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HOW TO IMPROVE REGULATORY ACCOUNTING:

COSTS, BENEFITS, AND IMPACTS OF FEDERAL

REGULATIONS—PART II

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY POLICY, NATURAL

RESOURCES AND REGULATORY AFFAIRS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

FEBRUARY 25, 2004

Serial No. 108–159

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

DOUG OSE, California

RON LEWIS, Kentucky

JO ANN DAVIS, Virginia

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

ADAM H. PUTNAM, Florida

EDWARD L. SCHROCK, Virginia

JOHN J. DUNCAN, JR., Tennessee

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

TIM MURPHY, Pennsylvania

MICHAEL R. TURNER, Ohio

JOHN R. CARTER, Texas

MARSHA BLACKBURN, Tennessee

——— ———

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. ‘‘DUTCH’’ RUPPERSBERGER, Maryland

ELEANOR HOLMES NORTON, District of

Columbia

JIM COOPER, Tennessee

——— ———

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON ENERGY POLICY, NATURAL RESOURCES AND REGULATORY

AFFAIRS

DOUG OSE, California, Chairman

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

CHRIS CANNON, Utah

NATHAN DEAL, Georgia

CANDICE S. MILLER, Michigan

——— ———

——— ———

JOHN F. TIERNEY, Massachusetts

TOM LANTOS, California

PAUL E. KANJORSKI, Pennsylvania

DENNIS J. KUCINICH, Ohio

CHRIS VAN HOLLEN, Maryland

JIM COOPER, Tennessee

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

BARBARA F. KAHLOW, Staff Director

ANTHONY GROSSI, Clerk

KRISTA BOYD, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on February 25, 2004 ....................................................................... 1

Statement of:

Kovacs, William, vice president, Environment, Technology and Regulatory

Affairs, U.S. Chamber of Commerce; Susan Dudley, director, regulatory

studies program, Mercatus Center, George Mason University; Richard

B. Belzer, president, Regulatory Checkbook; Joan Claybrook, president,

Public Citizen; and Robert R.M. Verchick, Ruby M. Hulen professor

of law, University of Missouri at Kansas City School of Law, Center

for Progressive Regulation ........................................................................... 47

Sullivan, Thomas M., Chief Counsel for Advocacy, Small Business Administration; and John D. Graham, Administrator, Office of Information

and Regulatory Affairs, Office of Management and Budget ..................... 12

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

Belzer, Richard B., president, Regulatory Checkbook, prepared statement

of ..................................................................................................................... 73

Claybrook, Joan, president, Public Citizen, prepared statement of ............. 89

Dudley, Susan, director, regulatory studies program, Mercatus Center,

George Mason University, prepared statement of ..................................... 65

Graham, John D., Administrator, Office of Information and Regulatory

Affairs, Office of Management and Budget, prepared statement of ......... 28

Kovacs, William, vice president, Environment, Technology and Regulatory

Affairs, U.S. Chamber of Commerce, prepared statement of .................... 50

Ose, Hon. Doug, a Representative in Congress from the State of California, prepared statement of ........................................................................... 4

Sullivan, Thomas M., Chief Counsel for Advocacy, Small Business Administration, prepared statement of .................................................................. 14

Tierney, Hon. John F., a Representative in Congress from the State

of Massachusetts, prepared statement of ................................................... 35

Verchick, Robert R.M., Ruby M. Hulen professor of law, University of

Missouri at Kansas City School of Law, Center for Progressive Regulation, prepared statement of .......................................................................... 111

(1)

HOW TO IMPROVE REGULATORY ACCOUNTING: COSTS, BENEFITS, AND IMPACTS OF

FEDERAL REGULATIONS—PART II

WEDNESDAY, FEBRUARY 25, 2004

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ENERGY POLICY, NATURAL

RESOURCES AND REGULATORY AFFAIRS,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

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

2247, Rayburn House Office Building, Hon. Doug Ose (chairman of

the subcommittee) presiding.

Present: Representatives Ose, Schrock, and Tierney.

Staff present: Barbara F. Kahlow, staff director; Anthony Grossi,

clerk; Megan Taormino, press secretary; Krista Boyd, counsel; and

Jean Gosa, minority assistant clerk.

Mr. OSE. I call to order today’s hearing on the Subcommittee on

Energy Policy, Natural Resources and Regulatory Affairs. The subject of today’s hearing is, ‘‘How to Improve Regulatory Accounting:

Costs, Benefits, and Impacts of Federal Regulations—Part II.’’

In the fall of 2001, the Small Business Administration estimated

that, in the year 2000, Americans spent $843 billion to comply with

Federal regulations. SBA’s report concluded, ‘‘Had every household

received a bill for an equal share, each would have owed $8,164.’’

The report also found that, in the business sector, those hit hardest

by Federal regulations are small businesses. The report stated,

‘‘Firms employing fewer than 20 employees face an annual regulatory burden of $6,975 per employee, a burden nearly 60 percent

above that facing a firm employing over 500 employees.’’ It is clear

that regulations add to business costs and decrease capital available for investment and job creation.

Because of congressional concern about the increasing costs and

incompletely estimated benefits of Federal rules and paperwork, in

1996, Congress required the Office of Management and Budget

[OMB], to submit its first regulatory accounting report. In 1998,

Congress changed the report’s due date to coincide with the President’s budget so that Congress and the public could simultaneously

review both the on-budget and off-budget costs associated with

each Federal agency imposing burdens on the public. In the year

2000, Congress made this a permanent annual reporting requirement. The law requires OMB to estimate the total annual costs and

benefits for all Federal rules and paperwork in the aggregate, by

agency, by agency program, and by major rule, and to include an

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associated report on the impacts of Federal rules and paperwork on

certain groups, such as small business.

Today, we will examine OMB’s draft seventh annual regulatory

accounting report, which was released on February 13, 2004, which

is 11 days after the statutory deadline of release with the President’s budget. Unfortunately, this late submission prevented the

congressional subcommittees from submitting fully informed recommendations for this year’s budget resolution. We will again discuss how to improve compliance with the substantive statutory requirements.

Data by agency and by agency program are important for the

public to know the aggregate costs and benefits associated with

each agency and each major regulatory program. For example,

what are the aggregate costs and benefits of the requirements imposed by the U.S. Department of Agriculture and the Labor Department’s Occupational Health and Safety Administration? Is

there an alternative approach for USDA or OSHA to more effectively, with less burden on and cost to the public, accomplish their

intended objectives?

To date, OMB has issued six final and one draft regulatory accounting reports. All seven did not meet some or all of the statutorily required content requirements. However, OMB has progressively made improvements, such as adding agency level detail for

eight agencies in March 2002, and adding agency program level detail for seven major regulatory programs in February 2003. Its justissued draft report includes a thoughtful discussion of how Federal

regulations affect the manufacturing sector. In addition, on September 17, 2003, OMB issued a new OMB Circular A–4 to standardize future agency cost-benefit analyses.

For the President’s fiscal budget and OMB’s Information Collection Budget, OMB tasks agencies annually with submitting budgetary and paperwork estimates, respectively, for each agency bureau and program. In contrast, for Federal regulations, OMB does

not similarly task agencies annually with submitting cost-benefit

estimates for each agency bureau and regulatory program. On June

11, 2003, I introduced the Paperwork and Regulatory Improvements Act, H.R. 2432. Section 6 of this bipartisan bill includes requirements to improve regulatory accounting, such as: requiring

agencies to submit information, where available, for OMB’s annual

regulatory accounting statements; requiring the annual regulatory

accounting statement and associated report to be submitted ‘‘as

part of’’ the President’s budget, compared to ‘‘with’’ the President’s

budget; and requiring OMB to conduct a multi-agency study of regulatory budgeting.

Presently, the huge off-budget expenditures, which truly are hidden taxes to comply with Federal regulations, receive much less

scrutiny than proposed on-budget expenditures and the Federal

deficit. Regulatory accounting is a useful way to improve the costeffectiveness of government. Both Presidents Reagan and Clinton

issued Executive orders requiring cost-benefit analyses so that policymakers could see the strengths and weaknesses of alternative

approaches and could make choices to ensure that benefits to the

public are maximized. I support these requirements and want to

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make sure that the Government is doing everything it can to minimize the burden of regulations on the American public.

I look forward to the testimony of our witnesses.

[The prepared statement of Hon. Doug Ose follows:]

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Mr. OSE. I am pleased to recognize my good friend from Virginia,

Mr. Schrock, for the purpose of an opening statement.

Mr. SCHROCK. Thank you, Mr. Chairman. I have no opening

statement. I am just looking forward to the testimony of Mr. Sullivan, among others, and to asking several questions I hope will

clear up some issues. Thank you.

Mr. OSE. All right, apparently there is a long line to get into

Rayburn this morning, and we are concerned that Dr. Graham may

be caught in that line. We are going to proceed at pace with Mr.

Sullivan’s testimony and subsequent witnesses, as time permits.

Our typical practice here is to swear in all of our witnesses. We

are not picking on anybody, that is just what we do here. So, Mr.

Sullivan, if you would please rise.

[Witness sworn.]

Mr. OSE. Please let the record show the witness answered in the

affirmative.

Joining us today, our first witness today, Mr. Tom Sullivan, who

is the Chief Counsel for Advocacy at the Small Business Administration.

Mr. Sullivan, you are recognized for 5 minutes for the purpose

of an opening statement.

STATEMENTS OF THOMAS M. SULLIVAN, CHIEF COUNSEL FOR

ADVOCACY, SMALL BUSINESS ADMINISTRATION; AND JOHN

D. GRAHAM, ADMINISTRATOR, OFFICE OF INFORMATION

AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND

BUDGET

Mr. SULLIVAN. Thank you, Chairman Ose, Congressman Schrock.

Good morning and thank you for giving me the opportunity to appear before you this morning. My name is Tom Sullivan, joined by

Dr. John Graham, Administrator of OIRA. I am the Chief Counsel

for Advocacy at the U.S. Small Business Administration. The Office

of Advocacy is an independent office within SBA, and, therefore,

the comments expressed in this statement do not necessarily reflect

the position of the administration or the SBA.

With the Chair’s permission, I would like to submit my entire

written statement for the record, but briefly summarize it under 5

minutes.

Mr. OSE. Without objection.

Mr. SULLIVAN. In general, Advocacy believes that improving regulatory analysis to delineate small business impacts, together with

greater overall adherence to regulatory accounting requirements,

will allow OMB to develop more comprehensive reports to Congress.

While the draft OMB report recognizes the importance of the regulatory burden on small business, it does not attempt to quantify

the impact of that burden beyond citing my office’s sponsored

Crain-Hopkins study in 2001. That study found that small businesses pay a disproportionately large share of the total Federal regulatory burden, which was estimated to total $843 billion in 2000.

For firms employing fewer than 20 employees, the annual regulatory burden in 2000 was estimated to be just under $7,000 per

employee, nearly 60 percent higher than the burden for firms with

more than 500 employees.

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The draft OMB report would benefit from impact analyses that,

at a minimum, should accompany all major rules reviewed by

OIRA. From the Office of Advocacy’s perspective, the draft OMB report would also benefit from small business impact analyses that

should be prepared for rules reviewed by OIRA.

My office believes that the recently issued Circular A–4, entitled

‘‘Regulatory Analysis,’’ will go a long way to improve regulatory accounting. The OMB circular includes a section calling on Federal

agencies to identify the effects of rules on small businesses, and the

regulatory accounting worksheet that accompanies the circular has

a section for agencies to list the impacts of their rules on small

business. The circular became effective just this past January, so,

at this hearing next year, we will have an opportunity for us to see

if the circular works.

While Advocacy would have preferred to see a quantitative analysis of the regulatory impacts on small business in the draft OMB

report, I would be remiss if I did not commend Dr. Graham and

our colleagues in OIRA for their daily efforts to ensure agencies’

compliance with the Regulatory Flexibility Act through aggressive

interagency review of proposed regulations.

My office recommends that OMB issue return letters on a ruleby-rule basis to enforce agency compliance with Executive Order

12866, the Regulatory Flexibility Act, Executive Order 13272, and

the recently issued OMB Circular A–4.

Last year, my office endorsed H.R. 2432, the Paperwork and Regulatory Improvement Act of 2003. Small business groups continue

to tell me that the legislation would improve agencies’ attention

and sensitivity to how regulatory mandates impact the small business community. For that reason, the Office of Advocacy continues

to support the legislation.

Advocacy believes that improving the regulatory analysis of

small business impacts, together with greater adherence to regulatory accounting requirements in general, will greatly improve the

quality and transparency of economic analyses provided to OMB

and will, in turn, allow Dr. Graham’s office to develop more comprehensive reports to Congress.

Thank you for allowing me to present these views, and I am

happy to answer any questions.

