continuing support of the Administration’s Electronic Government, or ‘‘E-Gov,’’ Initiative, which is an effort to make information more accessible to the public through

advanced technology and the Internet. Or consider the Chamber’s unfettered support for government ‘‘sunshine’’ laws, improved Freedom of Information Act legislation, the federal financial grants and contracts online database, Data Access and the

Data Quality Act —all of which promote transparency in government operations.

Similarly, the Chamber has always supported an open regulatory system that

would allow the public access to, and a voice in, the federal rule-making process.

That is why the Chamber testified at the February 13, 2007, hearing in support of

Executive Order 13422, and the Final Bulletin on Agency Good Guidance Practices—because these documents broaden public input into and increase responsible

management of the current regulatory system.

The purpose of the Subcommittee hearing was ostensibly to discuss the scope and

impact of the Administration’s Executive Order 13422, which modifies Executive

Order 12866, and specifically whether it constitutes an impermissible expansion of

executive authority over federal agencies. As stated in my oral testimony, E.O.

13422 is not only permissible, but also a necessary tool for the President to manage

his agencies and the regulatory process.

Executive Order 13422 was issued by President Bush for two reasons. First, it

was intended to prevent federal agencies from circumventing the rule-making process by using guidance documents to regulate the public. Guidance documents do not

have to undergo the same rigorous analytical requirements of the rule-making process as proposed regulations, so agencies tend to couch regulatory language in guidance documents as a way to compel public compliance. Executive Order 13422 corrects that abuse by including guidance documents within the scope of the analytical

requirements of Executive Order 12866. Second, and perhaps more importantly, it

is an attempt by the President to manage his executive agencies. It does this in

three ways: (1) by ensuring agencies state why a rule is needed, (2) by ensuring

agencies give an accurate accounting of costs and benefits of an individual rule and

the aggregate costs and benefits of all rules issued by the agency that year, and (3)

by creating a Regulatory Policy Officer (RPO) within each agency to ensure that the

executive order is implemented by the agency. The RPO is a political appointee, responsible to the President, who must coordinate with OMB.

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3Sally Katzen, David C. Vladeck, and Rick Melberth. Witnesses’ written testimony is accessible at: http://science.house.gov/publications/hearings¥markups¥detai1s.aspx?NewsID=1269 4 5 U.S.C.S. Appendix Sec. 1, et seq.

In their testimony before the subcommittee, each of the other three witnesses3 decried the creation of the RPO, claiming that it ‘‘politicized’’ the regulatory process

by allowing a political appointee—who reports to the President and not Congress—

control over an agency’s regulatory output. Because of this fact, the other witnesses

believed that the activities of the RPO are intended to be opaque and shielded from

public scrutiny. In other words, they feared that the activities of the RPO will not

be subject to the same transparency and accountability as, say, an agency administrator, who is confirmed by, and reports to, Congress.

When asked directly about the accountability and transparency of the RPO by the

Members of the Subcommittee, I stated that, first and foremost, the RPO was most

certainly going to be held accountable—to the Chief Executive. Much like the agency

administrator, the RPO serves at the pleasure of the President and is ultimately

responsible to him. Second, I stated that the Chamber favored extending transparency, not just to regulations, guidance documents, and the RPO, but also to the

entire regulatory process. That is, the Chamber would like to see all the reports,

studies, white papers, third-party analyses, documents, and data that form the underlying basis of an agency’s regulatory decision-making to be made available for

public scrutiny and subject to open peer review. No other witness took such a position on transparency.

It is only through an open peer review of such underlying technical documents

and analyses that we can ensure that:

• The public remains fully informed of the rules that regulate them;

• Documents forming the basis of a rule will be improved through critical review;

• Final regulations will be narrowly tailored to address a specific harm; and

• The public will have had the opportunity to participate at every step in the

process.

(2) Application of the Chamber’s Policy to Rep. Baird’s Question

Following my statement of ‘‘total transparency,’’ Representative Baird suggested

that the Chamber’s support of transparency was actually ‘‘selective.’’ That is, the

Chamber claims to want transparency in government, but, in fact, doesn’t want it

extended to the activities of the Executive Office. By way of example, Representative

Baird cited the controversy surrounding Vice President Cheney’s National Energy

Policy Development Group (NEPDG), and whether the identification of the participants and substance of the preliminary meetings should be made publicly available.

‘‘If [transparency] is what you believe, apply it equitably across the Executive

Branch,’’ Representative Baird stated at the hearing.

Transparency is what the Chamber espouses, and favors its application across all

three branches of government. Yet, as even Representative Baird must agree, the

doctrine of open government must take a back seat to national security concerns,

the laws enacted by Congress, and the U.S. Constitution. That is why official Chamber policy specifically states that we favor full disclosure of information in all matters of government except for matters clearly affecting national security or otherwise

covered by statute. In other words, if there are, for example, national security reasons (terrorist threats), constitutional reasons (separation of powers), or legal reasons (statutes or court decisions) for restricting transparency, then these reasons

must be respected.

In the case of Vice President Cheney’s energy task force, the question of whether

the identification of the participants and substance of the preliminary meetings

should be made public is governed both by separation of power concerns, and more

directly, by statute—namely the Federal Advisory Committee Act (FACA).4 Under

FACA, the work of executive advisory groups that include non-federal employees

must be publicly disclosed. Yet the Administration has affirmatively stated that

NEPDG was composed of all federal employees, and therefore exempt from FACA.

If, in fact, any non-governmental employees subsequently are determined to have

been present at some of the NEPDG meetings, this would not mean that the FACA

exemption is lost. The non-governmental employees would still have to be deemed

de facto members of the advisory group in order for disclosure to occur, as was the

case with the health care task force headed by former First Lady Hillary Rodham

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5 Association of American Physicians v. Clinton, 302 U.S. App. D.C. 208, 997 F.2d 898 (CADC

1993). Court held that, although non-government employees had not been officially named to

the committee, they had become so involved in the task force’s activities that they were ‘‘functionally indistinguishable’’ from the designated members.

Clinton.5 If the courts ultimately determine that this was also the case with the

NEPDG, then the law would require public disclosure.

The Chamber’s policy will continue to reflect a respect for the laws of this nation—as passed by Congress—including FACA. If the language, application, or impact of a particular law is not to the liking of Congress, then it is certainly within

the power of Congress to change that law. Until then, our policy will remain unchanged.

Conclusion

I hope this helps to clarify the Chamber’s position on both E.O. 13422, and transparency in government. As I have tried to make clear, the Chamber strongly supports the President’s effort to manage the regulatory process, and further advocates

opening the entire regulatory process to public scrutiny—from the underlying documents and discussions that form the basis of regulations, to the final regulations

themselves. It is only through complete transparency and open peer review that we

can ensure that regulations and guidance documents are sound, balanced, cost-effective, and ultimately fair.

The Chamber is grateful for the opportunity to present its views about this important topic.

85

1General Accounting Office, RULE-MAKING: OMB’s Role in Reviews of Agencies’ Draft Rules

and the Transparency of Those Reviews, September 2003. Available at www.gao.gov/cgi-bin/

getrpt?GAO-03-929. 2The full report, The Cost Is Too High: How Susan Dudley Threatens Public Protections, can be read online or downloaded at http://www.ombwatch.org/regs/2006/dudleyreport.pdf.

ANSWERS TO POST-HEARING QUESTIONS

Responses by Rick Melberth, Director of Regulatory Policy, OMB Watch

Questions submitted by Chairman Brad Miller

Q1. I am concerned about the implications for the public’s right to know embedded

in the changes to the Regulatory Policy Officers. As Presidential appointees with

the power to ‘‘pre-approve’’ even starting a regulatory or guidance initiative,

what might this mean for the ability of the public and public interest groups

to know what has happened on issues dispensed with by these officers? Might

this be an indirect way of by-passing some of the much-vaunted transparency

that has so far marked the OMB E.O. 12866 process?

A1. The public’s right to know what happens to regulatory issues is already severely limited in the pre-rule-making process under E.O. 12866. OIRA’s involvement

as the gatekeeper in the process means that agencies’ submissions to OIRA—the

first public notice of agencies’ proposed actions—are already substantially impacted

by OIRA’s pre-rule-making negotiations as a 2003 GAO report described.1 Proposed

regulations, however, are at least initiated in the agencies with the expertise to recognize that a problem may require regulatory action. The process can begin, data

may be collected, analyses conducted, and some determination may be made of the

problem to be addressed. Although OIRA’s influence is substantial, the final political

decisions within agencies about moving forward with regulations are made by the

agency heads.

The installation of Presidential appointees at the agency level concentrates

OIRA’s authority at the expense of agency personnel. It shifts the decision to initiate

regulations and guidance to someone less familiar with the scope of the problem and

adds political considerations that should only occur at the highest levels of the agencies. These appointees can stop regulations from ever being considered.

We believe the most damaging aspect of this political influence within agencies

is that the public will never know what issues were dispensed with inside the agencies. The pre-rule-making stage becomes even more remote from the public. While

we strongly disagree with this change in the Regulatory Policy Officer’s responsibility, if it is implemented, then the larger question is the near total lack of transparency and disclosure during the pre-rule-making stage. The public can never

know what alternatives were dismissed or what remedies were forced onto agencies

by political calculations. This process is highly undemocratic and secretive.

Q2. The new E.O. elevates market failure as the preferred standard for an agency

to meet in explaining the rationale for a regulatory or guidance document. If you

have an insight into how the President’s proposed director of OIRA, Susan Dudley, might apply this standard, please share that with the Subcommittee.

A2. In September 2006, after President Bush nominated her to be OIRA administrator, OMB Watch and Public Citizen issued an analysis of Susan Dudley’s writings and comments.2 In that report we conclude:

Dudley believes that an agency must do more than prove that a regulation’s benefits outweigh its costs. Dudley has stated that ‘‘[e]ven policies supported by

the best benefit-cost analysis are not likely to be socially optimal substitutes for

market forces unless they correct a market failure.’’ With her skepticism about

whether regulation can serve any goal other than correcting a market failure

(which, as she has defined it, would be an impossibility), Dudley would bog the

agencies down in endless analysis, stalling regulations and leaving the public

at risk.

We believe there are three reasons why Dudley would be a threat to public protections if she were the administrator of OIRA. First, she has an ideological opposition

to regulations which leads her to use policy tools in biased ways. In her writings

she shifts and sometimes uses contradictory reasoning to conclude that regulations

are not justified. From her record, one can only conclude that she would demand

impossible requirements agencies could not meet.

Second, the elevation of additional economic analyses such as market failure, senior death discounts, and a free-market-first approach under Dudley’s direction could

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3OMB Watch, A Failure to Govern: Bush’s Attack on the Regulatory Process, March 2007.

Available at http://www.ombwatch.org/regs/PDFs/FailuretoGovern.pdf 4Office of Management and Budget, Report to Congress on the Costs and Benefits of Federal

Regulations. September 30, 1997. Available at http://www.whitehouse.gov/omb/inforeg/

rcongress.html

result in substituting these economic considerations for non-economic ones. Even in

policy areas where other considerations are mandated as primary considerations,

such as regulations promulgated by OSHA in which costs are not placed above

worker safety, we believe Dudley’s reliance on economics would be determinative.

Dudley also is a strong advocate for regulatory sunsets which would severely

weaken public protections. She supports the position that agencies should justify a

second, and third, and fourth time the need for critical regulations as they expire

under sunset provisions. Given how ossified the regulatory process already is, this

position leads to a de facto roll back of regulations already implemented.

Third, we oppose her nomination because of her very close ties to corporate interests which have worked strenuously to delay, diminish and defeat health, safety, environmental and civil rights protections. The regulatory process is already heavily

tilted toward special interests. We believe Dudley would further tilt the playing field

toward the interests that have supported her work.

In light of this record, we believe Dudley would apply market failure analyses and

other provisions of the amended E.O. to delay if not to stop public protections.

Q3. Do you have any other points you wish to make for the record regarding E.O.

13422?

A3. OMB Watch has just completed a final analysis3 of the potential impacts of

E.O. 13422 and OMB’s Final Bulletin for Agency Good Guidance Practices. In its

conclusion, we argue that these regulatory process changes further concentrate control in the White House, especially in OIRA, at the expense of both the separation

of powers and agency discretion. OIRA will be able to further delay the issuance

of regulations and guidance documents. These delays will have real impacts on people’s lives. And submitting guidance documents to OIRA review will hurt regulated

entities which rely on agency guidance to conduct daily activities.

E.O. 13422 and the good guidance bulletin move the regulatory process in the

wrong direction and this will have real consequences for our nation’s public safeguards. Our government should be doing more to protect the public, not less.

Questions submitted by Representative F. James Sensenbrenner, Jr.

Q1. Did President Clinton’s E.O. 12866 require agencies to conduct cost-benefit analyses for proposed regulations? If so, what harm would come from simply requiring them to report the aggregate of the analyses they already conducted? Is this

really such a big step?

A1. E.O. 12866 requires agencies to conduct cost-benefit analyses of proposed regulations. These are individual analyses conducted for a very wide range of types of

regulations even for those within one specific agency like the Department of Agriculture or the Department of Labor. The harm that comes from aggregating costs

and benefits from such diverse analyses is in how those aggregate numbers are

used.

Congress requires OMB to report these aggregated cost and benefit totals in its

annual Report to Congress on the Costs and Benefits of Federal Regulations. The

2007 Draft report just issued March 12th states: ‘‘OMB has chosen a ten-year period

for aggregation because pre-regulation estimates prepared for rules adopted more

than ten years ago are of questionable relevance today.’’ But why use ten years?

Why not five or fifteen? The logic regarding the questionable relevance of pre-regulation estimates is as valid for regulations conducted at any time. The aggregated

numbers have little basis in reality.

U.S. businesses excel at adapting to changing business conditions; they adapt

technologically, they adapt by learning from experience. Thus the pre-regulation

cost estimates provided by businesses for use in cost-benefit analyses are hypothetical, and possibly biased. A more reasonable approach would be to perform ex

post studies of costs and benefits (to the extent that either can be quantified). These

ex post numbers are relatively useless in the aggregate.

The best arguments against aggregating costs and benefits are provided in OMB’s

first annual report in 1997, Report to Congress on the Costs and Benefits of Federal

Regulations.4

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Third, it is important to ask: What public policy purposes do aggregate estimates serve if the ultimate goal is to develop the information necessary to make

decisions about specific regulatory programs or program elements? And, in particular: In what ways can these estimates help support the recommendations

to reform the regulatory system required of the Director by Section 645 (a)(4)?

Clearly, knowing the costs and benefits of individual proposals for regulatory

actions and their alternatives, including the alternative of no action, enables

policy officials to make decisions that improve society’s well being. But for reasons discussed below, knowing the total costs and total benefits of all of the

many and diverse regulations that the Federal Government has issued provides

little specific guidance for decisions on reforming regulatory programs. [Chapter

II, Overview]

The report goes on to argue that ‘‘it is extremely difficult, if not impossible, to

estimate the actual total costs and benefits of all existing federal regulations with

any degree of precision’’ because of two primary problems. First, is the problem of

what baseline to use in order to make these aggregate numbers meaningful. ‘‘Could

a civil society even exist without regulation? In other words, what do we use as the

baseline for world without any regulation?’’ OMB provides a number of problems with trying to identify a baseline for meaningful comparison. Problems include the ex ante vs. ex post issue raised above, the

dynamic quality of the economy, and the dangers of attributing changing behavior

to the presence of federal regulation as opposed to State and local regulation, tort

claims, and/or public pressure. Businesses simply cannot accurately calculate the

costs of compliance.

Second, in aggregating costs and benefits, one is comparing apples to oranges to ‘‘kiwis, grapefruit, etc.’’ The cost-benefit analyses ‘‘vary in quality, methodology, and

type of regulatory costs included.’’ And not all regulations are the same. Environmental, social (public health, consumer and workplace protections, civil rights), economic, transfer payments, and process regulations require very different approaches.

OMB Watch believes that aggregating costs and benefit has no useful purpose to

policy-makers because there is no connection to a problem government is trying to

solve. Thus the only uses can be for creating a political straw man or for use in

developing regulatory budgets which advance an already tenuous economic framework over the regulatory process. Regulatory budgets cap annual compliance costs

of regulations, and as we’ve argued here, there is no reliable way of knowing the

extent of these costs. Agencies must submit ‘‘combined aggregate costs and benefits

of all its regulations planned for that calendar year to assist with the identification

of priorities.’’ [emphasis added] This language from E.O. 13422 provides further evidence that the intent is to use aggregated numbers for policy-making.

Q2. A major criticism of the market failure criterion is that some believe it elevates

economic concerns above those of public health and safety, and that this contradicts Congressional guidance. Is this true? If so, why don’t the following sections give agencies an out when they are presented with conflicting values?

Sec. 1, end of last sentence: ‘‘unless a statute requires another regulatory approach.’’

Sec. 1(b), end of sentence: ‘‘to the extent permitted by law and where applicable.’’

A2. We believe that economic concerns are already elevated above public health,

workplace safety, environmental and civil rights concerns. Under the Bush Administration, these economic considerations have been advanced and politicized beyond

the limits they had in previous administrations as we have documented for six

years. The language quoted above from E.O. 12866 might be applicable in a regulatory implementation scheme in which OIRA acted as a counselor instead of a gatekeeper. These sections may provide a legal exit strategy when an agency is challenged. The practical effect, however, is that when one agency, OIRA, has the sole

responsibility for overseeing an agency’s proposed rules, has control over the agency’s budget, and has the ability to keep an agency in an endless loop of regulatory

analyses, OIRA will get nearly all of what it wants. This situation is exasperated

by the lack of transparency in OIRA’s role in the pre-rule-making process.

Q3. One of the reasons agencies have increasingly turned to guidance documents in

order to regulate industry is that they do not require public notice, public comment, or OMB notice. This has allowed for more flexibility and reactive policies,

but has sacrificed transparency, organization, and accountability. Do you believe

the recent OMB bulletin proposes a reasonable method of balancing these competing principles?

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A3. We would add to the list of reasons why agencies have turned to guidance documents the cumbersome and incredibly slow pace of getting regulations promulgated.

Focusing on guidance documents ignores the real regulatory problems that exist in

the process. The process is dysfunctional: it is too centralized, OIRA lacks the staff

and expertise to judge the adequacy of the non-economic aspects of complex regulations, and it has increasingly imposed a once-size-fits-all approach to the analytical

approaches used in the process.

Far from providing a reasonable method of balancing the principles cited above,

submitting significant guidance documents to a review process similar to that for

regulations sacrifices all of the principles mentioned. One more aspect of agency action is subject to OIRA’s black box of regulatory review thus sacrificing transparency and accountability; adding more categories for the small staff at OIRA to

review sacrifices agency flexibility and reactivity to anything more than an individual request. That results in providing guidance one transaction at a time.

Instead of implementing good guidance practices, OIRA would have served the administration and the public far better if it had attempted to fix the problems that

drive agencies to issue guidance in the place of regulation.

(89)

Appendix 2:

ADDITIONAL MATERIAL FOR THE RECORD

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99

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101

102

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While on the Home Front

Missing from the New York Times of January 19—and for that matter the Washington Post—was any attention to an executive order the President issued quietly

on Thursday, that achieves a major increase in White House control over domestic

government. The executive order, issued without explanation or accompanying press

release, appears to be a series of technical amendments to an existing regime by

which the White House coordinates the activities of federal agencies adopting regulations. Among its measures, the order

• considerably expands the range of activities embraced by the order, from official regulations having the force to law to less formal policy and interpretations;

• requires agencies to place control over these activities into the hands of a

‘‘presidential appointee’’—that is, a person whose appointment does not require senatorial confirmation—unless a particular decision of hers is specifically overridden by the agency’s senatorially confirmed head;

• requires the agency to consider in addition to its statutory responsibilities

issues Congress may not have thought appropriate factors for decision; and

• gives the White House considerable leverage to require the agency to adopt

expensive and delaying procedures for considering proposed regulations, that

will greatly enhance the effective power of participants in the process - regulated industries who may have White House friends, in particular.

It is perhaps not surprising that, having lost control of Congress, the President

is doing what he can to increase his control of the executive branch. President Clinton, when he lost the Congress, also worked to achieve by regulation what he could

not expect to do legislatively. Much more law is made today by regulation than legislation, in any event. But yesterday’s steps reflect the view we have seen in connection with the war in Iraq as well, that the President is a law unto himself, entitled

to act without particular regard to Congress’s wishes.

Senatorial confirmation gives agency heads a relationship with Congress as well

as the White House. They are the ones Congress’s laws empower to decide regulatory matters. Given the enormous range of governmental responsibilities today, it

is even less thinkable now than it was two centuries ago that these decisions, in

their detail, are for the President—he may consult, he may oversee, but the law

places decisional authority in them. President Andrew Jackson had to fire two Secretaries of the Treasury before he could find an Acting Secretary willing to move

government funds out the United States Bank; he and they understood that the

decisional authority rested in them—and the Senate promptly refused to confirm the

Acting Secretary’s nomination. Now a presidential ukase places decisional authority

in the hands of a person with whom the Senate has no relationship; should the

President fire and wish to replace that person, there will be no such political price

to pay.

Congress also sets the factors that an agency is to consider in reaching regulatory

decisions. It may quite deliberately exclude some possibly relevant factors from

agency consideration. A few years ago, for example, the Supreme Court found that

the Clean Air Act did not authorize the Environmental Protection Agency to consider costs. The new factors the executive order makes potentially decisive, in the

hands of a person answering only to the President, effectively amend the law as the

President—but not the Congress—wishes.

Congress has been chary of requiring the complex procedures the executive order

appears to place in White House control. Rule-makings using them, in substantial

control of the participants as ordinary rule-makings are not, can extend for years.

A quarter-century ago, when the DC Circuit had imposed similar requirements judicially, the Supreme Court said emphatically that any such decision was for Congress. Now the President has effectively appropriated that decision for himself—and

his political friends.

We have long been a nation under law. The war emergency has placed that proposition under considerable strain. If the President’s law-transcending claims, however

wrong, can be understood in that context, they should not be tolerated when, as

now, they emerge in stealth documents, in the ordinary context of law-administration.

Dr. Peter L. Strauss

Betts Professor of Law

Columbia Law School

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Bush Order Limits Agencies’ ‘Guidance’

BY CINDY SKRZYCKI

TUESDAY, JANUARY 30, 2007; PAGE D01

On Jan. 18, when the headlines in the United States focused on the war in Iraq,

the new Democratic Congress and actress Lindsay Lohan’s alcohol problem, the

Bush Administration rewrote the book on federal regulation.

President Bush issued an executive order curbing the power of agencies to regulate industry through ‘‘guidance’’—informal advice that falls short of official rules

yet can still cost companies millions of dollars to comply with. The order, which also

calls on agencies to project the cost of new rules, among other demands, gives the

White House more power to review how they write standards to regulate corporate

behavior.

The amendments are ‘‘the most serious attempts by the executive branch to control the regulation mills of the hundreds of federal agencies,’’ said William Kovacs,

Vice President of Environment, Technology and Regulatory Affairs at the U.S.

Chamber of Commerce, the Nation’s largest business lobby.

The story behind those changes illustrates how important the competing sides

consider rule writing. Even subtle word changes can have significant effects on what

the chemical, oil, home-building, pharmaceutical and other highly regulated industries must spend.

‘‘It’s another thumb on the scale,’’ said Sally Katzen, who headed the Office of Information and Regulatory Affairs, the top regulatory job, in the White House Office

of Management and Budget during the Clinton Administration. ‘‘There will be more

boxes to check, more I’s to dot, more T’s to cross and more analysis.’’

Federal agencies issue guidance to interpret key policy and technical questions,

often at the request of industry. The Labor Department’s Occupational Safety and

Health Administration, for example, issued 574 guidance documents between 2001

and 2005, many directed at the construction industry.

Though the guidance isn’t legally binding, companies pay close attention to it.

More than 30 individuals and groups, including those representing funeral directors

and ornithologists, filed comments about ‘‘good guidance practices’’ for a bulletin

issued with the executive order.

Some, such as the American Chemistry Council based in Arlington, said it was

‘‘frequently beneficial’’ for agencies to have the flexibility to issue guidance without

a formal rule-writing process. Still, the council and most others who filed comments

backed the plan to rein in the practice because of concern that guidance at times

amounted to back-door rule writing.

Guidance should be subject to oversight by the OMB and public notice and comment, they argued.

General Electric, the world’s second-largest company by market value, said the

Environmental Protection Agency issued guidance on how to clean up toxic chemicals, which a court ruled in 2002 was actually a ‘‘legislative rule.’’ The Fairfield,

Conn., company recommended that agencies be required to maintain a list of all

guidance documents on their web sites.

Sanofi-Aventis, France’s largest drug-maker, said guidance documents ‘‘can have

significant impact on our business as well as on the ultimate lives of our customers—patients.’’

The Paris company, whose U.S. headquarters is in Bridgewater, N.J., recapped an

experience in which the Centers for Medicare and Medicaid Services switched its

payment policy on four drugs last year, after the final rule had been approved.

Bush’s executive order told agencies they must submit to the White House budget

office for review any guidance that has an impact of $100 million or more on the

economy and make such significant interpretations available to the public for comment.

Kovacs said the Chamber’s complaint about guidance ‘‘was one of the first issues

we talked about’’ with John Graham, the Administration’s first regulatory czar at

the OMB.

Another change requires agencies to state in writing ‘‘the specific market failure’’

that it intends to cure with a new rule. Insufficient competition can be a sign of

such a failure, OMB officials said. Or the government may have to order nutritional

labeling because there otherwise would be a lack of information for consumers.

The market-failure concept has taken on new emphasis with the Bush Administration. The President nominated Susan Dudley, the former head of the regulatory

program at the Mercatus Center, a free-market-oriented research group at George

Mason University in Arlington, to replace Graham in the top regulatory job at the

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OMB. Dudley wasn’t confirmed by the Senate in the last Congress and is now a top

aide in the budget office.

Public Citizen, a District nonprofit group that monitors regulation, charged that

Dudley will use a market-failure standard to create economic barriers to protecting

the public.

Under the Bush executive order, regulators also now will have to estimate the

total costs and benefits of planned rules. And the process will be overseen in each

agency by a political appointee, another provision that public interest groups oppose.

‘‘There is no question who this panders to,’’ said Rena Steinzor, a University of

Maryland Law Professor who is critical of administration regulatory policy. ‘‘It’s

something business has wanted.’’

Jeffrey Rosen, OMB’s general counsel, said: ‘‘Simply put: What we are doing here

is ‘good government.’ We are building upon a process that has been used by presidents of both parties to try to institutionalize best practices.’’

Criticism of the changes is ‘‘a tempest in a teapot,’’ said Paul Noe, an adviser to

Graham who is now a Washington lawyer. ‘‘The executive order promotes better-informed and more accountable regulatory decisions.’’

Congress should be paying attention to the President’s action because he is usurping the authority the lawmakers gave the agencies to regulate, according to Peter

Strauss, a Professor at Columbia University Law School.

‘‘It’s maybe not surprising that having lost control of the Congress, the President

is doing what he can to increase control of the Executive Branch,’’ Strauss said.

Cindy Skrzycki is a regulatory columnist with Bloomberg News. She can be

reached at cskrzycki@bloomberg.net.

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Bush order on government regulation stirs debate

BY TABASSUM ZAKARIA

REUTERS

TUESDAY, JANUARY 30, 2007; 4:28 PM

WASHINGTON (Reuters)—An order signed by President George W. Bush on the

oversight of thousands of government regulations issued every year was praised by

business as a step toward controlling an unwieldy process but criticized by others

as potentially a loser for consumers.

The White House said the executive order signed by Bush on January 18 makes

a senior official in each agency accountable for the regulations it issues and provides

greater openness by ensuring that ‘‘guidance’’ documents issued to businesses are

available to the public.

Business groups say the order should help businesses which have to wade through

a myriad of regulations, sometimes conflicting ones from different agencies, by making one person in each agency in charge of overseeing the regulations issued.

Consumer groups say the public would lose out because the order could slow the

process by which regulations in the public interest such as pollution controls would

be issued, and puts the process under the control of an official appointed by the

President.

Jeffrey Rosen, counsel at the White House Office of Management and Budget,

called the criticism a ‘‘mistaken argument’’ and said the basic regulatory process in

the order has been in place over both Democratic and Republican administrations.

‘‘The basic framework is the same,’’ he said of the order which amended an order

issued by President Bill Clinton in 1993.

‘‘This is just another tool for industry and their allies in the Bush White House

to slow down and prevent agencies from getting things done to protect the public,’’

said Robert Shull, deputy director for auto safety and regulatory policy at Public

Citizen.

The order requires agencies use a standard of ‘‘market failure,’’ which means determining whether private markets can correct a social problem like pollution on

their own, in deciding whether government needs to step in, he said.

Shull said that was too high a bar to meet as the new Democratic-controlled Congress prepares to take on issues like global warming and fuel economy.

Rosen said the new order better defines the term market failure from Clinton’s

order. On consumer advocate concerns like pollution, ‘‘the clarification actually

helps,’’ because it would be a legitimate basis for regulation, he said.

Consumer groups expressed concern about the order’s requirement that the regulatory oversight officer at the agencies be appointed by the President.

‘‘This is really just another way of the White House getting its fingers in all of

the agencies, manipulating all of their policies and all of their priorities in a way

that Congress never intended,’’ Shull said.

Rosen said it meant more accountability. ‘‘If you want to know who’s responsible

for regulatory decisions, here’s who it is and it’s a presidential appointee, meaning

it’s somebody very senior,’’ he said. ‘‘It’s a way of identifying some accountability.’’

The regulatory process puts out about 4,000 regulations every year in addition to

the 192,000 regulations that exist, said Bill Kovacs, Vice President of Regulatory Affairs at the U.S. Chamber of Commerce.

‘‘Imagine yourself being a small business and trying to comply on any given day

with labor standards, health standards, pension standards, environmental standards,’’ Kovacs said. ‘‘So people are trying to find some way to get control over the

process.’’

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(133)

AMENDING EXECUTIVE ORDER 12866: GOOD

GOVERNANCE OR REGULATORY USURPATION? PART II

THURSDAY, APRIL 26, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT, COMMITTEE ON SCIENCE AND TECHNOLOGY, Washington, DC.

The Subcommittee met, pursuant to call, at 10:10 a.m., in Room

2318 of the Rayburn House Office Building, Hon. Brad Miller

[Chairman of the Subcommittee] presiding.

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HEARING CHARTER

SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT

COMMITTEE ON SCIENCE AND TECHNOLOGY

U.S. HOUSE OF REPRESENTATIVES

Amending Executive Order 12866:

Good Governance or Regulatory

Usurpation? Part II

THURSDAY, APRIL 26, 2007

10:00 A.M.–1:00 P.M.

2318 RAYBURN HOUSE OFFICE BUILDING

Purpose

On Tuesday, February 13, 2007 the Subcommittee on Investigations and Oversight of the Committee on Science and Technology held a hearing to receive testimony regarding the President’s recent amendment to Executive Order 12866. That

order provides guidance to agencies for submitting proposed regulations to the Office of Management and Budget (OMB) for pre-approval.

The amendment (Executive Order 13422) expands this process by requiring agencies to submit proposed significant guidance documents for pre-approval. The Order

also requires for the first time that agencies identify in writing the specific market

failure or problem that warrants the proposed regulation or guidance; that a Presidential appointee in each agency be designated as regulatory policy officer and that

officer must approve each regulatory undertaking by the agency.

The February hearing provided significant testimony highlighting several issues.

Three bundles of issues emerged as worthy of further work:

1. How was the Executive Order developed and what are the consequences of

changes to the language of E.O. 12866?

2. What does the shift to a ‘‘market failure’’ standard for justifying a regulatory

proposal mean and how will the annual agency costs of regulations statements be used?

3. Will the change in the status and authority of the Regulatory Policy Officers

in the agencies have consequences for transparency in the regulatory process?

Witnesses

To provide insight into these issues, the Subcommittee has invited the following

witnesses:

Mr. Steven Aitken, General Counsel at OIRA. Mr. Aitken can address how E.O.

13422 was developed. He can also offer up OIRA’s take regarding how OIRA interprets the new E.O. In testimony before the House Judiciary Committee, he indicated

that the view of OIRA was that most of the changes were simply to bring the language of the Executive Order into alignment with practice.

We will also hear from Professor Peter Strauss of Columbia Law School and

Dr. Gary Bass of OMB Watch. They will address some of the institutional challenges OIRA’s role pose to the standing of Congress and the dangers that statute

may be trumped by non-statutory Presidential guidance. They will also speak to

problems of transparency that come with a larger role for Regulatory Policy Officers.

Then Dr. Robert Hahn and Professor Richard Parker will also testify. Dr.

Hahn is famous for studies, done in residence at the American Enterprise Institute,

regarding the costs of regulation. His degree is in economics and he has advocated

in the past for more reliance on cost-benefit analysis. Professor Parker of the University of Connecticut Law School will offer his insights into the problems with costbenefit analysis and regulatory budgeting efforts.

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Key Issues

Regulatory authority is the main tool Congress has used to charge Executive

agencies with responsibilities to protect the environment, public health, the safety

of the workplace, the use of public lands and a myriad of other good purposes. Congress obviously cannot pass a law, or amend statute, every time a new threat to

air or health arises. Instead, Congress puts into place general purposes, general authority and a set of values that the agency should use in carrying out the law.

When the Office of Information and Regulatory Analysis (OIRA) injects itself into

the regulatory process there can be a fine line between guaranteeing that a proposed regulation is convincingly demonstrated and efficient in its likely outcome and

substituting the President’s values and preferences for the goals and purposes Congress enacted in statute. This line can be crossed either in the guidance to agencies

from OIRA or by the way OIRA conducts itself.

OIRA has quietly grown into the most powerful regulatory agency in Washington.

The Reagan administration used OIRA to push further and further into the process

of vetting regulations. A string of Executive Orders in the 1980s, many issued during David Stockman’s tenure at OMB, forced agencies to let OIRA be a full part- ner—some thought dominant partner—in moving regulations forward. Several

House Chairs fought a very bitter struggle to push OIRA back out of the business

of interfering with the conduct of agencies as they carried out the law. That fight

met only mixed success.

As discussed below, E.O. 12866 was a Clinton-era effort to retain Reagan-initiated

White House oversight of agency regulatory processes that had been the product of

Reagan initiatives, balanced against the recognition that agencies should have primacy in the regulatory process. The thrust of E.O. 12866 was to pare back the array

of regulatory actions that would be swept up into OIRA’s review (the estimate was

that the annual number of regulations for review declined from 2000 to a mere 500

or so). Clinton’s OIRA, while still assertive, was cognizant that it was ultimately the

agencies that were charged by Congress with carrying out public purposes and

OIRA’s assertions of authority had to be tempered by that legal reality.

The Bush Administration has been very aggressive in expanding the role of OIRA.

Independent agency action has, in some cases, been by OIRA, which has acted as

a very stingy gatekeeper on what proposed regulations can see the light of day. In

tone, OIRA has returned to the Reagan-era where OIRA uses its privileged position

as ‘‘the President’s voice’’ in regulatory matters, to push agencies into rethinking everything they are doing on regulation.

