U.S. GOVERNMENT PRINTING OFFICE

57–131 CC WASHINGTON : 1999

SHOULD AGENCIES BE ALLOWED TO KEEP

AMERICANS IN THE DARK ABOUT

REGULATORY COSTS AND BENEFITS?

HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,

NATURAL RESOURCES, AND REGULATORY AFFAIRS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

MARCH 24, 1999

Serial No. 106–11

Printed for the use of the Committee on Government Reform

(

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

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JOHN T. DOOLITTLE, California

HELEN CHENOWETH, Idaho

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH, NATURAL RESOURCES, AND

REGULATORY AFFAIRS

DAVID M. MCINTOSH, Indiana, Chairman

PAUL RYAN, Wisconsin

BOB BARR, Georgia

LEE TERRY, Nebraska

GREG WALDEN, Oregon

HELEN CHENOWETH, Idaho

JOHN T. DOOLITTLE, California

DENNIS J. KUCINICH, Ohio

TOM LANTOS, California

PAUL E. KANJORSKI, Pennsylvania

BERNARD SANDERS, Vermont

HAROLD E. FORD, JR., Tennessee

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

MARLO LEWIS, Staff Director

BARBARA KAHLOW, Professional Staff Member

KAREN BARNES, Professional Staff Member

ANDREW WILDER, Clerk

ELIZABETH MUNDINGER, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 24, 1999 ............................................................................ 1

Statement of:

Bliley, Hon. Thomas J., Jr., a Representative in Congress from the State

of Virginia ...................................................................................................... 17

Costa, Jim, senator, California State Legislature, and vice president,

National Conference of State Legislatures ................................................. 56

DeSeve, G. Edward, Deputy Director for Management, Office of Management and Budget ........................................................................................... 69

Hopkins, Thomas D., interim dean, College of Business, Rochester Institute of Technology; Angela Antonelli, director, Thomas A. Roe Institute

for Economic Studies, the Heritage Foundation; Clyde Wayne Crews,

Jr., director of competition and regulatory policy, Competitive Enterprise Institute; and Lisa Heinzerling, professor of law, Georgetown

University Law Center ................................................................................. 92

Letters, statements, etc., submitted for the record by:

Antonelli, Angela, director, Thomas A. Roe Institute for Economic Studies, the Heritage Foundation, prepared statement of ................................ 102

Bliley, Hon. Thomas J., Jr., a Representative in Congress from the State

of Virginia:

Information concerning support ............................................................... 24

Prepared statement of ............................................................................... 19

Condit, Hon. Gary A., a Representative in Congress from the State of

California, prepared statement of ................................................................ 155

Costa, Jim, senator, California State Legislature, and vice president,

National Conference of State Legislatures, prepared statement of .......... 59

Crews, Clyde Wayne, Jr., director of competition and regulatory policy,

Competitive Enterprise Institute, prepared statement of ......................... 112

DeSeve, G. Edward, Deputy Director for Management, Office of Management and Budget, prepared statement of ................................................... 72

Heinzerling, Lisa, professor of law, Georgetown University Law Center,

prepared statement of ................................................................................... 146

Hopkins, Thomas D., interim dean, College of Business, Rochester Institute of Technology, prepared statement of ................................................. 94

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Information concerning RIAs ................................................................... 9

Prepared statement of ............................................................................... 10

McIntosh, Hon. David M., a Representative in Congress from the State

of Indiana, prepared statement of ............................................................... 5

Terry, Hon. Lee, a Representative in Congress from the State of Nebraska, prepared statement of ..................................................................... 16

(1)

SHOULD AGENCIES BE ALLOWED TO KEEP

AMERICANS IN THE DARK ABOUT REGULATORY COSTS AND BENEFITS?

WEDNESDAY, MARCH 24, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,

NATURAL RESOURCES, AND REGULATORY AFFAIRS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:10 a.m., in room

2247, Rayburn House Office Building, Hon. David M. McIntosh

(chairman of the subcommittee) presiding.

Present: Representatives McIntosh, Ryan, Terry, Chenoweth, and

Kucinich.

Staff present: Marlo Lewis, staff director; Barbara Kahlow and

Karen Barnes, professional staff members; Luke Messer, counsel;

Andrew Wilder, clerk; Elizabeth Mundinger, minority counsel; and

Jean Gosa, minority staff assistant.

Mr. MCINTOSH. The subcommittee will be called to order. Today

our hearing is on H.R. 1074, the Regulatory Right-to-Know Act of

1999. This bipartisan, good government bill was first introduced on

March 11, 1999, with 17 Democratic and 14 Republican cosponsors.

This bill, which requires an annual report on the costs and benefits of Federal regulatory programs, is the product of the Commerce

Committee Chairman Tom Bliley, who has worked very hard in

this area, and his leadership over the past several years has really

brought the bill to its current status and fruition.

Today’s hearing will provide us with an opportunity to hear the

administration’s views on the legislation, the views of State and

local governments which are impacted by the Federal regulatory

programs, and the views of experts in analysis of the costs and benefits of Federal regulatory programs.

I want to especially welcome Chairman Bliley and California

State Senator Jim Costa, vice president of the National Conference

of State Legislatures, who will be representing the State and local

government perspective today. The Clinton administration is represented by Mr. Ed DeSeve, who is Deputy Director for Management of the Office of Management and Budget. OMB’s Office of Information and Regulatory Affairs reports to him.

I want to also welcome three expert witnesses: Angela Antonelli,

who is director of the Thomas Roe Institute for Economic Studies

at the Heritage Foundation, and also a former employee of the Office of Information and Regulatory Affairs; Mr. Wayne Crews, who

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is the director of competition and regulatory policy at the Competitive Enterprise Institute; and Dr. Thomas Hopkins, interim dean

of the College of Business at Rochester Institute of Technology. Dr.

Hopkins also was formerly with the Office of Information and Regulatory Affairs. Last, I want to welcome Ms. Lisa Heinzerling, who

is a professor of law at Georgetown University Law Center.

The Regulatory Right-to-Know Act and its companion bill on the

Senate side, S. 59, build on the provisions of the 1997, 1998, and

1999 Treasury and General Government Appropriations Acts. They

were authored by Senators Stevens and Thompson. The stated purposes of both the House and the Senate bills are identical. They

are, one, to promote the public right to know about the costs and

benefits of Federal regulatory programs; two, increase government

accountability; and, three, improve the quality of Federal regulatory programs and rules issued thereunder.

H.R. 1074 requires OMB to prepare an annual accounting statement and associated report. The accounting statement would provide estimates of the costs and benefits of Federal regulatory programs, both in the aggregate and by agency, by agency programs,

and by major rule. The associated report would analyze the direct

and indirect impacts of Federal rules and paperwork on State and

local governments, the private sector, small business, wages, consumer prices and economic growth.

Currently, there is no report that analyzes the cumulative impacts of Federal regulations on these important sectors of our economy and on these factors that directly affect the lives of American

citizens. I believe Americans have a right to know the cumulative

costs and benefits of Federal regulation on these sectors and factors, and how they will impact their lives.

Current estimates of the off-budget compliance costs imposed on Americans by Federal regulatory programs are close to $700 billion

annually, a 25 percent increase from 10 years ago. Broken down,

that is approximately $6,900 for a typical family of four in America.

The bill also requires OMB to quantify the net benefits or net

costs for each alternative considered in any regulatory impact analysis accompanying a major rule. This information will help the

public understand how and why major decisions affecting them

were made by the executive branch. It will also disclose if the Federal agencies chose the most effective and least costly regulatory

approach.

The bill also requires OMB to identify and analyze overlaps, duplications and potential inconsistencies among Federal regulatory

programs, and to offer recommendations to reform inefficient or ineffective regulatory programs. To ensure that the estimates are fair

and balanced and present the total picture on the costs and benefits, the bill requires peer review of OMB’s draft annual report by

two or more expert organizations and an opportunity for the public

and those sectors that are impacted to comment. The bill requires

OMB to respond to these comments in its final report.

OMB itself has recognized the value of presenting information to

the public on costs and benefits of Federal regulations. In its 1998

report to Congress on the costs and benefits of Federal regulations

that was issued in February 1999, and required by the Treasury

and General Government Appropriations Act, OMB stated, ‘‘The

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1997 report was our effort to begin an incremental process which

we believe will lead to improved information on the effects of regulations.’’

Unfortunately, OMB’s two cost-benefit reports issued to date

have been frankly insufficient in several respects. First, the OMB’s

recommendations for improving regulatory programs were not as

comprehensive as those of us in Congress who have been reviewing

those programs would like to see. We hear complaints from many

about the burden and reasonableness of certain regulatory programs, and had hoped that OMB would be able to address those

concerns in that report.

Second, there were problems with OMB’s aggregate estimates

and other methodological issues. And, third, the report fell short by

estimating monetized costs and benefits for only 4 of the 41 major

rules issued last year by the independent agencies, presenting incomplete compliance costs and benefits in the 33 regulatory impact

analyses prepared last year, and understating the direct and indirect impacts of these Federal regulatory programs. It is not possible to get your hands around the total costs of the Federal regulatory process when only a small percentage of them are analyzed

in this methodological manner.

Commenters expressed the view that OMB should independently

make its own estimates of costs and benefits of individual rules

and regulatory programs, and offered several ideas for improvements in the process, such as for OMB to establish a standardized

format for the agencies to present the economic information on

their rules. I have always been a strong proponent for OMB exercising independent judgment on this so that they could act as a

neutral player among the different competing agencies and their

policy preferences.

H.R. 1074 establishes a permanent requirement for OMB to annually prepare this important information. The bill will not impose

an undue burden, I don’t think, on OMB since much of the needed

information is already available in their review process under the

Executive order. Since President Reagan’s Executive order, the

agencies have been required to perform a cost-benefit analysis on

major rules, and they have continued through the Bush administration as well as into the Clinton administration. They are required to do that on most of the rules, especially the major rules

that constitute the bulk of Federal regulatory costs and benefits.

Also, OMB can use many other sources of information, and that

is one of the benefits of having them be a central processing agency

for this, because they can reach out and include private regulatory

accounting studies as well as other government studies for different

agencies.

Mr. Bliley’s bill has been endorsed by many organizations, including the seven major State and local interest groups, the National Governors’ Association, the National Conference of State

Legislatures, the Council of State Governments, the U.S. Conference of Mayors, the National League of Cities, the National Association of Counties, and the International City/County Management Association. In the groups’ endorsement letter, the officials

wrote, ‘‘We applaud your efforts to encourage greater accountability

with regard to the burden of costly Federal regulations on State

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and local governments. The changes proposed would, we believe,

benefit all of our taxpayers and constituents.’’

Other organizations have also endorsed the bill, including Alliance USA, a coalition of 1,000 business organizations and individual companies, American Farm Bureau Federation, Americans

for Tax Reform, the Business Roundtable, the Chamber of Commerce, Citizens for a Sound Economy, the National Association of

Manufacturers, the National Federation of Independent Businesses, and the Small Business Survival Committee.

I believe the public does have a right to open and accountable

government. OMB’s accounting statements and associated reports

will provide those new tools to help Americans participate more

fully in government decisionmaking.

[The prepared statement of Hon. David M. McIntosh follows:]

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Mr. MCINTOSH. With that, let me now turn to the ranking member of the committee, Mr. Kucinich, and ask, did you have any

opening statement you would like to make?

Mr. KUCINICH. I do, Mr. Chairman. I thank you.

Mr. Chairman, thank you very much for holding this hearing on

H.R. 1074, the Regulatory Right-to-Know Act of 1999. And I certainly want to welcome our colleague, Congressman Bliley, and I

look forward to his testimony, and also to welcome the representatives of OMB who are here.

This bill provides for an annual report on the aggregate cost and

benefit of Federal regulations, an annual cost-benefit analysis for

each agency program, program component, and major rule, and

provides for a myriad of additional estimates and reports.

Typically, more information helps us make better decisions. The

information required by H.R. 1074 could arguably promote the

public’s right to know about the costs and benefits of regulatory

programs, and provide for greater accountability by the Federal

Government, and improve the quality of regulatory programs. However, Mr. Chairman, information which is inaccurate or which

would provide a false sense of confidence is not so helpful, and of

course we would not want that to happen.

That is why this hearing is so important. We need to be sure

that there are adequate safeguards in this bill to ensure that the

resulting analyses are useful. One issue that must be addressed is

whether it is feasible for OMB to conduct the analyses required by

H.R. 1074. In both of its annual reports on the costs and benefits

of regulation, OMB has reiterated that there are severe limits to

the usefulness of its analysis. I am going to be interested to hear

what they have to say about that today. OMB reports that there

are, ‘‘enormous data gaps,’’ accurate data are ‘‘sparse,’’ and agreed

upon methods for estimates are, ‘‘lacking.’’

OMB warns against using its analyses when making policy decisions—that is kind of interesting in itself—and states that ‘‘aggregate estimates of the costs and benefits of regulation offer little

guidance on how to improve the efficiency, effectiveness or soundness of the existing body of regulation.’’

Now, in order to account for the severe data and methodological

limitations, OMB has provided a wide range of estimated costs and

benefits. OMB estimates that annual costs for social regulation

range from $170 to $230 billion, and annual benefits are between

$260 billion and $3.5 trillion.

Fortunately, the range of uncertainty, although it is enormous,

does not affect the conclusion that regulatory benefits outweigh

regulatory costs. No matter which number you choose within the

broad range of estimates, regulations are worth more than they

cost. However, H.R. 1074 requires a large number of new analyses,

and the final conclusions of these analyses may not always be so

clear.

In addition, we need to investigate whether H.R. 1074 is feasible,

given budget constraints. Cost-benefit analyses are expensive. In

March 1997 the Congressional Budget Office found that conducting

comprehensive cost-benefit analyses or regulatory impact analyses

for major rules averaged $573,000 per rule and took an average of

3 years to complete. Thus the administration would need about $35

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million to analyze the 60 new major rules that are promulgated

each year. H.R. 1074 would require a great deal more because it

also requires benefit-cost analysis of each agency, program, and

program component.