[The prepared statement of Mr. Sullivan follows:]

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Mr. OSE. I appreciate the gentleman offering his comments, and

I want to remind him that some of us might not be here next January, but we will be watching from the small business side of the

table.

Now, Dr. Graham, thank you for making it. I understand you

had to hoof it up here. We went ahead and swore in Mr. Sullivan,

so let us repeat that.

[Witness sworn.]

Mr. OSE. Let the record show that Dr. Graham answered in the

affirmative.

We are pleased to have join us on this first panel Dr. John

Graham, who is the Administrator of the Office of Information and

Regulatory Affairs at the Office of Management and Budget.

Dr. Graham, we have received your written testimony. We invite

you to utilize 5 minutes for the purpose of making this statement.

Mr. GRAHAM. Thank you, Mr. Chairman. Good morning, and I

look forward to offering a few comments of overview on the draft

report, which, as you know, is now out for public comment, agency

comment, and expert peer review.

The first point I would like to highlight in the report is good

news about progress in this administration on slowing the rate of

growth of regulatory burdens. Some of the key data in the 2004

draft report on this subject are quite interesting. If you look at the

overall magnitude of unfunded mandates on the private sector and

State and local governments, this report tracks them all the way

back to 1987 for the first time. If you look at an annual average

of the new regulatory burdens each year from 1987 until the year

2000, they were accumulating at a rate of $6 billion in additional

unfunded mandates per year. You can think of that on a decade

basis. It means each decade we are adding $60 billion of additional

unfunded mandates on the private sector and State and local governments.

We are pleased to report to you, Mr. Chairman, that in the first

3 years of the Bush administration, we have cut that growth of

about $6 billion a year to $1.6 billion per year, roughly a 70 to 80

percent decline in the rate of growth.

Having said that, I have two cautionary remarks. One is that the

4th year of most administrations tends to be the worst year with

regard to growth of regulatory burdens. In the eighth year of the

Clinton administration, that number was $13 billion. We are all familiar with a lot of the midnight regulations that occurred in that

last year.

The second point is that we have to ask ourselves why do we

only talk about the rate of growth of regulation? Why can’t we ever

actually cause a reduction in regulatory burden? I have to acknowledge to you that the progress we are making is only on reducing

the rate of growth. I particularly want to thank Tom Sullivan and

his colleagues because they have joined us in a variety of

rulemakings to make sure that this rate of growth is as small as

possible.

Now, a person might ask why do we have to have any growth

in regulatory burden? Why, Dr. Graham, don’t you just put a moratorium on all new regulations? The answers are found in the report

that is available for the committee to review. The answer is some

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regulations are beneficial. Indeed, they are so beneficial that we

have made a judgment that their benefits justify their burdens.

For example, the Food and Drug Administration has mandated

that food labels contain information on the trans-fat content of the

food, not just the saturated fat content, because growing scientific

evidence indicates that trans-fat content is linked to coronary heart

disease. The benefits of this rule are estimated on a ratio of 10 to

1 to costs. Another example is the U.S. Department of Agriculture

in the control of Listeria in red meat and poultry products, with a

benefit-cost ratio on the order of 8 to 1. We need to have a smart

regulation approach, recognizing that there are cases when we

need regulation, we should provide it, but always at the lowest cost

necessary to achieve congressional objectives.

The second major point of this report is we have begun the review of the sea of existing regulations. Since 1980, 4,000 per year

have been adopted. Over 20 years, that is 80,000 new regulations

have been adopted. I must acknowledge to you most of them have

been never looked at to determine whether they were beneficial or

whether they were cost-effective. We have, this year, taken a very

modest step by simply picking a single sector of the American economy, the manufacturing sector, and asked for public nominations

of specific rules, guidance documents, or paperwork requirements

that could result in more cost-effective regulation of manufacturing

companies.

Why did we choose the manufacturing sector for particular focus?

No. 1, the SBA report that Mr. Sullivan mentioned—The Crain and

Hopkins 2001 Report—has quantified the fact that the manufacturing sector is subject to higher overall burdens than other sectors

in the American economy. And, second of all, we are all aware that

the manufacturing sector has been one of the slowest to come back

in the economic recovery, struggling to join other sectors in growth,

jobs, earnings, and so forth. We feel there is ample rationale for

this focus on streamlining regulation in the manufacturing sector.

The final point I would like to make in the area of good news

is the studies from the World Bank and the OECD that we reviewed in this report. They looked at over 130 countries throughout

the world, in terms of the extent of their regulatory burden, and

they have found that those countries that are the least regulated,

Australia, Canada, the Netherlands, New Zealand, Singapore, and

the United States, are characterized by more prosperity, more life

expectancy, better health, and overall improved economic performance. In the underlying reasoning process, these studies point to a

simple fact: least regulated countries find it is easier for people to

start a new business, to hire workers, to enforce contracts, and to

get credit.

The United States of America is a small business-friendly country. That is why we are prosperous, that is why the economy is on

the mend, and that is why we are here to streamline the regulatory

process.

Thank you very much.

[The prepared statement of Mr. Graham follows:]

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Mr. OSE. Thank you, Dr. Graham.

I am pleased to be joined here by my good friend from Massachusetts, Congressman Tierney. I would be happy to recognize him for

the purpose of an opening statement.

Mr. TIERNEY. Thank you, Mr. Chairman.

Mr. Graham, Mr. Sullivan. Mr. Graham, you are getting to be

quite a regular around here.

Let me just make a few brief remarks, if I may. I apologize for

being somewhat late, and I am going to have to keep going in and

out for a hearing that is going on in Education also.

Each year we hold a hearing like this one to review OMB’s report

estimating the costs and benefits of major agency rules. I continue

to be troubled by OMB’s increasing emphasis on basing public policy decisions on estimates of the costs and benefits of Federal protections. OMB uses cost-benefit analysis as if it is a neutral and

conclusive formula for deciding the worth of agency rules. However,

agencies should not enact and enforce regulations independent of

their costs. Dollars and cents do matter. But, another kind of sense

matters as well, and that is common sense. It is important to look

at the reasons behind regulations. An analysis of a proposed action

should take into consideration not just dollars, but costs and benefits that are not easily defined in terms of money, such as human

life, a protected ecosystem, future impacts, and even how one regulation impacts other regulations.

OMB issued guidance last September, instructing Federal agencies on specific methods for evaluating regulatory decisions. In its

guidance, OMB encouraged agencies to find out the net benefit of

decisions by calculating the estimated benefit minus the estimated

costs of compliance with the decision. It is frequently not possible

to accurately calculate such a number. Some benefits are impossible to put into dollar form and plug into a calculator, and the

costs are frequently overstated. The end result is incomplete and

inaccurate. When cost-benefit calculations are done for Federal

rules, they ought to be as completely, accurately, and transparently

as possible. I think OMB fails in many of these areas.

One specific example of OMB providing analysis that is difficult

to understand and incomplete is in its 2004 draft report. In its

draft report, OMB provides cost and benefit estimates for an EPA

rule requiring factory farms to obtain clean water permits. In its

explanation of the estimates for this rule, OMB provides a list of

benefits, such as contamination of coastal waters, that have not

been translated into dollar amounts so, therefore, are not included

in the estimated benefits.

The second section of OMB’s draft report asks for public comment on regulatory reforms that will help the manufacturing industry. I am concerned that this is a solicitation for a hit list of

environmental and health protections, much like that which OMB

created in 2002. In evaluating the process of regulation, I am interested in learning more about the role OIRA is playing in approving

and rejecting agency rules. As GAO reported last year, it seems

that OIRA has increasingly become less of a counselor to agencies

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and more of a gatekeeper for agency decisions.

I want to thank the witnesses for being here today. I look forward to your presentation.

And I thank the chairman for the opportunity to speak.

[The prepared statement of Hon. John F. Tierney follows:]

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Mr. OSE. I thank the gentleman.

We will just go to questions here.

Gentleman, one of the first questions, Dr. Graham and I have

struggled with this, trying to figure out how to get it put together,

and we are making progress. I want to go back to the statutory

deadline issue for the regulatory accounting report. One of the difficulties that we have up here, when we are asked for comments

on the President’s budget, is that when we don’t have the documents we think are integral to us providing feedback, it makes it

obviously difficult to provide feedback, and the regulatory accounting report is one of those. H.R. 2432 tries to or would align the delivery of the regulatory accounting report with the delivery of the

President’s budget so that they must be contemporaneous. So it

would be part of the President’s budget, as opposed to with the

President’s budget.

Now, would you support a requirement to integrate that regulatory information in the President’s documents?

Mr. GRAHAM. Mr. Chairman, I am familiar with the fact that

there are informal staff discussions that have been taking place on

a range of provisions in the kind of legislation that your question

addresses, including the specific question that you have asked

about. As I think you are aware, OMB does have concerns with the

kind of language that you are talking about for two reasons that

I can cite to you, and I am sure the OMB general counsel has offered a few additional ones. But, the concern at the most principal

level is the notion that the President would be required to submit

certain kinds of information with his budget. The notion that would

be a legal requirement is something I think people in the administration are not entirely comfortable with.

The second much more practical consideration is, what we have

provided to you admittedly 10 or 11 days late, is a draft report that

has not yet gone out for public comment or for peer review, as required by Congress. I am a little uncomfortable including in the

President’s budget documents something like this draft report,

which has not had the vetting process that we have become accustomed to for this report. And, as a consequence, I don’t think it

would be wise to have this report remove public comment and peer

review at this stage so that we can get it out in the context of the

budget documents. And, I can assure you there aren’t going to be

draft parts of the President’s budget, that is just not going to happen.

Mr. OSE. Does the law not already indicate or specify what the

President’s budget shall include?

Mr. GRAHAM. I think that there may be some parameters on

that, and I would suggest to you that the administration is very reluctant to see any more precedence in the direction of requiring the

President to provide certain kinds of information with his budget.

Mr. OSE. Mr. Sullivan, from the Small Business Advocacy standpoint, do you have any comment on the submittal of the regulatory

accounting report as part of the President’s budget submittal?

Mr. SULLIVAN. The Office of Advocacy does not have comment on

that specific provision, Mr. Chairman.

Mr. OSE. The second question I have is, Dr. Graham, OMB uses

the information collection budget to manage the paperwork burVerDate 11-MAY-2000 10:32 Aug 04, 2004 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 D:\DOCS\94493.TXT HGOVREF1 PsN: HGOVREF1
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dens on the public, and in one of the sections of our bill we have

a requirement to conduct a multi-agency study of regulatory budgets, Section 6, if I recall. My question is whether or not you support

such a study. I mean, I look at it as a tool that would help OMB

and the agencies rank risk and then prioritize use of resources, and

then make judgments to maximize the use of those resources. I am

curious whether or not you have come to any conclusion on that,

whether you support that particular requirement.

Mr. GRAHAM. I think that, again, this particular topic, as I understand it, is part of the informal dialog that is going between our

staffs, and my understanding is we are making constructive

progress in those discussions. You know that I am very optimistic

and enthusiastic about the concept of a regulatory budget. That I

am enthusiastic about the idea of trying to move forward for a pilot

project, to try to actually demonstrate and study the potential

promise of this type of activity. In terms of the specific language,

I am not sure we are there yet, but my understanding is that we

have made progress, if we are not thus hopefully that is something

that we can work out if we don’t yet have a detailed plan.

Mr. OSE. Thank you, Dr. Graham.

Mr. Tierney.

Mr. TIERNEY. Thank you.

Doctor, I am, as you noticed from my comments, a little concerned about the inclusion in your draft report of a call for public

comments on reforms that can be made to regulations that affect

the manufacturing sector. My concern obviously is that it is really

an effort to target critical health, safety, and environmental protections that manufacturing industries feel are too expensive. Is that

your aim?

Mr. GRAHAM. Our aim is to look at the cost effectiveness and degree of flexibility that are provided in existing regulations that govern the manufacturing sector. The motivation is, one, that studies

demonstrate that compared to all other sectors of the economy, the

manufacturing sector, particularly small and medium-sized manufacturers, bear a larger cost overall, and per firm, than firms in

other sectors of the economy; and, second, as you know, in the last

couple of years, while much of the economy is on the mend, the

manufacturing sector is particularly struggling and, hence, we feel

that is a good rationale for a priority and focus on the manufacturing sector.

Mr. TIERNEY. I wouldn’t think that the administration is trying

to say that the problem with manufacturing job loss in this country

is due to regulation. You are not going to tell me that, are you?

Mr. GRAHAM. Well, I think that, as both the Commerce Department study indicated and as our study indicates, regulation is part

of a range of factors, including liability lawsuits and other factors

unique to the U.S. system, that cause our manufacturers to be

placed at a disadvantage.

Mr. TIERNEY. And, so you are going to do a comparative study,

I assume, of regulations before these jobs started to go out the window and since the date 2001, when they started to go?