Critics of OIRA’s role since 2001 describe a process whereby the values and judgments of OIRA’s small staff (dominated by economists) trump the judgments of technical experts in the agencies and supplant the values in statute designed to guide

agency regulatory activities. The cumulative effect of OIRA’s behavior since 2001

has been to intimidate agencies into running away from pursuing their statutory

responsibilities rather than get caught up in the political struggles associated with

moving regulation forward. Supporters of this approach are happy to see some office

moving to slow agency actions and argue that the net result of OIRA’s actions is

a more defensible regulation at the end of the day.

How does all this matter for science and the agencies under the Science Committee’s jurisdiction?

Every year the Federal Government funds billions of dollars of research at the

Environmental Protection Administration, the Department of Labor, the Department of Transportation, the Department of Agriculture, the Department of the Interior, the Department of Energy and the National Oceanic and Atmospheric Administration that contribute directly or indirectly to regulatory considerations. Even the

National Institutes of Health and the National Science Foundation fund science that

finds its way into regulatory proposals. Experts at agencies—often federal scientists—charged with regulatory responsibilities survey the relevant scientific literature to determine where there may be dangers to the public or the public interest. In determining the need for a regulation, the agency uses science funded with

public dollars, as well as that from private sources, to make reasoned assessments

of risks and propose responses. This is all to be done consistent with statutory responsibilities as established by Congress.

OIRA has been using its circulars to force agencies to analyze and reanalyze the

information underlying and supporting proposed regulations. Now, with the amended Executive Order, OIRA is putting in place an economic criteria—market failure—

for regulation and guidance that may have nothing to do with the values established

in statute. This effort is coming with no consultation or input from Congress. Further, by making the regulatory policy officer a more empowered gatekeeper, with

political allegiance to the President, it raises the chances that the agencies themselves will find it hard during the Bush years to get regulatory proposals started

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or completed simply to submit them to OIRA for review. Congress did not empower

agencies to protect public health and safety simply to then sit on its hands to see

all Congress appropriates for regulatory-relevant science and the legal authority

seated in agencies be trumped through a sweeping Executive Order.

Bush Amendments to E.O. 12866

The Bush Administration has amended this Executive Order two times. The first

amendment in 2002 simply removed the Vice President from the process, replacing

that office with that of the White House chief of staff. This second occasion for

amendment has come with limited warning, little discussion and with much broader

implications. The attached CRS report goes into detailed discussion of the major

changes, and some of their implications. Below is a summary of the key observations.

1. Elevating ‘‘Market Failure’’:

First, the amendment establishes a new standard that must be met by any proposed guidance or regulation. Originally, the first principle guiding submissions to

OIRA seeking approval of a proposed regulation was that ‘‘[e]ach agency shall identify the problem that it intends to address (including, where applicable, the failures

of private markets or public institutions that warrant new agency action) as well

as assess the significance of that problem.’’ Under the amended language, ‘‘Each agency shall identify in writing the specific

market failure (such as externalities, market power, lack of information) or other

specific problem that it intends to address (including, where applicable, the failures

of public institutions) that warrant new agency action, as well as assess the significance of the problem, to enable assessment of whether any new regulation is warranted.’’

Critics of OIRA allege that this new standard of ‘‘market failure’’ supplants the

values that exist in statute for regulatory action. They also worry that OIRA will

use this standard to summarily dispense with proposals that they deem to be unconvincing in their articulation of a market failure. However, there is permissive language allowing for other kinds of analysis. The core question will rest on how OIRA

applies this language in practice.

There is a fundamental problem with ‘‘market failure’’: there is no objective test

for when market failure is present or when an identified ‘‘imperfection’’ in the operation of a market is sufficient to justify regulatory intervention. Economists offer a

model of an ideal, perfect market (perfect information, perfect competition, rational

action by all actors, no externalities, no agency problems, predictable transaction

costs) and no market in the real world ever works like these theoretical markets.

So deciding that a particular ‘‘failing’’ is worthy of intervention is really in the eye

of the economist. It is a little like the saying about lawyers: if you don’t like the

advice yours is giving you, get a new one. The same with economists and market

failure.

2. Presidential Appointees as Regulatory Policy Officers

The amendment directs that each agency shall name a regulatory policy officer

who shall be a Presidential appointee. While regulatory policy officers had been required in the Executive Order as originally propounded in 1993, the notion that the

officer must be a Presidential appointee takes the expert staff of agencies out of the

picture. The language of the amendment charges this officer with being ‘‘involved

at each stage of the regulatory process to foster the development of effective, innovative, and least burdensome regulations and to further the principles set forth in this

Executive order.’’

This political appointee appears to serve as a kind of gatekeeper’s gatekeeper. The

officer will compose an annual plan and ‘‘no rule-making shall commence nor be included on the Plan without the approval of the agency’s Regulatory Policy Office.’’

Previously such officers were to be involved in the rule-making process and now

they have total discretion over the initiation of work that could lead to a regulation.

(CRS states that these Regulatory officers are largely drawn from political appointees already so this may not be a notable change; however, the source on that

is OIRA and they do not keep a master list of these officers so it is hard to know

how to evaluate this assertion.)

Chairman Miller has raised questions about the transparency of activities carried

out by the Regulatory Policy Officer. For example, will meetings between the RPO

and outside parties on matters that may be considered for guidance or regulation

be subject to the same sorts of disclosure that OIRA now routinely makes? Will a

decision by an RPO to bar an agency from moving forward with a proposed regulation ever be subject to public disclosure? If a proposal has been drafted and sent

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forward to the RPO who sends it back with new guidance, will that exchange be

public the way OIRA’s response to proposed regulation would be?

Further, we have found in our own survey of agencies, that many agencies have

been relying or have now named their General Counsel as RPO. Will the General

Counsel make a claim of attorney-client privilege in response to FOIA requests (and

even Congressional requests) related to any work on a proposed regulatory action?

3. Aggregate Regulatory Costs and Benefits

The original language of 12866 required a ‘‘summary of planned significant regulatory action including, to the extent possible, alternatives to be considered and preliminary estimates of anticipated costs and benefits.’’ The Bush Administration

amendment expands this requirement to direct that each agency provide the ‘‘best

estimate of the combined aggregate costs and benefits of all its regulations planned

for that calendar year to assist with the identification of priorities.’’ Critics allege that this will elevate cost-benefit analysis in the regulatory process.

Cost-benefit analysis is a very controversial analytical tool in guiding regulatory behavior. While the call to make sure that the benefits of a regulation exceed its costs

has a simple appeal, the reality is that many of the benefits regulations are designed to capture (the survival of a species, to protect the lives and health of citizens, the quality of the air or water) are impossible to accurately value. However,

the costs of steps to implement a regulation are usually easy to specify with precision. The result is a process that tends to be very complete in its enumeration of

costs and incomplete in its ability to set values on the benefits. Retrospective studies have found that costs used in estimating the costs of a regulation turn out to

be overstated. And of course because you are using ‘‘dollars’’ to estimate costs, it

provides the illusion of a precision that does not—perhaps cannot—exist.

Critics also view this as a potential first step towards a regulatory ‘‘budget’’ that

could be used to stop future regulations based on some ‘‘capping’’ of that budget.

4. Review of Significant Guidance Documents

Under the amendment each agency is to provide OIRA with advance notice of all

proposed significant guidance documents. OIRA may then decide which guidance it

deems to be ‘‘significant’’ from its perspective and ask for the proposed guidance and

a brief explanation of need. ‘‘The OIRA administrator shall notify the agency when

additional consultation will be required before issuance of the significant guidance

document.’’ There is no time limit on how long OIRA may take in moving on these guidance

proposals.

The impact on agency conduct may be very, very significant and could potentially

sweep up thousands of such proposals each year. Guidance is issued to communicate

to an effected public how an agency intends to interpret or enforce statutory directions. The business community relies on guidance to ensure that conduct will comply with agency intentions for application of law.

Conclusion

While the language of the Amendment to Executive Order 12866 is alarming to

many, the fundamental issue is how does OIRA intend to implement it? The reemergence of the ‘‘gatekeeper’’ approach to OIRA under President Bush—an event

that has not so far received the kind of institutional push-back from Congress which

that role drew in the 1980s—suggests that the rule as amended will be used very

aggressively to stall agency action. But how OIRA intends to apply this language

in practice is a subject worth some study.

Two other issues loom large from the Committee on Science and Technology’s perspective. First, what will these changes imply for the science-based regulatory agencies? Will we increasingly find that the ‘‘science’’ that matters is no longer that of

climate, biological or medical researchers, but narrow applications of cost-benefit

analysis and market failure theory drawn from economics? Should the Science Committee, uniquely positioned to examine and evaluate research, undertake a more rigorous review of the validity and utility of these economic approaches to regulation?

Second, what does this new amendment imply for the institutional prerogatives

of the legislative branch? Agencies exist in statute and are given mandates under

the law. Should Congress passively accept an Executive Order that, just as an example, places Presidential appointees in a position where they can arbitrarily block

career agency officials from carrying out the purposes of the law Congress charged

them with?

The growth of power at the Office of Information and Regulatory Affairs has gone

largely unexamined in recent years. This new Executive Order invites Congress as

a body, and many, many Committees that are affected, to undertake a vigorous and

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thorough review of the changes in that office since 2001. One possible response is

to offer legislative language that will enhance the transparency of the actions by

Regulatory Policy Officers; that is an option that Chairman Miller is actively considering.

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Appendix:

Other Regulatory Tools that OMB has used to Expand its

Powers:

Data Quality: There were two recent acts of legislation that affected OMB’s oversight of data. They are the Data Access Law and the Data Quality Law. Both of

these laws were inserted into omnibus appropriations bills, and neither was fully

debated in Congress.

The entire Data Access Law consists of the following short passage:

‘‘Office of Management and Budget Salaries and Expenses

. . .Provided further, That the Director of OMB amends Section———.36 of

OMB Circular A–110 to require federal awarding agencies to ensure that all

data produced under an award will be made available to the public through the

procedures established under the Freedom of Information Act: Provided further,

That if the agency obtaining the data does so solely at the request of a private

party, the agency may authorize a reasonable use fee equaling the incremental

cost of obtaining the data. . .’’[11]

The purpose of the law was to increase public access to data conducted with funding from federal grants. Another purpose of the law was to overturn Forsham v.

Harris,[12] which stood for the principle that data generated by a privately controlled organization which received grant funds from a federal agency were not

‘agency records’ accessible under the Freedom of Information Act.

The Data Quality Act (‘‘DQA’’), was inserted into the FY 2001 Consolidated Appropriations Act.[13] The Data Quality Act instructed OMB to establish guidelines to

federal agencies for ‘‘ensuring and maximizing the quality, objectivity, utility, and

integrity of information (including statistical information) disseminated by federal

agencies.’’ Through its guidelines,[14] OMB directed agencies to establish ‘‘administrative mechanisms allowing affected persons to seek and obtain correction of information maintained and disseminated by the agency.’’ To date, there appears to have

been over 100 DQA petitions filed with numerous federal agencies. OMB does not

compile a list of DQA petitions, so ascertaining the exact number of petitions filed

is cumbersome. OMB Watch (www.ombwatch.org) keeps track of the individual petitions filed at each agency, and maintains a comprehensive list of DQA petitions.

Two major questions concerning the DQA remain unresolved. The first is whether

the DQA applies to agency rule-making. It is clear that the DQA applies to agency

action outside the rule-making process (for instance, agency dissemination of information through websites). However, there is no guidance in the actual legislation

as to the applicability of the DQA to rule-making. There appears to be a consensus

position across the federal agencies that the DQA doesn’t apply to rule-making, as

the rule-making process already allows for public comment. Furthermore, the DQA

contains no reference to the Administrative Procedure Act. Nevertheless, industry

petitioners have successfully used the DQA petition process to influence agency rulemaking. One instance involves the chemical atrizine. As a result of a DQA petition,

the EPA included a sentence in a scientific assessment of the risks of atrazine that

stated hormone disruption cannot be considered a ‘‘legitimate regulatory endpoint

at this time.’’[15] Atrazine is banned in Europe precisely because of the evidence

that it is an endocrine disruptor. By attacking the science underlying potential rulemaking, the petitioners were able to avoid agency rule-making altogether.

Another major question concerning the DQA is whether DQA petitions are judicially reviewable. Thus far, the major case on the issue held that DQA petitions are

not judicially reviewable.[16] However, further challenges in different circuits are

planned, and the issue may not be fully settled. Judicial review of DQA petitions

would cause massive delays to the petition process.

DQA Based Regulations: OIRA developed two important new regulations based on

the Data Quality Act: OMB Peer Review Guidelines[17] and OMB Risk Assessment

Bulletin (Proposed). OMB’s Peer Review Guidelines dictate that ‘‘important scientific information shall be peer reviewed by qualified specialists before it is disseminated by the Federal Government.’’ The guidelines apply to all ‘‘scientific information disseminations that contain findings or conclusions that represent the official position of one or more agencies of the Federal Government.’’ OMB’s guidelines

establish minimum peer review standards for federal agencies. Varying requirements for peer review are established based on the potential influence of the scientific information, with ‘‘highly influential scientific assessments’’ receiving the

strictest peer review requirements. OMB asserts its legal authority to impose the

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Peer Review Guidelines flows from the Data Quality Act’s direction to OMB to provide guidance for federal agencies for ‘‘ensuring and maximizing the quality, objectivity, utility and integrity of information’’ which is disseminated.

OIRA recently proposed a Risk Assessment Bulletin.[18] This has not yet been

published in its final form. The Risk Assessment Bulletin establishes ‘‘quality standards for risk assessment disseminated by federal agencies.’’ Much like the Peer Review Bulletin, the Risk Assessment guidelines have varying levels of quality standards. There is one set of standards for general risk assessments and another set of

stricter standards for influential risk assessments. Influential risk assessment is defined as ‘‘a risk assessment the agency reasonably can determine will have or does

have a clear and substantial impact on important public policies or private sector

decisions.’’ OMB again asserts legal authority to issue the bulletin arises from the

Data Quality Act. This Risk Assessment proposal was soundly rejected by the National Academy of Sciences in their January review. That step seems to have killed

the proposal.

Analysis

The effect of the Data Quality Act, Peer Review Bulletin and Risk Assessment

Bulletin is to impose an additional layer of regulatory administration on agencies

that, for the most part, already have strong internal guidelines (at least for peer

review and risk assessment). The result of this will likely be greater delay in agency

dissemination of information, and a chilling effect that might discourage agencies

from attempting to disseminate information in the first place. The bulletins also

represent another step in OMB’s continuing effort to insert itself into agency affairs.

In addition, the possibility remains that OMB will attempt to use its authority

under the Data Quality Act to insert itself into the agency rule-making process. This

could potentially reek havoc on the rule-making process, and create years of new

legal challenges related to the rule-making process. Needless to say, that would

cause significant slowdown of an already slow rule-making process.

References

[1] 42 Stat. 22, Ch. 18, Sec. 207. OMB currently resides at U.S.C. Title 31, Chapter

5 (31 U.S.C. Sec. 501).

[2] 53 Stat. 1423, Sec. 1.

[3] 84 Stat. 2085, Sec. 102(a), restated 88 Stat. 11, Sec. 1.

[4] 44 U.S.C. Chapter 35, P.L. 96–511, restated P.L. 104–13, 109 Stat. 163.

[5] 44 U.S.C. Sec 3503.

[6] P.L. 104–13, 109 Stat. 163.

[7] P.L. 105–277, 112 Stat 2681.

[8] P.L. 106–554, Sec. 515, 114 Stat. 2763.

[9] 44 U.S.C. Chapter 35, P.L. 96–511, restated P.L. 104–13, 109 Stat. 163.

[10] 44 U.S.C. Chapter 35, P.L. 104–13, 109 Stat. 163.

[11] P.L 105–277, 112 Stat. 2681.

[12] 445 U.S. 169 (1980).

[13] P.L. 106–554, 114 Stat. 2763(A).

[14] 67 FR 8452 (2002).

[15] Data Quality Law is Nemesis of Regulation, Washington Post, August 16, 2004.

[16] Salt Institute v. Michael O. Leavitt, 440 F.3d 156 (2006).

[17] 70 FR 2664 (2005).

[18] Notice of proposal at: 71 FR 2600. Text of the proposed bulletin is not published in the Federal Register.

[19] P.L. 105–277, 112 Stat. 2681.

[20] P.L. 106–554, Sec. 515, 114 Stat. 2763.

[21] 44 U.S.C. 3502(1).

[22] 67 FR 8460 (2002).

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Chairman MILLER. Good morning. This hearing will come to

order. Welcome to today’s hearing entitled ‘‘Amending Executive

Order 12866, Good Governance or Regulatory Usurpation, Part II.’’ I want to welcome everyone to this hearing today on the role of the

Office of Information and Regulatory Affairs, OIRA, in overseeing

the development of regulations. The most powerful regulatory office

in Washington is the rarely noticed Office of Information and Regulatory Affairs. OIRA was created in the 1980 Paperwork Reduction

Act with a mandate to reduce the paperwork requirements of the

American public. Within a few years of its creation, the Reagan

White House had given expansive powers to the office to review all

regulatory proposals by federal agencies, and predictably, an office

supposedly created to reduce paperwork put standards and procedures in place that required agencies to generate mountains of

paper. Congress and the White House struggled over the proper

role of OIRA all through the 1980s. Various Congressional committees believe that OIRA prevented agencies from complying with

statutory requirements to clean up the environment, to protect the

public and to make workplaces safer.

The Clinton Administration’s Executive Order 12866 resolved

some of the same aspects of that fight. This subcommittee took testimony from a former director of OIRA, Sally Katzen, in February.

Ms. Katzen was the principal author of Executive Order 12866. She

testified that the Clinton Administration order assured that agencies carried more influence over the substance of the regulation

than did OIRA. OIRA could ask hard questions, ask for more data

or more clarity, but in the end, statutory authority and expertise

was with the agency and OIRA must respect that.

Executive Order 13422 is a new chapter in OIRA’s role and

opens again some of the issues that were resolved in the Clinton

Administration order. Under this order, not just major regulations

but guidance is subject to review by OIRA and the order creates

a new requirement, and I understand, Mr. Aitken, you will testify

today it is not really new but it creates a new requirement, market

failure, for any agency to promulgate any regulation. Market failure does not appear in any statute as a consideration of rule-making and in fact Congress flatly rejected that argument, that the

market will work things out. Given time, if we leave it alone, the

market will work it out. Congress flatly rejected that argument by

enacting legislation that granted rule-making authority. The order

also requires agencies to compose annual summaries of the cumulative costs of proposed regulations, another requirement for rulemaking that does not appear in statute, and the order creates within each agency a regulatory policy officer who can smother regulatory efforts in the crib before an agency can even begin considering a regulatory action. The cumulative effect of all these

changes is to seize for the President and OIRA power over regulatory efforts consistent neither with statute nor the Constitution.

Professor Strauss has it just right when he warns us that there are

many potential hazards on this path.

I want to hear what process was followed in developing this new

executive order, what deficiencies in the Clinton Administration

Executive Order 12866 this new order is designed to address, and

how OIRA intends to apply the various new requirements. I want

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to also hear the advantages and pitfalls of using cost-benefit analysis, market failure and even a regulatory budget as a tool for regulatory policy. The power given to regulatory policy officers is especially troubling. RPOs are presidential appointees with political

ties. OIRA speaks for the President and OIRA has set out an economic standard as a guide to regulatory proposals, a standard unsupported by statute. RPOs will address that standard while also

serving in agencies that have a statutory obligation that is entirely

different from the values and preferences of OIRA, or at least may

be. Unlike the Clinton Administration, Executive Order 13422 requires no disclosure. There are no transparency requirements to

explain the actions of RPOs. Mr. Aitken, in your testimony today,

you will sing the praises of transparency but I think there are

questions about how the RPO’s role is consistent with expectations

of transparency in government. Will we ever know in a pre-rule period what has happened, who has spoken with him, how language

has been changed in an proposal or what proposed rules were

stopped in their tracks by an agency’s RPO? What sort of discussions may occur between OIRA and the RPO regarding OIRA’s expectations, and how would the Congress, much less the public, ever

learn that those exchanges had occurred? Deciding issues that affect the lives of millions of Americans in secret is incompatible with

our democratic traditions.

[The prepared statement of Chairman Miller follows:]

PREPARED STATEMENT OF CHAIRMAN BRAD MILLER

Good morning, I want to welcome everyone to Part II of our hearing on role of

the Office of Information and Regulatory Affairs in overseeing the development of

regulations.

The most powerful regulatory office in Washington is the rarely noticed Office of

Information and Regulatory Affairs (OIRA). OIRA was created in the 1980 Paperwork Reduction Act with a mandate to reduce the paperwork requirements on the

American public. Within a few years of its creation, the Reagan White House had

given expansive powers to that office to review all regulatory proposals by federal

agencies. Predictably, an office supposedly created to reduce paperwork put standards and procedures in place that required agencies to generate mountains of paper.

Congress and the White House struggled over the proper role of OIRA all through

the 1980s. Various Congressional Committees believed that OIRA prevented agencies from complying with statutory requirements to clean up the environment, protect the public and make workplaces safer.

The Clinton Administration’s Executive Order 12866 resolved some of the aspects

of that fight. This Subcommittee took testimony from a former director of OIRA,

Sally Katzen, in February. Ms. Katzen was the principle author of E.O. 12866. She

testified that the Clinton Administration Order assured that agencies carried more

influence over the substance of a regulation than did OIRA. OIRA could ask hard

questions, ask for more data or more clarity, but in the end statutory authority and

expertise reside in the agencies and OIRA must respect that.

Executive Order 13422 is a new chapter in OIRA’s role. Under this order, not just

major regulations, but guidance is subject to review by OIRA. And the order creates

a new requirement—‘‘market failure’’—for any agency to promulgate any regulation.

‘‘Market failure’’ does not appear in any statute as a consideration in rule-making;

in fact, Congress flatly rejected the argument that the market will solve the problem

when Congress enacted the legislation granting rule-making authority.

The Order also requires agencies to compose annual summaries of the cumulative

costs of proposed regulations, another requirement for rule-making that does not appear in statute. And the Order creates within each agency a ‘‘Regulatory Policy Officer’’ who can smother regulatory efforts in the crib before an agency can even begin

considering a regulatory action. The cumulative effect of all these changes is to seize

for the President and OIRA power over regulatory efforts consistent neither with

statute nor with the Constitution.

144

Professor Strauss has it just right when he warns us that there are many potential hazards on this path.

I want to hear what process was followed in developing this new Executive Order,

what deficiencies in E.O. 12866 is this designed to redress, and how OIRA intends

to apply these new requirements.

I want to hear the advantages, and pitfalls, of using cost benefit analysis, market

failure and even a regulatory budget as a tool for regulatory policy.

The power give to Regulatory Policy Officers is especially troubling. RPOs are

Presidential appointees with political ties. OIRA speaks for the President and OIRA

has set out an economic standard as a guide to regulatory proposals, a standard unsupported by statute. RPOs will apply that standard while also serving in agencies

that have statutory obligations that are entirely different from the values and preferences of OIRA?

Unlike the Clinton Administration order, Executive Order 13422 requires no disclosure requirements to actions by RPOs? Will we ever know, in that pre-rule period, what has happened, who has spoken with whom and how language may be

changed in a proposal, or what proposed rules were stopped in their tracks buy an

agency’s RPO? What sort of discussions may occur between OIRA and the RPO regarding OIRA’s expectations and how would the Congress, much less the public,

ever learn that those exchanges had occurred.

Deciding issues that affect the lives of millions of Americans in secret is incompatible with our democratic traditions.

Chairman MILLER. With that, I recognize my Ranking Member

today, Mr. Sensenbrenner, for five minutes.

Mr. ROHRABACHER. Yes, sir. As you can see, Sensenbrenner and

Rohrabacher look a little bit alike there.

Chairman MILLER. This fellow here.

Mr. ROHRABACHER. Okay. You won’t try to pronounce Rohrabacher, and I fully understand that.

Chairman MILLER. The gentleman from California.

Mr. ROHRABACHER. Well, I would say that it is a pleasure to be

with you today but I actually am taking the spot of Mr. Sensenbrenner, who was called away because he is serving as Ranking

Member on the new Select Committee on Energy Independence and

Climate Change, so I am taking his spot while he is out doing some

other things that are equally important.

I would like to welcome the witnesses and I understand that

many of them actually testified before Congress on this topic before

this, some of them having testified before the Judiciary Committee

in February. I am also glad to see that the Administration is here

to clear up any misconception either side of the aisle may have

about some of the proposals that have been made by the Administration.

I served on the Science Committee for 20 years so I am fully

aware of how science and research influence the regulatory process.

I have also seen how several administrations have chosen to organize and oversee the regulatory process. In the past each president

has set up his own guidelines when taking office. With that in

mind, I think it is worth nothing that we are here today discussing

this issue in the seventh year of the current Administration. Up

until this point, the current Administration has been operating

under President Clinton’s executive order. Furthermore, the new

executive order that we are looking at today simply makes minor

clarifications and leaves the vast majority of the Clinton Administration’s executive order in place, asking agencies to report work on

market failure and cost-benefit analysis. Well, they are already required to do this. It doesn’t seem like a great leap in a new direction to me. Also, if we are going to have a regulatory policy and

145

if we are going to have officers of these agencies who are making

decisions, which is what the previous executive orders have required, it might be a good idea to ensure that they are accountable

to someone. Ultimately, all executive orders only stand as long as

the current president is in office. Thus, the voters will have a way

to determine who they should elect as president of the United

States and who they will reelect based on the executive orders that

come out of the various candidates. In all likelihood, the next president will modify or even replace the particular executive orders

that we are talking about within a very short period of time, within

just a few years, or even a short period of time after the next election, so just a very short period of time from now.

Viewing this topic in this light, I think that the issues that we

will address here today have less to do with their policy implications and more to do with who issued these policies. That being

said, I will certainly follow how this executive order is implemented

to ensure that public health and safety are observed and that there

continues to be a transparency and accountability in our regulatory

process, and again, let me note this. When President Clinton became president, I was fortunate enough to be serving in Congress

at that time, the first thing he did was eliminate every U.S. attorney, fire every U.S. attorney without explanation, simply firing

them, and there has been a big brouhaha about President Bush

getting rid of several U.S. attorneys, but unfortunately, Mr.

Gonzales felt compelled to offer some explanation, which now has

put him into hot water. President Clinton chose not to offer any explanations of that. Well, here we are in a similar situation where

President Clinton offered executive orders, this is his right to do so,

and this President seven years into his Administration now is altering something that President Clinton did immediately upon entering his term of office and there is now an attempt to call this

into question, and I would just guess that if it was any other president or the past president was doing this, this would not be an

issue because the President has a right to issue executive orders.

With that said, I am looking forward to hearing from the witnesses.

[The statement of Mr. Rohrabacher follows:]

PREPARED STATEMENT OF REPRESENTATIVE DANA ROHRABACHER

Thank you Mr. Chairman. I will be filling in for Mr. Sensenbrenner today, as he

was called away to serve as Ranking Member on the Select Committee on Energy

Independence and Climate Change.

I’d like to welcome our witnesses here today. I understand that, for many of them,

this is their second appearance before Congress on this topic—having testified before the Judiciary Committee in February. I’m also glad to see that the Administration is here to clear up any misconceptions either side of the aisle may have.

I’ve served on the Science Committee for almost 20 years, so I am fully aware

of how science and research influence the regulatory process. I’ve also seen how several Administrations have chosen to organize and oversee the regulatory process. In

the past, each President has set up his own guidelines upon taking office. With that

in mind, I think it’s worth noting that we are here today discussing this issue in

the seventh year of the current Administration. Up until this point, the current Administration had been operating under President Clinton’s Executive Order. Furthermore, the new Executive Order that we are looking into today simply makes

minor clarifications and leaves the vast majority of the Clinton Administration’s Executive Order in place. Asking Agencies to report work on ‘‘market failure’’ and

‘‘cost-benefit analysis’’ that they are already required to do doesn’t seem like a giant

leap to me. Also, if we are going to have regulatory policy officers at agencies as

146

the previous Executive Order required, it might be a good idea to ensure that they

are accountable to someone.

Ultimately all Executive Orders only stand as long as the current President is in

office. In all likelihood, the next President will modify, or even replace this Executive Order in a few years. Viewing this topic in this light, I think that the issues

that we will address here today have less to do with their policy implications, and

more to do with who issued them. That being said, I will certainly follow how this

Executive Order is implemented to ensure that public health and safety are preserved, and that there continues to be transparency and accountability in our regulatory process.

Chairman MILLER. Thank you. There are no other Members

here, but if any other Members of the Committee wish to present

opening statements for the record, we can receive them in writing

and include those.

[The prepared statement of Mr. Costello follows:]

PREPARED STATEMENT OF REPRESENTATIVE JERRY F. COSTELLO

Good Morning. Thank you Mr. Chairman for calling a second hearing to examine

the President’s recent amendment to Executive Order 12866, which requires Federal

Government agencies to submit any proposed regulations to the Office of Management and Budget (OMB) for pre-approval. On Tuesday, February 13, 2007, the Subcommittee held its first hearing on Executive Order 12866. The February hearing

provided significant testimony highlighting several issues worthy of further work

and oversight.

Regulatory authority is the main tool Congress has used to charge Executive

agencies with responsibilities to protect the environment, public health, safety in of

the workplace, the use of public lands and a number of other good purposes. I have

concerns that the amendment put in place by the Bush Administration goes one

step further than the current process by requiring agencies to identify in writing

the specific market failure or problem that warrants the proposed regulation or

guidance.

I look forward to hearing the perspective of the witnesses on how the Executive

Order developed and what are the consequences of changes to the language to Executive Order 12866.

I welcome today’s witnesses and look forward to their testimony.

Chairman MILLER. Mr. Aitken, with that bit of advice, support

openness, transparency and accountability but don’t explain yourself or you will get in trouble. We welcome your testimony today.

Steve Aitken is the general counsel for the Office of Information

and Regulatory Affairs, OIRA, the Office of Management and

Budget, and for the last ten months Mr. Aitken has served as the

acting administrator of OIRA. Mr. Aitken, your oral testimony is

limited to five minutes but your entire written testimony will be

placed in the record, and after you have given your testimony, the

Members of the Committee will have five minutes each to ask

questions. We do swear our witnesses. Mr. Aitken, do you have any

objection to being sworn in? Okay. You also have a right to be represented by counsel. Do you have counsel here today?

Mr. AITKEN. No.

Chairman MILLER. These questions are designed to put you at

ease. Please stand and raise your right hand.

[Witness sworn]

Mr. ROHRABACHER. Would we note for the record that the people

on this side of the hearing are never sworn in that way?

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Panel 1

TESTIMONY OF MR. STEVEN D. AITKEN, GENERAL COUNSEL

FOR THE OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET

Mr. AITKEN. Thank you, Mr. Chairman. Chairman Miller, Representative Rohrabacher and distinguished Members of the Subcommittee, thank you for giving me the opportunity today to testify

before you on Executive Order 13422.

I am Steven Aitken. For a ten-month period starting in June of

last year and ending at the beginning of this month, I served as

Acting Administrator of the Office of Information and Regulatory

Affairs. I have worked at OMB for nearly 18 years. Except for my

service as OIRA’s Acting Administrator, I have served in the Office

of the General Counsel at OMB, first as an Assistant General

Counsel and then as a Deputy General Counsel. I am testifying

today in my capacity as the former Acting Administrator of OIRA.

Earlier this year the President issued Executive Order 13422,

which made several amendments to Executive Order 12866. The

most important of these amendments relate not to the regulations

that federal agencies develop but rather to the guidance that federal agencies develop. In addition, on that same day the OMB director issued the Bulletin on Agency Good Guidance Practices. This

is the final version of the bulletin that OMB issued in proposed

form for public comment in November of 2005. As I note in my

written testimony, the draft bulletin received support from a broad

and diverse range of commenters and the bulletin reflects good

guidance principles that are found in the FDA’s Good Guidance

Regulations and that have been supported by the Administrative

Conference of the United States and by the American Bar Association.

The Bulletin and Executive Order share a good government goal,

to improve the way that the Federal Government does business by

increasing the quality, accountability and transparency of agency

guidance documents including the opportunity for the public to review and comment on guidance. The good government improvements that are made by the bulletin are reinforced by the recent

order which provides for a relatively informal process whereby

some but by no means all of the significant guidance documents

that are developed by agencies will be submitted to OMB for interagency review. In addition, the recent order makes several additional good government improvements. There has been some confusion in the press and elsewhere about these changes and I would

like to address those.

First, concerns have been raised about the order’s provisions regarding regulatory policy officers. First, these officers are not new.

When President Clinton issued Executive Order 12866, he directed

each agency head to designate a regulatory policy officer. In addition, while the recent order specifies that these regulatory policy officers will be presidential appointees, the case is that for most departments and major regulatory agencies, they already were presidential appointees subject to Senate confirmation.

In addition, concerns have been expressed regarding the recent

order’s discussion of market failure. Before explaining what this

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amendment does do, I want to explain first what it does not do.

First, the concept of market failure is not new to Executive Order

12866. Instead, it has been an integral part of that order since

President Clinton issued it in 1993. In the order, as issued by

President Clinton, the President referred not once but twice to the

‘‘failures of private market’’ as a justification for regulation. That

is the same thing as a market failure. Second, the recent order

does not make a market failure the only basis on which an agency

can justify regulatory action. Instead, the order expressly allows an

agency to identify as a justification for regulatory action any other

significant problem that the agency intends to address. That is

what the recent order does not do. What it does do is include in

Executive Order 12866 references to three classic examples of market failure, namely externalities, market power and lack of information. These three examples are not new to the implementation

of Executive Order 12866. In fact, in 1996 then-OIRA administrator Sally Katzen issued Best Practice Guidelines to the agencies

that included a separate discussion of market failure, and those

guidelines discussed these three classic examples of market failure.

Some have expressed concern that the recent order could prevent

agencies from issuing regulations to protect public health and safety but this is not correct. Many of the most significant regulations

that agencies issue are in fact in response to market failures. For

example, environmental pollution is the classic example of an externality market failure. Another type of market failure stems from

a lack of information. In response to this kind of market failure,

the Food and Drug Administration issued a regulation that requires nutritional labels on packaged foods to display the amount

of trans fats in them. This rule was not driven by a specific statutory mandate but by the market failure of lack of information.

Finally, I would like to mention that late yesterday the OMB director and the OIRA administrator finalized a memorandum to

agencies that provides them with questions and answers to assist

them in the implementation of the recent order and bulletin. A

copy of the memorandum was forwarded to the Subcommittee late

yesterday and it is being posted on OMB’s web site this morning.

This concludes my opening statement. I would welcome any

questions that the Subcommittee has.

[The prepared statement of Mr. Aitken follows:]

PREPARED STATEMENT OF STEVEN D. AITKEN

Chairman Miller, Ranking Member Sensenbrenner, and distinguished Members of

this subcommittee, thank you for inviting me to this hearing and for giving me the

opportunity to testify before you today on Executive Order 13422, in which the

President amended Executive Order 12866.

I am Steven D. Aitken. For a ten-month period, starting in June of last year and

continuing into the first week of this month, I served as the Acting Administrator

of the Office of Information and Regulatory Affairs (OIRA), an office within the Office of Management and Budget (OMB). I have worked at OMB for nearly 18 years.

Except for my service as OIRA’s Acting Administrator, I have served in the Office

of General Counsel at OMB, first as an Assistant General Counsel and then as Deputy General Counsel. I am testifying today solely and exclusively in my capacity as

the former Acting Administrator of OIRA.