[The information referred to follows:]

Using a CBO analysis of the cost to the agencies (i.e., not a cost to OMB) of 85

major rule RIAs, Mr. Kucinich used a $573,000 average cost and applied that average to an estimate of 60 Regulatory Impact Analyses (RIAs) per year, which totals

nearly $35 million. Since agencies have been required to perform RIAs since 1981,

there is no additional cost for the RIAs under H.R. 1074.

Mr. KUCINICH. I also hope this hearing will shed light on whether H.R. 1074 has adequate safeguards against bias. OMB and others warn that prospective cost-benefit analyses often overstate

costs because they do not account for technological advances and

industry’s ability to adapt. For example, EPA estimated, and we all

remember, that it would cost about $600 per ton to comply with the

proposed acid rain controls; however, the actual cost today is less

than $100 per ton.

Furthermore, many benefits are described in qualitative terms

such as lives saved or reduction in illness, not monetary terms.

Thus aggregate and necessary benefit analyses may fail to account

for the most important benefits of regulation. I would like to explore whether peer review provisions would adequately address

that problem, Mr. Chairman. It makes no sense to require expensive analyses unless we can be secure in the objectivity and feasibility of the analysis.

Mr. Chairman, I thank you again for holding this hearing, and

all of these hearings that relate to trying to determine the effectiveness of what government is doing. I look forward to the testimony of the witnesses, and I would like to submit for the record

documents that address the cost of performing the cost-benefit

analyses and other related material.

Thank you very much, Mr. Chairman.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. MCINTOSH. I appreciate that, Mr. Kucinich. And seeing no

objection, we will definitely include those in the record, because I

think you point out an important point that this study and the

work is not cost-free always, and it needs to be done. One thing I would note just doing a little bit of math, the $35

million is what it would cost the government to study the possible

impact of $7 billion on the private sector. So we may end up saving

money in the society if we can do those same regulations more efficiently as a result of it.

Mr. KUCINICH. Of course the offsetting cost to look at is if we

don’t do the regulations, the impact on society at large, it might be

even greater than the cost to the business community.

Mr. MCINTOSH. I agree. Thank you.

Let me turn now to the vice chairman of the committee, who is

a new member of the committee and a new Member of Congress,

the gentleman from Wisconsin, Mr. Paul Ryan.

Mr. RYAN. Thank you, Mr. Chairman. Thank you for holding this

hearing. I thank Chairman Bliley for his leadership on this legislation.

And just before I begin my statement, I would like to add to your

comment regarding our colleague from Cleveland. I think the cost

to the agency, to OMB and to OIRA and to our agencies to do the

analysis, should be compared to the costs that are being borne by

the taxpayers, by our private sector and the economy. That is the

lens through which we ought to look at these things and view legislation such as this.

But I would like to just quickly address this issue in the bill. The

free flow of information is crucial to the effectiveness of our democratic institutions, and if we want the American people to trust

their government and participate fully in the democratic process,

we must provide them with as much information as we can about

the reasoning behind our laws and regulations. And in particular,

citizens have the right to know how the actions of the Federal Government will affect their lives.

A good example is the impact of Federal environmental and safety regulations on businesses, jobs, and personal behavior. Studies

show that the rules cost American taxpayers and consumers hundreds of billions of dollars each year, and we are going to hear from

Dr. Hopkins today, who has done tremendous work on this subject

for years. Our constituents have a right to know how much of their

hard-earned money is going for Federal regulation.

It is clear that I am not alone in my support for the public’s right

to know. Some of President Clinton’s top officials are very outspoken advocates of these issues. One is Carol Browner, the Administrator of the EPA, and I would like to quote Mrs. Browner,

who said that the Clinton administration believes putting information into the hands of the American people is one of the best ways

to protect the public health and environment.

I agree. Because I agree, I enthusiastically support H.R. 1074,

the Regulatory Right-to-Know Act. This bipartisan legislation is all

about putting information in the hands of the American people, as

well as the representatives here in Congress and in the executive

branch, who can only gain from information about the benefits and

costs of Federal regulations and information about the impact those

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regulations have on businesses, State and local governments, jobs,

wages, prices and economic growth.

Agencies can use this information to begin to focus on costs and

benefits when making regulatory choice. Information like this will

be a valuable tool that policymakers, lawmakers, and regulators

can use to evaluate the benefits and the burden of existing rules

and the obligations that proposed rules would impose. In short, this

legislation will ensure more openness, more accountability in government. That is what we are here to do. That can only be good

for building public trust as we pass laws and the regulations that

implement the laws.

Thank you, Mr. Chairman.

Mr. MCINTOSH. Thank you Mr. Ryan, I appreciate your joining

us today for the hearing and thank you for that statement.

I also want to welcome another member of the committee and

new Member of Congress, Mr. Lee Terry, and do you have a statement or anything you would like to put into the record?

Mr. TERRY. Well, I did, but since it is redundant of yours and

Paul’s, I will just attach my statement to yours and say I am anxious to hear the testimony of Chairman Bliley and the others on

the distinguished panel.

[The prepared statement of Hon. Lee Terry follows:]

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Mr. MCINTOSH. We will definitely include it in the record. I guarantee you it is welcome to have those additional thoughts.

Let me call forward our first witness, then, who is a distinguished leader in this Congress, someone who has worked hard in

many of these areas where the regulations are as a result of Federal legislation, someone who I have always looked up to, including

before I was a Member of Congress and serving on the Competitiveness Council, Chairman Bliley. Chairman Bliley, thank you for

joining us, and feel free to make any remarks and submit anything

you would like to for the record.

STATEMENT OF HON. THOMAS J. BLILEY, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

Mr. BLILEY. Thank you, Mr. Chairman. Thank you for those kind

words. With your permission, I have a somewhat longer written

statement that I would like to submit for the record, as well as a

set of letters of endorsement.

Mr. MCINTOSH. Seeing no objection, they will be included in the

record.

Mr. BLILEY. First of all, the Regulatory Right-to-Know Act is a

basic step toward a smarter partnership in regulatory programs.

Specifically, it is an important tool to understand the magnitude

and impact of the Federal regulatory programs. The act will empower all Americans, including State and local officials, with new

information and opportunities to help them participate more fully

and improve their government.

More useful information and public input will help regulators

make better, more accountable decisions and promote greater confidence in the quality of Federal policy and regulatory decisions.

Better decisions and updated regulatory programs will enhance innovation, improve the quality of our environment, secure our economic future, and foster a better quality of life for American families.

I believe accountability in our regulatory programs is important.

When programs are smart, such programs help State and local government, businesses and families. When they are ill-formed, out of

date, or wasteful, such programs hurt people. Poor regulatory programs stifle the freedom and innovation of our domestic work force.

Poor regulatory programs create barriers to redevelopment of abandoned urban sites, leaving a continuing blight in our neighborhoods. As a former mayor, I know that it is true in my own home

city of Richmond, and I am sure former mayor Kucinich had many

areas of Cleveland that suffer from this.

Mr. KUCINICH. It is true.

Mr. BLILEY. Poor programs hurt small businesses, schools, health

care facilities and farms, and these are but a few examples.

You have got a long list of witnesses, so I am going to cut this

short. What this bill does not do, it does not interfere with any regulatory agencies proposing a rule or indeed adopting a rule. All it

says to the regulators is, ‘‘Mr. Regulator, Ms. Regulator, tell us how

much it is going to cost.’’ And then the Congress, which has to appropriate the money, and the people who are going to have to comply with the rules, get an idea of, you know, how much it is going

to cost, and is it worth the cost? That is the important thing.

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I mean, you know, obviously the rule is probably a good idea or

has been proposed to accomplish some good. But is it worth the

cost? I mean, we make as individuals every day decisions of what

we buy, what we do, and we weigh the benefit versus the time it

is going to cost us or the money it is going to cost us or both. And

I think that is all we want to do here; get to the bottom of it and

find out what the cost of compliance is. Most of them probably will

be well worth it, but I will give you a classic example.

I am having a battle with the Coast Guard right now because in

my city of Richmond we are restoring a canal and are going to have

hopefully a canal walk and boats like they have in San Antonio.

This canal was laid out by George Washington and it served the

very useful function of moving freight and people between the

western part of Virginia and the eastern part of Virginia until

about 1850, when the railroads replaced it.

In the 1940’s it was filled in and it has been filled in ever since.

But now the city is restoring it. It will be about 2 feet deep or 3

feet deep and about 25 feet wide, and the Coast Guard comes along

and says it is a navigable waterway. I said it has been filled in for

50 years. You know, well, once it is a navigable waterway, it is always a navigable waterway.

Now that is a regulation I think that defies common sense, and

that is the kind of thing that this accountability will uncover. And

then maybe the Resources Committee will say, ‘‘Well, Bliley you

are all wet, we think it is a good idea,’’ and keep it. That is the

way the system is designed to work. But at least somebody will

look at it and have to make that judgment. And that is all I have

to say, and I rest my case. If anybody has a question, I will try to

answer it.

[The prepared statement of Hon. Thomas J. Bliley follows:]

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Mr. MCINTOSH. You make a very powerful case. I know the

Chairman has another appointment and that he was gracious

enough to come here today. I have no questions for you.

Mr. KUCINICH. I just have two brief questions. And of course the

Chairman makes a powerful argument, when someone would surmise that he is all wet but there is no canal.

Mr. BLILEY. When I built a downtown expressway they tried to

do the same thing. And the Federal judge said, ‘‘Well, the only

thing you lacked for a navigable waterway is water.’’

Mr. KUCINICH. Mr. Chairman, just for a moment, would this bill

require agencies or OMB to conduct new studies or analyses or to

develop new data?

Mr. BLILEY. It should not. All it requires them to do is to tell us

how much it is going to cost. And I am sure that like any piece of

legislation, it is not perfect, and I look forward to working with the

committee and the other body to get it into proper shape.

And I appreciate the fact that you have brought in, Mr. Chairman, expert witnesses who are far more knowledgeable on the

technical details of how this would apply than I am. And as a result of that testimony, hopefully we will refine the legislation to

make sure that we do no harm in passing the bill and sending it

to the President for his signature.

Mr. MCINTOSH. Thank you, Mr. Chairman.

Mr. KUCINICH. I just wanted to establish that the chairman’s intent was not to get them to conduct new analyses.

Mr. BLILEY. No.

Mr. MCINTOSH. And I think the goal here is to marshal the data

and the agencies. The Executive orders require almost all of this

to be done as it is. The problem has been making sure that it is

there and available and published, and the chairman has done a

great job of leading this effort. And I know he has had many battles, not only in Richmond but in the national field as well, looking

at these regulatory programs.

So thank you, and we look forward to working with you as we

carry this bill through the process. Hopefully we can get it down

to the President and have it become part of the law of the land.

Thank you very much, Mr. Chairman.

Mr. BLILEY. I hope so. Thank you.

[The information referred to follows:]

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Mr. MCINTOSH. Our second panel today is also a government official. He is a State Senator from California, Mr. Jim Costa, Senator

Jim Costa, who is also vice president of the National Conference

of State Legislatures. Welcome, Senator Costa. I appreciate you

coming.

Normally we are asked to swear in witnesses. We have a policy

of that, but for elected officials, we respect the integrity that you

bring to your office and so we will skip by that. But I didn’t want

anyone else to be offended on that one.

Mr. COSTA. Thank you very much Mr. Chairman.

Mr. MCINTOSH. Mr. Costa, you can submit full testimony and

summarize it or present whatever you want to us today on this

issue. And I appreciate you traveling all the way from California

to come and talk to us about this, and your perspective is very important about this.

STATEMENT OF JIM COSTA, SENATOR, CALIFORNIA STATE

LEGISLATURE, AND VICE PRESIDENT, NATIONAL CONFERENCE OF STATE LEGISLATURES

Mr. COSTA. Thank you very much, Mr. Chairman. With your permission, I would like to do both, submit the written testimony and

to summarize some of the key points that I think are important.

First of all, Mr. Chairman and members of the subcommittee, I

am Senator Jim Costa. I am a member of the California Senate,

where I chair the Senate Committee on Agriculture and Water. I

am currently serving as the vice president of the National Conference of State Legislatures. I appear before you today on behalf

of not only the National Conference of State Legislatures but also

the six other organizations of State and local officials that comprise

the ‘‘big seven’’ that are supporting H.R. 1074: The National Governors’ Association, the Conference of State Legislatures, the Council of State Governments, the U.S. Conference of Mayors, the National Association of Counties, the National League of Cities, along

with the International City and County Management Association.

So it is my honor to be here on behalf of all of those organizations,

wearing many hats this morning.

As you know, I think that my testimony adds a local perspective.

It adds the local perspective in terms of where we think this legislation is on point, and I would also like to describe some steps

which we have taken in California to accomplish similar goals in

H.R. 1074.

For several years NCSL has raised concerns about the developments in relations between Federal and State governments. That

is our job. A decade ago State legislators were alarmed about Federal unfunded mandates. We worked hard with members of this

subcommittee and others in Congress to pass the Unfunded Mandates Reform Act. On a more recent concern, we have focused on

the preemption of State and local authority by the Federal Government and on the Federal regulatory process. We believe the combination of the unfunded mandates along with preemption, and I

would describe an archaic regulatory process, in fact curtails innovation and responsiveness of State and local government and,

therefore, State and local officials.

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The National Conference of State Legislatures views the Regulatory Right-to-Know Act as a part of the package of reforms that,

when passed, combined with the others, will largely alleviate problems that we have identified with preemption and the regulatory

process. This subcommittee has already approved two other parts

of this package, H.R. 409, which streamlines the grant application

process, and section 5 of H.R. 350, which makes critical technical

corrections to the Mandates Reform Act. We look forward to working with the subcommittee on the fourth part of the package, a bill

that would constrain the propensity of Congress to preempt State

and local prerogatives.

The Regulatory Right-to-Know Act which is before you, we think

contains four important elements, and let me list what they are:

They include the annual accounting statement, the cost-benefit

analysis, the analysis of duplication, and the notice and comment

provision.