Mr. GRAHAM. Well, I don’t know how many studies we are going

to do.

39

Mr. TIERNEY. Well, I want to really see. If we are going to go

down this path, let us take a look at how manufacturing was doing

before 2001 with the regulations or what has changed in the regulatory atmosphere from then until now, because the jobs started

going down about 2001. So, let us take a look at that, if you are

going to do it. Let us not just go out there and try to find a

boogyman for why the administration has lost almost 2.3 million

jobs, let us find out if something has changed in that there has

been a real market change in the regulatory atmosphere around

here.

Mr. GRAHAM. Right. And, I think the comment process will allow

companies or any member of the public to offer opinions and make

constructive suggestions in that area.

Mr. TIERNEY. Well, but it seems the comment period is not asking them to do that; the comment period seems to be saying give

us a list of things you would like to see go out the window here.

Mr. GRAHAM. Well, that may be your interpretation, but, in fact,

the exact words are there should be a consideration of the benefit

and cost case for those regulations. We have no intention of altering regulations that have a strong benefit-cost case.

Mr. TIERNEY. Well, and I guess that depends on how we want to

measure benefit and cost here. The guidance that OIRA issued last

September asked the agencies to consider when they were evaluating regulations, estimates of the value of statistical life years in addition to estimates on the value of the statistical life. Now, it is my

understanding that estimating the value of statistical life years

would involve measuring the number of life years that would be

saved by a particular regulation. Is that pretty much the case?

Mr. GRAHAM. Yes, sir.

Mr. TIERNEY. Well, couldn’t such an evaluation result in protections for the elderly being valued as less beneficial because they

have fewer years left?

Mr. GRAHAM. Yes. One of the purposes of offering both measures

is to provide children and infants who may lose 30 or 70 years of

life some indication of the measurement of their benefits, but then

also adding the number of lives saved as a benefit measure, which

provides for senior citizens, an accounting of each of the adverse

impacts for seniors, without any adjustment for the number of

years of remaining life. So, both pieces of information are provided

to the regulator.

Mr. TIERNEY. But, it is not your intention, at least you don’t

think that this is designed to value the elderly lives as less beneficial because they have fewer years left?

Mr. GRAHAM. No. In fact, the language you are referring to is the

same language that has been in our guidance throughout the

1990’s, unchanged from the language that was in there from the

previous administration.

Mr. TIERNEY. Doctor, you also, in your testimony that you submitted to the committee last July, discussed some of the limitations

of the Crain and Hopkins estimate of the aggregate cost of Federal

regulations. You stated that the estimate is based on previous estimates by Hopkins done in 1995, which itself was based on summary estimates done in 1991 and earlier, some dating all the way

back to the 1970’s. You noted only some of the underlying studies

40

were peer reviewed, and many were based on data collected anywhere from 10 to 30 years ago. But, in the OMB draft report of

2004, you cite the Crain and Hopkins study as a way to back up

the solicitation of public comment on manufacturing regulations

that should be reformed.

Do you stand by the comments that you gave to the committee

last year in assessing those problems with the Crain and Hopkins

estimate, and, if so, why do we find them being relied upon in this

report?

Mr. GRAHAM. Good question. We do think that there is softness

in the technical underpinnings of that particular report, even

though it is the best available overall study of the economic impact

of regulation in this country. However, our concerns are with the

absolute magnitude of the estimates of costs, not the relative magnitude by sector of the economy. The only way we are using that

particular report to justify the manufacturing initiative is the evidence comparing different sectors of the economy. We have no reason to believe that their conclusion is any way invalid that the

manufacturing sector is hardest hit, compared to other sectors, by

regulation.

Mr. TIERNEY. Thank you, Mr. Chairman.

Mr. OSE. Mr. Schrock.

Mr. SCHROCK. Thank you, Mr. Chairman.

Thank you, Dr. Graham and Mr. Sullivan for being here. Let me

make a couple comments on the opening comments you made, Dr.

Graham. You talked about a moratorium. Probably not a good idea

because some regulations are beneficial. There are some bad actors

out there, no question about it, but your comment smart regulation

is what really struck me, and that is the key. If it boggles my

mind, it should boggle the mind of every person in this room. That

80,000 new regulations have never been looked at is just obscene,

and why we allow that to happen is a mystery to me.

you talked about the least regulated countries having a better

overall environment, and I know that to be the case. During my

Navy career, I visited one country in Europe in particular, and as

a Congressman have visited there, and have visited a manufacturing plant just recently, was overwhelmed at how clean things are

and how well things are done to protect their environment, which

is one of the best in the world, without all the regulators hanging

over their backs all the time doing things. So, I think we have lost

jobs because of that. I think regulations in this country have

caused people to move out of there, and businessmen will come and

tell you that. It might not have impacted the small business community as much as large business, but it is going to come, and we

have to be very careful that we don’t allow that to happen.

Mr. Sullivan, the law requires OMB to submit not only a regulatory accounting statement, but also an associated report on the

impacts of Federal rules and paperwork on selected groups, such,

of course, as small business, and last year OMB did not submit this

required element in both its February draft and the final report in

September. On October 24th last year, as the subcommittee chair

in the Small Business Committee, I wrote OMB that by law every

regulation that is certified to have a significant impact on a substantial number of small entities is required to develop a reguVerDate 11-MAY-2000 10:32 Aug 04, 2004 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 D:\DOCS\94493.TXT HGOVREF1 PsN: HGOVREF1
41

latory flexibility analysis, but that each of the initial and final versions of this agency analysis is a statement of the potential impact

of the rule on small business.

I notice in Mr. Sullivan’s written testimony he says, ‘‘The draft

OMB report would also benefit from small business impact analyses that should be prepared for rules reviewed by OIRA.’’ Of

course, OMB’s just-issued draft report includes a less than threepage discussion of impacts on small businesses.

That being said, did the administration review each of the agency’s regulatory flexibility analyses for its rolling 10-year period? If

they did fine; if not, why not?

Mr. GRAHAM. Let me start by just getting a couple facts for the

record straight. If you look at the draft report, we do have a section, as you indicate, several pages long on small business impact.

But, we have a much more expanded section this year on the role

of regulation on economic growth, and that is the section that reviews the World Bank studies, the OECD studies, and how the

United States is relatively less regulated, compared to other countries around the world.

One of the key conclusions of that body of research is less regulation leads to more economic growth, because it is easier in those

countries to start a small business, to gain the capital you need to

launch a small business, and to get whatever permits you need to

operate whatever kind of facility you need to operate. So, the economic growth section, which I would encourage people to look at,

has a very strong small business focus and is featured in the report.

You also asked about the regulatory flexibility analyses. We do

review those regularly when we review regulatory packages. But,

to be quite candid with you, we don’t consider ourselves at OMB

the experts on small business. The gentleman to my left and his

staff is where we go when we want a critical evaluation of an agency’s package with respect to impact on small business.

Mr. SCHROCK. OK.

Do you want to make a comment, Mr. Sullivan?

Mr. SULLIVAN. Certainly, Mr. Schrock. The way my office has approached this draft report is really in a two-step process. The first

step that we look at is whether or not there is cost-benefit analysis

of rules effects on the employer community overall. And what we

found was that type of analysis, that type of transparency that

would allow any interested party to comment on rules, is lacking

in the draft report. Our second step is to look even further. If there

is in fact a detailed economic analysis on a major rule, then underneath that it would be nice to have the small business impact analysis flushed out. Now, what we had hoped was with the Regulatory

Flexibility Act, greater partnership with Dr. Graham’s office, with

an Executive order by the President enforcing the Reg Flex Act,

what we had hoped was that the better analysis on small business

would then be immediately transferred into the agencies’ submittals to Dr. Graham’s office in preparation for this draft report.

Now, unfortunately, it doesn’t look as though that has happened,

so we have to work even more closely together to make sure that

when the agencies fill out the A–4 Circular, that information does

42

translate next year in the draft report to a better analysis of the

small business impacts.

Mr. SCHROCK. Do you want to comment on that?

Mr. GRAHAM. Yes. One thing I think we should also give good

marks for is the fact that SBA Advocacy themselves produces an

annual report on the impacts on small business of regulation.

Mr. SCHROCK. Do they comply with the A–4?

Mr. GRAHAM. I think that we should be careful that we don’t lose

sight of the fact that we do have a substantial amount of this information being generated already.

Mr. SCHROCK. Has OMB, though, asked the agencies about the

impact it has had on them?

Mr. GRAHAM. Yes. In fact, the structure we have for this draft

report is OMB has prepared it in its first form, but now it is available not only for agency comment, but for public comment, so SBA

Advocacy, as well as all the agencies, have an opportunity to provide their information. So, we are in the process now of receiving

that type of input. And, I can assure you that SBA Advocacy is not

bashful about informing Dr. Graham about how they would like to

see small business issues handled either in this report or in specific

rulemaking contexts.

Mr. SCHROCK. Hurray for SBA.

My time is up, Mr. Chairman.

Mr. OSE. I thank the gentleman.

I want to go back to something that Mr. Tierney asked about,

this Crain-Hopkins report. As I understand it, you entered into a

contract to update that report?

Mr. SULLIVAN. That is accurate. Yes.

Mr. OSE. What is the schedule for completion of that?

Mr. SULLIVAN. We are hoping that it be completed as we approach this fall. I also want to add to some of the statements of

discussion about the Crain-Hopkins report. Similar to the progression of the seven reports coming out of Dr. Graham’s office, the Office of Advocacy has also engaged in a progression of each CrainHopkins report, examination of how regulatory burden affects

small business is getting better. So, what we expect is a more detailed analysis of a better sector-specific analysis on how regulations impact small business. Then we leave it up to other interested parties, certainly those involved in the second panel this

morning, to compare how regulatory impact and the costs associated to different economic cycles and time periods that Congressman Tierney associated with.

Mr. OSE. Thank you.

Dr. Graham, the A–4 Circular on regulatory analysis, as I understand it, attempted to lay a framework down for calculating cost

and benefit of an agency action. First of all, I think that standardization of the analyses is a great step forward, and I compliment

you on that. What I am trying to make sure is that the requirement to use the standards within the circular actually are enforced.

Have you received any submittals from the agencies under the revised standard? Have they complied with the standard or have

they not complied with the standard?

Mr. GRAHAM. Mr. Chairman, the OMB Circular A–4 took effect

for proposed rules on January 1st of this year, and it takes effect

43

for final rules on January 1st of next year. And, my understanding

is that we are now receiving the first packages from agencies that

have sufficient economic impact to trigger the requirements of Circular A–4. So, my staff are literally in the process of reviewing the

first packages that are subject to Circular A–4, and we intend to

use all the available authorities we have to make sure that agencies comply with Circular A–4.

Mr. OSE. Well, I know that in the past you have used these

prompt letters, which I thought was, frankly, a creative use of the

ability to drive something forward properly, so you don’t have to go

back and do it over and over and over again. One of the things I

am concerned about is that having the A–4 come out, having set

the standard, I want to make sure that we get apples versus apples

versus apples, rather than apples versus oranges versus tomatoes.

So I know that the circumstances may come up, but to the extent

that you must or have to, or whatever vernacular you care to use,

return submittals for further review, so to speak, I think you will

find that your effort to standardize the submittal of information

will garner great support up here. So my point in saying that is

don’t be bashful in saying, look, you are not complying with the requirements of the A–4. I am trying to give you some support here.

Mr. GRAHAM. I appreciate it.

Mr. OSE. I give you enough criticism; I want to give you some

support.

Mr. GRAHAM. Right. Well, we wouldn’t mind a hearing at some

point where we actually went through a couple of these agency

analyses and whether they complied with A–4. I don’t think that

would be an unconstructive activity.

Mr. OSE. All right. We may very well followup on that. My only

point is that if they don’t comply, I am encouraging you to, in fact,

exercise your return authority.

Mr. GRAHAM. Return authority, right.

Mr. OSE. Tom, Mr. Sullivan, do you have any input on that?

Mr. SULLIVAN. Doug, Mr. Chairman.

Mr. OSE. You come here one more time, I think we can legally

claim you as a dependent.

Mr. SULLIVAN. I would actually like to add to Dr. Graham’s comments, and that is how the returns and prompts are used. I think

that there has been some mischaracterization of the draft report,

the return letters, the prompt letters as targeting rules, compromising valuable protections, and nothing could be further from

the truth. It is all about transparency. And I would like to actually

share with the committee one example of how this review of regulations and actual activity by Dr. Graham’s office can actually lead

to supporting a new regulation.

Two years ago, when Dr. Graham’s office put out the draft report, a number of small businesses commented on an OSHA standard, an OSHA standard having to do with the slings used in

constructionsites. Their comment was not do away with the rule;

their comment was that the small business industry is so far ahead

of where Government is. Government has to catch up and

proactively put out a modern sling standard. So, it is opposite from

what some of the mischaracterizations have been about eliminating

44

rules; it simply called for the Government to keep up with the entrepreneurial speed of small business.