On January 18th, the President issued Executive Order 13422, which made several amendments to Executive Order 12866 on ‘‘Regulatory Planning and Review.’’

The most important of these amendments relate, not to the regulations that federal

agencies develop, but rather to the guidance that federal agencies develop and proVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00016 Fmt 6601 Sfmt 6621 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
149

1 Executive Order 13422 and the Final Bulletin are published in the Federal Register at, respectively, 72 FR 2763 (January 23, 2007), and 72 FR 3432 (January 25, 2007). OMB requested

public comment on the proposed bulletin at 70 FR 71866 (November 30, 2005), and extended

the comment period at 70 FR 76333 (December 23, 2005). These documents, along with the public comments that OMB received on the proposal and the OMB Director’s memorandum issuing

the Bulletin (Memorandum M–07–07), are available on OMB’s website. The original version of

Executive Order 12866, issued in 1993, was published in the Federal Register at 58 FR 51735

(October 4, 1993). Executive Order 12866 was previously amended once, in 2002, by Executive

Order 13258, which was published in the Federal Register at 67 FR 9385 (February 26, 2002). 2 I discussed this background in greater depth in my testimony of February 13, 2007, before

the Subcommittee on Commercial and Administrative Law of the House Committee on the Judiciary. That testimony is available on OMB’s website at http://www.whitehouse.gov/omb/legislative/testimony/oira/aitken¥02132007.pdf. 3Office of Management and Budget, Stimulating Smarter Regulation: 2002 Report to Congress

on the Costs and Benefits of Federal Regulations (2002), p. 72. 4Office of Management and Budget, Draft 2002 Report to Congress on the Costs and Benefits

of Federal Regulations, 67 FR 15014, 15034 (March 28, 2002). 5 ‘‘Guidance documents, used properly, can channel the discretion of agency employees, increase efficiency by simplifying and expediting agency enforcement efforts, and enhance fairness

by providing the public clear notice of the line between permissible and impermissible conduct

while ensuring equal treatment of similarly situated parties.’’ Office of Management and Budget,

Draft 2002 Report to Congress on the Costs and Benefits of Federal Regulations, id., 67 FR at

15034.

vide to the public. In addition, also on January 18th, the OMB Director issued the

OMB Bulletin for Agency Good Guidance Practices. This is the final version of the

bulletin that OMB issued in proposed form for public comment in November 2005.1

The Executive Order and Bulletin share a common goal: namely, the good-government objective of improving the way that the Federal Government does business—

by increasing the quality, public participation, and accountability of agency guidance documents and their development and use. Moreover, the Bulletin and the new

Executive Order will operate in a complementary fashion to improve agency guidance documents.

For this reason, in order to explain the Executive Order’s guidance provision, it

is first necessary for me to outline briefly the common background for both the Bulletin and the Executive Order and then to explain, again briefly, how the Bulletin

is designed to improve the way that agency guidance documents are developed,

issued and used. I will then provide a description and explanation of the Executive

Order’s guidance provision.

Following that, I will discuss and explain the recent Executive Order’s other nonguidance provisions. Among the provisions that I will address are the Executive Order’s provisions regarding Regulatory Policy Officers, market failures, and formal

rule-makings. As part of my discussion of these provisions, I will seek to correct the

misunderstandings that have arisen regarding them.

Background on the Good Guidance Provisions of the Bulletin and Executive Order2

As OMB has previously stated, agency guidance documents can have ‘‘enormous

value.’’ 3 As OMB explained in 2002: ‘‘As the scope and complexity of regulation and

the problems it addresses have grown, so too has the need for government agencies

to inform the public and provide direction to their staffs. To meet these challenges,

agencies have relied increasingly on issuing guidance documents.’’ 4 Guidance documents are issued by agencies throughout the Federal Government, and they address

the wide range of societal activities that are affected, in one way or the other, by

the Federal Government and its programs. Thus, it is not surprising that, depending on the situation, agency guidance can be addressed to individuals, businesses

(both small and large), organizations, State, local, and tribal governments, and others.

For instance, guidance can take the form of an agency explaining to members of

the public how they can participate in a federal program. An example of this kind

of guidance is the Medicare and You handbook that the Centers for Medicare and

Medicaid Services (CMS) distribute to Medicare beneficiaries annually.

Guidance can also take the form of an agency providing advice and assistance to

members of the public about recommended actions to ensure that they are in compliance with federal laws and regulations. In addition to providing advice and assistance to the regulated community on how to comply with the agency’s regulations,

such guidance also furthers consistency and fairness in an agency’s enforcement of

its regulations.5 Depending on the context, the audience for this guidance can include individuals, small entities (such as small businesses and organizations, as well

as local governments), large corporations, and/or State governments.

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6P.L. 104–121, Title II, Subtitle A; 5 U.S.C. § 601 note. 7P.L. 107–198, Section 2(a); 44 U.S.C. § 3504(c)(6). 8OIRA published the 2006 notice last summer, in which OIRA explained that small businesses can go to one Internet address (www.business.gov/sbpra) and find the compliance-assistance resources that are available from the 15 Cabinet Departments and 25 other federal agencies. See 71 FR 39691 (July 13, 2006). 9 62 FR 8961 (February 27, 1997).

10P.L. 105–115, § 405; 21 U.S.C. § 371(h). 11 Id. § 371(h)(5). 12 65 FR 7321 (February 14, 2000) (proposed rule). 13 65 FR 56468 (September 19, 2000) (final rule). 14 21 C.F.R. § 10.115(g). 15 Id. This direction is consistent with the 2001 recommendation by the American Bar Association. 3 American Bar Association, ‘‘Recommendation on Federal Agency Web Pages’’ (August

2001) (agencies should maximize the availability and search ability of existing law and policy

on their websites and include their governing statutes, rules and regulations, and all important

policies, interpretations, and other like matters on which members of the public are likely to

request). 16 Id. § 10.115(i)(2). 17 Id. § 10.115(j). 18 Id. § 10.115(o).

Examples of this type of guidance are the compliance-assistance guides that federal agencies prepare and make available to small businesses. Congress has required federal agencies to prepare and issue such guidance in the Small Business

Regulatory Enforcement Fairness Act of 1996.6 In addition, Congress in the Small

Business Paperwork Relief Act of 20027 assigned to OMB the responsibility, which

is carried out by OIRA, of publishing annually in the Federal Register a notice that

refers small businesses to the Internet site where they can locate the compliance

assistance resources that federal agencies have prepared for their use.8

In sum, agency guidance documents are intended to—and do—have an impact on

society. Depending on the situation, this impact can be relatively small or can be

very substantial. As a result, while it is the case that guidance documents (unlike

regulations) are not legally binding on the public, agency guidance documents nevertheless can potentially have an impact on society that is of comparable magnitude

to the impact that regulations have on society.

In recognition of the impact that its guidance has on society, the Food and Drug

Administration (FDA) in February 1997 issued a ‘‘Good Guidance Practices’’ document to govern how the FDA develops, issues, and uses its own guidance documents.9 Later that year, and building on this FDA policy, Congress in the Food and

Drug Administration Modernization Act of 199710 directed the FDA to issue a regulation by 2000 ‘‘specifying the policies and procedures of the [FDA] for the development, issuance, and use of guidance documents.’’ 11 Following this directive, FDA in

early 2000 issued for public comment a proposed rule on Good Guidance Practices.12

After it reviewed and considered the public comments, FDA finalized the rule later

that year.13

The FDA’s Good Guidance Practices regulation is found at 21 C.F.R. § 10.115. Following the congressional direction in the 1997 Act, the FDA regulation provides that

FDA, among other things, shall seek public comment on its guidance documents, either before or after their issuance (depending on their level of significance) and consider the comments14; shall make its guidance documents easily available to the

public by posting it on the Internet15; ‘‘must not include [in its guidance documents]

mandatory language such as ‘shall,’ ‘must,’ ‘required,’ or ‘requirement,’ unless FDA

is using these words to describe a statutory or regulatory requirement’’ 16; ‘‘must

have written procedures’’ in each FDA center and office ‘‘for the approval of guidance documents,’’ which procedures ‘‘must ensure that issuance of all documents is

approved by appropriate senior FDA officials’’ 17; and must provide members of the

public with an opportunity to submit and seek resolution of a complaint ‘‘that someone at FDA did not follow the requirements in [the regulation] or. . .treated a guidance document as a binding requirement.’’ 18 These FDA regulations went into effect

in October 2000, and therefore have now been in operation for six years.

In sum, as I have just outlined, the Congress and the FDA both recognized that,

because of the impact that FDA’s guidance can have on society, it was important

that FDA’s guidance be subject to public comment (before or after its issuance); be

readily available to the public; be developed through agency procedures that ensure

the review and approval of appropriate agency officials before it is issued; be followed in practice by agency employees; and avoid the inclusion of language that

would suggest to the public that the document is mandatory rather than what it

actually is—namely, guidance. It should also be noted that these requirements, in

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19See also Gen. Elec. Co. v. EPA, 290 F.3d 377 (D.C. Cir. 2002) (striking down PCB risk assessment guidance as legislative rule requiring notice and comment); Chamber of Commerce v.

Dept. of Labor, 174 F.3d 206 (D.C. Cir. 1999) (striking down OSHA Directive as legislative rule

requiring notice and comment). 20 70 FR 71866 (November 30, 2005).

particular the requirements for internal-agency review and approval and for public

comment, help to ensure that guidance documents are of high quality.

The FDA Good Guidance Practices regulation also addresses concerns that courts

have raised about the improper development and use of agency guidance documents.

In its 2000 decision in the Appalachian Power case, the United States Court of Appeals for the District of Columbia Circuit discussed these concerns:

‘‘The phenomenon we see in this case is familiar. Congress passes a broadly

worded statute. The agency follows with regulations containing broad language,

open-ended phrases, ambiguous standards and the like. Then as years pass, the

agency issues circulars or guidance or memoranda, explaining, interpreting, defining and often expanding the commands in regulations. One guidance document may yield another and then another and so on. Several words in a regulation may spawn hundreds of pages of text as the agency offers more and more

detail regarding what its regulations demand of regulated entities. Law is

made, without notice and comment, without public participation, and without

publication in the Federal Register or the Code of Federal Regulations.’’

Appalachian Power Co. v. EPA, 208 F.3d 1015, 1019 (D.C. Cir. 2000) (striking

down emissions monitoring guidance as legislative rule requiring notice and comment).19

OMB’s Issuance of the Proposed and Final Bulletin:

OMB believes that federal agency guidance should be developed, issued and used

through an agency’s adherence to procedures that ensure quality, transparency,

public participation, coordination, and accountability. For this reason, OMB developed (in consultation with federal agencies) a draft OMB Bulletin that would establish as government-wide policy a set of ‘‘best practices’’ for achieving these goals.

As I earlier noted, OMB then sought public comment on this draft bulletin by

issuing it in November 2005 as a proposal for public comment.20 OMB received 31

public comments on the proposal, and these comments are available on OMB’s

website. These comments were largely positive, and reflected the diverse nature of

federal guidance documents and the groups in American society that are affected

by them. Below are examples of some of the associations that submitted comments

(as noted below, these listed associations supported OMB’s development of a bulletin

on Good Guidance Practices, while also providing their suggestions for how OMB

could improve the bulletin):

— the Association of American Medical Colleges, representing all 125 accredited U.S. medical schools, nearly 400 major teaching hospitals and

health systems, and 94 academic and scientific societies (‘‘The AAMC commends the OMB for its proposal to establish consistent and appropriate

standards for developing good guidance practices within federal agencies.’’);

— the National Association of Home Builders, representing more than

220,000 members involved in home building, remodeling. multifamily construction, property management, subcontracting, design, housing finance,

building product manufacturing and other aspects of residential and light

commercial construction (‘‘The National Association of Home Builders

(NAHB) would like to thank the Office of Management and Budget (OMB)

for proposing a process to bring transparency and consistency to Executive

Branch activities that affect the public directly, but do not qualify as rules

under the Administrative Procedure Act (APA).’’);

— the American Society of Safety Engineers, representing 30,000 members

(‘‘ASSE commends OMB/OIRA for taking a proactive stance to ensure that

agencies can readily provide interpretation and guidance of regulations, but

still do so in a manner that affords due process to the regulated community

and that is in accordance with the requisites of the Administrative Procedure

Act, 5 USC 551 et seq.’’);

— the National Funeral Directors Association, representing more than

11,000 funeral homes in all 50 states (‘‘NFDA supports the Office of Management and Budget (OMB) proposal to establish standards to increase the

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21OMB also received comments, some supporting and others opposing the proposed bulletin,

from the following (in alphabetical order): the Aeronautical Repair Station Association, the

American Bar Association, the American Chemistry Council, the American Composites Manufacturers Association, the American Petroleum Institute, AMGEN, C. Blake McDowell (Professor

of Law), Citizens for Sensible Safeguards (OMB Watch), Coalition for Effective Environmental

Information, Consumer Specialty Products Association, General Electric Company, Keller and

Heckman LLP, McKenna Long & Aldridge LLP, Mercatus Center, National Mining Association,

Natural Resources Defense Council, PIMA County (AZ) Wastewater Management Department,

Regulatory Checkbook, Sanofi-aventis, Stuart Shapiro Ph.D. (Edward J. Bloustein School of

Planning and Public Policy, Rutgers University), U.S. Chamber of Commerce. 22OMB Memorandum M–07–07 (January 18, 2007), which is found on OMB’s website. The

final Bulletin is published in the Federal Register at 72 FR 3432 (January 25, 2007).

quality and transparency of agency guidance practices and the guidance documents produced through them.’’);

— the Association of Metropolitan Planning Organizations (‘‘In general,

AMPO strongly supports the Proposed Bulletin’s intent and reliance on the

guidance practices adopted by the Food & Drug Administration (‘FDA’) at 21

C.F.R. 5 10.115.’’);

— the Ornithological Council, which consists of eleven leading scientific ornithological societies—the American Ornithologists’ Union, Association of

Field Ornithologists, CIPAMEX, Cooper Ornithological Society, Neotropical

Ornithological Society, Pacific Seabird Group, Raptor Research Foundation,

Society of Canadian Ornithologists/La Socie ́te ́ des Ornithologistes du Canada, Society for Caribbean Ornithology, Waterbird Society, and Wilson Ornithological Society—that together have a membership of nearly 6,500 ornithologists (‘‘we would like to express our gratitude to OIRA for its efforts to

improve agency guidance practices’’);

— the Aircraft Owners and Pilots Association, representing over 407,000

members (‘‘AOPA shares OMB’s concern that agency guidance practices

should be more transparent, consistent and accountable. We also agree with

OMB that the absence of procedural review mechanisms undermines the

lawfulness, quality, fairness and accountability of agency policy-making.’’);

— the National Leased Housing Association, which represents the interests of housing agencies, developers, lenders, housing managers and others

in providing federally assisted rental housing, and whose members are primarily involved in the Section 8 housing programs and are involved with the

operation of rental housing for over three million families (‘‘we commend

OMB for its efforts’’);

— the American Road and Transportation Builders Association, whose

membership includes public agencies and private firms and organizations

that own, plan, design, supply and construct transportation projects throughout the country (‘‘Once again, ARTBA is extremely supportive of the GGP

and feels that it represents a significant step forward in the regulatory process. It will engender fairness and improved dialogue between agencies and

those that have a vital stake in the guidance they issue. ARTBA and our

members are eager to take advantage of the new opportunities for involvement in the guidance process offered by the GGP and help OMB make the

GGP standard agency practice.’’); and

— the Associated Equipment Distributors, representing 1,200 construction

equipment distributors, manufacturers and industry-service firms (‘‘ Our association thanks the Office of Management and Budget (OMB) for recognizing the impact that guidance material issued by federal regulatory agencies has on the regulated community. We agree with the OMB that transparency in the guidance drafting process is critical, as guidance should not

be used for rule-making.’’).

As I have indicated, the comment letters from these associations can be found on

OMB’s website, along with the other comment letters on the proposed bulletin.21

On January 18th of this year, after considering the public comments and after

further consultation with federal agencies, the OMB Director issued the Final Bulletin on Agency Good Guidance Practices.22 The final version of the Bulletin is very

similar to the proposal in its overall framework, but—as OMB explained in the preamble to the final Bulletin—OMB made a number of improvements to the Bulletin

in response to comments that we received from the public and during the interagency review process.

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The following are a few of the noteworthy provisions of the Bulletin, which reflect

the requirements of the FDA’s Good Guidance Practices regulation and are designed

to improve the quality, transparency, public participation, and accountability of

agency guidance documents:

• Each agency will ensure (as agencies should be doing anyway, as a matter

of good internal management) that appropriate officials within the agency

have reviewed and approved the agency’s issuance of ‘‘significant’’ guidance

documents;

• Agencies will maintain on their websites current lists of their ‘‘significant’’ guidance documents that are in effect, so that the public can know what guidance applies to them;

• Agencies will provide the public with access to and the opportunity to provide

feedback on their ‘‘significant’’ guidance documents. Agencies will advertise on

their websites a means for the public to submit comments electronically on

these guidance documents; and

• For those guidance documents that are ‘‘economically significant’’ (e.g., a guidance document that ‘‘may reasonably be anticipated to lead to an annual ef- fect on the economy of $100 million or more’’), agencies will publish drafts of

the documents in the Federal Register, invite public comment on them, and

prepare responses to the comments before finalizing the guidance.

In recognition of the potentially broad range of guidance documents that are

issued by federal agencies, the Bulletin also (1) includes certain express exclusions

from the definition of ‘‘significant’’ and ‘‘economically significant’’ guidance document; (2) authorizes OMB to exempt ‘‘economically significant documents’’ (singly or

by category) from the requirement for prior public comment before issuance; and (3)

includes an express exception from the Bulletin’s requirements for ‘‘emergency situations or when an agency is obligated by law to act more quickly than normal review procedures allow.’’ In light of concerns that have been raised about the final Bulletin and the Executive Order, this last point bears emphasis. The Bulletin does not stand in the way

of a federal agency responding appropriately to an emergency situation. In addition,

the Bulletin does not override a federal agency’s obligation to comply with applicable

laws.

Executive Order 13422

The Executive Order’s Guidance Provision

In the furtherance of its goal to improve the guidance documents that federal

agencies develop and issue, the Bulletin is reinforced by the principal provision in

Executive Order 13422, which the President issued, also on January 18th. Through

an amendment to Executive Order 12866, which President Clinton issued in 1993,

the recent executive order provides for a relatively informal process whereby federal

agencies will submit to OMB, for interagency review, some—but by no means all—

of the ‘‘significant guidance documents’’ that they develop.

It is important to underscore the point that this amendment provides for an opportunity for interagency review, and therefore that guidance documents are not

treated the same as regulations. When he issued Executive Order 12866 in 1993,

President Clinton directed agencies to submit the drafts of all of their ‘‘significant’’

regulations to OIRA for review (subject to certain limited exceptions). By contrast,

agencies are not required under the recent amendments to submit all of their ‘‘significant’’ guidance documents to OMB for review. Instead, the recent executive order

requires agencies to inform OMB of upcoming significant guidance documents,

which thereby provides an opportunity for interagency review to occur.

In this regard, just as the new Bulletin directs agencies to follow good guidance

practices that, to a greater or lesser extent, are probably being followed by many

agencies for many of their guidance documents (e.g., posting them on the agency’s

website), the recent Executive Order—in recognizing the desirability of ensuring an

opportunity for interagency review—also reflects a practice that already happens in

a number of situations.

In other words, interagency review of important guidance documents is not new.

And, one reason why such review is desirable, and already happens, is because the

programs and activities of one federal agency often overlap or have implications for

the programs and activities of one or more other federal agencies. For example, in

June of last year, the Department of Health and Human Services (HHS) issued a

State Medicaid Director letter that provides guidance on the implementation of the

provision in the Deficit Reduction Act of 2005 that requires individuals claiming

U.S. citizenship to provide—when initially applying for Medicaid or upon the first

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23OMB made this same general point in March 2002 when OMB asked the public to identify

examples of ‘‘problematic guidance documents’’ that would be potential candidates for reform.

Office of Management and Budget, Draft 2002 Report to Congress on the Costs and Benefits

of Federal Regulations, 67 FR 15014, 15035 (March 28, 2002) (‘‘problematic guidance might be

improved by interagency review’’). 24Office of Management and Budget, Draft 2002 Report to Congress on the Costs and Benefits

of Federal Regulations, id., 67 FR at 15035. 25See also Chevron v. NRDC, 467 U.S. 837, 865 (1984) (‘‘an agency to which Congress has

delegated policy-making responsibilities may, within the limits of that delegation, properly rely

on the incumbent administration’s views of wise policy to inform its judgments’’).

redetermination—satisfactory documentary evidence of citizenship or nationality.

Before HHS finalized and issued this guidance, OMB ensured that HHS consulted

first with affected and interested agencies—the Departments of State and Homeland

Security, and the Social Security Administration. This interagency consultation,

which took place in a two-week period, ensured that HHS had the benefit of the

expertise and experience of these other agencies and that the HHS guidance took

into account their interests and programs.

This interagency coordination, then, had the effect of improving the quality of the

HHS guidance in the same way that the quality of guidance can be improved

through public participation and internal-agency review and approval.23 Thus, by

ensuring that there is an opportunity for interagency review, this amendment made

by Executive Order 13422 serves as a complement to the requirements in the OMB

Bulletin for public participation and internal-agency review and approval.

In addition, as OMB explained in March 2002, interagency review of a guidance

document is also justified because ‘‘interagency review can ensure that agency action is consistent with Administration policy and is beneficial from a broader, societal perspective.’’ 24 This type of review during the development of agency guidance

documents is entirely appropriate, for the same reason that the courts have held

that it is appropriate to conduct this same type of review during the development

of agency regulations. As the United States Court of Appeals for the District of Columbia Circuit explained in 1981 (in an opinion by Judge Wald):

‘‘The court recognizes the basic need of the President and his White House staff

to monitor the consistency of executive agency regulations with Administration

policy. He and his White House advisers surely must be briefed fully and frequently about rules in the making, and their contributions to policy-making considered. The executive power under our Constitution, after all, is not shared—

it rests exclusively with the President.

***

‘‘The authority of the President to control and supervise executive policy-making

is derived from the Constitution; the desirability of such control is demonstrable

from the practical realities of administrative rule-making. Regulations such as

those involved here demand a careful weighing of cost, environmental, and energy considerations. They also have broad implications for national economic

policy. Our form of government simply could not function effectively or rationally if key executive policy-makers were isolated from each other and from the

Chief Executive. Single mission agencies do not always have the answers to

complex regulatory problems. An overworked administrator exposed on a 24-

hour basis to a dedicated but zealous staff needs to know the arguments and

ideas of policy-makers in other agencies as well as in the White House.’’

Sierra Club v. Costle, 657 F.2d 298, 404, 405–06 (D.C. Cir. 1981).25 In that decision, the D.C. Circuit upheld the appropriateness of discussions between the White

House and the Environmental Protection Agency, regarding a draft Clean Air Act

rule. These discussions took place—and EPA issued the rule—in 1979, during the

Administration of President Carter.

The Executive Order’s Non-Guidance Provisions

In addition to providing an opportunity for interagency review of draft guidance

documents, the recent Executive Order makes several (non-guidance related) process improvements. As is the case with the guidance amendments in the Executive

Order and the new Bulletin, these process improvements are designed to encourage

good-government practices. Because there has been some confusion in the press and

elsewhere as to the meaning and impact of these changes, let me briefly go through

them.

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i. Regulatory Policy Officers

Concerns have been raised about the provisions in Executive Order 13422 regarding Regulatory Policy Officers. The initial point that should be made is that such

officers are not new; when he issued Executive Order 12866 in 1993, President Clinton directed each agency head to designate a Regulatory Policy Officer within the

agency. Nor is it new that, under the recent amendment, Regulatory Policy Officers

will be Presidential appointees. While the original E.O. 12866 did not require that

agency heads choose a Presidential appointee to be the agency’s Regulatory Policy

Officer, the fact is that, in many departments and major agencies, the agency head

did choose a Presidential appointee to serve as the Regulatory Policy Officer.

And, the term ‘‘Presidential appointee’’ should not be confused with ‘‘political appointee.’’ Presidential appointees are appointed by the President, whereas agency

heads appoint ‘‘political appointees’’ who are in the non-career Senior Executive

Service or are under Schedule C; these agency-head appointees are not Presidential

appointees. Moreover, neither the President nor an agency head can create a Presidentially-appointed position in an agency. Rather, only Congress can do so. And,

when Congress does create a Presidentially-appointed position in an agency, Congress usually provides that this appointee shall be subject to Senate confirmation

(a PAS official). Thus, by requiring that agency heads designate a Regulatory Policy

Officer from among the agency’s Presidential appointees, the President is ensuring

that, in most (if not all) cases, the Regulatory Policy Officer will be a PAS official.

In addition, concerns have been raised that Executive Order 13422 may require

each agency to establish a new ‘‘Regulatory Policy Office’’ that would be headed by

the agency’s Regulatory Policy Officer. I would like to allay such concerns by explaining that this reference to an ‘‘Office’’ was a typographical error. The reference

should have been to a Regulatory Policy ‘‘Officer’’ rather than ‘‘Office’’; the Executive

Order is being implemented accordingly.

I would also like to make three other points regarding the Regulatory Policy Officers. First, Executive Order 13422 places no restrictions on an agency head’s discretion in choosing which Presidential appointee within the agency to designate as the

agency’s Regulatory Policy Officer. It is the agency head’s decision to make.

Second, some have raised a concern that the deletion by Executive 13422 of the

‘‘report to the agency head’’ phrase (that had been in Executive Order 12866) means

that the Regulatory Policy Officer will no longer report to the agency head. This is

not correct. The deletion of this language does not change the fact that the Regulatory Policy Officer reports to the agency head. As before, the agency head continues to be the official who designates which official shall serve as the agency’s

Regulatory Policy Officer, and that designated official will continue to report to the

agency head in performing this role, just as that official reports to the agency head

in performing his or her other responsibilities. The ‘‘report to the agency head’’

phrase was deleted (as indicated above, without substantive impact) in the course

of amending the Executive Order’s provision on the Regulatory Policy Officer to include the requirements that the Regulatory Policy Officer be a Presidential appointee, that the agencies need to inform OMB of the designations, and that the

agencies need to provide OMB with annual updates on the designations.

Third, some have suggested that the designation of an agency official as the Regulatory Policy Officer means that these officials (in the case of PAS officials) must

be subject to a new Senate confirmation. My understanding is that an official’s designation as the Regulatory Policy Officer does not require that the official be subject

to a new Senate confirmation. PAS officials periodically are assigned additional responsibilities (either through statute, executive order, or otherwise), and the assignment of such responsibilities do not require these officials to be confirmed again.

ii. Commencement of a Rule-making

Executive Order 13422 amends Executive Order 12866 to require that an agency’s

commencement of a rule-making be either authorized by the agency head or approved by the agency’s Regulatory Policy Officer. As explained above, most if not

all of the Regulatory Policy Officers will be—as they generally have been over the

years—Presidential appointees who are subject to Senate confirmation. In practice,

then, this will mean that, in most if not all cases, an agency’s commencement of

a rule-making will be authorized or approved by an agency official who is appointed

by the President and subject to Senate confirmation.

iii. Aggregation of annual costs and benefits in the Regulatory Plan

Section 4 of President Clinton’s Executive Order 12866 established a ‘‘Planning

Mechanism’’ that includes an annual Regulatory Plan that reports the most significant regulatory actions anticipated in the coming year and thereafter, along with

the agency’s estimate of each rule’s anticipated benefits and costs. Executive Order

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13422 amends this section to ask agencies, in addition, to aggregate the estimated

costs and benefits of the individual regulations. While the interested public could

always sum-up for themselves the cost and benefit estimates for each of the individual rules, this amendment enhances the transparency of the annual Regulatory

Plan by requiring the agencies to do the aggregation.

iv. The Encouragement of Agencies to Consider Formal Rule-making

Another of the amendments in Executive Order 13422 encourages rule-making

agencies to consider using the Administrative Procedure Act’s formal—rather than

informal—rule-making procedures for the agency’s resolution of complex determinations. Agencies already had the option of using the APAs’ formal rule-making procedures, and this amendment simply encourages them to consider the use of a tool

that has been—and remains—available to them.

v. Market Failure

Executive Order 13422 amended Section 1(b)(1) of Executive Order 12866, which

was—and remains—the first of that Order’s ‘‘Principles of Regulation.’’ As recently

amended, Section 1(b)(1) now states that: ‘‘Each agency shall identify in writing the

specific market failure (such as externalities, market power, lack of information) or

other specific problem that it intends to address (including, where applicable, the

failures of public institutions) that warrant new agency action, as well as assess the

significance of that problem.’’ Before explaining what this amendment does do, I

would like to explain first what it does not do.

First, the concept of market failure is not new to this amendment, but instead

has been an integral part of Executive Order 12866 since President Clinton issued

it in 1993. Indeed, the overarching ‘‘Statement of Regulatory Philosophy,’’ in Section

1(a) of the original Executive Order 12866 (unchanged by E.O. 13422), states that

‘‘Federal agencies should promulgate only such regulations as are required by law,

are necessary to interpret the law, or are made necessary by compelling public need,

such as material failures of private markets to protect or improve the health and

safety of the public, the environment, or the well-being of the American people’’

(italics added). Furthermore, the first ‘‘Principle of Regulation’’ that was articulated

in Section 1(b) of the original Executive Order 12866 reiterated the requirement

that each agency ‘‘identify the problem that it intends to address (including, where

applicable, the failures of private markets or public institutions that warrant new

agency action) as well as assess the significance of that problem’’ (italics added).

Second, the recent Executive Order does not make the identification of a market

failure the only basis on which a federal agency can justify regulatory action. The

revised section also encourages agencies to identify any ‘‘other significant problem

it intends to address.’’ For example, important social benefits are provided by the

federal regulations that govern the delivery of federal assistance to disaster victims,

but these regulations do not address a market failure, per se. Moreover, the recent

Executive Order leaves untouched the provision in Executive Order 12866 that expressly directs federal agencies to ‘‘promulgate. . .such regulations as are required

by law, [or] are necessary to interpret the law.’’ In many cases, when a federal agency is issuing a regulation, the agency is doing so for just those law-based reasons,

and this will continue to be the case; nothing in Executive Order 13422 changes

this.

Having explained what the revised ‘‘market failure’’ language does not do, I would

like to now explain what it actually does do, which is two relatively modest things.

First, Executive Order 13422 states that the agency ‘‘shall identify in writing’’ the

problem—whether it is a market failure ‘‘or other specific problem’’—that the agency

‘‘intends to address’’ through regulatory action. Stating explicitly that federal agencies shall identify ‘‘in writing’’ the problem that the agency is seeking to remedy

through regulatory action does not impose a new requirement on rule-making agencies. An agency should already have been identifying in writing the precise nature

of the problem that the agency is seeking to remedy through regulatory action, in

order to assist the agency in its own analysis of whether regulatory action is warranted and, if so, which of the available regulatory alternatives would best accomplish the agency’s intended result.

Thus, in order to comply with the original version of Section 1(b)(1) of Executive

Order 12866, agencies as a practical matter would have had to make (or at least

should have made) this identification in writing. However, even if an agency did not

do so, the agency should still have identified the problem that it was seeking to remedy through regulatory action in the preamble to the proposed rule (to assist the

public in understanding the agency’s proposal and in offering their comments on it)

as well in the preamble to the final rule (to persuade the public, Congress, and the

courts that the agency has exercised its regulatory authority in a reasonable and

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26Memorandum for Members of the Regulatory Working Group from OIRA Administrator

Katzen, ‘‘Economic Analysis of Federal Regulations under Executive Order 12866 (January 11,

1996), available on OMB’s website at http://www.whitehouse.gov/omb/memoranda/

rwgmemo.html. As Administrator Katzen stated in her transmittal memorandum, the ‘‘Economic

Analysis’’ document ‘‘represents the results of an exhaustive two-year effort’’ by an interagency

working group chaired by Joseph Stiglitz of the Council of Economic Advisers and Steve Kaplan,

the-then General Counsel of the Department of Transportation. 27Draft 2003 Report to Congress on the Costs and Benefits of Federal Regulations, 68 FR

5492, 5514–15 (February 3, 2003); Informing Regulatory Decisions: 2003 Report to Congress on

the Costs and Benefits of Federal Regulation (2003), at pages 121–122 (available on OMB’s website).

well-considered manner). In sum, the requirement that agencies identify the need

for the regulation in writing is a good-government measure. It encourages greater

transparency in rule-making, by helping the public and others understand the problem that the regulation is intended to address, enabling more informed comment on

whether the proposed rule will likely meet its objectives and whether there are

other, better alternatives to address the identified problem.

Second, in order to increase the transparency of Executive Order 12866, Executive

Order 13422 incorporates into Executive Order 12866 a reference to three classic

examples of what constitutes a ‘‘market failure’’—namely, externalities (which justify, e.g., the regulation of pollution), market power (which justify, e.g., the regulation of the rates charged by natural monopolies, such as local gas and electricity

distribution services), and lack of information (which justify, e.g., the nutritional labeling requirements for packaged foods). These three examples of market failure are

not new to the Executive Branch’s implementation of Executive Order 12866. To the

contrary, three years after President Clinton issued Executive Order 12866 in 1993,

these examples were included in the discussion of ‘‘market failure’’ that was contained in the 1996 ‘‘Economic Analysis of Federal Regulations under Executive

Order No. 12866’’ document that former OIRA Administrator Sally Katzen (working

with former CEA Chairman Joseph Stiglitz) issued to federal agencies for their use

in meeting the analytical requirements of Executive Order 12866 (as well as those

of the Unfunded Mandates Reform Act and the Regulatory Flexibility Act).26

In its Part I on ‘‘Statement of Need for the Proposed Action,’’ the 1996 ‘‘Economic

Analysis’’ document had a Section A on ‘‘Market Failure,’’ which provided separate

descriptions of ‘‘Externality,’’ ‘‘Natural Monopoly,’’ ‘‘Market Power,’’ and ‘‘Inadequate

or Asymmetric Information.’’ The 1996 ‘‘Economic Analysis’’ document also included

the following introductory discussion:

‘‘I. STATEMENT OF NEED FOR THE PROPOSED ACTION

‘‘In order to establish the need for the proposed action, the analysis should discuss whether the problem constitutes a significant market failure. If the problem does not constitute a market failure, the analysis should provide an alternative demonstration of compelling public need, such as improving governmental processes or addressing distributional concerns. If the proposed action

is a result of a statutory or judicial directive, that should be so stated.

‘‘A. Market Failure

‘‘The analysis should determine whether there exists a market failure that is

likely to be significant. In particular, the analysis should distinguish actual

market failures from potential market failures that can be resolved at relatively

low cost by market participants. Examples of the latter include spillover effects

that affected parties can effectively internalize by negotiation, and problems resulting from information asymmetries that can be effectively resolved by the affected parties through vertical integration. Once a significant market failure

has been identified, the analysis should show how adequately the regulatory alternatives to be considered address the specified market failure.’’