Let me quickly state on those four points that on the annual accounting statement, we think it will offer an important power of information to State, local and Federal officials concerned about the

impact of agency decisions on State and local governments. We

think it will also give Congress an indispensable oversight tool to

determine whether or not agencies have exceeded their statutory

authority when promulgating rules.

The second area, the cost-benefit analysis required under H.R.

1074, will make agency officials, we think more, accountable for the

programs they are implementing. They give the public much more

of a sense of how much funding it takes to provide a particular

benefit, and we had that discussion just a moment ago.

The third element of H.R. 1074 calls for the analysis of duplications, inconsistencies, and overlaps in regulations. How often have

we heard that from our constituents? This, we believe, will streamline the regulatory process, ease the cause of the considerable tension and frustration for State and local officials.

Finally, we are supportive of the bill’s notice and comment provision. We think notice and comment is very critical. This element

makes the accounting report a dynamic document, giving State and

local officials a chance to highlight their most pressing concerns

about recent Federal actions.

I am here today to let you know that State legislators try to practice what we preach. For the past 15 years or more—and this is

my 21st year in the State legislature—State legislators have

throughout the country wrestled with the same problems addressed

in the Regulatory Right-to-Know Act. We have tried to make the

regulatory process more open, accessible and accountable.

In California I can tell you that I have been involved in the passage of several bills that take similar approaches to H.R. 1074. We

have a regulatory review unit in the Department of Trade and

Commerce that reviews all rules in California. We require agencies

to report unnecessary and conflicting rules, we require that all

rules be accompanied by an economic impact statement, and we

subject all major rules to regulatory calendar and sunset provisions.

I am pleased with the way that these provisions are working in

California, and obviously there is always room for improvement. I

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am also pleased that this subcommittee is attempting to take similar action on the Federal level. I believe that the State and Federal

Governments have an obligation to our constituencies, to make the

regulatory process more accountable and more responsive to those

who are regulated, whether they are in the private sector or the

public sector. Each step we take on the federalism front, whether

it is the Unfunded Mandates Act, curtailing preemption, or making

the regulatory process more accountable, is a step toward improving the responsiveness and the credibility of government which we

all seek to attain.

It is not an abstract exercise, members of this subcommittee.

Rather, it is a critical element in ensuring the public’s confidence

in our Federal system, confidence that is necessary. I look forward

to working with you in passing H.R. 1074 on a bipartisan effort,

and the other components of our federalism agenda. Thank you.

[The prepared statement of Mr. Costa follows:]

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Mr. MCINTOSH. Senator Costa, I appreciate that. And Andrew, go

ahead and work the light for me, because I have several questions

but I don’t want to delay our colleagues in having them have a

chance to question Mr. Costa, too. So I will come back at the end

if I do not get through in 5 minutes.

First of all, let me say thank you for your work, really the

NCSL’s work with one of our subsequent witnesses, Mr. DeSeve, on

the federalism Executive order which I think we were able to, after

some hearings here and work by OMB, to resolve the problems

there and get that back on track. But the work of the NCSL was

very instrumental in that, and I thank you for that.

I have got several questions about this particular bill, and what

I may do is come back to those in my second round if they haven’t

been covered already, but I wanted to ask you two other things

while I have got you here.

You mentioned you have a regulatory calendar and sunset on

rules. Does that work—we have tried to do that here, and one of

the concerns was that rules might lapse and that therefore the regulatory safeguard for health or safety or the environment might be

endangered. Have you successfully been able to avoid that using

the calendaring and sunset provisions in California?

Mr. COSTA. Well, we believe so, with the oversight process that

the legislative body brings to the fore as we produce our budget

each year. We have an annual budget in California. Those rules

that are in place never pass unnoticed, and the public input is

there and it is frequent.

So I think it has worked well in terms of calendaring it. It works

both with our legislative calendar as well as with our budget calendar.

Mr. MCINTOSH. Well, a different subject for a different time. But

I look forward to talking with you more about that, because that

is something that we have been trying to move forward here in

Washington, and your experience out in California may be informative to us.

Mr. COSTA. And I would be happy to give you other State experiences as well.

Mr. MCINTOSH. That would be great. Thank you.

Specifically about the bill before us today, you mentioned in your

testimony you thought it was important that there be a review of

OMB’s draft accounting statements for public comment, and I was

wondering, wanted to extrapolate on that. How will that be helpful

for the State and local officials in terms of the input and the knowledge about the regulatory programs?

Mr. COSTA. Well, let’s use most recently the Welfare Reform Act

that was passed a little over 2 years ago, I guess, now. We on the

State level, in implementing that, a host of States have acted I

think very responsibly.

But when you are making changes in significant Federal-State

programs, I think it is not only helpful but it is illuminating to

have the State perspective in terms of how States are carrying out

these Federal mandates and whether or not they are being properly funded or not, and whether or not the regulations are duplicative of what we have occurring on the State level. And so if we

have this comment period, I think we can hopefully clear the lay

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of the land, so to speak, so that we don’t have, you know, more difficulty in terms of implementing new law.

Mr. MCINTOSH. I take it that it would also be important for there

to be an appendix in the report reflecting those public comments

and OMB’s analysis of them?

Mr. COSTA. Yes, and let me emphasize that NCSL, along with

the other big seven, strongly supports the appendix that provides

us at least once a year to take an assessment, and we think that

the annual appendix is really very important part of this legislation.

Mr. MCINTOSH. Great. Let me also ask you, on the impact of Federal rules and paperwork, what is the State and local elected officials’ view of the requirement for an analysis of the cumulative not

only direct but indirect effects of the Federal rules and paperwork

on State and local governments?

Mr. COSTA. Simple is better, in a word. But the fact is that the

less paperwork that we can create, I think the better off we all are,

both on the Federal as well as on the State and the local level.

I am sure, Congressman, you and your colleagues are like myself.

When we go to our districts, usually the second or third thing on

the list of folks that we are meeting with, whether they be a county

or city government, is, you know, we appreciate your help, we appreciate the changes, but can’t you do this in a way that doesn’t

require us to rewrite the State Constitution?

And so all of this effort is really to I think try to reduce the

amount of paperwork, and I think that has to be kept in mind.

Mr. MCINTOSH. I appreciate that. I am going to now turn to my

colleagues, as my 5 minutes has lapsed, and we may cover the different questions I have. I also want to acknowledge another new

member of our subcommittee is here, one of my classmates, the

gentlewoman from Idaho, right?

Mrs. Helen Chenoweth, who we are welcoming as a new member

of the subcommittee, and we welcome her perspective.

Mr. Kucinich, do you have any questions for Senator Costa?

Mr. KUCINICH. I did have a chance to read his testimony. I welcome the Senator, having served in the State Senate of Ohio, and

I appreciate the work that you do. And California being a State

that has such an impact on this country, I appreciate you taking

the time to come and testify. Thank you.

Mr. COSTA. Thank you.

Mr. MCINTOSH. I am now going to recognize the vice chairman,

Mr. Ryan, both for questions and also if you would take over the

Chair. I have got an obligation and I will be back in about 10 minutes.

Mr. RYAN [presiding]. Thank you, Senator Costa. I wanted to ask

you about some of the overlapping and duplication issues. What is

the State and local officials’ view on the requirement for an identification and analysis of overlaps, duplications, and potential inconsistencies among Federal regulatory processes, including processes

across agencies which impact State and local governments?

Mr. COSTA. We think it is essential. If this legislation is to be

comprehensive, you have to take careful assessment and examination of where these rules are overlapping, where they are duplicative, and where in making that assessment it becomes very clear,

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both at the State and local level, that the rule is redundant and

therefore unnecessary.

Mr. RYAN. And going on to the State and local’s views, recommendations for reform, I wanted to get your assessment on the

part of the bill which is section 4(a) in the bill, which requires

OMB to present recommendations to reform inefficient and ineffective regulatory programs or program components, including the

regs affecting State and local government. Have you taken a look

at that part of the bill, and what is your reaction to that?

Mr. COSTA. We are supportive of it.

Mr. RYAN. Thank you.

Ms. Chenoweth.

Mrs. CHENOWETH. No questions.

Mr. RYAN. Well, thank you very much. I appreciate it.

Mr. COSTA. Thank you, and we look forward to working with you

as the legislation progresses, and thank you for allowing us to testify this morning.

Mr. RYAN. We will now invite our third panel, Mr. Ed DeSeve,

who is the Deputy Director of the Office of Management and Budget.

[Witness sworn.]

Mr. RYAN. I just want to say it is nice to see you again, Ed. It

has been quite a while. We talked when I used to work over in the

Senate about the District of Columbia provisions of the budget reconciliation bill 2 years ago. It is nice to see you again.

Mr. DESEVE. Thank you, I am delighted to be here. I think that

is a bipartisan success. Mr. Davis—and Mr. Kucinich was a part

of that, and on your left you have one of the key community activists in the District of Columbia who has been tremendously supportive of community affairs over the years, so I think it is a great

success.

Mr. RYAN. Please proceed.

STATEMENT OF G. EDWARD DeSEVE, DEPUTY DIRECTOR FOR

MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

Mr. DESEVE. Good morning. You invited me to discuss H.R. 1074,

the Regulatory Right-to-Know Act of 1999. This bill would require

the Office of Management and Budget to prepare a report on the

costs and benefits of Federal regulations, submitted annually to

Congress, accompanying the Federal budget. H.R. 1074 would significantly expand and make permanent what Congress has passed

as appropriation riders over the past 3 years with administration

support.

First, I would like to discuss the prior legislation and how the

Office of Information and Regulatory Affairs implemented it. Second, I would like to discuss how H.R. 1074 differs from this prior

legislation, and our serious objections to many of the changes.

As drafted, the administration opposes H.R. 1074. Before you

mark up this bill, we would appreciate the opportunity to discuss

our serious concerns with you and to suggest possible amendments.

The first two riders which we supported were passed on a bipartisan basis. They called upon OIRA to issue an annual report containing two categories of cost-benefit information: First, aggregate

estimates of total annual costs and benefits of Federal regulatory

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programs; and, second, estimates of the costs and benefits of major

regulations issued during the year. Major regulations are defined

as those with economic impact of over $100 million.

OIRA followed the guidance provided by the legislative history in

developing these two reports and compiled the information concerning aggregate costs and benefits from economic studies prepared by outside experts or agencies. Much of the information concerning major rules was based on the economic analysis prepared

by agencies in the course of each rulemaking. Similarly, relying on

studies by outside experts and agencies, OIRA assessed the impacts on the private sector, State and local government, and the

Federal Government in general terms. At the end of these reports,

OIRA published the recommendations.

OIRA views its development of these reports as an incremental,

iterative process designed to improve the quality of economic data.

The content of the 1998 report reflected this incremental, iterative

approach. The report discussed the progress that had been made

and pointed out the need for further improvements in economic

analysis. This 1998 report refined cost-benefit estimates prepared

in the first report and those for previously issued regulations in

order to build a historic data base. The 1998 report also responded

to criticism of the first report by taking steps to standardize agency

assumptions, monetize estimates where agencies had only quantified them.

Last year Congress passed a third appropriation rider which was

broader in scope and more detailed than the first two. I have discussed OIRA’s plans to implement the 1999 report in my statement.

H.R. 1074 adds considerable detail to what has been enacted before. We object to a number of its provisions which I would like to

summarize. In addition, Mr. Chairman, I would be happy to give

you a section-by-section analysis in writing for the record.

Mr. RYAN. Without objection.

Mr. DESEVE. First, provisions in H.R. 1074 appear to misunderstand what is possible and potentially useful. H.R. 1074 could be

interpreted to require the compilation of data that are not now

available. It does so by eliminating the qualifying phrase ‘‘to the

extent feasible’’ from Section 4(a)(1) and by calling for a quantification of cost-benefit analysis where data are not likely to be available.

H.R. 1074 could further be interpreted, in a way inconsistent

with previous legislative history, as requiring the creation of a

large number of new economic analyses that do not now exist. We

strongly object to having the bill require new economic analyses

when its purpose, as Senator—I’m going to give him a promotion

here—as Chairman Bliley indicated, that its purpose was to codify

the reporting requirements of OMB in statute.

Second, H.R. 1074 calls for macroeconomic analysis and legislative recommendations that are not appropriate for this report. H.R.

1074 would establish a ponderous institutional structure. That is

hard for somebody from OMB to say: ponderous institutional structure.

Mr. RYAN. Don’t say it very often.

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Mr. DESEVE. We are opposed to that, and we are opposed to paperwork as well. H.R. 1074 would establish a ponderous institutional structure, given the detailed requirements and many procedures and the serious limitations inherent in cost-benefit analysis.

We strongly object to the detail in these procedures and believe

their cumulative effect will undermine, not enhance, the timely development of regulations and of an annual report. We see no need

to require OIRA to consult with, in statute, CEA and CBO. We regularly work on a staff basis with them.

In conclusion, the bill could be interpreted to limit OIRA’s discretion and flexibility to compile a useful report based on academic

studies and undertake other initiatives. We support public comment on the report, but we do not support the notion of peer review. It would be very difficult to determine who the peer review

selectees should be.

In summary, we urge you to carefully reconsider the complexity

of detail, and look forward to working with you as you move forward with this legislation. Thank you very much.

[The prepared statement of Mr. DeSeve follows:]

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Mr. RYAN. Thank you. Well, I would like to take your attention

to the part of your testimony—you state OMB’s objection to a requirement for an analysis of the direct and indirect impacts of Federal rules and paperwork on various sectors of the economy and

various factors, the requirement in section 4(a)(2) of the bill, as not

appropriate for this report.

What is OMB’s view of the value of an impacts analysis for State

and local governments, the private sector, small businesses? Would

OMB support a phase-in of the requirement for these sectoral impact analyses?

Mr. DESEVE. We would be happy to work with you to try to determine what is possible and what is useful.

Mr. RYAN. Going to peer review, you just mentioned in your testimony and in your verbal testimony your objection to peer review.