And, thanks to the activism of Dr. Graham’s office, OSHA is in

fact following up on a number of draft reports and recommendations, and revising that OSHA standard. That is within Dr. Graham’s authority, but it didn’t cause a prompt letter, it didn’t cause

a return letter, but it is a positive example of actually calling for

a rule through the review of regulations, not simply calling to

eliminate all rules.

Mr. OSE. Thank you.

Mr. Schrock.

Mr. SCHROCK. Mr. Chairman, I just have one other question I

want to ask Mr. Sullivan, and it involves the review of OMB’s

small business impacts report.

In 2002, on March 19th, you signed a 3-year memorandum of understanding with Dr. Graham to institutionalize your office’s working relationship. That stated purpose was, ‘‘to achieve a reduction

in unnecessary regulatory burden for small entities.’’ Did OMB ask

you to review its less than three-page small business impact discussion in its just-released draft report? And, if so, when? And, if

so, did OMB reject any recommendations by you for a more thorough analysis?

Mr. SULLIVAN. Congressman Schrock, Dr. Graham’s office did not

ask for us to review the section on small business impact in the

OMB draft report.

Mr. GRAHAM. And, let me be clear. If we were to offer SBA Advocacy the opportunity to review our draft, we would have the Department of Health and Human Services, the Environmental Protection Agency, and the Labor Department. They would all like to

be entitled to review a draft of OMB’s report before we release it.

The agency comment process is underway now that the draft report

is available, so SBA Advocacy, like all other Federal agencies, has

an opportunity to provide comments so that our final report has

the benefit of SBA Advocacy’s input.

Mr. SCHROCK. I would almost think SBA should be separate and

apart from the big agencies you just mentioned.

Mr. GRAHAM. Because it is small? Well, it is potent, though.

Mr. SCHROCK. Well, it is potent, but I can see why you don’t

want all the big agencies doing that.

Mr. GRAHAM. Well, the reports that they have released, including

the SBA commissioned Crain-Hopkins report, play a prominent role

in the material that we have submitted in our draft report. That

was commissioned by SBA Advocacy, so we are certainly open to

input at any time from SBA Advocacy. In terms of formal interagency review and comment, however, that is a process that we

like to treat all agencies the same. And, as important as SBA Advocacy is, it is one of the other Federal agencies.

Mr. SCHROCK. Thank you.

I yield back, Mr. Chairman. Thank you.

Mr. OSE. I have one final question.

Dr. Graham, I am a little bit confused on this 10-year window

that you are looking at for analysis. I can’t cite you chapter and

verse, but it is my impression that we have major rules that predate that 10-year window that are still in effect.

45

Mr. GRAHAM. That is certainly true.

Mr. OSE. And, what I am trying to understand is why is it, as

I interpret the report, why is it we are only looking at that 10-year

window in the calculation of costs and benefits?

Mr. GRAHAM. The question is for an estimate of the costs and

benefits that was prepared before a rule was adopted, how long

after that estimate was prepared should it still be considered to be

sufficiently valid for inclusion in OMB’s report? We have made a

professional judgment that once the estimate is more than 10 years

old, given the dynamics in our economy, and the way firms react

to regulation, that it is no longer realistic to consider those estimates as valid. So, the challenge we have in front of us is how do

we get updated estimates of the current costs and benefits of regulations that were adopted more than 10 years ago. I think that is

a very substantial analytic and research challenge not just for the

Federal Government, but for the academic community and for the

think tank community, as well. We are not comfortable publishing

estimates prepared more than 10 years ago as resembling anything

about what really is happening today.

Mr. OSE. The thought being that things have evolved to the point

that this or that iteration, that report might not be accurate?

Mr. GRAHAM. The agencies’ estimates that were made prior to

issuing the regulation would be at least 10 years old, and usually

probably 11 or 12 years old, given how the actual studies are done.

So, we are very sensitive to the technical quality of the information

that we are putting out in this report, and we think when the estimates are more than 10 years old, maybe we really ought to just

draw a line.

Mr. OSE. Well, I know we have had this conversation before. I

am trying to figure out the basis on which the line was drawn at

10 versus, you know, 30 or whatever.

Mr. GRAHAM. Five?

Mr. OSE. Five, two, whatever. Pick a number. I am trying to figure out. I think your phrase was professional judgment. Is it statutory?

Mr. GRAHAM. It is not a legal issue, it is the professional judgment of our staff analysts that we need to, at some point, say that

an estimate that was made by an agency so many years ago is just

simply no longer considered to be an appropriate estimate for what

is going on today. If a subsequent study has been done that has

validated those earlier estimates, then, of course, we would have no

problem including those estimates.

Mr. OSE. This is the dynamic that I am trying to get at it. As

I understand the law, there is no provision saying you can exclude

prior to 10 years for any reason; it says OMB or your office will

calculate the cost-benefit analysis in the aggregate on older rules,

younger rules, new rules, whatever.

Mr. GRAHAM. Now, if you are going to move on the legal requirement question, you are talking to a very amateur attorney.

Mr. OSE. But, my point gets back to the statutory requirement.

I am trying to figure out what is the basis on which we draw that

line at 10 years?

Mr. GRAHAM. Right. Well, one thing to keep in mind is the Office

of Management and Budget is covered by the Paperwork Reduction

46

Act and by the new data quality law passed by the Congress, and

signed by the President. We are accountable for the information we

disseminate in this report. Our analysts are not comfortable suggesting to people that an estimate that an agency produced 10

years ago on a major regulation is a valid estimate of either the

costs or the benefits of that regulation today.

Mr. OSE. So we are caught in a little bit of a box here between

the comfort level of the analysts looking at this 10-year-old data

and perhaps a statutory requirement to include it, or the lack of

definition as to whether it should be included?

Mr. GRAHAM. Well, if you give us a written question, I am sure

we can have our lawyers pour over these statutes. We may be able

to find a legal position that the statute doesn’t in fact when you

consider all issues, absolutely state that we have to do it that way.

Mr. OSE. I am trying to noodle this through.

Mr. GRAHAM. I think that would be unfortunate, though, because

I think that we are trying to put cost-benefit analysis on as strong

a technical and scientific footing as possible. For us to be including

in an official report like this, coming out of the Executive Office of

the President, information that is over a decade old, given the way

our economy changes, I just think is not a wise territory for us to

be exploring.

Mr. OSE. From a scientific standpoint, I can understand your

point, and I accept it. My problem is do those costs and benefits

then get excluded in their entirety from any analysis? Or, conversely, when you have a much older rule that still have significant

impact, does it just get ignored?

Mr. GRAHAM. I think we ended up in between those two. This

was the first year that we had the rollover effect, where we had

a year’s worth of regulations that we did not include in those calculations, roughly 1992–1993. We did report them in an appendix,

but we did not put them in the main report. The information is still

there for people who want to access it, but we did not put it in the

main report.

Mr. OSE. Well, I tell you what, I think I am going to give some

additional thought to this, and I will probably put a question to you

in writing, because I do think this is important to flush out.

Mr. GRAHAM. It is very important.

Mr. OSE. Because there are rules that predate where that 10-

year line might be drawn, or the 5-year line, or whatever it is.

Mr. GRAHAM. Right. Obviously, we could have picked a different

number. It is a professional judgment call in how far you go back.

Mr. OSE. I understand.

All right, the balance of my questions I am happy to submit in

writing.

Mr. Schrock, do you have anything further?

Mr. SCHROCK. Nothing further, thank you.

Mr. OSE. I want to thank you both for coming up today. I hope

you don’t have to walk back. Dr. Graham got to walk up here this

morning. I do appreciate your taking the time to provide your testimony and your feedback. We will leave the record open for 10 days

for the written questions to you. Obviously, as in the past, we have

appreciated your timely responses, and we would again thank you

both.

47

We will take a 5-minute recess.

Mr. GRAHAM. Thank you.

[Recess.]

Mr. OSE. OK, we are going to go back into session. Our second

panel is joining us today. As you saw in the first panel, our standard procedure is we swear everybody in. I will first introduce everybody, and then we will have the swearing in ceremony.

We are joined on the second panel by Mr. William Kovacs, the

vice president for Environment, Technology, and Regulatory Affairs

at the U.S. Chamber of Commerce; our second witness is Ms.

Susan Dudley, who is the director of the regulatory studies program of Mercatus Center at George Mason University; also joined

by Dr. Richard Belzer, who is the president at Regulatory Checkbook Organization; we are again joined by the president of Public

Citizen, Ms. Joan Claybrook; and I believe a new witness to our

committee this morning is Robert Verchick, who is the Ruby Hulen

professor of law, the University of Missouri at Kansas City School

of Law, Center for Progressive Regulation. Welcome to all of you.

Now, if you would all rise. I am not picking on you; we do this

for everybody.

[Witnesses sworn.]

Mr. OSE. Let the record show the witnesses all answered in the

affirmative.

Now, as you saw in the first panel, what we do is we just go from

my left to my right on testimony; everybody gets 5 minutes. I have

a heavy gavel on the time requirement; that is why we started on

time. We do have, I think, Dr. Belzer, you have a 12:30 plane you

have to get?

Mr. BELZER. Two.

Mr. OSE. Two o’clock. OK. Well, let me just tell you we are not

able to violate this timeline. I am advised that the gentleman has

a daughter being married. Tell her this committee congratulates

her.

OK, our first witness is Mr. William Kovacs from the Chamber

of Commerce. Mr. Kovacs, you are recognized for 5 minutes.

STATEMENTS OF WILLIAM KOVACS, VICE PRESIDENT, ENVIRONMENT, TECHNOLOGY AND REGULATORY AFFAIRS, U.S.

CHAMBER OF COMMERCE; SUSAN DUDLEY, DIRECTOR, REGULATORY STUDIES PROGRAM, MERCATUS CENTER, GEORGE

MASON UNIVERSITY; RICHARD B. BELZER, PRESIDENT, REGULATORY CHECKBOOK; JOAN CLAYBROOK, PRESIDENT,

PUBLIC CITIZEN; AND ROBERT R.M. VERCHICK, RUBY M.

HULEN PROFESSOR OF LAW, UNIVERSITY OF MISSOURI AT

KANSAS CITY SCHOOL OF LAW, CENTER FOR PROGRESSIVE

REGULATION

Mr. KOVACS. Thank you, Mr. Chairman and members of the committee. The first thing I want to do is commend you and Dr.

Graham for taking on this very important subject. Some people in

the Washington community would consider it tedious or complex or

arcane. But, unlike Congress, the regulatory agencies never take a

break, they don’t have a recess, so every year you see 4,000 regulations; it just never stops. And, the reason the Chamber cares, and

why we are so concerned, whether it be regulatory accounting or

48

a budget or cost-benefit, is you need to put it in perspective. If you

looked at all the discretionary spending in 2003 for the Congress,

it was $825 billion. The Hopkins-Crain report has the cost of the

regulatory programs at about $843 billion annually and the cost of

environmental programs around $250 billion annually. And, to put

this in one last perspective, all of the corporate income taxes paid

in the year 2002 only total $211 billion. So, when you have this

kind of a burden and you realize that, for a small business, they

have a 60 percent premium, we care, because well over 90 percent

of our businesses are small businesses.

The cost-benefit analysis is really a tool. It is a tool that helps

us determine what particular regulations are worth expending public or private funds, which are always limited. But, cost/benefit is

one of many tools. We have other tools: we have data quality, we

have data access, peer review, sound science, and transparency in

the regulatory process. And, the purpose of using these tools is

really so that we use our money and our resources to protect and

to get maximum protection both for health and safety and the environment.

Now, we have been very honest and have said that the current

cost-benefit approach has a number of problems. It is extremely

confusing and it is extremely complex, and, even though I have

read Circular A–4, we have to be honest with ourselves. It is a

complex issue, and when you have the numbers coming out with

such great disparities between where OMB is coming, at a relatively minor number for the cost of regulation, and then you have

the Crain-Hopkins report at $843 billion, what happens to the public is they really dismiss it. If you are working in the field and you

are a small businessman, you know that regulators have real costs.

But when you see these discrepancies, it is easier for someone to

say, well, we are just going to put them aside because it is just politics.

And, in addition to that, the OMB looks at a limited number of

rules; its static versus dynamic system. Agencies game the system.

I will just give you an example on the TMDL rules. EPA, no matter

what it was told, said the cost of the rules are $25 million annually. The States did their own study and they found that it was

$670 million to $1.2 billion annually. Also, this committee has done

a lot of work on agency guidance documents. So we are not just

dealing with rules. Every year agencies puts out hundreds of guidance documents which, in effect, operate as rules. And, in this instance EPA, over a 4-year period, put out about 2,300 and OSHA

put out about 2,500. So it is a very complex system.