Moreover, the three examples of market failure that are now referenced in the

amended Executive Order 12866 (i.e., externality, market power, and lack of information) were contained in the draft Circular on regulatory cost-benefit analysis that

OMB issued for public comment and peer review in 2003, and they are contained

in the final Circular A–4 that OMB issued later that same year (and which remains

in effect).27

And, thus, the use of these three market failure examples in the implementation

of Executive Order 12866 is not new. Moreover, Executive Order 13422 did not substantively change the first ‘‘Principle of Regulation’’ in Executive Order 12866 or

how this Principle is implemented by the Executive Branch. Instead, all that happened as a result of Executive Order 13422, with respect to these three examples

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28Letter from OIRA Administrator Graham to the Department of Health and Human Services

regarding trans fatty acids (September 18, 2001) (available on OMB’s website).

of market failure, is that they are now mentioned in Executive Order 12866 itself

(rather than only in the implementation documents). In other words, the recent

amendment has simply increased the transparency of Executive Order 12866.

Some have expressed concern that this amendment to Executive Order 12866

could prevent agencies from issuing regulations to protect public health and safety,

but this is not correct. Many of the most significant regulations that agencies issue

are, in fact, driven by—and are in response to—market failures. As the 1996 OMB

‘‘Economic Analysis’’ document noted, ‘‘[e]nvironmental problems are a classic case

of externality,’’ and this Administration has issued a number of significant environmental regulations aimed at addressing environmental externalities, including

EPA’s Clean Air Interstate Rule (CAIR) and its Non-road Diesel Engines Rule. Similarly, regulations to protect homeland security, such as FDA’s recent regulations

under the Public Health Security and Bioterrorism Preparedness and Response Act,

respond to inadequate private market incentives to respond to potential terror

threats.

Another type of market failure that is mentioned in the amendment made by Executive Order 13422 stems from lack of information. An example of a regulation

that is justified by the ‘‘lack of information’’ market failure was the Food and Drug

Administration’s recent regulation that requires the nutritional labels on packaged

foods to display the amount of trans-fats in them. This labeling requirement is estimated to have considerable public health benefits, by providing consumers important information with which they can make purchasing decisions. Moreover, this

rule was the subject of a ‘‘prompt letter’’ that former OIRA Administrator John

Graham sent to HHS in 2001 encouraging the agency to issue a rule to require the

labeling of trans-fats.28

Finally, in both the CAIR and trans-fats rules, identification of a market failure,

rather than a specific directive from statute, was the driving force behind the

issuance of regulations that are expected to have significant public health and quality of life benefits.

Moreover, as noted above, nothing in this amendment to E.O. 12866 precludes

agencies from justifying regulations on grounds other than the failure of private

markets. Nor does it preclude agencies from justifying regulations on the ground

that Congress has required the agency to promulgate regulations to address a particular situation, or on the ground that the regulations are necessary to interpret

the law, or on the ground that regulations are necessary to address a compelling

public need.

Thank you again for this opportunity to testify. I hope that I have been able to

clarify the purpose of the new Good Guidance Bulletin, and the recent amendments

to Executive Order 12866. As I noted at the beginning of my testimony, the Executive Order and Bulletin share a common goal: namely, the good-government objective of improving the way that the Federal Government does business—by increasing the quality, public participation, and accountability of agency guidance documents and their development and use.

I would welcome any questions that the Subcommittee has.

BIOGRAPHY FOR STEVEN D. AITKEN

Steven D. Aitken was designated by the President to begin service on June 3,

2006, as the Acting Administrator of the Office of Information and Regulatory Affairs (OIRA), an office within the Office of Management and Budget. He served as

OIRA’s Acting Administrator for the following ten months (his service ceased in

early April, 2007, when Susan E. Dudley was sworn in as OIRA’s Administrator).

Prior to serving as OIRA’s Acting Administrator, Steve was Deputy General Counsel at OMB and, prior to becoming Deputy, he was an Assistant General Counsel

at OMB. In total, he has served at OMB for nearly 18 years. He has also served

in the U.S. Department of Justice as a trial attorney in the Civil and Antitrust Divisions, and he served two judicial clerkships, one in 1986-1987 for Judge (now Chief

Judge) Douglas H. Ginsburg of the U.S. Court of Appeals for the District of Columbia Circuit and the other in 1984–1985 for Justice (later Chief Justice) Christopher

Armstrong of the Massachusetts Appeals Court. He has a Bachelor’s degree in Government from Harvard College and a law degree from Harvard Law School.

Steve lives in Washington, D.C., with his wife and son.

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DISCUSSION

Chairman MILLER. Thank you, Mr. Aitken. I want to announce

a policy this morning. In the first couple of meetings of this subcommittee, I have had a hard time overcoming my Southern mother’s teaching that interrupting people was bad manners. I think all

of us struggle as adults to figure out what part of what our mother

taught us we need it ignore as adults. But we do need to keep fairly close to the time allotments. You were fine. You were just a few

seconds over. Mr. Rohrabacher was actually just a few seconds over

in his opening remarks as well. In his opening round, I will ask for

questions for seven minutes, my questions and your answers, Mr.

Rohrabacher for seven minutes. If any other Members appear, they

will have turns to ask questions for five minutes. But we do need

to keep fairly closely within that time limitation, and I will bring

the gavel down as necessary, hoping that in fact C–SPAN is not

broadcasting this and my mother is not watching it at home.

EXECUTIVE ORDER CONSULTATION PROCESS

Mr. Aitken, in your written testimony you said the OMB believes

that federal agency guidance should be developed, issued and used

through an agency’s adherence to procedures that ensure quality,

transparency, public participation, coordination and accountability.

All those sound laudable, I agree with all of them, but I am wondering how those standards were applied and actually developed in

this executive order that we are discussing now. Were there meetings with which agencies about them? When did those occur? Were

there any public comments sought? Was there correspondence with

outside parties? Could you tell me briefly what kind of consultation

occurred in developing this order?

Mr. AITKEN. Thank you for the question. The order was developed in accordance with the standard process that the executive

branch has for the development of executive orders and that process is set out in an executive order itself. I believe the number is

Executive Order 11030 that has been in place for several decades.

And it provides for a process whereby OMB consults with other

agencies about a proposed executive order and the executive order

could be proposed by an agency, another office, by OMB, and those

consultations then feed into an internal deliberative process that

results at the end of the day in a proposal being made to the President and it is then the President’s decision on whether to move forward with the proposed order or not. That standard practice, which

was followed here, does not involve putting out a draft of an executive order for public comment. That is simply not the practice that

has been applied for decades in the development of executive orders. In this case, the agencies were consulted per the standard

process and their views were requested and taken into account.

Chairman MILLER. You said that there was not a draft put out

for public comment. I assume that you didn’t get it just perfect the

very first time, that there were various iterations of the executive

order? Am I correct in assuming that?

Mr. AITKEN. Yes. I can’t really get too much into the details of

the executive order process in regard to the substance or the discussions that occurred internally, but yes, as is the case with execVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00027 Fmt 6601 Sfmt 6601 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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utive orders, and OMB does handle that process, I am familiar

with it, executive orders typically go through a number of drafts in

response to comments and further thought.

Chairman MILLER. When you say you can’t comment, is it because you are not familiar, you don’t know?

Mr. AITKEN. It is because it is just an internal deliberative process and the standard practice is not for the executive branch to reveal the internal deliberations that resulted in an executive order.

Chairman MILLER. Mr. Aitken, we have a point of disagreement

about what Congress’s authority is and what the internal deliberative process protects from disclosure to Congress, and I am afraid

if you take that view, we may end up having several hearings

about this issue. Did you—I am sorry. So it is your intention not

to discuss further what the procedures were in developing this

draft, the various drafts, who was consulted, what documents were

generated, were there internal memoranda, correspondence, emails, were there such documents?

Mr. AITKEN. Oh, yes. The standard executive order process in the

OMB’s general counsel’s office is a lead within OMB for the interagency clearance of executive orders, so I am very familiar with

that process. It typically involves the submission by an agency or

an executive branch office to OMB of a proposed executive order,

the circulation of that proposal to agencies and offices who would

be interested in that order for their review and comment—— Chairman MILLER. But you do not intend to testify today to who

made which suggestions, observations, criticisms, concerns? You

view that as not within the information that Congress may seek of

the executive branch?

Mr. AITKEN. We are——

Chairman MILLER. That is a bad course we are on if that is the

view you take.

Mr. AITKEN. I think what I am offering, again in my capacity as

the former acting administrator and as a long-time OMB career

employee, is that those deliberations which ultimately lead to the

proposals to the President for action are internal deliberative communications. They are privileged. We would not release those for

example in response to a FOIA request or litigation, and my experience has been that we have not released those deliberations to the

public or that we have been requested or provided those in the

past, that is. It is just not my experience.

Chairman MILLER. That has been my experience too, but a request from a committee of Congress is not the same as a FOIA request. There are cases, as I am sure—I hope you are aware—

maybe you aren’t aware. The courts have dealt with this issue.

There is an internal deliberative process. The court says it has very

slight weight. If there any need for the information, the concern

about finding the truth overcomes any concern about protecting

confidentiality, and if there is any suggestion that there was an improper—that the executive agency action was based upon any improper consideration, there is no privilege or immunity at all. This

is not a FOIA request. Now, I am afraid that we are going to have

to have another hearing to discuss these processes, and I certainly

think that we are going to now request the agency a great many

documents. So I would urge you to, when you get back to your ofVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00028 Fmt 6601 Sfmt 6601 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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fice this afternoon, look at the law on internal deliberations and

consider carefully that this is a committee of Congress asking, not

a FOIA request.

Mr. AITKEN. I understand that, and I will do so. I mentioned the

FOIA in part just because of the Congressional recognition in the

enactment of the FOIA of the importance of confidential deliberations for improving government decision-making. Also, it is my experience that the executive branch over the years through decades

has not received requests from Congress for the internal deliberations leading to executive orders, so for me, this is an unprecedented experience and it is just—— Chairman MILLER. Well——

Mr. AITKEN.—being here today, I am not in a position to be able

to——

Chairman MILLER. Why you did what you did strikes me as

something Congress has every reason in the world to ask.

Mr. AITKEN. Yes, I am happy to answer any questions about the

order itself, and I think both with respect to the order and other

issues, I think it is best or at least I am here to be able to explain

what these provisions mean, why they are there, and I think at

least the confidential deliberate process tries to protect the ability

of people to have a dialog, and my sense is that——

Chairman MILLER. And I know you have a distinguished legal

education and I know that you have studied the law of privileges

and you know that there is a tension between encouraging confidentiality, encouraging candor, and the need to find the truth.

There are some privileges that are absolutely respected. Well, actually there are very few that are absolute. The attorney-client privilege, for one, is a very strong privilege but the courts have struck

a different balance with respect to internal deliberations that the

courts perhaps respect the confidentiality, the candor of those discussions over a concern based on—or an inquiry based on idle curiosity, but if there is a need to know, whatever privilege there may

be gives way. Again, I urge you to look at your law books this afternoon, and I assure you, I feel confident we will be asking for further documents based upon our conversation just now.

Well, I have many questions that you may or may not answer.

Was anyone outside of—I am sorry. I have violated my own rule

slightly.

Mr. ROHRABACHER. I think we need to interrogate you into what

mental processes you were going through when you violated that

rule you had set down. We need to question whether or not that

was a planned move or whether this is just something that you just

happened to do because you were being the Chairman and you

were asking some questions, but we need to get you under oath to

testify to see if you actually were motivated to break that rule that

you just had.

With that in mind, Mr. Aitken, you have worked for the Office

of Management and Budget for how many years?

Mr. AITKEN. In May it will be 18 years.

Mr. ROHRABACHER. Eighteen years, so you were actually there

and overseeing legal type of analysis of things that were going on

even during the Clinton Administration. Is that right?

Mr. AITKEN. That is correct.

162

Mr. ROHRABACHER. Did anyone ever put you under oath and

start inquiring about the internal deliberations during the Clinton

Administration when they were trying to issue executive orders or

was that normally accepted that basically the President has a right

to issue an executive order and then has a right to have internal

deliberations to what that executive order should say?

Mr. AITKEN. My experience was that OMB had not received requests, at least to my recollection had not received requests during

the Clinton Administration or even during prior years in this Administration for the internal deliberations regarding an executive

order.

Mr. ROHRABACHER. For example, in the Clinton Administration,

you had the wording of the executive order, each agency shall identify the problem that it intends to address including where applicable ‘‘the failures of the private markets’’ or public institutions that

weren’t new agency action as well as access to the significance of

that problem. Now, that wording was changed, which seems to be

a big problem now. Instead of the failure of private markets, it

seems to be that the big problem is that they changed that to say

each identify shall identify in writing, so they are identifying this

in writing now, the specific market failures as compared to failures

of the private market, and then we are requiring them to do it in

writing rather than just in an oral report. Now, I guess we really

need to know whether changing that wording whether or not there

were memos going back and forth and we got to make sure that

you spent a lot of time now searching those records to see about

who wrote that and whether or not that person, you know, may or

may not have had the best interests of the country at heart when

he wrote that as compared to when the Clinton Administration

wrote those words, ‘‘failures of private markets,’’ that nobody questioned that. I guess that is what we are talking about today, and

your recollection is that nobody bothered to ask anybody about the

wording of ‘‘failures of the private market’’ as compared to ‘‘market

failures’’ when you worked at the OMB under President Clinton. Is

that right?

Mr. AITKEN. That is correct.

Mr. ROHRABACHER. No one requested any information then.

Would you be surprised if there were directives issued by a political

party that every committee and subcommittee should find something that they can issue ominous-sounding statements about and

requesting voluminous information of the Administration trying to

catch the Administration in a mistake and then making it into

more than a mistake, more than just going over a minute, but a

calculated attempt to break the rules? Would you be surprised if

a group of people who are running for political office might try to

use the Congress as a forum to create a false impression for the

voters in the next election? You don’t have to answer that. Thank

you very much.

You know, I will just have to say that this, what we are talking

about today and what we are going through today is totally consistent with what, as I say, happens, is happening in other committees, and President Clinton fires every U.S. attorney, every one immediately without question, and nobody raises an eyebrow because

they know that he has a right to fire those U.S. attorneys, and the

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President has a right to issue executive orders. President Clinton

issues an executive order, talks about the failures of private markets and of course nobody raises the issue but this President

changes the wording to say ‘‘market failures’’ and requires it in

writing and all of a sudden now we have got all these requests for

documents.

You know, when the attorney general started answering questions about what was the President’s prerogative, they found that

he didn’t say exactly the things that were right in describing why

the President made a decision even though everyone acknowledges

the President has every right to make that decision and now they

have made that into a big brouhaha. I am not necessarily someone

who likes this attorney general or even likes this President, to tell

you the truth, but I can certainly believe that we need to be tackling real problems rather than political posturing. I would suggest

that there is a pattern here. The pattern isn’t that we have

changed the wording of ‘‘failures to private markets’’ in an executive order to ‘‘market failure’’ and require it in writing. That is not

the pattern. The pattern is that we are challenging the President’s

authority hoping to find a mistake when he answers that question

and then making a lot of political hay about it.

I appreciate you being here. You are not a Republican or Democrat appointee. You are actually a professional, having served in a

high place in both the Clinton Administration and the Republican

Administrations, but let me thank you for your professionalism.

And let me note that I am intentionally not going over my time,

and this has been calculated now to make sure that the failure of

the Chairman to go over his time is just—is highlighted, so I will

quit right there, Mr. Chairman.

Chairman MILLER. Actually, Mr. Rohrabacher, I went over two

and a half minutes. If you would like to go on another two and a

half minutes, you go right ahead.

Mr. Aitken, I assume that my staff will punch me in the ribs

when it comes close to five minutes. I know that you had expressed

some concern or reservation about telling this committee some of

what the OMB considered in issuing this executive order and I had

somehow confused transparency with candor, but can you tell me

at least when the first draft of this proposed regulation was circulated and to whom? Who saw it?

Mr. AITKEN. The order had been in development for some time.

I don’t have a specific recollection of when it was first circulated

or to which agency. That would be typically done by a career employee within the OMB counsel’s office in consultation with others

and so, you know, apart from it being done in the standard process,

I don’t have a recollection exactly, you know, what time or exactly

to whom but it was the standard process that was used.

Chairman MILLER. Do you know approximately what month and

year?

Mr. AITKEN. Since I haven’t looked into that, I hesitate to say

just because I haven’t looked into that history recently.

Chairman MILLER. Was it circulated to anyone outside of the Administration?

Mr. AITKEN. So far as I know, no, it was not.

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Chairman MILLER. No one outside of the Administration was

shown, or there was no discussion with anyone outside the Administration about the proposed executive order?

Mr. AITKEN. I am not aware of any such discussions. I can’t say

that they didn’t occur but I am not aware of them.

Chairman MILLER. Who within the Office of Management and

Budget, or OMB, or any other agency of the government was involved in developing the draft or changing the draft as drafts went

forward?

Mr. AITKEN. In OMB, it would be—a variety of offices are involved in executive orders, depending on the subject matter, because OMB in the standard process sends a recommendation memo

to the President. It receives a fair level of clearance through a

number of offices. And so, again, the standard process was used but

I don’t have a recollection of exactly, you know, who all was consulted although as typically the case, it was a broad range of people within OMB.

Chairman MILLER. Mr. Aitken, my understanding is that we

didn’t specify you as a witness that we wished—nothing personal,

but we asked OMB and OIRA to produce a witness who could talk

to us about the process, how this was done. It is somewhat surprising, knowing that that is why we asked for a witness to be sent

forth, that you are so unfamiliar with the process and that is exactly what we told you we wanted to hear about.

Mr. AITKEN. My understanding was that when this hearing was

first raised as a possibility in early March when I was the acting

administrator, there was naturally an interest in my testifying, but

when the hearing was then moved to late April and then when Ms.

Dudley was sworn in as the OIRA administrator, my understanding is that OMB did reach out to the Subcommittee staff to

ask whether the Subcommittee staff, or the Subcommittee rather,

wanted me to testify as I was no longer the acting administrator.

My understanding is that the response that we received back is

that the Subcommittee did want me to testify even though I was

no longer the acting administrator.

Chairman MILLER. And we understood the reason you were being

offered was that you were there at the time, that Ms. Dudley

couldn’t talk about it because she wasn’t there at the time, but I

am not sure there is much further to be gained by this.

Your statement in your testimony, OMB believes that federal

agency guidance should be developed, issued and used for an agency’s adherence to procedures that ensure quality, transparency,

public participation, coordination and accountability. Do you believe that those considerations, those goals should not also apply to

developing an executive order?

Mr. AITKEN. Well——

Chairman MILLER. You can—I will tell you what. Why don’t you

answer that in my next round of questioning?

Mr. Rohrabacher.

Mr. ROHRABACHER. Thank you very much. So you were there

during the Clinton Administration, did President Clinton discuss

when he changed this wording in his executive order from failures

of private markets to whatever it was before that to now it has

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been changed to market failures? Did he ever discuss that with any

other interest groups in this town?

Mr. AITKEN. My understanding from the testimony that Ms.

Katzen provided in February, I believe, is that—and she was the

OIRA administrator at that time, is that she, according to her testimony, did have discussions.

Mr. ROHRABACHER. Oh, she did?

Mr. AITKEN. According to—— Mr. ROHRABACHER. So you mean the President before he issues

an executive order actually talks to people outside the government?

What kind of influence could they possibly have? My gosh, people

outside the government are trying to maybe have an input into

what government policy should be in terms of executive orders.

Don’t you see this as a threat to democracy in this country? No,

you don’t have to answer that. Were there documents ever requested about these discussions that President Clinton had with

the outsiders when he changed—when he came up with the phrase ‘‘failures of private markets’’ versus ‘‘market failure’’?

Mr. AITKEN. I am not aware that there were any such requests.

Mr. ROHRABACHER. Now, but you don’t know—you said ‘‘I am not

aware,’’ so we might have to request those documents as well, Mr.

Chairman, of what happened during the Clinton Administration to

see if my gosh, there were some incredible insidious interest groups

at work there too. Let us see. Now, let me ask you this. You

worked for Clinton and Republican Administrations. It is your understanding that when you talk about executive orders, which is

what the President is given the right to do under the Constitution,

that the process that he develops that he thinks is the best way

to develop an executive order, that that is pretty well left up to the

President to decide what process he is going to have and what people will be in that process as compared to having, let us say, the

legislative branch in our Constitution suggesting they have the

right to establish that process?

Mr. AITKEN. It has been the process that has been established by

the Presidents and——

Mr. ROHRABACHER. Based on constitutional authority granted to

him. Is that right?

Mr. AITKEN. That is correct.

Mr. ROHRABACHER. Does the Constitution permit the legislative

branch to determine that for the President about the processes and

have to have approval on that?

Mr. AITKEN. I wouldn’t want to express an answer here just

because——

Mr. ROHRABACHER. Okay. It is just that what we are talking

about here is not the policy. I think the founders of the Constitution wanted us to be talking about policy, not trying to catch somebody as if they made a mistake in the process of how they determined that policy, because one is where you destroy people and

would stifle debate on policy and the other approach is that you are

discussing the issue at hand and trying to dissection what is best

for the country, what policy is best for the country. I think our

founding fathers were very astute when they understood that politics might get in the way if we ended up discussing policy—or our

process rather than policy, and unfortunately again I see this disVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00033 Fmt 6601 Sfmt 6601 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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turbing ominous trend in this town where people don’t want to discuss the policy but they want to catch somebody in a mistake while

trying to recall the exact process of how a policy was decided upon

instead of just discussing whether that policy is a good policy or

not, and if this was just happening in this subcommittee I think

that we could just sort of shrug our shoulders and say that this is

not—you know, this is something that is very legitimate here,

somebody really just wants to go down that road. But it seems to

be happing throughout the legislative branch now as compared to

what happened of course during the Clinton years when no one

suggested the President didn’t have these rights to make up his

own mind in a process that he had established.

So with that said, I appreciate your testimony, and I appreciate

your service to the country. You are obviously someone who takes

your job very seriously and you are the type of person that is not

a partisan. You have worked hard for both Democratic and Republican administrations and I am sorry that quite often people like

yourself get caught in the middle of different political power plays.

I appreciate it.

Chairman MILLER. Mr. Rohrabacher, you can take that two and

a half minutes any time that you would like.

We seem to have stumbled on the only area that was not the

subject of Congressional inquiry in the last six years of the Clinton

Administration. There were two subpoenas issued by the Government Reform Committee a day for every day Congress was in session in the last six years. There were 4,000 pages of documents

produced a day in the last six years for every day that Congress

was in session. And Mr. Aitken, let me make it clear to you, and

I don’t think that you have any doubt about this, consultation is

a good thing. We urge that. I hope you did talk to people. I hoped

you talked to people within the Government. I hope you talked to

people who deal with the Government. What we want to know is

what was said, that it be open, that yes, there be a debate and a

discussion but that it not be in secret. That is why I am asking the

questions. I want to know what the concerns were that this executive order was designed to address.

Mr. AITKEN. And I can address that.

Chairman MILLER. Well—— Mr. AITKEN. As I indicated in my prepared testimony—— Chairman MILLER. Well, that is why I asked the question, who

was involved with the discussion and what they had to say, and

just describing generally what were the concerns were and the objectives were does not get us at what the concerns were in this

order and that is why I am asking the questions.

MARKET FAILURE PROVISIONS

Okay. There are other parts of the order—you testified that market failure is not a new consideration, and as I understand market

failure, it is the argument that the market hasn’t failed; if we just

leave it alone it is going to the fix the problem without Congress

doing anything, or a regulatory agency doing anything. Is that basically the idea behind market failure?

Mr. AITKEN. As the 1996 Best Practices Guidelines that Administrator Katzen issued explained the rationale of market failure,

167

which is one but not the only rationale for regulatory action, is that

sometimes the government needs to step in because private markets are not addressing the situation. For example, in the FDA nutritional labeling rule—— Chairman MILLER. So the way I described the concept of market

failure is essentially right? The market hasn’t failed. If we leave

that market alone, it is going to fix the problem without any intervention by government. That is the idea behind market failure

being a criteria, and has the market failed, is the market not going

to fix this on its own. That is what market failure is, right?

Mr. AITKEN. That is correct. If the market is going to address a

certain situation, then it is not—— Chairman MILLER. Leave it alone?

Mr. AITKEN. Yes.

Chairman MILLER. I was part of the debate last week, and I

think we will have this debate replayed again and again on whether shareholders should have an advisory vote on executive compensation at public corporations in America, and the argument it,

the argument against the legislation was, the market will fix this.

Now, that seems to me to be a market-failure argument, and every

time that Congress enacts legislation to protect public health, to require FDA to inspect and assure sanitary conditions and there are

public health consequences of what is being put in the marketplace,

Congress has decided that the market is not working sufficiently

well and we need to do something about it. So it seems that whenever we have given an agency rule-making authority, not just rulemaking authority, we have directed them to make rules, to carry

out a statutory mandate, Congress has already decided the market

is not doing this well enough and usually over the express argument that the market is doing it well enough. Now, can you tell

me, is there a clear, rigorous test that we can look at, that we can

understand for when the administration, the executive branch, the

various agencies, the OIRA or the RPOs will apply to determine if

the market has failed and the government needs to intervene

through regulation?

Mr. AITKEN. In terms of statutes, if Congress has directed an

agency to issue a regulation, then the agency must issue the regulation. There is nothing in the executive order either as issued by

President Clinton or the recent executive order that overrides any

statutory directions to agencies. If Congress has made a decision

that a regulation is necessary, the agency must issue the regulation. The issue of market failure comes up in a situation in which

an agency has discretion; Congress has not made a decision that

the agency has to issue a regulation. Instead, the agency has permissive regulatory authority and the question is whether the agency decides in its discretion to exercise that authority, and as reflected in the 1996 guidelines that Administrator Katzen issued

and in OMB Circular A-4, which we went through public—and

there was some comment on, the criteria for market failure as a

rationale addresses whether there is a problem out there that, one,

if a problem exists, two, is it because the markets have not worked

to address it, and three, is it something that the markets could not

address. If that is the case, then that rationale for regulatory action would argue for the agency to act. However, there are other

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rationales apart from market failure which the executive order and

the recent amendment recognizes—— Chairman MILLER. Mr. Aitken, can you complete this answer at

the beginning of my next round of questions?

Mr. Rohrabacher.

Mr. ROHRABACHER. Well, I am not a stickler. I will let you sort

of have an extra couple of seconds there. That doesn’t—I am not

going to throw the book at you if you break the rules.

Chairman MILLER. Mr. Aitken, if you would like to complete it

on Mr. Rohrabacher’s time, that would be fine.

Mr. ROHRABACHER. That is the type of courtesy that makes this

government work, unfortunately. I hope everybody understands

that, the point I just made, that is.

Mr. AITKEN. I was just concluding by saying that the guidance

that has been out there since as far back as least 1996, the guidance that Ms. Katzen issued, describes the situations in which

market failure can provide a justification for regulatory action.

Again, as the original Executive Order 12866 provided and as the

amended one provides, market failure is not the only justification

on which regulatory action can be received. It can occur because

Congress has directed an agency to promulgate a regulation and it

can occur to address other problems that the agency has identified.

That is it.

Mr. ROHRABACHER. Thank you for that answer, and let me note

that President Clinton issued the executive order in question here

September 30, 1993, which seems to be, if memory serves me, actually very early into his first term of office, and this President has

permitted that executive order to stand until very late in his Administration. It seems to me that is perhaps similar to the fact that

when—and when Bill Clinton did change this early on into his Administration, as I say, there doesn’t seem to have been any of the

inquiries made at all into this, into the process of how he came to

the decision to issue his executive order. No documents were mandated, no questioning of his motives, only maybe perhaps a discussion of the executive order itself. I don’t remember that discussion

but it certainly wasn’t accusatory in the discussion. It was probably

a discussion of the issue itself. That might be the same as when

President Clinton fired every U.S. attorney then in position of authority when he became President. Again, no one questioned

whether the President had a right to fire those U.S. attorneys and

to hire his own people. That is—these are people who serve at the

pleasure of the President as granted by the Constitution of the

United States. No one asked the President, no one came in and put

people under oath and tried to find out if they can determine

whether there was any loss of memory in the process, trying to get

people and charge with them all kinds of malicious intent if they

didn’t remember exact details in conversations. Thus, and so there

seems to be a change of strategies here, that during the Clinton

years Republicans were not pushing on issues like that, and now

during—when we have a president of the United States who is a

Republican and it is getting close to an election year, now we seem

to have a focus on other elements. Rather than policy, we focus on

process and trying to see if people’s memories are exactly right to

see if we can catch them in a mistake.

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I will tell you, it would be hard for me, I can’t speak for the

Chairman or other Members of this body but it would be very difficult for me to answer questions about how I came to a determination as to what my position was going to be on specific issues of

the day, whether it was legislation or various issues. It would be

very difficult for me to try to search back and found out exactly

when I decided on something, and I think that that really does

break down the goodwill and camaraderie that we have here in the

Congress because people have to assume that we are going to debate the issues and not debate whether somebody is being—what

someone’s motives were and that is one of rules of thumb here in

the House. But I guess that doesn’t apply when we are trying to

talk about the President versus the legislative branch, or the executive branch versus the legislative branch.

With that, thank you again for your service as being a bipartisan

person who worked in both administrations, Democrat and Republican, and tried your very best, and certainly we are not trying to

catch you on some lack of memory or making a mistake of memory.

Chairman MILLER. Mr. Aitken, I had really hoped to announce

the new policy of being stricter with the time limitations without

naming names on who had abused my Southern manners, and I

will stick to that intent despite obvious goading.

Mr. Aitken, I agree that if I were asked I voted for something

three years ago, trying to reconstruct my thinking at the time

would not be easy and I couldn’t do it on the spot, but on the other

hand, if I had been sent forward from a government agency to answer specific questions as to one at that agency who would know

it, I would expect to be prepared. I would expect to refresh my

recollection. I would expect to look at the documents. I would not

just show up.

Mr. AITKEN. Well, that was not the case in terms of my coming

here. I did prepare. I prepared as I had prepared for my testimony

in February before the House Judiciary Subcommittee, which was

on the same day in fact, just after the hearing that this subcommittee held. I was not aware in coming here that I would be

asked specific questions about who was consulted or what the timetable was for the development. I came here prepared and submitted

lengthy, comprehensive testimony regarding the issues in the bulletin, regarding the reasons the bulletin was issued, regarding the

issues in the executive orders, and consistent with my professionalism as a career OMB employee, I prepared to the best of my

ability for testifying today.

TRANSPARENCY PROVISIONS

Chairman MILLER. Let us move on to the transparency considerations again, and we all seem to like transparency, at least the

word, and then we have different interpretations what it actually

means or requires. The Clinton executive order that apparently

somehow escaped being the subject of Congressional subpoena, perhaps because it was in the first two years of the Clinton Administration, did put in place transparency protections. Isn’t that right,

with respect to OIRA’s decisions?

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Mr. AITKEN. The executive order does include transparency provisions. Many of those transparency provisions had been in effect

for a number of years during the prior Administration.

Chairman MILLER. And it includes showing an original draft of

a proposed rule that had come from the agency and how it was

changed. Isn’t that right?

Mr. AITKEN. That is correct, under the disclosure procedures.

Chairman MILLER. And it required showing what outside parties

had commented and what they had to say, what the correspondence was between OIRA and the outside parties. Isn’t that right?

Mr. AITKEN. Under the executive order, for rules that under review there are requirements which we adhere to in OIRA for the

notice of when meetings are requested from outside parties. Anyone can request those meetings. They are posted on the OMB web

site. I can say that during my ten months, we received a number

of requests for meetings which so far as I know, we always granted

if we had time and—— Chairman MILLER. So essentially all the questions that I have

asked you about how this executive order was decided upon are

questions that would be public record, would be public with respect

to a rule that had gone through OIRA under the Clinton Administration? Isn’t that right?

Mr. AITKEN. I am not sure I understand the question.

Chairman MILLER. The questions I have asked you about who

was consulted, what they had to say, how was the draft changed,

those are all questions that would be public with respect to a proposed regulation under the Clinton executive order? Isn’t that

right?

Mr. AITKEN. The distinction is that OIRA doesn’t review executive orders.

Chairman MILLER. I understand that distinction, but the process

I described, the questions I have asked, those are public based

upon transparency concerns with respect to proposed rules, right?

Mr. AITKEN. Under Executive Order 12866, President Clinton

and this President has continued disclosure procedures about

OIRA’s reviews of regulations. I am not aware of any president,

and I believe that the executive order—and the executive order

process was established by President Kennedy. I am not aware that

any president has established a process where the President is

going to have his executive orders subject to public comment or is

going to release the drafts or is going to—I mean, you know,

whether it is President Kennedy, President Johnson——

Chairman MILLER. I understand the distinction you are making

between executive orders and regulations and you are saying this

executive order does not apply to regulations. With respect to regulations, with respect to the Bush Administration’s new order, power

is given to regulatory RPOs at each agency and which regulatory

policy officers, which of these transparency requirements under the

Clinton executive order would apply to decisions made, deliberations at the agency level by the RPOs? None of them would, would

they?

Mr. AITKEN. The executive order as it was originally issued by

President Clinton when he required agency heads to appoint regulatory policy officers did not have any disclosure procedures regardVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00038 Fmt 6601 Sfmt 6601 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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ing the regulatory policy officers’ activities and that continues

today. So since President Clinton issued the order in 1993, there

have been no disclosure provisions regarding the regulatory policy

officer.

Chairman MILLER. I am out of time, but you can assume that I

will ask further questions along these lines.

Mr. Rohrabacher.

CONFIDENTIALITY CONCERNS

Mr. ROHRABACHER. Well, let me note for the record that I am not

opposed to transparency at all. I mean, to the degree that the executive order that we are talking about has in some way decreased

the transparency, then that is an issue that we should talk about.

We shouldn’t be talking about who discussed the issue of transparency with the President. We should discuss whether transparency in and of itself is an issue that is right or wrong and

whether the executive order went in the right or wrong direction.

That is a totally legitimate area of discussion, and I would support

more transparency requirements. However, I may be right or

wrong in that. That is just my inclination. For example, if we have

the same transparency requirements, if we set the same standard

for Members of Congress, we would have to say that members of

the executive branch would have a right to query Members of Congress as to who they spoke to, every single person that they spoke

to about any legislation, specific pieces of legislation that would

come up. We are sitting—we are making policy too here, and does

the executive branch have a right to query us under oath to find

out who we talked to or do the American people have a right to

know exactly where we stand? I think the American people have

a right to know exactly where we stand on an issue, which half the

time Members of Congress, as you know, try to obscure exactly

what their positions are to try to make sure they are not making

any enemies, so I would be very supportive, Mr. Chairman—if

there is something in this executive order that hurts transparency,

we could work on that and try to pass some legislation that would

insist on transparency. But let us discuss that issue. Let us not discuss how some decision is come to.

Let me get back to that. Mr. Aitken, do you think that Congressional demands, and this—because I may be supportive of those

Congressional demands for transparency. Do you think Congressional demands for specific communications within the executive

branch would curb the discussions and people wouldn’t be quite so

frank in their discussions on an issue if they knew everything was

going to end up being public? Would that be in the end to the detriment of the public more than just—would that have a negative

impact as compared to a positive impact of transparency where we

know all the discussions that were going on?