Given the fact that we have peer review in certain areas today,

since agencies have an incentive to low-ball estimates of regulatory

costs and exaggerate estimates of regulatory benefits, and since

OMB has not provided in its first two reports to Congress an independent assessment and reestimate of agency estimates, wouldn’t

peer review by expert independent organizations be helpful for

you? Wouldn’t that be helpful in correcting agency estimates?

Mr. DESEVE. Our problem is, in many cases, choosing who the

peer entities are and then following guidance of a third party who

is a nongovernmental entity. We prefer to get public comment, including those organizations, and from that public comment use it

to guide the regulatory review process. The agencies themselves

have taken into account consulting studies and scientific data as

they have gone forward, and typically that information is available

to outside bodies.

We get a very large number of comments. We are now doing a

review on actually an implementation of a piece of legislation for

OMB circular A–110. We have gotten over 2,000 comments so far,

most of which has been individual entity comments. So we don’t

think that peer review is really a good idea because it is hard to

choose who the peers are. We would have to deselect certain groups

and select other groups. We think that the public comment process

gives them a chance to do that. We think agencies typically use

qualified individuals in developing the data over time.

Mr. RYAN. Well, let me press on that point with you for a second

longer. Since no comments are on OMB’s draft report to Congress—

provided comments on each part of the draft report, and since OMB

admits there are methodological problems, wouldn’t peer review

strengthen OMB’s final report?

Mr. DESEVE. We don’t think so. We think that the peers themselves would be focusing not necessarily on the overall nature of

economic analysis over the overall nature of the process, but rather

specific flaws in the legislation that were germane to their own

points of view. If I were to select the peers, you might disagree

with me not just on their conclusions but also on my process of selection.

The use of peer review in many situations in scientific analysis,

I think, is broad and has been used by agencies effectively. The National Science Foundation has peer review of grants. That is appropriate as necessary in a broad context at the agency level.

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But when you set it up at the review level, after the agencies

have used their judgment to bring in outside experts, if I brought

in A and B who were known to be of a particular point of view,

you could easily criticize the objectivity of that review.

Mr. RYAN. Noting your concern about that, about tainting the review, you could get peer review from wide ranges of views, people

from different view points; and it sounds like since you are already

cognizant of that problem possibly occurring couldn’t you implement peer review by getting wide-ranging views?

Mr. DESEVE. It is certainly possible to do so. The cost of that, as

well as the time it takes to do so—and you always exclude somebody. When you choose a peer, you are always going to say, ‘‘Well,

I have taken 10 individuals or 10 organizations; and I have left out

2 or 3 who will have very strongly held views on the subject.’’ So

I am concerned—we would love to have public comments. We

would like to have any of these organizations provide comments.

And I assume we are also going to have to pay the peers. They are

not going to do it for free. Now, I have got a situation where I

choose a contractor. I can essentially sole-source that contractor; I

suppose I could bid it as well. I am building both time and cost into

the process which is already a long process of regulatory review

and economic analysis along the way.

So we are very encouraging of public comment, but we think the

approach of public comment and peer review is one that is just

going to add complexity to the process.

Mr. RYAN. I hope you rethink that and look at it a little further.

Winston Churchill said that democracy is the worst form of government, except all the other forms of government. So it is a sloppy

process. But I think that peer review will help you do your job, will

help you get all of the input that you need. And you can go out and

get diverse points of view. So I hope you rethink that one and take

a look at it, and I would ask you to make that consideration.

Mr. DESEVE. We will be happy to talk to the committee about it

further.

Mr. RYAN. My time has expired. I turn it over to the chairman.

Mr. MCINTOSH. Thank you, Mr. Ryan; and thank you for chairing

in my absence and continuing to do so. Mr. DeSeve, first, welcome.

I understand that you are moving on from OMB and want to wish

you the best in the next phase of your career and take this moment

to thank you for your work on the federalism Executive order. You

were here before us when it was in limbo and that matter was resolved, and I appreciate the work that you did on that.

Mr. DESEVE. Mr. Chairman, I guess I ought to be clear. I think

there are still ongoing discussions between the big seven and the

administration to perfect a substitute. I think that is still happening—ah-hah, a note from the trenches. That is exactly what I

thought. The order was withdrawn, which I think was your recommendation; and there is continuing conversation between the big

seven and the administration as to what a substitute might look

like.

Mr. MCINTOSH. So we may still be doing some work on that.

Mr. DESEVE. That’s correct. But I think it is consistent with the

concerns that you had about not having the Executive order in

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place. It was withdrawn, and at the same time we are continuing

to negotiate.

Mr. MCINTOSH. Good. Good. And we will continue to watch that

and have our say as well.

Let me ask you on some of your comments here, it is my understanding that in the reports that OMB has prepared there has been

public comments to that. Was that process for those reports beneficial?

Mr. DESEVE. We believe it was very beneficial, and we would like

to continue the public comment process in all aspects of the report.

Mr. MCINTOSH. OK. Good. And picking up a little bit on the peer

review, although I think you stated your position well, I have to

say I am skeptical of that, because my experience from government—and it is human nature. Nobody wants to have somebody

looking over their shoulder questioning their work, but it is also

healthy. And so I would hope that we could, as Mr. Ryan asked

you, to continue to think about that and find ways where maybe

you all could find constructive ways of making that process work,

and we could get the constructive benefit of that outside input.

The overlaps and duplications and inconsistency and your comments there you were concerned that what the report would end

up focusing on in many cases would be statutory problems that the

agencies have to deal with, where Congress has legislated over the

years and created requirements that create those overlaps and duplications and inconsistencies. And I am confident that you are correct that a lot of that problem comes from the nature of the process

with legislation and different committees, but also different times

in which bills were passed.

But do you see a role where, perhaps, bringing those to focus in

one area, even if it ends up pointing out that we cannot change it

by the regulatory process because we are mandated by law to do

these inconsistent things or overlapping things, that it might then

help us be able to sort them out here and go to the appropriate

committees?

One of the things that Chairman Bliley mentioned was his view

was very much that this would help the committees in their work

as a report on the underlying legislation. And so that perhaps we

could keep that in there; but allow you all, essentially, to focus

where it is legislative versus regulatory in nature.

Mr. DESEVE. Our concern here is that we are breaking new

ground. The economic costs and benefits have been dealt with over

the last 2 years in riders. Now the 3rd year. As we think about

having to codify for a historical base of regulations duplication and

then having to go back and examine where those duplications and

overlaps exist, it is terra incognito for us. It is new territory for us.

We are concerned that it is a very deep requirement that we

haven’t thought through before.

Also in identifying what is an overlap and what is redundancy,

we are going to have to exercise some judgment. One man’s overlap

may be another man’s support in some circumstances. So rendering

that kind of judgment is something that we are concerned about.

We do, under the Executive order, examine the body of regulatory statutes or other regulations surrounding a particular new

regulation as it comes forward. So if regulation A shows up, we do

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look and examine the other regulations. We could certainly, in examining those regulations, indicate the other regulations in that

family that we examined as we do that. That is something that we

could do in that regulatory process. If you mix that into the costbenefit report, you get an apple and an orange, or at least an apple

and a kumquat of some sort. You get a blending that, again, adds

in a layer of complexity.

So we would like to talk about achieving the purpose of making

sure that there is an understanding of the other regulations that

surround this one, without forcing us to use either independent

judgment of what is an overlap and what is a duplication or what

is reinforcing. So, again, transparency is certainly something that

we could do, but then to have an analytic judgment requires a

much greater level of work on our part than simply displaying

those overlaps or those reinforcements.

Mr. MCINTOSH. Well, let me say I think it would be helpful to

us in Congress for the executive to go ahead and exercise some of

that judgment; and we may disagree—and certainly the committees

who have written the different legislation may have different opinions—but I think it would be, in general, helpful in the process.

Let me also take a moment to say—and I talked to Chairman

Bliley after his testimony. He wanted me to mention that his goal

was not to create a lot of new burdens for you. You have identified

one that was. And he said he did realize that there may be some

additional things in the legislation; but he was wanting to indicate

a willingness to work with everybody in making sure that that was

not a large additional burden and that his view of the legislation

was that on the whole, it should not be a tremendously new area

of burdens for OMB. There may technically be some new information that you are being requested to provide in this report. So he

wanted me to clarify the record on that, based on your question to

him.

Mr. KUCINICH. Will the gentleman yield? I believe that what Mr.

Bliley said is that there would be no new analysis.

Mr. MCINTOSH. Right. And that is what he is asking me to clarify, that there may be a couple of areas the way the legislation is

drafted that might, in fact, be new. I think Mr. DeSeve has pointed

out one here.

Mr. KUCINICH. Does Mr. Bliley intend to correct his testimony?

Mr. MCINTOSH. That is what he asked me to do, correct the

record. That the intent was that there not be a large new burden

coming from those and that he wanted to work with you and me;

that as the legislation went forward, if that was an area of concern,

that we could work together on it.

Mr. KUCINICH. Well, it is an area of concern. I wish that Chairman Bliley could have had a little bit more time so that he wasn’t

feeling rushed and, therefore, gave a one-word answer to a question

which has enormous import. Because certainly what underpins this

whole debate is that question about is there going to be new analysis. And so I certainly take the Chair at his word in relating Mr.

Bliley’s account, but I do think that somehow complicates our deliberations here.

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Mr. MCINTOSH. What I might do, if it is all right with Mr.

Kucinich, is ask him if he has further things that he wanted to put

in the record addressing that in particular.

Mr. KUCINICH. First of all, I would have no objection of doing

that, provided that we could also put in some additional questions

so we can carry the debate.

Mr. MCINTOSH. Let me know what your questions are and, we

will make sure that we get the answers for them in the record.

Mr. KUCINICH. I would like to see his statement, and then I

would add my questions, not my questions first and then his statement. That would be too much like Lewis Carroll, and my name

is Kucinich.

Mr. MCINTOSH. We will work with you to make sure any concerns you have got based on what is in the record get answered so

that we can have a complete record on the bill. We will work with

you on that.

Mr. KUCINICH. I am sure we will work together.

Mr. MCINTOSH. My time has expired. I will turn it back to Mr.

Ryan, who is going to continue chairing the hearing.

Mr. RYAN. Mr. Kucinich.

Mr. KUCINICH. Thanks very much. I appreciate it.

Welcome. H.R. 1074 requires a number of new analyses, including cost-benefit analyses for each agency program and program

component, Mr. DeSeve. Another new requirement provides that

reports cover costs and benefits for 2 previous years for the following 4 years. In addition, the bill adds that, to the extent feasible, OMB must quantify net benefits and costs for each program,

major rule, and option discussed in any regulatory impact analysis

for any major rule.

So the question comes, does OMB have the resources to adequately conduct such analyses?

Mr. DESEVE. No, sir, not at this time.

Mr. KUCINICH. Why not?

Mr. DESEVE. The budget process didn’t give them to us. This is

a new set of requirements that were not anticipated previously,

and we just don’t have the money for them. It is just not in our

budget.

Mr. KUCINICH. OK. And also if you were to have that imposed

on you, what would be the effect?

Mr. DESEVE. You have to make a calculation, which I have not

reviewed, on the cost of $35 million. To give you an order of magnitude, that would be an increase in the OMB budget in the order

of magnitude of 70 percent to the overall OMB budget. Our budget

is about—roughly $50 million a year. We have roughly 512 employees, FTE.

Mr. KUCINICH. Let me turn it around now. It is my understanding that most of the analyses is done by agencies and not by

OMB.

Mr. DESEVE. And we also rely on third parties who are published

experts in the area and will tend to bracket their opinions. If you

have a published expert over here and everybody agrees published

expert over there, we will show what their estimates would do in

a particular area, as well as relying on the work the agency has

done in terms of the regulation.

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We try to avoid a centralized bureaucracy that in the first instance, de novo, prepares analysis that already has been done by

the agency. We try to avoid that level of overlap and duplication.

We do do quality control. We do the review. We do coordination of

those, but we don’t do the initial de novo analysis ourselves.

Mr. KUCINICH. Are you familiar with the testimony of Dr. Seeker

of the EPA Science Advisory Board? He testified before the Committee on Science a few days ago.

Mr. DESEVE. I am not familiar.

Mr. KUCINICH. He stated that the new requirement for cost-benefit analyses on regulatory programs, ‘‘Will a new program in research to address the knowledge gaps which inhibit comprehensive

cost analyses.’’ So the question I have: Do agencies currently have

the resources needed to provide adequate H.R. 1074 analyses?

Mr. DESEVE. The problem really is—in his case goes beyond resources. There doesn’t exist a body of work or a body of knowledge

in each program area, in each program component, that would

allow an individual to determine the cost and benefit with the kind

of precision that seems to be called for here. So I think what he

was suggesting is you would have to have a new body of knowledge

created, a new data base, a new set of experiments over a fairly

long period of time. If you are talking about a regulation——

Mr. KUCINICH. Otherwise, we wouldn’t know what we wouldn’t

know?

Mr. DESEVE. That is correct. If you are talking about a regulation that might affect the health of children when they were in

middle age, for example, you would have to have a longitudinal

study over a time period to be able to assess what the benefit of

that regulation was. We just simply don’t know that now.

Mr. KUCINICH. You mentioned before when we were talking

about estimates you really didn’t have one. Could you get—I know

this might do violence to the whole concept of this bill. Could you

give me an estimate of what this would cost?

Mr. DESEVE. Would you like to have it peer reviewed? That was

a joke, I am sorry. I apologize. We will be happy——

Mr. KUCINICH. We take jokes here as long as you don’t turn them

into law.

Mr. DESEVE. We will be happy to try to prepare such a recommendation and get it back to you. I think we can do that without increasing our staff.

Mr. KUCINICH. OK. Thanks a lot. Thank you.

Mr. RYAN. Mrs. Chenoweth.

Mrs. CHENOWETH. Thank you, Mr. Chairman. In your testimony,

you state that OMB’s view that some of the analytical requirements of the bill are not doable and that OMB’s preference really

is a guideline from the Congress that says ‘‘to the extent feasible.’’

Isn’t such a qualifier an invitation for OMB and the agencies to do

less than their very best in this analysis?