And, one of the things, as I run out of time, is that what we

need, and A–4 is starting this, is some kind of consistency within

a model, where we need to understand the uncertainties of the

issue and we need to clearly state these are uncertainties. And, the

best example that we can give is what EPA is doing right now with

a particulate matter rule. Everyone says, well, there are all these

health benefits. Well, there are studies on both sides. Some of the

studies indicate that there is absolutely no link between the mortality rates and particulate matter. Now, whether that is true or

not, I don’t know, but in John Graham’s studies EPA accounts for

49

about 60 percent of all the costs and benefits in the environmental

section.

So, what we are talking about is not the 4,000 rules and not all

the rules going back 10 years. What we are talking about is for a

cost/benefit analysis to be conducted for those major rules that

have major impact. For those rules we need to do an honest study,

find the right economists, the right scientists, and integrate science

and data into the rule so we can do it right. And, we have just,

at the Chamber, gone through this on the technology side because

the industry lost $2 trillion in market capital, a lot of which was

due to regulation. So, when we did this, we scoured the United

States, and it is very hard to find a group of people who can do

one of these studies.

So, what our recommendation would be to the committee is that

you proceed with the cost/benefit analysis. This is very valuable;

we have to do it. But, we take one or two rules and we do it right

so that we can begin developing the model.

Thank you very much.

[The prepared statement of Mr. Kovacs follows:]

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Mr. OSE. Thank you, Mr. Kovacs.

Our next witness has been with us before, Ms. Susan Dudley,

who is the director of regulatory studies at the Mercatus Center

from George Mason University. Welcome. You are recognized for 5

minutes.

Ms. DUDLEY. Thank you. Thank you, Mr. Chairman and Mr.

Schrock for having me here to talk about the important issue of

regulatory accounting. I am also an adjunct professor at George

Mason University School of Law, but my comments today reflect

my own views, not an official position of either the University or

the Center.

You have my written testimony, but today I would like to focus

on the similarities and differences between regulatory accounting

and the fiscal budget.

American citizens generally know how much they pay in taxes

each year, but taxes and subsequent spending are just one way

that the Federal Government diverts resources to achieve broader

public goals. The other is through regulation. While taxes and associated spending are tracked annually through the fiscal budget,

there is no corresponding mechanism for keeping track of the offbudget spending accomplished through regulation.

These annual regulatory accounting reports that you have required represent an important step toward tracking these off-budget taxes and expenditures. These reports can be valuable not only

for informing Americans generally about the costs and benefits of

regulation, but also for helping policymakers allocate limited resources to those activities that provide the greatest net benefit to

American citizens.

A better understanding of regulatory performance and results

will help appropriators allocate budgets toward those agencies and

activities that produce the greatest net social benefit. I think you

will find that what OMB has done with the Government Performance and Results Act, by integrating that into the budget, has

proved valuable.

These reports and other executive and legislative branch activities, along with extensive academic research, have improved our

understanding over the years of the impact regulations have on

consumers, workers, and companies. However, the reports are still

far from perfect, and we still lack a reliable mechanism analogous

to the fiscal budget process for tracking regulatory expenditures

and ensuring they produce desired outcomes. So, I have three recommendations.

First, OMB can improve the quality of information in future reports by holding agencies accountable for complying with new

guidelines. Second, a legislative branch review body could provide

a more independent assessment of regulatory costs and benefits.

And, third, Congress could explore further ways to treat regulatory

expenditures in a manner similar to on-budget expenditures. And,

I would mention that H.R. 2432 does this.

Let me go back and talk a little bit about each of those three recommendations.

The increased transparency that is reflected in OMB’s review

procedures and in this report are welcomed improvements to the

regulatory process, but the benefit and cost estimates in the draft

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report do not offer the American people an accurate picture of the

impact of regulation. To be comparable in value to the fiscal budget

figures, OMB’s estimates must reflect an independent assessment

of regulatory costs and benefits, and not simply provide a summation of agency estimates. Such an approach would be unthinkable

in the fiscal budget process.

Over the coming year, OMB will be in a better position to hold

agencies accountable for conducting analysis to ensure that the resulting benefits and costs are reliable and robust. Last September,

OMB issued guidelines for regulatory analysis that reflect generally accepted principles, and it also is developing guidelines for

peer review and data quality. Over the coming year, in the course

of Executive Order 12866 review, OMB should be able to hold

agencies accountable for these new guidelines. And, if draft regulations do not comport, OMB should return regulations to agencies.

If it does return regulations whose analysis don’t comport with the

new guidelines, I think it will be able to rely on agency estimates

with more confidence.

While I think OMB should continue its review procedures under

Executive Order 12866, and hold agencies accountable for ensuring

that proposed regulations do more good than harm, Americans may

also benefit from a legislative branch agency. Indeed, Congress has

authorized a congressional office of regulatory analysis to be

housed in the General Accounting Office, but it hasn’t been funded.

Such a body could provide Congress and U.S. citizens with an independent assessment of the total costs and benefits of regulation,

and also help ensure that statutes are being implemented so that

the benefits to Americans outweigh the costs.

An annual regulatory accounting report issued with the Federal

budget is an important first step toward providing the same scrutiny to regulatory impacts as on-budget impacts. Mr. Chairman,

H.R. 2432 would explore ways to treat regulatory expenditures in

a manner similar to on-budget expenditures, recognizing that regulations, like on-budget fiscal programs funded by taxes, divert private resources to broader national goals. I applaud you for this. A

more explicit recognition of the expected costs, as well as expected

benefits, of achieving regulatory goals will help policymakers allocate scarce resources to activities that will produce the greatest net

social benefits. Thank you.

[The prepared statement of Ms. Dudley follows:]

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Mr. OSE. Thank you, Ms. Dudley.

Our third witness is Dr. Belzer. He joins us as president of the

Regulatory Checkbook Organization.

Sir, welcome to our committee. You are recognized for 5 minutes.

Mr. BELZER. I thank you, Mr. Chairman.

And, Mr. Schrock, it is true, my daughter will be getting married, and I appreciate your indulgence. I told her she is just going

to have to postpone it; this is more important.

Mr. OSE. This is Congress. You can say things like that on the

floor.

Mr. BELZER. I will pay.

Yes, thank you, sir. I am Dr. Richard Belzer, president of Regulatory Checkbook. Regulatory Checkbook is a nonpartisan and nonprofit organization whose mission is to advance the use of highquality and policy-neutral science and economics to inform regulatory decisionmaking. Since earning my doctorate, I have over 15

years of experience performing and reviewing regulatory analyses,

including a 10-year stint as a career economist in OMB’s Office of

Information and Regulatory Affairs.

I will briefly summarize for you the three points that I have

made in greater depth in my written testimony.

First, the estimates of costs and benefits that are contained in

OMB’s draft report are unreliable and probably misleading. The estimates reported for individual regulations are unreliable because

the agencies that prepared them had incentives to underestimate

costs and overestimate benefits. The draft report consists of agency

estimates and not those of OMB.

Estimates of the total benefits and total costs of Federal regulation have little or no informational value to me. Aggregation only

magnifies the biases that are embedded in agency estimates for individual regulations, so the more regulations OMB includes in its

reports, the more unreliable and misleading the totals become, particularly the net benefit estimate.

Congress should create incentives for higher quality estimates to

be produced and reported, and I think substantial progress must

first be made to improve the reliability of estimates for individual

rules. Only then will it be possible to derive the useful estimates

of the total estimates and costs of individual regulatory programs.

Second, I see no evidence of a trend indicating that the quality

of regulatory analysis is improving. Although the methods of benefit-cost analysis continue to improve, its fundamental principles do

not change. The most troubling problem I see with agency analyses

isn’t that they don’t follow what are called best practices; rather,

it is agencies too often do not abide by fundamental benefit-cost

principles.

OMB’s 2003 regulatory impact analysis guidelines differs little

from previous editions issued in 1990, 1996, and in 2000. Agencies

did not adhere to these principles as a general rule in these earlier

guidance documents, and it is safe to predict, I think, that they will

also fail to adhere to the principles set forth in the 2003 edition.

I am troubled by some language in OMB’s draft report that it

seems to excuse a low standard of agency performance. OMB

should not make excuses for substandard agency performance by

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mischaracterizing fundamental principles of analysis as best practices.

Third, if Congress wants regulatory analysis to be performed well

and wants the information to be usable, I think it needs to help

create an environment in which that can happen. Each agency has

a monopoly over the production of regulatory analysis and controls

the benefit and cost estimates reported to Congress. As in every

other market, the key to improving quality is competition; quality

will not improve without it. The public comment process alone is

not sufficient to improve quality.

Congress can help make this market for high quality analysis by

breaking up these monopolies and injecting competition. Most of

the country’s competent regulatory analysts work outside the Government; they rarely contribute much because there is barely a

market for their services. Create a market for high quality analysis

and supply will respond to meet this demand.

Give OMB the authority, and not just the responsibility, for providing Congress with reliable estimates of benefits and costs. The

Regulatory Right-to-Know Act doesn’t give OMB any statutory authority to determine which estimates are most reliable. With a

competitive supply of analyses and this authority, OMB would

have all the tools it needs to make future reports for Congress and

the public, reliable indicators of the impacts, both costs and benefits, of Federal regulation.

Thank you very much for your time. I will answer any questions

that you might have.

[The prepared statement of Mr. Belzer follows:]

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Mr. OSE. Thank you, Dr. Belzer.

Our next witness is the president of the Public Citizen Organization, Ms. Joan Claybrook.

Ma’am, welcome again.

Ms. CLAYBROOK. Thank you very much, Mr. Chairman. I appreciate the opportunity to be here, and the invitation.

My name is Joan Claybrook, and I am president of Public Citizen, which is a national public interest organization representing

consumer interests, and I am here to talk about the regulatory accounting legislation and the draft report for 2004 to the Congress

on the costs and benefits of Federal regulation.

We strongly object to the use of regulatory accounting because

we believe that, when you look at the facts, it is not able to support

itself scientifically or intellectually. The notion of a regulatory

budget in which Federal agencies have to compete with each other

in order to pose a cost on industry in the private sector is highly

improper, we believe, and inappropriate. The goal to control regulation that some agency rules might have been eliminated and new

ones not issued, no matter how pressing the need, it seems to me,

is morally repugnant.

The pilot projects called for in the Paperwork and Regulatory Improvements Act that you have would be the first step toward establishing a regulatory budget, and a requirement that is not supportable, we believe, that all agencies conduct cost-benefit analysis.

I would refer you in my full testimony, which I would hope would

be submitted for the record, that the court of appeals, when we

challenged the tire monitoring rule that OMB adjusted a change

and degraded, they said that NHTSA was to be reminded that

‘‘cheapest is best’’ is contrary to Supreme Court precedent, and the

agency is supposed to place ‘‘a thumb on the safety side of the

scale.’’ So the courts, at least, very recently in this case, do not

agree that cost-benefit analysis is just a numerical calculation.

I would like to comment for just 1 second on the whole idea of

the 10-year issue which you raised in this report. The major problem with it is not is it 5 years or 10 years or 15 years, in our view;

it is that once a rule has been issued and the regulatory analysis

done, then what happens is industry, which has complained bitterly about the costs, and often exaggerated the costs in its submissions to the agencies, then goes about implementing the rule if it

is issued; and, when they do that, you see a dramatic reduction in

the cost. And, so the estimates that are made, that are used by

OMB, where they just assemble all the information that was evaluated when the rule was being considered, is now completely inaccurate.

And, I would like to submit for the record a report that has just

come out this month by Ruth Ruttenberg, who is an economist,

called ‘‘Not Too Costly, After All: An Examination of the Inflated

Cost-Estimates of Health, Safety and Environmental Protections.’’

Mr. OSE. Without objection.

Ms. CLAYBROOK. Thank you.

There is a growing body of evidence that establishes that regulatory accounting suffers from fatal flaws; it requires a pretense

that accurate and reliable data are presented on both sides, which

we all know is not accurate. It is very hard to get benefit data; it

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is far easier to get cost data. And, as I just mentioned, cost data

changes dramatically when a rule takes effect.

The committee is familiar with the groundbreaking work, I believe, of Professor Lisa Heinzerling, who demonstrated that studies

claiming regulations caused statistical murder were based on fictional regulations, they were never in fact ever issued, which I

would like to submit a summary for the record.

Another new book called ‘‘Grading the Government,’’ by Professor

Richard Parker, examines three influential studies often cited to

support regulatory accounting by John Morrall, John Graham, and

Tammy Tengs and Robert Hahn; and all of these are rife with errors, avoidable errors such as undisclosed data, non-replicable calculations, guesses presented as facts, and gross underestimates of

the numbers of lives saved.

One of the major issues that I think that the committee needs

to consider, in addition to the fact that the small business agency

represents only, in its study, the costs, the Crain study only talks

about costs, but never about benefits. Why wouldn’t the committee

ask for the benefits as well? It seems to me that is a major issue.