Mr. AITKEN. I think I would like to address that in terms of the

confidentiality of the deliberations and the importance of preserving that confidentiality is so that people can have frank and

candid discussions, and Congress recognized that when in 1966 in

enacting the FOIA statute it preserved the deliberative process

privilege. The courts have upheld that. It is important for people

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to be able to discuss the issues. If people internally cannot discuss

the issues in a frank manner, decisions are—— Mr. ROHRABACHER. I agree with that, but I will tell you on another committee—not another committee, actually this committee

but on another subcommittee, we were dealing with reports that

were issued by a member of the—someone who worked for the government issued a report on a specific decision that needed to be

made and does that person, should we then, when the Administration is trying to make up its mind on something, should we then

know what was in that report? I happen to believe in transparency

because I happen to believe—and I have backed up the Democrat

demands to see that report, and I don’t think that would in some

way hinder the debate within the Administration if they knew that

people when they asked their opinion of various professionals like

yourself what the opinion was when it was written down. Now,

that is different than talking about private deliberations, I think,

but maybe not. Maybe you can clear that up for me.

Mr. AITKEN. I am not familiar with the situation you just mentioned in terms of the report but I can say that having worked at

OMB for 18 years in the counsel’s office where these issues come

up quite regularly, that it is important, as it would be with a judge

and a law clerk. I clerked twice. I think judges expect the confidentiality of their—— Mr. ROHRABACHER. Especially for professionals. So if we have a

professional who is over at a department or agency and we ask for

a report, you know, I frankly think that should be public record

and I would oppose the Administration keeping that secret. However, it may make that public employee less, let us say, willing to

be totally expressing his points of view if he knew it is all going

to be public some day. Is that right?

Mr. AITKEN. That is the concern that underlies the deliberative

process.

Mr. ROHRABACHER. Thank you very much.

REGULATORY POLICY OFFICERS

Chairman MILLER. Mr. Rohrabacher, you just used 20 seconds of

the two and a half minutes that you have got coming.

Mr. Aitken, you said earlier that RPOs were not new creatures

of this executive order, that they existed before. What additional

authority is given RPOs under this order?

Mr. AITKEN. As I noted in my prepared testimony, the recent

order makes two relatively minor amendments to the provisions.

One concerns the regulatory plan. Under the original issuance of

Executive Order 12866 by President Clinton, it was the agency

head who had to personally approve the regulatory plan. Under the

revised order, it is either the agency head or the regulatory policy

officer that would sign off on the agency’s regulatory plan, which

is the agency’s once-a-year compendium of the agency’s most important regulatory initiatives. Also, the executive order, the recent

one, provides that either the agency head or the regulatory policy

officer has to sign off on a commencement by an agency of a rulemaking.

Chairman MILLER. When a professional employees of an agency

want to initiate rule-making, the RPO can decide no, we are not

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going to do that? That is correct, right? That is the power of the

RPO now under this order?

Mr. AITKEN. The order provides that in an agency, it is ultimately the presidential appointees who have to decide what regulatory activities the agency wants to engage in. This is not a new

principle for the executive branch. I know that in the transition

from the first President Bush to President Clinton, one of the first

things that was done by the incoming OMB director, Leon Panetta,

was to issue a memo to all agencies saying that there is a new

president and agencies are not to issue new regulations unless they

are approved by the agency head, who is appointed by the President, or by somebody else who has been appointed by the President. And that is to reflect that, that it matters who is elected

President, and in the executive branch, it is not solely the career

employees who have the authority to issue regulations or decide

how governmental power will be organized.

Chairman MILLER. And I don’t think we want to be entirely controlled by bureaucrats. We do not want government by bureaucrat

or by platonic guardians. We do want the democratic processes to

matter. But what are the transparency requirements, provisions for

RPO decisions not to initiate rule-making? Do any of the transparency provisions that apply to OIRA apply to the RPO when the

RPO determines not to initiate rule-making? Will anyone find out

that the agency wanted to initiate rule-making and the RPO said

no?

Mr. AITKEN. Just as in the case of the memorandum that Director Panetta issued at the very beginning of the Clinton Administration, there is no requirement in the executive order nor was there

any requirement in the original issuance of Executive Order 12866

for there to be disclosure requirements for the regulatory policy officer or even for the agency head and the agency head’s activities

regarding, say, the development of a plan.

Chairman MILLER. We have been joined by Mr. Baird. Mr. Baird,

do you have any questions? I just gave back a minute and a half.

DIVISION OF POWER IN THE FEDERAL GOVERNMENT

Mr. BAIRD. I am interested in Mr. Aitken’s comment just a second ago that it matters who is elected president. It surely does, but

the Constitution puts legislative authority in the hands of the Congress, and if Congressional intent statute is usurped by the executive, is it your understanding that the role of the executive that

they are to execute faithfully the laws enacted by the Congress or

that the executive has the responsibility under the United States

Constitution to usurp or circumvent those laws if they so choose?

Mr. AITKEN. Agencies must faithfully execute the laws that have

been enacted. As a career government attorney, that has been my

job, to ensure that agencies faithfully implement the statutes that

have been enacted, and if Congress directs an agency to issue a

regulation, the agency has to issue that regulation.

Mr. BAIRD. And when you say that it matters who is elected

president, what does that mean?

Mr. AITKEN. Congress enacts statutes for very good reasons. It

does not always specify in each last detail exactly what kind of regulations an agency should issue or has to issue. Therefore, because

174

there are complex issues, because there are policy issues that have

to be resolved and perhaps because there was not enough consensus within Congress about which policies should be pursued,

Congress has provided discretion to agencies in implementing those

statutes, and that policy discretion, as the Supreme Court has recognized in the Chevron decision, does allow agencies to make policy

judgments and those judgments appropriately can reflect the policies of the President, whoever the President may be.

Mr. BAIRD. If you are counseling somebody, one of these RPOs,

about the process they use to formulate their decision, is it your

counsel that they seek first to understand the executive position on

a regulatory matter or that they seek first to understand the Congressional intent on the regulatory matter, and which of those is

paramount if the two conflict?

Mr. AITKEN. The analysis would begin on any regulatory issue on

how Congress has spoken on the issue. Every agency in order to

undertake a rule-making needs authority, statutory authority, to

carry out that rule-making. Congress sometimes provides permissive authority which the agency can or decide not to exercise or

Congress in other instances mandates that an agency pursue a regulation and in some cases Congress mandates with great specificity

the contours of that regulation. So the first issue for an agency

would be, what has Congress said, has the Congress mandated that

we issue a regulation or given us discretion.

Mr. BAIRD. But isn’t the crux of part of what we are asking about

here is, you just mentioned the first issue for an agency. One of the

concerns is what if the RPO feels more beholden to the administration than to the Congressional intent, and if there is no way of

tracking how that happens?

Mr. AITKEN. The executive branch has to comply faithfully with

the laws that as passed by Congress.

Mr. BAIRD. How do signing statements fit into this? Does a signing statement by the executive somehow exculpate them from complying faithfully or unfaithfully, as the case may be, with Congressional intent? In other words, so you are saying on the one hand

that the executive branch must comply with Congressional intent

but this Administration has used signing statements at unprecedented levels. If a signing statement is made by the President, does

the executive branch agency then comply with the statement that

Congress has modified by a signing statement or as intended in the

original text by the Congress?

Mr. AITKEN. I didn’t come prepared to talk about signing statements and the relationship of signing statement on regulatory action.

Mr. BAIRD. Okay. I can understand that. But I will express concern that I would hope the agencies are complying with Congress,

not with the intent as modified by a signing statement.

So your testimony to us is that you believe that the statutory

language as enacted by the Congress takes precedent? Let me say

it differently. Let us suppose a president were to suggest to his

people that they just really don’t like very much a law passed by

the Congress and therefore what they would like to see is for an

RPO to find any way around the law as passed by the Congress

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rather than interpreting the intent of the Congress. Would that be

an appropriate use of executive authority of an inappropriate use?

Mr. AITKEN. An agency must comply with the law. As the Supreme Court discussed in the 1984 decision on the Chevron case,

Congress sometimes speaks very precisely on a particular issue. If

that is the case, the agency must follow the Congressional direction. There are other times when Congress has spoken but has provided discretion to the agency on whether to act or on how to act.

Mr. BAIRD. Let us suppose we create a continuum and we say on

the one end, Congress has spoken quite clearly. Would it be inappropriate for the President or one of his designees to say Congress

has spoken clearly but we are still not happy with it, therefore, we

would like this agency to find a way to circumvent it and not promulgate a regulation. Would that be inappropriate?

Chairman MILLER. I am sorry. If you could make that a short

summary answer, we are now out of time and we do need to vote

in a moment.

Mr. AITKEN. As the Supreme Court said in the Chevron case, if

Congress has spoken on the precise question at issue, the agency

must follow the Congressional direction.

Mr. BAIRD. And it would therefore be inappropriate? You are not

quite answering my question. It would therefore be inappropriate

for an executive officer to say to an agency, do not follow the

Congress’s direction?

Mr. Chairman, I know we have to vote, but if you have more

questions, go ahead. I am sorry.

Chairman MILLER. I don’t, not before voting anyway. Do you

think you could answer that in a sentence?

Mr. BAIRD. Yes or no, would it be inappropriate for the President

or his designees to tell an agency Congress had this intent, we

would like you to try to find a way around that intent? Yes or no,

would that be inappropriate?

Mr. AITKEN. It would not be appropriate if the Congress has spoken precisely on all the issues. Often it is the case, and it has been

my experience over the years, including during the prior Administration, that Congress has provided policy discretion and so one of

the issues that often comes up is, is there discretion within the

statute that provides policy officials leeway to go one approach or

to another approach, and that is often a discussion that arises regardless of who is the President.

Chairman MILLER. Mr. Rohrabacher needs to—can I come back

after votes? And I want to offer my condolences and those of all the

Members of the Committee on the loss of your brother. I know you

need to get back to California to that funeral. Do you want to take

some of the time?

Mr. ROHRABACHER. It usually takes us a couple of minutes to get

to the Floor so I will make this a couple minutes worth of questions

so we will have plenty of time to get to the floor.

So what we see here is an ominous trend. I mean, there is a pattern here. First of all, President Clinton got rid of all the U.S. attorneys immediately upon taking office. This president gets rid of

seven of them later on but that trend—and then we see here a

presidential executive order issued by President Clinton and nobody got to ask whether or not he had consulted outside people on

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this and put them under oath and actually required all the documents and people to have good memories about who they talked to

about this executive order, and now you have let it slip. You were

there. Mr. Panetta issued an edict that the good-hearted public employees of the various departments and agencies couldn’t issue any

regulations. These political appointees actually got in place and

were able to make the final decision. I smell a real problem here.

I think that maybe we should have—there should have been hearings under Mr. Panetta’s edict. Who did he discuss that with that

we are cutting off the rights of those good-hearted honest public

employees to set regulations down? You know, this is getting a little bit absurd and I would suggest that—now, let me ask you. You

have had a lot of experience. You have been around longer than

most people in this system. Do presidents usually try when they

are marking out their policies, is it usually—isn’t one of the considerations maintaining presidential authority and prerogatives?

Mr. AITKEN. That is correct.

Mr. ROHRABACHER. Now, that was President Clinton or President

Bush? I mean, Democrats, Republicans, don’t they all act that way?

Mr. AITKEN. That is correct.

Mr. ROHRABACHER. So when a president is sort of suggesting

that he doesn’t want to make all private deliberations available to

Congress but we should discuss what the final decision is rather

than the process he went through, isn’t that a type of argument

that Democrat and Republican presidents basically would all agree

upon?

Mr. AITKEN. It has certainly been my experience that those presidents have over the years made that argument.

Mr. ROHRABACHER. And let me note that you have worked for

Republican and Democrat presidents both, and there is no—you

know, and you are saying that with experience and having been

loyal to both presidents of both parties. And so I think that this

hearing has been good in one respect. We really have had a serious

discussion of some of the fundamental issues in terms of separation

of powers of our country, and I think that that is important as to

what you would expect employees to do and people to do in various

departments and agencies, how it works out, and that has been a

very good discussion. Trying to question the motives of people, how

they have come to their conclusions in that discussion is not appropriate. We recognize that in the legislative branch. We have made

it a rule of thumb that we do not question the motives of someone

who is presenting an argument on the Floor of the House and that

can actually—you can actually have your words taken down if you

question the motives of someone. But we want to have an honest

discussion of the issue at hand. That means you discuss the policy

and not the process that someone has gone through in order to

come to that policy conclusion. That type of goodwill I think is

something that should be reflected in our overall democratic process. Unfortunately, when we get into this type of, why did you

come to a decision and who did you talk to, and if you make any

mistakes in remembering exactly how many conversations you had,

if you forget one document, you are going to be prosecuted for it.

I don’t think that leads to—it doesn’t benefit democracy and does

177

not benefit the people, and usually these things start happening as

we are leading up to a major important election.

With that said, I thank you very much again for your service

both to President Clinton and to President Bush and for giving us

an understanding of how the process works from the inside.

Chairman MILLER. Mr. Aitken, you are dismissed. Thank you for

being here.

I need to go vote. We all need to go vote. I could sprint back and

then I would have to sprint back again after about 15 or 20 minutes of being here. Itt will be about an hour and we can go uninterrupted. What is the preference of the next panel? Consideration of

whether I should sprint or not is not really the issue. Why don’t

I return in just a few minutes, take some testimony, then I will

have to leave again. Thank you. The Committee stands in recess.

[Recess.]

Chairman MILLER. A quick note on the schedule. The full House

is now finishing a vote. After that there will be a motion to recommit, followed by another 15-minute vote. So probably we will be

able to go about 15 or 20 minutes and then I need to run back

again. At that point I will be there for three additional votes and

it will take me about maybe half an hour, maybe 20 minutes before

I can get back. But it gives us a chance for all of you to begin and

probably complete your initial testimony.

Mr. Strauss is the Betts Professor of Law at Columbia Law

School. He is a nationally recognized expert in administrative law,

constitutional law, legal method and legislation. He was a member

of the faculty when I was a student. It his good fortune that I not

today am not seeking vengeance for having embarrassed me in Socratic method as I never took his course as I could not imagine how

I would ever need to know anything about administrative law. But

I will note for Professor Strauss that I will be asking the questions

today. Our next witness is Dr. Robert Hahn, the cofounder and executive director of the American Enterprise Institute’s Brookings

Joint Center for Regulatory Studies, which must feel sometimes

like having Mr. Rohrabacher and I sit beside each other, which examines leading-edge issues in law, economics, law, regulation and

antitrust. Dr. Gary Bass is the founder and executive director of

OMB Watch and has worked extensively on federal budgetary program management, regulatory and information policy issues, and

finally Dr. Richard Parker, a professor at the University of Connecticut and an expert on administrative law, environmental law,

regulatory policy. He chaired the regulatory policy committee of the

administrative law section of the ADA and has written on the use

of cost-benefit analysis in OIRA.

As each of you know, your oral testimony is limited to five minutes but your entire written testimony will be placed in the record,

and after the entire panel has given their testimony, the Members

of the Committee, which probably will be me only, and I will do a

series of five-minute blocks of questions. We will five minutes each

to ask questions. So I will put all of you at ease as I did Mr.

Aitken. I will now ask you all to stand. Do any of you have any

objection to being sworn in? Is anyone represented by counsel

today? Okay. Now that you are at ease, you may raise your right

hand.

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[Witnesses sworn]

Chairman MILLER. Thank you. We will begin with Professor

Strauss. Excuse me. Let me amend that. Dr. Hahn is under a time

restraint. Dr. Hahn, if you could testify first. Okay. Dr. Hahn will

go second.

Professor Strauss.

Panel 2

STATEMENT OF MR. PETER L. STRAUSS, BETTS PROFESSOR

OF LAW, COLUMBIA LAW SCHOOL

Mr. STRAUSS. I am sorry that your colleague had to leave because

in his opening statement he made what seems to me the central

point, at least from the perspective of my testimony, which is that

it might be a good idea to ensure that they, and he was referring

to the regulatory policy officers, are accountable to someone, and

the issue that I mean to talk with you about is to whom they are

accountable and what the Congressional stakes are in that.

The Constitution makes the President the overseer of all the varied duties that you give government agencies but equally clearly,

it seems to me, it permits you to assign those duties to those agencies and not to the President, and for those duties, he is not the

decider but rather the overseer of decisions that others make. The

important point in my judgment is to preserve this distinction between presidential oversight, which is entirely appropriate and constitutionally commanded, and presidential decision. The assignment of decisional responsibility to others is a part of those laws

to whose faithful execution the President must see, and when he

fails to honor this rather subtle distinction, he fails in his constitutional responsibility to take care that the laws be faithfully executive.

The executive order we are discussing amends the longstanding

Executive Order 12866 in several ways, and I want to focus on four

language changes that in my view threaten the difficult but necessary balance between politicians and experts, between politics

and law that characterizes agency rule-making. These are amendments to Section 4 and 6 concerning the regulatory plan, both of

which diminish the effective control over regulatory decision by the

agency head that you have put in charge of agency business and

increase the President’s control over regulatory outcomes, an increase that in my judgment requires Congressional authorization.

You heard Professor Katzen, the previous administrator of OIRA,

when she was here at the last hearing, talk to you about the stepby-step increase in presidential controls. Executive Order 13422 is

another step in that direction, and from my perspective, a hazardous one.

The first change added these words to Section 4(c)(1) of the executive order applicable equally to executive and independent regulatory commissions: ‘‘Unless specifically authorized by the head of

the agency, no rule-making shall commence nor be included in the

plan without the approval of the agency’s regulatory policy officer.’’

This language purports to confer legal authority on the regulatory

policy officer to control whether agency rule-making occurs subject

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only to a specific countermand by the agency’s head. Prior provisions of the order, President Clinton’s order, merely hinted that denial of a place on the regulatory plan would preclude rule-making,

and in my efforts to track this issue, I have never heard that it had

happened. Your own provisions for the regulatory agenda in

supriva are quite specific that presence on the regulatory agenda

is not a condition of valid rule-making. Where did the President get

the authority to impose this condition, much less to put it in the

hands of a junior officer?

The second change I invite you to focus on subtracted these

words from Section 4(c)(1): ‘‘The plan shall be approved personally

by the agency head.’’ So the agency head is no longer imagined as

having general personal responsibility for his agency’s important

business. That is for the regulatory policy officer and the agency

head just gets a veto, one whose exercise will doubtless be impeded

by its specificity, visibility and vulnerability. When the regulatory

plan was first rationalized, it was rationalized as an aid and it

seemed to me an entirely appropriate aid to the political heads of

administrative agencies requiring career staff to reveal their priorities and plans for rule-making to agency leadership in the same

way that the dollar budget process does. So it sensibly injected the

agency’s political leadership into the picture before matters got set

in bureaucratic concrete, but now that has been diverted to someone else.

The third change added this language to Section 6(a)(2): ‘‘Within

60 days of the date of this Executive Order, each agency head shall

designate one of the agency’s Presidential Appointees to be its Regulatory Policy Officer, advise OMB of such designation and annually update OMB on the status of this designation.’’ The important

elements to note here are that a presidential appointee is a person

the President, not the agency head, gets to hire and fire, and the

repeated references to OMB make clear who will be overseeing her

performance. You may hear verbal promises that these presidential

appointees will be of the kind that the Senate must confirm but of

course the language doesn’t say that, and even if it did, the fact

would remain that the President, not the agency head, is in charge

of the RPO’s continuing tenure in the office.

The fourth change also in 6(a)(2) just confirms this pattern of

displaced responsibility and division of authority. It subtracts the

prior requirement of the section that the regulatory policy officer

shall report to the agency head. Of course, the statute creating

presidential appointees within an agency will itself embody some

kind of reporting relationship but I think you can see how neatly

this change echoes the others that I have mentioned. The order

purports to confer legal authority on the junior authority in each

agency whose identity must be coordinated with the White House

to control the initiation of agency rule-making, and it seems to be

intended its continuing processing within the agency. Conferring

this kind of legal authority is Congress’s business, not the President’s, and it is authority I would urge you not to grant because

it diffuses political authority within the agency that you generally

entrust to the agency head. Congress, as well as the President, has

political relationships with the agency head. While the President

can cashier agency heads whose work he doesn’t like, that comes

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at a high political cost including having to get the Senate’s agreement on a successor. As a well-connected friend told me, I personally watched two agency heads tell the President to pound sand.

They wouldn’t do what they were told and the President knew they

had the political capital to win. Junior officers appointed under

close White House supervision, knowing that they can be dismissed

by the White House at any moment, won’t have this political capital. There isn’t as much chance that firing them will have political

costs to the White House. They are not ever going to be telling the

President or OIRA to go pound sand.

[The prepared statement of Mr. Strauss follows:]

PREPARED STATEMENT OF PETER L. STRAUSS

Thank you very much for inviting me to testify before you today. I am a scholar

of administrative law, who has had the privilege of teaching that subject at Columbia Law School for the past 36 years and who for two years in the 1970’s had the

honor of serving as the first General Counsel of the Nuclear Regulatory Commission. I was later Chair of the ABA’s Section of Administrative Law and Regulatory

Practice, a consultant to the ABA’s Coordinating Committee on Regulatory Reform,

and long-time Chair of the Section’s Rule-making Committee. My 1984 analysis of

agency relations with the President won the Section’s annual prize for scholarship.

I have continued since then to write about separation of powers and, in particular,

the President’s constitutional relationship to the agencies on which Congress has

conferred regulatory authority. Attached to this testimony is the current draft of my

most recent writing on this subject, an essay to be published this summer by the

George Washington Law Review entitled ‘‘Overseer or ’The Decider’—The President

in Administrative Law.’’ Here is its bottom line: Our Constitution very clearly

makes the President the overseer and coordinator of all the varied duties the Congress creates for government agencies to perform. Yet our Constitution’s text, with

equal clarity, anticipates that Congress may and will assign duties to executive officials who are not the President. Respecting those duties, he is not ‘‘the decider,’’ but

the overseer of decisions by others. When the President fails to honor this admittedly subtle distinction, he fails in his constitutional responsibility to ‘‘take Care

that the Laws be faithfully executed.’’ The assignment of decisional responsibility

to others is a part of the laws to whose faithful execution he must see. The important point, in my judgment, is to preserve this distinction between presidential oversight—entirely appropriate and constitutionally commanded—and presidential decision. For any agency’s unique responsibilities, Congress’s delegation makes the precise formulation of its priorities and plans the legal responsibility of the agency

head. Honoring and protecting that responsibility is an important element of the

President’s obligation to assure that the laws are being faithfully executed. And the

recent Executive Order amendments reflect a different view, in effect making the

President not just the overseer, but the decider of these matters.

Our subject is Executive Order 13422, 72 Fed. Reg. 2763 (January 23, 2007), that

amends the long standing Executive Order 12866, concerning regulatory planning

and review. Others have addressed those elements of the order that reach guidance

documents, another of its important elements, and that heighten the specificity of

the analysis the order requires agencies to perform. I will leave those elements

largely to them. Let me say only, as a long-time advocate of the proper use of guidance to help the public deal with agency regulatory standards, that I find the extension of the order to guidance documents possibly troubling only in its details. As

a long-time supporter, as well, of the President’s constitutional authority and wisdom in commanding regulatory analyses in connection with important rule-makings,

I find that heightened specificity troubling only insofar as it may be administered

to require agencies to decide matters on the basis of factors Congress has not authorized them to consider.

In these remarks I want to address two other aspects of the order, that I find particularly troubling. As Professor and former OIRA Administrator Sally Katzen testified to your committee two months ago, E.O. 13422 marks a distinct increase in the

already significant degree of presidential control over regulatory outcomes, beyond

that established by E.O. 12866, which in turn exceeded what had been done in its

predecessor executive orders. Each step in a hazardous direction increases the hazard. In the aspects that concern me, E.O. 13422 takes a decisive step from President

as overseer to President as decider. The President is not constitutionally entitled to

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1 A predecessor provision may be found in President Carter’s E.O. 12044.

confer decisional authority on persons outside the White House, and Congress has

conferred no such authority on him statutorily; but that, too, is what E.O. 13422

purports to do.

The first of the two aspects I wish to address amended the existing provisions respecting the agency’s regulatory plan, and its regulatory planning officer, in ways

that at the same time expand her authority, and seem to disconnect her from the

agency head. Thus, the executive order amended §4(c)(1) of E.O. 12866 by adding

Unless specifically authorized by the head of the agency, no rule-making shall

commence nor be included on the Plan without the approval of the agency’s Regulatory Policy Officer,

and subtracting a prior requirement that

The Plan shall be approved personally by the agency head

The order also amended §6(a)(2) of E.O. 12866 by adding

Within 60 days of the date of this Executive order, each agency head shall designate one of the agency’s Presidential Appointees to be its Regulatory Policy Officer, advise OMB of such designation, and annually update OMB on the status

of this designation

and by subtracting the previous requirement of the section that the Regulatory

Policy Officer

shall report to the agency head

The second element I wish to address added an entirely new idea to §6(a)(1) of

the Executive Order, requiring that

In consultation with OIRA, each agency may also consider whether to utilize formal rule-making procedures under 5 U.S.C. 556 and 557 for the resolution of

complex determinations.

Both sets of changes, in my judgment, threaten to disturb the difficult but necessary balance between politicians and experts, between politics and law, that characterizes agency rule-making. The first threatens a diffusion of authority within

agencies, and a dramatic increase in presidential control over regulatory outcomes,

to an extent Congress has not authorized and in my judgment would have to authorize for this step to be valid. The second threatens redeployment of a discredited,

remarkably expensive rule-making procedure that delivers substantial controls over

the timing and cost of rule-making into the hands of private parties—notably, I fear,

into the hands of those whose dangerous activities proposed regulations are intended to limit.

I. Presidential Control of Rule-making Agendas

When President Reagan elaborated the idea of a regulatory agenda in Executive

Order 12498,1 Christopher DeMuth, who had responsibilities for these issues in his

administration, characterized it as essentially an aid to the political heads of administrative agencies—requiring career staff to reveal their priorities and plans for rulemaking to agency leadership, just as the annual dollar budget process does, and consequently injecting the agency’s political leadership into the picture before matters

got set in bureaucratic concrete. Seen in this way, the measure supported Congress’s assignments of responsibility—it is, after all, on the agency’s political leadership

alone that Congress’s statutes confer the power to adopt rules. To judge by its own

actions in measures like the Regulatory Flexibility Act, Congress like the private

community was also attracted by the transparency and added opportunities for

broad public participation early notice of rule-making efforts would provide.

President Clinton’s Executive Order 12866 continued and in some ways strengthened this measure, requiring agencies to designate a regulatory policy officer who

would coordinate general issues under the Executive Order—in effect be the agency’s designated contact person for the OMB Office of Information and Regulatory Affairs (OIRA). While there were hints that this new measure might be used to effect

presidential control over agency policy choices, years of paying fairly close attention

to this question in my scholarship and professional associations have brought me

no indication that this had happened. On specific issues of importance to him, as

Dean Elena Kagan of Harvard has detailed, President Clinton through his domestic

policy office—not OIRA—would issue directives to particular agencies on issues of

importance to his program. President Bush’s first head of OIRA, John Graham, initiated a practice of occasional ‘‘prompt letters’’ publicly directing agency attention

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to matters that he concluded might warrant regulation. But a general centralization

of actual control over regulatory agendas, so far as I could tell, was never effected.

Until this order.

President Bush’s order purports to confer authority on a junior officer in each

agency, whose identity must be coordinated with OIRA, to control the initiation of

agency rule-making and, it seems to be intended, its continued processing within

the agency. It removes prior requirements that this junior officer ‘‘shall report to

the agency head’’ and that the regulatory plan she is for the first time given explicit

authority to control must be ‘‘approved personally by the agency head.’’ I would have

thought conferring this kind of authority and externally effecting such a striking reorganization of roles within an agency would be Congress’s business, not something

the President is authorized to do on his own. And if Congress were to ask my judgment about these steps I would call them an unwise diffusion of political authority

within the agency, that Congress generally entrusts to the agency head. While legislation may permit the head to sub-delegate some of her authority to persons she

trusts and will take responsibility for, Congress wisely has rarely if ever permitted

sub-delegation of ultimate control over rule-making. It certainly would be unwise to

confer such authority on persons who report to and are controlled by others outside

the agency. Congress as well as the President has political relationships with the

agency head. While the President has a formal capacity to discipline agency heads

whose work displeases him, that capacity is sharply limited by the political costs

of doing so—including the necessity of securing senatorial confirmation of a successor. As a well-connected friend of mine recently remarked,

I personally have watched two agency heads tell the President to pound sand— they wouldn’t do what they were told and the President knew they had the political capital to win.

Junior officers, given their responsibilities in a process under close White House

supervision, knowing as ‘‘presidential appointees’’ that they can be dismissed at any

moment, and lacking both this political capital and much prospect that their dismissal would have, in itself, political costs for the White House, are not ever going

to be telling the President or OIRA to pound sand.

A number of gaps in the order make this problem, in my judgment, a lot worse.

As remarked, the Clinton executive order reinforced ordinary agency hierarchy

by providing in §6(a)(2) that the regulatory policy officer ‘‘shall report to the

agency head.’’ That language has been deleted. Now it is at least ambiguous to

whom the RPO reports. Since the RPO must be a presidential appointee—that

is, subject to presidential, not agency head dismissal—control over her tenure

in this office, and in government service generally, has been moved to the White

House. Anyone aware of the changes—the agency head, for example—will know

that the prior mandatory relationship between RPO and agency head has been

eliminated. One need only observe the ongoing drama over the firing of United

States Attorneys to understand the potentials these changes open up.

Second, in requiring that the ‘‘policy officer’’ be a ‘‘presidential appointee,’’ the

amended order doesn’t tell us what kind of presidential appointee—one who must

also be confirmed by the Senate? One the President can name without need for confirmation? Perhaps a non-career officer in SES, whose appointment occurs only after

White House clearance and with a presidentially-signed commission? If it is either

of the latter, then the President has found his way around the constraints the Constitution insists upon, that people who exercise major authority in government can

do so only with the Senate’s blessing as well as his. Then it becomes even more apparent that the President has created a divided administration within each agency,

with real power vested in a shadow officer who essentially answers only to him. As

my friend also remarked, this would be ‘‘disastrous.’’

First as a practical matter it takes regulatory power away from the head of the

agency where Congress has vested it. Second, it continues the political accretion

of power in the bureaucracy of the White House, away from public scrutiny.

But, the worst part from my vantage point is that it treats the agency as a conquered province—the career staff is explicitly told it is distrusted and is not to

make recommendations to the agency head but to the White House’s political

officers. That in turn destroys communication between the staff and the political level of the agency. And, the agency is quite ineffective when that happens.

Third, it is unclear to what extent the new controls extend to the independent regulatory commissions. Section 4’s language, including the requirement that ‘‘Unless

specifically authorized by the head of the agency, no rule-making shall commence

nor be included on the Plan without the approval of the agency’s Regulatory Policy

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2This is not the setting to explore the accounts I am beginning to hear of increasing, and in

my judgment, regrettable, politicization and transparency violations in OIRA functioning—for

example, deliberate holding back the clock on formal submission of agency proposals to OIRA,

so that negotiations and ‘‘adjustments’’ can be complete before the transparency provisions of

E.O. 12866 kick in. See United States General Accounting Office, Report to Congressional Requesters,’’ RULE-MAKING, OMB’s Role in Reviews of Agencies’ Draft Rules and the Transparency of Those Reviews,’’ GAO–03–929, September 2003, pp. 47–48. When evidence of OIRA

changes has been available, it has been available to assist reviewing courts in determining

whether agencies have themselves reached the decisions statutes commit to their responsibility,

and done so only on consideration of the statutorily relevant factors. See Riverkeeper, Inc. v.

EPA, No. 04–6692–ag(L), 2007 U.S. App. LEXIS 1642 (2d Cir. Jan, 25, 2007), where the published documents showed 58 ‘‘major’’ changes having been made ‘‘at the suggestion or recommendation’’ of OIRA at the proposal stage, and 95 ‘‘major’’ changes made ‘‘at the suggestion

or recommendation’’ of OIRA in the rule as finally promulgated.

Officer,’’ is explicitly applicable to independent regulatory commissions. Section 6,

that defines the regulatory policy officer’s appointment, is not. As a legal requirement of agencies Congress has chosen to constitute as independent regulatory commissions, this is truly extraordinary.

The final gap I want to note for you, one of signal importance in my judgment,

concerns political access. Among the elements that have made the Executive Order

regime acceptable to Congress, and I might add to much of the academic community, are the commitments it contains to a professionalized, unusually transparent

and apolitical administration. Oral contacts with outside interests are limited to

OIRA’s senate-confirmed Administrator or his particular designee; agencies attend

any meetings with outsiders; written communications from outsiders are also

logged; and all of this information is publicly disclosed. My understanding is that

Congress has properly insisted on these elements of transparency, as a condition of

its acceptance of this generally valuable regime. The OIRA website, within a generally closed White House environment, has been a remarkable monument to the

worth of this insistence.2 The professional qualities, too, of OIRA’s staff, and the

striking qualities of its leadership over time, have offered reassurance. Notice that

none of these constraints are made applicable to the Regulatory Policy Officer or his

office. It can be open season there.

So the President has attempted to do by executive order something that, in my

judgment, can only be done by statute. Moreover, in doing so he threatens excessive

politicization of agency rule-making, the subversion of a public process by back-corridor arrangements, and compromising the lines of authority Congress has created.

That these officers will, in practice, be answerable chiefly to him is underscored by

President Bush’s subtractions from Executive Order 12866, as well as his additions

to it. Their conversations with him, his lieutenants, and any political friends he may

send their way will be invisible to us.

You will likely hear from the other side that the President is, after all, our chief

executive, that our Constitution embodies the judgment that we should have a unitary executive, and so even if the result were to convert agency judgments about

rule-making into presidential judgments, that would only be accomplishing what the

Constitution commands. This is the subject of the writing I have attached to this

testimony. In my judgment it is not only an erroneous argument, but one dangerous

to our democracy. The President is commander in chief of the armed forces, but not

of domestic government. In domestic government, the Constitution is explicit that

Congress may create duties for Heads of Departments—that is, it is in the heads

of departments that duties lie, and the President’s prerogatives are only to consult

with them about their performance of those duties, and to replace them with senatorial approval when their performance of those duties of theirs persuades him that

he must do so. This allocation is terribly important to our preservation of the rule

of law in this country. The heads of departments the President appoints and the

Senate confirms must understand that their responsibility is to decide—after appropriate consultation to be sure—and not simply to obey. We cannot afford to see all

the power of government over the many elements of the national economy concentrated in one office.

Professor Peter Shane, a highly respected scholar of the presidency and a former

lawyer in the Office of Legal Counsel, put the matter this way in a recent discussion

of President Bush’s use of signing statements, which I know is not our subject

today.

The Bush Administration has operated until recently in tandem—can there

be a three-part tandem?—with Republican Congresses and a Supreme Court

highly deferential to executive power. . .. It has not only insisted, in theory, on

a robust constitutional entitlement to operate free of legislative or judicial accountability, but it has largely gotten away with this stance. And that success—

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the Administration’s unusual capacity to resist answering to Congress and the

courts—has fed, in turn, its sense of principled entitlement, its theory that the

Constitution envisions a Presidency answerable, in large measure, to no one.

Critics of the Administration have not infrequently charged that the Administration’s unilateralism is antagonistic to the rule of law. After all, the ideal of

a ‘‘government of laws, not of men’’ seems conspicuously at odds with a President’s expansive claims of plenary authority. But no sane President claims to

be above the law and, indeed, President Bush takes pains repeatedly to defend

his controversial actions as legal, including the widespread warrantless electronic surveillance of Americans, the incarceration of U.S. citizens as enemy

combatants, and the intense interrogation of detainees in Iraq and Afghanistan.