Mr. DESEVE. That is a good question, Mrs. Chenoweth; and we

appreciate the fact that Congress has seen fit to give us that guidance in the riders that we have had. They have put that ‘‘to the

extent feasible’’ in the riders. This bill in this particular section removes that.

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The difficulty with feasibility issue here is that you can only do

what you can do. And this creates an expectation that you have the

capability or that there exists the body of knowledge to do something that is not possible. Albert Einstein tried for years to find the

unified theory of matter, and at the end of his life he realized that

it was impossible for anyone to find a unified theory of matter. But

he spent years and years trying to do that.

We are suggesting that many of the analyses that this bill, as it

goes into greater detail, would have us do, are simply not possible

to be done. And we could spend a lot of money demonstrating the

fact that you can’t do what the bill requires. If you let us exercise

our judgment with public comment in how we exercised our judgment with congressional oversight in hearings such as today and

continuing to try to improve the way we do our work over time, if

you give us the option of trying to use that judgment to determine

what is currently feasible, and then trust but verify. Verify what

we have done is an honest effort. Senator Stevens has looked very

carefully at our reports, as have others. If it is not an honest effort,

then excoriate us for it; and we would hope the public would do the

same.

Mrs. CHENOWETH. See, our concern is that which is being reflected by our constituents. And our concern, for example, is that

various budget projections by OMB sometimes are off hundreds of

millions of dollars and sometimes billions. And so we are not asking you to have your staff project into Einstein’s theories, which

are esoteric in large part to some of us who are on-the-ground analyzers. But what our constituents are asking us is to push to make

sure that we tighten up the accountability.

If we don’t have language that is very clear and we give the

agency time to develop and do their best job, which I know—I

mean, I know the sincerity in which you offer the comments, but

time has not lent itself to the fact that agencies will get better. By

nature, they tend to get a little more lax; and that is one of the

reasons why the language in the bill is as it is. And I hope you can

join us and appreciate the reason why.

Mr. DESEVE. We do have experience of agency laxity. All of our

agencies are superior. It is like Lake Wobegon. They are all above

average. But we do have to, from time to time, remind them of the

rigor with which they have to do their work; and we do try to set

those standards and set those patterns for agencies where we can.

Mrs. CHENOWETH. Also you stated that OMB’s objections to various provisions in the bill is we strongly object to having H.R. 1074

require new economic analyses when simply intending to codify

OMB’s annual reporting requirement. The intent of the bill is not

simply to codify an annual reporting requirement, but since the additional analysis required are each individually important and

needed for public understanding of the impact. And that is what

we need together to get. That is our goal. The Federal regulatory

programs, what vehicle would OMB prefer for imposition of these

requirements?

Mr. DESEVE. Again, I think I would like to stand with Chairman

Bliley, and he is going to extend his comments; but our point is

that an enormous amount of analysis is currently done by the

agencies in the regulatory process. We then take that body of data,

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and we review it at OMB. From time to time, we ask for augmentation of that.

What we don’t do is start de novo ourselves, making a new analysis based on the facts of the regulation. We don’t go out and look

at the impact of particulate matter in ozone, to take one that has

been very controversial. We rely on the scientific analysis done by

EPA. We then look at that, and we get public comment on that. We

talk to the EPA folks about it. We use our judgment in probing

that analysis.

That is the process we think is appropriate. If you create a centralized bureaucracy that itself will be doing the economic analysis,

it will so stymie the work of agencies, because it is analysis that

will have to be done twice. We think the right place to do the analysis, and the people to hold accountable, are the people in EPA, the

people in the energy department, and others who are doing the

analysis in the first place, rather than having us be required to do

it.

Mrs. CHENOWETH. I see my time is up, but I would like to work

with the Chair in submitting more questions.

Mr. RYAN. Without objection. Mr. DeSeve, I would like to continue on the train of thought you were just on. One of the things

that I think is very beneficial about OMB is the fact that you are

the budgeter for the Federal Government; that you, Ed DeSeve and

the OMB, take the numbers from the Federal agencies on spending

programs; you analyze the data, you analyze what appropriate

spending levels, and you actually cut spending, and you increase

spending, and do your own independent analysis about what kind

of spending levels we have in discretionary spending. You do your

own independent review of the Federal budget, so to speak, and

add your own auditors; and your own staff do independent auditing

fresh from the start. That is a wonderful process that I think helps

us inject fiscal discipline into our Federal budgeting process. Why

not do the same thing for our Federal regulatory process?

One of the greatest things that the OMB has brought to enable

our Federal budget is some type of fiscal discipline, independent

analysis by trained economists and budget specialists to get that

kind of discipline. Why not do the same thing for the Federal regulatory process?

Mr. DESEVE. That is a good question. Let me try to use the analogy, and I hope I will do it properly.

What we try to do at OMB is first get the aggregates right. We

look at the potential productivity, along with Treasury, of the tax

system; and we make projections out into the future with Treasury

about what that might yield. We then, once we have done that,

look at what the agencies’ expenditure requests are; and within the

context of our agreement with Congress as to the balanced budget

caps, we ask the agencies to submit their budgets. We don’t prepare the budgets for them, just as we don’t prepare economic analysis for rules. We don’t look at the level of the WIC program or the

level of the highway program. That is done by the agencies. We

then analyze that and review it and see, together with Treasury,

together with the Council of Economic Advisers, under the statutes

how that fits.

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We then make independent judgments of our own and pass those

back to the agencies. The agencies typically erupt and reject those

judgments, and back and forth we negotiate with the agencies

based on their budget. The aggregate amount of money that will

move in any year will not be enormous. I hate to characterize it—

but it will be a small amount compared to the work the agencies

have done in preparing their base budgets.

I think the analogy carried forward is that is the way we try to

do rules. We try to set a general framework, a general template.

We try to look at all of the general information; and then as rules

come forward, we work with the agencies who prepared the specific

analysis to fit those in that framework, giving them our best judgment and we fight with them. We sit down—it is not hand-to-hand

combat, but there is a significant amount of tension both with an

individual agency and among a group of agencies who may have

disparate views about a regulation.

Mr. RYAN. I think you just made a perfect point, in that the

agencies are going to ask for the best funding possible. You know,

the most funding for WIC or any discretionary program, and it is

within their interest to push for higher funding. You serve as a

control over that mechanism, over that process. The same, I would

think, would work with the regulatory process.

You talk about the regulations being promulgated by the agencies which have the same kind of incentive built in, which is probably something that goes beyond cost-benefit analysis, beyond

sound science research. Where we are going to promulgate regulations that may be promulgated through a narrower viewpoint,

OMB can serve as a control to that. And you have this give and

take. Wouldn’t this bill, in my opinion, and peer review and accounting, wouldn’t that supplement your ability to be that independent control over the process?

And one of the things I did want to ask you about that—and that

was more of a statement, I know—do you keep a running list of

problem regulatory provisions reported to OMB by the public? I

know you mentioned earlier in your testimony that you think that

the public comment is a wonderful vehicle and something that you

encourage. Do you keep a running list of these things?

Mr. DESEVE. I would have to ask Mr. Arbuckle because I don’t

keep that list. Do we keep a running list?

Mr. ARBUCKLE. Yes.

Mr. DESEVE. I thought we did. In fact, I think we make them

available without a FOIA even in many cases.

Mr. RYAN. It sounds like that would be very, very important for

you to put in the forefront of your mind so that you know the answer to these things.

Mr. DESEVE. I thought I was right, but I wanted to check with

the expert back here.

Mr. RYAN. Well, using this running list, in your 1999 report to

Congress on the cost and benefits of Federal regulation, you included few recommendations for reform. Given the fact that you

are keeping the running list, you are serving as the control for regulations, what process did OMB use to assemble recommendations

for its first and second reports to Congress?

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Mr. DESEVE. I guess I would like to go back to my testimony and

say that in addition to having dialog with people on the Hill who

had put those riders in place, we ourselves talked with the agencies, we consulted experts who had provided other background and

testimony, and we looked at the public comments as we assembled

our recommendations. And at end of the day they were recommendations of the OIRA staff. I don’t believe I have left anything out in that process, but let me check. Yeah.

Mr. RYAN. Do you believe you are going to have more recommendations in the forthcoming report?

Mr. DESEVE. I think I’m trying to make improvements in each

report. We would be happy to talk to the committee about the nature of those recommendations as well.

Mr. RYAN. And you have a process in place that sort of vets the

public complaints and the independent analysis?

Mr. DESEVE. Yes, we do.

Mr. RYAN. OK. Mr. Chairman?

Mr. MCINTOSH. A couple more. I just wanted to followup, Mr.

DeSeve, on your testimony regarding the impacts of the Federal

rules on different sectors. And I think the prepared statement said

that they were not appropriate for this type of report.

But let’s take each of them separately and try to look at that

more closely. For the State and local governments—and I think the

statement says generally, nor will OIRA be able, except in very

general terms, be able to discuss the impacts on State and local

governments. Since this requirement we heard earlier today from

the Senator from California is important for the State and local

government community and they look forward to having the appendix with the different comments on those particular areas that affect their level of government, wouldn’t it be better if OMB could

prepare the impact analysis and perhaps reach out to the State

and local representative government agencies and work with them

to develop a way in which that impact analysis could be done that

would be meaningful to them and let—I think, as I understood it,

not only to get a heads-up of what will be coming but also what

is happening and what analysis the government has on why they

want to impose the different regulatory burdens on the State and

local governments so that they can then do their jobs in trying to

comply with those different requirements.

Mr. DESEVE. I think that what we are concerned about and I

think you are referring to the same section I am, 4(a)(2), which requires an analysis—and this is the expansion that we are concerned about—an analysis of ‘‘direct and indirect impacts’’ without

defining indirect impact. I don’t know what an indirect impact is

‘‘of Federal rules and paperwork on Federal, State, local, tribal, private sector, small businesses, wage, consumer prices productivity,

economic growth and distributional effects.’’

If you think of that in terms of matrix, if you were trying to do

a matrix of that, and if then you put on top of that matrix not just

by agency, by department, but if you went back to 402(a)(1)(B),

where it is agency, program, and program component, and you delete the reference ‘‘to the extent feasible,’’ you begin to develop an

aggregate process where the matrix has agency, program, program

component; and then it has the categories that we have discussed

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here, direct and indirect, Federal, State, local, and so on. We are

concerned that the complexity that you bring—essentially there is

no discretion on our part to try to aggregate some data as we have

tried in the past—imposes a work burden on us that is undoable

and doesn’t add, particularly, in the value.

First of all, the agencies have typically gone through a process

of posting the regulation for comment and have received comments

from State and local governments, which they take into account

and we take into account, as the regulation comes forward. And we

also try to explain the process we use each year in analyzing the

burden.

Our problem here is with the complexity of this tool to provide

a distinction as to the costs and benefits. That is our concern.

Mr. MCINTOSH. But given that there is a problem—and I think

we have heard over and over again that the State and local governments, in particular, as well as the private sector, I think that

there is a problem of the cumulative impact on much of these regulations—wouldn’t it make sense to have that type of matrix and

disaggregate the analysis to figure out, OK, the overall burden is

too great; and we are hearing that over and over and over again

from different sectors. Let’s figure out where we get the most benefit for the cost and where we get the least benefit for the cost.

And, presumably, some people would argue in some cases you get

more cost than benefit. And target the effort for reform there. But

to get to that, I think you need to have that matrix that you described so that you can have the disaggregated data and the analysis; and then as a policy matter, both in the executive branch and

in the legislative branch, be able to focus the attention on those

areas where we could do better essentially.

Mr. DESEVE. Our grave concern is twofold. It is one that we literally don’t have the resources for that. Mr. Kucinich has given us

an estimate. We will develop an estimate for what that would cost.

And second, for many of the regulations, the uncertainty of the

information with which we deal, especially if you try to begin

disaggregating it down to the lower levels on the indirect costs to

a tribal government of an air quality regulation, if we have no ‘‘to

the extent feasible’’ language, we literally would have to do—again,

I realize I am taking this to a place that you don’t intend; but you

see my concern about clarity—we would be required, if there was

a tribal government that was potentially in the air path of a particular plant, to analyze the cost and benefit on that tribal government of the regulation. They would have a right to expect under

this legislation that we did that. We just think that that is a level

of detail that would create grave difficulty for us.

Mr. MCINTOSH. Given that—and I appreciate your willingness to

provide that analysis of the cost—would OMB be more amenable

or willing to consider, perhaps, phasing in those requirements?

Mr. DESEVE. We have indicated a willingness to talk to the committee about how the bill might be modified in those regards, yes.

Mr. MCINTOSH. OK. And then the other thing, would it perhaps

be helpful if you could be given explicit authority in this bill to essentially require the agencies to undertake some of that

disaggregate analysis so that you are not having to create—perhaps they are doing it already. Perhaps they need to be directed

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to use some of their discretionary resources in that way—so that

we don’t have to buildup as large a body at OMB?

Mr. DESEVE. We certainly expect them to do it. In fact, I think

in the Executive order of the President, we require them to do it.

Mr. MCINTOSH. And I understand how these things go. They

have different priorities, and you are telling them we need to do

these. Perhaps by putting it in the law, we can give OMB a little

extra muscle in getting those priorities done. Because I do think it

is helpful, is what it comes down to in the end. And the more detailed information, I have found, the better able to reach a consensus. Because if we start looking at the large picture, then you

get battle lines drawn between, well, they are trying to attack the

environment and we say, you are trying to impose too much cost.

And if we can get down to some detailed areas, then I have found

in the past, yes, consensus can be developed OK. We can do a better job, to use your example, without knowing what would be the

tribal impact on air regulations; and people may be willing to say

we can find a way to solve that unusual cost.

So my view is it would be beneficial, and let’s work together with

you on a way to figure out what the cost would be to OMB and if

there are ways to reduce that by empowering you to have the agencies do the work for you.

Mr. DESEVE. We are always pleased to work with the committee,

especially in those areas.

Mr. MCINTOSH. Great. Thank you. I have no other questions.

Mr. RYAN. Thank you very much, Mr. DeSeve.

Mr. DESEVE. Thank you, Mr. Ryan.