No manufacturer would go and spend money to build a factory and

not consider the benefits of building the factory, only the costs. It

is just irrational. And, so I hope that the committee will ask that

the Crain study consider benefits as well.

But, the other issue is that when you look at the regulations that

you are looking at before this committee, mostly health, safety, and

environmental regulations, you have 40,000 deaths a year on the

highway, 42,000 to be exact; you have close to 50,000 from occupational safety and health problems; you have close to 100,000 adverse reactions under the Food and Drug Administration rules and

laws; you have environmental deaths that are almost incalculable,

or injuries or sufferings, such as from bad air, that is clear. And,

so my question is when you are looking at all these deaths and

then you consider homeland security or you consider the Defense

Department costs for protecting this Nation, there is no relationship; the deaths for just the military are far exceeded on the highway, just on the highway, than they are in foreign lands.

So, I think that it is totally skewed in terms of the imposition

of these requirements when you don’t have a balancing here of

where the harm is occurring in this Nation; it is like having doctors

treat a minor disease instead of treating a major disease. And that,

it seems to me, is what is happening with this focus on regulatory

accounting, which costs the Government a lot; it takes a lot of

agency work and time to do these analyses and to produce a regulatory accounting that I think I have made pretty clear is inaccurate.

I would like a chance to answer some questions, perhaps, Mr.

Chairman. I see I am out of time, and there is much more to say.

Thank you so much.

[The prepared statement of Ms. Claybrook follows:]

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Mr. OSE. We thank you for your participation today.

Our final witness in the second panel joins us from the University of Missouri Kansas City School of Law, and that would be Robert Verchick. He is the Ruby Hulen professor of law and comes to

us from the Center for Progressive Regulation.

Welcome, sir. Nice to see you. You are recognized for 5 minutes.

Mr. VERCHICK. Good morning. Mr. Chairman, members of the

subcommittee, my name is Rob Verchick. I am the Ruby Hulen professor of law at the University of Missouri Kansas City. I have also

been a visiting professor of law at Aarhus University in Denmark

and a guest professor at Beijing University in China.

I would like to offer my written comments for the record, but

today I am a scholar at the Center of Progressive Regulation, and

I have only three points I want to make that are fairly important.

The first, and I am going to collapse a lot of this but I would be

happy to answer questions on it later, is that OMB’s estimates of

costs and benefits of Federal regulation are often arbitrary in this

report and its previous ones, and are skewed against regulations

to protect health, safety, and the environment. A few examples:

OMB’s tables, for instances, suggest comparisons among agencies

where the figures don’t support such comparisons because of inconsistent methodologies it admits to; OMB minimizes regulatory benefits by leaving some benefits, even monetizable benefits, out of its

calculations. This is a point that Representative Tierney made

about the factory farms that is very well taken. OMB also excludes

deregulatory actions from cost-benefit analysis. It has done that in

the past. Again, this study, to cite one example, excludes the final

rules from the so-called ‘‘Healthy Forest Initiative’’ from any costbenefit analysis; and, also OMB excludes transfer rules from costbenefit analysis, such as billions of dollars in farm subsidies, which

have the practical effect of regulation.

My second point that I want to spend a little more time on has

to do with all these international studies, because this is something

that has been discussed a bit today and is new for OMB. OMB attempts to make an international case for deregulation; it asserts

that, globally speaking, economic growth is associated with less

regulation. But, its use of these studies, I am sorry to say, after

looking very carefully at them, is, at best, very careless. I am going

to focus on the World Bank study, because that is the study that

OMB focuses mostly on. But, let us just take a few things just to

see some problems here with the study.

First, the World Bank study ignores other means of market

intervention which wealthy countries use in place of direct regulation. Denmark, a country praised in OMB’s report, and a country

that I have lived in, imposes heavy taxes on industrial practices

that pollute and waste energy as a replacement for direct regulation. I don’t read the OMB report to be advocating that sort of a

replacement. Norway and Sweden, incidentally, do the same thing.

Also, if you take a look, the World Bank study, if you look at the

methodology, does not even concern itself with many of the regulations that the OMB is studying in this report. For instance, in comparing regulations affecting market entry, the World Bank assumes that a business is, among other things, not using heavily

polluting production processes, is not subject to industry-specific

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regulations, such as environmental regulations, and that the business is operating in the country’s most populous city, like Tokyo or

New York, where service sectors often dominate. The bottom line

is you can tell very little about what countries like Denmark, Sweden, Singapore do environmentally, or for public health, by looking

at a study like this.

The other thing, and OMB has done this before, and I have written about this, as Lisa Heinzerling has also written about this, is

that OMB also makes the mistake of understanding wealth to be

well-being, when in fact those things are very different. For instance, the OMB report chides the five OECD countries that it

claims have the most regulation: Greece, Italy, Portugal, Ireland,

and France. All of those countries have lower infant mortality rates

than the United States does. All of those countries but Portugal

have higher left expectancies at birth than the United States does.

If you want to look at countries with similar infant mortality rate

or life expectancy to the United States, one of the closest examples

you will find is Cuba, one of the most repressed and regulated nations on Earth.

My point is not to suggest that Sweden and Singapore or the

United States is Cuba, but my point here is that, if you focus on

any single characteristic about a country and then cross over 130

countries, you can prove virtually anything that you want to prove.

These studies, for the use that OMB is using them, are flawed because they suggest that regulation has something to do with all of

these things as a primary factor, when in fact they don’t.

I am running out of time, but I do want to say that I think that

there is very little evidence to suggest that we need to look at manufacturing regulatory reform. There are other things, like greenhouse gases and asthma and pollution and sewage problems, which

cost billions of dollars a year. We know we already have these

problems. These are the problems that need some regulatory reform.

Thank you very much, and I am willing to answer questions.

[The prepared statement of Mr. Verchick follows:]

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Mr. OSE. Thank you, Mr. Verchick.

All right, as we did in the previous panel, the manner in which

we will proceed is that I will ask questions, then Mr. Tierney will

have his round of questions, then Mr. Schrock will have his round,

and, if we have multiple questions, we will have multiple rounds.

I have broken my questions out in two ways. I want to focus on

the bill itself first.

Mr. Kovacs, you heard the discussion in part, I believe, about including ‘‘as part of’’ the President’s budget the regulatory accounting statement and its associated report, as opposed to including

that report ‘‘with’’ the President’s budget. In other words, is it in

the document or is it accompanying the document.

Now, one of the difficulties we had this spring was that the regulatory accounting statement was not with the President’s budget;

it was 11 days late. And one of the difficulties we have up here is

that we are required to provide feedback to other committees about

the President’s budget on a certain timeline, and, if we don’t have

the accompanying documents, it is awful hard to provide whatever

insights we may have.

My legislation would require that the regulatory accounting

statement be integrated into the President’s budget documents. Do

you support that requirement?

Mr. KOVACS. Let me see if I can give it to you in three parts as

simply as I can. One is the Chamber supports regulatory accounting; two, in the perfect world, we would like to see it concurrent

with the President’s budget; but, three, in the practical world, we

are here to get the regulatory accounting and the regulatory costbenefit analysis straight. We think there are deficiencies in the

process now. Until we really sit down and take it seriously, and

whatever you get in terms of a regulatory budget is going to end

up being a range. It has to be a range because regulatory accounting is a dynamic process, it is not a static process. Also, as part

of the process you need to consider the kind of data that is going

in. The Data Quality Act is only about a year old, and you need

to make sure that the agencies incorporate sound science, that the

process is transparent, that it is peer reviewed; and then I think

you get to the point where you actually understand what the regulations are going to do and the range of impacts.

So, we think it is a three-step process.

Mr. OSE. OK, using your phrase, ‘‘in a perfect world,’’ should the

regulatory accounting statement be part of the President’s submittal or should it be in an accompanying document?

Mr. KOVACS. We would like to see it as part of a submittal, because what the agencies are going to do as part of their budget is

certainly going to have an impact on regulation.

Mr. OSE. All right.

Ms. Dudley, any comments on that?

Ms. DUDLEY. No, I would agree, and I think the analogy to the

Government Performance and Results Act is helpful there. We

have seen that in recent years, GPRA measures have been part of

the budget; not alongside the budget, but part of the budget, and

I think it is helping improve accountability and performance.

Mr. OSE. Dr. Belzer, you have been 10 years at OMB in one form

or another. What is your feedback on this?

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Mr. BELZER. Well, I applaud the idea. I think that is useful to

be careful about what we think we want to get out of it. Ideally,

what I would like to be able to see, and maybe you would like to

see, is within the budget to be able to quickly discern, when you

are looking at some obscure regulatory outpost in the Government

that issues regulations, what were the costs and benefits of the regulations that it issued; and to be able to have that information

handy within the document.

To make that work for you, though, those estimates have to have

gone through a pretty careful validation exercise so that they are

not simply reported estimates or suggested estimates or draft estimates, or something of that form. And, from my 10 years of experience at OMB, my concern would be that the numbers that right

now would go into such a document would not be OMB’s numbers,

and I think that is part of the reason for some concern about incorporating them.

Mr. OSE. Well, you questioned the validity of some of the numbers on the basis that they hadn’t been checked, is the way I interpreted your remarks, and that there existed, probably on the private side, the better part of wisdom in the regulatory analysis industry. Given the difficulties here, you have been on both sides,

who will compress this so we have the information in a timely fashion?

Mr. BELZER. Well, I believe that it speaks to the question of the

quality of the information that we are dealing with, as well as the

reporting timing. If you were to incorporate within the budget document a final accounting statement, I think that is perfectly helpful. A draft accounting statement would be problematic. ,But the

underlying problem I have still is that the numbers that OMB is

reporting are not OMB’s numbers. I do find it a little amusing to

find OMB criticized for the numbers when they really don’t belong

to OMB; they have simply repackaged the agencies’ estimates and

in some cases made the simple conversions to make them a little

bit more comparable. But, the problem is that the agency estimates

are coming in to this process without any real thorough review, except by OMB, but without any competitive estimates from other

parties, from whichever interest group might want to provide a

credible policy-neutral, compliant estimate, compliant with Circular

A–4.

Mr. OSE. Mr. Tierney.

Mr. TIERNEY. My initial approach to this whole thing is that the

agencies ought to be worried about the cost it takes them to do all

of this work and making all these comparisons, when it seems the

benefit of their work isn’t that obvious to many of us, since it

seems so difficult to measure the benefit side of it; and I am not

sure there is a value to what they actually end up with in the end.

Mr. Verchick, maybe you can tell us a little bit. How can we ever

be comfortable that somebody is giving a fair assessment of the

value of a benefit like a health factor or environmental factor or

safety factor? How comfortable can we be that any calculation that

tries to measure those aspects is in any way accurate and gives us

a clear picture of what it is?

Mr. VERCHICK. I think that they can’t give you a clear picture if

what you want to do is look at losses of money, which can be measVerDate 11-MAY-2000 10:32 Aug 04, 2004 Jkt 000000 PO 00000 Frm 00132 Fmt 6633 Sfmt 6633 D:\DOCS\94493.TXT HGOVREF1 PsN: HGOVREF1
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ured, and then also try to incorporate losses of life or injury, harm,

this sort of thing. Those are value judgments, and those value judgments, in my view, should be made by the people in an open process, rather than economists deciding whether to discount a life by

3 percent or 7 percent into the future. Those are value judgments

too, but those are judgments that are made by unelected people applying economic practical to moral ideas that they weren’t intended

to affect.

Mr. TIERNEY. I guess we are just reiterating a point that I made

in my opening remarks. This is a lot of common sense. If you have

a dollars matter, we ought not to start putting in relations without

any consideration for their costs, but, in the end, there are some

things that are just common sense. And, you can’t measure the

things that you and I were just discussing, but you have to factor

them in then make a decision, and that may make it sometimes

more difficult to sit in these chairs, but that is what you do on that.

Ms. Claybrook, I was concerned about OIRA’s increasing interference in agency rulemaking decisions. I think there is a real

trend in that. GAO stated in a report last September that there is

a clear indication of OIRA’s new gatekeeper role, and that is the

office’s increased use of return letters. GAO reported that, between

2001 and 2002, 23 letters were returned, far more than the number

returned the previous years. Do you share that concern? And,

would you talk a little bit about that?

Ms. CLAYBROOK. I do have concern about it. It seems to me that

the major role of the Office of Management and Budget in the regulatory sphere is to look at the overall impact, but not to try and

get into the nitty-gritty. In the tire rule, the rule that required an

indicator on the dashboard about whether your tires were inflated

or under-inflated, they got into proposing an alternative method for

measuring the system to be used by industry, and the original proposal by the Department of Transportation was that it be a direct

measurement of each tire and that it be a dashboard light. What

OMB said is, well, there are some vehicles that have these analog

brakes, and, when you have analog brakes, you can measure it on

the analog brake itself. But, of course, the problem with that was

that you only measure one tire. Now, most people want to know

about all four tires in their car. You can only measure it when the

tire is moving. But, when I am at the gas station at the pump, I

want to know, while I am there, whether or not I have an underinflated tire and which one it is.