I doubt that President Bush thinks himself antagonistic to the rule of law; he

just has a different idea of what the rule of law consists of. But what the Administration seems to believe in is a version of the ‘‘rule of law’’ as formalism.

It is the rule of law reduced to ‘‘law as rules.’’ Under the Bush Administration’s

conception of the rule of law, Americans enjoy a ‘‘government of laws’’ so long

as executive officials can point to some formal source of legal authority for their

acts, even if no institution outside the executive is entitled to test the consistency of those acts with the source of legal authority cited. . ..

The Bush signing statements, like the doctrines they advocate, are a rebuke

to the idea of the rule of law as norms or process. They are a testament to the

rule of law as law by rules, preferably rules of the President’s own imagination.

This executive order is cut from the same cloth.

What might Congress do about this? This looks like a simple affront to two of

Congress’s responsibilities—to confer organization and authority on elements of government by enacting statutes, and to approve (in the Senate) all appointments to

high office (thus creating one of the Constitution’s many checks on unilateral authority in any branch). Legislative change here, though, would likely encounter a

presidential veto. Can you find a way to avoid that? There remains the power of

the purse. While the use of ‘‘do not spend’’ riders in appropriations measures has

often been criticized, perhaps this is a setting in which such a rider would be appropriate, attached to a budget the President will find himself compelled to sign. Why

should Congress tolerate the expenditure of government funds to pay the salary of

one whose powers it has not authorized, and whose functioning can prove destructive of the public institutions it has worked to create?

II. Outsider Control of Rule-making

I can be much briefer in addressing the provision of the executive order that invites agencies to ‘‘consider whether to utilize formal rule-making procedures under

5 U.S.C. 556 and 557 for the resolution of complex determinations,’’ ‘‘in consultation

with OIRA.’’ This is permissively worded, but one must wonder how permissive its

implementation will be. And what you should note are the differences between ‘‘formal rule-making procedures under 5 U.S.C. 556 and 557’’ and the notice-and-comment procedures agencies generally employ. On-the-record rule-making occurs under

the aegis of an administrative law judge, a person trained in trials not policy-setting; notice and comment rule-making is coordinated by the agency’s policy staff.

Even more important, on-the-record rule-making confers on participants the kinds

of rights parties to trials have—rights to put on witnesses, engage in cross-examination, and in other ways slow rule-making down and add to its internal costs. It is,

simply, the delivery of the henhouse to the foxes.

Experience with on-the-record rule-making led to its virtual abandonment decades

ago, and for good reason. Those familiar with the process have recognized for 40+

years that it is simply too clumsy to work except in very isolated instances. In its

1973 judgment in U.S. v. Florida East Coast Rwy, 410 U.S. 224, the Supreme Court

essentially ruled that agencies did not need to use it in the absence of the clearest

of statutory instructions. Congress hasn’t been giving those instructions, and agencies haven’t been using that process ever since, and for good reason. Experience has

taught us that the use of formal rule-making is cumbersome and out of all proportion to its benefits because trial-type hearings are poorly suited for determinations

that turn on policy judgments, and too subject to unwarranted extension and complication by the participant parties. Why, then, revive it now? Just to help one’s

friends slow things down—to throw a good dose of sand into the gears of rule-making?

Thank you for the opportunity to address you today. I would be happy to answer

any questions you might have.

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BIOGRAPHY FOR PETER L. STRAUSS

Peter L. Strauss, the Betts Professor of Law at Columbia Law School, has taught

courses in Administrative Law, Constitutional Law, Legal Methods, and Legislation

since 1971. A graduate of Harvard College and Yale Law School, he previously

clerked for the Hon. David L. Bazelon and William J. Brennan, Jr., taught criminal

law at the national university of Ethiopia, and spent three years as an attorney in

the Office of the Solicitor General, briefing and arguing cases before the United

States Supreme Court. During 1975–77, Professor Strauss was on leave from Columbia as the first General Counsel of the United States Nuclear Regulatory Commission. His published works include Administrative Justice in the United States

(1989) and 2002 Gellhom’s & Byse’s Administrative Law: Cases and Comments (most

recently, 2003, with Rakoff and Farina), Legal Methods: Understanding and Using

Cases and Statutes (2005), Legislation: Understanding and Using Statutes (2006)

and Administrative Law Stories (Ed., 2006) and numerous law review articles, generally focusing on issues of rule-making, separation of powers, and statutory interpretation. In 1987 the Section of Administrative Law and Regulatory Practice of the

American Bar Association gave Professor Strauss its third annual award for distinguished scholarship in administrative law. In 1992–93, he served as Chair of the

Section. He has twice been Vice Dean at Columbia. Professor Strauss has visited

at Harvard and NYU, and lectured widely on American administrative law abroad,

including programs in Argentina, Belarus, Brazil, China, Germany, Italy, Japan, the

Netherlands, Mexico, Turkey and Venezuela. He is founding editor of the Social

Science Research Network’s Administrative Law Abstracts, and a member of the

board of the Center for Computer Assisted Legal Instruction.

Chairman MILLER. Thank you.

Dr. Hahn.

STATEMENT OF DR. ROBERT W. HAHN, EXECUTIVE DIRECTOR,

AEI–BROOKINGS JOINT CENTER FOR REGULATORY STUDIES

Dr. HAHN. Thank you, Chairman Miller. I am going to try to

focus on some of the substantive issues in the executive orders. My

coauthor, Bob Litan, and I have studied and written about regulatory issues for, dare I say, more than two decades from an economic perspective, and it is from that perspective that I approach

the analysis of the President’s new executive order.

Our bottom line is that the new order is not as revolutionary or

far-reaching as the critics make it out to be, and indeed the actual

requirements or additional requirements of this order are modest.

I would like to make the following three points.

First, expanding the executive order to consider guidance is a

positive step. Second, the changes regarding regulation are not

likely to substantially increase an agency’s analytical burden. And

third, the expansion of presidential influence over major regulatory

policies is on balance a good thing and will serve to enhance accountability.

First, treating guidance like regulation is a good thing. The new

Bush executive order includes regulatory guidance when its impact

is likely to be significant. We don’t know the impact of most guidance, but we do know that regulatory agencies issue a lot of it. For

example, the FDA has an online list of over 1,500 guidance documents that are currently in use. The new Bush order requires that

each agency evaluate the need for and consequences of guidance,

helping to ensure that it is reasonable. I don’t think that is a lot

to ask for. Some critics argue that oversight is not needed because

guidance is non-binding. This is simply wrong. Consider a situation

where an agency says that it is acceptable to use blue paint to comply with the regulation, but is silent on whether yellow paint might

be used. I would imagine that you would see a lot more firms comVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00053 Fmt 6601 Sfmt 6601 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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1 Robert W. Hahn and Robert E. Litan are the directors of the AEI-Brookings Joint Center

for Regulatory Studies. This testimony builds on our piece in the Economists’ Voice. The authors

would like to thank Caroline Cecot and Molly Wells for excellent research assistance. The views

plying with that regulation using blue paint rather than yellow

paint. That to me looks a lot like a regulation, and to borrow a

phrase, if it looks like a regulation and quacks like regulation, then

I think it should be treated like a regulation.

Our second point is that the executive order changes, regarding

regulation, are not likely to substantially increase an agency’s analytical burden. The new E.O. adds some requirements for new regulation. For example, some critics have complained about the requirement that an agency provide a written rationale explaining

why it is regulating, but this isn’t really a new thing, as you heard

earlier. The only real difference between the Bush order and President Clinton’s order is that the Bush order specifically requires

that rationale to be in writing. In general, the requirement of a rationale, which was first added by President Clinton, is important

and should be applicable to all regulation and guidance. If agencies

don’t have a good economic rationale for regulation, you and the

public deserve to know that. Furthermore, the Bush order stops

short of requiring that the agency specify a clear economic rationale. It simply needs to specify a rationale, any rationale.

Third, the expansion of presidential influence is likely to promote

greater accountability and better economic policy. I am running out

of time so I will be brief here. The basic idea is one that you mentioned earlier, that unelected government civil servants are not

necessarily in the best position to be making tough policy choices.

Indeed, they may suffer from a kind of tunnel vision as Justice

Breyer noted in his book, Breaking the Vicious Circle.

If I were to have any complaint about the President’s executive

order, it is that it does not go far enough. In particular, it excludes

independent agencies like the Federal Trade Commission, the Federal Communications Commission, and FERC from review. Professor Cass Sunstein and I have argued in a law review paper that

these independent agencies should be subject to regulatory review.

In addition, I would also suggest subjecting significant guidance

documents to a broadly based benefit-cost test. This would give regulators and the public a better understanding of the likely economic impacts of guidance and could also improve guidance.

In conclusion, we think the new executive order on regulation

represents a modest improvement over previous orders. It is also

consistent with the global trend towards featuring a more prominent role for economic analysis in informing regulatory decisions.

Thank you, and I would be happy to take your questions.

[The prepared statement of Dr. Hahn follows:]

PREPARED STATEMENT OF ROBERT W. HAHN

Evaluating the New Executive Order on Regulation

ROBERT W. HAHN AND ROBERT E. LITAN1

Executive Summary

In 2007, President Bush amended President Clinton’s executive order on government regulation, making changes that could have far-reaching consequences for how

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expressed here represent those of the authors and do not necessarily reflect those of the institutions with which they are affiliated. 2 All publications of the AEI–Brookings Joint Center can be found at http://

www.aei.brookings.org. 3See Arrow et al. (1996). 4See Exec. Order 13,422, 72 Fed. Reg. 2763 (2007) [hereinafter Exec. Order 13,422]. Previously, President Bush only made minor changes to Exec. Order 12,866, such as transferring

the roles assigned to the Vice President to the OMB Director or Chief of Staff. See Exec. Order

12,866, 58 Fed. Reg. 51,735 (1993) [hereinafter Exec. Order 12,866]; Exec. Order 13,258, 67 Fed.

Reg. 9385 (2002). 5For a more pessimistic view of Exec. Order 13,422, see Sally Katzen, Amending Executive

Order 12866: Good Governance or Regulatory Usurpation?, Testimony 07–01: AEI–Brookings

Joint Center for Regulatory Studies (2007) (focusing on the restrictions of agency discretion) and

Peter L. Strauss, Testimony of Peter L. Strauss Concerning President Bush’s Recent Amendments

to Executive Order 12866, Testimony 07–02: AEI–Brookings Joint Center for Regulatory Studies

(2007) (discussing possible separation of powers concerns). See also Robert Pear, Bush Directive

Increases Sway on Regulation, N.Y. TIMES, January 30, 2007; Cindy Skrzycki, Bush Order

Limits Agencies’ ‘Guidance’, WASH. POST, January 30, 2007, at D01. 6There are certain kinds of guidance that may be considered binding. See Robert A. Anthony,

Interpretive Rules, Policy Statements, Guidances, Manuals, and the Like: Should Federal Agencies Use Them to Bind the Public?, 41 DUKE L. J. 1311, 1311–84 (1992). OMB makes it clear

that guidance cannot impose a legally binding requirement. See Office of Management and

Budget, Final Bulletin for Agency Good Guidance Practices, Bulletin No. 07–02: Executive Office

of the President (2007) [hereinafter OMB, Guidance]. See M. Elizabeth Magill, Agency Choice

of Policy-making Form, 71 U. CHI. L. REV. 1383, 1383–1447 (2004) for a discussion of the kinds

of regulatory tools statutes and case law make available to agencies, and why agencies select

certain tools such as adopting a rule, bringing a case to court, or issuing guidance. 7See Environmental Protection Agency, Interpretations of Waste Management Activities: Recycling, Combustion for Energy Recovery, Treatment for Destruction, Waste Stabilization and Release, Office of Pollution Prevention and Toxics (1999); Environmental Protection Agency, Emergency Planning and Community Right-to-Know Act-Section 313: Guidance for Reporting Releases

and Other Waste Management Quantities of Toxic Chemicals: Lead and Lead Compounds. EPA

Continued

the government weighs the costs and benefits of regulatory activity. Although the

new Bush executive order would impose greater requirements on regulatory agencies than are currently imposed, we think the benefits are likely to exceed the costs.

We argue that the new– executive order should have included independent regulatory agencies, such as the Federal Communications Commission, in addition to executive regulatory agencies.

I. Introduction

We are pleased to appear before this subcommittee to present our views on the

recent executive order on regulation. We have studied and written about regulatory

institutions for more than two decades. About a decade ago, we organized a cooperative effort between the American Enterprise Institute and the Brookings Institution

to study regulation. The result was the AEI–Brookings Joint Center for Regulatory

Studies.2

A primary objective of the center is to hold lawmakers and regulators more accountable by providing thoughtful, objective analysis of existing regulatory programs

and new regulatory proposals. The Joint Center has been at the forefront of outlining principles for improving regulation, enhancing economic welfare, and promoting regulatory accountability.3

Our testimony analyzes the new executive order on regulation. In 2007, President

Bush amended President Clinton’s executive order on government regulation, making changes that could have far-reaching consequences for how the government

weighs the costs and benefits of regulatory activity.4 We argue that the changes in

the order are modest and that the new order is generally an improvement. Specifically, we believe that expanding the executive order to consider guidance is a positive step; the changes regarding regulation are not likely to substantially increase

an agency’s analytical burden; and, the expansion of presidential influence over

major regulatory policies will serve to enhance accountability.5

II. Treating Guidance More Like Regulation

The new Bush order adds to the old Clinton order in three key ways. First, instead of focusing primarily on federal regulations that are likely to cost hundreds

of billions annually, the Bush order also focuses on regulatory ‘‘guidance’’ when its

impact is likely to be significant. Guidance is similar to regulation because it presents an agency’s interpretation or policy on a particular regulatory or technical

issue, but it is usually non-binding.6 For example, the Environmental Protection

Agency has issued guidance on the interpretation of waste management activities,

and also on some reporting requirements under the Community Right-to-Know Act.7

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260–B–01–027: Office of Environmental Information (2001). More Environmental guidance documents can be found at http://www.epa.gov/epahome/search.html. 8For the list of all Food and Drug Administration guidance documents currently in use, see

Notice, Annual Comprehensive List of Guidance Documents at the Food and Drug Administration, 70(3) Fed. Reg. 824–913 (2005), available at http://www.fda.gov/OHRMS/DOCKETS/

98fr/05-155.htm. 9See OMB, Guidance, supra note 5 at 3. 10The American Bar Association, for example, has issued statements calling for public comment on significant ‘‘nonlegislative rule(s)’’ and for availability of these documents on agencies’ websites. See American Bar Association, Rule-making Procedures for Non-Legislative Rules,

A.B.A. (1993); American Bar Association, Recommendation on Federal Agency Web Pages, A.B.A.

(2001). The American Bar Association confirms this in a draft letter regarding the amendments

to Exec. Order 12,866, available at http://www.abanet.org/adminlaw/midyear/2007/

Tab4Cletter12866.pdf [hereinafter A.B.A., Draft]. 11Those who believe that the OMB review process is captured by business are unlikely to be

persuaded by this argument. We believe OMB regulatory review tends to focus more on economic welfare of producers and consumers. That is, in part, because the executive orders focus

on economic efficiency, which counts benefits and costs to workers, consumers, and owners of

capital. 12 Non-binding means that firms and other affected parties are not required to do anything

specific. See OMB, Guidance, supra note 5 at 9 for this concern, raised by several commentators

on the proposed Bulletin. 13See OMB, Guidance, supra note 5 at 9–10 (describing how guidance documents could have

‘‘coercive effects’’ or lead to a change in behavior).

No one actually knows the real impact of most guidance, but it could be substantial. We do know that regulatory agencies issue significant amounts of guidance.

The U.S. Food and Drug Administration has a list of over 1,500 guidance documents

that are currently in use.8 Previously, agencies could issue guidance documents in

lieu of regulations in order to circumvent the requirements of regulatory review required by executive orders used by President Reagan, the first President Bush, and

President Clinton.9

The new Bush order will change the way guidance is handled by requiring that

each agency evaluate the need for and consequences of the guidance, helping to ensure that it is reasonable. The specific requirements are modest, such as making

sure that the guidance is consistent with applicable law, compatible with other regulations and guidance documents, and simple and easy to understand. Before

issuing a significant guidance document, which could have an annual effect on the

economy of $100 million or more, the agency must notify OMB’s regulatory office

and submit the draft with an explanation of why guidance is needed, but it is not

required to do a full benefit-cost analysis. OMB can then select guidance that could

benefit from regulatory review.

Critics suggest that applying some of the same standards to federal guidance as

now apply to regulation will allow big business to exert more control over the process, either by delaying the issuance of guidance or changing the guidance to meet

its needs. The critics might be right in some instances. In general, however, forcing

guidance to be consistent, compatible, and understandable is appropriate.10

Interestingly, applying the new standards to guidance could serve to slow efforts

by an administration interested in reducing burdens on business. If, for example a

regulatory agency were captured by business interests, but guidance had to be approved by OMB, there would at least be some chance that OMB might pinpoint

guidance that did not help the general public, or at least slow the rate at which

such guidance is issued.11

Some critics also contend that the new executive order could impose undue analytical burdens on regulatory agencies. For example, some argue that oversight is

not needed because much guidance is non-binding.12

The critics raise an important point, the solution to which is to make sure OMB’s

regulatory office implements its new oversight responsibilities wisely. If guidance is

truly non-binding in an economic sense—say, because it does not affect firm behavior—then there is little reason to spend time analyzing it. However, there are cases

when guidance may be non-binding in a legal sense, but could affect behavior.13

Consider a situation where an agency says that it is acceptable to use blue paint

to comply with a regulation, but is silent on whether using yellow paint is acceptable. This guidance could have the effect of encouraging firms to use blue paint

more than they otherwise would, even though there is not a formal requirement to

use it.

Still, we are concerned that the process could slow or stop the issuance of some

guidance that serves a useful social purpose. One possible example is guidance from

the Food and Drug Administration, which already has good guidance standards and

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14See Notice, The Food and Drug Administration’s Development, Issuance, and Use of Guidance Documents, 62 Fed. Reg. 8961 (1997). The good guidance practices have some of the same

features as OMB, Guidance, supra note 5, including absence of mandatory language, advance

notice and opportunity for public comment on some guidance, and posting of guidance on the

Internet. Guidance from the Food and Drug Administration is available at http://www.fda.gov/

opacom/morechoices/industry/guidedc.htm. The Biologics Consulting Group also maintains a

database of the Food and Drug Administration’s guidance documents, available at http://

www.biologicsconsulting.com/guidancedocuments¥all.htm. 15The American Bar Association expressed concern about the new provision to Exec. Order

13,422, supra note 3, reminding agencies to consider using formal rule-making for complex determinations. See A.B.A., Draft, supra note 9. We, however, agree with the view expressed by

Paul R. Noe, Changes to OMB Regulatory Review by Executive Order 13422, Testimony 07–04:

AEI–Brookings Joint Center for Regulatory Studies (2007). Noe, supra, believes that because

agencies always had the option to consider formal rule-making, this provision is not likely to

change anything. 16Professor Sally Katzen, supra note 4, former head of regulatory review at OMB, argues, ‘‘By

giving special emphasis to market failures as the source of a problem warranting a new regulation, the Administration is saying that not all problems are equally deserving of attention; those

caused by market failures are in a favored class and possibly the only class warranting new

regulations.’’ See Katzen, supra note 4. We think it is good for government generally to focus

on market failures because too often government policies result in serious economic inefficiencies. See CLIFFORD WINSTON, GOVERNMENT FAILURE VERSUS MARKET FAILURE:

MICROECONOMICS POLICY RESEARCH AND GOVERNMENT PERFORMANCE (AEI– Brookings Joint Center for Regulatory Studies 2006). Katzen brings up the example of civil

rights. We think some civil rights legislation could have been justified on the basis of market

failure arguments. Nonetheless, the Bush EO clearly allows for the agency to provide a rationale

other than market failure. ‘‘Each agency shall identify in writing the specific market failure

(such as externalities, market power, lack of information) or other specific problem that it intends to address (including, where applicable, the failures of public institutions) that warrant

new agency action, as well as assess the significance of that problem, to enable assessment of

whether any new regulation is warranted’’ [emphasis added]. See Exec. Order 13,422, supra note

3. 17 Exec. Order 12,866, supra note 3, already required that the agency report the most significant rules on a ‘‘Regulatory Plan,’’ along with each rule’s anticipated benefits and costs. Exec.

Continued

posts guidance on its web site.14 It appears that a significant amount of guidance

issued by this agency can reduce the overall regulatory burden by more clearly articulating government policy toward getting approval of drugs or medical devices.

Such guidance would likely pass a benefit-cost test if its primary effect is to reduce

regulatory uncertainty without sacrificing the social goal, which in this case could

be assuring that a new drug is reasonably safe and effective. Determining the appropriate level of review for the guidance review process will entail tradeoffs between limiting guidance that improves economic welfare and discouraging guidance

that reduces economic welfare.

As OMB learns more about the likely effect of different types of guidance, it

should tailor its analytical reporting requirements accordingly. In addition, it should

take great care in implementing a formal rule-making for particular guidance because this process is time consuming and relatively costly.15 Because OMB’s regulatory office has a very small staff for reviewing regulation and guidance, it has

some incentive not to impose burdensome reporting requirements on agencies because then it would be expected to review these reports.

III. New Requirements for Regulation

The new order also adds some requirements for regulation. One feature, highlighted in the press, is that the Bush order requires an agency to provide a written

rationale explaining why it is regulating. The only real difference between the Bush

order and the Clinton order is that the Bush order specifically requires that the rationale be in writing. A careful reading of the Bush order suggests that a rationale

for significant guidance should also be provided as a brief explanation for OMB.

This requirement is important, and should be included for all regulation and guidance. Most economists would agree that the government should not consider regulating unless there is a clear market failure being addressed, such as pollution, monopoly, or lack of good information. The Bush order stops short of requiring that

the agency specify a market failure, per se. The agency simply needs to provide a

reason for regulating. Regulatory agencies owe the citizenry at least that much before they decide to regulate.16

Another feature of the regulatory proposal that has been criticized in the press

is the requirement that agencies provide aggregate annual costs and benefits of all

regulatory activity on the agency’s plan. This requirement should not add substantially to the analytical burden of regulatory agencies because they already must

present anticipated costs and benefits of individual regulations on the plan.17 There

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Order 13,422, supra note 3, only asks that agencies sum the estimated benefits and costs of the

regulations, which is a way of enhancing transparency. See Steven D. Aitken, Statement of Steven D. Aitken, Acting Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget before the Subcommittee on Commercial and Administrative Law of the

Committee on the Judiciary, United States House of Representatives (2007). Katzen, supra note

4, believes that this estimate will be meaningless and should not be included. 18See STEPHEN BREYER, BREAKING THE VICIOUS CIRCLE: TOWARD EFFECTIVE

RISK REGULATION (Harvard University Press 1993). 19See Strauss, supra note 4, for objections to this view on the grounds of the need for separation of powers. 20See Robert W. Hahn & Cass R. Sunstein, A New Executive Order for Improving Federal

Regulation? Deeper and Wider Cost-Benefit Analysis, 150 U. OF PENN. L. REV. 1489 (2002). 21See Strauss, supra note 4, for an opposing view.

is value in having an estimate of the annual regulatory cost, much in the same way

that government provides an annual budget estimate. We would also add that,

where possible, the annual regulatory cost should be compared with the annual regulatory benefit.

III. Expanding Presidential Influence

The third change in the Bush executive order is to require affected regulatory

agencies to designate a presidential appointee as the regulatory policy officer. The

regulatory policy office would then need to approve a specific regulation before it

could be included in the agency’s annual regulatory plan of the important regulations it expects to issue.

This change could be very important. Critics believe that it would politicize the

process by taking away some discretion from civil servants. We agree with the critics, but think this is ultimately a good thing. The benefits are similar to the benefits

of regulatory oversight in general. First, as Justice Breyer has noted, civil servants

in some regulatory agencies may tend to have tunnel vision, and fail to consider the

broader impacts of their regulatory proposals.18 Second, requiring that a presidential appointee in a policy office approve regulations increases the chances that

the regulations will consider costs and benefits because such balancing is more likely to be consistent with the President’s agenda than an agency’s agenda. Third, this

change will hold the President more accountable for regulatory policies that his administration selects.19 Of course, the particular person the President appoints could

skew the process away or towards the balancing of costs and benefits, but we think

the President should have that choice because voters can hold him accountable for

his policies.

IV. New Executive Order Should Have Been More Ambitious

If we have any complaint about the President’s executive order, it is that it does

not go far enough. In particular, it excludes a whole group of regulatory agencies

from review—the ‘‘independent’’ regulatory agencies like the Federal Trade Commission, the Federal Communications Commission, and the Federal Energy Regulatory

Commission—that play a critical role in a number of areas ranging from telecommunications to energy.

We would suggest bringing these independent agencies under the executive order’s umbrella.20 This change would hold a wider range of regulators more accountable for the costs and benefits of their policies and hopefully lead to more efficient

policies across the board. It is still an open question as to whether the President

has the legal authority to make this change; if the President does not, then Congress should give this general authority to the President directly.21

In addition, we would suggest subjecting significant guidance documents to the

same requirements as significant regulations—namely benefit-cost analysis and a

broadly based benefit-cost test. This would give regulators and the public a better

understanding of the likely economic impacts of guidance, and it could also improve

actual guidance.

Although the new Bush executive order would impose greater requirements on

regulatory agencies than are currently imposed, we think the benefits are likely to

exceed its costs, but a lot will depend on how it is implemented. The new executive

order is also consistent with a global trend toward featuring a more prominent role

for economic analysis in informing regulatory decisions.

BIOGRAPHY FOR ROBERT W. HAHN

Robert Hahn is co-founder and Executive Director of the American Enterprise Institute-Brookings Joint Center, which examines cutting-edge issues in law and economics, regulation and antitrust. Previously, he worked for the Council of Economic

191

Advisers, where he helped design the innovative market-based approach for reducing acid rain. Dr. Hahn also has served on the faculties of Harvard University and

Carnegie Mellon University. He frequently contributes to leading scholarly journals

and general-interest periodicals, including the American Economic Review, Yale Law

Journal, Science, and the New York Times. Dr. Hahn is the author of Reviving Regulatory Reform: A Global Perspective (AEI–Brookings) and several other books. He

has served as a consultant to governments and business on a variety of economic

issues. In addition, Dr. Hahn is co-founder of the Community Preparatory School— an inner-city middle school in Providence, Rhode Island, that provides opportunities

for disadvantaged youth to achieve their full potential.

Chairman MILLER. Thank you, and I think now I need to go vote.

Dr. Hahn, I understand you probably cannot be here when I get

back but I will be gone for probably around 20 minutes, and I

apologize. It is simply the schedule we are on. There is only so

much we can do about it. But I will be back as quickly as I can.

Thank you, and we will be in recess.

[Recess.]

Chairman MILLER. We will resume. Dr. Gary Bass will testify

next.

Dr. Bass.

STATEMENT OF DR. GARY D. BASS, EXECUTIVE DIRECTOR,

OMB WATCH

Dr. BASS. I appreciate the opportunity to testify and for your

running back and forth. It is wonderful of you.

Let me start by just posing a question for the record, and that

is, if those people who are so supportive of the executive order

changes say that it is so minimal, then what was the purpose of

doing the changes in the executive order? And so I have sort of a

rhetorical question on that point. If it really was nothing, then why

so late into this Administration was any change made? I also want

to just open by indicating that if Professor Strauss raises constitutional questions about the executive order, you can bank on it. I

mean, that is a critically important point, and even if there aren’t

constitutional problems, this is bad policy. So let me start with the

whole point that no one has said the objective should be to actually

get rid of this executive order, and whether Congress chooses to directly approach that or whether it chooses through the power of the

purse to withhold funding for the implementation of components of

it, that is the strongest recommendation that I could possibly

make. Now, within that context, I think that in the immediate side,

transparency and accountability, as you, Mr. Chairman, have mentioned, is essential. So let us turn to transparency as a theme.

First of all, let us talk about transparency in the entire regulatory process overall. At best, I would describe it as walking into

a dark room and the government handing you a flashlight when

you could flip a switch and have floodlights instead. It is not very

transparent, is the point I would make. And now you add in the

enhanced powers that Professor Strauss talked about of the regulatory policy officer where there is no transparency, you are totally

in the dark, not even a flashlight. So if Congressman Rohrabacher

and Mr. Aitken believe in transparency, it seems to me one place

to start is to really provide some transparency for the entire regulatory process. Now, I could spend some moments about the OIRA

power and what has happened as well as the power that would

exist because of the RPO at the agencies, but instead of spending

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my time on that, I want to directly talk about specific recommendations for transparency.

One sentence before that though that I want to mention and that

is, most of the discussion about OIRA’s power has been in the context of the executive order itself, what they do during the regulatory review. That is the formal review process. What is striking

is the informal part of it, meaning what I would call pre-rule-making. The dialog that occurs between OIRA or the White House and

the agencies before the formal process ever kicks in is critical to

any kind of public accountability, and right now there is no transparency on that process at all, and in fact, by the changes in the

executive order, we have enhanced more power in that pre-rulemaking stage and yet no transparency.

So let me turn to recommendations. First, let me do it in two

ways. One is for the agency itself and then turn to reviewing authorities such as OIRA or Small Business Administration, and I

will only use five under each because I was always told you can

count up and then still pound your hand and still advocate for it

all at the same time. So one, at the agency level, it is essential to

have disclosure of who these new RPOs will be—or not new, the

new enhanced power, but the political appointees could be new— who they are, what their responsibilities are, what the procedure

would be within the agency. For example, when does a regulatory

activity commence, what is the definition of that? How do you

reach the person? All that kind of information should be publicly

available, conspicuously publicly available on the agency website.

Second, since we now have a political appointee and it has raised

significant questions, as you heard from Professor Strauss, what

really needs to be done is to disclose all decisions by the RPO and

the justification for that decision. It is not just about what is permitted to go forward but also what is stopped, and for that matter,

what is permitted to go forward but altered in its approach. Third,

we should have an annual report to Congress summarizing those

activities. It should also be in the Unified Agenda, which is published in the Federal Register, so the public can see what is happening, but the documents that are exchanged internally in the

agency should be sent to Congress in this annual report. And

fourth in my points on the agency, and I won’t go to five, all substantive communications, written or oral, outside the government

or outside the agency including from OIRA should be docketed in

the agency rule-making record. Moreover, for those activities that

don’t go forward, a new docket should be created about communications related to those that don’t go forward.

Let me turn to OIRA and other kinds of reviewing entities. First,

if a reviewing entity such as OIRA is now going to play a substantive role in rule-making review, it should be treated under our

Administrative Procedure Act as involved in the rule-making and

all of the various kinds of requirements that go with that should

be held to OIRA. If it is really just going to be not the decider or

the overseer, as Professor Strauss tried to distinguish, then maybe

it doesn’t apply, but it is clear that they are getting much more engaged in the substance. Secondly, all substantive communications,

written or oral, particularly from outside of government, before

during and after the OIRA review, should be docketed not only at

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OIRA but again back at the agency level. Thirdly, OIRA should establish a government-wide standard for tracking rule-making so

that the public can follow it from the beginning all the way

through. You can’t today. It is extremely difficult. And then fourth,

the OIRA web site, which is incredibly important that administrators starting with Administrator Katzen, moving to Administrator

Graham, have helped with transparency but the web site itself

needs enormous improvement. It should be searchable. Right now

it is just a long list of things to look at. Finally, the log that is used

at OIRA for meetings with external players is at best inconsistent

in what you get. Sometimes there is no title even of what the subject is. Almost never do you get anything about what the content

of the meeting was about. You may get a list of participants. In any

case, it needs to be complete, it needs to be consistent and it should

be linked with that web site on what regulatory activities are happening so you know what is going on. I recognize that this adds

burdens to agencies, but in an environment like this executive

order, transparency is fundamental and essential to true accountability.

I want to just thank you, Mr. Chairman. This is now your second

hearing. This is wonderful to find oversight, and I hope the oversight leads to action in terms of legislation. Thank you.

[The prepared statement of Dr. Bass follows:]

PREPARED STATEMENT OF GARY D. BASS

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to testify before you today. I am Gary Bass, Executive Director of OMB Watch. OMB Watch is a nonprofit, nonpartisan research and

advocacy center promoting an open, accountable government responsive to the

public’s needs. Founded in 1983 to remove the veil of secrecy from the White House

Office of Management and Budget (OMB), OMB Watch has since then expanded its

focus beyond monitoring OMB itself. We currently address four issue areas: right

to know and access to government information; advocacy rights of nonprofits; effective budget and tax policies; and the use of regulatory policy to protect the public.

OMB Watch does not receive any government funding.

My testimony today focuses on 1) the responsibilities given Regulatory Policy Officers (RPOs) under Executive Order 13422, 2) the likely impacts of this regulatory

change, 3) the current rule-making structure and disclosure requirements, and 4)

OMB Watch’s recommendations for improving transparency in the rule-making

process in light of E.O. 13422.

Before addressing these points, I want to make clear to the Subcommittee that

we strongly oppose E.O. 13422 and urge Congress to find a way to overturn the E.O.

If that is not possible, we urge Congress to use its power of the purse to limit appropriations to implement some or all of the changes required by the E.O. The E.O.

threatens public protections by further centralizing executive control over the regulatory process, removing agency discretion over legislative implementation, codifies

regulatory delay, and substitutes free market criteria for public values of health,

safety, and environmental protections.

I. President Clinton’s Regulatory Policy Officer and Executive Order 13422

Executive Order 12866, Regulatory Planning and Review, created the Regulatory

Policy Officer within each federal agency who reports generally to the agency head.

The E.O. states:

‘‘The Regulatory Policy Officer shall be involved at each stage of the regulatory

process to foster the development of effective, innovative, and least burdensome

regulations and to further the principles set forth in this Executive Order.’’

The role of the RPO envisioned in the 1993 E.O. is to coordinate and carry out

agency responsibilities in regard to regulatory planning and review of regulations

by the Office of Information and Regulatory Affairs (OIRA). These responsibilities

include: allowing ‘‘meaningful’’ public participation in the regulatory process; inVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00061 Fmt 6601 Sfmt 6621 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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forming stakeholders of pertinent regulations; providing OIRA with a list of planned

regulatory actions; providing OIRA with cost-benefit analyses for significant regulatory actions; and making available to the public information on proposed and final

regulations.

In practice, the role of the RPO evolved differently. Not every agency maintains

one designated RPO. In the case of the Department of Agriculture (USDA), various

officials serve as de facto RPOs. Familiarity with the issue is likely to determine

where responsibilities lie on a specific regulation. In the Department of Energy, the

RPO also functions as an agency counselor. The RPO is not necessarily a political

appointee, but the final regulatory decisions within an agency are in the hands of

a political appointee, usually the agency head or his or her designee.

Two of President Bush’s amendments to E.O. 12866 impact the RPO. First, agencies are now required to designate a political appointee as their RPO, and are to

do so within 60 days of the issuance of the amendments, which should have already

occurred. New text also requires OMB to verify this designation.

Second, in addition to changing the requirements of the designated RPO, the Officer’s responsibilities are increased. The RPO will now be charged with approving an

agency’s Regulatory Plan, a responsibility previously given to the agency head. The

amendments state that ‘‘no rule-making shall commence nor be included’’ for consideration in the agency’s regulatory plan without the political appointee’s approval.

The Regulatory Plan includes the most important regulations which an agency

plans in a given year.