Mr. RYAN. We will now call our fourth panel. Thomas Hopkins,

interim dean of College of Business at the Rochester Institution of

Technology; Angela Antonelli, director of the Thomas A. Roe Institute for Economic Studies from the Heritage Foundation; Wayne

Crews, director of competition and regulatory policy from the Competitive Enterprise Institute will be joining us, as well as Lisa

Heinzerling, professor of law at Georgetown University Law Center. We will now turn this over to the chairman, the real chairman.

Mr. MCINTOSH [presiding]. Thank you, Mr. Ryan. It is also a delight to know that the committee is in capable hands when I have

to step out of the room.

Welcome to this panel. I appreciate all of you coming. We do ask

our witnesses to be sworn in, so if you would please rise.

[Witnesses sworn.]

Mr. MCINTOSH. Thank you. Let the record reflect that each of the

witnesses answered in the affirmative.

Today, we will hear first from Dr. Hopkins, who is the interim

dean at the College of Business at Rochester Institute of Technology. And, Dr. Hopkins, I am familiar with some of your early

research in the 1980’s on the cost of regulation. That was one of

the first that I saw where someone in the academic community

tried to tackle the question for us, and so I appreciate that and

your background and welcome you here today before our subcommittee.

And all the witnesses are welcomed to submit their full testimony for the record and I would ask each of you to perhaps sumVerDate 11-MAY-2000 09:02 Oct 31, 2000 Jkt 065955 PO 00000 Frm 00095 Fmt 6633 Sfmt 6602 E:\HEARINGS\57131 pfrm02 PsN: 57131
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marize it for 5 minutes or so, or whatever time you end up taking;

but we will kind of speed it along that way. Dr. Hopkins.

STATEMENTS OF THOMAS D. HOPKINS, INTERIM DEAN, COLLEGE OF BUSINESS, ROCHESTER INSTITUTE OF TECHNOLOGY; ANGELA ANTONELLI, DIRECTOR, THOMAS A. ROE

INSTITUTE FOR ECONOMIC STUDIES, THE HERITAGE FOUNDATION; CLYDE WAYNE CREWS, JR., DIRECTOR OF COMPETITION AND REGULATORY POLICY, COMPETITIVE ENTERPRISE INSTITUTE; AND LISA HEINZERLING, PROFESSOR OF

LAW, GEORGETOWN UNIVERSITY LAW CENTER

Mr. HOPKINS. Thank you, Mr. Chairman and members of the

committee. I am pleased to have this opportunity to present my

views; and with the chairman’s permission, I would like to submit

my written statement for the record and to simply discuss some of

its highlights here.

Mr. MCINTOSH. Great.

Mr. HOPKINS. I am here to speak in support of the proposed Regulatory Right-to-Know Act, which I think would be a major step toward meeting the need for accountability and transparency in regulatory policy. I commend the Members for considering this bill.

This proposed legislation builds upon Public Law 105–61, which

directed the Office of Management and Budget to prepare a regulatory accounting report with many elements now incorporated in

H.R. 1074. OMB’s resulting report, its second such undertaking,

was published February 5, 1999. H.R. 1074 would establish the important principle that a report of this nature, with improvements,

should be a regular part of the annual cycle of government reporting, rather than an ad hoc and intermittent exercise.

The existence of OMB’s initial two reports indicates that such a

task can be accomplished, although considerable improvement is

needed. The 1998 OMB report overstates benefits and sidesteps

costs in a way that H.R. 1074 would preclude, thanks in part to

the peer-review provisions in section 7 of the bill.

Certainly in any consideration of ways to improve government

operation and effectiveness, spending programs and regulatory programs should receive more parallel and balanced attention; and

H.R. 1074 would foster such possibilities. Several years ago, OMB

began moving in this direction by linking regulatory spending with

fiscal spending in the unified budget documents. Such practice

should be reestablished. Indeed, OMB then articulated a strong

case for a regulatory budget, somewhat comparable to our fiscal

budget. H.R. 1074 would set the stage for just such a budget, and

OMB’s archives provide compelling justification.

In my view, the single most valuable contribution of H.R. 1074

appears in section 6(a), which calls for standardization of the cost

and benefit data which agencies would be required to provide. The

value of this requirement is further enhanced by its applicability

to all Federal regulatory agencies and to paperwork. Fortunately,

section 3’s definition, as I read it, does not exempt the so-called

independent agencies; and section 4 specifically includes paperwork, much of which, particularly tax paperwork, OMB would prefer to exclude. The peer review of section 7 would provide muchneeded quality assurance.

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Every President since Richard Nixon has issued Executive orders

directing regulatory agencies to estimate likely benefit and cost before adding major new regulations. Regrettably, agencies, especially

the independent agencies, routinely either have ignored such requirements or have provided estimates that lack comparability in

important respects, such as discounting practices. OMB guidance to

agencies, while generally sound, has not called for common data

formats and methods, unlike such guidance documents issued by

other countries. Agencies are not given discretion to utilize varying

accounting practices in reporting their fiscal outlays, and neither

should they in reporting regulatory effects.

In my view, the paramount need is for sound and timely estimates of incremental effects of every major new regulation and of

the most prominent components of each relative to alternatives.

Armed with such information, it would be far easier to avoid inefficient regulatory action. This would be no small accomplishment,

given the finding of the American Enterprise Institute’s Robert

Hahn that half of all environmental, health and safety regulations

adopted since 1990 are producing annual costs that exceed their

benefits. This is, of course, not inconsistent with OMB’s conclusion

that net benefits of all such regulations as a group are positive.

Some particular regulations are remarkably efficient, but many are

quite unproductive. The Federal Government routinely by regulation mandates inefficient uses of resources. If we truly want to continue shooting ourselves in our feet, collectively, I think it only fair

that we have a count of the bullet holes. This H.R. 1074 would accomplish. The bill’s definitions of benefit and cost in section 3 are

sound and exactly what the accounting statement of section 4(a)(1)

should be based upon.

I do not mean to imply that the other provisions of H.R. 1074

lack merit. Indeed, each would foster progress toward better regulatory outcomes. Aggregate measures, in particular, would help

citizens gauge the overall intrusiveness of government mandates

relative to taxation. It makes little sense, for example, to advocate

tax reduction if, as sometimes happens, we then get what amounts

to an offsetting increase in budget requirements. If budget constraints cause the government to step back from spending tax revenues on some new initiative, it now is all too easy for the same initiative to be accomplished through government regulation that

forces business or state-local government to pick up the tab. A

water treatment plant can be built either with Federal funds or

with federally mandated use of local funds, for example, we have

no analogous constraints or even consistent measures on overall

regulatory spending.

I thank you for the opportunity to participate in this hearing.

H.R. 1074 is a most promising initiative, and I hope the committee

finds my suggestions constructive and supportive.

[The prepared statement of Mr. Hopkins follows:]

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Mr. MCINTOSH. Thank you, and I look forward to the questionanswer period to explore some of those suggestions with you. Our

next witness will be Ms. Antonelli from the Heritage Foundation.

Thank you and welcome as a fellow former alumni of OIRA to both

you and Dr. Hopkins in that regard.

Ms. ANTONELLI. Thank you, Mr. Chairman. And thank you for

allowing me to testify on the Regulatory Right-to-Know Act of

1999. As a member of the public, as an interested citizen, and as

a former employee of the office that has produced these kinds of

reports in the past, I have submitted comments to OMB on both

the first and second annual draft reports before they were submitted to Congress; and I believe these reports provide important

information and must be preserved and enhanced. I will present

some brief remarks, but ask that my full statement be placed in

the hearing record.

Mr. MCINTOSH. Seeing no objection.

Ms. ANTONELLI. I want to applaud you, Mr. Chairman, for your

continued commitment to making the Federal regulatory system,

its more than 55 agencies, 125,000 rule writers, and $17 billion in

annual spending, accountable to the American people for the more

than 4,000 final rules they produce each and every year.

Since 1995 Congress has taken a number of important steps to

demand accountability and common sense in how the Federal Government regulates and empowers the public to play a more informed role in shaping Washington’s regulatory priorities. Indeed,

the Heritage Foundation reported in a report released last summer

in examining the implementation of the Congressional Review Act,

we were able to show that more than 8,625 final rules were issued

by Federal agencies in a 24-month period; 125 of those rules during

that 2-year period alone were major rules. That means that at a

minimum they cost the economy $12.5 billion.

But as we know, one rule alone, the PM and ozone rule, costs

significantly more than that, somewhere on the order of $60 billion.

So if we look at new regulatory taxes imposed on the public in just

a 2-year period, thanks to the Congressional Review Act, we now

know that somewhere on the order of $60 billion to $100 billion in

new regulatory taxes were imposed on the economy during that

time. That is valuable information we didn’t have before.

Similarly, in studies that the Heritage has done since 1996 on

the Unfunded Mandates Reform Act, which were subsequently confirmed by the Congressional Budget Office, has shown the benefits

of providing information on the economic impact of proposed new

mandates. The result of this information, confirmed by CBO, has

indicated that Congress has saved several hundreds of millions of

dollars in the costs of mandates that it might otherwise have imposed on the public. So this information is valuable to the public.

The Regulatory Right-to-Know Act continues providing the public

this type of information. It proposes to make permanent a report

by the White House Office of Management and Budget that Congress has asked for in each of the last 3 fiscal years. Congress has

asked for these reports because the public has a right to know

about the costs and benefits of Federal regulatory programs. It is

also entirely reasonable to demand that agencies work harder and

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smarter, not necessarily having to spend more money, so that taxpayers don’t have to.

The health of our Nation’s economy and even more importantly

a desire to achieve the highest levels of investment in public

health, safety, and environmental protection demands that Congress empower itself and the public with the information analysis

about the benefits and consequences of Federal regulations and

Federal regulatory programs.

As one recent study noted, regulations can become an obstacle to

achieving the very economic and social well-being for which they

are intended. Until the Congress and the public demand more information and accountability from regulators in order to engage

them in a debate about regulatory priorities and spending the same

way we do about the annual Federal budget, not much change can

or should be expected. A proposal like the Regulatory Right-toKnow Act represents an effort to bring the costs and benefits of

regulation out into the sunshine so that the public and its representatives can be better informed about the less-than-obvious impacts of regulation and do a better job establishing priorities in

spending.

Indeed, it brings out into the sunshine the types of value judgments that unelected regulators make on behalf of the public every

day and bring them out into the sunshine so that everybody may

see the value judgments that these unelected regulators make; and

these judgments will be held up to the critical eye of economic and

scientific expertise and best practices to ensure that they are not

simply judgments based on political expediency.

Environmental consumer groups and others will, like Chicken

Little, cry that the sky will fall because of this proposal. Ironically,

they will conveniently argue that the public’s right to know in this

instance, to have more information rather than less, actually

threatens the public health and well-being. Indeed, many of these

groups are interested in preserving and defending the current system. But what are they really defending? Bureaucracies that are

accountable to no one, that demand and spend resources as if they

are unlimited and that fail to set priorities.

And what are the real costs? As a 1994 Harvard University study

that examined 500 life-saving interventions concluded, we could

save 60,000 more lives a year if we were able to more effectively

set priorities to protect the public from the most serious risks they

face. So the real costs are lives that could have been saved but are

not because we are denied information that helps us to see what

must be done versus what it feels good to do.

As Representative Ryan and others have noted, information is

good and it empowers people; and I strongly believe that a more

informed democratic process ultimately will give us a Nation that

can devote more, not less, resources to the types of policies that

will save lives, improve the quality of our lives and environment,

and allow us to be more prosperous.

The Regulatory Right-to-Know Act of 1999 is a good proposal;

and it builds on a number of important and valuable lessons, as

Dr. Hopkins has pointed out, that Congress has learned more recently through these two reports but also through the work of OMB

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Know Act builds on, as I noted previously, it recognizes the importance of aligning regulatory spending and priorities with the Federal budget; it recognizes that assessments in costs and benefits of

individual rules is as important, if not more important than, aggregate costs and benefits; it recognizes that agencies lack consistency

in their benefit-cost methods; it recognizes that regulators are inherently self-interested, so more independent review is essential; it

recognizes that OMB and the regulators have the responsibility for

developing recommendations for regulatory reform; and it recognizes that OMB and the regulators are not necessarily interested

in presenting information to Congress and the public in a way that

will be useful or helpful, as Representative Chenoweth underscored.

Mr. Chairman, let me just conclude by, again, congratulating you

and your colleagues on both sides of the aisle for understanding the

importance of the public’s right to know more about the benefits

and costs of regulation. The Regulatory Right-to-Know Act is a

good step in the right direction because, one, it builds on previous

accounting statements; two, it makes such accounting statements

permanent so that Federal regulators start taking it seriously and

they know they will be held accountable each year by Congress and

the public; and most importantly, three, it empowers the public to

more effectively debate regulatory priorities and spending in the

same way they debate Federal budget priorities and spending each

year, by linking these two together. I hope Congress will continue

to build and effectively oversee the implementation of this framework in the years to come.

Thank you, Mr. Chairman, and I would be happy to answer any

questions.

[The prepared statement of Ms. Antonelli follows:]

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Mr. MCINTOSH. Thank you, Ms. Antonelli. Our third witness on

this panel is Mr. Wayne Crews who is the director of competition

and regulatory policy at the Competitive Enterprise Institute. And

I am familiar, Mr. Crews, with your work for many, many years

now in terms of analyzing what those costs and benefits are in the

Federal regulations. Feel free to summarize your testimony and

share with us a summary of that, and we will include the full testimony into the record.

Mr. CREWS. Good morning, Mr. Chairman. Thank you very much

for the invitation to speak. And these comments are limited to 5

minutes, so I would ask permission to insert my full comments and

charts into the record.

Mr. MCINTOSH. Seeing no objection.

Mr. CREWS. I appreciate the opportunity to appear today. CEI is

a nonpartisan, nonprofit public interest group that educates journalists, policymakers, and other opinion leaders on the free market

alternatives to political programs and regulations. Among CEI’s

goals are regulatory process reforms, of which the Regulatory

Right-to-Know Act is a perfect example, as well as reforms in such

areas as antitrust and electricity reform.