So, they proposed an almost ridiculous alternative proposal, and

it was a little bit cheaper, but in terms of cost-benefit analysis it

really wasn’t cheaper, even if you did it that way. And, we sued

the Department of Transportation after OMB forced the agency to

change the rule, and we won, and I quoted to you from what the

court said. So it seems to me that should not be the role of citizen

groups, to have to sue OMB when it interferes with a particular

rule in that level of detail.

The other issue, of course, is that the way that OMB looks at the

overall costs and benefits is really inappropriate because you cannot measure the decisionmaking process of someone who is charged

by Federal statute to save lives, reduce injuries, or protect the environment. You cannot look at it in purely monetary terms. And,

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I don’t think anybody in this panel would want that to happen. You

may want to understand it. I was a Federal regulator; I wanted to

know the numbers, I wanted to understand it. But that should not

be the guideline that determines how you set that rule or what it

is. There is no industry in America that I know of that has been

put out of business because of some Federal regulation. I don’t see

that there is a case that has been made for a regulatory accounting

or an absolutist cost-benefit analysis because of the harm that has

been done to any company.

In addition, there are all sorts of ways of mitigating the cost to

industry, which agencies take into account all the time. For example, how long the industry has to implement a rule. If, for example,

in the auto safety area, if you issue a regulation and say to the

company you have 2 years to do this, it is going to cost the companies a lot more than if you give them 5 or 6 years to implement

it. And, agencies give them more time all the time. Companies ask

for that, they do that. So, the cost to the company is vastly reduced. But, that doesn’t mean that you shouldn’t issue the safety

standard.

Mr. TIERNEY. Thank you.

Mr. OSE. Mr. Schrock.

Mr. SCHROCK. Thank you, Mr. Chairman.

I was interested, Ms. Claybrook, you said you objected to regulatory accounting, but how do you respond to the 80,000 new regs

that Dr. Graham talked about that have never been looked at?

Doesn’t that deserve some oversight?

Ms. CLAYBROOK. Well, if you are going to go back and look at

past rules that have been issued, I think you have to take half the

Federal budget to do that.

Mr. SCHROCK. What?

Ms. CLAYBROOK. Take maybe half the Federal budget to do that,

because the data that exists is out of date now for the past rules,

it is totally out of date. So, you would have to do brand new evaluations. I think that if you look at the report that we submitted for

the record today by Ruth Ruttenberg, you will see that, once a rule

is actually implemented, the costs are far less than what companies said when the proposal was on the table, before it had been

issued. And, so, you would have to go and do an evaluation of that.

The other issue that I think is really important on the cost side

is that there is no accounting by a Federal agency. When a company says it is going to cost us $25 million to implement this rule,

the agencies don’t have the resources to go look at the factories and

the cost estimates made by the industry; they just accept the complaints by the companies. And, so, if you are going to really evaluate this, there is a huge, huge amount of work to look at even a

few, not even the 80,000. I don’t think that it is possible to do that.

Mr. SCHROCK. Did I understand you to say that some of the regulations are really not applicable anymore? But, businesses think

they are applicable and they are trying to adhere to what it says.

You know, for instance, this telephone is applicable today; 2

months from now it won’t be. In 2 months the new one won’t be

and in 2 months the new, new one won’t be. So some of these regulations these poor folks are trying to adhere to have no applicability to anything, as I hear you saying. And, this lady who wrote this

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‘‘Not Too Costly After All,’’ I would like to have a copy of that, by

the way.

Ms. CLAYBROOK. Yes, of course.

Mr. SCHROCK. I think there are some businesses who would differ with you. In the district I represent in Norfolk and Virginia

Beach, VA, I think they would differ with that, because I think

some of them have gone out of business because they said it is just

not worth it, the regulations are too costly. And, I know some of

the regulators in this town have dropped in on certain business

people and made their life a living hell for a couple hours, and they

say it is just not worth it anymore.

Ms. CLAYBROOK. Well, I didn’t say that they weren’t applicable

anymore, but I am sure there are some that are.

Mr. SCHROCK. Oh, I am sure.

Ms. CLAYBROOK. I am sure that there are. And you have a table

here of three organizations, particularly the Chamber of Congress,

which is supposed to represent small business, that I am sure is

petitioning agencies all the time on behalf of their small business

members, and you have a Government agency on small business

that just testified that certainly has the capacity to go to Government agencies and say these standards are no longer applicable.

I would point out that most health, safety, environmental regulations are performance regulations. They don’t tell them how to design the product, they don’t tell them that they have to do it this

way or that way; they actually measure the performance of the activity and say you can’t die in a frontal crash at 25 miles an hour

with an air bag, the air bag has to protect you so you don’t die.

That is an example. So that means that the regulations are able

to go with the new generation of a product, because it is a performance standard.

But, in terms of the impact on small business, I don’t want to

argue, and I will not argue, that for smaller companies it isn’t more

complicated to comply with regulations than with larger companies. But let us take lead smelting. I mean, that can really harm

people, both in the workplace and in the community. You have

issues of environmental justice, for example, which is that a lot of

companies are located in low-income areas, and so children in lowincome areas are more subject to harmful environmental impacts.

I don’t think anyone in this room would want to live in the

maquiladora area, which is just south of our border into Mexico,

where children are born with all kinds of harm, brain damage and

limb damage and other things, because of the environmental impacts that they face. Some of those are small companies down

there.

Mr. SCHROCK. And, Ms. Claybrook, I understand that, but the

bad actors like that ought to be taken to the woodshed. But, I don’t

think we make everybody pay because there are a couple of bad actors. But, I know there has to be a balance there somewhere.

Mr. Kovacs, I know you want to comment on that.

Mr. KOVACS. Sure. First of all, the position of the Chamber is,

as you said, Congressman, if there is a bad actor, they should just

go to jail. I mean, we are not even here talking about that. That

is really the first thing.

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The second thing is most regulations are not necessarily performance standards, they are mandates and they are controls, and they

are the most difficult ones. And we can go down the list, whether

it be ergonomics or mercury standards or whatever. We can give

you thousands of those. And there are processes, like Section 610

of the Regulatory Flexibility Act, which requires the agencies on a

10-year basis to actually go over and look at the rules to see which

ones no longer apply, and there are far more in the breach than

in compliance. So there are mechanisms.

But, what we are trying to say, and why we really appreciate so

much what this committee is doing, is this is the beginning of let

us get a handle on what is there. You have a mechanism in 610.

Why aren’t the agencies doing this on a 10-year basis? Second, we

have a way to check the system. Let us just take the regulations

that are out there where we do a cost-benefit analysis, and let us

just, after 4 or 5 years, have the agency go back and check to see

how closely they came.

You know, we from the industrial sector and the business sector

pay for most of these regulations. Frankly, the consumers end up

paying, and they sometimes pay not just in cost of product, but in

lost jobs which is contrary to what Ms. Claybrook was saying, that

there has been no effect on, let us say, the manufacturing industry.

My recollection is correct, over the last 30 years, the manufacturing

sector of this country has been cut in half in terms of jobs. So, it

is real. It is real, and no one is going to disagree that, where you

have property rights and certainty of regulation, you have more investment in technology; and in a lot of areas across this country,

the technology sector, the biotech sector, the biogenics, all of those,

our regulations are forcing companies and the most advanced technologies in the world to go to Korea or Ireland. We are now 13th

in the world in Internet. So these are real consequences to regulations. So let us not kid ourselves. And, the opportunity that we lose

by not being able to advance our regulation into the modern era

is huge.

So, we do have options. We can look at regulations retroactively,

using Section 610. We are not saying that every regulation is bad

or we should look at it, because there are 4,000 a year, that is impossible. We might look, at 20 or 30 in the course of a year.

And, then, finally, a lot of the regulations are just good business

practices and we do need them. So you have to understand what

kind of regulations you want. But, if you want to look at regulations that cost a lot of money, just look at the Federal income tax

laws. You have a lot of places for change that are very common

sense, and that is what we are saying. Let us not sit here as a

panel and say regulations are all good or bad; let us get a handle

on the process and what it really costs, and get science into the

program.

Mr. SCHROCK. I think everybody agrees with that.

I know my time is up, Mr. Chairman. I am sorry. You have been

banging for a while.

Mr. OSE. I want to followup on Mr. Kovacs’ comment. On page

3 of your testimony you make this exact point, about how do you

know which ones to emphasize if you don’t know their relative

costs and benefits.

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Mr. KOVACS. Well, you do. You really do. Because let us just take

TMDLs, which is total maximum daily loads, which is a water

standard. The agency walks in and says, look, this regulation is

going to cost $25 million a year; let us go back to Mr. Tierney, common sense. You are asking the entire country to analyze 40,000

water bodies and to come up with a statement and then come into

effect with a plan to treat it. And, so, even if you took it at $1 million a water body for the analysis for treatment and everything

else, you are at $40 billion. And, that is what one study had. GAO

had it a little over $1 billion annually; the States had it $670 million annually to about $1.2 billion annually; EPA said it is $25 million.

Mr. OSE. I didn’t state my question very well. I understand your

point about the common sense issue in that respect. What I am

more interested in is that Mr. Schrock, Mr. Tierney and I and our

colleagues, we only have X amount of resources. I am trying to figure out the way in which we take those resources and we maximize

the benefit to the country as a whole, from a cost-benefit perspective. Your testimony here is that, absent some sort of measurement, we are not going to be able to do that.

Mr. KOVACS. That is correct.

Mr. OSE. So, you would support something such as in Section 6

that allows improvements to regulatory accounting, the objective of

which is to get us to a point where we can say this impact has a

cost-benefit ratio of X; this one has a cost-benefit ratio of Y; this

one has a cost-benefit ratio of Z, and allow the policymakers up

here to decide which one should have priority? Is that your point?

Mr. KOVACS. No. I think Congress makes the law and it decides

whatever the priorities are, but when the agency is implementing

the law, they have tools at their disposal. They should always be

using the best science. They should always be using the best data.

And, from that they are going to begin to understand, and I will

make a quick point.

Ten years ago, when Bill Riley was the head of the EPA, he did

an internal study, and he asked the scientists and the public what

are the most serious risks; the public put Superfund at No. 1. He

then asked the scientists what are the most serious risk to public

health, and they would select certain aspects of air quality. If you

looked at the list, they were almost absolutely the opposite of each

other. What the public perceived and the scientists perceived as a

serious risk were completely different. What we need to begin

doing is realigning that. And, you have the tools.

You have already given the agencies the tools with data quality

and data access and sound science. It is now up to them to really

begin in a rigorous process, and that is why I suggested a pilot

study, because this is a rigorous process, this isn’t an easy thing.

We have to take these options, look at a dynamic system, look at

the true health, honestly evaluate what it is, because at the end

of the day, if the agency spends its money on the most serious public health problems, we are all going to be better off. But they have

the tools now.

Mr. OSE. Ms. Dudley, do you agree with that?

Ms. DUDLEY. Yes. Let me just add one more thing to the study

that he mentioned. I thought the most interesting thing about that

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was that our resources were being devoted to the public’s ranking

of risks, rather than what experts think is the more real ranking

of risk. And, that is your point, isn’t it, that we aren’t sending our

resources to the most effectively to activities that will produce the

greatest good. I know Alexandra Teitz and I have had a conversation, and she was shocked that I didn’t think that cost-benefit analysis was the answer to everything; and I think it is not, but I think

it does provide information that allows you to make more informed

decisions.

Mr. OSE. Dr. Belzer, do you have any input on this?

Mr. BELZER. Well, I have been practicing benefit-cost analysis for

so long, I can’t remember when it wasn’t the way that I made decisions. I chose whether to have a heart surgery based on cost-benefit

analysis.

Mr. OSE. What was the result of your study?

Mr. BELZER. I lived.

Cost-benefit analysis is nothing different than what people do in

their daily lives when they make mundane decisions; they do it intuitively. It is exactly what common sense is all about. When you

get into complicated issues with valuing very difficult commodities,

it can get technical. This is what professionals do, they try to do

the technical part and then simplify it for other people.

I should point out the common myth is that costs are easier to

estimate than benefits. All things held constant, I really don’t think

that is true, because costs, properly understood, the costs of a regulation are the benefits that one must forego in order to have the

benefits of the regulation. So really you are giving something up,

not just dollars, you are giving something up in order to get the

benefits of a regulation. What exactly are you giving up? Well, if

somebody tells you it costs $1 million or $2 million or $3 million,

I don’t really care about the dollars, what I care about is what

those dollars would have been used for; how would the public have

been served by those expenditures. Those are the things that end

up being given up. So it is harder, in principle, to estimate costs

if you try to do this correctly.