II. The Impact of Executive Order 13422 on RPOs

E.O. 13422, the order that amended E.O. 12866 and was issued January 18, 2007,

will solidify the position of RPO as the preeminent regulatory manager within each

agency. By requiring the Officer to be a political appointee, the amendments suggest

a further politicization of the regulatory process. OMB Watch is concerned that by

installing a political appointee as the RPO and increasing the responsibilities, that

appointee will significantly affect an agency’s ability to regulate in a fair and nonpartisan fashion.

In some agencies, the amendments related to the RPO may have little effect on

regulatory development. In the case of the Department of Energy, the RPO is already a political appointee albeit without the sole responsibility to initiate regulations and without final decision-making authority over regulations (unless one or

both powers have been delegated to the RPO by the agency head). The White House

is unlikely to have a greater or lesser impact on the way in which regulations are

formulated within that agency. Similarly, the process in the Department of Labor

is likely to go unchanged.

In other agencies, however, the RPO change will likely centralize the regulatory

process and create OIRA-like structures within agencies even though OIRA has

been criticized over the years for exerting political influence. In the case of USDA,

this change, if followed, will end the process of dividing regulatory authority based

upon experience and expertise. Instead, the RPO will ultimately be responsible for

all regulatory decision-making and be involved in regulatory discussions from the

beginning of agency considerations. Furthermore, installing a political appointee

where one did not previously exist will facilitate White House input into agency regulatory matters.

A similar approach was attempted by President Reagan through his E.O. 12498,

the Regulatory Planning Process, issued January 4, 1985. Under that order, agencies were to get approval from OMB prior to starting a rule-making—a pre-rulemaking review. Many in the business community thought this would be an effective

approach for choking off agency ideas in their earliest stage. That approach, however, proved too cumbersome and difficult to administer. E.O. 13422 revises this

choke-hold by placing that de facto prior approval in the agencies themselves, instead of at OMB.

To ensure that the process works, the E.O. grants authority to these new political

appointees to be the eyes and ears for OMB. And it mounts a challenge to congressional authority. When writing legislation, Congress often directs agencies to initiate a rule-making. The presence in the agencies of these appointees by whom rulemaking must now be initiated will create a process that works as if Congress had

not directed the agencies to act, or as if that direction is irrelevant if the White

House appointees disagree with it.

Moreover, a requirement that has political appointees overseeing all regulatory

matters raises a public perception concern. When a political appointee instructs scientists and agency experts to change what they are doing, it will raise questions

about whether politics is superseding science. If RPOs are to be operating in this

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1General Accounting Office, OMB’s Role in Reviews of Agencies’ Draft Rules and the Transparency of Those Reviews. September 2003. Available at www.gao.gov/cgi-bin/getrpt? GAO–03–

929. GAO changed its name to Government Accountability Office in 2004. 2Testimony of Sally Katzen, Adjunct Professor and Public Interest/Public Service Fellow, University of Michigan Law School before the House Committee on Science and Technology, Subcommittee on Investigation & Oversight, February 13, 2007, on ‘‘Amending Executive Order

12866: Good Governance or Regulatory Usurpation?’’ p.4.

way within agencies and are to be the points of communication with OIRA, then

the need for transparency in the regulatory process has never been greater.

III. Current Rule-making and Disclosure

OMB Watch for years has urged Congress and the Executive to require more

transparency in the regulatory process. This process 1) has become more centralized

in the last three decades and, 2) despite improvements created by OIRA administrators Sally Katzen and John Graham still is not transparent enough. Especially during the current Bush Administration, greater access has been provided to those special interests who have the time, resources, and political influence to affect the outcome of the rule-making process. And the influence on agencies of both these special

interests and of OIRA is now more difficult to determine because so much is done

outside of the public’s view.

We are concerned about transparency in two major directions. First, within the

agency as the RPO takes on the new responsibility of initiating regulations, to what

extent will the RPO allow politics to supersede the need for health, safety, environmental and civil rights protections as determined by agency experts?

Second, to what extent will the RPO be a de facto OIRA official sitting in the

agency coordinating and carrying out the responsibilities of the OIRA desk officers

during the pre-rule-making stage? Having been given the power to initiate regulations, we fear the RPO will further decrease agency rule-making discretion and increase the trend toward OIRA dictating agency rule-making. Transparency can

prove our fear is groundless.

These transparency issues are concerns during both of the major time periods of

the rule-making process: the pre-rule-making and rule-making (OIRA review/noticeand-comment) periods.

A. Pre-Rule-making Review

E.O. 12866 allowed OIRA to play an active role during the pre-rule-making stage

when agencies are formulating annual plans for regulatory activities. Even more

than the official rules, OIRA unofficially encourages agencies to discuss regulatory

ideas at the earliest stages. By having OIRA involved in agencies’ planning processes, OIRA can quash or alter any contemplated regulation before it is proposed

for the Regulatory Plan. The communications between OIRA and the agencies are

not disclosed, thus it is difficult to measure the extent to which OIRA exerts influence over the drafting of the proposed regulation that is finally submitted to OIRA.

A Government Accountability Office report concludes that OIRA, by its own admission and by its involvement in the pre-rule-making stage, has significant influence

over the proposed regulations agencies submit for review.1

Knowing that OIRA exerts this influence, it is critically important to document

fully the pre-rule-making communications between OIRA and the agencies, or at

least, the outcome of these communications. Despite OIRA’s involvement in shaping

the content and direction of agency rule-making, it is not covered by the basic statutory framework for the rule-making process—the Administrative Procedure Act

(APA). Because OIRA is not covered by the APA, its activities are not public and

not accountable.

This has become all the more necessary because of the changed role of OIRA during the Bush Administration. As former OIRA Administrator Sally Katzen testified

earlier this year before this subcommittee, the intent of E.O. 12866 was to have

OIRA be a ‘‘counselor’’ to the agencies:

Executive Order 12866 retained centralized review of rule-makings, but also

reaffirmed the primacy of the agencies to which Congress had delegated the authority to regulate. (Preamble) Among other things, Executive Order 12866 limited OIRA review to ‘‘significant regulations’’—those with a likely substantial effect on the economy, on the environment, on public health or safety, etc. or

those raising novel policy issues (Section 6(b)(1) )—leaving to the agencies the

responsibility for carrying out the principles of the Executive Order on the vast

majority (roughly 85 percent) of their regulations.2

Instead of being a ‘‘counselor,’’ OIRA has become a ‘‘gatekeeper’’ over agencies’

proposed regulations. Before agencies submit proposed regulations to OIRA, the regVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00063 Fmt 6601 Sfmt 6621 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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3Office of Management and Budget, Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility, and Integrity of Information Disseminated by Federal Agencies. February 22,

2002. Available at http://www.defendingscience.org/public¥health¥regulations/upload/Officeof-Management-and-Budget-Information-Quality-Act-Guidelines-2002.pdf. 4Office of Management and Budget. Final Information Quality Bulletin for Peer Review. December 16, 2004. Available at http://www.whitehouse.gov/omb/memoranda/fy2005/m05-

03.pdf. 5Office of Management and Budget, Circular A–4, Regulatory Analysis. September 17, 2003.

Available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf. 6Office of Management and Budget, Proposed Risk Assessment Bulletin. January 9, 2006.

Available at http://www.ombwatch.org/regs/2006/riskassessmentbulletin-draft.pdf. 7 National Research Council, Scientific Review of the Proposed Risk Assessment Bulletin from

the Office of Management and Budget. January 11, 2007. Available at http://www.nap.edu/

catalog.php?record¥id=11811. 8Testimony of Rick Melberth, Director of Regulatory Policy OMB Watch before the House

Committee on Science and Technology, Subcommittee on Investigation & Oversight, February

13, 2007, on ‘‘Amending Executive Order 12866: Good Governance or Regulatory Usurpation?’’

Available at http://www.ombwatch.org/regs/PDFs/Melberth¥testimony.pdf. 9Office of Management and Budget, The Final Bulletin for Agency Good Guidance Practices.

January 18, 2007. Available at http://www.whitehouse.gov/omb/memoranda/fy2007/m07-

07.pdf.

ulatory outcome has already been determined. This power is exerted in several

ways:

• In 2002, OMB issued its Data Quality Act Guidelines3 which created new categories of information hierarchy. ‘‘Influential information’’ would now require

a higher level of scrutiny than ‘‘information.’’ OMB required agencies to issue

guidelines, subject to OMB approval, establishing mechanisms to allow entities to challenge the accuracy of agency information and to report to OMB on

the number and nature of these challenges.

• In 2003, OMB issued its Proposed Draft Peer Review Standards for Regulatory Science4 which were widely criticized as too restrictive and too favorable to regulated industries. Furthermore, the draft standards provided another layer of OMB review of scientific and technical studies used in the prerule-making process. The Final Bulletin, issued December 2003, was an improvement over the draft but still left OMB in the position of overseeing peer

reviews, selecting industry representatives for the panels, and requiring public comment on peer review conclusions which delays the rule-making process

even further.

• In 2004, OMB issued Circular A–45 which describes in detail how agencies

must conduct their Regulatory Impact Analysis (RIA), the basic cost-benefit

analysis that must be provided for all economically significant proposed regulations. The RIA is the primary mechanism for justifying regulations and is

the first point of review by OIRA desk officers.

• In 2006, OMB issued its Proposed Risk Assessment Bulletin6 which, as do all

of the above guidelines, tried to impose a one-size-fits-all standard on the way

agencies were to conduct risk analyses. It, too, was widely criticized and finally withdrawn by OMB in January 2007 after a peer review by the National Research Council’s concluded the document was ‘‘fundamentally

flawed.’’ 7

As OMB Watch described in testimony before this subcommittee in February,

these tools have been compromised by the issuance of these guidelines to further

bias the regulatory process and threaten public health, safety, and the environment.8

1. Guidance review

In January 2007, OMB issued The Final Bulletin for Agency Good Guidance Practices9, on the same day as President Bush issued E.O. 13422. The Bulletin requires

internal review of significant guidance documents by senior agency officials as well

as public notice-and-comment on guidance documents deemed ‘‘significant’’ or ‘‘economically significant.’’

The Bulletin first appeared in its proposed form late in 2005. It was announced

in the Federal Register on Nov. 30, 2005, and was open for public comment. In those

comments, public interest groups (including OMB Watch) criticized the Bulletin for

its potential to allow OMB to interfere unnecessarily in agency practices. Industry

organizations expressed their support for the Bulletin, citing their desire for OIRA

to review guidance documents in the same way it reviews regulations.

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10OMB Watch, A Failure to Govern: Bush’s Attack on the Regulatory Process. March 2007, p.

16. Available at http://www.ombwatch.org/article/articleview/3774. 11 Congressional Research Service, Changes to the OMB Regulatory Review Process by Executive Order 13422, February 5, 2007. p. 10. Available at http://www.ombwatch.org/regs/PDFs/

CRS-EO13422.pdf. 12Section 3(h) of E.O. 13422 defines a significant guidance document as ‘‘a guidance document

disseminated to regulated entities or the general public that, for purposes of this order, may

reasonably be anticipated to: (A) Lead to an annual effect of $100 million or more or adversely

affect in a material way the economy, a sector of the economy, productivity, competition, jobs,

the environment, public health or safety, or State, local, or tribal governments or communities;

(B) Create a serious inconsistency or otherwise interfere with an action taken or planned by

another agency; (C) Materially alter the budgetary impact of entitlements, grants, user fees, or

loan programs or the rights or obligations of recipients thereof; or (D) Raise novel legal or policy

issues arising out of legal mandates, the President’s priorities, or the principles set forth in this

Executive order.’’

As OMB Watch reported in our final analysis of the new E.O. and the Good Guidance Practices Bulletin10, the Bulletin defines guidance documents to include ‘‘interpretive memoranda, policy statements, guidances (sic), manuals, circulars, memoranda, bulletins, advisories, and the like.’’ Federal agencies issue thousands of guidance documents each year relating to hundreds of different types of activities.11

As Section 9 of the amended E.O. also clearly states, the OIRA administrator has

the power to determine which guidance documents are significant, thus submitting

them to the review process, as well as when ‘‘additional consultation’’ is needed before a document can be issued. Section I(4) of the Good Guidance Practices Bulletin

provides that the head of an agency, ‘‘in consultation and concurrence’’ with the

OIRA administrator, may exempt categories of significant documents from the Bulletin’s requirements.

Section I(5) of the Bulletin adds a further category of guidance document, the economically significant guidance document which is:

‘‘a significant guidance document that may reasonably be anticipated to lead to

an annual effect on the economy of $100 million or more or adversely affect in

a material way the economy or a sector of the economy, except that economically significant guidance documents do not include guidance documents on federal expenditures and receipts.’’

The definitions of both significant and economically significant guidance documents include documents that ‘‘may reasonably be anticipated to lead to’’ certain

conditions. This language applies to all four conditions in the definition of significant guidance document,12 and the Bulletin ‘‘makes clear that the impacts of guidance often will be more indirect and attenuated than binding legislative rules.’’

While the proliferation of agency guidance documents may well deserve attention,

the solution is not additional OIRA review. If anything, the growth of agency guidance indicates that the existing regulatory process is broken.

2. Guidance and the RPO

This is an area in which the RPO may effect significant change even in those

agencies, like Labor and Energy, where the RPO has already been a political appointee. Under E.O. 13422, OMB can now engage the agency, along with other government personnel (as provided for in one amendment), in reaching a ‘‘common understanding’’ on regulatory efforts through the presence of the RPO.

After internal agency approval by the RPO, the agency will send drafts of significant guidance documents to OIRA for review. The RPO is responsible for ensuring

that the agency sends a draft of the significant guidance to OIRA, along with an

explanation of the need for the guidance and how the guidance document will meet

that need. The fourth part of the guidance definition, raising ‘‘novel legal or policy

issues arising out of legal mandates, the President’s priorities, or principles set forth

in this Executive order,’’ is nearly broad enough to permit OIRA to sweep into its

review any guidance it wishes to review. It is likely that the RPOs, in reaching that

‘‘common understanding’’, will be the ones providing that internal approval.

Beyond this grant of authority to review significant guidance, there is little explanation in the Bulletin of OIRA’s role in the review process. Unlike the detailed procedures for OIRA’s review of regulations, the procedures for OIRA’s review of guidance is relatively vague. OIRA will ‘‘notify the agency when additional consultation

is required before the issuance of a significant guidance document.’’ There are no

timelines for completing the review, and there is vague language about the administrator’s ability to exempt guidance for an emergency or ‘‘other appropriate consideration.’’

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B. Rule-making Review and Public Comment

Currently, the public can first learn about an agency’s intentions to regulate

through the semi-annual Unified Agenda which is published in the Federal Register.

It is notoriously inaccurate in its reporting of agency regulatory work and timing

of an agency’s activities. Nonetheless, it is an important document that should be

improved.

In reality, the public first learns of a specific agency regulatory activity from a

website operated by OIRA when OIRA logs agency regulatory submissions for review. The website is meager, however. The public cannot search for a rule; instead,

there is a long list of rules sorted by departments.

E.O. 13422 does not amend the rule-making review procedure significantly; its impact is in the pre-rule-making stage. In conjunction with the Good Guidance Practices Bulletin, however, it establishes OIRA review and notice-and-comment procedures over agency guidance documents.

By subsuming guidance documents to a review process almost identical to the review process OIRA uses to review and approve regulations, the extent of OIRA’s

reach into agencies’ responsibilities will be at an all-time high, as will the influence

and access of regulated sectors. As a result, the administration has unilaterally redefined the Administrative Procedure Act, which specifically exempts interpretive

rules and policy statements from the notice-and comment process. All of the documents deemed significant will now come under review by OIRA’s staff of about 55

people and go through the regulatory notice-and-comment period—but only after

being vetted by the RPO.

1. OIRA Review

OIRA has 90 calendar days to review a proposed regulation after submission, but

this can be extended. Desk officers review the RIA developed according to OMB’s

Circular A–4. Review is required only of significant regulations, but OIRA has the

authority to review those deemed non-significant as well. Although there often is extensive communication between OIRA and the agency during pre-rule-making,

OIRA has used ‘‘return letters’’ and ‘‘prompt letters’’ to indicate to an agency areas

in which the proposed regulation has deficiencies, or to urge an agency to take regulatory—or deregulatory—action.

According to section 8 of the E.O., during the review period, an agency is not permitted to publish the proposed rule in the Federal Register until the OIRA administrator notifies the agency that OIRA has completed or waived its review or the applicable time limits for review have expired. Even without a response from OIRA,

the agency must seek presidential consideration through the Vice President before

publishing the regulatory action.

Section 6 of E.O. 12866, Centralized Review of Regulations, describes the disclosure requirements OIRA must follow during and after the review period:

(4) Except as otherwise provided by law or required by a Court, in order to ensure greater openness, accessibility, and accountability in the regulatory review process, OIRA shall be governed by the following disclosure requirements:

(A) Only the Administrator of OIRA (or a particular designee) shall receive oral

communications initiated by persons not employed by the executive branch

of the Federal Government regarding the substance of a regulatory action

under OIRA review;

(B) All substantive communications between OIRA personnel and persons not

employed by the executive branch of the Federal Government regarding a

regulatory action under review shall be governed by the following guidelines:

(i) A representative from the issuing agency shall be invited to any meeting between OIRA personnel and such person(s);

(ii) OIRA shall forward to the issuing agency, within 10 working days of receipt

of the communication(s), all written communications, regardless of format,

between OIRA personnel and any person who is not employed by the executive branch of the Federal Government, and the dates and names of individuals involved in all substantive oral communications (including meetings to

which an agency representative was invited, but did not attend, and telephone conversations between OIRA personnel and any such persons); and

(iii) OIRA shall publicly disclose relevant information about such communication(s), as set forth below in subsection (b)(4)(C) of this section.

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13 John D. Graham, OIRA Administrator, Memorandum for OIRA Staff: OIRA Disclosure. October 18, 2001. Available at http://www.whitehouse.gov/omb/inforeg/oira¥disclosure¥memob.html.

(C) OIRA shall maintain a publicly available log that shall contain, at a minimum, the following information pertinent to regulatory actions under review:

(i) The status of all regulatory actions, including if (and if so, when and by

whom) Presidential consideration was requested;

(ii) A notation of all written communications forwarded to an issuing agency

under subsection (b)(4)(B)(ii) of this section; and

(iii) The dates and names of individuals involved in all substantive oral communications, including meetings and telephone conversations, between OIRA

personnel and any person not employed by the executive branch of the Federal Government, and the subject matter discussed during such communications.

(D) After the regulatory action has been published in the Federal Register or otherwise issued to the public, or after the agency has announced its decision not to publish or issue the regulatory action, OIRA shall make available to the public all documents exchanged between OIRA and the agency

during the review by OIRA under this section.

While OIRA publishes some of this information on its website or Reginfo.gov,

much of the information is not available to the public, but is only available, if requested, in its docket room. In October 2001, OIRA Administrator John Graham

issued a memorandum clarifying OIRA procedures for disclosure and acknowledges

OIRA’s intent to add more information in compliance with the E-government plans

of the administration.13

There are many areas, however, that are not covered by the disclosure policies.

For example:

• Rules not under review are not covered by its disclosure policy: ‘‘Rules

are not under review prior to the start of informal OIRA review or after OIRA

has notified the agency that review is concluded; legislative discussions are

not covered.’’ Thus, informal OIRA pre-rule-making activities are not public.

• Meetings with parties outside of government about rules not under

review are not covered. Regarding meetings with outside parties, ‘‘any

meeting’’ to discuss the substance of an individual rule is covered, but ‘‘Meetings to discuss rules not under review, or meetings to discuss broad regulatory topics (e.g., analytic methodology or legislation)’’ are not covered. Moreover, even for those meetings that are disclosed, the disclosed information is

inconsistent. The disclosure sometimes omits participants’ affiliations, or

rules or topics discussed.

• Correspondence about rules not under review are not covered. ‘‘Correspondence received while a rule is not under review’’ is not covered by the

disclosure policy.

• Internal communications are not disclosed. ‘‘Outside parties,’’ for purposes of disclosure, are ‘‘persons not employed by the executive branch.’’ So

communications with Congress and the public are disclosed, but not interand intra-departmental communications.

• Substantive communications are not defined. ‘‘Substantive communications’’ are not defined while ‘‘non-substantive discussions’’ are defined only by

providing examples like ‘‘status of review, review procedures.’’ What kind of

communications are classified as substantive, and how does the public know

these policies are being followed?

These kinds of loopholes abound throughout the memo. Limiting disclosure to information and communications generated during the 90 or so days the rule is under

OIRA review ignores the years involved in developing rules under the current process. There is extensive communication within and among agencies, agencies and

OIRA, agencies and the regulated communities, OIRA and the regulated communities, etc. None of these communications are shared publicly as part of OIRA’s disclosure policies. The opportunities for influence to be exerted in multiple directions

are extensive.

In addition, these disclosure requirements are far too limited in light of publication of agencies’ regulatory plans in the Unified Agenda. Proposed regulations don’t

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14 Jeffrey S. Lubbers, A Guide to Federal Agency Rule-making. (Chicago: ABA Publishing,

2006.) p. 298–9.

just appear one day as submissions to OIRA. Limiting disclosure to the 90 day period of OIRA’s review is like shining a flashlight on an item when electricity is

available.

2. Notice-and-Comment Period

The publication of a proposed rule in the Federal Register triggers the public participation phase of the rule-making process. The notice-and-comment requirements

under Section 553 of the APA outline this public process and have been subject of

criticism and litigation for years.

The traditional view of section 553 procedure as a process for educating the

agency has, however, been gradually replaced, in practice if not in theory, by

the belief that informal rule-making procedure should provide interested persons an opportunity to ‘challenge the factual assumptions on which [the agency]

is proceeding and to show in what respect such assumptions are erroneous.’ In

other words, the public must be informed of the data and assumptions on which

the agency’s proposal is based.14

Anyone who has tried to comment on or review the comments of others during

this period knows that the information available to the public is far from the standard Professor Lubbers describes above. Information from agencies is incomplete or

not available, opportunities to comment on some rules open for comment don’t exist

on electronic dockets, and the opportunity to see who has commented and what

those comments address is too often non-existent.

Furthermore, as this subcommittee well knows, the Bush Administration has distorted science, chilled scientific speech, and manipulated regulatory tools in pursuit

of ideological ends. OMB Watch encourages the Subcommittee and Congress to examine the entire regulatory process for opportunities to increase transparency in the

public process and in the substance of the information available. To that end, OMB

Watch has recommendations for specific ways in which regulatory transparency

could be improved.

I want to again express our opposition to E.O. 13422 and urge Congress to overturn the E.O. Short of that option, we urge Congress to use its appropriations powers to limit the executive’s ability to implement some or all of the E.O.

IV. Recommendations for Improved Transparency

One serious concern with the advent of a politically appointed RPO in each agency

is that the interests of the RPO may become more closely aligned with those of

OIRA and the White House than with those of the agency in which the RPO works,

with public sentiment and need, or with scientific consensus on an issue. If the RPO

now has the ability to initiate regulations, then the point at which agency personnel

reach a decision to recommend regulatory action, and make that recommendation

to the RPO needs to be clearly defined. We recommend the following:

A. Agency Responsibilities

1) That each agency clearly identify the RPO, provide a description of that person’s role in regulatory matters, and how the public can contact that person.

The information should be conspicuously available on agency websites.

2) That each agency be required to disclose with its regulatory plan, those proposed regulatory activities that the RPO has decided the agency will not pursue. The plan and the ideas and proposed regulatory activities discarded or

delayed should be published in the Unified Agenda published semi-annually

in the Federal Register along with justification for the delays or decisions not

to undertake the activities.

3) That the public should have the right to obtain from the RPO clarification

of items in the plan in addition to the items rejected or delayed.

4) That each agency provide formal documentation of ideas generated by agency personnel regarding activities that may lead to regulatory actions. This

documentation requires:

a) A clear definition of when a regulatory action commences. For example,

a regulatory action commences at the point at which an agency employee

or contractor transmits a recommending document to the RPO or starts

a formal communication on the matter.

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b) Within a very short period, for example, 30 days, the RPO publishes a

written response to recommending actions with justification for declining, agreeing, or other actions regarding the recommendation. The public

must be assured that the RPO’s decision to stop a rule from being developed is not a triumph of politics over responsible government.

c) Placing all documents in the agency rule-making record for activities

that move to the proposed rule-making stage and creating a new public

docket, available through the Internet, of all other actions (i.e., those not

pursued).

5) That agencies submit an annual report to Congress on activities that have

been delayed, withdrawn, or rejected by the RPO and the justifications for

such actions.

6) That all intra-agency communications, written and oral, between the RPO

and the agency personnel responsible for developing the proposed regulation

be documented and included in the agency’s rule-making record.

7) That all inter-agency communications, written and oral, be documented and

included in the agency’s rule-making record.

B. Reviewing Entities Responsibilities

This section covers the role of OIRA and other reviewing entities such as the

Small Business Administration (SBA).

1) That ‘‘substantive’’ communications be defined and not left to individual discretion.

2) That all substantive communications, written and oral, between the agency

and the reviewing entities be documented and included in the agency’s rulemaking record.

3) That all substantive communications between parties outside of government,

and excluding communications with the President, and any party involved

in the rule-making process (agency or reviewing entity) be documented and

included in the agency’s rule-making record. This disclosure covers materials

submitted by the outside parties, and documentation of oral and written

communications.

4) That OMB establish a government-wide regulatory tracking system. As part

of the implementation of the E-Government Act of 2002, agencies should develop a regulatory tracking system by which the public can follow a regulation through each step of the rule-making. Currently, there is an e-rule-making approach being refined on Regulations.gov. Each agency should provide

a clear process by which regulations can be tracked through this system with

appropriate links to the information contained in the rule-making record.

5) That OIRA’s website be searchable, with information consistent for each

record, and with identification numbers that link records clearly to the regulatory actions with which they are associated.

6) That meeting logs, made available through OIRA’s website, be complete and

include the purpose of the meeting, generally what was discussed, the participants and their affiliations, a brief description of materials circulated,

and any conclusions or outcomes that resulted from the meeting.

If OIRA and other reviewing entities like the SBA continue to have significant

impact on the substance of agency rule-making, then the APA informal rule-making

process should apply to these reviewing entities. It is unfair to the agencies who are

sued as a result of rule-making actions to bear the full burden of litigation when

they do not have full responsibility for the substantive rule-making outcome. If the

APA needs to be amended to cover these reviewing entities, then we urge Congress

to take appropriate action.

We realize the burden of this transparency proposal falls primarily on the agencies. But until and unless the reviewing entities which influence the substantive

outcome of regulatory activities are subjected to the same APA rules, the agencies

must be the repository for the full rule-making record.

Subjecting agency guidance documents to the same APA-like review process requires the same level of transparency, record development, and information access

we are recommending for rule-making. After all, OMB’s justification for subsuming

agency guidance into the review process is that agencies are using guidance to avoid

the rule-making process. Therefore, the transparency principles should apply to review of guidance documents as well.

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Post notice-and-comment communications may be helpful to agency and the reviewing entities. The decision to limit or accept these communications should be left

to the agencies. But the same principles apply if agencies decide to allow communications at this point: the communications and identification of the parties should

become part of the record. Similarly, OIRA’s and other entities communications with

parties after the notice-and-comment period should become part of the agency’s rulemaking record. These principles of open and transparent decision-making should

apply to a second notice-and-comment period if deemed necessary.

In addition to helping to restore trust in government by providing transparency,

the ability to evaluate regulatory outcomes is greatly enhanced by having the substantive basis of decisions available to the public. Congress, the President, other

government agencies responsible for providing information to these branches, state

decision-makers and policy staffs, researchers, and other segments of the public can

access, analyze, and share information. The technological advances that have occurred make this transparency far easier than was possible in past decades. As the

Federal Government moves to increased transparency in its interaction with the

public, our political dialogue is enhanced by providing more information, and using

that information to achieve increased government effectiveness and efficiency.

Thank you for the opportunity to testify.

BIOGRAPHY FOR GARY D. BASS

Gary D. Bass is the Founder and Executive Director of OMB Watch. Since founding the advocacy organization in 1983, Dr. Bass has testified before Congress, appeared on national television, addressed groups across the country, and written extensively on federal budgetary, program management, regulatory and information

policy issues.

Dr. Bass is well known for assisting nonprofit organizations in better understanding federal rules affecting their organizations and constituencies and was recently selected as one of the Nonprofit Times Power and Influence Top 50. He has

led campaigns to preserve the advocacy voice of nonprofits, make Federal Government a more open and accountable operation, and insure meaningful citizen participation in government decision-making. He has been an active supporter of right-toknow initiatives, encouraging the government to make information publicly accessible in order to empower its citizens. He has also undertaken initiatives to insure

that, as we move into the information age, we do not create a society of information

haves and have-nots.

In 1989, he created RTK NET (the Right-to-Know Network), a free online computer service to provide community groups with access to government data. More

than 3,000 people now use RTK NET to get access to government data about toxic

chemicals, census, housing demographics, home mortgage activity, and campaign finances. He has been a pioneer in identifying ways in which the information superhighway can be a tool for those working in the public interest sector.

During 1995, Dr. Bass led OMB Watch in challenging a number of provisions in

the Contract with America, and successfully formed a number of coalitions that

stopped proposals that would have undermined our society’s safety net. Working

with organizations representing working men and women, as well as those representing environmental, educational, civil rights, human needs, religious, consumer

and other public interest concerns, he stopped: a ‘‘no money, no mandates’’ measure that would have resulted in state and local governments being exempted from complying with federal laws, such as fair labor standards, civil rights protections, and

voter registration laws; a constitutional amendment to balance the U.S. budget that

would have seriously harmed human service delivery in this country; a variety of

regulatory provisions that would have undermined health, safety, and environmental protections and safeguards; and an effort to silence the advocacy voice of

charities across the country.

Over the years, Dr. Bass has stressed the importance of educating community

groups about federal issues. He has led many nationwide briefings on issues ranging

from changes in human services programs during the Reagan Administration to balanced budget initiatives, to issues pertaining to the advocacy voice of the nonprofit

sector. He has also employed the use of e-mail to establish two-way communication

with community groups on these issues.

Prior to founding OMB Watch, Dr. Bass was President of the Human Services Information Center, where he wrote two books and numerous articles on human services issues, and published the Human Services INSIDER, a bimonthly newsletter

on the politics of federal human services program. He had also served as: Director

of Liaison for the International Year of Disabled Persons; consultant on several

projects in special education and the mental health of children, youth, most notably,

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the preparation of the first annual report to Congress on the implementation of the

Education of All Handicapped Children Act (P.L. 94–142); Special Assistant to Wilbur Cohen, then Chair of the Michigan Governor’s Task Force on the Investigation

and Prevention of Abuse in Residential Institutions; and in juvenile justice and community corrections.

Dr. Bass received a combined doctorate in psychology and education from the University of Michigan, along with the University’s highest award for graduate student

teaching and several awards for academic excellence.

Chairman MILLER. Thank you, Dr. Bass. Dr. Bass, I know that

your red light was on. You said you had five points; you made four

and didn’t make five. Do you wish to make the fifth? All right.

Dr. Richard Parker.

STATEMENT OF MR. RICHARD W. PARKER, PROFESSOR,

UNIVERSITY OF CONNECTICUT LAW SCHOOL

Mr. PARKER. Thank you. Mr. Chairman, I appreciate this opportunity to review some observations on Executive Order 13422.

Over the past 20 years, I have had a chance to observe the regulatory process from a number of different vantage points from the

private sector, from within agencies, both in the Reagan Administration and the Clinton Administration and from academia. The

only perspective I haven’t had is your perspective, the perspective

of the Oversight Committee, but that is obviously a very, very important perspective. And I will have to say that, you know, when

I view this issue vicariously from your perspective, it seems to me

that the entire institution of OIRA review of agency policies is distinctly problematic and E.O. 13422 should be viewed as a small but

significant step in that already problematic direction.

What do I mean by that? Well, by extending OIRA oversight to

guidance documents, we focused on transparency. Not only does

E.O. 13422, but all the executive orders, have hugely expanded the

power of an agency that has basically no scientific or technical expertise to shape policies that often have a very important scientific

and technical component. It extends the power of an agency that

has a troubled history in acting as a conduit and through back

channels for special interests, to guidance documents now beyond

regulatory documents, and I just wanted to echo what Dr. Bass just

said about this problem of informal reviews. When I was talking

to old friends from various agencies about what I should say in this

hearing, just an open-ended question, what worries you most, the

first thing that came out was these informal reviews which basically are backroom things that they are instructed not to report to

anybody but which turn out to be very influential in shaping the

rules from the get-go. So I just want to second Dr. Bass’s comment

on that based upon what I have been hearing from the trenches.

The RPO issue I think has been dealt with extensively. I won’t

elaborate on that except to say I support it.

The issue is that basically where are we going and why are we

here. White House intervention in rule-making is not required by

the Constitution in the area that we are talking about. It is not

mandated by any statute. And the question arises, given the costs

to transparency, to expertise that we have been talking about,

what is it that justifies this kind of intervention at all. I would like

to just sort of think about this from a cost-benefit standpoint. We

have seen the costs. What are the benefits? And I will have to say

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that procedural steps are very hard to quantify. Their benefits are

very hard to quantify, and if my colleague were still with me, I

would point out that there are regulatory critics who basically zero

out benefits of procedures that can’t be quantified and so by that

standard, the entire institution of OIRA review would have to be

assigned a zero benefit in a cost-benefit analysis. I can’t play that

game because I favor the inclusion of qualitative benefits and so I

have to do a little more work, but we need to talk about what is

it that OIRA is bringing to the process, and it seems to me that

if you go back through history, the reason that OIRA was brought

in, and the thing that has been driving this entire dynamic from

the get-go has been a profound skepticism of the competence of

agencies and certainly of their evenhandedness. Going back to the

1980s, there was this view that EPA is full of environmental

whackos who think the polar icecaps are melting or something. At

OSHA, you know, just full of these zealots who can’t stop pushing

out regulations; we have to rein them in. And if you recall from the

1980s and the 1990s, in particular when these institutions were

getting entrenched, there was an endless litany of horror stories of

regulatory abuses, and I will tell you, I was bothered by this litany

and I started investigating some of these stories and I published

the results of my investigations in two major articles, and I can

only summarize, but I can tell you in a nutshell that what I found

is that these stories basically can’t be verified in most cases. Many

are gross exaggerations. Some were just complete fabrications, and

I could give you an example. There are some stories of course that

are true. I mean, in any case there are genuine problems. But

there has been no documentation of a pervasive problem of agency

overzealousness that would warrant this institution in the first

place.

The other great sort of foundation stone of this regulatory skepticism that gives us OIRA review has been a series of three really

major studies that looked broadly at regulations and all done by

regulatory critics, all very widely publicized over a period of decades and all coming to essentially the same conclusion, that while

regulation is overall beneficial, there are many regulations that fail

cost-benefit analysis. So what I did was, in these articles I looked

at the three most influential studies and I looked at the data behind them and the methodology behind them, and what I was surprised to find frankly was that they just don’t stand up. None of

these studies have been peer-reviewed. Their samples are biased.