One key CEI product is the annual report called ‘‘10,000 Commandments: An Annual Survey of Regulatory Trends.’’ The 1999

edition will be released this week. This report is an effort to consolidate the mounds of regulatory data, facts, and figures from government and other sources in a simple, straightforward fashion.

Many of these elements are the very stones and mortar whose reporting the Right-to-Know Act would make mandatory and official.

To put the case for the Right-to-Know Act in some perspective in

my handouts and in my written testimony, figures 1 and 2 present

the information on the costs of regulations and the numbers of regulations across the various agencies, the numbers of regulations affecting small businesses and State and local governments. So I

would refer you to that for some excerpts.

In our view, though, too much legislative power is delegated to

agencies in the first place. That allows Congress to simultaneously

take credit for popular legislation while scapegoating agencies for

compliance costs. So rather than solely denounce OMB or agencies

or scold OMB for failing to properly audit regulators, regulatory reform ultimately must institute greater congressional accountability,

too.

But even if Congress were required to approve every agency regulation, the Right-to-Know Act’s disclosure provisions would still be

essential. The Right-to-Know Act reemphasizes the role of central

regulatory review and makes permanent—takes permanent regulatory disclosure to its next logical level, given recent reforms addressing paperwork, unfunded mandates, congressional review of

regulations, and small business regulatory relief.

A modification of the Right-to-Know Act that would be of immense value would be to summarize and assemble the data that

are already available, but scattered across agencies and in reports

like the ‘‘Unified Agenda of Federal Regulations,’’ which is published twice annually and the former regulatory program that contained an annual report on Executive Order 12291 that summarizes considerable data on agency activities.

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Figure 5 in my testimony suggests report card information that

could be summarized in the annual Federal budget including—and

this is very simple to gather—numbers of major and minor rules

by agency; rules featuring and lacking cost tallies; major rules reported on by the GAO in its regulatory data base; rules with statutory and judicial deadlines; and rules impacting small businesses

and State and local governments.

A report card would help emphasize that Congress put in place

many of the statutory deadlines that hinder analysis in the first

place; and knowing the percentages of rules without benefit calculations would alone help reveal whether or not we can truly say

regulations overall do more harm than good.

Focusing on regulatory costs alone rather than benefits does not

mean benefits can be ignored, rather they should simply be addressed differently. Congress presumably knows the benefits it is

seeking when it passes legislation, and it must set regulatory priorities on that basis. As a practical matter, OMB will probably never

come close to reviewing all the agency benefit estimates anyway.

Cost estimates are a different matter.

The Right-to-Know bill assumes benefit estimates are there for

review in the first place, but they really won’t be until legislation

mandating cost-benefit analysis and risk assessment is enacted. In

the 1998 report to Congress, the OMB reviewed less than 1 percent

of agency final rule documents. Moreover, since the OMB monetizes benefit estimates primarily where an agency has already

quantified them, agencies may learn quickly to avoid scrutiny by

not quantifying benefits at all. Furthermore, the Right-to-Know

Act’s own calls for inclusion of nonquantifiable benefits may invite

more yawning canyons like OMB’s $30 million to $3 trillion net

benefit estimate, which makes impossible the kind of point estimate for regulatory benefits that some commenters on OMB’s reports have advocated.

Relieving agencies of benefit calculation responsibilities avoids

these problems and leaves agencies free to fully address the direct

and indirect costs of their regulatory programs. In keeping with

regulatory cost disclosure, today’s $100 million major rule threshold which allows $99 million rules to escape scrutiny to be lowered

to, for example, $25 million, and major rules could be broken up

into separate categories representing increasing costs, as figure six

in my written testimony shows. That is one example.

But as long as the Right-to-Know Act does require benefit calculations, the OMB must be more willing to criticize agency benefit

claims. OMB has the experience and the know-how to create a benefit yardstick of its own, so to speak. OMB could present questionable rules by comparing them to the alternative benefits that could

be gained if compliance costs went, instead, toward hiring policemen or firemen or buying smoke detectors or simply buying buckets of white paint to paint lines down the center of rural roads.

Simplifying steps such as producing uncomplicated report cards,

emphasizing costs, and creating multiple classes of major rules

could help maximize OMB disclosure and solidify the Regulatory

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Right-to-Know Act’s success. And figure seven in my testimony recaps some of those steps and provides thoughts for future reforms.

And I think the Right-to-Know Act is a great step forward, and I

appreciate the opportunity to testify. Thank you very much.

[The prepared statement of Mr. Crews follows:]

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Mr. MCINTOSH. Thank you Mr. Crews, I appreciate you coming

today. Our final witness on this panel is Professor Lisa

Heinzerling, who is from Georgetown University Law School; and

I appreciate your coming, Professor. You, too, please feel free to

summarize your testimony; and we will include the entire document into the record.

Ms. HEINZERLING. Thank you very much. That is what I would

like to do.

H.R. 1074 is called the Regulatory Right-to-Know Act. The problem with this name and with this bill is that the public will likely

know less rather than more about Federal regulation if this bill is

passed.

The reason is that the bottom-line estimates of costs and benefits

required by this bill will necessarily reflect moral judgments which

many members of the public will not know are reflected in the

numbers, judgments with which many Americans may disagree.

This problem famously plagues cost-benefits analysis in general.

It is compounded, I believe, by the mammoth cost-benefit analysis

required by this bill, which will incorporate hundreds, if not thousands, of judgments that will be invisible to the person who simply

reviews the numbers that the bill produces.

I will give just one example here in my oral remarks this morning of such a judgment. It concerns the calculations of the benefits

of Federal rules that are designed to save human lives. Specifically,

this judgment involves the relative value of present and future

lives.

Now, many of you—you may know that Federal rules save lives

over different time periods. For example, a rule that requires air

bags in cars may immediately save the life of a person who otherwise would have died in a car accident. On the other hand, a rule

reducing exposures to arsenic may prevent a person from being diagnosed with cancer some years after the exposures would have occurred.

A person analyzing the benefits of lifesaving rules must, therefore, decide how to treat lives saved in the future as compared to

lives saved today. In previous reports on the cost benefits of Federal regulation, including reports by OMB and by private analysts,

the estimates of costs and benefits have incorporated a technique

called discounting, which effectively assumes that lives in the future are worth less than those saved today. The study cited this

morning by Ms. Antonelli, for example, the Harvard study cited by

her, incorporated the technique of discounting in reaching its conclusions.

Discounting subtracts from future benefits a fixed percentage for

every year that passes before benefits accrue. In my example, it

would mean that we should spend less to save a person from cancer than from death in an auto accident merely due to the passage

of time between the harmful event and death.

In effect, discounting devalues lives saved in the future, even, for

example, the lives of our own children, compared to lives that will

be saved today. My own research has found that widely circulated

estimates of costs per life saved are heavily influenced by discounting. Reported regulatory costs have been up to 1,000 times

higher if one discounts than they are if one does not.

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It would surprise me to learn that most members of the public

are aware of the influencing of discounting on existing estimates of

benefits. And, therefore, this is just one illustration of the way in

which estimates of benefits and costs that are highly aggregated

may mislead the public.

Highly aggregated estimates like those required by H.R. 1074

embody hundreds of assumptions like the ones I have described.

These are assumptions about which ordinary people, not experts,

likely have opinions and legitimate opinions. These assumptions

are buried in a cascade of seemingly objective numbers in reports

like those required by this bill.

In my own work on cost-benefit analysis, I have found that it is

necessary to trace factual claims back through four or more references before I finally find the original source. And unless one

does such excavation, the numbers that are reported cannot be

evaluated; and the numbers themselves threaten to become the

central concern, rather than the values and the assumptions that

underlie them.

In conclusion, therefore, when it comes to numbers, less can be

more. Thank you very much.

[The prepared statement Ms. Heinzerling follows:]

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Mr. MCINTOSH. Thank you professor. I appreciate your coming

today. Let me now turn to the question and answer section that we

want to do on this area. And, first, direct these questions to each

of the witnesses and perhaps you can give brief yes-or-no answers

if that is possible so we can cover most of the territory.

But the first one is what is your view, positive or negative, on

peer review by two or more expert organizations for the report, and

do you think such peer review would improve OMB’s analysis and

their report? If you don’t mind, I am just going to go down the line

starting with Dr. Hopkins and have you comment briefly on that.

Mr. HOPKINS. Thank you, Congressman McIntosh. Peer review is

an established part of the science of regulation, and in my own

view neither the physical nor the biological sciences are vastly less

uncertain than economic analysis. I think peer review which has

proven to be useful in the scientific aspects of regulation would also

prove to be quite useful in the economic aspects of regulation.

Mr. MCINTOSH. Thank you. Ms. Antonelli.

Ms. ANTONELLI. I echo Dr. Hopkins’s statements. I would add

again that peer review is critical. I think the number of organizations that are involved is less important to me than it is to ensure

that the organizations are truly independent and the reviewers

have established credentials in regulatory analysis, cost-benefit

methods, and so on. It is also extremely important that there be

no conflicts of interest with those who are participating as peer reviewers and that any peer-reviewing organization ideally does not

receive any government money from any of the Federal regulatory

agencies.

Mr. MCINTOSH. Mr. Crews.

Mr. CREWS. I think peer review of the agency analysis is important as well. I think the biggest debate you had here today is over

who is going to pick who does the review, how many reviews like

that will be done, and whether the review is needed on top of the

public comment process that already takes place.

I think doing the peer review, once the public comment process

has taken place and you have a final report, makes a lot of sense,

even if that peer review doesn’t get incorporated into that report.

What it will really address is the way the next year’s report is

going to look. And that, I think, is very important.

So the peer review does matter a lot. It should be done. Getting

over the question of who decides who does the peer review may be

something that you address the way you sometimes appoint congressional commissions, you have the minority and minority side

each appoint, or pick, who you want to do a review and have it

done that way.

Mr. MCINTOSH. Professor Heinzerling.

Ms. HEINZERLING. My view of peer review is negative in this context. Peers cannot produce numbers that are not available. And a

large part of the problem with this bill is that it requires the production of numbers that are not available. Or if those numbers are

produced, then that will mean the systematic undercounting of certain benefits. In the environmental context, for example, in many

cases the benefits of rules cannot be quantified. Peers will not aid

in the development of those data.

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In addition, my opinion is that many of the most fundamental

questions that underlie these analyses are not scientific questions.

They are not questions that experts are entitled to address.

Finally, I would say that peer review is most useful when it can

serve as a credible tie breaker. In the case of OMB’s most recent

report, for example, the estimates for the—net benefits of environmental regulation ranged from, I believe, a negative $70 billion to

a positive $300 trillion, something like that. The estimates were incredibly wide ranging, in other words. And yet the EPA report on

which the high estimate was based was peer reviewed. And so that

you might end up with a situation in which you ask a credible sampling of experts what their opinions are and you end up with the

same wide range as before.

Mr. MCINTOSH. My understanding of peer review in the scientific

context is not that it breaks ties, but it just makes sure that the

methodology is standard in producing the analysis of the data. And

I think we should be careful and not expect too much from this bill

or this report.

And you are correct, Professor. There are some policy judgments

that are infused with it. But the idea would be to provide data that

would then let the policymakers who, perhaps, have differing views

in Congress and in the executive work on a common set of data in

making their policy judgments on that.

Let me ask also the requirement for OMB to include an appendix

in its report addressing comments from the public and the peer reviewers. If we have that, is that something that you all would view

as valuable? Dr. Hopkins.

Mr. HOPKINS. Yes, I think it would be quite valuable for OMB

to need to confront and address all serious comments from outsiders.

Mr. MCINTOSH. Ms. Antonelli.

Ms. ANTONELLI. Yes, I think it is absolutely critical that this information be provided in an appendix. I think maximizing full disclosure is absolutely critical.

Mr. MCINTOSH. In your experience, by the way, you indicated

that you did submit comments. How thoroughly did OMB respond

and adopt changes in response to those comments?

Ms. ANTONELLI. I would say that between the first and second

annual report, the second report was an improvement over the first

report. There is still a long way to go. And I think, depending on

what your expectations are—how much more there is for them to

do.

In terms of the comments that I submitted—and I am aware of

the comments that a lot of other folks have submitted to OMB

when it issued its draft report—there are a lot of concerns. One of

the most significant concerns is the degree to which OMB exercises

any of its own judgments on the numbers that are provided by the

agencies.

Other issues get to the types of costs that are included and the

inclusion of indirect costs, for example. Another example is the inclusion of rules by independent agencies, and that is an example

where a lot of independent agencies don’t analyze the costs and

benefits of their own rules. And that would be a nice instance

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where OMB could probably, given its expertise, offer some insight

into things like that.

And then another big issue, controversial issue, with the report

has been EPA section 812 report, and lots of comments with regards to how those benefit estimates were derived. Because if you

put them in some type of context like the size of our economy and

our output every year, as OMB even pointed out in that report, it

is somewhere on the order of—I can’t remember the exact number—$1.2 trillion in output attributable to the Clean Air Act annually. And that is the equivalent of saying that every year people decide that 25 percent of their personal income is going to be devoted

to simply focusing on the benefits of clean air. And I think when

you put the size of that annual benefit estimate into the overall

input and then break it down into individual households and how

much of their own income they are devoting to this, it raises a critical eye because it really doesn’t seem to make a lot of sense. And

so there are problems with those kinds of benefit estimates that got

a lot of attention but not a lot of response.

Another criticism of the report is the extent to which, while they

say they look at academic and peer-reviewed cost and benefit estimates that are out there, in the case of EPA 812, the George

Mason University, the Reason Foundation, other organizations

have weighed in heavily along with a lot of other people on those

very controversial PM and ozone rules. That was not acknowledged

in the report. So there couldn’t be selective omission on controversial rulemakings of analysis that is done by an independent thirdparty organization.

Mr. MCINTOSH. So what Mr. Crews pointed out, the benefit of the

public comments is sometimes improvement in the next year’s report.

Ms. ANTONELLI. Absolutely.