It is a mystery to me why it has become such a controversy, especially since I cut my teeth in cost-benefit analysis 30 years ago

with a rather famous book called ‘‘Damming the West.’’ It was a

book on exposing all of the flaws in cost-benefit analysis performed,

as it happens, by the Bureau of Reclamation. They were inflating

the benefits and they were low-balling the costs and they were

cheating on the different methods; they were double-counting benefits. They were doing everything wrong and it was a terrific book;

it caused me to become an economist. Now, I find it ironic that the

book was a product of the Ralph Nader study group at the time.

So, to me, the methods are the same now as they were in 1973,

and maybe the parties have changed as to who is putting their

thumbs on the scale. But the methods are the methods, and they

inform people; they help you make decisions, they don’t tell you

what you have to decide.

Mr. OSE. Mr. Tierney.

Mr. TIERNEY. I feel like I should offer somebody some rebuttal

time, but I am not sure who.

Ms. Claybrook, go ahead.

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Ms. CLAYBROOK. Well, the chairman didn’t ask me about costbenefit analysis.

Mr. OSE. Consider asked.

Mr. TIERNEY. My time just expired. I get to Dr. Belzer and I sit

here.

Ms. CLAYBROOK. Well, our concern about cost-benefit analysis is

that, different than in your daily lives, which Dr. Belzer mentions,

the value and enjoyment of clean air, for example is priceless, and

that is what Dr. Heinzerling’s book discusses. There are many

priceless elements to the benefits of regulation that are simply noncalculable, and so when you reduce it to cost and benefit analysis

in monetary terms, those are eliminated, those are ignored; they

don’t get counted.

In addition, Dr. Belzer is right, the cost issue is very complicated,

and the fact is that most of the time agencies, because they don’t

have the resources to collect the cost data, evaluate the cost data,

they just rely on what the industry claims are; and often, as I have

mentioned already, they are much less.

On the benefits side, it is very expensive to collect the benefits.

I give you one example of the agency I used to regulate, that regulates the auto industry, and that is on the national accident sampling system, which is the collection of data about harm in auto

crashes, and the fatal accident reporting system, when I was in office, the budget was $20 million, and that was 24 years ago. The

budget is now $17 million. The agency is collecting one-fifth of the

data that it used to collect because the budget has not kept up with

it, even with inflation, much less where it was 24 years ago. So the

benefit data are tremendously degraded.

How is the agency going to comply with your requirement, Mr.

Chairman, that it do a cost-benefit analysis, even if you could

change the value of a life into a dollar? It can’t. For example, the

finding of the problem with the Firestone tire was completely outside the agency’s scope, because it just didn’t have the data. The

harm to children in auto crashes is completely uncalculated by this

agency, and we all know that it is the largest killer of people between age 2 and 34 in the United States of America. But, they

can’t collect that data because it is too obscure, given the small

amount of money they have to collect such data today.

So, when you argue that there should be these calculations, even

aside from the prices element, there is no way. And, talk about

EPA. EPA has a larger budget than the National Highway Traffic

Safety Administration, but it administers a wide variety of programs. There is no way that they can collect the benefit data.

So, I just think that it is fraudulent. The reason I use that word,

because the information isn’t there. Even if Dr. Belzer and I agreed

on the adequacy of the agency’s efforts, there is no capacity to do

this. And, I think that when you say that the agency should do this

with current regulations, then you look at it 10 years hence, and

you don’t even go back and adjust the way this regulation has been

implemented, what the costs really are to the industry at that

time, what the benefits are that have come out, and you want a

regulatory accounting without any update, I just think it is an impossibility.

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Mr. TIERNEY. I am always mindful, when we talk about trying

to measure these things. The oil refinery industry used to come in

here all the time and bellyache that they just couldn’t build a single new refinery, they couldn’t get a single new permit for a 10-

year period of time because of regulations and regulations. And,

when we finally brought them in and we asked the administrator

of the EPA how many oil refinery permits had been sought in that

period of time, it was zero. We found out they hadn’t asked for one

because they found out it was cheaper for them to expand the existing ones, so they can come in and concoct more information.

And, there was a tremendous amount of information on that, too,

of the overestimate of the costs on that. And, when the requirements were actually implemented, sometimes they ended up to be

less than a single-digit percentage of what the estimates had originally been.

Mr. Verchick, is there anything you would like to add before we

close out here?

Mr. VERCHICK. Yes. I would like to say just one more thing about

the cost-benefit analysis, because I think intuitively what people

want is they want more information. They think, well, if cost-benefit analysis gives me some numbers, I would rather have the numbers, even if they are flawed, than not have the numbers.

I am against that way of thinking, and the reason is that it is

not that these numbers that you see on these tables are somehow

mistaken in a small way; they are worse than having no information, because they suggest things that clearly aren’t true. Some of

these numbers are based on a discount rate into the future of

deaths at 7 percent, some are based on 3 percent. Well, what is the

difference of discounting a saved life 30 years from now, 3 percent

or 7 percent? Well, the difference is, if you work it out, a 3 to 1

ratio. So some of these rules you are looking at are either three

times the benefit of human lives saved or a third of the benefit of

human lives saved. And, of course, there is no indication of when

what number is being used uniformly.

And, that is just one example of having information that is really

worse than not having information at all. And that is why I think

that cost-benefit analysis is wonderful things that we have market

prices for. But no other country that I am aware of is using costbenefit analysis to such a degree in the environmental area, which

leads me to think that it is something less than common sense.

Mr. OSE. Mr. Schrock.

Mr. SCHROCK. Thank you, Mr. Chairman. I am going to probably

talk about one of Ms. Claybrook’s favorite topics, and that is automobiles. By the way, in the spirit of full disclosure, my wife and

I each have an SUV, and my son is about ready to buy one. I know,

it is terrible.

Ms. CLAYBROOK. I hope it is a recent model.

Mr. SCHROCK. Brand new.

Ms. CLAYBROOK. Brand new? Oh, that is a little bit better.

Mr. SCHROCK. But, in full disclosure, I wanted to tell you that.

You know, you talked about 40,000 highway deaths, and Dr.

Belzer was talking about something about the west, what was it?

Ms. CLAYBROOK. Reclamation, Bureau of Reclamation.

Mr. SCHROCK. No, no, no, some book title.

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Mr. BELZER. Oh, it is called ‘‘Damming the West.’’

Mr. SCHROCK. Oh, ‘‘Damming the West.’’ Speaking of damning

the west and 40,000 highway deaths, I just came back from California, where I spent 10 days, most of it on the 405, and I can tell

you where a lot of those 40,000 deaths are going to come from, just

because of the way they drive. It is not the way the car is built,

it is just the way people drive out there and other places.

But in her written statement to this committee in a previous

year, Ms. Dudley said, ‘‘Studies reveal that a reallocation of current

spending from lower risk to higher risk problems could greatly increase the lifesaving benefits of regulations designed to reduce

health and safety risks and achieve other social goals.’’ Question to

Ms. Claybrook: ‘‘If these studies are correct in whole or in part,

isn’t regulatory accounting essential to better protect public health

and safety? If we don’t know the costs or benefits of a regulation,

how do we know if we are truly protecting the public and saving

lives?’’

And that was a roundabout way to get there, but that was a

question.

Ms. CLAYBROOK. Well, first of all, I would just like to comment

that no matter how people drive, they also do crash, or someone

crashes into you. And, so, there was a wonderful analytical piece

of work that was done in 1966 by the first administrator of the National Highway Traffic Safety Administration, and he divided that

one-twenty-fifth of a second crash into three parts: what caused the

crash, what causes the injury, and the after treatment. And all of

those are relevant to whether you live.

And, so, the problem with SUVs is that even if you don’t roll

over, but someone else crashes into you, there is a possibility that

because the roof crushes in and the belts don’t cinch up and then

you roll over, that you are going to die anyway, even if you are the

best driver in the world.

I just wanted to make that statement for the record.

Mr. SCHROCK. But it could be the same way with sedans as well?

Ms. CLAYBROOK. Yes, but they don’t roll over as frequently. And,

the problem with the SUV is it has this greenhouse roof, and so,

it sticks up more than the roof, and so if you roll, when you roll

in a car it rolls without smashing the roof as much; whereas, if you

are in an SUV, the roof smashes in more, and you are tall, and

your head is going to be smashed. So, I just would point that out.

Mr. SCHROCK. OK, but I am probably as bad a driver as anybody,

and I have had no problem with my SUV.

Ms. CLAYBROOK. OK. Well, that was just a little comment on

auto safety injury prevention.

Mr. SCHROCK. I understand.

Ms. CLAYBROOK. Would you repeat your question?

Mr. SCHROCK. OK. We talked about Ms. Dudley’s statement

when she was here in a previous year, and if those studies are correct in whole or in part, isn’t regulatory accounting essential to better protect public safety and health? And, if we don’t know the cost

or benefits of a regulation, how do we know if we are truly protecting the public and saving lives?

Ms. CLAYBROOK. Well, at the National Highway Traffic Safety

Administration, the agency I am most familiar with in that regard,

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there are regulatory evaluations done all the time to look at whether or not the estimates that the agency made for lives saved are

in fact being saved; and in some instances they say it is more, in

some instances it is less, and in some instances it is about the

same. So, there is an evaluation done of the actual lives saved

based on the data that the agency has. As I have said, part of the

problem is that most of these agencies aren’t funded sufficiently to

get the data, and so, if you want to really have that, I would urge

this agency to go to the Appropriations Committee and ask them

to please increase the capacity of these agencies to do this work.

I don’t say that data are not important. I think data are important. They are important. And, it is important for the public to be

able to evaluate them and to look at them and to consider them.

But when you talk about regulatory accounting, which takes costsbenefits and it monetized benefits that are non-monetizable, and

then you take it to the next step, now, that is fine when you are

making a decision as a regulator, to look at the numbers and then

to make an evaluation and to make a decision. And, people can

argue with you about it and, as you know, the standard for the

courts is whether or not it is an abuse of discretion or whether it

is substantial evidence on which you based your decision; and, that

is, in our society, the way we evaluate what a regulator does in the

courts. And, we delegate that authority to the agencies to do that,

and we can argue with them, and we have public comment and all

the rest.

To take it to the next step and say it can only be in monetized

numbers, and then we are going to do a regulatory accounting and

evaluate what is most important or not important then, loses the

value of the human judgment; and I don’t think you would want

to do that for yourself, and I certainly don’t want to do that for myself or for the public, because the value that we are able to express

in terms of do we try and prevent death or injury or environmental

health is as important in many ways as the costs and benefits as

it is monetized. So you don’t want to take the human decisionmaker out. If we did that, we could just do it on a calculator and

just have a calculator make all these decisions.

Mr. SCHROCK. Mr. Chairman, I know my time is up, but since

I quoted Ms. Dudley, I would like to ask her if she would like to

comment. If not, that is fine.

Ms. DUDLEY. Yes, just briefly. I agree that, when we do big costbenefit analyses of rules that affect everyone in the Nation, we are

losing some of the value of human judgment. But, what I am concerned about is that we are losing the value of the judgment of the

people who are going to be affected by the rule. So, for example,

with seatbelts, I am forced now to put my child in the back seat

because there is an air bag in the front seat. I would rather buckle

my child than have that air bag.

So, while we agree on some of the problems with cost-benefit

analysis, I think the real problem is that we are not allowing

enough human judgment, enough choice by individuals in the country. And that doesn’t question the value of regulatory accounting,

but it expands this notion of cost-benefit analysis and human judgment.

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Ms. CLAYBROOK. But when your husband is in the front seat, you

would want the air bag for him, I take it.

Ms. DUDLEY. No, because he buckles a seatbelt. We buckle our

seatbelts.

Ms. CLAYBROOK. I know, but that is not enough, because you are

going to have head injuries.

Ms. DUDLEY. No, but, see, that is it; I should make that decision

rather than you. That is my point, that is a decision I think that

individuals can make. And, that is a lot of what regulation does,

it restricts individuals.

Mr. TIERNEY. So you do or you do not like your husband?

Ms. DUDLEY. I love my husband.

Mr. OSE. Keep in mind you are sworn.

Ms. DUDLEY. And, he is not even here.

Mr. OSE. Well, I want to thank our witnesses for joining us

today. As with the first panel, we will leave the record open for 10

days to undoubtedly followup with some of you with written questions. And, to the extent that you could have timely response, that

would certainly be appreciated.

Dr. Belzer, good luck.

Mr. BELZER. Thank you.

Mr. OSE. You have big days ahead of you.

We are adjourned.

[Whereupon, at 12:12 p.m., the subcommittee was adjourned, to

reconvene at the call of the Chair.]

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