They substitute educated guesses for the cost benefits of regulations and report them as ex post actual costs and benefits. But

most of all, they zero out whole categories of regulatory benefit,

and when I actually looked at one of the most influential studies

that had been widely quoted to promote this regulatory skepticism,

I found out that 41 of the 136 rules in the database were assigned

a zero benefit, not a zero net benefit but a zero benefit because the

benefits that those regulations provided had not been monetized

and quantified by the agency. They were qualitative benefits like

the benefits of freedom, like the benefits of enforcement. The list

of zero-benefit rules included rules to prevent major oil spills like

the Exxon Valdez, a rule to protect 3.9 million agricultural workers

from acute pesticide poisoning. Here the rationale was that acute

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pesticide poisoning wasn’t one of the harms to which we had detailed monetary value, so they zeroed it out. All right. So the point

is that these studies are not peer-reviewed studies and I just would

like to suggest before we go further down the road of OIRA intervention perhaps OIRA intervention itself ought to be subject to a

cost-benefit analysis. Perhaps we ought to look at the empirical

basis underlying the entire project of White House intervention and

expert rule-making.

Let me just close by saying that I don’t want to be interpreted

as saying that there is nothing wrong with agency rule-making,

that there are no bad rules. There are. I suspect though that when

you look, you will find agencies making errors both in underregulating and overregulating. But in any case, the way to correct bad

rule-making is public involvement, it is expert involvement, it is

transparency, it is openness, and unfortunately, this executive

order is not about public involvement. This executive order is about

building OIRA’s turf and therein lies the problem.

Thank you, Mr. Chairman.

[The prepared statement of Dr. Parker follows:]

PREPARED STATEMENT OF RICHARD W. PARKER

Mr. Chairman and Members of this subcommittee, I appreciate this opportunity

to share with you some observations on the Bush Administration’s amendments to

Executive Order 12866, particularly Executive Order 13422. I have studied and

taught administrative and environmental law—and regulatory policy—for over a

decade; published articles in leading scholarly journals on the subject of OIRA review and the use of cost-benefit analysis; and benefited from sustained participation

in work of the Administration Law Section of the ABA, where I have co-chaired both

the Regulatory Policy Committee and the Committee on e-rule-making. I have

served as Special Counsel to the Deputy Administrator of EPA during the Clinton

Administration and as Assistant General Counsel of USTR. And I practiced administrative law in the private sector. So I have had a chance to observe these issues

from a number of different vantage points. My remarks today represent, of course,

my own view of the matter.

Is E.O. 13422 good governance or regulatory usurpation? The answer to that all

depends on whether you buy the premises—the theory of government—that animates it and that animated its forebears, the Reagan/elder Bush Executive Orders

and E.O. 12866 itself. These Executive Orders embody a view of our executive agencies that is deeply skeptical of their competence, and certainly of their even-handedness. Certain regulatory agencies—particularly those in the field of health, safety

and environmental regulation—are thought to be tunnel-visioned; obsessively focused on regulation regardless of cost; and unaccountable to the people. They need

to be reined in and OIRA is just the agency to come to the rescue. OIRA will impose

a broad perspective which once had been narrow; require cost-benefit analysis to

force a more rational and even-handed balancing of costs and benefits in regulation;

and bring political accountability to a process that otherwise would operate without

popular or political check.

If you buy this vision, then E.O. 12866 is the order for you, and if you further

buy that guidance documents are first and foremost tools of choice for agencies intent on exploiting ‘‘loopholes’’ to avoid the rationalizing benefits of OIRA review in

the rule-making process then E.O. 13422 is likewise for you.

But it is view right? Is it based on rigorous empirical observation and sound

science? Or is it more like the widespread belief in Iraqi weapons of mass destruction circa 2003—immensely plausible, boasting bipartisan support, but somehow a

bit lacking in the evidence department? I investigated these questions systematically in two major articles, one published in the University of Chicago Law Review

and the second in the Administrative Law Review. They are long articles and I can

only summarize them briefly here; but the main takeaways are clear.

Let’s begin by clearing away some underbrush—an activity that now has strong

bipartisan credentials. Regulatory critics such as the Mr. Kovacs who testified before this subcommittee in February not uncommonly point to the size of the Federal

Register and the number and cost of rules as evidence of the ‘‘overwhelming reguVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00073 Fmt 6601 Sfmt 6621 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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latory burden’’ our industries face. 73,000 pages of Federal Register! 4000 new regu- lations each year! $1.13 trillion cost! Horrors!

In fact, any perusal of the any Federal Register quickly reveals that the Federal

Register carries far more than new rules. New rules comprise only a small fraction

of its contents. Moreover, even the new rules published in the Federal Register typically consist of roughly 20 pages of preambular explanation for every page of rule.

These 20 preambular pages are actually explanations and defenses of the rule, along

with detailed responses to comments from the public that can run to the tens of

thousands. Far from adding to burden, agency explanations lighten the load by easing understanding of the basis and purpose of the rule being proposed or promulgated. But they do add length to the Federal Register.

As for the rules themselves, length should not be confused with burdensomeness.

Congress could reduce the environmental statute books (now two inches thick) to

one line: ‘‘Thou shall not pollute.’’ Does anyone truly believe that this would make

regulation less onerous? Much of the length and complexity of modern rule-making

stems from the desire to make it reasonable, not from some tunnel-visioned attempt

to make it harsh.

Admittedly, four thousand rules per year does seem like a lot, at first blush. But

a sophisticated user of numbers will ask, is this really a large number—given our $12 trillion economy and population of 270 million, not to mention millions of businesses spanning hundreds or thousands of different kinds of activity? Remember

also that it takes a regulation to ease a regulation. It takes a regulation to alter

so much as a comma in a prior regulation. Many regulations are minor and technical. Others make changes in the direction of providing greater clarity or greater

leniency. This being so, the mere number of ‘‘regulations’’ in itself tells you nothing

meaningful about regulatory burden. And what of the alleged $1.13 trillion cost? That figure, if accurate, is a large fig- ure even when viewed in context of our more than $10 trillion economy. But that

number comes not from OMB but from the Small Business Administration and I

wonder whether it has been rigorously peer reviewed. The numbers I have seen

commonly range from $200 billion to $700 billion, and even those numbers are derived not from actual measurements but from ex ante predictions of cost often supplied by industry. Moreover, most of these costs are accounted for by a relative

handful of rules that also bring with them enormous benefits: like water safe to

drink, air safe to breathe. No credible study yet done—even by OMB—has yet concluded that the net benefits of rules as whole are negative. In fact, all observers

concede that benefits of regulations greatly outweigh their costs overall. So what are

we to make of the allegedly exorbitant aggregate burden of regulation?

Michael Porter of Harvard Business School is one of many prominent scholars

who have joined leading businesses like 3–M and Dupont in pointing out that regulations don’t just add costs. Regulations can create lucrative markets, promote technologies, build industries and enhance American competitiveness in producing the

goods and services of tomorrow. Many companies discover important new moneysaving efficiencies in the course of auditing their production process to comply with

regulations. Yet none of these countervailing economic benefits of regulation are

factored into (or subtracted from) the gloom-and-doom cost estimates that are routinely bandied about by leading regulatory critics.

In short, the case for more searching OIRA review cannot be made credibly by

throwing out Federal Register page counts, or by tossing out aggregate cost statistics

that are exaggerated and then offered in isolation without the context of their benefits. There is a need for sound science in regulatory criticism as well as in regulation

itself.

If Federal Register page counts, and aggregate cost quotes do not make the case

for the necessity and value of ever-expanding OIRA oversight, what then does?

My in-depth research of this very question reveals that for decades, scathing critiques of government have been fueled by a stream of horror stories which are typically unverified and many (though not all) of which turn out, on inspection, to be

either exaggerated, atypical or just plain false. My University of Chicago article offers a few anecdotes to illustrate the pitfalls of legislating by anecdote.

Secondly however, and much more importantly, regulatory skepticism and arguments for cost-benefit analysis and OIRA oversight of agency regulations (and now

guidance documents) have been fueled by a group of studies called ‘‘regulatory scorecards,’’ which examine a broad array of major regulations to conclude that while

regulation overall may be beneficial in aggregate, the costs of many individual government regulations vastly outweigh their health, safety or environmental benefits.

For example, since at least 1986, a widely-cited table by John Morrall, an OIRA

economist, has served as Exhibit A for the proposition that federal agency regulation—particularly regulation of workplace and environmental toxins—is pervasively

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over-zealous and irrational. He reported that over a third of the 44 regulations in

his database cost more than $100 million per life saved, and one infamous regulation, OSHA’s formaldehyde rule, cost $72 billion per life.

How can this be? Well, to begin with, I and other scholars have shown that he

did not draw on a random sample of regulations in setting up his database, but

rather cherry-picked the toxin regulations that he deemed most problematic. Secondly, he freely acknowledges that he substituted his own preferred benefit numbers

for agency benefit estimates whenever he found a supporting study (names of which

he has yet to disclose) which he found more credible than the studies that agency

scientists and science advisors had relied upon. For example, in 1985 OSHA estimated that its proposed formaldehyde exposure regulation would save from six to

forty-seven lives over forty-five years. Morrall alters that estimate to one life saved

every hundred years.

This is a rather significant change. One wonders what qualifies Mr. Morrall, an

economist, to second-guess panels of agency scientists on the issue of the relative

merits of different risk estimates. I dwell on this because the practice of altering

or challenging agency science and scientific assessments is not confined to Mr.

Morrall, or his table. It reflects long-standing OIRA practice that persists to this

day. In fact, Administrator Graham has tacitly recognized the competence concern

by hiring one or two toxicologists and other physical scientists to provide a scientific

fig leaf for OIRA second-guessing of agency scientific judgments. But is that the way

science is supposed to work? My understanding is that science works not by privileging the opinions of one or two particular scientists on the basis of their government position—or their appeal to a sympathetic economist—but by seeking a consensus in the scientific community on how to evaluate the evidence.

Finally, my research shows that Mr. Morrall achieved his shocking figures in part

by simply excluding—zeroing out—benefits that did not conform to his procrustean template. Again, the infamous $72 billion per life formaldehyde rule will illustrate

the point. What Morrall’s table conceals, but which the rule-making record reveals,

is that OSHA’s rule (beyond preventing about one cancer fatality per year) which,

in Morrall’s hands, becomes one-hundredth of a fatality per year, after adjustment

and discounting, was also expected to yield a host of unquantified but clearly substantial benefits of a non-life-saving nature.

Indeed, the rule-making record makes clear that OSHA’s formaldehyde rule was

never justified as a life-saving rule at all. The non-life-saving benefits and purposes

of the rule are delineated at length in the preamble to OSHA’s proposed rule: reduced or avoided burning eyes or noses, sore or burning throats, asthma attacks,

chronic bronchitis, allergic reactions, dermatitis and skin sensitization. OSHA notes

that over 500,000 American workers are regularly exposed to formaldehyde at concentrations that have been found to cause one or more of these illnesses or discomforts.

The central policy questions for OSHA were, ‘‘Is avoiding such discomforts and

health hazards for 500,000 American workers worth the expenditure of $36 million

a year by a $30 billion dollar group of industries? Will installing ventilators in the

workplace also reduce employee exposure to other irritating and possibly hazardous

chemical vapors?’’ These questions are quite unlike (and are far more complex than)

the question implicitly posed by the Morrall table: how could OSHA be so stupid

as to propose a rule that will cost $72 billion for every life saved?

I dwell on this point because, again, the Morrall table is not an isolated case. Unfortunately, it is all too typical of the approach that OIRA has taken, particularly

in this Administration, to regulatory oversight and cost-benefit analysis. Widely accepted principles of cost-benefit analysis call for the inclusion of non-quantifiable or

non-monetizable benefits. In principle, non-quantified benefits are recognized and

respected. E.O. 12866 calls for qualitative benefits to be included and described in

all regulatory impact assessments. Qualitative benefits are often described, at least

perfunctorily, in OMB’s Reports to Congress on the Costs and Benefits of Regulation.

It is the practice wherein the problems lie. In practice, agencies know that any

benefits that cannot be quantified are likely to be zeroed out in the mill at OMB.

They know that basing a decision on un-enumerated judgment that the costs of a

policy or action are ‘‘worth’’ the benefits is perfectly fine for foreign policy, perfectly

fine for defense procurement, perfectly fine for most areas of government and perfectly fine for most decisions in daily life—but it means rough sledding for health,

safety or environmental regulations at OMB.

The problem is that you can’t make regulatory policy by the numbers any more

than you can draw or paint by the numbers. Many benefits are either hard or impossible to quantify and monetize in a scientifically defensible way. How do you put

a monetary value, for example, on a procedure that aids enforcement, or deters

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wrongdoing, or provides useful information to consumers? How do you put a value

on the benefit on a policy that itself will not solve a problem, but that forms a part

of a mosaic of responses and diplomatic initiatives needed to address that problem

effectively? How do you put a value on preserving the environment, when our understanding of ecological risk and benefit is so extremely limited, and our methods

for valuing environmental amenities so crude? In practice, OIRA insists on viewing

regulatory policy through the prism of numbers. Yet many health, safety and environmental regulations cannot be evaluated sensibly on the basis of numbers alone.

Nowhere are the consequences of this flawed approach to policy more apparent

than in the analysis proffered by Robert Hahn of the AEI–Brookings Joint Center

for Regulatory Studies, a leading regulatory critic and a leading proponent of not

only enacting E.O. 13422 but extending it further to require cost-benefit analysis

of agency guidance documents as well as rules.

The prevailing approach to regulatory critics to regulatory assessment is evident

in his much-heralded and influential studies—one in 1996 and another in 2000—

which purport to show, based on a wide-arranging analysis of over 130 major rules

spanning a ten-year period, that 57 percent of all major environmental regulations

‘‘fail a neutral economist’s cost-benefit tests.’’ This is a powerful indictment of

health, safety and environmental regulation—until one learns that 41 of the 136

major regulations appearing in Hahn’s tabulation are assigned a zero benefit. Not

a zero net benefit, but a zero benefit, meaning the regulations have no use whatsoever. The list of zero-benefit rules includes:

— a rule to protect 3.9 million agricultural workers from exposure to harmful

pesticides;

— a rule requiring that owner/operators of tankers develop plans to respond to

large oil spills;

— a rule to require that air polluters hold comprehensive permits which lay out

their pollution control obligations;

— a rule requiring the public reporting of releases of certain toxic chemicals

from large manufacturing facilities;

— a Clean Water Act rule aimed at protecting sensitive coastal areas from nonpoint-source water pollution;

— three rules establishing national primary drinking water standards to limit

public exposure to toxic pollutants in drinking water; and

— an FDA rule establishing requirements for the safe handling of seafood in

commercial processing operations.

Moreover, and this point bears emphasis, even rules that show a positive number

in the benefits column have had whole categories of benefits excluded from the tally.

What is going on? Again, the answer requires careful understanding of what benefits are included and excluded in the underlying cost-benefit tabulation. It turns out

that this study, with a few narrow and limited exceptions, again has assigned a zero

value to any benefit which the government’s regulatory impact assessment does not

quantify and monetize. It even zero-values benefits that are quantified and monetized in an agency RIA, unless they happen to fall into one of his select categories

of recognized benefit—even as he insists that he is using the government’s numbers.

Included, therefore, are benefits of reducing physical accidents, cancer, heart disease and a range of known ailments resulting from exposure to five named air pollutants. Zeroed out, however, are all ecological benefits not monetized by the agency.

Also zeroed out are all benefits of avoiding acute poisoning—hence the zero value

for rules aimed at avoiding acute pesticide poisoning and seafood poisoning. Also zeroed out are all procedural and enforcement benefits since they are intrinsically

non-monetizable.

In short, the studies that purport to expose tunnel visioned over-zealousness in

regulatory agencies—and the need for expanded OIRA review—have failed to make

their case on the facts. Rather than illustrating the benefits of cost-benefit analysis

in bringing clarity, transparency and rigor to regulatory analysis they expose the

capacity of such analysis for concealing methodological icebergs and delivering

skewed and misleading results. Far from establishing that OIRA oversight is needed

to correct tunnel vision in the agencies, they simply suggest a dangerous tendency

towards tunnel vision within OIRA itself.

It is true, of course, that cost-benefit analysis need not be done this way—it can

be done in a way that does not over-ride inconvenient truths delivered by science,

that is sensitive to qualitative costs and benefits, and that is properly cognizant of

relevant uncertainties. Cost-benefit analysis can prompt regulations as well as embarrass them. And OIRA is not always anti-regulatory. Indeed, OIRA, under Mr.

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Graham’s leadership, has prompted a few quite valuable regulations that might not

otherwise have been forthcoming, such as the trans-fat labeling rule.

Overall, however, it must be said that cost-benefit analysis in OIRA’s hands—applied within the framework of E.O. 12866 and E.O. 13422—is generally not a particularly ‘‘fair and balanced’’ test. It is applied, for the most part, only to regulations

and proposals to regulate—not to proposals to de-regulate or failures to regulate. It

privileges quantity over quality, and numbers over judgment. It tends to conceal uncertainty behind the fac ̧ade of a few summary statistics. It assumes, without basis,

that maximizing monetary net benefits will also maximize social welfare—when

economists themselves acknowledge that this assumption only holds if the losers

from non-regulation or weak regulation are actually compensated by the winners,

an event that in the real world very seldom happens. It takes as actual costs and

benefits figures that are at best ex ante guesses—adopted in advance of regulation— as to what those regulatory costs and benefits are likely to be.

Moreover, we are now in a position to see that the cumulative cost-benefit analysis mandated by E.O. 13422 is the worst of the worst, methodologically. For even

if you could manage to preserve some nuance—some attention to qualitative variables, dynamic effects, asymmetric uncertainties—in the analysis of individual

rules, these nuances are completely squeezed out in the ringer of cumulative analysis. In cumulative cost-benefit analysis—as in regulatory scorecards—only summary statistics survive.

Meanwhile, applying OIRA review and cost-benefit analysis to guidance documents makes even less sense than applying it to proposed new rules, because guidance documents are very often adopted because the agency’s knowledge of the facts

is so limited that it feels it is not ready to propose a comprehensive rule. The purpose of guidance is to provide regulated entities some clarity while preserving some

flexibility to change course and make exceptions when the facts of a particular case

reveals that the policy is wrong. By encumbering guidance, E.O. 13422 will either

deter it (thereby impeding clarity) or else ossify it, thereby hampering flexibility.

And the uncertainty that often calls forth guidance documents—as opposed to

rules—in the first place, does not augur well for the application of cost-benefit analytical techniques to guidance.

Let me conclude on a more affirmative note by asking what then should be done?

I have challenged the evidence and analysis under-girding studies which purport to

show that regulatory agencies are pervasively irrational and biased in favor of unreasonably costly regulation. That said, I certainly do not maintain that agency regulation is pervasively rational, on any plausible definition of that term. I have not

proved that, and I readily concede that I cannot prove it. The question, I submit,

is an open one.

I expect that what careful investigation would show is that agencies vary. Some

favor industry, others favor regulatory beneficiaries. Moreover, their slant changes

over time, depending on who occupies the White House and the front office and that

agency. Agency predilections may even vary from office to office and from rule to

rule. On balance, I expect the evidence will show that under-regulation is as much

a problem as over-regulation—an insight that Mr. John Graham evidently shares.

But I also conclude that quantitative cost-benefit analysis as currently practiced in

OIRA and by its chief outside supporters is more contributor to that problem than

cure—a stance he most emphatically does not share.

But all this is speculation. What is needed both to resolve this speculation and

to improve agency regulation, I argue, is not more quantitative cost-benefit analysis

and ever expanding OIRA review of first rules and now guidance. That is the wrong

path and the wrong direction. The right way is, first, to undertake some strategically targeted retrospective analyses of the actual costs and benefits of actual rules

to provide a ‘‘ground truth’’ of how accurate, if at all, ex ante analysis has been in

a variety of regulatory situations, and to reveal the kinds of hitherto unanticipated

factors that may arise to defeat ex ante expectations.

Second, agencies might be asked to engage—not OIRA—but relevant experts and

the public more fully in the development of guidance documents. One might imagine

an abbreviated consultation process commensurate with the magnitude of the guidance issues and their difficulty of resolution which agencies might be asked to undertake to better guide their guidance. The advent of the Internet makes such a

process not only conceivable but easy to imagine and design, and OIRA might well

apply its energies to working with agencies to develop such a process—remembering

also that guidance is intrinsically tentative.

Finally, agencies should think about exploring innovative ways to harness the

power of the Internet to make rule-making more expert, more participatory and

more efficient. The Administrative Law Section of the ABA has undertaken a project

on e-rule-making, and while none of the views expressed here today should be atVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00077 Fmt 6601 Sfmt 6621 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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tributed to the participants in that project, I think I can say with conviction that

all of us in the project would be happy to work with OIRA, with public interest

groups, regulated entities and not least the members of this committee and their

staff in a collaborative effort to achieve wiser rules by improving the rule-making

and guidance development process.

Thank you for the opportunity to address you today. I would be happy to try to

answer any questions you might have.

BIOGRAPHY FOR RICHARD W. PARKER

Professor Parker has studied and taught administrative and environmental law—

and regulatory policy—for over a decade; published articles in leading scholarly

journals on the subject of OIRA review and the use of cost-benefit analysis; and benefited from sustained participation in work of the Administration Law Section of the

ABA, where he has co-chaired both the Regulatory Policy Committee and the Committee on e-rule-making. He also has served as Special Counsel to the Deputy Administrator of EPA and as Assistant General Counsel of USTR. He holds a B.A.

from Princeton University, a J.D. from Yale Law School, and a D.Phil. in Politics

from Oxford University, which he attended as a Rhodes Scholar.

DISCUSSION

MORE ON REGULATORY POLICY OFFICERS

Chairman MILLER. Thank you. I want to ask Professor Strauss

questions early because I understand he may need to leave but I

wanted to ask first a question of Dr. Bass because part of his testimony addressed some issues I have been thinking about myself.

You discussed a reporting requirement to show what proposed

rule-making was presented to an RPO and the RPO said no or adjusted what went forward, who talked, who was involved, all the

things that Mr. Rohrabacher seemed to think were suggesting sinister motives, but just in the interests of transparency it doesn’t

seem unreasonable to know what agencies of government, what

they are deciding, why they are deciding it and who is involved.

But you suggested it be once a year. Why that infrequently? It

seems like many of these decisions if they are to be challenged, a

decision not to go forward with rule-making, if that is to be challenged, it should be challenged much more quickly than once a

year. You could easily have an 11-month period. Dr. Bass.

Dr. BASS. Well, I completely agree with you, Mr. Chairman, and

in my haste to speedily move through an oral statement I mushed

together many items, and that is a technical term, mushed. I do

think that what needs to happen is, there needs to be a proper

record established at the agency so that these RPOs are held accountable, and that would mean ongoing review. What I was suggesting to help the public is through the twice-a-year Unified Regulatory Agenda that is published in the Federal Register, there

should be a section on items that were permitted to go forward,

items that were not permitted to go forward, and a justification

why. The annual report should go to Congress and you may seek

to have it even more often, but that annual report should also get

into what changes in those that were going forward, what changes

were proposed in going forward along with the documentation from

the civil service staff that was transmitted to the RPO so that you

have a record of all of that, and let me just say, what we are talking about, Mr. Chairman, is mini OIRAs. Through this RPO system

and the connection of the RPO to OIRA creates the equivalent of

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an OIRA on steroids, so it is essential to do what you are saying

and I realize it is a burden for the agencies and I realize we are

running up against things but it is essential.

Chairman MILLER. Professor Strauss, you raised great concerns

about the statutory authority for RPOs to be given the powers that

they are. What remedies do you see that are available to Congress

for RPOs to be acting beyond the powers that Congress thought we

were giving agencies or the executive branch in rule-making? What

can we do about it?

Mr. STRAUSS. This is a complex question in the world of politics

as well as law because of course Congress doesn’t act alone and

what you are talking about is a measure in which the President

has a significant and I would say personal political interest so that

whatever Congress might decide to do, either has to meet the

President’s willingness or you have to be able to do it in a fashion

that he can’t resist over—you have to be able to override a presidential veto or perhaps you have to do it in some form where he

is obliged to accept the whole package, and this bit of remedy goes

with it. I would suppose that if Congress were to come to the conclusion that regulatory policy officers had been authorized to do

things that Congress had not authorized them to do and Congressional permission was necessary, one straightforward thing to do

would be to provide in the annual budget no funds could be expended for these inappropriate functions. That is a kind of measure

that is frequently found in other contexts in appropriations measures that the President signs on to. He wouldn’t like it. I don’t

think that is very good legislating in an important way but you are

between a rock and a hard place, it seems to me, and what I imagine might result from this would be some negotiations between the

White House and the Congress in which one could come to an understanding about how the regulatory policy officers would function

including provisions for transparency. This has been the history of

Executive Order 12866 and its predecessors. It has been the regular course of bargaining over time between Congress and the

White House. The transparency provisions currently in 12866 did

not get there by accident. They were very much the product of Congressional prodding in the period leading up to the adoption of Executive Order 128666 under the Reagan executive order then administered by President Bush. It had got to the point where Congress refused to confirm a director of OIRA for a period of years

on the understanding that we were going to have some bargains

made about the way in which you exercise this authority, and those

bargains were made.

MORE ON SEPARATION OF POWERS AND MARKET FAILURE

PROVISIONS

Chairman MILLER. My time has expired. It is my turn again.

Professor Strauss, yes, I would imagine that that would be the

subject of bargaining but I have yet to see much bargaining. You

saw some of it in the first panel when the witness said that this

executive order was designed to enhance transparency and I said

how did you decide that? He said it is none of your business. Certainly withholding funds, as you point out, is not the best way for

Congress to impose its will to just prevent the President from auVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00079 Fmt 6601 Sfmt 6601 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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thorizing something but politics as they are, that is possible and

that is certainly one thing that may be possible.

A question for anyone on the panel who wishes to address it, I

raised questions in my opening remarks about the criteria that

were in this executive order for issuing orders or particular remedies, particular regulations, market failure and then some elaboration of what constitutes market failure. Does that criterion appear in statute, and if it does not, what is the authority of the executive branch to add that as a criterion in issuing regulations?

Mr. STRAUSS. Well, I am not sure that this will be a wholly satisfactory response. In part in response to Congress’s own wish to

have this information, the President requires cost-benefit analysis

to be done in accordance with the criteria that he has in mind, I

don’t myself find any difficulty with his asking for agencies to do

that analysis. It can be helpful to the President in proposing legislation, in pursuing the priorities of his Administration. It can be

helpful to the Congress in understanding where legislation may or

may not be needed, and at least if honestly done, I really do commend my colleague Parker’s extended studies for their demonstration of how poorly cost-benefit analysis is sometimes done in the

service ultimately of political ends. But if it is well done, it is an

informative and useful means of analysis. For me, the difficulty

comes, and I think this is instinct in your question, when one

moves from acquiring information from consulting with agencies

that the President is unquestionably entitled to do, to taking over

decisions, to telling agencies specifically what they are to do. When

you pass statutes, you give agencies responsibilities and you give

agencies responsibilities within specific parameters. Not so recently, the Supreme Court made very clear, for example, that for

the EPA, costs are not part of the statutory equation. It doesn’t

mean that EPA can’t develop for the White House information

about costs and even have discussions with the White House in

which the White House’s view about the importance of avoiding excessively costly regulations may be an element of the discussion,

but the responsibility for decision is placed in EPA’s hands and

EPA is not entitled when making or explaining its decision to consider costs. It is quite straightforward as a matter of law. So the

issue is not so much not having the analyses made as making clear

where it is that the responsibility for decision lies and that decisions have to be taken without regard to these statutorily inappropriate factors.

Chairman MILLER. Mr. Parker.

Mr. PARKER. Yeah, and I just would add that I think with regard

to your specific question about market failure, whether or not this

new language is problematic I think would depend a lot on how it

is implemented. For example, any good lawyer I think who wants

to justify a regulation could within very broad bounds identify a

market failure that the regulation could address. Market failures

abound around us. It is pretty low-hanging fruit. And there is also

a savings clause in case you can’t do it. But the regulation itself

on its face is not facially problematic. The question is whether this

signals an intent for OMB to come back and start engaging in a

rebuttal process, a dialog and debate about whether there really is

this market failure, how bad is the market failure, would the marVerDate 11-MAY-2000 09:42 Nov 14, 2007 Jkt 033105 PO 00000 Frm 00080 Fmt 6601 Sfmt 6601 C:\WORKD\I&O07\021307\33105A SCIENCE1 PsN: SCIENCE1
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ket failure be as bad as possible government failure, which is a

standard, you know, conservative anti-regulatory—and if that is

what this—if that is the intention behind this language change,

then that is distinctly problematic. The language change itself, if

market failure is an explanation that needs to be made and can be

made unilaterally by the agencies and is taken by everybody outside, that would cause no problem to me. It is this question about

whether it becomes a debating issue.

Dr. BASS. If I could add just—— Chairman MILLER. Dr. Bass.

Dr. BASS.—three more points to the fine and important comments from my colleagues. One is, I know of nothing in crosscutting law that requires a market failure analysis. There may be

specific requirements in individual statutes but there is nothing to

my knowledge that addresses this, which raises a question about

again the separation of powers question that you have been raising

all day of Congressional authority versus executive-branch authority. The second point is that what has not been mentioned about

market-failure criteria today, Mr. Aitken failed to mention that one

of the changes in the new executive order is the last line which is

an assessment of whether any new regulation is warranted. That

becomes dangerously close to what Professor Strauss was talking

about as being determinative, and if this rises to the level of that,

then this is extremely troubling. The third point is confusion. Agencies have to implement this in a few months. What the heck is

market-failure assessment supposed to involve? What we heard

today is a repeat of three criteria that are simply listed in the new

executive order. That doesn’t help me clarify what it means to happen. It could be as absurd as the fact that the OIRA administrator,

Susan Dudley, drives a hybrid. Is that an indicator there is no

problem with climate change? I mean, I don’t know what a marketfailure assessment will involve and the agencies are left holding

the bag now.

Chairman MILLER. I am not a witness here but I agree with Dr.

Parker’s assessment that there probably is a role for something—

is the market going to take care of this, are we fixing something

that really is not broken—and in deciding whether to issue new

regulations, whether to address a problem by regulation. If there

is a problem that is going to work itself out fairly shortly, fairly

easily, there probably should be some discretion but as Professor

Parker points out, it is a criterion that lends itself to seeing everything through a dogmatic lens and there is a philosophical point of

view that the market fixes everything, the market never fails, and

that is the point I made in my opening remarks, or in an earlier

round of questioning, rather. That was the debate last week. That

will be the debate again and again on every issue where Congress

is proposing anything new: is the market going to fix it if Congress

will leave it alone. And obviously when we act in the face of that,

we are rejecting the argument that the market has not failed, the

market will fix it on its own, which does make I think transparency

all the more important. When is that criterion being applied, how

is it being applied, so that someone may challenge it. If someone

wishes to bring a lawsuit to say the agency should have acted and

did not, that they know when it is happening, and I think all of

214

you have made that transparency point in your testimony and it

is an issue that I raised in the last hearing on this topic.

MORE ON TRANSPARENCY PROVISIONS

Professor Strauss, Professor Parker, you heard Dr. Bass’s discussion of possible transparency fixes. Do you all have any thoughts

on how we can address transparency issues?

Professor Strauss.

Mr. STRAUSS. I think that it would be useful, I am not sure it

would succeed for the Congress to require OIRA and the agencies

to follow what has in fact been the best practice, that I am aware

of agencies under the executive order as it now is. The Department

of Transportation, as you may know, has a really quite terrific

docketing system for all of its rule-makings into which every scrap

of paper that they may get is either scanned, or if it is in electronic

form, dumped, and if one looks at those dockets for the Department

of Transportation, one finds accounts of the meetings with OIRA

that are thorough and extensive, who was there, what did they say,

what did the government officials say. That is done at the Department of Transportation. As it happens, they have been running a

particularly efficient and effective rule-making process that probably not coincidentally runs into trouble with the courts a lot less

than the rule-making making processes in other agencies. That

should happen universally. OIRA doesn’t keep the Department of

Transportation from making these transcripts available on its web

site. I don’t imagine that it would be resisted as a general matter

but OIRA isn’t enforcing that either.

Chairman MILLER. Professor Parker.

Mr. PARKER. Yes. I would second that, and the suggestion of the

people in the agencies who made the complaint that I reported was

that an instruction be put out that basically is somewhat like the

instruction that is there now but extended into the pre-regulatory

initiative process and I think that is what DOT is already doing.

So it can be done. And I would also just offer a comment on the

anticipated rebuttal, which is that all of this would get into the deliberative process and we can’t do that. It is ironic that first, the

Department of Transportation is doing it. Second, I thought it was

interesting that the OMB in this new executive order seems to be

favoring or encouraging formal rule-making, something we haven’t

really talked about, and actually exempting OIRA review from

processes to go through formal rule-making. What formal rule-making is, you know, even though it is too cumbersome to be really

workable because of its trial provisions, it does have one provision

involving ex parte contacts, which is a ban on them once things

have initiated, which is directly relevant here and I think it gives

a pretty good answer to arguments that oh, we must have all of

these things, you know, in back rooms or people won’t be able to

be candid. You know, in that process, things are put on the record

and we don’t consider that a faulty or a hampered or an impaired

decision process because everything has to take place on the record.

So I think that there are answers to that and I think the solution

that Professor Strauss echoed is a good one.

Dr. BASS. Mr. Chairman, could I just add one more element to

this?

215

Chairman MILLER. Dr. Bass.

Dr. BASS. Ultimately, we always have to keep in mind why regulations are needed. We are first and foremost about protecting the

public and our natural resources, and we tend to get lost in the discussion of the technicalities of the rule-making system and forget

about the end objective. In that context, transparency is critically

important, and I also think that this committee and other committees in Congress really need to look at the panoply of analyses imposed on the agencies. This market-failure criterion is yet another

one. Dr. Melberth testified in your first hearing about a range of

requirements that agencies have, what many call paralysis by analysis or Professor McGarity has called ossification. We have to look

at that in the context of our objective to get speedy, responsive regulation done. Ultimately, what has happened and is so central to

what you are chairing here is we find time and again now politics

is superseding science, and the only way I know to address that is

to talk about the entire regulatory process as something that needs

to be opened up. That is why the guidance issue that has come up

in this context of the executive order is troubling. If more agencies

are turning to guidance, it is probably because the existing rulemaking system doesn’t work that well from their point of view. It

is then subjected to the same system. We are kind of going around

in circles on this issue.

Mr. STRAUSS. If I could just add one thought to that. The formal

rule-making provision is an invitation to another form of paralysis

by analysis and presumably this is the reason why the OIRA process is not regarded as being so important there. What it does is,

it delivers into the hands of those who would wish to obstruct rulemaking making the procedural tools with which to do so through

cross-examination, through extended processes and the like. This is

why it is not used anymore is because it is a terribly inefficient

means to make rules. But I do want to echo what Mr. Bass has

said. One job for the Congress, perhaps not your committee but another, clearly is to take the enormous range of provisions that have

been adopted by executive order and by legislation requiring analysis of this issue and that issue and this other issue in the course

of rule-makings and to produce a somewhat more streamlined

version. I don’t think that is our work today but it is a matter of

enormous importance to the success of this mechanism.

Chairman MILLER. I think that is all the questions that I have

for now. Do any of you have any valedictory comments, Professor

Parker, Dr. Bass, Professor Strauss?

Dr. BASS. We appreciate you holding this hearing.

Chairman MILLER. Thank you very much for being here. Our

hearing is adjourned.

[Whereupon, at 1:20 p.m., the Subcommittee was adjourned.]

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