Mr. MCINTOSH. You saw that, but the specific response in the report was lacking in some of these areas?

Ms. ANTONELLI. Yes. I think in some instances they were not

fully responsive to comments. And while the report has been an improvement and hopefully the next report will be an improvement

over this one, there are certainly some issues that remain of concern.

Mr. MCINTOSH. Great. I will ask unanimous consent to let the

panel finish answers, and then I will turn to you, Dennis, for questions. Mr. Crews.

Mr. CREWS. I will quickly say that the appendix to the report is

one of the most valuable sections because there we learned exactly

how OMB responded to earlier comments, what it contained in his

report, what it intended to do, particularly on net benefits or net

estimates, for example, or indirect costs.

OMB indicated that it has seen a study from one of the commenters on indirect costs of regulations; but that study wasn’t conclusive, so it was searching further. It was looking for more information. And so that means that we can expect in the next year’s

report to see a little bit more information on what OMB really

thinks about including indirect effects of regulations. And so that

is one of the key uses of the appendix. It lets us know what to expect.

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Mr. MCINTOSH. Thank you. Professor.

Ms. HEINZERLING. Yes. If numbers like these are going to be produced, I think the more that we can know about the assumptions

and reasoning that underlies them the better.

Mr. MCINTOSH. The better. OK. Mr. Kucinich do you have a

question for this panel?

Mr. KUCINICH. Something occurred to me, Mr. Chairman, and

that is that I think we are going to need to get further into this

issue of peer review by organizations. In some way it almost seems

oxymoronic to speak of organizations doing peer review. And would

we know who the individuals are making the valuations so that we

could actually have some accountability? Because the only thing

that makes peer review work is the accountability for the people

making the analyses. And if it is basically an analyses by the name

of an organization, no matter now praiseworthy that work or that

organization may be, the organization is reduced to just being a

simple front group.

And so I am very concerned that we don’t diminish the value of

peer review and through this process come up with a mutation of

the peer-review process that would not be constructive toward

being able to analyze the result and to have some kind of a dialog

about the result.

I have a question for Professor Heinzerling. And, again, I want

to thank all the witnesses for testifying today and thank you, Professor. Your comments that I have had a chance to read help me

better understand the serious limitation of using cost-benefit analyses as required by H.R. 1074. Now, although H.R. 1074 requires

a discussion of the nonquantifiable costs and benefits of regulation,

as we see here today, many summarize the results by citing only

the monetary estimates; yet many of the most important benefits

of regulation cannot be monetized, such as saving lives, reducing

illnesses, protecting civil rights.

Therefore, I am concerned about the monetary estimates that are

cited so often that they would greatly underestimate regulatory

benefits. Do you agree with that?

Ms. HEINZERLING. Yes, I do. In environmental law, which is my

area of expertise, this problem is particularly acute. In many cases,

Federal estimates of costs and benefits of Federal rules quantify,

for example, only the risk of cancer because that is the only risk

that can be quantified. But in many cases the rules prevent many

other illnesses—respiratory, reproductive, neurological and blood

disorders, and so forth—that cannot be counted and yet, since cancer is the only benefit that can be counted, that is the only benefit

that is counted in the analysis. Then when it comes to trying to

place a dollar value on those benefits, the problems are even more

severe.

So that in many cases you might find a cost-benefit analysis that

reaches a conclusion that most people would agree is absurd on its

face. Let me take the example of EPA’s cost-benefit analysis of its

lead rule. In that case, if you look at the chart showing the costs

and benefits of that rule, you would have to conclude that rule was

primarily beneficial because of its effect on cars rather than people.

And that is because its effects on people are hard to quantify. And

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so I would agree with you that that is a severe limitation of this

kind of analysis.

Mr. KUCINICH. Well, there are so many different possible methodologies and monetary valuations of benefits. I don’t know how

any of us could be surprised that there is different estimates for

the costs and benefits of regulations.

Dr. Hopkins has one way of looking at it, OMB has another. For

example, Dr. Hopkins, you know, I would just be interested to

know, do you have any idea about what number OMB should use

in quantifying the monetary value of saving a life?

Mr. HOPKINS. Congressman Kucinich, the OMB itself has in its

own guidance documents provided a very careful, a very thorough,

a very intellectually honest discussion of how agencies can go about

trying to put a dollar value on such risk-reduction efforts. And I

applaud the work that OMB has done in that area. I think that

they have been exactly on target.

There are ranges that they have been able to point to, both in

earlier publications and in current publications, that I have no

trouble with whatsoever. So I am in no sense putting myself up as

a proposer of some alternative valuation figure to what OMB itself

has in its own research.

If I may——

Mr. KUCINICH. Would you pretty much then agree that that

should be the matrix for that determination?

Mr. HOPKINS. The matrix?

Mr. KUCINICH. That OMB’s determination should be something

that would be a coordinating principle for someone who is determining a value of a human life.

Mr. HOPKINS. I think it makes good sense to have coordinating

principle, a body of solid, academic-based research which OMB is

relying upon, have that peer reviewed to make sure that they are

not overlooking any better data that exists; and then I think all

agencies should be encouraged to go with that. Yes.

Mr. KUCINICH. Thank you, Mr. Chairman.

Mr. MCINTOSH. Thank you, Mr. Kucinich. Let me try to elucidate

that point a little bit and then ask unanimous consent that we

keep the record open for 10 days. I may have a few other questions

that we would want to ask the witnesses and certainly put in some

documents that they have brought with them.

Mr. Condit had a statement that he wanted to include in the

record, so I ask unanimous consent that it be included in the record

as well.

[The prepared statement of Hon. Gary A. Condit follows:]

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Mr. MCINTOSH. On this question of human life, it is my understanding that the OMB position, which I think Dr. Hopkins agrees

with, is that we shouldn’t try to do that. What we should do is ask

the question, given that there are various programs that affect

human life and risk to human life—and Professor Heinzerling has

pointed out that that spans different timeframes as well, if not all

in the immediate. How do we analyze the use of a given dollar of

cost, whether it is in the private sector, whether it is government

spending, to determine have we gotten the most benefit for human

life out of that so that—all of us can agree you want to treat

human life as being priceless, but for each incremental dollar that

we spend or cause to be spent in the regulations, how can we try

to judge whether we are getting the most out of that dollar in

terms of benefiting human lives? And that, I think, is the difficulty

that we are grappling with.

One of the things that I wanted to ask the professor about—and

you pointed out concerns about the discounting on the life. But you

wouldn’t disagree that if we reached—everybody had the same

agreement on the moral value that human life is priceless, say—

and I believe that—but that if we could use a cost-effectiveness

analysis to maximize the benefit to human life, that that would be

a helpful tool for policymakers to have in making judgments about

the effectiveness of programs?

Ms. HEINZERLING. Indeed, that is what led to a large amount of

my own research. I had been impressed by figures on cost per life

saved that reached into the hundreds of millions, sometimes billions, of dollars; and it seemed to me that those figures indicated

that we could do better, and indeed if those were correct, that we

could be spending our resources differently.

That research tended to indicate that we should be moving our

resources to safety regulation, things like Mr. Crews mentioned,

putting fire extinguishers in airplanes, putting smoke alarms in

houses and so forth, rather than engaging in environmental regulation.

What I found in this research is that those numbers were, in my

view, inflated by discounting so that the discounting reflects an assumption that future lives are worth less than present lives and,

therefore, that environmental regulation that tends to produce benefits in the remote future will, by necessity, be devalued compared

to safety regulation which produces benefits immediately.

What I am trying to get at is that I agree with you that costeffectiveness is important. What I am saying is that in many cases

the numbers on cost-effectiveness embody the same conclusions

that you are trying to reach when you look at cost-effectiveness.

That is an assumption about where our priorities should be. Therefore, to rely on the numbers to get to those conclusions is circular.

Mr. MCINTOSH. Is your concern that there is any discounting or

that the discounting doesn’t accurately reflect—embodies a moral

judgment that may not be the same as yours or other people’s? In

other words, should there be no discounting, or have they got the

wrong discount factor for those future lives?

Ms. HEINZERLING. I think those are two very good questions and

I think they are separate questions, obviously. My main concern is

that discounting is not transparent; that many, many scholars, I

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believe, have not known that discounting so heavily influences estimates of cost-effectiveness. And so that my first concern is that

most people don’t know about it, and they may not agree with it

if they did know about it.

The second concern is with any discounting. And I am troubled

by a practice that assumes that lives should be discounted just like

dollars.

Mr. MCINTOSH. But another way of looking at it would be if we could spend $100 today to save a life today, versus spending that

same $100 to save a life 10 years from now, if you spent it on the

life today, that person would have at least 10 years—I mean, it is

difficult because you are trying to compare lives. But there is that

time—I think we would all accept that if you could help somebody

today to live longer, that that is an important thing; and if you had

to choose—now some people would argue spend both and maybe

that is the more appropriate debate we have. But if you have to

focus on it—and I could see where there would be ample disagreement about how much you want to discount it—you may not want

to discount it that much, the 10 years, knowing that someone, if

you did not spend that $100, would die in 10 years. That is not all

that comforting in terms of a policy choice.

Ms. HEINZERLING. Well, first of all, I think that that is exactly

the kind of discussion that we should be having. And in my view,

numbers like those required by this bill prevent us from having it

because they divert attention from this kind of discussion to the

numbers themselves. That is my view.

The second point would be that it may be that the nature of the

risks tends to differ depending on when the risk is going to materialize in death, that is, in many cases immediate risks are obvious.

They are voluntary in some sense, whereas exposure to a chemical

that will cause cancer in 20 years is not. It is not visible, and in

many cases it is not voluntary. So to look at time alone seems to

be misleading.

Mr. MCINTOSH. And I agree, and it has been my experience that

people—and human nature causes you to have more concern about

an invisible risk, even though it may be less than a visible risk because you are used to dealing with it in your life as you make decisions. Do you go in an elevator knowing that there is some risk

that it might malfunction? Well, yes, I am used to it. It is visible,

versus being exposed to a chemical substance that you are not really knowing that you are being exposed to because it is in the food

that you eat and you do not focus on its being there. And that is

human nature. The risk preferences change based on the familiarity with it, I think.

But let me ask Dr. Hopkins, does OMB’s guidance address this

question on the discounting?

Mr. HOPKINS. I think it is a quite sophisticated discussion that

has a lot of subtlety to it, recognizing some of these important ethical and moral issues. My own view is that it is far better to have

quantitative analysis that explores various alternative assumptions

about the proper role of discounting and the proper rate of discounting for various kinds of hazards than to throw up one’s hands

and say because there are some moral and ethical issues associated

with discounting, we are not going to do discounting; we are not

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going to look at numbers; we are going to base decisions on guesses

or feelings, as opposed to any basic data that exist.

I would also add that I was asked a few years ago by the Organization for Economic Cooperation and Development in Paris to review the guidance that OECD member governments give their regulators on a variety of fronts. And almost every Western European

and OECD member government believes that discounting is a valuable analytical tool, that the kind of benefit cost analysis embodied

in this bill is very important; and so the fact that there are some

important moral and philosophical questions about discounting is

not, in my mind, grounds for avoiding it. Certainly, other countries

have not felt that it is.

Mr. MCINTOSH. But if we could make it more transparent so that

people could clearly see what was going on?

Mr. HOPKINS. Clearly see—that is right.

Mr. MCINTOSH. So you wouldn’t disagree with the professor’s

statement that we should make it more transparent?

Mr. HOPKINS. We should make it more transparent, but we

should do it.

Mr. MCINTOSH. One thing we essentially came down to doing

when I was back at the Competitiveness Council, at least, was having different things that were easier to compare head to head. So

where there was a human life involved, you would compare the

cost-effectiveness to other rules that involved that. Where it was

simply a cost to the economy and there wasn’t a safety factor or

health factor involved, then you could compare more on a quantitative dollars-to-dollars analysis.

Perhaps what the professor’s research, in terms of that, or question about the judgment on discounting is we should also maybe

subdivide the human life category and be conscious of looking at

comparisons of different possible rules that affect people immediately, the safety rules coming to mind, and compare different

rules that address longer-term risks. And even within that, I suspect that the quantitative analysis would let us say, Gosh, if we

focus on this particular carcinogen, the cost is a lot less; and we

get a lot more benefits in 20 years than if we focus on a different

carcinogen that also could affect people in 20 years.

And I want to check with the professor. Would that be an improvement, in your mind, in terms of how we use this type of data?

Ms. HEINZERLING. If I take your question correctly, you are assuming a limited pool of money and the question would be whether

we should regulate one chemical or another and we should look at

which one is the most harmful, I would agree with that.

Mr. MCINTOSH. Or even if we have to make priorities in the pool

of money as to which things we do first to try to address it in that

way. I think that is a limited one, but even if you argued, well, we

should spend more, you would still want to prioritize what you did

first.

Ms. HEINZERLING. Yes, I would look at the quantitative risks as

well as the nature of the risk.

Mr. MCINTOSH. OK. One last question, if I may, and that is what

are your views of the requirement for an analysis of the direct and

indirect benefits of Federal rulemaking on the various sectors,

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small business, State and local government, private sector, wages

consumers, prices and economic growth?

And, actually, I am going to request that you guys submit that

in writing after the hearing, if you would. And in particular, Professor Hopkins, in your testimony, you noted that the requirements

are useful but less attainable and that oftentimes there is a problem with the system’s ability to comply. Would you support a

phase-in for some of these new analytical requirements? Maybe all

of you could address that too, just the mechanics of getting there,

if there are suggestions that you would have.

Mr. HOPKINS. Yes, definitely it should be phased in.

Mr. MCINTOSH. Thank you. I appreciate your coming, and I appreciate the diverse views that we get. And I would ask that each

of you, if you could, help us with spending some additional time on

that question; and we may have a couple more that I ask all of you

to look at for us.

I think—and was pleased to see that OMB indicated some willingness to work with us on these questions and moving forward;

and so your input there will help us focus with them on some of

the key ways of trying to get this done.

Thank you. With that, the committee is adjourned. And I appreciate everybody’s input today.

[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]

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